UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 20112014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-7628
HONDA GIKEN KOGYO KABUSHIKI KAISHA
(Exact name of Registrant as specified in its charter)
HONDA MOTOR CO., LTD.
(Translation of Registrant’s name into English)
JAPAN
(Jurisdiction of incorporation or organization)
No. 1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo 107-8556, Japan
(Address of principal executive offices)
Mitsuhiro Okayama,Narushi Yazaki, Honda North America, Inc.,
ir@hna.honda.com, (212)707-9920, 156 West 56th Street, 20th Floor, New York, NY 10019, U.S.A.
(Name, Telephone, E-mail and/or Facsimile number, Telephone and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered | |
Common Stock* | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Title of each class | Outstanding as of March 31, | |
Common Stock |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act, Yes x No ¨
If this report is an annual or transmission report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such file). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or, a non-accelerated filer. See definition of “accelerated filer and large accelerated filer “in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S.GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
* | Not for trading purposes, but only in connection with the registration of American Depositary Shares, each representing one share of Common Stock. |
** | Shares of Common Stock include |
Item 1. Identity of Directors, Senior Management and | 1 | |||
1 | ||||
1 | ||||
1 | ||||
3 | ||||
3 | ||||
3 | ||||
8 | ||||
8 | ||||
75 | ||||
76 | ||||
77 | ||||
80 | ||||
80 | ||||
Item 11. Quantitative and Qualitative Disclosure about Market Risk | ||||
Item 12. Description of Securities Other than Equity Securities | ||||
94 | ||||
95 | ||||
95 | ||||
95 | ||||
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | ||||
Item 16D. Exemptions from the Listing Standards for Audit Committees | ||||
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 100 | |||
103 | ||||
PART III | ||||
103 | ||||
103 | ||||
104 |
PART I
Unless the context otherwise requires, the terms “we”, “us”, “our”, “Registrant”, “Company” and “Honda” as used in this Annual Report each refer to Honda Motor Co., Ltd. and its consolidated subsidiaries.
Item 1. Identity of Directors, Senior Management and AdvisorsAdvisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
A. Selected Financial Data:Data
The selected consolidated financial data set out below for each of the five fiscal years ended March 31, 20112014 have been derived from our consolidated financial statements that were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
You should read the U.S. GAAP selected consolidated financial data set out below together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements contained in this Annual Report.
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||
Yen (millions) | U.S. dollars (millions) | Yen (millions) | ||||||||||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | 2011 | 2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||||||||||||||||||
Net sales and other operating revenue | ¥ | 11,087,140 | ¥ | 12,002,834 | ¥ | 10,011,241 | ¥ | 8,579,174 | ¥ | 8,936,867 | $ | 107,479 | ¥ | 8,579,174 | ¥ | 8,936,867 | ¥ | 7,948,095 | ¥ | 9,877,947 | ¥ | 11,842,451 | ||||||||||||||||||||||
Research and development | 551,847 | 587,959 | 563,197 | 463,354 | 487,591 | 5,864 | 463,354 | 487,591 | 519,818 | 560,270 | 634,130 | |||||||||||||||||||||||||||||||||
Operating income | 851,879 | 953,109 | 189,643 | 363,775 | 569,775 | 6,852 | 363,775 | 569,775 | 231,364 | 544,810 | 750,281 | |||||||||||||||||||||||||||||||||
Income before income taxes and equity in income of affiliates | 792,868 | 895,841 | 161,734 | 336,198 | 630,548 | 7,583 | 336,198 | 630,548 | 257,403 | 488,891 | 728,940 | |||||||||||||||||||||||||||||||||
Equity in income of affiliates | 103,417 | 118,942 | 99,034 | 93,282 | 139,756 | 1,681 | 93,282 | 139,756 | 100,406 | 82,723 | 132,471 | |||||||||||||||||||||||||||||||||
Net income | 612,439 | 627,347 | 150,933 | 282,611 | 563,477 | 6,777 | 282,611 | 563,477 | 222,074 | 392,638 | 608,749 | |||||||||||||||||||||||||||||||||
Net income attributable to Honda Motor Co., Ltd. | 592,322 | 600,039 | 137,005 | 268,400 | 534,088 | 6,423 | 268,400 | 534,088 | 211,482 | 367,149 | 574,107 | |||||||||||||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||||||||||||||||||
Total assets | ¥ | 12,036,500 | ¥ | 12,615,543 | ¥ | 11,818,917 | ¥ | 11,629,115 | ¥ | 11,570,874 | $ | 139,157 | ¥ | 11,629,115 | ¥ | 11,577,714 | ¥ | 11,787,599 | ¥ | 13,635,357 | ¥ | 15,622,031 | ||||||||||||||||||||||
Long-term debt | 1,905,743 | 1,836,652 | 1,932,637 | 2,313,035 | 2,043,240 | 24,573 | ||||||||||||||||||||||||||||||||||||||
Long-term debt, excluding current portion | 2,313,035 | 2,043,240 | 2,235,001 | 2,710,845 | 3,234,066 | |||||||||||||||||||||||||||||||||||||||
Honda Motor Co., Ltd. shareholders’ equity | 4,488,825 | 4,550,479 | 4,007,288 | 4,328,640 | 4,449,975 | 53,517 | 4,328,640 | 4,439,587 | 4,398,249 | 5,043,500 | 5,918,979 | |||||||||||||||||||||||||||||||||
Total equity | 4,611,732 | 4,692,285 | 4,130,344 | 4,456,430 | 4,582,912 | 55,116 | 4,456,430 | 4,572,524 | 4,525,583 | 5,205,423 | 6,113,398 | |||||||||||||||||||||||||||||||||
Common stock | 86,067 | 86,067 | 86,067 | 86,067 | 86,067 | 1,035 | 86,067 | 86,067 | 86,067 | 86,067 | 86,067 | |||||||||||||||||||||||||||||||||
Cash flow data: | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation excluding property on operating leases | ¥ | 361,747 | ¥ | 417,393 | ¥ | 441,868 | ¥ | 401,743 | ¥ | 351,496 | $ | 4,227 | ¥ | 401,743 | ¥ | 377,272 | ¥ | 345,105 | ¥ | 335,536 | ¥ | 442,318 | ||||||||||||||||||||||
Depreciation of property on operating leases | 9,741 | 101,032 | 195,776 | 227,931 | 212,143 | 2,551 | 227,931 | 212,143 | 209,762 | 254,933 | 352,402 | |||||||||||||||||||||||||||||||||
Total depreciation | 371,488 | 518,425 | 637,644 | 629,674 | 563,639 | 6,779 | 629,674 | 589,415 | 554,867 | 590,469 | 794,720 | |||||||||||||||||||||||||||||||||
Capital expenditures | 597,958 | 668,228 | 635,190 | 392,062 | 318,543 | 3,831 | 392,062 | 318,543 | 397,218 | 626,879 | 774,006 | |||||||||||||||||||||||||||||||||
Purchase of operating lease assets | 366,795 | 839,261 | 668,128 | 544,027 | 798,420 | 9,602 | 544,027 | 798,420 | 683,767 | 793,118 | 1,127,840 | |||||||||||||||||||||||||||||||||
Total capital expenditures | 964,753 | 1,507,489 | 1,303,318 | 936,089 | 1,116,963 | 13,433 | 936,089 | 1,116,963 | 1,080,985 | 1,419,997 | 1,901,846 |
Weighted average number of shares outstanding
(Thousands of shares) | ||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
Weighted average number of common shares outstanding | 1,824,675 | 1,815,356 | 1,814,560 | 1,814,605 | 1,806,360 |
Net income attributable to Honda Motor Co., Ltd. per common share
(Thousands of shares) | ||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | 1,814,605 | 1,806,360 | 1,802,300 | 1,802,298 | 1,802,294 | |||||||||||||||||||||||||||||||||||||||
Net income attributable to Honda Motor Co., Ltd. per common share | Net income attributable to Honda Motor Co., Ltd. per common share | |||||||||||||||||||||||||||||||||||||||||||
(Yen) | (US$) | (Yen) | ||||||||||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | 2011 | 2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||||||
Basic | ¥ | 324.62 | ¥ | 330.54 | ¥ | 75.50 | ¥ | 147.91 | ¥ | 295.67 | $ | 3.56 | ¥ | 147.91 | ¥ | 295.67 | ¥ | 117.34 | ¥ | 203.71 | ¥ | 318.54 | ||||||||||||||||||||||
Diluted | 324.62 | 330.54 | 75.50 | 147.91 | 295.67 | 3.56 | 147.91 | 295.67 | 117.34 | 203.71 | 318.54 |
Net income attributable to Honda Motor Co., Ltd. per common share has been computed by dividing net income attributable to Honda Motor Co., Ltd. available to common shareholders by the weighted average number of common shares outstanding during each year.
Dividends declared during the period per common share
(Yen) | (US$) | |||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | 2011 | |||||||||||||||||||
Dividends declared during the period per | ¥ | 77.00 | ¥ | 84.00 | ¥ | 77.00 | ¥ | 34.00 | ¥ | 51.00 | $ | 0.61 |
(Yen) | ||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||
Dividends declared during the period per common share | ¥34.00 | ¥51.00 | ¥60.00 | ¥72.00 | ¥79.00 | |||||||||||||||
(US$ 0.37 | ) | (US$ 0.61 | ) | (US$ 0.73 | ) | (US$ 0.77 | ) | (US$ 0.77 | ) |
Additionally, a year-end dividend of ¥15¥22 ($0.18)0.21) per common share aggregating ¥27.0¥39.6 billion ($325385 million) relating to fiscal 20112014 was determined by our boardBoard of directorsDirectors in April 20112014 and approved by our shareholders in June 2011.2014. This dividend will be paid in June 2011.2014.
TransfersU.S. dollar amounts for dividends per share are translated from yen at the year-end exchange rate of Financial Assets, and Consolidation of Variable Interest Entitieseach period.
Honda adopted Accounting Standards Update (ASU) 2009-16 “Accounting for TransfersAdjustments of Financial Assets”, and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effective April 1, 2010. Upon the adoption of these standards, ten former QSPEs that were not consolidated as of March 31, 2010 were consolidated by the Company as of April 1, 2010. Seeprior years’ financial data
As described in note 1(c)(1)(c) to the accompanying consolidated financial statements.
Exchange Rates
In this Annual Report, yen amountsstatements, certain adjustments have been translated into U.S. dollars formade to the convenience of readers. Unless otherwise noted, the rate used for these translations was ¥83.15 =$1.00, which represents the approximate exchange rate quoted on the Tokyo Foreign Exchange Market on March 31, 2011. No representation is made that yen amounts could have been, or could be, converted into U.S. dollars at that rate or any other rate on this or any other data or at all.consolidated financial statement periods presented above.
The following table sets out information regarding the noon buying rates for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York expressed in yen per $1.00 during the periods shown. On May 31, 2011,30, 2014, the noon buying rate was ¥81.29 =$¥101.77=$1.00. The average exchange rate for the period shown is the average of the month-end rates during the period.
(Yen) | ||||||||||||||||
Years ended March 31, | Average | Period end | High | Low | ||||||||||||
2007 | 116.55 | 117.56 | 121.81 | 110.07 | ||||||||||||
2008 | 113.61 | 99.85 | 124.09 | 96.88 | ||||||||||||
2009 | 100.85 | 99.15 | 110.48 | 87.80 | ||||||||||||
2010 | 92.49 | 93.40 | 100.71 | 86.12 | ||||||||||||
2011 | 85.00 | 82.76 | 94.68 | 78.74 | ||||||||||||
2012 (through May 31, 2011) | 81.30 | 81.29 | 85.26 | 80.12 | ||||||||||||
Dec-2010 | 84.23 | 81.67 | ||||||||||||||
Jan-2011 | 83.36 | 81.56 | ||||||||||||||
Feb-2011 | 83.79 | 81.48 | ||||||||||||||
Mar-2011 | 82.98 | 78.74 | ||||||||||||||
Apr-2011 | 85.26 | 81.31 | ||||||||||||||
May-2011 | 82.12 | 80.12 |
(Yen) | ||||||||||||||||
Years ended March 31, | Average | Period end | High | Low | ||||||||||||
2010 | 92.49 | 93.40 | 100.71 | 86.12 | ||||||||||||
2011 | 85.00 | 82.76 | 94.68 | 78.74 | ||||||||||||
2012 | 78.86 | 82.41 | 85.26 | 75.72 | ||||||||||||
2013 | 83.26 | 94.16 | 96.16 | 77.41 | ||||||||||||
2014 | 100.46 | 102.98 | 105.25 | 92.96 | ||||||||||||
2015 (through May 30, 2014) | 101.96 | 101.77 | 103.94 | 101.26 | ||||||||||||
Dec-2013 | 105.25 | 101.82 | ||||||||||||||
Jan-2014 | 104.87 | 102.20 | ||||||||||||||
Feb-2014 | 102.71 | 101.11 | ||||||||||||||
Mar-2014 | 103.38 | 101.36 | ||||||||||||||
Apr-2014 | 103.94 | 101.43 | ||||||||||||||
May-2014 | 102.34 | 101.26 |
B. Capitalization and Indebtedness
Not applicable.
C. Reason for the Offer and Use of Proceeds
Not applicable.
You should carefully consider the risks described below before making an investment decision. If any of the risks described below actually occurs, Honda’s business, financial condition or results of operations could be adversely affected. In that event, the trading prices of Honda’s common stock and American Depositary Shares could decline, and you may lose all or part of your investment. Additional risks not currently known to Honda or that Honda now deems immaterial may also harm Honda and affect your investment.
Risks Relating to the Great East Japan Earthquake and its Aftermath
The Great East Japan Earthquake occurred on March 11, 2011 and the Fukushima’s nuclear power plant disaster have caused and will continue to cause significant damage to the Japanese economy. After March 11, 2011, Honda temporarily suspended or reduced production at Honda’s automobile plants in and outside of Japan. However, the production in Japan has in general returned to normal levels since late June, and production outside of Japan is expected to be generally normalized from around August to September. In addition, although Honda’s business sites, such as Honda’s R&D subsidiaries located in Tochigi Prefecture, were heavily damaged, currently we expect them to be restored. Although prospects for restoration of business activities have become clear, as mentioned above, Honda’s production activities may be affected depending on the status of the future supply of certain parts for which supply is currently restricted, and on the status of infrastructure, such as the supply of electricity and logistics services. Furthermore, sales in domestic and international markets may decline. Depending on the magnitude of these effects, Honda’s results of operations may be adversely affected.
Risks Relating to Honda’s Industry
Honda may be adversely affected by market conditions
Honda conducts its operations in Japan and throughout the world, including North America, Europe and Asia. A sustained loss of consumer confidence in these markets, which may be caused by continued economic slowdown, recession, changes in consumer preferences, rising fuel prices, financial crisis or other factors could trigger a decline in demand for automobiles, motorcycles and power products that may adversely affect Honda’s results of operations.
Prices for automobiles, motorcycles and power products can be volatile
Prices for automobiles, motorcycles and power products in certain markets may experience sharp changes over short periods of time. This volatility is caused by manyvarious factors, including fierce competition, which is increasing, short-term fluctuations in demand fromcaused by instability in underlying economic conditions, changes in tariffs, import regulations and other taxes, shortages of certain materials and components, highparts, steep rise in material prices and sales incentives by Honda or other manufacturers or dealers.incentives. There can be no assurance that such price volatility will not continue or intensifyfor an extended period of time or that price volatility will not occur in markets that to date have not experienced such volatility.
Overcapacity within the industry has increased and will likely continue to increase if the economic downturn continues in Honda’s major markets, or worldwide, leading, potentially, to further increased price pressure.volatility. Price volatility in any or all of Honda’s markets could adversely affect Honda’s results of operations in a particular period.operations.
Risks Relating to Honda’s Business Generally
Currency and Interest Rate Risks
Honda’s operations are subject to currency fluctuations
Honda has manufacturing operations throughout the world, including Japan, and exports products and components to various countries.
Honda purchases materials and components and sells its products and components in foreign currencies. Therefore, currency fluctuations may affect Honda’s pricing of products sold and materials purchased. Accordingly, currency fluctuations have an effect on Honda’s results of operations and financial condition, as well as Honda’s competitiveness, which will over time affect its results.
Since Honda exports many products and components, particularly from Japan, and generates a substantial portion of its revenues in currencies other than the Japanese yen, Honda’s results of operations would be adversely affected by an appreciation of the Japanese yen against other currencies, in particular the U.S. dollar.
Honda’s hedging of currency and interest rate risk exposes Honda to other risks
Although it is impossible to hedge against all currency or interest rate risk,risks, Honda uses derivative financial instruments in order to reduce the substantial effects of currency fluctuations and interest rate exposure on our cash flowflows and financial condition. These instruments include foreign currency forward contracts, currency swap agreements and currency option contracts, as well as interest rate swap agreements. Honda has entered into, and expects to continue to enter into, such hedging arrangements. As with all hedging instruments, there are risks associated with the use of such instruments. While limiting to some degree our risk fluctuations in currency exchange and interest rates by utilizing such hedging instruments, Honda potentially forgoes benefits that might result from other fluctuations in currency exchange and interest rates. Honda is also exposed to the risk that its counterparties to hedging contracts will default on their obligations. Honda manages exposure to counterparty
credit risk by limiting the counterparties to major international banks and financial institutions meeting established credit guidelines. However, any default by such counterparties might have an adverse effect on Honda.
Legal and Regulatory Risks
The automobile, motorcycle and power product industries are subject to extensive environmental and other governmental regulations, including with respect to global climate changes
Regulations regarding vehicle emission levels, fuel economy, noise and safety and noxious substances, as well as levels of pollutants from production plants, are extensive within the automobile, motorcycle and power product industries. These regulations are subject to change, and are often made more restrictive, particularly in recent years, due to an increasing concern with respect to possible global climate changes. The costs to comply with these regulations can be significant to Honda’s operations.
Honda is reliant on the protection and preservation of its intellectual property
Honda owns or otherwise has rights in a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks have been of value in the growth of Honda’s business and may continue to be of value in the future. Honda does not regard any of its
businesses as being dependent upon any single patent or related group of patents. However, an inability to protect this intellectual property generally, or the illegal infringement of some or a large group of Honda’s intellectual property rights, would have an adverse effect on Honda’s operations.
Honda is subject to legal proceedings
Honda is and could be subject to suits, investigations and proceedings under relevant laws and regulations of various jurisdictions. A negative outcome in any of the legal proceedings pending against Honda could adversely affect Honda’s business, financial condition or results of operations.
Risks Relating to Honda’s Operations
Honda’s financialFinancial services business conducts business under highly competitive conditions in an industry with inherent risks
Honda’s financialFinancial services business offers various financing plans to its customers designed to increase the opportunity for sales of its products and to generate financing income. However, customers can also obtain financing for the lease or purchase of Honda’s products through a variety of other sources that compete with our financing services, including commercial banks and finance and leasing companies. The financial services offered by us also involve credit risk as well as risks relating to lease residual values, cost of capital and access to funding. Competition for customers and/or these risks may affect Honda’s results of operations in the future.
Honda relies on variousexternal suppliers for the provision of certain raw materials and componentsparts
Honda purchases raw materials and certain components and parts from numerous external suppliers, and relies on some keycertain suppliers for some items andof the raw materials and parts which it uses in the manufacture of its products. Honda’s ability to continue to obtain these supplies in an efficient and cost-effective manner is subject to a number of factors, some of which are not within Honda’s control. These factors include the ability of its suppliers to provide a continued source of supplyraw materials and parts and Honda’s ability to compete with other users in obtaining the supplies. Loss of a key supplier in particular may affect our production and increase our costs.
Honda conducts its operations in various regions of the world
Honda conducts its businesses worldwide, and in several countries, Honda conducts businesses through joint ventures with local entities, in part due to the legal and other requirements of those countries. These businesses
are subject to various regulations, including the legal and other requirements of each country. If these regulations or the business conditions or policies of these local entities change, it may have an adverse affect on Honda’s business, financial condition or results of operations.
Honda may be adversely affected by wars, use of force by foreign countries, terrorism, multinational conflicts and frictions, political uncertainty, natural disasters, epidemics and labor strikes
Honda conducts its businesses worldwide and its operationssuch businesses may variously be subject toaffected by events, such as wars, use of force by foreign countries, terrorism, multinational conflicts and frictions, political uncertainty, natural disasters such as earthquakes, tsunami and floods, epidemics and labor strikes, and other events beyond our control, which may delay, disrupt or disrupt Honda’s local operations in the affected regions, includingsuspend the purchase of raw materials and parts, the manufacture, sales and distribution of products, and the provision of services. Delays or disruptionsservices, etc., in the region where such events occurred. Such events occurring in one region may in turn affect our global operations.other regions. If such delay, disruption or disruptionsuspension occurs and continues for a long period of time, Honda’s business, financial condition or results of operations may be adversely affected.
Honda may be adversely affected by inadvertent disclosure of confidential information
Although Honda maintains internal controls through established procedures to keep confidential information including personal information of its customers and relating parties, such information may be inadvertently disclosed. If this occurs, Honda may be subject to, and may be adversely affected by, claims for damages from the customers or parties affected. Also, inadvertent disclosure of confidential business or technical information to third parties may also result in a loss of Honda’s competitiveness.
Risks Relating to Pension Costs and Other Postretirement Benefits
Honda has pension plans and provides other post-retirement benefits. The amounts of pension benefits, lump-sum payments and other post-retirement benefits are primarily based on the combination of years of service and compensation. The funding policy is to make periodic contributions as required by applicable regulations. Benefit obligations and pension costs are based on assumptions of many factors, including the discount rate, the rate of salary increase and the expected long-term rate of return on plan assets. Differences in actual expenses and costs or changes in assumptions could affect Honda’s pension costs and benefit obligations, including Honda’s cash requirements to fund such obligations, which could materially affect our financial condition and results of operations.
A holder of ADSs will have fewer rights than a shareholder has and such holder will have to act through the depositary to exercise those rights
The rights of shareholders under Japanese law to take various actions, including exercising voting rights inherent in their shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records, and exercising appraisal rights, are available only to holders of record. Because the depositary, through its custodian agents, is the record holder of the Shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited Shares. The depositary will make efforts to exercise votes regarding the Shares underlying the ADSs as instructed by the holders and will pay to the holders the dividends and distributions collected from the Company. However, in the capacity as an ADS holder, such holder will not be able to bring a derivative action, examine our accounting books or records or exercise appraisal rights through the depositary.
Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions
The Company’s Articles of Incorporation, Regulations of the Board of Directors, Regulations of the Board of Corporate Auditors and the Company Law of Japan (the “Company Law”) govern corporate affairs of the Company. Legal principles relating to such matters as the validity of corporate procedures, directors’ and
officers’ fiduciary duties, and shareholders’ rights may be different from those that would apply if the Company were a U.S. company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of the United States. AAn ADS holder may have more difficulty in asserting his/her rights as a shareholder than such an ADS holder would as a shareholder of a U.S. corporation. In addition, Japanese courts may not be willing to enforce liabilities against the Company in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.
Because of daily price range limitations under Japanese stock exchange rules, a holder of ADSs may not be able to sell his/her shares of the Company’s Common Stock at a particular price on any particular trading day, or at all
Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the
upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.
U.S. investors may have difficulty in serving process or enforcing a judgment against the Company or its directors, executive officers or corporate auditors
The Company is a limited liability, joint stock corporation incorporated under the laws of Japan. Most of its directors, executive officers and corporate auditors reside in Japan. All or substantially all of the Company’s assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon the Company or these persons or to enforce against the Company or these persons judgments obtained in U.S. Courtscourts predicated upon the civil liability provisions of the Federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgment of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.
The Company’s shareholders of record on a record date may not receive the dividend they anticipate
The customary dividend payout practice and relevant regulatory regime of publicly listed companies in Japan may differ from that followed in foreign markets. The Company’s dividend payout practice is no exception. While the Company may announce forecasts of year-end and quarterly dividends prior to the record date, these forecasts are not legally binding. The actual payment of year-end dividends requires a resolution of the Company’s shareholders. If the shareholders adopt such a resolution, the year-end dividend payment is made to shareholders as of the applicable record date, which is currently specified as March 31 by the Company’s Articles of Incorporation. However, such a resolution of the shareholders is usually made at an ordinary general meeting of shareholders held in June. The payment of quarterly dividends requires a resolution of the Company’s boardBoard of directors.Directors. If the board adopts such a resolution, the dividend payment is made to shareholders as of the applicable record dates, which are currently specified as June 30, September 30 and December 31 by the Articles of Incorporation. However, the board usually does not adopt a resolution with respect to a quarterly dividend until after the respective record dates.
Shareholders of record as of an applicable record date may sell shares after the record date in anticipation of receiving a certain dividend payment based on the previously announced forecasts. However, since these forecasts are not legally binding and resolutions to pay dividends are usually not adopted until after the record date, our shareholders of record on record dates for year-end and quarterly dividends may not receive the dividend they anticipate.
Cautionary statement with respect to forward looking statements in this Annual Report
This Annual Report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-lookingforward looking statements included in this Annual Report are based on the current assumptions and beliefs of Honda in light of the information currently available to it, and involve known and unknown risks, uncertainties, and other factors. Such risks, uncertainties and other factors may cause Honda’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors are generally set forth in Item 3.D “Risk Factors” and include, without limitation:
the effects of the Great East Japan Earthquake that occurred on March 11, 2011 and Fukushima’s nuclear power plant disaster;
the political, economic and social conditions in Japan and throughout the world including North America, Europe and Asia, including economic slowdowns, recessions, changes in consumer preferences, rising fuel prices, financial crises and other factors, as well as the relevant governments’ specific policies with respect to economic growth, inflation, taxation, currency conversion, imports and sources of supplies and the availability of credit, particularly to the extent such current or future conditions and policies affect the automobile, motorcycle and power product industries and markets in Japan and other markets throughout the world in which Honda conducts its business, and the demand, sales volume and sales prices for Honda’s automobiles, motorcycles and power products;
conditions and policies affect the automobile, motorcycle and power product industries and markets in Japan and other markets throughout the world in which Honda conducts its business, and the demand, sales volume and sales prices for Honda’s automobiles, motorcycles and power products; |
the effects of competition in the automobile, motorcycle and power product markets on the demand, sales volume and sales prices for Honda’s automobiles, motorcycles and power products;
Honda’s ability to finance its working capital and capital expenditure requirements, including obtaining any required external debt or other financing;
the effects of economic stagnation or recession in Honda’s principal markets and of exchange rate and interest rate fluctuations on Honda’s results of operations; and
the effects of environmental and other governmental regulations and legal proceedings.
Honda undertakes no obligation and has no intention to publicly update any forward-lookingforward looking statement after the date of this Annual Report. Investors are advised to consult any further disclosures by Honda in its subsequent filings pursuant to the Securities and Exchange Act of 1934.
Item 4. Information on the Company
A. History and Development of the Company
Honda Motor Co., Ltd. is a limited liability, joint stock corporation incorporated on September 24, 1948 under the Commercial Code of Japan as Honda Giken Kogyo Kabushiki Kaisha. It was formed to succeedas a successor to the business of an unincorporated enterprise established in 1946 by the late Soichiro Honda to manufacture motors for motorized bicycles.
Honda develops, produces, and manufactures a variety of motor products, ranging from small general-purpose engines and scooters to specialty sports cars that incorporate Honda’s highly efficient internal combustion engine technology.
Honda’s principal executive office is located at 1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo,107-8556, Japan. Its telephone number is 81-3-3423-1111.+81-3-3423-1111.
Principal Capital Investments
In the fiscal years ended March 31, 2009, 20102012, 2013 and 2011,2014, Honda’s capital expenditures were ¥1,302.0¥1,108.1 billion, ¥893.0¥1,423.5 billion and ¥1,125.0¥1,909.8 billion, respectively, on an accrual basis. Also, capital expenditures
excluding those with respect to property on operating leases were ¥633.9¥424.4 billion, ¥348.9¥630.4 billion and ¥326.6¥782.0 billion, respectively, on an accrual basis. For further details of Honda’s capital expenditures during fiscal 2011,2014, see “Property, Plants and Equipment” included as “Item 4.D” of this Annual Report.
General
Honda’s business segments are the motorcycleMotorcycle business, automobileAutomobile business, financialFinancial services business, and powerPower product and other businesses.
The following tables show the breakdown of Honda’s revenues from external customers by category of activity and by geographical markets based on the location of the customer during the fiscal years ended March 31, 2009, 20102012, 2013 and 2011:2014:
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Yen (billions) | Yen (billions) | |||||||||||||||||||||||
Motorcycle Business | ¥ | 1,411.5 | ¥ | 1,140.2 | ¥ | 1,288.1 | ¥ | 1,348.8 | ¥ | 1,339.5 | ¥ | 1,663.6 | ||||||||||||
Automobile Business | 7,674.4 | 6,554.8 | 6,794.0 | 5,805.9 | 7,709.2 | 9,176.3 | ||||||||||||||||||
Financial Services Business | 582.2 | 606.3 | 561.8 | 516.1 | 548.5 | 698.1 | ||||||||||||||||||
Power Product and Other Businesses | 343.0 | 277.6 | 292.6 | 277.1 | 280.6 | 304.2 | ||||||||||||||||||
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Total | ¥ | 10,011.2 | ¥ | 8,579.1 | ¥ | 8,936.8 | ¥ | 7,948.0 | ¥ | 9,877.9 | ¥ | 11,842.4 | ||||||||||||
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2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Yen (billions) | Yen (billions) | |||||||||||||||||||||||
Japan | ¥ | 1,446.5 | ¥ | 1,577.3 | ¥ | 1,503.8 | ¥ | 1,517.9 | ¥ | 1,652.9 | ¥ | 1,912.5 | ||||||||||||
North America | 4,514.1 | 3,736.4 | 3,921.3 | 3,480.7 | 4,586.4 | 5,567.5 | ||||||||||||||||||
Europe | 1,186.0 | 764.7 | 610.1 | 515.7 | 534.5 | 667.1 | ||||||||||||||||||
Asia | 1,595.4 | 1,543.3 | 1,852.4 | 1,458.7 | 2,093.0 | 2,515.8 | ||||||||||||||||||
Other Regions | 1,269.0 | 957.2 | 1,049.0 | 974.8 | 1,010.9 | 1,179.2 | ||||||||||||||||||
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Total | ¥ | 10,011.2 | ¥ | 8,579.1 | ¥ | 8,936.8 | ¥ | 7,948.0 | ¥ | 9,877.9 | ¥ | 11,842.4 | ||||||||||||
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Motorcycle Business
In 1949, Honda began mass production of motorcycles with theDream D-Type, followed by other models such as theBenly and the Cub F-Type. By 1957, Honda became the top domesticJapanese manufacturer in terms of motorcycle production volume. Honda expanded its business overseas by establishing American Honda Motor Co., Inc. in the United States in 1959. Honda’sHonda first started overseas production started in Belgium in 1963.
Honda produces a wide range of motorcycles, with engine displacement ranging from the 50cc class to the 1800cc class in cylinder displacement.class. Honda’s motorcycles use internal combustion engines developed by Honda that are air- or water-cooled, four-cycle, and are in single, two, four or six-cylinder.six-cylinder configurations. Honda’s motorcycle line consists of sports (including trial and moto-cross racing), business and commuter models. Honda has also produced all-terrain vehicles (ATVs) since 1984 and multi utility vehicles (MUVs) since 2008.
The following table sets out unit sales for Honda’s motorcycleMotorcycle business, including motorcycles, and all-terrain vehicles (ATVs) and revenue from Motorcycle Business,business, and the breakdown by geographical markets based on the location of the customer during the fiscal years ended March 31, 2009, 20102012, 2013 and 2011:2014:
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Units | Revenue | Units | Revenue | Units | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | ||||||||||||||||||||||||||||||||||||||||||||||
(thousands) | (billions) | (thousands) | (billions) | (thousands) | (billions) | Units (thousands) | Units (thousands) | Yen (billions) | Units (thousands) | Units (thousands) | Yen (billions) | Units (thousands) | Units (thousands) | Yen (billions) | ||||||||||||||||||||||||||||||||||||||||||||||
Japan | 232 | ¥ | 81.8 | 190 | ¥ | 70.4 | 190 | ¥ | 70.2 | 220 | 220 | ¥ | 72.9 | 217 | 217 | ¥ | 72.9 | 226 | 226 | ¥ | 79.4 | |||||||||||||||||||||||||||||||||||||||
North America | 320 | 182.2 | 189 | 103.9 | 185 | 96.6 | 200 | 200 | 97.3 | 250 | 250 | 112.1 | 276 | 276 | 141.5 | |||||||||||||||||||||||||||||||||||||||||||||
Europe | 276 | 178.6 | 199 | 124.6 | 202 | 103.8 | 198 | 198 | 96.1 | 179 | 179 | 86.4 | 166 | 166 | 102.6 | |||||||||||||||||||||||||||||||||||||||||||||
Asia | 7,523 | 460.4 | 7,628 | 461.0 | 9,178 | 577.6 | 12,412 | 6,001 | 579.5 | 13,035 | 7,051 | 667.4 | 14,536 | 7,858 | 868.4 | |||||||||||||||||||||||||||||||||||||||||||||
Other Regions | 1,763 | 508.3 | 1,433 | 380.1 | 1,690 | 439.7 | 2,031 | 2,031 | 502.8 | 1,813 | 1,813 | 400.5 | 1,817 | 1,817 | 471.5 | |||||||||||||||||||||||||||||||||||||||||||||
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Total | 10,114 | ¥ | 1,411.5 | 9,639 | ¥ | 1,140.2 | 11,445 | ¥ | 1,288.1 | 15,061 | 8,650 | ¥ | 1,348.8 | 15,494 | 9,510 | ¥ | 1,339.5 | 17,021 | 10,343 | ¥ | 1,663.6 | |||||||||||||||||||||||||||||||||||||||
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Motorcycle revenue as a percentage of total sales revenue | 14 | % | 13 | % | 15 | % | 17 | % | 14 | % | 14 | % |
* | Honda Group Unit Sales is the total unit sales of completed products of Honda, its consolidated subsidiaries and its affiliates accounted for under the equity method. Consolidated Unit Sales is the total unit sales of completed products corresponding to consolidated net sales to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries. |
Motorcycles are produced by Honda in Japan at theits Kumamoto factory.Factory. Honda’s motorcycles are also produced by subsidiaries in countries around the world including Italy, Thailand, Vietnam, the Philippines, India, Brazil and Argentina.
For further information on recent operations and a financial review of the motorcycleMotorcycle business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.
Automobile Business
Honda started the automobileAutomobile business operations in 1963 with theT360 mini-truckmini truck and theS500 small sports car andmodels. Honda subsequently launched a series of mass-producedmass-production models including theCivic in 1972 and theAccord in 1976, which established a base for its automobileAutomobile business. In 1969, production of the mini-vehiclesmini vehiclesN600 andTN600 began in Taiwan using component parts sets. In 1982, Honda became the first Japanese automaker to begin local automobile production in the United States (with theAccord)model).
Honda’s automobiles use gasoline engines of three, four or six-cylinder, diesel engines, gasoline-electric hybrid systems and gasoline-electric plug-in hybrid systems. Honda also offers alternative fuel-powered vehicles such as natural gas, ethanol, electric and fuel cell vehicles.
Honda’s principal automobile products include the following vehicle models:
Passenger cars:
Legend, Accord, Inspire,Accord Hybrid, Accord Plug-in Hybrid, Accord Tourer, Amaze, Brio, Brio Amaze, Brio Satya, City, Civic, Civic Tourer, CRIDER, CR-Z, Fit/Jazz, Fit/Jazz Hybrid, Fit Shuttle, Fit Shuttle Hybrid, FREED, FREED Hybrid, FREED SPIKE, FREED SPIKE Hybrid, Honda MOBILIO, Insight, City,JADE, Spirior, Stream, Acura RL,ILX, Acura RLX, Acura TL, Acura TSX Acura CSX, CR-Z
Minivans, Multi-wagons, Sport Utility Vehicle:Light trucks:
Crosstour, CR-V, Elysion, Odyssey, Step Wagon, Stream, FREED, Airwave, Fit/Jazz, Fit/Jazz Hybrid, Partner, Pilot, Ridgeline, CR-V, Element, Acura RDX,Step WGN, VEZEL, VEZEL Hybrid, Acura MDX, Acura ZDX Accord CrosstourRDX
Mini cars:vehicles:
Acty, Life, Zest,N-Box, N-Box +, N-ONE, N-WGN, Vamos Acty
The following table sets out Honda’s unit sales of automobiles and revenue from Automobile Businessbusiness and the breakdown by geographical markets based on the location of the customer during the fiscal years ended March 31, 2009, 20102012, 2013 and 2011:2014:
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Units | Revenue | Units | Revenue | Units | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | Honda Group Unit Sales* | Consolidated Unit Sales* | Revenue | ||||||||||||||||||||||||||||||||||||||||||||||
(thousands) | (billions) | (thousands) | (billions) | (thousands) | (billions) | Units (thousands) | Units (thousands) | Yen (billions) | Units (thousands) | Units (thousands) | Yen (billions) | Units (thousands) | Units (thousands) | Yen (billions) | ||||||||||||||||||||||||||||||||||||||||||||||
Japan | 556 | ¥ | 1,225.3 | 646 | ¥ | 1,383.8 | 582 | ¥ | 1,310.7 | 588 | 580 | ¥ | 1,329.6 | 692 | 685 | ¥ | 1,462.6 | 818 | 812 | ¥ | 1,714.7 | |||||||||||||||||||||||||||||||||||||||
North America | 1,496 | 3,723.8 | 1,297 | 3,013.4 | 1,458 | 3,252.8 | 1,323 | 1,323 | 2,855.6 | 1,731 | 1,731 | 3,905.2 | 1,757 | 1,757 | 4,717.7 | |||||||||||||||||||||||||||||||||||||||||||||
Europe | 350 | 923.5 | 249 | 575.3 | 198 | 441.6 | 158 | 158 | 355.9 | 171 | 171 | 388.4 | 169 | 169 | 487.6 | |||||||||||||||||||||||||||||||||||||||||||||
Asia | 793 | 1,079.5 | 950 | 1,041.2 | 1,008 | 1,221.7 | 837 | 219 | 836.3 | 1,122 | 523 | 1,385.4 | 1,286 | 529 | 1,599.0 | |||||||||||||||||||||||||||||||||||||||||||||
Other Regions | 322 | 721.9 | 250 | 540.9 | 266 | 567.1 | 202 | 202 | 428.3 | 298 | 298 | 567.3 | 293 | 293 | 657.0 | |||||||||||||||||||||||||||||||||||||||||||||
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Total | 3,517 | ¥ | 7,674.4 | 3,392 | ¥ | 6,554.8 | 3,512 | ¥ | 6,794.0 | 3,108 | 2,482 | ¥ | 5,805.9 | 4,014 | 3,408 | ¥ | 7,709.2 | 4,323 | 3,560 | ¥ | 9,176.3 | |||||||||||||||||||||||||||||||||||||||
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Automobile revenue as a percentage of total sales revenue | 77 | % | 77 | % | 76 | % | 73 | % | 78 | % | 77 | % |
* | Honda Group Unit Sales is the total unit sales of completed products of Honda, its consolidated subsidiaries and its affiliates accounted for under the equity method. Consolidated Unit Sales is the total unit sales of completed products corresponding to consolidated net sales to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries. Certain sales of automobiles that are financed with residual value type auto loans by our |
Automobiles are produced by Honda at two factories located at three sites in Japan: the Saitama factoryFactory (at the Sayama Plant and the Yorii Plant) and the Suzuka factory.Factory. Our major production sites overseas include those located in Ohio (U.S.A.), Alabama (U.S.A.), Indiana (U.S.A.), Ontario (Canada), Swindon (U.K.), Ayutthaya (Thailand), Uttar PradeshGreater Noida (India) and Sao Paulo (Brazil). Yachiyo Industry Co., Ltd., one of our consolidated subsidiaries, assembles Mini carsmini vehicles for the Japanese domestic market.
For further information on recent operations and a financial review of the automobileAutomobile business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.
Financial Services Business
We offer a variety of financial services to our customers and dealers through finance subsidiaries in countries including Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand, with the aim of providing sales support for our products. The services of these subsidiaries include retail lending, leasing to customers and other financial services, such as wholesale financing to dealers.
The following table sets out Honda’s revenue from Financial Services Businessservices business and the breakdown by geographical markets based on the location of the customer during the fiscal years ended March 31, 2009, 20102012, 2013 and 2011:2014:
Fiscal years ended March 31, | ||||||||||||||||||||||||
2009 | 2010 | 2011 | Fiscal years ended March 31, | |||||||||||||||||||||
Revenue | Revenue | Revenue | 2012 | 2013 | 2014 | |||||||||||||||||||
(billions) | (billions) | (billions) | Yen (billions) | |||||||||||||||||||||
Japan | ¥ | 24.0 | ¥ | 24.6 | ¥ | 26.3 | ¥ | 28.9 | ¥ | 34.2 | ¥ | 40.3 | ||||||||||||
North America | 527.9 | 553.1 | 503.9 | 455.5 | 484.2 | 610.8 | ||||||||||||||||||
Europe | 12.6 | 10.4 | 9.2 | 8.1 | 7.2 | 12.6 | ||||||||||||||||||
Asia | 4.7 | 4.3 | 3.7 | 2.8 | 3.1 | 8.0 | ||||||||||||||||||
Other Regions | 12.8 | 13.8 | 18.5 | 20.6 | 19.5 | 26.3 | ||||||||||||||||||
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Total | ¥ | 582.2 | ¥ | 606.3 | ¥ | 561.8 | ¥ | 516.1 | ¥ | 548.5 | ¥ | 698.1 | ||||||||||||
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Financial Service revenue as a percentage of total sales revenue | 6 | % | 7 | % | 6 | % | 7 | % | 5 | % | 6 | % |
For further information on recent operations and a financial review of the financialFinancial services business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.
Power Product and Other Businesses
Honda’s powerPower product business began in 1953 with the introduction of the model theH, its first general purpose engine. Since then, Honda has manufactured a variety of power products including tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors (riding lawn mowers). In 2003, Honda introduced a compact home-use cogeneration* unit. In addition, Honda began sales of thin film solar cells made of crystalline silicon for home use in 2007 and for public and industrial use in 2008.
* | Cogeneration: Cogeneration refers to the multiple applications of energy derived from a single source, such as using the heat supplied during the combustion process that drives an engine for other heating or cooling purposes. |
The following table sets out Honda’s revenue from Power Productproduct and Other Businessesother businesses and the breakdown by geographical markets based on the location of the customer during the fiscal years ended March 31, 2009, 20102012, 2013 and 2011:2014:
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||
Units | Revenue | Units | Revenue | Units | Revenue | Honda Group Unit Sales / Consolidated Unit Sales* | Revenue | Honda Group Unit Sales / Consolidated Unit Sales* | Revenue | Honda Group Unit Sales / Consolidated Unit Sales* | Revenue | |||||||||||||||||||||||||||||||||||||
(thousands) | (billions) | (thousands) | (billions) | (thousands) | (billions) | Units (thousands) | Yen (billions) | Units (thousands) | Yen (billions) | Units (thousands) | Yen (billions) | |||||||||||||||||||||||||||||||||||||
Japan | 516 | ¥ | 115.2 | 322 | ¥ | 98.3 | 388 | ¥ | 96.5 | 392 | ¥ | 86.4 | 314 | ¥ | 83.1 | 314 | ¥ | 77.9 | ||||||||||||||||||||||||||||||
North America | 1,893 | 80.1 | 1,818 | 65.8 | 2,085 | 67.9 | 2,314 | 72.1 | 2,604 | 84.6 | 2,718 | 97.4 | ||||||||||||||||||||||||||||||||||||
Europe | 1,306 | 71.1 | 1,066 | 54.3 | 1,174 | 55.2 | 1,121 | 55.4 | 1,004 | 52.3 | 1,032 | 64.2 | ||||||||||||||||||||||||||||||||||||
Asia | 970 | 50.7 | 1,069 | 36.7 | 1,325 | 49.3 | 1,472 | 40.0 | 1,572 | 36.9 | 1,500 | 40.2 | ||||||||||||||||||||||||||||||||||||
Other Regions | 502 | 25.8 | 469 | 22.3 | 537 | 23.6 | 520 | 23.0 | 577 | 23.5 | 472 | 24.3 | ||||||||||||||||||||||||||||||||||||
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Total | 5,187 | ¥ | 343.0 | 4,744 | ¥ | 277.6 | 5,509 | ¥ | 292.6 | 5,819 | ¥ | 277.1 | 6,071 | ¥ | 280.6 | 6,036 | ¥ | 304.2 | ||||||||||||||||||||||||||||||
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Power Product and other revenue as a percentage of total sales revenue | 3 | % | 3 | % | 3 | % | ||||||||||||||||||||||||||||||||||||||||||
Power Product and Other revenue as a percentage of total sales revenue | 3 | % | 3 | % | 3 | % |
* | Honda Group Unit |
completed products corresponding to consolidated net sales to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries. In power product business, there is no discrepancy between Honda Group Unit Sales and |
For further information on recent operations and a financial review of the powerPower product and other businesses, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.
Marketing and Distribution
Most of Honda’s products are distributed under the Honda trademarks in Japan and/or in overseas markets.
Sales in Japan
Sales of Honda motorcycles, automobiles, and power products in Japan are made through different distribution networks. Honda’s products are sold to consumers primarily by independent retail dealers throughout Japan.
Motorcycles are distributed through approximately 7,6006,900 outlets, including approximately 660600 “PRO’S” shops and approximately 100110 Honda Dream authorized dealerships.
As for the automobile distribution network, at present, approximately 770740 retail dealers operate approximately 2,1802,200 shops and sell models including theLegend, Inspire, Accord, Accord Hybrid, Accord Plug-in Hybrid, Accord Tourer, Civic-R EU,CR-Z, Fit, Fit Hybrid, Fit Shuttle, Fit Shuttle Hybrid, FREED, FREED Hybrid, FREED SPIKE, FREED SPIKE Hybrid, Insight, Stream, CR-V, Elysion, Odyssey, Step Wagon, Stream, FREED, FREED SPIKE, Fit, FitWGN, VEZEL, VEZEL Hybrid, CR-V, CR-Z,Acty, Life, Zest, Vamos, N-Box, N-Box +, N-ONE, N-WGN,and Acty.Vamos.
Power products are distributed in Japan to approximately 1,2801,110 retail dealers throughout Japan, including affiliates of Honda. A number of small engines are also sold to other manufacturers for use in their products.
Service and Parts Related Operations in Japan
Sales of spare parts and after sales services are mainly provided through retail dealers. Training programs on automobile service technicians are provided for dealers regularly by Honda’s Automobile Sales Operations (Japan).
Overseas Sales
In fiscal 2011,2014, approximately 96%97% of Honda’s overseas sales were made through its principal foreign sales subsidiaries, which distribute Honda’s products to local wholesalers and retail dealers.
In the United States, Honda markets its products through a sales network of approximately 1,1001,040 independent local dealers for motorcycles, approximately 1,3001,310 for automobiles and approximately 7,2008,000 for power products. Many of the motorcycle dealers and some of the automobile dealers also sell Honda’s power products. In 1986, Honda opened the first Acura automobile dealerships in the United States. The Acura network in the United States totaled 270274 dealerships at the end of fiscal 2011.2014. The Acura network offersRL, ILX, MDX, RDX, RLX, TLand TSX TSX Sport Wagon, RDX, MDX, ZDXmodels, andCSX in Canada.models.
With regard to exports from North America, Honda is currently exporting such North American-built models as theAccord, Civic, CR-V, Crosstour, Odyssey, Pilot, Ridgeline, Acura ILX, Acura MDX, Odyssey,Acura RDXandAcura TL Ridgeline, RDX, Element and ZDXto other markets. In fiscal 2011,2014, Honda exported approximately 42,00094,600 units from North America to 4154 countries throughout the world.
In Europe, Honda’s products are distributed through approximately 1,6501,400 independent local dealers for motorcycles, approximately 1,6001,150 for automobiles and approximately 2,6002,850* for power products.
* | Total number represents dealers in |
In Asia, Honda’s products are distributed through approximately 16,20014,070 independent local dealers for motorcycles, approximately 1,3701,580 for automobiles and approximately 1,6103,500* for power products.
* | Total number represents dealers in six countries where Honda has foreign sales subsidiaries. |
The Company exports motorcycle components to 1514 countries, including Indonesia, Vietnam, Thailand and Brazil,Vietnam, where motorcycles are manufactured by its subsidiaries, joint venture firms and licensees. Some of the components used in the production of these vehicles are supplied locally.
The Company exports automobile components to 15 countries, including the United States, Canada, China Thailand and Brazil,Canada, where automobiles are manufactured by its subsidiaries, joint venture firms and licensees. Some of the components used in the production of these vehicles are supplied locally.
The Company also exports power product components to sevensix countries, including ThailandIndia, France and China, where power products are manufactured by its subsidiaries, joint venture firms and licensees. Some of the components used in the production of these products are supplied locally.
Service and Parts Related Operations Overseas
Honda provides its overseas operations, joint venture firms, independent distributors and licensees with spare parts and necessary technical information, which they in turn supply to wholesale or retail dealers, either directly or through one or more spare parts distributors.
Components and Parts, Raw Materials and Sources of Supply
Honda manufactures the major components and parts used in its products, including engines, frames and transmissions. Other components and parts, such as shock absorbers, electrical equipment and tires, are purchased from numerous suppliers. The principal raw materials used by Honda are steel plate, aluminum, special steels, steel tubes, paints, plastics and zinc, which are purchased from several suppliers. The most important raw material purchased is steel plate, accounting for approximately 44%42% of Honda’s total purchases of raw materials.
No single supplier accounted for more than 5% of the Company’s purchases of major components and parts and principal raw materials during the fiscal year ended March 31, 2011.2014.
Ordinarily, Honda does not have and does not anticipate having any difficulty in obtaining its required materials from suppliers and considers its contracts and business relations with the suppliers to be satisfactory. Due to the Great East Japan Earthquake, Honda has a shortage of certain parts supplies, but Honda considers this shortage is temporarily. The Company does not believe any of its Japanese domestic suppliers are substantially more dependent on foreign suppliers than are Japanese suppliers generally. ItHowever, it should be noted that Japanese industry in general is heavily dependent on foreign suppliers for substantially all of its raw materials.
Seasonality
Honda’s motorcycleMotorcycle and powerPower product businesses have historically experienced some seasonality. However, this seasonality has not generally been material to our financial results.
Environmental and Safety Regulation
Honda is subject to various government regulations, including environmental and safety regulations for automobiles, motorcycles and power products. Such regulations relate to items such as emissions, fuel economy, recycling and safety and have had, and are expected to continue to have, material effects on Honda’s business. Honda has incurred significant compliance and other costs in connection with such regulations and will incur future compliance and other costs for new and upcoming regulations. Relevant environmental and safety regulations are described below.
Outline of Environmental and Safety Regulation for Automobiles
1. Emissions
Japan
In 2005, to limit emissions into the environment and the impact on global climate changes, the Central Environment Council in the Ministry of Environment created new long-term targets and comprehensive requirements for gasoline and diesel vehicles which have become effective starting from 2008. New long term targets for gasoline vehicles remain unchanged except for direct injection gasoline vehicles which will be required to meet the particulate matter (PM) standard. New long-term emissions targets for diesel vehicles have been lowered by more than 50% from the current level of NOx and PM standards.
Furthermore, in March 2008, to strengthen the enforcement of laws, the 2009 Exhaust Emission Standards were created after the passage of new long-term regulation. Long-term targets for gasoline vehicles remainremained unchanged except those for direct injection gasoline vehicles, which willwere also be required to meet the PMparticulate matter (PM) standard. New long termlong-term emissions targets for diesel vehicles have beenwere lowered by more than 60% from the current2005 level of NOxnitrogen oxides (NOx) and PM standards.
In 2010, the Central EnvironmentEnvironmental Council ofin the Ministry of Environment reviewed the current JC08 mode concerning the exhaustfor emission test modetesting and commenced a study forbegan to consider the introduction of WLTP (Worldwidethe Worldwide harmonized Light vehiclesvehicle Test Procedure)Procedure (WLTP).
The United States
Increasingly stringent emission regulations under the Clean Air Act have been enacted since the 1990s by the U.S. federal government. Under the Act, the Environmental Protection Agency (EPA) in February 2000 adopted more stringent vehicle emissions regulations applicable to passenger cars and light-duty trucks produced from model year 2004. Moreover, the new standard provides for gradual decreases in sulfur levels contained in fuel in the U.S. market.
Under the Clean Air Act, the State of California is permitted to establish its own emission control standards to the extent they are more stringent than federal standards. Pursuant to this authority, the California Air Resources Board (CARB) adopted the “CaliforniaCalifornia Low Emission Vehicle Program”Program in 1990, aiming to establish the strictest emission regulation in the world. In late 1998, the CARB strengthened its regulatory standards through the introduction of new standards, known as the “California Low Emission Vehicle Program II” (LEV II). These new standards treat most light trucks the same as passenger cars and require both types of vehicles to meet the new emissions standards of LEV II. In January 2001, the CARB approved modifications to the “Zero- Emission Vehicles” (ZEV) requirement under LEV II, permitting gasoline Super Ultra Low Emission Vehicles (SULEV), hybrid vehicles (powered by gasoline engine and/or electric motor) and compressed natural gas (CNG) vehicles to partially meet zero-emission requirements by satisfying certain additional requirements. The modified requirements also provide incentives for continued technology development.
In April 2004, the CARB finalized its “ZEV” requirements. Under these requirements, beginning with 2005 model cars, 6% of vehicles sold in California by a car manufacturer must be Partial Zero Emission Vehicles (PZEV), which includes SULEV with warranties coverage up to the earlier of 15 years or 150,000 driven miles, 2% must be advanced technology PZEV and 2% must be ZEV. Required percentages have been gradually increased under the ZEV standards from the 2008 model cars.
In March 2009, the CARB amended “ZEV regulation”. The CARB requiresfinalized the Zero Emission Vehicle (ZEV) regulation to require 7,500 fuel cell vehiclesFuel Cell Vehicles (FCV) in the entire industry from 2009 to 2011 instead of currentthe previous requirement of 2,500 FCV. In addition, the manufacturer shouldmanufacturers were required to sell thea significant number of Enhanced Advanced Technology Partial Zero Emission Vehicles (Enhanced AT-PZEV) in the market after the 2012 model year.
In 2010,August 2012, the CARB beganissued the Advanced Clean Car package of regulations, which included amendments to discuss with the automobile industry, the next phase exhaust emission standard, “CaliforniaCalifornia Low Emission Vehicle Program III”III (LEV III), and ZEV regulations. The LEV III regulation, which is expectedapplies to 2015 and subsequent model years, tightened limits on emissions and evaporative emissions. The ZEV regulation was revised so that requirements could be satisfied by TZEV (formerly, Enhanced AT-PZEV) and ZEV alone for 2018 and subsequent model years. Also, for 2018 and subsequent model years, the credit value eligible for each ZEV category was decreased drastically, which consequently increases the required sales volume dramatically. The BEVx category, which includes battery electric vehicles with auxiliary power units, was also added as a ZEV category. Currently, many states have more stringent standards.adopted California LEV III and ZEV regulations.
Currently, manyIn March 2014, the Environmental Protection Agency (EPA) finalized Tier 3 regulation, the federal emission and fuel standards. Tier 3 requires gasoline fuels at pump to have an average sulfur content of 10 parts-per-million, which is already implemented in Europe and Japan. It also sets exhaust and evaporative emission standards equivalent to California LEV III. In other words, it enables auto manufacturers to sell some of the same vehicles they sell in California in states that have alsonot adopted or proposed to adopt the California ZEV regulation.LEV III.
Europe
In each EU country, standards, such as those providing for preferential automobile tax treatment, have been established in respect of diesel vehicles that comply with the requirements prescribed in Euro4 for which the PM emission does not exceed 5mg/km.
In 2005, the European Union created new emission standards (Euro5(Euro 5 and Euro6)Euro 6) and comprehensive requirements for gasoline vehicles and diesel vehicles. Euro5Euro 5 was implemented in September 2009. Emission limits for gasoline vehicles and diesel vehicles were further lowered compared to the Euro4Euro 4 level of HC,forhydro-carbons (HC), NOx and PM. PM mass emission standards shall apply only to vehicles with direct injection engine.engines.
Additionally, beginning September 2011, Euro5 is expected to requireEuro 5 required limits on particle number emissions from diesel vehicles, and to implementimplemented new test measurementmeasurements for PM mass emissions from gasoline vehicles with direct injection engineengines and from diesel vehicles.vehicles on and after September 2011.
Euro6Euro 6 will be implemented infrom September 2014. Emission limits for diesel vehicles will be lowered even more than the Euro5 levelEuro 5 levels for HC and NOx. Additionally, Euro6Euro 6 will require limits on Particle numberparticle numbers from gasoline vehicles.
Russia
The Euro4Euro 4 regulation has been in effect from January 2010. Additionally, the Euro5Euro 5 regulation will bewas implemented in January 2014.
China
China adopted Step3Step 3 and Step4Step 4 emission regulations for light-duty vehicles in 2005. These regulations are similar to European regulations (such as Euro3Euro 3 and Euro4)Euro 4). Step3Step 3 was implemented in 2007 and Step4Step 4 was implemented in July 2010. In addition, China proposedhas promulgated rules to implement Step5Step 5 emission regulations in 2016, which is2018, based on Euro5.Euro 5.
In the city of Beijing, Step3 was implemented in December 2005 and Step4Step 4 was implemented in March 2008.2008 and Step 5 was implemented in February 2013. In addition, the city of Beijing is studyingconsidering the introduction of Step5Step 6 emission regulations in the second half of 2012.2016.
Other Regions
South Korea adopted the enforcement regulation of the Special Act on Capital Region Air Quality Improvement. Accordingly, some manufacturers were required to sell low emission vehicles which meet a more stringent emission standard than those meeting the national standard from January 2005. In January 2009, an enhanced national emission standard was implemented.
Several other Asian countries have adopted regulations which are similar to the European regulations (such as Euro2Euro 2 and Euro3)Euro 3). Some of these countries are studyingconsidering the introduction of Euro4Euro 4 and Euro5.Euro 5.
Australia implemented Euro4-equivalentEuro 4-equivalent regulations in July 2008. In addition, Australia is studying introduction of Euro5 inintroducedEuro 5-equivalent regulations from November 2013.
2. Fuel Economy / CO2
Japan
In 1998, an amendment was made to the Law Concerning Rationalization of Energy Usage that established a fuel efficiency standard based on weight class in Japan. This standard was tightened in 2005 for diesel-fueled automobiles. For gasoline automobiles, tighter standards were implemented during 2010.
In light of the CO2 reduction targets promulgated under the Kyoto Protocol in respect to concerns related to possible global climate changes, the Japanese government issued a fuel regulation for an interim ethanol blending limit (less than 3%) which became effective in 2003. The Japanese government intends to further increase this limit until the final target of 10% is achieved within a decade from 2003.
In 2005, discussions about the “POST-2010” standard took place among the applicable ministries and industries. In February 2007, the final “POST-2010” target, or the “2015 standard”, was announced. Fuel consumption will be reduced by 29.2% compared to the 2010 target for passenger cars.
In June 2010, the MLITMinistry of Land, Infrastructure and METITransport (MLIT) and the Ministry of Economy, Trend and Industry (METI) set out a committee, respectively, and jointly to commencecommenced a study to formulate the new fuel efficiency standardeconomy standards for passenger motor vehicles etc. towardfor 2020. The new standards were announced in March 2013. The next term fuel economy standards improve the 2015 standards by 19.6% and adopt the Corporate Average Fuel Economy (CAFE) calculation method.
Fuel specifications for E10 fuel, which is gasoline blended with 10% ethanol, were revised and included in the April 2012 announcement setting forth the details of safety standards under the Road Transport Vehicle Law. Ethanol blended fuel is a “biomass fuel”. Biomass fuel is regarded as an effective countermeasure for CO2 reduction. CO2 emissions after burning ethanol fuel produced with biomass resources (such as plants or wood) are not counted as CO2 emissions under the Kyoto Protocol.
The United States
The Federal Motor Vehicle Information and Cost Savings Act requires automobile manufacturers to comply with the Corporate Average Fuel Economy (CAFE)CAFE standards. Under the CAFE standards, manufacturers are subject to substantial penalties if automobiles produced by them in any model year do not meet the average standards for each category. The CAFE standard for passenger cars has been set at 27.5 miles per gallon (mpg) starting from the 1990 model year and for light trucks at 20.7 miles per gallon standard was established for the 1996-2004 model years. The standard for light trucks increased from the 2005 model year (21.0 miles per gallon) to the 2007 model year (22.2 miles per gallon).
The National Highway Traffic Safety Administration (NHTSA) reformed the CAFE standard for light trucks in 2006. The new size-based CAFE standard for light trucks would have been implemented in the 2008 model year. However, on November 15, 2007, the United Stated Ninth Circuit Court of Appeals decided to revoke the CAFE regulation concerning light-duty trucks that the NHTSA had adopted. The court held that the NHTSA failed to (1) implement the cost conversion of CO2 emission when establishing the CAFE limit values concerning the 2008-2009 model year light-duty trucks, (2) establish the Backstop Requirements, (3) the requirements concerning classification of passenger automobiles and light-duty trucks and (4) prescribe the fuel economy limit values for all vehicles with the Gross Vehicle Weight Rating class of 8,500 to 10,000 pounds. The court held that the CAFE regulation was arbitrary and capricious and that, furthermore, it violated the U.S. Energy Policy and Conservation Act.
In addition, in 2007, former U.S. President Bush directed relevant U.S. federal agencies to take the first steps toward regulations that would reduce gasoline consumption and Green House Gas (GHG) emissions from vehicles by 20 percent over 10 years. Therefore, the NHTSA has to promptly establish new limit values conforming to the pertinent policy and to apply it in the earliest possible model year.
The NHTSA issued a new CAFE regulation draft which applies to passenger cars and light trucks from the 2011 model year to the 2015 model year on May 2, 2008. The proposal requires 31.6 miles per gallon for the combined CAFE standard in the 2015 model year. However, on January 26, 2009, President Obama announced that he has directed the NHTSA to issue the CAFE standard of the 2011 model year initially, and issue the standard for the 2012 model year and subsequent model years after reconsidering the details of this standard.
In March 2009, the NHTSANational Highway Traffic Safety Administration (NHTSA) issued the CAFE regulation standard for passenger cars and light trucks for the 2011 model year. The CAFE standard calculation of passenger cars and light trucks for the 2011 model year use a footprint prescribed in the CAFE regulation issued in 2006. Industry-wideThe industry-wide combined average for the 2011 model year iswas estimated to be 27.3 mpg.
The EPA and the NHTSA jointly finalized the U.S. federal GHGGreen House Gas (GHG) regulation from the 2012 model year in accordance with President Obama’s announcement, and the EPA restricts carbon dioxide (CO2) emission, and the NHTSA restricts fuel economy (mile per gallon).announcement. The standard for the 2016 model year is 250 g-CO2/mile, or 35.5 mpg over the industry average. In addition, a manufacturer is also deemed to comply with CARB GHG regulation if the manufacturer complies with EPA-GHG, based on an agreement among the White House, the CARB and the industry.
In August 2005, the CARB finalized its GHG regulation in response to concerns related to possible global climate changes. Under the GHG regulation, which became effective for the 2009 model year, automobile manufacturers have to improve fuel economy from the 2002 levels by more than 30% by the 2016 model year. Many other states have adopted the GHG regulations.
In April 2007, the Supreme Court ruled that the EPA has the authority to regulate GHG emissions. However, the EPA decided not to grant enforcement of the GHG regulation by the State of California on December 19, 2007. The EPA concluded that the Federal unified standard can contribute to a significant reduction of GHG emitted in all states and will be more effective than California’s approach.
In March 2008, the EPA denied California’s GHG regulation waiver request against the CARB.request. On January 26, 2009, U.S. President Obama announced that he had directed the EPA to review California’s waiver request. The EPA approved the waiver on July 8th,8, 2009 because the CARB promised that a manufacturer was also deemed to comply with CARB GHG regulation if the manufacturer complied with EPA-GHG from the 2012 through 2016 model years.
On May 21, 2010, President Obama ordered the NHTSA and the EPA to extend the National Program for cars and light-duty trucks to the 2017 model years 2017year and beyond with the support of the CARB. On October 1, 2010, the NHTSA, the EPA, and the CARB announcedgave the notice of their intent to conduct a joint rulemaking with respect to establish 2017 and later model year fuel economy and greenhouse gas standards. The NHTSA and EPA issued a regulation on August 2012 regarding GHG standards/ CAFE regulations from the 2017 through 2025 model years. The standard for the 2025 model yearsyear is 163 g-CO2/mile or 54.4 mpg over the industry average. The CARB also issued a regulation that is almost equivalent to the EPA’s GHG regulations on August 2012. On December 2012, the CARB amended its GHG regulation so that a manufacturer is also deemed to comply with CARB GHG regulations if it complies with EPA-GHG from the 2017 and beyond. The numerous standards are expected to be issued on September 1, 2011.through 2025 model years.
Europe
In 2006, discussions about establishing targets for 2008 began among the European Commission, Member States and the automobile industry. In 2008, the European parliament adopted CO2 regulations in response to concerns related to possible global climate changes. The adopted CO2 regulations were published by the Official Journal in June 2009.
Pursuant to thosethe CO2 regulations, the European Commission set a more stringent target of 130 grams of carbon dioxide per kilometer for new passenger cars offered for sale in the EU from 2012. In addition, the CO2regulations provided manufacturers with the necessary incentive to reduce the CO2 emissions of their vehicles by imposing an excess emissions premium if their average emission levels are above the limit value curve. This premium will beis based on the number of grams per kilometer (g/km) that an average vehicle sold by the manufacturer exceedsexceeding the limit imposed by the curve, multiplied by the number of vehicles sold by the manufacturer.
In 2014, a new regulation was issued, requiring more stringent regulation that targets 95 g/km of CO2 for 2020.
China
China adopted a fuel consumption regulation for passenger vehicles in 2004. Step 1 of this regulation was implemented in 2005 and Step 2 was implemented in 2008. In addition, the Chinese Government proposed Step3 regulations to beStep 3 was implemented in 2012. It will be a Corporate Average Fuel EconomyConsumption regulation from Step3.Step 3. In addition, China is considering the introduction of Step 4 in 2016.
Other Regions
South Korea adopted the regulation of Corporate Average Fuel Economy for passenger vehicles in 2005. Domestic vehicles have been requiredIndia has promulgated rules to adhere to these regulations starting from 2006 and imported vehicles have been required to meet the requirement from 2010. In addition, South Korea adopted a more stringent regulation in 2008 that will be implemented in 2012. However, as South Korea is reconsidering the implementation of these regulations, only selective regulation (Fuel Economy orintroduce fuel economy / CO2) are expectedregulations in 2015 and 2020 in a phased manner.
Australia is considering introducing fuel economy / CO2 regulations.
Taiwan is considering introducing fuel economy / CO2 regulations.
Mexico finalized rules in June 2013 to be implemented in 2012.introduce fuel economy / CO2 regulations for the 2014 through 2016 model years.
3. Recycling / End-of-Life Vehicles (ELV) / REACH
Japan
Japan enacted the Automobile Recycling Law in July 2002, which required manufacturers to take back air bags, fluorocarbon and shredder residue derived from end-of-life vehicles (ELV), which became effective on January 1, 2005. ELV processing costs are collected from owners of cars currently in use and purchasers of new cars.
Europe
In September 2000, the European Union approved a directive requiring its member states to promulgate regulations implementing the following by April 21, 2002.
Manufacturers must be financially responsible for taking back end-of-life vehicles offered for sale after July 1, 2002 and dismantle and recycle the vehicles. Beginning on January 1, 2007, the requirement has also been applied to all vehicles offered for sale in the European Union before July 1, 2002.
Manufacturers must not use specified hazardous materials in vehicles offered for sale in the European Union after July 2003, and 95% of vehicle parts in new vehicle types sold in the European Union after December 15, 2008, must be designed to be re-usable and recoverable.
On December 30, 2006, the European Union adopted the Regulation concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), which became effective on June 1, 2007. From June 1, 2008, any manufacturer or importer of chemical substances is required to submit a registration to the European Chemicals Agency, based on annual production or import quantity levels. Submitting apre-registration between June 1 and December 1, 2008 will allow the manufacturer or importer to extend the deadline for submitting the registration for existing chemical substances. The list of SubstanceSubstances of Very High Concern (SVHC) is amended periodically by addingto include new substances. Currently, 4673 substances are in the SVHC list. Upon a request by a consumer, a supplier of a product containing SVHC must provide the consumer with sufficient information, withincluding at least the name of the substance, within 45 days.
On February 18, 2011, the first set of substances which require the authorization for use after certain specified dates waswere announced. Manufacturers using these substances in Europe must either be authorized for the use after submitting thean application or use substitute the substances. Substances which require the authorization are expected towill be added periodically. Currently, 14 substances require authorization.
Other Regions
Taiwan and Korea implemented automobile recycling laws fromon January 1, 2008, following the regulations established by the European Union and Japan. Turkey also implemented automobile recycling laws on December 12, 2010, following the regulations established by the European Union. In addition, China, hasVietnam, India and Russia each have a plan to implement automobile recycling laws in the near future.
4. Safety
Japan
In November 2007, the Ministry of Land, Infrastructure and Transport (MLIT)MLIT issued safety standards, which are applicable from July 1, 2012, for vehicles which use high voltage electric power such as electric vehicles or hybrid electric vehicles, to avoid electric shocks during normal operations and crashing. And further,post-crash. Furthermore, in 2011, they are expected to adopt ECEhave adopted Economic Commission for Europe (ECE) R100, which was amended to incorporate the Japanese electrical safety standard.
In March 2008, the MLIT issued the technical standards for Event Data Recorders (EDRs). Installation of EDRs in vehicles and, if an EDRs is installed, compliance with MLIT’s technical standards, are both voluntary.
Japan Automobile Standards Internationalization Center (JASIC), which is organized by the MLIT and JAMA,Japan Automobile Manufacturers Association (JAMA), among others, has started to review a proposal for the unification of Safety/Environment Standards, vehicle categories and certification in order to promote further internationalization of standards and certifications. JASIC is planning to makemade the proposal to other contracting parties of the 58 / 98 Agreement byin 2009 and aimaims at reaching an agreement among the contracting parties by 2015.
In January 2010, the MLIT started preparing a guideline for some measures againstnoise measurements regarding the silent characteristicdanger of hybrid vehicles remaining silent and also started studying how to regulate this.
In March 2010, in thea session of the World Forum for Harmonization of Vehicle Regulations (WP29) of the United Nations Economic Commission for Europe, Japan proposed the establishment of “a mutual certification system of international vehicle type certifications”, which was agreed upon.
In March 2010, triggered by a hit-and-runan accident in the UnitedUnites States caused by sudden unintended acceleration prompted the MLIT began research onto consider introducing “brake-override-systems”a “brake-override system”. During
In May 2011, the MLIT plansintroduced a pedestrian leg protection standard, adopting, for the first time in the world, a flexible leg impactor that features an improved biomechanism. The impactor has been made to introduce regulationsmatch more similarly to the human body structure and standardsits characteristics.
In August 2013, the MLIT adopted UN ECE R121, which regulates the location and identification of bumpers’ impact absorption to protect legscontrols, tell-tales and indicators.
In November 2013, the MLIT adopted UN ECE R125, which regulates the front visibility of pedestrians.the motor vehicle driver.
The United States
In August 2006, the NHTSA issued a final rule revising performance requirements for advanced airbag systems. The rule upgrades the maximum speed for frontal barrier crash tests using a belted small adult female dummy. Manufacturer must comply with the upgraded requirements for 35% of all vehicles produced by 2009, 65% by 2010, and 100% by 2011.
In April 2007, the NHTSA issued a final rule regarding an electronic stability control system standard for light vehicles to reduce rollover crashes. The new standard requires installation of electronic stability control system. Manufacturers have had to comply with the standard for 55% of all vehicles produced by 2008, 75% by 2009, 95% by 2010, and 100% by 2011.
In May 2007, the NHTSA issued a final rule to revise some performance requirements for head restraints, to delay the effective date, and to set a phase-in compliance schedule. For front seat requirements, manufacturers have to comply with the revised requirements for 80% of all vehicles produced by 2009, and 100% by 2010. For voluntarily installed rear head restraints, manufacturers also must be in compliance for 80% of all vehicles by 2010, and 100% by 2011.
In January 2008, the NHTSA issued a final rule to revise some performance requirements for event data recorders and to delay the effective date. Manufacturers offering passenger cars and/or other light vehicles equipped with event data recorders must comply with the revised requirements on or after September 2012.
In February 2008, the Cameron Gulbransen Kids Transportation Safety Act was established, and the NHTSA issued some regulations to prevent accidents involving children based on the Act. In March 2009, the NHTSA issued a proposed rule to address backover accidents. In December 2010, the NHTSA issued a proposal rule to require the vehicles with GVWR of 4,536kg or less to display a rear view image (i.e. requiring rearward camera system and screen system to display rear view image by camera system) for the purpose of taking countermeasures on backover accidents. Manufacturers must comply with the new requirements in accordance with proposed phase-in compliance schedule.
In June 2008, the NHTSA issued a final rule to revise some performance requirements and phase-in compliance schedules in upgraded side impact occupant protection standards. For both the moving deformable barrier test and the oblique side pole impact test, manufacturers must comply with the revised requirements for 20% of all vehicles produced by 2010, 40% by 2011, 60% by 2012, 80% by 2013 and 100% by 2014.
In October 2008, the NHTSA issued a final rule to revise the definition of Designated Seating Position (DSP) and to newly introduce the procedure for determining the number of DSPs. These are not Federal Motor Vehicle Safety Standards (FMVSS), but manufacturers must comply with all requirements related to DSPs, such as the equipment requirement for 3-points safety belts, on and after September 1, 2011.
In May 2009, the NHTSA issued a final rule to upgrade the vehicle roof crush standard. The rule newly introduces the “Two-sided Roof Test,” which imposes the strength tests for both sides of the vehicle roof and increases the maximum applied load. For vehicles with GVWRa gross vehicle weight rating (GVWR) of 2,722kg2,722 kg or less, manufacturers must comply with the upgraded requirements for 25% of all vehicles produced by 2012, 50% by 2013, 75% by 2014, and 100% by 2015. For heavier vehicles, manufacturers must comply with the standards on and after September 2016.
In December 2009,January 2011, the NHTSA issued a proposedfinal rule to prevent the ejection of occupants in rollover accidents. The rule requires “ejection mitigation countermeasure” (e.g. advanced glazing or head protection side
airbag) equipment which meetsmeet with performance requirements. Manufacturers must comply with the new requirements for 25% of all vehicles produced by 2013, 50% by 2014, 75% by 2015, 100% (with carryover credit) by 2016, and all vehicles by 2017.
In February 2012, the NHTSA issued a proposed Driver Distraction Guideline. The purpose of the guideline is to reduce the number of crashes and resulting deaths and injuries that occur due to distracted driving while performing non-driving activities with integrated in-vehicle electronic devices. Compliance with this guideline is voluntary, but the NHTSA believes that manufacturers will take the initiative to implement these guidelines in an effort to improve safety.
In April 2012, the NHTSA issued a proposed regulation that mandates installation of a brake-throttle override system. This rule was proposed to take proper measures against the following problem: a vehicle cannot be effectively decelerated/stopped in the event that the accelerator pedal cannot return to its stationary position even after the foot is taken off the accelerator pedal, because of the floor mat being caught in the accelerator pedal or any failure in the accelerator pedal. Manufacturers must comply with the new requirements within two years from September 1 of the first September which occurs after six years have elapsed since the issuancedate of publication of the final rule.
In December 2012, the NHTSA issued a proposed regulation that mandates installation of an event data recorder (EDR) in vehicles. The purpose of this regulation is to allow for effective collision research as well as to share important data for the performance analysis of safety devices (e.g. advanced restraint devices) through the mandatory installation of EDRs. On or after September 2014, the NHTSA plans to require manufacturers to install EDRs which comply with specified performance requirements.
In January 2013, the NHTSA issued a proposed regulation that mandates installation of an approaching vehicle audible system. This regulation was established to reduce the number of collision accidents by letting pedestrians and bicycle riders be aware of approaching hybrid vehicles on electric drive or electric vehicles by sound. Manufacturers must comply with the new requirements for 30% of all vehicles produced by 2015, 60% by 2016, 90% by 2017, and all vehicles by 2018.
In March 2014, the NHTSA issued a final rule for FMVSS No. 111, which requires that rear visibility technology be installed in all new vehicles weighing under 10,000 pounds. The purpose is to reduce death and injury resulting from incidents when the driver is backing up. Manufacturers must comply with the new requirements for 10% of all vehicles produced from May 2016 to April 2017, 40% from May 2017 to April 2018, and all vehicles on and after May 2018.
Europe
The European Commission issued a new regulation for pedestrian protection, which includes installation requirements of the Brake Assist System. It required M1 (Passenger vehicles up to nine passengers) and N1 (Light commercial vehicles with gross vehicle weight up to 3.5 tons) vehicles to meet standards for the protection of pedestrians in the event of a collision with the front of a motor vehicle. The new regulation will be effective November 24, 2011 for new types of vehicles.
Additionally, the European Commission issued a new regulation for GSR (typetype approval requirements for the General Safety of vehicles)Regulation (GSR). It includes an installation requirement for the advanced safety system (Electronic Stability Control System (ESC) and TyreTire Pressure Monitoring Systems (TPMS)) and a tire performance requirement in order to improve the safety and environmental performance of vehicles.
In September 2008,February 2011, the United NationNations issued a revised Economic Commission for Europe (ECE)ECE regulation relating to the installation of lighting devices, to require the installationrequiring automatic switching of dedicated daytime running lamps (DRL).dipped-beam headlamps. For M1 and N1 vehicles, manufacturers must equip DRLthe dipped-beam headlamps shall be switched on and complyoff automatically relative to the ambient light conditions, if a vehicle is equipped with related requirementsdaytime running lamps on and after February 2011, if certified as new type vehicle.January 30, 2015.
Legislation regarding a new system called “eCall” is under consideration in the EU and the Customs Union, which is organized by Russia, Kazakhstan and Belarus. eCall is a system that can automatically transmit vehicle status (e.g., Supplemental Restraint System (SRS) deployment, location, direction and other information) to conventional infrastructures simultaneously with voice messages when accidents occur. Some relevant draft standards have been published in the EU. The effective date of the EU eCall for new vehicles is scheduled for the end of the first quarter in 2015. On the other hand, final standards were published in the Customs Union. The effective date of eCall for the Customs Union (ERA-GLONASS) is on and after January 1, 2015 for new vehicle types.
5. New Car Assessment Program (NCAP)
Programs that provide customers with assessments of car safety functions and promote the development of car safety by automobile manufacturers are conducted in countries such as the United States, Japan, Australia, the EU, Korea, China and China.Malaysia. The principal items assessed in these programs are passenger protection and braking power, which are typically assessed with stricter standards or criteria than those required by statute.
In July 2008, the NHTSA issued a final decision to upgrade NCAP testing and safety rating criteria with the revision of frontal and side impact tests, the introduction of an overall rating program, and the addition of ratings for crash avoidance technologies. These new tests and rating criteria are being used for vehicles tested as part of the NCAP beginning with model year 2011 vehicles.
Outline of Environmental and Safety Regulation for Motorcycles
1. Emissions
Japan
Japan has emissions regulations for motorcycles applicable to all classes of engine displacement. Some aspects of these requirements, such as standards for hydro-carbon levels and durability, are stricter than the current European regulations, namely the Euro3Euro 3 regulations. MLIT introduced WMTC test method and its applicable standards in 2010. In addition, MLIT introduced
Japan is planning to implement Phase 3 emission requirements by the Worldwide Harmonized Motorcycle Emissions Certification Procedure (WMTC) and its applicable standards in 2010.end of 2016, which may involve consideration of simultaneous application of the fuel evaporative gas regulation as well as mandatory installation of the On-Board Diagnostics (OBD) system.
The United States
Emissions regulations regarding off-road motorcycles and ATVs were introduced in 2006. In addition, the EPA adopted the current California emissions standards regarding on-road motorcycles on a national basis, two years behind the schedule of California. The newEPA regulations include fuel permeation requirements rather than traditional evaporative emission standards.
Canada California is considering new evaporative emission standards.
The Canadian federal governmentEPA emission standard has introduced emissions regulations generally equivalentstrengthened the class III HC + NOx limit value to the U.S. EPA regulations0.8 g/km as of 2010 model year vehicles. As for on-road motorcyclesgreenhouse gases, reporting is mandated for each emission gas (CO2 from the 20062011 model year, CH4 from 2012 model year and for off-road motorcyclesN2O from April 2011.2013 model year, respectively.
Europe
The EU maintains emissionshas issued regulations (Euro3) for motorcycles, as well asto reform the “Motor Cycle (& Moped)—Whole Vehicle Type Approval (WVTA)”, a uniform certification system for two scheme in order to further enforce exhaust emissions following the Euro 4 and three-wheeled motor vehicles. The Euro3 regulations are the most stringent class standard for motorcycles. Euro3 regulations have been in effectEuro 5 steps. Euro 4 requirements will apply to new type approved vehicles from January 2006. EU Commission has introduced a recast proposal of2016 and will apply to all vehicles registered from January 2017. Euro 5 requirements will apply to new type approved vehicles from January 2020 and will apply to all vehicles registered from January 2021. The new requirements introduce not only mode emission gas restrictions but also evaporative emission, durability and OBD requirements. As for L1e category vehicles (mopeds), the Euro 4 requirements will apply to new type approved vehicles from 2017 and will apply to all vehicles registered from 2018 based on the WVTA which contains Euro4, 5 and 6 stage regulations.amendment.
Other Regions
Other countries, mainly in Asia, have implemented tighter emissions regulations based on European regulations.
In Thailand, a sixth stage of emissions control, which is generally equivalent to or stricter than Euro3, has been implemented.
In Indonesia, Euro2-equivalent regulations have been in effect from January 2006.
InJapan, China, Korea, and India are considering new exhaust emission standards based on the National third stage of emissions control, which is generally equivalent to or stricter than Euro3 regulations, was introduced in 2008.
In Korea, Euro3-equivalent regulations were implemented in 2008.next European WVTA.
In Brazil, Euro3-equivalent regulations have been in effectthe Worldwide-harmonized Motorcycle Test Cycle (WMTC) was introduced. The WMTC became effective from the beginning of 2009.2014. Brazil introduced the WMTC durability requirement as of January 2014 and will introduce stricter emission limit and evaporative gas restrictions as of January 2016.
In India, second stage regulations based on the Indian authorities’ own test method are in effect and enhanced regulations were enacted in 2005. The third stage of emission control was implemented from 2010.2. Recycling / REACH
2.Europe
The same REACH compliance required for motor vehicles is required for motorcycles.
Other Regions
Vietnam and India each have a plan to implement motorcycle recycling laws in the near future.
3. Safety
Japan
In November 2007, the MLIT issued safety standards which are applicable from July 1, 2012, for vehicles which use high voltage electric power such as electric vehicles or hybrid electric vehicles, to avoid electric shocks during normal operations and accidents. Further, in 2011, it adopted ECE R100, which was amended to incorporate the Japanese electrical safety standard.
The Japan introduced ECE R78—BrakingAutomobile Standards Internationalization Center (JASIC), which is organized by the MLIT and JAMA, among others, has started to review a proposal for the unification of Safety/Environment Standards, vehicle categories and certification in order to promote further internationalization of standards and certifications. JASIC made the proposal to other contracting parties of the 58 / 98 Agreement in 2009 and aims to reach an agreement among the contracting parties by 2015.
In February 2013, the MLIT established a homologation system basedfor ultra-compact mobility vehicles. These are vehicles which are easy to maneuver in a small space compared to automobiles, have superior environmental performance and can be utilized as a means of simple mobility for 1 or 2 passengers in a regional area. The system permits ultra-compact mobility vehicles to be run on GTR (Global Technical Regulation). Itpublic roads by adding features pertaining to such vehicles and relaxing certain standards without degrading the safety or environmental performances of the vehicles.
Japan has appliedimplemented the EMC requirement (UNECE R10) as of August 1, 2011. The amended version (R10.04) will become applicable to new type modelsvehicles from June 18, 2009,August 1, 2016 and applied it to all modelsvehicles from June 18, 2011.October 28, 2016.
Japan is also planning to adopt requirements for lighting devices (UN ECE R50) and symmetry front beams (UNECE R113) in 2014, and control/tell-tales (UNECE R60) in 2017.
The United States
The Consumer Product Safety Improvement ActNHTSA adopted the global technical regulation for braking systems (GTR 3) into the federal standard (FMVSS 122) as part of 2008 was signed into law by former President Bushstandard harmonization activities. The new standard will be applicable to the vehicles produced on August 14, 2008. In accordance with this, children’s products including ATVs and off-road motorcyclesafter September 1, 2014.
The NHTSA amended the federal standard for children have hadlighting devices (FMVSS 108) to comply with hazardous substancechange visibility and other requirements, (e.g. certificate, third party testing, tracking label requirements) after November 11, 2008, and ATVs products have had to comply with the ANSI standard from April 13, 2009.
Three wheeled all terrain vehicles, or ATVs (formerly referred towhich became effective as “ATC”s) were a problem due to the youth- involved accidents in the 80s’, and ATVs regulations established at that time. However, it turned out that a voluntary standard, which was agreed to between the industry and regulators, was established. Although the number of accidents did not increase in the 90s’, the ATVs market in the US experienced a rapid development from 2000 and the problem of youth-involved accidents increasing continued to be a focal point.
The Consumer Product Safety Commission (CPSC) and ATVs industry updated the voluntary standard in 2007. That standard has been introduced in the regulation.December 2012.
Europe
The number of ATVs designedEU has issued regulations to travelchange the WVTA scheme in order to further enforce safety. The new safety regulations require advanced brake systems and functional safety and electrical safety requirements. The new EU WVTA (EU Regulation No. 168/2013) was published on four low pressure tires on non-paved surfaces has recently increased in theMarch 2, 2013. This new system will become applicable to new type motorcycles from January 2016 and new type mopeds from January 2017.
The EU market. Because travel on public roadsCommission finalized Delegated Regulations concerning environmental and propulsion unit performance (EU Regulation No. 134/2014), vehicle functional safety (EU Regulation No. 3/2014), vehicle construction and general requirements (EU Regulation No. 44/2014). The Implementing Regulation is necessary in Europe, manufacturers in China, Taiwan and U.S. have been receiving approval for their ATVsexpected to be published by the Whole Vehicle Type Approval (WVTA) Quadricycle category,July 2014 and the vehicles are used in mixed traffic without safety measures. For that reason,new regulations establishing the new EU Commission is continuing discussions with each industry organization, recognizing the need for a review of the definition and the requirements of these vehicles.WVTA system will be completed afterwards.
The driving licenses directive was updated,new WVTA system requires motorcycle manufacturers to make vehicle repair and established on new category for mopeds, and changed the contents of each category. The new directive will be effective from January 19, 2013.
EU Commission has been issued a recast proposal of WVTA which contains mandatory of advanced brake system.maintenance information available through their websites.
Other regions
The BrazilBrazilian government issued a new regulation regarding anti-theft devices, and has required installingwhich requires installations of an immobilizer and a vehicle tracking system on vehicles and motorcycles sold or registered from August 1, 2009. However, this regulation has not been implemented yet because the Prosecutors Office had claimed it aswas unconstitutional and had asked the courtcourts to overturn it. The contents andSeveral amendments are scheduled to go into effect on the effective date (currently set for September 2014) in accordance with the phase-in application schedule, but the date of the actual implementation of this regulation have been under consultation between the government and the industry. It was plannedis still unclear because of a court decision holding this regulation to be implemented from May 1, 2011, but has been postponed because infrastructures will not be prepared in time.unconstitutional. Brazil is also considering issuing a new standard concerning motorcycle braking based on the UN ECE Brake regulation (R78.03) as well as a new regulation mandating ABS/CBS installation.
The Gulf Cooperation Council (GCC) is considering introducing a motorcycle certification system which is scheduled to become effective as of July 2014. The GCC Standardization Organization (GSO) is currently discussing the applicable requirements and test methods.
Many Asian countries, includingsuch as India, Thailand, Indonesia, Malaysia, Korea and Vietnam, are introducing severalvarious regulations, such asregarding lighting, braking, and anti-theft, based on ECEUN R (ECE) regulations.
The Canadian government revised the controls and display regulation in order to harmonize with U.S. – motor vehicle safety standards. It has applied to all motorcycle manufactured from February 22, 2008.
Outline of Environmental and Safety Regulation for Power Products
1. Emissions
The United States
The EPA introduced more stringent exhaust standards and new evaporative emission standards for fuel tanks and fuel lines used in the small non-road engines. The new regulation will applyregulations applied starting in the 2011 model year for Class II engines (above 225 cc) and, in the 2012 model year for Class I engines (less than 225 cc and used in non-handheld applications) and generally start in 2010 for handheld products. The EPA also adopted a more stringent level of emission standards for outboard and personal watercraft engines starting with the 2010 model year. This new regulation includes new standards to control evaporative emissions for all vessels using marine spark-ignition engines.
Canada
The Canadian federal government has introduced emissions regulations generally equivalent to the U.S. EPA regulations for outboard and personal watercraft engines from the 2012 model year. ThisThese new regulation includes to controlregulations include controls for evaporative emissions from the 2015 model year.
China
An exhaust emission standard was introduced in China on March 1, 2011. Its requirements are based on the European exhaust emission regulation,regulations and are applicable to small spark ignitionspark-ignition engines for non-road mobile machinery with 19 kW or less. The phase 2 regulation with durability requirement has started from January 1, 2014.
Europe
European Committee started to consider the stage 3 regulation. Its requirement will follow U.S. EPA phase 3 and the effective date will be 2019 or 2020.
Japan
The Japan Land Engine Manufacturers Association (LEMA) has implemented Phase 3 voluntary exhaust emission regulation from January 1, 2014. The requirements are consistent with U.S. EPA Phase 3 regulation.
India
The Ministry of Environment issued a revised regulation for emission/noise standards applicable to gasoline/kerosene engine generators. The exhaust emission limits are very stringent. In particular, the CO level limit is less than half the limit allowed by U.S. EPA Phase 3. The effective date is June 2015.
2. Recycling /RoHS / WEEE / REACH
Europe
The same REACH compliance required for motor vehicles is required for power products. In June 2011, the European Union Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS) was wholly revised and most power products will be within its scope after 2019.
Other regions
Turkey and several Asian countries have adopted regulations which are similar to the European regulations (such as RoHS and WEEE).
3. Safety
Japan
“The instituteInstitute of Agricultural Machinery”Machinery amended the safety standard of backward speed requirementrequirements for walk-behind equipment from 3.6 km/h to 1.8 km/h, and the interpretation of splash protection guard requirements for brush cutters. New models have had to comply with the standard from April 2010 and all models will need to comply with it from April 2015.
The United States
Based on the “Consumer Product Safety Improvement Act of 2008”, walk-behind lawn mowers have had to comply with the certificate requirements from November 11, 2008. The CPSC has enhanced the recall system by this Act.
Europe
The Machinery Directive was changed on May 16, 2006, and a new directive has been effective from December 29, 2009. The main changes were to clarify the scope of the directive (e.g.(for example, whether it covered partly completed machinery, such as engine unit) and tounits), add thea concrete description of market surveysurveys and create an obligation to establish a penalty description for member states.
China
The Chinese State CouncilGeneral Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) has published the “Agricultural Machinery Safety Supervision and Management Regulations.” Thisissued a draft safety regulation requires that defective agriculturalfor spark-ignition engines including a wide variety of requirements such as machinery producers should conduct recalls in a timely manner. The producers should establish the quality assurance system for their products. In addition, agricultural machinery is required to comply with the applicable new technical standards. The new regulation was implemented on November 1, 2009.
Medium- and long-term management strategy and Management target: Preparing for the Next Leap Forward
Honda aims to achieve global growth by further encouraging and strengthening innovation and creativity and creating quality products that please the customers and exceed their expectations.
Therefore, in order to improve the competitiveness of its products, Honda will endeavor to enhance its R&D, production and sales capabilities. Furthermore, Honda will continue to enhance its social reputation in the community through companywide activities. Honda recognizes that further enhancing the following specific areas is essential to its success:
1. Research and Development
In connection with its efforts to develop the most effectivesafety, thermal protection, electrical safety, and environmental technologies, Honda will continueothers. It is expected to be innovativecome into force in advanced technology and products. Honda aims to create and introduce new value-added products to quickly respond to specific needs in various markets around the world. Honda will also continue its efforts to conduct research on experimental technologies for the future.
2. Production Efficiency
Honda will establish and enhance efficient and flexible production systems at its global production bases and supply high quality products, with the aim of meeting the needs of its customers in each region.2014.
3. Sales Efficiency
Honda will remain proactive in its efforts to expand product lines through the innovative use of IT and will show its continued commitment to different customers throughout the world by upgrading its sales and service structure.
4. Product Quality
In response to increasing customer demand, Honda will upgrade its quality control by enhancing the functions of and coordination among the development, purchasing, production, sales and service departments.
5. Safety Technologies
Honda is working to develop safety technologies that enhance accident prediction and prevention, technologies to help reduce the risk of injuries to passengers and pedestrians from car accidents, and technologies that enhance compatibility between large and small vehicles, as well as expand its lineup of products incorporating such technologies. Honda will reinforce and continue to advance its contribution to traffic safety in motorized societies in Japan and abroad. Honda also intends to remain active in a variety of traffic safety programs, including advanced driving and motorcycling training programs provided by local dealerships.
6. The Environment
Honda will step up its efforts to create better, cleaner and more fuel-efficient engine technologies and to further improve recyclables throughout its product lines. Honda will also work to advance fuel cell technology and steadily promote its new solar cell business. In addition, Honda will further its efforts to minimize its environmental impact. To this end, Honda sets global targets to reduce the environmental burden as measured by the Life Cycle Assessment*, in all areas of business, spanning production, logistics and sales.
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7. Continuing to Enhance Honda’s Social Reputation and Communication with the Community
In addition to continuing to provide products incorporating Honda’s advanced safety and environmental technologies, Honda will continue striving to enhance its social reputation by, among other things, strengthening its corporate governance, compliance, and risk management as well as participating in community activities and making philanthropic contributions.
To achieve these targets, Honda will make all possible efforts in pursuit of its vision for the Company as it moves towards 2020: “To provide good products in a timely fashion, at affordable prices, and with low CO2 emissions”
Preparing for the Future
The Company temporarily suspendedHonda aims to achieve global growth by further encouraging and strengthening innovation and creativity and creating quality products that please the customers and exceed their expectations.
Honda will focus all its energies on the tasks set out below as it pursues the vision toward 2020 of “providing good products to customers with speed, affordability, and low CO2 emissions.”
1. Research and Development
In connection with its efforts to develop the most effective safety and environmental technologies, Honda will continue to be innovative in advanced technology and products. Honda aims to create and introduce new value-added products to quickly respond to specific needs in various markets around the world. Honda will also continue its efforts to conduct research on experimental technologies for the future.
2. Production Efficiency
Honda will establish and enhance efficient and flexible production systems at its sites locatedglobal production bases and supply high quality products, with the aim of meeting the needs of its customers in Japan due toeach region. Learning from the effectsexperience of disasters such as the Great East Japan Earthquake occurred on March 11, 2011, which included a shortage of parts supplies. In addition, some of Honda’s business sites, such as Honda’s R&D subsidiaries located in Tochigi Prefecture, were heavily damaged. By April 11, 2011,and the Company had resumed production activities at all of its production sites; however, production of completed automobiles at plants within Japan and production of components and parts for Honda’s overseas sites had been operating at approximately half the normal rate. Production in Japan has been nearly normalized in late June. Production at Honda’s automobile plants overseas has been reduced as well
and is expected to be nearly normalized around August to September. In such circumstances, Honda will endeavor to normalize the supply chain continuously and aims to return to normal production as soon as possible.Thai floods, Honda will work on sales pickup by the recoveryat improving its global supply chain, implementing disaster prevention measures at each place of productionbusiness and bring about the recovery of its operations as soon as possible. Taking into account this experience, devising more effective business continuity plans (BCPs).
3. Sales Efficiency
Honda will striveremain proactive in its efforts to minimize risks that have surfaced dueexpand product lines through the innovative use of IT and will show its continued commitment to different customers throughout the earthquake disaster, including risks related to supply chain disruption.world by upgrading its sales and service structure.
4. Product Quality
In response to increasing customer demand, Honda will upgrade its quality control by enhancing the occurrencefunctions of inappropriate activities at and coordination among the development, purchasing, production, sales and service departments.
5. Safety Technologies
Honda Trading Corporation, which is working to develop safety technologies that enhance accident prediction and prevention, technologies to help reduce the risk of injuries to passengers and pedestrians from car accidents, and technologies that enhance compatibility between large and small vehicles, as well as expand its lineup of products incorporating such technologies. Honda will reinforce and continue to advance its contribution to traffic safety in motorized societies in Japan and abroad. Honda also intends to remain active in a subsidiaryvariety of the Company,traffic safety programs, including advanced driving and based on the investigation reportmotorcycling training programs provided by local dealerships.
6. The Environment
Honda will step up its efforts to create better, cleaner and suggestion for preventive countermeasures that was submittedmore fuel-efficient engine technologies and to the Company’s board of directorsfurther improve recyclables throughout its product lines. Honda has now set a target to reduce CO2 emissions from its global products by 30% by the investigation committee established with external experts,end of 2020 compared to year 2000 levels. In addition to reducing CO2 emissions during production and supply chain, Honda will strengthen its efforts to realize reductions in CO2 emissions through its entire corporate activities. Furthermore, Honda will strengthen its efforts in advancing technologies in the Company will build a systemarea of total energy management, to make appropriate business judgments in accordancereduce CO2 emissions through mobility and people’s everyday lives.
7. Continuing to Enhance Honda’s Social Reputation and Communication with the applicable lawsCommunity
In addition to continuing to provide products incorporating Honda’s advanced safety and regulations andenvironmental technologies, Honda will furthercontinue striving to enhance its social reputation by, among other things, strengthening its corporate governance, increasing compliance, awareness, and strengthening the risk management systems, including through the reexamination of personnel management systems.as well as participating in community activities and making philanthropic contributions.
Through these company-wide activities, Honda will strive to be a company that its shareholders, investors, customers and society want to exist.
As of March 31, 2011,2014, the Company had 9992 Japanese subsidiaries and 284273 overseas subsidiaries. The following table sets out for each of the Company’s principal subsidiaries, the country of incorporation, function and percentage ownership and voting interest held by Honda.
Company | Country of Incorporation | Function | Percentage Ownership and Voting Interest | |||||
Honda R&D Co., Ltd. | Japan | Research & Development | 100.0 | |||||
Honda Engineering Co., Ltd. | Japan | Manufacturing and Sales of machine tools, equipment and production techniques | 100.0 | |||||
Yachiyo Industry Co., Ltd. | Japan | Manufacturing | 50.5 | |||||
Honda Finance Co., Ltd. | Japan | Finance | 100.0 | |||||
American Honda Motor Co., Inc. | U.S.A. | Sales | 100.0 | |||||
Honda North America, Inc. | U.S.A. | Coordination of Subsidiaries Operation | 100.0 | |||||
Honda of America Mfg., Inc. | U.S.A. | Manufacturing | 100.0 | |||||
American Honda Finance Corporation | U.S.A. | Finance | 100.0 | |||||
Honda Manufacturing of Alabama, LLC | U.S.A. | Manufacturing | 100.0 | |||||
Honda Manufacturing of Indiana, LLC | U.S.A. | Manufacturing | 100.0 | |||||
Honda Transmission Mfg. of America, Inc. | U.S.A. | Manufacturing | 100.0 | |||||
Honda R&D Americas, Inc. | U.S.A. | Research & Development | 100.0 | |||||
Honda Canada Inc. | Canada | Manufacturing and Sales | 100.0 | |||||
Honda Canada Finance Inc. | Canada | Finance | 100.0 | |||||
Honda de Mexico, S.A. de C.V. | Mexico | Manufacturing and Sales | 100.0 | |||||
Honda Motor Europe Limited | U.K. | Coordination of Subsidiaries Operation and Sales | 100.0 | |||||
Honda of the U.K. Manufacturing Ltd. | U.K. | Manufacturing | 100.0 | |||||
Honda Finance Europe plc | U.K. | Finance | 100.0 | |||||
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Honda Bank GmbH | Germany | Finance | ||||||
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| 100.0 | |||||||
Honda Motor (China) Investment Co., Ltd. | China | Coordination of Subsidiaries Operation and Sales | 100.0 | |||||
Honda Auto Parts Manufacturing Co., Ltd. | China | Manufacturing | 100.0 | |||||
Honda Automobile (China) Co., Ltd. | China | Manufacturing | 65.0 | |||||
Honda | India | Manufacturing and Sales | 100.0 | |||||
Honda Cars India Limited | India | Manufacturing and Sales | ||||||
P.T. Honda Precision Parts Manufacturing | Indonesia | Manufacturing | 100.0 | |||||
P.T. Honda Prospect Motor | Indonesia | Manufacturing and Sales | 51.0 | |||||
Honda Taiwan Co., Ltd. | Taiwan | Sales | 100.0 | |||||
Asian Honda Motor Co., Ltd. | Thailand | Coordination of Subsidiaries Operation and Sales | 100.0 |
Company | Country of Incorporation | Function | Percentage Ownership and Voting Interest | |||||
Honda Leasing (Thailand) Co., Ltd. | Thailand | Finance | 100.0 | |||||
Honda Automobile (Thailand) Co., Ltd. | Thailand | Manufacturing and Sales | 89.0 | |||||
Thai Honda Manufacturing Co., Ltd. | Thailand | Manufacturing | 60.0 | |||||
Honda Vietnam Co., Ltd. | Vietnam | Manufacturing and Sales | 70.0 | |||||
Honda Motor de Argentina S.A. | Argentina | Manufacturing and Sales | 100.0 | |||||
Honda South America Ltda. | Brazil | Coordination of Subsidiaries Operation | 100.0 | |||||
Banco Honda S.A. | Brazil | Finance | 100.0 | |||||
Honda Automoveis do Brasil Ltda. | Brazil | Manufacturing and Sales | 100.0 | |||||
Moto Honda da Amazonia Ltda. | Brazil | Manufacturing and Sales | 100.0 | |||||
Honda Turkiye A.S. | Turkey | Manufacturing and Sales | 100.0 | |||||
Honda Australia Pty. Ltd. | Australia | Sales | 100.0 |
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D. Property, Plants and Equipment
The following table sets out information, as of March 31, 2011,2014, with respect to Honda’s principal manufacturing facilities, all of which are owned by Honda:
Location | Number of Employees | Principal Products Manufactured | ||||
Sayama, Saitama, Japan | Automobiles | |||||
Hamamatsu, Shizuoka, Japan | Power products and transmissions | |||||
Suzuka, Mie, Japan | Automobiles | |||||
Ohzu-machi, Kikuchi-gun, Kumamoto, Japan | Motorcycles, all-terrain vehicles, power products and engines | |||||
Marysville, Ohio, U.S.A. | Automobiles | |||||
Anna, Ohio, U.S.A. | Engines | |||||
East Liberty, Ohio, U.S.A. | Automobiles | |||||
Lincoln, Alabama, U.S.A. | Automobiles and engines | |||||
Greensburg, Indiana, U.S.A. | Automobiles | |||||
Alliston, Ontario, Canada | Automobiles and engines | |||||
El Salto, Mexico | Motorcycles and automobiles | |||||
Swindon, Wiltshire, U.K. | Automobiles | |||||
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Guangzhou, China | Automobiles | |||||
Gurgaon, India | 5,929 | Motorcycles | ||||
Greater Noida, India | Automobiles | |||||
Karawang, Indonesia | 2,048 | Automobiles and engines | ||||
Ayutthaya, Thailand | Automobiles | |||||
Bangkok, Thailand | Motorcycles and power products | |||||
| Motorcycles and automobiles | |||||
Buenos Aires, Argentina | Motorcycles and automobiles | |||||
Sumare, Brazil | Automobiles | |||||
Manaus, Brazil | Motorcycles and power products | |||||
Gebze, Turkey | Automobiles |
In addition to its manufacturing facilities, the Company’s properties in Japan include sales offices and other sales facilities in major cities, repair service facilities, and research and developmentR&D facilities.
As of March 31, 2011,2014, the Company’s property, with a net book value of approximately ¥24.5¥58.5 billion, was subject to specific mortgages securing indebtedness.
Capital Expenditures
Capital expenditures in fiscal 20112014 were applied to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities.
Total capital expenditures for the year amounted to ¥1,109.7¥1,854.0 billion, up ¥236.0increased by ¥467.2 billion from the previous year. Also, total capital expenditures, excluding property on operating leases, for the year amounted to ¥311.3¥726.1 billion, down ¥18.3increased by ¥132.5 billion from the previous year. Spending by business segment is shown below.
Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
2010 | 2011 | Increase (Decrease) | 2013 | 2014 | Increase (Decrease) | |||||||||||||||||||
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
Motorcycle Business | ¥ | 38,332 | ¥ | 37,084 | ¥ | (1,248 | ) | ¥ | 73,513 | ¥ | 55,575 | ¥ | (17,938 | ) | ||||||||||
Automobile Business | 267,257 | 260,149 | (7,108 | ) | 505,045 | 656,412 | 151,367 | |||||||||||||||||
Financial Services Business | 544,425 | 798,584 | 254,159 | 793,669 | 1,128,460 | 334,791 | ||||||||||||||||||
Financial Services Business (Excluding Property on Operating Leases) | 398 | 164 | (234 | ) | 551 | 620 | 69 | |||||||||||||||||
Power Product and Other Businesses | 23,748 | 13,963 | (9,785 | ) | 14,519 | 13,580 | (939 | ) | ||||||||||||||||
Total | ¥ | 873,762 | ¥ | 1,109,780 | ¥ | 236,018 | ¥ | 1,386,746 | ¥ | 1,854,027 | ¥ | 467,281 | ||||||||||||
Total (Excluding Property on Operating Leases) | ¥ | 329,735 | ¥ | 311,360 | ¥ | (18,375 | ) | ¥ | 593,628 | ¥ | 726,187 | ¥ | 132,559 |
Intangible assets are not included in the table above.
In the motorcycleMotorcycle business, we made capital expenditures of ¥37,084¥55,575 million in the fiscal year ended March 31, 2011.2014. Funds were allocated to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities.
In the automobileAutomobile business, we made capital expenditures of ¥260,149¥656,412 million in the fiscal year ended March 31, 2011.2014. Funds were allocated to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities. A new auto plant in Yorii-machi, Osato-gun, Saitama, Japan completed construction of its facilities for production in July 2013. A second auto plant of Honda Motor De ArgentinaMexico, S.A. de C.V., which is one of the Company’s consolidated subsidiaries, completed construction of its facilities for production in March 2011.February 2014. A second auto plant of Honda Cars India Limited, which is one of the Company’s consolidated subsidiaries, completed construction of facilities for production in February 2014.
In the financialFinancial services business, segment, capital expenditures excluding property on operating leases amounted to ¥164¥620 million in the fiscal year ended March 31, 2011,2014, while capital expenditures for property on operating leases were ¥798,420¥1,127,840 million. Capital expenditures in powerPower products and other businesses in the fiscal year ended March 31, 2011,2014, totaling ¥13,963¥13,580 million, were deployed to upgrade, streamline, and modernize manufacturing facilities for power products, and to improve R&D facilities for power products.
Plans after fiscal 20112014
We set out our original capital expenditure plans for the period fromDuring the fiscal year ended March 31, 2011 during2014, we modified our capital expenditure plans which were originally set out in the precedingprior fiscal year. We have subsequentlyThe modified these plans are as follows:
The scale of a test course in a new auto plant in Yorii-machi Osato-gun, Saitama, Japan plans to start operation in 2013.
Yachiyo Industry Co., Ltd.,R&D facility, which is one of the Company’s consolidated subsidiaries, had stopped buildingunder construction in Sakura-shi, Tochigi, Japan, has been changed. Also, a new automega-solar power plant in Yokkaichi City, Mie, Japan.will be built on its property.
Managements mainly consider economic trends of each region, demand trends, situation of competitors and our business strategy such as introduction plans of new models in determining the future of projects.
The estimated amounts of capital expenditures for fiscal year ending March 31, 20122015 are shown below.
Fiscal year ending March 31, | ||||
Yen (millions) | ||||
Motorcycle Business | ¥ | |||
Automobile Business | ||||
Financial Services Business | ||||
Power Product and Other Businesses | ||||
Total | ¥ | |||
The estimated amount of capital expenditures for Financial Services Businessservices business in the above table does not include property on operating leases.
Intangible assets are not included in the table above.
Item 4A. Unresolved Staff Comments
We do not have any unresolved written comments provided by the staff of the Securities and Exchange Commission regarding our periodic reports under the Securities and Exchange Act of 1934.
Item 5. Operating and Financial Review and Prospects
Overview
Business Environment
With respect to the economic environment surrounding Honda, economicEconomic conditions in the United States remained on a moderate recovery trend, as evidenced by improvement in consumer spending and private capital investment, despite concerns about the continuation of the credit contraction and high unemployment rate. The economies of Europe in generalU.S. continued to improve as seenduring the fiscal year ended March 31, 2014. This recovery in the increaseU.S. was underscored by the job market improving, personal consumption increasing gradually, and strong housing investment. Economic conditions in consumer spending, however,Europe began showing signs of a recovery, despite negative GDP growth, high unemployment persistedrates and concerns aboutother lingering weaknesses in the financial system remained. Also,economy. As for conditions in Asia, the economieseconomy continued to expand in China, while the pace of Chinaeconomic expansion slowed in Thailand and became more gradual in India expanded, and Indonesia. Meanwhile, the Japanese economy recovered gradually owing, among other countries ofpositive developments, to the region generally reported economic recovery. In Japan,employment situation improving and personal consumption expanding.
The trends, uncertainties, demands, commitments and events identified below may continue or recur, impacting the economy was at a standstill. Although private capital investment showed improvement, conditions remain challenging as consumer spending was somewhat weak and high unemployment continued. As a result of the Great East Japan Earthquake occurred on March 11, 2011 (the “Earthquake”), the economy is expected to remain in a weakened state for the time being.company’s future financial results.
Overview of Fiscal Year 20112014 Operating Performance
Honda’s consolidated net sales and operating revenues for the fiscal year ended March 31, 2011,2014, increased from the fiscal year ended March 31, 2010,2013, due mainly to increased net sales in automobileAutomobile business and motorcycleMotorcycle business which was partially offset by a decrease in net sales attributable to negativeoperations as well as favorable foreign currency translation effects. Operating income increased from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and model mix a decrease in fixed costs per unit as a result of production increase, and continuing cost reduction,well as favorable foreign currency translation effects, which was partially offset by increased selling, general and administrative expenses, in addition to increased research and R&D expenses, negative foreign currency effects and the impact of the Earthquake.development expenses.
Information about the impact of the Earthquake is described in Item 5. Operating and Financial Review and Prospects D. “Trend Information”.
Motorcycle Business
Honda’s motorcycleconsolidated unit sales increased on a consolidated basisof motorcycles totaled 10,343 thousand units in fiscal year 2014, an increase of 8.8% from the previous fiscal year, mainly due mainly to increased unit sales in Asia and Other regions including South America.
In Asia, expansion in demand was robust, supported by strong economic performance. In particular, sales in Thailandthe introduction of Honda’s newWave 110i and theScoopy i as well as sales models in India, ofCB Twister and theActiva served as a driving force in bringing a major gain in sales.among other countries.
On the other hand, in North America, where demand has yet to recover, despite a moderate recovery mainly in utility model ATVs, the overall market for sports-type ATVs mainly for leisure use, motorcycles for recreation and other areas were weak.
Sales in other regions, including South America, became favorable from mid-year because of stimulated demand due to easier availability of credit and improvement in personal income. Sales of theCG150,NXR150,CG125 and other models were strong, mainly in Brazil.
Automobile Business
Honda’s automobileconsolidated unit sales increased on a consolidated basisof automobiles totaled 3,560 thousand units in fiscal year 2014, an increase of 4.5% from the previous fiscal year, dueyear. This growth was supported mainly to increased unit salesby an increase in North America and Asia, despite decreased unit sales in Japan and Europe.
In Japan, operating conditions continued to be challenging because of the adverse impact to demand in the latter half of the fiscal year, following the termination of government subsidies. Although new models such as theFit Hybrid were introduced, overall demand decreased, and unit sales decreased.
In Europe, overall sales were stagnant, due to the termination of subsidies in some countries of the region, weak consumption trends and more-intense competition, despite the launching of the newCR-Z.
On the other hand, in North America along with the moderate economic recovery in the United States, salesas a result of the new modelOdyssey introductions and other light trucks increased.
In Asia, demand in China was on a growth trend, and sales of theCR-V, in particular, showed a major increase. Sales also grew in Thailand, Indonesia and elsewhere, amid favorable economic trends.full model changes.
Power Product and Other Businesses
Honda’s consolidated unit sales of power products unit sales increased ontotaled 6,036 thousand units in fiscal year 2014, a consolidated basisdecrease of 0.6% from the previous fiscal year, due primarily toyear. This minor setback was the result of diminishing sales in Asia and Other Regions which offset an increase in unit sales - mainly in all the regions.North America.
Unit sales of engines, mainly for OEM* use, increased in North America, Europe, Japan and other regions, including South America, along with increasing demand for construction equipment accompanying the recovery in economic conditions.
In Asia, unit sales grew due to market expansion, agricultural subsidies provided by the Thai government, the effects of weather conditions and other factors.
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Fiscal Year 20112014 Compared with Fiscal Year 20102013
Net Sales and Other Operating Revenue
Honda’s consolidated net sales and other operating revenue (hereafter, “net sales”) for the fiscal year ended March 31, 2011,2014, increased ¥357.6by ¥1,964.5 billion, or 4.2%19.9%, to ¥8,936.8¥11,842.4 billion from the fiscal year ended March 31, 2010,2013, due mainly to increased net sales in automobileAutomobile business and motorcycleMotorcycle business which was partially offset by a decrease in net sales attributable to negativeoperations as well as positive foreign currency translation effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately ¥743.3¥458.4 billion, or 8.7%4.6%, compared to the increase as reported of ¥357.6¥1,964.5 billion, which includes negativepositive foreign currency translation effects.
Operating Costs and Expenses
Operating costs and expenses increased ¥151.6by ¥1,759.0 billion, or 1.8%18.8%, to ¥8,367.0¥11,092.1 billion from the previous fiscal year. Cost of sales increased ¥82.1by ¥1,415.9 billion, or 1.3%19.3%, to ¥6,496.8¥8,761.0 billion from the previous fiscal year, due mainly to an increase in costs attributable to increased netconsolidated unit sales in Automobile business and the effect of raw material fluctuations, which was partially offset by continuing cost reductionMotorcycle business, and positivenegative foreign currency effects. Selling, general and administrative expenses increased ¥45.3by ¥269.2 billion, or 3.4%18.9%, to ¥1,382.6¥1,696.9 billion from the previous fiscal year, due mainly to anincreased product warranty expenses and increase in selling expenses attributable to increased netconsolidated unit sales the impact of the Earthquake, which was partially offset by a decrease in provisions for credit losses in financial servicesAutomobile business and positive foreign currency effects.Motorcycle business. R&D expenses increased by ¥24.2¥73.8 billion, or 5.2%13.2%, to ¥487.5¥634.1 billion from the previous fiscal year, due mainly to improving safety and environmental technologies and enhancing of the attractiveness of the products.
Operating Income
Operating income increased ¥206.0by ¥205.4 billion, or 56.6%37.7%, to ¥569.7¥750.2 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and continuing cost reduction,positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses and increased R&D expenses, negative foreign currency effects and the impact of the Earthquake.expenses. Excluding negativepositive foreign currency effects of ¥137.6¥288.7 billion, Honda estimates operating income increased ¥343.6decreased by ¥83.2 billion.
With respect to the discussion above of the changes, management identified the factors and used what it believes to be a reasonable method to analyze the respective changes in such factors. Management analyzed changes in these factors at the levels of the Company and its material consolidated subsidiaries. “Foreign currency effects” consist of “translation adjustments”, which come from the translation of the currency of foreign subsidiaries’ financial statements into Japanese yen, and “foreign currency adjustments”, which result from foreign-currency-denominated sales. With respect to “foreign currency adjustments”, management analyzed foreign currency adjustments primarily related to the following currencies: U.S. dollar, Canadian dollar, Euro, British pound, Brazilian real and Japanese yen and others at the level of the Company and its material consolidated subsidiaries.
Income before Income Taxes and Equity in Income of Affiliates
Income before income taxes and equity in income of affiliates increased ¥294.3by ¥240.0 billion, or 87.6%49.1%, to ¥630.5¥728.9 billion. MainThe main factors ofbehind this increase, except factors relating operating income, are as follows;follows:
Unrealized gains and losses related to derivative instruments had a negativepositive impact of ¥30.4¥74.4 billion. Other income(expenses)income (expenses) excluding unrealized gains and losses related to derivative instruments had a positivenegative impact of ¥118.8¥39.8 billion, due mainly to gain on sales of investments in affiliates related to the dissolution of the joint venture and an increase in foreign currency transaction gains.losses.
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Income Tax Expense
Income tax expense increased ¥59.9by ¥73.6 billion, or 40.8%41.2%, to ¥206.8¥252.6 billion from the previous fiscal year. The effective tax rate decreased 10.91.9 percentage points to 32.8%34.7% from the previous fiscal year. The decrease in the effective tax rate was due mainly to a decrease in a portion of unrecognized tax benefits related to transfer pricing matters of overseas transactions between the Company and foreign affiliates.
Equity in Income of Affiliates
Equity in income of affiliates increased ¥46.4by ¥49.7 billion, or 49.8%60.1%, to ¥139.7¥132.4 billion, due mainly to an increase in income attributable to increased net sales and continuing cost reduction at affiliates in JapanAsia and Asia.a recognition of impairment loss on certain investments in affiliates, which was included in the previous fiscal year.
Net Income
Net income increased ¥280.8by ¥216.1 billion, or 99.4%55.0%, to ¥563.4¥608.7 billion from the previous fiscal year.
Net Income attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests increased ¥15.1by ¥9.1 billion, or 106.8%35.9%, to ¥29.3¥34.6 billion from the previous fiscal year.
Net Income attributable to Honda Motor Co., Ltd.
Net income attributable to Honda Motor Co., Ltd. increased ¥265.6by ¥206.9 billion, or 99.0%56.4%, to ¥534.0¥574.1 billion from the previous fiscal year.
Business Segments
Motorcycle Business
Honda’s consolidated unit sales of motorcycles and all-terrain vehicles (ATVs) totaled 11,44510,343 thousand units, increased by 18.7%8.8% from the previous fiscal year, due mainly to an increase in consolidated unit sales in Asia and Other Regions, including South America.Asia.
Revenue from external customers increased ¥147.9by ¥324.0 billion, or 13.0%24.2%, to ¥1,288.1¥1,663.6 billion from the previous fiscal year, due mainly to increased consolidated unit sales and revenue related to licensing agreements.positive foreign currency translation effects. The impact of price changes was immaterial. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately ¥171.3¥124.9 billion, or 15.0%9.3%, compared to the increase as reported of ¥147.9¥324.0 billion, which includes negativepositive foreign currency translation effects.
Operating costs and expenses increased ¥68.1by ¥268.7 billion, or 6.3%21.9%, to ¥1,149.6¥1,498.0 billion from the previous fiscal year. Cost of sales increased by ¥61.2¥218.5 billion, or 7.4%22.7%, to ¥887.9¥1,181.5 billion, due mainly to an increase in costs attributable to increased netconsolidated unit sales which was partially offset by the positiveand negative foreign currency effects. Selling, general and administrative expenses increased by ¥3.8¥43.5 billion, or 2.0%21.8%, to ¥193.8 billion.¥243.3 billion, due mainly to an increase in selling expenses attributable to increased consolidated unit sales and negative foreign currency effects. R&D expenses increased by ¥3.0¥6.6 billion, or 4.7%10.0%, to ¥67.8¥73.0 billion.
Operating income increased ¥79.7by ¥55.3 billion, or 135.6%50.2%, to ¥138.5¥165.6 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and income related to licensing agreements.positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses and increased R&D expenses.
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Japan
Total industry demand for motorcycles in Japan in fiscal 2011 was approximately 420 thousand units*, was approximately 3% higher than470 thousand units in fiscal year 2014, an increase of roughly 7% from the previous fiscal year. Although the percentageThis was attributable to an increase in sales of younger peoplescooters and small to lightweight motorcycles, with engines ranging from 50cc to 250cc, due mainly to a spike in the total population continued to decline and there were changesdemand ahead of an increase in consumer preferences,Japan’s consumption tax rate.
Honda’s consolidated unit sales grew primarily due to the introduction of new models.
Total unit sales on a consolidated basisin Japan were 190226 thousand units and about the same level as in fiscal year 2014, up 4.1% from the previous fiscal year, owing to the launch of models such as sales of the scootersPCXDUNK 50cc scooter and theGiornoGROM expanded.
In addition, the brand-new electric-poweredEV-neo, a commercial use scooter that emits zero CO2 emissions in use, was made available on lease.sporty motorcycle.
* | Source: JAMA (Japan Automobile Manufacturers |
North America
Total demand for motorcycles and all-terrain vehicles (ATVs) in the United States during calendar 2010 declined*, the principal market within North America, increased approximately 17%1% from the previous year to about 700approximately 690 thousand* units. Although there were signs of recovery, mainly units in calendar year 2013. Unit sales of utility ATVs, this did not lead to a full-scale recoverygrowth reflected an improvement in demand.consumer sentiment in line with falling unemployment rates.
Under these circumstances, Honda’s consolidated unit sales in North America declined 2.1%, to 185 thousand units. Unit sales of touring models, such asGoldwing, as well as cruiser models includingShadow, were favorable, however, unit sales of sports models such asCBR1000R andCRF230M motocross models decreased. As a result, unit sales of motorcycles were down 8.2%increased 10.4% from the previous fiscal year to approximately 90276 thousand units. However, unitunits in fiscal year 2014, mainly due to steady sales of ATVs rose 4.4%, to approximately 95 thousand units, becausemodels such as theCB500 series of strong demand formiddleweight road machines and theCRF250L on/off-road model, as well as favorable effects from the introductions of the all new sporty model, GROM and full model changes of utility ATVs including thesuch asFour Trax RancherTRX420 and other models.TRX500 in the United States.
* | Source: MIC (Motorcycle Industry Council) |
Europe
Total demand for motorcycles in Europe* during calendar 2010 declined about 13%,around 11% from the previous fiscal year, to approximately 920690 thousand units. This major dropunits in demand wascalendar year 2013. Weak consumer sentiment due to a number of factors, including a reactionary decline following the end of subsidies for motorcycle purchases in Italy and the impact of an increase in the value-added tax (VAT) in Spain.continually high unemployment rates adversely affected demand.
Under these circumstances, Honda’s consolidated unit sales in Europe increased 1.5% compared withdecreased 7.3% from the previous fiscal year to 202166 thousand units. Despiteunits in fiscal year 2014, mainly reflecting the effects oflackluster market as a decline in the market for 125cc scooters, units sales ofPCXmotorcycles were favorable andwhole. This was despite brisk sales of the naked typeCBF1000,CB500 series of middleweight road machines, and a positive impact from the newintroduction of the sportyVFR1200FMSX125 sports tourer, and other models rose.model.
* | Based on Honda |
Asia
Demand for motorcycles continued to expand in Asia, despite price increases, including the price of gasoline, tighter credit, and other factors in certain countries. In calendar 2010, totalTotal demand for motorcycles*1 rose about 10%, to approximately 43.8 million units.
Unit sales in India rose about 29%, to approximately 11.3 million units, while sales in Indonesia increased about 26%, to approximately 7.36 million units, and sales in Thailand expanded approximately 12%, to approximately 1.85 million units.
Honda’s unit sales on a consolidated basis in Asia*2 fordeclined around 1% from the previous year to approximately 40,980 thousand units in calendar year 2013.
Looking at market conditions by country, demand in India increased roughly 3% from the previous fiscal year increased 20.3%, to 9,178approximately 14,300 thousand units, while demand in China decreased around 9% from the previous year to approximately 11,510 thousand units. Indonesia saw demand increase around 8% from the previous year to approximately 7,740 thousand units, and Vietnam saw demand decline roughly 13% to approximately 2,700 thousand units. Demand in Thailand declined around 9% to approximately 1,930 thousand units.
Despite these circumstances, Honda’s consolidated unit sales in Asia increased 11.4% from the previous fiscal year to 7,858 thousand units in fiscal year 2014. This increase was due mainly to an expansion inbrisk sales of theCB Twister motorcycle and theActivaACTIVA scooter in India, unit sales of a newandWave 110iDREAM Yuga Cub-style 110ccsmall motorcycle, andScoopyi scooter in Thailand, as well as other factors.the introduction of theDREAM Neo small motorcycle, in India.
With respect to production activities, Honda Motorcycle & Scooter India Private Limited, Honda’s consolidated subsidiary in India, announced it would further expand the production capacity of a second plant that is already under construction, and also build a third plant, to meet the rapidly expanding demand in the Indian market. Combined with expansion in capacity at the existing plant, when the second plant goes into
operation in the first half of calendar 2012, Honda Motorcycle and Scooter India is scheduled to have annual production capacity of approximately 2.8 million units. Additionally, when the third plant goes into operation in the first half of calendar 2013, Honda Motorcycle and Scooter India is scheduled to have annual production capacity of approximately 4.0 million units.
Also, Honda Vietnam Co., Ltd., Honda’s consolidated subsidiary in Vietnam, announced it would expand the capacity of its second plant to meet the favorable increase in demand. By the latter half of calendar 2011, this expansion in facilities is scheduled to bring total annual capacity to approximately 2.0 million units.
In Indonesia,unit sales do not include sales by P.T. Astra Honda Motor in Indonesia, which is an affiliate accounted for under the equity method, made the decision to build a new plant to respond to continued robust growth in demand. When this new facility goes into operation in the latter half of calendar 2011, the annual production capacity ofmethod. P.T. Astra Honda Motor is scheduled to increaseMotor’s unit sales for fiscal year 2014 increased around 15% from the previous fiscal year to approximately 4.0 million4,700 thousand units.
Honda resolved at a meeting of the Board of Directors on December 16, 2010 This was due mainly to sell to its joint venture partners all the shares held by Hondaconsumer sentiment improving in Hero Honda Motors Limited, an affiliate of Honda accounted for under the equity method, for the dissolution of the joint venture. Accordingly, Honda executed the share transfer agreement and new license agreements on January 22, 2011. In accordanceline with the terms of the share transfer agreement, Honda sold all the shares it heldincomes rising in the joint venture partners as of March 22, 2011.Indonesia.
* | Based on Honda |
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Other Regions
InTotal demand for motorcycles in Brazil*, the principal market within Other Regions, total demanddeclined roughly 7% from the previous year to approximately 1,510 thousand units in calendar 2010 increased approximately 12%, to about 1.8 million* units. This wasyear 2013, mainly due to improved consumer confidence accompanying an increase in the employment rate and personal income as well as easier availability of credit starting from mid-year onward.stricter lending standards for retail loans.
In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), Honda’s consolidated unit sales rose 17.9% overincreased 0.2% from the previous fiscal year to 1.69 million units. This was the result of1,817 thousand units in fiscal year 2014, mainly due to increased sales in South American countries other than Brazil. This, however, was partly offset by a decline in sales of mainstay models, includingsmall motorcycles such as theCG150FANCG125 Fan andNXR150CG150 Fan motorcycles, due mainly to the negative effects from stricter lending standards for retail loans in Brazil.
* | Source: ABRACICLO (the Brazilian |
Automobile Business
Honda’s consolidated unit sales of automobiles totaled 3,5123,560 thousand units, increased by 3.5%4.5% from the previous fiscal year, due mainly to an increase in unit sales in North America and Asia, which was partially offset by a decrease inconsolidated unit sales in Japan and Europe.North America.
Revenue from external customers increased ¥239.2by ¥1,467.1 billion, or 3.6%19.0%, to ¥6,794.0¥9,176.3 billion from the previous fiscal year, due mainly to increased consolidated unit sales which was partially offset by the negativeand positive foreign currency translation effects. The impact of price changes was immaterial. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increased by approximately ¥545.7¥304.4 billion, or 8.3%3.9%, compared to the increase as reported of ¥239.2¥1,467.1 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales increased ¥247.4by ¥1,471.3 billion, or 3.8%19.0%, to ¥6,802.3¥9,194.9 billion from the previous fiscal year.
Operating costs and expenses increased ¥109.6by ¥1,353.6 billion, or 1.7%18.2%, to ¥6,537.7¥8,791.2 billion from the previous fiscal year. Cost of sales increased by ¥39.2¥1,086.8 billion, or 0.8%18.5%, to ¥5,105.7¥6,955.1 billion, due mainly to an increase in costs
attributable to increased netconsolidated unit sales and the effect of raw material fluctuations, which was partially offset by continuing cost reduction and the positivenegative foreign currency effects. Selling, general and administrative expenses increased by ¥49.9¥199.3 billion, or 5.0%18.0%, to ¥1,042.1 billion.¥1,304.6 billion, due mainly to increased product warranty expenses, an increase in selling expenses attributable to increased consolidated unit sales and negative foreign currency effects. R&D expenses increased by ¥20.4¥67.3 billion, or 5.5%14.5%, to ¥389.8¥531.4 billion, due mainly to improving safety and environmental technologies and enhancing of the attractiveness of the products.
Operating income increased ¥137.7by ¥117.7 billion, or 108.7%41.2%, to ¥264.5¥403.7 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and continuing cost reduction and positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses and increased R&D expenses, negative foreign currency effectsexpenses.
Proportion of retail unit sales by vehicle category:
Fiscal year ended March 31, | ||||||||
2013 | 2014 | |||||||
Passenger cars: | 60 | % | 58 | % | ||||
Accord, Accord Hybrid, Accord Plug-in Hybrid, Accord Tourer, Amaze, Brio, Brio Amaze, Brio Satya, City, Civic, Civic Tourer, CRIDER, CR-Z, Fit/Jazz, Fit/Jazz Hybrid, Fit Shuttle, Fit Shuttle Hybrid, FREED, FREED Hybrid, FREED SPIKE, FREED SPIKE Hybrid, Honda MOBILIO, Insight, JADE, Spirior, Stream, Acura ILX, Acura RLX, Acura TL, Acura TSX | ||||||||
Light trucks: | 31 | % | 32 | % | ||||
Crosstour, CR-V, Elysion, Odyssey, Pilot, Ridgeline, Step WGN, VEZEL, VEZEL Hybrid, Acura MDX, Acura RDX | ||||||||
Mini vehicles: | 9 | % | 10 | % | ||||
Acty, Life, N-Box, N-Box +, N-ONE, N-WGN, Vamos |
Although there are various factors that affect the profitability of each vehicle category, sales price is an important factor in determining profitability. In general, the weighted average sales price in the light trucks category is higher relative to the total average sales price, while the weighted average sales price in the mini vehicles category, which is unique to the Japanese market, is relatively lower, although sales price vary from model to model.
In general, the contribution margin of the light trucks category tends to be higher relative to the total weighted average contribution margin because the sales price is higher, while the contribution margin of the mini vehicles category tends to be relatively lower because the sales price is lower, although the level of contribution margin varies from model to model. For example, in Japan and the impactUnited States, which are the main sales markets for our automobiles, the contribution margin of our light trucks category was approximately 40% higher, our passenger cars category was approximately 10% lower and our mini vehicles category was approximately 40% lower than total weighted average contribution margin for the Earthquake.fiscal year ended March 31, 2014. It should be noted that we define contribution margin as an amount per unit of net sales minus material cost, which is thought to increase in almost direct proportion to net sales volume.
Japan
Total industry automobile salesdemand for automobiles in Japan*1 for the fiscal year 2011 decreased about 6%, to approximately 4.6 million units. In the first half of the fiscal year, automobile sales held firm because of the positive effects of government policies that provided tax breaks and subsidies for purchasing eco-cars and other factors. However, these subsidies terminated in the latter half of the fiscal year, resulting in a reactionary decline in sales.
Honda’s unit sales in Japan decreased 9.9%rose around 9% from the previous fiscal year to 582approximately 5,690 thousand units. Althoughunits in fiscal year 2014. This was mainly due to sales receiving a boost in the second half of the new model theFreed Spike, theCR-Z, theStepWGN, which earned the top spotfiscal year from a last-minute rise in accumulated sales through 2010demand before an increase in the minivan category, and theFit HybridJapan’s consumption tax rate. Gains were quite favorable, overall sales experiencedoffset in part by a reactionary decline after the termination of subsidies for eco-cars.
Among production activities, unit output for the domestic market decreased followingbacklash from the termination of eco-car subsidies, but exports increased, with particularly strongsubsidies.
Honda’s consolidated unit sales ofCR-V models in North America. DuringJapan rose 18.5% from the previous fiscal year under review,to 812 thousand units*2. This result was attributable to the introduction of theN-WGN andVEZEL and full model changes of theFit andOdyssey.
In production activities, Honda’s domestic unit production of automobiles was approximately 912 thousand units, about the same level as inincreased 6.9% from the previous fiscal year.year to 936 thousand units in fiscal year 2014, mainly due to higher sales in Japan, despite the shift of some production overseas.
Please note that Honda suspended production followingThe Saitama Factory’s Yorii automobile plant, which had been under construction in Yorii-machi, Osato-gun, Saitama, began operation in July 2013. The manufacturing capacity of the Earthquake,Yorii Plant, which mainly produces theFit and as a result, unit output was about 39VEZEL, is 250 thousand units lower than the original plan.per year.
*1: | Source: JAMA (Japan Automobile Manufacturers Association): (as measured by the number of regular vehicle registrations (661cc or higher) and |
*2: | Certain sales of automobiles that are financed with residual |
North America
In calendar 2010, totalTotal industry salesdemand for automobiles in the United States* increased about 11% over, the principal market within North America, rose around 8% from the previous year to approximately 11.77 million units. Sales of15,600 thousand units in calendar year 2013. This was mainly attributable to improvements in employment conditions and upswings in consumer sentiment that led to a substantial increase in light trucks were especially strongtruck sales and rose approximately 18% over the levelalso a rise in 2009.small passenger car sales.
Under these circumstances, Honda’s consolidated automobile unit sales in North America rose 12.4%,increased 1.5% from the previous fiscal year to 1,4581,757 thousand units. Sales of theCR-V,Pilot,MDX, the all-newOdyssey thatunits in fiscal year 2014. This was launched in September 2010, and light trucks were favorable. In addition,mainly due to strong sales of theAccord Crosstour,Civic,CR-V and the launching of newother models, as well as a full model change of theTSXACURA MDXSports Wagon andTL contributed to growth..
In production activities, Honda manufactured approximately 1,2921,777 thousand units, up 5.3% from the previous fiscal year.
Honda de Mexico, S.A. de C.V., a consolidated subsidiary in Mexico, built a new plant with an annual production capacity of 200 thousand units in order to meet expected market expansion for small cars in North America, 12.1% higher thanAmerica. This new plant went into operation in the previous fiscal year. This increase was led by higher production of the popularCR-V andPilot, models and the all-newOdyssey.February 2014.
* | Source: |
Europe
During calendar 2010, totalTotal demand for automobiles in Europe*1 decreased roughly 2% from the previous year to approximately 12,300 thousand units in calendar year 2013. The market diminished as a whole due mainly to unemployment rates remaining high and the weakness of the real economy in the eurozone, excluding the U.K. The market’s decline was offset in part by an economic recovery in the U.K., resulting in a pocket of growth in demand for automobiles. On the other hand, total demand for automobiles in Russia*2 decreased around 5% from the previous year to approximately 13.79 million units. During the first half of the year, the market was supported by government subsidies in some countries, but in the second half consumer confidence declined significantly due to the impact of stringent credit policies in the principal countries of the region, and a marked decline was reported, especially in markets targeting individual retail customers. On the other hand, in Russia*2, sales increased about 30%, to approximately 1.91 million2,770 thousand units.
Honda’s consolidated unit sales in Europe decreased 20.5%,1.2% from the previous year to 198169 thousand units in fiscal year 2014. This was mainly due to the effectsa decline in unit sales of the slump inCivic which offset sales generated by the retail sales market, increased competition and other factors.launch of a new diesel engine equipped CR-V.
InOn the area of production front, unit output at Honda’s U.K. plant rose 40.0% overdeclined 21.6% from the priorprevious fiscal year to approximately 139133 thousand units in part because of temporarily suspended production in the prior year.fiscal year 2014.
*1: | Source: ACEA (Association des Constructeurs Europeens d’Automobiles (the European Automobile Manufacturers’ Association) |
*2: | Source: AEB (The Association of European Businesses) |
Asia
InTotal demand for automobiles in Asia total demand continued to increase due to robust economic growth and the positive effects of new car model launches. Unit sales in China rose about 32% overdecreased around 2% from the previous year to approximately 18.06 million units.8,730 thousand units*1 In Asia, excludingin the 2013 calendar year. This was mainly due to the market shrinking as a consequence of a slowdown in the economy in India and the backlash from a termination of government subsidies in Thailand. Total demand for automobiles in China units sales climbed 27%,increased roughly 14% from the previous year to about 7.48 million units.approximately 21,980 thousand units*2.
Honda’s consolidated unit sales in Asia outside Japan rose 6.1%,increased 1.1% from the previous fiscal year to 1,008529 thousand units supported by solid economic expansion in the region. Salesfiscal year 2014. This increase was mainly attributable to strong sales of theCR-VAmaze in Thailand, Indonesia, Malaysia and elsewhere in Asia, as well as salesintroduction of theCity in Thailand, continued to be favorable. Together with sales growthIndia, and a boost from the introduction of theHonda MOBILIO in China, Honda’s overall sales in Asia expanded.Indonesia.
In the production area, in response to continued expansion in demand in China’s automobile market,Honda’s consolidated unit sales do not include unit sales of Dongfeng Honda Automobile Co., Ltd. and Guangqi Honda Automobile Co., Ltd., an affiliateboth of which are affiliates accounted for under the equity method is scheduled to increase its annual production capacityin China. That said, unit sales in China increased 26.3% from the current 360 thousandprevious fiscal year to 480757 thousand units in fiscal year 2014. The increase was mainly attributable to a full model change of theAccordand introduction of theCrider andJade models.
Honda’s unit production by consolidated subsidiaries in Asia increased 2.0% from the latter half of calendar 2011. In addition,previous fiscal year to 591 thousand units*3 in fiscal year 2014.
Meanwhile, unit production by Chinese equity-method affiliates Dongfeng Honda Automobile Co., Ltd. and Guangqi Honda Automobile Co., an affiliate accounted for underLtd. increased 29.8% from the equity method, started construction ofprevious fiscal year to 764 thousand units in fiscal year 2014.
Honda Malaysia SDN BHD, a consolidated subsidiary in Malaysia, built a second production line with an annual capacity of 50 thousand units. This line went in to operation in October 2013.
In addition, P.T. Honda Prospect Motor, a consolidated subsidiary in Indonesia, constructed a new automobile plant in response to continued expansion in demand in China’s automobile market. Within the latter half of calendar 2012, that company’s totalwith an annual production capacity is scheduled to increase to 340of 120 thousand units.units that went into operation in January 2014.
Moreover, Honda Cars India Ltd., a consolidated subsidiary in India, constructed a new automobile plant with an annual production capacity of 120 thousand units that went into operation in February 2014.
*1 |
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The total is based on Honda research and includes the following 10 countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Singapore, Taiwan, South Korea, India and Pakistan. |
*2: | Source: China Association of Automobile Manufacturers |
*3: | The total includes the following nine countries: China, Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Taiwan, India and Pakistan. |
Other Regions
Total industry demand for automobiles in Brazil*, one of the principal markets among the Other Regions, increased about 11%,decreased around 1% to approximately 3.33 million*13,570 thousand units in calendar 2010.year 2013.
In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), Honda’s consolidated unit sales decreased 1.7% from the previous fiscal year to 293 thousand units in fiscal year 2014. This was the result of rising consumer confidencewas due to a surgedecrease in employment and income as well as an improvementsales mainly in the purchasing environment for new automobiles due to lower interest rates and easier availability of credit in Brazil.
In Australia, total demand for automobiles expanded about 11% over the previous year, to approximately 1.04 million units, supportedwhich were partly offset by continued favorable economic conditions.*2
Honda’s total sales in Other regions expanded 6.4%, to 266 thousand units, due primarily to increased sales of theCityCivic and other models mainly in Brazil.
On the production front, Honda’s unit production in Brazil despite intensified competitionincreased 0.3% from the previous fiscal year to 136 thousand units in Australia and decreased sales in the Middle East.fiscal year 2014.
* | Source: ANFAVEA (Associaç |
|
Power Product and Other Businesses
Honda’s consolidated unit sales of power products totaled 5,5096,036 thousand units, increaseddecreased by 16.1%0.6% from the previous fiscal year, due mainly to increaseda decrease in consolidated unit sales in all the regions.Asia and Other Regions, which was partially offset by an increase in unit sales in North America.
Revenue from external customers increased ¥14.9by ¥23.5 billion, or 5.4%8.4%, to ¥292.6¥304.2 billion from the previous fiscal year, due mainly to the increased unit sales of power products, which was partially offset by negativepositive foreign currency translation effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have increaseddecreased by approximately ¥27.5¥10.4 billion, or 9.9%3.7%, compared to the increase as reported of ¥14.9¥23.5 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales increased ¥13.6by ¥26.5 billion, or 4.5%9.1%, to ¥318.2¥318.1 billion from the previous fiscal year.
Operating costs and expenses increased ¥2.4by ¥18.7 billion, or 0.8%6.2%, to ¥323.8¥319.9 billion from the previous fiscal year. Cost of sales decreasedincreased by ¥0.7¥12.2 billion, or 0.3%5.7%, to ¥238.6¥227.1 billion, due mainly to continuing cost reduction, which was partially offset by an increase in costs attributable to increased net sales.negative foreign currency effects. Selling, general and administrative expenses increased by ¥2.4¥6.5 billion, or 4.6%11.6%, to ¥55.2¥63.1 billion. R&D expenses increaseddecreased by ¥0.7¥0.1 billion, or 2.5%0.4%, to ¥29.9¥29.6 billion.
Operating loss including that of other business was ¥5.5¥1.7 billion, an improvement of ¥11.1¥7.7 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales of power products, which was partially offset by increased selling, general and administrative expenses and negativepositive foreign currency effects.
Japan
InHonda’s consolidated unit sales of power product and other businesses in Japan remained about the power products field, duringsame as the previous fiscal year under review, Honda’s sales increased 20.5%, to 388at 314 thousand units.units in fiscal year 2014. This was mainly due to a decline in sales of portable power generators which offset an increase in sales of OEM*general-purpose engines for OEM use to manufacturers of construction machinery in the United States and in the Middle East and Africa as well as an increase in Japan in sales of electric power generators, tillers, snow blowers and other types of machinery. In May 2010, Honda newly launched theENEPO EU9iGB, a gas-powered electric power generation unit that runs on household butane gas canisters.throwers.
* | OEM (Original Equipment Manufacturer): refers to the manufacturers of products and components sold under a third-party brand. |
North America
Honda’s consolidated unit sales in North America increased 14.7%,4.4% from the previous fiscal year to 2,0852,718 thousand units.units in fiscal year 2014. This was mainly attributable to an increase was due to higherin sales of general-purposeOEM engines for OEM use to manufacturers of lawn mowers, construction machinery, pressure washers and other machinery as well as increasedwhich offset a decline in sales of generators accompanying the recovery in the economies of the region.portable power generators.
Europe
In Europe,Honda’s consolidated unit sales in Europe increased 10.1% over2.8% from the previous fiscal year to 1,1741,032 thousand units because of strong demand for general-purpose engines for OEM use in construction machinery, and generators as well asfiscal year 2014. This was mainly due to an increase in sales of OEM engines which offset a decline in sales of lawn mowers and snow blowers, despite intensified competition in the lawn mower market.
Asia
In Asia outside of Japan,Honda’s consolidated unit sales increased 23.9%,in Asia decreased 4.6% from the previous fiscal year to 1,3251,500 thousand units.units in fiscal year 2014. This increase was duemainly attributable to favorablea decline in sales of OEM engines for agricultural equipmentin Thailand and portable power generators in India which offset an increase in sales of OEM engines and pumps generators and brush cutters supported by economic expansion in the region, and continuation of government subsidies for farm households. Weather conditions also contributed to increased sales.China.
Other Regions
UnitHonda’s consolidated unit sales in Other Regions increased 14.5% over(including South America, the Middle East, Africa, Oceania and other areas) decreased 18.2% from the previous fiscal year to 537472 thousand units. Factors accounting for this increase were favorableunits in fiscal year 2014. This was mainly due to a decrease in sales of general-purposepumps and OEM engines for OEM use for installation in construction machinery and pumps to the Middle East and South America, due mainly to economic recovery.East.
Financial Services Business
To support the sale of its products, Honda provides retail lending and leasing to customers and wholesale financing to dealers through our finance subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil, Thailand and other countries.
Total amount of finance subsidiaries-receivables and property on operating leases of finance subsidiaries increased by ¥67.9¥1,144.2 billion, or 1.4%19.5%, to ¥4,837.6¥7,018.4 billion from the previous fiscal year, due mainly to an increase of finance subsidiaries-receivables attributable to the adoption of new accounting standards, which was partially offset by negative foreign currency translation effects.year. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, total amount of finance subsidiaries-receivables and property on operating leases of finance subsidiaries as of the end of the year would have increased by approximately ¥595.9¥641.4 billion, or 12.5%10.9%, compared to the increase as reported of ¥67.9¥1,144.2 billion, which includes negativepositive foreign currency translation effects.
Revenue from external customers in a financialFinancial services business decreased ¥44.4increased by ¥149.6 billion, or 7.3%27.3%, to ¥561.8¥698.1 billion from the previous fiscal year.year, due mainly to an increase in operating lease revenues and positive foreign currency translation effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, revenue for the year would have decreasedincreased by approximately ¥1.2¥39.4 billion, or 0.2%7.2%, compared to the decreaseincrease as reported of ¥44.4¥149.6 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales decreased ¥45.3increased by ¥148.3 billion, or 7.3%26.5%, to ¥573.4¥708.5 billion from the previous fiscal year.
Operating costs and expenses decreased ¥36.7increased by ¥123.7 billion, or 8.7%30.8%, to ¥387.1¥525.8 billion from the previous fiscal year. Cost of sales decreased ¥11.6increased by ¥103.9 billion, or 3.6%30.9%, to ¥309.8¥440.1 billion from the previous fiscal year, due mainly to a decreasean increase in costs relatedattributable to increased operating lease residual values.revenues and negative foreign currency effects. Selling, general and administrative expenses decreased ¥25.0increased by ¥19.7 billion, or 24.5%30.0%, to ¥77.3¥85.6 billion from the previous fiscal year.
Operating income increased by ¥24.5 billion, or 15.6%, to ¥182.7 billion from the previous fiscal year, due mainly to a decrease in provisions for credit losses.
Operating income decreased ¥8.6 billion, or 4.4%, to ¥186.2 billion from the previous fiscal year, due mainly to negativepositive foreign currency effects, which was partially offset by a decrease in provisions for credit lossesincreased selling, general and losses on lease residual values.
Our finance subsidiaries in North America have historically accounted for all leases as direct financing leases. However, starting in the fiscal year ended March 31, 2007, some of the leases which do not qualify for direct financing leases accounting treatment are accounted for as operating leases. Generally, direct financing lease revenues and interest income consist of the recognition of finance lease revenue at inception of the lease arrangement and subsequent recognition of the interest income component of total lease payments using the effective interest method. In comparison, operating lease revenues include the recognition of the gross lease
payment amounts on a straight line basis over the term of the lease arrangement, and operating lease vehicles are depreciated to their estimated residual value on a straight line basis over the term of the lease. It is not anticipated that the differences in accounting for operating leases and direct financing leases will have a material net impact on Honda’s results of operations overall, however, operating lease revenues and associated depreciation of leased assets do result in differing presentation and timing compared to those of direct financing leases.
Honda consolidated former qualifying special purpose entities (QSPEs) that were not consolidated as of March 31, 2010. As a result, previously derecognized finance subsidiaries receivables held by former QSPEs increased in the Company’s consolidated balance sheet as of April 1, 2010. In addition, Honda doesn’t recognize certain gains or losses related to securitization transactions such as gains or losses attributable to the change in the fair value of retained interests since the year ended March 31, 2011.
Information about credit losses and losses on lease residual values is provided at Item 5. Operating and Financial Review and Prospects A. “Operating Results, Application of Critical Accounting Policies”. Information about consolidation of former QSPEs, finance subsidiaries-receivables and securitizations is described in notes 1(c), (3) and (4) to the accompanying consolidated financial statements.administrative expenses.
Geographical Information
Japan
In Japan, revenue from domestic and export sales increased ¥305.4by ¥298.7 billion, or 9.2%7.7%, to ¥3,611.2¥4,192.2 billion from the previous fiscal year, due mainly to an increase in revenue in automobileAutomobile business and revenue related to licensing agreements.Motorcycle business. Operating income was ¥66.1increased by ¥35.6 billion, an increase of ¥95.2or 20.0%, to ¥214.0 billion of operating income from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and model mix, continuing cost reductions and income related to licensing agreements,positive foreign currency effects, which was partially offset by increased R&D expenses and increased selling, general and administrative expenses and R&D expenses, negative foreign currency effects and the impact of the Earthquake.expenses.
North America
In North America, which mainly consists of the United States, revenue increased ¥239.6by ¥1,112.8 billion, or 6.1%22.9%, to ¥4,147.8¥5,969.9 billion from the previous fiscal year, due mainly to an increase in revenue in automobileAutomobile business which was partially offset by negativeand positive foreign currency translation effects. Operating income increased ¥64.5by ¥81.9 billion, or 27.3%39.2%, to ¥300.9¥290.9 billion from the previous fiscal year, due mainly to continuing cost reduction and positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses.
Europe
In Europe, revenue increased by ¥133.1 billion, or 20.7%, to ¥775.2 billion from the previous fiscal year, due mainly to positive foreign currency translation effects, which was partially offset by a decrease in revenue in Motorcycle business and Automobile business. Operating loss was ¥17.1 billion, a decrease of ¥17.5 billion of operating income from the previous fiscal year, due mainly to a decrease in income attributable to decreased net sales and model mix, which was partially offset by decreased selling, general and administrative expenses and positive foreign currency effects.
Asia
In Asia, revenue increased by ¥521.2 billion, or 22.6%, to ¥2,826.9 billion from the previous fiscal year, due mainly to an increase in revenue in Motorcycle business and positive foreign currency translation effects. Operating income increased by ¥71.1 billion, or 48.5%, to ¥217.9 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and model mix and a decrease in fixed costs per unit as a result of increased production,positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses and negative foreign currency effects.expenses.
EuropeOther Regions
In Europe,Other Regions, revenue decreased ¥126.1increased by ¥129.0 billion, or 15.3%14.4%, to ¥699.2 billion from the previous fiscal year, due mainly to a decrease in revenue in the automobile business and negative foreign currency translation effects. Operating loss was ¥10.2 billion, an improvement of ¥0.6 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses, which was partially offset by a decrease in income attributable to decreased net sales and model mix, negative foreign currency effects.
Asia
In Asia, revenue increased ¥322.5 billion, or 21.2%, to ¥1,841.1¥1,025.5 billion from the previous fiscal year, due mainly to an increase in revenue in automobileMotorcycle business and motorcycle businesses, which was partially offset by negativepositive foreign currency translation effects. Operating income increased ¥37.6by ¥9.2 billion, or 33.3%25.8%, to ¥150.6¥44.9 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and model mix, which was partially offset by increased selling, general and administrative expenses and negative foreign currency effects.
Other Regions
In Other Regions, revenue increased ¥85.5 billion, or 9.5%, to ¥982.0 billion from the previous fiscal year, due mainly to an increase in revenue in motorcycle and automobile businesses and positive foreign currency translation effects. Operating income increased ¥23.7 billion, or 51.8%, to ¥69.5 billion from the previous fiscal year, due mainly to an increase in income attributable to increased net sales and model mix, positive foreign currency effects, which was partially offset by increased selling, general and administrative expenses.
Fiscal Year 20102013 Compared with Fiscal Year 20092012
Net Sales and Other Operating Revenue
Honda’s consolidated net sales and other operating revenue (hereafter, “net sales”) for the fiscal year ended March 31, 2010, decreased ¥1,432.02013, increased by ¥1,929.8 billion, or 14.3%24.3%, to ¥8,579.1¥9,877.9 billion from the fiscal year ended March 31, 2009,2012, due mainly to negativeincreased net sales in Automobile business by recovery from the impact of the Great East Japan Earthquake and the floods in Thailand and positive foreign currency translation effects and decreased net sales in automobile business.effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have decreasedincreased by approximately ¥746.7¥1,773.9 billion, or 7.5%22.3%, compared to the decreaseincrease as reported of ¥1,432.0¥1,929.8 billion, which includes negativepositive foreign currency translation effects.
Net sales in Japan increased ¥130.7 billion, or 9.0%, to ¥1,577.3 billion from the previous fiscal year and overseas net sales decreased ¥1,562.8 billion, or 18.2%, to ¥7,001.8 billion from the previous fiscal year.
Operating Costs and Expenses
Operating costs and expenses decreased ¥1,606.1increased by ¥1,616.4 billion, or 16.4%20.9%, to ¥8,215.3¥9,333.1 billion from the previous fiscal year. Cost of sales decreased ¥1,004.8increased by ¥1,425.5 billion, or 13.5%24.1%, to ¥6,414.7¥7,345.1 billion from the previous fiscal year, due mainly to a decreasean increase in costs attributable to the decreased netincreased consolidated unit sales positivein Automobile business and negative foreign currency effects and continuing cost reduction.effects. Selling, general and administrative expenses decreased ¥501.4increased by ¥150.4 billion, or 27.3%11.8%, to ¥1,337.3¥1,427.7 billion from the previous fiscal year, due mainly to positive foreign currency effects, a decreasean increase in provisions for credit losses and losses on lease residual valuesselling expenses attributable to increased consolidated unit sales in financial servicesAutomobile business and the impact of expenses in the previous year which related to withdrawal from some racing activities and cancellations of development new models.increased product warranty expenses. R&D expenses decreasedincreased by ¥99.8¥40.4 billion, or 17.7%7.8%, to ¥463.3¥560.2 billion from the previous fiscal year, due mainly to improving development efficiency, while improving safety and environmental technologies and enhancing of the attractiveness of the products.
Operating Income
Operating income increased ¥174.1by ¥313.4 billion, or 91.8%135.5%, to ¥363.7¥544.8 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses and R&D expensesan increase in income attributable to increased net sales and continuing cost reduction, which was partially offset by a decrease in income attributable to the decreased net sales, negative foreign currency effectsincreased selling, general and an increase in fixed costs per unit as a result of reduced production.administrative expenses and increased R&D expenses. Excluding negativepositive foreign currency effects of ¥167.5¥35.8 billion, Honda estimates operating income increased ¥341.7by ¥277.6 billion.
With respect to the discussion above of the changes, management identified the factors and used what it believes to be a reasonable method to analyze the respective changes in such factors. Management analyzed changes in these factors at the levels of the Company and its material consolidated subsidiaries. “Foreign currency effects” consist of “translation adjustments”, which come from the translation of the currency of foreign subsidiaries’ financial statements into Japanese yen, and “foreign currency adjustments”, which result from foreign-currency-denominated sales. With respect to “foreign currency adjustments”, management analyzed foreign currency adjustments primarily related to the following currencies: U.S. dollar, Canadian dollar, Euro, British pound, Brazilian real and Japanese yen and others at the level of the Company and its material consolidated subsidiaries.
Income before Income Taxes and Equity in Income of Affiliates
Income before income taxes and equity in income of affiliates increased ¥174.4by ¥231.4 billion, or 107.9%89.9%, to ¥336.1¥488.8 billion. MainThe main factors ofbehind this increase, except factors relating operating income, are as follows;follows:
Unrealized gains and losses related to derivative instruments had a positivenegative impact of ¥22.2¥36.8 billion. Other income (expenses) excluding unrealized gains and losses related to derivative instruments had a negative impact of ¥21.9¥45.0 billion, due mainly to a decreasean increase in foreign currency transaction gains, which was partially offset by a decrease of impairment losses on investment securities.losses.
Income Tax Expense
Income tax expense increased ¥37.0by ¥43.2 billion, or 33.7%31.9%, to ¥146.8¥178.9 billion from the previous fiscal year. The effective tax rate decreased 24.216.1 percentage points to 43.7%36.6% from the previous fiscal year. The decrease in the effective tax rate was due mainly to (1) a decrease in adjustments for the change in income tax expenses of ¥21.2 billion related to the dividendlaws in Japan and royalty income from foreign subsidiaries and affiliates, net of foreign tax credit, because the Company did not utilize indirect foreign tax credit in the prior fiscal year due to lower taxable income and (2) a decrease in theimpact on recognition of valuation allowance of ¥7.0 billion recorded during the fiscal year ended March 31, 2010.allowance.
Equity in Income of Affiliates
Equity in income of affiliates decreased ¥5.7by ¥17.6 billion, or 5.8%17.6%, to ¥93.2¥82.7 billion, due mainly to an increasea recognition of impairment loss on certain investments in expensesaffiliates and tax expensea decrease in income attributable to decreased net sales at affiliates in certain countries in Asia, which was partially offset by a decrease in expenses at certain affiliates in Japan.Asia.
Net Income
Net income increased ¥131.6by ¥170.5 billion, or 87.2%76.8%, to ¥282.6¥392.6 billion from the previous fiscal year.
Net Income attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests increased ¥0.2by ¥14.8 billion, or 2.0%140.6%, to ¥14.2¥25.4 billion from the previous fiscal year.
Net Income attributable to Honda Motor Co., Ltd.
Net income attributable to Honda Motor Co., Ltd. increased ¥131.3by ¥155.6 billion, or 95.9%73.6%, to ¥268.4¥367.1 billion from the previous fiscal year.
Business Segments
Motorcycle Business
Honda’s consolidated unit sales of motorcycles and all-terrain vehicles (ATVs) and personal watercraft (PWC) totaled 9,6399,510 thousand units, decreasedincreased by 4.7%9.9% from the previous fiscal year. Unit sales in Japan totaled 190 thousand units, decreased by 18.1%. Overseas unit sales totaled 9,449 thousand units, decreased by 4.4%,year, due mainly to a decrease in unit sales in Other Regions, including South America, and North America, which was partially offset by an increase in consolidated unit sales in Asia.
Revenue from external customers decreased ¥271.2by ¥9.2 billion, or 19.2%0.7%, to ¥1,140.2¥1,339.5 billion from the previous fiscal year, due mainly to decreased unit sales and the negative foreign currency translation effects.effects, which was partially offset by increased consolidated unit sales. The impact of price changes was immaterial. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have decreasedincreased by approximately ¥141.2¥45.2 billion, or 10.0%3.4%, compared to the decrease as reported of ¥271.2¥9.2 billion, which includes negative foreign currency translation effects.
Operating costs and expenses decreased ¥230.1increased by ¥23.0 billion, or 17.5%1.9%, to ¥1,081.4¥1,229.3 billion from the previous fiscal year. Cost of sales decreasedincreased by ¥149.1¥24.0 billion, or 15.3%2.6%, to ¥826.7¥963.0 billion, due mainly to a decreasean increase in costs attributable to the decreased netincreased consolidated unit sales, thewhich was partially offset by positive foreign currency effects. Selling, general and administrative expenses decreased by ¥60.2¥4.0 billion, or 24.1%2.0%, to ¥189.9 billion.¥199.8 billion, due mainly to decreased product warranty expenses and positive foreign currency effects, which was partially offset by an increase in selling expenses attributable to increased consolidated unit sales. R&D expenses decreasedincreased by ¥20.7¥3.1 billion, or 24.3%4.9%, to ¥64.7¥66.4 billion.
Operating income decreased ¥41.0by ¥32.3 billion, or 41.1%22.7%, to ¥58.8¥110.2 billion from the previous fiscal year, due mainly to a decrease in income attributable to the decreased net sales and negative foreign currency effects, which was partially offset by decreased selling, general and administrative expenses and R&D expenses.continuing cost reduction.
Japan
Total industry demand for motorcycles in Japan in fiscal 2010 was approximately 410 thousand units*, about 25% lower than in fiscal year 2013 was approximately 440 thousand units, mostly unchanged from the previous fiscal year. Although the number of licensed riders declined in line with the continued decline in the population of young people in Japan, unit sales growth was driven by higher demand for scooters and small motorcycles.
Honda’s consolidated unit sales in Japan in fiscal year 2013 were 217 thousand units, down 1.4% from the previous fiscal year. This decline was due mainly toresult reflects lower unit sales of the effectsTODAY model scooter and other models. The lower unit sales were partly offset by the positive impact of the economic downturn, measures taken to respond to emission regulationslaunch of the largeNC700S and structural factors, suchIntegra models, as well as the decrease in the percentage of younger people in the total population, decline in the number of persons obtaining new driver’s licenses and the shortage of parking places in urban areas.
Amid these operating conditions, Honda launched itsSuper-Cub110PCX150 business model which is both economical and practically useful. In addition, Honda introduced itsCB1100 Type I large sports bike, an easy-to-ride with a beautiful design that is equipped with a newly developed air-cooled, four-stroke engine.
Unit sales in Japan were down 18.1% compared with the previous fiscal year, to 190 thousand units. Despite the contribution toscooter featuring enhanced fuel economy. Another positive factor was increased unit sales of the newSuper-Cub110 SUPER CUB business model and new CB1100 sports bike, this overall decline in unit sales was due mainly to intensifying competition.series.
* | Source: JAMA (Japan Automobile Manufacturers Association) |
North America
Total demand for motorcycles and ATVsall-terrain vehicles (ATVs) in the United States*, the principal market within North America, during calendar 2009 declinedyear 2012 increased approximately 37%2% from the previous year to approximately 840680 thousand units. This decline was dueunits, although demand has yet to fully recover. Unit sales growth reflected stronger consumer sentiment in line with improvement in the continuing credit contraction, deterioration in employment conditions,unemployment rate and shrinkage in leisure-related expenditures.income levels.
Amid this business environment, Honda launched theFury large cruiser model, which features improved stable driving performance, through the incorporation ofUnder these circumstances, Honda’s original floating final gear.
Unitconsolidated unit sales in North America declined 40.9% compared withfor fiscal year 2013 increased 25.0% from the previous fiscal year to 189250 thousand units. Sales of the newFury large cruiser model were strong, but in reaction to the decline in gasoline prices,Of this, consolidated unit sales of mid-sizemotorcycles increased 43.0% from the previous fiscal year to 153 thousand units, mainly due to steady sales of models including 750cc motorcyclessuch as the newly introduced largeNC700X model featuring outstanding fuel economy and scooters decreased. As a result, Honda’s motorcycle sales in this market fell 47.9%, to 98 thousand units. Moreover,thePCX model scooter. Consolidated unit sales of ATVs and others dropped 31.1%,rose 4.3% to 9197 thousand units, despite steady demand formainly due to brisk sales of utility ATVs.ATVs such as theTRX420 in the United States.
* | Source: MIC (Motorcycle Industry Council) |
Europe
Total demand for motorcycles in Europe* during calendar 2009year 2012 declined approximately 16%10% from the previous year to about 1.05 millionapproximately 770 thousand units. Although demand in some countries rose because of government incentivesWeak consumer sentiment due to support the purchase of new motorcycles and changes in the driver’s license system, overall demand fell because of the impact of thegrowing economic downturn throughout Europe.
Amid this business environment, Honda introduced itsVFR1200F sports tourer with a V4-stroke engine, which combines sporty performance with high-quality riding comfort.instability adversely affected demand.
In fiscal 2010, although the CB125, 125cc motorcycle that launched in previous fiscal year, the naked typeCBF1000 leisure motorcycle and the newVFR1200F sports tourer had a positive effect, this was not enough to compensate a decrease in unit sales of large scooters and other bikes. As a result,Under these circumstances, Honda’s consolidated unit sales in Europe were down 27.9%for fiscal year 2013 decreased 9.6% from the previous fiscal year to 199179 thousand units.units, mainly reflecting the lackluster market as a whole. This was despite increased sales of newly introduced large modelsNC700X,NC700S andIntegra featuring outstanding fuel economy.
* | Based on Honda |
Asia
DemandTotal demand for motorcycles is continuing to expand in Asia where they are an essential means of transportation. In calendar 2009, despite the unfavorable impact of the global economic downturn in the first half of the year, during the second half, demand recovered, and total demand for motorcycles*1 rose about 6% overduring calendar year 2012 declined approximately 3% from the previous year to approximately 40.2 million41,490 thousand units. By
Looking at market conditions by country, salesdemand in India rose about 19%,increased approximately 5% from the previous year, to approximately 8.8 million units; sales13,840 thousand units while demand in IndonesiaChina decreased about 8%,approximately 10% from the previous year, to approximately 6.0 million units;12,630 thousand units. Indonesia saw demand decline approximately 12% from the previous year, to approximately 7,140 thousand units and salesVietnam saw demand decline approximately 7% from the previous year, to approximately 3,100 thousand units. Demand in Thailand dropped about 10%,rose approximately 8% from the previous year, to approximately 1.5 million2,130 thousand units.
AmidUnder these business conditions, in India, Honda made a full model change in itsActiva 110cc scooter and launched itsCB Twister motorcycle, which incorporates low-friction technology and is equipped with a fuel efficient 110cc engine. In Thailand, Honda introduced the Wave110iAT, outfitted with a new type CV-matic automatic transmission that provides both practical and convenient performance. In addition, Honda began to manufacture and market its new typePCX 125cc scooter. A strategic global model, PCX is a 125cc-class scooter featuring a global standard design for major components, which enhances cost competitiveness and production efficiency.
Unitcircumstances, Honda’s consolidated unit sales in Asia*2 for fiscal 2010 rose 1.4% compared withyear 2013 increased 17.5% from the previous fiscal year to 7,6287,051 thousand units. This increase was due to expansionSales rose on growth in sales of theActiva scootersscooter and the smallDream Yuga motorcycle in IndiaIndia. In Thailand, which was impacted by floods in the previous year, sales growth was supported by brisk sales of theWaveCub-type motorcycle, theClick 125i scooter and new types, including theCBTwister motorcycles in India, as well as to growth in sales in Thailand of the Cub-typeWave110iAT and thePCX scooters.certain other models.
With respectHonda’s consolidated unit sales do not include unit sales of P.T. Astra Honda Motor in Indonesia, which is an affiliate accounted for under the equity method. P.T. Astra Honda Motor’s unit sales for fiscal year 2013 decreased 4.3% from the previous fiscal year to production activities, in India, our consolidated subsidiary Honda Motorcycle & Scooter India (Private) Ltd. decided4,091 thousand units mainly due to build a second production plant to respond to sharply rising demand in that country. Along with the expansion in capacityimpact of its existing plant, the second plant is scheduled to go into operation in the latter half of 2011, and this is expected to bring this company’s total annual production capacity to 2.2 million units.Indonesian government’s regulations concerning down payments on two-wheeled vehicles.
* | Based on Honda |
|
Other Regions
InTotal demand for motorcycles in Brazil*, the principal market within Other Regions, total demand in calendar 2009 decreased about 16%,declined roughly 15% from the previous year to approximately 1.61 million1,630 thousand units,* because of the tightening of loan conditions mainly due to stricter lending standards for motorcycles triggered by the financial crisis.retail loans.
Amid these conditions, in Brazil, Honda made a full model change on itsCB300R motorcycle.
In Other Regions (including South America, the Middle East, Africa, Oceania and Oceania)other areas), Honda’s consolidated unit sales in fiscal year 2013 decreased 18.7% compared with10.7% from the previous fiscal year to 1,4331,813 thousand units, despite the contributionmainly due to lower sales of Brazilianthe small motorcycleCB300RCG125 Fan,CG150 Fan andCG150Fan motorcycles within Other Regions. other models. These sales declines primarily reflected stricter lending standards for retail loans in Brazil.
* | Source:ABRACICLO (the Brazilian |
Automobile Business
Honda’s consolidated unit sales of automobiles totaled 3,3923,408 thousand units, decreasedincreased by 3.6%37.3% from the previous fiscal year. Unit sales in Japan totaled 646 thousand units, increased by 16.2%. Overseas unit sales totaled 2,746 thousand units, decreased by 7.3%,year, due mainly to a decreasean increase in consolidated unit sales in North Americaall regions by recovery from the impact of the Great East Japan Earthquake and Europe, which was partially offset by an increasethe floods in unit sales in Asia.Thailand.
Revenue from external customers decreased ¥1,119.5increased by ¥1,903.2 billion, or 14.6%32.8%, to ¥6,554.8¥7,709.2 billion from the previous fiscal year, due mainly to decreasedincreased consolidated unit sales and the negativepositive foreign currency translation effects. The impact of price changes was immaterial. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have decreasedincreased by approximately ¥625.1¥1,721.4 billion, or 8.1%29.6%, compared to the decreaseincrease as reported of ¥1,119.5¥1,903.2 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales increased by ¥1,900.8 billion, or 32.6%, to ¥7,723.5 billion from the previous fiscal year.
Operating costs and expenses decreased ¥1,221.7increased by ¥1,537.6 billion, or 16.0%26.1%, to ¥6,428.0¥7,437.5 billion from the previous fiscal year. Cost of sales decreasedincreased by ¥790.4¥1,349.6 billion, or 13.5%29.9%, to ¥5,066.5¥5,868.2 billion, due mainly to a decreasean increase in costs attributable to the decreased netincreased consolidated unit sales the positiveand negative foreign currency effects and continuing cost reduction.effects. Selling, general and administrative expenses decreasedincreased by ¥354.9¥151.8 billion, or 26.3%15.9%, to ¥992.1¥1,105.3 billion, due mainly to the impact ofan increase in selling expenses in the previous year which relatedattributable to withdrawal from some racing activitiesincreased consolidated unit sales and cancellations of development of new models and the positive foreign currency effects.increased product warranty expenses. R&D expenses decreasedincreased by ¥76.3¥36.1 billion, or 17.1%8.5%, to ¥369.3¥464.0 billion, due mainly to improving development efficiency, while improving safety and environmental technologies and enhancing of the attractiveness of the products.
Operating income increased ¥102.2was ¥285.9 billion, or 416.5%, to ¥126.7an increase of ¥363.1 billion of operating income from the previous fiscal year, due mainly to decreased selling, general and administrative expenses and R&D expensesan increase in income attributable to increased net sales and continuing cost reduction, which was partially offset by a decreaseincreased selling, general and administrative expenses and increased R&D expenses.
Proportion of retail unit sales by vehicle category:
Fiscal year ended March 31, | ||||||||
2012 | 2013 | |||||||
Passenger cars: | 62 | % | 60 | % | ||||
Accord, Accord Plug-in Hybrid, Accord Tourer, Brio, Brio Amaze, City, Civic, CR-Z, Fit/Jazz, Fit/Jazz Hybrid, Fit Shuttle, Fit Shuttle Hybrid, FREED, FREED Hybrid, FREED SPIKE, FREED SPIKE Hybrid, Insight, Inspire, Legend, Stream, Acura ILX, Acura RLX, Acura TL, Acura TSX | ||||||||
Light trucks: | 33 | % | 31 | % | ||||
Crosstour, CR-V, Elysion, Odyssey, Pilot, Ridgeline, Step WGN, Acura MDX, Acura RDX, Acura ZDX | ||||||||
Mini vehicles: | 5 | % | 9 | % | ||||
Acty, Life, N Box, N Box +, N-ONE, Vamos, Zest |
Although there are various factors that affect the profitability of each vehicle category, sales price is an important factor in income attributabledetermining profitability. In general, the weighted average sales price in the light trucks category is higher relative to the decreasedtotal average sales price, while the weighted average sales price in the mini vehicles category, which is unique to the Japanese market, is relatively lower, although sales price vary from model to model.
In general, the contribution margin of the light trucks category tends to be higher relative to the total weighted average contribution margin because the sales price is higher, while the contribution margin of the mini vehicles category tends to be relatively lower because the sales price is lower, although the level of contribution margin varies from model to model. For example, in Japan and the United States, which are the main sales markets for our automobiles, the contribution margin of our light trucks category was approximately 30% higher, our passenger cars category was approximately 10% lower and our mini vehicles category was approximately 30% lower than total weighted average contribution margin for the fiscal year ended March 31, 2013. It should be noted that we define contribution margin as an amount per unit of net sales and negative foreign currency effects.minus material cost, which is thought to increase in almost direct proportion to net sales volume.
Japan
Total automobile demand for automobiles in Japan*1 for the fiscal year 2010 rose approximately 4% over10% from the previous fiscal year, to 4.88 million units. In the first half of theapproximately 5,210 thousand units in fiscal year operating conditions were difficult because of weakness in company’s business activities as a result of2013. Automobile sales held firm thanks to the global economic downturn and stagnant consumer spending. During the latter half of the fiscal year, however, the positive effectspump-priming effect of government incentives to providestimulus policies that provided tax breaks and subsidies for purchasing eco-cars emerged, and automobile sales began to recover.in the first half of the fiscal year. Another contributing factor was the recovery from the Great East Japan Earthquake.
Amid these business operating conditions, Honda made full model changes to itsSTEPWGN, which features a low floor and a low center of gravity as well as excellent fuel economy, and theACTY truck, which now offers a wider cabin and an improved minimum turning radius. In addition, Honda launched its all-newCR-Z hybrid vehicle, which combines a nimble and exhilarating ride with excellent fuel economy.
UnitHonda’s consolidated unit sales in Japan rose 16.2% over18.1% from the previous fiscal year to 646685 thousand units driven especially by robust*2. This result was mainly due to strong sales of theInsightN Box mini vehicle andStep WGN, along with the positive impact of the launch of the new mini vehicleFit,STEPWGNN Box + andFREEDN-ONE.
With respect toIn production the numberactivities, Honda’s unit production of units manufacturedautomobiles in Japan during thefor fiscal year 2010 decreased 21.5%,2013 increased 0.6% from the previous fiscal year to 902876 thousand units, mainly becausedue to higher sales in Japan, despite the shift of the decline in the number of cars exported.some production overseas.
*1: | Source: JAMA (Japan Automobile Manufacturers Association): (as measured by the number of regular vehicle registrations (661cc or higher) and |
*2: | Certain sales of automobiles that are financed with residual value-type auto loans by our Japanese finance subsidiaries are accounted for as operating leases in conformity with U.S. generally accepted accounting principles and are not included in consolidated net sales to the external customers in our automobile business. As a result, they are not included in consolidated unit sales. |
North America
In calendar 2009,year 2012, total demandindustry sales of automobiles in the United States* fell, the principal market within North America, rose approximately 21%13% from the previous year to about 10.4 million units, the second major consecutive year-to-year contractionapproximately 14,490 thousand units. The main contributing factors were an upswing in consumer sentiment, an improvement in the market. This was becauseunemployment rate, and firm sales of lackluster consumer spending caused by the continuing credit contraction and the deteriorationpassenger cars, in employment conditions.particular.
Under these circumstances, Honda introduced its newAccord Crosstour, which is a high-performance sedan, powered by a Honda V6 engine, and boasts strong utility car features, including more storage capacity in the rear section. Honda also launched itsAcura ZDX, which comes with a newly-developed six-speed automatic transmission and combines a powerful ride with excellent fuel economy.
Although in the fiscal year 2010 unit sales of theCR-V and the newAccord Crosstour andZDX models expanded,Honda’s consolidated unit sales in North America decreased 13.3%,increased 30.8% from the previous fiscal year to 1,2971,731 thousand units, becauseunits. This was mainly due to the positive impact of the overall shrinkage in market demand.launch of the all-newAccord, as well as strong sales of theCivic,CR-V and other models.
With respectIn production activities, Honda manufactured 1,687 thousand units, up 37.3% from the previous fiscal year.
Honda Manufacturing of Alabama, LLC, a consolidated subsidiary, ramped up its production capacity by 40 thousand units in fiscal year 2013, bringing its annual production capacity to 340 thousand units.
Honda Manufacturing of Indiana, LLC, a consolidated subsidiary, ramped up its production Honda automobiles manufacturedcapacity by 50 thousand units in North America declined 7.9%,fiscal year 2013, bringing its annual production capacity to 1,152250 thousand units.
* | Source: |
Europe
During calendar 2009, totalTotal demand for automobile in Europe*1 felldecreased roughly 8% from the previous year, to approximately 2%,12,520 thousand units in calendar year 2012. The market contracted as a whole, mainly due to weak consumer sentiment accompanying growing concerns about 14.48 million units. Demandthe economy, despite signs of a market recovery in major European markets, including Germany and France, expanded as the governments of these countries adopted measures to encourage purchases of new cars.U.K. On the other hand, demand in the United Kingdom and Spain, where such incentive measures were adopted in the middle of the year, failed to recover from the slump in the first half of the year, and remained below the prior year. Moreover, unit demand in Russia, total demand*2 dropped about 50%,increased approximately 11% from the previous year to approximately 1.47 million2,930 thousand units.
Amid this business environment, Honda began production and marketing of itsJazz in Europe, which offers excellent fuel economy, a superior ride, and high-level safety features.
UnitHonda’s consolidated unit sales in Europe during the fiscal year 2010 decreased 28.9%increased 8.2% from the previous fiscal year to 249171 thousand units becauseunits. The main contributing factors were the launch of the combined effectsall-newCR-Vmodel, and the rollout of shrinkage in demand and more intense competition.aCivic model fitted with a new diesel engine.
With respect toOn the production Honda manufactured 99 thousand unitsfront, unit output at itsHonda’s U.K. plant during thein fiscal year 2010, 43.1% fewer than in2013 increased 62.8% from the previous year.fiscal year to 170 thousand units.
*1: | Source: ACEA (Association des Constructeurs Europeens d’Automobiles (the European Automobile Manufacturers’ Association) |
*2: | Source: AEB (The Association of European Businesses) |
Asia
In Asia, in calendar year 2012, total demand inincreased approximately 13% from the principal countriesprevious year to approximately 8,920 thousand units*1, mainly due to market expansion in calendar 2009 increasedIndonesia and India. Another factor was growth in Thailand’s sub-compact segment of the market, which is eligible for government subsidies. Total demand in China rose around 4% from the previous year to approximately 19.48 million19,300 thousand units*2.
Honda’s consolidated unit sales in Asia outside Japan increased 138.8% from the previous fiscal year to 523 thousand units. This gain was due mainly to expansionSales grew atop a recovery from the damage caused by the floods in demand, principally in China Thailand, as well as the positive impact of the launch ofBrio Amazeand the adoptionhigher sales of measures to encourage new vehicle purchases by governments in the regions.City and other models.
Amid this business environment, Honda began production in Indonesia of itsFREEDcompact mini-van, which offers a spacious interior, and commenced the marketing of these unitsHonda’s consolidated unit sales do not only in Indonesia but also in Singapore and Thailand. Also, in China, manufacturing andinclude unit sales of theSpiriorDongfeng Honda Automobile Co., a premium sporty sedan featuring a nimbleLtd. and pleasant ride, began at aGuangqi Honda affiliateAutomobile Co., Ltd., both of which are affiliates accounted for under the equity method.
During fiscal 2010,method in China. However, unit sales for fiscal year 2013 decreased 3.0% from the previous fiscal year to 599 thousand units, reflecting the challenging sales conditions faced by Japanese automakers in Asia rose 19.8%, to 950 thousand units. Sales of theCity in Thailand and India, and sales of the newFREED in Indonesia held strong. In China,country during theCity,CR-V and the newSpirior recorded robust sales performances. fiscal year.
With respectOn the production front, Honda’s unit production increased 40.0% to 1,167 thousand units*3. In Asia, excluding China, production to meet rapidly rising demand for automobileswas 550 thousand units, while output in China Honda decided to build a second plant through Dongfeng Honda Automobile Co., Ltd.*2. This will bring total production capacity at Dongfeng Honda Automobile to 300was 617 thousand units a year in the latter half of calendar 2012. In addition, Honda decided to expand production capacity at Guangqi Honda Automobile Co., Ltd.*2,3. This will bring total production capacity at Guangqi Honda Automobile to 480 thousand units from the current 360 thousands units a year by the latter half of 2011.units.
*1: | The total is based on Honda research and includes the following |
*2: |
|
*3: |
|
Other Regions
Total industry demand for automobiles in Brazil*, one of the principal markets among the Other Regions, increased about 13%approximately 6% from the previous year to approximately 3,630 thousand units in calendar 2009, to approximately 3.01 million units*1. On the other hand, demand in Australia decreased approximately 7%, to 940 thousand units*2.year 2012. This growth mainly reflected government policies such as tax breaks for automobile purchases.
Amid this operating environment,In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), consolidated unit sales in Brazil, Honda introduced its newCity, a small sedan incorporating flexible fuel technology, that allows driversfiscal year 2013 increased 47.5% from the previous fiscal year to select any ratio298 thousand units. This result was mainly due to the positive impact of bioethanol and gasoline that meets their needs.the launch of the all-new Civic in Brazil.
Unit sales in Other Regions decreased 22.4%, to 250 thousand units. AlthoughOn the production front, Honda’s unit sales were lifted by the newCityproduction in Brazil this was offset by declinesincreased 67.8% from the previous fiscal year to 135 thousand units in unit sales in Australia and the Middle East.fiscal year 2013.
* | Source: ANFAVEA (Associaç |
|
Power Product and Other Businesses
Honda’s consolidated unit sales of power products totaled 4,7446,071 thousand units, decreasedincreased by 8.5%4.3% from the previous fiscal year. Unit sales in Japan totaled 322 thousand units, decreased by 37.6%. Overseas unit sales totaled 4,422 thousand units, decreased by 5.3%,year, due mainly to decreasedan increase in consolidated unit sales in Europe and North America which was partially offset by increased unit sales inand Asia.
Revenue from external customers decreased ¥65.3increased by ¥3.5 billion, or 19.1%1.3%, to ¥277.6¥280.6 billion from the previous fiscal year, due mainly to the decreasedincreased consolidated unit sales of power products and negativepositive foreign currency translation effects.effects, which was partially offset by decreased sales of Other business. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, net sales for the year would have decreased by approximately ¥52.2¥1.2 billion, or 15.2%0.4%, compared to the decreaseincrease as reported of ¥65.3¥3.5 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales decreased ¥64.2increased by ¥1.9 billion, or 17.4%0.7%, to ¥304.6¥291.6 billion from the previous fiscal year.
Operating costs and expenses decreased ¥63.0increased by ¥7.4 billion, or 16.4%2.5%, to ¥321.3¥301.2 billion from the previous fiscal year. Cost of sales decreasedincreased by ¥46.1¥6.2 billion, or 16.2%3.0%, to ¥239.3¥214.8 billion, due mainly to a decreasean increase in costs attributable to the decreasedincreased net sales.sales of Power products business and negative foreign currency effects. Selling, general and administrative expenses decreasedincreased by ¥14.1¥0.08 billion, or 21.2%0.1%, to ¥52.7¥56.6 billion. R&D expenses decreasedincreased by ¥2.7¥1.1 billion, or 8.6%4.1%, to ¥29.2¥29.7 billion.
Operating loss increased ¥1.2was ¥9.5 billion, to ¥16.7an increase of ¥5.5 billion from the previous fiscal year, due mainly to a decrease in income attributable to the decreased net sales, which was partially offset by decreased selling, general and administrative expenses andincreased costs including R&D expenses.
Japan
In the power products field, in Japan Honda produces theBF60, a medium-sized, four-stroke outboard boat motor offering good acceleration and fuel economy, and has now launched this product in markets around the world. In addition, Honda manufactures theEU26ihandy electric power generator, which is light in weight, compact and quiet, in Japan and has now launched this product globally. Marketed under the nameEU3000iHandy in North America andEU30i in other markets around the world, this generator incorporates Honda’s original sine-wave inverter technology and supplies electricity comparable in quality to commercially generated power. Also, Honda made full model changes to its V-Twin general-purpose enginesGX630, GX660 andGX690, which are manufactured in Japan and offer good fuel economy with low emissions. Honda has now launched these engines globally, and they are marketed as theGX630R, GX660R andGX690R in North America, Europe and Australia.
During the fiscal year 2010,consolidated unit sales in Japanfiscal year 2013 decreased 37.6%19.9% from the previous fiscal year to 322314 thousand units. Althoughunits, mainly due to lower exports of general-purpose engines for OEM* use and decreased sales of tillersgenerators and snow removal equipments rose, these increasescertain other products. These declines were partly offset by lowerhigher sales of engines for OEM use.lawn mowers, snow blowers and certain other products.
* | OEM (Original Equipment Manufacturer): refers to the manufacturers of products and components sold under a third-party brand. |
North America
UnitHonda’s consolidated unit sales in North America declined 4.0%fiscal year 2013 increased 12.5% from the previous fiscal year to 1,8182,604 thousand units. Despite increases inAlthough sales of lawn mowerssnow blowers and certain other products declined, increased sales of general-purpose engines for OEM use in lawn mowers, these increases were not enoughconstruction machinery and other products contributed to compensate a decrease in sales of engines for OEM use in construction machinery.the increase.
Europe
In Europe,Honda’s consolidated unit sales fell 18.4%in fiscal year 2013 decreased 10.4% from the previous fiscal year to 1,0661,004 thousand units, as a resultdespite strong sales of abrush cutters and certain other products. The main reason for the decrease inwas lower sales of general-purpose engines for OEM use in construction machinery and electric power generators.agricultural equipment, as well as decreased sales of small tillers.
Asia
In Asia,Honda’s consolidated unit sales rose 10.2%,in fiscal year 2013 increased 6.8% from the previous fiscal year to 1,0691,572 thousand units, asmainly due to higher sales of pumps and certain other products in Thailand, despite lower sales of general-purpose engines for OEM use in agricultural machinery, pumps and brush cutters rose. This increase was due in part to the introduction of measures to support the agricultural sector in certain countries and to weather conditions.India.
Other Regions
UnitIn Other Regions (including South America, the Middle East, Africa, Oceania and other areas) Honda’s consolidated unit sales in Other Regions decreased 6.6% compared withfiscal year 2013 rose 11.0% from the previous fiscal year to 469577 thousand units. Sales growth was fueled by higher sales of general-purpose engines for OEM use, pumps and certain other products in the Middle East and Africa. This declinegrowth was due mainly totempered by lower sales of pumpslawn mowers and general-purpose engines to the Middle East.certain other products in Australia.
Financial Services Business
To support the sale of its products, Honda provides retail lending and leasing to customers and wholesale financing to dealers through our finance subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil, Thailand and other countries.
Total amount of finance subsidiaries-receivables and property on operating leases of finance subsidiaries decreasedincreased by ¥90.4¥955.3 billion, or 1.9%19.4%, to ¥4,769.6¥5,874.2 billion from the previous fiscal year. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, total amount of
finance subsidiaries-receivables and property on operating leases of finance subsidiaries as of the end of the year would have increased by approximately ¥5.9¥281.0 billion, or 0.1%5.7%, compared to the decreaseincrease as reported of ¥90.4¥955.3 billion, which includes negativepositive foreign currency translation effects.
Revenue from external customers in a financialFinancial services business increased ¥24.0by ¥32.3 billion, or 4.1%6.3%, to ¥606.3¥548.5 billion from the previous fiscal year.year, due mainly to an increase in operating lease revenues and positive foreign currency translation effects. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, revenue for the year would have increased by approximately ¥71.9¥8.4 billion, or 12.4%1.6%, compared to the increase as reported of ¥24.0¥32.3 billion, which includes negativepositive foreign currency translation effects. Revenue including intersegment sales increased ¥22.2by ¥33.6 billion, or 3.7%6.4%, to ¥618.8¥560.2 billion from the previous fiscal year.
Operating costs and expenses decreased ¥91.9increased by ¥45.5 billion, or 17.8%12.8%, to ¥423.9¥402.0 billion from the previous fiscal year. Cost of sales decreased ¥19.7increased by ¥42.9 billion, or 5.8%14.7%, to ¥321.4¥336.2 billion from the previous fiscal year, due mainly to a decreasean increase in funding costs.costs related to lease residual values and negative foreign currency effects. Selling, general and administrative expenses decreased ¥72.1increased by ¥2.5 billion, or 41.3%4.0%, to ¥102.4¥65.8 billion from the previous fiscal year.
Operating income decreased by ¥11.8 billion, or 7.0%, to ¥158.1 billion from the previous fiscal year, due mainly to a decreasean increase in provisions for credit losses and losses oncosts related to lease residual values.
Operating income increased ¥114.2 billion, or 141.6%, to ¥194.9 billion from the previous fiscal year, due mainly to a decrease in provisions for credit losses and losses on lease residual values and a decrease in funding costs.
Our finance subsidiaries in North America have historically accounted for all leases as direct financing leases. However, starting in the fiscal year ended March 31, 2007, some of the leases which do not qualify for direct financing leases accounting treatment are accounted for as operating leases. Generally, direct financing lease revenues and interest income consist of the recognition of finance lease revenue at inception of the lease arrangement and subsequent recognition of the interest income component of total lease payments using the effective interest method. In comparison, operating lease revenues include the recognition of the gross lease payment amounts on a straight line basis over the term of the lease arrangement, and operating lease vehicles are depreciated to their estimated residual value on a straight line basis over the term of the lease. It is not anticipated that the differences in accounting for operating leases and direct financing leases will have a material net impact on Honda’s results of operations overall, however, operating lease revenues and associated depreciation of leased assets do result in differing presentation and timing compared to those of direct financing leases.
Information about credit losses and losses on lease residual values is provided at Item 5. Operating and Financial Review and Prospects A. Operating Results, Application of Critical Accounting Policies. Information about finance subsidiaries-receivables and securitizations is described in note (2) to the accompanying consolidated financial statements.
Geographical Information
Japan
In Japan, revenue from domestic and export sales decreased ¥856.8increased by ¥530.5 billion, or 20.6%15.8%, to ¥3,305.7¥3,893.5 billion from the previous fiscal year, due mainly to a decreasean increase in export salesrevenue in automobileAutomobile business. Operating loss decreased ¥132.4income was ¥178.4 billion, to ¥29.1an increase of ¥288.2 billion of operating income from the previous fiscal year, due mainly to decreased selling, generalan increase in income attributable to increased net sales and administrative expensesmodel mix and R&D expenses and continuing cost reductions,positive foreign currency effects, which was partially offset by a decrease in income attributable to the decreased revenueincreased R&D expenses and negative foreign currency effects.increased selling, general and administrative expenses.
North America
In North America, which mainly consists of the United States, revenue decreased ¥870.9increased by ¥1,142.3 billion, or 18.2%30.8%, to ¥3,908.2¥4,857.1 billion from the previous fiscal year, due mainly to a decreasean increase in revenue in automobileAutomobile business and
negative positive foreign currency translation effects. Operating income increased ¥156.6decreased by ¥14.3 billion, or 196.6%6.4%, to ¥236.3¥208.9 billion from the previous fiscal year, due mainly to decreasedincreased selling, general and administrative expenses, including a decrease in provisions for credit losses and losses on lease residual values and continuing cost reductions, which was partially offset by a decreasean increase in income attributable to the decreased revenueincreased net sales, model mix and an increase in fixed costs per unit as a result of reduced production.continuing cost reduction.
Europe
In Europe, revenue decreased ¥453.4increased by ¥61.3 billion, or 35.5%10.6%, to ¥825.4¥642.1 billion from the previous fiscal year, due mainly to a decreasean increase in revenue in the automobile business and negative foreign currency translation effects.Automobile business. Operating lossincome was ¥10.8¥0.4 billion, a decreasean increase of ¥21.0¥12.5 billion of operating income from the previous fiscal year, due mainly to a decreasean increase in income attributable to the decreased revenueincreased net sales and negative foreign currency effects,model mix, which was partially offset by decreasedincreased selling, general and administrative expenses.
Asia
In Asia, revenue decreased ¥89.6increased by ¥815.1 billion, or 5.6%54.7%, to ¥1,518.5¥2,305.6 billion from the previous fiscal year, due mainly to negative foreign currency translation effects, which was partially offset by an increase in revenue in motorcycleAutomobile business and Motorcycle business. Operating income increased ¥9.4by ¥69.8 billion, or 9.1%90.9%, to ¥113.0¥146.7 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses and an increase in income attributable to the increased revenue,net sales and model mix and continuing cost reduction, which was partially offset by negative foreign currency effects.increased selling, general and administrative expenses.
Other Regions
In Other Regions, revenue decreased ¥247.7increased by ¥3.3 billion, or 21.7%0.4%, to ¥896.4 billion from the previous fiscal year, due mainly to a decreasean increase in negative foreign currency translation effects andrevenue in Automobile business, which was partially offset by a decrease in revenue in motorcycleMotorcycle business and automobile businesses.negative foreign currency translation effects. Operating income decreased ¥89.2by ¥21.2 billion, or 66.1%37.3%, to ¥45.8¥35.6 billion from the previous fiscal year, due mainly to a decrease in income attributable to a decrease in revenueincreased selling, general and administrative expenses and negative foreign currency effects, which was partially offset by decreased selling, general and administrative expenses.effects.
Application of Critical Accounting Policies
Critical accounting policies are those which require us to apply the most difficult, subjective or complex judgments, often requiring us to make estimates about the effect of matters that are inherently uncertain and which may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition and results of operations. A sustained loss of consumer confidence which may be caused byFurther changes in consumer preferences and rising fuel prices,the economic environment surrounding us, effects by market conditions, effects of the Great East Japan Earthquakecurrency fluctuations or other factors have combined to increase the uncertainty inherent in such estimates and assumptions.
The following is not intended to be a comprehensive list of all our accounting policies. Our significant accounting policies are more fully described in note (1) to the accompanying consolidated financial statements.
We have identified the following critical accounting policies with respect to our financial presentation.
Product Warranty
We warrant our products for specific periods of time. We also provide specific warranty programs, including product recalls, as needed.
Product warranties vary depending upon the nature of the product, the geographic location of their sales and other factors.
We recognize costs for general warranties on products we sell and for specific warranty programs, including product recalls. We provide for general estimated warranty costs at the time products are sold to customers orcustomers. We also provide for specific estimated warranty program costs at the time those costs for new warranty programs are initiated.deemed to be probable and can be reasonably estimated. Estimated warranty costs are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs, including current sales trends, the expected number of units to be affected and the estimated average repair cost per unit for warranty claims. Our products contain certain parts manufactured by third party suppliers. Since suppliers typically warrant these parts, the expected receivables from warranties of these suppliers are deducted from our estimates of accrued warranty obligations.
We believe our accrued warranty liability is a “critical accounting estimate” because changes in the calculation can materially affect net income attributable to Honda Motor Co., Ltd., and require us to estimate the frequency and amounts of future claims, which are inherently uncertain.
Our policy is to continuously monitor warranty cost accruals to determine the adequacy of the accrual. Therefore, warranty expense accruals are maintained at an amount we deem adequate to cover estimated warranty expenses.
Actual claims incurred in the future may differ from the original estimates, which may result in material revisions to the warranty expense accruals.
The changes in provisionsthe accrued liabilities for those product warranties and net sales and other operating revenue for each of the years in the three-year period ended March 31, 20112014 are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Provisions for product warranties | ||||||||||||||||||||||||
Accrued Liabilities for product warranties | ||||||||||||||||||||||||
Balance at beginning of year | ¥ | 293,760 | ¥ | 233,979 | ¥ | 226,038 | ¥ | 213,943 | ¥ | 170,562 | ¥ | 208,033 | ||||||||||||
Warranty claims paid during the period | (123,509 | ) | (86,886 | ) | (82,080 | ) | (82,547 | ) | (64,942 | ) | (104,090 | ) | ||||||||||||
Liabilities accrued for warranties issued during the period | 79,576 | 79,520 | 84,920 | |||||||||||||||||||||
Changes in liabilities for pre-existing warranties during the period | 2,233 | (3,571 | ) | (3,550 | ) | |||||||||||||||||||
Liabilities accrued for warranties issued during the period*1 | 60,004 | 97,108 | 153,898 | |||||||||||||||||||||
Changes in liabilities for pre-existing warranties during the period*2 | (17,697 | ) | (8,583 | ) | 397 | |||||||||||||||||||
Foreign currency translation | (18,081 | ) | 2,996 | (11,385 | ) | (3,141 | ) | 13,888 | 11,382 | |||||||||||||||
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Balance at end of year | ¥ | 233,979 | ¥ | 226,038 | ¥ | 213,943 | ¥ | 170,562 | ¥ | 208,033 | ¥ | 269,620 | ||||||||||||
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Net sales and other operating revenue | ¥ | 10,011,241 | ¥ | 8,579,174 | ¥ | 8,936,867 | ¥ | 7,948,095 | ¥ | 9,877,947 | ¥ | 11,842,451 |
*1 | Liabilities accrued for warranties issued during the period for the fiscal year ended March 31, 2014, was ¥153.8 billion, due mainly to the future warranty costs for product recalls in Automobile business. |
*2 | Changes in liabilities for pre-existing warranties during the period for the fiscal year ended March 31, 2012, was ¥17.6 billion, due mainly to the change of the expected level of future warranty costs, including the expected number of units to be affected and estimated average repair cost per unit for product recalls. |
Credit Losses
Our finance subsidiaries provide retail lending and leasing to customers and wholesale financing to dealers primarily to support sales of our products. Honda classifies retail and direct financing lease receivables (consumer finance receivables) derived from those services as finance subsidiaries-receivables. Operating leases are classified as property on operating leases. Certain finance receivables related to sales of inventory are included in trade accounts and notes receivable and other assets in the consolidated balance sheets. Receivables on past due operating lease rental payments are included in other current assets in the consolidated balance sheets.
Credit losses are an expected cost of extending credit. The majority of the credit risk is with consumer financing and to a lesser extent with dealer financing. Credit risk ison consumer finance receivables can be affected by general economic conditionsconditions. Adverse changes such as a rise in unemployment rates or declinescan increase the likelihood of defaults. Declines in used vehicle prices. prices can reduce the amount of recoveries on repossessed collateral. Exposure to credit risk on consumer finance receivables is managed by monitoring and adjusting underwriting standards, which affect the level of credit risk that is assumed, pricing contracts for expected losses, and focusing collection efforts to minimize losses.
Our finance subsidiaries are also exposed to credit risk on operating lease assets. A portion of our finance subsidiaries’ operating leases are expected to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The factors affecting credit risk on operating leases and management of the risk are similar to that of consumer finance receivables.
Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio, the value of collateral securing the financings, and economic factors that could affect the creditworthiness of dealers. Exposure to credit risk in dealer financing is managed by performing comprehensive reviews of dealers prior to establishing financing arrangements and continuously monitoring the payment performance and creditworthiness of dealers with existing financing arrangements.
The allowance for credit losses is management’s estimate of probable losses incurred on retail and direct financing lease receivables (consumer finance receivables) and recognize them in the allowance for credit losses.receivables. Estimated losses on past due operating lease rental payments are also recognized in thewith an allowance for credit losses. InOur finance subsidiaries evaluate these estimates, at minimum, on a quarterly basis.
Consumer finance receivables are collectively evaluated for impairment. Delinquencies and losses are continuously monitored and this historical experience provides the case of property on operating leases, estimated losses due to customer defaultsprimary basis for estimating the allowance. Various methodologies are not recognized inutilized when estimating the allowance for credit losses because aincluding models that incorporate vintage loss is realized on the disposition of the property. Therefore we present these losses as impairment losses on property on operating leases. Consumer finance receivables consist of a large number of
smaller-balance homogenous loans and leases. Our finance subsidiaries segment these receivables into groups with common characteristics, and estimate collectively the allowance for credit losses on consumer finance receivables by the group. Our finance subsidiariesdelinquency migration analysis. The models take into consideration various methodologiesattributes of the portfolio including loan-to-value ratios, internal and external credit scores, and collateral types. Economic factors such as used vehicle prices, unemployment rates, and consumer debt service burdens are also incorporated when estimating the allowance including vintage loss rate analysis and delinquency roll rate analysis. When performing the vintage loss rate analysis, consumer finance receivables are segregated between retail and direct financing lease, and further segmented into groups with common risk characteristics including collateral type, credit grades, and original terms. Loss rates are projected for these pools based on historical rates and adjusted for considerations of emerging trends and changing economic conditions. The roll rate analysis is used primarily by our finance subsidiaries in North America. This analysis tracks the migration of finance receivables through various stages of delinquency and ultimately to charge-offs. Roll rates are projected based on historical results while also taking into consideration trends and changing economic conditions. Similar to our portfolio of consumer finance receivables, our portfolio of receivables on past due operating lease rental payments is collectively evaluated for the allowance for credit losses. PropertyEstimated losses on operating leases expected to terminate early due to lessee defaults are also determined collectively, consistent with the methodologies used for consumer finance receivables.
Wholesales receivables are individually evaluated for impairment losses to be realized upon early disposition.
Wholesalewhen specifically identified as impaired. Wholesales receivables are considered to be impaired and recognized in the allowance for credit losses when it is probable that itour finance subsidiaries will be unable to collect all amounts due according to the original terms of the contract. Our finance subsidiaries recognize estimated lossesloan. The determination of whether dealer loans are impaired is based on them in allowance for credit losses. Credit risk on wholesale receivables is affected primarily byevaluations of dealerships’ payment history, financial condition and cash flows, and their ability to perform under the financial strengthterms of the dealers within the portfolio. Wholesale receivablesloans. Dealer loans that have not been specifically identified as impaired are collectively evaluated for impairment on an individual dealer basis. Ongoing evaluations of dealerships are performed to determine whether there is evidence of impairment. Factors can include payment performance, overall dealership financial performance, or known difficulties experienced by the dealership.
We believe our allowance for credit losses and impairment losses on operating leases is a “critical accounting estimate” because it requires significant judgment about inherently uncertain items. We regularly review the adequacy of the allowance for credit losses and impairment losses on operating leases. The estimates are based on information available as of each reporting date. However actual losses may differ from the original estimates as a result of actual results varying from those assumed in our estimates.
As an example of the sensitivity of the allowance calculation, the following scenario demonstrates the impact that a deviation in one of the primary factors estimated as a part of our allowance calculation would have on the provision and allowance for credit losses. If we had experienced a 10% increase in net credit losses during fiscal 2011,2014, the provision for fiscal 20112014 and the allowance balance at the end of fiscal 20112014 would have increased by approximately ¥4.6¥4.1 billion and ¥2.8¥2.4 billion, respectively. Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions in fiscal 2011.2014.
Additional Narrative of the Change in Credit Loss
The following tables summarize our allowance for credit losses on finance receivables:
Yen (billions) | Yen (billions) | |||||||||||||||||||||||||||||||
For the year ended March 31, 2009 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||||||||||||||||||
Provisions for credit losses | ||||||||||||||||||||||||||||||||
For the year ended March 31, 2012 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||||||
Balance at beginning of year | ¥ | 31.4 | ¥ | 2.5 | ¥ | 0.7 | ¥ | 34.8 | ¥ | 25.5 | ¥ | 1.4 | ¥ | 1.4 | ¥ | 28.4 | ||||||||||||||||
Provision | 49.1 | 3.2 | 1.9 | 54.4 | 10.3 | 0.3 | 0.0 | 10.8 | ||||||||||||||||||||||||
Charge-offs | (57.3 | ) | (6.0 | ) | (0.5 | ) | (63.9 | ) | (21.1 | ) | (0.7 | ) | (0.0 | ) | (21.9 | ) | ||||||||||||||||
Recoveries | 14.7 | 2.1 | 0.0 | 16.9 | 6.6 | 0.1 | 0.0 | 6.8 | ||||||||||||||||||||||||
Change due to securitization activity | (1.4 | ) | — | — | (1.4 | ) | ||||||||||||||||||||||||||
Adjustments from foreign currency translation | (2.2 | ) | (0.1 | ) | (0.2 | ) | (2.7 | ) | (0.9 | ) | (0.0 | ) | (0.0 | ) | (1.0 | ) | ||||||||||||||||
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Balance at end of year | ¥ | 34.3 | ¥ | 1.8 | ¥ | 1.8 | ¥ | 38.0 | ¥ | 20.4 | ¥ | 1.1 | ¥ | 1.4 | ¥ | 23.0 | ||||||||||||||||
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Ending receivable balance | ¥ | 3,138.8 | ¥ | 699.3 | ¥ | 377.6 | ¥ | 4,215.7 | ¥ | 3,328.1 | ¥ | 380.3 | ¥ | 301.3 | ¥ | 4,009.8 | ||||||||||||||||
Average receivable balance, net | ¥ | 3,431.6 | ¥ | 878.3 | ¥ | 383.4 | ¥ | 4,693.4 | ¥ | 3,233.1 | ¥ | 366.1 | ¥ | 243.7 | ¥ | 3,843.0 | ||||||||||||||||
Net Charge-offs as a % of average receivable balance | 1.24 | % | 0.44 | % | 0.15 | % | 1.00 | % | 0.45 | % | 0.16 | % | 0.03 | % | 0.39 | % | ||||||||||||||||
Allowance as a % of ending receivable balance | 1.09 | % | 0.27 | % | 0.50 | % | 0.90 | % | 0.62 | % | 0.30 | % | 0.46 | % | 0.57 | % |
Yen (billions) | Yen (billions) | |||||||||||||||||||||||||||||||
For the year ended March 31, 2010 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||||||||||||||||||
Provisions for credit losses | ||||||||||||||||||||||||||||||||
For the year ended March 31, 2013 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||||||
Balance at beginning of year | ¥ | 34.3 | ¥ | 1.8 | ¥ | 1.8 | ¥ | 38.0 | ¥ | 20.4 | ¥ | 1.1 | ¥ | 1.4 | ¥ | 23.0 | ||||||||||||||||
Provision | 30.0 | 1.9 | 0.3 | 32.3 | 8.7 | 0.3 | 0.0 | 9.1 | ||||||||||||||||||||||||
Charge-offs | (43.7 | ) | (3.2 | ) | (0.6 | ) | (47.6 | ) | (20.8 | ) | (0.9 | ) | (0.2 | ) | (22.0 | ) | ||||||||||||||||
Recoveries | 13.9 | 1.1 | 0.0 | 15.1 | 8.1 | 0.1 | 0.0 | 8.2 | ||||||||||||||||||||||||
Change due to securitization activity | — | — | — | — | ||||||||||||||||||||||||||||
Adjustments from foreign currency translation | (0.6 | ) | 0.1 | (0.0 | ) | (0.5 | ) | 1.1 | 0.0 | 0.0 | 1.3 | |||||||||||||||||||||
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Balance at end of year | ¥ | 33.9 | ¥ | 1.7 | ¥ | 1.6 | ¥ | 37.3 | ¥ | 17.6 | ¥ | 0.7 | ¥ | 1.2 | ¥ | 19.7 | ||||||||||||||||
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Ending receivable balance | ¥ | 3,246.4 | ¥ | 449.4 | ¥ | 331.7 | ¥ | 4,027.6 | ¥ | 3,865.4 | ¥ | 448.6 | ¥ | 431.9 | ¥ | 4,746.0 | ||||||||||||||||
Average receivable balance, net | ¥ | 3,181.0 | ¥ | 497.8 | ¥ | 325.5 | ¥ | 4,004.5 | ¥ | 3,429.8 | ¥ | 394.5 | ¥ | 334.1 | ¥ | 4,158.4 | ||||||||||||||||
Net Charge-offs as a % of average receivable balance | 0.94 | % | 0.42 | % | 0.18 | % | 0.81 | % | 0.37 | % | 0.21 | % | 0.08 | % | 0.33 | % | ||||||||||||||||
Allowance as a % of ending receivable balance | 1.05 | % | 0.40 | % | 0.49 | % | 0.93 | % | 0.46 | % | 0.18 | % | 0.30 | % | 0.42 | % | ||||||||||||||||
Yen (billions) | ||||||||||||||||||||||||||||||||
For the year ended March 31, 2011 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||||||||||||||||||
Provisions for credit losses | ||||||||||||||||||||||||||||||||
Balance at beginning of year | ¥ | 33.9 | ¥ | 1.7 | ¥ | 1.6 | ¥ | 37.3 | ||||||||||||||||||||||||
Adjustment resulting from the adoption of new accounting standards on variable interest entities (note 1(c)) | 0.8 | — | — | 0.8 | ||||||||||||||||||||||||||||
Adjusted balance at beginning of year | ¥ | 34.8 | ¥ | 1.7 | ¥ | 1.6 | ¥ | 38.2 | ||||||||||||||||||||||||
Provision | 10.3 | 0.7 | 0.3 | 11.3 | ||||||||||||||||||||||||||||
Charge-offs | (27.6 | ) | (1.5 | ) | (0.5 | ) | (29.7 | ) | ||||||||||||||||||||||||
Recoveries | 11.1 | 0.5 | 0.0 | 11.7 | ||||||||||||||||||||||||||||
Change due to securitization activity | — | — | — | — | ||||||||||||||||||||||||||||
Adjustments from foreign currency translation | (3.0 | ) | (0.0 | ) | (0.0 | ) | (3.2 | ) | ||||||||||||||||||||||||
Balance at end of year | ¥ | 25.5 | ¥ | 1.4 | ¥ | 1.4 | ¥ | 28.4 | ||||||||||||||||||||||||
Ending receivable balance | ¥ | 3,368.0 | ¥ | 362.1 | ¥ | 301.6 | ¥ | 4,031.7 | ||||||||||||||||||||||||
Average receivable balance, net | ¥ | 3,346.5 | ¥ | 374.9 | ¥ | 309.5 | ¥ | 4,031.0 | ||||||||||||||||||||||||
Net Charge-offs as a % of average receivable balance | 0.49 | % | 0.26 | % | 0.15 | % | 0.45 | % | ||||||||||||||||||||||||
Allowance as a % of ending receivable balance | 0.76 | % | 0.40 | % | 0.47 | % | 0.71 | % |
Yen (billions) | ||||||||||||||||
For the year ended March 31, 2014 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||
Allowance for credit losses | ||||||||||||||||
Balance at beginning of year | ¥ | 17.6 | ¥ | 0.7 | ¥ | 1.2 | ¥ | 19.7 | ||||||||
Provision | 18.6 | 0.3 | 1.4 | 20.4 | ||||||||||||
Charge-offs | (27.5 | ) | (0.5 | ) | (0.4 | ) | (28.5 | ) | ||||||||
Recoveries | 11.6 | 0.0 | 0.0 | 11.7 | ||||||||||||
Adjustments from foreign currency translation | 1.2 | 0.0 | 0.2 | 1.4 | ||||||||||||
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Balance at end of year | ¥ | 21.6 | ¥ | 0.6 | ¥ | 2.5 | ¥ | 24.8 | ||||||||
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Ending receivable balance | ¥ | 4,678.7 | ¥ | 422.9 | ¥ | 497.3 | ¥ | 5,599.0 | ||||||||
Average receivable balance, net | ¥ | 4,358.0 | ¥ | 457.1 | ¥ | 446.6 | ¥ | 5,261.8 | ||||||||
Net Charge-offs as a % of average receivable balance | 0.36 | % | 0.10 | % | 0.09 | % | 0.32 | % | ||||||||
Allowance as a % of ending receivable balance | 0.46 | % | 0.15 | % | 0.52 | % | 0.44 | % |
The following table provides information related to losses on operating leases due to customer defaults:
Yen (billions) | Yen (billions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Provision for credit losses on past due rental payments | ¥ | 2.0 | ¥ | 1.9 | ¥ | 1.6 | ¥ | 1.1 | ¥ | 1.1 | ¥ | 1.7 | ||||||||||||
Impairment losses on operating leases due to early termination | ¥ | 8.7 | ¥ | 3.3 | ¥ | 0.8 | ¥ | 1.5 | ¥ | 4.7 | ¥ | 3.3 |
Fiscal Year 20112014 Compared with Fiscal Year 20102013
The provision for credit losses on finance receivables increased by ¥11.2 billion, or 122.9%, and net charge-offs increased by ¥2.9 billion, or 21.6%. The increase in net charge-offs was primarily due to the increase in finance receivables and declines in used vehicle prices which reduced recoveries on repossessed collateral in North America. Impairment losses on operating leases due to early termination decreased by ¥1.4 billion, or 29.8%.
Fiscal Year 2013 Compared with Fiscal Year 2012
The provision for credit losses on finance receivables decreased by ¥20.9¥1.6 billion, or 65%15.3%, and net charge-offs decreased by ¥14.5¥1.3 billion, or 45%9.0%. The decline in net charge-offs is due mainly to the improved credit
quality of our North American portfolio. Impairment losses on operating leases due to early termination decreasedincreased by ¥2.4¥3.2 billion, or 75%213.3%. These declines in losses are due mainlyThe increase was primarily attributable to the improvementincrease in the overall credit qualityvolume of our North American portfolio and economic conditions and strength in used vehicle prices.
Fiscal Year 2010 Compared with Fiscal Year 2009
The provision for credit losses on finance receivables decreased by ¥22.0 billion, or 40%, and net charge-offs decreased by ¥14.5 billion, or 31%. Impairment losses on operating leases due to early termination
decreased by ¥5.4 billion, or 62%. The declines in losses and delinquencies reflect the improvement in the overall credit quality, focused collection efforts, stabilization of the economy, and improvements in used vehicle prices, principallylease assets in North America.
Losses on Lease Residual Values
Our finance subsidiaries in North America establish contractdetermine contractual residual values of lease vehicles at lease inception based on expectations of future used vehicle values, taking into consideration external industry data. End-customersdata and our own historical experience. Lease customers have the option at the end of leased vehicles typically have an optionthe lease term to return the vehicle to the dealer or to buy the leased vehicle for the contractual residual value of the vehicle or(or if purchased prior to return the vehicle to our finance subsidiaries through the dealerlease maturity, at the end of theoutstanding contractual balance). Returned lease term. Likewise, dealers have the option to buy the vehicle returnedvehicles can be purchased by the customer or to return the vehicle to our finance subsidiaries. The likelihood that the leased vehicle will be purchased varies depending on the difference betweengrounding dealer for the contractual residual value and the actual market value of the vehicle(or if purchased prior to lease maturity, at the end ofoutstanding contractual balance) or through market based pricing programs. Returned lease vehicles that are not purchased by the lease term.grounding dealers are sold through online and physical auctions. We are exposed to risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values at the end of the lease term. For direct financing leases, our finance subsidiaries in North America purchase insurance to cover a portion of the estimated residual value.
We periodically reviewassess our estimates for end of term market values of lease vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimateestimates the percentage of residual values.leased vehicles that we expect to be returned by the lessee at the end of lease term and the expected loss severity. Factors considered in this evaluation include, among other factors, economic conditions, historical trends, and market information on new and used vehicles. For vehicle leases accounted for as operating leases, the adjustments to estimated residual values result in changes to the remaining depreciation expense to be recognized prospectivelyare made on a straight-line basis over the remaining term of the lease.
lease and are included as depreciation expense. For vehicle leases accounted for as direct financing leases, downward adjustments are made for declines in estimated residual values that are deemed to be other-than-temporary. The adjustments on the uninsured portion of the vehicle’s residual valueother-than-temporary are recognized as a loss on lease residual values in the period in which the estimate changed.
The primary components in estimating losses on lease residual values are the expected frequency of returns, or the percentage of leased vehicles we expect to be returned by customers at the end of the lease term, and the expected loss severity, or the expected difference between the residual value and the amount we receive through sales of returned vehicles plus proceeds from insurance, if any. We estimate losses on lease residual values by evaluating several different factors, including trends in historical and projected used vehicle values and general economic measures.
We also testreview our investment in operating leases for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable.
Recoverability of operating leases to be held is measured by a comparison of the carrying amount of operating leases to future net cash flows (undiscounted and without interest charges) expected to be generated by the operating leases. If such operating leasesimpairment conditions are considered to be impaired,met, impairment losses to be recognized isare measured by the amount by whichcarrying values exceed their fair values. There were no events or circumstances that indicated that the carrying amountvalues of theour operating leases exceedswould not be recoverable during the estimated fair value of the operating leases.fiscal years ended March 31, 2012, 2013, and 2014.
We believe that our estimated losses on lease residual values and impairment losses is a “critical accounting estimate” because it is highly susceptible to market volatility and requires us to make assumptions about future economic trends and lease residual values, which are inherently uncertain. We believe that the assumptions used are appropriate. However actual losses incurred may differ from original estimates as a result of actual results varingvarying from those assumed in our estimates.
If future auction values for all Honda and Acura vehicles in our North American operating lease portfolio as of March 31, 2011,2014, were to decrease by approximately ¥10,000 per unit from our present estimates, holding all other assumption constant, the total impact would be an increase in depreciation expense by approximately ¥2.0¥4.6 billion, which would be recognized over the remaining lease terms. Similarly, if future return rates for our existing portfolio of all Honda and Acura vehicles were to increase by one percentage point from our present estimates, the total impact would be an increase in depreciation expense by approximately ¥0.2¥0.6 billion, which would be recognized over the remaining lease terms. With the same prerequisites shown above, if future auction values in our North American direct financing lease portfolio were to decrease by approximately ¥10,000 per unit from our present estimates, the total impact would be an increase in losses on lease residual values by approximately ¥0.2¥0.1 billion. And if future return rates were to increase by one percentage point from our present estimates, the total impact would be slight. Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions in fiscal 2011.2014. Also, declines in auction values are likely to have a negative effect on return rates which could affect the sensitivities.
Fiscal Year 20112014 Compared with Fiscal Year 20102013
Used vehicle prices continued to improve during fiscal year 2011 due in part to the low supply of used vehicles. Losses related to lease residual value of our finance subsidiaries in North America declined for higher estimates of lease residual values. No impairment losses as a result of declines in estimated residual values were recognized during fiscal year 2011.
Incremental deprecation on operating leases declined by ¥11.4 billion, or 81%. Losses on lease residual values on direct financing leases declined by ¥3.9¥0.4 billion, or 56%51.4%. The decrease in losses on lease residual values was due to an improvement in used vehicle prices in North America compared with fiscal year 2013.
Fiscal Year 20102013 Compared with Fiscal Year 20092012
During fiscal year 2010, used vehicle prices recovered from the severe declines that were experienced in prior years. The improvement in prices was attributable in part to lower used vehicle supplies and stabilization in the economy during the year. No impairment losses as a result of declines in estimatedLosses on lease residual values were recognized during fiscal year 2010.
on direct financing leases declined by ¥0.6 billion, or 47.4%. Incremental depreciation on operating leases increased by ¥6.7 billion, due mainly to the declines in estimated residual values increased by ¥0.6 billion, or 5%. Losses on lease residual values declined by ¥15.8 billion, or 69%, primarily due to the decline direct financing leases.used vehicle prices in North America compared with fiscal year 2012 which showed near historical high.
Pension and Other Postretirement Benefits
We have various pension plans covering substantially all of our employees in Japan and certain employees in foreign countries. Benefit obligations and pension costs are based on assumptions of many factors, including the discount rate, the rate of salary increase and the expected long-term rate of return on plan assets. The discount rate is determined mainly based on the rates of high quality corporate bonds currently available and expected to be available during the period to maturity of the defined benefit pension plans. The salary increase assumptions reflect our actual experience as well as near-term outlook. Honda determines the expected long-term rate of return based on the investment policies. Honda considers the eligible investment assets under investment policies, historical experience, expected long-term rate of return under the investing environment, and the long-term target allocations of the various asset categories. Our assumed discount rate and rate of salary increase as of March 31, 20112014 were 2.0%1.5% and 2.2%, respectively, and our assumed expected long-term rate of return for the year ended March 31, 20112014 was 3.0% for Japanese plans. Our assumed discount rate and rate of salary increase as of March 31, 20112014 were 5.5~6.0%4.6~4.8% and 1.5~4.6%2.5~3.9%, respectively, and our assumed expected long-term rate of return for fiscal 20112014 was 6.5~8.0%6.0~7.4% for foreign plans.
We believe that the accounting estimates related to our pension plans isare “critical accounting estimate” because changes in these estimates can materially affect our financial condition and results of operations.
Actual results may differ from our assumptions, and the difference is accumulated and amortized over future periods. Therefore, the difference generally will be reflected as our recognized expenses in future periods. We believe that the assumptions currently used are appropriate, however, differences in actual expenses or changes in assumptions could affect our pension costs and obligations, including our cash requirements to fund such obligations.
The following table shows the effect of a 0.5% change in the assumed discount rate and the expected long-term rate of return on our funded status, equity, and pension expense.
Japanese Plans
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Assumptions | Percentage point change (%) | Funded status | Equity | Pension expense | ||||||||||||
Discount rate | +0.5/-0.5 | + | ||||||||||||||
Expected long-term rate of return | +0.5/-0.5 | — | — |
Foreign Plans
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Assumptions | Percentage point change (%) | Funded status | Equity | Pension expense | ||||||||||||
Discount rate | +0.5/-0.5 | + | ||||||||||||||
Expected long-term rate of return | +0.5/-0.5 | — | — |
Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, |
Funded status for fiscal |
Pension expense for fiscal |
Income Taxes
Honda is subject to income tax examinations in many tax jurisdictions because Honda conducts its operations in various regions of the world. We recognize the tax benefit from an uncertain tax position based on the technical merits of the position when the position is more likely than not to be sustained upon examination. Benefits from tax positions that meet the more likely than not recognition threshold are measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate resolution. We performed a comprehensive review of any uncertain tax positions.
We believe our accounting for tax uncertainties is a “critical accounting estimate” because it requires us to evaluate and assess the probability of the outcome that could be realized upon ultimate resolution. Our estimates may change in the future due to new developments.
We believe that our estimates and assumptions of unrecognized tax benefits are reasonable, however, if our estimates of unrecognized tax benefits and potential tax benefits are not representative of actual outcomes, our consolidated financial statements could be materially affected in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution.
Due to the Company’s remeasurement based on technical merits regarding transfer pricing matters of overseas transactions between the Company and foreign affiliates, the Company has decreased a portion of unrecognized tax benefits during the year ended March 31, 2014.
Valuation of Deferred Tax Assets
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income over the periods in which those temporary differences become deductible and operating loss carryforwards utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
We believe that our accounting for the valuation of deferred tax assets is a “critical accounting estimate” because it required us to evaluate and assess the probability of future taxable income and our business plan, which are inherently uncertain.
Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences and operating loss carryforwards, net of the existing valuation allowances at March 31, 2013 and 2014. The amount of the deferred tax assets considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are
reduced due to further changes in the economic environment surrounding us, effects by market conditions, effects of currency fluctuations or other factors and our consolidated results of operation could be adversely affected.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 “Revenue from Contracts with Customers”, which amends the revenue recognition requirements in the FASB Accounting Standards Codification (ASC). This statement requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The statement shall be applied using one of two methods: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying this statement recognized at the date of initial application. The Company has not yet determined which method it will apply. This statement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. Honda is currently evaluating the impact of this statement on the Company’s consolidated financial position or results of operations.
B. Liquidity and Capital Resources
Overview of Capital Requirements, Sources and Uses
The policy of Honda is to support its business activities by maintaining sufficient capital resources, a sufficient level of liquidity and a sound balance sheet.
Honda’s main business is the manufacturing and sale of motorcycles, automobiles and power products. To support this business, it also provides retail financing and automobile leasing services for customers, as well as wholesale financing services for dealers.
Honda requires operatingworking capital mainly to purchase parts and raw materials required for production, as well as to maintain inventory of finished products and cover receivables from dealers and for providing financial services. Honda also requires funds for capital expenditures, mainly to introduce new models, upgrade, rationalize and renew production facilities, as well as to expand and reinforce sales and R&D facilities.
Honda meets its operatingworking capital requirements primarily through cash generated by operations and bank loans andloans. Honda believes that its working capital is sufficient for the issuance of corporate bonds.Company’s present requirements. The year-end balance of liabilities associated with the Company and its subsidiaries’ funding for non-financialnon-Financial services businesses was ¥399.8¥565.3 billion as of March 31, 2011.2014. In addition, the Company’s finance subsidiaries fund financial programs for customers and dealers primarily from medium-term notes, commercial paper, corporate bonds, bank loans, securitization of finance receivables, commercial paper, corporate bonds, and intercompany loans. The year-end balance of liabilities associated with these finance subsidiaries’ funding for financialFinancial services business was ¥4,207.9¥5,838.2 billion as of March 31, 2011.2014.
Cash Flows
Fiscal Year 2014 Compared with Fiscal Year 2013
Consolidated cash and cash equivalents for the year endedon March 31, 2011 increased2014 decreased by ¥159.1¥37.2 billion from March 31, 2010,2013, to ¥1,279.0¥1,168.9 billion. The reasons for the increases or decreases for each cash flow activity, when compared with the previous fiscal year, are as follows:
Net cash provided by operating activities amounted to ¥1,070.8¥1,229.1 billion of cash inflows. Cash inflows from operating activities decreasedincreased by ¥473.3¥428.4 billion compared with the previous fiscal year, due mainly to an increase in cash received due to increased unit sales in Automobile business, which was partially offset by increased payments for parts and raw materials primarily due to an increase in automobile production, which was partially offset by an increase in cash received from customers, primarily due to increased unit sales in the automobile business.materials.
Net cash used in investing activities amounted to ¥731.3¥1,708.7 billion of cash outflows. Cash outflows from investing activities increased by ¥135.6¥638.9 billion compared with the previous fiscal year, due mainly to an increase in acquisitions of finance subsidiaries-receivables and an increase in purchasepurchases of operating lease assets, which was partially offset by an increase in collections of finance subsidiaries-receivables and an increase in proceeds from sales of operating lease assets.subsidiaries-receivables.
Net cash used inprovided by financing activities amounted to ¥100.4¥370.5 billion of cash outflows.inflows. Cash outflowsinflows from financing activities decreasedincreased by ¥458.8¥250.9 billion compared with the previous fiscal year, due mainly to an increase in debts which decreased in the previous fiscal year,proceeds from debt, which was partially offset by purchasesan increase in dividends paid.
Fiscal Year 2013 Compared with Fiscal Year 2012
Consolidated cash and cash equivalents on March 31, 2013 decreased by ¥40.9 billion from March 31, 2012, to ¥1,206.1 billion. The reasons for the increases or decreases for each cash flow activity, when compared with the previous fiscal year, are as follows:
Net cash provided by operating activities amounted to ¥800.7 billion of treasury stockcash inflows. Cash inflows from operating activities increased by ¥39.2 billion compared with the previous fiscal year, due mainly to an increase in cash received due to increased unit sales in Automobile business, which was partially offset by increased payments for parts and raw materials primarily caused by an increase in automobile production.
Net cash used in investing activities amounted to ¥1,069.7 billion of cash outflows. Cash outflows from investing activities increased by ¥396.6 billion compared with the previous fiscal year, due mainly to an increase in capital expenditure, acquisitions of finance subsidiaries-receivables and purchase of operating lease assets.
Net cash provided by financing activities amounted to ¥119.5 billion of cash inflows. Cash inflows from financing activities increased by ¥187.7 billion compared with the previous fiscal year, due mainly to an increase in proceeds from debt, which was partially offset by an increase in dividends paid.
Liquidity
The ¥1,279.0¥1,168.9 billion in cash and cash equivalents at the end of the fiscal year 20112014 corresponds to approximately 1.71.2 months of net sales, and Honda believes it has sufficient liquidity for its business operations.
At the same time, Honda is aware of the possibility that various factors, such as recession-induced market contraction and financial and foreign exchange market volatility, may adversely affect liquidity. For this reason,
finance subsidiaries that carry total short-term borrowings of ¥1,369.4¥1,566.8 billion have committed lines of credit equivalent to ¥788.3¥965.0 billion that serve as alternative liquidity for the commercial paper issued regularly to replace debt. Honda believes it currently has sufficient credit limits, extended by prominent international banks, as of the date of the filing of Honda’s Form 20-F.
Honda’s short- and long-term debt securities are rated by credit rating agencies, such as Moody’s Investors Service, Inc., Standard & Poor’s Rating Services, and Rating and Investment Information, Inc. The following table shows the ratings of Honda’s unsecured debt securities by Moody’s, Standard & Poor’s and Rating and Investment Information as of March 31, 2011.2014.
Credit ratings for | ||||||||
Short-term unsecured debt securities | Long-term unsecured debt securities | |||||||
Moody’s Investors Service | P-1 | A1 | ||||||
Standard & Poor’s Rating Services | A-1 | A+ | ||||||
Rating and Investment Information | a-1+ | AA |
The above ratings are based on information provided by Honda and other information deemed credible by the rating agencies. They are also based on the agencies’ assessment of credit risk associated with designated
securities issued by Honda. Each rating agency may use different standards for calculating Honda’s credit rating, and also makes its own assessment. Ratings can be revised or nullified by agencies at any time. These ratings are not meant to serve as a recommendation for trading in or holding Honda’s unsecured debt securities.
Honda and its consolidated subsidiaries use the most-advanced technologies toand conduct R&D activities with the goal of creating distinctive products that are internationally competitive. To attain this goal, the Group’sHonda’s main R&D divisions operate independently as subsidiaries, allowing techniciansengineers to pursue their tasks with significant freedom. Product-related R&D is spearheaded by Honda R&D Co., Ltd. in Japan; Honda R&D Americas, Inc. in the United States; and Honda R&D Europe (U.K.)Asia Pacific Co., Ltd. in the United Kingdom.Thailand. R&D on production technologies centers around Honda Engineering Co., Ltd. in Japan and Honda Engineering North America, Inc. in the United States. All of these entities work in close association with our other entities and businesses in their respective regions.
Total consolidated R&D expenses foramounted to ¥634.1 billion in the fiscal year ended March 31, 2011 amounted to ¥487.5 billion.2014.
Motorcycle Business
In the Motorcycle Business,motorcycle business segment, Honda is committedaiming to developingdeliver appealing products with value-added featuresin a timely manner that meetoffer outstanding environmental performance and that will enable customers to experience the needsjoy of customers aroundownership. To this end, we prioritized initiatives designed to bolster product appeal, strengthen cost competitiveness, quicken the worldpace of product and technology development, and respond to implementing the timely local developmentdemands of products suited to specific regions at its overseas locations. Along with these activities, we are focusing on developing technologies that address safety and environmental issues.a low-carbon society.
Major developments in fiscal 2011 includedAmong major technological achievements, the launchingCTX1300, CBR650Fand CB650F models were launched globally. TheCTX1300 is the new flagship model of motorcycles in Japan, Thailand, India, IndonesiatheCTXseries with “Comfort Technology Experience” as its development concept. TheCBR and Malaysia powered by CB models were equipped with a newly developed double overhead camshaft (DOHC) engine, which is outfitted with the world’s first roller rocker arm and other innovations that give non-slip, powerful performance from low rotation to high rotation speeds, combined with good fuel economy. We also introduced a globally strategic motorcycle, theCBR250R, which is a light-weight super sports bike that incorporates a newly designed frame with a truss structure that offers ease of handling and maneuvering stability.DOHC parallel four-cylinder 650cc water-cooled four-stroke engine.
In Japan, we began to offer theEV-neoCBR400R,CB400F with lease financing. TheandEV-neo400X is an electric-powered bike that responds to the needs of today’s new era by contributing to realizing a low-carbon society as it provides transportation for people and cargo. Equipped with a motor featuring good torque performance even at low speeds, theEV-neo offers strong starting performance, even when carrying cargo, and has a specially developed battery that can be fully recharged in about 30 minutes (at an ambient temperature of 25°C) as well as greater ease of recharging. In addition, in Japan, we introduced theGiorno, a motor scooter with “round and cute” design to appeal mainly to the fashion-conscious younger generation but also to suit the tastes of a broad range of other customers. Also, in Thailand, we introduced theWAVE 110i, a new model Cub-style bike which is the first Cub style equipped with the PGM-FI electronically controlled fuel injection system that is more compact than those equipped in previous models.WAVE 110i has a more-secure, refined appearance as well as considerably more cargo space, which can store a half helmet. In Indonesia, we relaunched theMegaPro, a sports model with wide, practical applicability, after a full model change. The newMegaPro offers a new design and equipment that give it a more-luxurious and powerful appearance. Also, it ismodels equipped with a new typenewly developed DOHC parallel twin-cylinder 400cc water-cooled four-stroke engine that aims for improved fuel economy through the application of friction reducing and cooling technologies.were launched. In addition, a new-modelDUNK scooter equipped with a newly developed OHC single-cylinder 50cc water-cooled four-stroke “eSP” engine was also introduced.
R&D expenses in this segment amounted to ¥73.0 billion in fiscal 2011 were ¥67.8 billion.the year ended March 31, 2014.
In terms of major race results, Honda won the rider, constructor and team divisions to become a triple-crown champion in MotoGP-class motorcycle racing.
Automobile Business
In the Automobile Businessautomobile business segment, we are workingHonda’s aim is to become the premier manufacturer of interesting, cleverly designed cars that enable customers to experience the joy of driving. The overall strategic direction is to develop innovative technologies“great products speedily, at affordable prices and create products with new value added to respond to customer needs. We are also actively developing technologies that provide advanced safety performance and address environment issues.low CO2 emissions.”
Among major technological achievements in Japan during fiscal 2011, wethe automobile business segment, Honda developed and launched the all newFreed SpikeN-WGN, which features ease of drivingand N-WGN Custom models equipped with safety enhancements, including six airbags and a spacious interiorsystem that prevents the car from drifting sideways in a compact body.reaction to abrupt turns of the steering wheel. In addition, we made minorHonda enhanced fuel economy by developing a new lightweight and compact hybrid system that can operate on one motor in electric vehicle (EV) mode. It was initially installed in theFit Hybrid and the new VEZEL Hybridmodels.
Moreover, a hybrid system combining a two-motor electric mode CVT powertrain with lithium ion batteries was developed for installation in theAccord Hybrid andAccord Plug-in Hybrid models. The capacity of the
lithium ion battery was enlarged for the plug-in hybrid model changes on theLEGENDto upgrade its drivetrainenable it to operate entirely in EV mode in most daily driving situations. As a result, a balance between nimble acceleration and improve fuel economy, which is characteristic of EVs, was realized in these two models.
Furthermore, a new hybrid system combining a three-motor electric mode and V6 engine with direct fuel injection to realize both superb acceleration performance and it becamefuel economy was developed. This proprietary system with two motors mounted in the first Honda automobileback is capable of independently controlling the torque to the left and right rear wheels, and will be installed in models to be outfittedlaunched in the near future.
As for other technological achievements, an omnidirectional safety system to assist drivers in avoiding accidents was developed. This system utilizes a microwave radar and a set of cameras to monitor the surroundings of a vehicle, and automatically provides braking and steering assistance to help the driver take evasive action.
R&D expenses in this segment amounted to ¥531.4 billion in the year ended March 31, 2014.
Power Product and Other Businesses
The power product business’ overall strategic direction is to proactively propose new and useful ideas that will bring joy to customers worldwide. The segment’s core technological initiatives focus primarily on (1) creating new products and technologies for developed countries, and (2) developing products for expanding markets in the emerging countries.
Among key technological achievements, Honda launched the HSS760n compact rotary snowblower equipped with an auger (snow-throwing unit) with a newly developed six-speed automatic transmission. Theconcentric, simultaneous forward, reverse mechanism that prevents the machine from riding up on top of hardened snow. Also launched was theLEGENDHSL2511 is also now the first car in the worldlarge-sized snowblower equipped with a noise suppressor device, which is installed onfunction for adjusting the 18-inch noise limiting aluminum wheels and reduces the noise emitted from inside the tire. In addition, in Japan and Europe, we launched theFit Hybrid (sold in Europe as theJazz Hybrid), a new type in theFit series, which has its hybrid battery installed underneath the baggage compartment and thus retains the interior comfort and seat arrangementangling of the previousauger, among other features. In the general-purpose engine category, theFitGP160H models (soldandGP200H engines were developed for sale in Europeemerging markets. These engines were designed to share as theJazz models) while adding top-notch fuel economymany water pump and driving performance. In Asia outside Japan, we launched the new, low-pricedBRIOgenerator components produced in Thailand, which succeedsChina as possible in offering a compact body with a spacious interior. TheBRIO also delivers good environmental performance, as evidenced by its certification as an eco-car by Thai government standards because of its fuel economyorder to lower their price and satisfaction of the Euro 4 gas emission standards.
Other R&D-related news included the announcement of theFit EV Concept. This new electric vehicle (EV) concept model offers driving mode options and delivers a lively response with a strong sense of acceleration, similarmake them affordable to that of a 2.0 liter class engine, by drawing on the features of having the motor on the same axle as the gearbox. At the same time, it also offers a more-efficient ride and conserves electric power. We also announced a new hybrid concept car that harnesses a specially developed 2.0 liter i-VTEC engine, which delivers high efficiency and high fuel performance, together with two high-power electric motors. This hybrid has three driving modes: electric power, hybrid operation and gasoline engine and, as a “plug-in hybrid,” can be recharged by plugging into a household electric outlet. In addition, to verify results and support the realization of a low-carbon mobility society in the years to come, we have begun testing in real driving situations of the performance of EVs and plug-in hybrids in Japan and the United States.many more customers.
R&D expenses in this segment amounted to ¥29.6 billion in fiscal 2011 were ¥389.8 billion.
Power Product and Other Businessesthe year ended March 31, 2014.
In the Power Product and Other Businesses, we are working to develop products that contribute to customers’ lifestyles, while strengthening our lineup of offerings that address environmental issues.
Principal developments in this segment included the re-launching of theBF115 outboard motor with full model changes in markets around the world. This upgraded model incorporates the boosted low-speed torque (BLAST) system, which is an air/fuel ratio and injection-timing technology and lean-burn control mechanism, which makes possible strong torque performance and acceleration over a wide range of rotation speeds. Also, through lean-burn control, fuel economy has been improved by 20% over previous types. In addition, in North America, Europe, and Asia, we implemented a full model change in our cylindrical electric power generators,EG4000,EG5000 andEG6500 (sold asEG3600,EG4500, andEG5500 in Europe) by boosting their continuous operating time by equipping them with fuel-efficient, eco-friendly engines and enhancing their power generating capacity. We also launched ourUMK 425 andUMK 435 series of four-stroke lawn mowers in Europe, which feature a large-sized deflector (antiscattering cover) with a redesigned shape that substantially reduces jamming due to ingested grass and other vegetable matter. In Japan, we announced new thin-film solar cells, which are more compact than models already on the market and can be laid out and installed efficiently on roofs of widely varying shapes. In addition, the tested prototypes of these solar cells attain a module conversion ratio of 13.0%, which is the highest in the world among similar thin-film solar cells currently on the market. Looking to launch these units, we are working to further increase their module conversion ratio.
In other businesses in this segment, Honda Aircraft Company, Inc., our U.S. subsidiary in the jet aircraft business, reported that the mass production model of HondaJet, a light business jet that has been designed for obtaining approval from the U.S. Federal Aviation Administration (FAA), successfully completed its maiden flight.
R&D expenses in this segment in fiscal 2011 were ¥29.9 billion.
Fundamental Research
During fiscal 2011, Major initiatives in the fundamental research area included a joint trial research project for Honda’s walking assist device in collaboration with a leading U.S. rehabilitation institute in Chicago. Honda’s walking assist devices are being developed to help people who have walking impairments due to illness, injuries or weakened leg muscles due to old age, to regain biopedal mobility.
Honda continuedalso unveiled aUNI-CUB ß model of its research activitiesUNI-CUB Personal Mobility Device, which enables riders to develop technologiesmove at walking speed simply by shifting their weight and leaning in a diverse range of fieldsthe direction they would like to go. This beta model was developed based on data and user feedback collected from trial demonstrations that will support the products of the future.began in June 2012.
Please note that expenses incurred in fundamental research are allocated among Honda’seach business segments.segment.
Patents and Licenses
AtAs of March 31, 2011,2014, Honda owned more than 16,40020,800 patents in Japan and more than 24,60025,900 patents abroad. Honda also had applications pending for more than 14,8008,800 patents in Japan and for more than 17,50015,700 patents abroad. While Honda considers that, in the aggregate, Honda’s patents are important, it does not consider any one of such patents, or any related group of them, to be of such importance that the expiration or termination thereof would materially affect Honda’s business.
The Great East Japan Earthquake occurred on March 11, 2011 and the nuclear power plant disaster have caused and will continue to cause significant damage to the Japanese economy. Honda’s business sites, such as Honda’s R&D subsidiaries located in Tochigi Prefecture, were heavily damaged. As a result, certain property, plant and equipment and inventories were damaged. On March 11, 2011, Honda temporarily suspended production and R&D activities at its sites located in Japan due to the effects of this disaster, which includes a shortage of parts supplies and damage on property, plant and equipment.
As a result, Honda recognized ¥45.7 billion of costs and expenses, of which ¥17.4 billion is included in cost of sales and ¥28.2 billion is included in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended March 31, 2011. These costs and expenses mainly consist of unallocated fixed production overhead of ¥15.0 billion caused by temporary suspension of production which is included in cost of sales, and loss on damaged property, plant and equipment of ¥15.6 billion which is included in selling, general and administrative expenses. Fixed costs of ¥7.7 billion pertaining to certain R&D activities incurred during the period such activities were suspended are not included in research and development, but selling, general and administrative expenses. Substantially all of these costs and expenses resulting from the disaster are included in operating expenses of automobile business segment. Honda will recognize the costs of future restoration activities as they are incurred. The effect of this disaster on Honda’s sales activities for the year ended March 31, 2011 was immaterial.
By April 11, 2011, Honda had resumed production activities at all of its production sites; however, production at Honda’s automobile plants both in and outside of Japan has been temporarily reduced. As of the date of the filing of this Form 20-F, recovery from shortage of certain parts supplies is in sight. Honda expects its domestic production has been nearly normalized in late June and its overseas production will be nearly normalized in the August /September timeframe except certain type or model of automobile products which will have continuous restricted parts supplies.
Concerning the impact on profit in the next year consolidated financial statements, Honda estimates factors which weigh on profit mainly in automobile business segment such as decreased net sales of automobile business attributable to shortage of inventories, unallocated fixed production overhead as a result of temporary reduced production, and the costs of restoration activities can occur. On the other hand, net sales of automobile business is expected to recover after normalization of production. Honda believes the impact of the Earthquake will not be severe on Honda’s consolidated financial position or results of operations and will not continue over a long period.
Honda’s R&D subsidiaries located in Tochigi Prefecture set up satellite offices within the plants and other offices as it would take some time to restore its building and facility, and resumed R&D operations on March 28. As a result, Honda has been able to minimize the impact of the Earthquake on R&D activities. Satellite offices were dissolved in early June.
See Item 5.A “Operating and Financial Review and Prospects” for information required by this item except the impact of the Earthquake described above.item.
E. Off-Balance Sheet Arrangements
(Securitization)
For the purpose of liquidity and funding, our finance subsidiaries periodically securitize finance receivables. In these securitizations, our finance subsidiaries transfer a portfolio of finance receivables to a special purpose entity, which is established for the limited purpose of buying and re-transfer finance receivables. Our finance subsidiaries remain as a servicer of the finance receivables and are paid a servicing fee for our services. The special purpose entity transfers the receivables to a trust which is newly structured for each securitization or bank conduit, which issues asset-backed securities or commercial paper, respectively, to investors. Our finance subsidiaries retain certain subordinated interests in the transferred receivables in the form of subordinated certificates, servicing assets and residual interests in certain cash reserves provided as credit enhancements for investors. Our finance subsidiaries apply significant assumptions regarding prepayments, credit losses and average interest rates in estimating expected cash flows from the trust or bank conduit, which affect the recoverability of our retained interests in the transferred finance receivables. We periodically evaluate these assumptions and adjust them, if appropriate, to reflect the performance of the finance receivables.
We have not consolidated certain trusts since these trusts meet the definitions of a former qualifying special purpose entity before the fiscal year ended March 31, 2011. We adopted Accounting Standards Update (ASU) 2009-16 “Accounting for Transfers of Financial Assets”, and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effective April 1, 2010. Upon the adoption of these standards, we consolidated all trusts as of April 1, 2010. As a result, we have no off-balance sheet arrangements in the fiscal year ended March 31, 2011. Information about ASU 2009-16 and 2009-17 is described in note (1)(c) and information about variable interest entities and securitizations is described in note (4) to the accompanying consolidated financial statements.
(Guarantee)
AtAs of March 31, 2011,2014, we guaranteed ¥30.3¥25.3 billion of employee bank loans for their housing costs. If an employee defaults on his/her loan payments, we are required to perform under the guarantee. The undiscounted maximum amount of our obligation to make future payments in the event of defaults is ¥30.3¥25.3 billion. As of March 31, 2011,2014, no amount washas been accrued for any estimated losses under the obligations, as it was probable that the employees would be able to make all scheduled payments.
F. Tabular Disclosure of Contractual Obligations
The following table shows our contractual obligations atas of March 31, 2011:2014:
Contractual Obligations
At March 31, 2011 | As of March 31, 2014 | |||||||||||||||||||||||||||||||||||||||
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||
Payments due by period | Payments due by period | |||||||||||||||||||||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | Within 1 year | 1-3 years | 3-5 years | Thereafter | |||||||||||||||||||||||||||||||
Long-term debt | 3,005,695 | 962,455 | 1,369,943 | 555,551 | 117,746 | ¥ | 4,537,530 | 1,303,464 | 2,088,658 | 851,734 | 293,674 | |||||||||||||||||||||||||||||
Operating leases | 102,783 | 19,100 | 24,370 | 15,115 | 44,198 | 102,180 | 18,862 | 27,567 | 16,027 | 39,724 | ||||||||||||||||||||||||||||||
Purchase commitments*1 | 28,466 | 28,466 | — | — | — | |||||||||||||||||||||||||||||||||||
Purchase and other commitments*1 | 131,238 | 93,448 | 16,452 | 16,452 | 4,886 | |||||||||||||||||||||||||||||||||||
Interest payments*2 | 218,226 | 92,907 | 97,696 | 25,112 | 2,511 | 181,449 | 79,061 | 73,865 | 25,802 | 2,721 | ||||||||||||||||||||||||||||||
Contributions to defined benefit pension plans*3 | 92,815 | 92,815 | — | — | — | 79,240 | 79,240 | — | — | — | ||||||||||||||||||||||||||||||
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Total | 3,447,985 | 1,195,743 | 1,492,009 | 595,778 | 164,455 | ¥ | 5,031,637 | 1,574,075 | 2,206,542 | 910,015 | 341,005 | |||||||||||||||||||||||||||||
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*1 | Honda had commitments for purchases of property, plant and equipment |
*2 | To estimate the schedule of interest payments, the company utilized the balances and average interest rates of borrowings and debts and derivative instruments as of March 31, |
*3 | Since contributions beyond the next fiscal year are not currently determinable, contributions to defined benefit pension plans reflect only contributions expected for the next fiscal year. |
If our estimates of unrecognized tax benefits and potential tax benefits are not representative of actual outcomes, our consolidated financial statements could be materially affected in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Since it is difficult to estimate actual payment in the future related to our uncertain tax positions, unrecognized tax benefit totaled ¥46,265¥6,983 million is not represented in the table above.
AtAs of March 31, 2011,2014, we had no material capital lease obligations or long-term liabilities reflected on our balance sheet under U.S. GAAP other than those set forth in the table above.
All information disclosed under Item 5. E and F contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are based on management’s assumptions and beliefs taking into account information currently available to it. Therefore, please be advised that Honda’s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors, including general economic conditions in Honda’s principal markets and foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro and other major currencies, as well as other factors detailed from time to time.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Honda’s articles of incorporation provide for a Board of Directors of not more than 15 Directors and for a Board of Corporate Auditors of not more than seven Corporate Auditors. Directors and Corporate Auditors are elected by resolutions of the general meetings of shareholders. The Corporate Auditors are nominated by the Board of Directors as candidates for election with approval by the Board of Corporate Auditors. The normal term of office of a Director is one year and that of a Corporate Auditor is four years. Directors and Corporate Auditors may serve any number of consecutive terms.
The Board of Directors appoints one President and Director and may appoint one Chairman of the Board of Directors and several Executive Vice Presidents and Directors, Senior Managing Directors and Managing Directors from among its members. The President represents the Company. In addition, the Board of Directors may appoint, pursuant to its resolutions, Directors who shall each represent the Company. Under the Company Law, a representative director individually has authority to represent the Company generally in the conduct of its affairs. The Board of Directors has the ultimate responsibility for the administration of the affairs of the Company.
Under the Company Law, the Corporate Auditors of the Company have the duty to audit the Director’s execution of their duties. Corporate Auditors are not required to be and the Corporate Auditors of the Company are not, certified public accountants, and may not at the same time be Directors or employees of the Company or any of its subsidiaries. They are entitledrequired to participate inattend at meetings of the Board of Directors but are not entitled to vote. Corporate Auditors of the Company form the Board of Corporate Auditors, which must consist of at least three Corporate Auditors. Not less than half of the members of the Board of Corporate Auditors must be outside Corporate Auditors, each of whom has never served as a director, accounting councilor, operating officer, manager or employee of the Company or any of its subsidiaries. Corporate Auditors are required to elect from among themselves at least one StandingFull-time Corporate Auditor. Corporate Auditors also have a statutory duty to provide their report to the Board of Corporate Auditors, which must submit its audit report to the Representative Director each year. A Corporate Auditor may note his or her opinion in the audit report if his or her opinion is different from the opinion expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, methods of investigation by Corporate Auditors of the status of the corporate affairs and assets of the Company and other matters concerning the performance of the Corporate Auditors’ duties. In addition, the Company is required to appoint independent certified public accountants as accounting auditor. Such independent certified public accountants have as their primary statutory duties to audit the consolidated and non-consolidated financial statements of the Company prepared in accordance with the Company Law to be submitted by the Representative Director to general meetings of shareholders and to prepare an accounting audit report thereon and to notify the contents of such report to the specified Corporate Auditor and the specified Director in charge.
The following table provides the names of all Directors and Corporate Auditors of the Company and the current positions held by such persons.
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Representative Directors | ||||||||||
( |
Chairman and appointed in April
| *3 | ||||||||
Chief Operating Officer for IT Operations, appointed in April 2012 | ||||||||||
Responsible for Government & Industrial Affairs, appointed in April 2012 | ||||||||||
Senior Managing Officer and Director of the Company, appointed in April 2011 | ||||||||||
Chief Operating Officer for Business Management Operations, appointed in April 2011 | ||||||||||
Risk Management Officer, appointed in April 2011 | ||||||||||
General Supervisor, Information Systems, appointed in April 2011 | ||||||||||
Chief Operating Officer for Regional Operations (Asia & Oceania), appointed in April 2008 | ||||||||||
President and Director of Asian Honda Motor Co., Ltd., appointed in April 2008 | ||||||||||
Managing Director of the Company, appointed in June 2007 | ||||||||||
Chief Operating Officer for Business Management Operations, appointed in April 2006 | ||||||||||
Director of the Company, appointed in June | ||||||||||
appointed in
| ||||||||||
Joined Honda
|
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
| ||||||||||
Takanobu Ito (August 29, 1953) |
President, Chief Executive Officer and
appointed in April 2011 (presently held) | *3 | 29,700 | |||||||
Chief Operating Officer for Automobile Operations, appointed in April 2011
President and Director of the Company, appointed in June 2009 | ||||||||||
President and Director of Honda R&D Co., Ltd., appointed in April 2009 | ||||||||||
Senior Managing Director of the Company, appointed in June 2007 | ||||||||||
Chief Operating Officer for Automobile Operations, appointed in April 2007 | ||||||||||
Managing Officer of the Company, appointed in June 2005 | ||||||||||
General Manager of Suzuka Factory of Production Operations, appointed in April 2005 | ||||||||||
General Supervisor, Motor Sports, appointed in April 2004 | ||||||||||
Managing Director of the Company, appointed in June 2003 | ||||||||||
Responsible for Motor Sports, appointed in June 2003 | ||||||||||
President and Director of Honda R&D Co., Ltd., appointed in June 2003 | ||||||||||
Senior Managing Director of Honda R&D Co., Ltd., appointed in June 2001 | ||||||||||
Director of the Company, appointed in June 2000 | ||||||||||
Executive Vice President of Honda R&D Americas, Inc., appointed in April 1998
| ||||||||||
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Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Tetsuo Iwamura (May 30, 1951) |
appointed in April Chairman of American Honda Motor Co., Inc., appointed in April 2014 (presently held) Chief Operating Officer for Automobile Operations, appointed in April 2013 Risk Management Officer, appointed in April 2013 (presently held) Director of the Company, appointed in June 2012 (presently held) Executive Vice President and Executive Officer, appointed in April 2012 (presently held) Senior Managing Officer of the Company, appointed in June 2011 Senior Managing Officer and Director of the Company, appointed in April 2011
Senior Managing Director of the Company, appointed in June 2008
Chief Operating Officer for appointed in April
President and Director of Honda North America, Inc., appointed in April 2007 President and Chief Executive Officer of appointed in April
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Managing Director of the Company, appointed in June 2006
Chief Operating Officer for Regional Operations (Latin
appointed in April
President and Director of appointed in April President and Director of Moto Honda da Amazonia Ltda., appointed in April 2003 President and Director of Honda Automoveis do Brasil Ltda., appointed in April 2003 Director of the Company, appointed in June 2000
Chief Operating Officer for Parts Operations, appointed in April Joined Honda in April 1978 | *3 | 29,800 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Directors | ||||||||||
Takashi Yamamoto (January 12, 1953) | Representative of Automobile Development, Purchasing and Production for Automobile Operations, appointed in April 2014 (presently held) Head of Automobile Production for Automobile Operations, appointed in April 2014 (presently held) President, Chief Executive Officer and Representative Director of Honda appointed in Chief Production Officer, appointed in April 2013 (presently held) General Manager of Automobile Production Oversight Unit for Automobile Operations, appointed in April 2013
Director of the Company, appointed in June
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Senior Managing Officer appointed in April
Chief Operating Officer for
appointed in April
appointed in April 2011
General appointed in April 2011
President and Director of appointed in
Managing appointed in June 2007
appointed in April
appointed in June
appointed in April
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Responsible for Quality, Certification and Regulation Compliance, appointed in April Responsible for Quality, Certification and Regulation Compliance and Service Technology, appointed in April 2002 Director of the Company, appointed in June 2000 General Manager of Automobile Purchasing Division 1 for Purchasing Operations, appointed in April 2000 Joined Honda in April 1977 | *3 | 21,400 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
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Yoshiharu Yamamoto (March 19, 1953) |
appointed in April 2013 (presently held)
Senior Managing Officer and Director of the Company, appointed in April 2012 (presently held) Director of the Company, appointed in June 2011
Managing Officer of the Company, appointed in April 2011
President, Chief Executive Officer and Representative Director of Honda R&D Co., Ltd., appointed in April 2011 (presently held)
Executive Vice President and Director of Honda R&D Co., Ltd., appointed in June 2010
Senior Managing Director of Honda R&D Co., Ltd., appointed in June 2007
Managing Director of Honda R&D Co., Ltd., appointed in June 2005
Joined Honda in April 1973 | *3 | 21,400 | |||||||
( |
Director of the Company, appointed in June
appointed in April Executive in Charge of Product and Brand Strategy for Automobile Operations, appointed in April 2013 Executive Vice President, Executive Officer and Director of Honda R&D Co., Ltd., appointed in April 2012 Managing Officer of the Company, appointed in April 2011 (presently held) Executive in Charge of Production for Automobile Operations, appointed in April 2011 Senior Managing Officer and Director of Honda R&D Co., Ltd., appointed in April 2011 Senior Managing Director of Honda R&D Co., Ltd., appointed in June 2010 Joined Honda in April 1978 | *3 | 21,400 |
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Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Masahiro Yoshida (March 5, 1957) |
appointed in
appointed in
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Operating Officer and Director of the Company, appointed in April 2011
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Director of the Company, appointed in June 2010 |
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Chief Operating Officer for Business Support Operations, appointed in April 2010 (presently held) General Manager of Hamamatsu Factory of Production Operations, appointed in April 2008
Operating Officer of the Company, appointed in June 2007
Responsible for Human Resources and Associate Relations, appointed in April 2007 (also General Manager of Human Resources Division for Business Support Operations as of April 2006)
Joined Honda in April 1979 | *3 | 25,200 | ||||||||
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appointed in
End of tenure as Director of Mitsubishi UFJ Financial Group, Inc. (MUFG) in June
appointed in April
Director of the Company, appointed in June
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appointed in April
appointed in
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Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
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appointed in June 2014 (presently held) General Manager of Gender Equality Promotion Office, Shibaura Institute of Technology, appointed in October 2013 (presently held) Deputy President, Professor, Shibaura Institute of Technology Graduate School of Engineering Management, appointed in April 2013 (presently held) End of tenure as Chairperson of Ricoh IT Solutions Co., Ltd. in March 2013 End of tenure as Associate Director of Ricoh Co., Ltd. in March 2013 Professor, Graduate School of Engineering Management, Shibaura Institute of Technology, appointed in April 2012 (presently held) Vice Chairperson of Japan Information Technology Service Industry Association, appointed in June 2011 (presently held)
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appointed in
appointed in
Associate Director of Ricoh Co., Ltd., appointed in April 2009 Chairperson of Ricoh Software Co., Ltd. (Current Ricoh IT Solutions Co., Ltd.), appointed in April 2008 Corporate Senior Vice President appointed in June 2005
appointed in October
appointed in June The University of Texas at Austin, Doctor of Philosophy, May 1983 Joined Ricoh Co., Ltd. in May 1982 San Jose State University, Master of Science—Computer and Information Sciences, January 1976 Ochanomizu University, Master of Science—Physics, March 1973 | * | 0 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Yuji Shiga (October 7, 1958) | Director of the Company, appointed in June 2012 (presently held) Chief Operating Officer for Power Product Operations, appointed in April 2012 (presently held) Operating Officer of the Company, appointed in April 2011 (presently held) Responsible for CIS countries, the Middle & Near East and Africa for Regional Operations, appointed in April 2011 General Manager of Operation Office No. 2 in Regional Operations (Asia & Oceania), appointed in April 2010 General Manager of Operation Office No. 1 in Regional Operations (North America), appointed in April 2009 Joined Honda in April 1982 | *3 | 13,500 | |||||||
Kohei Takeuchi (February 10, 1960) | Director of the Company, appointed in June 2013 (presently held) Chief Operating Officer for Business Management Operations, appointed in April 2013 (presently held) Operating Officer of the Company, appointed in April 2011 (presently held) General Manager of Accounting Division for Business Management Operations, appointed in April 2010 Joined Honda in April 1982 | *3 | 13,100 | |||||||
Shinji Aoyama (December 25, 1963) | Director of the Company, appointed in June 2013 (presently held) Chief Operating Officer for Motorcycle Operations, appointed in April 2013 (presently held) Operating Officer of the Company, appointed in April 2012 (presently held) General Manager of Motorcycle Business Planning Office for Motorcycle Operations, appointed in April 2011 Joined Honda in April 1986 | *3 | 9,300 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Noriya Kaihara (August 4, 1961) | Chief Operating Officer for Customer Service Operations, appointed in April 2014 (presently held) Head of Service Supervisory Unit for Automobile Operations, appointed in April 2014 (presently held) Director of the Company, appointed in June 2013 (presently held) Operating Officer of the Company, appointed in April 2013 (presently held) Chief Quality Officer, appointed in April 2013 (presently held) General Manager of Automobile Quality Assurance Division, appointed in April 2012 General Manager of Parts Sales and Service Division for Customer Service Operations, appointed in April 2010 Joined Honda in April 1984 | *3 | 5,600 | |||||||
Corporate Auditors | ||||||||||
Masaya Yamashita (April 5, 1953) | Corporate Auditor of the Company (full-time), appointed in June 2012 (presently held) | *5 | 27,700 | |||||||
Managing Officer of the Company, appointed in June 2011 | ||||||||||
Managing Officer and Director of the Company, appointed in April 2011 | ||||||||||
Managing Director of the Company, appointed in June 2008 | ||||||||||
Chief Operating Officer for Purchasing Operations, appointed in April 2008 | ||||||||||
General Manager of Kumamoto Factory of Production Operations, appointed in April 2006 | ||||||||||
Operating Officer of the Company, appointed in June 2005 | ||||||||||
Director of the Company, appointed in June 2003 General Manager of Automobile Purchasing Division 1 for Purchasing Operations, appointed in April 2002 Joined Honda in April 1977 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Kunio Endo (August 23, 1957) | Corporate Auditor of the Company (full-time), appointed in June 2013 (presently held) | *6 | 8,800 | |||||||
President and Director of American Honda Finance Corporation, appointed in November 2010 | ||||||||||
President and Director of Honda Canada Finance Inc., appointed in November 2010 | ||||||||||
Joined Honda in April 1981 | ||||||||||
Hirotake Abe (November 13, 1944) | Corporate Auditor of the Company, appointed in June 2011 (presently held) | *4 | 1,200 | |||||||
Established the Certified Public Accountant Hirotake Abe Office in January 2010 (presently held) | ||||||||||
Retired from Deloitte Touche Tohmatsu LLC in December 2009 | ||||||||||
Senior Adviser of Deloitte Touche Tohmatsu (presently, Deloitte Touche Tohmatsu LLC), appointed in June 2007 | ||||||||||
End of tenure as Executive Member of Deloitte Touche Tohmatsu Limited in May 2007 | ||||||||||
End of tenure as CEO of Tomatsu & Co. (presently, Deloitte Touche Tohmatsu LLC) in May 2007 | ||||||||||
Executive Member of Deloitte Touche Tohmatsu Limited, in June 2004 | ||||||||||
CEO of Tomatsu & Co. (presently, Deloitte Touche Tohmatsu LLC), appointed in June 2001 | ||||||||||
Registered as certified public accountant in March 1974 |
Name (Date of birth) | Current Positions and Biographies with Registrant | Term | Number of Shares Owned | |||||||
Tomochika Iwashita (November 14, 1946) | Corporate Auditor of the Company, appointed in June 2011 (presently held) | *4 | 1,200 | |||||||
End of tenure as Director of Tokio Marine Holdings, Inc. in June 2010 | ||||||||||
End of tenure as President and Director of Tokio Marine & Nichido Life Insurance Co., Ltd., in June 2010 | ||||||||||
President and Director of Tokio Marine & Nichido Life Insurance Co., Ltd., appointed in June 2006 | ||||||||||
End of tenure as Vice President and Director of Tokio Marine & Nichido Fire Insurance Co., Ltd., in June 2006 | ||||||||||
Vice President and Director of Tokio Marine & Nichido Fire Insurance Co., Ltd., appointed in June 2005 | ||||||||||
Director of Millea Holdings, Inc. (presently, Tokio Marine Holdings, Inc.), appointed in June 2005 | ||||||||||
Senior Managing Director of Tokio Marine & Nichido Fire Insurance Co., Ltd., appointed in October 2004 | ||||||||||
Senior Managing Director of Tokio Marine and Fire Insurance Co., Ltd. (presently, Tokio Marine & Nichido Fire Insurance Co., Ltd.), appointed in June 2003 | ||||||||||
Managing Director of Tokio Marine and Fire Insurance Co., Ltd. (presently, Tokio Marine & Nichido Fire Insurance Co., Ltd.), appointed in June 2002 | ||||||||||
Toshiaki Hiwatari
| Corporate Auditor of appointed in
Advisor Attorney to TMI Associates, appointed in September
appointed in
| *5 | 700 |
*1. |
*2. | Corporate Auditors Mr. |
*3. | The term of office of a Director is one year after his/her election to office at the close of the ordinary general meeting of shareholders on June |
*4. |
The term of office of a Corporate Auditor is four years after his/her election to office at the close of the ordinary general meeting of shareholders on June 23, 2011. |
*5. | The term of office of a Corporate Auditor is four years after his/her election to office at the close of the ordinary general meeting of shareholders on June 21, 2012. |
*6. | The term of office of a Corporate Auditor is four years after his/her election to office at the close of the ordinary general meeting of shareholders on June 19, 2013. |
*7. | The Company has introduced an operating officer system to strengthen operations in regions and local workplaces, and implement quick and appropriate decisions.Executive Officers,Senior Managing |
Officers,Managing Officers andOperating Officersunder the operating officer system are not statutory positions under the Company Law and do not conform to the definition of “Directors and Senior Management” as defined in Form 20-F. The Company’s |
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Senior Managing Officers | ||
| Chief Operating Officer for Regional Operations (Japan) | |
Chief Officer of Honda Driving Safety Promotion Center | ||
Koichi Fukuo | Executive in Charge of Business Unit No. 1 for Automobile Operations | |
Managing Officers | ||
Takuji Yamada | Chief Operating Officer for Regional Operations (North America) | |
President and Director of Honda North America, Inc. | ||
President and Chief Executive Officer of American Honda Motor Co., Inc. | ||
Yoshiyuki Matsumoto | Representative of Development, Purchasing and Production (Asia and Oceania) | |
Executive Vice President of Asian Honda Motor Co., Ltd. | ||
President and CEO of Honda Motor India Private Ltd. | ||
Ko Katayama | Executive in Charge of Production Strategy for Automobile Operations | |
Head of Supply Chain Management Supervisory Unit in Automobile Production for Automobile Operations | ||
Chitoshi Yokota | Representative of Automobile Development, Purchasing and Production (North America) | |
Executive Vice President and Director of Honda North America, Inc. | ||
Seiji Kuraishi | Chief Operating Officer for Regional Operations (China) | |
President of Honda Motor (China) Investment Co., Ltd. | ||
President of Honda Motor Technology (China) Co., Ltd. | ||
Toshiaki Mikoshiba | Chief Operating Officer for Regional Operations (Europe Region) | |
President and Director of Honda Motor Europe Ltd. |
Yoshi Yamane | Representative of Automobile Development, Purchasing and Production (Japan) | |
Head of Automobile Production, Regional Operations (Japan) | ||
Head of Production Supervisory Unit, Automobile Production, Regional Operations (Japan) | ||
Takahiro Hachigo | Representative of Development, Purchasing and Production (China) | |
Vice President of Honda Motor (China) Investment Co., Ltd. | ||
Vice President of Honda Motor Technology (China) Co., Ltd. | ||
Operating Officers | ||
Takashi Sekiguchi | Executive in Charge of Business Unit No.2, Automobile Operations | |
Michimasa Fujino | President and Director of Honda Aircraft Company, LLC | |
Soichiro Takizawa | Representative of Development, Purchasing and Production (Europe Region) | |
Executive Vice President and Director of Honda Motor Europe Ltd. | ||
Managing Director of Honda of the U.K. Manufacturing Ltd. | ||
Naoto Matsui | Chief Operating Officer for Purchasing Operations | |
Head of Purchasing Supervisory Unit, Automobile Production, Automobile Operations | ||
Mitsugu Matsukawa | Head of Drivetrain Business Unit, Automobile Production, Automobile Operations | |
Tetsuo Suzuki | Representative of Motorcycle Development, Purchasing and Production, Motorcycle Operations | |
Issao Mizoguchi | Chief Operating Officer for Regional Operations (Latin America) | |
President and Director of Honda South America Ltda. | ||
President and Director of Honda Automoveis do Brazil Ltda. | ||
President and Director of Moto Honda da Amazonia Ltda. | ||
Toshihiro Mibe | Executive in Charge of Powertrain Business, Automobile Operations | |
Head of Powertrain Production Supervisory Unit, Automobile Production, Automobile Operations | ||
| Head of Regional Unit (Africa and the Middle East) | |
Tomomi Kosaka | Executive Vice President and Director of Honda North America, Inc. | |
President and Director of | ||
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| President of Guangqi Honda Automobile Co., Ltd. | |
Yoshi Yamane
Executive Vice President of Honda Motor (China) Investment Co., Ltd.
Takashi Sekiguchi
President and Director of Honda Canada Inc.
Takahiro Hachigo
General Manager of Suzuka Factory of Production Operations
Hiroshi Sasamoto
President, Chief Executive Officer and Director of Honda Engineering Co., Ltd.
Hiroyuki Yamada
Chitoshi Yokota
Executive in Charge of Business Unit No. 2, Automobile Operations
Michimasa Fujino
President and Director of Honda Aircraft Company, Inc.
Soichiro Takizawa
Executive Vice President and Director of Honda Motor Europe Ltd.
President and Director of Honda of the U.K. Manufacturing Ltd.
Yuji Shiga
Kohei Takeuchi
General Manager of Accounting Division for Business Management Operation
There is no family relationship between any director or executive officer and any other director or executive officer.
Directors and Corporate Auditors receive remuneration, the aggregate maximum amount of which is approved at the annual general meeting of shareholders. The amounts of the remuneration approved to pay to Directors and Corporate Auditors are allocated among them at meeting of the Board of Directors and Corporate Auditors. Also, Directors and Corporate Auditors receive bonuses, the aggregate amount of which is approved at the annual general meeting of shareholders. From fiscal year 2012, theThe amounts of the bonuses approved to pay to Directors will beare allocated among them at meeting of the Board of Directors within the aggregate amount approved at the annual general meeting of shareholders.Directors. It is based on the Company’s performance for each fiscal year, Director’s bonusbonuses in the past and other factors. The bonus forAll the Directors and Corporate Auditors was abolished and will be merged into remuneration from fiscal year 2012 as consideration for their duties. All the directors and corporate auditors contribute a portion of their remuneration to the officer shareholders’ association, purchase shares of the Company’s Common Stock and keep holding those shares during their services.
The total amount of remuneration paid to the Company’s directorsDirectors and corporate auditorsCorporate Auditors during the fiscal year ended March 31, 20112014 was ¥1,106¥895 million. This amount includes remuneration paid to four directorstwo Directors and one Corporate Auditor who retired during the fiscal year. The amount of remuneration paid to the directorsDirectors includes amount of wages paid to those directorsDirectors who were also directorsDirectors of subsidiaries of the Company.
The total amount of bonuses paid to the Company’s directors and corporate auditorsDirectors during the fiscal year ended March 31, 20112014 was ¥351¥248 million.
The amounts of remuneration and bonuses that were paid during the year ended March 31, 20112014 are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Directors excluding outside directors | Corporate auditors excluding outside corporate auditors | Outside officers | Total | Directors excluding outside Directors | Outside Directors | Corporate Auditors excluding outside Corporate Auditors | Outside Corporate Auditors | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
number | amount | number | amount | number | amount | number | amount | number | amount | number | amount | number | amount | number | amount | number | amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remuneration | 22 | 965 | 2 | 87 | 5 | 53 | 29 | 1,106 | 13 | ¥ | 688 | 2 | ¥ | 23 | 3 | ¥ | 135 | 3 | ¥ | 47 | 21 | ¥ | 895 | |||||||||||||||||||||||||||||||||||||||||||||||||
Bonuses | 19 | 311 | 2 | 26 | 5 | 14 | 26 | 351 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonus | 10 | 241 | 2 | 7 | — | — | — | — | 12 | 248 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 1,276 | 114 | 67 | 1,458 | ¥ | 929 | ¥ | 30 | ¥ | 135 | ¥ | 47 | ¥ | 1,143 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The amount of remuneration paid to Fumihiko Ike during the fiscal year ended March 31, 2014 was ¥74 million. The amount of bonus for Fumihiko Ike accrued for the fiscal year ended March 31, 2014 was ¥33 million.
The amount of remuneration paid to Takanobu Ito during the fiscal year ended March 31, 20112014 was ¥91¥102 million. The amount of bonusesbonus for Takanobu Ito accrued for the fiscal year ended March 31, 20112014 was ¥38¥48 million.
The amount of remuneration paid to Tetsuo Iwamura during the fiscal year ended March 31, 2014 was ¥112 million. The amount of bonus for Tetsuo Iwamura accrued for the fiscal year ended March 31, 2014 was ¥29 million.
See Item 6.A “Directors and Senior Management” for information concerning the Company’s Directors and Corporate Auditors required by this item.
The following tables list the number of Honda full-time employees as of March 31, 2011, 20102014, 2013 and 2009.2012.
As of March 31, 20112014
Total | Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | Motorcycle | Automobile | Financial Services | Power Product and | ||||||||||||||||
179,060 | 35,454 | 130,900 | 2,145 | 10,561 | ||||||||||||||||||||
198,561 | 42,276 | 145,585 | 2,160 | 8,540 | ||||||||||||||||||||
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At March 31, 2011,2014, Honda had 179,060198,561 full-time employees, including 109,400 local nationals employed in its overseas operations.
As of March 31, 2010
Total | Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | ||||||||||||
176,815 | 34,808 | 129,663 | 2,145 | 10,199 | ||||||||||||
At March 31, 2010, Honda had 176,815 full-time employees, including 106,230132,206 local nationals employed in its overseas operations.
As of March 31, 20092013
Total | Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | Motorcycle | Automobile | Financial Services | Power Product and | ||||||||||||||||
181,876 | 35,908 | 133,114 | 2,071 | 10,783 | ||||||||||||||||||||
190,338 | 40,430 | 138,443 | 2,157 | 9,308 | ||||||||||||||||||||
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At March 31, 2009,2013, Honda had 181,876190,338 full-time employees, including 111,581123,726 local nationals employed in its overseas operations.
As of March 31, 2012
Total | Motorcycle | Automobile | Financial Services | Power Product and | ||||
187,094 | 39,954 | 134,357 | 2,145 | 10,638 | ||||
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At March 31, 2012, Honda had 187,094 full-time employees, including 118,923 local nationals employed in its overseas operations.
Most of the Company’s regular employees in Japan, except management personnel, are required by the terms of the Company’s collective bargaining agreement with its labor union to become members of the Federation of All Honda Workers’ Union (AHWU), which is affiliated with the Japan Council of the International Metalworkers’ Federation. Approximately 85% of the employees of the Company and its Japanese subsidiaries were members of AHWU atas of March 31, 2011.2014.
In Japan, basic wages are negotiated annually and the average increases in wages of the Company’s employees in fiscal 2009, 20102012, 2013 and 20112014 were 1.9%1.8%, 1.9%1.7% and 1.8%2.6%, respectively. In addition, in accordance with Japanese custom, each employee is paid a semi-annual bonus. Bonuses are negotiated during wage negotiations and are based on the overall performance of the Company or the applicable subsidiary in the previous year, the outlook for the current year and other factors.
The Company has had labor contracts with its labor union in Japan since 1970. These contracts are renegotiated with respect to basic wages and other working conditions. The regular employees of the Company’s domesticJapanese subsidiaries are covered by similar contracts. Since 1957, neither the Company nor any of its subsidiaries has experienced any strikes or other labor disputes that materially affected its business activities. The Company considers labor relations with its employees to be very good.
The total amount of the Company’s voting securities owned by its officers, directorsDirectors and corporate auditorsCorporate Auditors as a group as of June 23, 201113, 2014 is as follows.
Title of Class | Amount Owned | % of Class | ||||||
Common Stock |
The Company’s full-time employees are eligible to participate in the Honda Employee Shareholders’ Association, whereby participating employees contribute a portion of their salaries to the Association and the Association purchases shares of the Company’s Common Stock on their behalf. As of March 31, 2011,2014, the Association owned 5,212,7395,409,170 shares of the Company’s common stock.
Item 7. Major Shareholders and Related Party Transactions
As of March 31, 2011,2014, 1,811,428,430 shares of Honda’s Common Stock were issued and 1,802,301,7141,802,291,196 shares were outstanding.
The following table shows the shareholders that owned of record 5% or more of the issued shares of Honda’s Common Stock as of March 31, 2011:2014:
Name | Shares owned (thousands) | Ownership (%) | Shares owned (thousands) | Ownership (%) | ||||||||
Japan Trustee Services Bank, Ltd. (trust account) | 136,341 | 7.53 | % | 117,059 | 6.46 |
According to a statement on Schedule 13G (Amendment No. 6)10) filed by Mitsubishi UFJ Financial Group, Inc. with the Securities and Exchange Commission on February 8, 2011,12, 2014, Mitsubishi UFJ Financial Group, Inc. directly and indirectly held, as of December 31, 2010, 113,253,7762013, 109,893,670 shares, or 6.3%6.1% of the then issued shares, of Honda’s Common Stock. In addition, according to a statement on the Report of Possession of Large Volume filed by Sumitomo Mitsui Trust Bank, Limited with the Director of the Kanto Local Finance Bureau on January 9, 2014, Sumitomo Mitsui Trust Bank, Limited directly and indirectly held, as of December 31, 2013, 91,179,756 shares, or 5.03% of the then issued shares, of Honda’s Common Stock.
None of the above shareholders has voting rights that are different from those of our other shareholders.
ADSs representing American Depositary Shares are issued by JPMorgan Chase Bank, N.A., as Depositary. The normal trading unit is 100 American Depositary Shares. Total issued shares of Honda as of the close of business on March 31, 20112014 were 1,811,428,430 shares of Common Stock, of which 74,902,28655,964,204 shares represented by ADSs and 279,200,942268,802,061 shares not represented by ADSs were owned by residents of the United States. The number of holders of record of the Company’s shares of Common Stock in the United States was 285256 at March 31, 2011.2014.
To the knowledge of Honda, it is not directly or indirectly owned or controlled by any other corporation, by any government, or by any other natural or legal person or persons severally or jointly. As far as is known to the Company, there are no arrangements, the operation of which may at a subsequent date, result in a change in control of the Company.
Honda purchases materials, supplies and services from numerous suppliers throughout the world in the ordinary course of business, including firms with which Honda is affiliated.
During the fiscal year ended March 31, 2011,2014, Honda had sales of ¥590.0¥786.8 billion and purchases of ¥789.7¥1,028.5 billion with equity affiliates accounted under the equity method. As of March 31, 2011,2014, Honda had receivables of ¥131.9¥225.3 billion from affiliated companies, and had payables of ¥94.8¥138.1 billion to affiliated companies.
Honda does not consider the amounts involved in such transactions to be material to its business.
Honda sold its investment in Hero Honda Motors Ltd. (HHML), which represented 26.0% of HHML’s total outstanding shares, to its joint venture partner. In conjunction with the sale, the joint venture agreement with the partner was dissolved. In addition, Honda and HHML entered into a new licensing agreement that enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was ¥45,000 million, and will be paid by installments due through 2014.
C. Interests of Experts and Counsel
Not applicable.
A. Consolidated Statements and Other Financial Information
1 – 3. Consolidated Financial Statements
Honda’s audited consolidated financial statements are included under “Item 18—Financial Statements”.
4. Not applicable.
5. Not applicable.
6. Export Sales.Sales
See “Information on the Company—Marketing and Distribution—Overseas Sales”.
7. Legal Proceedings.Proceedings
Various legal proceedings are pending against us. We believe that such proceedings constitute ordinary routine litigation incidental to our business. With respect to product liability, personal injury claims or lawsuits, we believe that any judgment that may be recovered by any plaintiff for general and special damages and court costs will be adequately covered by our insurance and accrued liabilities. Punitive damages are claimed in certain of these lawsuits. We are also subject to potential liability under other various lawsuits and claims including 6 purported class actions in the United States.claims.
Honda recognizes an accrued liability for loss contingencies 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. 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 including 6 purported class actions in the United States 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.
8. Profit Redistribution Policy
The Company strives to carry out its operations from a global perspective and to increase its corporate value. With respect to the redistribution of profits to its shareholders, which it considers to be one of the most important management issues, its basic policy for dividends is to make distributions after taking into account its long-term consolidated earnings performance.
In addition, the Company’s basic policy for dividends is to make quarterly distributions. The Company may determine dividends from surplus by a resolution of the Board of Directors. Annual dividends for the fiscal year ended March 31 of each year require a resolution at the general meeting of shareholders.
The Company may also acquire its own shares at a timing that it deems optimal, with the goal of improving efficiency of the Company’s capital structure.structure and implementing a flexible capital structure policy. The present goal is to maintain a shareholders’ return ratio (i.e. the ratio of the total of the dividend payment and the repurchase of the Company’s own shares to consolidated net income attributable to Honda Motor Co., Ltd.) of approximately 30%. Retained earnings will be allocated toward financing R&D activities that are essential for the future growth of the Company and capital expenditures and investment programs that will expand its operations for the purpose of improving business results and strengthening the Company’s financial condition.
The Company determined year-end dividends of ¥15¥22 per share for the year ended March 31, 2011.2014. As a result, total dividends for the year ended March 31, 2011,2014, together with the first quarter dividends of ¥12,¥20, the second quarter dividends of ¥12¥20 and the third quarter dividends of ¥15,¥20, were ¥54¥82 per share, an increase of ¥16¥6 from the annual dividends paid for the year ended March 31, 2010.2013.
Details of Distribution of Surplus (Record dates of the fiscal year ended March 31, 2011)2014)
Resolution of the Board of Directors | Resolution of the Board of Directors | Resolution of the Board of Directors | Resolution at General Meeting of Shareholders | Resolution of the Board of Directors | Resolution of the Board of Directors | Resolution of the Board of Directors | Resolution at General Meeting of Shareholders | |||||||||||||||||||||||||
July 30, 2010 | October 29, 2010 | January 31, 2011 | June 23, 2011 | July 31, 2013 | October 30, 2013 | January 31, 2014 | June 13, 2014 | |||||||||||||||||||||||||
Dividend per Share of Common Stock (yen) | 12.00 | 12.00 | 15.00 | 15.00 | 20.00 | 20.00 | 20.00 | 22.00 | ||||||||||||||||||||||||
Total Amount of Dividends Yen (millions) | 21,733 | 21,627 | 27,034 | 27,034 | ||||||||||||||||||||||||||||
Total Amount of Dividends | 36,045 | 36,045 | 36,045 | 39,650 |
Except otherwise disclosed in this Annual Report on Form 20-F, no significant change has occurred since the date of the annual financial statements.
Honda’s shares have been listedtraded on the Tokyo Stock Exchange (TSE) since 1957 and as of March 31, 2011, Honda’sits shares were tradedfirst listed on two stock exchangesthe TSE in Japan.1957.
Since February 11, 1977, American Depositary Shares (each representing one share of Common Stock and evidenced by American Depositary Receipts (ADRs)) have been listed and traded on the New York Stock Exchange (the NYSE), having been traded on the over-the-counter markets in the United States since 1962. In addition, European Shares (each representing ten shares of Common Stock and evidenced by European Depositary Receipts (EDRs)) have been traded in bearer form on the over-the-counter markets in several European countries since 1963. In June 1981, theHonda’s shares of Common Stock were admitted to the official list of Thethe London Stock Exchange of London. In May 1983,Exchange. During the Company listedfiscal year 2013, Honda delisted its shares onfrom the stock exchanges in Zurich, Geneva and Basel in the form of Swiss Bearer Depositary Receipts. In June 1985, the shares of CommonLondon Stock were admitted to trading on the Paris Stock Exchange. As for the stock exchanges in Switzerland, the floor exchanges in Zurich, Basel and Geneva were consolidated to form a single national bourse—the Swiss Exchange, in 1995. The Paris Stock Exchange was merged with the exchanges in Amsterdam and Brussels and created Euronext in September 2000. The Company delisted itself from Euronext Paris and SWX Swiss Exchange and terminated European Depositary Receipts during fiscal year 2008.
The monthly average turnover of Honda’s shares of Common Stock and American Depositary Shares for the fiscal year ended March 31, 20112014 was approximately 134,577,000127,558,058 shares of Common Stock on the TSE and approximately 13,052,3569,925,268 American Depositary Shares on the NYSE.
The following table sets out, for the periods indicated, the reported high and low sales prices of Honda’s shares on the TSE in yen and its American Depositary Shares on the NYSE in the U.S. dollars.
Yen per share of Common Stock on the TSE* | U.S. dollars per American Depositary Share on the NYSE | |||||||||||||||
Fiscal year | High | Low | High | Low | ||||||||||||
2007 | 4,940 | 3,270 | 40.82 | 29.13 | ||||||||||||
2008 | 4,600 | 2,610 | 37.80 | 27.01 | ||||||||||||
2009 | 3,910 | 1,643 | 36.40 | 17.35 | ||||||||||||
2010 | ||||||||||||||||
1st quarter | ¥ | 3,070 | ¥ | 2,390 | $ | 31.00 | $ | 24.83 | ||||||||
2nd quarter | 3,230 | 2,300 | 32.99 | 25.00 | ||||||||||||
3rd quarter | 3,170 | 2,590 | 34.52 | 28.82 | ||||||||||||
4th quarter | 3,410 | 2,951 | 37.23 | 33.27 | ||||||||||||
2011 | ||||||||||||||||
1st quarter | ¥ | 3,405 | ¥ | 2,570 | $ | 36.16 | $ | 28.33 | ||||||||
2nd quarter | 3,065 | 2,470 | 35.89 | 28.43 | ||||||||||||
3rd quarter | 3,315 | 2,713 | 39.69 | 33.82 | ||||||||||||
4th quarter | 3,745 | 2,820 | 44.54 | 36.51 | ||||||||||||
CY 2011 | ||||||||||||||||
Jan | ¥ | 3,555 | ¥ | 3,195 | $ | 43.61 | $ | 38.67 | ||||||||
Feb | 3,745 | 3,465 | 44.54 | 42.20 | ||||||||||||
Mar | 3,620 | 2,820 | 44.01 | 36.51 | ||||||||||||
Apr | 3,190 | 2,843 | 38.90 | 33.76 | ||||||||||||
May | 3,255 | 2,992 | 39.58 | 36.63 |
Yen per share of Common Stock on the TSE | U.S. dollars per American Depositary Share on the NYSE | |||||||||||||||
Fiscal year | High | Low | High | Low | ||||||||||||
2010 | ¥ | 3,410 | ¥ | 2,300 | $ | 37.23 | $ | 24.83 | ||||||||
2011 | 3,745 | 2,470 | 44.54 | 28.33 | ||||||||||||
2012 | 3,300 | 2,127 | 41.23 | 27.52 | ||||||||||||
2013 | ||||||||||||||||
1st quarter | ¥ | 3,250 | ¥ | 2,354 | $ | 38.96 | $ | 30.30 | ||||||||
2nd quarter | 2,799 | 2,339 | 34.81 | 28.50 | ||||||||||||
3rd quarter | 3,185 | 2,294 | 37.00 | 29.26 | ||||||||||||
4th quarter | 3,830 | 3,100 | 40.00 | 36.18 | ||||||||||||
2014 | ||||||||||||||||
1st quarter | ¥ | 4,405 | ¥ | 3,350 | $ | 42.13 | $ | 35.15 | ||||||||
2nd quarter | 3,945 | 3,490 | 39.86 | 35.86 | ||||||||||||
3rd quarter | 4,385 | 3,680 | 42.96 | 37.71 | ||||||||||||
4th quarter | 4,320 | 3,431 | 41.38 | 34.24 | ||||||||||||
CY 2013 | ||||||||||||||||
Dec | ¥ | 4,340 | ¥ | 4,055 | $ | 42.47 | $ | 39.81 | ||||||||
CY 2014 | ||||||||||||||||
Jan | ¥ | 4,320 | ¥ | 3,858 | $ | 41.38 | $ | 37.37 | ||||||||
Feb | 3,923 | 3,560 | 37.37 | 35.42 | ||||||||||||
Mar | 3,848 | 3,431 | 37.40 | 34.24 | ||||||||||||
Apr | 3,726 | 3,292 | 35.70 | 32.42 | ||||||||||||
May | 3,608 | 3,292 | 35.23 | 32.68 |
Not applicable.
See Item 9.A, “Offer and Listing Details”.
Not applicable.
Not applicable.
Not applicable.
Item 10. Additional Information
Not applicable.
B. Memorandum and Articles of Association
Set forth below is information relating to Honda’s common stock,Common Stock, including brief summaries of the relevant provisions of Honda’s articles of incorporation and share handling regulations as currently in effect, and of the Company Law of Japan and related legislation.
General
Honda’s authorized share capital as of the date of the filing of this Form 20-F is 7,086,000,000 shares of common stock,Common Stock, of which 1,811,428,430 shares were issued.
On January 5, 2009, a newThe current central clearing system for shares of Japanese listed companies was established in 2009 pursuant to the Law Concerning Book-Entry Transfer of Corporate Bonds, Shares, Etc. of Japan (including the cabinet order and ministerial ordinances promulgated thereunder; the “Book-Entry Law”), and since then the. The shares of all Japanese companies listed on any Japanese financial instruments exchange, including Honda’s shares, have becomeare subject to this newthe system. OnUnder the same day,Book-Entry Law, all existing shares wereare dematerialized and all existing share certificates for such shares becameare null and void. At present, the Japan Securities Depository Center, Inc. (“JASDEC”) is the sole institution that is designated by the relevant authorities as a book-entry transfer institution which is permitted to engage in the clearing operations of shares of Japanese listed companies under the Book-Entry Law. Under the new clearing system, in order for any person to hold, sell or otherwise dispose of shares of Japanese listed companies, such person must have an account at an account management institution unless such person has an account directly at JASDEC. “Account management institutions” are, in general, financial instruments firms engaged in type 1 financial instruments business (i.e., securities brokers/dealers), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-Entry Law.
Under the Book-Entry Law, any transfer of shares of Japanese listed companies is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is by an application for book entry recorded in the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal owner of the shares recorded in such account.
A registered shareholder is generally entitled to exercise its rights as a shareholder, such as voting rights and to receive dividends (if any). Under the Company Law and the Book-Entry Law, in order to assert shareholders’ rights against Honda, a shareholder must have its name and address registered in the register of shareholders, except in limited circumstances. Although, in general, holders of an account with shares recorded are to be registered in the register of shareholders on the basis of an all shareholdersall-shareholders notice from JASDEC to Honda at certain prescribed times, in order to exercise minority shareholders’ rights (other than those the record dates for which are fixed) against Honda, a holder of an account with shares needs to (a) make an application through an account management institution to JASDEC, which will then give a notice of the name and address of such holder, the number of shares held by such holder and other requisite information to Honda, and to(b) exercise the rights within four weeks from such notice.
Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each such shareholder must give notice of such standing proxy or mailing address to the relevant account management institution. Such notice will be forwarded to Honda through JASDEC. Japanese financial instruments firms and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from Honda to non-resident shareholders are delivered to such standing proxies or mailing addresses.
Objects and Purposes
Article 2 of the articles of incorporation of Honda states that its purpose is to engage in the following businesses:
Manufacture, sale, lease and repair of motor vehicles, ships and vessels, aircrafts and other transportation machinery and equipment.
Manufacture, sale, lease and repair of prime movers, agricultural machinery and appliances, generators, processing machinery and other general machinery and apparatus, electric machinery and apparatus and precision machinery and apparatus.
Manufacture and sale of fiber products, paper products, leather products, lumber products, rubber products, chemical industry products, ceramic products, metal products and other products.
Overland transportation business, marine transportation business, air transportation business, warehousing business, travel business and other transport business and communication business.
Sale of sporting goods, articles of clothing, stationary, daily sundries, pharmaceuticals, drink and foodstuffs and other goods.
Financial business, nonlife insurance agency business, life insurance agency business, construction business including building construction work and real estate business, including real estate brokerage.
Publishing business, advertising business, translation business, interpretation business, management consultancy business, information services including information processing, information and communication and information provision, industrial planning and design, comprehensive security business and labor dispatch services.
Management of parking garages, driving schools, training and education facilities, racecourses, recreation grounds, sporting facilities, marina facilities, hotels, restaurants and other facilities.
Electricity generation and supply and sale of electricity.
Manufacture, sale and licensing of equipment, parts and supplies and all other relevant business activities and investments relating to each of the foregoing items.
Dividends
Under its articles of incorporation, Honda’s financial accounts will be closed on March 31 of each year. The record dates for dividends are June 30, September 30, December 31 and March 31 of each year. In addition, Honda may distribute dividends from surplus by determining any record date.
Under the Company Law, a company is permitted to make distributions of surplus to the shareholders any number of times per fiscal year pursuant to resolutions of a general meeting of shareholders, subject to certain limitations provided by the Company Law and the Ordinances of the Ministry of Justice thereunder. Distributions of surplus are required, in principle, to be authorized by a resolution of a general meeting of shareholders. However, if the articles of incorporation so provide and certain other requirements under the Company Law are met, distributions of surplus may be made pursuant to a board resolution. Pursuant to the provisions of the Company Law and its articles of incorporation, the boardBoard of directorsDirectors of Honda may determine distributions of its surplus.
Distributions of surplus may be made in cash or in-kind in proportion to the number of shares held by each shareholder. If a distribution of surplus is to be made in-kind, a special resolution of a general meeting of shareholders is required, except in the case that a right to receive cash distribution instead of distribution in-kind is granted to shareholders. If such right is granted, distributions in-kind may be made pursuant to an ordinary resolution of a general meeting of shareholders or, as the case may be, a board resolution.
Under the Company Law, Honda is permitted to prepare non-consolidated extraordinary financial statements consisting of a balance sheet as of any date subsequent to the end of the previous fiscal year and an
income statement for the period from the first day of the current fiscal year to the date of such balance sheet. If such extraordinary financial statements are prepared and approved in accordance with the provisions of the Company Law and the Ordinances of the Ministry of Justice thereunder, the results of such extraordinary financial statements may be considered in the calculation of distributable amount.
Under its articles of incorporation, Honda is not obligated to pay any dividends which are left unclaimed for a period of three full years after the date on which they first became payable.
Capital and Reserves
The entire amount of the issue price of the shares to be issued in the future will generally be required to be accounted for as stated capital. However, Honda may account for an amount not exceeding one-half of such issue price as additional paid-in capital by resolution of the boardBoard of directorsDirectors in accordance with the Company Law. Honda may at any time reduce the whole or any part of its additional paid-in capital or transfer them to stated capital by resolution of a general meeting of shareholders. The whole or any part of surplus may also be transferred to stated capital, additional paid-in capital or legal reserve by resolution of a general meeting of shareholders.
Stock Splits
Honda may at any time split its shares into a greater number of shares by resolution of the boardBoard of directors.Directors. When the boardBoard of directorsDirectors approves a stock split, it may also amend the articles of incorporation of Honda without approval of shareholders to increase the number of its authorized shares in proportion to such number as it determines, provided such number is equal to or less than the then-current number multiplied by the ratio of the stock split, so long as Honda does not issue more than one class of shares.
Under the Book-Entry Law, Honda must give notice to JASDEC regarding a stock split at least two weeks prior to the relevant recordeffective date. On the effective date of the stock split, the numbers of shares recorded in all accounts held by its shareholders at account management institutions or at JASDEC will be increased in accordance with the applicable ratio.
Consolidation of Shares
Honda may at any time consolidate theits shares into a smaller number of shares by a special resolution of the general meeting of shareholders. A representative director of Honda must disclose the reason for the consolidation of the shares at the general meeting of shareholders.
Under the Book-Entry Law, Honda must give notice to JASDEC regarding a consolidation of shares at least two weeks prior to the relevant recordeffective date. On the effective date of the consolidation of shares, the numbernumbers of shares recorded in all accounts held by its shareholders at account management institutions or at JASDEC will be decreased in accordance with the applicable ratio.
Japanese Unit Share System
Consistent with the requirements of the Company Law, the articles of incorporation of Honda adopts a unit share system called as “tan-gen-kabu”, under which 100 shares constitute one voting unit of shares. The boardBoard of directorsDirectors of Honda by itself may reduce, but not increase, the number of shares that constitute one voting unit or abolish the unit share system entirely by amendments to the articles of incorporation by a board resolution without approval of shareholders. An increase in the number of shares that constitute one voting unit requires an amendment to the articles of incorporation by a special resolution of a general shareholders’ meeting. In any case, the number of shares constituting one voting unit may not exceed 1,000 shares or 0.5% of the total issued shares.
Under the Book-Entry Law, shares constituting less than one voting unit are transferable. Under the rules of the Japanese financial instruments exchanges, however, shares constituting less than one voting unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Japanese financial instruments exchanges.
The holder of shares constituting less than one voting unit may at any time require Honda to purchase or sell such shares to constitute one voting unit at the market price in accordance with Honda’s share handling regulations (see below). Because the transfer of ADRs does not require changes in the ownership of the underlying shares, holders of ADRs evidencing ADSs that constitute less than one voting unit of shares are not affected by these restrictions in their ability to transfer the ADRs. However, because transfers of less than one voting unit of the underlying shares are normally prohibited under the unit share system, under the deposit agreement,Deposit Agreement, the right of ADR holders to surrender their ADRs and withdraw the underlying shares for sale in Japan may only be exercised as to whole voting units.
Right of a Holder of Shares Representing Less Than One Voting Unit to Require Honda to Purchase or Sell Its Shares
A holder of Honda’s shares representing less than one voting unit may at any time require Honda to purchase its shares. These shares will be purchased at (a) the closing price of the shares reported by the Tokyo Stock Exchange on the day when the request for purchase reaches the share handling agent, or (b) if no sale takes place on the Tokyo Stock Exchange on that day, then the price at which the first sale of shares is effected on the Tokyo Stock Exchange thereafter. In each case, Honda will request the payment of an amount determined by Honda as an amount equal to the brokerage commission required for the sale and purchase of the shares. A holder of shares representing less than one voting unit may, in accordance with the provisions of Honda’s share handling regulations, also make a request to the effect that such number of shares should be sold to it that will, when added to the shares less than one voting unit already held by that shareholder, constitute one voting unit. However, because holders of ADSs representing less than one unit are not able to withdraw the underlying shares from deposit, these holders will not be able to exercise many shareholder rights as a practical matter.
Other Rights of a Holder of Shares Representing Less Than One Voting Unit
In addition to the right described in the preceding paragraph, a holder of shares representing less than one voting unit also has the rights including the followings and these rights may not be restricted by the articles of incorporation:
• | rights to receive any consideration for acquisition by a corporation of special shares all of which may be acquired by such corporation (zembu shutoku joukou tsuki shurui kabushiki) as provided by Article 171, paragraph 1, item 1 of the Company Law, |
• | rights to receive any cash or other consideration for acquisition by a corporation of shares which may be acquired by such corporation on occurrence of certain event (shutoku joukou tsuki shurui kabushiki) as provided by Article 107, paragraph 1, item 3 of the Company Law, |
rights to be allocated any shares without consideration as provided by Article 185 of the Company Law,
rights to receive distribution of any residual assets of a corporation, and
any other rights provided in the relevant Ordinance of the Ministry of Justice, including rights to receive cash or other distribution derived from consolidation of shares, stock split, allocation of stock acquisition rights without consideration, distribution of surplus or reorganization of a corporation.
Other rights of a holder of shares constituting less than one voting unit may be restricted if the articles of incorporation so provide.
Voting rights under the unit share system
Under the unit share system, the shareholders shall have one voting right for each voting unit of shares that they hold. A shareholder who owns shares representing less than one voting unit will not be able to exercise voting rights and any other rights relating thereto.
Voting Rights
Honda holds its ordinary general meeting of shareholders in June of each year. In addition, Honda may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two weeks’ advance notice. Under the Company Law, notice of any shareholders’ meeting must be given to each shareholder having voting rights or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japan in accordance with Honda’s share handling regulations, at least two weeks prior to the date of the meeting. The record date for an ordinary shareholders’ meeting is March 31 of each year.
A shareholder of Honda is generally entitled to one vote per voting unit of shares as described in this paragraph and under “Japanese Unit Share System” above. In general, under the Company Law and the articles of incorporation of Honda, a resolution may be adopted at a meeting of shareholders by a majority of the shares having voting rights represented at the meeting. The Company Law and Honda’s articles of incorporation require a quorum for the election of directorsDirectors and corporate auditorsCorporate Auditors of not less than one-third of the total number of voting rights of all shareholders and the resolution shall be adopted by majority voting. Honda’s shareholders are not entitled to cumulative voting in the election of directors. A corporate shareholder whose voting rights are in turn more than one-quarter directly or indirectly owned by Honda does not have voting rights. Also, Honda does not have voting rights with respect to its own shares.
Shareholders may exercise their voting rights through proxies, provided that those proxies are also shareholders who have voting rights. Shareholders who intend to be absent from a general meeting of shareholders may exercise their voting rights in writing. In addition, they may exercise their voting rights by electronic means if the boardBoard of directorsDirectors decides to accept such means.
Under the Company Law, in order to approve certain significant matters of a corporation, more strict requirement for the quorum or the number of voting rights to approve is provided. The articles of incorporation of Honda provide that such resolution may be adopted at a meeting of shareholders by two thirds of the voting rights of the shareholders present at the meeting representing at least one third of all the shareholders having voting rights. Such significant matters include, but are not limited to:
acquisition of its own shares by Honda from a specific shareholder other than its subsidiary,
acquisition of special shares all of which may be acquired by Honda (zembu shutoku joukou tsuki shurui kabushiki),
• | acquisition of special shares all of which may be acquired by Honda (zembu shutoku joukou tsuki shurui kabushiki), |
consolidation of the shares,
reduction of stated capital (with certain exceptions),
issuance or transfer of new shares or existing shares held by Honda as treasury stock to persons other than the shareholders at a “specially favorable” price,
issuance of stock acquisition rights (including those incorporated in bonds with stock acquisition rights) to persons other than the shareholders under “specially favorable” conditions,
discharge of a part of responsibilities of directors, corporate auditorsDirectors, Corporate Auditors or accounting auditors,
distribution of surplus by property other than cash (only in the case that no cash distribution is allowed to shareholders),
amendments to the articles of incorporation,
transfer of whole or important part of business,
dissolution of a corporation,
reorganization of a corporation.
Pursuant to the terms of the Deposit Agreement, upon receipt of notice of any meeting of holders of Common Stock of the Registrant, the Depositary will mail to the record holders of ADRs and publish a notice which will contain the information in the notice of the meeting. The record holders of ADRs at the close of business on a date specified by the Depositary will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Common Stock of the Registrant represented by their respective Depositary Receipts. The Depositary will endeavor, in so far as practicable, to vote the amount of Common Stock of the Registrant represented by such Depositary Receipts in accordance with such instructions, and the Registrant has agreed to take all action which may at any time be deemed necessary by the Depositary in order to enable the Depositary to so vote such Common Stock. In the absence of such instructions, the Depositary has agreed to use its best efforts to give a discretionary proxy to a person designated by the Registrant. However, such proxy may not be given with respect to any proposition of which the Depositary has knowledge regarding any contest related to the action to be taken at the meeting, or the purpose of which is to authorize a merger, consolidation or any other matter which may substantially affect the rights or privileges of the Common Stock of the Registrant or other securities, property or cash received by the Depositary or the Custodian in respect thereof.
Subscription Rights and Stock Acquisition Rights
Holders of Honda’s shares have no preemptive rights under Honda’s articles of incorporation. Under the Company Law, the boardBoard of directorsDirectors may, however, determine that shareholders be given subscription rights in connection with a particular issue of new shares. In this case, such rights must be given to all shareholders as of a specified record date by at least two weeks’ prior public notice to shareholders of the record date. In addition, individual notice must be given to each of these shareholders at least two weeks prior to the date of expiration of the subscription rights.
Honda also may decide to grant the stock acquisition rights (shinkabu-yoyakuken), with or without bonds, to any person including its shareholders, by resolution of its boardBoard of directorsDirectors unless issued under specially favorable conditions. The holder of such rights may exercise its rights within the exercise period by paying subscription moneys all as prescribed in the terms of such rights.
Liquidation Rights
In the event of a liquidation of Honda, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among the shareholders in proportion to the number of shares they own.
Liability to Further Calls or Assessments
All of Honda’s currently issued shares, including shares represented by the ADSs, are fully paid and nonassessable.
Shareholders’ Register Manager
The ChuoSumitomo Mitsui Trust and Banking Company,Bank, Limited is the Shareholders’ Register Manager for the shares. Chuo Mitsui’sSumitomo Mitsui Trust Bank’s office is located at 33-1, Shiba 3-chome, Minato-ku,4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo, 105-8574,100-8233, Japan. ChuoSumitomo Mitsui Trust Bank maintains Honda’s register of shareholders and records the names and addresses of its shareholders and other relevant information in its register of shareholders upon notice thereof from JASDEC, as described in “Record Date” below.
Record Date
As mentioned above, the record dates for Honda’s dividends are June 30, September 30, December 31 and March 31, if paid. A holder of shares constituting one or more whole voting units who is registered as a holder on Honda’s register of shareholders at the close of business as of March 31 is entitled to exercise its voting rights at the ordinary general meeting of shareholders with respect to the fiscal year ended on March 31. In addition, Honda may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.
Under the Book-Entry Law, Honda is required to give notice of each record date to JASDEC at least two weeks prior to such record date. JASDEC is required to promptly give notice to Honda of the names and addresses of all of its shareholders of record, the numbers of shares held by them and other relevant information as of such record date.
The shares generally trade ex-dividend or ex-rights on the Japanese financial instruments exchanges on the second business day prior to a record date (or if the record date is not a business day, the third business day prior thereto), for the purpose of dividends or rights offerings with respect to record dates on or after November 19, 2009..
AcquisitionAcquisition by Honda of Shares
Under the Company Law, Honda is generally required to obtain authorization for any acquisition of its own shares by means of:
(i) | a resolution at a general meeting of shareholders, which may be effective for one year at the most from the date thereof; |
(ii) | a resolution of the |
(iii) | a resolution of the |
Honda may only dispose of shares so acquired in accordance with the procedures applicable to a new share issuance under the Company Law.
Upon due authorization, Honda may acquire its own shares:
in the case of (i) and (ii) above, from stock markets or by way of tender offer;
in the case of (i) above, from a specific person, but only if its shareholders approve such acquisition by special resolution; and
in the case of (iii) above, from such subsidiary.
In the event Honda is to acquire its own shares from a specific person other than its subsidiary at a price which is higher than the higher of (i)(x) the final market price on the market trading such shares as of the date immediately preceding the date of such requestthe required resolution or (ii)(y) in the event that such shares are subject to a tender offer, etc., the price set in the contract regarding such tender offer, any shareholder may request that Honda includes such shareholder’s shares in the proposed purchase.
Acquisitions described in (i) through (iii) above must satisfy certain other requirements, including the restriction of the source of consideration in which the total amount of the purchase price of such own shares may not exceed the distributable amount of the corporation.
Reports to Shareholders
Honda currently furnishes shareholders with notices of shareholders’ meetings, business reports, including financial statements, and notices of resolutions adopted at the shareholders’ meetings, all of which are in
Japanese. Such notices as described above may be furnished by electronic means to those shareholders who have
approved such way of furnishing notices. Pursuant to its articles of incorporation, amended as of June 23, 2011, upon convening a general meeting of shareholders, Honda may deem that the information required to be described or indicated in the reference documents for the general meeting of shareholders, business reports, financial statements and consolidated financial statements shall have been provided to the shareholders when such information is disclosed, pursuant to laws or regulations, through a method that uses the Internet. Further, pursuant to its articles of incorporation, Honda’s public notices to shareholders shall be given in Japanese by way of electronic public notice; provided, however, that if any public notice is unable to be given by electronic method due to any accident or for any other unavoidable reason, such public notice shall be given by publication in the Nihon Keizai Shimbun, a Japanese newspaper of general circulation.
Report of Substantial Shareholdings
The Financial Instruments and Exchange Law of Japan and regulations under such law require any person who has become a holder (together with its related persons) of more than 5% of the total issued shares of a corporation listed on any Japanese financial instruments exchange or whose shares are traded on the over-the-counter market (including ADSs representing such shares) to file with the Director of a competent Local Finance Bureau, within five business days, in general, a report concerning those shareholdings. A similar report must also be filed to reflect any change of 1% or more in any shareholding or any change in material matters set out in reports previously filed. As of April 1, 2014, any person who filed a report on or after that date to reflect a change in holding of 5% or less of the total issued shares is not required to file any further report for a change of 1% or more in shareholding (unless the holding exceeds 5%) or any change in material matters previously reported. Copies of any report must also be furnished to the corporation and to all Japanese financial instruments exchanges on which the corporation’s shares are listed or in the case of shares traded on the over-the-counter market, the Japan Securities Dealers Association. For this purpose, shares issuable or transferable to such person upon exercise of exchangeable securities, conversion of convertible securities or exercise of warrants or stock acquisition rights are taken into account in determining both the number of shares held by that holder and the corporation’s total issued share capital.
Daily Price Limits under Japanese Financial Instruments Exchange Rules
Share prices on Japanese financial instruments exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges set daily price limits, which limit the maximum range of fluctuation within a single trading day. Daily price limits are set in absolute yen according to the previous day’s closing price or special quote. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell its shares at such price on a particular trading day, or at all.
All contracts concluded by Honda during the two years preceding this filing were entered into in the ordinary course of business.
There are no laws, decrees, regulations or other legislation of Japan which materially affect our ability to import or export capital for our use or our ability to pay dividends or other payments to nonresident holders of our shares.
Japanese Taxes
The following is a summary of the principal Japanese tax consequences as of the date of filing of this Form 20-F to owners of Honda’s shares or ADSs who are non-resident individuals or non-Japanese corporations
without a permanent establishment in Japan to which income from Honda’s shares is attributable. The tax
treatment is subject to possible changes in the applicable Japanese laws or double taxation conventions occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor. Potential investors should consult their own tax advisers as to:
the overall tax consequences of the acquisition, ownership and disposition of shares or ADSs, including specifically the tax consequences under Japanese law;
the laws of the jurisdiction of which they are resident; and
any tax treaty between Japan and their country of residence.
Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by Japanese corporations.
In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to a non-resident of Japan or a non-Japanese corporation is (a) 20.42% for dividends to be paid on or before December 31, 2037, and (b) 20%. for dividends to be paid thereafter. With respect to dividends paid on listed shares issued by Japanese corporations (such as Honda’s shares) to a non-resident of Japan or a non-Japanese corporation, the aforementioned 20.42% or 20% withholding tax rate is reduced to (i) 7%15.315% for dividends to be paid untilon or before December 31, 2013,2037, and (ii) 15% for dividends to be paid thereafter, except for dividends paid to any individual shareholder who holds 5%3% or more of the issued shares of that corporation. Japan has entered into income tax treaties, conventions or agreements, whereby the maximum withholding tax rate is generally set at 15% or 10% for portfolio investors (15% under the income tax treaties with, among others, Belgium, Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, and Sweden, and Switzerland.10% under the income tax treaties with, among others, Australia, France, the Netherlands, Portugal, Switzerland, the United Kingdom, and the United States).
Pursuant to the Convention Between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “U.S.-Japan Tax Treaty”), a portfolio investor that is a U.S. holder is generally subject to Japanese withholding tax on dividends on shares at a rate of 10%. A similar withholding tax treatment applies under the renewed tax treaties between the United Kingdom and Japan and between France and Japan. In addition, the tax treaty between Australia and Japan has also been renewed, effective from December 3, 2008, under which the standard treaty withholding rate on dividends taxed on or after January 1, 2009 will be reduced in general from 15% to 10%. Under Japanese tax law, the maximum rate applicable under the tax treaties, conventions or agreements shall be applicable except when such maximum rate is more than the Japanese statutory rate.
Gains derived from the sale outside Japan of common stock or Depositary Receipts by a non-resident of Japan or a non-Japanese corporation, or from the sale of common stock within Japan by a non-resident of Japan or by a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or corporation taxes. Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired common stock or Depositary Receipt as a legatee, heir or donee, even if the individual is not a Japanese resident.
United States Taxes
This section describes the material U.S. federal income tax consequences of the ownership of shares or ADSs by U.S. holders, as defined below. It applies only to persons who hold shares or ADSs as capital assets for tax purposes.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the U.S.-Japan Tax Treaty. These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
For purposes of the U.S.-Japan Tax Treaty and the Code, U.S. holders of ADRs evidencing ADSs will be treated as the owners of the Sharesshares represented by those ADRs. Exchanges of shares for ADRs and ADRs for shares generally will not be subject to U.S. federal income tax. For purposes of this discussion, a “U.S. holder” is a beneficial owner of shares or ADSs that is, for U.S. federal income tax purposes, (i) a citizen or resident individual of the United States, (ii) a domestic corporation, (iii) an estate whose income is subject to United States federal income tax regardless of its source, or (iv) a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust; and that, for purposes of the U.S.-Japan Tax Treaty, (i) holds the shares and ADSs that do not form part of the business property of a permanent establishment through which the beneficial owner carries on or has carried on business and (ii) is not otherwise ineligible for benefits under the U.S.-Japan Tax Treaty as the case may be, with respect to income and gain from the shares or ADSs.
This section does not apply to a person who is a member of a special class of holders subject to special rules, including a dealer in securities, a trader in securities that elects to use a mark-to-market method of accounting for its securities holdings, a tax-exempt organization, a life insurance company, a person liable for alternative minimum tax, a person that actually or constructively owns 10% or more of the voting stock of Honda, a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, a person that purchases or sells shares or ADSs as part of a wash sales for tax purposes, or a person whose functional currency is not the U.S. dollar.
This summary is not a comprehensive description of all the tax considerations that may be relevant with respect to a U.S. holder’s shares or ADSs. Each beneficial owner of shares or ADSs should consult its own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares and ADSs in its particular circumstances.
Taxation of Dividends
Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any dividend paid by Honda out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. A U.S. holder must include any Japanese tax withheld from the dividend payment in this gross amount even though it does not in fact receive it.
Dividends paid to a noncorporate U.S. holder in taxable years beginning before January 1, 2013 that constitute qualified dividend income will be taxable to such holder at a maximum tax rate of 15%the preferential rates applicable to long term capital gains provided that the noncorporate U.S. holder holds the shares or ADSs with respect to which the dividends are paid for more than 60 days during the 121 day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends that Honda pays with respect to the shares or ADSs generally will be qualified dividend income. A U.S. holder must include the dividend in its taxable income when the holder, in the case of shares, or the Depositary, in the case of ADSs, receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution that a U.S. holder must include in its income will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date of the dividend distribution, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the U.S. holder includes the dividend payment in income to the date it converts the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the U.S. for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of U.S. holder’s basis in the shares or ADSs and thereafter as capital gain.
Subject to certain limitations, the Japanese tax withheld in accordance with the U.S.-Japan Tax Treaty and paid over to Japan will be creditable against a U.S. holder’s United States federal income tax liability. Special
rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate.preferential rates. To the extent a refund of the tax withheld is available to a U.S. holder under Japanese law or under the U.S.-Japan Tax Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holder’s United States federal income tax liability.
Dividends will be income from sources outside the United States. DividendsStates and will, depending on youra U.S. holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to asuch U.S. holder.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, if a U.S. holder sells or otherwise disposes of its shares or ADSs, it will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that it realizes and its tax basis, determined in U.S. dollars, in its shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes.
Passive Foreign Investment Company (PFIC) Rules
Honda believes its shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes. This conclusion is a factual determination that is made annually and thus may be subject to change.
In general, Honda will be a PFIC with respect to a U.S. holder if for any taxable year in which such holder held shares or ADSs of Honda:
at least 75% of Honda’s gross income for the taxable year is passive income; or
at least 50% of the value, determined on the basis of a quarterly average, of Honda’s assets is attributable to assets that produce or are held for the production of passive income.
Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.
If Honda is treated as a PFIC, and a U.S. holder does not make a mark-to-market election, as described below, that U.S. holder will be subject to special rules with respect to:
any gain it realizes on the sale or other disposition of its shares or ADSs; and
any excess distribution that Honda makes to the U.S holder (generally, any distributions to it during a single taxable year that are greater than 125% of the average annual distributions received by it in respect of the shares or ADSs during the three preceding taxable years or, if shorter, its holding period for the shares or ADSs).
Under these rules:
the gain or excess distribution will be allocated ratably over the U.S. holder’s holding period for the shares or ADSs,
the amount allocated to the taxable year in which it realized the gain or excess distribution will be taxed as ordinary income,
the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year, and
the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
If a U.S. holder owns shares or ADSs in a PFIC that are treated as marketable stock, such holder may make a mark-to-market election. If a U.S. holder makes this election, it will not be subject to the PFIC rules described above. Instead, in general, a U.S. holder will include as ordinary income each year the excess, if any, of the fair market value of its shares or ADSs at the end of the taxable year over its adjusted basis in its shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. holder will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. holder’s basis in the shares or ADSs will be adjusted to reflect any such income or loss amount.
In addition, notwithstanding any election that a U.S. holder makes with regard to the shares or ADSs, dividends that a U.S. holder receives from Honda will not constitute qualified dividend income to such holder if Honda is a PFIC either in the taxable year of the distribution or the preceding taxable year. Moreover, shares or ADSs held by a U.S. holder will be treated as stock in a PFIC if Honda was a PFIC at any time during the U.S. holder’s holding period in its shares or ADSs, even if Honda is not currently a PFIC. For purposes of this rule, ifPFIC, unless a U.S. holder makeshas made a mark-to-market election with respect to its shares or ADSs or the U.S. holder will be treated as havinghas otherwise made a new holding period in“purging election” with respect to its shares or ADSs beginning on the first day of the first taxable year beginning after the last taxable year for which the mark-to-market election applies.ADSs. Dividends that a U.S. holder receives that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income. Instead, the U.S. holder must include the gross amount of any such dividend paid by Honda out of Honda’s accumulated earnings and profits (as determined for United States federal income tax purposes) in the U.S. holder’s gross income, and it will be subject to tax at rates applicable to ordinary income.
If a U.S. holder owns shares or ADSs during any year that Honda is a PFIC with respect to such U.S. holder, it must file Internal Revenue Service Form 8621.8621, subject to certain applicable exceptions set forth in Internal Revenue Service regulations. U.S. holders should consult their own tax advisors regarding the PFIC rules and potential filing and other requirements. In addition, pursuant to recently enacted legislation, if you are a U.S. person that is a shareholder in a PFIC, you will generally be required to file an annual report with the Internal Revenue Service. The content of this required statement and potential exemptions to this requirement are under development by the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable.
Not applicable.
Honda is subject to the information requirements of the Securities Exchange Act of 1934 and, in accordance therewith, it will file annual reports on Form 20-F within six months of its fiscal year-end and furnish other reports and information on Form 6-K with the Securities and Exchange Commission. These reports and other
information can be inspected without charge at the public reference room at the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies of such material by mail from the public reference room of the Securities and Exchange Commission at prescribed fees. You may obtain
information on the operation of the Securities and Exchange public reference room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a web site at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. Also, as a foreign private issuer, Honda is exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing and content of proxy statements to shareholders.
Not applicable.
Item 11. Quantitative and Qualitative Disclosure about Market Risk
Honda is exposed to market risks, which are changes in foreign currency exchanges rates, in interest rates and in prices of marketable equity securities. Honda is a party to derivative financial instruments in the normal course of business in order to manage risks associated with changes in foreign currency exchange rates and in interest rates. Honda does not hold any derivative financial instruments for trading purposes.
Foreign Currency Exchange Rate Risk
Foreign currency forward exchange contracts and purchased option contracts are used to hedge currency risk of 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.
The following tables below provide information about our derivatives related to foreign currency exchange rate risk as of March 31, 20102013 and 2011.2014. For forward exchange contracts and currency options, the table presentsthese tables present the contract amounts and fair value. All forward exchange contracts and currency contracts to which we are a party have original maturities of less thanwithin one year.
Foreign Exchange Risk
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||
Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | |||||||||||||||||||||||||||||||||||||||||
Forward Exchange Contracts | Contract amount | Fair value | Contract amount | Fair value | Contract amount | Fair value | Contract amount | Fair value | ||||||||||||||||||||||||||||||||||||||||
To sell US$ | ¥ | 257,822 | (6,076 | ) | 90.80 | ¥ | 285,212 | (1,229 | ) | 82.77 | ¥ | 390,548 | (33,197 | ) | 85.72 | ¥ | 98,260 | (225 | ) | 103.00 | ||||||||||||||||||||||||||||
To sell EUR | 32,188 | 456 | 126.70 | 34,183 | (1,701 | ) | 111.63 | 14,751 | (2,311 | ) | 99.80 | 3,289 | (6 | ) | 141.37 | |||||||||||||||||||||||||||||||||
To sell CA$ | 24 | 57 | 88.58 | 19 | (1 | ) | 83.44 | 13 | 375 | 92.10 | 10 | — | 91.99 | |||||||||||||||||||||||||||||||||||
To sell GBP | 29,931 | (108 | ) | 139.69 | 13,857 | (253 | ) | 131.40 | 6,230 | 17 | 143.55 | 1,593 | (17 | ) | 169.53 | |||||||||||||||||||||||||||||||||
To sell other foreign currencies | 20,761 | (829 | ) | various | 58,330 | (3,660 | ) | various | 108,215 | (14,318 | ) | various | 25,373 | (1,119 | ) | various | ||||||||||||||||||||||||||||||||
To buy US$ | 3,207 | 102 | 90.02 | 8,175 | 41 | 82.73 | 3,441 | 4 | 93.92 | 3,919 | 21 | 102.39 | ||||||||||||||||||||||||||||||||||||
To buy other foreign currencies | 3,537 | 34 | various | 3,046 | 65 | various | 7,656 | 100 | various | 2,489 | 31 | various | ||||||||||||||||||||||||||||||||||||
Cross-currencies | 231,657 | (1,134 | ) | various | 223,587 | (1,212 | ) | various | 216,905 | 1,441 | various | 371,801 | (69 | ) | various | |||||||||||||||||||||||||||||||||
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Total | ¥ | 579,127 | (7,498 | ) | ¥ | 626,409 | (7,950 | ) | ¥ | 747,759 | (47,889 | ) | ¥ | 506,734 | (1,384 | ) | ||||||||||||||||||||||||||||||||
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Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | Yen (millions) | Average contractual rate | |||||||||||||||||||||||||||||||||||||||||
Currency Option Contracts | Contract amount | Fair value | Contract amount | Fair value | Contract amount | Fair value | Contract amount | Fair value | ||||||||||||||||||||||||||||||||||||||||
Option purchased to sell US$ | ¥ | 27,865 | 78 | various | ¥ | 14,746 | 144 | various | ¥ | 2,020 | 33 | various | ¥ | 1,861 | (11 | ) | various | |||||||||||||||||||||||||||||||
Option written to sell US$ | 55,731 | (829 | ) | various | 29,491 | (108 | ) | various | 2,019 | (9 | ) | various | 1,860 | 10 | various | |||||||||||||||||||||||||||||||||
Option purchased to sell other currencies | 3,123 | (50 | ) | various | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Option written to sell other currencies | 6,246 | (26 | ) | various | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Option purchased to sell other foreign currencies | 53 | 1 | various | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Option written to sell other foreign currencies | 53 | — | various | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
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Total | ¥ | 92,965 | (827 | ) | ¥ | 44,237 | 36 | ¥ | 4,145 | 25 | ¥ | 3,721 | (1 | ) | ||||||||||||||||||||||||||||||||||
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Interest Rate Risk
Honda is exposed to market risk for changes in interest rates related primarily to its debt obligations and finance receivables. In addition to short-term financing such as commercial paper, Honda has long-term debt with both fixed and floating rates. Our finance receivables are primarily fixed rate. Interest rate swap agreements are mainly used to manage interest rate risk exposure and to convert floating rate financing (normally three-five years) to fixed rate financing (normally three-five years) in order to match financing costs with income from finance receivables. Foreign currency and interest rate swap agreements used among different currencies, also serve to hedge foreign currency exchange risk as well as interest rate risk.
The following tables provide information about Honda’s financial instruments that were sensitive to changes in interest rates at March 31, 20102013 and 2011.2014. For finance receivables and long-term debt, these tables present principal cash flows, fair value and related weighted average interest rates. For interest rate swaps and currency and interest rate swaps, the table presents notional amounts, fair value and weighted average interest rates. Variable interest rates are determined using formulas such as LIBOR+a and an index.
Interest Rate Risk
Finance Subsidiaries-Receivables
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yen (millions) | Yen (millions) | Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected maturity date | Average interest rate | Expected maturity date | Average interest rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Fair value | Total | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | There- after | Fair value | Total | Fair value | Total | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | There- after | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Direct financing leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JP¥ | ¥ | 29,401 | * | ¥ | 31,329 | 14,512 | 8,591 | 4,819 | 2,344 | 1,063 | — | * | 4.39 | % | ¥ | 106,735 | * | ¥ | 119,306 | 30,150 | 24,279 | 28,626 | 20,627 | 15,495 | 129 | * | 4.11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US$ | 7,349 | * | — | — | — | — | — | — | — | * | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 412,709 | * | 330,807 | 116,559 | 99,741 | 63,982 | 48,781 | 1,744 | — | * | 2.83 | % | 341,937 | * | 303,630 | 84,685 | 91,847 | 77,264 | 36,722 | 13,112 | — | * | 2.27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total—Direct financing leases | ¥ | 449,459 | * | ¥ | 362,136 | 131,071 | 108,332 | 68,801 | 51,125 | 2,807 | — | * | ¥ | 448,672 | * | ¥ | 422,936 | 114,835 | 116,126 | 105,890 | 57,349 | 28,607 | 129 | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other finance subsidiaries-receivables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JP¥ | ¥ | 456,525 | 449,776 | ¥ | 500,213 | 160,317 | 123,363 | 93,468 | 61,286 | 39,444 | 22,335 | 505,615 | 4.39 | % | ¥ | 542,165 | 544,441 | ¥ | 628,167 | 172,864 | 146,967 | 124,724 | 93,550 | 60,716 | 29,346 | 611,136 | 3.61 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US$ | 2,504,187 | 2,536,110 | 2,554,404 | 926,042 | 626,043 | 476,240 | 323,853 | 160,972 | 41,254 | 2,588,307 | 4.81 | % | 3,025,075 | 3,059,686 | 3,607,002 | 1,314,043 | 854,711 | 677,423 | 461,577 | 233,548 | 65,700 | 3,637,098 | 3.20 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 617,507 | 625,523 | 615,039 | 283,393 | 151,909 | 99,213 | 55,871 | 19,209 | 5,444 | 607,296 | 6.50 | % | 730,185 | 722,206 | 940,967 | 390,809 | 307,445 | 112,589 | 73,018 | 33,715 | 23,391 | 927,330 | 6.68 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total—Other finance subsidiairies- receivables | ¥ | 3,578,219 | 3,611,409 | ¥ | 3,669,656 | 1,369,752 | 901,315 | 668,921 | 441,010 | 219,625 | 69,033 | 3,701,218 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total—Other finance subsidiaries-receivables | ¥ | 4,297,425 | 4,326,333 | ¥ | 5,176,136 | 1,877,716 | 1,309,123 | 914,736 | 628,145 | 327,979 | 118,437 | 5,175,564 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Retained interests in securitizations** | 27,555 | 27,555 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total** | ¥ | 4,746,097 | ¥ | 5,599,072 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total*** | ¥ | 4,055,233 | ¥ | 4,031,792 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
* | Under U.S. generally accepted accounting principles, disclosure of fair values of direct financing leases is not required. |
** |
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The finance subsidiaries-receivables include finance subsidiaries-receivables |
Long-Term Debt (including current portion)
Long-Term Debt (including current portion) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yen (millions) | Yen (millions) | Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected maturity date | Average interest rate | Expected maturity date | Average interest rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Fair value | Total | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | Fair value | Total | Fair value | Total | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese yen bonds | ¥ | 320,000 | 323,852 | ¥ | 320,000 | 70,000 | 120,000 | 40,000 | 30,000 | 60,000 | — | 322,270 | 1.01 | % | ¥ | 340,000 | 342,627 | ¥ | 450,000 | 30,000 | 60,000 | 80,000 | 95,000 | 130,000 | 55,000 | 452,373 | 0.48 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese yen medium-term notes (Fixed rate) | 151,998 | 153,250 | 102,226 | 33,909 | 25,306 | 6,502 | 6,001 | 27,507 | 3,001 | 102,896 | 1.35 | % | 42,923 | 43,445 | 36,378 | 5,982 | 27,405 | — | — | — | 2,991 | 36,924 | 0.73 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese yen medium-term notes (Floating rate) | 114,676 | 114,599 | 80,619 | 16,504 | 58,614 | 3,501 | — | 2,000 | — | 80,770 | 0.49 | % | 5,490 | 5,488 | 1,994 | — | 1,994 | — | — | — | — | 1,995 | 0.22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. dollar medium-term notes (Fixed rate) | 391,272 | 420,970 | 451,891 | 28,967 | 41,381 | 141,526 | 45,521 | 82,764 | 111,732 | 477,827 | 4.38 | % | 942,086 | 994,988 | 1,062,127 | 221,278 | 202,745 | 231,570 | 128,650 | 174,964 | 102,920 | 1,101,604 | 2.45 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. dollar medium-term notes (Floating rate) | 211,685 | 213,695 | 297,285 | 146,160 | 89,963 | 10,014 | 8,276 | 42,872 | — | 299,014 | 0.98 | % | 235,427 | 237,547 | 515,612 | 226,424 | 52,987 | 209,442 | 10,292 | 16,467 | — | 518,199 | 0.63 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset backed notes | 311,222 | 316,596 | 453,802 | 239,339 | 148,699 | 60,403 | 5,361 | — | — | 458,794 | 1.94 | % | 681,020 | 684,741 | 808,022 | 412,200 | 267,532 | 109,093 | 16,135 | 2,519 | 543 | 811,297 | 0.70 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and others—primarily fixed rate | 1,534,478 | 1,582,083 | 1,299,872 | 427,576 | 310,459 | 313,575 | 160,431 | 84,818 | 3,013 | 1,322,989 | 3.31 | % | 1,408,945 | 1,419,185 | 1,663,397 | 407,580 | 350,799 | 495,091 | 140,927 | 136,780 | 132,220 | 1,675,351 | 1.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | ¥ | 3,035,331 | 3,125,045 | ¥ | 3,005,695 | 962,455 | 794,422 | 575,521 | 255,590 | 299,961 | 117,746 | 3,064,560 | ¥ | 3,655,891 | 3,728,021 | ¥ | 4,537,530 | 1,303,464 | 963,462 | 1,125,196 | 391,004 | 460,730 | 293,674 | 4,597,743 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Interest Rate Swaps
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yen (millions) | Yen (millions) | Average receive rate | Average pay rate | Yen (millions) | Yen (millions) | Average receive rate | Average pay rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected maturity date | Expected maturity date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notional principal currency | Receive/Pay | Contract amount | Fair value | Contract amount | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | Fair value | Receive/Pay | Contract amount | Fair value | Contract amount | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JP¥ | Float/Fix | ¥ | 770 | (24 | ) | ¥ | 420 | — | — | 180 | 240 | — | — | (14 | ) | 1.34 | % | 3.16 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US$ | Float/Fix | 2,476,108 | (47,762 | ) | 2,357,658 | 305,929 | 594,618 | 940,725 | 427,415 | 88,971 | — | (20,292 | ) | 0.37 | % | 1.84 | % | Float/Fix | ¥ | 2,424,360 | (11,508 | ) | ¥ | 3,089,462 | 1,291,320 | 853,366 | 715,800 | 192,477 | 35,212 | 1,287 | (3,662 | ) | 0.24 | % | 0.73 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fix/Float | 525,362 | 24,473 | 519,895 | 29,103 | 61,336 | 183,762 | 50,291 | 83,150 | 112,253 | 16,611 | 4.40 | % | 1.75 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Float/Float | — | — | 12,473 | — | 12,473 | — | — | — | — | 16 | 0.74 | % | 0.60 | % | Fix/Float | 993,168 | 30,934 | 1,065,222 | 221,278 | 205,840 | 231,570 | 128,650 | 174,964 | 102,920 | 14,347 | 2.45 | % | 1.24 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CA$ | Float/Fix | 525,099 | (10,905 | ) | 458,092 | 71,298 | 97,491 | 141,507 | 94,553 | 47,966 | 5,277 | (4,218 | ) | 1.30 | % | 2.87 | % | Float/Fix | 493,374 | (2,743 | ) | 529,733 | 185,472 | 140,365 | 99,171 | 69,118 | 26,479 | 9,128 | (1,810 | ) | 1.32 | % | 1.85 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fix/Float | 233,677 | 10,036 | 179,904 | 51,401 | 51,401 | 77,102 | — | — | — | 5,373 | 5.29 | % | 2.68 | % | Fix/Float | 120,174 | 924 | 74,512 | — | — | — | 37,256 | 37,256 | — | 69 | 2.31 | % | 1.90 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GBP | Float/Fix | 45,075 | (528 | ) | 32,134 | 21,422 | 10,712 | — | — | — | — | (136 | ) | 1.78 | % | 1.95 | % | Float/Fix | 32,213 | (94 | ) | 50,108 | 33,834 | 11,135 | 5,139 | — | — | — | (17 | ) | 0.52 | % | 0.71 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EUR | Float/Fix | — | — | 6,029 | 2,681 | 2,118 | 1,230 | — | — | — | (17 | ) | 0.88 | % | 2.24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | Total | ¥ | 3,806,091 | (24,710 | ) | ¥ | 3,566,605 | 481,834 | 830,149 | 1,344,506 | 572,499 | 220,087 | 117,530 | (2,677 | ) | Total | ¥ | 4,063,289 | 17,513 | ¥ | 4,809,037 | 1,731,904 | 1,210,706 | 1,051,680 | 427,501 | 273,911 | 113,335 | 8,927 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Currency & Interest Rate Swaps
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receiving side currency | Paying side | Receive/Pay | Yen (millions) | Yen (millions) | Average receive rate | Average pay rate | Paying side | Receive/ Pay | Yen (millions) | Yen (millions) | Average receive rate | Average pay rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected maturity date | Fair value | Expected maturity date | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract amount | Fair value | Contract amount | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | Contract amount | Fair value | Contract amount | Within 1 year | 1-2 year | 2-3 year | 3-4 year | 4-5 year | Thereafter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JP¥ | US$ | Fix/Float | ¥ | 124,721 | 29,735 | 82,078 | 23,820 | 17,563 | 5,087 | 5,537 | 27,734 | 2,337 | 21,523 | 1.35 | % | 0.73 | % | US$ | Fix/Float | ¥ | 46,029 | (2,704 | ) | ¥ | 44,074 | 6,854 | 34,328 | — | — | — | 2,892 | (7,378 | ) | 0.76 | % | 0.96 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Float/Float | 137,850 | 17,403 | 105,671 | 58,564 | 42,348 | 2,877 | — | 1,882 | — | 25,179 | 0.76 | % | 1.09 | % | Float/Float | 5,383 | 88 | 2,330 | — | 2,330 | — | — | — | — | (354 | ) | 0.22 | % | 0.89 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | Other | Fix/Float | 405,289 | 12,613 | 313,576 | — | 88,093 | 100,068 | 125,415 | — | — | 6,444 | 5.03 | % | 1.74 | % | Other | Fix/Float | 253,922 | (20,306 | ) | 258,267 | 155,234 | — | — | — | — | 103,033 | 4,200 | 3.31 | % | 1.72 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Float/Float | 51,104 | (3,953 | ) | 47,774 | 27,962 | — | — | 19,812 | — | — | (3,064 | ) | 1.29 | % | 2.81 | % | Float/Fix | 31,920 | (1,610 | ) | 61,360 | 18,071 | 13,303 | 10,910 | 19,076 | — | — | 1,101 | 0.76 | % | 3.30 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | Total | ¥ | 718,964 | 55,798 | 549,099 | 110,346 | 148,004 | 108,032 | 150,764 | 29,616 | 2,337 | 50,082 | Total | ¥ | 337,254 | (24,532 | ) | ¥ | 366,031 | 180,159 | 49,961 | 10,910 | 19,076 | — | 105,925 | (2,431 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity Price Risk
Honda is exposed to equity price risk as a result of its holdings of marketable equity securities. Marketable equity securities included in Honda’s investment portfolio are held for purposes other than trading, and are reported at fair value, with unrealized gains or losses, net of deferred taxes, included in accumulated other comprehensive income (loss) in equity section of the consolidated balance sheets. At March 31, 20102013 and 2011,2014, the estimated fair values of marketable equity securities were ¥94.5¥117.1 billion and ¥92.4¥138.4 billion, respectively.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Not applicable.
Not applicable.
1.2.3.3. Fees and charges.
JP MorganJPMorgan Chase Bank, N.A., as ADR depositary, collects fees for delivery and surrender of ADSs directly from investors, or from intermediaries acting for them, depositing ordinary shares or surrendering ADSs for the purpose of withdrawal. The ADR depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees.
The charges of the ADR depositary payable by investors are as follows:
Category
| Depositary Actions | Associated Fee | ||||
(a) Depositing or substituting the underlying shares | Each person to whom ADRs are issued against deposits of Shares, including deposits and issuances in respect of:
• Share distributions, stock split, rights, merger
• Exchange of securities or any other transaction or event or other distribution affecting the ADSs or the | USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered | ||||
(b) Receiving or distributing dividends | Not | |||||
(c) Selling or exercising rights | Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities | USD 5.00 for each 100 ADSs (or portion thereof) | ||||
(d) Withdrawing an underlying security | Acceptance of ADRs surrendered for withdrawal of deposited securities | USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered | ||||
(e) Transferring, splitting or grouping | Transfers, combining or grouping of depositary receipts | USD 2.50 per ADS certificate | ||||
(f) General depositary services, particularly those charged on an annual basis | Not |
Category
| Depositary Actions | Associated Fee | ||||
(g) Expenses of the depositary | Expenses incurred on behalf of
• Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment
• The depositary’s or its custodian’s compliance with applicable law, rule or regulation
• Stock transfer or other taxes and other governmental charges
• Cable, telex, facsimile transmission/delivery
• Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency)
• Any other charge payable by the depositary or its agents | Expenses payable at the sole discretion of the depositary by billing |
4. Direct / Indirect Payment Disclosure
Honda does not receive any reimbursement from the depositary bank. JPMorgan Chase Bank, N.A. agreed to waive an out-of-pocket expense of $50,000 associated with the administration of the ADR program. The out-of-pocket expenses relate to depositary service administration, including but not limited to, dividend disbursement and proxy process.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and participation of our management, including our Chief Executive Officer and Chief Operating Officer for Business Management Operations (who is our Chief financial officer)Financial Officer), we performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934) as of March 31, 2011.2014. Based on that evaluation, our Chief Executive Officer and Chief Operating Officer for Business Management Operations concluded that our disclosure controls and procedures were effective as of that date.
Management’s Report on Internal Control over Financial Reporting
The management of Honda is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934).
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of internal control over financial reporting as of March 31, 20112014 based on the criteria established in “Internal Control-Integrated Framework”Framework (1992)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, our management concluded that our internal control over financial reporting was effective as of March 31, 2011.2014.
The Company’s independent registered public accounting firm KPMG AZSA LLC has audited the effectiveness of the Company’s internal control over financial reporting, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
No significant changes were made in our internal control over financial reporting during the fiscal year ended March 31, 20112014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Honda’s Board of Corporate Auditors has determined that Mr. Hideki OkadaKunio Endo and Mr. Hirotake Abe are each qualified as an “audit committee financial expert” as defined by the rules of the SEC. Mr. OkadaEndo and Mr. Abe were each elected asto become one of Honda’s corporate auditorsCorporate Auditors at the general meeting of shareholders held on June 23, 200919, 2013 and June 23, 2011, respectively. See Item 6.A. for additional information regarding them. They meet the independence requirements imposed on corporate auditorsCorporate Auditors under the Company Law of Japan. See Item 6.C. for an explanation of such independence requirements.
Honda has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of Honda’s code of ethics is attached as an exhibit to this annual report on Form 20-F.
Item 16C. Principal Accountant Fees and Services
Principal Accountant, who conducted auditsKPMG AZSA LLC has served as Honda’s independent registered public accounting firm for each of our consolidatedthe fiscal years in the three-year period ended March 31, 2014, for which audited financial statements under U.S. generally accepted accounting principles or its affiliates, is independent auditor under applicable SEC rules and billedappear in this annual report on Form 20-F.
The following table presents the followingaggregate fees to us for professional services:services and other services rendered by KPMG AZSA LLC and the various member firms of KPMG International, a Swiss Cooperative, to Honda in fiscal year 2013 and 2014:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Audit Fees | 2,573 | 2,421 | ¥ | 2,486 | ¥ | 3,670 | ||||||||||
Audit-Related Fees | 114 | 79 | 59 | 89 | ||||||||||||
All Other Fees | 16 | 31 | ||||||||||||||
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Total | 2,687 | 2,500 | ¥ | 2,561 | ¥ | 3,790 | ||||||||||
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“Audit fees”Fees” means fees for audit services, which are professional services provided by independent auditors for the audit of our annual financial statements or for services that are normally provided by independent auditors with respect to any submissions required under applicable laws and regulations.
“Audit-related fees”Audit-Related Fees” means fees for audit-related services, which are assurance services provided by independent auditors that are reasonably related to the carrying out of auditing or reviewing of our financial reports and other related services. This category includes fees for agreed-upon or expanded audit procedures related to accounting and/or other records.
“All Other Fees” mainly includes fees for services rendered with respect to advisory services.
Pre-approval policies and procedures of the Board of Corporate Auditors
Under applicable SEC rules, our Board of Corporate Auditors must pre-approve audit services, audit-related services, tax services and other services to be provided by the principal accountant to ensure that the independence of the principal accountant under such rules is not impaired as a result of the provision of any of these services.
While, as a general rule, specific pre-approval must be obtained for these services to be provided, our Board of Corporate Auditors has adopted pre-approval policies and procedures which list particular audit and non-audit services that may be provided without specific pre-approval. Our Board of Corporate Auditors reviews this list of services on an annual basis, and is informed of each such service that is actually provided.
All services to be provided to us by the principal accountant and its affiliates thosewhich are not specifically set forth in this list must be specifically pre-approved by our Board of Corporate Auditors.
None of the services described above in this Item 16C. were waived from the pre-approval requirements pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
Item 16D. Exemptions from the Listing Standards for Audit Committees
With respect to the requirements of Rule 10A-3 under the Securities Exchange Act of 1934 relating to listed company audit committees, which apply to us through Section 303A.06 of the New York Stock Exchange’s Listed Company Manual, we rely on an exemption provided by paragraph (c)(3) of that Rule available to foreign private issuers with boardsBoards of corporate auditorsCorporate Auditors meeting certain requirements. For a New York Stock Exchange-listed Japanese company with a boardBoard of corporate auditors,Corporate Auditors, the requirements for relying on paragraph (c)(3) of Rule 10A-3 are as follows:
The Board of Corporate Auditors must be established, and its members must be selected, pursuant to Japanese law expressly requiring such a board for Japanese companies that elect to have a corporate governance system with corporate auditors.Corporate Auditors.
Japanese law must and does require the boardBoard of corporate auditorsCorporate Auditors to be separate from the Board of Directors.
None of the members of the boardBoard of corporate auditorsCorporate Auditors may be elected by management, and none of the listed company’s executive officers may be a member of the boardBoard of corporate auditors.Corporate Auditors.
Japanese law must and does set forth standards for the independence of the members of the boardBoard of corporate auditorsCorporate Auditors from the listed company or its management.
The boardBoard of corporate auditors,Corporate Auditors, in accordance with Japanese law or the listed company’s governing documents, must be responsible, to the extent permitted by Japanese law, for the appointment, retention and oversight of the work of any registered public accounting firm engaged (including, to the extent permitted by Japanese law, the resolution of disagreements between our management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the listed company, including its principal accountant whichindependent registered public accounting firm that audits its consolidated financial statements included in its annual reports on Form 20-F.
To the extent permitted by Japanese law:
— | the |
— | the |
— | the listed company must provide for appropriate funding, as determined by its |
In our assessment, our Board of Corporate Auditors, which meets the requirements for reliance on the exemption in paragraph (c)(3) of Rule 10A-3 as described above, is not materially less effective than an audit committee meeting all the requirements of paragraph (b) of Rule 10A-3 (without relying on any exemption provided by that Rule) at acting independently of management and performing the functions of an audit committee as contemplated therein).therein.
Item16E.Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth certain information with respect to purchases by Honda of its own shares during the year ended March 31, 2011.2014. There were no purchases of Honda’s shares by its affiliated purchasers during that year.
Period | (a) Total Number of Shares Purchased(1) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Yen Amount of Shares that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||
April 1 to April 30, 2010 | 456 | ¥ | 3,260 | 0 | 0 | |||||||||||
May 1 to May 31, 2010 | 1,755,614 | ¥ | 2,832 | 1,755,500 | ¥ | 5,028,330,300 | ||||||||||
June 1 to June 30, 2010 | 1,744,740 | ¥ | 2,772 | 1,744,500 | 0 | |||||||||||
July 1 to July 31, 2010 | 743 | ¥ | 2,592 | 0 | 0 | |||||||||||
August 1 to August 31, 2010 | 8,795,962 | ¥ | 2,839 | 8,795,500 | ¥ | 25,981,000 | ||||||||||
September 1 to September 30, 2010 | 181 | ¥ | 2,877 | 0 | 0 | |||||||||||
October 1 to October 31, 2010 | 163 | ¥ | 2,999 | 0 | 0 | |||||||||||
November 1 to November 30, 2010 | 816 | ¥ | 2,984 | 0 | 0 | |||||||||||
December 1 to December 31, 2010 | 1,766 | ¥ | 3,197 | 0 | 0 | |||||||||||
January 1, to January 31, 2011 | 721 | ¥ | 3,282 | 0 | 0 | |||||||||||
February 1, to February 28, 2011 | 378 | ¥ | 3,583 | 0 | 0 | |||||||||||
March 1 to March 31, 2011 | 336 | ¥ | 3,281 | 0 | 0 | |||||||||||
Total | 12,301,876 | ¥ | 2,829 | 12,295,500 | ||||||||||||
Period | (a) Total Number of Shares Purchased(*) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Yen Amount of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
April 1 to April 30, 2013 | 464 | ¥ | 4,249 | — | — | |||||||||||
May 1 to May 31, 2013 | 512 | ¥ | 4,211 | — | — | |||||||||||
June 1 to June 30, 2013 | 515 | ¥ | 3,613 | — | — | |||||||||||
July 1 to July 31, 2013 | 290 | ¥ | 3,835 | — | — | |||||||||||
August 1 to August 31, 2013 | 276 | ¥ | 3,733 | — | — | |||||||||||
September 1 to September 30, 2013 | 335 | ¥ | 3,737 | — | — | |||||||||||
October 1 to October 31, 2013 | 324 | ¥ | 3,873 | — | — | |||||||||||
November 1 to November 30, 2013 | 383 | ¥ | 4,233 | — | — | |||||||||||
December 1 to December 31, 2013 | 1,962 | ¥ | 4,239 | — | — | |||||||||||
January 1 to January 31, 2014 | 622 | ¥ | 4,196 | — | — | |||||||||||
February 1 to February 28, 2014 | 289 | ¥ | 3,790 | — | — | |||||||||||
March 1 to March 31, 2014 | 122 | ¥ | 4,853 | — | — | |||||||||||
|
|
|
|
|
| |||||||||||
Total | 6,094 | ¥ | 4,082 | — | ||||||||||||
|
|
|
|
|
|
* | For each month, the number of shares shown in column (a) in excess of the number of shares shown in column (c) represents the aggregate number of shares representing less than one unit that Honda purchased from the holders thereof upon their request. For an explanation of the right of such holders, see “Japanese |
Unit Share System—Right of a Holder of Shares Representing Less Than One Voting Unit to Require Honda to Purchase or Sell Its Shares” under Item 10.B of this Annual Report. |
|
Share repurchase approved by the board of directors pursuant to the articles of incorporation
Date of announcement: May 14, 2010
Maximum number of shares authorized to be repurchased: 3,500,000
Maximum yen amount authorized to be used for repurchase: ¥10,000,000,000
Repurchased period: from May 19, 2010 to June 4, 2010
(This program expired on the last day of the repurchase period referred to above.)
Share repurchase approved by the board of directors pursuant to the articles of incorporation
Date of announcement: July 30, 2010
Maximum number of shares authorized to be repurchased: 12,000,000
Maximum yen amount authorized to be used for repurchase: ¥25,000,000,000
Repurchased period: from August 3, 2010 to September 15, 2010
(This program expired on the last day of the repurchase period referred to above.)
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Companies listed on the New York Stock Exchange (the “NYSE”) must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual.
However, listed companies that are foreign private issuers, such as Honda, are permitted to follow home country practice in lieu of certain provisions of Section 303A.
The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE listedListed Company Manual and those followed by Honda.
Corporate Governance Practices Followed by NYSE-listed U.S. Companies | Corporate Governance Practices Followed by Honda | |
A NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual. | For Japanese companies, which employ a corporate governance system based on a | |
In the case of Japanese companies which employ the Board of Corporate Auditors system, including Honda, at least half of the Corporate Auditors must be “outside” Corporate Auditors who must meet additional independence requirements under Japan’s Company Law. An outside Corporate Auditor is defined as a Corporate Auditor who has not served as a director, accounting councilor, executive officer, manager or any other employee of the company or any of its subsidiaries. Currently, Honda has three outside Corporate Auditors which constitute 60% of Honda’s five Corporate Auditors. In addition, the listing rules of the Tokyo Stock Exchange, which Honda is subject to, require listed companies to have at least one “independent” Director or Corporate Auditor, and to make efforts to have at least one “independent” Director. Requirements for an independent Director/Corporate Auditor are more stringent than those for outside Directors or outside Corporate Auditors. Unlike an outside Director/Corporate Auditor, an independent Director/Corporate Auditor may not be a person who is an executive officer, manager or employee of the parent company of the company or of the major business counterparties, or someone who is a professional advisor receiving significant remuneration from the company. Honda already has one independent Director out of two outside Directors and two independent Corporate Auditors out of three outside Corporate Auditors. |
Corporate Governance Practices Followed by NYSE-listed U.S. Companies | Corporate Governance Practices Followed by Honda | |
| ||
A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors, and the audit committee must have at least three members. | Like a majority of Japanese companies, Honda employs the | |
Japanese companies which employ the | ||
With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, Honda relies on an exemption under that rule which is available to foreign private issuers with | ||
A NYSE-listed U.S. company must have a nominating/corporate governance committee entirely of independent directors. | Honda’s Directors are elected at a meeting of shareholders. Its Board of Directors does not have the power to fill vacancies thereon. Honda’s Corporate Auditors are also elected at a meeting of shareholders. A proposal by Honda’s Board of Directors to elect a Corporate Auditor must be approved by a resolution of its Board of Corporate Auditors. The Board of Corporate Auditors is empowered to request that Honda’s Directors submit a proposal for election of a Corporate Auditor to a meeting of shareholders. The Corporate Auditors have the right to state their opinion concerning election of a Corporate Auditor at the meeting of shareholders. |
Corporate Governance Practices Followed by NYSE-listed U.S. Companies | Corporate Governance Practices Followed by Honda | |
A NYSE-listed U.S. company must have a |
| |
Maximum total amounts of compensation for Honda’s | ||
A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan. | Currently, Honda does not adopt stock option compensation plans. If Honda were to adopt such a plan, Honda must obtain shareholder approval for stock options only if the stock options are issued with specifically favorable conditions or price concerning the issuance and exercise of the stock options. |
Item 16H. Mine Safety Disclosure
Not applicable.
PART III
Not applicable.
See Consolidated Financial Statements attached hereto.
1.1 | Articles of Incorporation of the registrant (English translation) | |||
1.2 | Share Handling Regulations of the registrant (English translation) | |||
1.3 | Regulations of Board of Directors of the registrant (English translation) | |||
1.4 | Regulations of the Board of Corporate Auditors of the registrant (English translation) | |||
2.1 | Specimen common stock certificates of the registrant (English translation) (1) | |||
2.2 | Deposit Agreement dated as of December 19, 1962, as amended and restated as of October 1, 1982 (including changes from Amendment to Deposit Agreement dated as of April 1, 1989) among the registrant, Morgan Guaranty Trust Company of New York (now | |||
2.3 | Form of Amendment No. 2 to Deposit Agreement dated as of April, 1995, among the parties referred to in Exhibit 2.2 above (2) | |||
2.4 | Form of Amendment No. 3 to Deposit Agreement dated as of January, 2002, among the parties referred to in Exhibit 2.2 above (3) | |||
2.5 | Form of Amendment No. 4 to Deposit Agreement dated as of June, 2006, among the parties referred to in Exhibit 2.2 above (4) | |||
2.6 | Form of Amendment No. 5 to Deposit Agreement dated as of June, 2007, among the parties referred to in Exhibit 2.2 above (5) | |||
8.1 | List of Significant Subsidiaries (See “Organizational Structure” in Item 4.C of this Form 20-F) | |||
11.1 | Code of Ethics (6) | |||
12.1 | Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a) | |||
12.2 | Certification of the principal financial officer required by 17 C.F.R. 240. 13a-14(a) | |||
13.1 | Certification of the chief executive officer required by 18 U.S.C. Section 1350 | |||
13.2 | Certification of the chief financial officer required by 18 U.S.C. Section 1350 | |||
101.INS | XBRL Instance Document | |||
101.SCH | XBRL Taxonomy Extension Schema Document | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Incorporated by reference to the registrant’s annual report on Form 20-F filed on September 27, 2001. |
(2) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 33-91842) filed on May 1, 1995. |
(3) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-14228) filed on December 20, 2001. |
(4) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-114874) filed on June 28, 2006. |
(5) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-143589) filed on June 8, 2007. |
(6) | Incorporated by reference to the registrant’s annual report on Form 20-F filed on July 9, 2004. |
The Company has not included as exhibits certain instruments with respect to its long-term debt, the amount of debt authorized under each of which does not exceed 10% of its total assets, and it agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
HONDA MOTOR CO., LTD.
(Honda Giken Kogyo Kabushiki Kaisha)
(A Japanese Company)
AND SUBSIDIARIES
Consolidated Financial Statements
and
Reports of Independent Registered
Public Accounting Firm
March 31, 20112014
To be Included in
The Annual Report
Form 20-F
Filed with
The Securities and Exchange Commission
Washington, D.C., U.S.A.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Financial statements of affiliates are omitted because such affiliates are not individually significant.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Honda Motor Co., Ltd.:
We have audited the accompanying consolidated balance sheets of Honda Motor Co., Ltd. and subsidiaries (“Honda”) as of March 31, 20102013 and 2011,2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2011.2014. These consolidated financial statements are the responsibility of Honda’sthe Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Honda Motor Co., Ltd. and subsidiaries as of March 31, 20102013 and 2011,2014, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2011,2014, in conformity with U.S. generally accepted accounting principles.
As further described in Note 1(c)1(k) to the consolidated financial statements, Honda adopted FASB Accounting Standards Update (ASU) 2009-16 “Accountingthe Company changed its method of accounting for Transferscalculating depreciation of Financial Assets”,certain property, plant and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effectiveequipment beginning April 1, 2010.2012.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Honda Motor Co., Ltd.’s internal control over financial reporting as of March 31, 2011,2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 23, 201120, 2014 expressed an unqualified opinion on the effectiveness of Honda Motor Co., Ltd.’sthe Company’s internal control over financial reporting.
/S/s/ KPMG AZSA LLC
Tokyo, Japan
June 23, 201120, 2014
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Honda Motor Co., Ltd.:
We have audited Honda Motor Co., Ltd.’s internal controlscontrol over financial reporting as of March 31, 2011,2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Honda Motor Co., Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Honda Motor Co., Ltd.’sthe Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Honda Motor Co., Ltd. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011,2014, based on the criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Honda Motor Co., Ltd. and subsidiaries as of March 31, 20112013 and 2010,2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2011,2014, and our report dated June 23, 201120, 2014 expressed an unqualified opinion on those consolidated financial statements.
/S/s/ KPMG AZSA LLC
Tokyo, Japan
June 23, 201120, 2014
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2010 and 2011
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | ¥ | 1,119,902 | ¥ | 1,279,024 | ||||
Trade accounts and notes receivable, net of allowance for doubtful accounts of ¥8,555 million in 2010 | 883,476 | 787,691 | ||||||
Finance subsidiaries-receivables, net (notes 3, 4, 9 and 20) | 1,100,158 | 1,131,068 | ||||||
Inventories (notes 5 and 9) | 935,629 | 899,813 | ||||||
Deferred income taxes (note 11) | 176,604 | 202,291 | ||||||
Other current assets (notes 7, 9 and 17) | 397,955 | 390,160 | ||||||
Total current assets | 4,613,724 | 4,690,047 | ||||||
Finance subsidiaries-receivables, net (notes 3, 4, 9 and 20) | 2,361,335 | 2,348,913 | ||||||
Investments and advances: | ||||||||
Investments in and advances to affiliates (note 6) | 457,834 | 440,026 | ||||||
Other, including marketable equity securities (notes 4 and 7) | 184,847 | 199,906 | ||||||
Total investments and advances | 642,681 | 639,932 | ||||||
Property on operating leases (note 8): | ||||||||
Vehicles | 1,651,672 | 1,645,517 | ||||||
Less accumulated depreciation | 343,525 | 287,885 | ||||||
Net property on operating leases | 1,308,147 | 1,357,632 | ||||||
Property, plant and equipment, at cost (note 9): | ||||||||
Land | 489,769 | 483,654 | ||||||
Buildings | 1,509,821 | 1,473,067 | ||||||
Machinery and equipment | 3,257,455 | 3,166,353 | ||||||
Construction in progress | 143,862 | 202,186 | ||||||
5,400,907 | 5,325,260 | |||||||
Less accumulated depreciation and amortization | 3,314,244 | 3,385,904 | ||||||
Net property, plant and equipment | 2,086,663 | 1,939,356 | ||||||
Other assets, net of allowance for doubtful accounts of ¥9,319 million in 2010 and ¥23,275 million in 2011 | 616,565 | 594,994 | ||||||
Total assets | ¥ | 11,629,115 | ¥ | 11,570,874 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Short-term debt (notes 4 and 9) | ¥ | 1,066,344 | ¥ | 1,094,740 | ||||
Current portion of long-term debt (notes 4 and 9) | 722,296 | 962,455 | ||||||
Trade payables: | ||||||||
Notes | 24,704 | 25,216 | ||||||
Accounts | 802,464 | 691,520 | ||||||
Accrued expenses (note 13) | 542,521 | 525,540 | ||||||
Income taxes payable (note 11) | 23,947 | 31,960 | ||||||
Other current liabilities (notes 9, 11 and 17) | 236,854 | 236,761 | ||||||
Total current liabilities | 3,419,130 | 3,568,192 | ||||||
Long-term debt, excluding current portion (notes 4 and 9) | 2,313,035 | 2,043,240 | ||||||
Other liabilities (notes 4, 10, 11 and 13) | 1,440,520 | 1,376,530 | ||||||
Total liabilities | 7,172,685 | 6,987,962 | ||||||
Equity: | ||||||||
Honda Motor Co., Ltd. shareholders’ equity: | ||||||||
Common stock, authorized 7,086,000,000 shares in 2010 and 2011; issued 1,834,828,430 shares in 2010 | 86,067 | 86,067 | ||||||
Capital surplus | 172,529 | 172,529 | ||||||
Legal reserves (note 12) | 45,463 | 46,330 | ||||||
Retained earnings (note 12) | 5,304,473 | 5,666,539 | ||||||
Accumulated other comprehensive income (loss), net (notes 7, 11, 13, 15 and 17) | (1,208,162 | ) | (1,495,380 | ) | ||||
Treasury stock, at cost 20,225,694 shares in 2010 and 9,126,716 shares in 2011 | (71,730 | ) | (26,110 | ) | ||||
Total Honda Motor Co., Ltd. shareholders’ equity | 4,328,640 | 4,449,975 | ||||||
Noncontrolling interests | 127,790 | 132,937 | ||||||
Total equity | 4,456,430 | 4,582,912 | ||||||
Commitments and contingent liabilities (notes 18 and 19) | ||||||||
Total liabilities and equity | ¥ | 11,629,115 | ¥ | 11,570,874 | ||||
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 2009, 2010 and 2011
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Net sales and other operating revenue (notes 2 and 6) | ¥ | 10,011,241 | ¥ | 8,579,174 | ¥ | 8,936,867 | ||||||
Operating costs and expenses: | ||||||||||||
Cost of sales (notes 1(u) and 2) | 7,419,582 | 6,414,721 | 6,496,841 | |||||||||
Selling, general and administrative (note 1(u)) | 1,838,819 | 1,337,324 | 1,382,660 | |||||||||
Research and development | 563,197 | 463,354 | 487,591 | |||||||||
9,821,598 | 8,215,399 | 8,367,092 | ||||||||||
Operating income | 189,643 | 363,775 | 569,775 | |||||||||
Other income (expenses): | ||||||||||||
Interest income | 41,235 | 18,232 | 23,577 | |||||||||
Interest expense | (22,543 | ) | (12,552 | ) | (8,474 | ) | ||||||
Other, net (notes 1(p), 6, 7 and 17) | (46,601 | ) | (33,257 | ) | 45,670 | |||||||
(27,909 | ) | (27,577 | ) | 60,773 | ||||||||
Income before income taxes and equity in income of affiliates | 161,734 | 336,198 | 630,548 | |||||||||
Income tax expense (note 11): | ||||||||||||
Current | 68,062 | 90,263 | 76,647 | |||||||||
Deferred | 41,773 | 56,606 | 130,180 | |||||||||
109,835 | 146,869 | 206,827 | ||||||||||
Income before equity in income of affiliates | 51,899 | 189,329 | 423,721 | |||||||||
Equity in income of affiliates (note 6) | 99,034 | 93,282 | 139,756 | |||||||||
Net income | 150,933 | 282,611 | 563,477 | |||||||||
Less: Net income attributable to noncontrolling interests | 13,928 | 14,211 | 29,389 | |||||||||
Net income attributable to Honda Motor Co., Ltd. | ¥ | 137,005 | ¥ | 268,400 | ¥ | 534,088 | ||||||
Yen | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Basic net income attributable to Honda Motor Co., Ltd. per common share (note 1(o)) | ¥ | 75.50 | ¥ | 147.91 | ¥ | 295.67 | ||||||
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
Years ended March 31, 2009, 2010 and 2011
Yen (millions) | ||||||||||||||||||||||||||||||||||||
Common stock | Capital surplus | Legal reserves | Retained earnings | Accumulated other comprehensive income (loss), net | Treasury stock | Total Honda Motor Co., Ltd. shareholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Balance at March 31, 2008 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 39,811 | ¥ | 5,106,197 | ¥ | (782,198 | ) | ¥ | (71,927 | ) | ¥ | 4,550,479 | ¥ | 141,806 | ¥ | 4,692,285 | ||||||||||||||||
Transfer to legal reserves | 4,154 | (4,154 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co., Ltd. shareholders | (139,724 | ) | (139,724 | ) | (139,724 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (10,841 | ) | (10,841 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | (172 | ) | (172 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 137,005 | 137,005 | 13,928 | 150,933 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | ||||||||||||||||||||||||||||||||||||
Adjustments from foreign currency translation | (477,316 | ) | (477,316 | ) | (19,865 | ) | (497,181 | ) | ||||||||||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net | (25,063 | ) | (25,063 | ) | (60 | ) | (25,123 | ) | ||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net | (460 | ) | (460 | ) | (460 | ) | ||||||||||||||||||||||||||||||
Pension and other postretirement benefits adjustments | (37,791 | ) | (37,791 | ) | (1,740 | ) | (39,531 | ) | ||||||||||||||||||||||||||||
Total comprehensive income (loss) | (403,625 | ) | (7,737 | ) | (411,362 | ) | ||||||||||||||||||||||||||||||
Purchase of treasury stock | (62 | ) | (62 | ) | (62 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | (57 | ) | 277 | 220 | 220 | |||||||||||||||||||||||||||||||
Retirement of treasury stock | — | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2009 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 43,965 | ¥ | 5,099,267 | ¥ | (1,322,828 | ) | ¥ | (71,712 | ) | ¥ | 4,007,288 | ¥ | 123,056 | ¥ | 4,130,344 | ||||||||||||||||
Transfer to legal reserves | 1,498 | (1,498 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co., Ltd. shareholders | (61,696 | ) | (61,696 | ) | (61,696 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (16,278 | ) | (16,278 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | 127 | 127 | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 268,400 | 268,400 | 14,211 | 282,611 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | ||||||||||||||||||||||||||||||||||||
Adjustments from foreign currency translation | 91,097 | 91,097 | 5,750 | 96,847 | ||||||||||||||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net | 23,107 | 23,107 | 111 | 23,218 | ||||||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net | (324 | ) | (324 | ) | (324 | ) | ||||||||||||||||||||||||||||||
Pension and other postretirement benefits adjustments | 786 | 786 | 813 | 1,599 | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 383,066 | 20,885 | 403,951 | |||||||||||||||||||||||||||||||||
Purchase of treasury stock | (20 | ) | (20 | ) | (20 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 2 | 2 | 2 | |||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2010 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 45,463 | ¥ | 5,304,473 | ¥ | (1,208,162 | ) | ¥ | (71,730 | ) | ¥ | 4,328,640 | ¥ | 127,790 | ¥ | 4,456,430 | ||||||||||||||||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity—(Continued)
Years ended March 31, 2009, 2010 and 2011
Yen (millions) | ||||||||||||||||||||||||||||||||||||
Common stock | Capital surplus | Legal reserves | Retained earnings | Accumulated other comprehensive income (loss), net | Treasury stock | Total Honda Motor Co., Ltd. shareholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Cumulative effect of adjustments resulting from the adoption of new accounting standards on variable interest entities, net of tax | 1,432 | 1,432 | 1,432 | |||||||||||||||||||||||||||||||||
Adjusted balance at March 31, 2010 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 45,463 | ¥ | 5,305,905 | ¥ | (1,208,162 | ) | ¥ | (71,730 | ) | ¥ | 4,330,072 | ¥ | 127,790 | ¥ | 4,457,862 | ||||||||||||||||
Transfer to legal reserves | 867 | (867 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co., Ltd. shareholders | (92,170 | ) | (92,170 | ) | (92,170 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (16,232 | ) | (16,232 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | (946 | ) | (946 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 534,088 | 534,088 | 29,389 | 563,477 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | ||||||||||||||||||||||||||||||||||||
Adjustments from foreign currency translation | (290,745 | ) | (290,745 | ) | (6,796 | ) | (297,541 | ) | ||||||||||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net | 575 | 575 | (27 | ) | 548 | |||||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net | 168 | 168 | 168 | |||||||||||||||||||||||||||||||||
Pension and other postretirement benefits adjustments | 2,784 | 2,784 | (241 | ) | 2,543 | |||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 246,870 | 22,325 | 269,195 | |||||||||||||||||||||||||||||||||
Purchase of treasury stock | (34,800 | ) | (34,800 | ) | (34,800 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 3 | 3 | 3 | |||||||||||||||||||||||||||||||||
Retirement of treasury stock | (80,417 | ) | 80,417 | — | — | |||||||||||||||||||||||||||||||
Balance at March 31, 2011 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 46,330 | ¥ | 5,666,539 | ¥ | (1,495,380 | ) | ¥ | (26,110 | ) | ¥ | 4,449,975 | ¥ | 132,937 | ¥ | 4,582,912 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIESConsolidated Balance Sheets
Consolidated Statements of Cash FlowsMarch 31, 2013 and 2014
Years ended March 31, 2009, 2010 and 2011
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Cash flows from operating activities (note 14): | ||||||||||||
Net income | ¥ | 150,933 | ¥ | 282,611 | ¥ | 563,477 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation excluding property on operating leases | 441,868 | 401,743 | 351,496 | |||||||||
Depreciation of property on operating leases | 195,776 | 227,931 | 212,143 | |||||||||
Deferred income taxes | 41,773 | 56,606 | 130,180 | |||||||||
Equity in income of affiliates | (99,034 | ) | (93,282 | ) | (139,756 | ) | ||||||
Dividends from affiliates | 65,140 | 140,901 | 98,182 | |||||||||
Gain on sales of investments in affiliates (note 6) | — | — | (46,756 | ) | ||||||||
Provision for credit and lease residual losses on finance subsidiaries-receivables | 77,016 | 40,062 | 13,305 | |||||||||
Impairment loss on investments in securities | 26,001 | 603 | 2,133 | |||||||||
Damaged and impairment loss on long-lived assets and goodwill excluding property on operating leases (note 1(u)) | 21,597 | 548 | 16,833 | |||||||||
Impairment loss on property on operating leases | 18,528 | 3,312 | 835 | |||||||||
Loss (gain) on derivative instruments, net | (15,506 | ) | (37,753 | ) | (7,788 | ) | ||||||
Decrease (increase) in assets: | ||||||||||||
Trade accounts and notes receivable | (30,025 | ) | (6,910 | ) | 38,700 | |||||||
Inventories | (262,782 | ) | 352,994 | (33,676 | ) | |||||||
Other current assets | (82,838 | ) | 103,071 | 266 | ||||||||
Other assets | 8,640 | 24,150 | (40,729 | ) | ||||||||
Increase (decrease) in liabilities: | ||||||||||||
Trade accounts and notes payable | (133,662 | ) | 151,345 | (55,331 | ) | |||||||
Accrued expenses | (102,711 | ) | (20,457 | ) | 39,103 | |||||||
Income taxes payable | (12,861 | ) | (14,524 | ) | 9,461 | |||||||
Other current liabilities | 10,630 | 5,662 | 32,209 | |||||||||
Other liabilities | 74,872 | (30,146 | ) | (83,115 | ) | |||||||
Other, net | (9,714 | ) | (44,255 | ) | (30,335 | ) | ||||||
Net cash provided by operating activities | 383,641 | 1,544,212 | 1,070,837 | |||||||||
Cash flows from investing activities: | ||||||||||||
Increase in investments and advances | (4,879 | ) | (19,419 | ) | (11,412 | ) | ||||||
Decrease in investments and advances | 1,921 | 14,078 | 13,995 | |||||||||
Payments for purchases of available-for-sale securities | (31,936 | ) | (5,871 | ) | (262 | ) | ||||||
Proceeds from sales of available-for-sale securities | 26,896 | 4,945 | 2,739 | |||||||||
Payments for purchases of held-to-maturity securities | (17,348 | ) | (21,181 | ) | (179,951 | ) | ||||||
Proceeds from redemptions of held-to-maturity securities | 32,667 | 6,283 | 154,977 | |||||||||
Proceeds from sales of investments in affiliates (note 6) | — | — | 71,073 | |||||||||
Capital expenditures | (635,190 | ) | (392,062 | ) | (318,543 | ) | ||||||
Proceeds from sales of property, plant and equipment | 18,843 | 24,472 | 24,725 | |||||||||
Acquisitions of finance subsidiaries-receivables | (2,303,930 | ) | (1,448,146 | ) | (2,208,480 | ) | ||||||
Collections of finance subsidiaries-receivables | 2,023,031 | 1,595,235 | 2,109,904 | |||||||||
Sales (repurchases) of finance subsidiaries-receivables, net | 324,672 | (55,168 | ) | — | ||||||||
Purchases of operating lease assets | (668,128 | ) | (544,027 | ) | (798,420 | ) | ||||||
Proceeds from sales of operating lease assets | 100,017 | 245,110 | 408,265 | |||||||||
Net cash used in investing activities | (1,133,364 | ) | (595,751 | ) | (731,390 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Increase (decrease) in short-term debt, net | 270,795 | (649,641 | ) | 113,669 | ||||||||
Proceeds from long-term debt | 1,299,984 | 1,132,222 | 799,520 | |||||||||
Repayments of long-term debt | (889,483 | ) | (963,833 | ) | (870,406 | ) | ||||||
Dividends paid (note 12) | (139,724 | ) | (61,696 | ) | (92,170 | ) | ||||||
Dividends paid to noncontrolling interests | (10,841 | ) | (16,278 | ) | (16,232 | ) | ||||||
Sales (purchases) of treasury stock, net | 131 | (18 | ) | (34,797 | ) | |||||||
Net cash provided by (used in) financing activities | 530,862 | (559,244 | ) | (100,416 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (141,672 | ) | 40,316 | (79,909 | ) | |||||||
Net change in cash and cash equivalents | (360,533 | ) | 429,533 | 159,122 | ||||||||
Cash and cash equivalents at beginning of year | 1,050,902 | 690,369 | 1,119,902 | |||||||||
Cash and cash equivalents at end of year | ¥ | 690,369 | ¥ | 1,119,902 | ¥ | 1,279,024 | ||||||
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | ¥ | 1,206,128 | ¥ | 1,168,914 | ||||
Trade accounts and notes receivable, net of allowance for doubtful accounts of ¥7,885 million in 2013 and ¥9,677 million in 2014 (notes 3, 9 and 20) | 1,005,981 | 1,158,671 | ||||||
Finance subsidiaries-receivables, net (notes 3, 4, 9 and 20) | 1,243,002 | 1,464,215 | ||||||
Inventories (notes 5 and 9) | 1,215,421 | 1,302,895 | ||||||
Deferred income taxes (notes 11 and 20) | 234,075 | 202,123 | ||||||
Other current assets (notes 3, 4, 7, 9 and 17) | 418,446 | 474,448 | ||||||
|
|
|
| |||||
Total current assets | 5,323,053 | 5,771,266 | ||||||
|
|
|
| |||||
Finance subsidiaries-receivables, net (notes 3, 4, 9 and 20) | 2,788,135 | 3,317,553 | ||||||
Investments and advances: | ||||||||
Investments in and advances to affiliates (note 6) | 459,110 | 564,266 | ||||||
Other, including marketable equity securities (notes 3, 4 and 7) | 209,680 | 253,661 | ||||||
|
|
|
| |||||
Total investments and advances | 668,790 | 817,927 | ||||||
|
|
|
| |||||
Property on operating leases (note 8): | ||||||||
Vehicles | 2,243,424 | 2,718,131 | ||||||
Less accumulated depreciation | 400,292 | 481,410 | ||||||
|
|
|
| |||||
Net property on operating leases | 1,843,132 | 2,236,721 | ||||||
|
|
|
| |||||
Property, plant and equipment, at cost (note 9): | ||||||||
Land | 515,661 | 521,806 | ||||||
Buildings | 1,686,638 | 1,895,140 | ||||||
Machinery and equipment | 3,832,090 | 4,384,255 | ||||||
Construction in progress | 288,073 | 339,093 | ||||||
|
|
|
| |||||
6,322,462 | 7,140,294 | |||||||
Less accumulated depreciation and amortization | 3,922,932 | 4,321,862 | ||||||
|
|
|
| |||||
Net property, plant and equipment | 2,399,530 | 2,818,432 | ||||||
|
|
|
| |||||
Other assets, net of allowance for doubtful accounts of ¥22,754 million in 2013 and ¥22,100 million in 2014 | 612,717 | 660,132 | ||||||
|
|
|
| |||||
Total assets | ¥ | 13,635,357 | ¥ | 15,622,031 | ||||
|
|
|
| |||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Short-term debt (notes 4 and 9) | ¥ | 1,238,297 | ¥ | 1,319,344 | ||||
Current portion of long-term debt (notes 4 and 9) | 945,046 | 1,303,464 | ||||||
Trade payables: | ||||||||
Notes | 31,354 | 28,501 | ||||||
Accounts | 956,660 | 1,071,179 | ||||||
Accrued expenses (note 13) | 593,570 | 626,503 | ||||||
Income taxes payable (note 11) | 48,454 | 43,085 | ||||||
Other current liabilities (notes 9, 11 and 17) | 275,623 | 319,253 | ||||||
|
|
|
| |||||
Total current liabilities | 4,089,004 | 4,711,329 | ||||||
|
|
|
| |||||
Long-term debt, excluding current portion (notes 4 and 9) | 2,710,845 | 3,234,066 | ||||||
Other liabilities (notes 4, 10, 11 and 13) | 1,630,085 | 1,563,238 | ||||||
|
|
|
| |||||
Total liabilities | 8,429,934 | 9,508,633 | ||||||
|
|
|
| |||||
Equity: | ||||||||
Honda Motor Co., Ltd. shareholders’ equity: | ||||||||
Common stock, authorized 7,086,000,000 shares; issued 1,811,428,430 shares | 86,067 | 86,067 | ||||||
Capital surplus | 171,117 | 171,117 | ||||||
Legal reserves (note 12) | 47,583 | 49,276 | ||||||
Retained earnings (notes 1(c) and 12) | 6,001,649 | 6,431,682 | ||||||
Accumulated other comprehensive income (loss), net (notes 7, 11, 13, 15 and 17) | (1,236,792 | ) | (793,014 | ) | ||||
Treasury stock, at cost 9,131,140 shares in 2013 and 9,137,234 shares in 2014 | (26,124 | ) | (26,149 | ) | ||||
|
|
|
| |||||
Total Honda Motor Co., Ltd. shareholders’ equity | 5,043,500 | 5,918,979 | ||||||
|
|
|
| |||||
Noncontrolling interests (note 1(c)) | 161,923 | 194,419 | ||||||
|
|
|
| |||||
Total equity | 5,205,423 | 6,113,398 | ||||||
|
|
|
| |||||
Commitments and contingent liabilities (notes 18 and 19) | ||||||||
Total liabilities and equity | ¥ | 13,635,357 | ¥ | 15,622,031 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 2012, 2013 and 2014
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net sales and other operating revenue (note 2) | ¥ | 7,948,095 | ¥ | 9,877,947 | ¥ | 11,842,451 | ||||||
Operating costs and expenses: | ||||||||||||
Cost of sales (notes 1(k), 1(u), 2 and 13) | 5,919,633 | 7,345,162 | 8,761,083 | |||||||||
Selling, general and administrative (notes 1(k), 1(u) and 13) | 1,277,280 | 1,427,705 | 1,696,957 | |||||||||
Research and development (note 1(k)) | 519,818 | 560,270 | 634,130 | |||||||||
|
|
|
|
|
| |||||||
7,716,731 | 9,333,137 | 11,092,170 | ||||||||||
|
|
|
|
|
| |||||||
Operating income | 231,364 | 544,810 | 750,281 | |||||||||
Other income (expenses): | ||||||||||||
Interest income | 33,461 | 25,742 | 24,026 | |||||||||
Interest expense | (10,378 | ) | (12,157 | ) | (12,703 | ) | ||||||
Other, net (notes 1(p), 7, 15 and 17) | 2,956 | (69,504 | ) | (32,664 | ) | |||||||
|
|
|
|
|
| |||||||
26,039 | (55,919 | ) | (21,341 | ) | ||||||||
|
|
|
|
|
| |||||||
Income before income taxes and equity in income of affiliates | 257,403 | 488,891 | 728,940 | |||||||||
Income tax expense (notes 11 and 15): | ||||||||||||
Current | 86,074 | 125,724 | 207,236 | |||||||||
Deferred | 49,661 | 53,252 | 45,426 | |||||||||
|
|
|
|
|
| |||||||
135,735 | 178,976 | 252,662 | ||||||||||
|
|
|
|
|
| |||||||
Income before equity in income of affiliates | 121,668 | 309,915 | 476,278 | |||||||||
Equity in income of affiliates (note 6) | 100,406 | 82,723 | 132,471 | |||||||||
|
|
|
|
|
| |||||||
Net income | 222,074 | 392,638 | 608,749 | |||||||||
Less: Net income attributable to noncontrolling interests | 10,592 | 25,489 | 34,642 | |||||||||
|
|
|
|
|
| |||||||
Net income attributable to Honda Motor Co., Ltd. | ¥ | 211,482 | ¥ | 367,149 | ¥ | 574,107 | ||||||
|
|
|
|
|
| |||||||
| Yen |
| ||||||||||
2012 | 2013 | 2014 | ||||||||||
Basic net income attributable to Honda Motor Co., Ltd. per common share (note 1(o)) | ¥ | 117.34 | ¥ | 203.71 | ¥ | 318.54 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended March 31, 2012, 2013 and 2014
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net income | ¥ | 222,074 | ¥ | 392,638 | ¥ | 608,749 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Adjustments from foreign currency translation | (118,135 | ) | 430,812 | 333,659 | ||||||||
Unrealized gains (losses) on available-for-sale securities, net | 5,812 | 7,984 | 15,252 | |||||||||
Unrealized gains (losses) on derivative instruments, net | (29 | ) | (52 | ) | 237 | |||||||
Pension and other postretirement benefits adjustments (note 13) | (39,653 | ) | (15,297 | ) | 107,718 | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss), net of tax (note 15) | (152,005 | ) | 423,447 | 456,866 | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) | 70,069 | 816,085 | 1,065,615 | |||||||||
Less: Comprehensive income attributable to noncontrolling interests | 9,285 | 39,650 | 47,730 | |||||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) attributable to Honda Motor Co., Ltd. | ¥ | 60,784 | ¥ | 776,435 | ¥ | 1,017,885 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
Years ended March 31, 2012, 2013 and 2014
Yen (millions) | ||||||||||||||||||||||||||||||||||||
Common stock | Capital surplus | Legal reserves | Retained earnings | Accumulated other comprehensive income (loss), net | Treasury stock | Total Honda Motor Co., Ltd. shareholders’ equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||||
Balance at April 1, 2011 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 46,330 | ¥ | 5,656,151 | ¥ | (1,495,380 | ) | ¥ | (26,110 | ) | ¥ | 4,439,587 | ¥ | 132,937 | ¥ | 4,572,524 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Adjustment resulting from change in fiscal year-end of a subsidiary, net of tax (note 1(c)) | 6,023 | 6,023 | 1,658 | 7,681 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Adjusted balance at April 1, 2011 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 46,330 | ¥ | 5,662,174 | ¥ | (1,495,380 | ) | ¥ | (26,110 | ) | ¥ | 4,445,610 | ¥ | 134,595 | ¥ | 4,580,205 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Transfer to legal reserves | 854 | (854 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co., Ltd. shareholders | (108,138 | ) | (108,138 | ) | (108,138 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (15,763 | ) | (15,763 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | (783 | ) | (783 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 211,482 | 211,482 | 10,592 | 222,074 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | (150,698 | ) | (150,698 | ) | (1,307 | ) | (152,005 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 60,784 | 9,285 | 70,069 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Purchase of treasury stock | (8 | ) | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at March 31, 2012 | ¥ | 86,067 | ¥ | 172,529 | ¥ | 47,184 | ¥ | 5,764,664 | ¥ | (1,646,078 | ) | ¥ | (26,117 | ) | ¥ | 4,398,249 | ¥ | 127,334 | ¥ | 4,525,583 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Transfer to legal reserves | 399 | (399 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co.,Ltd. shareholders | (129,765 | ) | (129,765 | ) | (129,765 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (6,250 | ) | (6,250 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | (1,412 | ) | (1,412 | ) | 1,189 | (223 | ) | |||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 367,149 | 367,149 | 25,489 | 392,638 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | 409,286 | 409,286 | 14,161 | 423,447 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total comprehensive income (loss) | 776,435 | 39,650 | 816,085 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Purchase of treasury stock | (8 | ) | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at March 31, 2013 | ¥ | 86,067 | ¥ | 171,117 | ¥ | 47,583 | ¥ | 6,001,649 | ¥ | (1,236,792 | ) | ¥ | (26,124 | ) | ¥ | 5,043,500 | ¥ | 161,923 | ¥ | 5,205,423 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
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Transfer to legal reserves | 1,693 | (1,693 | ) | — | — | |||||||||||||||||||||||||||||||
Dividends paid to Honda Motor Co.,Ltd. shareholders | (142,381 | ) | (142,381 | ) | (142,381 | ) | ||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (9,677 | ) | (9,677 | ) | ||||||||||||||||||||||||||||||||
Capital transactions and others | (5,557 | ) | (5,557 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 574,107 | 574,107 | 34,642 | 608,749 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax (note 15) | 443,778 | 443,778 | 13,088 | 456,866 | ||||||||||||||||||||||||||||||||
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Total comprehensive income (loss) | 1,017,885 | 47,730 | 1,065,615 | |||||||||||||||||||||||||||||||||
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Purchase of treasury stock | (26 | ) | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||||
Reissuance of treasury stock | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||
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Balance at March 31, 2014 | ¥ | 86,067 | ¥ | 171,117 | ¥ | 49,276 | ¥ | 6,431,682 | ¥ | (793,014 | ) | ¥ | (26,149 | ) | ¥ | 5,918,979 | ¥ | 194,419 | ¥ | 6,113,398 | ||||||||||||||||
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See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 2012, 2013 and 2014
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Cash flows from operating activities (note 14): | ||||||||||||
Net income | ¥ | 222,074 | ¥ | 392,638 | ¥ | 608,749 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation excluding property on operating leases | 345,105 | 335,536 | 442,318 | |||||||||
Depreciation of property on operating leases | 209,762 | 254,933 | 352,402 | |||||||||
Deferred income taxes | 49,661 | 53,252 | 45,426 | |||||||||
Equity in income of affiliates | (100,406 | ) | (82,723 | ) | (132,471 | ) | ||||||
Dividends from affiliates | 95,106 | 84,705 | 98,955 | |||||||||
Provision for credit and lease residual losses on finance subsidiaries-receivables | 13,032 | 10,059 | 18,904 | |||||||||
Impairment loss on investments in securities | 1,062 | — | — | |||||||||
Damaged and impairment loss on long-lived assets excluding property on operating leases (note 1(u)) | 10,590 | — | — | |||||||||
Impairment loss on property on operating leases | 1,514 | 4,773 | 3,301 | |||||||||
Loss (gain) on derivative instruments, net | (1,847 | ) | 35,027 | (39,376 | ) | |||||||
Decrease (increase) in assets: | ||||||||||||
Trade accounts and notes receivable | (35,475 | ) | (90,495 | ) | (92,638 | ) | ||||||
Inventories | (154,222 | ) | (74,662 | ) | (2,901 | ) | ||||||
Other current assets | 2,883 | 2,019 | (7,363 | ) | ||||||||
Other assets | (24,000 | ) | (27,243 | ) | (59,816 | ) | ||||||
Increase (decrease) in liabilities: | ||||||||||||
Trade accounts and notes payable | 242,814 | (95,192 | ) | 70,988 | ||||||||
Accrued expenses | (25,718 | ) | 52,021 | 49,718 | ||||||||
Income taxes payable | (7,568 | ) | 21,764 | (8,688 | ) | |||||||
Other current liabilities | (12,395 | ) | (4,489 | ) | 31,404 | |||||||
Other liabilities | (14,744 | ) | (4,384 | ) | (53,815 | ) | ||||||
Other, net | (55,690 | ) | (66,795 | ) | (95,906 | ) | ||||||
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Net cash provided by operating activities | 761,538 | 800,744 | 1,229,191 | |||||||||
Cash flows from investing activities: | ||||||||||||
Increase in investments and advances | (23,129 | ) | (34,426 | ) | (45,617 | ) | ||||||
Decrease in investments and advances | 14,647 | 19,850 | 58,243 | |||||||||
Payments for purchases of available-for-sale securities | (1,784 | ) | (5,642 | ) | (44,459 | ) | ||||||
Proceeds from sales of available-for-sale securities | 1,879 | 1,347 | 14,501 | |||||||||
Payments for purchases of held-to-maturity securities | (26,078 | ) | (5,186 | ) | (20,771 | ) | ||||||
Proceeds from redemptions of held-to-maturity securities | 47,193 | 17,005 | 3,358 | |||||||||
Proceeds from sales of subsidiaries, net of cash and cash equivalents disposed | — | — | 9,129 | |||||||||
Proceeds from sales of investments in affiliates | 9,957 | — | 5,363 | |||||||||
Capital expenditures | (397,218 | ) | (626,879 | ) | (774,006 | ) | ||||||
Proceeds from sales of property, plant and equipment | 23,260 | 44,182 | 34,069 | |||||||||
Proceeds from insurance recoveries for damaged property, plant and equipment (note 1(u)) | 16,217 | 9,600 | 6,800 | |||||||||
Acquisitions of finance subsidiaries-receivables | (1,784,720 | ) | (1,951,802 | ) | (2,792,774 | ) | ||||||
Collections of finance subsidiaries-receivables | 1,765,204 | 1,833,669 | 2,354,029 | |||||||||
Purchases of operating lease assets | (683,767 | ) | (793,118 | ) | (1,127,840 | ) | ||||||
Proceeds from sales of operating lease assets | 365,270 | 418,086 | 611,317 | |||||||||
Other, net | — | 3,558 | (86 | ) | ||||||||
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Net cash used in investing activities | (673,069 | ) | (1,069,756 | ) | (1,708,744 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from short-term debt | 6,778,336 | 6,775,636 | 8,559,288 | |||||||||
Repayments of short-term debt | (6,882,932 | ) | (6,621,897 | ) | (8,563,616 | ) | ||||||
Proceeds from long-term debt | 1,151,971 | 1,101,469 | 1,588,826 | |||||||||
Repayments of long-term debt | (967,588 | ) | (970,702 | ) | (1,039,595 | ) | ||||||
Dividends paid (note 12) | (108,138 | ) | (129,765 | ) | (142,381 | ) | ||||||
Dividends paid to noncontrolling interests | (15,763 | ) | (6,250 | ) | (9,677 | ) | ||||||
Sales (purchases) of treasury stock, net | (7 | ) | (7 | ) | (25 | ) | ||||||
Other, net | (24,109 | ) | (28,917 | ) | (22,265 | ) | ||||||
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Net cash provided by (used in) financing activities | (68,230 | ) | 119,567 | 370,555 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (52,150 | ) | 108,460 | 71,784 | ||||||||
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Net change in cash and cash equivalents | (31,911 | ) | (40,985 | ) | (37,214 | ) | ||||||
Cash and cash equivalents at beginning of year | 1,279,024 | 1,247,113 | 1,206,128 | |||||||||
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Cash and cash equivalents at end of year | ¥ | 1,247,113 | ¥ | 1,206,128 | ¥ | 1,168,914 | ||||||
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See accompanying notes to consolidated financial statements.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) General and Summary of Significant Accounting Policies
(a) Description of Business
Honda Motor Co., Ltd. (the “Company”) and its subsidiaries (collectively “Honda”) mainly develop, manufacture and distribute motorcycles, automobiles, power products, and also provide financing for the sale of those products. Principal manufacturing facilities are located in Japan, the United States of America, Canada, Mexico, the United Kingdom, Italy, China, India, Thailand, Vietnam, Indonesia, Argentina, Brazil and Turkey.
(b) Basis of Presenting Consolidated Financial Statements
The Company and its domesticJapanese 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.principles (U.S.GAAP).
(c) Consolidation Policy
The consolidated financial statements include the accounts of the Company, its subsidiaries and those variable interest entities where Honda is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling Interestsinterests in the net assets of subsidiary are reported as a component of equity in the consolidated financial statements. Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. Noncontrolling interests in a subsidiary’s earnings or losses are reported as a component of net income in the consolidated financial statements.
Honda adopted Accounting Standards Update (ASU) 2009-16 “Accounting for Transfers of Financial Assets”, and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effective April 1, 2010. These standards amend the FASB Accounting Standards Codification (ASC) 860 “Transfers and Servicing”, and ASC 810 “Consolidation”. ASU 2009-16 removes the concept of a qualifying special purpose entity (QSPE) and removes the exception from applying consolidation accounting standards to QSPEs. ASU 2009-17 requires reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a variable interest entity’s primary beneficiary from a mainly quantitative assessment to an exclusively qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. Upon the adoption of these standards, ten former QSPEs that were not consolidated as of March 31, 2010 were consolidated by the Company as of April 1, 2010. As a result, previously derecognized assets held by former QSPEs including finance subsidiaries receivables of ¥282,353 million and their related secured debt of ¥274,329 million were included in the Company’s consolidated balance sheet as of April 1, 2010. The assets and liabilities associated with former legacy off-balance sheet securitizations including retained interests in securitizations and servicing assets were removed from the Company’s consolidated balance sheet from April 1, 2010. The cumulative effect adjustment upon the adoption of these standards increased the Company’s beginning retained earnings for the year ended March 31, 2011 by ¥1,432 million, net of tax effect.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Investments in affiliates in which Honda has the ability to exercise significant influence over their operating and financial policies, but where Honda does not have a controlling financial interest are accounted for using the equity method.
There are some subsidiaries and affiliates of which the fiscal year-end is December 31.
Effective April 1, 2013, a subsidiary of the Company changed its fiscal year-end from December 31 to March 31. As a result, the Company eliminated the previously existing three month differences between the reporting periods of the Company and the subsidiary in the consolidated financial statements. The elimination of the lag period represents a change in accounting principle and has been reported by retrospective application. The impacts on the retained earnings and noncontrolling interests as of April 1, 2011 are ¥6,023 million and ¥1,658 million, respectively. Honda believes the effect of the retrospective application is not material to the Company’s consolidated financial statements as of and for the year ended March 31, 2012 and 2013, and therefore the Company’s consolidated financial statements have not been retrospectively adjusted, except for the adjustment to retained earnings and noncontrolling interests as of April 1, 2011.
(d) 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 its consolidated financial statements in conformity with U.S. generally accepted accounting principles.GAAP. Significant items subject to such estimates and
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
assumptions include, but are not limited to, allowance for credit losses, losses on lease residual values, retained interests in securitizations, realizable values of inventories, realization of deferred tax assets, damaged and impairment losslosses on long-lived assets, unrecognized tax benefits, product warranty obligations, the fair values of assets and obligations related to employee benefits, and the fair value of derivative financial instruments. A sustained loss of consumer confidence which may be caused byFurther changes in consumer preferences and rising fuel prices,the economic environment surrounding Honda, effects by market conditions, effects of the Great East Japan Earthquakecurrency fluctuations or other factors have combined to increase the uncertainty inherent in such estimates and assumptions. Actual results could differ from those estimates.
(e) 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 the amount stemmed from a market-based interest or lease rate. Honda also provides dealer incentives retained by the dealer, which generally represent discounts provided from Honda to the dealers. These incentives are classified as a reduction of sales revenue as the consideration is paid in cash, because Honda does not receive an identifiable benefit in exchange for this consideration. The incentives are estimated and accrued at the time the product is sold to the dealer.
Honda adopted Accounting Standards Update (ASU) 2009-13 “Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force”, which amends the FASB Accounting Standards Codification (ASC) 605-25 “Revenue Recognition – Multiple-Element Arrangements”, effective April 1, 2010. The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.
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.
The finance subsidiaries of the Company periodically securitize and transfer finance receivables to the trust which is newly established to issue asset-backed securities. Gain or loss is recognized equal to the difference between the cash proceeds received and the carrying value of the transferred receivables and is recorded in the
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
period in which the transfer occurs. Honda allocates the recorded investment in finance receivables between the portion(s) of the transferred receivables and portion(s) retained, based on the relative fair values of those portions on the date the receivables are transferred. 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 applied the FASB Accounting Standards Codification (ASC) 860 “Transfers and Servicing” which requires the finance subsidiaries of the Company to 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. Servicing assets and servicing liabilities at March 31, 2010 were not significant.
Honda adopted Accounting Standards Update (ASU) 2009-16 “Accounting for Transfers of Financial Assets”, and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effective April 1, 2010. Upon the adoption of these standards, all of trusts for securitization were consolidated to the Company. As a result, gains or losses attributable to the transfer of receivable and the change in the fair value of retained interests in securitizations and servicing assets or liabilities were not recognized from April 1, 2010. Information about the impact of the adoption of these standards is described in Note 1(c).
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 the consolidated statements of income.
(f) Cash Equivalents
Honda considers all highly liquid debt instruments with an original maturitymaturities of three months or less to be cash equivalents. Cash equivalents mainly consist of money market funds and certificates of deposit.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in, first-out basis.
(h) Investments in Securities
Investments in securities consist of investment toin affiliates and debt and equity securities.
Investments in affiliates in which Honda has the ability to exercise significant influence over their operating and financial policies, but where Honda does not have a controlling financial interest are accounted for using the equity method. Differences between the cost of investments in affiliates and the amount of underlying equity of the affiliates principally represent investor level goodwill.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Honda considers whether the fair value of any of its equity method investments have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If Honda considers any such decline to be other-than-temporary based on various factors, then a write-down will be recorded to estimated fair value.
Honda classifies its debt and marketable equity securities into the following categories: available-for-sale, trading, or held-to-maturity. Debt securities classified as “held-to-maturity” securities are reported at amortized cost. Debt and marketable equity securities classified as “trading” securities are reported at fair value, with
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
unrealized gains and losses included in earnings. Other debt and marketable 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 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 March 31, 20102013 and 2011, except for retained interests in securitizations of finance receivables, which are accounted for as “trading” securities and included in finance subsidiaries-receivables.2014.
Honda periodically compares the fair value of debt and marketable equity securities with their cost basis. If the fair value of the securities has declined below the cost basis and such decline is judged to be other-than-temporary, Honda recognizes the impairment of the securities 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 assessing impairment of securities, Honda considers the factors such as degree and period of the decline in fair value, financial position and results of operations of investees and forecast earnings based on market and economic trend in which the investees operate. For the years ended March 31, 2009, Honda recognized ¥26,001 million impairment loss on investments in securities. The impairment loss on investments in securities for the year ended March 31, 2009 was principally related to the securities which our consolidated subsidiary holds in the United States market. Honda recognized impairment loss because of significant declines in the fair value of the securities caused by stock market slump and we considered the decline in fair value below our cost basis was other-than-temporary based on the factors such as financial position and results of operations of the investee and the industry which the investee operates. The impairment loss on securities is included in other income (expenses)-other, net in the consolidated statements of income. Honda did not recognize significant impairment loss on investments in securities for the years ended March 31, 20102012, 2013 and 2011.2014.
Non-marketable equity securities are carried at cost, and are examined for the possibility of impairment periodically.
(i) Goodwill
Goodwill, all of which is allocated to Honda’s reporting units, is not amortized but is tested for impairment at least annually. Honda performs its annual impairment review of goodwill at March 31, and when a triggering event occurs between annual impairment dates. Honda recognized ¥8,006 million impairment loss on goodwill reported by a reporting unit in its automobile segment forFor the yearyears ended March 31, 2009, because of a decision principally to withdraw from certain racing activities2012, 2013 and estimated that it will not generate future cash flows. The impairment loss on goodwill is included in selling, general and administrative in the consolidated statements of income. For the year ended March 31, 2010 and 2011,2014, Honda did not recognize any goodwill impairment loss on goodwill.losses.
The carrying amount of goodwill at March 31, 20102013 and 20112014 was ¥12,062¥10,296 million and ¥12,008¥11,439 million, respectively and is included in other assets of the consolidated balance sheets.
(j) 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 by using the estimate of future used vehicle values, taking into consideration external industry data obtained from third parties.and our own historical experience.
(k) Depreciation and Amortization
Depreciation of property, plant and equipment is calculated principally by the declining-balancestraight line method based on estimated useful lives and salvage values of the respective assets.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The estimated useful lives used in computing depreciation and amortization of property, plant and equipment are as follows:
Asset | Life | |||
Buildings and structures | 3 to 50 years | |||
Machinery and equipment | 2 to 20 years |
Previously, Honda used principally the declining-balance method for calculating the depreciation of property, plant and equipment. In recent years, because sales of global strategic product models are increasing, Honda has been enhancing its production systems and the versatility of production equipment to have better flexibility to meet changes in global customer demand. Further, Honda has resumed more normalized capital expenditures which Honda had previously held down due to the financial crisis beginning in the fiscal year ended March 31, 2009. Effective April 1, 2012, Honda changed to the straight line method of depreciation because management believes it better reflects the future economic benefit from the usage of property, plant and equipment under this more flexible and versatile production arrangement. The effect of the change in depreciation method is recognized prospectively as a change in accounting estimate in accordance with the FASB Accounting Standards Codification (ASC) 250 “Accounting Changes and Error Corrections”.
As a result of the change in depreciation method, depreciation expense for the year ended March 31, 2013 decreased by approximately ¥56,300 million. Net income attributable to Honda Motor Co., Ltd. and Basic net income attributable to Honda Motor Co., Ltd. per common share for the year ended March 31, 2013 increased by approximately ¥35,746 million and ¥19.83, respectively.
(l) Impairment of Long-Lived Assets to Be Held and Used and Long-Lived Assets to Be Disposed Ofof
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 assetsan asset 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. For the year ended March 31, 2009, Honda recognized ¥13,591 million impairment loss on long-lived assets excluding property on operating leases. Honda recognized impairment loss on long-lived assets included mainly in the automobile business asset group for the year ended March 31, 2009, because of the decision principally to withdraw from certain racing activities and estimated that it will not generate future cash flows. The impairment loss on long-lived assets is included in selling, general and administrative in the consolidated statements of income. Honda did not recognize any significant impairment losses on long-lived assets, excluding property on operating leases for the years ended March 31, 2010. Also, Honda did not recognize any significant impairment losses on long-lived assets excluding property on operating leases for the year ended March 31, 2011, including the impairment evaluation triggered by the Great East Japan Earthquake (see note 1(u)).2012, 2013 and 2014.
Assets to be disposed of by sale are reported at the lower of the carrying amount or estimated fair value less costs to sell.
(m) 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.
Honda recognizes in the consolidated financial statements the impact of a tax position, if any, based on the technical merits of the position, when that position is more likely than not to be sustained upon examination.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Benefits from tax positions that meet the more likely than not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of beingto be realized upon settlement. Honda accounts for interest and penalties related to the liability for unrecognized tax benefits as a component of income tax expense in the consolidated statementstatements of income.
(n) Product-Related Expenses
Advertising and sales promotion costs are expensed as incurred. Advertising expenses were ¥301,285¥195,284 million, ¥196,713¥254,016 million and ¥210,803¥297,514 million, for the years ended March 31, 2009, 20102012, 2013 and 2011,
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2014, respectively. Provisions for estimatedEstimated costs related to product warranty are madeaccrued at the time the products are sold to customers, or those costs for new warranty programs, including product recalls, are initiated.deemed to be probable and can be reasonably estimated. 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 costs for warranty programs, including product recalls.
(o) Basic Net Income Attributable to Honda Motor Co., Ltd. per Common Share
Basic net income attributable to Honda Motor Co., Ltd. per common share has been computed by dividing net income attributable to Honda Motor Co., Ltd. by the weighted average number of common shares outstanding during each year. The weighted average number of common shares outstanding for the years ended March 31, 2009, 20102012, 2013 and 20112014 was 1,814,560,7281,802,300,720 shares, 1,814,605,8031,802,298,819 shares and 1,806,360,5051,802,294,383 shares, respectively. There were no potentially dilutive shares outstanding during the years ended March 31, 2009, 20102012, 2013 or 2011.2014.
(p) Foreign Currency Translation and Transactions
Foreign currency financial statement amounts are translated into Japanese yen on the basis of the year-end exchange rate for all assets and liabilities and the weighted average rate for the year for all income and expense amounts. The resulting translation adjustments are included in accumulated other comprehensive income (loss) in the equity section of the consolidated balance sheets.
All revenues and expenses associated with foreign currencies are converted at the rates of exchange prevailing when such transactions occur and foreign currency receivables and payables are re-measured at the applicable exchange rates on the balance sheet date. Foreign currency translation and transaction gains or losses are included in other income (expenses)-other, net and these net gains or losses for each of the years in the three-year period ended March 31, 20112014 are as follows:
Yen (millions) | ||||
2009 | 2010 | 2011 | ||
¥ 3,148 | ¥ (37,417) | ¥ (60,514) |
Yen (millions) | ||||
2012 | 2013 | 2014 | ||
¥ 4,563 | ¥ 36,794 | ¥ (6,461) |
The gains or losses on translation of receivables and payables dominated in foreign currencies intended to be hedged are presented on a net basis with derivative financial instruments. (see noteinstruments (note 17).
(q) 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. (see notesagreements (notes 16 and 17).
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Honda recognizes all derivative financial instruments at fair value in its consolidated balance sheets. Derivative asset and liability positions are presented net by counterparty on the consolidated balance sheets when valid master netting agreement existsagreements exist and the other conditions set out in the FASB Accounting Standards Codification (ASC) 210-20 “Balance Sheet-Offsetting” are met.
The Company 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 are entered into. The Company has a documented currency rate risk management policy. In addition, it documents all relationships between derivative financial instruments
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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.
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.
Honda does not hold any derivative financial instruments for trading purposes.
(r) Shipping and Handling Costs
Shipping and handling costs included in selling, general and administrative expenses for each of the years in the three-year period ended March 31, 20112014 are as follows:
Yen (millions) | ||||
2009 | 2010 | 2011 | ||
¥224,262 | ¥151,197 | ¥160,773 |
Yen (millions) | ||||
2012 | 2013 | 2014 | ||
¥ 155,276 | ¥160,843 | ¥180,554 |
(s) Asset Retirement Liability
Honda recognizes an asset retirement liability if the fair value of the obligation can be reasonably estimated. Asset retirement obligations 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.
(t) Out-of-period adjustmentsAdoption of New Accounting Pronouncements
Certain overstatements were found in trade accountsIn February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This amendment requires reporting entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component, and notes receivable, inventories,to present, either on the face of the statement where net sales and other operating revenue, and cost of sales in previously issued consolidated financial statements, pertaining to the Company’s inventory management trading activities at a domestic subsidiary. This domestic subsidiary temporarily purchases sea food products from seafood companies with the promise that they will buy back such products after a certain period, in order to bridge the gap between the purchasing period (the fishing season) and the sales period for sea food products. The Company recognized the related cumulative loss of ¥14,123 million, which pertained to prior fiscal years, in selling, general and administrative expensesincome is presented or in the Company’s consolidated statementnotes, significant amounts reclassified out of accumulated other comprehensive income forby the year ended March 31, 2011, not by retrospectively adjusting prior year’s consolidated financial statements. Honda believes that these out-of-period adjustments are immaterial to the Company’s consolidated financial position or resultsrespective line items of operations as of and for the year ended March 31, 2011 as well as prior fiscal years.net income.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Honda adopted ASU 2013-02, effective April 1, 2013, and discloses in accompanying note 15 to consolidated financial statements. This adoption has no impact on the Honda’s financial position or results of operations.
(u) Impact on the Company’s consolidated financial positionConsolidated Financial Position or resultsResults of operationsOperations of the Great East Japan Earthquake occurred on March 11, 2011Floods in Thailand
On March 11,In October 2011, Japan experienced a large earthquake commonly referred to as the Great East Japan Earthquake, whichThailand suffered from severe floods that caused damage to certain property, plantinventories, and machinery and equipment of certain consolidated subsidiaries and inventories, and the temporary suspension of productionaffiliates of the Company’s plants and research and developmentCompany. Accordingly, production activities of the Companyin plant facilities at Honda and its domestic consolidated subsidiaries.affiliates had been temporarily affected by the floods for the year ended March 31, 2012.
As a result, the Company and its domestic consolidated subsidiariesHonda recognized ¥45,720¥23,420 million of costs and expenses, of which ¥17,450¥10,680 million is included in cost of sales and ¥28,270¥12,740 million is included in selling, general and administrative expenses in the accompanying consolidated statementstatements of income for the year ended March 31, 2011.2012. These costs and expenses mainly consist of unallocated fixed production overheadlosses on damaged inventories of ¥15,062¥7,330 million caused by temporary suspension of production which is included in cost of sales, and losslosses on damaged property, plant and equipment of ¥15,647¥7,654 million which is included in selling, general and administrative expenses. Fixed costs
In addition, Honda recognized insurance recoveries of ¥7,723¥21,725 million pertaining to certain R&D activities incurred duringand ¥16,278 million for the period such activities were suspendedyears ended March 31, 2012 and 2013, respectively, which are not included in research and development, but selling, general and administrative expenses.expenses in the accompanying consolidated statements of income. Honda recognizes insurance recoveries in excess of the incurred losses when settlements with insurance companies are reached.
(v) New Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 “Revenue from Contracts with Customers”, which amends the revenue recognition requirements in the FASB Accounting Standards Codification (ASC). This statement requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The statement shall be applied using one of two methods: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying this statement recognized at the date of initial application. The Company and its domestichas not yet determined which method it will apply. This statement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. Honda is currently evaluating the impact of this statement on the Company’s consolidated subsidiaries will recognize the costsfinancial position or results of future restoration activities as they are incurred.operations.
(2) Finance Income and Related CostCosts of Finance Subsidiaries
Net sales and other operating revenue and cost of sales include finance income and related costcosts of finance subsidiaries for each of the years in the three-year period ended March 31, 20112014 as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Finance income | ¥ | 596,525 | ¥ | 618,811 | ¥ | 573,458 | ¥ | 526,576 | ¥ | 560,256 | ¥ | 708,588 | ||||||||||||
Finance cost | 341,282 | 321,491 | 309,850 | |||||||||||||||||||||
Finance costs | 293,216 | 336,203 | 440,148 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(3) Finance Receivables
The finance subsidiaries of the Company provide retail lending and leasing to customers and wholesale financing to dealers primarily to support sales of our products. Honda classifies retail and direct financing lease receivables (consumer finance receivables) derived from those services as finance subsidiaries-receivables. Operating leases are classified as property on operating leases. Certain finance receivables related to sales of inventory are included in trade accounts and notes receivable and other assets in the consolidated balance sheets. Receivables on past due operating lease rental payments are included in other current assets in the consolidated balance sheets.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Finance subsidiaries-receivables, net, consisted of the following at March 31, 20102013 and 2011 (see note 1(c))2014:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Retail | ¥ | 3,246,493 | ¥ | 3,368,014 | ¥ | 3,865,430 | ¥ | 4,678,741 | ||||||||
Direct financing lease | 449,459 | 362,136 | 448,672 | 422,936 | ||||||||||||
Wholesale flooring | 301,418 | 267,526 | 389,562 | 434,219 | ||||||||||||
Commercial loans | 30,308 | 34,116 | 42,433 | 63,176 | ||||||||||||
|
| |||||||||||||||
Total finance receivables | 4,027,678 | 4,031,792 | 4,746,097 | 5,599,072 | ||||||||||||
Retained interests in securitizations | 27,555 | — | ||||||||||||||
4,055,233 | 4,031,792 | |||||||||||||||
Less: | ||||||||||||||||
Allowance for credit losses | 37,320 | 28,437 | 19,716 | 24,851 | ||||||||||||
Allowance for losses on lease residual values | 9,253 | 7,225 | 3,354 | 2,131 | ||||||||||||
Unearned interest income and fees | 27,672 | 19,916 | 18,697 | 38,093 | ||||||||||||
|
| |||||||||||||||
3,980,988 | 3,976,214 | 4,704,330 | 5,533,997 | |||||||||||||
Less: | ||||||||||||||||
Finance receivables included in trade receivables, net | 361,882 | 332,195 | ||||||||||||||
Finance receivables included in trade accounts and notes receivables, net | 461,450 | 498,230 | ||||||||||||||
Finance receivables included in other assets, net | 157,613 | 164,038 | 211,743 | 253,999 | ||||||||||||
|
| |||||||||||||||
Finance subsidiaries-receivables, net | 3,461,493 | 3,479,981 | 4,031,137 | 4,781,768 | ||||||||||||
Less current portion | 1,100,158 | 1,131,068 | 1,243,002 | 1,464,215 | ||||||||||||
|
| |||||||||||||||
Noncurrent finance subsidiaries-receivables, net | ¥ | 2,361,335 | ¥ | 2,348,913 | ¥ | 2,788,135 | ¥ | 3,317,553 | ||||||||
|
|
Allowance for Credit Lossescredit losses
The majority of the credit risk is with consumer financing and to a lesser extent with dealer financing. Credit risk is affected by general economic conditions such as a rise in unemployment rates or declines in used vehicle prices.conditions. The finance subsidiariesallowance for credit losses is management’s estimate of the Company estimateprobable losses incurred on retail and direct financing lease receivables and recognize them in the allowance for credit losses. finance receivables.
Consumer finance receivables consist of a large number of smaller-balance homogenous loansare collectively evaluated for impairment. Delinquencies and leases. The finance subsidiaries oflosses are continuously monitored and this historical experience provides the Company segment these receivables into groups with common characteristics, and estimate collectivelyprimary basis for estimating the allowance. Various methodologies are utilized when estimating the allowance for credit losses on consumer finance receivables by the group.including models that incorporate vintage loss and delinquency migration analysis. The finance subsidiaries of the Companymodels take into consideration various methodologiesattributes of the portfolio including loan-to-value ratios, internal and external credit scores, and collateral types. Economic factors such as used vehicle prices, unemployment rates, and consumer debt service burdens are also incorporated when estimating the allowance including vintage loss rate analysis and delinquency roll rate analysis. When performing the vintage loss rate analysis, consumer financelosses.
Wholesales receivables are segregated between retail and direct financing lease, and further segmented into groups with common risk characteristics including collateral type, credit grades and original terms. Loss rates are projectedindividually evaluated for these pools based on historical rates and adjusted for considerations of emerging trends and changing economic conditions. The roll rate analysis is used primarily by the finance subsidiaries of the Company in North America. This analysis tracks the migration of finance receivables through various stages of delinquency and ultimately to charge-offs. Roll rates are projected based on historical results while also taking into consideration trends and changing economic conditions.
Wholesaleimpairment when specifically identified as impaired. Wholesales receivables are considered to be impaired when it is probable that theyour finance subsidiaries will be unable to collect all amounts due according to the original terms of the contract.loan. The finance subsidiariesdetermination of whether dealer loans are impaired is based on evaluations of dealerships’ payment history, financial condition and cash flows, and their ability to perform under the terms of the Company recognize estimated losses on them in the allowanceloans. Dealer loans that have not been specifically identified as impaired are collectively evaluated for credit losses. Credit risk on wholesale receivables isimpairment.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
affected primarily by the financial strength of the dealers within the portfolio. Wholesale receivables are evaluated for impairment on an individual dealer basis. Ongoing evaluations of dealerships are performed to determine whether there is evidence of impairment. Factors can include payment performance, overall dealership financial performance, or known difficulties experienced by the dealership.
Honda regularly reviews the adequacy of the allowance for credit losses. The estimates are based on information available as of each reporting date. However, actual losses may differ from the original estimates as a result of actual results varying from those assumed in our estimates with inherently uncertain items.
The following table presentstables present the balances ofchanges in the allowance for credit losses on finance receivables atfor the years ended March 31, 2011.2013 and 2014.
Yen (millions) | ||||||||||||||||
Retail | Direct financing lease | Wholesale | Total | |||||||||||||
Allowance for credit losses on finance receivables | ¥ | 25,578 | ¥ | 1,455 | ¥ | 1,404 | ¥ | 28,437 | ||||||||
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2013 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||
Balance at beginning of year | ¥ | 20,497 | ¥ | 1,151 | ¥ | 1,401 | ¥ | 23,049 | ||||||||
Provision | 8,707 | 392 | 59 | 9,158 | ||||||||||||
Charge-offs | (20,838 | ) | (940 | ) | (289 | ) | (22,067 | ) | ||||||||
Recoveries | 8,143 | 117 | 16 | 8,276 | ||||||||||||
Adjustments from foreign currency translation | 1,134 | 69 | 97 | 1,300 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of year | ¥ | 17,643 | ¥ | 789 | ¥ | 1,284 | ¥ | 19,716 | ||||||||
|
|
|
|
|
|
|
|
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2014 | Retail | Direct financing lease | Wholesale | Total | ||||||||||||
Balance at beginning of year | ¥ | 17,643 | ¥ | 789 | ¥ | 1,284 | ¥ | 19,716 | ||||||||
Provision | 18,616 | 310 | 1,484 | 20,410 | ||||||||||||
Charge-offs | (27,550 | ) | (573 | ) | (425 | ) | (28,548 | ) | ||||||||
Recoveries | 11,676 | 93 | 11 | 11,780 | ||||||||||||
Adjustments from foreign currency translation | 1,252 | 17 | 224 | 1,493 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of year | ¥ | 21,637 | ¥ | 636 | ¥ | 2,578 | ¥ | 24,851 | ||||||||
|
|
|
|
|
|
|
|
In the finance subsidiaries of the Company in North America, retail and direct financing lease receivables are charged off when they become 120 days past due or earlier if they have been specifically identified as uncollectible. Wholesale receivables are charged off when they have been individually identified as uncollectible. In the finance subsidiaries of the Company in other areas except for North America, finance receivables are charged off when they have been identified as substantially uncollectible according to the internal standards of each subsidiary.
Allowance for Losseslosses on Lease Residual Valueslease residual values
Finance subsidiaries of the Company purchase insurance to cover a substantial amount of the estimated residual value of vehicles leased as direct financing leases 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.
Delinquencies
In the finance subsidiaries of the Company in North America, retail and direct financing lease receivables are considered delinquent if more than 10% of a monthly scheduled payment is contractually past due on a cumulative basis. Wholesale receivables are considered delinquent when any principal payments are past due. In the finance subsidiaries of the Company in other areas except for North America, finance receivables are considered delinquent when any principal payments are past due.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table presentstables present an age analysis of past due finance receivables at March 31, 2011.2013 and 2014.
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||
30-59 days past due | 60-89 days past due | 90 days and greater past due | Total past due | Current * | Total finance receivables | |||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2013 | 30-59 days past due | 60-89 days past due | 90 days and greater past due | Total past due | Current* | Total finance receivables | ||||||||||||||||||||||||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||||||||||||||||||||||
New auto | ¥ | 14,127 | ¥ | 1,625 | ¥ | 3,191 | ¥ | 18,943 | ¥ | 2,762,373 | ¥ | 2,781,316 | ¥ | 12,947 | ¥ | 1,805 | ¥ | 2,607 | ¥ | 17,359 | ¥ | 3,247,241 | ¥ | 3,264,600 | ||||||||||||||||||||||||
Used & certified auto | 5,325 | 591 | 474 | 6,390 | 421,605 | 427,995 | 5,064 | 643 | 276 | 5,983 | 434,183 | 440,166 | ||||||||||||||||||||||||||||||||||||
Others | 1,666 | 468 | 895 | 3,029 | 155,674 | 158,703 | 1,213 | 419 | 1,353 | 2,985 | 157,679 | 160,664 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total retail | 21,118 | 2,684 | 4,560 | 28,362 | 3,339,652 | 3,368,014 | 19,224 | 2,867 | 4,236 | 26,327 | 3,839,103 | 3,865,430 | ||||||||||||||||||||||||||||||||||||
Direct financing lease | 1,375 | 179 | 584 | 2,138 | 359,998 | 362,136 | 966 | 161 | 1,644 | 2,771 | 445,901 | 448,672 | ||||||||||||||||||||||||||||||||||||
Wholesale | ||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale flooring | 125 | 38 | 273 | 436 | 267,090 | 267,526 | 205 | 67 | 311 | 583 | 388,979 | 389,562 | ||||||||||||||||||||||||||||||||||||
Commercial loans | — | — | — | — | 34,116 | 34,116 | — | — | — | — | 42,433 | 42,433 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total wholesale | 125 | 38 | 273 | 436 | 301,206 | 301,642 | 205 | 67 | 311 | 583 | 431,412 | 431,995 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total finance receivables | ¥ | 22,618 | ¥ | 2,901 | ¥ | 5,417 | ¥ | 30,936 | ¥ | 4,000,856 | ¥ | 4,031,792 | ¥ | 20,395 | ¥ | 3,095 | ¥ | 6,191 | ¥ | 29,681 | ¥ | 4,716,416 | ¥ | 4,746,097 | ||||||||||||||||||||||||
|
|
|
|
|
|
Yen (millions) | ||||||||||||||||||||||||
As of March 31, 2014 | 30-59 days past due | 60-89 days past due | 90 days and greater past due | Total past due | Current* | Total finance receivables | ||||||||||||||||||
Retail | ||||||||||||||||||||||||
New auto | ¥ | 15,948 | ¥ | 2,069 | ¥ | 2,745 | ¥ | 20,762 | ¥ | 4,044,290 | ¥ | 4,065,052 | ||||||||||||
Used & certified auto | 5,557 | 689 | 281 | 6,527 | 424,872 | 431,399 | ||||||||||||||||||
Others | 1,239 | 507 | 1,800 | 3,546 | 178,744 | 182,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total retail | 22,744 | 3,265 | 4,826 | 30,835 | 4,647,906 | 4,678,741 | ||||||||||||||||||
Direct financing lease | 1,106 | 214 | 384 | 1,704 | 421,232 | 422,936 | ||||||||||||||||||
Wholesale | ||||||||||||||||||||||||
Wholesale flooring | 526 | 227 | 758 | 1,511 | 432,708 | 434,219 | ||||||||||||||||||
Commercial loans | — | — | 133 | 133 | 63,043 | 63,176 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total wholesale | 526 | 227 | 891 | 1,644 | 495,751 | 497,395 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total finance receivables | ¥ | 24,376 | ¥ | 3,706 | ¥ | 6,101 | ¥ | 34,183 | ¥ | 5,564,889 | ¥ | 5,599,072 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* | Includes recorded investment of finance receivables that are less than 30 days past due. |
Credit Quality Indicatorsquality indicators
The collection experience of consumer finance receivables provides an indication of the credit quality of consumer finance receivables. The likelihood of accounts charging off becomes significantly higher once an account becomes 60 days delinquent. The table below segments the Company’s portfolio of consumer finance receivables between groups the Company considers to be performing and nonperforming. Accounts that are delinquent for 60 days or greater are included in the nonperforming group and all other accounts are considered to be performing.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table presentstables present the balances of consumer finance receivables by thethis credit quality indicator at March 31, 2011.2013 and 2014.
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
Performing | Nonperforming | Total consumer finance receivables | ||||||||||||||||||||||
As of March 31, 2013 | Performing | Nonperforming | Total consumer finance receivables | |||||||||||||||||||||
Retail | ||||||||||||||||||||||||
New auto | ¥ | 2,776,500 | ¥ | 4,816 | ¥ | 2,781,316 | ¥ | 3,260,188 | ¥ | 4,412 | ¥ | 3,264,600 | ||||||||||||
Used & certified auto | 426,930 | 1,065 | 427,995 | 439,247 | 919 | 440,166 | ||||||||||||||||||
Others | 157,340 | 1,363 | 158,703 | 158,892 | 1,772 | 160,664 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total retail | 3,360,770 | 7,244 | 3,368,014 | 3,858,327 | 7,103 | 3,865,430 | ||||||||||||||||||
Direct financing lease | 361,373 | 763 | 362,136 | 446,867 | 1,805 | 448,672 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | ¥ | 3,722,143 | ¥ | 8,007 | ¥ | 3,730,150 | ¥ | 4,305,194 | ¥ | 8,908 | ¥ | 4,314,102 | ||||||||||||
|
|
|
Yen (millions) | ||||||||||||
As of March 31, 2014 | Performing | Nonperforming | Total consumer finance receivables | |||||||||
Retail | ||||||||||||
New auto | ¥ | 4,060,238 | ¥ | 4,814 | ¥ | 4,065,052 | ||||||
Used & certified auto | 430,429 | 970 | 431,399 | |||||||||
Others | 179,983 | 2,307 | 182,290 | |||||||||
|
|
|
|
|
| |||||||
Total retail | 4,670,650 | 8,091 | 4,678,741 | |||||||||
Direct financing lease | 422,338 | 598 | 422,936 | |||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 5,092,988 | ¥ | 8,689 | ¥ | 5,101,677 | ||||||
|
|
|
|
|
|
A credit quality indicator for wholesale receivables is the internal risk ratings for the dealerships. Dealerships are assigned an internal risk rating based primarily on their financial condition. At a minimum, risk
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
ratings for dealerships are updated annually and more frequently for dealerships with weaker risk ratings. The table below presents outstanding wholesale receivables balances by the internal risk rating group. Group A includes the loans of dealerships with the highest credit quality characteristics in the strongest risk rating tier. Group B includes the loans of all remaining dealers and are considered to have weaker credit quality characteristics. Although the likelihood of losses can be higher for dealerships in Group B, the overall risk of losses is not considered to be significant.
The following table presentstables present the balancebalances of wholesale receivables by this credit quality indicatorsindicator at March 31, 2011.2013 and 2014.
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
Group A | Group B | Total | ||||||||||||||||||||||
As of March 31, 2013 | Group A | Group B | Total | |||||||||||||||||||||
Wholesale | ||||||||||||||||||||||||
Wholesale flooring | ¥ | 144,118 | ¥ | 123,408 | ¥ | 267,526 | ¥ | 236,203 | ¥ | 153,359 | ¥ | 389,562 | ||||||||||||
Commercial loans | 14,024 | 20,092 | 34,116 | 24,198 | 18,235 | 42,433 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | ¥ | 158,142 | ¥ | 143,500 | ¥ | 301,642 | ¥ | 260,401 | ¥ | 171,594 | ¥ | 431,995 | ||||||||||||
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||
As of March 31, 2014 | Group A | Group B | Total | |||||||||
Wholesale | ||||||||||||
Wholesale flooring | ¥ | 245,019 | ¥ | 189,200 | ¥ | 434,219 | ||||||
Commercial loans | 36,364 | 26,812 | 63,176 | |||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 281,383 | ¥ | 216,012 | ¥ | 497,395 | ||||||
|
|
|
|
|
|
Contractual maturities
The following schedule shows the contractual maturities of finance receivables for each of the five years following March 31, 20112014 and thereafter:
Years ending March 31 | Yen (millions) | Yen (millions) | ||||||
2012 | ¥ | 1,500,823 | ||||||
2015 | ¥ | 1,992,551 | ||||||
| ||||||||
2013 | 1,009,647 | |||||||
2014 | 737,722 | |||||||
2015 | 492,135 | |||||||
2016 | 222,432 | 1,425,249 | ||||||
2017 | 1,020,626 | |||||||
2018 | 685,494 | |||||||
2019 | 356,586 | |||||||
After five years | 69,033 | 118,566 | ||||||
| ||||||||
2,530,969 | 3,606,521 | |||||||
| ||||||||
Total | ¥ | 4,031,792 | ¥ | 5,599,072 | ||||
|
Other Finance Receivablesfinance receivables
Except for the finance subsidiaries-receivables, the other finance receivables about which credit quality information and the allowance for credit losses are required to be disclosed by the FASB Accounting Standards Codification (ASC) 310 “Receivables” of ¥59,520¥37,274 million wereand ¥29,605 million are included in other current assets, investments and advances – otheradvances-other and other assets in the consolidated balance sheets at March 31, 2011.2013 and 2014, respectively. Honda estimates, individually, the collectibility of the other finance receivables based on the financial condition of the debtor. The impaired finance receivables amounted to ¥19,574¥19,562 million and ¥20,094 million at March 31, 2011,2013 and 2014, respectively, for which the allowance for credit losses was recorded in the same amount.were ¥19,541 million and ¥19,996 million at March 31, 2013 and 2014, respectively.
Regarding the other finance receivables which are not impaired, there are no past due receivables.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(4) Variable Interest Entities and Securitizations
Honda considers its involvement with a variable interest entity (VIE) under the FASB Accounting Standards Codification (ASC) 810 “Consolidation”. This standard prescribes that the reporting entity shall consolidate a VIE as its primary beneficiary when it is deemed to have a controlling financial interest in a VIE, meeting both of the following characteristics:
(a) | The power to direct the activities of a VIE that most significantly impact the VIE’s economic performance. |
(b) | The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. |
Honda adopted Accounting Standards Update (ASU) 2009-16 “Accounting for Transfers of Financial Assets”HONDA MOTOR CO., and ASU 2009-17 “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, effective April 1, 2010. Information about the impact of the adoption of these standards is described in note 1(c).LTD. AND SUBSIDIARIES
Variable Interest EntitiesNotes to Consolidated Financial Statements—(Continued)
The finance subsidiaries of the Company periodically securitize for liquidity and funding purposes and transfer finance receivables to the trust which is newly established to issue asset-backed securities. The finance subsidiaries of the Company are deemed to have the power to direct the activities of these trusts that most significantly impact the trusts’ economic performance, as they retain servicing rights in all securitizations, and manage delinquencies and defaults of the underlying receivables. Furthermore, the finance subsidiaries of the Company are deemed to have the obligation to absorb losses of these trusts that could potentially be significant to these trusts, as they would absorb the majority of the expected losses of these trusts by retaining certain subordinated interests of these trusts. Therefore, the Company has consolidated these trusts, as it is deemed to have controlling financial interests in these trusts.
The following table presents the balances of the assets and liabilities of consolidated VIEs at March 31, 20102013 and 2011.2014.
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Finance subsidiaries-receivables, net | ¥ | 351,386 | ¥ | 500,208 | ¥ | 713,631 | ¥ | 872,621 | ||||||||
Restricted cash *1 | 5,653 | 7,931 | ||||||||||||||
Restricted cash*1 | 20,885 | 27,468 | ||||||||||||||
Other assets | 1,232 | 1,688 | 1,545 | 1,462 | ||||||||||||
|
| |||||||||||||||
Total assets | ¥ | 358,271 | ¥ | 509,827 | ¥ | 736,061 | ¥ | 901,551 | ||||||||
|
| |||||||||||||||
Secured debt *2 | ¥ | 348,684 | ¥ | 495,695 | ||||||||||||
Secured debt*2 | ¥ | 718,980 | ¥ | 877,054 | ||||||||||||
Other liabilities | 257 | 532 | 237 | 249 | ||||||||||||
|
| |||||||||||||||
Total liabilities | ¥ | 348,941 | ¥ | 496,227 | ¥ | 719,217 | ¥ | 877,303 | ||||||||
|
|
*1 | Restricted cash as collateral for the payment of the related secured debt obligation |
*2 | Secured debt |
The creditors of these trusts do not have recourse to the finance subsidiaries’ general credit with the exception of representations and warranties customary in the industry provided by the finance subsidiaries to these trusts.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
There is no VIE in which Honda holds a significant variable interest but is not the primary beneficiary as of March 31, 20102013 and 2011.2014.
Securitizations(5) Inventories
The finance subsidiaries of the Company periodically securitized finance receivables subject to limited recourse provisions. The amounts of securitization transactions entered into during fiscal year 2009 and 2010 qualified for sale accounting treatment are approximately ¥428,642 million and ¥13,346 million, respectively. Pre-tax net gains or losses on such sales resulted in a loss of ¥8,371 million in fiscal years 2009, which are included in loss on sale of receivables. There is no gain or loss recognized on such sales in fiscal year 2010. Securitization transactions entered into during fiscal year 2011 did not qualify for sale accounting treatment.
Honda adopted ASU2009-16 and 17, effective April 1, 2010. As a result, all securitizations including those entered into during prior years were accounted for as secured financing transactions during the fiscal year 2011.
The following disclosures are related to securitization transactions which previously qualified for sale accounting treatment.
Retained interests in securitizations were comprised of the followingInventories at March 31, 20102013 and 2011:
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Subordinated certificates | ¥ | 19,556 | ¥ | — | ||||
Residual interests | 7,999 | — | ||||||
Total | ¥ | 27,555 | ¥ | — | ||||
Key economic assumptions used in initially estimating the fair values at the date of the securitizations during each of the years in the three-year period ended March 31, 20112014 are summarized as follows:
2009 | 2010 | 2011 | ||||||||
Weighted average life (years) | 1.22 to 1.53 | — | — | |||||||
Prepayment speed | 1.30% | — | — | |||||||
Expected credit losses | 0.27% to 1.32% | — | — | |||||||
Residual cash flows discount rate | 6.53% to 40.13% | — | — |
At March 31, 2010 and 2011, the significant assumptions used in estimating the retained interest in securitizations are as follows:
Weighted average assumption | ||||||||
2010 | 2011 | |||||||
Prepayment speed | 1.31 | % | — | |||||
Expected credit losses | 0.44 | % | — | |||||
Residual cash flows discount rate | 6.53 | % | — |
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Finished goods | ¥ | 726,034 | ¥ | 759,099 | ||||
Work in process | 53,035 | 69,731 | ||||||
Raw materials | 436,352 | 474,065 | ||||||
|
|
|
| |||||
Total | ¥ | 1,215,421 | ¥ | 1,302,895 | ||||
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table presents quantitative information about balances of outstanding securitized portfolios as of March 31, 2010 and 2011.
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Securitized receivables | ||||||||
Retail | ¥ | 263,222 | ¥ | — |
(5) Inventories
Inventories at March 31, 2010 and 2011 are summarized as follows:
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Finished goods | ¥ | 559,569 | ¥ | 531,071 | ||||
Work in process | 35,558 | 49,606 | ||||||
Raw materials | 340,502 | 319,136 | ||||||
¥ | 935,629 | ¥ | 899,813 | |||||
(6) Investments in and Advances to affiliatesAffiliates
The difference between the carrying amount of investmentinvestments in affiliates and the amount of underlying equity is mainly investor level goodwill.goodwill and recognizing of impairment losses. The amounts are not material as of March 31, 20102013 and 2011.2014.
Investments in affiliates include equity securities which have quoted market values at March 31, 20102013 and 20112014 compared with related carrying amounts as follows:
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Carrying amount | ¥ | 177,766 | ¥ | 171,198 | ||||
Market value | 405,596 | 177,293 |
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Carrying amounts | ¥ | 175,420 | ¥ | 212,615 | ||||
Market values | 220,221 | 242,671 |
For the year ended March 31, 2013, Honda recognized impairment losses of ¥12,757 million, net of tax, on certain investments in affiliates which have quoted market values because of other-than-temporary declines in fair values below their carrying values. The fair values of the investments were based on quoted market prices. The impairment losses are included in equity in income of affiliates in the accompanying consolidated statement of income. For the year ended March 31, 2014, Honda did not recognize any significant impairment losses.
Certain combined financial information in respect of affiliates accounted for under the equity method at March 31, 20102013 and 2011,2014, and for each of the years in the three-year period ended March 31, 20112014 is shown below (see note(note 21):
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
As of March 31, 2010 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||||||||||||||||||
As of March 31, 2013 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||||||||||||||||||
Current assets | ¥ | 235,197 | ¥ | 1,229,286 | ¥ | 16,554 | ¥ | 1,481,037 | ¥ | 228,358 | ¥ | 1,335,075 | ¥ | 25,438 | ¥ | 1,588,871 | ||||||||||||||||
Other assets, principally property, plant and equipment | 232,885 | 1,033,739 | 31,049 | 1,297,673 | 134,901 | 1,137,654 | 27,219 | 1,299,774 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total assets | 468,082 | 2,263,025 | 47,603 | 2,778,710 | 363,259 | 2,472,729 | 52,657 | 2,888,645 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Current liabilities | 187,567 | 973,603 | 7,501 | 1,168,671 | 149,033 | 1,013,565 | 8,358 | 1,170,956 | ||||||||||||||||||||||||
Other liabilities | 13,085 | 254,773 | 5,166 | 273,024 | 10,075 | 242,194 | 2,979 | 255,248 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total liabilities | 200,652 | 1,228,376 | 12,667 | 1,441,695 | 159,108 | 1,255,759 | 11,337 | 1,426,204 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Equity | ¥ | 267,430 | ¥ | 1,034,649 | ¥ | 34,936 | ¥ | 1,337,015 | ¥ | 204,151 | ¥ | 1,216,970 | ¥ | 41,320 | ¥ | 1,462,441 | ||||||||||||||||
|
|
|
|
Yen (millions) | ||||||||||||||||
As of March 31, 2014 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Current assets | ¥ | 258,565 | ¥ | 1,732,609 | ¥ | 26,185 | ¥ | 2,017,359 | ||||||||
Other assets, principally property, plant and equipment | 126,888 | 1,212,313 | 30,450 | 1,369,651 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | 385,453 | 2,944,922 | 56,635 | 3,387,010 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current liabilities | 168,060 | 1,337,236 | 10,111 | 1,515,407 | ||||||||||||
Other liabilities | 12,849 | 226,822 | 2,972 | 242,643 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 180,909 | 1,564,058 | 13,083 | 1,758,050 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Equity | ¥ | 204,544 | ¥ | 1,380,864 | ¥ | 43,552 | ¥ | 1,628,960 | ||||||||
|
|
|
|
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||
As of March 31, 2011 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Current assets | ¥ | 225,393 | ¥ | 1,276,877 | ¥ | 20,362 | ¥ | 1,522,632 | ||||||||
Other assets, principally property, plant and equipment | 100,796 | 974,543 | 26,452 | 1,101,791 | ||||||||||||
Total assets | 326,189 | 2,251,420 | 46,814 | 2,624,423 | ||||||||||||
Current liabilities | 127,984 | 912,678 | 8,247 | 1,048,909 | ||||||||||||
Other liabilities | 7,392 | 213,215 | 5,635 | 226,242 | ||||||||||||
Total liabilities | 135,376 | 1,125,893 | 13,882 | 1,275,151 | ||||||||||||
Equity | ¥ | 190,813 | ¥ | 1,125,527 | ¥ | 32,932 | ¥ | 1,349,272 | ||||||||
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2012 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Net sales | ¥ | 888,914 | ¥ | 3,579,019 | ¥ | 23,934 | ¥ | 4,491,867 | ||||||||
Net income attributable to Honda’s affiliates | 72,168 | 177,309 | 1,516 | 250,993 |
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2013 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Net sales | ¥ | 891,343 | ¥ | 3,876,766 | ¥ | 25,918 | ¥ | 4,794,027 | ||||||||
Net income attributable to Honda’s affiliates | 60,586 | 162,037 | 1,717 | 224,340 |
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2009 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Net sales | ¥ | 1,064,366 | ¥ | 3,988,672 | ¥ | 28,823 | ¥ | 5,081,861 | ||||||||
Net income attributable to Honda’s affiliates | 73,945 | 126,994 | 2,611 | 203,550 |
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2010 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||
Net sales | ¥ | 992,264 | ¥ | 3,512,551 | ¥ | 24,933 | ¥ | 4,529,748 | ||||||||
Net income attributable to Honda’s affiliates | 83,467 | 137,471 | 2,684 | 223,622 |
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
For the year ended March 31, 2011 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||||||||||||||||||
For the year ended March 31, 2014 | Motorcycle Business | Automobile Business | Power Product and Other Businesses | Total | ||||||||||||||||||||||||||||
Net sales | ¥ | 1,189,024 | ¥ | 3,857,890 | ¥ | 24,572 | ¥ | 5,071,486 | ¥ | 1,070,837 | ¥ | 4,314,804 | ¥ | 27,578 | ¥ | 5,413,219 | ||||||||||||||||
Net income attributable to Honda’s affiliates | 104,790 | 253,468 | (1,436 | ) | 356,822 | 79,381 | 230,397 | 2,708 | 312,486 |
Significant investments in affiliates accounted for under the equity method at March 31, 20102013 and 20112014 are shown below:
| ||||||
|
| |||||
| ||||||
| ||||||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| ||||||
Business | Company | Percentage ownership | ||||
Motorcycle | P.T. Astra Honda Motor | 50.0 | % | |||
Automobile | Guangqi Honda Automobile Co., Ltd. | 50.0 | % | |||
Dongfeng Honda Automobile Co., Ltd. | 50.0 | % | ||||
Dongfeng Honda Engine Co., Ltd. | 50.0 | % |
On March 22, 2011, Honda sold its investment in Hero Honda Motors Ltd. (HHML) with a book value of ¥34,275 million, which represented 26.0% of HHML’s total outstanding shares, to its joint venture partner for ¥71,073 million cash consideration. In conjunction with the sale, the joint venture agreement with the partner was dissolved. In addition, Honda and HHML entered into a new licensing agreement that enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was ¥45,000 million, and will be paid by installments due through 2014. Total consideration received less interest, including the fair value attributable to the termination of certain obligations under the joint venture agreement, was allocated to each element using the relative selling price method in accordance with FASB Accounting Standards Codification 605 “Revenue Recognition”. As a result, the Company recognized revenue of ¥32,015 million related to the new licensing agreement in Net sales and other operating revenue, and a gain on sale of the investment of ¥46,756 million in Other income (expense) – Other, net.
There are no equity method affiliates that are in the financialFinancial services business.
Sales to affiliates by the Company and its subsidiaries and sales among such affiliates are made on the same basis as sales to unaffiliated parties.
Honda’s equity in undistributed income of affiliates at March 31, 20102013 and 20112014 included in retained earnings was ¥366,592¥376,888 million and ¥379,179¥417,050 million, respectively.
Trade receivables and trade payables include the following balances with affiliates at March 31, 20102013 and 2011,2014, and purchases and sales include the following transactions with affiliates for each of the years in the three-year period ended March 31, 2011.2014. Honda mainly purchases materials, supplies and services from affiliates, and sells finished goods, parts used in its products, equipment and services to affiliates.
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Trade receivables from | ¥ | 152,215 | ¥ | 131,974 | ||||
Trade payables to | 133,250 | 94,821 |
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Amounts due from | ¥ | 160,470 | ¥ | 225,383 | ||||
Amounts due to | 97,958 | 138,181 |
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Purchases from | ¥ | 948,442 | ¥ | 771,349 | ¥ | 789,701 | ¥ | 762,415 | ¥ | 789,261 | ¥ | 1,028,523 | ||||||||||||
Sales to | 515,590 | 510,630 | 590,077 | 561,426 | 636,299 | 786,802 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(7) Investments and Advances-Other
Investments and advances at March 31, 20102013 and 20112014 consist of the following:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Current | ||||||||||||||||
Corporate debt securities | ¥ | 31 | ¥ | 331 | ¥ | 1,553 | ¥ | 11,050 | ||||||||
U.S. government and agency debt securities | 1,861 | — | ||||||||||||||
Government bonds | — | 2,000 | ||||||||||||||
Local bonds | — | 6,620 | ||||||||||||||
Advances | 1,350 | 790 | 926 | 1,028 | ||||||||||||
Certificates of deposit | — | 1,366 | 1,550 | 1,558 | ||||||||||||
Other | 472 | — | 10,846 | 15,012 | ||||||||||||
|
| |||||||||||||||
Total | ¥ | 14,875 | ¥ | 37,268 | ||||||||||||
¥ | 3,714 | ¥ | 2,487 |
|
| |||||||||||
Investments and advances due within one year are included in other current assets.assets in the consolidated balance sheets.
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Noncurrent | ||||||||||||||||
Auction rate securities (non-marketable) | ¥ | 10,041 | ¥ | 6,948 | ||||||||||||
Auction rate securities | ¥ | 6,928 | ¥ | 6,999 | ||||||||||||
Marketable equity securities | 94,560 | 92,421 | 117,110 | 138,476 | ||||||||||||
Corporate debt securities | 1,505 | 8,542 | ||||||||||||||
Government bonds | 1,999 | 1,999 | 2,000 | — | ||||||||||||
U.S. government and agency debt securities | 14,875 | 37,029 | ||||||||||||||
Local bonds | 9,499 | 15,850 | ||||||||||||||
U.S. government agency debt securities | 1,068 | 5,455 | ||||||||||||||
Non-marketable equity securities accounted for under the cost method | ||||||||||||||||
Non-marketable preferred stocks | 2,000 | 969 | 969 | 969 | ||||||||||||
Other | 9,888 | 12,178 | 10,780 | 10,316 | ||||||||||||
Guaranty deposits | 25,452 | 23,735 | 20,210 | 18,742 | ||||||||||||
Advances | 1,517 | 1,159 | 2,132 | 1,998 | ||||||||||||
Other | 24,515 | 23,468 | 37,479 | 46,314 | ||||||||||||
|
| |||||||||||||||
Total | ¥ | 209,680 | ¥ | 253,661 | ||||||||||||
¥ | 184,847 | ¥ | 199,906 |
|
| |||||||||||
Certain information with respect to available-for-sale securities and held-to-maturity securities at March 31, 20102013 and 2011 is2014 are summarized below:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Available-for-sale | ||||||||||||||||
Cost | ¥ | 51,045 | ¥ | 46,017 | ¥ | 49,990 | ¥ | 84,820 | ||||||||
Fair value | 104,601 | 99,369 | 128,848 | 185,960 | ||||||||||||
Gross unrealized gains | 55,242 | 56,019 | 80,453 | 101,917 | ||||||||||||
Gross unrealized losses | 1,686 | 2,667 | 1,595 | 777 | ||||||||||||
Held-to-maturity | ||||||||||||||||
Amortized cost | ¥ | 18,766 | ¥ | 40,725 | ¥ | 16,511 | ¥ | 34,650 | ||||||||
Fair value | 18,862 | 40,649 | 16,556 | 34,667 | ||||||||||||
Gross unrealized gains | 98 | 91 | 45 | 17 | ||||||||||||
Gross unrealized losses | 2 | 167 | — | — |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Maturities of debt securities classified as held-to-maturityavailable-for-sale at March 31, 20112014 are as follows:
Yen (millions) | ||||
Due within one year | ¥ | |||
Due after one year through five years | ||||
Due after five years through ten years | ||||
Due after ten years | 14,512 | |||
Total | ¥ | |||
RealizedMaturities of debt securities classified as held-to-maturity at March 31, 2014 are as follows:
Yen (millions) | ||||
Due within one year | ¥ | 22,378 | ||
Due after one year through five years | 476 | |||
Due after five years through ten years | 10,954 | |||
Due after ten years | 842 | |||
Total | ¥ | 34,650 | ||
There were no significant realized gains and losses from available-for-sale securities included in other income (expense)-other, were ¥4,308 million(expenses) – other, net losses, ¥3 million net losses and ¥96 million net losses, for the years ended March 31, 2009, 20102012, 2013 and 2011, respectively.2014.
Gross unrealized losses on available-for-sale securities and held-to-maturity securities and fair value of the related securities, aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 20112014 are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||
Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||
Available-for-sale | ||||||||||||||||
Less than 12 months | ¥ | 9,054 | ¥ | (1,516 | ) | ¥ | 8,877 | ¥ | 224 | |||||||
12 months or longer | 7,759 | (1,151 | ) | 7,351 | 553 | |||||||||||
|
| |||||||||||||||
Total | ¥ | 16,228 | ¥ | 777 | ||||||||||||
¥ | 16,813 | ¥ | (2,667 | ) |
|
| ||||||||||
Held-to-maturity | ||||||||||||||||
Less than 12 months | ¥ | 31,042 | ¥ | (167 | ) | |||||||||||
12 months or longer | — | — | ||||||||||||||
¥ | 31,042 | ¥ | (167 | ) | ||||||||||||
Honda does not believe the decline in fair value of any of its investment securities to be other than temporary, which is based on factors such 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.
There were no held-to-maturity securities in a loss position at March 31, 2014.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(8) Property on Operating Leases
Future minimum lease rentals expected to be received from property on operating leases at March 31, 20112014 are as follows:
Years ending March 31 | Yen (millions) | |||
2012 | ¥ | 241,097 | ||
2013 | 163,046 | |||
2014 | 60,470 | |||
2015 | 3,234 | |||
2016 | 505 | |||
Total future minimum lease rentals | ¥ | 468,352 | ||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Years ending March 31 | Yen (millions) | |||
2015 | ¥ | 380,146 | ||
2016 | 247,759 | |||
2017 | 89,967 | |||
2018 | 9,148 | |||
2019 | 2,058 | |||
|
| |||
Total future minimum lease rentals | ¥ | 729,078 | ||
|
|
Future minimum lease rentals as shown above should not necessarily be considered indicative of future cash collections.
(9) Short-term and Long-term Debt
Short-term debt at March 31, 20102013 and 20112014 is as follows:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Short-term bank loans | ¥ | 260,648 | ¥ | 268,600 | ¥ | 347,842 | ¥ | 373,610 | ||||||||
Asset backed notes | 37,719 | 35,908 | ||||||||||||||
Asset-backed notes | 37,448 | 69,032 | ||||||||||||||
Medium-term notes | 129,903 | 184,437 | 159,963 | 231,519 | ||||||||||||
Commercial paper | 638,074 | 605,795 | 693,044 | 645,183 | ||||||||||||
|
| |||||||||||||||
Total | ¥ | 1,238,297 | ¥ | 1,319,344 | ||||||||||||
¥ | 1,066,344 | ¥ | 1,094,740 |
|
| |||||||||||
The weighted average interest rates on short-term debt outstanding at March 31, 20102013 and 20112014 were 0.81%0.86% and 0.67%1.15%, respectively.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Long-term debt at March 31, 20102013 and 20112014 is as follows:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Honda Motor Co., Ltd.: | ||||||||||||||||
Loans, maturing through 2031: | ||||||||||||||||
Unsecured, principally from banks | ¥ | 298 | ¥ | 240 | ¥ | 160 | ¥ | 128 | ||||||||
0.76% Japanese yen unsecured bond due 2012 | 70,000 | 70,000 | ||||||||||||||
|
| |||||||||||||||
70,298 | 70,240 | 160 | 128 | |||||||||||||
Subsidiaries: | ||||||||||||||||
Loans, maturing through 2029: | ||||||||||||||||
Secured, principally from banks | 17,336 | 19,827 | 15,830 | 30,466 | ||||||||||||
Unsecured, principally from banks | 881,872 | 804,396 | 1,043,857 | 1,224,947 | ||||||||||||
Asset backed notes, maturing through 2015 | 311,222 | 453,802 | ||||||||||||||
0.66% Japanese yen unsecured bond due 2010 | 30,000 | — | ||||||||||||||
0.94% Japanese yen unsecured bond due 2010 | 30,000 | — | ||||||||||||||
1.30% Japanese yen unsecured bond due 2011 | 40,000 | 40,000 | ||||||||||||||
1.51% Japanese yen unsecured bond due 2011 | 30,000 | 30,000 | ||||||||||||||
1.48% Japanese yen unsecured bond due 2012 | 30,000 | 30,000 | ||||||||||||||
0.49% Japanese yen unsecured bond due 2012 | 20,000 | 20,000 | ||||||||||||||
Asset-backed notes, maturing through 2019 | 681,020 | 808,022 | ||||||||||||||
1.31% Japanese yen unsecured bond due 2013 | 40,000 | 40,000 | 40,000 | — | ||||||||||||
1.05% Japanese yen unsecured bond due 2014 | 30,000 | 30,000 | 30,000 | 30,000 | ||||||||||||
0.56% Japanese yen unsecured bond due 2015 | — | 30,000 | 30,000 | 30,000 | ||||||||||||
0.59% Japanese yen unsecured bond due 2015 | — | 30,000 | 30,000 | 30,000 | ||||||||||||
4.20% Thai baht unsecured bond due 2010 | 8,610 | — | ||||||||||||||
4.72% Thai baht unsecured bond due 2011 | 3,731 | 3,575 | ||||||||||||||
0.47% Japanese yen unsecured bond due 2016 | 40,000 | 40,000 | ||||||||||||||
0.48% Japanese yen unsecured bond due 2017 | 40,000 | 40,000 | ||||||||||||||
0.37% Japanese yen unsecured bond due 2017 | 30,000 | 30,000 | ||||||||||||||
0.35% Japanese yen unsecured bond due 2017 | 35,000 | 35,000 | ||||||||||||||
0.27% Japanese yen unsecured bond due 2018 | 30,000 | 30,000 | ||||||||||||||
0.55% Japanese yen unsecured bond due 2018 | — | 50,000 | ||||||||||||||
0.32% Japanese yen unsecured bond due 2018 | — | 40,000 | ||||||||||||||
0.25% Japanese yen unsecured bond due 2019 | — | 40,000 | ||||||||||||||
0.59% Japanese yen unsecured bond due 2019 | 10,000 | 10,000 | ||||||||||||||
0.56% Japanese yen unsecured bond due 2019 | 15,000 | 15,000 | ||||||||||||||
0.55% Japanese yen unsecured bond due 2020 | 10,000 | 10,000 | ||||||||||||||
0.49% Japanese yen unsecured bond due 2020 | — | 10,000 | ||||||||||||||
0.43% Japanese yen unsecured bond due 2021 | — | 10,000 | ||||||||||||||
Medium-term notes, maturing through 2023 | 1,498,379 | 1,408,960 | 1,580,951 | 2,030,968 | ||||||||||||
Less unamortized discount, net | 6,117 | 5,105 | 5,927 | 7,001 | ||||||||||||
|
| |||||||||||||||
2,965,033 | 2,935,455 | 3,655,731 | 4,537,402 | |||||||||||||
|
| |||||||||||||||
Total long-term debt | 3,035,331 | 3,005,695 | 3,655,891 | 4,537,530 | ||||||||||||
Less current portion | 722,296 | 962,455 | 945,046 | 1,303,464 | ||||||||||||
|
| |||||||||||||||
Total long-term debt, excluding current portion | ¥ | 2,710,845 | ¥ | 3,234,066 | ||||||||||||
¥ | 2,313,035 | ¥ | 2,043,240 |
|
| |||||||||||
Pledged assets at March 31, 20102013 and 20112014 are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Trade accounts and notes receivable | ¥ | 8,655 | ¥ | 13,808 | ¥ | 25,528 | ¥ | 31,318 | ||||||||
Inventories | 3,777 | 11,691 | 11,154 | 12,908 | ||||||||||||
Other current assets | — | 5,337 | ||||||||||||||
Property, plant and equipment | 20,492 | 24,548 | 26,169 | 58,504 | ||||||||||||
Finance subsidiaries-receivables(see note 1(c)) | 352,618 | 504,587 | ||||||||||||||
Finance subsidiaries-receivables | 724,399 | 883,776 |
Certain loans are secured by trade accounts and notes receivable, inventories other current assets and property, plant and equipment presented above and subject to collateralization upon request, and their interest rates range from 0.45% to 12.50% per annum at March 31, 2014 and weighted average interest rates on total outstanding
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
rates range from 0.59% to 15.13% per annum at March 31, 2011 and weighted average interest rates on total outstanding long-term debt at March 31, 20102013 and 20112014 were 3.73%1.82% and 2.29%1.71%, respectively. Asset backedAsset-backed notes are secured by finance subsidiaries-receivables, and their weighted average interest rates at March 31, 20102013 and 20112014 were 2.15%0.89% and 1.94%0.70%, respectively. Medium-term notes are unsecured, and their interest rates range from 0.61%0.38% to 5.42%5.03% at March 31, 20102013 and from 0.49%0.22% to 5.29%7.63% at March 31, 2011.2014.
The following schedule shows the maturities of long-term debt for each of the five years following March 31, 20112014 and thereafter:
Years ending March 31 | Yen (millions) | Yen (millions) | ||||||
2012 | ¥ | 962,455 | ||||||
2015 | ¥ | 1,303,464 | ||||||
| ||||||||
2013 | 794,422 | |||||||
2014 | 575,521 | |||||||
2015 | 255,590 | |||||||
2016 | 299,961 | 963,462 | ||||||
2017 | 1,125,196 | |||||||
2018 | 391,004 | |||||||
2019 | 460,730 | |||||||
After five years | 117,746 | 293,674 | ||||||
| ||||||||
2,043,240 | 3,234,066 | |||||||
| ||||||||
Total | ¥ | 3,005,695 | ¥ | 4,537,530 | ||||
|
Certain of the Company’s subsidiaries have entered into currency swap and interest rate swap agreements for hedging currency and interest rate exposures resulting from the issuance of long-term debt. Fair value of contracts related to currency swaps and interest rate swaps is included in other assets and other current assets and/or liabilities in the consolidated balance sheets, as appropriate (see notes(notes 16 and 17).
At March 31, 2011,2014, Honda had unused line of credit facilities amounting to ¥2,212,949¥2,718,969 million, of which ¥598,472¥727,803 million related to commercial paper programs and ¥1,614,477¥1,991,166 million related to medium-term notes programs. Honda is authorized to obtain financing at prevailing interest rates under these programs.
At March 31, 2011,2014, the Company and its finance subsidiaries also had committed lines of unused credit amounting to ¥788,312 million, none of which was in use. The¥1,024,274 million. Within these lines, the unused committed lines are used to back upsupporting the commercial paper programs.programs are ¥965,066 million. Borrowings under those committed lines of credit generally are available at the prime interest rate.
As is customary in Japan, both short-term and long-term bank loans are made under general agreements which provide that security and guarantees for present and future indebtedness will be given upon request of the bank, and that the bank shall have the right to offset cash deposits against obligations that have become due or, in the event of default, against all obligations due to the bank. Certain debenture trust agreements provide that Honda must give additional security upon request of the trustee.
(10) Other Liabilities
Other liabilities at March 31, 2013 and 2014 consist of the following:
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Accrued liabilities for product warranty, excluding current portion | ¥ | 104,584 | ¥ | 114,927 | ||||
Pension and other postretirement benefits | 622,462 | 445,350 | ||||||
Deferred income taxes | 615,879 | 706,662 | ||||||
Other | 287,160 | 296,299 | ||||||
|
|
|
| |||||
Total | ¥ | 1,630,085 | ¥ | 1,563,238 | ||||
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(10)Other Liabilities
Other liabilities at March 31, 2010 and 2011 consist of the following:
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Accrued liabilities for product warranty, excluding current portion | ¥ | 118,498 | ¥ | 98,042 | ||||
Pension and other postretirement benefits | 581,418 | 542,917 | ||||||
Deferred income taxes | 403,889 | 472,378 | ||||||
Other | 336,715 | 263,193 | ||||||
¥ | 1,440,520 | ¥ | 1,376,530 | |||||
(11)Income Taxes
Total income tax expense (benefit) for each of the years in the three-year period ended March 31, 20112014 are allocated as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Income from continuing operations | ¥ | 109,835 | ¥ | 146,869 | ¥ | 206,827 | ¥ | 135,735 | ¥ | 178,976 | ¥ | 252,662 | ||||||||||||
Other comprehensive income (loss) (note 15) | (58,302 | ) | 27,708 | (4,708 | ) | (20,701 | ) | 252 | 72,486 | |||||||||||||||
|
|
| ||||||||||||||||||||||
Total | ¥ | 115,034 | ¥ | 179,228 | ¥ | 325,148 | ||||||||||||||||||
¥ | 51,533 | ¥ | 174,577 | ¥ | 202,119 |
|
|
| ||||||||||||||||
Income (loss) before income taxes and equity in income of affiliates by domesticJapanese and foreign source for each of the years in the three-year period ended March 31, 20112014 consisted of the following:
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Income (loss) before income taxes | ||||||||||||
Japanese | ¥ | (132,652 | ) | ¥ | (24,723 | ) | ¥ | 115,740 | ||||
Foreign | 294,386 | 360,921 | 514,808 | |||||||||
¥ | 161,734 | ¥ | 336,198 | ¥ | 630,548 | |||||||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Income (loss) before income taxes | ||||||||||||
Japanese | ¥ | (125,787 | ) | ¥ | 50,450 | ¥ | 214,698 | |||||
Foreign | 383,190 | 438,441 | 514,242 | |||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 257,403 | ¥ | 488,891 | ¥ | 728,940 | ||||||
|
|
|
|
|
|
Income tax expense (benefit) for each of the years in the three-year period ended March 31, 20112014 consisted of the following:
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Income taxes | ||||||||||||
Current | ||||||||||||
Japanese | ¥ | 2,829 | ¥ | 9,209 | ¥ | (52,701 | ) | |||||
Foreign | 65,233 | 81,054 | 129,348 | |||||||||
¥ | 68,062 | ¥ | 90,263 | ¥ | 76,647 | |||||||
Deferred | ||||||||||||
Japanese | ¥ | 7,654 | ¥ | (7,018 | ) | ¥ | 22,324 | |||||
Foreign | 34,119 | 63,624 | 107,856 | |||||||||
¥ | 41,773 | ¥ | 56,606 | ¥ | 130,180 | |||||||
Total | ||||||||||||
Japanese | ¥ | 10,483 | ¥ | 2,191 | ¥ | (30,377 | ) | |||||
Foreign | 99,352 | 144,678 | 237,204 | |||||||||
¥ | 109,835 | ¥ | 146,869 | ¥ | 206,827 | |||||||
Withholding taxes for dividends and royalties paid to foreign tax jurisdictions of ¥27,656 million and ¥27,424 million during the fiscal years ended March 31, 2009 and 2010, which were previously reported as Japanese current income taxes, have been corrected and included in Foreign current income taxes.
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Income taxes | ||||||||||||
Current | ||||||||||||
Japanese | ¥ | 8,136 | ¥ | (3,666 | ) | ¥ | (794 | ) | ||||
Foreign | 77,938 | 129,390 | 208,030 | |||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 86,074 | ¥ | 125,724 | ¥ | 207,236 | ||||||
|
|
|
|
|
| |||||||
Deferred | ||||||||||||
Japanese | ¥ | (26,071 | ) | ¥ | 21,977 | ¥ | 54,622 | |||||
Foreign | 75,732 | 31,275 | (9,196 | ) | ||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 49,661 | ¥ | 53,252 | ¥ | 45,426 | ||||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Japanese | ¥ | (17,935 | ) | ¥ | 18,311 | ¥ | 53,828 | |||||
Foreign | 153,670 | 160,665 | 198,834 | |||||||||
|
|
|
|
|
| |||||||
Total | ¥ | 135,735 | ¥ | 178,976 | ¥ | 252,662 | ||||||
|
|
|
|
|
|
The statutory income tax rate in Japan was approximately 40% for each of the years in the three-year period ended March 31, 2011.2012, 2013 and 2014 was 40.0%, 37.9% and 37.9%, respectively. The foreign subsidiaries are subject to taxes based on income at rates ranging from 16%16.0% to 40%38.0%.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The effective income tax rate for Honda for each of the years in the three-year period ended March 31, 20112014 differs from the Japanese statutory income tax rate for the following reasons:
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Statutory income tax rate | 40.0 | % | 40.0 | % | 40.0 | % | 40.0 | % | 37.9 | % | 37.9 | % | ||||||||||||
Recognition of valuation allowance*1 | 17.3 | 6.2 | 2.3 | |||||||||||||||||||||
Difference in statutory tax rates of foreign subsidiaries*2 | (25.8 | ) | (6.3 | ) | (6.2 | ) | ||||||||||||||||||
Recognition of valuation allowance | 7.2 | 2.2 | 2.3 | |||||||||||||||||||||
Difference in statutory tax rates of foreign subsidiaries | (12.2 | ) | (6.7 | ) | (8.1 | ) | ||||||||||||||||||
Reversal of valuation allowance | (0.4 | ) | (0.9 | ) | (0.7 | ) | (1.8 | ) | (1.5 | ) | (0.8 | ) | ||||||||||||
Research and development credit | (1.7 | ) | (0.3 | ) | (0.3 | ) | (0.6 | ) | (0.7 | ) | (0.9 | ) | ||||||||||||
Dividend and royalty income from subsidiaries and affiliates, net of foreign tax credit *3 | 21.7 | 4.1 | 6.1 | |||||||||||||||||||||
Dividend and royalty income from subsidiaries and affiliates, net of foreign tax credit | 9.8 | 4.4 | 4.7 | |||||||||||||||||||||
Undistributed earnings of subsidiaries and affiliates | 11.6 | 3.7 | 2.8 | 2.7 | 1.8 | 2.0 | ||||||||||||||||||
Other adjustments relating to prior years | (5.9 | ) | (1.6 | ) | — | 0.4 | (1.5 | ) | 0.4 | |||||||||||||||
Adjustments for unrecognized tax benefits | 11.5 | 0.6 | (10.3 | ) | (1.1 | ) | 0.2 | (3.9 | ) | |||||||||||||||
Adjustments for the change in income tax laws* | 8.3 | 0.5 | 1.2 | |||||||||||||||||||||
Other | (0.4 | ) | (1.8 | ) | (0.9 | ) | 0.0 | 0.0 | (0.1 | ) | ||||||||||||||
|
|
| ||||||||||||||||||||||
Effective tax rate | 67.9 | % | 43.7 | % | 32.8 | % | 52.7 | % | 36.6 | % | 34.7 | % | ||||||||||||
|
|
|
* |
|
On March 20, 2014, the National Diet of Japan approved amendments to existing income tax laws and the Special Reconstruction Corporation Tax imposed on companies will be abolished for fiscal years beginning on or after April 1, 2014. Upon the change in the |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 20102013 and 20112014 are presented below:
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Deferred tax assets: | ||||||||
Inventories | ¥ | 28,641 | ¥ | 27,461 | ||||
Allowance for dealers and customers | 102,128 | 98,479 | ||||||
Accrued bonus | 30,938 | 33,531 | ||||||
Property, plant and equipment | 67,879 | 68,417 | ||||||
Foreign tax credit carryforwards | 1,367 | 719 | ||||||
Operating loss carryforwards | 112,675 | 69,441 | ||||||
Pension and other postretirement benefits | 239,087 | 225,590 | ||||||
Other | 136,275 | 156,636 | ||||||
Total gross deferred tax assets | 718,990 | 680,274 | ||||||
Less valuation allowance | 53,410 | 65,479 | ||||||
Net deferred tax assets | 665,580 | 614,795 | ||||||
Deferred tax liabilities: | ||||||||
Inventories | (8,713 | ) | (9,351 | ) | ||||
Prepaid pension expenses | (26,971 | ) | (19,948 | ) | ||||
Property, plant and equipment, excluding lease transactions | (50,134 | ) | (50,691 | ) | ||||
Direct financing lease transactions | (27,768 | ) | (16,181 | ) | ||||
Operating lease transactions | (405,062 | ) | (468,914 | ) | ||||
Undistributed earnings of subsidiaries and affiliates | (108,933 | ) | (100,389 | ) | ||||
Net unrealized gains on available–for-sale securities | (20,057 | ) | (19,737 | ) | ||||
Other | (38,944 | ) | (40,454 | ) | ||||
Total gross deferred tax liabilities | (686,582 | ) | (725,665 | ) | ||||
Net deferred tax asset (liability) | ¥ | (21,002 | ) | ¥ | (110,870 | ) | ||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||
2013 | 2014 | |||||||
Deferred tax assets: | ||||||||
Inventories | ¥ | 28,122 | ¥ | 30,190 | ||||
Allowance for dealers and customers | 87,224 | 110,936 | ||||||
Accrued bonus | 32,380 | 32,837 | ||||||
Property, plant and equipment | 65,397 | 58,671 | ||||||
Operating loss carryforwards | 138,559 | 107,269 | ||||||
Pension and other postretirement benefits | 229,102 | 152,409 | ||||||
Other | 166,894 | 188,057 | ||||||
|
|
|
| |||||
Total gross deferred tax assets | 747,678 | 680,369 | ||||||
Less valuation allowance | 81,007 | 97,138 | ||||||
|
|
|
| |||||
Net deferred tax assets | 666,671 | 583,231 | ||||||
|
|
|
| |||||
Deferred tax liabilities: | ||||||||
Inventories | (16,575 | ) | (13,924 | ) | ||||
Prepaid pension expenses | (12,274 | ) | (4,977 | ) | ||||
Property, plant and equipment, excluding lease transactions | (80,103 | ) | (78,898 | ) | ||||
Direct financing lease transactions | (23,580 | ) | (26,658 | ) | ||||
Operating lease transactions | (623,535 | ) | (695,507 | ) | ||||
Undistributed earnings of subsidiaries and affiliates | (89,126 | ) | (112,085 | ) | ||||
Net unrealized gains on available-for-sale securities | (27,042 | ) | (33,709 | ) | ||||
Other | (51,727 | ) | (44,887 | ) | ||||
|
|
|
| |||||
Total gross deferred tax liabilities | (923,962 | ) | (1,010,645 | ) | ||||
|
|
|
| |||||
Net deferred tax asset (liability) | ¥ | (257,291 | ) | ¥ | (427,414 | ) | ||
|
|
|
|
Deferred income tax assets and liabilities at March 31, 20102013 and 20112014 are reflected in the consolidated balance sheets under the following captions:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Current assets-Deferred income taxes | ¥ | 176,604 | ¥ | 202,291 | ¥ | 234,075 | ¥ | 202,123 | ||||||||
Other assets | 208,376 | 160,379 | 127,248 | 80,289 | ||||||||||||
Other current liabilities | (2,093 | ) | (1,162 | ) | (2,735 | ) | (3,164 | ) | ||||||||
Other liabilities | (403,889 | ) | (472,378 | ) | (615,879 | ) | (706,662 | ) | ||||||||
|
| |||||||||||||||
Net deferred tax asset (liability) | ¥ | (21,002 | ) | ¥ | (110,870 | ) | ¥ | (257,291 | ) | ¥ | (427,414 | ) | ||||
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income over the periods in which those temporary differences become deductible and operating loss carryforwards utilized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it is more likely than not that
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Honda will realize the benefits of these deductible differences and operating loss carryforwards, net of the existing valuation allowances at March 31, 20102013 and 2011.2014. The amount of the deferred tax asset considered realizable, however, could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are reduced due to further decreases in consumer spending brought about by changes in consumer preferences and rising fuel prices,the economic environment surrounding Honda, effects by market conditions, effects of the Great East Japan Earthquakecurrency fluctuations or other factors. For the years ended March 31, 2009, 20102012, 2013 and 2011,2014, the net change in the total valuation allowance was an increase of ¥14,104¥3,613 million, ¥4,872¥11,915 million, and ¥12,069¥16,131 million, respectively.respectively (note 20). The valuation allowance primarily relates to deferred tax assets associated with net operating loss and tax credit carryforwards.
At March 31, 2011,2014, Honda has operating loss and tax credit carryforwards for income tax purposes of ¥209,470¥353,357 million and ¥3,822¥34,578 million, respectively, which are available to offset future taxable income and income taxes, if any. Periods available to offset future taxable income and income taxes vary in each tax jurisdiction and range from one year to an indefinite period as follows:
Yen (millions) | ||||
Operating loss carryforwards: | ||||
Within 1 year | ¥ | |||
1 to 5 years | ||||
5 to 20 years | ||||
Indefinite periods | ||||
Total | ¥ | 353,357 | ||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||
Tax credit carryforwards: | ||||
Within 1 year | ¥ | |||
1 to 5 years | ||||
5 to 20 years | ||||
Indefinite periods | ||||
Total | ¥ | 34,578 | ||
At March 31, 20102013 and 2011,2014, Honda did not recognize deferred tax liabilities of ¥104,239¥140,691 million and ¥114,260¥195,476 million, respectively, for certain portions of the undistributed earnings of the Company’s foreign subsidiaries and foreign corporate joint ventures because such portions were considered indefinitely reinvested. Deferred tax liabilities will be recognized when Honda expects that it will realize those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investment. At March 31, 20102013 and 2011,2014, the undistributed earnings not subject to deferred tax liabilities were ¥3,497,656¥4,133,175 million and ¥3,718,929¥4,284,270 million, respectively.
Honda’s unrecognized tax benefits totaled ¥125,771¥43,627 million, ¥109,473¥39,151 million and ¥46,265¥6,983 million at March 31, 2009, 20102012, 2013 and 2011,2014, respectively. Of these amounts, the amounts that would impact Honda’s effective income tax rate, if recognized, are ¥103,982¥32,460 million, ¥105,318¥37,012 million and ¥41,264¥5,362 million in fiscal years 2009, 20102012, 2013 and 2011,2014, respectively.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Recognized interest and penalties, net included in income tax expense for the years ended March 31, 2009, 20102012, 2013 and 20112014 were ¥3,604 million expense, ¥335¥513 million benefit, ¥764 million loss and ¥6,050¥2,406 million benefit, respectively. Honda had recorded approximately ¥9,007¥3,292 million and ¥2,685¥1,235 million for accrued interest and accrued penalties at March 31, 20102013 and 2011,2014, respectively. Reconciliations of the beginning and ending amount of unrecognized tax benefits for the years ended March 31 are as follows:
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Balance at beginning of year | ¥ | 99,527 | ¥ | 125,771 | ¥ | 109,473 | ||||||
Additions for tax positions related to the current year | 6,515 | 4,207 | 12,338 | |||||||||
Additions for tax positions of prior years | 22,137 | 2,422 | 7,280 | |||||||||
Reductions for tax positions of prior years * | (1,948 | ) | (20,225 | ) | (71,519 | ) | ||||||
Settlements * | (7 | ) | (716 | ) | (9,191 | ) | ||||||
Reductions for statute of limitations | — | — | (8 | ) | ||||||||
Effect of exchange rate changes | (453 | ) | (1,986 | ) | (2,108 | ) | ||||||
Balance at end of year | ¥ | 125,771 | ¥ | 109,473 | ¥ | 46,265 | ||||||
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Balance at beginning of year | ¥ | 46,265 | ¥ | 43,627 | ¥ | 39,151 | ||||||
Additions for tax positions related to the current year | 2,910 | — | — | |||||||||
Additions for tax positions of prior years | 4,538 | 687 | 3,332 | |||||||||
Reductions for tax positions of prior years* | (1,217 | ) | (7,855 | ) | (26,063 | ) | ||||||
Settlements | (1,688 | ) | — | (3,808 | ) | |||||||
Reductions for statute of limitations | (6,894 | ) | — | (6,909 | ) | |||||||
Effect of exchange rate changes | (287 | ) | 2,692 | 1,280 | ||||||||
|
|
|
|
|
| |||||||
Balance at end of year | ¥ | 43,627 | ¥ | 39,151 | ¥ | 6,983 | ||||||
|
|
|
|
|
|
* | Due to |
Tax liabilities associated with uncertain tax positions are primarily classified as other noncurrent liabilities, as Honda does not expect to pay cash or settle on these positions within the next twelve months.
Honda has open tax years primarily from primarily 20012005 to 20112014 with various significant taxingtax jurisdictions including Japan (fiscal years 2008-2014), the United States (fiscal years 2001-2011), Japan (fiscal years 2005-2011)2005-2014), Canada, the United Kingdom, Germany, France, Belgium, Thailand, India, Brazil and Australia.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Honda is subject to income tax examinations in many tax jurisdictions. Tax examinations can involve complex issues and the resolution of issues may span multiple years, particularly if subject to negotiation or litigation. Although Honda believes its estimates of the total unrecognized tax benefits are reasonable, uncertainties regarding the final determination of income tax audit settlements and any related litigation could affect the amount of total unrecognized tax benefits in the future periods.
It is difficult to estimate the timing and range of possible change related to the uncertain tax positions, as finalizing audits with the relevant income tax authorities may involve formal administrative and legal proceedings. Accordingly, it is not possible to reasonably estimate the expected changes to the total unrecognized tax benefits over the next twelve months, although any settlements or statute expirations may result in a significant increase or decrease in the total unrecognized tax benefits, including those positions related to tax examinations being currently conducted.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(12) Dividends and Legal Reserves
The Company Law of Japan provides that earnings in an amount equal to 10% of dividends of retained earnings shall be appropriated as a capital surplus or a legal reserve on the date of distribution of retained earnings until an aggregated amount of capital surplus and a legal reserve equals 25% of stated capital. Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of their respective countries.
Dividends and appropriations to the legal reserves charged to retained earnings during the years in the three-year period ended March 31, 20112014 represent dividends paid out during those years and the related appropriations to the legal reserves. Dividends per share were ¥77, ¥34¥60, ¥72 and ¥51¥79 for the years ended March 31, 2009, 20102012, 2013 and 2011,2014, respectively. The accompanying consolidated financial statements do not include any provisionaccrued liabilities for the dividend of ¥15¥22 per share aggregating ¥27,034to ¥39,650 million proposed and resolved in the general shareholders’ meeting held inon June 2011.13, 2014.
(13) Pension and Other Postretirement Benefits
The Company and its subsidiaries have various pension plans covering substantially all of their employees in Japan and certain employees in foreign countries. Benefits under the plans are primarily based on the combination of years of service and compensation. The funding policy is to make periodic contributions as required by applicable regulations. Plan assets consist primarily of domestic and foreign equity and debt securities.
In September 2013, certain consolidated subsidiaries in North America amended their existing defined benefit pension plans, effective January 1, 2014, to reduce the benefits in future periods for their employees on or after January 1, 2014.
This plan amendment resulted in a reduction of the projected benefit obligation and recognition of the prior service benefit at the date of the plan amendment which is amortized over the average remaining service period from the date of the plan amendment. The consolidated subsidiaries also remeasured their projected benefit obligation and the fair value of related plan assets at the date of the plan amendment. The effects of the plan amendment and the remeasurement were recognized in other comprehensive income (loss), net of tax during the fiscal year ended March 31, 2014.
Following this plan amendment, employees of these consolidated subsidiaries could elect to move from the existing defined benefit pension plans to a defined contribution pension plan on January 1, 2014. Consequently, certain employees elected to move to the defined contribution pension plan in October 2013, resulting in a curtailment in the existing defined benefit pension plans. As a result, Honda recognized ¥21,368 million of the prior service benefit included in accumulated other comprehensive income (loss) as a curtailment gain, of which ¥15,407 million is included in cost of sales and ¥5,961 million is included in selling, general and administrative expense in the accompanying consolidated statements of income for the fiscal year ended March 31, 2014. The consolidated subsidiaries also remeasured their projected benefit obligation and the fair value of plan assets in the existing defined benefit pension plans at the date of the curtailment. The effect of the remeasurement was recognized in other comprehensive income (loss), net of tax during the fiscal year ended March 31, 2014.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Obligations and funded status
Reconciliations of beginning and ending balances of the pension benefit obligations and the fair value of the plan assets are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
Japanese plans | Foreign plans | Japanese plans | Foreign plans | |||||||||||||||||||||||||||||
2010 | 2011 | 2010 | 2011 | 2013 | 2014 | 2013 | 2014 | |||||||||||||||||||||||||
Change in benefit obligations: | ||||||||||||||||||||||||||||||||
Benefit obligations at beginning of year | ¥ | (1,129,636 | ) | ¥ | (1,157,951 | ) | ¥ | (296,305 | ) | ¥ | (430,683 | ) | ¥ | (1,193,566 | ) | ¥ | (1,283,216 | ) | ¥ | (536,064 | ) | ¥ | (685,155 | ) | ||||||||
Service cost | (37,215 | ) | (35,209 | ) | (15,210 | ) | (18,113 | ) | (31,124 | ) | (33,701 | ) | (24,826 | ) | (27,342 | ) | ||||||||||||||||
Interest cost | (22,593 | ) | (23,159 | ) | (23,135 | ) | (24,165 | ) | (23,871 | ) | (19,248 | ) | (26,107 | ) | (31,857 | ) | ||||||||||||||||
Plan participants’ contributions | — | — | (129 | ) | (199 | ) | — | — | (26 | ) | (13 | ) | ||||||||||||||||||||
Actuarial gain (loss) | (12,484 | ) | (2,936 | ) | (99,498 | ) | (20,033 | ) | (82,834 | ) | (4,833 | ) | (33,210 | ) | 20,074 | |||||||||||||||||
Benefits paid | 43,977 | 45,229 | 9,352 | 7,672 | 48,179 | 47,363 | 11,177 | 39,339 | ||||||||||||||||||||||||
Amendment | — | — | (1,325 | ) | — | — | — | — | 57,251 | |||||||||||||||||||||||
Other | — | — | (7,162 | ) | 742 | |||||||||||||||||||||||||||
Curtailment | — | — | — | 1,084 | ||||||||||||||||||||||||||||
Foreign currency translation | — | — | 2,729 | 38,620 | — | — | (76,099 | ) | (63,053 | ) | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Benefit obligations at end of year | (1,157,951 | ) | (1,174,026 | ) | (430,683 | ) | (446,159 | ) | (1,283,216 | ) | (1,293,635 | ) | (685,155 | ) | (689,672 | ) | ||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Change in plan assets: | ||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of year | 578,832 | 694,738 | 285,214 | 379,648 | 801,701 | 918,518 | 422,500 | 543,164 | ||||||||||||||||||||||||
Actual return on plan assets | 89,610 | 26,760 | 94,507 | 37,866 | 94,446 | 71,304 | 45,124 | 67,666 | ||||||||||||||||||||||||
Employer contributions | 70,273 | 72,076 | 11,405 | 20,617 | 70,550 | 69,580 | 23,795 | 33,557 | ||||||||||||||||||||||||
Plan participants’ contributions | — | — | 129 | 199 | — | — | 26 | 13 | ||||||||||||||||||||||||
Benefits paid | (43,977 | ) | (45,229 | ) | (9,352 | ) | (7,672 | ) | (48,179 | ) | (47,363 | ) | (11,177 | ) | (39,339 | ) | ||||||||||||||||
Foreign currency translation | — | — | (2,255 | ) | (35,093 | ) | — | — | 62,896 | 51,891 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Fair value of plan assets at end of year | 694,738 | 748,345 | 379,648 | 395,565 | 918,518 | 1,012,039 | 543,164 | 656,952 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Funded status | (463,213 | ) | (425,681 | ) | (51,035 | ) | (50,594 | ) | ¥ | (364,698 | ) | ¥ | (281,596 | ) | ¥ | (141,991 | ) | ¥ | (32,720 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Amounts recognized in the consolidated balance sheets consist of: | ||||||||||||||||||||||||||||||||
Noncurrent assets | ¥ | 1,259 | ¥ | 1,171 | ¥ | 9,479 | ¥ | 4,735 | ¥ | 1,480 | ¥ | 2,626 | ¥ | — | ¥ | 18,643 | ||||||||||||||||
Current liabilities | (360 | ) | (403 | ) | (21 | ) | (86 | ) | (364 | ) | (335 | ) | (38 | ) | (40 | ) | ||||||||||||||||
Noncurrent liabilities | (464,112 | ) | (426,449 | ) | (60,493 | ) | (55,243 | ) | (365,814 | ) | (283,887 | ) | (141,953 | ) | (51,323 | ) | ||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | (463,213 | ) | (425,681 | ) | (51,035 | ) | (50,594 | ) | ¥ | (364,698 | ) | ¥ | (281,596 | ) | ¥ | (141,991 | ) | ¥ | (32,720 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Amounts recognized in accumulated other comprehensive income (loss) consist of: | ||||||||||||||||||||||||||||||||
Actuarial loss (gain) | ¥ | 458,609 | ¥ | 436,688 | ¥ | 132,730 | ¥ | 135,868 | ¥ | 394,998 | ¥ | 335,886 | ¥ | 206,941 | ¥ | 145,979 | ||||||||||||||||
Net transition obligation | — | — | 171 | 140 | — | — | 77 | 35 | ||||||||||||||||||||||||
Prior service cost (benefit) | (170,583 | ) | (154,279 | ) | 537 | 532 | (121,671 | ) | (105,367 | ) | (1,905 | ) | (35,497 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | 288,026 | 282,409 | 133,438 | 136,540 | ¥ | 273,327 | ¥ | 230,519 | ¥ | 205,113 | ¥ | 110,517 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Pension plans with accumulated benefit obligations in excess of plan assets: | ||||||||||||||||||||||||||||||||
Projected benefit obligations | ¥ | (1,147,349 | ) | ¥ | (1,156,330 | ) | ¥ | (368,470 | ) | ¥ | (298,015 | ) | ¥ | (1,262,263 | ) | ¥ | (1,272,687 | ) | ¥ | (493,040 | ) | ¥ | (469,569 | ) | ||||||||
Accumulated benefit obligations | (1,070,640 | ) | (1,086,774 | ) | (317,593 | ) | (273,168 | ) | (1,180,781 | ) | (1,191,640 | ) | (453,165 | ) | (469,152 | ) | ||||||||||||||||
Fair value of plan assets | 683,298 | 731,018 | 307,988 | 263,553 | 897,066 | 988,744 | 367,949 | 429,441 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The accumulated benefit obligations for all Japanese defined benefit plans at March 31, 20102013 and 20112014 were ¥1,079,634¥1,197,913 million and ¥1,101,299¥1,209,003 million, respectively. The accumulated benefit obligations for all foreign defined benefit plans at March 31, 20102013 and 20112014 were ¥369,595¥610,517 million and ¥386,686¥645,939 million, respectively.
Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss)
Pension expense and other amounts recognized in other comprehensive income (loss) for each of the years in the three-year period ended March 31, 20112014 include the following:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Japanese plans: | ||||||||||||||||||||||||
Pension Cost | ||||||||||||||||||||||||
Pension cost | ||||||||||||||||||||||||
Service cost-benefits earned during the year | ¥ | 41,175 | ¥ | 37,215 | ¥ | 35,209 | ¥ | 33,454 | ¥ | 31,124 | ¥ | 33,701 | ||||||||||||
Interest cost on projected benefit obligations | 24,201 | 22,593 | 23,159 | 23,481 | 23,871 | 19,248 | ||||||||||||||||||
Expected return on plan assets | (30,213 | ) | (22,080 | ) | (22,972 | ) | (23,645 | ) | (24,048 | ) | (25,341 | ) | ||||||||||||
Amortization of actuarial loss (gain) | 21,316 | 27,288 | 21,871 | 20,373 | 18,149 | 17,218 | ||||||||||||||||||
Amortization of prior service cost (benefit) | (9,543 | ) | (16,304 | ) | (16,304 | ) | (16,304 | ) | (16,304 | ) | (16,304 | ) | ||||||||||||
|
|
| ||||||||||||||||||||||
¥ | 46,936 | ¥ | 48,712 | ¥ | 40,963 | |||||||||||||||||||
Total | ¥ | 37,359 | ¥ | 32,792 | ¥ | 28,522 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Other amounts recognized in other comprehensive income (loss) | ||||||||||||||||||||||||
Actuarial loss (gain) | 157,347 | (56,262 | ) | (50 | ) | ¥ | (13,305 | ) | ¥ | 10,137 | ¥ | (41,894 | ) | |||||||||||
Amortization of actuarial loss (gain) | (21,316 | ) | (27,288 | ) | (21,871 | ) | (20,373 | ) | (18,149 | ) | (17,218 | ) | ||||||||||||
Prior service cost (benefit) | (135,212 | ) | — | — | ||||||||||||||||||||
Amortization of prior service cost (benefit) | 9,543 | 16,304 | 16,304 | 16,304 | 16,304 | 16,304 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | (17,374 | ) | 8,292 | (42,808 | ) | |||||||||||||||||||
¥ | 10,362 | ¥ | (67,246 | ) | ¥ | (5,617 | ) |
|
|
| ||||||||||||||
Total recognized in Pension cost and Other comprehensive income (loss) | ¥ | 57,298 | ¥ | (18,534 | ) | ¥ | 35,346 | |||||||||||||||||
Total recognized in pension cost and other comprehensive income (loss) | ¥ | 19,985 | ¥ | 41,084 | ¥ | (14,286 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Foreign plans: | ||||||||||||||||||||||||
Pension Cost | ||||||||||||||||||||||||
Pension cost | ||||||||||||||||||||||||
Service cost-benefits earned during the year | ¥ | 27,198 | ¥ | 15,210 | ¥ | 18,113 | ¥ | 19,506 | ¥ | 24,826 | ¥ | 27,342 | ||||||||||||
Interest cost on projected benefit obligations | 26,558 | 23,135 | 24,165 | 24,130 | 26,107 | 31,857 | ||||||||||||||||||
Expected return on plan assets | (38,297 | ) | (27,675 | ) | (27,332 | ) | (26,796 | ) | (30,254 | ) | (39,624 | ) | ||||||||||||
Amortization of actuarial loss (gain) | 433 | 1,403 | 5,422 | 5,829 | 10,724 | 12,538 | ||||||||||||||||||
Amortization of net transition Obligation | 32 | 31 | 31 | |||||||||||||||||||||
Amortization of net transition obligation | 30 | 33 | 42 | |||||||||||||||||||||
Amortization of prior service cost (benefit) | 808 | (44 | ) | 5 | 6 | (205 | ) | (2,291 | ) | |||||||||||||||
Curtailment gain | — | — | (21,368 | ) | ||||||||||||||||||||
Other | 4,582 | 7,162 | 382 | 3 | 17 | — | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | ¥ | 22,708 | ¥ | 31,248 | ¥ | 8,496 | ||||||||||||||||||
¥ | 21,314 | ¥ | 19,222 | ¥ | 20,786 |
|
|
| ||||||||||||||||
Other amounts recognized in other comprehensive income (loss) | ||||||||||||||||||||||||
Actuarial loss (gain) | 83,040 | 32,479 | 8,560 | ¥ | 71,160 | ¥ | 16,466 | ¥ | (48,424 | ) | ||||||||||||||
Amortization of actuarial loss (gain) | (433 | ) | (1,403 | ) | (5,422 | ) | (5,829 | ) | (10,724 | ) | (12,538 | ) | ||||||||||||
Amortization of net transition obligation | (32 | ) | (31 | ) | (31 | ) | (30 | ) | (33 | ) | (42 | ) | ||||||||||||
Prior service cost (benefit) | (6,932 | ) | 989 | — | (2,677 | ) | 41 | (57,251 | ) | |||||||||||||||
Amortization of prior service cost (benefit) | (808 | ) | 44 | (5 | ) | (6 | ) | 205 | 2,291 | |||||||||||||||
Other | (808 | ) | — | — | ||||||||||||||||||||
Curtailment gain | — | — | 21,368 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | 62,618 | 5,955 | (94,596 | ) | ||||||||||||||||||||
¥ | 74,027 | ¥ | 32,078 | ¥ | 3,102 |
|
|
| ||||||||||||||||
Total recognized in pension cost and other comprehensive income (loss) | ¥ | 85,326 | ¥ | 37,203 | ¥ | (86,100 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Total recognized in Pension cost and Other comprehensive income (loss) | ¥ | 95,341 | ¥ | 51,300 | ¥ | 23,888 | ||||||||||||||||||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table presents the estimated actuarial loss and prior service benefit for all Japanese defined pension plansamounts that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are ¥20,367 million and ¥16,304 million, respectively. And the estimated actuarial loss, net transition obligation and prior service cost for all foreign defined pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are ¥6,135 million, ¥33 million and ¥7 million, respectively.year.
Yen (millions) | ||||||||
Japanese plans | Foreign plans | |||||||
Amortization of actuarial loss (gain) | ¥ | 13,451 | ¥ | 12,019 | ||||
Amortization of net transition obligation | — | 3 | ||||||
Amortization of prior service cost (benefit) | (16,304 | ) | (3,371 | ) |
Assumptions
Weighted-average assumptions used to determine benefit obligation at March 31, 20102013 and 20112014 were as follows:
2010 | 2011 | 2013 | 2014 | |||||||||||||
Japanese plans: | ||||||||||||||||
Discount rate | 2.0 | % | 2.0 | % | 1.5 | % | 1.5 | % | ||||||||
Rate of salary increase | 2.3 | % | 2.2 | % | 2.2 | % | 2.2 | % | ||||||||
Foreign plans: | ||||||||||||||||
Discount rate | 5.6 ~ 6.5 | % | 5.5 ~ 6.0 | % | 4.5 ~ 4.7 | % | 4.6 ~ 4.8 | % | ||||||||
Rate of salary increase | 1.5 ~ 5.3 | % | 1.5 ~ 4.6 | % | 2.5 ~ 4.1 | % | 2.5 ~ 3.9 | % |
Weighted-average assumptions used to determine net periodic benefit cost for each of the years in the three-year period ended March 31, 20112014 were as follows:
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Japanese plans: | ||||||||||||||||||||||||
Discount rate | 2.0 | % | 2.0 | % | 2.0 | % | 2.0 | % | 2.0 | % | 1.5 | % | ||||||||||||
Rate of salary increase | 2.3 | % | 2.3 | % | 2.3 | % | 2.2 | % | 2.1 | % | 2.2 | % | ||||||||||||
Expected long-term rate of return | 4.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | ||||||||||||
Foreign plans: | ||||||||||||||||||||||||
Discount rate | 5.5 ~ 6.8 | % | 6.9 ~ 8.0 | % | 5.6 ~ 6.5 | % | 5.5 ~ 6.0 | % | 4.6 ~ 5.2 | % | 4.5 ~ 4.7 | % | ||||||||||||
Rate of salary increase | 2.9 ~ 6.4 | % | 1.5 ~ 6.4 | % | 1.5 ~ 5.3 | % | 1.5 ~ 4.6 | % | 1.5 ~ 4.4 | % | 2.5 ~ 4.1 | % | ||||||||||||
Expected long-term rate of return | 6.5 ~ 8.0 | % | 6.5 ~ 8.0 | % | 6.5 ~ 8.0 | % | 6.5 ~ 7.5 | % | 6.2 ~ 7.7 | % | 6.0 ~ 7.4 | % |
Honda determines the expected long-term rate of return based on its investment policies. Honda considers the eligible investment assets under its investment policies, historical experience, expected long-term rate of return under the investinginvestment environment, and the long-term target allocations of the various asset categories.
Measurement date
Honda uses the balance sheet date as the measurement date for its plans. Beginning in the year ended March 31, 2009, certain foreign subsidiaries of the Company changed their measurement date from December 31 to March 31 under the FASB Accounting Standards Codification (ASC) 715-30-35 “Compensation — Retirement Benefits-Defined Benefit Plans — Pension-Subsequent Measurement”. The effect of the change, which was immaterial, was included in pension cost and other comprehensive income (loss) in the consolidated financial statements for the year ended March 31, 2009.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Plan amendment
In December 2008, the board of directors of the Company approved an amendment to the Honda Pension Fund, of which the Company and a part of its domestic subsidiaries and affiliates accounted for under the equity method were members. This plan amendment, effective from April 1, 2009, mainly revises pension benefits for those employees who retire on or after April 1, 2009, to be calculated using annuity pension conversion rates which are linked to market interest rates and contain a ceiling and a floor. Subsequent to the approval of the plan amendment, the Company remeasured and decreased its projected benefit obligation. The resulting prior service benefit has been amortized over the average remaining service period since January 1, 2009. The Company also remeasured the fair value of related plan assets as of December 31, 2008. The remeasurements of the projected benefit obligation and the related plan assets have resulted in the reduction in the liabilities for pension in the consolidated balance sheet.
Plan assets
HondaHonda’s investment policies for the Japanese and foreign pension benefitplan assets are designed to maximize total medium-to-long term returns that are available to provide future payments of pension benefits to eligible participants under accepted risks. Plan assets are invested in well-diversified Japanese and foreign individual equity and debt securities using the target asset allocations, consistent with accepted tolerance for risks. Honda sets target asset allocations for each asset categoriescategory with future anticipated performance over medium-to-long term periods based on the expected returns, long-term risks and historical returns. Target asset allocations are adjusted as necessary when there are significant changes in the expected long-term returns of plan assets or the investment environment.
The following tables present the fair value of the Japanese pension plan assets by asset category as of March 31, 20102013 and 2011.2014.
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
As of March 31, 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
As of March 31, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
Cash and cash equivalents | ¥ | 12,222 | ¥ | — | ¥ | — | ¥ | 12,222 | ¥ | 25,534 | ¥ | — | ¥ | — | ¥ | 25,534 | ||||||||||||||||
Short-term investments | — | 763 | — | 763 | ||||||||||||||||||||||||||||
Equity securities | 221,048 | — | 139 | 221,187 | 312,764 | 263 | — | 313,027 | ||||||||||||||||||||||||
Corporate bonds | 3,086 | 3,205 | 229 | 6,520 | 4,320 | 5,477 | 18 | 9,815 | ||||||||||||||||||||||||
Government, agency and local bonds | 170,302 | 82,542 | 274 | 253,118 | 93,450 | 217,964 | 163 | 311,577 | ||||||||||||||||||||||||
Group annuity insurance: | ||||||||||||||||||||||||||||||||
General accounts | — | 9,257 | — | 9,257 | — | 21,042 | — | 21,042 | ||||||||||||||||||||||||
Separate accounts | — | 13,069 | — | 13,069 | — | 10,773 | — | 10,773 | ||||||||||||||||||||||||
Pooled funds: | ||||||||||||||||||||||||||||||||
Hedge funds | — | — | 28,444 | 28,444 | — | — | 85,391 | 85,391 | ||||||||||||||||||||||||
Commingled and other mutual funds | 316 | 160,669 | — | 160,985 | 2,033 | 135,619 | 1,213 | 138,865 | ||||||||||||||||||||||||
Derivative instruments | (49 | ) | (10,778 | ) | — | (10,827 | ) | 81 | 2,413 | — | 2,494 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | ¥ | 406,925 | ¥ | 258,727 | ¥ | 29,086 | ¥ | 694,738 | ¥ | 438,182 | ¥ | 393,551 | ¥ | 86,785 | ¥ | 918,518 | ||||||||||||||||
|
|
|
|
Yen (millions) | ||||||||||||||||
As of March 31, 2014 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | ¥ | 20,438 | ¥ | — | ¥ | — | ¥ | 20,438 | ||||||||
Equity securities | 349,601 | 254 | 2 | 349,857 | ||||||||||||
Corporate bonds | 8,341 | 1,829 | 86 | 10,256 | ||||||||||||
Government, agency and local bonds | 256,114 | 107,491 | — | 363,605 | ||||||||||||
Group annuity insurance: | ||||||||||||||||
General accounts | — | 23,688 | — | 23,688 | ||||||||||||
Separate accounts | — | 11,625 | — | 11,625 | ||||||||||||
Pooled funds: | ||||||||||||||||
Hedge funds | — | — | 95,860 | 95,860 | ||||||||||||
Commingled and other mutual funds | 1,559 | 137,078 | 1,286 | 139,923 | ||||||||||||
Derivative instruments | 16 | (3,229 | ) | — | (3,213 | ) | ||||||||||
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|
|
|
|
|
|
| |||||||||
Total | ¥ | 636,069 | ¥ | 278,736 | ¥ | 97,234 | ¥ | 1,012,039 | ||||||||
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|
|
|
|
* | Information about the three hierarchy levels is described in note 16. |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||
As of March 31, 2011 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | ¥ | 24,458 | ¥ | — | ¥ | — | ¥ | 24,458 | ||||||||
Equity securities | 222,184 | 4 | 260 | 222,448 | ||||||||||||
Corporate bonds | 4,766 | 2,173 | 1,022 | 7,961 | ||||||||||||
Government, agency and local bonds | 180,841 | 76,329 | — | 257,170 | ||||||||||||
Group annuity insurance: | ||||||||||||||||
General accounts | — | 14,029 | — | 14,029 | ||||||||||||
Separate accounts | — | 12,906 | — | 12,906 | ||||||||||||
Pooled funds: | ||||||||||||||||
Hedge funds | — | — | 55,464 | 55,464 | ||||||||||||
Commingled and other mutual funds | 415 | 158,754 | 686 | 159,855 | ||||||||||||
Derivative instruments | 255 | (6,201 | ) | — | (5,946 | ) | ||||||||||
Total | ¥ | 432,919 | ¥ | 257,994 | ¥ | 57,432 | ¥ | 748,345 | ||||||||
The following tables present a reconciliationreconciliations during the yearyears ended March 31, 20102013 and 20112014 for Level 3 Japanese pension plan assets.
Yen (millions) | ||||||||||||||||||||
Pooled funds | Total | |||||||||||||||||||
For the year ended March 31, 2010 | Equity securities | Corporate bonds | Government, agency and local bonds | Hedge funds | ||||||||||||||||
Balance at beginning of year | ¥ | 114 | ¥ | 332 | ¥ | 1,304 | ¥ | 72,660 | ¥ | 74,410 | ||||||||||
Actual return on plan assets: | ||||||||||||||||||||
Relating to assets still held at the reporting date | 15 | 69 | 7 | 1,805 | 1,896 | |||||||||||||||
Relating to assets sold during the period | 16 | 25 | 359 | 285 | 685 | |||||||||||||||
Purchases, sales and settlements, net | (6 | ) | (402 | ) | (1,396 | ) | (46,306 | ) | (48,110 | ) | ||||||||||
Transfers in and/or out of Level 3 | — | 205 | — | — | 205 | |||||||||||||||
Balance at end of year | ¥ | 139 | ¥ | 229 | ¥ | 274 | ¥ | 28,444 | ¥ | 29,086 | ||||||||||
For the year ended March 31, 2011 | Yen (millions) | |||||||||||||||||||||||
Equity securities | Corporate bonds | Government, agency and local bonds | Pooled funds | Total | ||||||||||||||||||||
Hedge funds | Commingled and other mutual funds | |||||||||||||||||||||||
Balance at beginning of year | ¥ | 139 | ¥ | 229 | ¥ | 274 | ¥ | 28,444 | ¥ | — | ¥ | 29,086 | ||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||
Relating to assets still held at the reporting date | (56 | ) | — | — | (276 | ) | — | (332 | ) | |||||||||||||||
Relating to assets sold during the period | (7 | ) | 19 | — | (133 | ) | — | (121 | ) | |||||||||||||||
Purchases, sales and settlements, net | 290 | 931 | — | 27,429 | 686 | 29,336 | ||||||||||||||||||
Transfers in and/or out of Level 3 | (106 | ) | (157 | ) | (274 | ) | — | — | (537 | ) | ||||||||||||||
Balance at end of year | ¥ | 260 | ¥ | 1,022 | ¥ | — | ¥ | 55,464 | ¥ | 686 | ¥ | 57,432 | ||||||||||||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||||||||||
Equity securities | Corporate bonds | Government, agency and local bonds | Pooled funds | Total | ||||||||||||||||||||
For the year ended March 31, 2013 | Hedge funds | Commingled and other mutual funds | ||||||||||||||||||||||
Balance at beginning of year | ¥ | 180 | ¥ | — | ¥ | 100 | ¥ | 63,271 | ¥ | — | ¥ | 63,551 | ||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||
Relating to assets still held at the reporting date | — | — | 22 | 10,484 | 13 | 10,519 | ||||||||||||||||||
Relating to assets sold during the period | 60 | — | 1 | 804 | — | 865 | ||||||||||||||||||
Purchases, sales and settlements, net | (240 | ) | 18 | 40 | 10,832 | 1,200 | 11,850 | |||||||||||||||||
Transfers in and/or out of Level 3 | — | — | — | — | — | — | ||||||||||||||||||
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Balance at end of year | ¥ | — | ¥ | 18 | ¥ | 163 | ¥ | 85,391 | ¥ | 1,213 | ¥ | 86,785 | ||||||||||||
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Yen (millions) | ||||||||||||||||||||||||
Equity securities | Corporate bonds | Government, agency and local bonds | Pooled funds | Total | ||||||||||||||||||||
For the year ended March 31, 2014 | Hedge funds | Commingled and other mutual funds | ||||||||||||||||||||||
Balance at beginning of year | ¥ | — | ¥ | 18 | ¥ | 163 | ¥ | 85,391 | ¥ | 1,213 | ¥ | 86,785 | ||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||
Relating to assets still held at the reporting date | — | 4 | — | 9,600 | 73 | 9,677 | ||||||||||||||||||
Relating to assets sold during the period | — | — | 3 | 644 | — | 647 | ||||||||||||||||||
Purchases, sales and settlements, net | 2 | 64 | (139 | ) | 225 | — | 152 | |||||||||||||||||
Transfers in and/or out of Level 3 | — | — | (27 | ) | — | — | (27 | ) | ||||||||||||||||
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Balance at end of year | ¥ | 2 | ¥ | 86 | ¥ | — | ¥ | 95,860 | ¥ | 1,286 | ¥ | 97,234 | ||||||||||||
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The major valuation methodologies for Japanese pension plan assets are as follows:
Equity securities are mainly marketable securities and their fair value is estimated using quoted market prices. Fair value measurement for equity securities is mainly classified as Level 1. At March 31, 20102013 and 2011,2014, this class includes approximately 13%10% and 11%8% of Japanese equity securities, 43% and 41%45% of United States equity securities and 44%47% and 48%47% of other foreign equity securities, respectively.
Fair value measurement for corporate, government, agency and local bonds, offor which fair value is estimated using quoted market prices, is classified as Level 1. Fair value measurement for the assets of which fair value is estimated based on market observable inputs such as market interest rates and conditions of issuances is classified as Level 2. At March 31, 20102013 and 2011,2014, this class includes approximately 26%23% and 27%18% of Japanese bonds, 23%24% and 22%23% of United States bonds and 51%53% and 51%59% of other foreign bonds, respectively.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
General accounts of group annuity insurance are assets invested by life insurance companies to meet fixed guaranteed rates of return for policyholders, and that life insurance companies bear the investment risk on such assets. Fair value of general accounts is estimated based on inputs such as contractual interest rates. Fair value measurement for general accounts is classified as Level 2. Separate accounts of group annuity insurance mainly consist of marketable equity securities and corporate, government, agency and local bonds traded in active markets. Honda estimates the fair value of the separate accounts based on their net asset values and Honda’s ownership percentage. Fair value measurement for separate accounts is classified as Level 2.
Hedge funds invest in various assets at the discretion of fund managers and their fair value is estimated based on prices reportedusing net asset value provided by the fund managers or third parties which include unobservable inputs in valuation. Fair value measurement for hedge funds is classified as Level 3. Hedge funds are diversely invested in various funds in order to avoid excessive concentration on investment portfolio. Commingled and other mutual funds are pooled funds which have the underlying assets mainly consistconsisting of marketable equity securities and corporate, government, agency and local bonds traded in active markets. Honda estimates the fair value of commingled and other mutual funds based on their net asset values and Honda’s ownership percentage. Fair value measurement for commingled and other mutual funds is mainly classified as Level 2.
Derivative instruments mainly consist of foreign exchange instruments and fair value of derivative instruments is estimated based on market observable inputs such as foreign exchange rates. Fair value measurement for derivative instruments is mainly classified as Level 2. At March 31, 20102013 and 2011,2014, on a gross basis, asset position is ¥1,525¥6,623 million and ¥2,813¥2,711 million and liability position is ¥12,352¥4,129 million and ¥8,759¥5,924 million, respectively.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following tables present the fair value of the foreign pension plan assets by asset category as of March 31, 20102013 and 2011.2014.
As of March 31, 2010 | Yen (millions) | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents | ¥ | 2,083 | ¥ | — | ¥ | — | ¥ | 2,083 | ||||||||
Short-term investments | — | 15,962 | — | 15,962 | ||||||||||||
Equity securities | 161,462 | 1 | 208 | 161,671 | ||||||||||||
Corporate bonds | 6 | 37,254 | 278 | 37,538 | ||||||||||||
Government, agency and local bonds | 2,651 | 35,470 | 3,966 | 42,087 | ||||||||||||
Pooled funds: | ||||||||||||||||
Real estate funds | — | — | 5,366 | 5,366 | ||||||||||||
Private equity funds | — | — | 5,228 | 5,228 | ||||||||||||
Commingled and other mutual funds | — | 104,360 | 27 | 104,387 | ||||||||||||
Derivative instruments | (3 | ) | (31 | ) | (1 | ) | (35 | ) | ||||||||
Asset backed securities | — | 4,955 | 406 | 5,361 | ||||||||||||
Total | ¥ | 166,199 | ¥ | 197,971 | ¥ | 15,478 | ¥ | 379,648 | ||||||||
As of March 31, 2011 | Yen (millions) | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents | ¥ | 4,266 | ¥ | — | ¥ | — | ¥ | 4,266 | ||||||||
Short-term investments | 235 | 5,684 | — | 5,919 | ||||||||||||
Equity securities | 140,404 | 57 | — | 140,461 | ||||||||||||
Corporate bonds | — | 44,838 | 47 | 44,885 | ||||||||||||
Government, agency and local bonds | 2,597 | 41,995 | 100 | 44,692 | ||||||||||||
Pooled funds: | ||||||||||||||||
Real estate funds | — | — | 11,698 | 11,698 | ||||||||||||
Private equity funds | — | — | 7,952 | 7,952 | ||||||||||||
Hedge funds | — | — | 7,148 | 7,148 | ||||||||||||
Commingled and other mutual funds | — | 118,579 | 1,354 | 119,933 | ||||||||||||
Derivative instruments | (7 | ) | (169 | ) | 1 | (175 | ) | |||||||||
Asset backed securities | — | 8,692 | 94 | 8,786 | ||||||||||||
Total | ¥ | 147,495 | ¥ | 219,676 | ¥ | 28,394 | ¥ | 395,565 | ||||||||
Yen (millions) | ||||||||||||||||
As of March 31, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | ¥ | 6,178 | ¥ | — | ¥ | — | ¥ | 6,178 | ||||||||
Short-term investments | 742 | 10,787 | — | 11,529 | ||||||||||||
Equity securities | 157,704 | — | — | 157,704 | ||||||||||||
Corporate bonds | — | 51,660 | 282 | 51,942 | ||||||||||||
Government, agency and local bonds | 2,868 | 42,416 | 373 | 45,657 | ||||||||||||
Pooled funds: | ||||||||||||||||
Real estate funds | — | — | 26,995 | 26,995 | ||||||||||||
Private equity funds | — | — | 22,946 | 22,946 | ||||||||||||
Hedge funds | — | — | 28,695 | 28,695 | ||||||||||||
Commingled and other mutual funds | 309 | 176,534 | 10,788 | 187,631 | ||||||||||||
Derivative instruments | — | 130 | (73 | ) | 57 | |||||||||||
Asset-backed securities | — | 3,830 | — | 3,830 | ||||||||||||
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Total | ¥ | 167,801 | ¥ | 285,357 | ¥ | 90,006 | ¥ | 543,164 | ||||||||
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HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||
As of March 31, 2014 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | ¥ | 6,597 | ¥ | — | ¥ | — | ¥ | 6,597 | ||||||||
Short-term investments | 462 | 11,891 | — | 12,353 | ||||||||||||
Equity securities | 201,787 | 3,514 | — | 205,301 | ||||||||||||
Corporate bonds | — | 61,883 | 266 | 62,149 | ||||||||||||
Government, agency and local bonds | 4,170 | 54,136 | 49 | 58,355 | ||||||||||||
Pooled funds: | ||||||||||||||||
Real estate funds | — | — | 35,856 | 35,856 | ||||||||||||
Private equity funds | — | — | 33,215 | 33,215 | ||||||||||||
Hedge funds | — | — | 35,807 | 35,807 | ||||||||||||
Commingled and other mutual funds | — | 184,288 | 17,091 | 201,379 | ||||||||||||
Derivative instruments | (704 | ) | 1,475 | (6 | ) | 765 | ||||||||||
Asset-backed securities | — | 5,175 | — | 5,175 | ||||||||||||
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| |||||||||
Total | ¥ | 212,312 | ¥ | 322,362 | ¥ | 122,278 | ¥ | 656,952 | ||||||||
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* | Information about the three hierarchy levels is described in note 16. |
The following tables present a reconciliationreconciliations during the yearyears ended March 31, 20102013 and 20112014 for Level 3 foreign pension plan assets.
Yen (millions) | ||||||||||||||||||||||||||||||||||||
Pooled funds | ||||||||||||||||||||||||||||||||||||
For the year ended | Equity securities | Corporate bonds | Government, agency and local bonds | Real estate funds | Private equity funds | Commingled and other mutual funds | Derivative instruments | Asset backed securities | Total | |||||||||||||||||||||||||||
Balance at beginning of year | ¥ | 8 | ¥ | 586 | ¥ | 2,979 | ¥ | 3,514 | ¥ | — | ¥ | — | ¥ | 1 | ¥ | — | ¥ | 7,088 | ||||||||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||||||||||||||
Relating to assets still held at the reporting date | 8 | 32 | 152 | (233 | ) | 233 | 10 | — | 5 | 207 | ||||||||||||||||||||||||||
Relating to assets sold during the period | (1 | ) | 52 | 93 | — | — | — | 3 | — | 147 | ||||||||||||||||||||||||||
Purchases, sales and settlements, net | 193 | (136 | ) | 982 | 94 | 5,114 | 14 | (5 | ) | 399 | 6,655 | |||||||||||||||||||||||||
Transfers in and/or out of Level 3 | — | (225 | ) | (86 | ) | 1,996 | — | 2 | — | — | 1,687 | |||||||||||||||||||||||||
Foreign currency translation | — | (31 | ) | (154 | ) | (5 | ) | (119 | ) | 1 | — | 2 | (306 | ) | ||||||||||||||||||||||
Balance at end of year | ¥ | 208 | ¥ | 278 | ¥ | 3,966 | ¥ | 5,366 | ¥ | 5,228 | ¥ | 27 | ¥ | (1 | ) | ¥ | 406 | ¥ | 15,478 | |||||||||||||||||
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pooled funds | Pooled funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended | Equity securities | Corporate bonds | Government, agency and local bonds | Real estate funds | Private equity funds | Hedge funds | Commingled and other mutual funds | Derivative instruments | Asset backed securities | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended March 31, 2013 | Corporate bonds | Government, agency and local bonds | Real estate funds | Private equity funds | Hedge funds | Commingled and other mutual funds | Derivative instruments | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | ¥ | 208 | ¥ | 278 | ¥ | 3,966 | ¥ | 5,366 | ¥ | 5,228 | ¥ | — | ¥ | 27 | ¥ | (1 | ) | ¥ | 406 | ¥ | 15,478 | ¥ | — | ¥ | — | ¥ | 15,190 | ¥ | 10,030 | ¥ | 19,726 | ¥ | 1,840 | ¥ | (28 | ) | ¥ | 46,758 | ||||||||||||||||||||||||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Relating to assets still held at the reporting date | — | — | 7 | 634 | 913 | 225 | — | — | 9 | 1,788 | (2 | ) | 7 | 1,010 | 898 | 1,537 | 606 | 2 | 4,058 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Relating to assets sold during the period | (3 | ) | (34 | ) | 268 | — | — | — | (2 | ) | 1 | 5 | 235 | 11 | 7 | (2 | ) | 291 | 3 | — | 7 | 317 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases, sales and settlements, net | (190 | ) | (175 | ) | (3,840 | ) | 6,165 | 4,690 | 7,143 | 737 | 2 | (267 | ) | 14,265 | 70 | 95 | 7,935 | 9,056 | 3,869 | 7,438 | (45 | ) | 28,418 | |||||||||||||||||||||||||||||||||||||||||||||||||
Transfers in and/or out of Level 3 | 1 | 1 | 14 | 6 | (2,425 | ) | — | 586 | — | (24 | ) | (1,841 | ) | 171 | 219 | — | — | — | — | — | 390 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (16 | ) | (23 | ) | (315 | ) | (473 | ) | (454 | ) | (220 | ) | 6 | (1 | ) | (35 | ) | (1,531 | ) | 32 | 45 | 2,862 | 2,671 | 3,560 | 904 | (9 | ) | 10,065 | ||||||||||||||||||||||||||||||||||||||||||||
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Balance at end of year | ¥ | — | ¥ | 47 | ¥ | 100 | ¥ | 11,698 | ¥ | 7,952 | ¥ | 7,148 | ¥ | 1,354 | ¥ | 1 | ¥ | 94 | ¥ | 28,394 | ¥ | 282 | ¥ | 373 | ¥ | 26,995 | ¥ | 22,946 | ¥ | 28,695 | ¥ | 10,788 | ¥ | (73 | ) | ¥ | 90,006 | |||||||||||||||||||||||||||||||||||
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HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||||||||||||||||||
Pooled funds | ||||||||||||||||||||||||||||||||
For the year ended March 31, 2014 | Corporate bonds | Government, agency and local bonds | Real estate funds | Private equity funds | Hedge funds | Commingled and other mutual funds | Derivative instruments | Total | ||||||||||||||||||||||||
Balance at beginning of year | ¥ | 282 | ¥ | 373 | ¥ | 26,995 | ¥ | 22,946 | ¥ | 28,695 | ¥ | 10,788 | ¥ | (73 | ) | ¥ | 90,006 | |||||||||||||||
Actual return on plan assets: | ||||||||||||||||||||||||||||||||
Relating to assets still held at the reporting date | (12 | ) | 2 | 2,403 | 1,778 | 3,217 | 353 | — | 7,741 | |||||||||||||||||||||||
Relating to assets sold during the period | (3 | ) | — | 2 | 401 | — | — | 1 | 401 | |||||||||||||||||||||||
Purchases, sales and settlements, net | 21 | 45 | 3,499 | 6,355 | 1,075 | 3,539 | 71 | 14,605 | ||||||||||||||||||||||||
Transfers in and/or out of Level 3 | (48 | ) | (397 | ) | — | — | — | — | — | (445 | ) | |||||||||||||||||||||
Foreign currency translation | 26 | 26 | 2,957 | 1,735 | 2,820 | 2,411 | (5 | ) | 9,970 | |||||||||||||||||||||||
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Balance at end of year | ¥ | 266 | ¥ | 49 | ¥ | 35,856 | ¥ | 33,215 | ¥ | 35,807 | ¥ | 17,091 | ¥ | (6 | ) | ¥ | 122,278 | |||||||||||||||
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The major valuation methodologies for foreign pension plan assets are as follows:
Fair value of short-term investments is mainly estimated based on market observable inputs. Fair value measurement for short-term investments is mainly classified as Level 2.
Equity securities are mainly marketable securities and their fair value is estimated using quoted market prices. Fair value measurement for equity securities is mainly classified as Level 1. At March 31, 20102013 and 2011,2014, this class includes approximately 8%6% and 7%5% of Japanese equity securities, 48%56% and 44%58% of United States equity securities and 44%38% and 49%37% of other foreign equity securities, respectively.
Fair value measurement for corporate, government, agency and local bonds of which fair value is estimated using quoted market prices is classified as Level 1. Fair value measurement for the assets of which fair value is estimated based on market observable inputs such as market interest rates and conditions of issuances is classified as Level 2. Fair value measurement for the assets of which fair value is estimated based on unobservable inputs provided by third parties is classified as Level 3.
Real estate funds invest in real estate mainly in the United KingdomStates and the United StatesKingdom and their fair value is estimated based on the prices reportedusing net asset value provided by the investment managers which include unobservable inputs in valuation. Fair value measurement for real estate funds is classified as Level 3. Fair value of private equity funds is estimated based on unobservable inputs such as proprietary models and uncorroborated data from the limited partnerships. Fair value measurement for private equity funds is classified as Level 3. Hedge funds invest in various assets at the discretion of fund managers and their fair value is estimated based on prices reportedusing net asset value provided by the fund managers or third parties which include unobservable inputs in valuation. Fair value measurement for hedge funds is classified as Level 3. Hedge funds are diversely invested in various funds in order to avoid excessive concentration on investment portfolio.portfolios. Commingled and other mutual funds are pooled funds which have the underlying assets mainly consistconsisting of marketable equity securities and corporate, government, agency and local bonds traded in active markets. Honda estimates the fair value of commingled and other mutual funds based on their net asset values and Honda’s ownership percentage. Fair value measurement for commingled and other mutual funds is mainly classified as Level 2.
Fair value of asset-backed securities is mainly estimated based on market observable inputs provided by independent vendors. Fair value measurement for asset-backed securities is mainly classified as Level 2.
Cash flows
Contributions
Honda expects to contribute ¥71,288 million to its Japanese pension plans and ¥21,527 million to its foreign pension plans in the year ending March 31, 2012.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Cash flows
Contributions
Honda expects to contribute ¥56,152 million to its Japanese pension plans and ¥23,088 million to its foreign pension plans in the year ending March 31, 2015.
Estimated future benefit payment
The following table presents estimated future gross benefit payments:
Years ending March 31: | Yen (millions) | |||||||
Japanese plans | Foreign plans | |||||||
2012 | 41,519 | 8,102 | ||||||
2013 | 41,562 | 8,783 | ||||||
2014 | 43,307 | 9,857 | ||||||
2015 | 43,899 | 11,241 | ||||||
2016 | 46,024 | 12,663 | ||||||
2017-2021 | 265,113 | 103,045 |
Years ending March 31 | Yen (millions) | |||||||
Japanese plans | Foreign plans | |||||||
2015 | ¥ | 46,670 | ¥ | 23,297 | ||||
2016 | 47,386 | 24,904 | ||||||
2017 | 48,683 | 26,797 | ||||||
2018 | 50,984 | 29,143 | ||||||
2019 | 53,616 | 32,020 | ||||||
2020-2024 | 298,741 | 198,433 |
Certain of the Company’s subsidiaries in North America provide mainly health care and life insurance benefits to retired employees. Such benefits have no material effect on Honda’s financial position and results of operations.
Special termination benefits
Yachiyo Industry Co., Ltd., which is a domestic consolidated subsidiary, implemented a special early retirement support plan in connection with the discontinuation of construction of a new auto plant resulting from the revision of Honda’s completed automobile production strategy for the year ended March 31, 2012. Honda recognized the cost related to this plan when the eligible employees decided to utilize the plan and the amount could be reasonably estimated. The cost of ¥10,354 million is included in selling, general and administrative expenses in the consolidated statement of income for the year ended March 31, 2012.
(14) Supplemental Disclosures of Cash Flow Information
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Cash paid (provided), net during the year for: | ||||||||||||
Interest | ¥ | 211,298 | ¥ | 154,814 | ¥ | 128,401 | ||||||
Income taxes | 160,631 | (229 | ) | 174,092 |
During the fiscal year ended March 31, 2011, the Company retired 23,400 thousand shares of its treasury stock at a cost of ¥80,417 million by offsetting with unappropriated retained earnings of ¥80,417 million based on the resolution of board of directors.
Yen (millions) | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Cash paid (provided), net during the year for: | ||||||||||||
Interest | ¥ | 97,788 | ¥ | 86,989 | ¥ | 82,796 | ||||||
Income taxes | 47,217 | 138,583 | 240,668 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(15) Accumulated Other Comprehensive Income (Loss)
The components and relatedfollowing tables present the changes in accumulated other comprehensive income (loss) by component for each of the years in the three-year period ended March 31, 2011 are as follows:2012, 2013 and 2014.
Yen (millions) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Adjustments from foreign currency translation: | ||||||||||||
Balance at beginning of year | ¥ | (591,269 | ) | ¥ | (1,068,585 | ) | ¥ | (977,488 | ) | |||
Adjustments for the year | (477,316 | ) | 91,097 | (290,745 | ) | |||||||
Balance at end of year | (1,068,585 | ) | (977,488 | ) | (1,268,233 | ) | ||||||
Net unrealized gains on available-for-sale securities: | ||||||||||||
Balance at beginning of year | 31,680 | 6,617 | 29,724 | |||||||||
Reclassification adjustments for realized (gain) loss on available-for-sale securities | 17,372 | 353 | 70 | |||||||||
Increase (decrease) in net unrealized gains on available-for-sale securities | (42,435 | ) | 22,754 | 505 | ||||||||
Balance at end of year | 6,617 | 29,724 | 30,299 | |||||||||
Net unrealized gains (losses) on derivative instruments: | ||||||||||||
Balance at beginning of year | 460 | — | (324 | ) | ||||||||
Reclassification adjustments for realized (gain) loss on derivative instruments | (412 | ) | 194 | (646 | ) | |||||||
Increase (decrease) in net unrealized gains on derivative instruments | (48 | ) | (518 | ) | 814 | |||||||
Balance at end of year | — | (324 | ) | (156 | ) | |||||||
Pension and other postretirement benefits adjustment* | ||||||||||||
Balance at beginning of year | (223,069 | ) | (260,860 | ) | (260,074 | ) | ||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 8,958 | 7,581 | 7,739 | |||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | (46,749 | ) | (6,795 | ) | (4,955 | ) | ||||||
Balance at end of year | (260,860 | ) | (260,074 | ) | (257,290 | ) | ||||||
Total accumulated other comprehensive income (loss): | ||||||||||||
Balance at beginning of year | (782,198 | ) | (1,322,828 | ) | (1,208,162 | ) | ||||||
Adjustments for the year | (540,630 | ) | 114,666 | (287,218 | ) | |||||||
Balance at end of year | ¥ | (1,322,828 | ) | ¥ | (1,208,162 | ) | ¥ | (1,495,380 | ) | |||
Yen (millions) | ||||||||||||||||||||
For the year ended March 31, 2012 | Adjustments from foreign currency translation | Unrealized gains (losses) on available-for-sale securities, net | Unrealized gains (losses) on derivative instruments, net | Pension and other postretirement benefits adjustments | Total | |||||||||||||||
Balance at beginning of year | ¥ | (1,268,233 | ) | ¥ | 30,299 | ¥ | (156 | ) | ¥ | (257,290 | ) | ¥ | (1,495,380 | ) | ||||||
Other comprehensive income (loss) before reclassifications | (118,135 | ) | 6,351 | (76 | ) | (46,543 | ) | (158,403 | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (539 | ) | 47 | 6,890 | 6,398 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net current-period other comprehensive income (loss) | (118,135 | ) | 5,812 | (29 | ) | (39,653 | ) | (152,005 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other comprehensive income attributable to noncontrolling interests | (1,323 | ) | (87 | ) | — | 103 | (1,307 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at end of year | ¥ | (1,385,045 | ) | ¥ | 36,198 | ¥ | (185 | ) | ¥ | (297,046 | ) | ¥ | (1,646,078 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
Yen (millions) | ||||||||||||||||||||
For the year ended March 31, 2013 | Adjustments from foreign currency translation | Unrealized gains (losses) on available-for-sale securities, net | Unrealized gains (losses) on derivative instruments, net | Pension and other postretirement benefits adjustments | Total | |||||||||||||||
Balance at beginning of year | ¥ | (1,385,045 | ) | ¥ | 36,198 | ¥ | (185 | ) | ¥ | (297,046 | ) | ¥ | (1,646,078 | ) | ||||||
Other comprehensive income (loss) before reclassifications | 430,812 | 7,968 | (797 | ) | (24,534 | ) | 413,449 | |||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | 16 | 745 | 9,237 | 9,998 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net current-period other comprehensive income (loss) | 430,812 | 7,984 | (52 | ) | (15,297 | ) | 423,447 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other comprehensive income attributable to noncontrolling interests | 15,350 | 51 | — | (1,240 | ) | 14,161 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at end of year | ¥ | (969,583 | ) | ¥ | 44,131 | ¥ | (237 | ) | ¥ | (311,103 | ) | ¥ | (1,236,792 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||||||
For the year ended March 31, 2014 | Adjustments from foreign currency translation | Unrealized gains (losses) on available-for-sale securities, net | Unrealized gains (losses) on derivative instruments, net | Pension and other postretirement benefits adjustments | Total | |||||||||||||||
Balance at beginning of year | ¥ | (969,583 | ) | ¥ | 44,131 | ¥ | (237 | ) | ¥ | (311,103 | ) | ¥ | (1,236,792 | ) | ||||||
Other comprehensive income (loss) before reclassifications | 333,022 | 15,975 | (19 | ) | 112,952 | 461,930 | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 637 | (723 | ) | 256 | (5,234 | ) | (5,064 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net current-period other comprehensive income (loss) | 333,659 | 15,252 | 237 | 107,718 | 456,866 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other comprehensive income attributable to noncontrolling interests | 13,235 | 33 | — | (180 | ) | 13,088 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at end of year | ¥ | (649,159 | ) | ¥ | 59,350 | ¥ | — | ¥ | (203,205 | ) | ¥ | (793,014 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
The tax effects allocated to each componentfollowing table presents the reclassifications out of accumulated other comprehensive income (loss) and reclassification adjustments are as follows:by component for the year ended March 31, 2014.
Yen (millions) | ||||||||||||
Before-tax amount | Tax (expense) or benefit (note 11) | Net-of-tax amount | ||||||||||
2009: | ||||||||||||
Adjustments from foreign currency translation | ¥ | (491,509 | ) | ¥ | 14,193 | ¥ | (477,316 | ) | ||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | (70,280 | ) | 27,845 | (42,435 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | 28,311 | (10,939 | ) | 17,372 | ||||||||
Net unrealized gains (losses) | (41,969 | ) | 16,906 | (25,063 | ) | |||||||
Unrealized gains (losses) on derivative instruments | ||||||||||||
Unrealized holding gains (losses) arising during the year | (80 | ) | 32 | (48 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | (688 | ) | 276 | (412 | ) | |||||||
Net unrealized gains (losses) | (768 | ) | 308 | (460 | ) | |||||||
Pension and other postretirement benefits adjustment* | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | (79,119 | ) | 32,370 | (46,749 | ) | |||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 14,433 | (5,475 | ) | 8,958 | ||||||||
Net unrealized gains (losses) | (64,686 | ) | 26,895 | (37,791 | ) | |||||||
Other comprehensive income (loss) | ¥ | (598,932 | ) | ¥ | 58,302 | ¥ | (540,630 | ) | ||||
2010: | ||||||||||||
Adjustments from foreign currency translation | ¥ | 87,644 | ¥ | 3,453 | ¥ | 91,097 | ||||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | 35,581 | (12,827 | ) | 22,754 | ||||||||
Reclassification adjustments for losses (gains) realized in net income | 588 | (235 | ) | 353 | ||||||||
Net unrealized gains (losses) | 36,169 | (13,062 | ) | 23,107 | ||||||||
Unrealized gains (losses) on derivative instruments | ||||||||||||
Unrealized holding gains (losses) arising during the year | (865 | ) | 347 | (518 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | 324 | (130 | ) | 194 | ||||||||
Net unrealized gains (losses) | (541 | ) | 217 | (324 | ) | |||||||
Pension and other postretirement benefits adjustment* | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | 6,773 | (13,568 | ) | (6,795 | ) | |||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 12,329 | (4,748 | ) | 7,581 | ||||||||
Net unrealized gains (losses) | 19,102 | (18,316 | ) | 786 | ||||||||
Other comprehensive income (loss) | ¥ | 142,374 | ¥ | (27,708 | ) | ¥ | 114,666 | |||||
2011: | ||||||||||||
Adjustments from foreign currency translation | ¥ | (292,106 | ) | ¥ | 1,361 | ¥ | (290,745 | ) | ||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | 193 | 312 | 505 | |||||||||
Reclassification adjustments for losses (gains) realized in net income | 116 | (46 | ) | 70 | ||||||||
Net unrealized gains (losses) | 309 | 266 | 575 | |||||||||
Unrealized gains (losses) on derivative instruments | ||||||||||||
Unrealized holding gains (losses) arising during the year | 1,359 | (545 | ) | 814 | ||||||||
Reclassification adjustments for losses (gains) realized in net income | (1,077 | ) | 431 | (646 | ) | |||||||
Net unrealized gains (losses) | 282 | (114 | ) | 168 | ||||||||
Pension and other postretirement benefits adjustment* | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | (12,220 | ) | 7,265 | (4,955 | ) | |||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 11,809 | (4,070 | ) | 7,739 | ||||||||
Net unrealized gains (losses) | (411 | ) | 3,195 | 2,784 | ||||||||
Other comprehensive income (loss) | ¥ | (291,926 | ) | ¥ | 4,708 | ¥ | (287,218 | ) | ||||
For the year ended March 31, 2014 | Yen (millions) | |||||
Details about accumulated other comprehensive income (loss) | Amounts reclassified from accumulated other comprehensive income (loss) | Affected line items in the statement where net | ||||
Adjustments from foreign currency translation | ||||||
¥ | (1,027 | ) | Other income (expenses) – Other, net | |||
390 | Income tax expense | |||||
¥ | (637 | ) | Net income | |||
Unrealized gains (losses) on available-for-sale securities, net | ||||||
¥ | 1,114 | Other income (expenses) – Other, net | ||||
(391 | ) | Income tax expense | ||||
¥ | 723 | Net income | ||||
Unrealized gains (losses) on derivative instruments, net | ||||||
¥ | (411 | ) | Other income (expenses) – Other, net | |||
155 | Income tax expense | |||||
¥ | (256 | ) | Net income | |||
Pension and other postretirement benefits | ||||||
¥ | 8,823 | * | ||||
(3,589 | ) | Income tax expense | ||||
¥ | 5,234 | Net income | ||||
Total reclassifications for the period | ¥ | 5,064 | ||||
* | This accumulated other comprehensive income (loss) components is included in the computation of net periodic pension cost. |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following tables present the tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2012, 2013 and 2014.
Yen (millions) | ||||||||||||
For the year ended March 31, 2012 | Before-tax | Tax (expense) or benefit (note 11) | Net-of-tax | |||||||||
Adjustments from foreign currency translation: | ||||||||||||
Unrealized gains (losses) arising during the year | ¥ | (119,910 | ) | ¥ | 1,775 | ¥ | (118,135 | ) | ||||
Reclassification adjustments for losses (gains) realized in net income | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | (119,910 | ) | 1,775 | (118,135 | ) | |||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | 9,438 | (3,087 | ) | 6,351 | ||||||||
Reclassification adjustments for losses (gains) realized in net income | (706 | ) | 167 | (539 | ) | |||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 8,732 | (2,920 | ) | 5,812 | ||||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on derivative instruments: | ||||||||||||
Unrealized holding gains (losses) arising during the year | (115 | ) | 39 | (76 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | 78 | (31 | ) | 47 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | (37 | ) | 8 | (29 | ) | |||||||
|
|
|
|
|
| |||||||
Pension and other postretirement benefits adjustments*: | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | (72,225 | ) | 25,682 | (46,543 | ) | |||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 10,734 | (3,844 | ) | 6,890 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | (61,491 | ) | 21,838 | (39,653 | ) | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) | ¥ | (172,706 | ) | ¥ | 20,701 | ¥ | (152,005 | ) | ||||
|
|
|
|
|
|
Yen (millions) | ||||||||||||
For the year ended March 31, 2013 | Before-tax | Tax (expense) or benefit (note 11) | Net-of-tax | |||||||||
Adjustments from foreign currency translation: | ||||||||||||
Unrealized gains (losses) arising during the year | ¥ | 433,640 | ¥ | (2,828 | ) | ¥ | 430,812 | |||||
Reclassification adjustments for losses (gains) realized in net income | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 433,640 | (2,828 | ) | 430,812 | ||||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on available-for-sales securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | 12,336 | (4,368 | ) | 7,968 | ||||||||
Reclassification adjustments for losses (gains) realized in net income | 24 | (8 | ) | 16 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 12,360 | (4,376 | ) | 7,984 | ||||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on derivative instruments: | ||||||||||||
Unrealized holding gains (losses) arising during the year | (1,281 | ) | 484 | (797 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | 1,197 | (452 | ) | 745 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | (84 | ) | 32 | (52 | ) | |||||||
|
|
|
|
|
| |||||||
Pension and other postretirement benefits adjustments*: | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | (36,611 | ) | 12,077 | (24,534 | ) | |||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | 14,394 | (5,157 | ) | 9,237 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | (22,217 | ) | 6,920 | (15,297 | ) | |||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) | ¥ | 423,699 | ¥ | (252 | ) | ¥ | 423,447 | |||||
|
|
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||
For the year ended March 31, 2014 | Before-tax | Tax (expense) or benefit (note 11) | Net-of-tax | |||||||||
Adjustments from foreign currency translation: | ||||||||||||
Unrealized gains (losses) arising during the year | ¥ | 343,695 | ¥ | (10,673 | ) | ¥ | 333,022 | |||||
Reclassification adjustments for losses (gains) realized in net income | 1,027 | (390 | ) | 637 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 344,722 | (11,063 | ) | 333,659 | ||||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on available-for-sale securities: | ||||||||||||
Unrealized holding gains (losses) arising during the year | 22,261 | (6,286 | ) | 15,975 | ||||||||
Reclassification adjustments for losses (gains) realized in net income | (1,114 | ) | 391 | (723 | ) | |||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 21,147 | (5,895 | ) | 15,252 | ||||||||
|
|
|
|
|
| |||||||
Unrealized gains (losses) on derivative instruments: | ||||||||||||
Unrealized holding gains (losses) arising during the year | (29 | ) | 10 | (19 | ) | |||||||
Reclassification adjustments for losses (gains) realized in net income | 411 | (155 | ) | 256 | ||||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 382 | (145 | ) | 237 | ||||||||
|
|
|
|
|
| |||||||
Pension and other postretirement benefits adjustments*: | ||||||||||||
(Increase) decrease in net unrealized losses on pension and other postretirement benefits | 171,924 | (58,972 | ) | 112,952 | ||||||||
Amortization of unrealized (gain) loss on pension and other postretirement benefits | (8,823 | ) | 3,589 | (5,234 | ) | |||||||
|
|
|
|
|
| |||||||
Net unrealized gains (losses) | 163,101 | (55,383 | ) | 107,718 | ||||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss) | ¥ | 529,352 | ¥ | (72,486 | ) | ¥ | 456,866 | |||||
|
|
|
|
|
|
* | The primary components of other comprehensive income (loss) for Pension and other postretirement benefits adjustments are actuarial gains or losses and prior service benefits or costs (note 13). |
(16) Fair Value Measurements
Honda appliesIn accordance with the FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”. This standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and emphasizes that a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability.
This standard establishes, Honda uses a three-level hierarchy to be used when measuring fair value. The following is a description of the three hierarchy levels:
Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly |
Level 3 | Unobservable inputs for the assets or liabilities |
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest input that is significant to the fair value measurement in its entirety.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following tables present the assets and liabilities measured at fair value on a recurring basis as of March 31, 20102013 and 2011.2014.
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2010 | Level 1 | Level 2 | Level 3 | Gross fair value | Netting adjustment | Net amount | ||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2013 | Level 1 | Level 2 | Level 3 | Gross fair value | Netting adjustment | Net amount | ||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Retained interests in securitizations | ¥ | — | ¥ | — | ¥ | 27,555 | ¥ | 27,555 | ¥ | — | ¥ | 27,555 | ||||||||||||||||||||||||||||||||||||
Derivative instruments | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange instruments | — | 70,905 | — | 70,905 | — | — | ¥ | — | ¥ | 6,538 | ¥ | — | ¥ | 6,538 | ¥ | — | ¥ | — | ||||||||||||||||||||||||||||||
Interest rate instruments | — | 35,352 | 1,025 | 36,377 | — | — | — | 32,152 | — | 32,152 | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total derivative instruments | — | 106,257 | 1,025 | 107,282 | (44,417 | ) | 62,865 | — | 38,690 | — | 38,690 | (18,071 | ) | 20,619 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Marketable equity securities | 94,560 | — | — | 94,560 | — | 94,560 | 117,110 | — | — | 117,110 | — | 117,110 | ||||||||||||||||||||||||||||||||||||
Auction rate securities | — | — | 10,041 | 10,041 | — | 10,041 | — | — | 6,928 | 6,928 | — | 6,928 | ||||||||||||||||||||||||||||||||||||
Debt securities | — | 4,226 | — | 4,226 | — | 4,226 | ||||||||||||||||||||||||||||||||||||||||||
Others | 584 | — | — | 584 | — | 584 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total available-for-sale securities | 94,560 | — | 10,041 | 104,601 | — | 104,601 | 117,694 | 4,226 | 6,928 | 128,848 | — | 128,848 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 94,560 | ¥ | 106,257 | ¥ | 38,621 | ¥ | 239,438 | ¥ | (44,417 | ) | ¥ | 195,021 | ¥ | 117,694 | ¥ | 42,916 | ¥ | 6,928 | ¥ | 167,538 | ¥ | (18,071 | ) | ¥ | 149,467 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative instruments | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange instruments | ¥ | — | ¥ | (23,432 | ) | ¥ | — | ¥ | (23,432 | ) | ¥ | — | ¥ | — | ¥ | — | ¥ | (78,934 | ) | ¥ | — | ¥ | (78,934 | ) | ¥ | — | ¥ | — | ||||||||||||||||||||
Interest rate instruments | — | (61,087 | ) | — | (61,087 | ) | — | — | — | (14,639 | ) | — | (14,639 | ) | — | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total derivative instruments | — | (84,519 | ) | — | (84,519 | ) | 44,417 | (40,102 | ) | — | (93,573 | ) | — | (93,573 | ) | 18,071 | (75,502 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | — | ¥ | (84,519 | ) | ¥ | — | ¥ | (84,519 | ) | ¥ | 44,417 | ¥ | (40,102 | ) | ¥ | — | ¥ | (93,573 | ) | ¥ | — | ¥ | (93,573 | ) | ¥ | 18,071 | ¥ | (75,502 | ) | ||||||||||||||||||
|
|
|
|
|
|
Yen (millions) | ||||||||||||||||||||||||
As of March 31, 2014 | Level 1 | Level 2 | Level 3 | Gross fair value | Netting adjustment | Net amount | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Derivative instruments | ||||||||||||||||||||||||
Foreign exchange instruments (notes 1(q) and 17) | ¥ | — | ¥ | 11,036 | ¥ | — | ¥ | 11,036 | ¥ | — | ¥ | — | ||||||||||||
Interest rate instruments (notes 1(q) and 17) | — | 19,814 | — | 19,814 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total derivative instruments | — | 30,850 | — | 30,850 | (10,804 | ) | 20,046 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||
Marketable equity securities | 138,476 | — | — | 138,476 | — | 138,476 | ||||||||||||||||||
Auction rate securities | — | — | 6,999 | 6,999 | — | 6,999 | ||||||||||||||||||
Debt securities | — | 31,905 | — | 31,905 | — | 31,905 | ||||||||||||||||||
Others | 5,146 | 3,434 | — | 8,580 | — | 8,580 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total available-for-sale securities | 143,622 | 35,339 | 6,999 | 185,960 | — | 185,960 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ¥ | 143,622 | ¥ | 66,189 | ¥ | 6,999 | ¥ | 216,810 | ¥ | (10,804 | ) | ¥ | 206,006 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Liabilities: | ||||||||||||||||||||||||
Derivative instruments | ||||||||||||||||||||||||
Foreign exchange instruments (notes 1(q) and 17) | ¥ | — | ¥ | (14,852 | ) | ¥ | — | ¥ | (14,852 | ) | ¥ | — | ¥ | — | ||||||||||
Interest rate instruments (notes 1(q) and 17) | — | (10,887 | ) | — | (10,887 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total derivative instruments | — | (25,739 | ) | — | (25,739 | ) | 10,804 | (14,935 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ¥ | — | ¥ | (25,739 | ) | ¥ | — | ¥ | (25,739 | ) | ¥ | 10,804 | ¥ | (14,935 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||||||||||
As of March 31, 2011 | Level 1 | Level 2 | Level 3 | Gross fair value | Netting adjustment | Net amount | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Retained interests in securitizations | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||||||
Derivative instruments | ||||||||||||||||||||||||
Foreign exchange instruments | — | 57,880 | — | 57,880 | — | — | ||||||||||||||||||
Interest rate instruments | — | 29,759 | 154 | 29,913 | — | — | ||||||||||||||||||
Total derivative instruments | — | 87,639 | 154 | 87,793 | (26,641 | ) | 61,152 | |||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||
Marketable equity securities | 92,421 | — | — | 92,421 | — | 92,421 | ||||||||||||||||||
Auction rate securities | — | — | 6,948 | 6,948 | — | 6,948 | ||||||||||||||||||
Total available-for-sale securities | 92,421 | — | 6,948 | 99,369 | — | 99,369 | ||||||||||||||||||
Total | ¥ | 92,421 | ¥ | 87,639 | ¥ | 7,102 | ¥ | 187,162 | ¥ | (26,641 | ) | ¥ | 160,521 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Derivative instruments | ||||||||||||||||||||||||
Foreign exchange instruments | ¥ | — | ¥ | (15,712 | ) | ¥ | — | ¥ | (15,712 | ) | ¥ | — | ¥ | — | ||||||||||
Interest rate instruments | — | (32,435 | ) | (155 | ) | (32,590 | ) | — | — | |||||||||||||||
Total derivative instruments | — | (48,147 | ) | (155 | ) | (48,302 | ) | 26,641 | (21,661 | ) | ||||||||||||||
Total | ¥ | — | ¥ | (48,147 | ) | ¥ | (155 | ) | ¥ | (48,302 | ) | ¥ | 26,641 | ¥ | (21,661 | ) | ||||||||
Derivative asset and liability positions are presented net by counterparty on the consolidated balance sheets when valid master netting agreement exists and the other conditions set out in the FASB Accounting Standards Codification (ASC)ASC 210-20 “Balance Sheet-Offsetting” are met.
The following tables present a reconciliationreconciliations during the yearyears ended March 31, 20102013 and 20112014 for all Level 3 assets and liabilities measured at fair value on a recurring basis.
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2010 | Retained interests in securitizations | Interest rate instruments (notes 1(q) and 17) | Auction rate securities | Total | ||||||||||||
Balance at beginning of year | ¥ | 45,648 | ¥ | 2,294 | ¥ | 9,906 | ¥ | 57,848 | ||||||||
Total realized/unrealized gains or losses | ||||||||||||||||
Included in earnings | 8,990 | 1,164 | — | 10,154 | ||||||||||||
Included in other comprehensive income (loss) | — | — | 1,746 | 1,746 | ||||||||||||
Purchases, issuances, and settlements, net | (25,706 | ) | (2,341 | ) | (1,155 | ) | (29,202 | ) | ||||||||
Foreign currency translation | (1,377 | ) | (92 | ) | (456 | ) | (1,925 | ) | ||||||||
Balance at end of year | ¥ | 27,555 | ¥ | 1,025 | ¥ | 10,041 | ¥ | 38,621 | ||||||||
The amounts of total gains or losses for the period attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date | ||||||||||||||||
Included in earnings | ¥ | 4,834 | ¥ | 625 | ¥ | — | ¥ | 5,459 | ||||||||
Included in other comprehensive income (loss) | — | — | 1,746 | 1,746 |
Yen (millions) | ||||
For the year ended March 31, 2013 | Auction rate securities | |||
Balance at beginning of year | ¥ | 6,651 | ||
Total realized/unrealized gains or losses | ||||
Included in earnings | — | |||
Included in other comprehensive income (loss) | 115 | |||
Purchases, issuances, settlements and sales | ||||
Purchases | — | |||
Issuances | — | |||
Settlements | — | |||
Sales | (691 | ) | ||
Foreign currency translation | 853 | |||
Balance at end of year | ¥ | 6,928 | ||
The amounts of total gains or losses for the period attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date | ||||
Included in earnings | ¥ | — | ||
Included in other comprehensive income (loss) | 115 |
Yen (millions) | ||||
For the year ended March 31, 2014 | Auction rate securities | |||
Balance at beginning of year | ¥ | 6,928 | ||
Total realized/unrealized gains or losses | ||||
Included in earnings | — | |||
Included in other comprehensive income (loss) | 202 | |||
Purchases, issuances, settlements and sales | ||||
Purchases | — | |||
Issuances | — | |||
Settlements | — | |||
Sales | (790 | ) | ||
Foreign currency translation | 659 | |||
Balance at end of year | ¥ | 6,999 | ||
The amounts of total gains or losses for the period attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date | ||||
Included in earnings | ¥ | — | ||
Included in other comprehensive income (loss) | 103 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||||||||||
For the year ended March 31, 2011 | Retained interests in securitizations | Interest rate instruments (notes 1(q) and 17) | Auction rate securities | Total | ||||||||||||
Balance at beginning of year | ¥ | 27,555 | ¥ | 1,025 | ¥ | 10,041 | ¥ | 38,621 | ||||||||
Adjustment resulting from the adoption of new accounting standards on variable interest entities (notes 1(c) and 4) | (27,555 | ) | (1,027 | ) | — | (28,582 | ) | |||||||||
Total realized/unrealized gains or losses | ||||||||||||||||
Included in earnings | — | 2 | (96 | ) | (94 | ) | ||||||||||
Included in other comprehensive income (loss) | — | — | 349 | 349 | ||||||||||||
Purchases, issuances, and settlements, net | — | — | (2,329 | ) | (2,329 | ) | ||||||||||
Foreign currency translation | — | (1 | ) | (1,017 | ) | (1,018 | ) | |||||||||
Balance at end of year | ¥ | — | ¥ | (1 | ) | ¥ | 6,948 | ¥ | 6,947 | |||||||
The amounts of total gains or losses for the period attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date | ||||||||||||||||
Included in earnings | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||
Included in other comprehensive income (loss) | — | — | 67 | 67 |
Total realized/unrealized gains or losses related to retained interests in securitizations, including those held at the reporting date, were included in net sales and other operating revenue in the consolidated statements of income for the year ended March 31, 2010.
Total realized/unrealized gains or losses related to interest rate instruments, including those held at the reporting date, are included in other income (expenses) – other, net, in the consolidated statements of income.
The valuation methodologies for the assets and liabilities measured at fair value on a recurring basis are as follows:
Retained interests in securitizations
The fair values of the retained interests in securitizations are estimated by calculating the present value of the future cash flows using a discount rate commensurate with the risks involved. In order to estimate cash flows, Honda utilizes various significant assumptions including market observable inputs such as forward interest rates, as well as internally developed inputs, such as prepayment speeds, delinquency levels and credit losses. Fair value measurement for retained interests in securitization is classified as Level 3.
Foreign exchange and interest rate instruments (see notes(notes 1(q) and 17)
The fair values of foreign currency forward exchange contracts and foreign currency option contracts are estimated by using market observable inputs such as spot exchange rates, discount rates and implied volatility. Fair value measurementmeasurements for foreign currency forward exchange contracts and foreign currency option contracts are classified as Level 2. The fair values of currency swap agreements and interest rate swap agreements are estimated by discounting future cash flows using market observable inputs such as LIBOR rates, swap rates, and foreign exchange rates. Fair value measurementmeasurements for these currency swap agreements and interest rate swap agreements are classified as Level 2.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The fair values of a limited number of interest rate swap agreements related to certain off –balance sheet securitizations are estimated using significant assumptions including market observable inputs, as well as internally developed prepayment assumptions as an input into the model, in order to forecast future notional amounts on these structured derivative contracts. Accordingly, fair value measurement for these derivative contracts is classified as Level 3.
The credit risk of Honda and its counterparties are considered onin the valuation of foreign exchange and interest rate instruments.
Marketable equity securities
The fair value of marketable equity securities is estimated by using quoted market prices. Fair value measurement for marketable equity securities is classified as Level 1.
Auction rate securities
The subsidiary’s auction rate securities (ARS) holdings were AAA rated and are insured by qualified guarantee agencies, and reinsured by the Secretary of Education and United States Government, and are guaranteed about 95% by the United States Government. The ARS market had been illiquid as of March 31, 2010 and 2011, and no readily observable prices exist, Honda measured theTo estimate fair value of the ARS based on the discounted future cash flows. In order to assess various kinds of risks, such as liquidity risk,auction rate securities, Honda used third-party developeduses a third-party-developed valuation model which obtains a wide array of market observable inputs, as well as unobservable inputs including probability of passing or failing auction at each auction. Fair value measurement for auction rate securities is classified as Level 3.
Debt securities
Debt securities consist mainly of corporate bonds and local bonds and the fair values are estimated based on proprietary pricing models provided by specialists and/or market makers and the models obtain a wide array of market observable inputs such as credit ratings and discount rates. Fair value measurement for debt securities is classified as Level 2.
For the year ended March 31, 2013, Honda measured certain investments in affiliates which have quoted market values at fair value on a nonrecurring basis due to the recognition of impairment loss (note 6). The fair value of the investments was ¥68,778 million and estimated by using quoted market prices. Fair value measurement for the investments is classified as Level 1.
Honda does not have significant financial assets and financial liabilities measured at fair value on a nonrecurring basis as of and for the year ended March 31, 2010 and 2011.
Honda also adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” which is now codified in the FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” for nonfinancial assets and nonfinancial liabilities, recognized or disclosed at fair value in the financial statements on a nonrecurring basis effective April 1, 2009. Honda does not have significant nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis as of and for the year ended March 31, 2010 and 2011.2014.
Honda has not elected the fair value option for the fiscal yearyears ended March 31, 20102013 and 2011.2014.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The estimated fair values of significant financial instruments at March 31, 20102013 and 20112014 are as follows:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||||||||||||||||||
Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | |||||||||||||||||||||||||
Finance subsidiaries-receivables * | ¥ | 3,569,760 | ¥ | 3,638,964 | ¥ | 3,642,235 | ¥ | 3,701,218 | ||||||||||||||||||||||||
Finance subsidiaries-receivables* | ¥ | 4,278,460 | ¥ | 4,326,333 | ¥ | 5,140,064 | ¥ | 5,175,564 | ||||||||||||||||||||||||
Held-to-maturity securities | 18,766 | 18,862 | 40,725 | 40,649 | 16,511 | 16,556 | 34,650 | 34,667 | ||||||||||||||||||||||||
Debt | (4,101,675 | ) | (4,191,389 | ) | (4,100,435 | ) | (4,159,300 | ) | (4,894,188 | ) | (4,966,318 | ) | (5,856,874 | ) | (5,917,087 | ) |
* | The carrying amounts of finance subsidiaries-receivables at March 31, |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 judgment 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.
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
The fair values of retail receivables and commercial loans wereare estimated by discounting future cash flows using the current rates for these instruments of similar remaining maturities. Given the short maturities of wholesale flooring receivables, the carrying amount of thosethese receivables approximates fair value. Fair value measurements for retail receivables and commercial loans are mainly classified as Level 3.
Held-to-maturity securities
The fair valuesvalue of Government bonds and U.S. government and agency debt securities wereis estimated by using quoted market prices. Fair value measurement of those Government bonds is classified as Level 1. The carrying amountfair values of certificatescorporate bonds and local bonds are estimated based on proprietary pricing models provided by specialists and/or market makers and the models obtain a wide array of deposit approximates fairmarket observable inputs such as credit ratings and discount rates. Fair value because of the short maturity of the instrument.measurement for these securities is classified as Level 2.
Debt
The fair values of bonds and notes wereare estimated based on theby using quoted market prices for the same or similar issues.prices. Fair value measurement of those bonds is mainly classified as Level 1. The fair valuevalues of short-term loans and long-term loans wasare estimated by discounting future cash flows using interest rates currently available for loans of similar terms and remaining maturities. The carrying amounts of short-term bankFair value measurements for these loans and commercial paper approximate fair values because of the short maturity of these instruments.are mainly classified as Level 2.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(17) Risk Management Activities and Derivative Financial Instruments
Honda uses derivative financial instruments in the normal course of business to reduce their exposure to fluctuations in foreign exchange rates and interest rates. (see notesrates (notes 1(q) and 16). Currency swap agreements are used to manage currency risk exposure on foreign currency denominated debt. Foreign currency forward exchange contracts and purchased option contracts are used to hedge currency risk of 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 manage interest rate risk exposure and 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 currently does not require or place collateral for these financial instruments with any counterparties.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Contract amounts outstanding for foreign currency forward exchange contracts, foreign currency option contracts and currency swap agreements and the notional principal amounts of interest rate swap agreements at March 31, 20102013 and 20112014 are as follows:
Derivatives designated as hedging instruments:instruments
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Foreign currency forward exchange contracts | ¥ | 26,542 | ¥ | 15,050 | ¥ | 23,324 | ¥ | — | ||||||||
|
| |||||||||||||||
Foreign exchange instruments | ¥ | 26,542 | ¥ | 15,050 | ||||||||||||
Total foreign exchange instruments | ¥ | 23,324 | ¥ | — | ||||||||||||
|
| |||||||||||||||
Derivatives not designated as hedging instruments
| ||||||||||||||||
Yen (millions) | ||||||||||||||||
2013 | 2014 | |||||||||||||||
Foreign currency forward exchange contracts | ¥ | 724,435 | ¥ | 506,734 | ||||||||||||
Foreign currency option contracts | 4,145 | 3,721 | ||||||||||||||
Currency swap agreements | 337,254 | 366,031 | ||||||||||||||
|
| |||||||||||||||
Total foreign exchange instruments | ¥ | 1,065,834 | ¥ | 876,486 | ||||||||||||
|
| |||||||||||||||
Interest rate swap agreements | ¥ | 4,063,289 | ¥ | 4,809,037 | ||||||||||||
|
| |||||||||||||||
Total interest rate instruments | ¥ | 4,063,289 | ¥ | 4,809,037 | ||||||||||||
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Derivatives not designated as hedging instruments:Notes to Consolidated Financial Statements—(Continued)
Yen (millions) | ||||||||
2010 | 2011 | |||||||
Foreign currency forward exchange contracts | ¥ | 552,585 | ¥ | 611,359 | ||||
Foreign currency option contracts | 92,965 | 44,237 | ||||||
Currency swap agreements | 718,964 | 549,099 | ||||||
Foreign exchange instruments | ¥ | 1,364,514 | ¥ | 1,204,695 | ||||
Interest rate swap agreements | ¥ | 3,806,091 | ¥ | 3,566,605 | ||||
Interest rate instruments | ¥ | 3,806,091 | ¥ | 3,566,605 | ||||
Cash flow hedgehedges
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 amountsamount recognized in accumulated other comprehensive income (loss) at March 31, 20102013 was ¥237 million loss. The Company does not hold any derivative financial instruments designated as cash flow hedges and 2011 were ¥324 million loss and ¥156 million loss, respectively. All amounts recordedthere is no amount recognized in accumulated other comprehensive income (loss) at year end are expected to be recognized in earnings within the next twelve months.March 31, 2014.
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. There is no portion of hedging instruments that has been assessed as hedge ineffectiveness.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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.
The estimated fair values of derivative instruments at March 31, 20102013 and 20112014 are as follows.
As of March 31, 20102013
Derivatives designated as hedging instruments:instruments
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | 33 | ¥ | (646 | ) | ¥ | 33 | ¥ | — | ¥ | (646 | ) |
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | — | ¥ | (211) | ¥ | — | ¥ | — | ¥ | (211) |
Derivatives not designated as hedging instruments:instruments
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | 70,872 | ¥ | (22,786 | ) | ¥ | 29,105 | ¥ | 29,608 | ¥ | (10,627 | ) | ||||||||
Interest rate instruments | 36,377 | (61,087 | ) | 594 | 3,525 | (28,829 | ) | |||||||||||||
Total | ¥ | 107,249 | ¥ | (83,873 | ) | ¥ | 29,699 | ¥ | 33,133 | ¥ | (39,456 | ) | ||||||||
Netting adjustment | (44,417 | ) | 44,417 | |||||||||||||||||
Net amount | ¥ | 62,832 | ¥ | (39,456 | ) | |||||||||||||||
As of March 31, 2011
Derivatives designated as hedging instruments:
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | — | ¥ | (114 | ) | ¥ | — | ¥ | — | ¥ | (114 | ) |
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | 6,538 | ¥ | (78,723 | ) | ¥ | (1,534 | ) | ¥ | (314 | ) | ¥ | (70,337 | ) | ||||||
Interest rate instruments | 32,152 | (14,639 | ) | 3,907 | 18,560 | (4,954 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | ¥ | 38,690 | ¥ | (93,362 | ) | ¥ | 2,373 | ¥ | 18,246 | ¥ | (75,291 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Netting adjustment | (18,071 | ) | 18,071 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Net amount | ¥ | 20,619 | ¥ | (75,291 | ) | |||||||||||||||
|
|
|
|
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
As of March 31, 2014
Derivatives designated as hedging instruments
Yen (millions) | ||||||||||||||||||||
Gross fair value | Balance sheet location | |||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | ||||||||||||||||
Foreign exchange instruments | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — |
Derivatives not designated as hedging instruments:instruments
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||
Gross fair value | Balance sheet location | Gross fair value | Balance sheet location | |||||||||||||||||||||||||||||||||||||
Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | Asset derivatives | Liability derivatives | Other current assets | Other assets | Other current liabilities | |||||||||||||||||||||||||||||||
Foreign exchange instruments | ¥ | 57,880 | ¥ | (15,598 | ) | ¥ | 20,174 | ¥ | 31,702 | ¥ | (9,594 | ) | ¥ | 11,036 | ¥ | (14,852 | ) | ¥ | 4,910 | ¥ | 2,288 | ¥ | (11,014 | ) | ||||||||||||||||
Interest rate instruments | 29,913 | (32,590 | ) | (2,082 | ) | 11,358 | (11,953 | ) | 19,814 | (10,887 | ) | 593 | 12,255 | (3,921 | ) | |||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total | ¥ | 87,793 | ¥ | (48,188 | ) | ¥ | 18,092 | ¥ | 43,060 | ¥ | (21,547 | ) | ¥ | 30,850 | ¥ | (25,739 | ) | ¥ | 5,503 | ¥ | 14,543 | ¥ | (14,935 | ) | ||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Netting adjustment | (26,641 | ) | 26,641 | (10,804 | ) | 10,804 | ||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Net amount | ¥ | 61,152 | ¥ | (21,547 | ) | ¥ | 20,046 | ¥ | (14,935 | ) | ||||||||||||||||||||||||||||||
|
|
Derivative asset and liability positions are presented net by counterparty on the consolidated balance sheets when valid master netting agreement exists and the other conditions set out in the FASB Accounting Standards Codification (ASC) 210-20 “Balance Sheet-Offsetting” are met.
The pre-tax effects of derivative instruments on the Company’s results of operations for each of the years in the three-year period ended March 31, 20112014 are as follows:
For the year ended March 31, 20092012
Derivatives designated as hedging instruments
Cash flow hedge:hedges:
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from accumulated other comprehensive income (loss) into earnings (effective portion) | Gain (Loss) recognized in earnings (financial instruments’ time value component excluded from the assessment of hedge effectiveness) | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments: | ¥ | (80 | ) | Other income (expenses) – Other, net | ¥ | 688 | Other income (expenses) – Other, net | ¥ | (435) |
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from | Gain (Loss) recognized in | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments | ¥ | (115) | Other income (expenses) – Other, net | ¥ | (78) | Other income (expenses) – Other, net | ¥ | (455) |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Derivatives not designated as hedging instruments
Yen (millions) | ||||||
Gain (Loss) recognized in earnings | ||||||
Location | Amount | |||||
Foreign exchange instruments | Other income (expenses) – Other, net | ¥ | ) | |||
Interest rate instruments | Other income (expenses) – Other, net | ( | ) | |||
Total | ¥ | ( | ) | |||
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
For the year ended March 31, 20102013
Derivatives designated as hedging instruments
Cash flow hedge:hedges:
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from accumulated other comprehensive income (loss) into earnings (effective portion) | Gain (Loss) recognized in earnings (financial instruments’ time value component excluded from the assessment of hedge effectiveness) | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments: | ¥ | (865 | ) | Other income (expenses) – Other, net | ¥ | (324 | ) | Other income (expenses) – Other, net | ¥ | 686 |
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from | Gain (Loss) recognized in | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments | ¥ | (1,281) | Other income (expenses) – Other, net | ¥ | (1,197) | Other income (expenses) – Other, net | ¥ | (589) |
Derivatives not designated as hedging instruments
Yen (millions) | ||||||
Gain (Loss) recognized in earnings | ||||||
Location | Amount | |||||
Foreign exchange instruments | Other income (expenses) – Other, net | ¥ | ) | |||
Interest rate instruments | Other income (expenses) – Other, net | |||||
Total | ¥ | ) | ||||
For the year ended March 31, 20112014
Derivatives designated as hedging instruments
Cash flow hedge:hedges:
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from accumulated other comprehensive income (loss) into earnings (effective portion) | Gain (Loss) recognized in earnings (financial instruments’ time value component excluded from the assessment of hedge effectiveness) | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments: | ¥ | 1,359 | Other income (expenses) – Other, net | ¥ | 1,077 | Other income (expenses) – Other, net | ¥ | 128 |
Yen (millions) | ||||||||||||||||
Gain (Loss) recognized in other comprehensive income (loss) (effective portion) | Gain (Loss) reclassified from | Gain (Loss) recognized in | ||||||||||||||
Amount | Location | Amount | Location | Amount | ||||||||||||
Foreign exchange instruments | ¥ | (29) | Other income (expenses) – Other, net | ¥ | (411) | Other income (expenses) – Other, net | ¥ | (714) |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Derivatives not designated as hedging instruments
Yen (millions) | ||||||
Gain (Loss) recognized in earnings | ||||||
Location | Amount | |||||
Foreign exchange instruments | Other income (expenses) – Other, net | ¥ | ) | |||
Interest rate instruments | Other income (expenses) – Other, net | ( | ) | |||
Total | ¥ | ) | ||||
The gains and losses are included in other income (expenses) – other, net on a net basis with related items, such as foreign currency translation. (see notetranslation (note 1(p))
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(18) Commitments and Contingent Liabilities
At March 31, 2011,2014, Honda had commitments for purchases of property, plant and equipment and other commitments of approximately ¥28,466¥131,238 million.
Honda has entered into various guarantee and indemnification agreements. At March 31, 20102013 and 2011,2014, Honda has guaranteed ¥31,772¥26,475 million and ¥30,393¥25,368 million of bank loans 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 ¥31,772¥26,475 million and ¥30,393¥25,368 million, respectively, at March 31, 20102013 and 2011.2014. At March 31, 2011,2014, 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 products for specific periods of time. Honda also provides specific warranty programs, including product recalls, as needed. Product warranties vary depending upon the nature of the product, the geographic location of its sale and other factors.
The changes in provisionsthe accrued liabilities for those product warranties for each of the years in the two-year period ended March 31, 20112014 are as follow:follows:
Yen (millions) | Yen (millions) | |||||||||||||||
2010 | 2011 | 2013 | 2014 | |||||||||||||
Balance at beginning of year | ¥ | 233,979 | ¥ | 226,038 | ¥ | 170,562 | ¥ | 208,033 | ||||||||
Warranty claims paid during the period | (86,886 | ) | (82,080 | ) | (64,942 | ) | (104,090 | ) | ||||||||
Liabilities accrued for warranties issued during the period | 79,520 | 84,920 | 97,108 | 153,898 | ||||||||||||
Changes in liabilities for pre-existing warranties during the period | (3,571 | ) | (3,550 | ) | (8,583 | ) | 397 | |||||||||
Foreign currency translation | 2,996 | (11,385 | ) | 13,888 | 11,382 | |||||||||||
|
| |||||||||||||||
Balance at end of year | ¥ | 226,038 | ¥ | 213,943 | ¥ | 208,033 | ¥ | 269,620 | ||||||||
|
|
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 accrued liabilities. Punitive damages are claimed in certain of these lawsuits. Honda is also subject to potential liability under other various lawsuits and claims including 6 purported class actions in the United States.claims. Honda recognizes an accrued liability for loss contingencies 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
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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. 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 including 6 purported class actions in the United States 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.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(19) 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 March 31, 20112014 are as follows:
Years ending March 31 | Yen (millions) | Yen (millions) | ||||||
2012 | ¥ | 19,100 | ||||||
2013 | 13,498 | |||||||
2014 | 10,872 | |||||||
2015 | 8,205 | ¥ | 18,862 | |||||
2016 | 6,910 | 14,466 | ||||||
2017 | 13,101 | |||||||
2018 | 8,423 | |||||||
2019 | 7,604 | |||||||
After five years | 44,198 | 39,724 | ||||||
| ||||||||
Total minimum lease payments | ¥ | 102,783 | ¥ | 102,180 | ||||
|
Rental expenses under operating leases were ¥47,921¥34,079 million, ¥42,435¥32,728 million and ¥38,641¥34,953 million, for the years ended March 31, 2009, 20102012, 2013 and 2011,2014, respectively.
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(20) Allowances for Trade Receivable, Finance Subsidiaries-receivablesValuation and Other AssetsQualifying Accounts
The allowances for trade receivable, finance subsidiaries-receivablesvaluation and other assetsqualifying accounts for the years ended March 31, 2009, 20102012, 2013 and 20112014 are set forth in the following table:
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||
Additions | Deductions | Additions | ||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Charged to costs and expenses | Bad debts written off | Foreign currency translation | Balance at end of period | Balance at beginning of year | Charged to costs and expenses | Charged to other accounts | Deductions* | Foreign currency translation | Balance at end of year | ||||||||||||||||||||||||||||||||||
March 31, 2009: | ||||||||||||||||||||||||||||||||||||||||||||
March 31, 2012: | ||||||||||||||||||||||||||||||||||||||||||||
Trade accounts and notes receivable | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 8,181 | ¥ | 3,700 | ¥ | 2,625 | ¥ | (1,801 | ) | ¥ | 7,455 | ¥ | 7,904 | ¥ | 3,773 | — | ¥ | 3,858 | ¥ | (526 | ) | ¥ | 7,293 | |||||||||||||||||||||
Finance subsidiaries-receivables | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | ¥ | 33,354 | ¥ | 53,981 | ¥ | 49,609 | ¥ | (2,109 | ) | ¥ | 35,617 | ¥ | 24,890 | ¥ | 11,625 | — | ¥ | 15,484 | ¥ | (415 | ) | ¥ | 20,616 | |||||||||||||||||||||
Allowance for losses on lease residual values | 24,887 | 23,035 | 26,390 | (1,139 | ) | 20,393 | 7,225 | 1,407 | — | 2,954 | (312 | ) | 5,366 | |||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
¥ | 58,241 | ¥ | 77,016 | ¥ | 75,999 | ¥ | (3,248 | ) | ¥ | 56,010 | ¥ | 32,115 | ¥ | 13,032 | — | ¥ | 18,438 | ¥ | (727 | ) | ¥ | 25,982 | ||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 3,386 | ¥ | 7,367 | ¥ | 1,177 | ¥ | (436 | ) | ¥ | 9,140 | ¥ | 23,275 | ¥ | 1,293 | — | ¥ | 1,311 | ¥ | (221 | ) | ¥ | 23,036 | |||||||||||||||||||||
March 31, 2010: | ||||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets | ||||||||||||||||||||||||||||||||||||||||||||
Valuation allowance | ¥ | 65,479 | ¥ | 18,665 | — | ¥ | 4,651 | ¥ | (10,401 | ) | ¥ | 69,092 | ||||||||||||||||||||||||||||||||
March 31, 2013: | ||||||||||||||||||||||||||||||||||||||||||||
Trade accounts and notes receivable | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 7,455 | ¥ | 4,039 | ¥ | 3,268 | ¥ | 329 | ¥ | 8,555 | ¥ | 7,293 | ¥ | 2,810 | — | ¥ | 2,721 | ¥ | 503 | ¥ | 7,885 | |||||||||||||||||||||||
Finance subsidiaries-receivables | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | ¥ | 35,617 | ¥ | 32,913 | ¥ | 32,053 | ¥ | (1,550 | ) | ¥ | 34,927 | ¥ | 20,616 | ¥ | 9,234 | — | ¥ | 13,198 | ¥ | 1,176 | ¥ | 17,828 | ||||||||||||||||||||||
Allowance for losses on lease residual values | 20,393 | 7,149 | 18,716 | 427 | 9,253 | 5,366 | 825 | — | 3,178 | 341 | 3,354 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
¥ | 56,010 | ¥ | 40,062 | ¥ | 50,769 | ¥ | (1,123 | ) | ¥ | 44,180 | ¥ | 25,982 | ¥ | 10,059 | — | ¥ | 16,376 | ¥ | 1,517 | ¥ | 21,182 | |||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 9,140 | ¥ | 1,294 | ¥ | 1,395 | ¥ | 280 | ¥ | 9,319 | ¥ | 23,036 | ¥ | 687 | — | ¥ | 1,063 | ¥ | 94 | ¥ | 22,754 | |||||||||||||||||||||||
March 31, 2011: | ||||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets | ||||||||||||||||||||||||||||||||||||||||||||
Valuation allowance | ¥ | 69,092 | ¥ | 9,570 | ¥ | 1,171 | ¥ | 7,347 | ¥ | 8,521 | ¥ | 81,007 | ||||||||||||||||||||||||||||||||
March 31, 2014: | ||||||||||||||||||||||||||||||||||||||||||||
Trade accounts and notes receivable | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 8,555 | ¥ | 3,625 | ¥ | 3,849 | ¥ | (427 | ) | ¥ | 7,904 | ¥ | 7,885 | ¥ | 3,290 | — | ¥ | 2,094 | ¥ | 596 | ¥ | 9,677 | ||||||||||||||||||||||
Finance subsidiaries-receivables | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses(*) | ¥ | 35,823 | ¥ | 10,146 | ¥ | 18,302 | ¥ | (2,777 | ) | ¥ | 24,890 | |||||||||||||||||||||||||||||||||
Allowance for credit losses | ¥ | 17,828 | ¥ | 18,503 | — | ¥ | 16,136 | ¥ | 1,364 | ¥ | 21,559 | |||||||||||||||||||||||||||||||||
Allowance for losses on lease residual values | 9,253 | 3,159 | 4,611 | (576 | ) | 7,225 | 3,354 | 401 | — | 1,671 | 47 | 2,131 | ||||||||||||||||||||||||||||||||
¥ | 45,076 | ¥ | 13,305 | ¥ | 22,913 | ¥ | (3,353 | ) | ¥ | 32,115 |
|
|
|
|
|
| ||||||||||||||||||||||||||||
¥ | 21,182 | ¥ | 18,904 | — | ¥ | 17,807 | ¥ | 1,411 | ¥ | 23,690 | ||||||||||||||||||||||||||||||||||
Other assets | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ¥ | 9,319 | ¥ | 15,839 | ¥ | 1,734 | ¥ | (149 | ) | ¥ | 23,275 | ¥ | 22,754 | ¥ | 175 | — | ¥ | 881 | ¥ | 52 | ¥ | 22,100 | ||||||||||||||||||||||
Deferred tax assets | ||||||||||||||||||||||||||||||||||||||||||||
Valuation allowance | ¥ | 81,007 | ¥ | 16,488 | — | ¥ | 6,710 | ¥ | 6,353 | ¥ | 97,138 |
* |
Deferred tax assets: | Reversal of valuation allowance. Deductions in valuation allowance for |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(21) 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 the chief operating decision maker 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.
Principal products and services, and functions of each segment are as follows:
Segment | Principal products and services | Functions | ||
Motorcycle | Motorcycles, all-terrain vehicles (ATVs) | Research & Development Manufacturing Sales and related services | ||
Automobile | Automobiles and relevant parts | Research & Development Manufacturing Sales and related services | ||
Financial | Financial, insurance services | Retail loan and lease related to Honda products Others | ||
Power | Power products and relevant parts, and others | Research & Development Manufacturing Sales and related services Others |
HONDA MOTOR CO., LTD. AND SUBSIDIARIESSegment Information
Notes to Consolidated Financial Statements—(Continued)
Segment Information
As of and for the year ended March 31, 20092012
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | Segment Total | Reconciling Items | Other Adjustments | Consolidated | 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 | ¥ | 1,411,511 | ¥ | 7,674,404 | ¥ | 582,261 | ¥ | 343,065 | ¥ | 10,011,241 | ¥ | — | ¥ | — | ¥ | 10,011,241 | ¥ | 1,348,828 | ¥ | 5,805,975 | ¥ | 516,148 | ¥ | 277,144 | ¥ | 7,948,095 | ¥ | — | ¥ | 7,948,095 | ||||||||||||||||||||||||||||||
Intersegment | — | — | 14,264 | 25,840 | 40,104 | (40,104 | ) | — | — | — | 16,767 | 10,428 | 12,590 | 39,785 | (39,785 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 1,411,511 | ¥ | 7,674,404 | ¥ | 596,525 | ¥ | 368,905 | ¥ | 10,051,345 | ¥ | (40,104 | ) | ¥ | — | ¥ | 10,011,241 | ¥ | 1,348,828 | ¥ | 5,822,742 | ¥ | 526,576 | ¥ | 289,734 | ¥ | 7,987,880 | ¥ | (39,785 | ) | ¥ | 7,948,095 | ||||||||||||||||||||||||||||
Cost of sales, SG&A and R&D expenses | 1,311,598 | 7,649,861 | 515,854 | 384,389 | 9,861,702 | (40,104 | ) | — | 9,821,598 | 1,206,226 | 5,899,948 | 356,570 | 293,772 | 7,756,516 | (39,785 | ) | 7,716,731 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment income (loss) | ¥ | 99,913 | ¥ | 24,543 | ¥ | 80,671 | ¥ | (15,484 | ) | ¥ | 189,643 | ¥ | — | ¥ | — | ¥ | 189,643 | ¥ | 142,602 | ¥ | (77,206 | ) | ¥ | 170,006 | ¥ | (4,038 | ) | ¥ | 231,364 | ¥ | — | ¥ | 231,364 | |||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity in income of affiliates | ¥ | 26,105 | ¥ | 71,709 | ¥ | — | ¥ | 1,220 | ¥ | 99,034 | ¥ | — | ¥ | — | ¥ | 99,034 | ¥ | 31,185 | ¥ | 68,521 | ¥ | — | ¥ | 700 | ¥ | 100,406 | ¥ | — | ¥ | 100,406 | ||||||||||||||||||||||||||||||
Assets | ¥ | 1,047,112 | ¥ | 5,219,408 | ¥ | 5,735,716 | ¥ | 275,607 | ¥ | 12,277,843 | ¥ | (458,926 | ) | ¥ | — | ¥ | 11,818,917 | |||||||||||||||||||||||||||||||||||||||||||
Segment assets | ¥ | 1,006,684 | ¥ | 4,955,791 | ¥ | 5,644,380 | ¥ | 305,235 | ¥ | 11,912,090 | ¥ | (124,491 | ) | ¥ | 11,787,599 | |||||||||||||||||||||||||||||||||||||||||||||
Investments in affiliates | ¥ | 107,431 | ¥ | 379,068 | ¥ | — | ¥ | 16,247 | ¥ | 502,746 | ¥ | — | ¥ | — | ¥ | 502,746 | ¥ | 70,275 | ¥ | 343,429 | ¥ | — | ¥ | 17,079 | ¥ | 430,783 | ¥ | — | ¥ | 430,783 | ||||||||||||||||||||||||||||||
Depreciation and amortization | ¥ | 51,200 | ¥ | 373,295 | ¥ | 199,324 | ¥ | 13,825 | ¥ | 637,644 | ¥ | — | ¥ | — | ¥ | 637,644 | ¥ | 43,564 | ¥ | 289,845 | ¥ | 211,325 | ¥ | 10,133 | ¥ | 554,867 | ¥ | — | ¥ | 554,867 | ||||||||||||||||||||||||||||||
Capital expenditures | ¥ | 90,401 | ¥ | 523,593 | ¥ | 671,127 | ¥ | 16,920 | ¥ | 1,302,041 | ¥ | — | ¥ | — | ¥ | 1,302,041 | ¥ | 62,075 | ¥ | 349,605 | ¥ | 686,495 | ¥ | 10,005 | ¥ | 1,108,180 | ¥ | — | ¥ | 1,108,180 | ||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets and goodwill | ¥ | 413 | ¥ | 18,874 | ¥ | 18,528 | ¥ | 2,310 | ¥ | 40,125 | ¥ | — | ¥ | — | ¥ | 40,125 | ||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries- receivables | ¥ | — | ¥ | — | ¥ | 77,016 | ¥ | — | ¥ | 77,016 | ¥ | — | ¥ | — | ¥ | 77,016 | ||||||||||||||||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets | ¥ | — | ¥ | 8,260 | ¥ | 1,514 | ¥ | 2,330 | ¥ | 12,104 | ¥ | — | ¥ | 12,104 | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries-receivables | ¥ | — | ¥ | — | ¥ | 13,032 | ¥ | — | ¥ | 13,032 | ¥ | — | ¥ | 13,032 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
As of and for the year ended March 31, 20102013
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | Segment Total | Reconciling Items | Other Adjustments | Consolidated | 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 | ¥ | 1,140,292 | ¥ | 6,554,848 | ¥ | 606,352 | ¥ | 277,682 | ¥ | 8,579,174 | ¥ | — | ¥ | — | ¥ | 8,579,174 | ¥ | 1,339,549 | ¥ | 7,709,216 | ¥ | 548,506 | ¥ | 280,676 | ¥ | 9,877,947 | ¥ | — | ¥ | 9,877,947 | ||||||||||||||||||||||||||||||
Intersegment | — | — | 12,459 | 26,936 | 39,395 | (39,395 | ) | — | — | — | 14,374 | 11,750 | 10,994 | 37,118 | (37,118 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 1,140,292 | ¥ | 6,554,848 | ¥ | 618,811 | ¥ | 304,618 | ¥ | 8,618,569 | ¥ | (39,395 | ) | ¥ | — | ¥ | 8,579,174 | ¥ | 1,339,549 | ¥ | 7,723,590 | ¥ | 560,256 | ¥ | 291,670 | ¥ | 9,915,065 | ¥ | (37,118 | ) | ¥ | 9,877,947 | ||||||||||||||||||||||||||||
Cost of sales, SG&A and R&D expenses | 1,081,455 | 6,428,090 | 423,910 | 321,339 | 8,254,794 | (39,395 | ) | — | 8,215,399 | 1,229,316 | 7,437,599 | 402,098 | 301,242 | 9,370,255 | (37,118 | ) | 9,333,137 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment income (loss) | ¥ | 58,837 | ¥ | 126,758 | ¥ | 194,901 | ¥ | (16,721 | ) | ¥ | 363,775 | ¥ | — | ¥ | — | ¥ | 363,775 | ¥ | 110,233 | ¥ | 285,991 | ¥ | 158,158 | ¥ | (9,572 | ) | ¥ | 544,810 | ¥ | — | ¥ | 544,810 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity in income of affiliates | ¥ | 23,131 | ¥ | 69,082 | ¥ | — | ¥ | 1,069 | ¥ | 93,282 | ¥ | — | ¥ | — | ¥ | 93,282 | ¥ | 25,606 | ¥ | 56,361 | ¥ | — | ¥ | 756 | ¥ | 82,723 | ¥ | — | ¥ | 82,723 | ||||||||||||||||||||||||||||||
Assets | ¥ | 1,025,665 | ¥ | 5,044,247 | ¥ | 5,541,788 | ¥ | 281,966 | ¥ | 11,893,666 | ¥ | (264,551 | ) | ¥ | — | ¥ | 11,629,115 | |||||||||||||||||||||||||||||||||||||||||||
Segment assets | ¥ | 1,095,357 | ¥ | 5,759,126 | ¥ | 6,765,322 | ¥ | 309,149 | ¥ | 13,928,954 | ¥ | (293,597 | ) | ¥ | 13,635,357 | |||||||||||||||||||||||||||||||||||||||||||||
Investments in affiliates | ¥ | 103,032 | ¥ | 334,875 | ¥ | — | ¥ | 16,821 | ¥ | 454,728 | ¥ | — | ¥ | — | ¥ | 454,728 | ¥ | 85,039 | ¥ | 352,317 | ¥ | — | ¥ | 20,020 | ¥ | 457,376 | ¥ | — | ¥ | 457,376 | ||||||||||||||||||||||||||||||
Depreciation and amortization | ¥ | 48,683 | ¥ | 337,787 | ¥ | 230,453 | ¥ | 12,751 | ¥ | 629,674 | ¥ | — | ¥ | — | ¥ | 629,674 | ¥ | 34,665 | ¥ | 290,522 | ¥ | 256,166 | ¥ | 9,116 | ¥ | 590,469 | ¥ | — | ¥ | 590,469 | ||||||||||||||||||||||||||||||
Capital expenditures | ¥ | 38,332 | ¥ | 284,586 | ¥ | 546,342 | ¥ | 23,748 | ¥ | 893,008 | ¥ | — | ¥ | — | ¥ | 893,008 | ¥ | 73,513 | ¥ | 540,625 | ¥ | 794,869 | ¥ | 14,519 | ¥ | 1,423,526 | ¥ | — | ¥ | 1,423,526 | ||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets and goodwill | ¥ | — | ¥ | 548 | ¥ | 3,312 | ¥ | — | ¥ | 3,860 | ¥ | — | ¥ | — | ¥ | 3,860 | ||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries- receivables | ¥ | — | ¥ | — | ¥ | 40,062 | ¥ | — | ¥ | 40,062 | ¥ | — | ¥ | — | ¥ | 40,062 | ||||||||||||||||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets | ¥ | — | ¥ | — | ¥ | 4,773 | ¥ | — | ¥ | 4,773 | ¥ | — | ¥ | 4,773 | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries-receivables | ¥ | — | ¥ | — | ¥ | 10,059 | ¥ | — | ¥ | 10,059 | ¥ | — | ¥ | 10,059 |
As of and for the year ended March 31, 20112014
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Motorcycle Business | Automobile Business | Financial Services Business | Power Product and Other Businesses | Segment Total | Reconciling Items | Other Adjustments | Consolidated | 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 | ¥ | 1,288,194 | ¥ | 6,794,098 | ¥ | 561,896 | ¥ | 292,679 | ¥ | 8,936,867 | ¥ | — | ¥ | — | ¥ | 8,936,867 | ¥ | 1,663,631 | ¥ | 9,176,360 | ¥ | 698,185 | ¥ | 304,275 | ¥ | 11,842,451 | ¥ | — | ¥ | 11,842,451 | ||||||||||||||||||||||||||||||
Intersegment | — | 8,218 | 11,562 | 25,600 | 45,380 | (45,380 | ) | — | — | — | 18,569 | 10,403 | 13,900 | 42,872 | (42,872 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 1,288,194 | ¥ | 6,802,316 | ¥ | 573,458 | ¥ | 318,279 | ¥ | 8,982,247 | ¥ | (45,380 | ) | ¥ | — | ¥ | 8,936,867 | ¥ | 1,663,631 | ¥ | 9,194,929 | ¥ | 708,588 | ¥ | 318,175 | ¥ | 11,885,323 | ¥ | (42,872 | ) | ¥ | 11,842,451 | ||||||||||||||||||||||||||||
Cost of sales, SG&A and R&D expenses | 1,149,600 | 6,537,766 | 387,179 | 323,804 | 8,398,349 | (45,380 | ) | 14,123 | 8,367,092 | 1,498,026 | 8,791,228 | 525,832 | 319,956 | 11,135,042 | (42,872 | ) | 11,092,170 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment income (loss) | ¥ | 138,594 | ¥ | 264,550 | ¥ | 186,279 | ¥ | (5,525 | ) | ¥ | 583,898 | ¥ | — | ¥ | (14,123 | ) | ¥ | 569,775 | ¥ | 165,605 | ¥ | 403,701 | ¥ | 182,756 | ¥ | (1,781 | ) | ¥ | 750,281 | ¥ | — | ¥ | 750,281 | |||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity in income of affiliates | ¥ | 40,471 | ¥ | 100,018 | ¥ | — | ¥ | (733 | ) | ¥ | 139,756 | ¥ | — | ¥ | — | ¥ | 139,756 | ¥ | 36,479 | ¥ | 94,506 | ¥ | — | ¥ | 1,486 | ¥ | 132,471 | ¥ | — | ¥ | 132,471 | |||||||||||||||||||||||||||||
Assets | ¥ | 933,671 | ¥ | 4,883,029 | ¥ | 5,572,152 | ¥ | 290,730 | ¥ | 11,679,582 | ¥ | (108,708 | ) | ¥ | — | ¥ | 11,570,874 | |||||||||||||||||||||||||||||||||||||||||||
Segment assets | ¥ | 1,264,903 | ¥ | 6,398,580 | ¥ | 7,980,989 | ¥ | 346,177 | ¥ | 15,990,649 | ¥ | (368,618 | ) | ¥ | 15,622,031 | |||||||||||||||||||||||||||||||||||||||||||||
Investments in affiliates | ¥ | 76,280 | ¥ | 341,955 | ¥ | — | ¥ | 16,756 | ¥ | 434,991 | ¥ | — | ¥ | — | ¥ | 434,991 | ¥ | 102,359 | ¥ | 439,556 | ¥ | — | ¥ | 20,749 | ¥ | 562,664 | ¥ | — | ¥ | 562,664 | ||||||||||||||||||||||||||||||
Depreciation and amortization | ¥ | 40,324 | ¥ | 296,364 | ¥ | 213,805 | ¥ | 13,146 | ¥ | 563,639 | ¥ | — | ¥ | — | ¥ | 563,639 | ¥ | 46,038 | ¥ | 383,325 | ¥ | 354,704 | ¥ | 10,653 | ¥ | 794,720 | ¥ | — | ¥ | 794,720 | ||||||||||||||||||||||||||||||
Capital expenditures | ¥ | 37,084 | ¥ | 273,502 | ¥ | 800,491 | ¥ | 13,963 | ¥ | 1,125,040 | ¥ | — | ¥ | — | ¥ | 1,125,040 | ¥ | 57,702 | ¥ | 705,696 | ¥ | 1,131,761 | ¥ | 14,708 | ¥ | 1,909,867 | ¥ | — | ¥ | 1,909,867 | ||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets and goodwill | ¥ | 59 | ¥ | 16,774 | ¥ | 835 | ¥ | — | ¥ | 17,668 | ¥ | — | ¥ | — | ¥ | 17,668 | ||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries- receivables | ¥ | — | ¥ | — | ¥ | 13,305 | ¥ | — | ¥ | 13,305 | ¥ | — | ¥ | — | ¥ | 13,305 | ||||||||||||||||||||||||||||||||||||||||||||
Damaged and impairment losses on long-lived assets | ¥ | — | ¥ | — | ¥ | 3,301 | ¥ | — | ¥ | 3,301 | ¥ | — | ¥ | 3,301 | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for credit and lease residual losses on finance subsidiaries-receivables | ¥ | — | ¥ | — | ¥ | 18,904 | ¥ | — | ¥ | 18,904 | ¥ | — | ¥ | 18,904 |
Explanatory notes:
1. | Segment income (loss) of each segment is measured in a consistent manner with consolidated operating income, which is income before income taxes and equity in income of affiliates before other income (expenses) |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
2. |
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 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
5. | Depreciation and amortization of |
6. | Capital expenditures of |
7. |
8. | Previously, Honda used principally the declining-balance method for calculating the depreciation of property, plant and equipment. Effective April 1, 2012, Honda changed to the straight line method of depreciation. As a result of the change in depreciation method, depreciation expense for the year ended March 31, 2013 decreased by approximately ¥6,358 million in Motorcycle business, ¥48,568 million in Automobile business, ¥77 million in Financial services business and ¥1,297 million in Power product and other businesses, respectively. It resulted in an increase of segment income, see note 1(k). |
9. | For the year ended March 31, 2012 and 2013, impacts of the floods in Thailand are mainly included in Cost of sales, SG&A and R&D expenses of Automobile business, see note 1(u). |
External Sales and Other Operating Revenue by Product or Service Groups
Yen (millions) | Yen (millions) | |||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||||||
Motorcycles and relevant parts | ¥ | 1,323,259 | ¥ | 1,079,165 | ¥ | 1,225,098 | ¥ | 1,286,319 | ¥ | 1,274,890 | ¥ | 1,582,901 | ||||||||||||
All-terrain vehicles (ATVs) and relevant parts | 88,252 | 61,127 | 63,096 | 62,509 | 64,659 | 80,730 | ||||||||||||||||||
Automobiles and relevant parts | 7,674,404 | 6,554,848 | 6,794,098 | 5,805,975 | 7,709,216 | 9,176,360 | ||||||||||||||||||
Financial, insurance services | 582,261 | 606,352 | 561,896 | 516,148 | 548,506 | 698,185 | ||||||||||||||||||
Power products and relevant parts | 224,648 | 188,014 | 202,838 | 208,661 | 221,321 | 251,630 | ||||||||||||||||||
Others | 118,417 | 89,668 | 89,841 | 68,483 | 59,355 | 52,645 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | ¥ | 10,011,241 | ¥ | 8,579,174 | ¥ | 8,936,867 | ¥ | 7,948,095 | ¥ | 9,877,947 | ¥ | 11,842,451 | ||||||||||||
|
|
|
Geographical Information
As of and for the year ended March 31, 20092012
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
Japan | United States | Others Countries | Total | Japan | United States | Other Countries | Total | |||||||||||||||||||||||||
Sales to external customers | ¥ | 1,871,962 | ¥ | 3,990,729 | ¥ | 4,148,550 | ¥ | 10,011,241 | ||||||||||||||||||||||||
Net sales and other operating revenue | ¥ | 1,774,573 | ¥ | 3,099,810 | ¥ | 3,073,712 | ¥ | 7,948,095 | ||||||||||||||||||||||||
Long-lived assets | ¥ | 1,140,316 | ¥ | 1,835,163 | ¥ | 566,445 | ¥ | 3,541,924 | ¥ | 1,048,402 | ¥ | 1,889,567 | ¥ | 596,939 | ¥ | 3,534,908 |
As of and for the year ended March 31, 20102013
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
Japan | United States | Others Countries | Total | Japan | United States | Other Countries | Total | |||||||||||||||||||||||||
Sales to external customers | ¥ | 1,864,513 | ¥ | 3,294,758 | ¥ | 3,419,903 | ¥ | 8,579,174 | ||||||||||||||||||||||||
Net sales and other operating revenue | ¥ | 1,925,333 | ¥ | 4,063,727 | ¥ | 3,888,887 | ¥ | 9,877,947 | ||||||||||||||||||||||||
Long-lived assets | ¥ | 1,113,386 | ¥ | 1,767,879 | ¥ | 603,881 | ¥ | 3,485,146 | ¥ | 1,167,236 | ¥ | 2,380,885 | ¥ | 802,697 | ¥ | 4,350,818 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
As of and for the year ended March 31, 20112014
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||
Japan | United States | Others Countries | Total | Japan | United States | Other Countries | Total | |||||||||||||||||||||||||
Sales to external customers | ¥ | 1,834,003 | ¥ | 3,504,765 | ¥ | 3,598,099 | ¥ | 8,936,867 | ||||||||||||||||||||||||
Net sales and other operating revenue | ¥ | 2,216,735 | ¥ | 4,934,018 | ¥ | 4,691,698 | ¥ | 11,842,451 | ||||||||||||||||||||||||
Long-lived assets | ¥ | 1,053,168 | ¥ | 1,766,814 | ¥ | 571,591 | ¥ | 3,391,573 | ¥ | 1,280,071 | ¥ | 2,783,977 | ¥ | 1,134,021 | ¥ | 5,198,069 |
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 in order to provide financial statements users with additional useful information:
Supplemental geographical information based on the location of the Company and its subsidiaries
As of and for the year ended March 31, 20092012
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Other Adjustments | Consolidated | Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales and other operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
External customers | ¥ | 1,871,962 | ¥ | 4,534,684 | ¥ | 1,191,540 | ¥ | 1,335,091 | ¥ | 1,077,964 | ¥ | 10,011,241 | ¥ | — | ¥ | — | ¥ | 10,011,241 | ¥ | 1,774,573 | ¥ | 3,500,245 | ¥ | 519,329 | ¥ | 1,276,621 | ¥ | 877,327 | ¥ | 7,948,095 | ¥ | — | ¥ | 7,948,095 | ||||||||||||||||||||||||||||||||||
Transfers between geographic areas | 2,290,625 | 244,440 | 87,362 | 273,140 | 66,256 | 2,961,823 | (2,961,823 | ) | — | — | 1,588,379 | 214,511 | 61,463 | 213,857 | 15,805 | 2,094,015 | (2,094,015 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 4,162,587 | ¥ | 4,779,124 | ¥ | 1,278,902 | ¥ | 1,608,231 | ¥ | 1,144,220 | ¥ | 12,973,064 | ¥ | (2,961,823 | ) | ¥ | — | ¥ | 10,011,241 | ¥ | 3,362,952 | ¥ | 3,714,756 | ¥ | 580,792 | ¥ | 1,490,478 | ¥ | 893,132 | ¥ | 10,042,110 | ¥ | (2,094,015 | ) | ¥ | 7,948,095 | ||||||||||||||||||||||||||||||||
Cost of sales, SG&A and R&D expenses | 4,324,203 | 4,699,422 | 1,268,701 | 1,504,628 | 1,009,158 | 12,806,112 | (2,984,514 | ) | — | 9,821,598 | ¥ | 3,472,786 | ¥ | 3,491,463 | ¥ | 592,901 | ¥ | 1,413,608 | ¥ | 836,176 | ¥ | 9,806,934 | ¥ | (2,090,203 | ) | ¥ | 7,716,731 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | ¥ | (161,616 | ) | ¥ | 79,702 | ¥ | 10,201 | ¥ | 103,603 | ¥ | 135,062 | ¥ | 166,952 | ¥ | 22,691 | ¥ | — | ¥ | 189,643 | ¥ | (109,834 | ) | ¥ | 223,293 | ¥ | (12,109 | ) | ¥ | 76,870 | ¥ | 56,956 | ¥ | 235,176 | ¥ | (3,812 | ) | ¥ | 231,364 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ¥ | 3,078,478 | ¥ | 6,547,880 | ¥ | 766,594 | ¥ | 1,016,059 | ¥ | 450,081 | ¥ | 11,859,092 | ¥ | (40,175 | ) | ¥ | — | ¥ | 11,818,917 | ¥ | 3,112,901 | ¥ | 6,333,851 | ¥ | 568,790 | ¥ | 1,070,331 | ¥ | 611,818 | ¥ | 11,697,691 | ¥ | 89,908 | ¥ | 11,787,599 | |||||||||||||||||||||||||||||||||
Long-lived assets | ¥ | 1,140,316 | ¥ | 1,918,579 | ¥ | 110,543 | ¥ | 253,113 | ¥ | 119,373 | ¥ | 3,541,924 | ¥ | — | ¥ | — | ¥ | 3,541,924 | ¥ | 1,048,402 | ¥ | 1,970,631 | ¥ | 111,354 | ¥ | 274,182 | ¥ | 130,339 | ¥ | 3,534,908 | ¥ | — | ¥ | 3,534,908 |
As of and for the year ended March 31, 2013
Yen (millions) | ||||||||||||||||||||||||||||||||
Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Consolidated | |||||||||||||||||||||||||
Net sales and other operating revenue: | ||||||||||||||||||||||||||||||||
External customers | ¥ | 1,925,333 | ¥ | 4,612,361 | ¥ | 536,856 | ¥ | 1,926,434 | ¥ | 876,963 | ¥ | 9,877,947 | ¥ | — | ¥ | 9,877,947 | ||||||||||||||||
Transfers between geographic areas | 1,968,179 | 244,741 | 105,254 | 379,213 | 19,504 | 2,716,891 | (2,716,891 | ) | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | ¥ | 3,893,512 | ¥ | 4,857,102 | ¥ | 642,110 | ¥ | 2,305,647 | ¥ | 896,467 | ¥ | 12,594,838 | ¥ | (2,716,891 | ) | ¥ | 9,877,947 | |||||||||||||||
Cost of sales, SG&A and R&D expenses | ¥ | 3,715,084 | ¥ | 4,648,184 | ¥ | 641,650 | ¥ | 2,158,889 | ¥ | 860,773 | ¥ | 12,024,580 | ¥ | (2,691,443 | ) | ¥ | 9,333,137 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Operating income (loss) | ¥ | 178,428 | ¥ | 208,918 | ¥ | 460 | ¥ | 146,758 | ¥ | 35,694 | ¥ | 570,258 | ¥ | (25,448 | ) | ¥ | 544,810 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Assets | ¥ | 3,264,383 | ¥ | 7,645,540 | ¥ | 673,667 | ¥ | 1,523,192 | ¥ | 660,856 | ¥ | 13,767,638 | ¥ | (132,281 | ) | ¥ | 13,635,357 | |||||||||||||||
Long-lived assets | ¥ | 1,167,236 | ¥ | 2,481,097 | ¥ | 124,088 | ¥ | 434,827 | ¥ | 143,570 | ¥ | 4,350,818 | ¥ | — | ¥ | 4,350,818 |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
As of and for the year ended March 31, 20102014
Yen (millions) | ||||||||||||||||||||||||||||||||||||
Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Other Adjustments | Consolidated | ||||||||||||||||||||||||||||
Net sales and other operating revenue: | ||||||||||||||||||||||||||||||||||||
External customers | ¥ | 1,864,513 | ¥ | 3,752,417 | ¥ | 769,857 | ¥ | 1,320,047 | ¥ | 872,340 | ¥ | 8,579,174 | ¥ | — | ¥ | — | ¥ | 8,579,174 | ||||||||||||||||||
Transfers between geographic areas | 1,441,264 | 155,799 | 55,615 | 198,533 | 24,151 | 1,875,362 | (1,875,362 | ) | — | — | ||||||||||||||||||||||||||
Total | ¥ | 3,305,777 | ¥ | 3,908,216 | ¥ | 825,472 | ¥ | 1,518,580 | ¥ | 896,491 | ¥ | 10,454,536 | ¥ | (1,875,362 | ) | ¥ | — | ¥ | 8,579,174 | |||||||||||||||||
Cost of sales, SG&A and R&D expenses | 3,334,912 | 3,671,837 | 836,344 | 1,405,574 | 850,683 | 10,099,350 | (1,883,951 | ) | — | 8,215,399 | ||||||||||||||||||||||||||
Operating income (loss) | ¥ | (29,135 | ) | ¥ | 236,379 | ¥ | (10,872 | ) | ¥ | 113,006 | ¥ | 45,808 | ¥ | 355,186 | ¥ | 8,589 | ¥ | — | ¥ | 363,775 | ||||||||||||||||
Assets | ¥ | 2,947,764 | ¥ | 6,319,896 | ¥ | 591,423 | ¥ | 1,050,727 | ¥ | 619,345 | ¥ | 11,529,155 | ¥ | 99,960 | ¥ | — | ¥ | 11,629,115 | ||||||||||||||||||
Long-lived assets | ¥ | 1,113,386 | ¥ | 1,861,596 | ¥ | 107,262 | ¥ | 240,704 | ¥ | 162,198 | ¥ | 3,485,146 | ¥ | — | ¥ | — | ¥ | 3,485,146 |
As of and for the year ended March 31, 2011
Yen (millions) | Yen (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Other Adjustments | Consolidated | Japan | North America | Europe | Asia | Other Regions | Total | Reconciling Items | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales and other operating revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
External customers | ¥ | 1,834,003 | ¥ | 3,941,505 | ¥ | 618,426 | ¥ | 1,594,058 | ¥ | 948,875 | ¥ | 8,936,867 | ¥ | — | ¥ | — | ¥ | 8,936,867 | ¥ | 2,216,735 | ¥ | 5,595,981 | ¥ | 676,502 | ¥ | 2,340,100 | ¥ | 1,013,133 | ¥ | 11,842,451 | ¥ | — | ¥ | 11,842,451 | ||||||||||||||||||||||||||||||||||
Transfers between geographic areas | 1,777,204 | 206,392 | 80,872 | 247,109 | 33,208 | 2,344,785 | (2,344,785 | ) | — | — | 1,975,544 | 374,018 | 98,766 | 486,823 | 12,368 | 2,947,519 | (2,947,519 | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
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Total | ¥ | 3,611,207 | ¥ | 4,147,897 | ¥ | 699,298 | ¥ | 1,841,167 | ¥ | 982,083 | ¥ | 11,281,652 | ¥ | (2,344,785 | ) | ¥ | — | ¥ | 8,936,867 | ¥ | 4,192,279 | ¥ | 5,969,999 | ¥ | 775,268 | ¥ | 2,826,923 | ¥ | 1,025,501 | ¥ | 14,789,970 | ¥ | (2,947,519 | ) | ¥ | 11,842,451 | ||||||||||||||||||||||||||||||||
Cost of sales, SG&A and R&D expenses | ¥ | 3,545,089 | ¥ | 3,846,975 | ¥ | 709,501 | ¥ | 1,690,530 | ¥ | 912,534 | ¥ | 10,704,629 | ¥ | (2,351,660 | ) | ¥ | 14,123 | ¥ | 8,367,092 | ¥ | 3,978,185 | ¥ | 5,679,094 | ¥ | 792,393 | ¥ | 2,609,023 | ¥ | 980,600 | ¥ | 14,039,295 | ¥ | (2,947,125 | ) | ¥ | 11,092,170 | ||||||||||||||||||||||||||||||||
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Operating income (loss) | ¥ | 66,118 | ¥ | 300,922 | ¥ | (10,203 | ) | ¥ | 150,637 | ¥ | 69,549 | ¥ | 577,023 | ¥ | 6,875 | ¥ | (14,123 | ) | ¥ | 569,775 | ¥ | 214,094 | ¥ | 290,905 | ¥ | (17,125 | ) | ¥ | 217,900 | ¥ | 44,901 | ¥ | 750,675 | ¥ | (394 | ) | ¥ | 750,281 | ||||||||||||||||||||||||||||||
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Assets | ¥ | 2,875,630 | ¥ | 6,209,145 | ¥ | 564,678 | ¥ | 1,049,113 | ¥ | 658,636 | ¥ | 11,357,202 | ¥ | 213,672 | ¥ | — | ¥ | 11,570,874 | ¥ | 3,442,746 | ¥ | 8,825,278 | ¥ | 709,469 | ¥ | 1,996,929 | ¥ | 767,225 | ¥ | 15,741,647 | ¥ | (119,616 | ) | ¥ | 15,622,031 | |||||||||||||||||||||||||||||||||
Long-lived assets | ¥ | 1,053,168 | ¥ | 1,852,542 | ¥ | 106,633 | ¥ | 231,867 | ¥ | 147,363 | ¥ | 3,391,573 | ¥ | — | ¥ | — | ¥ | 3,391,573 | ¥ | 1,280,071 | ¥ | 3,025,095 | ¥ | 133,061 | ¥ | 588,413 | ¥ | 171,429 | ¥ | 5,198,069 | ¥ | — | ¥ | 5,198,069 |
Explanatory notes:
1. Major countries or regions in each geographic area:
1. | Major countries or regions in each geographic area: |
North America | United States, Canada, Mexico | |
Europe | United Kingdom, Germany, France, | |
Asia | Thailand, Indonesia, China, India, Vietnam | |
Other Regions | Brazil, Australia |
2. | Operating income (loss) of each geographical region is measured in a consistent manner with consolidated operating income, which is income before income taxes and equity in income of affiliates before other income (expenses) |
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 |
6. | Previously, Honda used principally the declining-balance method for calculating the depreciation of property, plant and equipment. Effective April 1, 2012, Honda changed to the straight line method of depreciation. As a result of the change in depreciation method, depreciation expense for the year ended March 31, 2013 decreased by approximately ¥42,486 million in Japan, ¥9,602 million in North America, ¥1,068 million in Europe and ¥3,144 million in Asia, respectively. It resulted in an increase of operating income, see note 1(k). |
7. | For the year ended March 31, 2012 and 2013, impacts of the floods in Thailand are included in Cost of sales, SG&A and R&D expenses of |
HONDA MOTOR CO., LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(22) Selected Quarterly Financial Data (Unaudited)*
Quarterly financial data for the years ended March 31, 2009, 20102012, 2013 and 20112014 are set forth in the following table:
Yen (millions) | Yen | Yen (millions) | Yen | |||||||||||||||||||||||||||||
Net sales and other operating revenue | Operating Income (loss) | Net income (loss) attributable to Honda Motor Co., Ltd. | Basic net income (loss) attributable to Honda Motor Co., Ltd. per common share | Net sales and other operating revenue | Operating Income (loss) | Net income (loss) attributable to Honda Motor Co., Ltd. | Basic net income (loss) attributable to Honda Motor Co., Ltd. per common share | |||||||||||||||||||||||||
Year ended March 31, 2009: | ||||||||||||||||||||||||||||||||
Year ended March 31, 2012: | ||||||||||||||||||||||||||||||||
First quarter | ¥ | 2,867,221 | ¥ | 210,476 | ¥ | 173,397 | ¥ | 95.56 | ¥ | 1,714,596 | ¥ | 22,579 | ¥ | 31,797 | ¥ | 17.64 | ||||||||||||||||
Second quarter | 2,826,865 | 148,851 | 123,316 | 67.96 | 1,885,892 | 52,511 | 60,429 | 33.53 | ||||||||||||||||||||||||
Third quarter | 2,533,257 | 102,452 | 20,242 | 11.16 | 1,942,545 | 44,298 | 47,662 | 26.45 | ||||||||||||||||||||||||
Fourth quarter | 1,783,898 | (272,136 | ) | (179,950 | ) | (99.17 | ) | 2,405,062 | 111,976 | 71,594 | 39.72 | |||||||||||||||||||||
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¥ | 10,011,241 | ¥ | 189,643 | ¥ | 137,005 | ¥ | 75.50 | ¥ | 7,948,095 | ¥ | 231,364 | ¥ | 211,482 | ¥ | 117.34 | |||||||||||||||||
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Year ended March 31, 2010: | ||||||||||||||||||||||||||||||||
Year ended March 31, 2013: | ||||||||||||||||||||||||||||||||
First quarter | ¥ | 2,002,212 | ¥ | 25,164 | ¥ | 7,560 | ¥ | 4.17 | ¥ | 2,435,909 | ¥ | 176,013 | ¥ | 131,723 | ¥ | 73.09 | ||||||||||||||||
Second quarter | 2,056,655 | 65,543 | 54,037 | 29.78 | 2,271,286 | 100,867 | 82,233 | 45.63 | ||||||||||||||||||||||||
Third quarter | 2,240,740 | 176,971 | 134,627 | 74.19 | 2,425,792 | 131,941 | 77,441 | 42.97 | ||||||||||||||||||||||||
Fourth quarter | 2,279,567 | 96,097 | 72,176 | 39.78 | 2,744,960 | 135,989 | 75,752 | 42.03 | ||||||||||||||||||||||||
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¥ | 8,579,174 | ¥ | 363,775 | ¥ | 268,400 | ¥ | 147.91 | ¥ | 9,877,947 | ¥ | 544,810 | ¥ | 367,149 | ¥ | 203.71 | |||||||||||||||||
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Year ended March 31, 2011: | ||||||||||||||||||||||||||||||||
Year ended March 31, 2014: | ||||||||||||||||||||||||||||||||
First quarter | ¥ | 2,361,463 | ¥ | 234,443 | ¥ | 272,487 | ¥ | 150.27 | ¥ | 2,834,095 | ¥ | 184,963 | ¥ | 122,499 | ¥ | 67.97 | ||||||||||||||||
Second quarter | 2,251,911 | 163,473 | 135,929 | 75.24 | 2,890,221 | 171,451 | 120,368 | 66.79 | ||||||||||||||||||||||||
Third quarter | 2,110,414 | 125,653 | 81,118 | 45.01 | 3,020,889 | 228,574 | 160,732 | 89.18 | ||||||||||||||||||||||||
Fourth quarter | 2,213,079 | 46,206 | 44,554 | 24.72 | ||||||||||||||||||||||||||||
Fourth quarter | 3,097,246 | 165,293 | 170,508 | 94.61 | ||||||||||||||||||||||||||||
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¥ | 8,936,867 | ¥ | 569,775 | ¥ | 534,088 | ¥ | 295.67 | ¥ | 11,842,451 | ¥ | 750,281 | ¥ | 574,107 | ¥ | 318.54 | |||||||||||||||||
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* | All quarterly financial data is unaudited and also has not been reviewed by the independent registered public accounting firm. |
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for the filing of Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
HONDA GIKEN KOGYO KABUSHIKI KAISHA (HONDA MOTOR CO., LTD.) | ||
By: | /s/ Takanobu Ito | |
Takanobu Ito President, Chief Executive Officer and Representative Director | ||
Date: June | ||
Tokyo, Japan |
INDEX OF EXHIBITS
1.1 | Articles of Incorporation of the registrant (English translation) | |||
1.2 | Share Handling Regulations of the registrant (English translation) | |||
1.3 | Regulations of Board of Directors of the registrant (English translation) | |||
1.4 | Regulations of the Board of Corporate Auditors of the registrant (English translation) | |||
2.1 | Specimen common stock certificates of the registrant (English translation) (1) | |||
2.2 | Deposit Agreement dated as of December 19, 1962, as amended and restated as of October 1, 1982 (including changes from Amendment to Deposit Agreement dated as of April 1, 1989) among the registrant, Morgan Guaranty Trust Company of New York (now JP Morgan Chase Bank), as Depositary, and all owners and holders from time to time of American Depositary Receipts and European Depositary Receipts, including the form of American Depositary Receipt (2) | |||
2.3 | Form of Amendment No. 2 to Deposit Agreement dated as of April, 1995, among the parties referred to in Exhibit 2.2 above (2) | |||
2.4 | Form of Amendment No. 3 to Deposit Agreement dated as of January, 2002, among the parties referred to in Exhibit 2.2 above (3) | |||
2.5 | Form of Amendment No. 4 to Deposit Agreement dated as of June, 2006, among the parties referred to in Exhibit 2.2 above (4) | |||
2.6 | Form of Amendment No. 5 to Deposit Agreement dated as of June, 2007, among the parties referred to in Exhibit 2.2 above (5) | |||
8.1 | List of Significant Subsidiaries (See “Organizational Structure” in Item 4.C of this Form 20-F) | |||
11.1 | Code of Ethics (6) | |||
12.1 | Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a) | |||
12.2 | Certification of the principal financial officer required by 17 C.F.R. 240. 13a-14(a) | |||
13.1 | Certification of the chief executive officer required by 18 U.S.C. Section 1350 | |||
13.2 | Certification of the chief financial officer required by 18 U.S.C. Section 1350 | |||
101.INS | XBRL Instance Document | |||
101.SCH | XBRL Taxonomy Extension Schema Document | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Incorporated by reference to the registrant’s annual report on Form 20-F filed on September 27, 2001. |
(2) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 33-91842) filed on May 1, 1995. |
(3) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-14228) filed on December 20, 2001. |
(4) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-114874) filed on June 28, 2006. |
(5) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-143589) filed on June 8, 2007. |
(6) | Incorporated by reference to the registrant’s annual report on Form 20-F filed on July 9, 2004. |
The Company has not included as exhibits certain instruments with respect to its long-term debt, the amount of debt authorized under each of which does not exceed 10% of its total assets, and it agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.