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Na honda 09_a

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All right with Honda co. only, sheared for educational referance

All right with Honda co. only, sheared for educational referance

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  • 1. Annual Report 2009 Honda Motor Co., Ltd. Year Ended March 31, 2009
  • 2. Contents 2 The Power of Dreams 3 Summary of Operating Results by Business 6 Financial Highlights 8 To Our Shareholders18 Review of Operations Motorcycle Business Automobile Business Power Product and Other Businesses Financial Services Business36 Preparing for the Future37 Risk Factors39 Corporate Governance46 Board of Directors, Corporate Auditors and Operating Officers49 Financial Section81 Corporate Information Principal Manufacturing Facilities Honda Group Honda’s History Investor InformationReports Published by HondaCSR ReportThis report provides an overview of Honda’s position on corporate social responsibility(CSR) activities and an overview of its performance in the areas of quality and safety, theenvironment, and the society during the fiscal year ended March 31, 2009.http://world.honda.com/CSR/Driving Safety Promotion ReportThis report (available only in Japanese) summarizes Honda’s efforts to promote safe drivingand principal activities in this area in 2008.Annual ReportThis report outlines Honda’s operating performance for the fiscal year ended March 31, 2009.http://world.honda.com/investors/annualreport/Environmental ReportThis report describes Honda’s position on environmental initiatives, its environmentalperformance for the fiscal year ended March 31, 2009, and future environmental targets.http://world.honda.com/environment/ecology/2009report/Cover:Insight (right)A five-passenger, five-door dedicated hybrid vehicle, all-new Insight has been very wellreceived by a wide range of customers due to an affordable price with exceptional fueleconomy, fun-to-drive performance and efficient versatile packaging and featuring theEcological Drive Assist System (Eco Assist) that can further enhance efficient vehicleoperation while providing feedback related to individual driving styles.FCX Clarity (Center)Designed as a dedicated fuel cell vehicle, the FCX Clarity is powered by the Honda V Flowfuel cell stack. Thanks to the innovative layout of the fuel cell power plant, the FCX Clarityoffers superior design, packaging and driving performance. Emitting no CO2 in operation, theFCX Clarity offers not only the ultimate in environmental responsibility but also real worldperformance and appeal.CR-Z (left)The compact sports concept of a lightweight hybrid sports car that demonstrates theflexibility of the unique Honda IMA hybrid system and features advanced technologies thatdeliver enjoyable driving for all while offering superior environmental performance.
  • 3. Corporate Profile Honda Motor Co., Ltd., operates under the basic principles of “Respect for the Individual” and “The Three Joys”—expressed as “The Joy of Buying,” “The Joy of Selling”, and “The Joy of Creating.” “Respect for the Individual” reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, “The Three Joys” express our belief and desire that each person working in or coming into contact with our company, directly or through our products, should share a sense of joy through that experience. In line with these basic principles, since its establishment in 1948, Honda has remained on the leading edge by creating new value and providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. In addition, the Company has conducted its activities with a commitment to protecting the environment and enhancing safety in a mobile society. The Company has grown to become the world’s largest motorcycle manufacturer and one of the leading automakers. With a global network of 396* subsidiaries and 105* affiliates accounted for under the equity method, Honda develops, manufactures, and markets a wide variety of products, ranging from small general- purpose engines and scooters to specialty sports cars, to earn the Company an outstanding reputation from customers worldwide. *As of March 31, 2009Caution with Respect to Forward-Looking StatementsThis annual report contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. Such statements are based on management’s assumptions and beliefs, taking into account information currently available to it. Therefore, pleasebe advised that Honda’s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors, including generaleconomic conditions in Honda’s principal markets; foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro, and other major currencies; andextensive environmental and other governmental regulations, as well as other factors detailed from time to time. Annual Report 2009 1
  • 4. The Power of Dreams Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research & development centers, and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues.2 Annual Report 2009
  • 5. 15Summary of Operating Results by Business Percentage of Net Sales by BusinessMotorcycle Business 14.1%Automobile Business 76.7%Power Product and Other Businesses 3.4%Financial Services Business 5.8% Annual Report 2009 3
  • 6. Brazil50 500 0 05 06 07 08 09 Net Sales/Operating Yen (billions) Income (Loss) Yen (billions) Unit Sales by Region (Thousands) 1,600 Yen (billions) March 31 Years ended 160 Yen (billions) Years ended March 31 1,411 1,600 Sales Net Yen (billions) (left scale) Income 160 Operating Yen (billions) scale) (right 2007 2008 7,5232009 1,411 1,600 1,200 Yen (billions) 160 120 Yen (billions) 7,523 1,411 99 1,600 1,200 160 120 7,523 1,411 99 1,200 800 120 80 1,200 800 120 80 99 800 80 99 400 40 1,763 800 400 80 40 1,763 232 320 276 400 0 40 0 1,763 05 06 07 08 09 Japan 232 320 Europe North 276 Asia Other 400 0 40 0 America Regions CZ-i 110 05 06 07 08 09 Japan 320 Europe 232 North 276 Asia Other 0 0 America Regions 05 06 07 08 09Yen (billions) Japan North Europe Asia Other Yen (billions) 0 0 America Regions 10,000 05 Yen (billions) 06 07 08 1,000 09Yen (billions) 10,000 Yen (billions) 1,000 Yen (billions) 7,674 10,000 7,500 Yen (billions) 1,000 750 Yen (billions) 7,674 1,496 10,000 7,500 1,000 750 7,674 1,496 7,500 5,000 750 500 7,674 1,496 7,500 5,000 750 500 793 5,000 2,500 500 250 556 793 556 350 322 5,000 2,500 500 250 793 24 Insight 556 350 322 2,500 0 250 0 24 05 06 07 08 09 Japan North 350 Europe Asia Other 322 2,500 0 250 0 24America Regions 05 06 07 08 09 Japan North Europe Asia Other 0 0 24America Regions 05 06 07 08 09Yen (billions) Japan North Europe Asia Other Yen (billions) 0 0 America Regions Yen400 05 (billions) 06 07 08 80 09Yen (billions) Yen400 (billions) 80 Yen (billions) 300 60 Yen400 (billions) 80 Yen (billions) 343 300 60 400 80 200 40 343 300 60 200 40 343 300 60 1,893 100 20 200 40 343 -15 1,893 1,306 100 20 200 40 970 0 0 -15 1,893 1,306 100 20 516 970 502 0 0 -15 1,306 Pianta FV200 100 20 516 502 -100 -20 970 0 0 05 06 07 08 09 Japan -15 North Europe Asia Other -100 -20 516 America 502 Regions 0 0 Japan North Europe Asia Other 05 06 07 08 09 -100 -20 America Regions 05 06 07 08 09Yen (billions) Japan North Europe Asia Other Yen (billions) -100 -20 America Regions Location 582 Yen600 05 (billions) 06 07 08 200 09Yen (billions) 582 Yen600 (billions) 200 Yen (billions) 582 Yen600 450 (billions) 200 150 Yen (billions) Germany Canada 600 450 200 150 582 U.K. Germany Canada 450 300 150 100 U.K. U.S.A. 80 Germany Japan Canada Thailand 450 300 150 100 U.K. U.S.A. 80 Japan Thailand 300 150 100 50 U.S.A. Brazil 80 Japan Thailand 300 150 100 50 Brazil 80 150 0 50 0 Brazil 150 05 06 07 08 09 50 0 0 05 06 07 08 09 0 0 05 06 07 08 09 0 0 05 06 07 08 09 Net Sales (left scale) Operating Income (right scale)
  • 7. Summary of Operating Results by BusinessMotorcycle BusinessAutomobile BusinessPower Product and Other BusinessesFinancial Services Business
  • 8. Financial HighlightsFinancial DataHonda Motor Co., Ltd., and SubsidiariesYears ended March 31 Yen U.S. dollars (millions except per share data) (millions except per share data) 2007 2008 2009 2009Net sales and other operating revenue ¥11,087,140 ¥12,002,834 ¥10,011,241 $101,916Operating income 851,879 953,109 189,643 1,931Income before income taxes, minority interest and 792,868 895,841 161,734 1,646equity in income of affiliatesEquity in income of affiliates 103,417 118,942 99,034 1,008Net income 592,322 600,039 137,005 1,395Cash dividends paid during the period 140,482 152,590 139,724 1,422Research and development 551,847 587,959 563,197 5,733Total assets 12,036,500 12,615,543 11,818,917 120,319Stockholders’ equity 4,488,825 4,550,479 4,007,288 40,795Capital expenditures 627,066 654,030 633,913 6,453(excluding purchase of operating lease assets)Depreciation 361,747 417,393 441,868 4,498(excluding property on operating leases)Per share data Net income ¥ 324.62 ¥ 330.54 ¥ 75.50 $ 0.77 Dividends paid 77 84 77 0.78 Stockholders’ equity 2,463.69 2,507.79 2,208.35 22.48Note: The consolidated financial statements as of and for the year ended March 31, 2009, have been translated into U.S. dollars at the rate of ¥98.23=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2009. Those U.S. dollar amounts presented in the consolidated financial statements and related notes are included solely for the reader. This translation should not be construed as a representation that all the amounts shown could be converted into U.S. dollars.Net Sales and Other Operating Revenue Operating Income and Operating Margin Equity in Income of Affiliates 12,000 1,000 10.0 120 10,000 100 750 7.5 8,000 80 6,000 500 5.0 60 4,000 40 250 2.5 2,000 20 0 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Operating Income (left scale) Operating Margin (right scale)Net Income and Return on Equity (ROE) Total Assets, Stockholders’ Equity, and Capital Expenditures and Depreciation Stockholders’ Equity per Common Share (Excluding Property on Operating Leases) 600 20.0 12,500 2,500 600 10,000 2,000 450 15.0 400 7,500 1,500 300 10.0 5,000 1,000 200 150 5.0 2,500 500 0 0 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Net Income (left scale) Total Assets (left scale) Capital Expenditures ROE (right scale) Stockholders’ Equity (left scale) Depreciation Stockholders’ Equity per Common Share (right scale)6 Annual Report 2009
  • 9. Operating DataYears ended March 31Unit Sales Motorcycles Automobiles Power ProductsBreakdown(Thousands) 2008 2009 Change 2008 2009 Change 2008 2009 ChangeJapan 311 232 (25.4) % 615 556 (9.6)% 550 516 (6.2) %North America 453 320 (29.4) 1,850 1,496 (19.1) 2,415 1,893 (21.6)Europe 313 276 (11.8) 391 350 (10.5) 1,693 1,306 (22.9)Asia 6,633 7,523 13.4 755 793 5.0 915 970 6.0Other Regions 1,610 1,763 9.5 314 322 2.5 484 502 3.7Total 9,320 10,114 8.5 % 3,925 3,517 (10.4)% 6,057 5,187 (14.4) % Power Product and OtherNet Sales Motorcycle Business Automobile Business Financial Services Business BusinessesBreakdownYen (millions) 2008 2009 Change 2008 2009 Change 2008 2009 Change 2008 2009 ChangeJapan ¥ 93,592 ¥ 81,822 (12.6) % ¥1,321,005 ¥1,225,384 (7.2) % ¥ 23,405 ¥ 24,083 2.9 % ¥147,775 ¥115,252 (22.0)%North America 265,609 182,284 (31.4) 5,209,446 3,723,877 (28.5) 483,925 527,905 9.1 109,445 80,124 (26.8)Europe 226,687 178,621 (21.2) 1,182,666 923,580 (21.9) 13,234 12,685 (4.1) 96,847 71,126 (26.6)Asia 484,418 460,412 (5.0) 1,048,463 1,079,585 3.0 4,936 4,736 (4.1) 39,449 50,739 28.6Other Regions 488,390 508,372 4.1 727,811 721,978 (0.8) 8,053 12,852 59.6 27,678 25,824 (6.7)Total ¥1,558,696 ¥1,411,511 (9.4) % ¥9,489,391 ¥7,674,404 (19.1) % ¥533,553 ¥582,261 9.1 % ¥421,194 ¥343,065 (18.5)%Unit SalesMotorcycles Automobiles Power Products (Thousands) (Thousands) (Thousands) 12,000 4,000 8,000 10,000 3,000 6,000 8,000 6,000 2,000 4,000 4,000 1,000 2,000 2,000 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other RegionsNet SalesMotorcycle Business Automobile Business Financial Services Business Power Product and Other Businesses 2,000 10,000 600 500 500 8,000 400 1,500 400 6,000 300 1,000 300 4,000 200 200 500 2,000 100 100 0 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other Regions Annual Report 2009 7
  • 10. To Our Shareholders Takanobu Ito President & Chief Executive Officer8 Annual Report 2009
  • 11. We would like to express our gratitude to you, our shareholders, for yourongoing support. We would also like to thank the many people who havesupported Honda’s long-term growth, including, first and foremost, ourcustomers as well as our business partners and the societies around theworld where we are privileged to do business.Business EnvironmentConcerning the economic environment surrounding Honda during the fiscalyear ended March 31, 2009, crude oil and raw material prices significantlyincreased worldwide in the first half, followed by declines in the second half.Although the economies in the United States and Europe continued to grow inthe first half, they began to deteriorate in the second half, triggered by thefinancial crisis, creating a downward spiral leading to concern of even furtherdeterioration of the real economy. In Asia, although the economies of Chinaand India continued to expand, the pace of growth slowed, and certaincountries in the region went into recession. Japan showed signs of a rapiddeterioration in economic conditions, such as decreased consumer spendingand a decline in capital expenditures. Under these business conditions, Honda’s consolidated revenue for the fiscalyear ended March 31, 2009 amounted to ¥10,011.2 billion, a decrease fromthe previous fiscal year, primarily due to decreased unit sales in automobilebusiness and negative currency translation effects. Net income declined to¥137.0 billion, and net income per common share decreased, to ¥75.50. Annual Report 2009 9
  • 12. To Our Shareholders Motorcycle Business Total unit sales of motorcycles rose, despite substantially lower sales in Japan, North America, Europe and certain other areas due to deteriorating economic conditions, as unit sales expanded in Asia and other regions including South America. In Asia, where market growth is continuing, sales expanded steadily as Honda strengthened its lineup, introduced models equipped with automatic transmissions, which are very popular in urban areas, and implemented other measures. In Other Regions, which includes South America, sales of 125cc and 150cc motorcycles were strong in Brazil. On the other hand, in Japan, amid a difficult operating environment, sales of 50cc scooters declined, and, in North America, sales of off-road and all-terrain vehicles (ATVs) decreased from the previous year. Automobile Business Although unit sales increased in Asia and Other Regions which includes Brazil, total worldwide sales were below the level of the previous fiscal year because of declines in North America, Japan, and certain other markets. In North America, the introductions of the all-new Pilot, Acura TSX, Acura TL and other models had a positive effect, but, as a result of the deterioration in the real economy triggered by the financial crisis, total unit sales declined. Also, in Europe, although demand increased in Russia and Eastern Europe, overall sales decreased because of lower unit sales in Western European markets, including the United Kingdom and Germany, as a result of the deterioration in economic conditions. In Japan, although the introduction of the new FREED,10 Annual Report 2009
  • 13. Odyssey, and Life models had a positive effect, unit sales declined because ofthe impact of the decline in consumer confidence accompanying the downturnin the economy. In Asia outside Japan, sales expanded as a result of thelaunch of the new City model as the trend toward driving smaller carsaccelerated along with the rise in fuel prices and other factors. Also, in OtherRegions, unit sales rose over the previous year as a result of the introduction ofthe new Fit model in South America and other factors.Power Product and Other BusinessesTotal unit sales of power products decreased from the level of the previousfiscal year, despite increases in sales of engines for OEM use in construction inAsia and Other Regions. This decline was a result of lower sales of engines forOEM use in construction machinery, high-pressure washing equipment, andlawn mowers in North America, a decrease in sales of engines for OEM use inconstruction machinery and generators in Europe, and other factors. Amid this environment, the Honda Group worked to strengthen its operatingand financial positions to enable it to respond quickly and accurately tochanges in the diverse needs of customers and society as a whole. On theother hand, to concentrate its limited corporate resources in business domainswhere they are necessary in the midst of rapidly changing economicconditions, Honda reviewed its investment and development plans anddecided to implement a number of measures. We request the understanding ofall interested parties regarding these decisions. Annual Report 2009 11
  • 14. To Our Shareholders Initiatives Going Forward Because of the sudden changes in the operating environment, Honda has made changes in some of its scheduled plans. However, we have not made any changes in our policy of emphasizing responsiveness to environmental and energy-related issues. We are, therefore, continuing to pursue the challenges of developing new products that will delight our customers and the creation and introduction of new technologies. Advancement of Advanced Environmental Technologies Honda was one of the first companies to position a reduction in CO2 emissions as a major issue linked to environmental preservation on a global scale. We are moving ahead with initiatives to attain the goals we have set for ourselves for reducing CO2 emissions by 2010 in all of our products and manufacturing activities worldwide. There are many methods for reducing CO2 emissions, but in the automobile business, we believe that advancing hybrid car technology will be the most realistic and beneficial of various alternatives. In our new Insight hybrid car, which we introduced in February 2009, our originally developed IMA (integrated motor assist) hybrid system incorporated in the vehicle is designed for use in small cars and is light and compact and features superior fuel economy. As a result of the development of a new platform, the Insight realizes the goals of offering both high performance as a hybrid car and substantial cost reductions necessary for a vehicle that will appeal to a wider market. We plan to strengthen our lineup of models with an eye to also offering mid - and large- sized hybrid automobiles. In the field of motorcycles for traveling relatively short distances, we are proceeding with the development of an electric-powered motorcycle that will run on batteries, and, taking advantage of special features of this power source, will have zero CO2 emissions. Our goal is to introduce these electric- powered motorcycles in about two years.12 Annual Report 2009
  • 15. Annual Report 2009 13
  • 16. To Our Shareholders14 Annual Report 2009
  • 17. Further Advancement of Motorcycle BusinessThe motorcycle business has performed solidly, even in the midst of the severeeconomic environment following the global financial crisis. Historically speaking,motorcycles have been strong in challenging times, and they have been apropelling force for Honda’s growth and expansion and one of its majorstrengths. Especially in Asia, South America and certain other regions,motorcycles are essential for meeting daily transportation needs, and they areexpected to show solid growth in the long term. We are working to increaseour capabilities to respond flexibly to changes in the business environment byfurther strengthening our motorcycle business. Honda offers many modelsranging from commuter models that provide daily transportation needs tolarge-scale models that meet individual rider tastes and preferences. Amongthese, the Super Cub C100 is a regular part of riders’ daily lives in a total of160 countries. Sales of the Cub series had reached a cumulative worldwidetotal of 60 million motorcycles by the end of April 2008, and the Super Cub hasbecome the model that symbolizes Honda. Going forward, we will offer models worthy of the Honda brand that,following in the Super Cub tradition, will enable us to create new categoriesand new markets.Advancement of Honda’s Global Flexible Production System and CapabilitiesDuring the first half of the first decade of the 21st century, Honda introduced aproduction system that could respond flexibly to demand for a diverse range ofmodels. Following that, Honda expanded its overseas production bases tocreate a global, mutually complementary production system. Last year, in NorthAmerica, we began operations at our Indiana plant in the United States and atour new engine plant in Canada. Also, in Asia, we began production at asecond automobile plant in Thailand. Our goal is to focus on creating a “mature, flexible production system” thatwill provide us with advanced flexibility to respond nimbly, first to fluctuations inthe economy and then to other changes and developments in the operatingenvironment. In addition to offering even higher-quality, more-attractiveproducts to our customers around the world in the years ahead, we will beworking to innovate with technologies and production systems that maintainour high standards of craftsmanship. Annual Report 2009 15
  • 18. To Our Shareholders Returning Profit to Shareholders Honda strives to conduct its business from a global perspective and to increase its corporate value. We consider the allocation of profits to shareholders to be one of our most important management responsibilities. Our basic policy for dividends is to make distributions after taking into account our long-term consolidated earnings performance. Honda also acquires its own shares with optimal timing with the goal of improving the efficiency of its capital structure. For fiscal 2009, Honda set a year-end cash dividend of ¥8 per share, bringing total cash dividends for the fiscal year to ¥63 per share. This dividend comprised ¥22 per share for the first quarter, ¥22 per share for the second quarter, ¥11 per share for the third quarter, and the previously mentioned year- end dividend of ¥8 per share. For the fiscal year ending March 31, 2010, we plan to pay quarterly dividends of ¥8 per share, or ¥32 per share for the full year. We will continue to do our utmost to meet the expectations of our shareholders. Honda is a company where each and every member of management and the organization sets challenging objectives, works to realize the dream of providing joy to Honda customers as well as realizing his or her potential, and, while setting a course for a better tomorrow, wants to help shape the future through innovation and growth. Our overriding desire is to be a company that society wants to exist. In the years to come, as in years past, we will continue to meet the challenges of innovation and creativity and, motivated by “The Power of Dreams,” respond to the expectations of society, giving our customers enjoyment, inspiration, and satisfaction.16 Annual Report 2009
  • 19. We look forward to the continued understanding andsupport of our shareholders and other investors for the long term.June 23, 2009Takanobu ItoPresident & Chief Executive Officer 17
  • 20. Thousands Years ended March 31 12,000Review of Operations 8,000 4,000 0 05 06 07 08 09 Motorcycle Business Thousands Years ended March 31 4,000 3,000 2,000 1,000 Years ended March 31 Unit Sales Thousands 2008 2009 % change 0 Japan 311 06 05 07 08 09 232 (25.4) % North America 453 320 (29.4) Europe 313 276 (11.8) Thousands Years ended March 31 Asia 8,000 6,633 7,523 13.4 Other Regions 1,610 1,763 9.5 Total 6,000 9,320 10,114 8.5 % Net Sales Yen (millions) 2008 2009 % change Japan 4,000 93,592 ¥ ¥ 81,822 (12.6) % North America 265,609 182,284 (31.4) Europe 226,687 2,000 178,621 (21.2) Asia 484,418 460,412 (5.0) Other Regions 488,390 0 508,372 4.1 Total ¥1,558,696 06 05 07 08 09 ¥1,411,511 (9.4) % Yen (billions) Years ended March 31 600 Percentage of Net Sales by Business Unit Sales Net Sales 14.1% Thousands 450 Years ended March 31 Yen (billions) Years ended March 31 12,000 2,000 300 1,500 8,000 150 1,000 4,000 0 05 06 07 08 09 500 0 0 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other Regions Thousands Years ended March 31 Yen (billions) Years ended March 3118 Annual Report 2009 4,000 10,000 3,000 7,500
  • 21. Honda’s unit sales of motorcycles, all-terrain vehicles (ATVs), and personal watercraft(PWC) totaled 10,114 thousand units, increased by 8.5% from the previous fiscal year.Unit sales in Japan totaled 232 thousand units, decreased by 25.4%. Overseas unitsales totaled 9,882 thousand units, increased by 9.7%, due mainly to an increase in unitsales of parts for local production at affiliates accounted for under the equity method inAsia and an increase in unit sales in Other Regions including Brazil. Revenue fromexternal customers decreased ¥147.1 billion, or 9.4%, to ¥1,411.5 billion from theprevious fiscal year, due mainly to negative foreign currency translation effects, whichwas partially offset by increased overseas unit sales. Honda estimates that, had theexchange rate remained unchanged from the previous year, net sales for the year wouldhave increased by approximately ¥18.5 billion, or 1.2%. Operating income decreased¥51.3 billion, or 34.0%, to ¥99.9 billion from the previous fiscal year, due mainly toincreased raw material costs, the negative foreign currency effects, and increasedSG&A expenses, despite the change in sales price and decreased R&D expenses. Annual Report 2009 19
  • 22. Review of Operations Motorcycle Business JAPAN Total industry demand for motorcycles in Japan in fiscal 2009 was approximately 550 thousand units*, about 21% lower than in the previous year. Although sales of motorcycles in the 51cc–125cc class were strong, this decrease in demand was due mainly to restrictions on emissions of motorcycles, such demographic factors as the decline in the number of younger people, the decline in the number of people who acquire motorcycle driving licenses and the shortage of motorcycle parking spaces in city areas. Amid these difficult operating conditions, Honda strengthened its lineup by launching the CB223S, a road sports model in April 2008, and an all-new 50cc Monkey leisure model for the first time in 30 years in February 2009 and newly in- troducing the VTR, a naked road sports model in March 2009. In addition, in July 2008, Honda launched the all-new CBR1000RR and the CBR1000RR-ABS, equipped with electronically controlled “Combined ABS” for super sports models. In fiscal 2009, although sales of new models and the Lead 110 scooter were strong, Honda’s sales in all categories were lackluster because of more-intense market competition and other factors. As a result, Honda’s total sales for the year were down 25.4%, to 232,000 units. In production activities, based on its concept of a “people-friendly and envi- ronmentally-responsible plant,” Honda introduced its latest cutting-edge, highly efficient manufacturing technologies. Also, Honda began production at its new Kumamoto Factory in April 2008, which will be the leader plant for worldwide motorcycle production. * Source: Japan Automobile Manufacturers Association (JAMA) NORTH AMERICA Total demand for motorcycles and all-terrain vehicles (ATVs) in the United States* during calendar 2008 declined 16% from the previous year, to approximately 1.33 million units. Although demand for mid-size motorcycles and scooters appears to have increased because of the increase in gasoline prices during the first half of the year, spending on recreational products shrank along with the emergence of the subprime loan issue, and market conditions deteriorated sharply following the financial crisis in September. VTR (Japan) CB223S (Japan) A naked road sports model, the VTR has undergone a full A light road sports model with simple, basic styling model change and become a higher eco-performance bike with a sporty design.20 Annual Report 2009
  • 23. Amid this business environment, in August 2008, Honda entered a new mar-ket segment with the introduction of the multi-utility vehicle Big Red, which issuited for both utility and leisure. In September 2008, Honda also introduced afull model change for the CRF450R motocross motorcycle and the FourTraxRancher AT-utility ATV. Unit sales in North America declined 29.4% compared with the previous fiscalyear, to 320,000 units. In the motorcycle category, although sales of the Shadowcruiser model, the Ruckus scooter, and the Metropolitan scooter increased, sales New production facility in Kumamoto Factoryof off-road and sports motorcycles decreased. As a result, Honda’s motorcyclesales in North America fell 22.3%, to 188,000 units. In the ATV category, unitsales declined 37.4%, to 132,000 units. Unit sales of both sport ATVs and utilityATVs for work use declined. * Source: MIC (Motorcycle Industry Council)EUROPETotal demand for motorcycles in Europe*1 during calendar 2008 declined 6%from the previous year, to about 1.25 million units as a result of the economicdownturn, particularly deterioration in consumer sentiment following the financialcrisis in September. Amid this business operating environment, Honda introduced the CB1000R Cell assembly line in the Kumamoto Factorynaked type sports bike offering a powerful and dynamic performance in May2008 and launched the new model CBF125 naked type sports bike offering su-perior maneuverability at an attractive price near the end of 2008. In fiscal 2009, although unit sales of the 110cc LEAD scooter, the XL700V, du-al-purpose sports model and the CB1000R new sports bike were strong, unitsales of super sports models, small motorcycles, larger scooters, and certainother models declined. As a result, total unit sales in Europe were down 11.8%,to 276,000 units.*1: The motorcycle registration market includes 10 countries: the United Kingdom, Germany, France, Italy, Spain, Switzerland, Portugal, the Netherlands, Belgium, and Austria.FourTrax Rancher AT (North America) XL700V (Europe)Features the first dual-clutch transmission on an ATV and a A dual-purpose sports model equipped with a V-type, two-newly designed water-cooled engine cylinder engine Annual Report 2009 21
  • 24. Review of Operations Motorcycle Business ASIA Demand for motorcycles is continuing to expand in Asia, where they are an es- sential means of transportation. In calendar 2008, despite the unfavorable impact of declines in agricultural product prices in the second half of the year, total de- mand*1 for motorcycles in the principal countries of Asia rose approximately 6%, to about 37.9 million units, as a result of a strong economic performance in the first half of the year. By country, in India, sales were about 7.4 million units, approximately the same as in the previous year. Unit sales were driven by a variety of factors, in- cluding the favorable impact of lower excise duties, which contributed to expan- sion in demand for motorcycles, and weak consumer confidence because of the deterioration of economic conditions from the latter half of the year. In Indonesia, sales for the year were up 33%, to about 6.5 million units, boosted by increases in the farm household income and despite the tightening of credit criteria from the latter half of the year onward. Sales in Thailand rose 7%, to about 1.7 million units, supported by favorable economic growth in the first half of the year, despite declines in agricultural product prices in the latter half. Amid these business conditions, in Thailand, Honda launched its CZ–i 110 family-sport model which offers a highly eco-friendly performance and low fuel consumption and the Click–i, equipped with an automatic transmission and PGM-FI (electronic fuel injection) in July 2008. In addition, the Wave 110– i 110cc bike equipped with a new model engine was launched in January 2009. The Wave series of motorcycles are a key lineup in Asia, with annual sales of about 2.6 million units, in seven countries, mainly in the ASEAN region. Following the introduction in Thailand, Honda plans to introduce this Wave series lineup to the rest of the ASEAN region. In Vietnam, Honda introduced the Wave RSX in April 2008. In India, Honda Motorcycle and Scooter India Private Limited, Honda’s wholly owned subsidiary, introduced the CBF Stunner 125cc motorcycle in June 2008 and the Activa scooter, powered by a new 110cc engine offering improved fuel economy in March 2009. CZ-i 110 (Thailand) CBF Stunner (India) With a newly developed 110cc FI engine, the CZ-i 110 offers With an appearance and equipment that are in a higher class, an 18% improvement in fuel economy and a 25% increase in the CBF Stunner emphasizes style and drive feel. power.22 Annual Report 2009
  • 25. In addition, in Indonesia, P.T. Astra Honda Motor, a company accounted forunder the equity method, launched the BeAT with an automatic transmission inJune 2008 and the BLADE in December. Honda’s unit sales in Asia*2 for fiscal 2009 rose 13.4%, to 7,523,000 units,due mainly to the favorable sales of the all-new CBF Stunner in India and the AirBlade, 110cc scooter in Vietnam. In production activities, in India, Hero Honda Motors Ltd., a company ac-counted for under the equity method, began operations at its third factory in April Second motorcycle plant in Vietnam2008, thus bringing that company’s total annual production capacity in India to6.15 million units together with the capacity of Honda Motorcycle and ScooterIndia Private Limited. In Vietnam, Honda began the production of scootersand 125cc Cub scooters at its second plant in that country, and brought Honda’stotal annual production capacity in Vietnam to 1.5 million units.*1: The motorcycle registration market includes eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, India, Pakistan and China.*2: This total includes sales of completed products of Honda and its consolidated subsidiaries and unit sales of parts to Honda’s affiliate companies accounted for under the equity methods for use in local production by such companies.OTHER REGIONSIn Brazil, the principal market within Other Regions, total demand in calendar2008 increased to approximately 1.91 million units, due to favorable economicgrowth in the first half of the year. Unit sales in Other Regions (South America, theMiddle & Near East, Africa and Oceania) consolidated unit sales rose 9.5% overthe previous fiscal year, to 1,763,000 units, due mainly to strong sales of newmodels such as the CG125 FAN and CG150 TITAN, in Brazil. Also in Brazil, Honda launched its CG150 TITAN MIX small motorcycle,equipped with its Mix Fuel Injection System in March 2009, which enables flexiblemixture of bio-ethanol and gasoline fuels. This technology helps to reduce CO2emissions and contributes to reduction in the burden of fuel costs.Activa (India) BeAT (Indonesia) CG150 TITAN MIX (Brazil)This is the first full model change for the Activa, a bike that has Offers compactness, advanced design, good fuel economy, A compact motorcycle equipped with Honda’s original flexiblecome to be admired and is in wide use. and a pleasant ride fuels technology Annual Report 2009 23
  • 26. Thousands Years ended March 31 12,000Review of Operations 8,000 4,000 0 05 06 07 08 09 Automobile Business Thousands Years ended March 31 4,000 3,000 2,000 1,000 Years ended March 31 Unit Sales Thousands 2008 2009 % change 0 Japan 615 06 05 07 08 09 556 (9.6) % North America 1,850 1,496 (19.1) Europe 391 350 (10.5) Thousands Years ended March 31 Asia 8,000 755 793 5.0 Other Regions 314 322 2.5 Total Thousands 6,000 3,925 Years ended March 31 3,517(billions) Yen (10.4) % March 31 Years ended 12,000 2,000 Net Sales Yen (millions) 2008 2009 % change Japan ¥1,321,005 4,000 ¥1,225,384 (7.2) % 1,500 North America 5,209,446 3,723,877 (28.5) 8,000 Europe 1,182,666 2,000 923,580 (21.9) Asia 1,048,463 1,000 1,079,585 3.0 Other Regions 4,000 727,811 0 721,978 (0.8) Total ¥9,489,391 06 05 07 08 09 ¥7,674,404 500 (19.1) % 3 月31 日に終了した各年度 0 Yen (billions) Years ended March 31 0 05 60006 07 08 09 05 06 07 08 09 Percentage of Net Sales by Business Unit Sales Net Sales Thousands 450 Years ended March 31 Yen (billions) Years ended March 31 4,000 10,000 300 3,000 7,500 150 2,000 5,000 76.7% 1,000 0 05 06 07 08 09 2,500 0 0 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other Regions Thousands Years ended March 31 Yen (billions) Years ended March 3124 Annual Report 2009 8,000 500 400 6,000
  • 27. Honda’s unit sales of automobiles totaled 3,517 thousand units, decreased by 10.4%from the previous fiscal year. Unit sales in Japan totaled 556 thousand units, decreasedby 9.6%. Overseas unit sales totaled 2,961 thousand units, decreased by 10.5%, duemainly to a decrease in unit sales in North America, which was offset in part by anincrease in unit sales in Asia and Other Regions including Brazil. Revenue from external customers decreased ¥1,814.9 billion, or 19.1%, to ¥7,674.4billion from the previous fiscal year, due to the negative foreign currency translationeffects and lower unit sales. Honda estimates that, had the exchange rate remainedunchanged from the previous year, net sales for the year would have decreased byapproximately ¥889.9 billion, or 9.4%. Operating income decreased ¥637.1 billion, or 96.3%, to ¥24.5 billion, from theprevious fiscal year, due mainly to a decrease in income attributable to the decreasednet sales in North America and Japan, the negative foreign currency effects, anincrease in fixed costs per unit as a result of production cuts, increased raw materialcosts, changes in the model mix brought by shift of customers’ demands towards morecompact and fuel efficient models along with expenses related to withdrawal fromsome racing activities and cancellations of development of new models, despitecontinuing cost reduction, the change in sales price, a decrease in costs for productwarranties, decreased R&D expenses and reduced sales incentives in North America. 3925 7.5% 9 4,893 6.8% 6,616 10.4% Annual Report 2009 25
  • 28. Review of Operations Automobile Business JAPAN Total automobile demand in Japan*1 (as measured by the number of regular vehi- cle registrations (661cc or higher) and mini-vehicles (660cc or lower)) for the fiscal year showed approximately 12% decline compared with the previous year to 4.7 million units, reflecting the decline in demand as the financial crisis began to have an impact on the economy from September 2008. Of this total, regular vehicle registrations declined approximately 16% from the previous year, to about 2.89 million units, as the global financial crisis began to have an impact on the real economy. Sales of mini-vehicles held relatively stable because of the favorable effects of the introduction of new models by various man- ufacturers and the increasing trend toward driving smaller cars, however, from No- vember 2008 onward the economy moved into a downturn, and mini-vehicle sales for the fiscal year fell 4% from the level of the previous year, to 1.81 million units. Amid these business operating conditions, Honda worked to strengthen its product lineup by introducing the new model FREED, a brand-new compact mini- van that is easy to handle and offers a spacious cabin with stylish design in May 2008, a new version of the Odyssey minivan in October, and the all-new Life in November. In addition, in February 2009, Honda launched the Insight, a brand- new hybrid vehicle that incorporates a lightweight, compact hybrid system inside a compact body, while offering superior fuel economy and fun driving. Although registrations of the Honda Fit and new models FREED and Insight were strong, as a result of market headwind, overall unit sales dropped 9.6% be- low the level of the previous fiscal year, to 556,000 units. In production activities, Honda reduced output in response to the worldwide decline in unit sales and the need to make adjustments in inventories. As a conse- quence, the number of automobiles production during the fiscal year was down 11.4%, to 1,148,000 units. In response to sudden changes in global markets, Honda transferred all production of the Stream model from the Suzuka Factory to the Saitama Factory. Also, production of the Fit for the North American market be- gan at the Saitama Factory in addition to the Suzuka Factory. The start-up of pro- duction at the Yorii Factory, which was scheduled for 2010, has been postponed for two years or more. Also, plans for beginning the manufacturing of mini-vehicles at the Yokkaichi Factory of Yachiyo Industry Co., Ltd., have been postponed for one year or more. *1: Source: JAMA Accord (Japan) Odyssey (Japan) Inspired by the key phrase “advanced quality,” the Accord Offers a smoother ride even better than previous minivans with offers everything in performance and function plus a major its low-slung styling improvement in quality.26 Annual Report 2009
  • 29. NORTH AMERICAIn calendar 2008, total demand in the United States*1 declined 18% from the pre-vious year, to about 13,190,000 units. As a result of the increase in gasoline pricesin the first half of the year, a shift from light trucks such as large sports utility vehi-cles (SUVs) and pickup trucks to the fuel-efficient smaller car segment continued.However, by the latter half of the year, sales of compact cars and light trucks hadalso dropped significantly. Especially from October, the market showed majorcontraction as a result of the effects of the financial crisis on the real economy, thedeterioration in employment conditions, restraint in consumer spending, the New factory in Indianaadoption of more stringent credit criteria by financial institutions, and other factors. Under these circumstances, Honda aggressively introduced new models. Inthe Honda channel, the all-new Pilot was launched in May 2008, the all-new Fit inAugust, and the new Insight hybrid car in March 2009. Similarly, through its Acurachannel, model introductions included the all-new TSX in April 2008, and the all-new TL in September. Amid this business operating environment, Honda’s unit sales of its competi-tive lineup of compact cars expanded in the first half of the year as gasolineprices rose, while other automakers reported declining sales. In May 2008, theHonda Civic took the number one spot for new car sales among all models onthe market. However, along with the deterioration in the real economy, sales began to fallin all segments, and, for the fiscal year, unit sales in North America as a whole Insight (North America)declined 19.1%, to 1,496,000 units. Although sales of the all-new TSX held firm,due to its attractive price, sales of higher-priced models such as light trucks, theOdyssey, the Pilot and the Acura MDX, as well as the Acura TL dropped sub-stantially, reflecting decline in consumer sentiment and demand. In the area of production, manufacturing of the Civic at the new automobileproduction plant in Indiana started in October 2008, but because of the suddendecline in demand, Honda had made production cutbacks at the major plants inNorth America. As a result, the number of automobiles production declined13.2% from the previous fiscal year, to 1,251,000 units.*1: Source: Ward’s AutoTSX (North America) Fit (North America) TL (North America)An entry-level Acura with sportier styling and easier handling A subcompact passenger car with a sporty ride, reflecting A luxury sedan offering a dynamic driving experience close attention to design Annual Report 2009 27
  • 30. Review of Operations Automobile Business EUROPE During calendar 2008, demand in the principal markets of Spain, Italy, and the United Kingdom declined along with the unfavorable impact of the financial crisis from September 2008. As a consequence, total demand in Europe*1 fell approxi- mately 8%, to about 14,710,000 units. On the other hand, total demand in Russia increased approximately 13% from the previous year, to 2,930,000 units. Amid this business environment, although Honda introduced the all-new Ac- cord in June and Jazz (sold as the Fit in Japan) in October 2008 into European markets, unit sales in this region were down 10.5% from the previous year to 350,000 units mainly due to decreased total demands. In production activities, Honda of the U.K. Manufacturing Ltd., a Honda U.K. subsidiary, made production adjustments in response to the sudden decline in au- tomobile demand. As a result, production at Honda’s U.K. plant decreased 29.4%, to 175,000 units compared to the same period of the previous fiscal year. *1: Source: Association des Constructeurs Europeens d’Automobiles (the European automobile association) (Pas- senger cars, figures include 27 EU countries and 3 European Free Trade Association (EFTA) countries.) *2: Source: Association of European Businesses ASIA In Asia, total demand in principal countries*1 in calendar 2008 increased over the previous year to about 15,100,000 units, despite the impact of the global financial crisis from September 2008 onward. Under this business operating environment, Honda introduced the all-new Fit in Taiwan in October 2008. Honda also introduced the all-new City, a small sedan in Thailand, in September 2008, and subsequently to India and other countries in Asia. The number of countries in Asia that are offering tax breaks to stimulate de- mand for fuel-efficient compact cars is increasing. In the compact car market, where continued growth is expected, Honda is introducing the City and the Jazz to follow the Civic, Accord, and CR-V, as consistent volume sales products. During the fiscal 2009, total sales (comprising finished automobiles of Honda and its consolidated subsidiaries and unit sales of parts to Honda’s affiliated com- panies accounted for under the equity method) rose 5.0% over the level of the pre- vious fiscal year, to 793,000 units. Sales of the City and Jazz models held strong in Thailand, Indonesia, Malaysia, and elsewhere. Similarly, sales of the new Accord Accord (Europe) Jazz (Europe) A sporty look combining superior driving stability with high- Featuring top-class utility, high-level fuel economy, and level safety and environmental performance monoform design28 Annual Report 2009
  • 31. through Guangzhou Honda Automobile Co., Ltd. (an affiliate accounted for underthe equity method), and sales of the CR-V through Dongfeng Honda AutomobileCo., Ltd. (an affiliate accounted for under the equity method) were also strong. In production, with an eye to future growth in the Asia/Oceania region, Hondabegan production at its second plant in Thailand in October 2008, which has anannual production capacity of 60,000 units. In India, in view of the drastic changesin the market environment, Honda announced that plans for the start-up of a newautomobile plant have been postponed. Announcement event for the City in India*1: The total includes 11 countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Singapore, Taiwan, South Korea, India, Pakistan, and ChinaOTHER REGIONSTotal demand in principal markets in the Other Regions increased, due mainly toeconomic expansion in the first half of the fiscal year, although conditions becamestagnant in the latter half of the year as a result of the financial crisis from Septem-ber 2008 onward. Total demand in Brazil*1 in calendar 2008 was approximately 2,670,000 units,approximately 14% higher than in the previous year. On the other hand, total de-mand in Australia*2 decreased 4% from the previous year, to approximately1,010,000 units. Amid this business operating environment, Honda worked to strengthen its New fourth plant in Thailandlineup of automobiles and increase sales in Brazil. In addition to the existing CivicFFV model which is able to run on a flexible mixture of gasoline and ethanol fuel,Honda has expanded the flexible-fuel vehicle (FFV) version to the Fit model in No-vember 2008. During fiscal 2009, even though unit sales in Australia, the Middle East, andcertain other areas declined, Honda reported increases in unit sales in Brazil duemainly to favorable sales of the all-new Fit, supported by the implementation of atax reduction on industrial products in Brazil and other developments. Similarly,Honda reported increased sales in the Argentine market. As a result, unit sales inOther Regions rose 2.5%, to 322,000 units.*1: Source: ANFAVEA (Associaçao Nacional dos Fabricantes de Veiculos Automotores (the Brazilian automobile association)(includes passenger vehicles and light commercial vehicles)*2: Source: Federal Chamber of Automotive Industries (the Australian automobile association)City (Asia) Fit FFV (Brazil)Offers high value as a new benchmark for sub-compact Popular in Brazil as a flexible-fuel vehicle (FFV), the Fit FFVsedans leaps ahead of previous models in styling, fuel economy, and driving pleasure. Annual Report 2009 29
  • 32. Thousands Years ended March 31 12,000Review of Operations 8,000 4,000 0 05 06 07 08 09 Power Product and Other Businesses Thousands Years ended March 31 4,000 Thousands 3,000 Years ended March 31 Yen (billions) Years ended March 31 12,000 2,000 2,000 1,500 8,000 1,000 Years ended March 31 1,000 Unit Sales Thousands 2008 2009 % change 4,000 0 Japan 550 06 05 07 08 09 516500 (6.2) % North America 2,415 1,893 (21.6) Europe 1,693 1,306 (22.9) 0 Thousands Years ended March 31 0 Asia 058,00006 915 07 08 09 970 05 06 07 6.0 08 09 Other Regions 484 502 3.7 Total Thousands 6,000 6,057 Years ended March 31 5,187(billions) Yen (14.4) % March 31 Years ended 4,000 10,000 Net Sales Yen (millions) 2008 2009 % change Japan ¥147,775 4,000 ¥115,252 (22.0) % 3,000 7,500 North America 109,445 80,124 (26.8) Europe 2,000 96,847 71,126 (26.6) Asia 2,000 39,449 5,000 50,739 28.6 Other Regions 0 27,678 25,824 (6.7) Total 1,000 ¥421,194 06 05 07 08 09 ¥343,065 2,500 (18.5) % 3 月31 日に終了した各年度 0 Yen (billions) Years ended March 31 0 05 60006 07 08 09 05 06 07 08 09 Percentage of Net Sales by Business Unit Sales Net Sales 3.4% Thousands 450 Years ended March 31 Yen (billions) Years ended March 31 8,000 500 300 400 6,000 150 300 4,000 200 0 2,000 05 06 07 08 09 100 0 0 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other Regions Yen (billions) Years ended March 31 Yen (billions) Years ended March 3130 Annual Report 2009 600 6,000 450 4,500
  • 33. Honda’s unit sales of power products totaled 5,187 thousand units, decreased by14.4% from the previous fiscal year. Unit sales in Japan totaled 516 thousand units,decreased by 6.2%. Overseas unit sales totaled 4,671 thousand units, decreased by15.2%, due mainly to decreased unit sales in North America and Europe. Revenuefrom external customers decreased ¥78.1 billion, or 18.5%, to ¥343.0 billion, from theprevious fiscal year, due mainly to the decreased unit sales of power products andnegative foreign currency translation effects. Honda estimates that, had the exchangerate remained unchanged from the previous fiscal year, net sales for the year wouldhave decreased by approximately ¥49.0 billion, or 11.7%. Operating loss was ¥15.4billion, a decrease of ¥37.8 billion from the previous fiscal year, due mainly to adecrease in income attributable to the decreased net sales and increase in R&Dexpenses in other businesses, despite decreased SG&A expenses. Annual Report 2009 31
  • 34. Review of Operations Power Product and Other Businesses JAPAN In Japan, Honda newly launched the Yukios SB800, snow blower which is com- pact and lightweight and clears snow with a blade. Honda also newly intro- duced the Pianta FV200, a gas-powered mini tiller that uses the same butane gas canisters that are used in households for powering portable gas stoves. In addition, Honda introduced its original thin-film solar cells that reduce CO 2 emissions in the manufacturing process and satisfy specifications for use in public and industrial applications. Unit sales in Japan were down 6.2%, to 516,000 units, because of the de- cline in sales of water pumps, GX series engines for electric power generators sold to original equipment manufacturers (OEM*), and other products. * OEM (Original equipment manufacturer) refers to the manufacturing of products and components sold under a third-party brand. NORTH AMERICA Unit sales in North America declined 21.6%, to 1,893,000 units. Factors ac- counting for this decline were weakness in the sales of general-purpose engines for OEM use in construction equipment, high-pressure washers, and lawn mow- ers as well as weakness in the sales of lawn mowers, due to the downturn in the U.S. economy. EUROPE In Europe, unit sales declined 22.9%, to 1,306,000 units. Sales of GX and GC series engines for OEM use in construction machinery, generators, and other ap- plications declined. ASIA In Asia outside of Japan, Honda newly launched engines specially designed for longtail boats, the GX160, the GX200 and the GX390, which are in wide use as a major means of water transportation, featuring improved handling and durability. In addition, in China, Honda newly introduced its superior-performance HRJ196 lawn mowers that are compact, lightweight and easy to use. Unit sales in Asia, excluding Japan, increased 6.0% from the previous fiscal year, to 970,000 units, as a result of expansion in sales of WB20XT pumps in In- donesia and increases in sales of GX160 general-purpose engines for OEM use in water pumps and other applications in China. Yukios GX39032 Annual Report 2009
  • 35. OTHER REGIONSIn Other Regions, unit sales rose 3.7% over the previous fiscal year, to 502,000units, as a result of higher unit sales in the Middle East of GX390 general-purposeengines for OEM use in construction machinery and generators and increasedsales of GX series general-purpose engines in South America.SOLAR CELL BUSINESSIn October 2007, consolidated subsidiary Honda Soltec Co., Ltd., began the pro- Honda Soltec Co., Ltd.duction of thin-film solar cells for household use and entered the public-sectorand industrial markets for these products in October 2008. Currently, HondaSoltec is strengthening its capabilities for expanding sales.COGENERATION UNITSHonda began to sell its household-use cogeneration unit equipped with theECOWILL system in Japan in March 2003 through gas companies. In addition,Honda began to sell cogeneration units in the United States in March 2007.Looking ahead, Honda will aim for an expansion in sales of cogeneration units. Moreover, Honda is now developing its original core unit with the aim of mak-ing it more compact and more efficient, and has plans to launch a new type ofcogeneration unit within the next two to three years featuring smaller size, higher Thin-film solar cellsefficiency, and a high level of eco-compatibility.AVIATION BUSINESSIn 2008, subsidiary Honda Aircraft Company, Inc., built a new international head-quarters facility at the Piedmont Triad International Airport in Greensboro, NorthCarolina, in the United States. The move into the new headquarters was complet-ed in May. Honda Aircraft has begun to take orders in the United States as well asCanada, Mexico, and Europe for its HondaJet aircraft. R&D is currently in progresswith a target date for beginning deliveries in 2011. Also, Honda Aero, Inc., which is responsible for Honda’s aircraft engine busi-ness, has built a plant and headquarters facility near the airport in Burlington,North Carolina and moved to the new headquarters in July 2008. This company is Cogeneration unitsscheduled to begin production of Honda’s HF120 turbofan engines in 2011 andaims to expand production to 200 units annually.HondaJet HF120 compact turbofan engine (aircraft engine) An original Honda design, the HF120 has low emissions that are ahead of regulatory standards plus top-class fuel economy and a quiet operation. Annual Report 2009 33
  • 36. Thousands Years ended March 31 Yen (billions) Years ended March 31 12,000 2,000Review of Operations Thousands Years ended March 31 1,500 Yen (billions) Years ended March 31 8,000 12,000 2,000 1,000 1,500 4,000 8,000 500 1,000 0 4,000 0 05 06 07 08 09 500 05 06 07 08 09 Financial Services Business Thousands 0 Years ended March 31 Yen (billions) 0 Years ended March 31 4,000 05 06 07 08 09 05 10,000 06 07 08 09 3,000 Thousands Years ended March 31 7,500 Yen (billions) Years ended March 31 4,000 10,000 2,000 5,000 3,000 7,500 1,000 2,500 Years ended March 31 2,000 5,000 Net Sales Yen (millions) 2008 2009 % change 0 0 Japan 05 061,00007 ¥ 08 23,405 09 ¥ 24,083 2,500 05 06 072.9 08 % 09 North America 483,925 527,905 9.1 Europe 13,234 12,685 (4.1) Thousands 0 Years ended March 31 Yen (billions) 0 Years ended March 31 Asia 8,000 05 06 4,936 07 08 09 4,736 05 500 06 07 (4.1) 08 09 Other Regions 8,053 12,852 59.6 Total ¥533,553 400 ¥582,261(billions) 9.1 % March 31 6,000 Thousands Years ended March 31 Yen Years ended 8,000 500 300 Finance Subsidiaries — 4,000 400 Receivables, Net Yen (millions) 6,000 2008 2009 200 % change Non-current ¥2,884,264 ¥2,571,152 (10.9)% 2,000 300 100 Current 4,000 1,817,033 1,596,642 (12.1) Total ¥4,701,297 ¥4,167,794 200 (11.4)% 0 0 05 062,00007 08 09 05 06 07 08 09 100 Note: The finance subsidiaries—receivables category above includes items that have been reclassified as trade receivables and other assets. Yen (billions) 0 Years ended March 31 Yen (billions) 0 Years ended March 31 600 05 06 07 08 09 05 6,000 06 07 08 09 Finance Subsidiaries — Percentage of Net Sales by Business Net Sales Receivables, Net 5.8% 450 Yen (billions) Years ended March 31 4,500 Yen (billions) Years ended March 31 600 6,000 300 3,000 450 4,500 150 1,500 300 3,000 0 0 05 06 15007 08 09 1,500 05 06 07 08 09 0 0 05 06 07 08 09 05 06 07 08 09 Japan North America Europe Asia Other Regions Non-current Current34 Annual Report 2009 Japan North America Europe Asia Other Regions Non-current Current
  • 37. REVIEW OF PERFORMANCETo support the sale of its products, Honda provides retail lending and leasing to cus-tomers and wholesale financing to dealers through our finance subsidiaries in Japan,the United States, Canada, the United Kingdom, Germany, Brazil and Thailand. InNorth America, the financial crisis had a severe impact on the economy, the deteriora-tion in employment conditions, deterioration in consumer sentiment and other factors.As a result, the environment for financial services business remained under pressure. The total amount of finance subsidiaries—receivables and property on operatingleases of finance subsidiaries decreased by 2.2%, to ¥4,860.1 billion from the previ- Goldwingous fiscal year, due mainly to currency translation effects. Revenue from external cus-tomers in the financial services business increased ¥48.7 billion, or 9.1%, to ¥582.2billion from the previous fiscal year, due mainly to an increase in operating lease reve-nue. Honda estimates that, had the exchange rate remained unchanged from the pre-vious fiscal year, revenue for the year would have increased by approximately ¥124.7billion, or 23.4%. Operating income decreased ¥37.1 billion, or 31.5%, to ¥80.6 billion from the pre-vious fiscal year, due mainly to an increase in provisions for credit losses and losses onlease residual values in North America and negative foreign currency effects, despite anincrease in income attributable to higher revenue. In North America, prices of SUVs andminivans in the used car market dropped in the first half of the fiscal year, and losseson lease residual values of these models increased. In addition, from September onward, losses on lease residual values of sedans and Pilotother passenger vehicles increased. Moreover, provisions for credit losses also in-creased as the ability of certain customers to pay their debts declined. Our finance subsidiaries in North America have historically accounted for all leasesas direct financing leases. However, starting in the fiscal year ended March 31, 2007,some of the leases that do not qualify for direct financing lease accounting treatmentare accounted for as operating leases. Generally, direct financing lease revenues and in-terest income consist of the recognition of finance lease revenue at the inception of thelease arrangement and subsequent recognition of the interest income component of to-tal lease payments using the effective interest method. In comparison, operating leaserevenues include the recognition of the gross lease payment amounts on a straight-linebasis over the term of the lease arrangement, and operating lease vehicles are depreci-ated to their estimated residual value on a straight-line basis over the term of the lease.It is not anticipated that the differences in accounting for operating leases and direct fi- RLnancing leases will have a material net impact on Honda’s results of operations overall;however, operating lease revenues and associated depreciation of leased assets do re-sult in differing presentation and timing compared to those of direct financing leases. During the fiscal year ending March 31, 2010, the decline in receivables is forecastto persist, as there are concerns that the downturn in the U.S. economy will continue,thus causing prolonged stagnation in the automobile market. Looking ahead, Hondawill work to substantially improve its financial services and respond to changes in theoperating environment. Annual Report 2009 35
  • 38. Preparing for the Future Due to the current economic situation, there are concerns that the 5. Safety Technologies economies of Japan, the U.S. and Europe will experience a down- Honda is working to develop safety technologies that enhance ac- turn. In addition, the pace of economic growth of Asian countries cident prediction and prevention, technologies to help reduce the outside of Japan is expected to slow down. Moreover, given the risk of injuries to passengers and pedestrians from car accidents, many uncertainties in the global business environment in which and technologies that enhance compatibility between large and Honda operates, including political and economic instability, fluctu- small vehicles, as well as expand its line-up of products incorporat- ations in oil and raw material prices, and volatility in the currency ing such technologies. Honda will reinforce and continue to ad- and financial markets, Honda expects that this will continue to be vance its contribution to traffic safety in motorized societies in Ja- an extremely challenging environment in which to do business. pan and abroad. Honda also intends to remain active in a With these circumstances in mind, Honda seeks to further variety of traffic safety programs, including advanced driving and strengthen its corporate structure by making it more flexible and motorcycling training programs provided by local dealerships. dynamic and therefore, better able to meet the needs of its cus- tomers and society as a whole as well as respond to changes in 6. The Environment the business environment. Also, in order to improve the competi- Honda will step up its efforts to create better, cleaner and more fu- tiveness of its products, Honda will endeavor to enhance its R&D, el-efficient engine technologies and to further improve recyclables production and sales capabilities. Furthermore, Honda will continue throughout its product lines. Honda will also work to advance fuel to enhance its reputation in the community through Companywide cell technology and steadily promote its new solar cell business. In activities. Honda recognizes that further enhancing the following addition, Honda will further its efforts to minimize its environmental specific areas is essential to its success: impact. To this end, Honda sets global targets to reduce the envi- ronmental burden as measured by the Life Cycle Assessment*, in 1. Research and Development all areas of business, spanning production, logistics and sales. In connection with its efforts to develop the most effective safety *Life Cycle Assessment: A comprehensive system for quantifying the impact Honda’ products have on the environment at the different stages in their life s and environmental technologies, Honda will continue to be innova- cycles, from material procurement and energy consumption to waste tive in advanced technology and products. Honda aims to create disposal. and introduce new value-added products to quickly respond to specific needs in various markets around the world. Honda will also 7. Continuing to Enhance Honda’s Social Reputation continue its efforts to conduct research on experimental technolo- and Communication with the Community gies for the future. In addition to continuing to provide products incorporating Honda’s advanced safety and environmental technologies, Honda will con- 2. Production Efficiency tinue striving to enhance its social reputation by, among other Honda will establish and enhance efficient and flexible production things, strengthening its corporate governance, compliance, and systems at its global production bases and supply high quality risk management as well as participating in community activities products, with the aim of meeting the needs of its customers in and making philanthropic contributions. each region. Through these Company-wide activities, Honda will strive to 3. Sales Efficiency become a company whose presence is welcomed by our share- Honda will remain proactive in its efforts to expand product lines holders, customers and society. through the innovative use of IT and will show its continued com- mitment to different customers among the world by upgrading its sales and service structure. 4. Product Quality In response to increasing customer demand, Honda will upgrade its quality control by enhancing the functions of and coordination among the development, purchasing, production, sales and service departments.36 Annual Report 2009
  • 39. Risk Factors Relating to Honda’s Industry1. Honda may be adversely affected by market conditions increasing, short-term fluctuations in demand from underlying economic Honda conducts its operations in Japan and throughout the world, includ- conditions, changes in tariffs, import regulations and other taxes, shortag- ing North America, Europe and Asia. A sustained loss of consumer confi- es of certain supplies, high material prices and sales incentives by Honda dence in these markets, which may be caused by continued economic or other manufacturers or dealers. There can be no assurance that such slowdown, recession, rising fuel prices, financial crisis or other factors price volatility will not continue or intensify or that price volatility will not could trigger a decline in demand for automobiles, motorcycles and pow- occur in markets that to date have not experienced such volatility. Overca- er products that may adversely affect Honda’s results of operations. pacity within the industry has increased and will likely continue to increase if the economic downturn continues in Honda’s major markets or world-2. Prices for automobiles, motorcycles and power products can be volatile wide, leading, potentially, to further increased price pressure. Price volatili- Prices for automobiles, motorcycles and power products in certain mar- ty in any or all of Honda’s markets could adversely affect Honda’s results kets may experience sharp changes over short periods of time. This vola- of operations in a particular period. tility is caused by many factors, including fierce competition, which is Risks Relating Honda’s Business GenerallyCurrency and Interest Rate Risks Legal and Regulatory Risks1. Honda’s operations are subject to currency fluctuations 1. The automobile, motorcycle and power product industries are subject Honda has manufacturing operations throughout the world, including Ja- to extensive environmental and other governmental regulation pan, and exports products and components to various countries. Honda Regulations regarding vehicle emission levels, fuel economy, noise and purchases materials and sells its products in foreign currencies. Therefore, safety and noxious substances, as well as levels of pollutants from pro- currency fluctuations may affect Honda’s pricing of products sold and ma- duction plants, are extensive within the automobile, motorcycle and power terials purchased. Accordingly, currency fluctuations have an effect on product industries. These regulations are subject to change, and are often Honda’s results of operations and financial condition, as well as Honda’s made more restrictive. The costs to comply with these regulations can be competitiveness, which will over time affect its results. Since Honda ex- significant to Honda’s operations. ports many products and components from Japan and generates a sub- stantial portion of its revenues in currencies other than the Japanese yen, 2. Honda is reliant on the protection and preservation of its intellectual Honda’s results of operations would be adversely affected by an apprecia- property tion of the Japanese yen against other currencies, in particular the U.S. Honda owns or otherwise has rights in a number of patents and trade- dollar. marks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks have been of value2. Honda’s hedging of currency and interest rate risk exposes Honda to in the growth of Honda’s business and may continue to be of value in the other risks future. Honda does not regard any of its businesses as being dependent Although it is impossible to hedge against all currency or interest rate risk, upon any single patent or related group of patents. However, an inability Honda uses derivative financial instruments in order to reduce the sub- to protect this intellectual property generally, or the illegal breach of some stantial effects of currency fluctuations and interest rate exposure on our or a large group of Honda’s intellectual property rights, would have an ad- cash flow and financial condition. These instruments include foreign cur- verse effect on Honda’s operations. rency forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. Honda has entered 3. Honda is subject to legal proceedings into, and expects to continue to enter into, such hedging arrangements. Honda is subject to a number of suits, investigations and/or proceedings As with all hedging instruments, there are risks associated with the use of under relevant laws and regulations of various jurisdictions. A negative out- such instruments. While limiting to some degree our risk fluctuations in come in one or more of these pending legal proceedings could adversely currency exchange and interest rates by utilizing such hedging instru- affect Honda’s business, financial condition or results of operations. ments, Honda potentially forgoes benefits that might result from other fluctuations in currency exchange and interest rates. Honda is also ex- posed to the risk that its counterparties to hedging contracts will default on their obligations. Honda manages exposure to counterparty credit risk by limiting the counterparties to major international banks and financial in- stitutions meeting established credit guidelines. However, any default by such counterparties might have an adverse effect on Honda. Annual Report 2009 37
  • 40. Risk Factors 6. Risk related to Pension and Other Postretirement Benefits Risks Relating to Honda’s Operations Honda has pension plans and provides other post-retirement benefits. 1. Honda’s financial services business conducts business under highly The amounts of pension benefits, lump-sum payments and other post- competitive conditions in an industry with inherent risks retirement benefits are primarily based on the combination of years of Honda’s financial services business offers various financing plans de- service and compensation. The funding policy is to make periodic contri- signed to increase the opportunity for sales of its products and to gener- butions as required by applicable regulations. Benefit obligations and ate financing income. However, customers can also obtain financing for pension costs are based on assumptions of many factors, including the the lease or purchase of Honda’s products through a variety of other discount rate, the rate of salary increase and the expected long-term rate sources that compete with our financing services, including commercial of return on plan assets. Differences in actual expenses and costs or banks and finance and leasing companies. The financial services offered changes in assumptions could affect Honda’s pension costs and benefit by us also involve credit risk as well as risks relating to lease residual val- obligations, including Honda’s cash requirements to fund such obliga- ues, cost of capital and access to funding. Competition for customers tions, which could materially affect our financial condition and results of and/or these risks may affect Honda’s results of operations in the future. operations. 2. Honda relies on various suppliers for the provision of certain raw 7. As a holder of ADSs, you will have fewer rights than a shareholder has material and components and you will have to act through the depositary to exercise those rights Honda purchases raw materials, and certain components and parts, from The rights of shareholders under Japanese law to take various actions, in- numerous external suppliers, and relies on some key suppliers for some cluding voting their shares, receiving dividends and distributions, bringing items and the raw materials it uses in the manufacture of its products. derivative actions, examining a company’s accounting books and records, Honda’s ability to continue to obtain these supplies in an efficient and and exercising appraisal rights, are available only to holders of record. Be- cost-effective manner is subject to a number of factors, some of which cause the depositary, through its custodian agents, is the record holder of are not within Honda’s control. These factors include the ability of its sup- the Shares underlying the ADSs, only the depositary can exercise those pliers to provide a continued source of supply and Honda’s ability to com- rights in connection with the deposited Shares. The depositary will make pete with other users in obtaining the supplies. Loss of a key supplier in efforts to vote the Shares underlying your ADSs as instructed by you and particular may affect our production and increase our costs. will pay to you the dividends and distributions collected from us. However, in your capacity as an ADS holder, you will not be able to bring a deriva- 3. Honda conducts its operations in various regions of the world tive action, examine our accounting books and records or exercise ap- Honda conducts its businesses worldwide, and in several countries, Hon- praisal rights through the depositary. da conducts businesses through joint ventures with local entities, in part due to the legal and other requirements of those countries. These busi- 8. Rights of shareholders under Japanese law may be more limited than nesses are subject to various regulations, including the legal and other re- under the law of other jurisdictions quirements of each country. If these regulations or the business conditions Our Articles of Incorporation, Regulations of the Board of Directors, Regu- or policies of these local entities change, it may have an adverse affect on lations of the Board of Corporate Auditors and the Japanese Company Honda’s business, financial condition or results of operations. Law govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary 4. Honda may be adversely affected by wars, use of force by foreign duties, and shareholders’ rights may be different from those that would countries, terrorism, multinational conflicts, natural disasters, epidemics apply if we were a U.S. company. Shareholders’ rights under Japanese and labor strikes law may not be as extensive as shareholders’ rights under the laws of the Honda conducts its businesses worldwide, and its operations may vari- United States. You may have more difficulty in asserting your rights as a ously be subject to wars, use of force by foreign countries, terrorism, mul- shareholder than you would as a shareholder of a U.S. corporation. In ad- tinational conflicts, natural disasters, epidemics, labor strikes and other dition, Japanese courts may not be willing to enforce liabilities against us events beyond our control which may delay or disrupt Honda’s local oper- in actions brought in Japan that are based upon the securities laws of the ations in the affected regions, including the purchase of raw materials and United States or any U.S. state. parts, the manufacture, sales and distribution of products and the provi- sion of services. Delays or disruptions in one region may in turn affect our 9. Because of daily price range limitations under Japanese stock exchange global operations. If such delay or disruption occurs and continues for a rules, you may not be able to sell your shares of our Common Stock at long period of time, Honda’s business, financial condition or results of op- a particular price on any particular trading day, or at all erations may be adversely affected. Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are 5. Honda may be adversely affected by inadvertent disclosure of order-driven markets without specialists or market makers to guide price confidential information formation. To prevent excessive volatility, these exchanges set daily up- Although Honda maintains internal controls through established proce- ward and downward price fluctuation limits for each stock, based on the dures to keep confidential information including personal information of its previous day’s closing price. Although transactions may continue at the customers and relating parties, such information may be inadvertently dis- upward or downward limit price if the limit price is reached on a particular closed. If this occurs, Honda may be subject to, and may be adversely af- trading day, no transactions may take place outside these limits. Conse- fected by, claims for damages from the customers or parties affected. quently, an investor wishing to sell at a price above or below the relevant Also, inadvertent disclosure of confidential business or technical informa- daily limit may not be able to sell his or her shares at such price on a par- tion to third parties may result in a loss of Honda’s competitiveness. ticular trading day, or at all.38 Annual Report 2009
  • 41. Corporate Governance 1. Basic Stance Regarding Corporate GovernanceBased on its fundamental corporate philosophy, the Company is With respect to business execution, Honda has established aworking to enhance corporate governance as one of its most im- system for operating its organizational units that reflects its funda-portant management issues. Our aim is to have our customers and mental corporate philosophy. For example, separate headquarterssociety, as well as our shareholders and investors, place even have been set up for each region, business, and function, and agreater trust in us and to ensure that Honda is “a company that so- member of the Board of Directors or an operating officer has beenciety wants to exist.” assigned to each headquarters and main division. In addition, by To ensure objective control of the Company’s management, out- having the Executive Council and regional operating boards deliber-side directors and outside corporate auditors are appointed to the ate important matters concerning management, the Company imple-Board of Directors and the Board of Corporate Auditors, which are ments a system that enables swift and appropriate decision making.responsible for the supervision and auditing of the Company. Honda With respect to internal control, compliance systems and riskhas also introduced an operating officer system, aimed at strength- management systems have been designed and implemented ap-ening both the execution of business operations at the regional and propriately following the basic policies for the design of internallocal levels and making management decisions quickly and appro- controls decided by the Board of Directors.priately. The term of office of each director is limited to one year, and To enhance even further the trust and understanding of share-the amount of remuneration payable to them is determined accord- holders and investors, Honda’s basic policy emphasizes the appro-ing to a standard that reflects their performance in the Company. priate disclosure of Company information, such as by disclosing fi-Our goal in doing this is to maximize the flexibility with which our di- nancial results on a quarterly basis and timely and accurately givingrectors respond to changes in the operating environment. public notice of and disclosing its management strategies. Honda will continue raising its level of transparency in the future. 2. Company Management Organization Board of Corporate Auditors 5 auditors Board of Directors 21 directors (Outside Corporate Auditors 3 auditors) (Outside Directors 2 directors) Executive Council Business Ethics Committee President & CEO Business Ethics Improvement Proposal Line Compliance Officer Risk Management Officer Honda Driving Safety Promotion Center Regional Sales Regional Operations Corporate Planning Division Regional Operations Regional Operations Regional Operations Regional Operations Operations (North America) (Latin America) (Europe, the Middle & (Asia / Oceania) (China) Corporate Communications Division (Japan) Near East and Africa) New Business Development and Planning Office Aero Engine Business Office Regional Operating Regional Operating Regional Operating Regional Operating Regional Operating Regional Operating Aircraft Operation Office Board Board Board Board Board Board (Europe, the Middle & Motorcycle Quality Innovation Division (Japan) (North America) (Latin America) (Asia / Oceania) (China) Near East and Africa) Auto Quality Innovation Division Power Product Quality Innovation Division Quality Assurance Division Certification & Regulation Compliance Division IT Division Motorcycle Operations Automobile Operations Power Product Operations Customer Service Operations Production Operations Domestic Factories Purchasing Operations Business Support Operations Business Management Operations Corporate Project Quality Audit & Compliance Division Audit Office 26 staff Corporate Auditors Office Honda R&D Co., Ltd. Honda Engineering Co., Ltd. (As of June 23, 2009) Annual Report 2009 39
  • 42. Corporate Governance ■ Board of Directors ■ Organization The Board of Directors consists of 21 directors, including two out- As for the execution of business, the Company has six regional op- side directors. The Board deliberates important matters related to erations around the world to develop business based on its funda- business execution and other items designated by law based on its mental corporate philosophy. These operations adopt long-term established deliberation standards, assesses business risk, and perspectives and maintain close ties with local communities. then makes decisions on such matters after due consideration. The The Company’s three business operations––motorcycles, auto- Board also controls and supervises the execution of management. mobiles, and power products––formulate the medium- and long- During the fiscal year under review (April 1, 2008, to March 31, term plans for their business development, and each operation 2009), the Board of Directors met 10 times. aims to maximize its business performance on a global basis. Each functional operation––such as Customer Service Operations, ■ Board of Corporate Auditors Production Operations, Purchasing Operations, Business Support The Board of Corporate Auditors consists of five corporate auditors, Operations, and Business Management Operations––supports including three outside corporate auditors. In accordance with the the other functional operations, with the aim of increasing Honda’s Company’s auditing standards, auditing policies, apportionment of effectiveness and efficiencies. responsibilities, and other such matters as determined by the Board Research and development activities are conducted principally of Corporate Auditors, each corporate auditor audits the directors’ at the independent subsidiaries of the Company. execution of duties. Corporate auditors accomplish these audits Honda R&D Co., Ltd., is responsible for research and develop- through various means, including attending meetings of the Board of ment on products, while Honda Engineering Co., Ltd., handles re- Directors and inspecting the state of the Company’s assets and lia- search and development in the area of production technology. The bilities. In addition, a Corporate Auditors’ Office was established to Company actively carries out research and development in ad- provide direct support to the Board of Corporate Auditors. vanced technologies with the aim of creating products that are dis- The Company maintains Standards for Reporting to Corporate tinctive and internationally competitive. Auditors to ensure that relevant matters are reported to corporate auditors in a timely and accurate manner. The standards require reg- ■ Business Execution Officer System ular reports to be submitted to corporate auditors on the business The Company has assigned a general manager from the Board of conditions of the Company and its subsidiaries, the maintenance Directors or an operating officer to each regional, business, and and operation of internal control systems, and any other matters functional division, as well as to each research and development that would have a substantial impact on the Company or its sub- subsidiary. By ensuring swift, optimal decision making in each re- sidiaries. In addition, corporate auditors are required to attend Ex- gion and workplace, the Company is building a highly effective and ecutive Council and other important meetings. In fiscal 2009, the efficient business execution system. Board of Corporate Auditors met 13 times. The Board of Corporate Auditors has certified Hideki Okada, a ■ Executive Council corporate auditor of the Company, as an “audit committee financial The Company has established the Executive Council, consisting of expert,” as set out in the rules of the Securities and Exchange the President, Vice President, and the Senior Managing Directors. Commission pursuant to Section 407 of the U.S. Sarbanes-Oxley Along with discussing in advance the items to be resolved at meet- Act of 2002. As stipulated in Item 8, Article 121, of the Company ings of the Board of Directors, the Executive Council discusses im- Law Enforcement Regulations, Hideki Okada has substantial portant management issues within the scope of authority conferred knowledge related to finance and accounting. upon it by the Board of Directors. ■ Decisions Regarding Director Candidates ■ Regional Operating Boards Candidates for directors are decided by resolution of the Board of To enhance the independence of each regional operation and en- Directors. Candidates for corporate auditors are decided by resolu- sure swift decision making, regional operating boards have been tion of the Board of Directors, subject to the agreement of the established at each regional operation to discuss important man- Board of Corporate Auditors. agement issues in the region within the scope of authority con- ferred upon it by the Executive Council.40 Annual Report 2009
  • 43. Corporate Governance 3. Internal Control System: Fundamental Position and Implementation StatusThe Company is designing and implementing internal control sys- of countries where they operate and practices observed in their respectivetems in accordance with the following basic policies. industries as they endeavor to enhance corporate governance. Regarding the conduct of business by subsidiaries, rules relating to monetary settlements have been established, and, regarding important① Systems for Ensuring that the Execution of Duties by the Directors and management items, internal rules have been prepared that require prior Employees Is in Compliance with the Law and the Company’s Articles approval of the Company or the submission of reports. In addition, the of Incorporation business management department of the Company receive reports on To secure compliance of Company management and employees with business plans and other matters on a periodic basis from subsidiaries guidelines for conduct in conformity with applicable laws and internal rules and confirm the appropriateness of the conduct of activities. and regulations, the Company has prepared The Honda Conduct Guide- The Company’s Audit Office, which is an independent unit reporting lines and implements measures to ensure that all management and em- directly to the President, audits the status of conduct of business activities ployees are made aware of and follow these guidelines. in each department, and works to improve the Honda Group’s internal au- The Company has appointed a Compliance Officer, who is a director diting systems. in charge of compliance-related initiatives. Other key elements of our For companies accounted for under the equity method, the Company compliance system include the Business Ethics Committee and the Busi- requests their understanding and cooperation with Honda’s basic corpo- ness Ethics Improvement Proposal Line. rate governance policies and endeavors to improve corporate governance on a Groupwide basis.② Retention and Management of Information on Execution of Business by Directors ⑥ Matters Relating to Assignment of Personnel to Assist the Corporate Minutes of the meetings of the Board of Directors and other important Auditors when They Request Such Assistance and Maintenance of the meetings as well as information related to the execution of business by Independence of Such Personnel from the Directors the directors will be retained and stored appropriately following the policy The Corporate Auditors Office, which has been formed to provide staff for the retention and management of documents. functions for the Corporate Auditors and reports directly to them, provides such support for the Corporate Auditors.③ Regulations and Other Systems for Management of the Contingencies of Losses ⑦ Systems Providing for Reporting by Directors and Employees to the Important items related to management are proposed to the Board of Di- Corporate Auditors and Other Arrangements for Reporting to the rectors, the Executive Council, and/or Regional Operating boards, risks Corporate Auditors are assessed, and then, decisions are made, after due consideration ac- The status of business activities of the Company’s subsidiaries and other cording to established deliberation standards. associated companies and the status of the design and operation of inter- Regarding risks that are to be dealt with on a departmental basis, nal control systems, including compliance and risk management systems, each department will work to prevent the emergence of such risk and de- are reported periodically to the Corporate Auditors. In addition, when velop policies for dealing with them. For large-scale disasters requiring there are matters that have a major impact on the Company, these are re- Company-level crisis management, the Honda Crisis Response Rules will ported to the Corporate Auditors. be applied, and the member of the Board of Directors in charge will be appointed as the Risk Management Officer, who will be responsible for ⑧ System for Ensuring that Other Auditing Activities of the Corporate designing and implementing related systems. Auditors Are Conducted Effectively The Corporate Auditors and the Audit Office, which audits the conduct of④ Systems for Ensuring that the Execution of Business by the Directors Is business, work closely together to implement business audits in the Com- Being Conducted Efficiently pany, its subsidiaries, and other associated companies. In addition, the In line with its fundamental corporate philosophy, Honda has established Corporate Auditors also attend the meetings of the Executive Council and organizational operating systems for each region, business, and function other important meetings. and a member of the Board of Directors or an operating officer has been assigned to each headquarters and main division. In addition, by having the Executive Council and Regional Operating boards deliberate important ■ Basic Policy Regarding Exclusion of Antisocial Elements matters concerning management, the Company implements a system Honda’s basic policy is to boldly and consistently oppose antisocial that enables swift and appropriate decision making. elements that present a threat to social order and safety. The or- To conduct management efficiently and effectively, business plans are ganizational unit in charge of responding to these elements has prepared on an annual basis and for the medium term, and measures are taken to share these plans. been specified, and it works together with the police and other re- lated outside institutions to mount an appropriate response.⑤ Systems for Ensuring that the Corporate Group, Comprising the Company and Its Subsidiaries, Conducts Business Activities Appropriately The Company and its subsidiaries share The Honda Conduct Guidelines and the basic policy regarding corporate governance. In addition, each subsidiary works to promote activities that are in compliance with the laws Annual Report 2009 41
  • 44. Corporate Governance 4. Cooperation among the Internal Auditing Functions, Auditing Functions of the Corporate Auditors, and the Audits Performed by the Accounting Auditors ■ Internal Auditing Functions assistants (10 certified public accountants, 15 assistant accountants, The Audit Office, which audits the conduct of business activities four U.S. certified public accountants, and 12 others). and reports directly to the President, has a staff of 26, who con- duct audits of business execution in each department and en- ■ Cooperation among Internal Functions deavor to improve the Honda Group’s internal auditing systems. During the fiscal year under review, the Corporate Auditors and the Accounting Auditors held meetings on six occasions. The Account- ■ Accounting Audits ing Auditors explained and reported on the plans and results of their KPMG AZSA & Co. provided auditing services for Honda under audits to the Corporate Auditors, and the two exchanged views. the Company Law, Japan’s Financial Instruments and Exchange The Corporate Auditors and the Audit Office, which audits the Law, and the U.S. Securities Exchange Act. conduct of business activities, maintained close contact and made A total of 45 people from KPMG AZSA & Co. provided auditing adjustments regarding auditing policy and the schedule for audits. In services for Honda: three Japanese certified public accountants addition, the Corporate Auditors and the Audit Office, either sepa- (Masanori Sato, Kensuke Sodegawa, and Hideaki Koyama) and 42 rately or working together, implemented audits of business activities. 5. Personal, Capital, or Transaction Relationships or Other Matters that Might Represent a Conflict with the Reporting Company ■ Outside Directors The Company has appointed outside corporate auditor Yuji The Company has appointed outside director Nobuo Kuroyanagi to Matsuda to receive audit information on its corporate activities from receive advice on its corporate activities from an objective, broad- a broad-ranging and advanced viewpoint based on his extensive ranging, and advanced viewpoint based on his extensive experience experience and a high level of insight in corporate management. and a high level of insight in corporate management. There are no special interest relationships between outside au- The Company has appointed outside director Kensaku Hogen ditor Koukei Higuchi and the Company. to receive advice on its international diplomacy from an objective, Outside auditor Fumihiko Saito is the representative of the Sai- broad-ranging, and advanced viewpoint based on his extensive ex- to Law Office, but there are no special interest relationships be- perience and a high level of insight in diplomacy. tween him and the Company. The Company has appointed Nobuo Kuroyanagi (President and Outside auditor Yuji Matsuda is the president and a director of Director of Mitsubishi UFJ Financial Group, Inc., and, concurrently, the Mitsubishi UFJ Trust Investment Technology Institute Co., Ltd., Chairman and Director of The Bank of Tokyo-Mitsubishi UFJ, Ltd.) but there are no special interest relationships between outside au- as an outside director, but there are no special interest relationships ditor Matsuda and the Company. between the Company and Mr. Kuroyanagi. Outside auditor Koukei Higuchi attended 8 of the 10 meetings There are no special interest relationships between the Company of the Board of Directors meetings and 12 of the 13 meetings of and outside director Kensaku Hogen. Please note that outside direc- the Board of Auditors held during the fiscal year under review, and tor Hogen attended all 10 meetings of the Board of Directors held he made necessary and appropriate statements during the deliber- during the fiscal year under review, and he made necessary and ap- ation of proposals. propriate statements during the deliberation of proposals. Outside auditor Fumihiko Saito attended 9 of the 10 meetings of The Company provides information on the Board of Directors the Board of Directors and all 13 meetings of the Board of Auditors meetings and other matters to outside directors as necessary. held during the fiscal year under review, and he made necessary and appropriate statements during the deliberation of proposals. ■ Outside Corporate Auditors Outside auditor Yuji Matsuda attended all 10 meetings of the The Company has appointed outside corporate auditor Koukei Board of Directors and all 13 meetings of the Board of Auditors Higuchi to receive audit information on its corporate activities from a held during the fiscal year under review, and he made necessary broad-ranging and advanced viewpoint based on his extensive ex- and appropriate statements during the deliberation of proposals. perience and a high level of insight in corporate management. The Company provides information on the Board of Directors The Company has appointed outside corporate auditor Fumi- meetings and other information to the outside auditors as necessary. hiko Saito to receive audit information on its corporate activities from a broad-ranging and advanced viewpoint based on his exten- sive experience and a high level of insight in legal affairs.42 Annual Report 2009
  • 45. Corporate Governance 6. Provisions of the Articles of Incorporation■ Items Approved by the General Meeting of Shareholders more and two-thirds or more of those present vote in favor of the that Can Then Be Decided by the Board of Directors decision.The Articles of Incorporation provide that the Board of Directors This provision was included to make certain that a majority ofmay make decisions regarding the payment of dividends from sur- voting shares are represented for making special decisions at theplus and other sources. (The Company has a policy that the final General Meeting of Shareholders.dividend for the fiscal year is determined by a decision of the Regu-lar General Meeting of Shareholders.) This provision enables man- ■ Requirements for Deciding on the Election of Directorsagement to implement capital policy and dividend policy with The Articles of Incorporation provide that decisions on the electiongreater flexibility. of candidates for director can be made if a quorum of shareholders are present who can exercise voting rights of one-third or more and■ Requirements for Special Decisions by the General a majority vote in favor of the election. Cumulative voting is not al- Meeting of Shareholders lowed in making decisions on the election of directors.The Articles of Incorporation provide that special decisions can bemade at the General Meeting of Shareholders if a quorum of share- ■ Number of Directorsholders are present who can exercise voting rights of one-third or The Articles of Incorporation provide for up to 30 directors. 7. Status of Measures Related to Shareholders and Others with Vested Interests■ Measures to Invigorate Ordinary General Meetings of ■ IR Activities Shareholders and Ensure the Smooth Exercise of For analysts and institutional investors, the Company holds meet- Voting Rights ings to present its results four times a year and meetings with theTo invigorate the annual Ordinary General Meeting of Shareholders, president twice a year. Company representatives visit and hold in-the Company holds the meeting as early as possible. The Compa- formation meetings as needed for major Japanese and overseasny also presents easy-to-understand reports using videos and institutional investors to explain the Honda Group’s future businessslides, and displays its products in the conference room. strategies. Representatives based in North America and Europe The Company sends convocation notices before the date re- also hold information meetings for institutional investors as appro-quired by law, and also allows shareholders to exercise their voting priate. In addition, the Company holds information meetings for in-rights via the Internet, using personal computers or mobile phones. vestors at motor shows and other major events, where presenta-Convocation notices are sent in English to overseas investors. tions on such topics as Honda Group strategies are made by the In these and other ways, the Company strives to make the ex- president or relevant director. Moreover, the Company conductsercise of rights as smooth as possible. regular tours of facilities in Japan and overseas for shareholders and other investors. The latest information for investors is available on the Compa- ny’s website (http://www.honda.co.jp/investors/ in Japanese; http://world.honda.com/investors/ in English). All new information is uploaded to the site simultaneously in Japanese and English. The Company issues a regular publication for shareholders, containing information about its businesses, products, financial status, and other matters. Annual Report 2009 43
  • 46. Corporate Governance ■ Respecting the Perspective of Stakeholders law. We also publish yearly reports on environmental protection ac- Seeking to earn the unwavering trust of customers and society, tivities, safe driving campaigns, and social contribution activities, the Honda Group has formulated a set of behavioral guidelines, which are posted on our website. In addition, we publish a corpo- which is observed by all individual associates (employees). rate social responsibility (CSR) report that comprehensively explains In addition to supplying products incorporating the most ad- our activities related to the environment, safety, and society. vanced safety and environmental technologies, the Company pursues environmental protection activities, safe driving cam- ■ Disclosure of Corporate Information paigns, and social contribution activities covering all aspects of To deliberate the accuracy and appropriateness of corporate infor- its operations, including production, logistics, and sales. These mation that is disclosed through announcements of the closing of initiatives reflect the Company’s effort to earn the trust and un- accounts and other financial reports, the Company has formed the derstanding of society via its corporate activities. Disclosure Committee, which is composed of directors responsible The Company provides information about its corporate ac- for disclosure and other members. tivities via financial reports and other disclosures according to 8. Directors’ Remuneration The total amount of remuneration and bonuses of directors and cor- Bonuses for directors and corporate auditors are paid based porate auditors is determined according to criteria that reflect their on a decision of the Ordinary General Meeting of Shareholders, performance in the Company. taking into consideration the Company’s profits during the fiscal Remuneration for directors and corporate auditors is paid based year, past bonuses paid, and various other factors. on criteria approved by the Board of Directors, and it is paid within the extent of the maximum amount resolved by the Ordinary General Meeting of Shareholders. (Millions of yen) Directors Corporate Auditors Total Type of remuneration Number Amount Number Amount Number Amount Director/corporate auditor remuneration 21 724 7 123 28 848 Director/corporate auditor bonuses 21 265 5 27 26 293 Total — 990 — 151 — 1,141 Notes: 1. The upper limit on directors’ and corporate auditors’ compensation is ¥90 million per month for services as director and, for corporate auditors, ¥18 million per month for services as auditor. 2. The figures in the table above are for services as director or corporate auditor for the fiscal year under review. The amount shown for director/corporate auditor remuneration is the amount paid during the year under review. The amount shown for director/corporate auditor bonuses is the provision to the reserve for directors/corporate auditors bonuses for the year under review. 3. In addition to the figures in the table above, the Company bore costs of ¥103 million related to retirement payments to 20 directors and ¥17 million related to retirement payments to 6 corporate auditors. Please note that the Company eliminated its system for retirement payments to directors and corporate auditors as of the closing of the Annual General Meeting of Shareholders (the 84th general meeting) held on June 24, 2008, and the decision was made to pay the amount of such retirement payments accrued through that shareholders’ meeting as a sole and final retirement allowance payment. Please note that the total compensation and other costs paid to the two outside directors and the three outside auditors applicable to the fiscal year under review was ¥67 million.44 Annual Report 2009
  • 47. Corporate GovernanceCompanies listed on the New York Stock Exchange (NYSE) must The following table shows the significant differences betweencomply with certain standards regarding corporate governance un- the corporate governance practices followed by U.S. listed compa-der Section 303A of the NYSE Listed Company Manual. nies under Section 303A of the NYSE Listed Company Manual and However, listed companies that are foreign private issuers, those followed by Honda.such as Honda, are permitted to follow home-country practice inlieu of certain provisions of Section 303A. Corporate Governance Practices Followed by NYSE- Corporate Governance Practices Followed by Honda Listed U.S. Companies An NYSE-listed U.S. company must have a majority of directors meeting the For Japanese companies that employ a corporate governance system based on independence requirements under Section 303A of the NYSE Listed Company a board of corporate auditors (the “corporate auditor system”), including Honda, Manual. Japan’s Company Law has no independence requirement with respect to directors. The task of overseeing management and, together with the accounting audit firm, accounting is assigned to the corporate auditors, who are separate from the company’s management and meet certain independence requirements under Japan’s Company Law. In the case of Japanese companies that employ the board of corporate auditors system, including Honda, at least half of the corporate auditors must be “outside” corporate auditors who must meet additional independence requirements under Japan’s Company Law. An outside corporate auditor is defined as a corporate auditor who has not served as a director, accounting councilor, executive officer, manager, or any other employee of the company or any of its subsidiaries. Currently, Honda has three outside corporate auditors which constitute 60% of Honda’s corporate auditors. An NYSE-listed U.S. company must have an audit committee composed entirely Like a majority of Japanese listed companies, Honda employs the board of of independent directors, and the audit committee must have at least three corporate auditors system as described above. Under this system, the board of members. corporate auditors is a legally separate and independent body from the board of directors. The main function of the board of corporate auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and review and express an opinion on the method of auditing by the company’s accounting audit firm and on such accounting audit firm’s audit reports, for the protection of the company’s shareholders. Japanese companies that employ the board of corporate auditors system, including Honda, are required to have at least three corporate auditors. Currently, Honda has five corporate auditors. Each corporate auditor has a four- year term. In contrast, the term of each director of Honda is one year. With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, Honda relies on an exemption under that rule which is available to foreign private issuers with boards of corporate auditors meeting certain criteria. An NYSE-listed U.S. company must have a nominating/corporate governance Honda’s directors are elected at a meeting of shareholders. Its Board of committee composed entirely of independent directors. Directors does not have the power to fill vacancies thereon. Honda’s corporate auditors are also elected at a meeting of shareholders. A proposal by Honda’s Board of Directors to elect a corporate auditor must be approved by a resolution of its Board of Corporate Auditors. The Board of Corporate Auditors is empowered to request that Honda’s directors submit a proposal for election of a corporate auditor to a meeting of shareholders. The corporate auditors have the right to state their opinion concerning election of a corporate auditor at the meeting of shareholders. An NYSE-listed U.S. company must have a compensation committee Maximum total amounts of compensation for Honda directors and corporate composed entirely of independent directors. auditors are proposed to, and voted on, by a meeting of shareholders. Once the proposals for such maximum total amounts of compensation are approved at the meeting of shareholders, each of the Board of Directors and Board of Corporate Auditors determines the compensation amount for each member within the respective maximum total amounts. An NYSE-listed U.S. company must generally obtain shareholder approval with Currently, Honda does not adopt stock option compensation plans. When respect to any equity compensation plan. Honda adopts it, it must obtain shareholder approval for stock options only if the stock options are issued with specifically favorable conditions or price concerning the issuance and exercise of the stock options. Annual Report 2009 45
  • 48. Board of Directors, Corporate Auditors and Operating Officers Front row: Chairman and President and Executive Vice President and Representative Director Representative Director Representative Director Satoshi Aoki Takanobu Ito Koichi Kondo Back row: Senior Managing Senior Managing Senior Managing Senior Managing Senior Managing Director Director Director Director Director Akio Hamada Mikio Yoshimi Atsuyoshi Hyogo Shigeru Takagi Tetsuo Iwamura46 Annual Report 2009
  • 49. Directors Chairman and Representative Director Satoshi Aoki President and Representative Director Takanobu Ito President and Director of Honda R&D Co., Ltd. Executive Vice President and Representative Director Koichi Kondo Senior Managing Director Atsuyoshi Hyogo Chief Operating Officer for Regional Operations (China) President of Honda Motor (China) Investment Corporation, Limited Senior Managing Director Mikio Yoshimi Compliance Officer Government & Industrial Affairs Senior Managing Director Shigeru Takagi Chief Operating Officer for Regional Operations (Europe, the Middle & Near East and Africa) President and Director of Honda Motor Europe Limited Senior Managing Director Akio Hamada Chief Operating Officer for Production Operations Risk Management Officer General Supervisor, Quality General Supervisor, Information Systems Senior Managing Director Tetsuo Iwamura Chief Operating Officer for Regional Operations (North America) President and Director of Honda North America, Inc. President and Director of American Honda Motor Co., Inc. Managing Director Tatsuhiro Oyama Chief Operating Officer for Motorcycle Operations Managing Director Fumihiko Ike Chief Operating Officer for Regional Operations (Asia & Oceania) President and Director of Asian Honda Motor Co., Ltd. Managing Director Masaya Yamashita Chief Operating Officer for Purchasing Operations Director Kensaku Hogen Director Nobuo Kuroyanagi Director and Advisor Takeo Fukui Director Hiroshi Kobayashi Chief Operating Officer for Regional Sales Operations (Japan) Director Sho Minekawa Chief Operating Officer for Regional Operations (Latin America) President and Director of Honda South America Ltda. President and Director of Moto Honda da Amazonia Ltda. President and Director of Honda Automoveis do Brasil Ltda. Director Hiroshi Soda Chief Operating Officer for Business Support Operations Chief Officer of Driving Safety Promotion Center Corporate Communications Director Takuji Yamada Chief Operating Officer for Power Product Operations Director Yoichi Hojo Chief Operating Officer for Business Management Operations Director Tsuneo Tanai Chief Operating Officer for Automobile Operations Director Hiroyuki Yamada Chief Operating Officer for Customer Service OperationsNote: Mr. Kensaku Hogen and Mr. Nobuo Kuroyanagi satisfy the required conditions for the outside director provided for in Article 2, Paragraph 1, Item 15 of the Company Law.Corporate Auditors Corporate Auditor (Full-time) Toru Onda Corporate Auditor (Full-time) Hideki Okada Corporate Auditor Koukei Higuchi Advisor of the Board of Tokio Marine & Nichido Fire Insurance Co., Ltd. Corporate Auditor Fumihiko Saito Representative of the Saito Law Office Corporate Auditor Yuji Matsuda President and Director of Mitsubishi UFJ Trust Investment Technology Institute Co., Ltd.Note: Corporate auditors Mr. Koukei Higuchi, Mr Fumihiko Saito, and Mr. Yuji Matsuda are outside corporate auditors as provided for in Article 2, Paragraph 1, Item 16 of the Company Law. Annual Report 2009 47
  • 50. Board of Directors, Corporate Auditors and Operating Officers Operating Officers Managing Officer Suguru Kanazawa Executive Vice President and Director of Honda Motor Europe Limited President and Director of Honda of the U.K. Manufacturing Ltd. Managing Officer Hidenobu Iwata President and Director of Honda of America Mfg., Inc. Operating Officer Manabu Nishimae President and Director of Honda Canada Inc. Operating Officer Koichi Fukuo Quality, Certification & Regulation Compliance Operating Officer Masahiro Takedagawa President and Director of Honda Siel Cars India Limited President and Director of Honda Motor India Private Ltd. Operating Officer Yoshiyuki Matsumoto General Manager of Suzuka Factory of Production Operations Operating Officer Eiji Okawara President and Director of Honda Engineering Co., Ltd. Operating Officer Ko Katayama General Manager of Saitama Factory of Production Operations Operating Officer Masahiro Yoshida General Manager of Hamamatsu Factory of Production Operations Operating Officer Seiji Kuraishi President of Dongfeng Honda Automobile Co., Ltd. Operating Officer Takashi Nagai Executive Vice President of Asian Honda Motor Co., Ltd. Operating Officer Katsushi Watanabe General Manager of Kumamoto Factory of Production Operations Operating Officer Toshiaki Mikoshiba Russia and other CIS contries for Regional Operations (Europe, the Middle & NearEast and Africa) Executive Vice President and Director of Honda Motor Europe Limited Operating Officer Yoshi Yamane General Manager of Corporate Project of the Company Production for Regional Operations (China) Operating Officer Takashi Sekiguchi Executive Vice President of American Honda Motor Co., Inc. Operating Officer Takahiro Hachigo General Manager of Automobile Purchasing Division 2 in Purchasing Operations Operating Officer Hiroshi Sasamoto Manufacturing of Honda Canada Inc. Operating Officer Chitoshi Yokota Automobile Products for Automobile Operations Operating Officer Michimasa Fujino President and Director of Honda Aircraft Company, Inc. Note: The Company has introduced an operating officer system to facilitate transfer of authority to regions and local workplaces and effectively separate the supervisory and executive roles, while also making the Board of Directors more versatile.48 Annual Report 2009
  • 51. Financial SectionFinancial Review 50Consolidated Balance Sheets 64Consolidated Statements of Income 66Consolidated Statements of Stockholders’Equity and Comprehensive Income 67Consolidated Statements of Cash Flows 69Segment Information 70Basis of Translating Financial Statements 75Consolidated Balance Sheets Divided intoNon-Financial Services Businesses and Finance Subsidiaries 76Consolidated Statements of Cash Flows Divided intoNon-Financial Services Businesses and Finance Subsidiaries 77Financial Summary 79Selected Quarterly Financial Data 80 Annual Report 2009 49
  • 52. Financial ReviewOperating and Financial Review Cost reductions and the effect of raw material fluctuationsNet Sales and Other Operating Revenue had a negative impact of ¥182.5 billion, due mainly toHonda’s consolidated net sales and other operating revenues increased raw materials costs, such as steel and precious(hereafter, “net sales”) for the fiscal year ended March 31, grade metals, and an increase in fixed costs per unit as a result2009, decreased ¥1,991.5 billion, or 16.6%, to ¥10,011.2 of reduced production, which was offset by continuing costbillion from the fiscal year ended March 31, 2008, primarily due reductions.to foreign currency translation effects and decreased net sales Selling, general and administrative expenses had a negativein the automobile business. Honda estimates that by applying impact of ¥88.3 billion due mainly to expenses related toJapanese yen exchange rates of the previous fiscal year to the withdrawal from some racing activities and cancellations ofcurrent fiscal year, net sales for the year would have decreased development new models and an increase in provisions forby approximately ¥795.8 billion, or 6.6%, compared to the credit losses and losses on lease residual values in the financialdecrease as reported of ¥1,991.5 billion, which includes services business in North America, which was offset by anegative foreign currency translation effects. decrease in costs for product warranties. Net sales in Japan decreased ¥139.2 billion, or 8.8%, to R&D expenses also had a positive impact of ¥24.7 billion,¥1,446.5 billion from the previous fiscal year and overseas net due mainly to reduction of R&D expenses, which was offset bysales decreased ¥1,852.3 billion, or 17.8%, to ¥8,564.7 billion increased R&D expenses related to safety and environmentalfrom the previous fiscal year. technologies and enhancement of the attractiveness of the products.Operating Income With respect to the discussion above of the changes inOperating income decreased ¥763.4 billion, or 80.1%, to operating income, management identified the factors set forth¥189.6 billion from the previous fiscal year. Excluding negative below and used what it believes to be a reasonable method toforeign currency effects of ¥269.5 billion, caused by the analyze the respective changes in such factors. Each of theseappreciation of the Japanese yen, Honda estimates operating factors is explained below. Management analyzed changes inincome decreased ¥493.8 billion, or 51.8%. these factors at the levels of the Company and its material Factors contributing to the decrease of ¥493.8 billion in consolidated subsidiaries.operating income excluding negative foreign currency effects (1) “Foreign currency effects” consist of “translationcan be summarized as follows (i) changes in net sales and the adjustments”, which come from the translation of themodel mix, (ii) cost reductions and the effect of raw material currency of foreign subsidiaries’ financial statements intocost fluctuations, (iii) changes in selling, general and Japanese yen, and “foreign currency adjustments”, whichadministrative (SG&A) expenses and (iv) R&D expenses. Details result from foreign-currency-denominated sales. Withregarding these factors are as follows. respect to “foreign currency adjustments”, management Changes in net sales and the model mix had a negative analyzed foreign currency adjustments primarily related toimpact of ¥247.7 billion, due mainly to a decrease in income the following currencies: U.S. dollar, Canadian dollar, Euro,attributable to the decreased net sales and changes in the British pound, Brazilian real and Japanese yen, at the levelmodel mix caused by shift of customers’ demands towards of the Company and its material consolidated subsidiaries.more fuel efficient (compact) models in automobile business, (2) With respect to “cost reduction and effects of raw materialwhich was offset by price increases and reduced sales cost fluctuations”, management analyzed cost reductionincentives in automobile business in North America. and effects of raw material cost fluctuations at the levels of the Company and its material foreign manufacturing subsidiaries in North America, Europe and other regions. Net Sales and Other Operating (3) With respect to “changes in net sales and the model mix”, Revenue management analyzed changes in sales volume and the mix Years ended March 31 of product models sold in major markets which resulted in Yen (billions) increases/decreases in profit, as well as certain other reasons for increases/decreases in net sales and cost of 12,000 sales. 10,000 (4) With respect to “selling, general and administrative expenses”, management analyzed reasons for increases/ 8,000 decreases in selling, general and administrative expenses from the previous fiscal year excluding currency translation 6,000 effects. 4,000 Income before Income Taxes, Minority Interest and Equity in Income of Affiliates 2,000 Income before income taxes, minority interest and equity in income of affiliates decreased ¥734.1 billion, or 81.9%, to 0 ¥161.7 billion. Main factors of this decrease, except factors 05 06 07 08 09 relating to operating income, are as follows; Unrealized gains and losses related to derivative instruments, such as interest rate swaps of finance subsidiaries, had a positive impact of ¥85.7 billion. On the other hand, realized50 Annual Report 2009
  • 53. losses related to derivative instruments and the losses Business Segmentsassociated with the revaluation of investment securities had a Motorcycle Businessnegative impact of ¥56.4 billion, which was offset by the effects Honda’s unit sales of motorcycles, all-terrain vehicles (ATVs)of foreign currency transaction gains. and personal watercraft (PWC) totaled 10,114 thousand units, increased by 8.5% from the previous fiscal year. Unit sales inIncome Tax Expense Japan totaled 232 thousand units, decreased by 25.4%.Income tax expense decreased ¥277.6 billion, or 71.7%, to Overseas unit sales totaled 9,882 thousand units, increased by¥109.8 billion. The effective tax rate increased 24.7 percentage 9.7%, due mainly to an increase in unit sales of parts for localpoints to 67.9%, from the previous year, which was higher than production at affiliates accounted for under the equity methodthe Japanese statutory income tax rate of 40.0% by 27.9 in Asia and an increase in unit sales in Other Regions, includingpercentage points. Brazil. Revenue from external customers decreased ¥147.1 billion, or 9.4%, to ¥1,411.5 billion from the previous fiscal year,Minority Interest in Income of Consolidated Subsidiaries due mainly to negative foreign currency translation effects,The amount deducted for minority interest in income of which was offset by increased overseas unit sales. Hondaconsolidated subsidiaries decreased ¥13.3 billion, or 49.0%, to estimates that by applying Japanese yen exchange rates of the¥13.9 billion from the previous fiscal year. previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately ¥18.5 billion, orEquity in Income of Affiliates 1.2%, compared to the decrease as reported of ¥147.1 billion,Equity in income of affiliates decreased ¥19.9 billion, or 16.7%, which includes negative foreign currency translation effects.to ¥99.0 billion, due mainly to a decrease in income of affiliates Operating income decreased ¥51.3 billion, or 34.0%, tothat primarily manufacture components and parts for Honda’s ¥99.9 billion from the previous fiscal year, due mainly toproducts in Japan, because of a decrease in their revenues, increased raw material costs, the negative foreign currencywhich was partially offset by an increase in income of affiliates effects and increased SG&A expenses, which was offset byin Asia, because of an increase in their revenues resulting from price increases and decreased R&D expenses.further automobile market expansion. Automobile BusinessNet Income Honda’s unit sales of automobiles totaled 3,517 thousandNet income decreased ¥463.0 billion, or 77.2%, to ¥137.0 units, decreased by 10.4% from the previous fiscal year. Unitbillion from the previous fiscal year. sales in Japan totaled 556 thousand units, decreased by 9.6%. Overseas unit sales totaled 2,961 thousand units, decreased by 10.5%, due mainly to a decrease in unit sales in North America, which was offset by an increase in unit sales in Asia Net Income and Net Income and Other Regions including Brazil. per Common Share Revenue from external customers decreased ¥1,814.9 Years ended March 31 billion, or 19.1%, to ¥7,674.4 billion from the previous fiscal Yen (billions) (Yen) year, due to the negative foreign currency translation effects 800 400 and decreased unit sales. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have decreased 600 300 by approximately ¥889.9 billion, or 9.4%, compared to the decrease as reported of ¥1,814.9 billion, which includes negative foreign currency translation effects. 400 200 Operating income decreased ¥637.1 billion, or 96.3%, to ¥24.5 billion, from the previous fiscal year, due mainly to a decrease in income attributable to the decreased net sales in 200 100 North America and Japan, the negative foreign currency effects, an increase in fixed costs per unit as a result of reduced production, increased raw material costs, changes in 0 0 the model mix caused by shift of customers’ demands towards 05 06 07 08 09 more fuel efficient (compact) models and expenses related to Net Income (left) withdrawal from some racing activities and cancellations of Net Income per Common Share development of new models, which was offset by continuing (right) cost reduction, price increases, a decrease in costs for product warranties, decreased R&D expenses and reduced sales incentives in North America. Annual Report 2009 51
  • 54. Power Product and Other Businesses Our finance subsidiaries in North America have historicallyHonda’s unit sales of power products totaled 5,187 thousand accounted for all leases as direct financing leases. However,units, decreased by 14.4% from the previous fiscal year. Unit starting in the fiscal year ended March 31, 2007, some of thesales in Japan totaled 516 thousand units, decreased by 6.2%. leases which do not qualify for direct financing leasesOverseas unit sales totaled 4,671 thousand units, decreased accounting treatment are accounted for as operating leases.by 15.2%, due mainly to decreased unit sales in North America Generally, direct financing lease revenues and interest incomeand Europe. Revenue from external customers decreased consist of the recognition of finance lease revenue at inception¥78.1 billion, or 18.5%, to ¥343.0 billion from the previous of the lease arrangement and subsequent recognition of thefiscal year, due mainly to the decreased unit sales and negative interest income component of total lease payments using theforeign currency translation effects. Honda estimates that by effective interest method. In comparison, operating leaseapplying Japanese yen exchange rates of the previous fiscal revenues include the recognition of the gross lease paymentyear to the current fiscal year, net sales for the year would have amounts on a straight line basis over the term of the leasedecreased by approximately ¥49.0 billion, or 11.7%, compared arrangement, and operating lease vehicles are depreciated toto the decrease as reported of ¥78.1 billion, which includes their estimated residual value on a straight line basis over thenegative foreign currency translation effects. term of the lease. It is not anticipated that the differences in Operating loss was ¥15.4 billion, a decrease of ¥37.8 billion accounting for operating leases and direct financing leases willof operating income from the previous fiscal year, due mainly to have a material net impact on Honda’s results of operationsa decrease in income attributable to the decreased net sales overall, however, operating lease revenues and associatedand increase in R&D expenses in other businesses, which was depreciation of leased assets do result in differing presentationoffset by decreased SG&A expenses. and timing compared to those of direct financing leases.Financial Services Business Geographical InformationTo support the sale of its products, Honda provides retail Japanlending and leasing to customers and wholesale financing to In Japan, revenue from domestic and export sales decreaseddealers through our finance subsidiaries in Japan, the United 726.4 billion, or 14.9%, to ¥4,162.5 billion from the previousStates, Canada, the United Kingdom, Germany, Brazil, Thailand fiscal year, due mainly to a decrease in revenue in automobileand other countries. business. Operating loss was ¥161.6 billion, a decrease of In North America, the financial crisis had a severe impact on ¥354.1 billion of operating income from previous fiscal year,the economy, the deterioration in employment conditions, due mainly to negative foreign currency effects, a decrease indeterioration in consumer sentiment and other factors. As a income attributable to the decreased revenue, increased rawresult, the environment for financial services business remained material costs, an increase in fixed costs per unit as a result ofunder pressure. reduced production and expenses related to withdrawal from Total amount of finance subsidiaries-receivables and property some racing activities and cancellations of development of newon operating leases of finance subsidiaries decreased by 2.2%, models, which was offset by continuing cost reductions,to ¥4,860.1 billion from the previous fiscal year, due mainly to decreased SG&A and R&D expenses.the currency translation effects. Revenue from external customers in a financial services North Americabusiness increased ¥48.7 billion, or 9.1%, to ¥582.2 billion In North America, which mainly consists of the United States,from the previous fiscal year, due mainly to an increase in revenue decreased ¥1,486.1 billion, or 23.7%, to ¥4,779.1operating lease revenue, which was offset by negative foreign billion from the previous fiscal year, due mainly to negativecurrency translation effects. Honda estimates that by applying foreign currency translation effects and a decrease in revenueJapanese yen exchange rates of the previous fiscal year to the in automobile business. Operating income decreased ¥352.9current fiscal year, revenue for the year would have increased billion, or 81.6%, to ¥79.7 billion from the previous fiscal year,by approximately ¥124.7billion, or 23.4%, compared to the due mainly to a decrease in income attributable to theincrease as reported of ¥48.7 billion, which includes negative decreased revenue, an increase in fixed costs per unit as aforeign currency translation effects. result of reduced production, negative foreign currency effects, Operating income decreased ¥37.1 billion, or 31.5%, to and increased raw material costs, which was offset by¥80.6 billion from the previous fiscal year, due mainly to an continuing cost reductions and decreased SG&A expenses.increase in provisions for credit losses and losses on leaseresidual values in North America and negative foreign currency Europetranslation effects, which was offset by an increase in income In Europe, revenue decreased ¥315.3 billion, or 19.8% toattributable to higher revenue. In North America, prices of SUVs ¥1,278.9 billion from the previous fiscal year, due mainly toand minivans in the used car market dropped during the fiscal negative foreign currency translation effects and a decrease infirst half, and losses on lease residual values of these models revenue in the motorcycle business and automobile business.increased. In addition, from September onward, losses on Operating income decreased ¥41.3 billion, or 80.2%, to ¥10.2lease residual values of compact and mid-sized sedans and billion from the previous fiscal year, due mainly to a decrease inother passenger vehicles also increased. In addition, provisions income attributable to the decreased revenue, increased SG&Afor credit losses also increased as the ability of certain expenses, an increase in fixed costs per unit as a result ofcustomers to pay their debts declined. reduced production and increased raw material costs, which was offset by continuing cost reductions.52 Annual Report 2009
  • 55. Asia introduced its PGM-FI electronic fuel injection systems on itsIn Asia, revenue decreased ¥30.0 billion, or 1.8% to ¥1,608.2 fully redesigned 50cc Monkey leisure model and its SHADOWbillion from the previous fiscal year, due mainly to negative Classic 400 cruiser model as well as its new model SHADOWforeign currency translation effects, which was offset by Custom 400. These systems further improve environmentalincrease in revenue in automobile business. Operating income performance and contribute to a superior start-up and adecreased ¥27.1 billion, or 20.7%, to ¥103.6 billion from the smooth ride. Moreover, Honda has converted both itsprevious fiscal year, due mainly to negative foreign currency combined brake system for front and rear wheels and itseffects, increased raw material costs and increased SG&A anti-lock braking system to electronic operation for more-expenses. precise control and developed the world’s first electronically controlled “Combined ABS,” which is an advanced system thatOther Regions greatly increases the feeling of security when braking. ThisIn Other Regions, revenue increased ¥51.4 billion, or 4.7%, to system has been installed on the CBR1000RR ABS super¥1,144.2 billion from the previous fiscal year, due mainly to an sports model and the CBR600RR ABS, which have been newlyincrease in revenue in all businesses, which was offset by a introduced on the market. In addition, in Brazil, Honda hasdecrease in negative foreign currency translation effects. newly launched the CG150 TITAN MIX motorcycle equippedOperating income increased ¥18.5 billion, or 16.0%, to ¥135.0 with its flexible-fuel technology that makes possible the use ofbillion from the previous fiscal year, due mainly to an increase in any ratio of bioethanol and gasoline. This is the first motorcycleincome attributable to an increase in revenue and continuing in the world to offer this feature.cost reductions, which was offset by increased SG&A R&D expenses in the Motorcycle Business segment in fiscalexpenses and increased raw material costs. 2009 totaled ¥83.6 billion.Research and Development Automobile BusinessHonda and its consolidated subsidiaries use the most In the Automobile Business segment, we work to developadvanced technologies to conduct R&D activities aimed at innovative technologies and products through creativity-creating distinctive products that are internationally competitive. oriented development in response to customer needs. We areThe Group’s main R&D divisions operate independently as also actively developing technologies that addresssubsidiaries, allowing technicians to pursue their tasks with environmental issues and provide advanced safetysignificant freedom. Product-related R&D is spearheaded by performance.Honda R&D Co., Ltd.; Honda R&D Americas, Inc. in the United Major achievements in Japan during the fiscal year 2009States; and Honda R&D Europe (Deutschland) GmbH in included the introduction of the new FREED, a compactGermany. R&D on production technologies centers around minivan that offers a compact body size as well as a roomy andHonda Engineering Co., Ltd. in Japan and Honda Engineering comfortable interior. Also, Honda implemented full modelNorth America, Inc. All of these entities work in close changes for the Odyssey and Accord and equipped theseassociation with our other entities and businesses in their models with its Motion Adaptive Electric Power Steering Assistrespective regions. system, which provides driving stability support by stabilizing Total consolidated R&D expenses for the year ended March the steering motion when vehicle behavior becomes unstable31, 2009 amounted to ¥563.1 billion. due to cornering or changes in road conditions. In addition, Honda carried out a full model change on the Life andMotorcycle Business equipped it with the world’s first i—SRS air-bag system for theIn the motorcycle business, Honda is committed to developing driver’s seat with continuously staged inflation, which offers aproducts with new value-added features that meet the high degree of protection and low impact for passengersindividual needs of customers around the world, and to through continuous variability of the air-bag capacity andimplementing the timely local development of products tailored emission control. Moreover, Honda introduced the Insight, itsto specific regions at its overseas locations. At the same time, new model hybrid car, equipped with Honda’s lightweight,we are focusing on developing industry-leading technologies compact hybrid system and Eco Assist (Ecological Drivethat address safety and environmental issues. Assist System), which offer superior eco-performance and a Major developments in Japan in fiscal 2009 included the comfortable ride. Additionally, Honda commenced thedevelopment of Japan’s first built-in type navigation system for production of the FCX Clarity, a new model fuel cell vehicle,motorcycles. The system is designed to be positioned below and began to lease these vehicles in Japan in November 2008the meters for best legibility and visibility for the driver and, for and in the United States in July 2008.safety, the navigation system can be operated as the rider R&D expenses in the Automobile Business segment in fiscalcontinues to hold the handles. These systems have been 2009 totaled ¥422.3 billion.installed on a limited basis on Honda’s GOLDWING AIRBAGNAVI sports touring motorcycle. In addition, Honda has Annual Report 2009 53
  • 56. Power Product and Other Businesses developed information extraction technology to deviseIn the Power Product Business, we are seeking to develop systems that will enable the control of robots by humanproducts that match customers’ lifestyles and needs while thought alone. Looking to the future, this technology will bestrengthening our lineup of offerings that address further developed for application to human-friendly productsenvironmental issues. by integrating it with intelligent technologies and/or robotic Important developments in this segment in Japan during the technologies.fiscal year included expanding the product lineup and sales Expenses incurred in fundamental research are distributedcoverage of solar cell batteries manufactured by a Honda among Honda’s business segments.subsidiary, which is engaged in the production and marketing ofthese batteries. In view of the rising concern in Japan aboutenvironmental issues, coverage was extended on a nationwide R&D Expenses and R&D Expensesbasis to include not only units for use in households but also as a Percentage of Net Salesthin-film solar batteries for the public sector and industry. Also in Years ended March 31the power product operations in Japan, Honda introduced the Yen (billions) (%)Yukios SB800, which is a compact and lightweight snow 600 6removal device that clears snow without blowing it from oneplace to another and can be used easily, even by beginners.Also, in Japan, Honda introduced the Pianta FV200, a gas-powered mini-tiller that uses the same butane gas canisters that 400 4are already in wide use among households for poweringportable gas stoves. This mini-tiller is easy to use, even forbeginners, and is suited to making home gardening easier andmore fun. 200 2 R&D expenses in this segment in fiscal 2009 totaled to¥57.2 billion.Fundamental Research 0 0In the area of fundamental research, Honda is pursuing steady 05 06 07 08 09and varied research activities into technologies that may lead R&D Expenses (left)to innovative applications. R&D Expenses as a Percentage One of Honda’s research initiatives is developmental work of Net Sales (right)on a Walking Assist Drive, which can provide support forpersons whose legs have become weak. Honda is conductingthis research jointly with medical institutions and has Capital Expendituresannounced a test model. Going forward, Honda will be Capital expenditures in fiscal 2009 were applied to theverifying the effectiveness of these devices in actual use. introduction of new models, upgrade, rationalize and renew In another research area, Honda has decided to build a new production facilities, as well as to expand and reinforce salesresearch facility with the aim of commercializing manufacturing and R&D facilities.technologies for bioethanol produced from cellulose materials, Total capital expenditures for the year amounted toincluding caulome, leaves, and other substances that are not ¥1,267.2 billion, down ¥226.0 billion from the previous year.suited for consumption as food. Also, total capital expenditures, excluding property on Additionally, Honda’s subsidiary, Honda Research Institute operating leases, for the year amounted to ¥599.1 billion,Japan Co., Ltd., is conducting joint research on brain machine down ¥54.8 billion from the previous year. Spending byinterface (BMI) technology. These research activities are the business segment is shown below.first in the world to combine electroencephalography andnear-infrared spectroscopy technologies as well as newly Fiscal years ended March 31, 2008 2009 Increase (Decrease) Yen (millions)Motorcycle Business ¥ 86,687 ¥ 90,401 ¥ 3,714Automobile Business 544,922 490,760 (54,162)Financial Services Business 839,888 669,178 (170,710)Financial Services Business (Excluding Property on Operating Leases) 627 1,050 423Power Product and Other Businesses 21,794 16,920 (4,874) Total ¥1,493,291 ¥1,267,259 ¥(226,032) Total (Excluding Property on Operating Leases) ¥ 654,030 ¥ 599,131 ¥ (54,899)Note: Intangible assets are not included in the table above.54 Annual Report 2009
  • 57. In the motorcycle business, we made capital expenditures of The estimated amounts of capital expenditures for fiscal year¥90,401 million in the fiscal year ended March 31, 2009. Funds ending March 31, 2010 are shown below.were allocated to the introduction of new models, as well as the Fiscal year endingimprovement, streamlining and modernization of production March 31, 2010facilities, and improvement of Sales and R&D facilities. The plan Yen (millions)to consolidate motorcycle production in Japan at Kumamoto Motorcycle Business ¥ 47,100Factory was completed in August 2008. Automobile Business 316,900 In the automobile business, we made capital expenditures of Financial Services Business 500¥490,760 million in the fiscal year ended March 31, 2009. Funds Power Product and Other Businesses 25,500were allocated to the introduction of new models, as well as the Total ¥390,000improvement, streamlining and modernization of production Notes: The estimated amount of capital expenditures for Financial Services Business infacilities, and improvement of Sales and R&D facilities. Honda the above table does not include property on operating leases.Canada Inc., which is one of the Company’s consolidated Intangible assets are not included in the table above.subsidiaries, completed construction of its facilities for theproduction of engines in September 2008. Honda Manufacturingof Indiana, LLC and Honda Automobile (Thailand) Co., Ltdcompleted construction of its facilities for the production of Capital Expenditures andautomobiles in October 2008. Depreciation In the financial services business segment, capital Years ended March 31expenditures excluding property on operating leases amounted Yen (billions)to ¥1,050 million in the fiscal year ended March 31, 2009, while 600capital expenditures for property on operating leases were¥668,128 million. Capital expenditures in power products andother businesses in the fiscal year ended March 31, 2009,totaling ¥16,920 million, were deployed to upgrade, streamline, 400and modernize manufacturing facilities for power products, andto improve R&D facilities for power products.Plans after Fiscal 2009 200We set out our original capital expenditure plans for the periodfrom the fiscal year ended March 31, 2009 during thepreceding fiscal year. We have subsequently modified theseplans as follows: 0 The planned timing of the start of operation in 2010 on the 05 06 07 08 09new auto plant in Yorii-machi Osato-gun, Saitama, Japan has Capital Expendituresbeen postponed for more than two years. The planned timing Depreciationof the start of operation on a new engine plant in Ogawa-machiHiki-gun, Saitama, Japan has not been changed. The planned timing of the start of operation in 2010 on thenew R&D center in Sakura City, Tochigi, Japan has beenpostponed. The planned timing of the start of operation at the end of2009 on the new auto plant of Honda Siel Cars India Limited,which is one of the Company’s consolidated subsidiaries, inRajasthan, India has been postponed. The planned timing of the start of operation in the latter halfof 2010 on the new auto plant capable of synchronous autoproduction—from the engine to the entire automobile—ofYachiyo Industry Co., Ltd., which is one of the Company’sconsolidated subsidiaries, in Yokkaichi City, Mie, Japan hasbeen postponed for a little over one year. Annual Report 2009 55
  • 58. Liquidity and Capital Resources dividends paid. Cash inflows from financing activities decreasedOverview of Capital Requirements, Sources and Uses by ¥157.1 billion compared with the previous fiscal year.The policy of Honda is to support its business activities bymaintaining sufficient capital resources, a sufficient level of Liquidityliquidity and a sound balance sheet. The ¥690.3 billion in cash and cash equivalents at the end of Honda’s main business is the manufacturing and sale of year corresponds to approximately 0.8 month of net sales, andmotorcycles, automobiles and power products. To support this Honda believes it has sufficient liquidity for its businessbusiness, it also provides retail financing and automobile operations.leasing services for customers, as well as wholesale financing At the same time, Honda is aware of the possibility thatservices for dealers. various factors, such as recession-induced market contraction Honda requires operating capital mainly to purchase parts and financial and foreign exchange market volatility, mayand raw materials required for production, as well as to adversely affect liquidity. For this reason, finance subsidiariesmaintain inventory of finished products and cover receivables that carry total short-term borrowings of ¥1,697.4 billion havefrom dealers. Honda also requires funds for capital committed lines of credit equivalent to ¥864.5 billion that serveexpenditures, mainly to introduce new models, upgrade, as alternative liquidity for the commercial paper issued regularlyrationalize and renew production facilities, as well as to expand to replace debt. Honda believes it currently has sufficient creditand reinforce sales and R&D facilities. limits, extended by prominent international banks as of the date Honda meets its operating capital requirements primarily of the filing of Honda’s form 20-F.through cash generated by operations, bank loans and the Honda’s short- and long-term debt securities are rated byissuance of commercial paper. Year-end balance of liabilities credit rating agencies, such as Moody’s Investors Service, Inc.,associated with the Company and its subsidiaries’ funding for Standard & Poor’s Rating Services, and Rating and Investmentnon-financial services businesses was ¥766.6 billion as of Information, Inc. The following table shows the ratings ofMarch 31, 2009. In addition, the Company’s finance Honda’s unsecured debt securities by Moody’s, Standard &subsidiaries fund those financial programs for customers and Poor’s and Rating and Investment Information as of March 31,dealers primarily from corporate bonds, medium-term notes, 2009.commercial paper, securitization of finance receivables and Credit Ratings forintercompany loans. Year-end balance of liabilities associated Short-term Long-termwith these finance subsidiaries’ funding for financial services unsecured unsecured debt securities debt securitiesbusiness was ¥4,515.8 billion as of March 31, 2009. Moody’s Investors Service P-1 A1Cash Flows Standard & Poor’s Rating Services A-1 A+Consolidated cash and cash equivalents for the year ended Rating and Investment Information a-1+ AAMarch 31, 2009 decreased by ¥360.5 billion from March 31, The above ratings are based on information provided by2008, to ¥690.3 billion. The reasons for the increases or Honda and other information deemed credible by the ratingdecreases for each cash flow activity are as follows. agencies. They are also based on the agencies’ assessment of Net cash provided by operating activities amounted to credit risk associated with designated securities issued by¥383.6 billion of cash inflows. Cash inflows from operating Honda. Each rating agency may use different standards foractivities decreased by ¥743.2 billion compared with the calculating Honda’s credit rating, and also makes its ownprevious fiscal year, due mainly to a decrease in cash received assessment. Ratings can be revised or nullified by agencies atfrom customers, primarily due to lower unit sales in the any time. These ratings are not meant to serve as aautomobile business in North America and an increase in recommendation for trading in or holding Honda’s unsecuredinventories, which was offset by decreased payments for parts debt securities.and raw materials primarily due to a decrease in automobileproduction and decreased payments for operating expenses. Off-Balance Sheet Arrangements Net cash used in investing activities amounted to ¥1,133.3 Special Purpose Entitybillion of cash outflows, due mainly to capital expenditures and For the purpose of accelerating the receipt of cash related tothe purchase of operating lease assets (which exceeds our finance receivables, we periodically securitize and sell poolsproceeds from sales of operating lease assets), which was of these receivables. In these securitizations, we sell a portfoliooffset by collections of and proceeds from sales of finance of finance receivables to a special purpose entity, which issubsidiaries-receivables (which exceeded acquisitions of established for the limited purpose of buying and resellingfinance subsidiaries-receivables). Cash outflows from investing finance receivables. We remain as a servicer of the financeactivities decreased by ¥553.0 billion compared with the receivables and are paid a servicing fee for our services. Theprevious fiscal year, due mainly to a decrease in acquisitions of special purpose entity transfers the receivables to a trust orfinance subsidiaries-receivables and the purchases of operating bank conduit, which issues interest-bearing asset-backedlease assets and an increase in proceeds from sales of finance securities or commercial paper, respectively, to investors. Wesubsidiaries-receivables and operating lease assets. retain certain subordinated interests in the sold receivables in Net cash provided by financing activities amounted to ¥530.8 the form of subordinated certificates, servicing assets andbillion of cash inflows, due mainly to proceeds from long-term residual interests in certain cash reserves provided as creditdebt and increase in short-term debt (which exceeded enhancements for investors. We apply significant assumptionsrepayment of long-term debt), which was offset by cash regarding prepayments, credit losses and average interest56 Annual Report 2009
  • 59. rates in estimating expected cash flows from the trust or bank his/her loan payments, we are required to perform under theconduit, which affect the recoverability of our retained interests guarantee. The undiscounted maximum amount of ourin the sold finance receivables. We periodically evaluate these obligation to make future payments in the event of defaults isassumptions and adjust them, if appropriate, to reflect the ¥33.6 billion. As of March 31, 2009, no amount was accruedperformance of the finance receivables. for any estimated losses under the obligations, as it was probable that the employees would be able to make allGuarantee scheduled payments.At March 31, 2009, we guaranteed ¥33.6 billion of employeebank loans for their housing costs. If an employee defaults onTabular Disclosure of Contractual ObligationsThe following table shows our contractual obligations at March 31, 2009: Yen (millions) Payments due by periodAt March 31, 2009 Total Less than 1 year 1-3 years 3-5 years After 5 yearsLong-term debt ¥2,910,160 ¥ 977,523 ¥1,037,624 ¥798,944 ¥ 96,069Operating leases 128,673 26,776 34,700 19,142 48,055Purchase commitments*1 144,874 144,874 — — —Interest payments*2 326,718 159,012 120,991 44,140 2,575Contributions to defined benefit pension plans*3 82,795 82,795 — — — Total ¥3,593,220 ¥1,390,980 ¥1,193,315 ¥862,226 ¥146,699*1 Honda had commitments for purchases of property, plant and equipment at March 31, 2009.*2 To estimate the schedule of interest payments, the company utilized the balances and average interest rates of borrowings and debts and derivative instruments as of March 31, 2009.*3 Since contributions beyond the next fiscal year are not currently determinable, contributions to defined benefit pension plans reflect only contributions expected for the next fiscal year.If our estimates of unrecognized tax benefits and potential tax benefits are not representative of actual outcomes, our consolidatedfinancial statements could be materially affected in the period We have identified the following critical accounting policiesof settlement or when the statutes of limitations expire, as we with respect to our financial presentation.treat these events as discrete items in the period of resolution.Since it is difficult to estimate actual payment in the future (Product Warranty)related to our uncertain tax positions, unrecognized tax benefit We warrant our products for specific periods of time.totaled ¥125,771 million is not represented in the table above. Product warranties vary depending upon the nature of the At March 31, 2009, we had no material capital lease product, the geographic location of their sales and otherobligations or long-term liabilities reflected on our balance factors.sheet under U.S. GAAP other than those set forth in the table We recognize costs for general warranties on products weabove. sell and product recalls. We provide for estimated warranty costs at the time products are sold to customers or the timeApplication of Critical Accounting Policies new warranty programs are initiated. Estimated warranty costsCritical accounting policies are those which require us to apply are provided based on historical warranty claim experience withthe most difficult, subjective or complex judgments, often consideration given to the expected level of future warrantyrequiring us to make estimates about the effect of matters that costs, including current sales trends, the expected number ofare inherently uncertain and which may change in subsequent units to be affected and the estimated average repair cost perperiods, or for which the use of different estimates that could unit for warranty claims. Our products contain certain partshave reasonably been used in the current period would have manufactured by third party suppliers. Since suppliers typicallyhad a material impact on the presentation of our financial warrant these parts, the expected receivables from warrantiescondition and results of operations. A sustained loss of of these suppliers are deducted from our estimates of accruedconsumer confidence which may be caused by continued warranty obligations.economic slowdown, recession, rising fuel prices, financial We believe our accrued warranty liability is a “criticalcrisis or other factors have combined to increase the accounting estimate” because changes in the calculation canuncertainty inherent in such estimates and assumptions. materially affect net income, and require us to estimate the The following is not intended to be a comprehensive list of all frequency and amounts of future claims, which are inherentlyour accounting policies. uncertain. Our policy is to continuously monitor warranty cost accruals to determine the adequacy of the accrual. Therefore, warranty expense accruals are maintained at an amount we deem adequate to cover estimated warranty expenses. Annual Report 2009 57
  • 60. Actual claims incurred in the future may differ from the The changes in provisions for those product warranties andoriginal estimates, which may result in material revisions to the net sales and other operating revenue for each businesswarranty expense accruals. segment for each of the years in the three-year period ended March 31, 2009 are as follows: Yen (millions)Fiscal years ended March 31 2007 2008 2009Provisions for product warranties Balance at beginning of year ¥ 283,947 ¥ 317,103 ¥ 293,760 Warranty claims paid during the period (113,454) (137,591) (123,509) Liabilities accrued for warranties issued during the period 143,280 136,355 79,576 Changes in liabilities for pre-existing warranties during the period 605 (1,476) 2,233 Foreign currency translation 2,725 (20,631) (18,081) Balance at end of year 317,103 293,760 233,979Net sales and other operating revenue ¥11,087,140 ¥12,002,834 ¥10,011,241(Credit Losses) We believe our allowance for credit losses is a “criticalOur finance subsidiaries provide wholesale financing to dealers accounting estimate” because it requires us to makeand retail lending and leasing to customers mainly in order to assumptions about inherently uncertain items such as futuresupport sales of our products, principally in North America. We economic trends, quality of finance subsidiaries receivables andclassify retail and direct financing lease receivables derived other factors. We review the adequacy of the allowance forfrom those services as finance subsidiaries-receivables. credit losses, and the allowance for credit losses is maintainedOperating leases are classified as property on operating leases. at an amount that we deem sufficient to cover the estimatedCertain finance receivables related to sales of inventory are credit losses incurred on our owned portfolio of financeincluded in trade receivables and other assets in the receivables. However, actual losses may differ from the originalconsolidated balance sheets. estimates as a result of actual results varying from those The majority of the credit risk is with consumer financing assumed in our estimates.and to a lesser extent with dealer financing. To determine the As an example of the sensitivity of the allowance calculation,overall allowance for credit loss amount, receivables are the following scenario demonstrates the impact that a deviationsegmented into pools with common characteristics such as in one of the primary factors estimated as a part of ourproduct and collateral types, credit grades, and original loan allowance calculation would have on the provision andterms. For each of these pools, we estimate losses primarily allowance for credit losses. If we had experienced a 10%based on our historic loss experiences, delinquency rates, increase in net credit losses during fiscal 2009 in our Northrecovery rates and scale and composition of the portfolio, America portfolio, the provision for fiscal 2009 and thetaking factors into consideration such as changing economic allowance balance at the end of fiscal 2009 would haveconditions and changes in operational policies and procedures. increased by approximately ¥7.6 billion and ¥3.1 billion,Estimated losses due to customer defaults on operating leases respectively. Note that this sensitivity analysis may beare not recognized in the allowance for credit losses. These asymmetric, and are specific to the base conditions in fiscallosses are recognized as a component of impairment losses on 2009.operating leases.Additional Narrative of the Change in Credit LossThe following table shows information related to our credit loss experience in our North American portfolio: Yen (billions)Fiscal years ended March 31 2007 2008 2009Charge-offs (net of recoveries) ¥ 26.2 ¥ 39.9 ¥ 44.4Provision for credit losses 25.5 44.8 49.7Allowance for credit losses 28.7 28.4 31.4Ending receivable balance 4,351.8 3,890.4 3,396.4Average receivable balance, net 4,330.8 4,317.0 3,864.7Charge-offs as a % of average receivable balance 0.61% 0.93% 1.15%Allowance as a % of ending receivable balance 0.66% 0.73% 0.93%58 Annual Report 2009
  • 61. The provision for credit losses increased by ¥4.9 billion, or plus proceeds from insurance, if any. We estimate losses on11%, reflecting the continued deterioration of the U.S. lease residual values by evaluating several different factors,economy which has negatively affected certain customers’ including trends in historical and projected used vehicle valuesability to meet their contractual obligations despite the effect of and general economic measures.exchange rate changes. Net charge-offs increased by ¥4.5 We also periodically test our operating leases for impairmentbillion, or 11%. The ending allowance balance increased by under Statement of Financial Accounting Standards (SFAS) No.¥3.0 billion, or 11%, reflecting the higher estimate of losses 144, “Accounting for the Impairment or Disposal of Long-Livedincurred despite the effect of exchange rate changes. Assets”. Losses due to customer defaults on operating leases are not Recoverability of operating leases to be held is measured byrecognized in the provision for credit losses. These losses are a comparison of the carrying amount of operating leases torecognized as a component of impairment losses on operating future net cash flows (undiscounted and without interestleases. Impairment losses recognized totaled ¥8.7 billion and charges) expected to be generated by the operating leases. If¥5.8 billion for fiscal years 2009 and 2008, respectively. Higher such operating leases are considered to be impaired, thelosses are due to the increasing volume of leases that are impairment to be recognized is measured by the amount byaccounted for as operating leases. which the carrying amount of the operating leases exceeds the estimated fair value of the operating leases.(Losses on Lease Residual Values) We believe that our estimated losses on lease residual valuesEnd-customers of leased vehicles typically have an option to is a “critical accounting estimate” because it is highlybuy the leased vehicle for the contractual residual value of the susceptible to market volatility and requires us to makevehicle or to return the vehicle to our finance subsidiaries assumptions about future economic trends and lease residualthrough the dealer at the end of the lease term. Likewise, values, which are inherently uncertain. We believe that thedealers have the option to buy the vehicle returned by the assumptions used are appropriate. However actual lossescustomer or to return the vehicle to our finance subsidiaries. incurred may differ from original estimates.The likelihood that the leased vehicle will be purchased varies If future auction values for all Honda and Acura vehicles independing on the difference between the actual market value our North American direct financing lease portfolio as of Marchof the vehicle at the end of the lease term and the contractual 31, 2009, were to decrease by approximately ¥10,000 per unitvalue determined at the inception of the lease. Our finance from our present estimates, holding all other assumptionsubsidiaries in North America have historically accounted for all constant, the total impact would be an increase in losses onleases as direct financing leases. However, starting in the year lease residual values by approximately ¥0.6 billion. Similarly, ifended March 31, 2007, some of the leases which do not future return rates for our existing portfolio of all Honda andqualify for direct financing leases accounting treatment are Acura vehicles were to increase by one percentage point fromaccounted for as operating leases. our present estimates, the total impact would be an increase in We initially determine the contract residual values by using losses on lease residual values by approximately ¥0.1 billion.our estimate of future used vehicle values, taking into With the same prerequisites shown above, the impacts to theconsideration data obtained from third parties. We are exposed operating lease portfolio would be approximately ¥2.5 billionto risk of loss on the disposition of returned lease vehicles and ¥0.6 billion, which would be recognized over the remainingwhen the proceeds from the sale of the vehicles are less than lease terms. Note that this sensitivity analysis may bethe contractual residual values at the end of the lease term. We asymmetric, and are specific to the base conditions in fiscalperiodically review the estimate of residual values. Downward 2009. Also, declines in auction values are likely to have aadjustments are made for declines in estimated residual values negative effect on return rates which could affect thethat are deemed to be other-than-temporary. For direct sensitivities.financing leases, our finance subsidiaries in North Americapurchase insurance to cover a portion of the estimated residual (Fiscal Year 2009 Compared with Fiscal Year 2008)value. The adjustments on the uninsured portion of the Despite a declining portfolio of direct financing leases and thevehicle’s residual value are recognized as a loss in the period in effect of exchange rate changes, losses on lease residualwhich the estimate changed. For vehicle leases accounted for values increased by ¥11.1 billion or 94% as a result of theas operating leases, the adjustments to estimated residual declines in used vehicle prices. Despite the effect of exchangevalues result in changes to the remaining depreciation expense rate changes, incremental depreciation increased by ¥11.6to be recognized prospectively on a straight-line basis over the billion or 545% due to the increase in operating lease assetsremaining term of the lease. and declines in estimated residual values. The primary components in estimating losses on lease Impairment losses of ¥9.7 billion were recognized inresidual values are the expected frequency of returns, or the accordance with Statement of Financial Accounting Standardspercentage of leased vehicles we expect to be returned by (SFAS) No. 144, “Accounting for the Impairment or Disposal ofcustomers at the end of the lease term, and the expected loss Long-Lived Assets” during the year.severity, or the expected difference between the residual valueand the amount we receive through sales of returned vehicles Annual Report 2009 59
  • 62. (Pension and Other Postretirement Benefits) plans. Our assumed discount rate and rate of salary increaseWe have various pension plans covering substantially all of our as of March 31, 2009 were 6.9-8.0% and 1.5-6.4%,employees in Japan and certain employees in foreign countries. respectively, and our assumed expected long-term rate ofBenefit obligations and pension costs are based on return for fiscal 2009 was 6.5-8.0% for foreign plans.assumptions of many factors, including the discount rate, the We believe that the accounting estimates related to ourrate of salary increase and the expected long-term rate of pension plans is “critical accounting estimate” becausereturn on plan assets. The discount rate is determined mainly changes in these estimates can materially affect our financialbased on the rates of high quality corporate bonds or condition and results of operations.governmental bonds currently available and expected to be Actual results may differ from our assumptions, and theavailable during the period to maturity of the defined benefit difference is accumulated and amortized over future periods.pension plans. The salary increase assumptions reflect our Therefore, the difference generally will be reflected as ouractual experience as well as near-term outlook. Honda recognized expenses and recorded obligations in futuredetermines the expected long-term rate of return based on the periods. We believe that the assumptions currently used areinvestment policies. Honda considers the eligible investment appropriate, however, differences in actual expenses orassets under investment policies, historical experience, changes in assumptions could affect our pension costs andexpected long-term rate of return under the investing obligations, including our cash requirements to fund suchenvironment, and the long-term target allocations of the various obligations.asset categories. Our assumed discount rate and rate of salary The following table shows the effect of a 0.5% change in theincrease as of March 31, 2009 were 2.0% and 2.3%, assumed discount rate and the expected long-term rate ofrespectively, and our assumed expected longterm rate of return return on our funded status, equity, and pension expense.for the year ended March 31, 2009 was 4.0% for JapaneseJapanese Plans Yen (billions)Assumptions Percentage point change (%) Funded status Equity Pension expenseDiscount rate +0.5/–0.5 –87.0/+88.6 +40.9/–46.8 –4.5/+5.5Expected long-term rate of return +0.5/–0.5 — — –3.8/+3.8Foreign Plans Yen (billions)Assumptions Percentage point change (%) Funded status Equity Pension expenseDiscount rate +0.5/–0.5 –14.0/+16.9 +18.7/–20.9 –3.7/+4.2Expected long-term rate of return +0.5/–0.5 — — –2.1/+2.1*1 Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, 2009.*2 Funded status for fiscal 2009 is affected by March 31, 2009 assumptions. Pension expense for fiscal 2009 is affected by March 31, 2009 assumptions.(Income Taxes) estimates of unrecognized tax benefits and potential taxHonda adopted the provision of FASB Interpretation No. 48 benefits are not representative of actual outcomes, our“Accounting for Uncertainty in Income Taxes” (FIN No. 48) on consolidated financial statements could be materially affectedApril 1, 2007. Honda is subject to income tax examinations in in the period of settlement or when the statutes of limitationsmany tax jurisdictions because Honda conducts its operations expire, as we treat these events as discrete items in the periodin various regions of the world. We recognize the tax benefit of resolution.from an uncertain tax position based on the technical merits ofthe position when the position is more likely than not to besustained upon examination. Benefits from tax positions thatmeet the more likely than not recognition threshold aremeasured at the largest amount of benefit that is greater than50% likelihood of being realized upon ultimate resolution. Weperformed a comprehensive review of any uncertain taxpositions in accordance with FIN No. 48. We believe our accounting for tax uncertainties is a “criticalaccounting estimate” because it requires us to evaluate andassess the probability of the outcome that could be realizedupon ultimate resolution. Our estimates may change in thefuture due to new developments. We believe that our estimates and assumptions ofunrecognized tax benefits are reasonable, however, if our60 Annual Report 2009
  • 63. Quantitative and Qualitative Disclosure About Market (Foreign Currency Exchange Rate Risk)Risk Foreign currency forward exchange contracts and purchasedHonda is exposed to market risks, which are changes in foreign option contracts are used to hedge currency risk of salecurrency exchanges rates, in interest rates and in prices of commitments denominated in foreign currencies (principallymarketable equity securities. Honda is a party to derivative U.S. dollars).financial instruments in the normal course of business in order Foreign currency written option contracts are entered into into manage risks associated with changes in foreign currency combination with purchased option contracts to offsetexchange rates and in interest rates. Honda does not hold any premium amounts to be paid for purchased option contracts.derivative financial instruments for trading purposes. The tables below provide information about our derivatives Honda adopted Statement of Financial Accounting related to foreign currency exchange rate risk as of March 31,Standards (SFAS) No. 157, “Fair Value Measurements” effective 2008 and 2009. For forward exchange contracts and currencyApril 1, 2008. This statement defines fair value as the price that options, the table presents the contract amounts and fair value.would be received to sell an asset or paid to transfer a liability All forward exchange contracts and currency contracts to whichin an orderly transaction, and emphasizes that a fair value we are a party have original maturities of less than one year.measurement should be determined based on the assumptionsthat market participants would use in pricing an asset orliability. The adoption of this statement did not have a materialimpact on the Company’s consolidated financial position orresults of operations.Foreign Exchange Risk 2008 2009 Yen (millions) Average Yen (millions) Average Contract contractual Contract contractualFiscal years ended March 31 amounts Fair value rate (Yen) amounts Fair value rate (Yen)Forward Exchange ContractsTo sell US$ ¥214,797 9,199 104.25 ¥182,941 (8,966) 93.33To sell EUR 40,963 64 157.99 42,324 (2,086) 123.40To sell CA$ 14,146 560 101.72 379 (5) 76.99To sell GBP 70,227 2,739 207.07 49,681 (2,673) 133.42To sell other foreign currencies 12,147 362 various 16,549 (387) variousTo buy US$ 7,104 (196) 102.92 3,287 131 94.26To buy other foreign currencies 2,272 (29) various 1,933 (11) variousCross-currencies 254,189 (517) various 234,521 94 various Total ¥615,845 12,182 ¥531,615 (13,903)Currency Option ContractsOption purchased to sell US$ ¥ 96,720 877 various ¥ 24,548 304 variousOption written to sell US$ 136,005 (502) various 51,551 (1,743) variousOption purchased to sell other currencies 17,378 409 various — — —Option written to sell other currencies 22,101 (457) various — — — Total ¥272,204 327 ¥ 76,099 (1,439)(Interest Rate Risks) The following tables provide information about Honda’sHonda is exposed to market risk for changes in interest rates financial instruments that were sensitive to changes in interestrelated primarily to its debt obligations and finance receivables. rates at March 31, 2008 and 2009. For finance receivables andIn addition to short-term financing such as commercial paper, long-term debt, these tables present principal cash flows, fairHonda has long-term debt with both fixed and floating rates. value and related weighted average interest rates. For interestOur finance receivables are primarily fixed rate. Interest rate rate swaps and currency and interest rate swaps, the tableswap agreements are mainly used to manage interest rate risk presents notional amounts, fair value and weighted averageexposure and to convert floating rate financing (normally interest rates. Variable interest rates are determined usingthree-five years) to fixed rate financing in order to match formulas such as LIBOR+ and an index.financing costs with income from finance receivables. Foreigncurrency and interest rate swap agreements used amongdifferent currencies, also serve to hedge foreign currencyexchange risk as well as interest rate risk. Annual Report 2009 61
  • 64. Finance Subsidiaries—Receivables 2008 2009 Yen (millions) Yen (millions) Expected maturity date Average interest Total Fair value Total Within 1 year 1-2 year 2-3 year 3-4 year 4-5 year Thereafter Fair value rateDirect financing leases*1JP¥ ¥ 23,580 — ¥ 24,720 14,156 5,364 3,035 1,438 725 2 — 4.83%US$ 657,278 — 199,172 179,717 19,115 339 1 — — — 6.00%Other 531,776 — 475,409 136,583 144,600 110,581 71,899 11,729 17 — 3.92% Total—Direct Financing Leases ¥1,212,634 — ¥ 699,301 330,456 169,079 113,955 73,338 12,454 19 —Other Finance Receivables:JP¥ ¥ 441,695 437,032 ¥ 450,177 150,408 114,770 83,856 51,594 31,828 17,721 445,588 4.83%US$ 2,515,518 2,645,690 2,561,667 904,796 577,081 494,761 375,378 175,880 33,771 2,481,293 5.55%Other 610,201 524,144 504,599 234,525 121,639 82,669 45,841 17,083 2,842 499,198 6.10% Total—Other Finance Receivables ¥3,567,414 3,606,866 ¥3,516,443 1,289,729 813,490 661,286 472,813 224,791 54,334 3,426,079Retained interest in securitizations*2 54,636 54,636 45,648 45,648 Total*3 ¥4,834,684 ¥4,261,392*1 : Under U.S. generally accepted accounting principles, disclosure of fair values of direct financing leases is not required.*2 : The retained interest in securitizations is accounted for as “trading” securities and is reported at fair value.*3 : The finance subsidiaries—receivables include finance subsidiaries—receivables included in trade receivables and other assets in the consolidated balance sheets.Long-Term Debt (including current portion) 2008 2009 Yen (millions) Yen (millions) Expected maturity date Average Total Fair value Total Within 1 year 1-2 year 2-3 year 3-4 year 4-5 year Thereafter Fair value interestJapanese yen bonds ¥ 250,080 251,166 ¥ 260,000 60,000 60,000 70,000 30,000 40,000 — 290,411 1.18%Japanese yen medium-term notes (Fixed rate) 321,600 324,504 220,263 74,645 77,425 33,650 25,113 6,452 2,978 213,717 1.18%Japanese yen medium-term notes (Floating rate) 165,000 166,308 125,865 20,647 28,687 16,378 58,168 1,985 — 118,553 1.01%U.S. dollar medium-term notes (Fixed rate) 274,346 286,869 390,098 73,511 50,968 34,305 — 143,101 88,213 359,107 5.57%U.S. dollar medium-term notes (Floating rate) 1,005,456 1,010,974 796,545 632,125 65,915 98,505 — — — 780,050 1.45%Loans and others—primarily fixed rate 691,220 701,228 1,117,389 116,595 320,430 181,361 219,545 274,580 4,878 1,023,938 3.92% Total ¥2,707,702 2,741,049 ¥2,910,160 977,523 603,425 434,199 332,826 466,118 96,069 2,785,776Interest Rate Swaps 2008 2009 Yen (millions) Yen (millions)Notional Expected maturity date Average Averageprincipal Contract Contract receive paycurrency Receive/Pay amounts Fair value amount Within 1 year 1-2 year 2-3 year 3-4 year 4-5 year Thereafter Fair value rate rateJP¥ Float/Fix ¥ 2,330 (4) ¥ 510 110 400 — — — — (3) 1.02% 1.55%US$ Float/Fix 2,885,355 (81,730) 2,866,860 1,226,632 938,069 562,758 119,804 19,597 — (88,322) 1.34% 3.95% Fix/Float 403,333 13,135 599,600 146,528 112,343 58,373 1,418 192,531 88,407 36,867 5.35% 2.81% Float/Float 67,127 (36) 24,558 24,558 — — — — — (76) 1.12% 1.56%CA$ Float/Fix 658,179 (9,924) 570,945 206,140 166,961 104,088 70,434 22,847 475 (25,298) 0.85% 3.69% Fix/Float 154,287 4,418 210,427 7,714 39,022 46,769 46,769 70,153 — 17,372 5.22% 2.03% Float/Float 100,876 (325) 32,222 21,901 10,321 — — — — (143) 0.64% 1.00%GBP Float/Fix 23,469 83 22,002 11,377 10,625 — — — — (691) 2.33% 5.00% Total ¥4,294,956 (74,383) ¥4,327,124 1,644,960 1,277,741 771,988 238,425 305,128 88,882 (60,294)62 Annual Report 2009
  • 65. Currency & Interest Rate Swaps 2008 2009 Yen (millions) Yen (millions)Receiving Paying Expected maturity date Average Average side side Contract Contract receive paycurrency currency Receive/Pay amount Fair value amount Within 1 year 1-2 year 2-3 year 3-4 year 4-5 year Thereafter Fair value rate rateJP¥ US$ Fix/Float ¥286,141 37,036 ¥190,565 65,428 67,478 28,140 20,748 6,010 2,761 29,896 1.18% 1.44% Float/Float 153,023 19,641 163,797 18,257 24,508 69,185 50,027 1,820 — 12,220 1.22% 1.83%JP¥ CA$ Fix/Float 2,685 (480) 2,137 2,137 — — — — — 42 0.95% 1.36%Other Other Fix/Float 165,885 34,731 275,013 — 58,570 — 104,070 112,373 — 17,461 5.07% 2.07% Float/Float 55,279 13,161 35,499 35,499 — — — — — 1,578 1.63% 1.35% Total ¥663,013 104,089 ¥667,011 121,321 150,556 97,325 174,845 120,203 2,761 61,197(Equity Price Risk) in certain of these lawsuits. We are also subject to potentialHonda is exposed to equity price risk as a result of its liability under other various lawsuits and claims including 71holdings of marketable equity securities. Marketable equity purported class actions in the United States.securities included in Honda’s investment portfolio are held for Honda records a contingent liability when it is probable thatpurposes other than trading, and are reported at fair value, an obligation has been incurred and the amount of loss can bewith unrealized gains or losses, net of deferred taxes, included reasonably estimated. Honda reviews these pending lawsuitsin accumulated other comprehensive income (loss) in the and claims periodically and adjusts the amounts recorded forstockholders’ equity section of the consolidated balance these contingent liabilities, if necessary, by considering thesheets. At March 31, 2008 and 2009, the estimated fair value nature of lawsuits and claims, the progress of the case and theof marketable equity securities was ¥120.0 billion and ¥54.8 opinions of legal counsel. Honda does not record liabilities forbillion, respectively. lawsuits or potential claims that it believes an unfavorable outcome or when a reasonable estimate of the amount orLegal Proceedings range of loss cannot be determined. After consultation withVarious legal proceedings are pending against us. We believe legal counsel, and taking into account all known factorsthat such proceedings constitute ordinary routine litigation pertaining to existing lawsuits and claims, Honda believes thatincidental to our business. With respect to product liability, the ultimate outcome of such lawsuits and pending claimspersonal injury claims or lawsuits, we believe that any judgment including 71 purported class actions in the United Statesthat may be recovered by any plaintiff for general and special should not result in liability to Honda that would be likely todamages and court costs will be adequately covered by our have an adverse material effect on its consolidated financialinsurance and accrued liabilities. Punitive damages are claimed position, results of operations or cash flows. Annual Report 2009 63
  • 66. Consolidated Balance SheetsHonda Motor Co., Ltd. and SubsidiariesMarch 31, 2008 and 2009 U.S. dollars Yen (millions) (millions)Assets 2008 2009 2009Current assets: Cash and cash equivalents ¥ 1,050,902 ¥ 690,369 $ 7,028 Trade accounts and notes receivable, net of allowance for doubtful accounts of ¥8,181 million in 2008 and ¥7,455 million ($76 million) in 2009 1,021,743 854,214 8,696 Finance subsidiaries—receivables, net 1,340,728 1,172,030 11,931 Inventories 1,199,260 1,243,961 12,664 Deferred income taxes 158,825 198,158 2,017 Other current assets 460,110 462,446 4,708 Total current assets 5,231,568 4,621,178 47,044Finance subsidiaries—receivables, net 2,707,820 2,400,282 24,435Investments and advances: Investments in and advances to affiliates 549,812 505,835 5,149 Other, including marketable equity securities 222,110 133,234 1,357 Total investments and advances 771,922 639,069 6,506Property on operating leases: Vehicles 1,014,412 1,557,060 15,851 Less accumulated depriciation 95,440 269,261 2,741 Net property on operating leases 918,972 1,287,799 13,110Property, plant and equipment, at cost: Land 457,352 469,279 4,777 Buildings 1,396,934 1,446,090 14,721 Machinery and equipment 3,135,513 3,133,439 31,900 Construction in progress 227,479 159,567 1,624 5,217,278 5,208,375 53,022 Less accumulated depreciation and amortization 3,015,979 3,060,654 31,158 Net property, plant and equipment 2,201,299 2,147,721 21,864Other assets 783,962 722,868 7,360 Total assets ¥12,615,543 ¥11,818,917 $120,31964 Annual Report 2009
  • 67. Yen U.S. dollars (millions) (millions)Liabilities, Minority Interests and Stockholders’ Equity 2008 2009 2009Current liabilities: Short-term debt ¥ 1,687,115 ¥ 1,706,819 $ 17,376 Current portion of long-term debt 871,050 977,523 9,951 Trade payables: Notes 39,006 31,834 324 Accounts 1,015,130 674,498 6,867 Accrued expenses 730,615 562,673 5,728 Income taxes payable 71,354 32,614 332 Other current liabilities 258,066 251,407 2,559 Total current liabilities 4,672,336 4,237,368 43,137Long-term debt, excluding current portion 1,836,652 1,932,637 19,675Other liabilities 1,414,270 1,518,568 15,459 Total liabilities 7,923,258 7,688,573 78,271Minority interests in consolidated subsidiaries 141,806 123,056 1,253Stockholders’ equity: Common stock, authorized 7,086,000,000 shares; issued 1,834,828,430 shares 86,067 86,067 876 Capital surplus 172,529 172,529 1,756 Legal reserves 39,811 43,965 448 Retained earnings 5,106,197 5,099,267 51,912 Accumulated other comprehensive income (loss), net (782,198) (1,322,828) (13,467) Treasury stock, at cost 20,290,531 shares in 2008 and 20,219,430 shares in 2009 (71,927) (71,712) (730) Total stockholders’ equity 4,550,479 4,007,288 40,795Commitments and contingent liabilities Total liabilities, minority interests and stockholders’ equity ¥12,615,543 ¥11,818,917 $120,319 Annual Report 2009 65
  • 68. Consolidated Statements of IncomeHonda Motor Co., Ltd. and SubsidiariesYears ended March 31, 2007, 2008 and 2009 U.S. dollars Yen (millions) (millions) 2007 2008 2009 2009Net sales and other operating revenue ¥11,087,140 ¥12,002,834 ¥10,011,241 $101,916Operating costs and expenses: Cost of sales 7,865,142 8,543,170 7,419,582 75,532 Selling, general and administrative 1,818,272 1,918,596 1,838,819 18,720 Research and development 551,847 587,959 563,197 5,733 10,235,261 11,049,725 9,821,598 99,985 Operating income 851,879 953,109 189,643 1,931Other income: Interest 42,364 50,144 41,235 420 Other 13,243 5,384 2,372 24 55,607 55,528 43,607 444Other expenses: Interest 12,912 16,623 22,543 229 Other 101,706 96,173 48,973 500 114,618 112,796 71,516 729 Income before income taxes, minority interest and equity in income of affiliates 792,868 895,841 161,734 1,646Income tax (benefit) expense: Current 300,294 356,095 68,062 693 Deferred (16,448) 31,341 41,773 425 283,846 387,436 109,835 1,118 Income before minority interest and equity in income of affiliates 509,022 508,405 51,899 528Minority interest in income of consolidated subsidiaries (20,117) (27,308) (13,928) (141)Equity in income of affiliates 103,417 118,942 99,034 1,008 Net income ¥ 592,322 ¥ 600,039 ¥ 137,005 $ 1,395 Yen U.S. dollars 2007 2008 2009 2009Basic net income per common share ¥ 324.62 ¥ 330.54 ¥ 75.50 $ 0.7766 Annual Report 2009
  • 69. Consolidated Statements of Stockholders’ Equity and Comprehensive IncomeHonda Motor Co., Ltd. and SubsidiariesYears ended March 31, 2007, 2008 and 2009 Yen (millions) Accumulated other Total Common Capital Legal Retained comprehensive Treasury stockholders’ stock surplus reserves earnings income (loss), net stock equityBalance at March 31, 2006 ¥86,067 ¥172,529 ¥35,811 ¥4,267,886 ¥(407,187) ¥(29,356) ¥4,125,750Cumulative effect of adjustments resulting from the adoption of SAB No. 108, net of tax — — — (62,640) 18,149 — (44,491)Adjustment resulting from change in fiscal year-end of a subsidiary, net of tax — — — 6,214 — — 6,214Adjusted balances at March 31, 2006 86,067 172,529 35,811 4,211,460 (389,038) (29,356) 4,087,473Transfer to legal reserves 1,919 (1,919) —Cash dividends (140,482) (140,482)Comprehensive income (loss): Net income 592,322 592,322 Other comprehensive income (loss), net of tax Adjustments from foreign currency translation 96,775 96,775 Unrealized gains (losses) on marketable securities, net (4,571) (4,571) Unrealized gains (losses) on derivative instruments, net 84 84 Minimum pension liabilities adjustment 8,908 8,908 Total comprehensive income 693,518Adjustment for initially applying SFAS No. 158, net of tax (139,324) (139,324)Purchase of treasury stock (30,974) (30,974)Reissuance of treasury stock (277) 18,891 18,614Adjusted balance at March 31, 2007 ¥86,067 ¥172,529 ¥37,730 ¥4,661,104 ¥(427,166) ¥(41,439) ¥4,488,825Transfer to legal reserves 2,081 (2,081) —Cash dividends (152,590) (152,590)Comprehensive income (loss): Net income 600,039 600,039 Other comprehensive income (loss), net of tax Adjustments from foreign currency translation (312,267) (312,267) Unrealized gains (losses) on marketable securities, net (26,459) (26,459) Unrealized gains (losses) on derivative instruments, net 440 440 Pension and other postretirement benefits adjustments (16,746) (16,746) Total comprehensive income 245,007Purchase of treasury stock (34,404) (34,404)Reissuance of treasury stock (275) 3,916 3,641Adjusted balance at March 31, 2008 ¥86,067 ¥172,529 ¥39,811 ¥5,106,197 ¥(782,198) ¥(71,927) ¥4,550,479 Annual Report 2009 67
  • 70. Consolidated Statements of Stockholders’ Equity and Comprehensive Income Yen (millions) Accumulated other Total Common Capital Legal Retained comprehensive Treasury stockholders’ stock surplus reserves earnings income (loss), net stock equityAdjusted balance at March 31, 2008 ¥86,067 ¥172,529 ¥39,811 ¥5,106,197 ¥(782,198) ¥(71,927) ¥4,550,479Transfer to legal reserves 4,154 (4,154) —Cash dividends (139,724) (139,724)Comprehensive income (loss): Net income 137,005 137,005 Other comprehensive income (loss), net of tax Adjustments from foreign currency translation (477,316) (477,316) Unrealized gains (losses) on marketable securities, net (25,063) (25,063) Unrealized gains (losses) on derivative instruments, net (460) (460) Pension and other postretirement benefits adjustments (37,791) (37,791) Total comprehensive income (403,625)Purchase of treasury stock (62) (62)Reissuance of treasury stock (57) 277 220Balance at March 31, 2009 ¥86,067 ¥172,529 ¥43,965 ¥5,099,267 ¥(1,322,828) ¥(71,712) ¥4,007,288 U.S. dollars (millions) Accumulated other Total Common Capital Legal Retained comprehensive Treasury stockholders’ stock surplus reserves earnings income (loss), net stock equityAdjuted balance at March 31, 2008 $876 $1,756 $406 $51,982 $ (7,964) $(732) $46,324Transfer to legal reserves 42 (42) —Cash dividends (1,422) (1,422)Comprehensive income (loss): Net income 1,395 1,395 Other comprehensive income (loss), net of tax Adjustments from foreign currency translation (4,859) (4,859) Unrealized gains (losses) on marketable securities, net (255) (255) Unrealized gains (losses) on derivative instruments, net (4) (4) Pension and other postretirement benefits adjustments (385) (385) Total comprehensive income (4,108)Purchase of treasury stock (1) (1)Reissuance of treasury stock (1) 3 2Balance at March 31, 2009 $876 $1,756 $448 $51,912 $(13,467) $(730) $40,79568 Annual Report 2009
  • 71. Consolidated Statements of Cash FlowsHonda Motor Co., Ltd. and SubsidiariesYears ended March 31, 2007, 2008 and 2009 Yen U.S. dollars (millions) (millions) 2007 2008 2009 2009Cash flows from operating activities: Net income ¥ 592,322 ¥ 600,039 ¥ 137,005 $ 1,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation excluding property on operating leases 361,747 417,393 441,868 4,498 Depreciation of property on operating leases 9,741 101,032 195,776 1,993 Deferred income taxes (16,448) 31,341 41,773 425 Minority interest in income 20,117 27,308 13,928 141 Equity in income of affiliates (103,417) (118,942) (99,034) (1,008) Dividends from affiliates 54,849 67,764 65,140 663 Provision for credit and lease residual losses on finance subsidiaries—receivables 44,128 58,011 77,016 784 Impairment loss on investments in securities 798 577 26,001 265 Impairment loss on long-lived assets and goodwill excluding property on operating leases — — 21,597 220 Impairment loss on property on operating leases 559 5,850 18,528 189 Loss (gain) on derivative instruments, net 56,836 70,251 (15,506) (158) Decrease (increase) in assets: Trade accounts and notes receivable (49,529) (67,696) (30,025) (306) Inventories (96,839) (100,622) (262,782) (2,675) Other current assets (15,206) (2,609) (82,838) (843) Other assets (5,523) (130,666) 8,640 88 Increase (decrease) in liabilities: Trade accounts and notes payable 38,186 32,327 (133,662) (1,361) Accrued expenses 41,898 (24,768) (102,711) (1,046) Income taxes payable (37,282) 20 (12,861) (131) Other current liabilities 1,103 2,301 10,630 108 Other liabilities 14,274 179,537 74,872 762 Other, net (7,789) (21,530) (9,714) (97) Net cash provided by operating activities 904,525 1,126,918 383,641 3,906Cash flows from investing activities: Increase in investments and advances (9,874) (6,417) (4,879) (50) Decrease in investments and advances 3,829 1,270 1,921 20 Payments for purchases of available-for-sale securities (141,902) (158,426) (31,936) (325) Proceeds from sales of available-for-sale securities 172,806 179,911 26,896 274 Payments for purchases of held-to-maturity securities (13,614) (39,482) (17,348) (177) Proceeds from redemptions of held-to-maturity securities 41,109 32,557 32,667 333 Capital expenditures (597,958) (668,228) (635,190) (6,466) Proceeds from sales of property, plant and equipment 20,641 26,868 18,843 192 Acquisitions of finance subsidiaries—receivables (2,857,024) (2,712,775) (2,303,930) (23,455) Collections of finance subsidiaries—receivables 2,138,875 2,312,311 2,023,031 20,595 Proceeds from sales of finance subsidiaries—receivables 477,927 158,497 324,672 3,305 Purchases of operating lease assets (366,795) (839,261) (668,128) (6,802) Proceeds from sales of operating lease assets 1,276 26,776 100,017 1,018 Net cash used in investing activities (1,130,704) (1,686,399) (1,133,364) (11,538)Cash flows from financing activities: Increase (decrease) in short-term debt, net 306,063 601,957 270,795 2,757 Proceeds from long-term debt 969,491 1,061,792 1,299,984 13,233 Repayments of long-term debt (677,539) (782,749) (889,483) (9,055) Cash dividends paid (140,482) (152,590) (139,724) (1,422) Cash dividends paid to minority interests (7,434) (9,663) (10,841) (110) Sales (purchases) of treasury stock, net (26,689) (30,746) 131 1 Net cash provided by financing activities 423,410 688,001 530,862 5,404Effect of exchange rate changes on cash and cash equivalents 31,527 (23,164) (141,672) (1,442)Net change in cash and cash equivalents 228,758 105,356 (360,533) (3,670)Cash and cash equivalents at beginning of year 716,788 945,546 1,050,902 10,698Cash and cash equivalents at end of year ¥ 945,546 ¥1,050,902 ¥ 690,369 $ 7,028 Annual Report 2009 69
  • 72. Segment Information components of Honda’s about which separate financialHonda has four reportable segments: the Motorcycle business, information is available that is evaluated regularly bythe Automobile business, the Financial services business and management in deciding how to allocate resources and inthe Power product and other businesses, which are based on assessing performance. The accounting policies used for theseHonda’s organizational structure and characteristics of reportable segments are consistent with the accountingproducts and services. Operating segments are defined as policies used in Honda’s consolidated financial statements. Principal products and services, and functions of each segment are as follows:Segment Principal products and services FunctionsMotorcycle business Motorcycles, all-terrain vehicles (ATVs), Research & Development personal watercrafts and relevant parts Manufacturing Sales and related servicesAutomobile business Automobiles and relevant parts Research & Development Manufacturing Sales and related servicesFinancial services business Financial, insurance services Retail loan and lease related to Honda products OthersPower product and Power products and relevant Research & Development other businesses parts, and others Manufacturing Sales and related services OthersSegment InformationAs of and for the year ended March 31, 2007 Yen (millions) Financial Power Product Motorcycle Automobile Services and Other Segment Reconciling Business Business Business Businesses Total Items ConsolidatedNet sales and other operating revenue: External customers ¥1,370,617 ¥ 8,889,080 ¥ 409,701 ¥417,742 ¥11,087,140 ¥ — ¥11,087,140 Intersegment — — 3,633 21,168 24,801 (24,801) —Total 1,370,617 8,889,080 413,334 438,910 11,111,941 (24,801) 11,087,140Cost of sales, SG&A and R&D expenses 1,270,009 8,289,537 297,792 402,724 10,260,062 (24,801) 10,235,261Segment income 100,608 599,543 115,542 36,186 851,879 — 851,879Equity in income of affiliates 23,380 78,537 — 1,500 103,417 — 103,417Assets 1,161,707 5,437,709 5,694,204 338,671 12,632,291 (595,791) 12,036,500Investments in affiliates 118,475 360,673 — 15,065 494,213 — 494,213Depreciation and amortization 40,576 309,877 10,676 10,359 371,488 — 371,488Capital expenditures 68,880 540,859 367,728 16,394 993,861 — 993,861Impairment loss on long-lived assets and goodwill — — 559 — 559 — 559Provision for credit and lease residual losses on finance subsidiaries—receivables ¥ — ¥ — ¥ 44,128 ¥ — ¥ 44,128 ¥ — ¥ 44,12870 Annual Report 2009
  • 73. As of and for the year ended March 31, 2008 Yen (millions) Financial Power Product Motorcycle Automobile Services and Other Segment Reconciling Business Business Business Businesses Total Items ConsolidatedNet sales and other operating revenue: External customers ¥ 1,558,696 ¥ 9,489,391 ¥ 533,553 ¥ 421,194 ¥12,002,834 ¥ — ¥12,002,834 Intersegment — — 15,499 21,571 37,070 (37,070) —Total 1,558,696 9,489,391 549,052 442,765 12,039,904 (37,070) 12,002,834Cost of sales, SG&A and R&D expenses 1,407,409 8,827,726 431,254 420,406 11,086,795 (37,070) 11,049,725Segment income 151,287 661,665 117,798 22,359 953,109 — 953,109Equity in income of affiliates 28,035 89,521 — 1,386 118,942 — 118,942Assets 1,240,527 5,591,311 5,907,839 330,604 13,070,281 (454,738) 12,615,543Investments in affiliates 118,219 411,001 — 16,976 546,196 — 546,196Depreciation and amortization 48,000 356,003 101,987 12,435 518,425 — 518,425Capital expenditures 86,687 544,922 839,888 21,794 1,493,291 — 1,493,291Impairment loss on long-lived assets and goodwill — — 5,850 — 5,850 — 5,850Provision for credit and lease residual losses on finance subsidiaries—receivables ¥ — ¥ — ¥ 58,011 ¥ — ¥ 58,011 ¥ — ¥ 58,011As of and for the year ended March 31, 2009 Yen (millions) Financial Power Product Motorcycle Automobile Services and Other Segment Reconciling Business Business Business Businesses Total Items ConsolidatedNet sales and other operating revenue: External customers ¥1,411,511 ¥7,674,404 ¥ 582,261 ¥343,065 ¥10,011,241 ¥ — ¥10,011,241 Intersegment — — 14,264 25,840 40,104 (40,104) —Total 1,411,511 7,674,404 596,525 368,905 10,051,345 (40,104) 10,011,241Cost of sales, SG&A and R&D expenses 1,311,598 7,649,861 515,854 384,389 9,861,702 (40,104) 9,821,598Segment income (loss) 99,913 24,543 80,671 (15,484) 189,643 — 189,643Equity in income of affiliates 26,105 71,709 — 1,220 99,034 — 99,034Assets 1,047,112 5,219,408 5,735,716 275,607 12,277,843 (458,926) 11,818,917Investments in affiliates 107,431 379,068 — 16,247 502,746 — 502,746Depreciation and amortization 51,200 373,295 199,324 13,825 637,644 — 637,644Capital expenditures 90,401 523,593 671,127 16,920 1,302,041 — 1,302,041Impairment loss on long-lived assets and goodwill 413 18,874 18,528 2,310 40,125 — 40,125Provision for credit and lease residual losses on finance subsidiaries—receivables ¥ — ¥ — ¥ 77,016 ¥ — ¥ 77,016 ¥ — ¥ 77,016 Annual Report 2009 71
  • 74. As of and for the year ended March 31, 2009 U.S. dollars (millions) Financial Power Product Motorcycle Automobile Services and Other Segment Reconciling Business Business Business Businesses Total Items ConsolidatedNet sales and other operating revenue: External customers $14,369 $78,127 $ 5,928 $3,492 $101,916 $ — $101,916 Intersegment — — 145 263 408 (408) —Total 14,369 78,127 6,073 3,755 102,324 (408) 101,916Cost of sales, SG&A and R&D expenses 13,352 77,877 5,252 3,912 100,393 (408) 99,985Segment income (loss) 1,017 250 821 (157) 1,931 — 1,931Equity in income of affiliates 266 730 — 12 1,008 — 1,008Assets 10,660 53,135 58,391 2,805 124,991 (4,672) 120,319Investments in affiliates 1,094 3,859 — 165 5,118 — 5,118Depreciation and amortization 521 3,800 2,029 141 6,491 — 6,491Capital expenditures 920 5,330 6,832 173 13,255 — 13,255Impairment loss on long-lived assets and goodwill 4 192 189 23 408 — 408Provision for credit and lease residual losses on finance subsidiaries—receivables $ — $ — $ 784 $ — $ 784 $ — $ 784Explanatory notes:1. Segment income (loss) is measured in a consistent manner with consolidated operating income, which is net income before other income, other expenses, income tax (benefit) expense, minority interest in income, and equity in income of affiliates. Expenses not directly associated with specific segments are allocated based on the most reasonable measures applicable.2. Assets of each segment are defined as total assets, including derivative financial instruments, investments in affiliates, and deferred tax assets. Segment assets are based on those directly associated with each segment and those not directly associated with specific segments are allocated based on the most reasonable measures applicable except for the corporate assets described below.3. Intersegment sales and revenues are generally made at values that approximate arm’s-length prices.4. Unallocated corporate assets, included in reconciling items, amounted to ¥377,873 million as of March 31, 2007, ¥385,442 million as of March 31, 2008, and ¥257,291 million ($2,619 million) as of March 31, 2009, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of intersegment transactions.5. Depreciation and amortization of the Financial Services Business include ¥9,741 million for the year ended March 31, 2007, ¥101,032 million for the year ended March 31, 2008 and ¥195,776 million ($1,993 million) for the year ended March 31, 2009 related to depreciation of property on operating leases.6. Capital expenditures of the Financial Services Business includes ¥366,795 million for the year ended March 31, 2007, ¥839,261 million for the year ended March 31, 2008 and ¥668,128 million ($6,802 million) for the year ended March 31, 2009 related to purchases of operating lease assets.External Sales and Other Operating Revenue by Product or Service Groups Yen U.S. dollars (millions) (millions)Years ended March 31: 2007 2008 2009 2009Motorcycles and relevant parts ¥ 1,221,638 ¥ 1,418,028 ¥ 1,323,259 $ 13,471All-terrain vehicles (ATVs), personal watercraft and relevant parts 148,979 140,668 88,252 898Automobiles and relevant parts 8,889,080 9,489,391 7,674,404 78,127Financial, insurance services 409,701 533,553 582,261 5,928Power products and relevant parts 287,302 288,243 224,648 2,287Others 130,440 132,951 118,417 1,205Total ¥11,087,140 ¥12,002,834 ¥10,011,241 $101,91672 Annual Report 2009
  • 75. Geographical InformationAs of and for the year ended March 31, 2007 Yen (millions) Japan United States Other Countries TotalSales to external customers ¥2,061,720 ¥5,291,683 ¥3,733,737 ¥11,087,140Long-lived assets 992,723 929,107 610,100 2,531,930As of and for the year ended March 31, 2008 Yen (millions) Japan United States Other Countries TotalSales to external customers ¥2,053,401 ¥5,313,858 ¥4,635,575 ¥12,002,834Long-lived assets 1,084,163 1,479,137 669,546 3,232,846As of and for the year ended March 31, 2009 Yen (millions) Japan United States Other Countries TotalSales to external customers ¥1,871,962 ¥3,990,729 ¥4,148,550 ¥10,011,241Long-lived assets 1,140,316 1,835,163 566,445 3,541,924As of and for the year ended March 31, 2009 U.S. dollars (millions) Japan United States Other Countries TotalSales to external customers $19,057 $40,626 $42,233 $101,916Long-lived assets 11,609 18,682 5,766 36,057The above information is based on the location of the Company and its subsidiaries.Supplemental Geographical InformationIn addition to the disclosure required by U.S. GAAP, Honda provides the following supplemental information as required by FinancialInstruments and Exchange Law:(1) Overseas sales and revenues based on the location of the customer Yen U.S dollars (millions) (millions)Years ended March 31: 2007 2008 2009 2009North America ¥5,980,876 ¥6,068,425 ¥ 4,514,190 $45,955Europe 1,236,757 1,519,434 1,186,012 12,074Asia 1,283,154 1,577,266 1,595,472 16,242Other regions 905,163 1,251,932 1,269,026 12,919Explanatory notes: Major countries or regions in each geographic area: North America United States, Canada, Mexico Europe United Kingdom, Germany, France, Italy, Belgium Asia Thailand, Indonesia, China, India Other Regions Brazil, Australia Annual Report 2009 73
  • 76. (2) Supplemental geographical information based on the location of the Company and its subsidiariesAs of and for the year ended March 31, 2007 Yen (millions) North Other Reconciling Japan America Europe Asia Regions Total Items ConsolidatedNet sales and other operating revenue: External customers ¥2,061,720 ¥6,002,797 ¥1,228,564 ¥1,024,680 ¥769,379 ¥11,087,140 ¥ — ¥11,087,140 Transfers between geographic areas 2,712,403 169,847 119,161 246,723 28,259 3,276,393 (3,276,393) — Total 4,774,123 6,172,644 1,347,725 1,271,403 797,638 14,363,533 (3,276,393) 11,087,140Cost of sales, SG&A and R&D expenses 4,545,988 5,715,817 1,315,736 1,194,250 725,377 13,497,168 (3,261,907) 10,235,261Operating income 228,135 456,827 31,989 77,153 72,261 866,365 (14,486) 851,879Assets 2,985,123 6,834,409 948,922 935,963 414,147 12,118,564 (82,064) 12,036,500Long-lived assets ¥ 992,723 ¥1,028,132 ¥ 198,232 ¥ 219,358 ¥ 93,485 ¥ 2,531,930 ¥ — ¥ 2,531,930As of and for the year ended March 31, 2008 Yen (millions) North Other Reconciling Japan America Europe Asia Regions Total Items ConsolidatedNet sales and other operating revenue: External customers ¥2,053,401 ¥6,091,512 ¥1,502,240 ¥1,307,117 ¥1,048,564 ¥12,002,834 ¥ — ¥12,002,834 Transfers between geographic areas 2,835,639 173,751 91,983 331,173 44,253 3,476,799 (3,476,799) — Total 4,889,040 6,265,263 1,594,223 1,638,290 1,092,817 15,479,633 (3,476,799) 12,002,834Cost of sales, SG&A and R&D expenses 4,696,482 5,832,635 1,542,676 1,507,566 976,335 14,555,694 (3,505,969) 11,049,725Operating income 192,558 432,628 51,547 130,724 116,482 923,939 29,170 953,109Assets 3,127,143 6,863,970 948,544 1,080,439 574,890 12,594,986 20,557 12,615,543Long-lived assets ¥1,084,163 ¥1,589,356 ¥ 171,030 ¥ 260,141 ¥ 128,156 ¥ 3,232,846 ¥ — ¥ 3,232,846As of and for the year ended March 31, 2009 Yen (millions) North Other Reconciling Japan America Europe Asia Regions Total Items ConsolidatedNet sales and other operating revenue: External customers ¥1,871,962 ¥4,534,684 ¥1,191,540 ¥1,335,091 ¥1,077,964 ¥10,011,241 ¥ — ¥10,011,241 Transfers between geographic areas 2,290,625 244,440 87,362 273,140 66,256 2,961,823 (2,961,823) — Total 4,162,587 4,779,124 1,278,902 1,608,231 1,144,220 12,973,064 (2,961,823) 10,011,241Cost of sales, SG&A and R&D expenses 4,324,203 4,699,422 1,268,701 1,504,628 1,009,158 12,806,112 (2,984,514) 9,821,598Operating income (loss) (161,616) 79,702 10,201 103,603 135,062 166,952 22,691 189,643Assets 3,078,478 6,547,880 766,594 1,016,059 450,081 11,859,092 (40,175) 11,818,917Long-lived assets ¥1,140,316 ¥1,918,579 ¥ 110,543 ¥ 253,113 ¥ 119,373 ¥ 3,541,924 ¥ — ¥ 3,541,92474 Annual Report 2009
  • 77. As of and for the year ended March 31, 2009 U.S dollars (millions) North Other Reconciling Japan America Europe Asia Regions Total Items ConsolidatedNet sales and other operating revenue: External customers $19,057 $46,164 $12,130 $13,591 $10,974 $101,916 $ — $101,916 Transfers between geographic areas 23,319 2,488 889 2,781 675 30,152 (30,152) — Total $42,376 $48,652 $13,019 $16,372 $11,649 $132,068 $(30,152) $101,916Cost of sales, SG&A and R&D expenses 44,021 47,841 12,915 15,317 10,274 130,368 (30,383) 99,985Operating income (loss) (1,645) 811 104 1,055 1,375 1,700 231 1,931Assets 31,339 66,659 7,804 10,344 4,582 120,728 (409) 120,319Long-lived assets $11,609 $19,531 $ 1,125 $ 2,577 $ 1,215 $ 36,057 $ — $ 36,057Explanatory notes:1. Major countries or regions in each geographic area: North America United States, Canada, Mexico Europe United Kingdom, Germany, France, Italy, Belgium Asia Thailand, Indonesia, China, India Other Regions Brazil, Australia2. Operating income (loss) of each geographical region is measured in a consistent manner with consolidated operating income, which is net income before other income, other expenses, income tax (benefit) expense, minority interest in income, and equity in income of affiliates.3. Assets of each geographical region are defined as total assets, including derivative financial instruments, investments in affiliates, and deferred tax assets.4. Sales and revenues between geographic areas are generally made at values that approximate arm’s-length prices.5. Unallocated corporate assets, included in reconciling items, amounted to ¥377,873 million as of March 31, 2007, ¥385,442 million as of March 31, 2008, and ¥257,291 million as of March 31, 2009, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of transactions between geographic areas.Basis of Translating Financial StatementsThe consolidated financial statements are expressed in Japanese yen. However, the consolidated financial statements as of and forthe year ended March 31, 2009 have been translated into United States dollars at the rate of ¥98.23 = U.S.$1, the approximateexchange rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2009. Those U.S. dollar amounts presented in theconsolidated financial statements and related notes are included solely for the reader. This translation should not be construed as arepresentation that all the amounts shown could be converted into U.S. dollars. Annual Report 2009 75
  • 78. Consolidated Balance Sheets Divided into Non-Financial ServicesBusinesses and Finance Subsidiaries Yen (millions)At March 31, 2008 and 2009 2008 2009AssetsNon-financial services businesses Current assets: ¥ 4,091,060 ¥ 3,512,567 Cash and cash equivalents 1,022,466 668,114 Trade accounts and notes receivable, net 552,442 436,467 Inventories 1,199,260 1,243,961 Other current assets 1,316,892 1,164,025 Investments and advances 1,023,113 876,976 Property, plant and equipment, net 2,183,220 2,128,368 Other assets 530,156 520,332 Total assets 7,827,549 7,038,243Finance Subsidiaries Cash and cash equivalents 28,436 22,255 Finance subsidiaries—short-term receivables, net 1,351,867 1,180,793 Finance subsidiaries—long-term receivables, net 2,708,367 2,401,469 Net property on operating leases 918,972 1,287,799 Other assets 900,197 843,400 Total assets 5,907,839 5,735,716Reconciling items (1,119,845) (955,042)Total assets ¥12,615,543 ¥11,818,917Liabilities, Minority Interests and Stockholders’ EquityNon-financial services businesses Current liabilities: ¥ 2,301,125 ¥ 2,070,075 Short-term debt 324,507 656,951 Current portion of long-term debt 20,486 19,803 Trade payables 1,057,446 710,395 Accrued expenses 632,506 465,115 Other current liabilities 266,180 217,811 Long-term debt, excluding current portion 56,225 89,891 Other liabilities 1,121,208 1,114,411 Total liabilities 3,478,558 3,274,377Finance Subsidiaries Short-term debt 2,128,442 1,697,481 Current portion of long-term debt 863,797 961,302 Accrued expenses 148,276 142,151 Long-term debt, excluding current portion 1,786,744 1,857,018 Other liabilities 408,803 495,361 Total liabilities 5,336,062 5,153,313Reconciling items (891,362) (739,117)Total liabilities 7,923,258 7,688,573Minority interests in consolidated subsidiaries 141,806 123,056 Common stock 86,067 86,067 Capital surplus 172,529 172,529 Legal reserves 39,811 43,965 Retained earnings 5,106,197 5,099,267 Accumulated other comprehensive income (loss), net (782,198) (1,322,828) Treasury stock (71,927) (71,712)Total stockholders’ equity 4,550,479 4,007,288Total liabilities, minority interests and stockholders’ equity ¥12,615,543 ¥11,818,91776 Annual Report 2009
  • 79. Consolidated Statements of Cash Flows Divided into Non-FinancialServices Businesses and Finance Subsidiaries Yen (millions) 2008 2009 Non-financial Recon- Non-financial Recon- services Finance ciling services Finance cilingYears ended March 31, 2008 and 2009 businesses subsidiaries items Consolidated businesses subsidiaries items ConsolidatedCash flows from operating activities: Net income ¥ 580,728 ¥ 19,323 ¥ (12) ¥ 600,039 ¥ 89,894 ¥ 47,111 ¥ — ¥ 137,005 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 416,438 101,987 — 518,425 438,320 199,324 — 637,644 Deferred income taxes 7,612 23,729 — 31,341 (12,547) 54,320 — 41,773 Minority interests in income 27,280 28 — 27,308 13,886 42 — 13,928 Equity in income of affiliates (118,942) — — (118,942) (99,034) — — (99,034) Dividends from affiliates 67,764 — — 67,764 65,140 — — 65,140 Impairment loss on investments in securities 577 — — 577 26,001 — — 26,001 Impairment loss on long-lived assets and goodwill — 5,850 — 5,850 21,597 18,528 — 40,125 Loss (gain) on derivative instruments, net (14,020) 84,271 — 70,251 24,045 (39,551) — (15,506) Decrease (increase) in trade accounts and notes receivable (57,164) (9,996) (536) (67,696) (55,881) 25,995 (139) (30,025) Decrease (increase) in inventories (100,622) — — (100,622) (262,782) — — (262,782) Increase (decrease) in trade accounts and notes payable 19,299 — 13,028 32,327 (132,909) — (753) (133,662) Other, net 107,049 (4,508) (42,245) 60,296 (144,915) 95,425 12,524 (36,966) Net cash provided by operating activities 935,999 220,684 (29,765) 1,126,918 (29,185) 401,194 11,632 383,641Cash flows from investing activities: Decrease (increase) in investments and advances (87,073) — 96,486 9,413 75,714 — (68,393) 7,321 Capital expenditures (667,601) (627) — (668,228) (632,191) (2,999) — (635,190) Proceeds from sales of property, plant and equipment 26,476 392 — 26,868 18,501 342 — 18,843 Decrease (increase) in finance subsidiaries—receivables — (227,525) (14,442) (241,967) — 45,509 (1,736) 43,773 Purchase of operating lease assets — (839,261) — (839,261) — (668,128) — (668,128) Proceeds from sales of operating lease assets — 26,776 — 26,776 — 100,017 — 100,017 Net cash used in investing activities (728,198) (1,040,245) 82,044 (1,686,399) (537,976) (525,259) (70,129) (1,133,364)Cash flows from financing activities: Increase (decrease) in short-term debt, net 98,926 548,993 (45,962) 601,957 452,437 (243,690) 62,048 270,795 Proceeds from long-term debt 32,387 1,032,504 (3,099) 1,061,792 63,253 1,250,961 (14,230) 1,299,984 Repayment of long-term debt (24,918) (760,750) 2,919 (782,749) (23,165) (879,541) 13,223 (889,483) Proceeds from issuance of common stock — 6,149 (6,149) — — 2,544 (2,544) — Cash dividends paid (152,602) — 12 (152,590) (139,724) — — (139,724) Cash dividends paid to minority interests (9,663) — — (9,663) (10,841) — — (10,841) Payment for purchase of treasury stock, net (30,746) — — (30,746) 131 — — 131 Net cash provided by (used in) financing activities (86,616) 826,896 (52,279) 688,001 342,091 130,274 58,497 530,862Effect of exchange rate changes on cash and cash equivalents (20,028) (3,136) — (23,164) (129,282) (12,390) — (141,672)Net change in cash and cash equivalents 101,157 4,199 — 105,356 (354,352) (6,181) — (360,533)Cash and cash equivalents at beginning of period 921,309 24,237 — 945,546 1,022,466 28,436 — 1,050,902Cash and cash equivalents at end of period ¥1,022,466 ¥ 28,436 ¥ — ¥1,050,902 ¥ 668,114 ¥ 22,255 ¥ — ¥ 690,369Notes:1. Non-financial services businesses lend to finance subsidiaries. These cash flows are included in the decrease (increase) in investments and advances, increase (decrease) in short-term debt, proceeds from long-term debt, and repayment of long-term debt. The amount of the loans to finance subsidiaries is a ¥90,337 million increase for the fiscal year ended March 31, 2008, and a ¥70,937 million decrease for the fiscal year ended March 31, 2009, respectively.2. Decrease (increase) in trade accounts and notes receivable for finance subsidiaries is due to the reclassification of finance subsidiaries—receivables which relate to sales of inventory in the unaudited consolidated statements of cash flows presented above. Annual Report 2009 77
  • 80. Financial SummaryHonda Motor Co., Ltd. and SubsidiariesYears ended or at March 31 1999 2000 2001 2002Sales, income, and dividends Net sales and other operating revenue ¥6,231,041 ¥6,098,840 ¥6,463,830 ¥7,362,438 Operating income 540,978 418,639 401,438 661,202 Income before income taxes, minority interest and equity in income of affiliates 523,168 419,658 388,419 555,854 Income taxes 229,624 170,434 178,439 231,150 Minority interest in income (2,657) (3,595) (3,443) (4,512) Equity in income of affiliates 14,158 16,786 25,704 42,515 Net income 305,045 262,415 232,241 362,707 As percentage of sales 4.9% 4.3% 3.6% 4.9% Cash dividends paid during the period 20,463 20,463 22,412 24,360 Research and development 311,632 334,036 352,829 395,176 Interest expense 27,890 18,920 21,400 16,769Assets, long-term debt, and stockholders’ equity Total assets ¥5,073,660 ¥4,935,976 ¥5,719,020 ¥7,064,787 Long-term debt 673,084 574,566 368,173 716,614 Total stockholders’ equity 1,763,855 1,930,373 2,230,291 2,573,941Capital expenditures (excluding purchase of operating lease assets) 237,080 222,891 285,687 303,424Purchase of operating lease assetsDepreciation (excluding property on operating leases) 177,666 172,139 170,342 194,944Depreciation of property on operating leasesPer common share Net income: Basic ¥ 156.52 ¥ 134.65 ¥ 119.17 ¥ 186.11 Diluted 156.52 134.65 119.17 186.11 Cash dividends paid during the period 10.5 10.5 11.5 12.5 Stockholders’ equity 905.10 990.53 1,144.43 1,320.77Sales progress Sales amounts:* Japan ¥1,556,333 ¥1,612,191 ¥1,740,340 ¥1,868,746 25% 26% 27% 25% Overseas 4,674,708 4,486,649 4,723,490 5,493,692 75% 74% 73% 75% Total ¥6,231,041 ¥6,098,840 ¥6,463,830 ¥7,362,438 100% 100% 100% 100% Unit sales: Motorcycles 4,295 4,436 5,118 6,095 Automobiles 2,333 2,473 2,580 2,666 Power Products 3,412 4,057 3,884 3,926Number of employees 112,200 112,400 114,300 120,600Exchange rate (yen amounts per U.S. dollar) Rates for the period-end ¥ 121 ¥ 106 ¥ 124 ¥ 133 Average rates for the period 128 112 111 125*The geographic breakdown of sales amounts is based on the location of customers.78 Annual Report 2009
  • 81. Yen U.S. dollars (millions) (millions) 2003 2004 2005 2006 2007 2008 2009 2009¥7,971,499 ¥8,162,600 ¥8,650,105 ¥ 9,907,996 ¥11,087,140 ¥12,002,834 ¥10,011,241 $101,916 724,527 600,144 630,920 868,905 851,879 953,109 189,643 1,931 619,413 653,680 668,364 829,904 792,868 895,841 161,734 1,646 245,065 252,740 266,665 317,189 283,846 387,436 109,835 1,118 (9,658) (11,753) (11,559) (15,287) (20,117) (27,308) (13,928) (141) 61,972 75,151 96,057 99,605 103,417 118,942 99,034 1,008 426,662 464,338 486,197 597,033 592,322 600,039 137,005 1,395 5.4% 5.7% 5.6% 6.0% 5.3% 5.0% 1.4% 30,176 33,541 47,797 71,061 140,482 152,590 139,724 1,422 436,863 448,967 467,754 510,385 551,847 587,959 563,197 5,733 12,207 10,194 11,655 11,902 12,912 16,623 22,543 229¥7,821,403 ¥8,380,549 ¥9,368,236 ¥10,631,400 ¥12,036,500 ¥12,615,543 ¥11,818,917 $120,319 1,140,182 1,394,612 1,559,500 1,879,000 1,905,743 1,836,652 1,932,637 19,675 2,629,720 2,874,400 3,289,294 4,125,750 4,488,825 4,550,479 4,007,288 40,795 316,991 287,741 373,980 457,841 627,066 654,030 633,913 6,453 366,795 839,261 668,128 6,802 220,874 213,445 225,752 262,225 361,747 417,393 441,868 4,498 9,741 101,032 195,776 1,993 Yen U.S. dollars¥ 219.71 ¥ 243.45 ¥ 260.34 ¥ 324.33 ¥ 324.62 ¥ 330.54 ¥ 75.50 $ 0.77 219.71 243.45 260.34 324.33 324.62 330.54 75.50 0.77 15.5 17.5 25.5 38.5 77 84 77 0.78 1,367.34 1,527.45 1,778.24 2,259.26 2,463.69 2,507.79 2,208.35 22.48 Yen U.S. dollars (millions) (millions)¥1,748,706 ¥1,628,493 ¥1,699,205 ¥ 1,694,044 ¥ 1,681,190 ¥ 1,585,777 ¥ 1,446,541 $ 14,726 22% 20% 20% 17% 15% 13% 14% 6,222,793 6,534,107 6,950,900 8,213,952 9,405,950 10,417,057 8,564,700 87,190 78% 80% 80% 83% 85% 87% 86%¥7,971,499 ¥8,162,600 ¥8,650,105 ¥ 9,907,996 ¥11,087,140 ¥12,002,834 ¥10,011,241 $101,916 100% 100% 100% 100% 100% 100% 100% Thousands 8,080 9,206 10,482 10,271 10,369 9,320 10,114 2,888 2,983 3,242 3,391 3,652 3,925 3,517 4,584 5,047 5,300 5,876 6,421 6,057 5,187 126,900 131,600 137,827 144,785 167,231 178,960 181,876¥ 120 ¥ 106 ¥ 107 ¥ 117 ¥ 118 ¥ 100 ¥ 98 122 113 108 113 117 114 101 Annual Report 2009 79
  • 82. Selected Quarterly Financial Data Yen (millions except per share amounts) Year ended March 31, 2008 Year ended March 31, 2009 I II III IV I II III IVNet sales and other operating revenue ¥2,931,123 ¥2,971,346 ¥3,044,814 ¥3,055,551 ¥2,867,221 ¥2,826,865 ¥2,533,257 ¥1,783,898Operating income (loss) 221,684 286,338 276,243 168,844 221,347 148,851 102,452 (283,007)Income before income taxes (loss) 218,258 269,992 260,745 146,846 235,095 149,462 86,750 (309,573)Net income (loss) 166,117 208,483 200,009 25,430 179,611 123,316 20,242 (186,164)Basic net income (loss) per American depositary share ¥91.38 ¥114.94 ¥110.25 ¥14.01 ¥98.98 ¥67.96 ¥11.16 ¥(102.59)Tokyo Stock Exchange: (TSE) (in yen) High ¥4,520 ¥4,600 ¥4,400 ¥3,660 ¥3,910 ¥3,850 ¥3,190 ¥2,515 Low 3,950 3,430 3,530 2,610 2,765 3,000 1,643 1,860New York Stock Exchange: (NYSE) (in U.S. dollars) High $36.59 $37.80 $37.64 $33.61 $36.40 $35.67 $30.08 $25.58 Low 33.30 31.29 32.14 27.01 27.69 28.20 17.35 20.28Note: All quarterly financial data is unaudited and has not been reviewed by the independent registered public accounting firm (KPMG AZSA & Co.).80 Annual Report 2009
  • 83. Corporate InformationPrincipal Manufacturing Facilities 82Honda Group 84Honda’s History 86Investor Information 88 Annual Report 2009 81
  • 84. Principal Manufacturing Facilities Location Start of Operations Number of Employees* Principal Products Manufactured *As of March 31, 2009 Motorcycles Automobiles Engines All-terrain vehicles Power products Transmissions U.K. Swindon, Wiltshire 1992 3,744 France Ormes 1986 111 Italy Atessa 1976 822 India Greater Noida 1988 2,030 India Gurgaon China Chongqing 2001 2,669 2002 1,049 Turkey Gebze China Guangzhou 1997 1,295 2005 1,064 China Fuzhou 1995 394 Pakistan Lahore 1994 643 Taiwan Pingtung 2003 740 Thailand Ayutthaya 2000 3,550 Philippines Laguna 1992 690 Malaysia Pagoh 2003 1,451 Philippines Batangas 1983 865 Spain Barcelona Indonesia Jakarta 1986 290 2003 1,343 Thailand Bangkok 1967 2,847 Vietnam Vinhphuc 1997 1,85882 Annual Report 2009
  • 85. Japan Sayama, Saitama 1964 5,571 Japan Hamamatsu, Shizuoka 1954 2,917 Japan Ohzu-machi, Kikuchi-gun, Kumamoto 1976 3,251 Japan Yokkaichi, Mie 1985 2,327 Japan Suzuka, Mie 1960 6,943 U.S.A. Marysville, Ohio 1979 6,842U.S.A. Anna, Ohio1985 2,514 Canada Alliston, Ontario 1986 4,438U.S.A. East Liberty, Ohio1989 2,304 U.S.A. Russells Point, OhioU.S.A Greensburg, Indiana 1981 1,0862008 1,137 U.S.A. Swepsonville, North CarolinaU.S.A. Lincoln, Alabama 1984 5432001 4,468 U.S.A. Timmonsville, South Carolina 1998 680Mexico El Salto U.S.A. Tallapoosa, Georgia1988 2,047 2005 489 Peru Iquitos 2007 70 Brazil Manaus 1976 8,249 Brazil Sumare 1997 3,464 Argentina Buenos Aires 2006 310 Annual Report 2009 83
  • 86. Honda GroupCompany Name Honda Motor Co., Ltd.Established September 24, 1948Lines of Business Motorcycles, Automobiles, Financial Services, and Power Products and OthersHead Office 1-1, 2-chome, Minami-Aoyama, Minato-ku, Tokyo, JapanPrincipal Subsidiaries Main Lines of Business Percentage Country of Ownership and Motorcycle Automobile Financial Services Power Product & Region Incorporation Company Voting Interest Business Business Business Other Businesses FunctionJapan Saitama Honda R&D Co., Ltd. 100.0 ○ ○ ○ Research & Development Tochigi Honda Engineering Co., Ltd. 100.0 ○ ○ ○ Manufacturing and Sales of machine tools, equipment and production techniques Saitama Yachiyo Industry Co., Ltd. 50.5 ○ ○ Manufacturing Tokyo Honda Finance Co., Ltd. 100.0 ○ FinanceNorth U.S.A. American Honda Motor Co., Inc. 100.0 ○ ○ ○ SalesAmerica Honda North America, Inc. 100.0 ○ ○ ○ ○ Coordination of Subsidiaries’ Operation Honda of America Mfg., Inc. 100.0 ○ ○ Manufacturing American Honda Finance Corporation 100.0 ○ Finance Honda Manufacturing of Alabama, LLC 100.0 ○ Manufacturing Honda Manufacturing of Indiana, LLC 100.0 ○ Manufacturing Honda Transmission Mfg. of America, Inc. 100.0 ○ Manufacturing Honda R&D Americas, Inc. 100.0 ○ ○ ○ Research & Development Canada Honda Canada Inc. 100.0 ○ ○ ○ Manufacturing and Sales Honda Canada Finance Inc. 100.0 ○ Finance Mexico Honda de Mexico, S.A. de C.V. 100.0 ○ ○ ○ Manufacturing and SalesEurope U.K. Honda Motor Europe Limited 100.0 ○ ○ ○ ○ Coordination of Subsidiaries’ Operation and Sales Honda of the U.K. Manufacturing Ltd. 100.0 ○ Manufacturing Honda Finance Europe plc 100.0 ○ Finance France Honda Motor Europe (South) S.A. 100.0 ○ ○ ○ Sales Germany Honda Bank GmbH 100.0 ○ Finance Honda Motor Europe (North) GmbH 100.0 ○ ○ ○ Sales Italy Honda Italia Industriale S.p.A. 100.0 ○ ○ Manufacturing and Sales84 Annual Report 2009
  • 87. Main Lines of Business Percentage Country of Ownership and Motorcycle Automobile Financial Services Power Product & Region Incorporation Company Voting Interest Business Business Business Other Businesses FunctionAsia China Honda Motor (China) Investment Corporation, Ltd. 100.0 ○ ○ ○ Coordination of Subsidiaries’ Operation and Sales Honda Automobile (China) Co., Ltd. 65.0 ○ Manufacturing Honda Auto Parts Manufacturing Co., Ltd. 100.0 ○ Manufacturing India Honda Siel Cars India Limited 97.4 ○ Manufacturing and Sales Taiwan Honda Taiwan Co., Ltd. 100.0 ○ Sales Thailand Asian Honda Motor Co., Ltd. 100.0 ○ ○ ○ ○ Coordination of Subsidiaries’ Operation and Sales Honda Leasing (Thailand) Company Limited 100.0 ○ Finance Honda Automobile (Thailand) Co., Ltd. 89.0 ○ Manufacturing and Sales Thai Honda Manufacturing Co., Ltd. 60.0 ○ ○ Manufacturing Vietnam Honda Vietnam Co., Ltd. 70.0 ○ ○ Manufacturing and SalesOthers Argentina Honda Motor de Argentina S.A. 100.0 ○ ○ ○ Manufacturing and Sales Brazil Honda South America Ltda. 100.0 ○ ○ ○ ○ Coordination of Subsidiaries’ Operation Honda Automoveis do Brasil Ltda. 100.0 ○ Manufacturing and Sales Moto Honda da Amazonia Ltda. 100.0 ○ ○ Manufacturing and Sales Turkey Honda Turkiye A.S. 100.0 ○ ○ Manufacturing and Sales Australia Honda Australia Pty. Ltd. 100.0 ○ SalesNote: Percentage Ownership and Voting Interest include ownership through consolidated subsidiaries.Major Affiliated Companies Accounted for under the Equity Method Main Lines of Business Percentage Country of Ownership and Motorcycle Automobile Financial Services Power Product & Region Incorporation Company Voting Interest Business Business Business Other Businesses FunctionJapan Saitama Showa Corporation 33.5 ○ ○ ○ Manufacturing Tokyo Keihin Corporation 42.2 ○ ○ ○ Manufacturing Saitama TS Tech Co., Ltd. 22.7 ○ ○ Manufacturing Shizuoka F.C.C. Co., Ltd. 20.7 ○ ○ ○ Manufacturing Nagano Nissin Kogyo Co., Ltd. 34.7 ○ ○ Manufacturing Saitama H-one Co., Ltd. 23.5 ○ ○ ○ Manufacturing Aichi Musashi Seimitsu Industry Co., Ltd. 26.2 ○ ○ ○ Manufacturing Saitama F-Tech Inc. 20.6 ○ ManufacturingAsia China Guangqi Honda Automobile Co., Ltd. 50.0 ○ Manufacturing and Sales Dongfeng Honda Automobile Co., Ltd. 50.0 ○ Manufacturing and Sales Dongfeng Honda Engine Co., Ltd. 50.0 ○ Manufacturing India Hero Honda Motors Ltd. 26.0 ○ Manufacturing and Sales Indonesia P.T. Astra Honda Motor 50.0 ○ Manufacturing and Sales Thailand A.P. Honda Co., Ltd. 49.0 ○ SalesNote: Percentage Ownership and Voting Interest include ownership through consolidated subsidiaries. Annual Report 2009 85
  • 88. Honda’s History Major Products andYear Noteworthy Events Technologies1946 Soichiro Honda establishes Honda Technical Research Institute in Hamamatsu.1947 Honda produces A-Type bicycle engine.1948 Honda Motor Co., Ltd. incorporated (capital: 1 million yen, 34 associates) established.1949 Production of Dream D-Type, Honda’s first production motorcycle, begins.1950 Tokyo sales office established.1952 Head office moved to Tokyo. Motorcycle exports begin.1953 H-Type engine, Honda’s first power product, produced. Dream D-type (1949) Yamato Factory (now Wako Office) begins operation. Honda Labor Union established.1954 Honda declares participation in the Isle of Man T.T. Race. Production moves from Hamamatsu Yamashita Plant to Hamamatsu Aoi Plant (now Hamamatsu Factory).1955 Honda ranks first in motorcycle production in Japan.1956 Honda Company Principle established.1957 Listed on the Tokyo Stock Exchange.1958 Super Cub motorcycle introduced.1959 American Honda Motor Co., Inc. (Honda’s first overseas subsidiary) established. Honda racing team takes 6th place in 125cc class in the first entry in Isle of Man T.T. Race. Team takes the Super Cub (1958) Constructor’s Prize.1960 Motorcycle production at Suzuka Factory begins. (Automobile production begins in 1967.) R&D department spun off and incorporated as Honda R&D Co., Ltd.1961 European Honda GmbH (now Honda Motor Europe (North) GmbH) (Honda’s first subsidiary in Europe) established in Germany. Honda racing team sweeps first five places in Isle of Man T.T. Race in both 125cc and 250cc categories.1962 Construction of Suzuka Circuit completed.1963 Honda’s first mini-truck (T360) and sports car (S500) introduced. Honda Benelux N.V. (Belgium) begins motorcycle production. (Honda’s first overseas production facility. First T360 (1963) European (EEC) plant by Japanese manufacturers.)1964 Honda announces and makes Formula 1 debut at German Grand Prix (places 9th). Asian Honda Motor Co., Ltd. (Thailand) established. Automobile production at Sayama plant (now Saitama Factory) begins.1965 Export of automobiles (S600) begins.1966 Honda wins Constructor’s Championship in all classes (50cc to 500cc) of motorcycle road race championship. (First time in history.)1967 Motorcycle production in Thailand begins.1969 Automobile production in Taiwan begins (N600/TN600) (Honda’s first automobile production overseas). Dream CB750 Four introduced. S500 (1963) Automobile (N360) and motorcycle production in Malaysia begins.1970 Honda Engineering Co., Ltd. established. Moka Parts Plant (now Tochigi Factory) established. Driving Safety Promotion Center inaugurated.1971 Motorcycle production in Mexico begins. Honda Automoveis do Brazil Ltda. established in Brazil.1972 Civic introduced. CVCC low emissions engine is introduced. (The first engine to comply with the 1970 U.S. Clean Air Act.)1973 Civic CVCC introduced (export to the United States begins in 1975). Motorcycle production in the Philippines begins. Dream CB750 Four (1969)1974 Motorcycle production in Indonesia begins.1975 GoldWing (GL1000) introduced in the United States. Automobile production in Indonesia begins (TN trucks, Life, Civic).1976 Accord introduced. Kumamoto Factory begins operation. Motorcycle production in Italy begins. Motorcycle production in Brazil begins.1977 Listed on the New York Stock Exchange (NYSE).1979 Honda of America Mfg., Inc., in the United States, begins motorcycle production.1981 Listed on the London Stock Exchange. Civic CVCC (1973) Electro Gyrocator (the world’s first car navigation system) introduced.1982 Honda of America Mfg., Inc., in the United States, begins Accord production. (A first for a Japanese auto maker.) Motorcycle production in China begins. (Technical collaboration agreement with Jialing lndustry signed.) Beijing office opens.1984 Honda Research of America (now Honda R&D Americas, Inc.) established.1985 Motorcycle production in India begins. Yokkaichi Factory of Yachiyo Industry Co., Ltd. begins consignment for production of minicars. Accord (1976)86 Annual Report 2009
  • 89. Major Products andYear Noteworthy Events Technologies1986 American Honda’s Acura brand auto sales channel opens. Automobile production at Honda Canada Inc. begins (Accord). Motorcycle production in Spain begins. Power product production in France begins.1987 Legend becomes Japan’s first vehicle with SRS airbag system. First Formula 1 race held at Suzuka Circuit.1988 Export of U.S.-made Accord Coupe and GoldWing to Japan begins. R&D facility established in Europe (now Honda R&D Europe). NSX (1990) Power product production in India begins.1989 Accord becomes the best-selling passenger car in the United States.1990 Takanezawa Plant established. NSX sports car introduced.1992 Automobile production begins in the United Kingdom (Accord) and the Philippines. Wuyang Honda, begins motorcycle production in China.1994 Automobile production in Pakistan begins (Civic). Odyssey introduced. Power product production begins in China.1995 CR-V sports utility vehicle introduced. Odyssey (1994) Automobile production in Mexico begins (Accord).1996 Humanoid robot prototype P2 introduced.1997 Cumulative motorcycle production reaches 100 million units. Automobile production begins in Brazil (Civic), Turkey (Civic), and India (City). Motorcycle production in Vietnam begins. Honda R&D Southeast Asia Co., Ltd. motorcycle research facility established in Thailand. Twin Ring Motegi motorsports complex completed.1998 Production and sales begin in the United States for the Civic GX, powered by compressed natural gas.1999 Automobile production in China begins (Accord). CR-V (1995) Insight hybrid car introduced both in Japan and the United States.2000 Humanoid robot ASIMO introduced. Zero industrial landfill waste achieved at all production facilities in Japan.2001 Cumulative automobile production in North America reaches 10 million units. Fit introduced. A motorcycle sales subsidiary in Korea established, and motorcycle sales begin.2002 Honda FCX, first fuel-cell vehicle to receive U.S. government certification for commercial use, introduced in both the United States and Japan. Fit becomes the best-selling model in Japan.2003 Global cumulative automobile production reaches 50 million units. Fit (2001) The HondaJet prototype completes its maiden flight.2004 Production of automobiles at Takanezawa Plant in Tochigi Factory shifted to Suzuka Factory. Accord 2.2 i-CTD i, with Honda’s original diesel engine, introduced in Europe.2005 Cumulative motorcycle production reaches 150 million units. Cumulative Super Cub worldwide production reaches 50 million units. Honda Automobile (China) Co., Ltd. begins exporting automobiles (Jazz, to Europe). Automobile R&D established in Thailand.2006 Three-channel automobile sales network in Japan integrated to the single Honda Cars channel. Cumulative production of power products reaches 70 million units. Developed world’s first motorcycle airbag system on GoldWing, for the U.S. market. GoldWing Airbag (2006) Jointly developed ethanol production process from cellulosic biomass with RITE in Japan. HondaJet operations begin; sales pre-orders are taken. Automobile production in Vietnam begins (Civic). Sales of Acura brand begin in China.2007 Sales of next-generation thin-film solar cells begin in Japan. Honda celebrates 25 years of automobile production in the United States.2008 Cumulative motorcycle production of 200 million units achieved. Kumamoto Factory completed. Freed introduced. HondaJet 50th anniversary of Super Cub sales launch. New-model City introduced in India. Yukios introduced. FCX Clarity introduced through lease sales in Japan and United States. Fit becomes the best-selling model in Japan.2009 All-new Insight hybrid car introduced. Pianta FV200 gas-powered tillers introduced. Established joint-venture company Blue Energy Co. with GS Yuasa. Insight (2009) Annual Report 2009 87
  • 90. Investor InformationHonda Motor Co., Ltd.Company InformationEstablished September 24, 1948Lines of Business Motorcycles, Automobiles, Financial Services, and Power Products and OthersFiscal Year-end March 31Independent RegisteredPublic Accounting Firm KPMG AZSA & Co.Web Site • Corporate Web Site http://www.honda.co.jp • IR Web Sites Japanese: http://www.honda.co.jp/investors/ English: http://world.honda.com/investors/Stock InformationSecurities Code 7267Number of Shares Authorized 7,086,000,000 sharesTotal Number of Shares Issued 1,834,828,430 sharesNumber of Shareholders 219,216Number of Shares per Trading Unit 100 sharesStock Exchange Listings Japan: Tokyo, Osaka stock exchanges Overseas: New York, London stock exchangesGeneral Meeting of Shareholders JuneRecord Dates for Dividends June 30 September 30 December 31 March 31IR OfficesJapan Honda Motor Co., Ltd. 1-1, 2-chome, Minami-Aoyama, Minato-ku, Tokyo 107-8556, Japan TEL: 81-(0)3-3423-1111 (Switchboard)U.S.A. American Honda Motor Co., Inc. New York Office 156 West 56th Street, 20th Floor, New York, NY 10019, U.S.A. TEL: 1-212-707-992088 Annual Report 2009
  • 91. Shareholders’ Register Manager for Common Stock Depositary and Transfer Agent for American Depositary ReceiptsThe Chuo Mitsui Trust and Banking Co., Ltd. JPMorgan Chase Bank, N.A.33-1, Shiba 3-chome, Minato-ku, 4 New York Plaza,Tokyo 105-8574, Japan New York, NY 10004, U.S.A.Contact Address: Contact Address:The Chuo Mitsui Trust and Banking Co., Ltd. JPMorgan Service CenterStock Transfer Agency Dept. Operation Center P.O. Box 645048-4, Izumi 2-chome, Suginami-ku, St. Paul, MN 55164-0504, U.S.A.Tokyo 168-0063, Japan TEL: 1-800-990-1135TEL: 81-(0)3-3323-7111 E-mail: jpmorgan.adr@wellsfargo.comTEL: 0120-78-2031 (toll free within Japan) Ratio: 1 ADR = 1 share of underlying stock Ticker symbol: HMC Note: With respect to taxation and other matters relating to the acquisition, holding, and disposition of the Company’s common stock or ADRs by non-residents of Japan, please also refer to “Item 10E. Taxation” of Form 20-F included in the “Investor Relations” section on our web site.Major Shareholders Number of shares held Percentage of totalIndividual or Organization (thousands) shares outstanding (%) Japan Trustee Services Bank, Ltd. (Trust Account 4G) 95,401 5.2 Japan Trustee Services Bank, Ltd. (Trust Account) 95,138 5.2 The Master Trust Bank of Japan, Ltd. (Trust Account) 85,350 4.7 Moxley & Co. 81,806 4.5 Tokio Marine & Nichido Fire Insurance Co., Ltd. 65,520 3.6 JPMorgan Chase Bank 380055 63,868 3.5 The Bank of Tokyo–Mitsubishi UFJ, Ltd. 61,144 3.3 Meiji Yasuda Life Insurance Company 54,043 3.0 Sompo Japan Insurance Inc. 43,666 2.4 Mitsui Sumitomo Insurance Co., Ltd. 35,039 1.9Breakdown of Shareholders by Type Treasury stock 1.1% Individuals 10.3%Foreign institutions and individuals 32.9% Government and municipal corporations 0.0% Domestic companies and others 10.0% Financial institutions 44.9% Securities companies 0.8%Honda’s Stock Price and Trading Volume on the Tokyo Stock ExchangeYen Stock (millions)5,000 Share prices prior to stock split have been adjusted to their effective post-adjustment values. Volume4,000 High Low3,0002,000 3001,000 200 100 0 0 2003 2004 2005 2006 2007 2008 2009 (CY)Note: The Company executed a two-for-one stock split for the Company’s common stock effective July 1, 2006. The prices of shares on the Tokyo Stock Exchange prior to the split have been adjusted retroactively for consistency. Consequently, the prices shown here are not the actual prices of shares on the Tokyo Stock Exchange. Annual Report 2009 89
  • 92. Honda Motor Co., Ltd. Annual Report 2009This annual report is printed on recycled paper using soy ink with no volatile organic content.Furthermore, a waterless printing process was used to prevent toxic emissions. Printed in Japan

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