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HONDA MOTOR CO LTD 6-K 2005

Documents found in this filing:

  1. 6-K
  2. 6-K
Form 6-K
Table of Contents

No.1-7628


 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE MONTH OF April 2005

 

COMMISSION FILE NUMBER: 1-07628

 

HONDA GIKEN KOGYO KABUSHIKI KAISHA

(Name of registrant)

 

HONDA MOTOR CO., LTD.

(Translation of registrant’s name into English)

 

1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo 107-8556, Japan

(Address of principal executive officers)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F  x             Form 40-F  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  ¨             No  ¨

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-            

 



Table of Contents

Contents

 

Exhibit 1:

 

On April 26, 2005, Honda Motor Co., Ltd. announced its consolidated financial results for the fiscal fourth quarter and the fiscal year ended March 31, 2005.


Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

HONDA GIKEN KOGYO

KABUSHIKI KAISHA

( HONDA MOTOR CO., LTD )

 

/s/ Satoshi Aoki


Satoshi Aoki

Senior Managing and

Representative Director

 

Date: April 29, 2005


Table of Contents

April 26, 2005

 

HONDA MOTOR CO., LTD. REPORTS

 

CONSOLIDATED FINANCIAL RESULTS

 

FOR THE FISCAL FOURTH QUARTER AND

 

THE FISCAL YEAR ENDED MARCH 31, 2005

 

Tokyo, April 26, 2005— Honda Motor Co., Ltd. today announced its consolidated financial results for the fiscal fourth quarter and the fiscal year ended March 31, 2005.

 

Fourth Quarter Results

 

Honda’s consolidated net income for the fiscal fourth quarter ended March 31, 2005 totaled JPY 94.0 billion (USD 876 million), an increase of 26.9% from the corresponding period in 2004. Basic net income per Common Share for the quarter amounted to JPY 101.43 (USD 0.94), compared to JPY 78.47, an increase of 29.3% from the corresponding period in 2004. Two of Honda’s American Depositary Shares represent one Common Share.

 

Consolidated net sales and other operating revenue (herein referred to as “revenue”) for the quarter amounted to JPY 2,349.5 billion (USD 21,879 million), an increase of 9.5% over the corresponding period in 2004. Revenue included a negative effect of currency translation, caused by translation of foreign currency denominated revenue from Honda’s overseas subsidiaries into yen. Honda estimates that if the exchange rate of yen had remained unchanged from that in the corresponding period in 2004, revenue for the quarter would have increased by approximately 10.8%.

 

Consolidated operating income for the fiscal fourth quarter totaled JPY 140.3 billion (USD 1,307 million), an increase of 24.3% compared to the corresponding period in 2004. This increase in operating income was primarily due to increased profit from higher revenue, continuing cost reduction effects and decrease in selling, general and administrative (SG&A) expenses, which offset the negative impact of, for example, depreciation of the U.S. dollar and an increase in research and development (R&D) expenses.

 

Consolidated income before income taxes for the quarter totaled JPY 129.1 billion (USD 1,203 million), an increase of 21.3% from the corresponding period in 2004.

 

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Business Segment

 

With respect to Honda’s sales in the fiscal fourth quarter by business category, motorcycle unit sales increased by 3.7% from the corresponding period in 2004 to 2,716 thousand units. Of them, unit sales in Japan decreased 9.7% to 93 thousand units, and overseas unit sales increased 4.2% to 2,623 thousand units, due mainly to increased unit sales of parts for local production at affiliates in Indonesia, and favorable sales in Thailand and the Philippines, as well as strong sales in Other regions, such as Brazil. Revenue from sales to unaffiliated customers increased 10.5%, to JPY 325.7 billion (USD 3,033 million), due mainly to increased unit sales in Asia and Latin America, offsetting the negative currency translation effects. Operating income decreased by 2.0% to JPY 26.9 billion (USD 251 million), due mainly to the depreciation of the U.S. dollar and an increase in SG&A expenses, which offset the positive impact of increased profit from higher revenue.

 

Honda’s unit sales of automobiles increased by 8.3% from the corresponding period in 2004 to 859 thousand units, due to increased overseas unit sales. In Japan, unit sales of automobiles decreased 7.1% to 195 thousand units and overseas unit sales increased 13.9% to 664 thousand units. Strong sales in the U.S. as a result of attractive models, such as the Acura RL and the Odyssey, and increased unit sales of parts for local production in China were the major contributing factors for this increase in overseas unit sales. Revenue from sales to unaffiliated customers increased 10.4%, to JPY 1,870.0 billion (USD 17,413 million) during the quarter, due to increased unit sales and improved model mix in North America, offsetting the negative currency translation effects and increased sales incentive. Operating income increased 57.9% to JPY 90.5 billion (USD 844 million) due mainly to increased profit from higher revenue, ongoing cost reduction effects and decrease in quality-related expenses, which offset the negative impact of depreciation of the U.S. dollar.

 

Revenue from sales to unaffiliated customers in financial services increased 12.2% to JPY 64.6 billion (USD 602 million), due to the growth of the automobile business in North America. Operating income decreased 23.2% to JPY 18.1 billion (USD 169 million), due primarily to increased funding costs.

 

Unit sales of power products in Japan totaled 117 thousand units, a decrease by 4.9%. Overseas unit sales was 1,667 thousand units and total unit sales of power products were 1,784 thousand units, which was almost same level as corresponding period in 2004. Revenue from sales to unaffiliated customers in power product and other businesses decreased by 9.2% to JPY 89.1 billion (USD 830 million), due mainly to changes in the model mix in power product business. Operating income increased 5.5% to JPY 4.6 billion (USD 43 million), due mainly to improved profit in other businesses, offsetting the negative currency effects.

 

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Geographic Segment

 

With respect to Honda’s sales for the fourth quarter by geographic segment, in Japan, revenue for exports and domestic sales was JPY 1,093.3 billion (USD 10,181 million), up by 1.1% compared to the corresponding period in 2004, due primarily to increased unit sales for exports in the motorcycle and automobile businesses, although domestic automobile sales decreased. Operating income in Japan was JPY 50.6 billion (USD 471 million), down by 43.3%, due primarily to the negative impact of depreciation of the U.S. dollar, and increases in SG&A and R&D expenses, which offset the positive impact of increased profit coming from higher revenue and ongoing cost reduction effects.

 

In North America, revenue increased by 14.6% from the previous year to JPY 1,284.2 billion (USD 11,959 million), due mainly to increased unit sales in motorcycle and automobile businesses, offsetting the negative impact of the currency translation effects.

 

Operating income in North America increased by JPY 62.9 billion, an increase of 587.0% to JPY 73.6 billion (USD 686 million) from the corresponding period of the previous year, due primarily to the positive impact of increased profit from higher sales and decrease in quality-related expenses, offsetting the negative currency effect of depreciation of the U.S. dollar.

 

In Europe, revenue for the quarter decreased by 1.9% to JPY 284.6 billion (USD 2,651 million) compared to the corresponding period of the previous year, due primarily to decreased unit sales for exports in the automobile business, offsetting the positive impact of increased unit sales for the domestic market in automobile and power product businesses . Operating income in Europe increased by 71.3% to JPY 11.6 billion (USD 108 million), due mainly to positive currency effects caused by the appreciation of the Euro and ongoing cost reduction effects.

 

In Asia, revenue increased by 17.0% to JPY 239.5 billion (USD 2,231 million) from the corresponding period of the previous year, due mainly to increases in unit sales in the motorcycle, automobile and power product businesses. Operating income decreased by 26.8% to JPY 7.0 billion (USD 65 million) from the corresponding period of the previous year, due mainly to temporary factors, such as start-up expenses for the export plant in China, offsetting the positive impact of increased profit from higher revenue.

 

In Other regions, unit sales increased in motorcycle and automobile businesses, and revenue for the fourth quarter increased by 42.3% to JPY 132.6 billion (USD 1,235 million) compared to the corresponding period of the previous year. An increased unit sale in Latin America was a major contributing factor to an increase in revenue. Operating income increased by 5.6% from the corresponding period of the previous year to JPY 4.6 billion (USD 43 million), due mainly to increased profit from higher revenue.

 

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Fiscal Year Results

 

Honda’s consolidated net income for the year ended March 31, 2005 totaled JPY 486.1 billion (USD 4,527 million), an increase of 4.7% from the previous year. Basic net income per Common Share for the year amounted to JPY 520.68 (USD 4.85), compared to JPY 486.91 for the previous year.

 

Consolidated net sales and other operating revenue for the year amounted to JPY 8,650.1 billion (USD 80,549 million), an increase of 6.0% from the previous year. Revenue included a negative effect of currency translation caused by translation of foreign currency denominated revenue from Honda’s overseas subsidiaries into yen, Honda estimates that if the exchange rate of yen had remained unchanged from that in the previous year, revenue for the year would have increased by approximately 8.8%.

 

Unit sales in all of Honda’s business categories, motorcycle, automobile and power product businesses increased during the year, and consolidated operating income for the year totaled JPY 630.9 billion (USD 5,875 million), an increase of 5.1% compared to the previous year. This increase in operating income was primarily due to the positive impact of increased profit from higher revenue and ongoing cost reduction effects, which offset negative currency effects of depreciation of the U.S. dollar, and increases in SG&A and R&D expenses.

 

Consolidated income before income taxes for the year totaled JPY 656.8 billion (USD 6,116 million), an increase of 2.3% compared to the previous year.

 

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Business Segment

 

With respect to Honda’s sales for the year by business category, motorcycle unit sales increased 13.9% to 10,482 thousand units. Of them, unit sales in Japan decreased 6.2% to 378 thousand units, while overseas unit sales increased 14.8% to 10,104 thousand, due mainly to strong sales in Asia, such as Indonesia and India. Revenue from sales to unaffiliated customers increased 10.2% to JPY 1,097.7 billion (USD 10,222 million), due primarily to increased unit sales in Asia, offsetting negative currency translation effects. Operating income increased 63.4% to JPY 69.3 billion (USD 646 million), due mainly to increased profit from higher revenue and ongoing cost reduction effects, which offset the negative currency effects of depreciation of the U.S. dollar.

 

Unit sales related to automobiles for the year increased by 8.7% to 3,242 thousands units. In Japan, unit sales of automobiles was 712 thousand units, almost the same level as the previous year, and overseas unit sales increased 11.6% to 2,530 thousand units, due mainly to increased unit sales of parts for local production in China, and increased sales in Europe and North America. Revenue from sales to unaffiliated customers increased 5.6% to JPY 6,963.6 billion (USD 64,844 million), due mainly to increased unit sales in Asia and Europe, and improved model mixes in domestic automobile business, offsetting the negative currency translation effects. Operating income increased 3.1% to JPY 452.3 billion (USD 4,213 million), due mainly to the positive impact of increased profit from higher revenue and cost reduction effects, offsetting the negative impact of depreciation of the U.S. dollar and increased sales incentive expenses.

 

Revenue from sales to unaffiliated customers in financial services increased 5.4% to JPY 255.7 billion (USD 2,381 million), due to an increased finance-subsidiaries receivables from growth of businesses. Operating income decreased 17.1% to JPY 89.9 billion (USD 837 million), due mainly to increased funding costs.

 

Unit sales of power products totaled 5,300 thousand units, an increase of 5.0% compared to the previous year. Of them, unit sales in Japan totaled 432 thousand units, decreased by 9.4%, and overseas unit sales increased 6.5% to 4,868 thousand units, mainly as a result of increased unit sales in North America and Asia. Revenue from sales to unaffiliated customers increased by 0.4% to JPY 332.9 billion (USD 3,101 million), due mainly to increased unit sales in power product business in North America and Asia. Operating income increased 85.9% to JPY 19.3 billion (USD 180 million), due to increased profit from higher revenue in power product business and an increased profit in other businesses, offsetting the negative currency effect of depreciation of the U.S. dollar.

 

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Geographic Segment

 

With respect to Honda’s sales for the year by geographic segment, in Japan, revenue was JPY 4,138.9 billion (USD 38,541 million), up by 5.3% from the previous year, due mainly to increased export sales in motorcycle and automobile businesses. Operating income in Japan was JPY 184.8 billion (USD 1,722 million), down by 3.9% from the previous year, due primarily to the negative currency impact caused by depreciation of the U.S. dollar, and increases in SG&A and R&D expenses, which offset the positive impact of increased profit from higher revenue and cost reduction effects.

 

In North America, revenue increased by 0.7% from the previous year to JPY 4,705.5 billion (USD 43,817 million), due mainly to increased unit sales in the automobile and power product businesses, which offset the negative currency translation effects. Operating income in North America increased by 3.5% to JPY 321.1 billion (USD 2,991 million) from the previous year, due primarily to increased profit coming from higher revenue and an decrease in quality-related expenses, which offset the negative currency impact of depreciation of the U.S. dollar and increased sales incentive expenses.

 

In Europe, revenue for the year increased by 10.0% to JPY 1,043.0 billion (USD 9,713 million) compared to the previous year, due mainly to increased unit sales in the motorcycle, automobile and power product businesses, and the positive impact of currency translation effects. Operating income in Europe increased by 59.6% to JPY 41.2 billion (USD 384 million), due mainly to the positive currency impact caused by appreciation of the Euro, increased profit from higher revenue and cost reduction effects.

 

In Asia, revenue increased by 22.2% to JPY 860.5 billion (USD 8,013 million) from the previous year, due primarily to increased unit sales in all business segments, namely motorcycle, automobile and power product businesses, offsetting the negative currency translation effect. Operating income also increased by 35.9% to JPY 60.6 billion (USD 565 million) from the previous year, due to increased profit from higher revenue, which offset the negative impact of an increase in SG&A.

 

Revenue from Other regions for the year increased by 33.8% to JPY 465.9 billion (USD 4,339 million) compared to the previous year, due primarily to increased unit sales in the motorcycle, automobile and power product businesses in Latin America, offsetting the negative currency translation effect. Operating income increased by 39.5% to JPY 33.1 billion (USD 309 million) from the previous year, due mainly to increased profit coming from higher revenue.

 

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Consolidated Statements of Cash Flows for the fiscal year

 

Cash and cash equivalents for the period from April 1, 2004 through March 31, 2005, increased by JPY 49.1 billion (USD 457 million) from March 31, 2004 to JPY 773.5. billion (USD 7,203 million) as of March 31, 2005. The reason for the increase or decrease for each cash flow activity is as follows;

 

Cash flows from operating activities

 

Net cash provided by operating activities amounted to JPY 746.6 billion (USD 6,952 million), which included net income and depreciation for the year ended March 31, 2005. Cash inflows from operating activities increased by JPY 71.1 billion (USD 662 million) compared with the corresponding period of the previous year.

 

Cash flows from investing activities

 

Net cash used in investing activities amounted to JPY 807.8 billion (USD 7,523 million), which was mainly due to the capital expenditures and an acquisition of finance subsidiaries-receivables. Cash outflows from investing activities decreased by JPY 122.1 billion (USD 1,137 million) compared with the corresponding period of the previous year.

 

Cash flows from financing activities

 

Net cash provided by financing activities amounted to JPY 97.4 billion (USD 908 million), which arose due to proceeds from the issuance of long-term debt. Cash inflows from financing activities decreased by JPY 362.0 billion (USD 3,372 million) compared with the corresponding period of the previous year.

 

Supplemental information for cash flows

 

    

FY04

Year-end


  

FY05

Year-end


Shareholders’ equity ratio (%)

   34.5    35.3

Shareholders’ equity market price ratio (%)

   56.2    53.5

Repayment period (years)

   3.9    3.8

Non-financial services businesses (years)

   0.4    0.4

Finance subsidiaries (years)

   22.0    29.5

Interest coverage ratio

   9.4    9.9

Non-financial services businesses

   53.7    53.8

Finance subsidiaries

   2.7    2.4

 

  Shareholders’ equity ratio: shareholders’ equity / total assets

 

  Shareholders’ equity market price ratio: issued common stock stated at market price / total assets

 

  Repayment period: interest bearing debt / cash flows from operating activities

 

  Interest coverage ratio: (cash flows from operating activities + interest paid) / interest paid

 

Explanatory notes:

 

  1. All figures are calculated based on the information included in the consolidated financial statements.
  2. Cash flows from operating activities are obtained from the consolidated statement of cash flows. Interest bearing debt represents Honda’s outstanding debt with interest payments, which are included on the consolidated balance sheets. Interest bearing debt and cash flow from operating activities for the non-financial services businesses are obtained from the consolidated balance sheets and consolidated statements of cash flows which are separated by non-financial services businesses and finance subsidiaries.

 

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Presentation of finance subsidiaries-receivables in the consolidated statements of cash flows and the consolidated balance sheets

 

In prior periods, Honda reported the effects of all finance subsidiaries-receivables as investing activities for purposes of presentation in the consolidated statements of cash flows. This policy, when applied to wholesale receivables related to sales of inventory to outside dealers, had the effect of presenting an investing cash outflow and an operating cash inflow even though there was no cash flow on a consolidated basis.

 

In the current year, based on concerns raised by the staff of the Securities and Exchange Commission (“SEC”), management has decided to report the cash flow related effects of those finance subsidiaries-receivables which relate to sales of inventory as “operating activities” in the consolidated statements of cash flows and also reclassify related finance subsidiaries-receivables to trade receivables in the consolidated balance sheets. This presentation results in the elimination of the intercompany activities and proper classification of cash receipts from the settlement of wholesale receivables related to the sale of inventory as “operating activities.”

 

Certain finance subsidiaries provide retail finance to customers who purchased inventory from the consolidated dealers. The cash flows generated from these retail finance were reported as investing cash flows in prior periods. In the current year, based on concerns raised by the staff of the SEC, management has decided to report the cash flow related effects of those finance subsidiaries-receivables which relate to sales of inventory as operating activities in the consolidated statements of cash flows and also reclassify related finance subsidiaries- receivables to trade receivables, including those of non-current portion to other assets, in the consolidated balance sheets.

 

The cash flow related effects of finance subsidiaries-receivable from retail, direct finance leases, wholesale and term loans to dealer which are unrelated to the sales of inventory continue to be reported as investing activities in the consolidated statements of cash flows.

 

The impacts of the reclassification of the affected line items in the consolidated statement of cash flows with respect to the year ended March 31, 2004 and in the consolidated balance sheet at March 31, 2004 are as follows:

 

 

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Consolidated statement of cash flows

 

    

Year ended

March 31, 2004


 
     Yen (millions)  

Cash provided by operating activities, as previously reported

   712,942  

Amounts reclassified from investing activities;

      

Increase in trade account and notes receivable

   (28,096 )
    

Increase in other assets

   (9,358 )
    

Cash provided by operating activities, after reclassification

   675,488  
    

Cash used in investing activities, as previously reported

   (967,435 )

Amount reclassified to operating activities;

      

Acquisitions of finance subsidiaries-receivables

   874,458  

Collections of finance subsidiaries-receivables

   (837,004 )
    

Cash used in investing activities, after reclassification

   (929,981 )
    

 

Consolidated balance sheet

 

     At March 31, 2004

 
     Yen (millions)  

Trade accounts and notes receivables, as previously reported

   373,416  

Amount reclassified from finance subsidiaries-receivables, net - current

   314,887  
    

Trade accounts and notes receivables, after reclassification

   688,303  
    

Finance subsidiaries-receivables, net - current, as previously reported

   1,264,620  

Amount reclassified to trade accounts and notes receivables

   (314,887 )
    

Finance subsidiaries-receivables, net - current, after reclassification

   949,733  
    

Finance subsidiaries-receivables, net, as previously reported

   2,377,338  

Amount reclassified to other assets

   (111,464 )
    

Finance subsidiaries-receivables, net, after reclassification

   2,265,874  
    

Other assets, as previously reported

   321,579  

Amount reclassified from finance subsidiaries-receivables, net

   111,464  
    

Other assets, after reclassification

   433,043  
    

 

 

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Forecasts for the fiscal year ending March 31, 2006

 

The global economy, driven primarily by the U.S. and Asian economies, is expected to grow steadily, but the pace of growth is anticipated to slowdown. Also, the global management environment still lacks transparency because of global political and economic uncertainty, fluctuations in oil prices, and currency movements. In Japan, the economic recovery has become more moderate, and weak consumer spending is anticipated to continue. As a result, competition in the Japanese market is expected to intensify. Under such circumstances, in regard to the forecasts of the financial results for the fiscal year ending March 31, 2006, Honda projects consolidated results to be as shown below:

 

First half ending September 30, 2005

 

     Yen (billions)

   Changes from FY 2005

 

Net sales and other operating revenue

   4,560    +9.4 %

Operating income

   295    -11.4 %

Income before income taxes

   280    -17.6 %

Net income

   205    -15.1 %

 

Fiscal year ending March 31, 2006

 

     Yen (billions)

   Changes from FY 2005

 

Net sales and other operating revenue

   9,300    +7.5 %

Operating income

   650    +3.0 %

Income before income taxes

   615    -6.4 %

Net income

   450    -7.4 %

 

These forecasts are based on the assumption that the average exchange rates for the yen to the U.S. dollar and the euro for the first half of the year ending September 30, 2005 will be JPY 105 and JPY 135, respectively, and for the full year ending March 31, 2006, JPY 105 and JPY 135, respectively.

 

Dividend per Share of Common Stock for the fiscal year ending March 31, 2006

 

For the year ending March 31, 2006, the Company plans to increase the interim cash dividend by 9 yen to JPY 37 per share. It also projects that the year-end cash dividend will be JPY 37 per share. As a result, total cash dividends for the year ending March 31, 2006 are expected to be JPY 74 per share, an increase of 9 yen per share from that for the year ended March 31, 2005.

 

This announcement contains forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934. Honda’s actual results could materially differ from those contained in these forward-looking statements as a result of numerous factors outside of Honda’s control. Such factors include general economic conditions in Honda’s principal markets, and foreign exchange rates between the Japanese yen and other major currencies, as well as other factors detailed from time to time in Honda’s reports filed with the U.S. Securities and Exchange Commission.

 

 

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Risk Factors

 

This section describes some of the risks that could affect Honda’s business and financial statements, and the Company’s stock price.

 

1. Honda may be adversely affected by market conditions

 

Honda conducts its operation in Japan and throughout the world, including North America, Europe and Asia.

 

A continued economic slowdown, recession or sustained loss of consumer confidence in these markets which may be caused by rising fuel prices or other factors, could trigger a decline in demand for automobiles, motorcycles and power products that may adversely affect Honda’s result of operation.

 

2. Prices for automobiles, motorcycles and power products can be volatile

 

Prices for automobiles, motorcycles and power products in certain markets have, at times, experienced sharp changes over short periods of time.

 

This volatility is caused by many factors, including fierce competition, which is increasing, short-term fluctuations in demand from underlying economic conditions, changes in import regulations, shortages of certain supplies and sales incentives by Honda or other manufacturers or dealers. There can be no assurance that such price volatility will not continue or intensify or that price volatility will not occur in markets that to date have not experienced such volatility. Overcapacity within the industry has increased and will likely continue to increase if the economic downturn continues in Honda’s major markets or worldwide, leading, potentially, to further increased price pressure. Price volatility in any or all of Honda’s markets could adversely affect Honda’s results of operations in a particular period.

 

3. Honda’s operations are subject to currency fluctuations

 

Honda has manufacturing operations throughout the world including Japan and exports products and components to various countries.

 

Honda purchases materials and sells its products in foreign currencies, therefore currency fluctuations may affect Honda’s pricing of products sold and materials purchased. Accordingly currency fluctuations have an effect on Honda’s results of operation, balance sheet and cash flow, as well as Honda’s competitiveness, which will over time affect its results.

 

Since Honda exports many products and components from Japan and generates a substantial portion of its revenues in currencies other than the Yen, Honda’s results of operations would be adversely affected by an appreciation of the Yen against other currencies, in particular the U.S. dollar.

 

4. Honda’s hedging of currency and interest rate risk exposes Honda to other risks

 

Although it is impossible to hedge against all currency or interest risk, Honda uses derivative financial instruments in order to reduce the substantial effects of currency fluctuations and interest rate exposure on our cash flow and financial condition. These instruments include foreign currency forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. Honda has entered into, and expects to continue to enter into, such hedging arrangements. As with all hedging instruments, there are risks associated with the use of such instruments. While limiting to some degree our risk fluctuations in currency exchange and interest rates by utilizing such hedging instruments, Honda potentially forgoes benefits that might result from other fluctuations in currency exchange and interest rates. Honda also is exposed 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 institutions meeting established credit guidelines. However, any default by such counterparties might have an adverse effect on Honda.

 

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5. The automobile, motorcycle and power product industries are subject to extensive environmental and other governmental regulation

 

Regulations regarding vehicle emission levels, fuel economy, noise and safety, as well as levels of pollutants from production plants are extensive within the automobile, motorcycle and power product industries. These regulations are subject to change, and are often made more restrictive. The costs to comply with these regulations can be significant to Honda’s operations.

 

6. Honda is reliant on the protection and preservation of its intellectual property

 

Honda owns or otherwise has rights in a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks have been of value in the growth of Honda’s business and may continue to be of value in the future. Honda does not regard any of its businesses as being dependent upon any single patent or related group of patents. However, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of Honda’s intellectual property rights, would have an adverse effect on Honda’s operations.

 

7. Honda’s financial services business conducts business under highly competitive conditions in an industry with inherent risks

 

Honda’s financial services business offers various financing plans designed to increase the opportunity for sales of its products and to generate financing income. However, customers can also obtain financing for the lease or purchase of Honda’s products through a variety of other sources that compete with our financing services, including commercial banks and finance and leasing companies. The financial services offered by us also involve risks relating to residual value, credit risk and cost of capital. Competition for customers and/or these risks may affect Honda’s results of operations in the future.

 

8. Honda relies on various suppliers for the provision of certain raw materials and components

 

Honda purchases raw materials, and certain components and parts, from numerous external suppliers, and relies on some key suppliers for some items and the raw materials it uses in the manufacture of its products. Honda’s ability to continue to obtain these supplies in an efficient and cost-effective manner is subject to a number of factors, some of which are not within Honda’s control. These factors include the ability of its suppliers to provide a continued source of supply and Honda’s ability to compete with other users in obtaining the supplies. Loss of a key supplier in particular may affect our production and increase our costs.

 

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9. Honda conducts its operations in various regions of the world

 

Honda conducts its businesses worldwide, and in several countries, Honda conducts businesses through joint ventures with local entities, in part due to the legal and other requirements of those countries. These businesses observe various regulations, including the legal and other requirements of each country. If these regulations or the business condition or policy of these local entities change, it may have an adverse affect on Honda’s business, financial condition or results of operations.

 

10. Honda may be adversely affected by wars, use of force by foreign countries, terrorism, multinational conflicts, natural disasters, epidemics and labor strikes

 

Honda conducts its businesses worldwide, and its operations may variously be subject to wars, use of force by foreign countries, terrorism, multinational conflicts, natural disasters, epidemics, labor strikes and other events beyond our control which may delay or disrupt Honda’s local operations in the affected regions, including the acquisition of raw materials and parts, the manufacture, sales and distribution of products and the provision of services. Delays or disruptions in one region may in turn affect our global operations. If such delay or disruption occurs and continues for a long period of time, Honda’s business financial condition or results of operations may be adversely affected.

 

- 13 -


Table of Contents

[1] Unit Sales Breakdown

 

     Unit (thousands)

 
    

Three months
ended

Mar. 31, 2004


   

Three months
ended

Mar. 31, 2005


   

Year

ended
Mar. 31, 2004


   

Year

ended

Mar. 31, 2005


 

MOTORCYCLES

                        

Japan

   103     93     403     378  
     (103 )   (93 )   (403 )   (378 )

North America

   227     230     656     643  
     (129 )   (134 )   (360 )   (346 )

Europe

   91     91     299     338  
     (89 )   (88 )   (289 )   (325 )

Asia

   1,996     2,065     7,017     8,192  
     (1,996 )   (2,065 )   (7,017 )   (8,192 )

Other Regions

   203     237     831     931  
     (201 )   (233 )   (822 )   (918 )
    

 

 

 

Total

   2,620     2,716     9,206     10,482  
     (2,518 )   (2,613 )   (8,891 )   (10,159 )

AUTOMOBILES

                        

Japan

   210     195     716     712  

North America

   369     415     1,558     1,575  

Europe

   74     79     231     267  

Asia

   102     120     341     512  

Other Regions

   38     50     137     176  
    

 

 

 

Total

   793     859     2,983     3,242  

POWER PRODUCTS

                        

Japan

   123     117     477     432  

North America

   895     839     2,363     2,514  

Europe

   538     543     1,261     1,309  

Asia

   149     202     619     712  

Other Regions

   83     83     327     333  
    

 

 

 

Total

   1,788     1,784     5,047     5,300  

 

Explanatory notes:

 

1. The geographic breakdown of unit sales is based on the location of affiliated and unaffiliated customers.
2. Figures in brackets represent unit sales of motorcycles only.

 

- 14 -


Table of Contents

[2] Net Sales Breakdown

 

(A) For the three months ended March 31, 2004 and 2005

 

     Yen (millions)

     Three months ended
Mar. 31, 2004


    Three months ended
Mar. 31, 2005


MOTORCYCLE BUSINESS

                    

Japan

   22,143    (7.5 )%   23,150    (7.1)%

North America

   109,461    (37.1 )%   112,947    (34.7)%

Europe

   57,977    (19.7 )%   56,513    (17.3)%

Asia

   66,518    (22.6 )%   81,317    (25.0)%

Other Regions

   38,747    (13.1 )%   51,799    (15.9)%
    
  

 
  

Total

   294,846    (100.0 )%   325,726    (100.0)%

AUTOMOBILE BUSINESS

                    

Japan

   416,850    (24.6 )%   384,611    (20.6)%

North America

   891,517    (52.6 )%   1,046,515    (56.0)%

Europe

   165,638    (9.8 )%   171,601    (9.2)%

Asia

   151,990    (9.0 )%   174,684    (9.3)%

Other Regions

   68,306    (4.0 )%   92,604    (4.9)%
    
  

 
  

Total

   1,694,301    (100.0 )%   1,870,015    (100.0)%

FINANCIAL SERVICES

                    

Japan

   4,716    (8.2 )%   4,711    (7.3)%

North America

   50,052    (86.8 )%   56,335    (87.1)%

Europe

   2,023    (3.5 )%   2,315    (3.6)%

Asia

   305    (0.5 )%   398    (0.6)%

Other Regions

   549    (1.0 )%   931    (1.4)%
    
  

 
  

Total

   57,645    (100.0 )%   64,690    (100.0)%

POWER PRODUCT & OTHER BUSINESSES

                    

Japan

   26,783    (27.3 )%   27,839    (31.2)%

North America

   36,416    (37.1 )%   29,553    (33.2)%

Europe

   25,745    (26.3 )%   21,602    (24.2)%

Asia

   4,635    (4.7 )%   5,789    (6.5)%

Other Regions

   4,553    (4.6 )%   4,340    (4.9)%
    
  

 
  

Total

   98,132    (100.0 )%   89,123    (100.0)%

TOTAL

                    

Japan

   470,492    (21.9 )%   440,311    (18.7)%

North America

   1,087,446    (50.7 )%   1,245,350    (53.0)%

Europe

   251,383    (11.7 )%   252,031    (10.7)%

Asia

   223,448    (10.4 )%   262,188    (11.2)%

Other Regions

   112,155    (5.3 )%   149,674    (6.4)%
    
  

 
  

Total

   2,144,924    (100.0 )%   2,349,554    (100.0)%

 

- 15 -


Table of Contents

[2] Net Sales Breakdown - continued

 

(B) For the years ended March 31, 2004 and 2005

 

     Yen (millions)

    

Year ended

Mar. 31, 2004


  

Year ended

Mar. 31, 2005


MOTORCYCLE BUSINESS

                   

Japan

   93,203    (9.4)%    97,405    (8.9)%

North America

   322,213    (32.3)%    321,828    (29.3)%

Europe

   182,400    (18.3)%    198,471    (18.1)%

Asia

   242,370    (24.3)%    289,169    (26.3)%

Other Regions

   156,104    (15.7)%    190,881    (17.4)%
    
  
  
  

Total

   996,290    (100.0)%    1,097,754    (100.0)%

AUTOMOBILE BUSINESS

                   

Japan

   1,397,237    (21.2)%    1,463,531    (21.0)%

North America

   3,900,755    (59.2)%    3,923,930    (56.3)%

Europe

   516,108    (7.8)%    597,467    (8.6)%

Asia

   532,552    (8.1)%    661,471    (9.5)%

Other Regions

   245,372    (3.7)%    317,236    (4.6)%
    
  
  
  

Total

   6,592,024    (100.0)%    6,963,635    (100.0)%

FINANCIAL SERVICES

                   

Japan

   20,043    (8.2)%    20,017    (7.8)%

North America

   212,522    (87.6)%    222,494    (87.0)%

Europe

   7,448    (3.1)%    8,827    (3.4)%

Asia

   899    (0.4)%    1,441    (0.6)%

Other Regions

   1,784    (0.7)%    2,962    (1.2)%
    
  
  
  

Total

   242,696    (100.0)%    255,741    (100.0)%

POWER PRODUCT & OTHER BUSINESSES

                   

Japan

   118,010    (35.6)%    118,252    (35.5)%

North America

   107,440    (32.4)%    106,824    (32.1)%

Europe

   64,154    (19.3)%    66,030    (19.8)%

Asia

   25,790    (7.8)%    24,930    (7.5)%

Other Regions

   16,196    (4.9)%    16,939    (5.1)%
    
  
  
  

Total

   331,590    (100.0)%    332,975    (100.0)%

TOTAL

                   

Japan

   1,628,493    (20.0)%    1,699,205    (19.6)%

North America

   4,542,930    (55.7)%    4,575,076    (52.9)%

Europe

   770,110    (9.4)%    870,795    (10.1)%

Asia

   801,611    (9.8)%    977,011    (11.3)%

Other Regions

   419,456    (5.1)%    528,018    (6.1)%
    
  
  
  

Total

   8,162,600    (100.0)%    8,650,105    (100.0)%

 

Explanatory notes:

1. The geographic breakdown of net sales is based on the location of affiliated and unaffiliated customers.
2. Net sales of power product & other businesses include revenue from sales of power products and relevant parts, leisure businesses and trading.

 

- 16 -


Table of Contents

[3] Consolidated Financial Summary

 

For the three months and the years ended March 31, 2004 and 2005

 

Financial Highlights

 

     Yen (millions)

    

Three months
ended

Mar. 31, 2004


   %
Change


   

Three months
ended

Mar. 31, 2005


   Year ended
Mar. 31, 2004


   %
Change


   

Year ended

Mar. 31, 2005


Net sales and other operating revenue

   2,144,924    9.5 %   2,349,554    8,162,600    6.0 %   8,650,105

Operating income

   112,920    24.3 %   140,359    600,144    5.1 %   630,920

Income before income taxes

   106,465    21.3 %   129,142    641,927    2.3 %   656,805

Net income

   74,110    26.9 %   94,053    464,338    4.7 %   486,197
     Yen

Basic net income per Common share

   78.47          101.43    486.91          520.68

American depositary share

   39.23          50.71    243.45          260.34
     U.S. Dollar (millions)

               
    

Three months
ended

Mar. 31, 2005


         Year ended
Mar. 31, 2005


               

Net sales and other operating revenue

   21,879          80,549                

Operating income

   1,307          5,875                

Income before income taxes

   1,203          6,116                

Net income

   876          4,527                
     U.S. Dollar

               

Basic net income per Common share

   0.94          4.85                

American depositary share

   0.47          2.42                

 

- 17 -


Table of Contents

[4] Consolidated Statements of Income and Retained Earnings

 

(A) For the three months ended March 31, 2004 and 2005

 

     Yen (millions)

 
     Three months ended
Mar. 31, 2004


  

Three months ended

Mar. 31, 2005


 

Net sales and other operating revenue

   2,144,924    2,349,554  

Operating costs and expenses:

           

Cost of sales

   1,480,633    1,668,769  

Selling, general and administrative

   433,416    412,874  

Research and development

   117,955    127,552  
    
  

Operating income

   112,920    140,359  

Other income:

           

Interest

   2,404    2,955  

Other

   6,904    1,859  

Other expenses:

           

Interest

   2,741    3,652  

Other

   13,022    12,379  
    
  

Income before income taxes

   106,465    129,142  

Income taxes

           

Current

   39,894    51,087  

Deferred

   6,610    3,548  
    
  

Income before equity in income of affiliates

   59,961    74,507  

Equity in income of affiliates

   14,149    19,546  
    
  

Net income

   74,110    94,053  

Retained earnings:

           

Balance at beginning of period

   3,515,324    3,772,941  

Retirement of treasury stocks

   —      (57,611 )

Cash dividends paid

   —      —    

Transfer to legal reserves

   —      —    
    
  

Balance at end of period

   3,589,434    3,809,383  
    
  

     Yen

 

Basic net income per

           

Common share

   78.47    101.43  

American depositary share

   39.23    50.71  

 

Note

 

Certain gains and losses on sales and disposals of property, plant and equipment, which were previously recorded under other income (expenses), have been reclassified to selling, general and administrative expenses and net realized gains and losses on interest rate swap contracts not designated as accounting hedges by finance subsidiaries, which were previously recorded under cost of sales, have been reclassified to other income (expenses) – other since the prior year’s fiscal fourth quarter ended March 31, 2004, respectively. Accordingly, that reclassification have been made to the consolidated statements of income and retained earnings and to the segment information of the prior year’s fiscal fourth quarter to conform to the presentation used for the fiscal fourth quarter ended March 31, 2005.

 

- 18 -


Table of Contents

[4] Consolidated Statements of Income and Retained Earnings - continued

 

(B) For the years ended March 31, 2004 and 2005

 

     Yen (millions)

 
     Year ended
Mar. 31, 2004


    Year ended
Mar. 31, 2005


 

Net sales and other operating revenue

   8,162,600     8,650,105  

Operating costs and expenses:

            

Cost of sales

   5,609,806     6,038,172  

Selling, general and administrative

   1,503,683     1,513,259  

Research and development

   448,967     467,754  
    

 

Operating income

   600,144     630,920  

Other income:

            

Interest

   9,299     10,696  

Other

   54,909     60,541  

Other expenses:

            

Interest

   10,194     11,655  

Other

   12,231     33,697  
    

 

Income before income taxes

   641,927     656,805  

Income taxes

   252,740     266,665  

Current

   139,318     151,146  

Deferred

   113,422     115,519  
    

 

Income before equity in income of affiliates

   389,187     390,140  

Equity in income of affiliates

   75,151     96,057  
    

 

Net income

   464,338     486,197  

Retained earnings:

            

Balance at beginning of year

   3,161,664     3,589,434  

Retirement of treasury stocks

   —       (216,181 )

Cash dividends paid

   (33,541 )   (47,797 )

Transfer to legal reserves

   (3,027 )   (2,270 )
    

 

Balance at end of year

   3,589,434     3,809,383  
    

 

     Yen

 

Basic net income per

            

Common share

   486.91     520.68  

American depositary share

   243.45     260.34  

 

- 19 -


Table of Contents

[5] Consolidated Balance Sheets

 

     Yen (millions)

     Mar. 31, 2004

   Mar. 31, 2005

Assets

         

Current assets:

         

Cash and cash equivalents

   724,421    773,538

Trade accounts and notes receivable

   688,303    791,195

Finance subsidiaries receivables, net

   949,733    1,021,116

Inventories

   765,433    862,370

Deferred income taxes

   222,179    214,059

Other current assets

   303,185    346,464
    
  

Total current assets

   3,653,254    4,008,742
    
  

Finance subsidiaries-receivables, net

   2,265,874    2,623,909

Investments and advances

   541,066    614,590

Investments in and advances to affiliates

   298,242    349,664

Other

   242,824    264,926

Property, plant and equipment, at cost:

         

Land

   354,762    365,217

Buildings

   968,159    1,030,998

Machinery and equipment

   2,072,347    2,260,826

Construction in progress

   49,208    96,047
    
  
     3,444,476    3,753,088

Less accumulated depreciation

   2,008,945    2,168,836
    
  

Net property, plant and equipment

   1,435,531    1,584,252
    
  

Other assets

   433,043    485,477
    
  

Total assets

   8,328,768    9,316,970
    
  

 

- 20 -


Table of Contents

[5] Consolidated Balance Sheets - continued

 

     Yen (millions)

 
     Mar. 31, 2004

    Mar. 31, 2005

 

Liabilities and Stockholders’ Equity

            

Current liabilities:

            

Short-term debt

   734,271     769,314  

Current portion of long-term debt

   487,125     535,105  

Trade payables:

            

Notes

   29,096     26,727  

Accounts

   882,141     987,045  

Accrued expenses

   813,733     913,721  

Income taxes payable

   31,194     65,029  

Other current liabilities

   357,259     451,623  
    

 

Total current liabilities

   3,334,819     3,748,564  
    

 

Long-term debt

   1,394,612     1,559,500  

Other liabilities

   724,937     719,612  
    

 

Total liabilities

   5,454,368     6,027,676  
    

 

Stockholders’ equity:

            

Common stock

   86,067     86,067  

Capital surplus

   172,719     172,531  

Legal reserves

   32,418     34,688  

Retained earnings

   3,589,434     3,809,383  

Adjustments from foreign currency translation

   (665,413 )   (624,937 )

Net unrealized gains on marketable equity securities

   36,066     33,744  

Minimum pension liabilities adjustments

   (225,226 )   (202,741 )
    

 

Accumulated other comprehensive income (loss)

   (854,573 )   (793,934 )

Treasury Stock

   (151,665 )   (19,441 )
    

 

Total stockholders’ equity

   2,874,400     3,289,294  
    

 

Total liabilities and stockholders’ equity

   8,328,768     9,316,970  
    

 

 

- 21 -


Table of Contents

[6] Consolidated Statements of Cash Flows

 

     Yen (millions)

 
     Year ended
Mar. 31, 2004


   

Year ended

Mar. 31, 2005


 

Cash flows from operating activities:

            

Net income

   464,338     486,197  

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

            

Depreciation

   213,445     225,752  

Deferred income taxes

   113,422     115,519  

Equity in income of affiliates

   (75,151 )   (96,057 )

Provision for credit and lease residual losses on finance subsidiaries-receivables

   45,937     50,638  

Loss on fair value adjustment of derivative instrument (profit)

   (84,783 )   (60,432 )

Decrease (increase) in assets:

            

Trade accounts and notes receivable

   22,829     (70,145 )

Inventories

   (51,836 )   (79,483 )

Other current assets

   (154,320 )   (11,797 )

Other assets

   (33,376 )   (52,198 )

Increase (decrease) in liabilities:

            

Trade accounts and notes payable

   132,541     76,338  

Accrued expenses

   64,830     71,469  

Income taxes payable

   (31,068 )   33,704  

Other current liabilities

   13,763     19,973  

Other liabilities

   43,656     19,826  

Other, net

   (8,739 )   17,320  
    

 

Net cash provided by operating activities

   675,488     746,624  
    

 

Cash flows from investing activities:

            

Decrease (increase) in investments and advances

   40,598     5,292  

Payment for purchase of available-for-sale securities

   (61 )   (1,608 )

Proceeds from sales of available-for-sale securities

   10,082     13,140  

Capital Expenditures

   (287,741 )   (373,980 )

Proceeds from sales of property, plant and equipment

   19,157     14,216  

Acquisition of finance subsidiaries-receivables

   (2,689,554 )   (2,710,520 )

Collection of finance subsidiaries-receivables

   1,156,888     1,561,299  

Proceeds from sales of finance subsidiaries-receivables

   820,650     684,308  
    

 

Net cash used in investing activities

   (929,981 )   (807,853 )
    

 

Cash flows from financing activities:

            

Increase (decrease) in short-term debt

   (7,910 )   20,244  

Proceeds from long-term debt

   885,162     704,433  

Repayment of long-term debt

   (289,107 )   (495,107 )

Cash dividends paid

   (33,541 )   (47,797 )

Increase (decrease) in commercial paper classified as long-term debt

   280     (131 )

Payment for purchase of treasury stock, net

   (95,312 )   (84,147 )
    

 

Net cash provided by financing activities

   459,572     97,495  
    

 

Effect of exchange rate changes on cash and cash equivalents

   (28,062 )   12,851  
    

 

Net change in cash and cash equivalents

   177,017     49,117  

Cash and cash equivalents at beginning of year

   547,404     724,421  
    

 

Cash and cash equivalents at end of year

   724,421     773,538  
    

 

 

- 22 -


Table of Contents

[7] Segment Information

 

1. Business Segment Information

 

(A) For the three months ended March 31, 2004

 

     Yen (millions)

     Motorcycle
Business


   Automobile
Business


  

Financial

Services


  

Power Product
& Other

Businesses


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                   

Sales to unaffiliated customers

   294,846    1,694,301    57,645    98,132    2,144,924    —       2,144,924

Intersegment sales

   0    0    967    1,763    2,730    (2,730 )   —  
    
  
  
  
  
  

 

Total

   294,846    1,694,301    58,612    99,895    2,147,654    (2,730 )   2,144,924

Cost of sales, SG&A and R&D expenses

   267,321    1,636,929    35,007    95,477    2,034,734    (2,730 )   2,032,004
    
  
  
  
  
  

 

Operating income

   27,525    57,372    23,605    4,418    112,920    0     112,920
    
  
  
  
  
  

 

 

For the three months ended March 31, 2005

 

     Yen (millions)

     Motorcycle
Business


   Automobile
Business


   Financial
Services


  

Power Product
& Other

Businesses


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                   

Sales to unaffiliated customers

   325,726    1,870,015    64,690    89,123    2,349,554    —       2,349,554

Intersegment sales

   0    0    972    1,709    2,681    (2,681 )   —  
    
  
  
  
  
  

 

Total

   325,726    1,870,015    65,662    90,832    2,352,235    (2,681 )   2,349,554

Cost of sales, SG&A and R&D expenses

   298,738    1,779,426    47,541    86,171    2,211,876    (2,681 )   2,209,195
    
  
  
  
  
  

 

Operating income

   26,988    90,589    18,121    4,661    140,359    0     140,359
    
  
  
  
  
  

 

 

- 23 -


Table of Contents

(B) For the year ended March 31, 2004

 

     Yen (millions)

     Motorcycle
Business


   Automobile
Business


  

Financial

Services


  

Power Product
& Other

Businesses


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                   

Sales to unaffiliated customers

   996,290    6,592,024    242,696    331,590    8,162,600    —       8,162,600

Intersegment sales

   0    0    3,138    10,070    13,208    (13,208 )   —  
    
  
  
  
  
  

 

Total

   996,290    6,592,024    245,834    341,660    8,175,808    (13,208 )   8,162,600

Cost of sales, SG&A and R&D expenses

   953,857    6,153,133    137,396    331,278    7,575,664    (13,208 )   7,562,456
    
  
  
  
  
  

 

Operating income

   42,433    438,891    108,438    10,382    600,144    0     600,144
    
  
  
  
  
  

 

Assets

   764,893    3,727,259    3,818,915    247,451    8,558,518    (229,750 )   8,328,768

Depreciation and amortization

   25,156    181,266    359    6,664    213,445    —       213,445

Capital expenditures

   35,041    240,416    430    11,854    287,741    —       287,741

 

For the year ended March 31, 2005

 

     Yen (millions)

     Motorcycle
Business


   Automobile
Business


   Financial
Services


   Power Product
& Other
Businesses


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                   

Sales to unaffiliated customers

   1,097,754    6,963,635    255,741    332,975    8,650,105    —       8,650,105

Intersegment sales

   0    0    3,447    9,869    13,316    (13,316 )   —  
    
  
  
  
  
  

 

Total

   1,097,754    6,963,635    259,188    342,844    8,663,421    (13,316 )   8,650,105

Cost of sales, SG&A and R&D expenses

   1,028,422    6,511,253    169,287    323,539    8,032,501    (13,316 )   8,019,185
    
  
  
  
  
  

 

Operating income

   69,332    452,382    89,901    19,305    630,920    0     630,920
    
  
  
  
  
  

 

Assets

   848,671    4,160,818    4,362,096    261,843    9,633,428    (316,458 )   9,316,970

Depreciation and amortization

   28,606    189,150    419    7,577    225,752    —       225,752

Capital expenditures

   41,845    317,271    1,941    12,923    373,980    —       373,980

 

Explanatory notes:

 

  1. Business Segment is based on Honda’s business organization and the similarity of the principal products included within each segment as well as the relevant markets for such products.

 

  2. Principal products of each segment

 

Business


  

Sales


  

Principal Products


Motorcycle business    Motorcycles, all-terrain vehicles (ATV), personal watercrafts and relevant parts    Large-size motorcycles, mid-size motorcycles, motorized bicycles, all-terrain vehicles (ATV), personal water craft
Automobile business    Automobiles and relevant parts    Compact cars, sub-compact cars, minivehicles

Financial services

Power product & other businesses

  

Financial and insurance services

Power products and relevant parts, and others

  

N/A

Power tillers, generators, general purpose engines, lawn mowers, outboard engines

 

  3. Within assets, corporate assets are included in Eliminations and amounted to JPY482,471 million for the year ended March 31, 2004 and JPY464,504 million for the year ended March 31, 2005, which consist primarily of cash and cash equivalents and marketable securities held by the Parent company.

 

  4. Certain gains and losses on sales and disposals of property, plant and equipment, which were previously recorded under other income (expenses), have been reclassified to selling, general and administrative expenses and net realized gains and losses on interest rate swap contracts not designated as accounting hedges by finance subsidiaries, which were previously recorded under cost of sales, have been reclassified to other income (expenses) – other since the prior year’s fiscal fourth quarter ended March 31, 2004, respectively. Accordingly, that reclassification have been made to the consolidated statements of income and retained earnings and to the segment information of the prior year’s fiscal fourth quarter to conform to the presentation used for the fiscal fourth quarter ended March 31, 2005.

 

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Table of Contents

2. Geographic Segment Information

 

(A) For the three months ended March 31, 2004

 

     Yen (millions)

     Japan

   North
America


   Europe

   Asia

   Other
Regions


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                        

Sales to unaffiliated customers

   536,865    1,089,735    246,525    180,318    91,481    2,144,924    —       2,144,924

Transfers between geographical segments

   544,692    30,483    43,606    24,463    1,741    644,985    (644,985 )   —  
    
  
  
  
  
  
  

 

Total

   1,081,557    1,120,218    290,131    204,781    93,222    2,789,909    (644,985 )   2,144,924

Cost of sales, SG&A. and R&D expenses

   992,281    1,109,502    283,340    195,204    88,859    2,669,186    (637,182 )   2,032,004
    
  
  
  
  
  
  

 

Operating income

   89,276    10,716    6,791    9,577    4,363    120,723    (7,803 )   112,920
    
  
  
  
  
  
  

 

 

For the three months ended March 31, 2005

 

     Yen (millions)

     Japan

   North
America


   Europe

   Asia

   Other
Regions


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                        

Sales to unaffiliated customers

   508,506    1,248,713    249,893    214,113    128,329    2,349,554    —       2,349,554

Transfers between geographical segments

   584,865    35,586    34,765    25,454    4,347    685,017    (685,017 )   —  
    
  
  
  
  
  
  

 

Total

   1,093,371    1,284,299    284,658    239,567    132,676    3,034,571    (685,017 )   2,349,554

Cost of sales, SG&A. and R&D expenses

   1,042,757    1,210,677    273,023    232,555    128,070    2,887,082    (677,887 )   2,209,195
    
  
  
  
  
  
  

 

Operating income

   50,614    73,622    11,635    7,012    4,606    147,489    (7,130 )   140,359
    
  
  
  
  
  
  

 

 

 

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Table of Contents

(B) For the year ended March 31, 2004

 

     Yen (millions)

     Japan

   North
America


   Europe

   Asia

   Other
Regions


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                        

Sales to unaffiliated customers

   1,879,141    4,552,941    756,312    637,163    337,043    8,162,600    —       8,162,600

Transfers between geographical segments

   2,051,729    120,069    192,235    67,009    11,222    2,442,264    (2,442,264 )   —  
    
  
  
  
  
  
  

 

Total

   3,930,870    4,673,010    948,547    704,172    348,265    10,604,864    (2,442,264 )   8,162,600

Cost of sales, SG&A. and R&D expenses

   3,738,419    4,362,860    922,704    659,500    324,466    10,007,949    (2,445,493 )   7,562,456
    
  
  
  
  
  
  

 

Operating income

   192,451    310,150    25,843    44,672    23,799    596,915    3,229     600,144
    
  
  
  
  
  
  

 

Assets

   2,370,214    4,539,320    571,419    435,815    141,851    8,058,619    270,149     8,328,768

 

For the year ended March 31, 2005

 

     Yen (millions)

     Japan

   North
America


   Europe

   Asia

   Other
Regions


   Total

   Eliminations

    Consolidated

Net sales and other operating revenue:

                                        

Sales to unaffiliated customers

   1,983,182    4,585,650    858,936    773,753    448,584    8,650,105    —       8,650,105

Transfers between geographical segments

   2,155,756    119,904    184,136    86,810    17,373    2,563,979    (2,563,979 )   —  
    
  
  
  
  
  
  

 

Total

   4,138,938    4,705,554    1,043,072    860,563    465,957    11,214,084    (2,563,979 )   8,650,105

Cost of sales, SG&A. and R&D expenses

   3,954,039    4,384,400    1,001,829    799,871    432,764    10,572,903    (2,553,718 )   8,019,185
    
  
  
  
  
  
  

 

Operating income

   184,899    321,154    41,243    60,692    33,193    641,181    (10,261 )   630,920
    
  
  
  
  
  
  

 

Assets

   2,480,052    5,202,980    649,547    541,331    203,605    9,077,515    239,455     9,316,970

 

Explanatory notes:

 

    1.

  

The geographic segments are based on the location where sales are originated.

 

 

    2.

   Major countries or regions in each geographic segment;   North America       United States, Canada, Mexico
         Europe       United Kingdom, Germany, France, Italy, Belgium
         Asia       Thailand, Indonesia, China, India
         Other Regions  

    Brazil, Australia

 

    3.

  

Within assets, corporate assets are included in Eliminations and amounted to JPY482,471 million for the year ended March 31, 2004 and JPY464,504 million for the year ended March 31, 2005, which consist primarily of cash and cash equivalents and marketable securities held by the Parent company.

 

 

    4.

   Certain gains and losses on sales and disposals of property, plant and equipment, which were previously recorded under other income (expenses), have been reclassified to selling, general and administrative expenses and net realized gains and losses on interest rate swap contracts not designated as accounting hedges by finance subsidiaries, which were previously recorded under cost of sales, have been reclassified to other income (expenses) – other since the prior year’s fiscal fourth quarter ended March 31, 2004, respectively. Accordingly, that reclassification have been made to the consolidated statements of income and retained earnings and to the segment information of the prior year’s fiscal fourth quarter to conform to the presentation used for the fiscal fourth quarter ended March 31, 2005.

 

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Table of Contents

3. Overseas Sales

 

(A) For the three months ended March 31, 2004

 

     Yen (millions)

 
     North
America


    Europe

    Asia

    Other
Regions


    Total

 

Overseas sales

   1,087,446     251,383     223,448     112,155     1,674,432  

Consolidated sales

                           2,144,924  

Overseas sales ratio to consolidated sales

   50.7 %   11.7 %   10.4 %   5.3 %   78.1 %

 

For the three months ended March 31, 2005

 

     Yen (millions)

 
     North
America


    Europe

    Asia

    Other
Regions


    Total

 

Overseas sales

   1,245,350     252,031     262,188     149,674     1,909,243  

Consolidated sales

                           2,349,554  

Overseas sales ratio to consolidated sales

   53.0 %   10.7 %   11.2 %   6.4 %   81.3 %

 

(B) For the year ended March 31, 2004

 

     Yen (millions)

 
     North
America


    Europe

    Asia

    Other
Regions


    Total

 

Overseas sales

   4,542,930     770,110     801,611     419,456     6,534,107  

Consolidated sales

                           8,162,600  

Overseas sales ratio to consolidated sales

   55.7 %   9.4 %   9.8 %   5.1 %   80.0 %

 

For the year ended March 31, 2005

 

     Yen (millions)

 
     North
America


    Europe

    Asia

    Other
Regions


    Total

 

Overseas sales

   4,575,076     870,795     977,011     528,018     6,950,900  

Consolidated sales

                           8,650,105  

Overseas sales ratio to consolidated sales

   52.9 %   10.1 %   11.3 %   6.1 %   80.4 %

 

Explanatory notes:

 

    1.

  

The geographic segments are based on the location where sales are originated

 

 

    2.

   Major countries or regions in each geographic segment;   North America       United States, Canada, Mexico
         Europe       United Kingdom, Germany, France, Italy, Belgium
         Asia       Thailand, Indonesia, China, India
         Other Regions  

    Brazil, Australia

 

 

 

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[8] (A) Consolidated Balance Sheets

    Divided into non-financial services businesses and finance subsidiaries

    For the fiscal year ended March 31, 2004 and 2005

 

     Yen (millions)

 
    

March. 31,

2004


   

March. 31,

2005


 

Assets

            

<Non-financial services businesses>

            

Current Assets:

   3,033,178     3,376,411  

Cash and cash equivalents

   707,917     757,894  

Trade accounts and notes receivable

   377,049     422,673  

Inventories

   765,433     862,370  

Other current assets

   1,182,779     1,333,474  

Investments and advances

   743,427     830,698  

Property, plant and equipment, at cost

   1,418,397     1,564,762  

Other assets

   269,073     274,958  
    

 

Total assets

   5,464,075     6,046,829  

<Finance Subsidiaries>

            

Cash and cash equivalents

   16,504     15,644  

Finance subsidiaries-short-term receivables, net

   956,284     1,028,488  

Finance subsidiaries-long-term receivables, net

   2,266,881     2,625,078  

Other assets

   579,246     692,886  
    

 

Total assets

   3,818,915     4,362,096  

Eliminations among subsidiaries

   (954,222 )   (1,091,955 )
    

 

Total assets

   8,328,768     9,316,970  
    

 

Liabilities and Stockholders’ Equity

            

<Non-financial services businesses>

            

Current liabilities:

   2,017,607     2,281,768  

Short-term debt

   200,784     228,558  

Current portion of long-term debt

   6,912     6,385  

Trade payables

   913,649     1,022,394  

Accrued expenses

   691,637     770,887  

Other current liabilities

   204,625     253,544  

Long-term debt

   28,370     19,570  

Other liabilities

   724,331     717,636  
    

 

Total liabilities

   2,770,308     3,018,974  

<Finance Subsidiaries>

            

Short-term debt

   1,170,538     1,310,678  

Current portion of long-term debt

   482,563     535,825  

Accrued expenses

   127,232     151,867  

Long-term debt

   1,378,346     1,546,953  

Other liabilities

   287,705     352,317  
    

 

Total liabilities

   3,446,384     3,897,640  

Eliminations among subsidiaries

   (762,324 )   (888,938 )
    

 

Total liabilities

   5,454,368     6,027,676  

Common stock

   86,067     86,067  

Capital surplus

   172,719     172,531  

Legal reserves

   32,418     34,688  

Retained earnings

   3,589,434     3,809,383  

Accumulated other comprehensive income (loss)

   (854,573 )   (793,934 )

Treasury stock

   (151,665 )   (19,441 )
    

 

Total stockholders’ equity

   2,874,400     3,289,294  
    

 

Total liabilities and stockholders’ equity

   8,328,768     9,316,970  
    

 

 

Explanatory note:

 

In this current year, Honda reclassified certain finance subsidiaries-receivables to trade receivables, including those of non-current portion to other assets, in the consolidated balance sheets divided into non-financial services businesses and finance subsidiaries (unaudited). Reclassifications have been made to prior years’ consolidated financial statements to confirm to the presentation used for the year ended March 31, 2005.

 

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Table of Contents

[8] (B) Consolidated Statements of Cash Flows

  Divided into non-financial services businesses and finance subsidiaries

  For the fiscal year ended March 31, 2004 and 2005.

 

For the fiscal year ended March 31, 2004

 

     Yen (millions)

 
     Non-financial
services businesses


    Finance subsidiaries

 

Cash flows from operating activities:

            

Net Income

   423,794     40,569  

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

            

Depreciation

   213,086     359  

Deferred income taxes

   34,532     78,890  

Equity in income of affiliates

   (75,424 )   —    

Loss on fair value adjustment of derivative instrument (profit)

   (74,469 )   (10,314 )

Decrease (increase) in trade accounts and notes receivable

   53,035     (28,096 )

Decrease (increase) in inventories

   (51,836 )   —    

Increase (decrease) in trade payables

   130,322     —    

Other, net

   (104,351 )   56,135  
    

 

Net cash provided by operating activities

   548,689     137,543  

Cash flows from investing activities:

            

* Decrease (increase) in investments and advances

   94,562     12  

Capital expenditures

   (287,311 )   (430 )

Proceeds from sales of property, plant and equipment

   14,398     4,759  

Decrease (increase) in finance subsidiaries-receivables

   —       (708,418 )
    

 

Net cash used in investing activities

   (178,351 )   (704,077 )
    

 

Free cash flow (Cash flows from operating and investing activities)

   370,338     (566,534 )
    

 

Free cash flow of Non-financial services businesses excluding the decrease in loans to Finance subsidiaries (Note)

   258,222     —    

Cash flows from financing activities:

            

* Increase (decrease) in short-term debt

   (37,401 )   (97,505 )

* Proceeds from long-term debt

   11,663     885,084  

* Repayment of long-term debt

   (11,169 )   (278,079 )

Proceeds from issuance of common stock

   —       57,280  

Cash dividends paid

   (33,566 )   —    

Increase (decrease) in commercial paper classified as long-term debt

   —       280  

Acquisition of treasury stock

   (95,312 )   —    
    

 

Net cash (used in) provided by financing activities

   (165,785 )   567,060  
    

 

Effect of exchange rate changes on cash and cash equivalents

   (26,979 )   (1,083 )
    

 

Net change in cash and cash equivalents

   177,574     (557 )

Cash and cash equivalents at beginning of year

   530,343     17,061  
    

 

Cash and cash equivalents at end of year

   707,917     16,504  

 

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Table of Contents

[8] (B) Consolidated Statements of Cash Flows

    Divided into non-financial services businesses and finance subsidiaries

 

For the fiscal year ended March 31, 2005

 

     Yen (millions)

 
     Non-financial
services businesses


    Finance subsidiaries

 

Cash flows from operating activities:

            

Net Income

   408,251     77,955  

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

            

Depreciation

   225,333     419  

Deferred income taxes

   38,737     76,782  

Equity in income of affiliates

   (97,821 )   —    

Loss on fair value adjustment of derivative instrument (profit)

   (4,000 )   (56,432 )

Decrease (increase) in trade accounts and notes receivable

   (29,754 )   (43,224 )

Decrease (increase) in inventories

   (79,483 )   —    

Increase (decrease) in trade payables

   82,548     —    

Other, net

   89,703     59,382  
    

 

Net cash provided by operating activities

   633,514     114,882  

Cash flows from investing activities:

            

* Decrease (increase) in investments and advances

   (119,182 )   —    

Capital expenditures

   (372,039 )   (1,941 )

Proceeds from sales of property, plant and equipment

   13,990     226  

Decrease (increase) in finance subsidiaries-receivables

   —       (465,841 )
    

 

Net cash used in investing activities

   (477,231 )   (467,556 )
    

 

Free cash flow (Cash flows from operating and investing activities)

   156,283     (352,674 )
    

 

Free cash flow of Non-financial services businesses excluding the decrease in loans to Finance subsidiaries (Note)

   288,600     —    

Cash flows from financing activities:

            

* Increase (decrease) in short-term debt

   14,604     138,511  

* Proceeds from long-term debt

   7,752     697,703  

* Repayment of long-term debt

   (9,172 )   (486,568 )

Proceeds from issuance of common stock

   —       1,911  

Cash dividends paid

   (47,806 )   —    

Increase (decrease) in commercial paper classified as long-term debt

   —       (131 )

Acquisition of treasury stock

   (84,147 )   —    
    

 

Net cash (used in) provided by financing activities

   (118,769 )   351,426  
    

 

Effect of exchange rate changes on cash and cash equivalents

   12,463     388  
    

 

Net change in cash and cash equivalents

   49,977     (860 )

Cash and cash equivalents at beginning of year

   707,917     16,504  
    

 

Cash and cash equivalents at end of year

   757,894     15,644  

 

Explanatory notes:

 

  1. Non-financial services businesses loans to finance subsidiaries. These cash flows were included in the items of “Other net” of Non financial services businesses, and “Increase (decrease) in short-term debt” and “Repayment of long-term debt” of Finance subsidiaries (marked by *). Free cash flow of Non financial services businesses excluding the increase in lending to finance subsidiaries are stated for the readers’ information. Loans from non-financial services businesses to finance subsidiaries was decreased by 112,116 millions of yen for fiscal 2004, and increased by 132,317 millions of yen for fiscal 2005.

 

  2. In this current year, Honda reclassified its reporting of cash flow related to the finance subsidiaries-receivables which relate to sales of inventory as cash flows from operating activities instead of cash flows from investing activities in the consolidated statements of cash flows divided into non-financial services businesses and finance subsidiaries (unaudited). Reclassifications have been made to prior years’ consolidated financial statements to confirm to the presentation used for the year ended March 31, 2005.

 

  3. 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.

 

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Table of Contents

Explanatory notes:

 

  1. Consolidated subsidiaries

Number of consolidated subsidiaries: 319

Principal subsidiaries:

American Honda Motor Co., Inc., Honda of America Mfg., Inc., Honda Canada Inc., Honda R&D Co., Ltd.,

American Honda Finance Corp.

 

 

  2. Affiliated companies

Number of affiliated companies: 118

Principal affiliated companies:

Guangzhou Honda Automobile Co., Ltd., Yachiyo Industry Co., Ltd., P.T. Astra Honda Motor

 

 

  3. Changes of consolidated subsidiaries and affiliated companies

Consolidated subsidiaries:

  Newly formed consolidated subsidiaries: 10 (i.e. Honda Aero., Inc.)

Reduced through reorganization: 9

 

Affiliated companies:

Newly formed affiliated companies: 2 (i.e. GE Honda Aero Engines LLC.)

Reduced through reorganization 9

 

  4. The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, since the Company has listed its shares as on American Depositary Receipts listed on the New York Stock Exchange and files reports with the U.S. Securities and Exchange Commission. All segment information, however, is prepared in accordance with the Ministerial Ordinance under the Securities and Exchange Law of Japan.

 

  5. The average exchange rates for the fiscal fourth quarter ended March 31, 2005 were ¥104.51=U.S.$1 and ¥136.94=euro1. The average exchange rates for the corresponding period last year were ¥107.27=U.S.$1 and ¥134.07=euro1.

 

The average exchange rates for the fiscal year ended March 31, 2004 were ¥107.55=U.S.$1 and ¥135.19=euro1, as compared with ¥113.07=U.S.$1 and ¥132.61=euro1 for the corresponding period last year.

 

  6. United States dollar amounts have been translated from yen solely for the convenience of the reader at the rate of ¥107.39=U.S.$1, the mean of the telegraphic transfer selling exchange rate and the telegraphic transfer buying exchange rate prevailing on the Tokyo foreign exchange market on March 31, 2005.

 

  7. The Company’s Common Stock-to-ADR exchange rate was changed from two shares of Common Stock to one ADR to one share of Common Stock to two ADRs, effective January 10, 2002.

 

  8. Minority interests in net assets and income are not significant and, accordingly, are not presented separately in the accompanying consolidated balance sheets and statements of income.

 

  9. Inventories are stated at the lower of cost, determined principally by the first-in, first-out method, or market.

 

  10. Honda classifies its debt and equity securities in one of three categories: available-for-sale, trading, orheld-to-maturity. Debt securities that are classified as “held-to-maturity” securities are reported at amortized cost. Debt and equity securities classified as “trading” securities are reported at fair value, with unrealized gains and losses included in earnings. Other debt and equity securities are classified as “available-for-sale” securities and are reported at fair value, with unrealized gains or losses, net of deferred taxes included in accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheets.

 

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  11. Honda does not amortize goodwill but instead is tested for impairment at least annually.

 

  12. Depreciation of property, plant and equipment is calculated principally by the declining-balance method based on estimated useful lives of the respective assets.

 

  13. Honda does not apply hedge accounting for the foreign exchange agreements and interest rate agreements.

 

  14. The allowance for credit losses for finance-subsidiaries receivables is maintained at an amount management deems adequate to cover estimated losses on finance receivables. The allowance is based on management’s evaluation of many factors, including current economic trends, industry experience, inherent risks in the portfolio and the borrower’s ability to pay.

 

  15. The allowance for losses on lease residual values is maintained at an amount management deems adequate to cover estimated losses on the uninsured portion of the vehicles’ lease residual values. The allowance is also based on management’s evaluation of many factors, including current economic conditions, industry experience and the finance subsidiaries’ historical experience with residual value losses.

 

  16. Provisions for retirement benefits are provided based on the fair value of both projected benefit obligations and plan assets at the end of the fiscal year to cover for employees’ retirement benefits. If the provision for retirement benefits are less than the unfunded accumulated benefit obligations, accrued pension cost is adjusted as an additional minimum pension liability that is at least equal to the unfunded accumulated benefit obligation.

 

Unrecognized net transition obligations has been amortized over approximately 19 years since the fiscal year ended March 31, 1990.

 

Unrecognized prior service cost (benefit) is amortized by using the straight-line method and the estimated average remaining service years of employees.

 

Unrecognized actuarial loss is amortized if unrecognized net gain or loss exceeds ten percent of the greater of the projected benefit obligation or the market-related value of plan assets by using the straight-line method and the estimated average remaining service years of employees.

 

  17. Our warranty expense accruals are costs for general warranties on product we sell, products recalls and service actions outside the general warranties. Estimated warranty expenses are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs.

 

Additional Information

 

As stipulated in the Japanese Welfare Pension Insurance Law, the “Honda Employees’ Pension Fund (Confederated

Welfare Pension Fund)” (the “Fund”), of which the Company is one of the members, obtained an approval from the Minister of Health, Labor and Welfare for exemption from benefits obligations related to future employee service in respect of the substitutional portion on April 1, 2004. The Company is currently in the process of transferring past service liabilities to the government. The Company has not yet determined the effect of the adoption on Honda’s consolidated financial position and results of operations as the fair value of plan assets and the pension benefit obligation to be transferred, determined pursuant to a government formula, will not be determined until the transfer of such assets and obligation is completed.

 

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Notes for Consolidated balance sheets

 

 1. The allowance for doubtful trade accounts and notes receivable is ¥10,919 million and ¥9,710 million, and for the allowance for credit losses for finance-subsidiaries receivable is ¥24,411 million and ¥30,926 million as of March 31, 2004 and 2005, respectively.

 

 2. Property, plant and equipment with a net book value of approximately ¥11,425 million and ¥12,881 million at March 31, 2004 and 2005, respectively, were subject to specific mortgages securing indebtedness. In addition, for certain losses, a finance subsidiary pledged as collateral finance subsidiaries-receivables of approximately ¥14,313 million and ¥22,597 million at March 31, 2004 and 2005, respectively.

 

 3. Comprehensive income consists of net income, change in adjustments from foreign currency translation, change in net unrealized gains on marketable equity securities, and change in minimum pension liabilities adjustment, and is included in the consolidated statements of stockholders’ equity.

 

 4. Honda has entered into various guarantee and indemnification agreements. At March 31, 2004 and 2005,

Honda has guaranteed approximately ¥77,426 million and ¥69,574 million of bank loan of employees for their housing costs, respectively. If an employee defaults on his/her loan payments, Honda is required to perform under the guarantee. The undiscounted maximum amount of Honda’s obligation to make future payments in the event of defaults were approximately ¥77,426 million and ¥69,574 million, respectively, at March 31, 2004 and 2005. As of March 31, 2005, no amount has been accrued for any estimated losses under the obligations, as it is probable that the employees will be able to make all scheduled payments.

 

Reclassification

 

In this current year, Honda reclassified its reporting of cash flow related to the finance subsidiaries-receivables which relate to sales of inventory as cash flows from operating activities instead of cash flows from investing activities in the consolidated statements of cash flows and also reclassified related finance subsidiaries-receivables to trade receivables, including those of non-current portion to other assets, in the consolidated balance sheets. Reclassifications have been made to prior years’ consolidated financial statements to confirm to the presentation used for the year ended March 31, 2005. More detailed information are provided in the “Consolidated Statements of Cash Flows for the Fiscal Year”

 

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Table of Contents

Unconsolidated Financial Summary

 

For the years ended March 31, 2004 and 2005

 

Financial Highlights (Parent company only)

 

     Yen (millions)

 
    

Year ended

Mar. 31, 2004


    %
Change


   

Year ended

Mar. 31, 2005


 

Net sales

   3,319,793     5.1 %   3,489,106  

Operating profit

   184,773     -20.1 %   147,554  

Ordinary profit

   311,244     -32.1 %   211,249  

Net income

   226,494     -36.2 %   144,489  
     Yen

 

Net income per share

   237.51           154.74  

Dividend per share for the term

   42           65  

Year-end dividend per share

   23           37  

Interim dividend per share

   19           28  
     (As a percentage)

 

Payout ratio

   17.6 %         41.8 %
Estimated Financial Figures for the Fiscal Year Ending March 31, 2006 (Parent company only)  
     Yen (millions)

 
    

First half

ending

Sep. 30, 2005


         

Year ending

Mar. 31, 2006


 

Net sales

   1,765,000           3,690,000  

Operating income

   54,000           150,000  

Ordinary profit

   104,000           240,000  

Net income

   81,000           185,000  
     Yen

 

Dividend per share for the term

   37           37  

 

 

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Table of Contents

[1] Unit Sales Breakdown (Parent company only)

 

     Unit (thousands)

 
     Year ended
Mar. 31, 2004


   

Year ended

Mar. 31, 2005


 

MOTORCYCLES

            

Japan

   403     378  

(motorcycles included above)

   (403 )   (378 )

Export

   730     736  

(motorcycles included above)

   (412 )   (393 )
    

 

Total

   1,133     1,115  

(motorcycles included above)

   (815 )   (772 )

AUTOMOBILES

            

Japan

   725     725  

(Mini vehicles included above)

   (270 )   (259 )

Export

   479     538  
    

 

Total

   1,204     1,264  

POWER PRODUCTS

            

Japan

   467     432  

Export

   4,674     4,986  
    

 

Total

   5,142     5,418  

 

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Table of Contents

[2] Net Sales Breakdown (Parent company only)

 

     Yen (millions)

     Year ended
Mar. 31, 2004


  

Year ended

Mar. 31, 2005


MOTORCYCLES

         

Japan

   72,625    74,599

Export

   344,990    372,023
    
  

Total

   417,616    446,622

AUTOMOBILES

         

Japan

   1,048,253    1,106,203

Export

   1,727,610    1,812,547
    
  

Total

   2,775,864    2,918,750

POWER PRODUCTS

         

Japan

   23,286    24,197

Export

   103,026    99,535
    
  

Total

   126,312    123,733

Total

         

Japan

   1,144,165    1,205,000

Export

   2,175,628    2,284,106
    
  

Total

   3,319,793    3,489,106

 

Explanatory notes:

 

1. The summary unconsolidated financial information set forth above is derived from the complete unconsolidated financial information of the Company to be filed with the Securities and Exchange Commission on the Company’s Form 6-K for the month of June 2005
2. Unconsolidated financial statements have been prepared on the basis of generally accepted accounting principles in Japan in accordance with the Japanese Commercial Code.
3. The unit sales and yen amounts described above are rounded down to the nearest one thousand units and one million yen, respectively.

 

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[3] Unconsolidated Statements of Income (Parent company only)

 

     Yen (millions)

 
     Year ended
Mar. 31, 2004


   

Year ended

Mar. 31, 2005


 

Net sales

   3,319,793     3,489,106  

Cost of sales

   2,216,909     2,385,073  

Selling, general and administrative expenses

   918,109     956,478  
    

 

Operating profit

   184,773     147,554  

Non-operating profit

   143,476     105,323  

Non-operating expenses

   17,005     41,629  

Ordinary Profit

   311,244     211,249  

Extraordinary profit

   5,505     1,528  

Extraordinary loss

   8,476     8,304  
    

 

Income before income taxes

   308,273     204,473  

Income taxes

            

Current

   102,125     62,026  

Prior year

         11,786  

Deferred

   (20,346 )   (13,829 )
    

 

Net income

   226,494     144,489  
    

 

 

Explanatory note:

 

Research and development expenses for the fiscal year ended March 31, 2005 amounted 466,866 millions of yen.

 

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Table of Contents

[4] Unconsolidated Balance Sheets (Parent company only)

 

     Yen (millions)

 
     Mar. 31, 2004

    Mar. 31, 2005

 

Current assets

   964,590     1,011,979  

Fixed assets

   1,312,176     1,343,114  
    

 

Total assets

   2,276,766     2,355,093  
    

 

Current liabilities

   586,800     634,227  

Fixed liabilities

   148,865     169,327  
    

 

Total liabilities

   735,666     803,554  

Common stock

   86,067     86,067  

Capital surplus

   170,504     170,316  

Retained surplus

   1,393,806     1,274,318  

Unrealized gains on securities available for sale

   42,387     40,278  

Treasury stock

   (151,665 )   (19,441 )
    

 

Stockholders’ equity

   1,541,100     1,551,538  
    

 

Total liabilities and stockholders’ equity

   2,276,766     2,355,093  
    

 

 

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Table of Contents

Management Policy

 

Honda’s business activities are based on fundamental corporate philosophies known as “Respect for the Individual” and “The Three Joys.”

 

“Respect for the Individual” defines Honda’s relationship with its associates, business partners and society. It is based on sharing a commitment to initiative, equality and mutual trust among people.

 

It is Honda’s belief that everyone who comes into contact with Honda’s activities will gain a sense of satisfaction through the experience of buying, selling or creating Honda’s products and services. This philosophy is expressed as “The Three Joys.”

 

With these corporate philosophies as the foundation, Honda’s business is guided by the following Company Principle:

 

“Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality at a reasonable price for worldwide customer satisfaction.”

 

Honda actively works to share a sense of satisfaction with all of its customers as well as its shareholders, and to continue improving its corporate value.

 

Profit Redistribution Policy

 

The Company strives to carry out its operations from a global perspective and increase its corporate value.

 

With respect to redistribution, the Company considers redistribution of profits to its shareholders to be one of the most important management issues, and its basic policy for dividends is to make distributions after taking into account its long-term consolidated earnings performance. The Company will also acquire its own shares at the optimal timing with the aim of improving efficiency in capital structure.

 

The present goal, however, is to increase the shareholders return ratio (i.e. the ratio of the total of the dividend payment and the repurchase of company shares to consolidated net income) to the level of 30%.

 

Retained earnings will be applied toward financing R&D activities that are essential for the future growth of the Company and capital expenditures and investment programs that will expand its operations for the purpose of improving business results and strengthening the Company’s financial condition.

 

The Company will continue to work hard to earn and keep the support of its shareholders.

 

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Preparing for the Future

 

The global economy, driven primarily by the U.S. and Asian economies, is expected to grow steadily, but the pace of growth is anticipated to slowdown. Also, the global management environment still lacks transparency because of global political and economic uncertainty, fluctuations in oil prices, and currency movements. In Japan, the economic recovery has become more moderate, and weak consumer spending is anticipated to continue. As a result, competition in the Japanese market is expected to intensify.

 

It is under these circumstances that Honda will strengthen its corporate structure quickly and flexibly to meet the requirements of our customers and society and the changes in its business environment. Honda recognizes that further enhancing the following specific areas is essential to its success:

 

R&D

Production efficiency

Sales efficiency

Product quality

Safety technologies

The environment

 

R&D

 

Along with efforts to develop even more effective safety and environmental technologies, Honda will enhance the creativity in its advanced technology and products, and it will create and swiftly introduce new value-added products that meet specific needs in various markets around the world.

 

Honda will also continue efforts in the research of future technologies, including the advancement of advanced humanoid robots and compact business jets and their engines.

 

Production Efficiency

 

Honda will establish efficient and flexible production systems and expand production capacity at its global production bases, with the aim of increasing its capability of supplying high quality products.

 

Sales Efficiency

 

Honda will continue to make efforts to expand its product lines through the innovative use of IT and to upgrade its sales and service structure, in order to further satisfy our customers.

 

Product Quality

 

Responding to increasing consumer demand, Honda will upgrade its quality control through enhancing the functions of and coordination among the development, purchasing, production, sales and service departments.

 

 

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Safety Technologies

 

Honda will develop safety technologies for accident prediction and prevention, technologies to reduce injuries to passengers and pedestrians from car accidents, and technologies for reducing aggresivity, as well as expand its line-up of products incorporating such technologies. Honda intends to enhance its contribution to traffic safety in motorized societies, including Asian countries. Honda also intends to remain active in a variety of traffic safety programs, including advanced driving and motorcycling training schemes provided by local dealerships.

 

The Environment

 

Honda will step up its efforts to create better clean, fuel-efficient engine technologies and to improve further the recyclability throughout its product lines. Honda will also advance alternative fuel technologies, including fuel cells. In addition, Honda will continue its efforts to minimize environmental impact, as measured by the *Life Cycle Assessment, in all of its business fields, including logistics and sales. In its production activities, Honda will promote environmental preservation issues under its Green Factory concept.

* Life Cycle Assessment: A comprehensive system for quantifying the impact Honda’s products have on the environment at the different stages in their life cycles, from material procurement and energy consumption to waste disposal.

 

Continuing to Increase Society’s Trust in and Understanding toward Honda

 

In addition to continuing to provide products incorporating Honda’s advanced safety and environmental technologies, Honda will continue striving to earn even more trust and understanding from society by, among other things, undertaking activities for corporate governance, compliance, and risk management and contributing to society.

 

Through these Company-wide activities, we will strive to materialize Honda’s visions of “value creation,” “globalization,” and “commitment to the future,” with the aim of sharing the joy with Honda’s customers, thus becoming a company that society wants to exist.

 

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Corporate Governance

 

Based on its fundamental corporate philosophies, the Company is working to improve its corporate governance, one of its most important management issues, with the aim of ensuring that Honda will be an increasingly reliable company that our shareholders, investors, customers and society want to exist.

 

Honda’s organization reflects its fundamental corporate philosophies. Honda has a highly effective and efficient company system in which each regional operations carries out its businesses so as to quickly and efficiently respond to customer needs around the world, each business operations makes arrangements for each product line, and each functional operations makes arrangements and provides support for each function.

 

In addition, the Audit Office carries out effective audits on the performance of each of the Company’s organizations’ businesses, and each organization aims to enhance its compliance and risk management while advancing its own autonomy.

 

To ensure objective control of the Company’s management, outside directors are appointed to be members of the Board of Directors and outside corporate auditors are appointed to be members of the Board of Corporate Auditors, respectively, which are responsible for supervision and auditing of the Company. To increase the Company’s ability to adapt to changes in its management environment, the term of office of each director is limited to one year, and their remuneration is determined according to a standard that reflects their contributions to the Company.

 

For its shareholders and investors, Honda’s basic policy emphasizes the disclosure of financial results on a quarterly basis, as well as the timely and accurate disclosure of its management strategies. Honda is committed to continually increasing its transparency.

 

1. Management Organization

 

(1) Management Organization

 

The Company supervises and audits its business activities through its Board of Directors and Board of Corporate Auditors.

 

The Board of Directors consists of 36 directors, including one outside director, and makes decisions on statutory matters, including the execution of important business. The Board of Directors also supervises the execution of the Company’s businesses. In order to ensure flexible decision-making, the Board of Directors has set up an Assets and Loan Management Committee, which is responsible for making decisions related to the disposal of the Company’s important assets. As from June 2005, the Company is planning to introduce an operating officer system aiming at strengthening its business execution and improving flexibility in decision –making at the Board of Directors. The Company also plans to increase the number of its outside directors to strengthen functions of the Board of Directors for supervising. The Assets and Loan Management Committee will be abolished as a result of such efforts to achieve flexibility in decision –making at the Board of Directors.

 

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The Board of Corporate Auditors is composed of five corporate auditors, including three outside corporate auditors. In accordance with the rules of the Company’s auditing policy and the apportionment of responsibilities as determined by the Board of Corporate Auditors, each corporate auditor audits the directors’ execution of duties. This is accomplished through various means, including attending meetings of the Board of Directors and inspecting the state of Company assets and liabilities. In addition to this, a Corporate Auditors’ Office was established to provide direct support to the Board of Corporate Auditors. As from June 2005, the Board of Corporate Auditors will be composed of six corporate auditors, including three outside corporate auditors.

 

In addition, the total amount of remuneration and bonuses of directors and corporate auditors is determined according to a standard that reflects their contributions to the Company.

 

The total amount of remuneration paid to directors and corporate auditors during the year ended March 31, 2005 (hereafter ‘fiscal 2005’) was 1,373 million yen: 1,288 million yen to the 40 directors (which includes the four directors who retired during fiscal 2005) and 85 million yen to the 6 corporate auditors (which includes a corporate auditor who retired during fiscal 2005). The remuneration paid to directors includes the amount of employee wages paid to directors who also had a status as employee and the remuneration paid by subsidiaries of the Company to directors who also assumed their responsibility in execution of business for the relevant subsidiaries. The remuneration paid to corporate auditors includes the amount of remuneration paid to corporate auditors, who also served for subsidiaries as their corporate auditors, received from such subsidiaries.

 

The total amount of executive bonuses that was paid during fiscal 2005 was 650 million yen: 606 million yen to the 36 directors who were directors as at the end of fiscal 2004 and 44 million yen to the four corporate auditors who were corporate auditors as at the end of fiscal 2004.

 

The amount of retirement allowances that was paid to the four retired directors was 923 million yen, while 216 million yen was paid to a retired corporate auditor, in accordance with a resolution of the Ordinary General Meeting of Shareholders held in June 2004.

 

In order to ensure proper auditing of the Company’s accounts, the Board of Corporate Auditors and the Board of Directors receive auditing reports based on the Commercial Code’s Audit Special Exceptions Law, the Securities and Exchange Law, and the Securities Exchange Acts of the U.S.A. In addition, they supervise the election of independent auditors, their remuneration, and their non-audit services.

 

For fiscal 2005, the Company elected Ernst & Young ShinNihon as its independent auditor under the Commercial Code’s Audit Special Exceptions Law and the Securities and Exchange Law and elected AZSA & Co. as its independent auditor under the Securities Exchange Act of the U.S.A.

 

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A total of 37 people from Ernst & Young ShinNihon provided auditing services for Honda: 20 Japanese certified public accountants, 10 assistant accountants, two U.S. certified public accountants, and five other. A total of 26 people from AZSA & Co. provided services for Honda: 10 Japanese certified public accountants, 13 assistant accountants, and three U.S. certified public accountants.

 

The fees paid to Ernst & Young ShinNihon for its auditing and preparing audit report for the Company and its consolidated subsidiaries under the Commercial Code’s Audit Special Exceptions Law and the Securities and Exchange Law for fiscal 2005 were 235 million yen. Fees amounting to 237 million yen were paid to Ernst & Young ShinNihon for fiscal 2005 for its non-auditing services rendered to the Company and its consolidated subsidiaries.

 

The fees paid to AZSA & Co. and KPMG, with which AZSA is affiliated, for their auditing services and preparing of audit reports for the Company and its consolidated subsidiaries under the Securities Exchange Act of the U.S.A for fiscal 2005 was 688 million yen. In addition, for fiscal 2005, fees amounting to 503 million yen were paid to AZSA and KPMG for their non-auditing services, such as tax-related services and support services related to the Sarbanes-Oxley Act, provided to the Company and its consolidated subsidiaries.

 

(2) Business Execution System

 

The Company has established a Management Council, which is composed of seven representative directors and two managing directors. Along with discussing in advance the items to be resolved at meetings of the Board of Directors, the Management

 

Council discusses important management issues as directed by the Board of Directors.

 

As for execution of business, the Company has six regional operations in the world to promote its business based on its fundamental corporate philosophies with long-term vision and roots in local society. With the aim of enhancing localized business development and ensuring speedy decision-making, each regional executive council at each regional operations discusses important management issues in the region within the scope of authority conferred upon it by the Management Council.

 

The Company’s four business operations—motorcycles, automobiles, power products, and spare parts—formulate the medium and long-term plans for their business development, and each operations aims to maximize its business performance on a global basis. Each functional operations, such as Customer Service Operations, Production Operations, Purchasing Operations, Business Management Operations and Business Support Operations, supports the other functional operations, the aim of which is to increase Honda’s efficiencies.

 

Research and development activities are conducted principally at the independent subsidiaries of the Company. Honda R&D Co., Ltd. is responsible for research and development on products, while Honda Engineering Co., Ltd. is responsible for research and development in the area of production technology. The Company actively carries out research and development in advanced technologies with the aim of creating products that are distinct and internationally competitive.

 

As from June 2005, an operating officer system will be introduced and the execution of business will primarily be handled by executive directors who are the heads of regional operations and business operations, and operating officers. Together with regional operating officers, the system for whom was integrated with functional operating officers in April 2005, the Company aims to reinforce its execution system in each region and operations.

 

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(3) Internal Control

 

The Audit Office is an independent supervisory department under the direct control of the president. This office audits the performance of each department and works to improve the internal auditing of subsidiaries and affiliates in each region.

 

In addition to the “Honda Conduct Guidelines,” which will be shared throughout the entire Honda group, the Company has also set up a systematic framework for compliance and risk management in which each division of the Honda group works to ensure compliance with laws and ordinances and prevent management risks, and to verify the status on a regular basis under the supervision of the director in charge. In addition to appointing a director in charge of compliance and risk management, the Company has also established organizations such as a “Business Ethics Committee” to deliberate matters related to corporate ethics and compliance and a “Business Ethics Improvement Proposal Line” to receive suggestions related to corporate ethics issues

 

2. Particular Relationships (such as Human Relations, Capital Relations, Transactional Relations and Conflicts of Interest) between the Company and its Outside Directors and Corporate Auditors

 

There is no particular relationship between the Company and its outside director Satoru Kishi.

 

There is no particular relationship between the Company and its outside corporate auditor Koukei Higuchi.

 

There is no particular relationship between the Company and its outside corporate auditor Kuniyasu Yamada. Kuniyasu Yamada serves as President and Director of MTB Apple Planning, Ltd. There is no particular relationship between MTB Apple Planning, Ltd. and the Company.

 

There is no particular relationship between the Company and its outside corporate auditor Fumihiko Saito. Fumihiko Saito serves as partner of Haamann Hemmerlrath Saito Law Office. There is no particular relationship between Haamann Hemmerlrath Saito Law Office and the Company.

 

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Table of Contents

3. The Company’s Efforts to Enhance its Corporate Governance

 

During the fiscal year ended March 31, 2005, eight meetings of the Board of Directors, one meeting of the Assets and Loan Management Committee, and 31 meetings of the Management Council were held, and matters concerning the execution of important businesses were thereby determined and important matters of management were deliberated.

 

During the same period, the Board of Corporate Auditors held 14 meetings and determined auditing policy, the apportionment of responsibilities, and other matters. The Board of Corporate Auditors and the Business Audit Office provided, jointly or individually, business audit for the Company and a total of 117 subsidiaries and affiliates of the Company in Japan and overseas.

 

The Business Ethics Committee held two meetings and deliberated matters related to corporate ethics and compliance.

 

The Company pushed ahead with its systematic improvements in the field of compliance and risk management for each department, subsidiary and affiliate.

 

For the purpose of enhancing corporate disclosure, the Company held meetings to outline results in each quarter, focusing on consolidated financial results prepared in accordance with U.S. GAAP. The Company has also been proactively engaged in such activities as holding meetings explaining corporate performance for investors, publishing various kinds of corporate information on the Company’s website, and disclosing quick and accurate information on management policies through a variety of media including the mass media.

 

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