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HONDA MOTOR CO LTD 6-K 2008

Documents found in this filing:

  1. 6-K
  2. Graphic
  3. Graphic
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 December 2007

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 offices)

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 December 6, 2007, Honda announced that sales of the Fit in Japan reached 1 million units in the six and a half years (78 months) since its release in June 2001. This is the quickest achievement of 1 million units in sales for a Honda model, exceeding the Life, at 79 months.

Exhibit 2:

English summary and translation of semi-annual report (“hanki-houkokusho”) for the First-Half term (six months ended September 30, 2007) of the 84th fiscal period

Exhibit 3:

Summary of 2007 Year-End CEO Speech held on December 19, 2007 (Ref.# C07-112).

Exhibit 4:

On December 19, 2007, 2007 Honda Sales & Production Forecast was announced. (Ref.# C07-113).

Exhibit 5:

On December 19, 2007, Honda R&D Co., Ltd., a wholly owned subsidiary of Honda Motor Co., Ltd., responsible for research and development activities, announced plans to build a product development facility dedicated to the Acura brand within the new R&D center being constructed in Sakura, Tochigi prefecture, in addition to the originally-planned multiple test courses. The new R&D center is scheduled to become operational in 2009. (Ref.# C07-114)

Exhibit 6:

On December 26, 2007, Honda Motor Co., Ltd. announced a summary of automobile production, Japan domestic sales, and export results for the month of November 2007, including a record for worldwide production for the month of November and an all-time record for any month for production in regions outside of Japan. (Ref.#C07-115)


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/ Fumihiko Ike

Fumihiko Ike
Managing Director
Chief Operating Officer for
Business Management Operation
Honda Motor Co., Ltd.

Date: January 18, 2008


Table of Contents

  LOGO

Cumulative Sales of Fit in Japan Reach 1 Million Units

Tokyo, Japan, December 6, 2007—Honda Motor Co., Ltd. announced that sales of the Fit in Japan reached 1 million units in the six and a half years (78 months) since its release in June 2001. This is the quickest achievement of 1 million units in sales for a Honda model, exceeding the Life, at 79 months.

Since its release in June 2001 in Japan, Fit (Jazz) has earned a wide range of customers for its efficient packaging, superior fuel efficiency, and advanced styling and, in 2002, became the industry’s best-selling vehicle among new registrations in Japan.

After undergoing its first full model change in October 2007, Fit became the industry’s best selling vehicle among new registrations in November 2007 with sales of 18,138 units – and ranked as the industry’s best selling vehicle for the first time since September 2006.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

September 30, 2007


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2006 and 2007 and March 31, 2007

 

     Yen (millions)

Assets

   September* 30,
2006
   September 30,
2007
   March* 31,
2007
     unaudited    unaudited    audited

Current assets:

        

Cash and cash equivalents

   ¥ 745,712    ¥ 863,604    ¥ 945,546

Trade accounts and notes receivables, net of allowance for doubtful accounts of ¥8,259 million at September 30, 2006, ¥7,520 million at September 30, 2007 and ¥8,199 million at March 31, 2007 (note 3)

     796,245      894,928      1,055,470

Finance subsidiaries-receivables, net (notes 3,7 and 11)

     1,471,967      1,494,722      1,426,224

Inventories (note 4)

     1,109,412      1,243,573      1,183,116

Deferred income taxes

     176,314      174,908      155,390

Other current assets (notes 5 and 11)

     438,536      503,536      426,863
                    

Total current assets

     4,738,186      5,175,271      5,192,609
                    

Finance subsidiaries-receivables, net (notes 3,7 and 11)

     3,290,975      3,058,054      3,039,826

Investments and advances:

        

Investments in and advances to affiliates (note 1(v))

     467,556      550,917      497,337

Other, including marketable equity securities (notes 5 and 11)

     250,095      265,366      254,610
                    

Total investments and advances

     717,651      816,283      751,947
                    

Property on operating leases (note 6):

        

Vehicles

     —        767,086      345,909

Less accumulated depreciation

     —        47,887      9,700
                    

Net property on operating leases

     —        719,199      336,209
                    

Property, plant and equipment, at cost (notes 1(v) and 7):

        

Land

     402,338      445,863      429,373

Buildings

     1,217,806      1,386,054      1,322,394

Machinery and equipment

     2,700,806      3,167,987      2,988,064

Construction in progress

     201,600      272,070      204,318
                    
     4,522,550      5,271,974      4,944,149

Less accumulated depreciation and amortization

     2,658,098      3,041,117      2,865,421
                    

Net property, plant and equipment

     1,864,452      2,230,857      2,078,728
                    

Other assets (notes 1(v), 3 and 11)

     579,834      658,072      637,181
                    

Total assets

   ¥ 11,191,098    ¥ 12,657,736    ¥ 12,036,500
                    

 

     Yen (millions)  

Liabilities, Minority Interests and Stockholders’ Equity

   September* 30,
2006
    September 30,
2007
    March* 31,
2007
 
     unaudited     unaudited     audited  

Current liabilities:

      

Short-term debt (note 7)

   ¥ 1,221,228     ¥ 1,542,074     ¥ 1,265,868  

Current portion of long-term debt (note 7)

     749,127       906,992       775,409  

Trade payables:

      

Notes

     26,890       35,579       33,276  

Accounts

     940,240       1,013,634       1,133,280  

Accrued expenses

     802,752       781,490       807,341  

Income taxes payable

     62,644       89,019       76,031  

Other current liabilities (note 11)

     211,874       228,509       196,322  
                        

Total current liabilities

     4,014,755       4,597,297       4,287,527  
                        

Long-term debt, excluding current portion (note 7)

     1,745,205       1,844,130       1,905,743  

Other liabilities (notes 1(v), 8 and 11)

     1,030,457       1,248,552       1,237,712  
                        

Total liabilities

     6,790,417       7,689,979       7,430,982  
                        

Minority interests in consolidated subsidiaries (note 1(v))

     88,391       131,005       122,907  
                        

Stockholders’ equity:

      

Common stock, authorized 7,086,000,000 shares at September 30, 2006 and 2007 and at March 31, 2007 : issued 1,834,828,430 shares at September 30, 2006 and 2007 and at March 31, 2007

     86,067       86,067       86,067  

Capital surplus

     172,529       172,529       172,529  

Legal reserves

     37,332       39,428       37,730  

Retained earnings (note 1(v))

     4,419,972       4,955,044       4,654,890  

Accumulated other comprehensive income (loss), net (notes 1(v) and 10)

     (369,600 )     (340,721 )     (427,166 )

Treasury stock, at cost 11,147,456 shares at September 30, 2006, 21,045,543 shares at September 30, 2007 and 12,835,522 shares at March 31, 2007

     (34,010 )     (75,595 )     (41,439 )
                        

Total stockholders’ equity

     4,312,290       4,836,752       4,482,611  
                        

Commitments and contingent liabilities (notes 13 and 14)

      

Total liabilities, minority interests and stockholders’ equity

   ¥ 11,191,098     ¥ 12,657,736     ¥ 12,036,500  
                        

 

* See note 2.

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Income

For the six months ended September 30, 2006 and 2007 and the year ended March 31, 2007

 

     Yen (millions)  
     September* 30,
2006
    September 30,
2007
   

March 31,

2007

 
     unaudited     unaudited     audited  

Net sales and other operating revenue

   ¥ 5,230,598     ¥ 5,902,469     ¥ 11,087,140  

Operating costs and expenses:

      

Cost of sales

     3,745,799       4,200,822       7,865,142  

Selling, general and administrative

     843,308       912,319       1,818,272  

Research and development

     244,946       281,306       551,847  
                        
     4,834,053       5,394,447       10,235,261  
                        

Operating income

     396,545       508,022       851,879  

Other income (note 1 (r)):

      

Interest

     20,125       25,520       42,364  

Other

     5,334       1,227       13,243  
                        
     25,459       26,747       55,607  
                        

Other expenses (note 1(r)):

      

Interest

     6,682       7,755       12,912  

Other

     60,314       38,764       101,706  
                        
     66,996       46,519       114,618  
                        

Income before income taxes, minority interest and equity in income of affiliates

     355,008       488,250       792,868  

Income tax (benefit) expense :

      

Current

     134,444       159,196       300,294  

Deferred

     (2,248 )     4,446       (16,448 )
                        
     132,196       163,642       283,846  
                        

Income before minority interest and equity in income of affiliates

     222,812       324,608       509,022  

Minority interest in income of consolidated subsidiaries

     (9,136 )     (13,269 )     (20,117 )

Equity in income of affiliates

     57,635       63,261       103,417  
                        

Net income

   ¥ 271,311     ¥ 374,600     ¥ 592,322  
                        
     Yen  
     September 30,
2006
    September 30,
2007
    March 31,
2007
 

Basic net income per common share (note 1(p)):

   ¥ 148.52     ¥ 206.26     ¥ 324.62  
                        

 

* See note 2.

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

For the six months ended September 30, 2006 and 2007 and the year ended March 31, 2007

 

     Yen (millions)  
     Common
stock
   Capital
surplus
   Legal
reserves
   Retained
earnings
    Accumulated
other
comprehensive
income (loss), net
    Treasury
stock
    Total
stockholders’
equity
 

Balance at March 31, 2006

   ¥ 86,067    ¥ 172,529    ¥ 35,811    ¥ 4,267,886     ¥ (407,187 )   ¥ (29,356 )   ¥ 4,125,750  
                                                     

Cumulative effect of adjustments resulting from the adoption of SAB No. 108, net of tax (note 1(v))

     —        —        —        (62,640 )     18,149       —         (44,491 )
                                                     

Adjusted balances as of March 31,2006

     86,067      172,529      35,811      4,205,246       (389,038 )     (29,356 )     4,081,259  
                                                     

Transfer to legal reserves

           1,521      (1,521 )         —    

Cash dividends

              (54,784 )         (54,784 )

Comprehensive income (loss):

                 

Net income for the period

              271,311           271,311  

Other comprehensive income (loss), net of tax (note 10)

                 

Adjustments from foreign currency translation

                29,277         29,277  

Unrealized gains (losses) on marketable securities:

                 

Unrealized holding gains (losses)

                (7,667 )       (7,667 )

Reclassification adjustments for losses (gains) realized in net income

                (2,155 )       (2,155 )

Unrealized gains (losses) on derivative instruments:

                 

Unrealized holding gains (losses)

                (581 )       (581 )

Reclassification adjustments for losses (gains) realized in net income

                588         588  

Minimum pension liabilities adjustment

                (24 )       (24 )
                       

Total comprehensive income

                    290,749  
                       

Purchase of treasury stock

                  (23,531 )     (23,531 )

Reissuance of treasury stock

              (280 )       18,877       18,597  
                                                     

Balance at September 30, 2006 (Unaudited)

   ¥ 86,067    ¥ 172,529    ¥ 37,332    ¥ 4,419,972     ¥ (369,600 )   ¥ (34,010 )   ¥ 4,312,290  
                                                     

Balance at March 31, 2007

   ¥ 86,067    ¥ 172,529    ¥ 37,730    ¥ 4,654,890     ¥ (427,166 )   ¥ (41,439 )   ¥ 4,482,611  
                                                     

Transfer to legal reserves

           1,698      (1,698 )         —    

Cash dividends

              (72,748 )         (72,748 )

Comprehensive income (loss):

                 

Net income for the period

              374,600           374,600  

Other comprehensive income (loss), net of tax (note 10)

                 

Adjustments from foreign currency translation

                80,023         80,023  

Unrealized gains (losses) on marketable securities:

                 

Unrealized holding gains (losses)

                3,347         3,347  

Reclassification adjustments for losses (gains) realized in net income

                    —    

Unrealized gains (losses) on derivative instruments:

                 

Unrealized holding gains (losses)

                (209 )       (209 )

Reclassification adjustments for losses (gains) realized in net income

                139         139  

Pension and other postretirement benefits adjustments

                3,145         3,145  
                       

Total comprehensive income

                    461,045  
                       

Purchase of treasury stock

                  (34,162 )     (34,162 )

Reissuance of treasury stock

                  6       6  
                                                     

Balance at September 30, 2007 (Unaudited)

   ¥ 86,067    ¥ 172,529    ¥ 39,428    ¥ 4,955,044     ¥ (340,721 )   ¥ (75,595 )   ¥ 4,836,752  
                                                     

Balance at March 31, 2006

   ¥ 86,067    ¥ 172,529    ¥ 35,811    ¥ 4,267,886     ¥ (407,187 )   ¥ (29,356 )   ¥ 4,125,750  
                                                     

Cumulative effect of adjustments resulting from the adoption of SAB No. 108, net of tax (note 1(v))

     —        —        —        (62,640 )     18,149       —         (44,491 )
                                                     

Adjusted balances as of March 31,2006

     86,067      172,529      35,811      4,205,246       (389,038 )     (29,356 )     4,081,259  
                                                     

Transfer to legal reserves

           1,919      (1,919 )         —    

Cash dividends

              (140,482 )         (140,482 )

Comprehensive income (loss) :

                 

Net income for the year

              592,322           592,322  

Other comprehensive income (loss), net of tax (note 10)

                 

Adjustments from foreign currency translation

                96,775         96,775  

Unrealized gains (losses) on marketable securities:

                 

Unrealized holding gains (losses)

                1,004         1,004  

Reclassification adjustments for losses (gains) realized in net income

                (5,575 )       (5,575 )

Unrealized gains (losses) on derivative instruments:

                 

Unrealized holding gains (losses)

                (337 )       (337 )

Reclassification adjustments for losses (gains) realized in net income

                421         421  

Minimum pension liabilities adjustment

                8,908         8,908  
                       

Total comprehensive income

                    693,518  
                       

Adjustment for initially applying SFAS No. 158, net of tax

                (139,324 )       (139,324 )
                       

Purchase of treasury stock

                  (30,974 )     (30,974 )

Reissuance of treasury stock

              (277 )       18,891       18,614  
                                                     

Balance at March 31, 2007 (Audited)

   ¥ 86,067    ¥ 172,529    ¥ 37,730    ¥ 4,654,890     ¥ (427,166 )   ¥ (41,439 )   ¥ 4,482,611  
                                                     

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the six months ended September 30, 2006 and 2007 and the year ended March 31, 2007

 

     Yen (millions)  
     September* 30,
2006
    September 30,
2007
    March 31,
2007
 
     unaudited     unaudited     audited  

Cash flows from operating activities (note 9):

      

Net income

   ¥ 271,311     ¥ 374,600     ¥ 592,322  

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

      

Depreciation excluding property on operating leases

     155,535       199,190       361,747  

Depreciation of property on operating leases

     —         40,260       9,741  

Deferred income taxes

     (2,248 )     4,446       (16,448 )

Minority interest in income

     9,136       13,269       20,117  

Equity in income of affiliates

     (57,635 )     (63,261 )     (103,417 )

Dividends from affiliates

     27,483       36,504       54,849  

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

     17,943       22,168       44,128  

Loss (gain) on derivative instruments, net

     48,489       17,844       56,836  

Decrease (increase) in assets:

      

Trade accounts and notes receivable

     194,998       188,756       (49,529 )

Inventories

     (54,682 )     (47,023 )     (96,839 )

Other current assets

     (19,221 )     (18,588 )     (15,206 )

Other assets

     (16,973 )     (80,869 )     (5,523 )

Increase (decrease) in liabilities:

      

Trade accounts and notes payable

     (86,237 )     (119,509 )     38,186  

Accrued expenses

     11,927       (47,777 )     41,898  

Income taxes payable

     (47,984 )     14,774       (37,282 )

Other current liabilities

     6,855       (360 )     1,103  

Other liabilities

     14,747       31,875       14,274  

Other, net

     (12,573 )     (18,755 )     (6,432 )
                        

Net cash provided by operating activities

     460,871       547,544       904,525  

Cash flows from investing activities:

      

Increase in investments and advances

     (3,568 )     (2,237 )     (9,874 )

Decrease in investments and advances

     437       484       3,829  

Payment for purchase of available-for-sale securities

     (63,193 )     (112,368 )     (141,902 )

Proceeds from sales of available-for-sale securities

     49,446       108,749       172,806  

Payment for purchase of held-to-maturity securities

     —         (16,423 )     (13,614 )

Proceeds from redemption of held-to-maturity securities

     8,860       12,175       41,109  

Capital expenditures

     (282,283 )     (342,874 )     (597,958 )

Proceeds from sales of property, plant and equipment

     11,542       11,292       20,641  

Acquisitions of finance subsidiaries-receivables

     (1,701,651 )     (1,448,823 )     (2,857,024 )

Collections of finance subsidiaries-receivables

     1,061,179       1,138,113       2,138,875  

Proceeds from sales of finance subsidiaries-receivables

     134,048       196,538       477,927  

Purchase of operating lease assets

     —         (447,902 )     (366,795 )

Proceeds from sales of operating lease assets

     —         8,883       1,276  
                        

Net cash used in investing activities

     (785,183 )     (894,393 )     (1,130,704 )

Cash flows from financing activities :

      

Increase (decrease) in short-term debt, net

     287,673       263,145       306,063  

Proceeds from long-term debt

     485,027       523,884       969,491  

Repayment of long-term debt

     (344,570 )     (446,185 )     (677,539 )

Cash dividends paid

     (54,784 )     (72,748 )     (140,482 )

Cash dividends paid to minority interests

     (5,910 )     (8,148 )     (7,434 )

Payment for purchase of treasury stock, net

     (23,093 )     (34,156 )     (26,689 )
                        

Net cash provided by financing activities

     344,343       225,792       423,410  

Effect of exchange rate changes on cash and cash equivalents

     8,893       39,115       31,527  
                        

Net change in cash and cash equivalents

     28,924       (81,942 )     228,758  

Cash and cash equivalents at beginning of the period*

     716,788       945,546       716,788  
                        

Cash and cash equivalents at end of the period

   ¥ 745,712     ¥ 863,604     ¥ 945,546  
                        

 

* See note 2.

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

For the six months ended September 30, 2006 and 2007 and the year ended March 31, 2007

 

(1) General and Summary of Significant Accounting Policies

 

  (a) Financial Statements

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, all adjustments which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the year. For further information, refer to the March 31, 2007 consolidated financial statements and notes thereto included in Honda Motor Co., Ltd. and Subsidiaries Annual Report for the year ended March 31, 2007. Consolidated financial statements for the year ended March 31, 2007 are derived from the audited consolidated financial statements, while consolidated financial statements for the six months ended September 30, 2006 and 2007 are unaudited.

 

  (b) Description of Business

Honda Motor Co., Ltd. (the “Company”) and its subsidiaries (collectively “Honda”) develop, manufacture, distribute and provide financing for the sale of its motorcycles, automobiles and power products. Honda’s manufacturing operations are principally conducted in 32 separate factories, four of which are located in Japan. Principal overseas manufacturing facilities are located in the United States of America, Canada, Mexico, the United Kingdom, France, Italy, Spain, China, India, Indonesia, Malaysia, Pakistan, the Philippines, Taiwan, Thailand, Vietnam, Brazil and Turkey.

 

  (c) Basis of Presenting Consolidated Financial Statements

The Company and its domestic subsidiaries maintain their books of account in conformity with financial accounting standards of Japan, and its foreign subsidiaries generally maintain their books of account in conformity with those of the countries of their domicile.

The consolidated financial statements presented herein have been prepared in a manner and reflect the adjustments which are necessary to conform them with U.S. generally accepted accounting principles.

 

  (d) Consolidation Policy

The consolidated financial statements include the accounts of the Company, its subsidiaries and those variable interest entities where the Company is the primary beneficiary under the Financial Accounting Standard Boards (FASB) Interpretation (FIN) No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”. All significant intercompany balances and transactions have been eliminated in consolidation.

Investments in affiliates in which the Company has the ability to exercise significant influence over their operating and financial policies, but where the Company does not have a controlling financial interest are accounted for using the equity method.

 

  (e) Use of Estimates

Management of Honda has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Significant items subject to such estimates and assumptions include, but are not limited to, allowance for credit losses, losses on lease residual values, realizable values of inventories, realization of deferred tax assets, impairment of long-lived assets, product warranty obligations, and the fair values of assets and obligations related to employee benefits. Actual results could differ from those estimates.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (f) Revenue Recognition

Sales of manufactured products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, title and risk of loss have passed to the customers, the sales price is fixed or determinable, and collectibility is probable.

Honda provides dealer incentives passed on to the end customers generally in the form of below-market interest rate loans or lease programs. The amount of interest or lease subsidies paid is the difference between the amount offered to retail customers and a market-based interest or lease rate. Honda also provides dealer incentives retained by the dealer, which generally represent discounts provided by Honda to the dealers. These incentives are classified as a reduction of sales revenue as the consideration is paid in cash and Honda does not receive an identifiable benefit in exchange for this consideration. The estimated costs are accrued at the time the product is sold to the dealer.

Operating lease revenues are recorded on a straight-line basis over the term of the lease.

Interest income from finance receivables is recognized using the interest method. Finance receivable origination fees and certain direct origination costs are deferred, and the net fee or cost is amortized using the interest method over the contractual life of the finance receivables.

Finance subsidiaries of the Company periodically sell finance receivables. Gain or loss is recognized equal to the difference between the cash proceeds received and the carrying value of the receivables sold and is recorded in the period in which the sale occurs. Honda allocates the recorded investment in finance receivables between the portion(s) of the receivables sold and portion(s) retained based on the relative fair values of those portions on the date the receivables are sold. Honda recognizes gains or losses attributable to the change in the fair value of the retained interests, which are recorded at estimated fair value and accounted for as “trading” securities. Honda determines the fair value of the retained interests by discounting the future cash flows. Those cash flows are estimated based on prepayments, credit losses and other information as available and are discounted at a rate which Honda believes is commensurate with the risk free rate plus a risk premium. Finance subsidiaries of the Company have historically amortized servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income. In the current period, finance subsidiaries of the Company adopted Statement of Financial Accounting Standards (SFAS) No. 156, “Accounting for Servicing of Financial Assets”. Based on SFAS No. 156, finance subsidiaries of the Company measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur. The adoption of SFAS No. 156 did not have a material impact on the Company’s consolidated financial position as of April 1, 2007. Servicing assets and servicing liabilities at September 30, 2006 and 2007 and March 31, 2007 were not significant.

Taxes collected from customers and remitted to governmental authorities on revenue-producing transactions are accounted for on a net basis and therefore are excluded from revenues in consolidated statements of income.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (g) Cash Equivalents

Honda considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of money market funds and commercial paper, and amount to ¥60,688 million, ¥80,279 million and ¥117,182 million as of September 30, 2006, 2007 and March 31, 2007, respectively.

 

  (h) Inventories

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

 

  (i) Investments in Securities

Honda classifies its debt and equity securities in the following categories: available-for-sale, trading, or held-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 marketable 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. The costs of available-for-sale securities sold are accounted for using the moving-average method. Honda did not hold any “trading” securities at September 30, 2006 and 2007 and March 31, 2007, except for retained interests in the sold pools of finance receivables, which are accounted for as “trading” securities and included in finance subsidiaries-receivables.

Honda periodically compares the fair value of investment securities with their cost basis. If the fair value of investment securities has declined below our cost basis and such decline is judged to be other-than-temporary, Honda recognizes the impairment of the investment securities and the carrying value is reduced to its fair value through a charge to income. The determination of other-than-temporary impairment is based upon an assessment of the facts and circumstances related to each investment security. In determining the nature and extent of impairment, Honda considers such factors as financial and operating conditions of the issuer, the industry in which the issuer operates, degree and period of the decline in fair value and other relevant factors.

Non-marketable equity securities are carried at cost, and are examined the possibility of impairment periodically.

 

  (j) Goodwill

Honda accounts for goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. Goodwill, all of which is allocated to Honda’s reporting units, is not amortized but instead is tested for impairment at least annually. Honda completed its annual tests for March 31, 2006 and 2007 and concluded no impairment needed to be recognized. The carrying amount of goodwill at September 30, 2006 and 2007 and March 31, 2007 was ¥19,450 million, ¥20,683 million and ¥20,791 million, respectively. (see note 2)

 

  (k) Property on Operating Leases

Property on operating leases is reported at cost, less accumulated depreciation. Depreciation of the vehicles is generally provided on a straight-line basis to an estimated residual value over the lease term. The residual values of the vehicles related to the operating leases are estimated at inception by using our estimate of future used vehicle values, taking into consideration data obtained from third parties.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (l) Depreciation

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

The estimated useful lives used in computing depreciation of property, plant and equipment are as follows:

 

Asset

   Life

Buildings

   3 to 50 years

Machinery and equipment

   2 to 20 years

 

  (m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Honda’s long-lived assets and identifiable intangible assets other than goodwill having finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of by sale are reported at the lower of the carrying amount or estimated fair value less costs to sell.

 

  (n) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes”. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. This Interpretation prescribes a two step process for the recognition and measurement in the financial statement of a tax position taken or expected to be taken in a tax return.

Honda adopted the provision of FIN No. 48 on April 1, 2007. The adoption of FIN No. 48 did not have a material impact on the Company’s consolidated financial position as of April 1, 2007. As of April 1, 2007, Honda’s gross unrecognized tax benefits totaled ¥36,330 million. Of this amount, the amount that would impact the Company’s effective tax rate, if recognized, is ¥7,492 million. Honda does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

Honda accounts for interest and penalties related to the liability for unrecognized tax benefits as a component of income tax expense in the consolidated statement of income. As of April 1, 2007, Honda had recorded approximately ¥7,024 million for accrued interest and no liability for accrued penalty.

Honda has open tax years from primarily 2000 to 2007 with various significant taxing jurisdictions.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (o) Product-Related Expenses

Advertising and sales promotion costs are expensed as incurred. Provisions for estimated costs related to product warranty are made at the time the products are sold to customers or new warranty programs are initiated. 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. Included in warranty expenses accruals are costs for general warranties on vehicles Honda sells and product recalls.

 

  (p) Basic Net Income per Common Share

Basic net income per common share has been computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding during the six months ended September 30, 2006 and 2007 and for the year ended March 31, 2007 was 1,826,739,817, 1,816,129,778 and 1,824,675,228, respectively. There were no potentially dilutive shares outstanding during the six months ended September 30, 2006 or 2007 or for the year ended March 31, 2007.

 

  (q) Foreign Currency Translation

Foreign currency financial statement amounts are translated into Japanese yen on the basis of the period-end rate for all assets and liabilities and the weighted average rate for the period for all income and expense amounts. The resulting translation adjustments are included in accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheets.

Foreign currency receivables and payables are translated at the applicable current rates on the balance sheet date. All revenues and expenses associated with foreign currencies are converted at the rates of exchange prevailing when such transactions occur. The resulting exchange gains or losses are reflected in other income (expense) in the consolidated statements of income.

 

  (r) Derivative Financial Instruments

Honda has entered into foreign exchange agreements and interest rate agreements to manage currency and interest rate exposures. These instruments include foreign currency forward contracts, currency swap agreements, currency option contracts and interest rate swap agreements.

Honda recognizes at fair value of all derivative financial instruments in its consolidated balance sheet.

Honda applies hedge accounting for certain foreign currency forward contracts related to forecasted foreign currency transactions between the Company and its subsidiaries. These are designated as cash flow hedges on the date derivative contracts is entered into. The Company has a currency rate risk management policy documented. In addition, it documents all relationships between derivative financial instruments designated as cash flow hedges and the relevant hedged items to identify the relationship between them. The Company assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments designated as cash flow hedge are highly effective to offset changes in cash flows of hedged items.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

When it is determined that a derivative financial instrument is not highly effective as a cash flow hedge, when the hedged item matures, is sold or is terminated, or when it is identified that the forecasted transaction is no longer probable, the Company discontinues hedge accounting. To the extent derivative financial instruments are designated as cash flow hedges and have been assessed as being highly effective, changes in their fair value are recognized in other comprehensive income (loss). The amounts are reclassified into earnings in the period when forecasted hedged transactions affect earnings. When these cash flow hedges prove to be ineffective, changes in the fair value of the derivatives are immediately recognized in earnings.

Changes in the fair value of derivative financial instruments not designated as accounting hedges are recognized in earnings in the period of the change.

The amount recognized in earnings included in other income (expenses) – other during the six months ended September 30, 2006 and 2007 and for the year ended March 31, 2007, are ¥47,622 million loss, ¥2,295 million gain and ¥48,485 million loss, respectively. In relation to this, the Company included gains and losses on translation of debts of finance subsidiaries denominated in foreign currencies intended to be hedged of ¥867 million loss, ¥20,139 million loss and ¥8,351 million loss in other income (expenses) – other during the six months ended September 30, 2006 and 2007 and for the year ended March 31, 2007, respectively. In addition, net realized gains and losses on interest rate swap contracts not designated as accounting hedges by mainly finance subsidiaries of ¥3,765 million gain, ¥1,739 million loss and ¥3,309 million gain are included in other income (expenses) – other during the six months ended September 30, 2006 and 2007 and for the year ended March 31, 2007, respectively. These gains and losses are presented on a net basis.

Honda does not hold any derivative financial instruments for trading purposes.

 

  (s) Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses, and are charged to earnings as incurred.

 

  (t) Asset Retirement Liability

Honda applies Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No.143”. FIN No. 47 clarifies the term conditional asset retirement obligation as used in SFAS No.143 and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by this Interpretation include those for which an entity has a legal obligation to perform an asset retirement activity, however, the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (u) New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.157, “Fair Value Measurements”. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. This statement is effective as of an entity’s first fiscal year that begins after November 15, 2007. Management is currently in the process of quantifying the financial impact of adoption. It is not anticipated that adoption will have a material impact on the Company’s financial position or results of operations.

The Company and its subsidiaries adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” on March 31, 2007.

This statement also changes the date at which benefit obligations are to be measured to the date of the year-end statement of financial position. Certain foreign subsidiaries of the Company use a December 31 measurement date for their plans. The measurement provisions of this statement are effective for fiscal years ending after December 15, 2008, and management is currently in process of quantifying the financial impact of adoption.

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of SFAS No.115”. This statement permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. The statement also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Management is currently in process of quantifying the financial impact of adoption.

 

  (v) Cumulative Effect of Prior Year Adjustments

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying current year misstatements for the purpose of materiality assessment. SAB No. 108 requires that registrants quantify a current year misstatement using an approach that considers both the impact of prior year misstatements that remain on the balance sheet and those that were recorded in the current year income statement. The Company historically quantified misstatements and assessed materiality based on a current year income statement approach. The transition provisions of SAB No. 108 permit the Company to adjust for the cumulative effect on retained earnings of immaterial errors related to prior years.

The Company adopted SAB No. 108 effective beginning of the fiscal year ended March 31, 2007, and adjusted the items described below in the accompanying consolidated financial statements as of the beginning of the fiscal year ended March 31, 2007 to correct the prior year misstatements, which were considered to be immaterial to the consolidated statements of income and consolidated balance sheets in prior years under the income statement approach. The net impact of these adjustments decreased the Company’s beginning retained earnings and beginning accumulated other comprehensive loss for 2007 by ¥62,640 million, net of tax effect of ¥31,235 million, and ¥18,149 million, respectively, for the items described below and incremental effects on the consolidated balance sheet are shown in the table below.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The Company adopted the provisions of SAB 108 for the year ended March 31, 2007. As a result of the adoption, the Company adjusted the beginning retained earnings and beginning accumulated other comprehensive loss in the consolidated financial statements for the six months ended September 30, 2006. The impact of misstatements to the consolidated financial statements for the six months ended September 30, 2006 was immaterial. Accordingly, the Company had not revised the consolidated statement of income and consolidated balance sheet except for beginning retained earnings and beginning accumulated comprehensive loss.

1. The Company and its certain domestic subsidiaries in Japan historically calculated depreciation of property, plant and equipment, using a salvage value determined as 5% of the acquisition cost. However, since the sales proceeds received for the liquidated assets and their economical value at the end of its useful life historically have been nominal, the Company and its certain domestic subsidiaries assessed the adequacy of the salvage value and concluded that they should have calculated depreciation using the salvage value of ¥1 for its properly, plant and equipment. The Company and its certain domestic subsidiaries recalculated depreciation expenses retrospectively considering the corrected salvage value. The reassessment indicated that an accumulated overstatement of property, plant and equipment in the consolidated financial statements had occurred.

2. Equity in income of affiliates should be recognized based on affiliates’ consolidated financial statements in accordance with U.S. generally accepted accounting principles. However, the Company historically recognized equity in income of affiliates based on the results of operations of the parent-only financial statements of the affiliates, as the Company assessed that the difference between the total amounts of equity in income on the consolidation basis and those on the parent-only basis had been immaterial to the Company’s consolidated financial statements under the income statement approach. This misstatement resulted in an accumulated understatement of equity in income of affiliates and the carrying value of the investments in affiliates in the consolidated financial statements.

3. The Company reclassified the residual tax effect of minimum pension liabilities included in accumulated other comprehensive income during the year ended March 31, 2006, which related to corporate tax rate changes in the past based on the proportional allocation over the expiration of unrecognized obligation. However, the residual tax effect should have been reclassified only when the pension plan is liquidated or dissolved under the portfolio approach. This misstatement resulted in an understatement of accumulated other comprehensive loss and corresponding overstatement in income tax benefit.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The impact of the affected line items in the consolidated balance sheet at the beginning of six months ended September 30, 2006 and the fiscal year ended March 31, 2007 is as follows.

Consolidated Balance Sheet

 

     Yen (millions)  

Assets

   1     2    3     Cumulative Effect of
Prior Year Adjustment
as of April 1, 2006
 

Investments and advances:

         

Investments in and advances to affiliates

   (4,546 )   36,274    —       31,728  
                       

Total investments and advances

   (4,546 )   36,274    —       31,728  
                       

Property, plant and equipment, at cost:

         
                       

Less accumulated depreciation and amortization

   109,308     —      —       109,308  
                       

Net property, plant and equipment

   (109,308 )   —      —       (109,308 )
                       

Other assets

   43,722     —      —       43,722  
                       

Total assets

   (70,132 )   36,274    —       (33,858 )
                       
     Yen (millions)  

Liabilities, Minority Interests and Stockholders’ Equity

   1     2    3     Cumulative effect of
Prior Year Adjustment
as of April 1, 2006
 

Other liabilities

   (1,818 )   14,305    —       12,487  
                       

Total liabilities

   (1,818 )   14,305    —       12,487  
                       

Minority interests in consolidated subsidiaries

   (1,854 )   —      —       (1,854 )
                       

Stockholders’ equity:

         

Retained earnings

   (66,460 )   21,969    (18,149 )   (62,640 )

Accumulated other comprehensive income (loss), net

   —       —      18,149     18,149  
                       

Total stockholders’ equity

   (66,460 )   21,969    —       (44,491 )
                       

Total liabilities, minority interests and stockholders’ equity

   (70,132 )   36,274    —       (33,858 )
                       

 

  (w) Reclassifications and Revisions of Classifications

Certain revisions for misclassifications and reclassifications have been made to the prior periods’ consolidated financial statements to conform to the presentation used for the six months ended September 30, 2007. Detailed information is provided in note 2.

 

(2) Revisions of Classifications

As disclosed in Note 3 to the consolidated financial statements on the annual report for the year ended March 31, 2007, certain revisions for misclassifications were made to the consolidated financial statements as of and for the year ended March 31, 2006. The corresponding effect of those revisions in the accompanying consolidated statements as of and for the six months period ended September 30, 2006 are as follows:

(a) Minority interest and minority interest in income, which were included in other liabilities and other expenses-other, respectively, have been revised to be disclosed independently in consolidated balance sheets and consolidated statements of income. Minority interest in income and cash dividends paid to minority interests, which were included in other liabilities and other, net, in cash flows from operating activities, have been revised to be disclosed independently in cash flows from operating activities and cash flows from financing activities, respectively, in the consolidated statements of cash flows.

The impact of this revision in the consolidated balance sheet resulted in an increase in minority interest and a corresponding decrease in other liabilities in the amount of ¥90,245 million. The impact of this revision in the consolidated statement of income resulted in an increase in minority interest in income and a corresponding decrease in other expenses-other in the amount of ¥9,136 million. The impact of this revision in the consolidated statement of cash flows resulted in an increase in minority interest in income and a corresponding decrease in other, net, in the amount of ¥9,136 million, and an increase in other liabilities and cash dividends paid to minority interests in the amount of ¥5,910 million, respectively.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(b) Auction rate securities, which were classified as cash equivalents, have been revised to be classified as available-for-sale securities due within one year, which are included in other current assets in the consolidated balance sheets. Payment for purchase of auction rate securities and proceeds from sales of auction rate securities have been revised to be classified in payment for purchase of available-for-sale securities and proceeds from sales of available-for-sale securities in the consolidated statements of cash flows, respectively.

The impact of this revision in the consolidated balance sheet resulted in an increase in other current assets and a corresponding decrease in cash and cash equivalents in the amount of ¥46,777 million. The impact of this revision in the consolidated statement of cash flows resulted in an increase in payment for purchase of available-for-sale securities and proceeds from sales of available-for-sale securities in the amount of ¥61,365 million, and ¥45,716 million, respectively, and a decrease in effect of exchange rate change on cash and cash equivalents of ¥589 million.

(c) The long-term portion of deferred tax liabilities and deferred tax assets related to the lease transactions of finance subsidiaries, which were classified in other current liabilities and deferred income taxes, have been revised to be classified in other liabilities and other assets, respectively.

The impact of this revision in the consolidated balance sheet resulted in an increase in deferred income taxes and other liabilities of ¥41,269 million and ¥311,240 million, respectively and a decrease in other current liabilities of ¥269,971 million.

(d) The long-term portion of accrued expenses and prepaid expenses related to pension benefit plans, which were included in accrued expenses and other current assets have been revised to be classified in other liabilities and other assets, respectively. The long-term portion of deferred tax liabilities, which were included in other current liabilities, and deferred tax assets, have also been revised to classified in other liabilities and other assets.

The impact of this revision in the consolidated balance sheet resulted in an increase in other assets and other liabilities in the amount of ¥66,137 million and ¥120,071 million, respectively, and a decrease in deferred income taxes, other current assets, and accrued expenses of ¥36,434 million, ¥21,421 million, and ¥111,789 million, respectively. The impact of this revision in the consolidated statement of cash flows resulted in an increase in other current assets and a decrease in other assets in the amount of ¥676 million and an increase in other liabilities and a decrease in accrued expenses in the amount of ¥6,184 million, respectively.

(e) The long-term portion of prepaid expenses, deferred income and accrued expenses related to extended vehicle service contracts of the subsidiaries in the United States, which were included in other current assets, trade payables accounts and accrued expenses, respectively, have been revised to be classified in other liabilities and other assets. The long-term portion of related deferred tax liabilities, which were included in other current liabilities, and deferred income taxes have also been revised to be classified in other liabilities and other assets.

The impact of this revision in the consolidated balance sheet resulted in an increase in other assets and other liabilities in the amount of ¥93,186 million and ¥137,841 million, respectively, and a decrease in deferred income taxes, other current assets, trade payables and accrued expenses of ¥27,369 million, ¥55,895 million, ¥91,015 million, and ¥36,904 million, respectively. The impact of this revision in the consolidated statement of cash flows resulted in an increase in other assets, accrued expenses and other liabilities in the amount of ¥5,269 million, ¥634 million, and ¥6,721 million, respectively and a decrease in other current assets and trade payables of ¥4,436 million and ¥6,522 million, respectively.

Certain other revisions for misclassifications have been made to the consolidated balance sheets at September 30, 2006 and March 31, 2007 to conform to the presentation used at September 30, 2007, as follows.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(f) Investor level goodwill in affiliates, which was classified as other assets, has been revised to be classified as investments in and advances to affiliates.

The impact of this revision in the consolidated balance sheets resulted in an increase in investments in and advances to affiliates and a corresponding decrease in other assets in the amount of ¥9,799 million at September 30, 2006 and March 31, 2007.

(g) The long-term portion of deferred tax assets related to pension benefit plans, which was classified as deferred income taxes at March 31, 2007, has been revised to be classified as other assets.

The impact of this revision in the consolidated balance sheet resulted in an increase in other assets and a corresponding decrease in deferred income taxes in the amount of ¥59,782 million at March 31, 2007.

 

(3) Finance Subsidiaries-Receivables

Finance subsidiaries-receivables represent finance receivables generated by finance subsidiaries.

Certain finance receivables related to sales of inventory are included in trade receivables and other assets in the consolidated balance sheets. Finance receivables include wholesale financing to dealers and retail financing and direct financing leases to consumers.

The allowance for credit losses 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.

Finance subsidiaries of the Company purchase insurance to cover a substantial amount of the estimated residual value of vehicles leased to customers. 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.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Finance subsidiaries-receivables, net, consisted of the following at September 30, 2006 and 2007 and March 31, 2007:

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Direct financing leases

   ¥ 2,280,334    ¥ 1,606,221    ¥ 1,892,566

Retail

     2,745,234      3,259,659      2,923,944

Wholesale

     330,077      357,043      437,242

Term loans to dealers

     14,083      18,206      14,916

Loans held for sale*

     180,615      —        —  
                    

Total finance receivables

     5,550,343      5,241,129      5,268,668

Retained interests in the sold pools of finance receivables

     87,465      80,538      88,110
                    
     5,637,808      5,321,667      5,356,778

Less:

        

Allowance for credit losses

     39,533      38,011      35,020

Allowance for losses on lease residual values

     35,243      26,631      33,928

Unearned interest income and fees

     236,428      112,590      143,131
                    
     5,326,604      5,144,435      5,144,699

Less:

        

Finance receivables included in trade receivables, net

     399,780      425,355      509,697

Finance receivables included in other assets, net

     163,882      166,304      168,952
                    

Finance subsidiaries-receivables, net

     4,762,942      4,552,776      4,466,050

Less current portion

     1,471,967      1,494,722      1,426,224
                    

Noncurrent finance subsidiaries-receivables, net

   ¥ 3,290,975    ¥ 3,058,054    ¥ 3,039,826
                    

* The loans held for sale are carried at the lower of cost or fair value.

 

(4) Inventories

Inventories at September 30, 2006 and 2007 and March 31, 2007 are summarized as follows:

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Finished goods

   ¥ 732,124    ¥ 814,702    ¥ 772,917

Work in process

     37,500      40,246      34,970

Raw materials

     339,788      388,625      375,229
                    
   ¥ 1,109,412    ¥ 1,243,573    ¥ 1,183,116
                    

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(5) Investments and Advances

Investments and advances at September 30, 2006 and 2007 and March 31, 2007 consisted of the following:

 

    

Yen

(millions)

     September* 30,
2006
   September 30,
2007
   March 31,
2007

Current

        

Auction rate securities

   ¥ 46,777    ¥ 42,683    ¥ 41,318

Corporate debt securities

     10,172      412      311

U.S. government and agency debt securities

     15,895      41      2,993

Advances

     793      930      581
                    
   ¥ 73,637    ¥ 44,066    ¥ 45,203
                    

*   See note 2.

Investments and advances due within one year are included in other current assets.

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Noncurrent

        

Marketable equity securities

   ¥ 125,977    ¥ 174,265    ¥ 169,280

Convertible preferred stocks

     13,724      —        —  

Convertible notes

     32,264      —        —  

Government bonds

     2,999      2,999      2,999

U.S. government and agency debt securities

     —        16,449      10,034

Non-marketable equity securities accounted for under the cost method

        

Non-marketable preferred stocks

     6,000      2,000      2,000

Other

     14,904      12,033      11,639

Guaranty deposits

     31,974      30,150      30,847

Advances

     2,618      1,875      2,481

Other

     19,635      25,595      25,330
                    
   ¥ 250,095    ¥ 265,366    ¥ 254,610
                    

Certain information with respect to marketable securities at September 30, 2006 and 2007 and March 31, 2007 is summarized below:

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Available-for-sale

        

Cost

   ¥ 77,223    ¥ 108,738    ¥ 107,573

Fair value

     172,754      216,948      210,598

Gross unrealized gains

     95,630      108,386      103,113

Gross unrealized losses

     99      176      88

Held-to-maturity

        

Amortized cost

   ¥ 29,066    ¥ 19,901    ¥ 16,337

Fair value

     28,977      19,949      16,348

Gross unrealized gains

     20      50      26

Gross unrealized losses

     109      2      15
                    

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(6) Property on Operating Leases

Future minimum lease rentals expected to be received from property on operating leases at September 30, 2007 are as follows:

 

    

Yen

(millions)

Within one year

   ¥ 136,070

Over one year

     219,756
      

Total future minimum lease rentals

   ¥ 355,826
      

Future minimum rentals as shown above should not necessarily be considered indicative of future cash collections.

 

(7) Short-Term and Long-Term Debt

Short-term debt at September 30, 2006 and 2007 and March 31, 2007 is as follows:

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Short-term bank loans

   ¥ 220,995    ¥ 340,990    ¥ 311,117

Medium-term notes

     208,068      329,916      182,355

Commercial paper

     792,165      871,168      772,396
                    
   ¥ 1,221,228    ¥ 1,542,074    ¥ 1,265,868
                    

Long-term debt at September 30, 2006 and 2007 and March 31, 2007 is as follows:

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Total long-term debt

   ¥ 2,494,332    ¥ 2,751,122    ¥ 2,681,152

Less current portion

     749,127      906,992      775,409
                    
   ¥ 1,745,205    ¥ 1,844,130    ¥ 1,905,743
                    

Property, plant and equipment with a net book value of approximately ¥34,732 million, ¥35,338 million, ¥23,654 million at September 30, 2006 and 2007 and March 31, 2007, respectively, were subject to specific mortgages securing indebtedness. Furthermore, finance subsidiaries-receivables of approximately ¥4,569 million, ¥374 million, ¥1,931 million at September 30, 2006 and 2007 and March 31, 2007, respectively, were pledged as collateral by a financial subsidiary for certain loans.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(8) Other Liabilities

Other liabilities at September 30, 2006 and 2007 and March 31, 2007 are summarized as follows:

 

    

Yen

(millions)

     September* 30,
2006
   September 30,
2007
   March 31,
2007

Accrued liabilities for product warranty, excluding current portion

   ¥ 147,076    ¥ 155,437    ¥ 153,409

Additional minimum pension liabilities

     171,855      —        —  

Pension and other postretirement benefits

     117,108      527,900      524,457

Deferred income taxes

     346,710      286,917      316,048

Other

     247,708      278,298      243,798
                    
   ¥ 1,030,457    ¥ 1,248,552    ¥ 1,237,712
                    

* See note 2.

 

(9) Supplemental Disclosures of Cash Flow Information

 

    

Yen

(millions)

     September 30,
2006
   September 30,
2007
   March 31,
2007

Cash paid during the period for:

        

Interest

   ¥ 87,106    ¥ 111,838    ¥ 187,268

Income taxes

     192,234      174,484      351,225

During the six months ended September 30, 2006, the Company reissued certain of its treasury stock at fair value of ¥18,521 million to the outside shareholder of affiliates to obtain 100% share of these companies.

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(10) Accumulated Other Comprehensive Income (Loss)

The components in accumulated other comprehensive income (loss) at September 30, 2006 and 2007 and March 31, 2007 are as follows:

 

    

Yen

(millions)

 
     September 30,
2006
    September 30,
2007
    March 31,
2007
 

Adjustments from foreign currency translation

   ¥ (346,500)     ¥ (198,979)     ¥ (279,002)  

Net unrealized gains on marketable securities

     52,888       61,486       58,139  

Net unrealized gains (losses) on derivative instruments

     (57)       (50)       20  

Minimum pension liabilities Adjustment (note 1(v))

     (75,931)       —         —    

Pension and other postretirement benefits adjustment

     —         (203,178)       (206,323)  
                        

Total accumulated other comprehensive income (loss)

   ¥ (369,600 )   ¥ (340,721 )   ¥ (427,166 )
                        

 

(11) Fair Value of Financial Instruments

The estimated fair values of significant financial instruments at September 30, 2006 and 2007 and March 31, 2007 are as follows:

 

    

Yen

(millions)

 
     September 30, 2006     September 30, 2007     March 31, 2007  
    

Carrying

amount

   

Estimated

fair value

   

Carrying

amount

   

Estimated

fair value

   

Carrying

amount

   

Estimated

fair value

 

Finance subsidiaries-receivables
(Including loans held for sale) (a)

   ¥ 3,276,658     ¥ 3,268,237     ¥ 3,681,445     ¥ 3,695,790     ¥ 3,434,721     ¥ 3,444,144  

Marketable securities

     172,754       172,754       216,948       216,948       210,598       210,598  

Held-to-maturity securities

     29,066       28,977       19,901       19,949       16,337       16,348  

Convertible preferred stocks

            

Host contracts

Embedded derivatives

    

 

9,194

4,530

 

 

   

 

9,194

4,530

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

                                                
     13,724       13,724       —         —         —         —    

Convertible notes (b)

            

Host contracts

Embedded derivatives

    

 

8,158

24,106

 

 

   

 

8,158

24,106

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

   

 

—  

—  

 

 

                                                
     32,264       32,264       —         —         —         —    

Debt

     (3,715,560 )     (3,731,539 )     (4,293,196 )     (4,293,612 )     (3,947,020 )     (3,960,743 )

Foreign exchange instruments (c)

            

Asset position

   ¥ 1,339     ¥ 1,339     ¥ 19,504     ¥ 19,504     ¥ 3,735     ¥ 3,735  

Liability position

     (37,064 )     (37,064 )     (19,232 )     (19,232 )     (24,783 )     (24,783 )
                                                

Net

   ¥ (35,725 )   ¥ (35,725 )   ¥ 272     ¥ 272     ¥ (21,048 )   ¥ (21,048 )
                                                

Interest rate instruments (d)

            

Asset position

   ¥ 17,388     ¥ 17,388     ¥ 7,120     ¥ 7,120     ¥ 10,866     ¥ 10,866  

Liability position

     (23 )     (23 )     (15,054 )     (15,054 )     (2,417 )     (2,417 )
                                                

Net

   ¥ 17,365     ¥ 17,365     ¥ (7,934 )   ¥ (7,934 )   ¥ 8,449     ¥ 8,449  
                                                

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(a) The carrying amounts of finance subsidiaries-receivables at September 30, 2006 and 2007 and March 31, 2007 in the table exclude ¥2,049,946 million, ¥1,462,990 million and ¥1,709,978 million of direct financing leases, net, classified as finance subsidiaries-receivables in the consolidated balance sheets, respectively. The carrying amounts of finance subsidiaries-receivables at September 30, 2006 and 2007 and March 31, 2007 in the table also include ¥563,662 million, ¥591,659 million and ¥678,649 million of finance receivables classified as trade receivables and other assets in the consolidated balance sheets.
(b) A subsidiary had a forward sale contract in relation to a portion of the above convertible notes. The carrying amount and estimated fair value of the derivative financial instrument as of September 30, 2006 is ¥16,836 million, asset position. In the year ended March 31, 2007, the subsidiary exercised the forward sale contract, and there was no balance of the derivative financial instrument as of September 30, 2007 and March 31, 2007.
(c) The fair values of foreign currency forward exchange contracts, foreign currency option contracts and foreign currency swap agreements are included in other assets and other current assets/liabilities in the consolidated balance sheets as follows:

 

    

Yen

(millions)

 
     September 30,
2006
    September 30,
2007
    March 31,
2007
 

Other current assets

   ¥ 1,339     ¥ 11,018     ¥ 3,735  

Other assets

     —         8,486       —    

Other current liabilities

     (37,064 )     (19,232 )     (24,783 )
                        
   ¥ (35,725 )   ¥ 272     ¥ (21,048 )
                        

 

(d) The fair values of interest rate swap agreements are included in other assets/liabilities and other current assets/liabilities in the consolidated balance sheets as follows:

 

    

Yen

(millions)

 
     September 30,
2006
    September 30,
2007
    March 31,
2007
 

Other current assets

   ¥ 179     ¥ 3,349     ¥ 3,890  

Other assets

     17,209       3,771       6,976  

Other current liabilities

     —         (15,054 )     (2,417 )

Other liabilities

     (23 )     —         —    
                        
   ¥ 17,365     ¥ (7,934 )   ¥ 8,449  
                        

The estimated fair values have been determined using relevant market information and appropriate valuation methodologies. However, these estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. The effect of using different assumptions and/or estimation methodologies may be significant to the estimated fair values.

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

The methodologies and assumptions used to estimate the fair values of financial instruments are as follows:

Cash and cash equivalents, trade receivables and trade payables

The carrying amounts approximate fair values because of the short maturity of these instruments.

Finance subsidiaries-receivables (Including loans held for sale)

The fair values of retail receivables and term loans to dealers were estimated by discounting future cash flows using the current rates for these instruments of similar remaining maturities. Given the short maturities of wholesale receivables, the carrying amount of such receivables approximates fair value. The fair value of the retained interest in the sold pools of finance receivables were estimated by calculating the present value of the future cash flows using a discount rate commensurate with the risks involved.

Marketable securities

The fair value of marketable securities was estimated using quoted market prices.

Held-to-maturity securities

The fair value of held-to-maturity securities was estimated using quoted market prices.

Convertible notes and convertible preferred stock investment

Convertible instruments were bifurcated into two portions for accounting purposes. The note and preferred stock portions of these convertible instruments were treated as available-for-sale and were marked-to-market through other comprehensive income (loss). The fair value was determined based on an analysis of interest rate movements and an assessment of credit worthiness. The embedded derivative was marked-to-market through the statement of income and fair value was estimated using a trinomial convertible bond pricing model.

Debt

The fair values of bonds and notes were estimated based on the quoted market prices for the same or similar issues. The fair value of long-term loans was estimated by discounting future cash flows using rates currently available for loans of similar terms and remaining maturities. The carrying amounts of short-term bank loans and commercial paper approximate fair values because of the short maturity of these instruments.

Foreign exchange and interest rate instruments

The fair values of foreign currency forward exchange contracts and foreign currency option contracts were estimated by obtaining quotes from banks. The fair values of currency swap agreements and interest rate swap agreements were estimated by discounting future cash flows using rates currently available for these instruments of similar terms and remaining maturities.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(12) Risk Management Activities and Derivative Financial Instruments

Honda is a party to derivative financial instruments in the normal course of business to reduce their exposure to fluctuations in foreign exchange rates and interest rates. Currency swap agreements are used to convert long-term debt denominated in a certain currency to long-term debt denominated in other currencies. Foreign currency forward exchange contracts and purchased option contracts are normally used to hedge sale commitments denominated in foreign currencies (principally U.S. dollars). Foreign currency written option contracts are entered into in combination with purchased option contracts to offset premium amounts to be paid for purchased option contracts. Interest rate swap agreements are mainly used to convert floating rate financing, such as commercial paper, to (normally three-five years) fixed rate financing in order to match financing costs with income from finance receivables. These instruments involve, to varying degrees, elements of credit, exchange rate and interest rate risks in excess of the amount recognized in the consolidated balance sheets.

The aforementioned instruments contain an element of risk in the event the counterparties are unable to meet the terms of the agreements. However, Honda minimizes the risk exposure by limiting the counterparties to major international banks and financial institutions meeting established credit guidelines. Management of Honda does not expect any counterparty to default on its obligations and, therefore, does not expect to incur any losses due to counterparty default. Honda generally does not require or place collateral for these financial instruments.

Foreign currency forward contracts and currency swap agreements are agreements to exchange different currencies at a specified rate on a specific future date. Foreign currency option contracts are contracts that allow the holder of the option the right but not the obligation to exchange different currencies at a specified rate on a specific future date. Foreign currency forward exchange contracts, foreign currency option contracts and currency swap agreements outstanding at September 30, 2006 were ¥812,126 million, ¥195,743 million and ¥629,356 million, respectively and totaled ¥1,637,225 million. At September 30, 2007, foreign currency forward exchange contracts, foreign currency option contracts and currency swap agreements outstanding were ¥828,808 million, ¥250,010 million and ¥741,297 million, respectively and totaled ¥1,820,115 million. At March 31, 2007, foreign currency forward exchange contracts, foreign currency option contracts and currency swap agreements outstanding were ¥978,994 million, ¥5,793 million and ¥608,534 million, respectively and totaled ¥1,593,321 million.

Cash flow hedge

The Company applies hedge accounting for certain foreign currency forward exchange contracts related to forecasted foreign currency transactions between the Company and its subsidiaries. Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognized in other comprehensive income (loss). The amounts are reclassified into earnings in the same period when forecasted hedged transactions affect earnings. The amount recognized in accumulated other comprehensive income (loss) was ¥57 million loss in the fiscal six months ended September 30, 2006, ¥50 million loss in the fiscal six months ended September 30, 2007, and ¥20 million gain in the fiscal year ended March 31, 2007, respectively. All amounts recorded in accumulated other comprehensive income (loss) as the period-end are expected to be recognized in earnings within the next twelve months. The period that hedges the changes in cash flows related to the risk of foreign currency rate is at most around two months.

There are no derivative financial instruments where hedge accounting has been discontinued due to the forecasted transaction no longer being probable. The Company excludes financial instruments’ time value component from the assessment of hedge effectiveness, of which amount was ¥231 million loss for the six months ended September 30, 2006, ¥195 million loss for the six months ended September 30, 2007, and ¥1,187 million loss for the year ended March 31, 2007, respectively. There are no derivative financial instruments that have been assessed as being ineffectiveness.

Derivative financial instruments not designated as accounting hedges

Changes in the fair value of derivative financial instruments not designated as accounting hedges are recognized in earnings in the period of the change.

Interest rate swap agreements generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amount. At September 30, 2006 and 2007 and March 31, 2007, the notional principal amounts of interest rate swap agreements were ¥4,207,623 million, ¥4,580,687 million and ¥4,198,463 million, respectively.

 

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Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(13) Commitments and Contingent Liabilities

At September 30, 2007, Honda had commitments for purchases of property, plant and equipment of approximately ¥123,752 million.

Honda has entered into various guarantee and indemnification agreements. At September 30, 2006 and 2007 and March 31, 2007, Honda has guaranteed ¥43,585 million, ¥38,689 million, and ¥41,151 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 is ¥43,585 million, ¥38,689 million and ¥41,151 million, respectively at September 30, 2006 and 2007 and March 31, 2007. At September 30, 2007, 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.

Honda warrants its vehicles for specific periods of time. Product warranties vary depending upon the nature of the product, the geographic location of its sale and other factors.

With respect to product liability, personal injury claims or lawsuits, Honda believes that any judgment that may be recovered by any plaintiff for general and special damages and court costs will be adequately covered by Honda’s insurance and reserves. Punitive damages are claimed in certain of these lawsuits. Honda is also subject to potential liability under other various lawsuits and claims. In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies”, Honda has recorded a contingent liability when it is probable that an obligation has been incurred and the amount of loss can be reasonably estimated. Honda reviews these pending lawsuits and claims periodically and adjusts the amounts recorded for these contingent liabilities, if necessary, by considering the nature of lawsuits and claims, the progress of the case and the opinions of legal counsel. Honda does not record liabilities for lawsuits or potential claims that it believes will not result in an unfavorable outcome or when a reasonable estimate of the amount of probable loss cannot be determined. After consultation with legal counsel, and taking into account all known factors pertaining to existing lawsuits and claims, Honda believes that the ultimate outcome of such lawsuits and pending claims should not result in liability to Honda that would be likely to have an adverse material effect on its consolidated financial position, results of operations or cash flows.

 

(14) Leases

Honda is the lessee under several operating leases, primarily for office and other facilities, and certain office equipment.

Future minimum lease payments under noncancelable operating leases that have initial or remaining lease terms in excess of one year at September 30, 2007 are as follows:

 

    

Yen

(millions)

Within one year

   ¥ 26,750

Over one year

     123,042
      

Total minimum lease payments

   ¥ 149,792
      

Rental expenses under operating leases for the six months ended September 30, 2006 and 2007 and for the year ended March 31, 2007 were ¥26,072 million, ¥27,644 million and ¥46,910 million, respectively.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(15) Segment Information

Honda has four reportable segments: the Motorcycle business, the Automobile business, the Financial services business and the Power product and other businesses, which are based on Honda’s organizational structure and characteristics of products and services. Operating segments are defined as components of Honda’s about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. The accounting policies used for these reportable segments are consistent with the accounting policies used in Honda’s consolidated financial statements. (see note 2)

Principal products and functions of each segment are as follows:

 

Segment

  

Principal products and services

  

Functions

Motorcycle business

   Motorcycles, all-terrain vehicles (ATVs), personal watercrafts and relevant parts    Research & Development Manufacturing Sales and related services

Automobile business

   Automobiles and relevant parts    Research & Development Manufacturing Sales and related services

Financial services business

   Financial, insurance services    Retail loan and lease related to Honda products Others

Power product and other businesses

   Power products and relevant parts, and others    Research & Development Manufacturing Sales and related services Others

Segment Information

As of and for the six months ended September 30, 2006

 

     Yen (millions)
     Motorcycle
Business
   Automobile
Business
   Financial
Services
Business
  

Power Product
and Other

Businesses

  

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

   ¥ 645,646    ¥ 4,194,436    ¥ 188,040    ¥ 202,476    ¥ 5,230,598      —       ¥ 5,230,598

Intersegment

     —        —        1,791      6,024      7,815      (7,815 )     —  
                                                 

Total

   ¥ 645,646    ¥ 4,194,436    ¥ 189,831    ¥ 208,500    ¥ 5,238,413    ¥ (7,815 )   ¥ 5,230,598

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

     600,423      3,913,474      137,970      190,001      4,841,868      (7,815 )     4,834,053
                                                 

Segment income

   ¥ 45,223    ¥ 280,962    ¥ 51,861    ¥ 18,499    ¥ 396,545      —       ¥ 396,545
                                                 

Equity in income of affiliates

   ¥ 14,640    ¥ 41,872      —      ¥ 1,123    ¥ 57,635      —       ¥ 57,635

Assets

   ¥ 997,316    ¥ 4,970,754    ¥ 5,513,479    ¥ 285,109    ¥ 11,766,658    ¥ (575,560 )   ¥ 11,191,098

Investments in affiliates

   ¥ 108,253    ¥ 340,471      —      ¥ 14,539    ¥ 463,263      —       ¥ 463,263

Depreciation and amortization

   ¥ 17,670    ¥ 132,808    ¥ 439    ¥ 4,618    ¥ 155,535      —       ¥ 155,535

Capital expenditures

   ¥ 28,915    ¥ 236,365    ¥ 368    ¥ 5,267    ¥ 270,915      —       ¥ 270,915

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

     —        —      ¥ 17,943      —      ¥ 17,943      —       ¥ 17,943

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

As of and for the six months ended September 30, 2007

 

     Yen (millions)
     Motorcycle
Business
   Automobile
Business
   Financial
Services
Business
   Power Product
and Other
Businesses
  

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

   ¥ 749,963    ¥ 4,683,707    ¥ 259,609    ¥ 209,190    ¥ 5,902,469      —       ¥ 5,902,469

Intersegment

     —        —        8,062      11,058      19,120      (19,120 )     —  
                                                 

Total

   ¥ 749,963    ¥ 4,683,707    ¥ 267,671    ¥ 220,248    ¥ 5,921,589    ¥ (19,120 )   ¥ 5,902,469

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

     681,796      4,322,344      204,141      205,286      5,413,567      (19,120 )     5,394,447
                                                 

Segment income

   ¥ 68,167    ¥ 361,363    ¥ 63,530    ¥ 14,962    ¥ 508,022      —       ¥ 508,022
                                                 

Equity in income of affiliates

   ¥ 12,495    ¥ 50,136      —      ¥ 630    ¥ 63,261      —       ¥ 63,261

Assets

   ¥ 1,196,047    ¥ 5,635,136    ¥ 6,085,475    ¥ 313,730    ¥ 13,230,388    ¥ (572,652 )   ¥ 12,657,736

Investments in affiliates

   ¥ 130,965    ¥ 400,837      —      ¥ 15,624    ¥ 547,426      —       ¥ 547,426

Depreciation and amortization

   ¥ 22,388    ¥ 170,506    ¥ 40,757    ¥ 5,799    ¥ 239,450      —       ¥ 239,450

Capital expenditures

   ¥ 32,127    ¥ 279,229    ¥ 448,143    ¥ 13,812    ¥ 773,311      —       ¥ 773,311

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

     —        —      ¥ 22,168      —      ¥ 22,168      —       ¥ 22,168

As of and for the year ended March 31, 2007

 

     Yen (millions)
     Motorcycle
Business
   Automobile
Business
   Financial
Services
Business
   Power Product
and Other
Businesses
  

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

   ¥ 1,370,617    ¥ 8,889,080    ¥ 409,701    ¥ 417,742    ¥ 11,087,140      —       ¥ 11,087,140

Intersegment

     —        —        3,633      21,168      24,801      (24,801 )     —  
                                                 

Total

   ¥ 1,370,617    ¥ 8,889,080    ¥ 413,334    ¥ 438,910    ¥ 11,111,941    ¥ (24,801 )   ¥ 11,087,140

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

     1,270,009      8,289,537      297,792      402,724      10,260,062      (24,801 )     10,235,261
                                                 

Segment income

   ¥ 100,608    ¥ 599,543    ¥ 115,542    ¥ 36,186    ¥ 851,879      —       ¥ 851,879
                                                 

Equity in income of affiliates

   ¥ 23,380    ¥ 78,537      —      ¥ 1,500    ¥ 103,417      —       ¥ 103,417

Assets

   ¥ 1,161,707    ¥ 5,437,709    ¥ 5,694,204    ¥ 338,671    ¥ 12,632,291    ¥ (595,791 )   ¥ 12,036,500

Investments in affiliates

   ¥ 118,475    ¥ 360,673      —      ¥ 15,065    ¥ 494,213      —       ¥ 494,213

Depreciation and amortization

   ¥ 40,576    ¥ 309,877    ¥ 10,676    ¥ 10,359    ¥ 371,488      —       ¥ 371,488

Capital expenditures

   ¥ 68,880    ¥ 540,859    ¥ 367,728    ¥ 16,394    ¥ 993,861      —       ¥ 993,861

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

     —        —      ¥ 44,128      —      ¥ 44,128      —       ¥ 44,128

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Explanatory notes:

 

1. Segment income is measured in a consistent manner with consolidated operating income, which is net income before other income, other expenses, income tax (benefit) expense, minority interest in income, and equity in income of affiliates. Expenses not directly associated with specific segments are allocated based on the most reasonable measures applicable.

 

2. Assets of each segment are defined as total assets, including derivative financial instruments, investments in affiliates, and deferred tax assets. Segment assets are based on those directly associated with each segment and those not directly associated with specific segments are allocated based on the most reasonable measures applicable except for the corporate assets described below.

 

3. Intersegment sales and revenues are generally made at values that approximate arm’s-length prices.

 

4. Unallocated corporate assets, included in reconciling items, amounted to ¥378,404 million as of September 30, 2006, ¥356,070 million as of September 30, 2007, and ¥377,873 million as of March 31, 2007 respectively, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of intersegment transactions.

 

5. Depreciation and amortization of Financial Services Business include ¥40,260 million for the six months ended September 30, 2007, and ¥9,741 million for the year March 31, 2007 respectively, of depreciation of property on operating leases.

 

6. Capital expenditure of Financial Services Business include ¥447,902 million for the six months ended September 30, 2007, and ¥366,795 million for the year ended March 31, 2007 respectively, of purchase of operating lease assets.

External Sales and Other Operating Revenue by Product or Service Groups

 

     Yen (millions)
    

September 30,

2006

   September 30,
2007
  

March 31,

2007

Motorcycles and relevant parts

   ¥ 573,360    ¥ 683,687    ¥ 1,221,638

All-terrain vehicles (ATVs), personal watercraft and relevant parts

     72,286      66,276      148,979

Automobiles and relevant parts

     4,194,436      4,683,707      8,889,080

Financial, insurance services

     188,040      259,609      409,701

Power products and relevant parts

     135,990      140,934      287,302

Others

     66,486      68,256      130,440
                    

Total

   ¥ 5,230,598    ¥ 5,902,469    ¥ 11,087,140
                    

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Geographical Information

As of and for the six months ended September 30, 2006

 

     Yen (millions)
     Japan    United States    Other
Countries
   Total

Sales to external customers

   ¥ 1,019,407    ¥ 2,487,666    ¥ 1,723,525    ¥ 5,230,598

Long-lived assets

   ¥ 878,456    ¥ 573,230    ¥ 525,445    ¥ 1,977,131

As of and for the six months ended September 30, 2007

 

     Yen (millions)
     Japan    United States   

Others

Countries

   Total

Sales to external customers

   ¥ 968,898    ¥ 2,713,720    ¥ 2,219,851    ¥ 5,902,469

Long-lived assets

   ¥ 1,027,024    ¥ 1,365,117    ¥ 676,358    ¥ 3,068,499

As of and for the year ended March 31, 2007

 

     Yen (millions)
     Japan    United States    Others
Countries
   Total

Sales to external customers

   ¥ 2,061,720    ¥ 5,291,683    ¥ 3,733,737    ¥ 11,087,140

Long-lived assets

   ¥ 992,723    ¥ 929,107    ¥ 610,100    ¥ 2,531,930

The above information is based on the location of the Company and its subsidiaries.

Supplemental Geographical Information

In addition to the disclosure required by U.S. GAAP, Honda provides the following supplemental information as required by Financial Instruments and Exchange Law:

 

(1) Overseas sales and revenues based on the location of the customer

 

     Yen (millions)
    

September 30,

2006

   September 30,
2007
   March 31,
2007

North America

   ¥ 2,805,862    ¥ 3,042,500    ¥ 5,980,876

Europe

     556,875      754,543      1,236,757

Asia

     621,834      785,959      1,283,154

Other regions

     422,746      565,551      905,163

Explanatory notes:

Major countries or regions in each geographic area:

 

North America        United States, Canada, Mexico
Europe        United Kingdom, Germany, France, Italy, Belgium
Asia        Thailand, Indonesia, China, India
Other Regions        Brazil, Australia

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(2) Supplemental geographical information based on the location of the Company and its subsidiaries

As of and for the six months ended September 30, 2006

 

     Yen (millions)
     Japan    North
America
   Europe    Asia   

Other

Regions

   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

   ¥ 1,019,407    ¥ 2,815,963    ¥ 552,558    ¥ 483,569    ¥ 359,101    ¥ 5,230,598      —       ¥ 5,230,598

Transfers between

geographic areas

     1,265,716      73,025      83,359      117,479      14,180      1,553,759      (1,553,759 )     —  
                                                        

Total

   ¥ 2,285,123    ¥ 2,888,988    ¥ 635,917    ¥ 601,048    ¥ 373,281    ¥ 6,784,357    ¥ (1,553,759 )   ¥ 5,230,598

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

     2,167,173      2,678,780      620,394      563,349      336,605      6,366,301      (1,532,248 )     4,834,053
                                                        

Operating income

   ¥ 117,950    ¥ 210,208    ¥ 15,523    ¥ 37,699    ¥ 36,676    ¥ 418,056    ¥ (21,511 )   ¥ 396,545
                                                        

Assets

   ¥ 2,711,414    ¥ 6,624,754    ¥ 776,990    ¥ 769,651    ¥ 357,729    ¥ 11,240,538    ¥ (49,440 )   ¥ 11,191,098

Long-lived assets

   ¥ 878,456    ¥ 666,171    ¥ 173,765    ¥ 178,297    ¥ 80,442    ¥ 1,977,131      —       ¥ 1,977,131

As of and for the six months ended September 30, 2007

 

     Yen (millions)
     Japan    North
America
   Europe    Asia   

Other

Regions

   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

   ¥ 968,898    ¥ 3,053,469    ¥ 746,162    ¥ 652,936    ¥ 481,004    ¥ 5,902,469      —       ¥ 5,902,469

Transfers between

geographic areas

     1,422,919      87,032      44,928      156,023      13,212      1,724,114      (1,724,114 )     —  
                                                        

Total

   ¥ 2,391,817    ¥ 3,140,501    ¥ 791,090    ¥ 808,959    ¥ 494,216    ¥ 7,626,583    ¥ (1,724,114 )   ¥ 5,902,469

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

     2,257,840      2,927,429      764,024      738,580      442,303      7,130,176      (1,735,729 )     5,394,447
                                                        

Operating income

   ¥ 133,977    ¥ 213,072    ¥ 27,066    ¥ 70,379    ¥ 51,913    ¥ 496,407    ¥ 11,615     ¥ 508,022
                                                        

Assets

   ¥ 3,028,312    ¥ 7,228,714    ¥ 899,298    ¥ 1,057,354    ¥ 523,598    ¥ 12,737,276    ¥ (79,540 )   ¥ 12,657,736

Long-lived assets

   ¥ 1,027,024    ¥ 1,480,613    ¥ 195,023    ¥ 249,716    ¥ 116,123    ¥ 3,068,499      —       ¥ 3,068,499

 

25


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

As of and for the year ended March 31, 2007

 

     Yen (millions)
     Japan    North
America
   Europe    Asia   

Other

Regions

   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

   ¥ 2,061,720    ¥ 6,002,797    ¥ 1,228,564    ¥ 1,024,680    ¥ 769,379    ¥ 11,087,140      —       ¥ 11,087,140

Transfers between geographic areas

     2,712,403      169,847      119,161      246,723      28,259      3,276,393      (3,276,393 )     —  
                                                        

Total

   ¥ 4,774,123    ¥ 6,172,644    ¥ 1,347,725    ¥ 1,271,403    ¥ 797,638    ¥ 14,363,533    ¥ (3,276,393 )   ¥ 11,087,140

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

     4,545,988      5,715,817      1,315,736      1,194,250      725,377      13,497,168      (3,261,907 )     10,235,261
                                                        

Operating income

   ¥ 228,135    ¥ 456,827    ¥ 31,989    ¥ 77,153    ¥ 72,261    ¥ 866,365    ¥ (14,486 )   ¥ 851,879
                                                        

Assets

   ¥ 2,985,123    ¥ 6,834,409    ¥ 948,922    ¥ 935,963    ¥ 414,147    ¥ 12,118,564    ¥ (82,064 )   ¥ 12,036,500

Long-lived assets

   ¥ 992,723    ¥ 1,028,132    ¥ 198,232    ¥ 219,358    ¥ 93,485    ¥ 2,531,930      —       ¥ 2,531,930

Explanatory notes:

 

1. Major countries or regions in each geographic area:

 

North America        United States, Canada, Mexico
Europe        United Kingdom, Germany, France, Italy, Belgium
Asia        Thailand, Indonesia, China, India
Other Regions        Brazil, Australia

 

2. Operating income of each geographical region is measured in a consistent manner with consolidated operating income, which is net income before other income, other expenses, income tax (benefit) expense, minority interest in income, and equity in income of affiliates.

 

3. Assets of each geographical region are defined as total assets, including derivative financial instruments, investments in affiliates, and deferred tax assets.

 

4. Sales and revenues between geographic areas are generally made at values that approximate arm’s-length prices.

 

5. Unallocated corporate assets, included in reconciling items, amounted to ¥378,404 million as of September 30, 2006, ¥356,070 million as of September 30, 2007, and ¥377,873 million as of March 31, 2007 respectively, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of transactions between geographic areas.

 

26


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(16) Subsequent Event

On November 6, 2007, the Board of Directors of Yachiyo Industry Co., Ltd., which is one of our consolidated subsidiaries, resolved to sell shares of Honda Motor Co., Ltd. pursuant to Article 135 of the Company Law of Japan. Details of the sales are as follows:

 

1. Type of shares       : Common shares of Honda Motor Co., Ltd.
2. Number of shares sold       : 1,614,900 shares
3. Method of sales       : Off-Market Transaction in Listed Securities

This sales transaction was completed on November 9, 2007, and the total amount of sales was ¥6,681 million. Therefore, Yachiyo Industry Co., Ltd. does not own any shares of Honda Motor Co., Ltd. as of the date of the filing of these semi-annual financial statements. This sales transaction did not have a material impact on the Company’s financial position or results of operations.

 

27


Table of Contents

Unconsolidated Financial Statements and other information

 

(1) Unconsolidated Financial Statements

 

   Unconsolidated Balance Sheets

 

     Yen (millions)  
     As of
September 30, 2006
    As of
September 30, 2007
   

As of

March 31, 2007

 

(ASSETS)

      

I        Current Assets

      

1       Cash and bank deposits

   ¥ 227,376     ¥ 76,937     ¥ 217,412  

2       Notes receivable-trade (Note 4)

     5,571       5,905       3,260  

3       Accounts receivable-trade

     304,485       308,167       336,034  

4       Inventories

     163,473       186,058       167,336  

5       Short-term loans receivable

     192,877       169,020       191,575  

6       Others

     204,914       395,204       237,721  

7       Allowance for doubtful accounts

     (3,313 )     (1,548 )     (3,191 )
                        

Total current assets

     1,095,386       1,139,745       1,150,148  

II      Fixed assets

      

(1)    Tangible fixed assets (Note 1)

      

  1     Buildings

     221,363       218,881       209,929  

  2     Machinery and equipment

     81,933       68,564       63,739  

  3     Land

     278,694       294,945       286,574  

  4     Others

     85,772       85,049       92,289  
                        

Total tangible fixed assets

     667,763       667,440       652,533  

(2)    Intangible assets

     6,653       5,844       6,499  

(3)    Investments and other assets

      

  1     Investment securities

     605,152       637,304       633,564  

  2     Others

     165,320       209,118       204,713  

  3     Allowance for doubtful accounts

     (15,385 )     (15,523 )     (15,642 )
                        

Total investments and other assets

     755,087       830,900       822,636  
                        

Total fixed assets

     1,429,504       1,504,185       1,481,669  
                        

Total assets

   ¥ 2,524,890     ¥ 2,643,930     ¥ 2,631,818  
                        


Table of Contents
     Yen (millions)  
     As of
September 30, 2006
    As of
September 30, 2007
    As of
March 31, 2007
 

(LIABILITIES)

      

I        Current liabilities

      

1       Notes payable-trade

   ¥ 1,840     ¥ 1,746     ¥ 1,759  

2       Accounts payable-trade

     347,552       349,682       362,922  

3       Short-term loans payable (Note 3)

     18,051       22,675       25,937  

4       Corporate and other income taxes payable

     20,464       36,812       22,624  

5       Accrued product warranty

     61,311       77,914       87,578  

6       Accrued employees’ bonuses

     35,174       35,164       42,706  

7       Others

     138,355       129,356       175,407  
                        

Total current liabilities

     622,749       653,351       718,935  

II      Non-current liabilities

      

1       Long-term loans payable

     487       422       456  

2       Accrued product warranty

     43,596       49,969       49,926  

3       Accrued employees’ retirement benefits

     62,163       77,602       69,797  

4       Accrued officers’ retirement benefits

     5,970       5,273       6,042  

5       Accrued operating officers’ retirement benefits

     791       1,300       1,082  

6       Others

     3,457       3,517       3,477  
                        

Total non-current liabilities

     116,465       138,085       130,783  
                        

Total liabilities

     739,215       791,436       849,718  
                        

(NET ASSETS)

      

I        Stockholders’ equity

      

(1)    Common stock

     86,067       86,067       86,067  

(2)    Capital surplus

      

1       Capital surplus

     170,313       170,313       170,313  

2       Other capital surplus

     —         —         —    
                        

Total capital surplus

     170,313       170,314       170,313  

(3)    Retained earnings

      

1       Legal reserves

     21,516       21,516       21,516  

2       Other retained earnings

      

Reserve for dividends

     105,800       145,300       105,800  

General reserves

     1,074,300       1,119,300       1,074,300  

Reserve for special depreciation

     2,188       2,165       2,464  

Reserve for reduction of acquisition cost of fixed assets

     12,375       12,566       12,598  

Earnings to be carried forward

     294,688       314,242       295,304  
                        

Total retained earnings

     1,510,869       1,615,091       1,511,984  

(4)    Treasury stock

     (41,171 )     (78,924 )     (44,769 )
                        

Total stockholders’ equity

     1,726,079       1,792,549       1,723,595  
                        

II      Difference of appreciation and conversion

      

1       Net unrealized gains on securities

     59,653       59,995       58,483  

2       Deferred loss (gain) on hedges

     (57 )     (50 )     20  
                        

Total difference of appreciation and conversion

     59,595       59,944       58,503  

Total net assets

     1,785,675       1,852,493       1,782,099  
                        

Total liabilities and net assets

   ¥ 2,524,890     ¥ 2,643,930     ¥ 2,631,818  
                        


Table of Contents

    Unconsolidated Statement of Income

 

         Yen (millions)  
        

Half year

ended
September 30, 2006

   

Half year

ended
September 30, 2007

   

Year

ended
March 31, 2007

 
I  

Net sales

   ¥ 1,914,408     ¥ 1,998,101     ¥ 4,030,881  
II  

Cost of Sales

     1,303,278       1,335,031       2,723,370  
                          
 

 Gross Profit

     611,130       663,070       1,307,510  
III  

Selling, general and administrative expenses

     519,772       572,476       1,105,791  
                          
 

 Operating income

     91,358       90,594       201,719  
IV  

Non-operating income (Note 1)

     95,470       133,957       174,600  
V  

Non-operating expenses (Note 2)

     35,135       24,827       70,175  
                          
 

 Ordinary income

     151,692       199,723       306,145  
VI  

Extraordinary income

     5,289       7,513       15,161  
VII  

Extraordinary loss (Note 3)

     3,130       1,654       79,924  
                          
 

 Income before income taxes

     153,851       205,582       241,382  
 

 Income Taxes

      
 

Current

     30,474       43,723       77,564  
 

Deferred

     (3,918 )     (13,997 )     (50,288 )
                          
 

 Net income

     127,295       175,855       214,106  
                          


Table of Contents
ƒ Unconsolidated Statements of Stockholders’ Equity

 

     Yen (millions)  
     Stockholders’ equity    

Difference of

appreciation and

conversion

   

Total

net assets

 
     Common
stock
   Capital surplus    Retained earnings    

Treasury

stock

   

Total

stockholders’

equity

   

Net
unrealized

gains on

securities

   

Deferred

loss (gain)

on hedges

   
       

Capital

surplus

  

Other

capital

surplus

  

Legal

reserves

   Other retained earnings            
                 Reserve for
dividends
  

General

reserves

  

Reserve for
special

depreciation

    Reserve for
reduction of
acquisition
cost of fixed
assets
   

Earnings to

be carried
forward

           

Balance at March 31, 2006

   86,067    170,313    —      21,516    87,300    1,049,300    2,072     12,328     266,128     (29,352 )   1,665,674     69,163     —       1,734,837  
                                                                              

Changes of items during the period

                                  

Provision for reserve for dividends*

               18,500           (18,500 )          

Provision for general reserves*

                  25,000        (25,000 )          

Provision of reserve for special depreciation*

                     833       (833 )          

Reversal of reserve for special depreciation*

                     (716 )     716            

Provision of reserve for reduction of acquisition cost of fixed assets*

                       112     (112 )          

Reversal of reserve for reduction of acquisition cost of fixed assets*

                       (66 )   66            

Dividend from surplus*

                         (54,784 )     (54,784 )       (54,784 )

Net income

                         127,295       127,295         127,295  

Purchase of treasury stock

                           (30,700 )   (30,700 )       (30,700 )

Reissuance of treasury stock

                         (287 )   18,881     18,593         18,593  

Others

                               (9,509 )   (57 )   (9,567 )
                                                                              

Total changes of items during the period

   —      —      —      —      18,500    25,000    116     46     28,560     (11,819 )   60,404     (9,509 )   (57 )   50,837  
                                                                              

Balance at September 30, 2006

   86,067    170,313    —      21,516    105,800    1,074,300    2,188     12,375     294,688     (41,171 )   1,726,079     59,653     (57 )   1,785,675  
                                                                              

Note:  * were the items of appropriation of retained earnings approved at the ordinary general meeting of shareholders in June 2006.

 

     Yen (millions)  
     Stockholders’ equity    

Difference of

appreciation and

conversion

    Total
net assets
 
     Common
stock
   Capital surplus    Retained earnings     Treasury
stock
    Total
stockholders’
equity
   

Net

unrealized

gains on
securities

    Deferred
loss (gain)
on hedges
   
        Capital
surplus
   Other
capital
surplus
   Legal
reserves
   Other retained earnings            
                 Reserve for
dividends
   General
reserves
   Reserve for
special
depreciation
   

Reserve for

reduction of

acquisition

cost of fixed

assets

   

Earnings to

be carried

forward

           

Balance at March 31, 2007

   86,067    170,313    —      21,516    105,800    1,074,300    2,464     12,598     295,304     (44,769 )   1,723,595     58,483     20     1,782,099  
                                                                              

Changes of items during the period

                                  

Provision for reserve for dividends

               39,500           (39,500 )          

Provision for general reserves

                  45,000        (45,000 )          

Reversal of reserve for special depreciation

                     (299 )     299            

Reversal of reserve for reduction of acquisition cost of fixed assets

                       (31 )   31            

Dividend from surplus

                         (72,748 )     (72,748 )       (72,748 )

Net income

                         175,855       175,855         175,855  

Purchase of treasury stock

                           (34,162 )   (34,162 )       (34,162 )

Reissuance of treasury stock

         —                     7     7         7  
                                                                              

Others

                               1,512     (70 )   1,441  
                                                                              

Total changes of items during the period

   —      —      —      —      39,500    45,000    (299 )   (31 )   18,938     (34,154 )   68,953     1,512     (70 )   70,394