Form 6-K
Table of Contents

No. 1-7628

 


SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF December 2006

COMMISSION FILE NUMBER: 1-07628

HONDA GIKEN KOGYO KABUSHIKI KAISHA

(Name of registrant)

HONDA MOTOR CO., LTD.

(Translation of registrant’s name into English)

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

(Address of principal executive offices)

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

Form 20-F  x    Form 40-F  ¨

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

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

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

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

Yes  ¨    No  ¨

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

 



Table of Contents

Contents

Exhibit 1:

On December 1, 2006, Honda Motor Co., Ltd. announced plans to establish a wholly-owned subsidiary, Honda Soltec Co., Ltd., which will produce and sell the next-generation thin film solar cell independently developed by Honda. The new company will lead Honda to make a full-scale entry into the solar cell business. (Ref.# C06-107)

Exhibit 2:

On December 1, 2006, Honda Motor India Pvt Ltd. (HMI), the wholly owned subsidiary of Honda Motor Co., Ltd. formally began its operations from its corporate office in Greater Noida, UP to begin with Honda Siel Cars India Ltd. (HSCI) parts operations. Formation of HMI is part of the overall strategy to strengthen and integrate operations of Honda companies including motorcycle and power product businesses in India with respect to service parts.

Exhibit 3:

English translation of Notice concerning the date for determination of Shareholders entitled to receive quarterly dividend. Quarterly dividend will commence as of 3rd quarter End.

Exhibit 4:

On December 19, 2006, Honda Motor Co., Ltd. announced plans to build a new engine plant in Ogawa, Saitama prefecture, Japan in order to accelerate establishment of production systems and capabilities for advanced engines to enable Honda to meet increasing global demand for fuel efficient vehicles. Honda plans to begin operation of this new engine plant in summer 2009, with an annual production capacity of approximately 200,000 units. Advanced engines produced at this plant will be supplied to Honda auto plants inside and outside Japan. Honda will invest approximately 25 billion yen in the new plant, with employment of approximately 500 associates. (Ref.# C06-113)

Exhibit 5:

Summary of 2006 Year-End CEO Speech held on December 19, 2006, and 2006 Honda Sales & Production Forecast announced on December 19, 2006 (Ref.# C06-111,112)

Exhibit 6:

On December 25, 2006, Honda Motor Co., Ltd., announced its automobile production, domestic sales, and export results for the month of November 2006. (Ref.#C06-114)

Exhibit 7:

English summary and translation of semi-annual report (“hanki-houkokusho”) for the First-Half term (six months ended September 30, 2006) of the 83rd fiscal period


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

 

HONDA GIKEN KOGYO
KABUSHIKI KAISHA
( HONDA MOTOR CO., LTD. )

/s/ Fumihiko Ike

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

Date: January 19, 2007


Table of Contents

LOGO

Ref.# C06-107

Honda Establishes Solar Cell Subsidiary Company, Honda Soltec

to Make Full-Scale Entry into Solar Cell Business

Tokyo, December 1, 2006 – Honda Motor Co., Ltd. today announced plans to establish a wholly-owned subsidiary, Honda Soltec Co., Ltd., which will produce and sell the next-generation thin film solar cell independently developed by Honda. The new company will lead Honda to make a full-scale entry into the solar cell business.

The next-generation solar cell to be produced and sold by Honda Soltec was developed by Honda Engineering Co., Ltd., the production engineering subsidiary of Honda. By using thin film made from a compound of copper, indium, gallium and selenium (CIGS), Honda’s next-generation solar cell achieves a major reduction in the amount of energy consumed during the manufacturing process by approximately 50% compared to what is required to produce conventional crystal silicon solar cells. This makes the new solar cell more environmentally-friendly by reducing the amount of CO2 generated even from the production stage.

At the end of September 2006, Honda began construction of a plant to mass produce solar cells within the current site of Honda’s Kumamoto factory, and the new facility will become operational in fall 2007 with an annual capacity of 27.5 megawatts. Prior to the start-up of the new plant, Honda Soltec will begin sales in limited areas in March 2007, of CIGS thin film compound solar cells produced by Honda Engineering. Once mass production begins at the new plant in Kumamoto in fall 2007, Honda Soltec will expand sales throughout Japan.

In addition to its effort to reduce CO2 emissions through development of clean automobile engines, Honda is committed to develop environmentally-friendly and sustainable energy technologies. Honda will contribute to the effort to prevent global warming through production and sales of a clean energy source which does not use fossil fuels.

 

About Honda Soltec Co., Ltd.:   

Establishment:

   December 1, 2006

Headquarters location:

  

1500 Hirakawa, Ozu-machi, Kikuchi-gun, Kumamoto

(within the current site of Honda Motor Co., Ltd. Kumamoto factory)

Sales office location:

   Wako, Saitama (plan)

Capital investment:

   4 billion yen

Capitalization ratio:

   100% Honda Motor Co., Ltd.

Representative:

   President: Akio Kazusa

Employment:

   Approximately 150 associates (plan)

Business:

   Production and sale of solar cells

About the New plant:

  

Lot area:

  

25,000 square meters(m2)

Facility size:

  

11,080 square meters(m2)

Investment:

  

Approximately 7 billion yen

Start of operation:

  

Fall 2007 (plan)

Production capacity:

  

Approximately 27.5 megawatts annually


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LOGO

Press Release for HMI – to be released on Dec 1, 2006

Honda Motor India, Honda’s 100% subsidiary for Service Parts, begins operations

To begin with HSCI parts operations

New Delhi, Dec 1, 2006 : Honda Motor India Pvt Ltd (HMI), the wholly owned subsidiary of Honda Motor Co., Ltd. formally began its operations today from its corporate office in Greater Noida, UP.

The plan to set up HMI was first announced in July this year by Mr Takeo Fukui, President and CEO, Honda Motor Co.,Ltd, during his visit to New Delhi.

Formation of HMI is part of the overall strategy to strengthen and integrate operations of Honda companies in India with respect to service parts.

HMI will begin its functions by immediately taking over the parts operations of Honda Siel Cars India Ltd. (HSCI) and gradually integrate operations of Honda Siel Power Products and Honda Motorcycles & Scooters India Pvt Ltd.

HMI will study the possibility of establishing a similar synergistic relationship with the fourth Honda company, Hero Honda Motors Ltd in the near future.

Starting with a capital is Rs 15 crore, HMI has targeted a turnover of Rs 180 crore for the fiscal 2008.

HMI will have a new warehouse facility to stock the service parts of motorcycles, automobiles and power products together which will be utilized along with other common resources like transportation, logistics and system development to help improve cost and operational efficiencies by up to 20%. This would ultimately result in overall benefit to customers by way of quality services like delivery within 24 hours and other cost advantages.

Mr. Masahiro Takedagawa, Operating Officer, Honda Motor Co.,Ltd, who is also the President and CEO of HSCI, will head the new company as its President & CEO.

 

Company Information
Name:    Honda Motor India Pvt Ltd.
Established:    September 18, 2006.
Starts operation:    December 1, 2006
Location:   

Plot No. A-1, Sector 40/41, Surajpur-Kasna Road,

Distt. Gautam Budh Nagar (UP) - 201306

(With in the current site of Honda Siel Cars India Ltd.)

Capitalization Ratio:    100% Honda Motor Co.,Ltd.
Total Investment:    About Rs 15 crore
President & CEO    Mr. Masahiro Takedagawa
Employment:    40 associates
Business:    Parts operations


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(English Translation)

Notice of Record Date to Determine Stockholders

Entitled to Receive Distribution of Surplus (Quarterly Dividends)

Only the shareholders listed or recorded in the final register of shareholders or register of beneficial shareholders on December 31, 2006 will be entitled to receive distribution of surplus (dividends for the 3rd quarter of the Company’s 83rd fiscal year) from the company.

 

December 13, 2006
HONDA MOTOR CO., LTD.
1-1, 2-chome
Minami-Aoyama
Minato-Ku
Tokyo

The Shareholders’ Register Manager and its place of business:

The Chuo Mitsui Trust and Banking Company, Limited.

33-1, Shiba 3-chome, Minato-ku,

Tokyo, Japan

Forwarding offices:

All branch offices throughout Japan of The Chuo Mitsui Trust and Banking Company, Limited and the principal office and all branch and liaison offices of Japan Securities Agents, Ltd. (Nihon Shoken Daiko Kabushiki Kaisha).

 

Please Note    that you must complete the necessary procedures (such as changing the shareholder’s name in the register) no later than Friday, December 29, 2006, because the Company’s shareholders’ register manager is not open for business on Saturday, December 30, or Sunday, December 31, 2006.


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LOGO

December 19, 2006

Ref.# C06-113

Honda to Build a New Engine Plant in Japan

Establishing Production Systems and Capabilities for Advanced Engines

to Achieve Further Reduction of CO2 Emissions

Tokyo, December 19, 2006 – Honda Motor Co., Ltd. today announced plans to build a new engine plant in Ogawa, Saitama prefecture, Japan in order to accelerate establishment of production systems and capabilities for advanced engines to enable Honda to meet increasing global demand for fuel efficient vehicles. Honda plans to begin operation of this new engine plant in summer 2009, with an annual production capacity of approximately 200,000 units. Advanced engines produced at this plant will be supplied to Honda auto plants inside and outside Japan. Honda will invest approximately 25 billion yen in the new plant, with employment of approximately 500 associates.

Due to a number of factors including the high price of crude oil and increasing public concern about environmental issues, demand for fuel efficient automobiles is expected to grow rapidly in the future. As for the engine production, prior to the 2010 start-up of the new auto plant to be built in Yorii, Saitama, Honda decided to build a new engine plant in Ogawa, Saitama, near Yorii, in order to establish production systems and capabilities which can meet flexibly increases in demand, to enable Honda to offer advanced engines to customers as quickly as possible.

In the mean time, Honda has disclosed the concept for the new Yorii plant, which will become operational in 2010. Honda will build the Yorii plant with the concept of “a people-friendly and resource/energy-recycling Green Factory which will employ high quality and highly efficient production and logistics systems”, and it will be a state-of-the-art automobile plant along with new engine plant.

About the New Automobile Plant

 

     

Automobile Plant

  

Engine Plant

Location

   Yorii-machi, Osato-gun, Saitama    Ogawa-machi, Hiki-gun, Saitama

Size

   800,000 square meters (m2)    195,000 square meters (m2)

Production Capacity

   Approximately 200,000 units/year    Approximately 200,000 units/year

Start of Operation

   2010 (plan)    Summer, 2009 (plan)

Investment

   Approximately 70 billion yen (inclusive 25 billion yen for new engine plant)

Employment

   Approximately 2,200 associates (inclusive 500 associates for new engine plant)


Table of Contents

LOGO

December 19, 2006

C06-111

Summary of 2006 Year-End CEO Speech

— Accelerate our effort to strengthen the core characteristics that make Honda unique and

proactively pursue creation of advanced technologies and products

that represents the uniqueness of Honda —

Honda Motor Co., Ltd. today announced that it would further accelerate its effort to strengthen the core characteristics that make Honda unique in each business area in order to continue creating new value and providing products and services which are beyond customers’ expectations. Toward this end, Honda will steadily make progress with plans and initiatives in the following three areas, which Honda first announced in May.

 

  1) Establishing advanced manufacturing systems and capabilities

 

  2) Strengthening the foundation for overseas growth

 

  3) Accelerating Honda’s effort to reduce environmental footprint

Estimated 2006 Worldwide Sales

Honda expects to achieve all-time record sales in all three product areas.

 

Motorcycles:    12.7 million units (up 3% from 2005)
Automobiles:    3.55 million units (up 5% from 2005)
Power Products:    6.4 million units (up 15% from 2005)

Automobile Business in Japan

 

  2006 sales forecast: 700,000 units (down 2% from 2005).

 

  Ever since the three domestic sales channels were integrated into a single network in March this year, sales of mini-vehicles as well as models which had been sold exclusively by each channel have increased. Honda recognizes this increase as a result of sales channel reform which was carried out to maximize customer joy and satisfaction.

 

  In spring 2007, Honda will launch a new model which offers new value for the customer by integrating the design and mobility of an SUV and the functionality of seven-passenger seating. In addition to the introduction of this new vehicle, Honda is planning to further strengthen the appeal of its products.

 

  For its mini-vehicle business, Honda will further strengthen its collaboration with Yachiyo Industry Co., Ltd. to develop highly competitive products and to strengthen Honda’s overall business capabilities in this category.

Motorcycle Business in Japan

 

  2006 sales forecast: 350,000 units (down 5% from 2005).

 

  In 2007, Honda will continue leading the industry in both environmental and safety performance by making progress in installing fuel injection system to scooters sold in Japan and by introducing the Gold Wing equipped with an air bag.

 

  Honda will further strengthen the foundation of its motorcycle business and continue promoting the attractiveness of motorcycles by increasing the number of “Honda Dream” dealerships, which meet the diverse needs of customers, from the current 81 sites to a network of more than 100 sites by the end of 2007.

 

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Establishing Advanced Manufacturing Systems and Capabilities

<Concept of the New Automobile Plant in Yorii>

 

1) By achieving the world’s top level of resource/energy efficiency, Honda will build a “resource/energy-recycling Green Factory” which will reduce the amount of CO2 emitted per automobile produced by 20% compared to the level of 2000.

 

2) The Yorii Plant will be a state-of-the-art plant which will respond quickly to diversifying customer needs by employing high quality and highly efficient production and logistics systems.

 

3) The Yorii Plant will be a people-friendly plant where every associate will be able to fully demonstrate their unique characteristics and skills, fostering world-class experts and creating an environment where every associate feels joy and pride in their work.

<Building a New Engine Plant>

 

  Demand for fuel efficient automobiles is growing faster than expected in every part of the world. Taking this into account, Honda has decided to build a new engine plant in Ogawa, Saitama, near Yorii, prior to the production start of the Yorii automobile plant in order to establish production systems and capabilities that will enable Honda to respond flexibly to increases in demand.

 

  The annual production capacity of this new engine plant will be approximately 200,000 units. Honda plans to begin production at the new plant in summer 2009. Advanced engines produced at this plant will be supplied to Honda auto plants inside and outside of Japan. Related investment for this engine plant is expected to be approximately 25 billion yen, with employment expected to be approximately 500 associates (included in the original plan for Yorii Plant).

<Strengthening Motorcycle Production>

 

  In order to further advance our technologies and know-how in the production of motorcycles of all sizes and to strengthen our system to evolve such technologies and know-how to other Honda plants around the world, Honda will concentrate all domestic motorcycle production to Kumamoto Factory with a target schedule by the end of 2009.

<Strengthening Automatic Transmission (AT) Production>

 

  At Hamamatsu Factory, we will further strengthen production of automatic transmissions, where demand is growing on a global scale. Especially, the production of transmission gears which require a high level of manufacturing technologies will be strengthened so that Honda will handle major portion of the increased production volume in-house in the future.

<Strengthening R&D Capabilities>

 

  In addition to the reorganization of Honda’s R&D structure which was carried out in April this year, Honda will build a new R&D center in Sakura, Tochigi targeted to begin operation in 2009.

Strengthening the Foundation for Overseas Growth

<Automobile - North America>

 

  2006 U.S. sales forecast: 1.51 million units (up 3% from 2005, an all-time record for the 10th consecutive year).

 

  2007 U.S. sales plan: 1.56 million units (up 3% from 2006)

 

  An all-new Accord will go on sale in fall 2007. In addition, a concept model for the all-new Accord Coupe will be revealed at the North American International Auto Show in Detroit in January 2007.

 

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  The design concept model for a next-generation sports car, which will represent the Acura brand, will be revealed at the North American International Auto Show in Detroit in January 2007.

 

  In summer 2007, the Acura Design Center, currently under construction, will open in Los Angeles.

 

  Beginning in spring 2007, production of the Civic will be expanded by adding production at Plant 2 in Canada to the current production of Civic in Plant 1 in Canada and at the East Liberty Plant in Ohio.

 

  In fall 2007, the Honda plant in Mexico will begin production of the CR-V.

 

  A new auto plant in Indiana and a new engine plant in Canada are scheduled to begin production in 2008.

<Automobile - Europe>

 

  2006 sales forecast: 310,000 units (up 8% from 2005, an all-time record for the third consecutive year)

 

  2007 sales plan: 350,000 units (up 13% from 2006)

 

  Sales of the all-new CR-V will begin in January 2007, and Civic Type R is planned to go on sale in spring 2007.

 

  At the end of 2007, production at the UK plant will reach 250,000 units annually making full utilization of the plant’s production capacity. Combined with the capacity of 50,000 units at the plant in Turkey, Honda’s total annual auto production capacity in Europe will be 300,000 units.

<Asia>

 

  To accommodate growing demand for motorcycles in the region, Honda expanded motorcycle production capacity in India, the Philippines and Pakistan in 2006, and further capacity expansion is planned in countries such as India and Vietnam in 2007.

 

  2006 automobile sales forecast: 320,000 units (up 4% from 2005, an all-time record for the 4th consecutive year)

 

  2007 automobile sales plan: 360,000 units (up 13% from 2006)

 

  Annual automobile production capacity in India will be doubled to 100,000 units by the end of 2007. With a plan to introduce a small-size vehicle and construction of a second auto plant, Honda aims to produce and sell more than 150,000 units of automobiles in India by the end of 2010.

<South America>

 

  Honda will expand annual production capacity of its motorcycle plant in Brazil from the current 1 million units to 1.35 million units in early 2007, and further to 1.5 million units by the end of 2007.

 

  Honda will double production capacity of its automobile plant in Brazil to 100,000 units by mid-2007.

<Automobile - China>

 

  2006 sales forecast: 320,000 units (up 23% from 2005, an all-time record for the 7th consecutive year since its’ local production started)

 

  When Guangzhou Honda’s second auto plant became operational in September 2006, Honda’s total automobile production capacity in China reached 530,000 units including production at export plant.

 

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  The export plant, Honda Automobile (China), which produces Jazz for European markets will fully utilize its annual production capacity of 50,000 units by spring 2007.

 

  A new company, which will manufacture and supply transmissions and other engine components to Honda plants in China, will become operational in spring 2007. With this, Honda will further strengthen local automobile production in China.

 

  Guangzhou Honda began study toward the establishment of an automobile R&D center for further business growth.

Strengthening Honda’s Commitment to Reduce its Environmental Footprint

 

  With new technologies such as advanced VTEC and VCM for automobiles and “super-low friction engines” for motorcycles, Honda will achieve further improvement of fuel efficiency and cleaner tailpipe emissions.

 

  Application of hybrid technology will be expanded to a smaller size vehicle. Honda will offer a new dedicated hybrid vehicle in 2009 at a price level lower than the globally popular Civic Hybrid.

 

  Application of diesel technology will be expanded to a medium-to-large size vehicle. Honda will introduce “super-clean diesel engine” that will meet the stringent U.S. Tier II BIN5 emission standard, which reduces exhaust gas emissions to a level equal to a gasoline engine, in the U.S. market within the next three years. Honda will consider introducing this engine in Japan as well.

 

  In November this year, Honda began sales in Brazil of automobiles equipped with a flexible fuel vehicle (FFV) system, which enables gasoline engine-based power plants to operate on a wide range of ethanol-gasoline fuel mixtures between 20% to 100% ethanol. The Civic FFV went on sale in November and the Fit FFV in December.

 

  As for the development of technology which will more efficiently produce ethanol from stems and leaves of plants such as straw, an experimental plant will be built within Honda’s Fundamental Technology Research Center in Wako in 2007 in order to work toward establishment of the mass-production technology of bio-ethanol in the future.

 

  Compact, a home-use cogeneration unit, which has been sold roughly 40,000 units in Japan since its introduction in 2003, will be sold in U.S. from next year.

<Solar Cell>

 

  A new solar cell subsidiary, Honda Soltec Co., Ltd., was established earlier this month. This company will begin full-scale sales of soar cells when mass production begins at the new plant in Kumamoto in fall 2007. Through production and sales of environmentally-friendly and sustainable energy, Honda will further contribute to the effort to prevent global warming.

<Fuel Cell >

 

  A mass production model based on the technology and design of the FCX Concept will become available for lease sales in 2008 in Japan and the U.S.

 

  As for hydrogen generation technologies, Honda will further advance the Home Energy Station which produces hydrogen from natural gas, as well as the solar cell based Hydrogen Station, which Honda has already begun testing in the U.S.

Honda will continue to be the leader in the effort to reduce its environmental footprint by accelerating the company’s commitment and challenges to reduce CO2 emissions through innovation of engine technologies and production of clean energy.

 

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HondaJet

 

  Honda has been receiving far more orders than the annual production plan of 70 units. With a plan to deliver the first HondaJet to a customer in 2010, Honda is making progress in determining the location for a production plant in the U.S. and establishing a high quality sales and service network.

 

  In addition to the HondaJet, the HF120 Turbofan engine which was developed by the joint venture company GE Honda Aero Engines LLC, will be installed to the Spectrum Aeronautical’s “Freedom” which will go on sale in 2010. Honda will also be providing fuel efficient and highly competitive advanced engines in the world of aviation.

Motor Sports

F1:

 

  Honda achieved a much-awaited victory in Hungary Grand Prix in August. For the 2007 season, Honda wants to meet fans’ expectations by winning the top spot on the winner’s podium more often and competing for the constructor’s title.

 

  Honda will strongly support the SUPER AGURI F1 TEAM by providing highly competitive engines again in the 2007 season.

 

  Through Mobilityland Corporation, Honda will continue negotiating toward hosting an F1 race again at Suzuka Circuit.

IRL:

 

  Starting with the 2007 season, the IndyCar race engine will shift to 100% ethanol fuel. Honda will support the U.S. motor sports culture by providing environmentally-friendly and highly competitive engines to traditional open-wheel racing which has fans all over the U.S.

WGP:

 

  For the top motorcycle road race series of MotoGP, Honda will aim to win the triple-crown for the second consecutive year with a new machine, the RC212V.

Renovation of Suzuka Circuit:

 

  Honda will renovate Suzuka Circuit with the goal to achieve the further evolution of mobility and motor sports.

 

  A major refurbishment of the Traffic Education Center will take place, to re-open in summer 2007. With this center, Honda will contribute to achieving a safer and richer mobility society.

 

  In addition, the pits and paddocks on the race course will be overhauled. As one of the top-class racing circuits in the world, Suzuka Circuit will continue to host various international races and foster young racers. Through such activities, Suzuka Circuit will continue providing dreams and excitement to many motor sports fans.

Honda will further strengthen the core characteristics that make Honda unique and continue taking on challenges in the creation of advanced technologies and products that represent the uniqueness of Honda to accomplish our goal to provide our customers with even greater joy and excitement.

 

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LOGO

December 19, 2006

Ref.# C06-112

2006 Honda SALES & PRODUCTION FORECAST

 

< Motorcycles >   Unit (thousands)

 

      2005    2006  
   Result    Forecast     % Change  

Global Sales

   12,284    12,700 *   103 %

Domestic

   369    350     95 %

Overseas

   11,914    12,350 *   104 %

North America

   633    570     90 %

South America

   962    1,210 *   126 %

Europe, the Middle & Near East and Africa

   409    390     95 %

Asia and Oceania

   8,982    9,260 *   103 %

China

   927    910     98 %

Global Production

   12,519    12,850 *   103 %

Domestic

   623    570     92 %

Overseas

   11,896    12,270 *   103 %

 

•      Motorcycles: including ATVs

   *New record

•      North America: including Mexico

  

•      Domestic production: Completely built unit (CBU) + complete knock-down (CKD)

  

•      Overseas production: CBU at local plants (excluding CKD)

  

 

< Automobiles >   Unit (thousands)

 

      2005    2006  
   Result    Forecast     % Change  

Global Sales

   3,365    3,550 *   105 %

Domestic

   714    700     98 %

Registrations

   467    420     90 %

Mini vehicles

   246    280     113 %

Overseas

   2,650    2,850 *   108 %

North America

   1,656    1,720 *   104 %

(U.S. only)

   1,462    1,510 *   103 %

South America

   74    90 *   121 %

Europe, the Middle & Near East and Africa

   354    390 *   110 %

(Europe)

   285    310 *   108 %

Asia and Oceania

   306    320 *   104 %

China

   260    320 *   123 %

Global Production

   3,409    3,630 *   106 %

Domestic

   1,261    1,330     105 %

Overseas

   2,147    2,300 *   107 %

Export sales from Japan

   522    630     120 %

 

•      North America: including Mexico

   *New record

•      Europe: West/Central/East Europe + Russia and Ukraine

  

•      Domestic production: CBU + CKD

  

•      Overseas production: CBU at local plants (excluding CKD)

  

•      Export sales from Japan: CBU + CKD

  

 

< Power Products >   Unit (thousands)

 

      2005    2006  
   Result    Forecast     % Change  

Global Sales

   5,551    6,400 *   115 %

Domestic

   463    520 *   112 %

Overseas

   5,088    5,880 *   116 %

*New record


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LOGO

Ref.#C06-114

Honda Sets Monthly Record for Worldwide, Domestic and Overseas Auto Production

December 25, 2006 – Honda Motor Co., Ltd., today announced its automobile production, domestic sales, and export results for the month of November 2006.

<Production>

For the sixteenth consecutive month since August 2005, worldwide production increased in November over the same month a year ago. Honda achieved a new record for the month of November.

Due to an increase in production for overseas markets, domestic production experienced a year-on-year increase for the sixth consecutive month since June 2006. Honda achieved a new record for the month of November.

Due mainly to production increases in North America and Asia, overseas production increased compared to the same month a year ago for the sixteenth consecutive month since August 2005. Honda achieved a new record for overseas production for the month of November, including record production in North America. Production in Asia also set an all-time record for any month.

<Japan Domestic Sales>

Total domestic sales increased compared to the same month a year ago for the first time in the last two months since September 2006.

Due to decreased sales of Air Wave and Step Wagon, new vehicle registrations in November experienced a year-on-year decline for the eighth consecutive month since April 2006.

Due mainly to an increase in sales of Zest, mini-vehicle sales increased compared to the same month a year ago for the first time in the last two months since September 2006.

<Vehicle registrations - excluding mini vehicles>

Fit was the industry’s fourth best selling car among new vehicle registrations for the month of November, with sales of 7,350 units. Step Wagon ranked as the industry’s sixth best selling car among new vehicle registrations for the month of November, with sales of 5,826 units.

<Mini vehicles - under 660cc>

Life was the industry’s fifth best selling car among mini vehicles, with sales of 7,823 units, and ranked as Honda’s best selling car for the month of November. Zest was the industry’s tenth best selling vehicle among mini vehicles for the month of November, with sales of 5,170 units.

<Exports from Japan>

Due primarily to an increase in exports to North America, total exports increased over the same month a year ago for the sixth consecutive month since June 2006.


Table of Contents

Production

 

     November    

Year-to-Date Total

(Jan - Nov 2006)

 
     Units    Vs.11/05     Units    Vs.2005  

Domestic (CBU+CKD)

   126,534    +15.0 %   1,216,488    +4.8 %

Overseas (CBU only)

   202,258    +8.1 %   2,134,083    +7.6 %
                      

Worldwide Total

   328,792    +10.6 %   3,350,571    +6.6 %

Production by Region

 

     November    

Year-to-Date Total

(Jan - Nov 2006)

 
     Units    Vs.11/05     Units    Vs.2005  

North America

   119,357    +1.4 %   1,291,578    +3.4 %

(USA only)

   81,379    +1.3 %   906,808    +4.2 %

Europe

   15,205    -8.8 %   172,244    -0.6 %

Asia

   59,090    +27.7 %   582,506    +19.0 %

(China only)

   35,048    +29.6 %   321,507    +31.4 %

Others

   8,606    +32.0 %   87,755    +23.4 %
                      

Overseas Total

   202,258    +8.1 %   2,134,083    +7.6 %

Japan Domestic Sales

 

Vehicle type

        November     Year-to-Date Total
(Jan - Nov 2006)
 
     Units    Vs.10/05     Units    Vs.2005  

Registrations

     32,451    -12.1 %   383,092    -11.3 %

Mini Vehicles

     25,440    +24.2 %   256,006    +11.6 %
                        

Honda Brand Total

     57,891    +0.9 %   639,098    -3.4 %

Exports from Japan

 

     November     Year-to-Date Total
(Jan - Nov 2006)
 
     Units    Vs.11/05     Units    Vs.2005  

North America

   26,653    +59.8 %   319,301    +39.6 %

(USA only)

   25,068    +70.4 %   289,049    +42.4 %

Europe

   13,431    +33.1 %   120,889    -3.5 %

Asia

   2,497    +109.1 %   17,483    +12.4 %

Others

   11,672    +12.8 %   109,511    +7.5 %
                      

Total

   54,253    +41.6 %   567,184    +20.3 %


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

September 30, 2006


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2005 and 2006 and March 31, 2006

 

     Yen (millions)  

Assets

   September 30,
2005
    September 30,
2006
    March 31,
2006
 
     unaudited     unaudited     audited  

Current assets:

      

Cash and cash equivalents

   ¥ 731,199     ¥ 792,489     ¥ 747,327  

Trade accounts and notes receivables, net of allowance for doubtful accounts of ¥10,554 million at September 30, 2005, ¥8,259 million at September 30, 2006 and ¥10,689 million at March 31, 2006 (note 2)

     672,160       796,245       963,320  

Finance subsidiaries-receivables, net (notes 2,5 and 9)

     1,214,243       1,471,967       1,230,912  

Inventories (note 3)

     941,161       1,109,412       1,036,304  

Deferred income taxes

     225,255       198,848       198,033  

Other current assets (notes 4 and 9)

     372,583       469,075       450,002  
                        

Total current assets

     4,156,601       4,838,036       4,625,898  
                        

Finance subsidiaries-receivables, net (notes 2,5 and 9)

     2,909,017       3,290,975       2,982,425  

Investments and advances:

      

Investments in and advances to affiliates

     377,682       426,029       408,993  

Other, including marketable equity securities (notes 4 and 9)

     310,285       250,095       298,460  
                        

Total investments and advances

     687,967       676,124       707,453  
                        

Property, plant and equipment, at cost (note 5):

      

Land

     370,472       402,338       384,447  

Buildings

     1,062,707       1,217,806       1,149,517  

Machinery and equipment

     2,341,808       2,700,806       2,562,507  

Construction in progress

     153,614       201,600       115,818  
                        
     3,928,601       4,522,550       4,212,289  

Less accumulated depreciation and amortization

     2,270,024       2,548,790       2,397,022  
                        

Net property, plant and equipment

     1,658,577       1,973,760       1,815,267  
                        

Other assets (notes 2 and 9)

     470,517       423,562       440,638  
                        

Total assets

   ¥ 9,882,679     ¥ 11,202,457     ¥ 10,571,681  
                        
     Yen (millions)  

Liabilities and Stockholders’ Equity

   September 30,
2005
    September 30,
2006
    March 31,
2006
 
     unaudited     unaudited     audited  

Current liabilities:

      

Short-term debt (note 5)

   ¥ 725,771     ¥ 1,221,228     ¥ 693,557  

Current portion of long-term debt (note 5)

     567,250       749,127       657,645  

Trade payables:

      

Notes

     24,684       26,890       31,698  

Accounts

     931,950       1,031,255       1,099,902  

Accrued expenses

     947,571       951,445       930,115  

Income taxes payable

     80,505       62,644       110,160  

Other current liabilities (note 9)

     435,155       481,845       466,332  
                        

Total current liabilities

     3,712,886       4,524,434       3,989,409  
                        

Long-term debt, excluding current portion (note 5)

     1,800,814       1,745,205       1,879,000  

Other liabilities (notes 6 and 9)

     742,313       576,037       577,522  
                        

Total liabilities

     6,256,013       6,845,676       6,445,931  
                        

Stockholders’ equity:

      

Common stock, authorized 7,108,000,000 shares at September 30,2005 and 7,086,000,000 shares at September 30,2006 and at March 31, 2006 ; issued 1,856,828,430 shares at September 30, 2005 and 1,834,828,430 shares at September 30, 2006 and at March 31, 2006

     86,067       86,067       86,067  

Capital surplus

     172,531       172,529       172,529  

Legal reserves

     35,516       37,332       35,811  

Retained earnings

     4,018,709       4,482,612       4,267,886  

Accumulated other comprehensive income (loss), net (note 8)

     (644,464 )     (387,749 )     (407,187 )

Treasury stock, at cost 14,791,514 shares at September 30, 2005, 11,147,456 shares at September 30, 2006 and 8,680,000 shares at March 31, 2006

     (41,693 )     (34,010 )     (29,356 )
                        

Total stockholders’ equity

     3,626,666       4,356,781       4,125,750  
                        

Commitments and contingent liabilities (notes 11 and 12)

      

Total liabilities and stockholders’ equity

   ¥ 9,882,679     ¥ 11,202,457     ¥ 10,571,681  
                        

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Income

For the six months ended September 30, 2005 and 2006 and the year ended March 31, 2006

 

     Yen (millions)  
     September 30,
2005
    September 30,
2006
    March 31,
2006
 
     unaudited     unaudited     audited  

Net sales and other operating revenue

   ¥ 4,602,249     ¥ 5,230,598     ¥ 9,907,996  

Operating costs and expenses:

      

Cost of sales

     3,235,849       3,745,799       7,010,357  

Selling, general and administrative

     786,273       843,308       1,656,365  

Research and development

     247,040       244,946       510,385  
                        
     4,269,162       4,834,053       9,177,107  
                        

Gain on transfer of the substitutional portion of the Employees’ Pension Funds

     —         —         138,016  

Operating income

     333,087       396,545       868,905  

Other income (note 1 (q)):

      

Interest

     9,926       20,125       27,363  

Other

     4,516       5,334       2,214  
                        
     14,442       25,459       29,577  
                        

Other expenses (note 1(d) and (q)):

      

Interest

     6,737       6,682       11,902  

Other

     27,092       69,450       71,963  
                        
     33,829       76,132       83,865  
                        

Income before income taxes and equity in income of affiliates

     313,700       345,872       814,617  

Income taxes (benefit) expense :

      

Current

     149,531       134,444       319,945  

Deferred

     (32,998 )     (2,248 )     (2,756 )
                        
     116,533       132,196       317,189  
                        

Income before equity in income of affiliates

     197,167       213,676       497,428  

Equity in income of affiliates

     47,207       57,635       99,605  
                        

Net income

   ¥ 244,374     ¥ 271,311     ¥ 597,033  
                        
     Yen  
     September 30,
2005
    September 30,
2006
    March 31,
2006
 

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

      
   ¥ 132.32     ¥ 148.52     ¥ 324.33  
                        

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

For the six months ended September 30, 2005 and 2006 and the year ended March 31, 2006

 

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

Balance at March 31, 2005

   86,067    172,531     34,688    3,809,383     (793,934 )   (19,441 )   3,289,294  
                                        

Transfer to legal reserves

        828    (828 )       —    

Cash dividends

           (34,220 )       (34,220 )

Comprehensive income (loss):

                

Net income for the period

           244,374         244,374  

Other comprehensive income (loss) for the period, net of tax (note 8)

                

Adjustments from foreign currency translation

             135,039       135,039  

Unrealized gains (losses) on marketable equity securities:

                

Unrealized holding gains (losses) arising during the period

             14,862       14,862  

Reclassification adjustments for losses (gains) realized in net income

             (464 )     (464 )

Unrealized gains (losses) on derivative instruments:

                

Unrealized holding gains (losses) arising during the year

                 —    

Reclassification adjustments for losses (gains) realized in net income

                 —    

Minimum pension liabilities adjustment

             33       33  
                    

Total comprehensive income for the period

                 393,844  
                    

Purchase of treasury stock

               (22,252 )   (22,252 )

Reissuance of treasury stock

                 —    

Retirement of treasury stock

                 —    
                                        

Balance at September 30, 2005 (Unaudited)

   86,067    172,531     35,516    4,018,709     (644,464 )   (41,693 )   3,626,666  
                                        

Balance at March 31, 2006

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

Transfer to legal reserves

        1,521    (1,521 )       —    

Cash dividends

           (54,784 )       (54,784 )

Comprehensive income (loss):

                

Net income for the period

           271,311         271,311  

Other comprehensive income (loss) for the period, net of tax (note 8)

                

Adjustments from foreign currency translation

             29,277       29,277  

Unrealized gains (losses) on marketable equity securities:

                

Unrealized holding gains (losses) arising during the period

             (7,667 )     (7,667 )

Reclassification adjustments for losses (gains) realized in net income

             (2,155 )     (2,155 )

Unrealized gains (losses) on derivative instruments:

                

Unrealized holding gains (losses) arising during the year

             (581 )     (581 )

Reclassification adjustments for losses (gains) realized in net income

             588       588  

Minimum pension liabilities adjustment

             (24 )     (24 )
                    

Total comprehensive income for the period

                 290,749  
                    

Purchase of treasury stock

               (23,531 )   (23,531 )

Reissuance of treasury stock

           (280 )     18,877     18,597  

Retirement of treasury stock

                 —    
                                        

Balance at September 30, 2006 (Unaudited)

   86,067    172,529     37,332    4,482,612     (387,749 )   (34,010 )   4,356,781  
                                        

Balance at March 31, 2005

   86,067    172,531     34,688    3,809,383     (793,934 )   (19,441 )   3,289,294  
                                        

Transfer to legal reserves

        1,123    (1,123 )       —    

Cash dividends

           (71,061 )       (71,061 )

Comprehensive income (loss), :

                

Net income for the period

           597,033         597,033  

Other comprehensive income (loss) for the period, net of tax (note 8)

                

Adjustments from foreign currency translation

             249,160       249,160  

Unrealized gains (losses) on marketable equity securities:

                

Unrealized holding gains (losses) arising during the period

             29,807       29,807  

Reclassification adjustments for losses (gains) realized in net income

             (841 )     (841 )

Unrealized gains (losses) on derivative instruments:

                

Unrealized holding gains (losses) arising during the year

             (26 )     (26 )

Reclassification adjustments for losses (gains) realized in net income

             (38 )     (38 )

Minimum pension liabilities adjustment

             108,685       108,685  
                    

Total comprehensive income for the period

                 983,780  
                    

Purchase of treasury stock

               (77,067 )   (77,067 )

Reissuance of treasury stock

           (125 )     928     803  

Retirement of treasury stock

      (2 )      (66,221 )     66,224     1  
                                        

Balance at March 31, 2006 (Audited)

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

 


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the six months ended September 30, 2005 and 2006 and the year ended March 31, 2006

 

     Yen (millions)  
     September 30,
2005
    September 30,
2006
    March 31,
2006
 
     unaudited     unaudited     audited  

Cash flows from operating activities (note 7):

      

Net income

   ¥ 244,374     ¥ 271,311     ¥ 597,033  

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

      

Depreciation

     112,970       155,535       262,225  

Deferred income taxes

     (32,998 )     (2,248 )     (2,756 )

Equity in income of affiliates

     (47,207 )     (57,635 )     (99,605 )

Dividends from affiliates

     23,858       27,483       64,055  

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

     19,147       17,943       36,153  

Loss (gain) on derivative instruments, net

     (12,034 )     48,489       10,351  

Gain on transfer of the substitutional portion of the Employees’ Pension Funds

     —         —         (138,016 )

Decrease (increase) in assets:

      

Trade accounts and notes receivables

     141,577       194,998       (113,259 )

Inventories

     (49,627 )     (54,682 )     (109,661 )

Other current assets

     (233 )     (22,981 )     (75,771 )

Other assets

     (37,861 )     (12,380 )     (61,482 )

Increase (decrease) in liabilities:

      

Trade accounts and notes payables

     (92,307 )     (79,715 )     41,360  

Accrued expenses

     5,227       17,477       98,273  

Income taxes payable

     12,615       (47,984 )     39,900  

Other current liabilities

     (14,054 )     6,855       6,126  

Other liabilities

     (2,629 )     (4,068 )     5,740  

Other, net

     49,679       (3,437 )     15,891  
                        

Net cash provided by operating activities

     320,497       454,961       576,557  

Cash flows from investing activities:

      

Increase in investments and advances

     (6,082 )     (3,568 )     (17,314 )

Decrease in investments and advances

     1,048       437       3,711  

Payment for purchase of available-for-sale securities

     (800 )     (1,828 )     (6,915 )

Proceeds from sales of available-for-sale securities

     5,446       3,730       5,666  

Payment for purchase of held-to-maturity securities

     (24,034 )     —         (63,395 )

Proceeds from redemption of held-to-maturity securities

     136       8,860       55,990  

Capital expenditures

     (169,726 )     (282,283 )     (460,021 )

Proceeds from sales of property, plant and equipment

     6,288       11,542       39,951  

Acquisitions of finance subsidiaries-receivables

     (1,589,949 )     (1,701,651 )     (3,031,644 )

Collections of finance subsidiaries-receivables

     898,705       1,061,179       1,870,675  

Proceeds from sales of finance subsidiaries-receivables

     426,688       134,048       930,595  
                        

Net cash used in investing activities

     (452,280 )     (769,534 )     (672,701 )

Cash flows from financing activities :

      

Increase (decrease) in short-term debt

     (71,194 )     287,673       (124,941 )

Proceeds from long-term debt

     503,428       485,027       865,677  

Repayment of long-term debt

     (309,049 )     (344,570 )     (568,605 )

Cash dividends paid

     (34,220 )     (54,784 )     (71,061 )

Payment for purchase of treasury stock, net

     (22,252 )     (23,093 )     (77,064 )
                        

Net cash provided by financing activities

     66,713       350,253       24,006  

Effect of exchange rate changes on cash and cash equivalents

     22,731       9,482       45,927  
                        

Net change in cash and cash equivalents

     (42,339 )     45,162       (26,211 )

Cash and cash equivalents at beginning of the period

     773,538       747,327       773,538  
                        

Cash and cash equivalents at end of the period

   ¥ 731,199     ¥ 792,489     ¥ 747,327  
                        

See accompanying notes to consolidated financial statements.


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

For the six months ended September 30, 2005 and 2006 and the year ended March 31, 2006

 

(1) General and Summary of Significant Accounting Policies

 

  (a) Financial Statements

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, all adjustments which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the year. For further information, refer to the March 31, 2006 consolidated financial statements and notes thereto included in Honda Motor Co., Ltd. and Subsidiaries Annual Report for the year ended March 31, 2006. Consolidated financial statements ended March 31, 2006 are derived from the audited consolidated financial statements, while consolidated financial statements ended September 30, 2005 and 2006 are unaudited.

 

  (b) Description of Business

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

Net sales and other operating revenue, Operating income and Total assets for and as of the six months ended September 30, 2006 were broken down based on the category of activity as follows:

 

     Motorcycle
Business
(%)
   Automobile
Business
(%)
   Financial
Services
Business
(%)
  

Power Product
& Other
Businesses

(%)

  

Reconciling
Items

(%)

    Consolidated
(%)

Net sales and other operating revenue (unaffiliated customers):

   12.3    80.2    3.6    3.9    —       100.0

Operating Income

   11.4    70.9    13.1    4.6    —       100.0

Total assets

   8.9    43.8    49.2    2.6    (4.5 )   100.0

Honda sells motorcycles, automobiles and power products in most countries in the world. For the six months ended September 30, 2006, 80.5% of net sales and other operating revenue (¥4,211,191 million) was derived from subsidiaries operating outside Japan (September 30, 2005: ¥3,592,064 million). Net sales and other operating revenue for the six months ended September 30, 2006 was geographically broken down based on the location of customers as follows:

 

     Japan
(%)
   North
America
(%)
   Europe
(%)
   Asia
(%)
   Others
(%)
   Consolidated
(%)

Net sales and other operating revenue:

   15.7    53.6    10.6    11.9    8.2    100.0

For the six months ended September 30, 2006, 75.7% of operating income (¥300,106 million) was generated from foreign subsidiaries, disregarding the effect of elimination of unrealized profits between domestic operations and foreign operations (September 30, 2005: ¥218,657 million). Also, 75.6% of Honda’s assets at September 30, 2006 (¥8,466,512 million) was identified with foreign operations (September 30, 2005: ¥7,133,712 million).

 

1


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (c) Basis of Presenting Consolidated Financial Statements

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

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

 

  (d) Consolidation Policy

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

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

Minority interests in net assets and income are not significant and, accordingly, are not presented separately in the accompanying consolidated balance sheets and statements of income. The amount of minority interest recognized in earnings, included in other expenses-other, during the six months ended September 30, 2005 and 2006 and for the year ended March 31, 2006 was ¥7,587 million, ¥9,136 million and ¥15,287 million, respectively.

 

  (e) Use of Estimates

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (f) Revenue Recognition

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

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

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

Finance subsidiaries of the Company periodically sell finance receivables. Gain or loss is recognized equal to the difference between the cash proceeds received and the carrying value of the receivables sold and is recorded in the period in which the sale occurs. Honda allocates the recorded investment in finance receivables between the portion(s) of the receivables sold and portion(s) retained based on the relative fair values of those portions on the date the receivables are sold. Honda recognizes gains or losses attributable to the change in the fair value of the retained interests, which are recorded at estimated fair value and accounted for as “trading” securities. Honda determines the fair value of the retained interests by discounting the future cash flows. Those cash flows are estimated based on prepayments, credit losses and other information as available and are discounted at a rate which Honda believes is commensurate with the risk free rate plus a risk premium. A servicing asset or liability is amortized in proportion to and over the period of estimated net servicing income. Servicing assets and servicing liabilities at September 30, 2005 and 2006 and March 31, 2006 were not significant.

 

  (g) Cash Equivalents

Honda considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

 

  (h) Inventories

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (i) Investments in Securities

Honda classifies its debt and marketable equity securities in the following categories: available-for-sale, trading, or held-to-maturity. Debt securities that are classified as “held-to-maturity” securities are reported at amortized cost. Debt and marketable equity securities classified as “trading” securities are reported at fair value, with 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 stockholders’ equity section of the consolidated balance sheets. Honda did not hold any “trading” securities at September 30, 2005 or 2006 or March 31, 2006, except for retained interests in the sold pools of finance receivables, which are accounted for as “trading” securities and included in finance subsidiaries-receivables.

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

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

 

  (j) Goodwill

Goodwill is not amortized but instead is tested for impairment at least annually. Goodwill is considered impaired if its estimated fair value is less than the carrying value. Honda completed its annual test effective March 31, 2005 and 2006 and concluded no impairment needed to be recognized. The carrying amount of goodwill at September 30, 2005 and 2006 and March 31, 2006 was ¥19,104 million, ¥29,249 million and ¥27,951 million, respectively.

 

  (k) Depreciation

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

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

 

Asset

   Life

Buildings

   3 to 50 years

Machinery and equipment

   2 to 20 years

 

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

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (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.

 

  (n) Product-Related Expenses

Advertising and sales promotion costs are expensed as incurred. Provisions for estimated costs related to product warranty are made at the time the products are sold to customers or new warranty programs are initiated. Estimated warranty expenses are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs. Included in warranty expenses accruals are costs for general warranties on vehicles Honda sells and product recalls.

 

  (o) Basic Net Income per Common Share

Basic net income per common share has been computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding during the six months ended September 30, 2005 and 2006 and for the year ended March 31, 2006 was 1,846,828,061, 1,826,739,817 and 1,840,799,671, respectively. There were no potentially dilutive shares outstanding during the six months ended September 30, 2005 or 2006 or for the year ended March 31, 2006.

The Company did a two-for-one stock split for the Company’s common stock effective July 1, 2006. Information pertaining to Basic Net Income per Common Share has been adjusted retroactively for all periods presented to reflect this stock split.

 

  (p) Foreign Currency Translation

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

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

 

  (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.

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

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.

In conformity with Statement of Financial Accounting Standards (SFAS) No.133, changes in the fair value of derivative financial instruments not designated as accounting hedges are recognized in earnings in the period of the change.

The amount recognized in earnings included in other income (expenses) – other during the six months ended September 30, 2005 and 2006 and for the year ended March 31, 2006, were ¥23,131 million loss, ¥47,622 million loss and ¥55,516 million loss, respectively. In relation to this, the Company included gains and losses on translation of debts of finance subsidiaries denominated in foreign currencies intended to be hedged of ¥28,789 million gain, ¥867 million loss and ¥45,046 million gain in other income(expenses) – other during the six months ended September 30, 2005 and 2006 and the years ended March 31, 2006, respectively. In addition, net realized gains and losses on interest rate swap contracts not designated as accounting hedges by finance subsidiaries of ¥2,757 million loss, ¥3,765 million gain and ¥827 million gain are included in other income (expenses)– other during the six months ended September 30, 2005 and 2006 and the years ended March 31, 2006, respectively. These gains and losses are presented on a net basis.

Honda doesn’t hold any derivative financial instruments for trading purpose.

 

  (r) Shipping and Handling Costs

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

 

  (s) Asset Retirement Liability

Honda applies Financial Accounting Standards Board (FASB) Interpretation No. (FIN)47, “Accounting for Conditional Asset Retirement obligations – an interpretation of FASB Statement No.143”. FIN47 clarifies the term conditional asset retirement obligation as used in SFAS No.143 and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by this Interpretation include those for which an entity has a legal obligation to perform an asset retirement activity, however the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

  (t) New Accounting Pronouncements Not Yet Adopted

In March 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 156, “Accounting for Servicing of Financial Assets”. This statement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 gives revised guidance as to when servicing assets and servicing liabilities should be recognized. It also revises guidance regarding the initial and subsequent measurement of servicing assets and liabilities. SFAS No. 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. Management is currently in process of quantifying the financial impact of adoption. It is not anticipated that adoption will have a material impact on the Company’s financial position or results of operations.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. This Interpretation prescribes a two step process for the recognition and measurement in the financial statement of a tax position taken or expected to be taken in a tax return. This statement is effective as of an entity’s first fiscal year that begins after December 15, 2006. Management is currently in the process of quantifying the financial impact of adoption.

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

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This statement amends SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension and for Termination Benefits”, SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”, and SFAS No. 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement requires an employer to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. This statement replaces SFAS No. 87’s requirement to report at least minimum pension liability measured as excess of the accumulated benefit obligation over the fair value of the plan assets. This statement also changes the date at which benefit obligations are to be measured to the date of the year-end statement of financial position. This statement is effective for fiscal years ending after December 15, 2006 with respect to the recognition of funded status of its plans and for fiscal years ending after December 15, 2008 with respect to the change in measurement date of the benefit obligation. Early adoption of both provisions is encouraged. Management is currently in the process of determining whether to early adopt this statement.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

In September 2006, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No.108, “Quantifying Financial Misstatements”. This bulletin clarifies the process of quantifying financial statement misstatements and the treatment of financial misstatements of prior years. This bulletin also requires to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. This bulletin shows the techniques most commonly used in practice to quantify misstatements are generally referred to as the “rollover” and “iron curtain” approaches. The financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. This bulletin is effective for financial statements for the first fiscal year ending after November 15, 2006. Management is currently in process of quantifying the financial impact of adoption. It is not anticipated that adoption will have a material impact on the Company’s financial position or results of operations.

 

  (u) Reclassifications

Certain reclassifications have been made to the prior periods’ consolidated financial statements to conform to the presentation used for the six months ended September 30, 2006.

In the current period, management has classified cash dividends received from affiliates in operating activities instead of investing activities in the consolidated statements of cash flows.

 

(2) Finance Subsidiaries-Receivables

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

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

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Finance subsidiaries-receivables, net, consisted of the following at September 30, 2005 and 2006 and March 31, 2006:

 

     Yen (millions)
     September 30,
2005
   September 30,
2006
   March 31,
2006

Direct financing leases

   ¥ 2,154,049    ¥ 2,280,334    ¥ 2,220,100

Retail

     2,388,429      2,745,234      2,405,926

Wholesale

     257,211      330,077      403,499

Term loans to dealers

     12,383      14,083      14,337

Loans held for sale (a)

     —        180,615      —  
                    

Total finance receivables

     4,812,072      5,550,343      5,043,862

Retained interests in the sold pools of finance receivables

     77,987      87,465      94,634
                    
     4,890,059      5,637,808      5,138,496

Less:

        

Allowance for credit losses (b)

     34,806      39,533      35,316

Allowance for losses on lease residual values

     37,810      35,243      37,774

Unearned interest income and fees (c)

     222,398      236,428      224,901
                    

Finance subsidiaries-receivables, net, before reclassification

     4,595,045      5,326,604      4,840,505

Less:

        

Reclassification to trade receivables, net

     324,329      399,780      470,002

Reclassification to other assets, net

     147,456      163,882      157,166
                    

Finance subsidiaries-receivables, net

     4,123,260      4,762,942      4,213,337

Less current portion

     1,214,243      1,471,967      1,230,912
                    

Noncurrent finance subsidiaries-receivables, net

   ¥ 2,909,017    ¥ 3,290,975    ¥ 2,982,425
                    

 

  (a) The loans held for sale are carried at the lower of cost or fair value.
  (b) The allowance for credit losses of finance subsidiaries-receivables at September 30, 2005 include ¥2,036 million and ¥254 million, which were reclassified to the allowance for doubtful accounts of trade receivable and other assets in the consolidated balance sheets, respectively. The allowance for credit losses of finance subsidiaries-receivables at September 30, 2006 include ¥1,620 million and ¥435 million, which were reclassified to the allowance for doubtful accounts of trade receivable and other assets in the consolidated balance sheets, respectively. The allowance for credit losses of finance subsidiaries-receivables at March 31, 2006 include ¥1,903 million and ¥463 million, which were reclassified to the allowance for doubtful accounts of trade receivable and other assets in the consolidated balance sheets, respectively.
  (c) The unearned interest income and fees at September 30, 2005 and 2006 and March 31, 2006 include ¥20,640 million, ¥21,564 million and ¥21,252million which were reclassified to trade receivable and other assets in the consolidated balance sheets.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(3) Inventories

Inventories at September 30, 2005 and 2006 and March 31, 2006 are summarized as follows:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Finished goods

   ¥ 633,261    ¥ 732,124    ¥ 687,230

Work in process

     28,031      37,500      28,218

Raw materials

     279,869      339,788      320,856
                    
   ¥ 941,161    ¥ 1,109,412    ¥ 1,036,304
                    

 

(4) Investments and Advances

Investments and advances at September 30, 2005 and 2006 and March 31, 2006 consisted of the following:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Current

        

Corporate debt securities

   ¥ 11,762    ¥ 10,172    ¥ 13,100

U.S. government and agency debt securities

     10,187      15,895      18,733

Commercial paper

     12,999      —        5,998

Advances

     419      793      829
                    
   ¥ 35,367    ¥ 26,860    ¥ 38,660
                    

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Noncurrent

        

Marketable equity securities

   ¥ 116,790    ¥ 125,977    ¥ 141,846

Convertible preferred stocks

     33,742      13,724      22,934

Convertible notes

     82,964      32,264      56,635

Government bonds

     3,000      2,999      2,999

U.S. government and agency debt securities

     12,957      —        2,937

Non-marketable equity securities accounted for under the cost method

        

Non-marketable preferred stocks

     6,000      6,000      6,000

Other

     10,969      14,904      13,357

Guaranty deposits

     30,400      31,974      30,110

Advances

     1,497      2,618      2,209

Other

     11,966      19,635      19,433
                    
   ¥ 310,285    ¥ 250,095    ¥ 298,460
                    

Certain information with respect to marketable securities at September 30, 2005 and 2006 and March 31, 2006 is summarized below:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Available-for-sale

        

Cost

   ¥ 29,579    ¥ 30,446    ¥ 30,366

Fair value

     116,790      125,977      141,846

Gross unrealized gains

     87,245      95,630      111,540

Gross unrealized losses

     34      99      60
                    

Held-to-maturity

        

Amortized cost

   ¥ 50,905    ¥ 29,066    ¥ 43,767

Fair value

     50,540      28,977      43,428

Gross unrealized gains

     48      20      1

Gross unrealized losses

     413      109      340
                    

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(5) Short-Term and Long-Term Debt

Short-term debt at September 30, 2005 and 2006 and March 31, 2006 is as follows:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Short-term bank loans

   ¥ 283,828    ¥ 220,995    ¥ 314,124

Medium-term notes

     70,932      208,068      152,246

Commercial paper

     371,011      792,165      227,187
                    
   ¥ 725,771    ¥ 1,221,228    ¥ 693,557
                    

Long-term debt at September 30, 2005 and 2006 and March 31, 2006 is as follows:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Total long-term debt

   ¥ 2,368,064    ¥ 2,494,332    ¥ 2,536,645

Less current portion

     567,250      749,127      657,645
                    
   ¥ 1,800,814    ¥ 1,745,205    ¥ 1,879,000
                    

Property, plant and equipment with a net book value of approximately ¥6,657 million, ¥34,732 million, ¥22,592 million at September 30, 2005 and 2006 and March 31, 2006, respectively, were subject to specific mortgages securing indebtedness. Furthermore, finance subsidiaries-receivables of approximately ¥15,153 million, ¥4,569 million, ¥8,993 million at September 30, 2005 and 2006 and March 31, 2006, respectively, were pledged as collateral by a financial subsidiary for certain loans.

At September 30, 2005 and March 31, 2006, ¥198,083 million and ¥205,573 million, respectively, of commercial paper borrowings were classified as long-term, as it is the respective finance subsidiary’s intention to refinance them on a long-term basis and it has established the necessary credit facilities to do so.

At September 30, 2006, management decided not to classify the commercial paper as long term since management has no intention of refinancing them on a long-term basis.

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(6) Other Liabilities

Other liabilities at September 30, 2005 and 2006 and March 31, 2006 are summarized as follows:

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Accrued liabilities for product warranty, net of current portion

   ¥ 142,190    ¥ 147,076    ¥ 137,503

Minority interest

     73,370      90,245      87,460

Additional minimum pension liabilities

     381,125      171,855      171,773

Deferred income taxes

     68,655      79,044      115,360

Other

     76,973      87,817      65,426
                    
   ¥ 742,313    ¥ 576,037    ¥ 577,522
                    

 

(7) Supplemental Disclosures of Cash Flow Information

 

    

Yen

(millions)

     September 30,
2005
   September 30,
2006
   March 31,
2006

Cash paid during the period for:

        

Interest

   ¥ 64,309    ¥ 87,106    ¥ 134,609

Income taxes

     137,040      192,234      282,986

During the year ended March 31, 2006, the Company reissued certain of its treasury stock at fair value of ¥802 million to the minority shareholder of subsidiary, which the Company made a wholly owned subsidiary, and the Company retired shares totaling 11,000,000 shares at a cost of ¥66,224 million by offsetting with capital surplus of ¥2 million and unappropriated retained earnings of ¥66,221 million based on the resolution of board of directors.

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

 

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HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(8) Accumulated Other Comprehensive Income (Loss)

The components in accumulated other comprehensive income (loss) at September 30, 2005 and 2006 and March 31, 2006 are as follows:

 

    

Yen

(millions)

 
     September 30,
2005
    September 30,
2006
    March 31,
2006
 

Adjustments from foreign currency translation

   ¥ (489,898)     ¥ (346,500)     ¥ (375,777)  

Net unrealized gains on marketable equity securities

     48,142       52,888       62,710  

Net unrealized gains (losses) on derivative instruments

     —         (57 )     (64 )

Minimum pension liabilities adjustment

     (202,708 )     (94,080 )     (94,056 )
                        

Total accumulated other comprehensive income (loss)

   ¥ (644,464)     ¥ (387,749)     ¥ (407,187)  
                        

 

(9) Fair Value of Financial Instruments

The estimated fair values of significant financial instruments at September 30, 2005 and 2006 and March 31, 2006 are as follows:

 

    

Yen

(millions)

 
     September 30, 2005     September 30, 2006     March 31, 2006  
    

Carrying

amount

   

Estimated

fair value

   

Carrying

amount

   

Estimated

fair value

   

Carrying

amount

   

Estimated

fair value

 

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

   ¥ 2,667,060     ¥ 2,634,577     ¥ 3,276,658     ¥ 3,268,237     ¥ 2,843,819     ¥ 2,813,023  

Marketable equity securities

     116,790       116,790       125,977       125,977       141,846       141,846  

Held-to-maturity securities

     50,905       50,540       29,066       28,977       43,767       43,428  

Convertible preferred stocks

            

Host contracts

     8,418       8,418       9,194       9,194       8,943       8,943  

Embedded derivatives

     25,324       25,324       4,530       4,530       13,991       13,991  
                                                
     33,742       33,742       13,724       13,724       22,934       22,934  

Convertible notes (b)

            

Host contracts

     7,715       7,715       8,158       8,158       8,156       8,156  

Embedded derivatives

     75,249       75,249       24,106       24,106       48,479       48,479  
                                                
     82,964       82,964       32,264       32,264       56,635       56,635  

Debt

     (3,093,835 )     (3,107,461 )     (3,715,560 )     (3,731,539 )     (3,230,202 )     (3,237,471 )

Foreign exchange instruments (c)

            

Asset position

   ¥ 915     ¥ 915     ¥ 1,339     ¥ 1,339     ¥ 4,477     ¥ 4,477  

Liability position

     (18,655 )     (18,655 )     (37,064 )     (37,064 )     (35,979 )     (35,979 )
                                                

Net

   ¥ (17,740 )   ¥ (17,740)     ¥ (35,725)     ¥ (35,725)     ¥ (31,502 )   ¥ (31,502 )
                                                

Interest rate instruments (d)

            

Asset position

   ¥ 27,839     ¥ 27,839     ¥ 17,388     ¥ 17,388     ¥ 36,334     ¥ 36,334  

Liability position

     (245 )     (245 )     (23 )     (23 )     (2 )     (2 )
                                                

Net

   ¥ 27,594     ¥ 27,594     ¥ 17,365     ¥ 17,365     ¥ 36,332     ¥ 36,332  
                                                

 

14


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(a) The carrying amounts of finance subsidiaries-receivables at September 30, 2005 and 2006 and March 31, 2006 in the table exclude ¥1,927,985 million, ¥2,049,946 million and ¥1,996,686 million of direct financing leases, net, classified as finance subsidiaries-receivables in the consolidated balance sheets, respectively. The carrying amounts of finance subsidiaries-receivables at September 30, 2005 and 2006 and March 31, 2006 in the table also include ¥471,785 million, ¥563,662 million and ¥627,168 million of finance receivables classified as trade receivables and other assets in the consolidated balance sheets.
(b) A subsidiary has a forward sale contract in relation to a portion of the above convertible notes. The carrying amount and estimated fair value of the derivative financial instrument as of September 30, 2005 and 2006 and March 31, 2006 is ¥9,836 million, liability position, ¥16,836 million, asset position, and ¥5,462 million, asset position, respectively.
(c) The fair values of foreign currency forward contracts, foreign currency option contracts and foreign currency swap agreements are included in other liabilities and other current assets/liabilities in the consolidated balance sheets as follows:

 

    

Yen

(millions)

 
     September 30,
2005
    September 30,
2006
    March 31,
2006
 

Other current assets

   ¥ 915     ¥ 1,339     ¥ 4,477  

Other current liabilities

     (18,655 )     (37,064 )     (35,113 )

Other liabilities

     —         —         (866 )
                        
   ¥ (17,740 )   ¥ (35,725 )   ¥ (31,502 )
                        

 

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

 

    

Yen

(millions)

 
     September 30,
2005
    September 30,
2006
    March 31,
2006
 

Other current assets

   ¥ —       ¥ 179     ¥ 3,101  

Other assets

     27,839       17,209       33,233  

Other current liabilities

     (184 )     —         —    

Other liabilities

     (61 )     (23 )     (2 )
                        
   ¥ 27,594     ¥ 17,365     ¥ 36,332  
                        

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

 

15


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

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

Cash and cash equivalents, trade receivables and trade payables

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

Finance subsidiaries-receivables (Including loans held for sale)

The fair values of retail receivables and term loans to dealers were estimated by discounting future cash flows using the current rates for these instruments of similar remaining maturities. Given the short maturities of wholesale receivables, the carrying amount of such receivables approximates fair value.

Marketable equity securities

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

Held-to-maturity securities

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

Convertible notes and convertible preferred stock investment

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

Debt

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

Foreign exchange and interest rate instruments

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

 

16


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(10) Risk Management Activities and Derivative Financial Instruments

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

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

Foreign currency forward contracts and currency swap agreements are agreements to exchange different currencies at a specified rate on a specific future date. Foreign currency option contracts are contracts that allow the holder of the option the right but not the obligation to exchange different currencies at a specified rate on a specific future date. Foreign currency forward contracts, foreign currency option contracts and currency swap agreements outstanding at September 30, 2005 were ¥771,666 million, ¥136,945 million and ¥485,975 million, respectively and totaled ¥1,394,586 million. At September 30, 2006, foreign currency forward contracts, foreign currency option contracts and currency swap agreements outstanding were ¥812,126 million, ¥195,743 million and ¥629,356 million, respectively and totaled ¥1,637,225 million. At March 31, 2006, foreign currency forward contracts, foreign currency option contracts and currency swap agreements outstanding were ¥898,125 million, ¥176,548 million and ¥584,358 million, respectively and totaled ¥1,659,031 million.

Cash flow hedge

In the year ended March 31, 2006, the Company adopted hedge accounting for certain foreign currency forward contracts related to forecasted foreign currency transactions between the Company and its subsidiaries. Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognized in other comprehensive income (loss). The amounts are reclassified into earnings in the same period when forecasted hedged transactions affect earnings. The amount recognized in other comprehensive income (loss) was ¥57 million loss in the fiscal six months ended September 30, 2006 and ¥64 million loss in the fiscal year ended March 31, 2006, respectively. All amounts recorded in other comprehensive income (loss) as the period-end are expected to be recognized in earnings within the next twelve months. The period that hedges the changes in cash flows related to the risk of foreign currency rate is at most around 2 months.

 

17


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

There are no derivative financial instruments where hedge accounting has been discontinued due to the forecasted transaction no longer being probable. The Company excludes financial instruments’ time value component from the assessment of hedge effectiveness, of which amount was ¥231 million loss for the six months ended September 30, 2006 and ¥421 million loss for the year ended March 31, 2006. There are no derivative financial instruments that have been assessed as being ineffectiveness.

Derivative financial instruments not designated as accounting hedges

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

Interest rate swap agreements generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amount. At September 30, 2005 and 2006 and March 31, 2006, the notional principal amounts of interest rate swap agreements were ¥3,579,687 million, ¥4,207,623 million and ¥3,857,748 million, respectively.

 

(11) Commitments and Contingent Liabilities

At September 30, 2006, Honda had commitments for purchases of property, plant and equipment of approximately ¥104,462 million.

Honda has entered into various guarantee and indemnification agreements. At September 30, 2005 and 2006 and March 31, 2006, Honda has guaranteed ¥50,689 million, ¥43,585 million, and ¥46,737 million of bank loan of employees for their housing costs, respectively. If an employee defaults on his/her loan payments, Honda is required to perform under the guarantee. The undiscounted maximum amount of Honda’s obligation to make future payments in the event of defaults is ¥50,689 million, ¥43,585 million and ¥46,737 million, respectively. As of September 30, 2006, no amount has been accrued for any estimated losses under the obligations, as it is probable that the employees will be able to make all scheduled payments.

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

With respect to product liability, personal injury claims or lawsuits, Honda believes that any judgment that may be recovered by any plaintiff for general and special damages and court costs will be adequately covered by Honda’s insurance and reserves. Punitive damages are claimed in certain of these lawsuits. Honda is also subject to potential liability under other various lawsuits and claims. After consultation with legal counsel, and taking into account all known factors pertaining to existing lawsuits and claims, Honda believes that the overall results of such lawsuits and pending claims should not result in liability to Honda that would be likely to have an adverse material effect on its consolidated financial position and results of operations.

 

18


Table of Contents

HONDA MOTOR CO., LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

(12) Leases

Honda has several operating leases, primarily for office and other facilities, and certain office equipment.

Future minimum lease payments under noncancelable operating leases that have initial or remaining lease terms in excess of one year at September 30, 2006 are as follows:

 

    

Yen

(millions)

Within one year

   ¥ 28,051

Over one year

     105,788
      

Total minimum lease payments

   ¥ 133,839

Rental expenses under operating leases for the six months ended September 30, 2005 and 2006 and for the year ended March 31, 2006 were ¥22,796 million, ¥26,072 million and ¥46,102 million, respectively.

 

19


Table of Contents

[Note 13] Segment Information

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

Principal products and functions of each segment are as follows:

 

Business

 

Principal products and services

 

Functions

Motorcycle business   Motorcycles, all-terrain vehicles (ATVs), personal watercrafts and relevant parts  

Research & Development

Manufacturing

Sales and related services

Automobile business   Automobiles and relevant parts  

Research & Development

Manufacturing

Sales and related services

Financial services business   Financial, insurance services  

Retail loan and lease related to Honda products

Others

Power product and other businesses   Power products and relevant parts, and others  

Research & Development

Manufacturing

Sales and related services

Others

Business Segment Information

As of and for the six months ended September 30, 2005

 

     Yen (millions)
     Motorcycle
Business
   Automobile
Business
   Financial
Services
Business
  

Power Product

and Other
Businesses

  

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

   ¥ 550,942    ¥ 3,738,630    ¥ 143,759    ¥ 168,918    ¥ 4,602,249      —       ¥ 4,602,249

Intersegment

     —        —      ¥ 2,046    ¥ 7,039    ¥ 9,085    ¥ (9,085 )     —  
                                                 

Total

   ¥ 550,942    ¥ 3,738,630    ¥ 145,805    ¥ 175,957    ¥ 4,611,334    ¥ (9,085 )   ¥ 4,602,249

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

   ¥ 511,002    ¥ 3,504,415    ¥ 101,205    ¥ 161,625    ¥ 4,278,247    ¥ (9,085 )   ¥ 4,269,162
                                                 

Gain on transfer of the substitutional portion of the Employee’s Pension Funds to the government

     —        —        —        —        —        —         —  
                                                 

Operating income

   ¥ 39,940    ¥ 234,215    ¥ 44,600    ¥ 14,332    ¥ 333,087      —       ¥ 333,087

Equity in income of affiliates

   ¥ 15,438    ¥ 31,135      —      ¥ 634    ¥ 47,207      —       ¥ 47,207

Assets

   ¥ 889,720    ¥ 4,340,272    ¥ 4,742,454    ¥ 250,282    ¥ 10,222,728    ¥ (340,049 )   ¥ 9,882,679

Investments in affiliates

   ¥ 85,320    ¥ 275,878      —      ¥ 12,892    ¥ 374,090      —       ¥ 374,090

Depreciation and amortization

   ¥ 13,902    ¥ 94,780    ¥ 318    ¥ 3,970    ¥ 112,970      —       ¥ 112,970

Capital expenditures

   ¥ 19,901    ¥ 142,930    ¥ 703    ¥ 6,192    ¥ 169,726      —       ¥ 169,726

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

     —        —      ¥ 19,147      —      ¥ 19,147      —       ¥ 19,147


Table of Contents

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

 

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

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

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

Intersegment

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

Total

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

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

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

Gain on transfer of the substitutional portion of the Employee’s Pension Funds to the government

     —        —        —        —        —        —         —  
                                                 

Operating income

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

Equity in income of affiliates

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

Assets

   ¥ 1,001,525    ¥ 4,904,836    ¥ 5,513,479    ¥ 289,728    ¥ 11,709,568    ¥ (507,111 )   ¥ 11,202,457

Investments in affiliates

   ¥ 96,177    ¥ 311,020      —      ¥ 14,539    ¥ 421,736      —       ¥ 421,736

Depreciation and amortization

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

Capital expenditures

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

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

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

As of and for the year ended March 31, 2006

 

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

Segment

Total

   Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                   

External customers

   ¥ ,225,812    ¥ 8,004,694    ¥ 306,869    ¥ 370,621    ¥ 9,907,996      —       ¥ 9,907,996

Intersegment

     —        —      ¥ 4,068    ¥ 11,941    ¥ 16,009    ¥ (16,009 )     —  
                                                 

Total

   ¥ 1,225,812    ¥ 8,004,694    ¥ 310,937    ¥ 382,562    ¥ 9,924,005    ¥ (16,009 )   ¥ 9,907,996

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

   ¥ 1,127,157    ¥ 7,492,257    ¥ 220,352    ¥ 353,350    ¥ 9,193,116    ¥ (16,009 )   ¥ 9,177,107
                                                 

Gain on transfer of the substitutional portion of the Employee’s Pension Funds to the government

   ¥ 15,319    ¥ 115,935      —      ¥ 6,762    ¥ 138,016      —       ¥ 138,016
                                                 

Operating income

   ¥ 113,974    ¥ 628,372    ¥ 90,585    ¥ 35,974    ¥ 868,905      —       ¥ 868,905

Equity in income of affiliates

   ¥ 30,700    ¥ 67,439      —      ¥ 1,466    ¥ 99,605      —       ¥ 99,605

Assets

   ¥ 1,006,308    ¥ 4,752,405    ¥ 5,008,058    ¥ 294,170    ¥ 11,060,941    ¥ (489,260 )   ¥ 10,571,681

Investments in affiliates

   ¥ 87,041    ¥ 304,477      —      ¥ 13,194    ¥ 404,712      —       ¥ 404,712

Depreciation and amortization

   ¥ 30,232    ¥ 222,165    ¥ 771    ¥ 9,057    ¥ 262,225      —       ¥ 262,225

Capital expenditures

   ¥ 52,246    ¥ 392,934    ¥ 1,316    ¥ 11,345    ¥ 457,841      —       ¥ 457,841

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

     —        —      ¥ 36,153      —      ¥ 36,153      —       ¥ 36,153

Explanatory notes:

 

1. Operating income of each segment is measured in a consistent manner in which consolidated operating income is determined. Expenses not directly associated with specific segments are allocated based on the most reasonable measures applicable.

 

2. Assets of each business segment are defined as total assets. Segment assets are based on those directly associated with each segment and those not directly associated with specific segments are allocated based on the most reasonable measures applicable except for the corporate assets described below.

 

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

 

4. Unallocated corporate assets, included in reconciling items, amounted to ¥444,902 million as of September 30, 2005, ¥378,404 million as of September 30, 2006, and ¥354,903 million as of March 31, 2006 respectively, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of intersegment transactions.


Table of Contents

External Sales and Other Operating Revenue by Product or Service Groups

 

     Yen (millions)
     September 30,
2005
   September 30,
2006
  

March 31,

2006

Motorcycles and relevant parts

   ¥ 483,766    ¥ 573,360    ¥ 1,051,855

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

   ¥ 67,176    ¥ 72,286    ¥ 173,957

Automobiles and relevant parts

   ¥ 3,738,630    ¥ 4,194,436    ¥ 8,004,694

Financial, insurance services

   ¥ 143,759    ¥ 188,040    ¥ 306,869

Power products and relevant parts

   ¥ 119,614    ¥ 135,990    ¥ 263,651

Others

   ¥ 49,304    ¥ 66,486    ¥ 106,970
                    

Total

   ¥ 4,602,249    ¥ 5,230,598    ¥ 9,907,996

Geographical Information

As of and for the six months ended September 30, 2005

 

     Japan    United States    Other
Countries
   Total

Sales to external customers

   ¥ 1,010,185    ¥ 2,177,587    ¥ 1,414,477    ¥ 4,602,249

Long-lived assets

   ¥ 902,293    ¥ 463,665    ¥ 395,366    ¥ 1,761,324

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

 

     Japan    United States    Others
Countries
   Total

Sales to external customers

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

Long-lived assets

   ¥ 988,119    ¥ 573,230    ¥ 534,889    ¥ 2,096,238

As of and for the year ended March 31, 2006

 

     Japan    United States    Others
Countries
   Total

Sales to external customers

   ¥ 2,021,999    ¥ 4,876,436    ¥ 3,009,561    ¥ 9,907,996

Long-lived assets

   ¥ 949,713    ¥ 499,599    ¥ 487,208    ¥ 1,936,520

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


Table of Contents

Supplemental Geographical Information

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

 

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

 

     Yen (millions)
     September 30,
2005
   September 30,
2006
   March 31,
2006

North America

   ¥ 2,442,889    ¥ 2,805,862    ¥ 5,463,359

Europe

   ¥ 486,572    ¥ 556,875    ¥ 1,009,421

Asia

   ¥ 523,274    ¥ 621,834    ¥ 1,085,451

Other regions

   ¥ 299,133    ¥ 422,746    ¥ 655,721

Explanatory notes:

Major countries or regions in each geographic area:

 

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

 

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

As of and for the six months ended September 30, 2005

 

     Yen (millions)
     Japan    North
America
   Europe    Asia    Other
Regions
   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

   ¥ 1,010,185    ¥ 2,447,402    ¥ 482,707    ¥ 408,499    ¥ 253,456    ¥ 4,602,249      —       ¥ 4,602,249

Transfers between geographic areas

   ¥ 1,128,932    ¥ 64,608    ¥ 81,575    ¥ 54,302    ¥ 10,285    ¥ 1,339,702    ¥ (1,339,702 )     —  
                                                        

Total

   ¥ 2,139,117    ¥ 2,512,010    ¥ 564,282    ¥ 462,801    ¥ 263,741    ¥ 5,941,951    ¥ (1,339,702 )   ¥ 4,602,249

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

   ¥ 2,028,924    ¥ 2,370,726    ¥ 550,700    ¥ 427,806    ¥ 234,945    ¥ 5,613,101    ¥ (1,343,939 )   ¥ 4,269,162
                                                        

Gain on transfer of the substitutional portion of the Employees’ Pension Funds to the government

     —        —        —        —        —        —        —         —  
                                                        

Operating income

   ¥ 110,193    ¥ 141,284    ¥ 13,582    ¥ 34,995    ¥ 28,796    ¥ 328,850    ¥ 4,237     ¥ 333,087
                                                        

Assets

   ¥ 2,571,296    ¥ 5,675,749    ¥ 621,501    ¥ 578,383    ¥ 258,079    ¥ 9,705,008    ¥ 177,671     ¥ 9,882,679

Long-lived assets

   ¥ 902,293    ¥ 540,892    ¥ 124,408    ¥ 135,425    ¥ 58,306    ¥ 1,761,324      —       ¥ 1,761,324


Table of Contents

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

 

     Yen (millions)
     Japan    North
America
   Europe    Asia    Other
Regions
   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

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

Transfers between geographic areas

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

Total

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

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

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

Gain on transfer of the substitutional portion of the Employees’ Pension Funds to the government

     —        —        —        —        —        —        —         —  
                                                        

Operating income

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

Assets

   ¥ 2,785,385    ¥ 6,565,281    ¥ 776,990    ¥ 766,512    ¥ 357,729    ¥ 11,251,897    ¥ (49,440 )   ¥ 11,202,457

Long-lived assets

   ¥ 988,119    ¥ 666,171    ¥ 173,765    ¥ 187,741    ¥ 80,442    ¥ 2,096,238      —       ¥ 2,096,238

As of and for the year ended March 31, 2006

 

     Yen (millions)
     Japan    North
America
   Europe    Asia    Other
Regions
   Total    Reconciling
Items
    Consolidated

Net sales and other operating revenue:

                      

External customers

   ¥ 2,021,999    ¥ 5,475,261    ¥ 1,001,1777    ¥ 856,892    ¥ 552,667    ¥ 9,907,996      —       ¥ 9,907,996

Transfers between geographic areas

   ¥ 2,415,874    ¥ 141,064    ¥ 188,341    ¥ 140,501    ¥ 19,023    ¥ 2,904,803    ¥ (2,904,803 )     —  
                                                        

Total

   ¥ 4,437,873    ¥ 5,616,325    ¥ 1,189,518    ¥ 997,393    ¥ 571,690    ¥ 12,812,799    ¥ (2,904,803 )   ¥ 9,907,996

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

   ¥ 4,204,939    ¥ 5,262,382    ¥ 1,163,213    ¥ 932,394    ¥ 514,527    ¥ 12,077,455    ¥ (2,900,348 )   ¥ 9,177,107
                                                        

Gain on transfer of the substitutional portion of the Employees’ Pension Funds to the government

   ¥ 138,016      —        —        —        —      ¥ 138,016      —       ¥ 138,016
                                                        

Operating income

   ¥ 370,950    ¥ 353,943    ¥ 26,305    ¥ 64,999    ¥ 57,163    ¥ 873,360    ¥ (4,455 )   ¥ 868,905
                                                        

Assets

   ¥ 2,737,454    ¥ 6,026,342    ¥ 800,786    ¥ 717,933    ¥ 309,209    ¥ 10,591,724    ¥ (20,043 )   ¥ 10,571,681

Long-lived assets

   ¥ 949,713    ¥ 589,596    ¥ 157,819    ¥ 167,148    ¥ 72,244    ¥ 1,936,520      —       ¥ 1,936,520

Explanatory notes:

 

1. Major countries or regions in each geographic area:

 

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

 

2. Operating income of each segment is measured in a consistent manner in which consolidated operating income is determined.

 

3. Assets of each business segment are defined as total 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 ¥444,902 million as of September 30, 2005 , ¥378,404 million as of September 30, 2006, and ¥354,903 million as of March 31, 2006 respectively, which consist primarily of cash and cash equivalents and marketable securities held by the Company. Reconciling items also include elimination of transactions between geographic areas.


Table of Contents
[Note 14]   Consolidated Balance Sheets and Consolidated Statement of Cash flows
  Divided into Non-financial Services Businesses and Finance Subsidiaries Segment Information

Honda discloses consolidated balance sheets and consolidated statement of cash flow divided into non-financial services businesses and finance subsidiaries for investor relations purposes. For purposes of these disclosures, non-financial services include the Motorcycle business, the Automobile business and the Power product and other businesses segments, and finance subsidiaries include the Financial services business segment, respectively.

 

(1) Consolidated Balance Sheets Divided into non-financial services businesses and finance subsidiaries

 

     Yen (millions)  
     September 30,
2005
   

September 30,

2006

   

March 31,

2006

 

Assets

      

<Non-financial services businesses>

      

Current Assets:

   ¥ 3,424,259     ¥ 3,792,348     ¥ 3,788,184  

Cash and cash equivalents

     716,423       775,508       727,735  

Trade accounts and notes receivable

     354,691       405,296       504,101  

Inventories

     941,161       1,109,412       1,036,304  

Other current assets

     1,411,984       1,502,132       1,520,044  

Investment and advances

     918,449       938,542       955,338  

Property, plant and equipment, at cost

     1,638,776       1,953,622       1,795,173  

Other assets

     269,447       213,910       225,575  
                        

Total assets

     6,250,931       6,898,422       6,764,270  

<Finance Subsidiaries>

      

Cash and cash equivalents

     14,776       16,981       19,592  

Finance subsidiaries—short-term receivables, net

     1,224,132       1,487,841       1,240,581  

Finance subsidiaries—long-term receivables, net

     2,909,368       3,291,803       2,982,832  

Other assets

     594,178       716,854       765,053  
                        

Total assets

     4,742,454       5,513,479       5,008,058  

Eliminations

     (1,110,706 )     (1,209,444 )     (1,200,647 )
                        

Total assets

     9,882,679       11,202,457       10,571,681  
                        

Liabilities and Stockholders’ Equity

  

<Non-financial services businesses>

      

Current liabilities:

   ¥ 2,159,864     ¥ 2,289,121     ¥ 2,355,999  

Short-term debt

     170,778       152,266       171,122  

Current portion of long-term debt

     4,860       12,507       9,138  

Trade payables

     965,548       1,079,992       1,144,159  

Accrued expenses

     797,122       798,979       763,879  

Other current liabilities

     221,556       245,377       267,701  

Long-term debt, excluding current portion

     20,720       29,365       34,396  

Other liabilities

     736,352       574,483       575,034  
                        

Total liabilities

     2,916,936       2,892,969       2,965,429  

<Finance Subsidiaries>

      

Short-term debt

     1,350,383       1,896,449       1,369,177  

Current portion of long-term debt

     562,470       741,568       653,276  

Accrued expenses

     160,779       166,198       181,140  

Long-term debt, excluding current portion

     1,796,945       1,730,114       1,858,362  

Other liabilities

     364,740       390,423       392,316  
                        

Total liabilities

     4,235,317       4,924,752       4,454,271  

Eliminations

     (896,240 )     (972,045 )     (973,769 )
                        

Total liabilities

     6,256,013       6,845,676       6,445,931  

Common stock

     86,067       86,067       86,067  

Capital surplus

     172,531       172,529       172,529  

Legal reserves

     35,516       37,332       35,811  

Retained earnings

     4,018,709       4,482,612       4,267,886  

Accumulated other comprehensive income (loss)

     (644,464 )     (387,749 )     (407,187 )

Treasury stock

     (41,693 )     (34,010 )     (29,356 )
                        

Total stockholders’ equity

     3,626,666       4,356,781       4,125,750  
                        

Total liabilities and stockholders’ equity

     9,882,679       11,202,457       10,571,681  
                        


Table of Contents
(2) Consolidated Statements of Cash Flows Divided into non-financial services businesses and finance subsidiaries

For the six months ended September 30, 2005

 

     Yen (millions)  
   Non-financial
services
businesses
    Finance
subsidiaries
    Eliminations     Total  

Cash flows from operating activities:

        

Net Income

   ¥ 217,766     ¥ 26,622     ¥ (14 )   ¥ 244,374  

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

        

Depreciation and amortization

     112,652       318       —         112,970  

Deferred income taxes

     (3,809 )     (29,189 )     —         (32,998 )

Equity in income of affiliates

     (48,644 )     —         1,437       (47,207 )

Cash dividends from affiliates

     23,858       —         —         23,858  

Loss (gain) on derivative instruments, net

     (7,558 )     (4,476 )     —         (12,034 )

Gain on transfer of the substitutional portion of the Employees’ Pension Funds

     —         —         —         —    

Decrease (increase) in trade accounts and notes receivable

     79,345       61,838       394       141,577  

Decrease (increase) in inventories

     (49,627 )     —         —         (49,627 )

Increase (decrease) in trade payables

     (92,015 )     —         (292 )     (92,307 )

Other, net

     40,732       (5,207 )     (3,634 )     31,891  
                                

Net cash provided by operating activities

     272,700       49,906       (2,109 )     320,497  
                                

Cash flows from investing activities:

        

*       Decrease (increase) in investments and advances

     (54,500 )     —         30,214       (24,286 )

Capital expenditures

     (169,023 )     (703 )     —         (169,726 )

Proceeds from sales of property, plant and equipment

     6,141       147       —         6,288  

Decrease (increase) in finance subsidiaries-receivables

     —         (264,614 )     58       (264,556 )
                                

Net cash used in investing activities

     (217,382 )     (265,170 )     30,272       (452,280 )
                                

Cash flows from financing activities:

        

*       Increase (decrease) in short-term debt

     (62,889 )     17,163       (25,468 )     (71,194 )

*       Proceeds from long-term debt

     7,620       507,819       (12,011 )     503,428  

*       Repayment of long-term debt

     (7,221 )     (311,130 )     9,302       (309,049 )

Proceeds from issuance of common stock

     —         —         —         —    

Cash dividends paid

     (34,234 )     —         14       (34,220 )

Payment for purchase of treasury stock, net

     (22,252 )     —         —         (22,252 )
                                

Net cash provided by (used in) financing activities

     (118,976 )     213,852       (28,163 )     66,713  
                                

Effect of exchange rate changes on cash and cash equivalents

     22,187       544       —         22,731  
                                

Net change in cash and cash equivalents

     (41,471 )     (868 )     —         (42,339 )

Cash and cash equivalents at beginning of period

     757,894       15,644       —         773,538  
                                

Cash and cash equivalents at end of period

   ¥ 716,423     ¥ 14,776       —       ¥ 731,199  
                                


Table of Contents

For the six months ended September 30, 2006

 

     Yen (millions)  
     Non-financial
services
businesses
    Finance
subsidiaries
    Eliminations     Total  

Cash flows from operating activities:

        

Net Income

   ¥ 250,629     ¥ 20,695     ¥ (13 )   ¥ 271,311  

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

        

Depreciation and amortization

     155,096       439       —         155,535  

Deferred income taxes

     2,267       (4,515 )     —         (2,248 )

Equity in income of affiliates

     (57,635 )     —         —         (57,635 )

Cash dividends from affiliates

     27,483       —         —         27,483  

Loss (gain) on derivative instruments, net

     29,280       19,209       —         48,489  

Gain on transfer of the substitutional portion of the Employees’ Pension Funds

     —         —         —         —    

Decrease (increase) in trade accounts and notes receivable

     121,255       75,695       (1,952 )     194,998  

Decrease (increase) in inventories

     (54,682 )     —         —         (54,682 )

Increase (decrease) in trade payables

     (70,427 )     —         (9,288 )     (79,715 )

Other, net

     (11,088 )     (39,806 )     2,319       (48,575 )
                                

Net cash provided by operating activities

     392,178       71,717       (8,934 )     454,961  
                                

Cash flows from investing activities:

        

*       Decrease (increase) in investments and advances

     28,735       —         (21,104 )     7,631  

Capital expenditures

     (281,915 )     (368 )     —         (282,283 )

Proceeds from sales of property, plant and equipment

     11,382       160       —         11,542  

Decrease (increase) in finance subsidiaries-receivables

     —         (513,050 )     6,626       (506,424 )
                                

Net cash used in investing activities

     (241,798 )     (513,258 )     (14,478 )     (769,534 )
                                

Cash flows from financing activities:

        

*       Increase (decrease) in short-term debt

     (33,194 )     289,904       30,963       287,673  

*       Proceeds from long-term debt

     7,321       477,706       —         485,027  

*       Repayment of long-term debt

     (7,949 )     (336,670 )     49       (344,570 )

Proceeds from issuance of common stock

     —         7,613       (7,613 )     —    

Cash dividends paid

     (54,797 )     —         13       (54,784 )

Payment for purchase of treasury stock, net

     (23,093 )     —         —         (23,093 )
                                

Net cash provided by (used in) financing activities

     (111,712 )     438,553       23,412       350,253  
                                

Effect of exchange rate changes on cash and cash equivalents

     9,105       377       —         9,482  
                                

Net change in cash and cash equivalents

     47,773       (2,611 )     —         45,162  

Cash and cash equivalents at beginning of period

     727,735       19,592       —         747,327  
                                

Cash and cash equivalents at end of period

   ¥ 775,508     ¥ 16,981       —       ¥ 792,489  
                                


Table of Contents

For the year ended March 31, 2006

 

     Yen (millions)  
     Non-financial
services
businesses
    Finance
subsidiaries
    Eliminations     Total  

Cash flows from operating activities:

        

Net Income

   ¥ 543,200     ¥ 53,847     ¥ (14 )   ¥ 597,033  

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

        

Depreciation and amortization

     261,454       771       —         262,225  

Deferred income taxes

     22,037       (24,793 )     —         (2,756 )

Equity in income of affiliates

     (99,605 )     —         —         (99,605 )

Cash dividends from affiliates

     64,055       —         —         64,055  

Loss (gain) on derivative instruments, net

     11,683       (1,332 )     —         10,351  

Gain on transfer of the substitutional portion of the Employees’ Pension Funds

     (138,016 )     —         —         (138,016 )

Decrease (increase) in trade accounts and notes receivable

     (44,881 )     (72,695 )     4,317       (113,259 )

Decrease (increase) in inventories

     (109,661 )     —         —         (109,661 )

Increase (decrease) in trade payables

     45,297       —         (3,937 )     41,360  

Other, net

     25,146       47,674       (7,990 )     64,830  
                                

Net cash provided by operating activities

     580,709       3,472       (7,624 )     576,557  
                                

Cash flows from investing activities:

        

*       Decrease (increase) in investments and advances

     (36,954 )     —         14,697       (22,257 )

Capital expenditures

     (458,705 )     (1,316 )     —         (460,021 )

Proceeds from sales of property, plant and equipment

     39,645       306       —         39,951  

Decrease (increase) in finance subsidiaries-receivables

     —         (231,909 )     1,535       (230,374 )
                                

Net cash used in investing activities

     (456,014 )     (232,919 )     16,232       (672,701 )
            <