na_honda_09_a

8/8/2019 NA_Honda_09_A

1/92

Annual Report 2009

Year Ended March 31, 2009

Honda Motor Co., Ltd.

8/8/2019 NA_Honda_09_A

2/92

2 The Power of Dreams

3 Summary of Operating Results by Business

6 Financial Highlights

8 To Our Shareholders

18 Review of OperationsMotorcycle Business

Automobile Business

Power Product and Other Businesses

Financial Services Business

36 Preparing for the Future

37 Risk Factors

39 Corporate Governance

46 Board of Directors, Corporate Auditors and

Operating Officers49 Financial Section

81 Corporate InformationPrincipal Manufacturing Facilities

Honda Group

Hondas History

Investor Information

CSR Report

This report provides an overview of Hondas position on corporate social responsibility(CSR) activities and an overview of its performance in the areas of quality and safety, the

environment, and the society during the fiscal year ended March 31, 2009.http://world.honda.com/CSR/

Driving Safety Promotion Report

This report (available only in Japanese) summarizes Hondas efforts to promote safe drivingand principal activities in this area in 2008.

Environmental Report

This report describes Hondas position on environmental initiatives, its environmentalperformance for the fiscal year ended March 31, 2009, and future environmental targets.http://world.honda.com/environment/ecology/2009report/

Annual Report

This report outlines Hondas operating performance for the fiscal year ended March 31, 2009.http://world.honda.com/investors/annualreport/

Reports Published by Honda

Insight (right) A five-passenger, five-door dedicated hybrid vehicle, all-new Insight has been very wellreceived by a wide range of customers due to an affordable price with exceptional fueleconomy, fun-to-drive performance and efficient versatile packaging and featuring theEcological Drive Assist System (Eco Assist) that can further enhance efficient vehicleoperation while providing feedback related to individual driving styles.

FCX Clarity(Center)

Designed as a dedicated fuel cell vehicle, the FCX Clarity is powered by the Honda V Flowfuel cell stack. Thanks to the innovative layout of the fuel cell power plant, the FCX Clarityoffers superior design, packaging and driving performance. Emitting no CO2 in operation, theFCX Clarityoffers not only the ultimate in environmental responsibility but also real worldperformance and appeal.

CR-Z(left)The compact sports concept of a lightweight hybrid sports car that demonstrates theflexibility of the unique Honda IMA hybrid system and features advanced technologies thatdeliver enjoyable driving for all while offering superior environmental performance.

Cover:

Contents

8/8/2019 NA_Honda_09_A

3/92

Caution with Respect to Forward-Looking Statements

This annual report contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. Such statements are based on managements assumptions and beliefs, taking into account information currently available to it. Therefore, pleasebe advised that Hondas actual results could differ materially from those described in these forward-looking statements as a result of numerous factors, including generaleconomic conditions in Hondas principal markets; foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro, and other major currencies; andextensive environmental and other governmental regulations, as well as other factors detailed from time to time.

Honda Motor Co., Ltd., operates under the basic principles of

Respect for the Individual and The Three Joysexpressed as

The Joy of Buying, The Joy of Selling, and The Joy of Creating.

Respect for the Individual reflects our desire to respect the unique

character and ability of each individual person, trusting each other

as equal partners in order to do our best in every situation. Based

on this, The Three Joys express our belief and desire that each

person working in or coming into contact with our company,

directly or through our products, should share a sense of joy

through that experience.

In line with these basic principles, since its establishment in 1948,

Honda has remained on the leading edge by creating new value

and providing products of the highest quality at a reasonable price,

for worldwide customer satisfaction. In addition, the Company has

conducted its activities with a commitment to protecting the

environment and enhancing safety in a mobile society.

The Company has grown to become the worlds largest

motorcycle manufacturer and one of the leading automakers. With

a global network of 396* subsidiaries and 105* affiliates accounted

for under the equity method, Honda develops, manufactures, and

markets a wide variety of products, ranging from small general-

purpose engines and scooters to specialty sports cars, to earn the

Company an outstanding reputation from customers worldwide.

*As of March 31, 2009

Annual Report 2009 1

Corporate Profile

8/8/2019 NA_Honda_09_A

4/92

Dreams inspire us to create innovative products that enhance mobility and benefit society. To

meet the particular needs of customers in different regions around the world, we base our sales

networks, research & development centers, and manufacturing facilities in each region.

Furthermore, as a socially responsible corporate citizen, we strive to address important

environmental and safety issues.

The Power of Dreams

Annual Report 20092

8/8/2019 NA_Honda_09_A

5/92

Motorcycle Business

Automobile Business



14.1%

76.7%

3.4%

5.8%

Percentage of Net Sales by Busin


Summary of Operating Results by Business

8/8/2019 NA_Honda_09_A

6/92

Yen (billions) Yen (billions)

,600

,200

800

400

0

05 06 07 08 09

160

120

80

40

0Japan AsiaEurope Other

RegionsNorth

America

276

7,523

232

1,763

320

2007 2008 2009

Japan AsiaEurope OtherRegions

NorthAmerica

350

793

556

322

1,496

Japan AsiaEurope OtherRegions

NorthAmerica

1,306

970

516 502

1,893


,000

,500

,000

,500

0

05 06 07 08 09

1,000

750

500

250

0


80

60

40

20

0

400

300

200

100

0

-100 -20

05 06 07 08 09


600 200

et Sales/Operating Income (Loss) Unit Sales by Region (Thousands)

CZ-i 110

Insight

Pianta FV200

Location

Net Sales (left scale) Operating Income (right scale)

ars ended March 31 Years ended March 31

8/8/2019 NA_Honda_09_A

7/92

Motorcycle Business

Automobile Business



Summary of Operating Results by Business

8/8/2019 NA_Honda_09_A

8/92

12,000

10,000

8,000

6,000

4,000

2,000

0

Yen

1,000

750

500

250

0

120

100

80

60

40

20

0

600

450

300

150

0

12,500

10,000

7,500

5,000

2,500

0

600

400

200

0

10.0

7.5

5.0

2.5

0

(%)

(%)

20.0

15.0

10.0

5.0

0

2,500

2,000

1,500

1,000

500

0

05 06 07 08 09 05 06 07 08 09 05 06 07 08 09

05 06 07 08 0905 06 07 08 0905 06 07 08 09

Net Sales and Other Operating Revenue Operating Income and Operating Margin Equity in Income of Affiliates

Net Income and Return on Equity (ROE) Total Assets, Stockholders Equity, and

Stockholders Equity per Common Share

Capital Expenditures and Depreciation

(Excluding Property on Operating Leases)

Yen (billions) Yen (billions) Yen (billions)

Yen (billions) Yen (billions) Yen (billions)

Operating Income (left scale)Operating Margin (right scale)

Net Income (left scale)ROE (right scale)

Total Assets (left scale)Stockholders Equity (left scale)

Capital ExpendituresDepreciation

Stockholders Equity per Common Share (right scale)

Yen(millions except per share data)U.S. dollars

(millions except per share data)

2007 2008 2009 2009

Net sales and other operating revenue 11,087,140 12,002,834 10,011,241 $101,916Operating income 851,879 953,109 189,643 1,931

Income before income taxes, minority interest andequity in income of affiliates

792,868 895,841 161,734 1,646

Equity in income of affiliates 103,417 118,942 99,034 1,008

Net income 592,322 600,039 137,005 1,395

Cash dividends paid during the period 140,482 152,590 139,724 1,422

Research and development 551,847 587,959 563,197 5,733

Total assets 12,036,500 12,615,543 11,818,917 120,319

Stockholders equity 4,488,825 4,550,479 4,007,288 40,795

Capital expenditures(excluding purchase of operating lease assets)

627,066 654,030 633,913 6,453

Depreciation(excluding property on operating leases)

361,747 417,393 441,868 4,498

Per share dataNet income 324.62 330.54 75.50 $ 0.77

Dividends paid 77 84 77 0.78

Stockholders equity 2,463.69 2,507.79 2,208.35 22.48

Financial Data

Note: The consolidated financial statements as of and for the year ended March 31, 2009, have been translated into U.S. dollars at the rate of 98.23=U.S.$1, the approximate exchange rate prevailing on the TokyoForeign Exchange Market on March 31, 2009. Those U.S. dollar amounts presented in the consolidated financial statements and related notes are included solely for the reader. This translation should not beconstrued as a representation that all the amounts shown could be converted into U.S. dollars.

Honda Motor Co., Ltd., and SubsidiariesYears ended March 31

Financial Highlights

Annual Report 20096

8/8/2019 NA_Honda_09_A

9/92

12,000

10,000

8,000

6,000

4,000

2,000

0

2,000

1,500

1,000

500

0

05 06 07 08 09 05 06 07 08 09 05 06 07 08 09

05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09

10,000

8,000

6,000

4,000

2,000

0

600

500

400

300

200

100

0

500

400

300

200

100

0

4,000

3,000

2,000

1,000

0

8,000

6,000

4,000

2,000

0

Unit Sales

Motorcycles

Automobile Business Financial Services Business Power Product and Other Businesses

Net Sales

Motorcycle Business

Yen (billions) Yen (billions) Yen (billions) Yen (billions)

(Thousands) (Thousands) (Thousands)

Automobiles Power Products

Japan North America Europe Asia Other Regions


Operating DataYears ended March 31

Unit SalesBreakdown(Thousands)

Motorcycles Automobiles Power Products

2008 2009 Change 2008 2009 Change 2008 2009 Change

Japan 311 232 (25.4)% 615 556 (9.6)% 550 516 (6.2)%North America 453 320 (29.4) 1,850 1,496 (19.1) 2,415 1,893 (21.6)

Europe 313 276 (11.8) 391 350 (10.5) 1,693 1,306 (22.9)

Asia 6,633 7,523 13.4 755 793 5.0 915 970 6.0

Other Regions 1,610 1,763 9.5 314 322 2.5 484 502 3.7

Total 9,320 10,114 8.5 % 3,925 3,517 (10.4)% 6,057 5,187 (14.4)%

Net SalesBreakdownYen (millions)

Motorcycle Business Automobile Business Financial Services BusinessPower Product and Other

Businesses

2008 2009 Change 2008 2009 Change 2008 2009 Change 2008 2009 Change

Japan 93,592 81,822 (12.6)% 1,321,005 1,225,384 (7.2)% 23,405 24,083 2.9 % 147,775 115,252 (22.0)%

North America 265,609 182,284 (31.4) 5,209,446 3,723,877 (28.5) 483,925 527,905 9.1 109,445 80,124 (26.8)

Europe 226,687 178,621 (21.2) 1,182,666 923,580 (21.9) 13,234 12,685 (4.1) 96,847 71,126 (26.6)Asia 484,418 460,412 (5.0) 1,048,463 1,079,585 3.0 4,936 4,736 (4.1) 39,449 50,739 28.6

Other Regions 488,390 508,372 4.1 727,811 721,978 (0.8) 8,053 12,852 59.6 27,678 25,824 (6.7)

Total 1,558,696 1,411,511 (9.4)% 9,489,391 7,674,404 (19.1)% 533,553 582,261 9.1 % 421,194 343,065 (18.5)%


8/8/2019 NA_Honda_09_A

10/92

Takanobu Ito

President & Chief Executive Officer

Annual Report 20098

To Our Shareholders

8/8/2019 NA_Honda_09_A

11/92

We would like to express our gratitude to you, our shareholders, for your

ongoing support. We would also like to thank the many people who have

supported Hondas long-term growth, including, first and foremost, our

customers as well as our business partners and the societies around the

world where we are privileged to do business.

Business Environment

Concerning the economic environment surrounding Honda during the fiscal

year ended March 31, 2009, crude oil and raw material prices significantly

increased worldwide in the first half, followed by declines in the second half.

Although the economies in the United States and Europe continued to grow in

the first half, they began to deteriorate in the second half, triggered by the

financial crisis, creating a downward spiral leading to concern of even further

deterioration of the real economy. In Asia, although the economies of China

and India continued to expand, the pace of growth slowed, and certain

countries in the region went into recession. Japan showed signs of a rapid

deterioration in economic conditions, such as decreased consumer spending

and a decline in capital expenditures.

Under these business conditions, Hondas consolidated revenue for the fiscal

year ended March 31, 2009 amounted to 10,011.2 billion, a decrease from

the previous fiscal year, primarily due to decreased unit sales in automobile

business and negative currency translation effects. Net income declined to

137.0 billion, and net income per common share decreased, to 75.50.


8/8/2019 NA_Honda_09_A

12/92

Motorcycle BusinessTotal unit sales of motorcycles rose, despite substantially lower sales in Japan,

North America, Europe and certain other areas due to deteriorating economic

conditions, as unit sales expanded in Asia and other regions including South

America.

In Asia, where market growth is continuing, sales expanded steadily as

Honda strengthened its lineup, introduced models equipped with automatic

transmissions, which are very popular in urban areas, and implemented other

measures. In Other Regions, which includes South America, sales of 125cc

and 150cc motorcycles were strong in Brazil. On the other hand, in Japan,amid a difficult operating environment, sales of 50cc scooters declined, and, in

North America, sales of off-road and all-terrain vehicles (ATVs) decreased from

the previous year.

Automobile Business

Although unit sales increased in Asia and Other Regions which includes Brazil,

total worldwide sales were below the level of the previous fiscal year because

of declines in North America, Japan, and certain other markets. In NorthAmerica, the introductions of the all-new Pilot,Acura TSX,Acura TL and other

models had a positive effect, but, as a result of the deterioration in the real

economy triggered by the financial crisis, total unit sales declined. Also, in

Europe, although demand increased in Russia and Eastern Europe, overall

sales decreased because of lower unit sales in Western European markets,

including the United Kingdom and Germany, as a result of the deterioration in

economic conditions. In Japan, although the introduction of the new FREED,

Annual Report 200910

To Our Shareholders

8/8/2019 NA_Honda_09_A

13/92

Odyssey, and Life models had a positive effect, unit sales declined because of

the impact of the decline in consumer confidence accompanying the downturn

in the economy. In Asia outside Japan, sales expanded as a result of the

launch of the new Citymodel as the trend toward driving smaller cars

accelerated along with the rise in fuel prices and other factors. Also, in Other

Regions, unit sales rose over the previous year as a result of the introduction of

the new Fit model in South America and other factors.


Total unit sales of power products decreased from the level of the previous

fiscal year, despite increases in sales of engines for OEM use in construction in

Asia and Other Regions. This decline was a result of lower sales of engines for

OEM use in construction machinery, high-pressure washing equipment, and

lawn mowers in North America, a decrease in sales of engines for OEM use in

construction machinery and generators in Europe, and other factors.

Amid this environment, the Honda Group worked to strengthen its operatingand financial positions to enable it to respond quickly and accurately to

changes in the diverse needs of customers and society as a whole. On the

other hand, to concentrate its limited corporate resources in business domains

where they are necessary in the midst of rapidly changing economic

conditions, Honda reviewed its investment and development plans and

decided to implement a number of measures. We request the understanding of

all interested parties regarding these decisions.


8/8/2019 NA_Honda_09_A

14/92

Because of the sudden changes in the operating environment, Honda has

made changes in some of its scheduled plans. However, we have not made

any changes in our policy of emphasizing responsiveness to environmental and

energy-related issues. We are, therefore, continuing to pursue the challenges of

developing new products that will delight our customers and the creation and

introduction of new technologies.

Advancement of Advanced Environmental Technologies

Honda was one of the first companies to position a reduction in CO 2 emissions

as a major issue linked to environmental preservation on a global scale. We are

moving ahead with initiatives to attain the goals we have set for ourselves for

reducing CO2 emissions by 2010 in all of our products and manufacturing

activities worldwide. There are many methods for reducing CO2 emissions, but

in the automobile business, we believe that advancing hybrid car technology

will be the most realistic and beneficial of various alternatives.

In our new Insight hybrid car, which we introduced in February 2009, our

originally developed IMA (integrated motor assist) hybrid system incorporated

in the vehicle is designed for use in small cars and is light and compact and

features superior fuel economy.

As a result of the development of a new platform, the Insight realizes the

goals of offering both high performance as a hybrid car and substantial cost

reductions necessary for a vehicle that will appeal to a wider market. We plan

to strengthen our lineup of models with an eye to also offering mid -and large-sized hybrid automobiles.

In the field of motorcycles for traveling relatively short distances, we are

proceeding with the development of an electric-powered motorcycle that will

run on batteries, and, taking advantage of special features of this power

source, will have zero CO2 emissions. Our goal is to introduce these electric-

powered motorcycles in about two years.

Initiatives Going Forward

To Our Shareholders


8/8/2019 NA_Honda_09_A

15/92


8/8/2019 NA_Honda_09_A

16/92

To Our Shareholders


8/8/2019 NA_Honda_09_A

17/92

Further Advancement of Motorcycle BusinessThe motorcycle business has performed solidly, even in the midst of the severe

economic environment following the global financial crisis. Historically speaking,

motorcycles have been strong in challenging times, and they have been a

propelling force for Hondas growth and expansion and one of its major

strengths. Especially in Asia, South America and certain other regions,

motorcycles are essential for meeting daily transportation needs, and they are

expected to show solid growth in the long term. We are working to increase

our capabilities to respond flexibly to changes in the business environment by

further strengthening our motorcycle business. Honda offers many modelsranging from commuter models that provide daily transportation needs to

large-scale models that meet individual rider tastes and preferences. Among

these, the Super Cub C100 is a regular part of riders daily lives in a total of

160 countries. Sales of the Cub series had reached a cumulative worldwide

total of 60 million motorcycles by the end of April 2008, and the Super Cub has

become the model that symbolizes Honda.

Going forward, we will offer models worthy of the Honda brand that,

following in the Super Cub tradition, will enable us to create new categories

and new markets.

During the first half of the first decade of the 21st century, Honda introduced a

production system that could respond flexibly to demand for a diverse range of

models. Following that, Honda expanded its overseas production bases to

create a global, mutually complementary production system. Last year, in North

America, we began operations at our Indiana plant in the United States and at

our new engine plant in Canada. Also, in Asia, we began production at a

second automobile plant in Thailand.Our goal is to focus on creating a mature, flexible production system that

will provide us with advanced flexibility to respond nimbly, first to fluctuations in

the economy and then to other changes and developments in the operating

environment. In addition to offering even higher-quality, more-attractive

products to our customers around the world in the years ahead, we will be

working to innovate with technologies and production systems that maintain

our high standards of craftsmanship.

Advancement of Hondas Global Flexible Production System and Capabilities


8/8/2019 NA_Honda_09_A

18/92

Returning Profit to ShareholdersHonda strives to conduct its business from a global perspective and to increase

its corporate value. We consider the allocation of profits to shareholders to be

one of our most important management responsibilities. Our basic policy for

dividends is to make distributions after taking into account our long-term

consolidated earnings performance. Honda also acquires its own shares with

optimal timing with the goal of improving the efficiency of its capital structure.

For fiscal 2009, Honda set a year-end cash dividend of 8 per share,

bringing total cash dividends for the fiscal year to 63 per share. This dividend

comprised 22 per share for the first quarter, 22 per share for the second

quarter, 11 per share for the third quarter, and the previously mentioned year-

end dividend of 8 per share.

For the fiscal year ending March 31, 2010, we plan to pay quarterly

dividends of 8 per share, or 32 per share for the full year.

We will continue to do our utmost to meet the expectations of our

shareholders.

Honda is a company where each and every member of management and the

organization sets challenging objectives, works to realize the dream of

providing joy to Honda customers as well as realizing his or her potential, and,

while setting a course for a better tomorrow, wants to help shape the future

through innovation and growth.

Our overriding desire is to be a company that society wants to exist. In the

years to come, as in years past, we will continue to meet the challenges of

innovation and creativity and, motivated by The Power of Dreams, respond to

the expectations of society, giving our customers enjoyment, inspiration, and

satisfaction.


To Our Shareholders

8/8/2019 NA_Honda_09_A

19/92

We look forward to the continued understanding and

support of our shareholders and other investors for the long term.

June 23, 2009

Takanobu Ito

President & Chief Executive Officer

17

8/8/2019 NA_Honda_09_A

20/92

Years ended March 31

Thousands

12,000

8,000

4,000

0

05 06 07 08 09



Unit Sales


Yen (billions)

2,000

1,500

1,000

500

0

05 06 07 08 09

Net SalesPercentage of Net Sales by Business

14.1%

Unit Sales Thousands 2008 2009 % change

Japan 311 232 (25.4) %

North America 453 320 (29.4)

Europe 313 276 (11.8)

Asia 6,633 7,523 13.4

Other Regions 1,610 1,763 9.5

Total 9,320 10,114 8.5 %

Net Sales Yen (millions) 2008 2009 % change

Japan 93,592 81,822 (12.6) %

North America 265,609 182,284 (31.4)Europe 226,687 178,621 (21.2)

Asia 484,418 460,412 (5.0)

Other Regions 488,390 508,372 4.1

Total 1,558,696 1,411,511 (9.4) %


Review of Operations

Motorcycle Business

8/8/2019 NA_Honda_09_A

21/92

Hondas unit sales of motorcycles, all-terrain vehicles (ATVs), and personal watercraft

(PWC) totaled 10,114 thousand units, increased by 8.5% from the previous fiscal year.

Unit sales in Japan totaled 232 thousand units, decreased by 25.4%. Overseas unit

sales totaled 9,882 thousand units, increased by 9.7%, due mainly to an increase in unit

sales of parts for local production at affiliates accounted for under the equity method in

Asia and an increase in unit sales in Other Regions including Brazil. Revenue from

external customers decreased 147.1 billion, or 9.4%, to 1,411.5 billion from theprevious fiscal year, due mainly to negative foreign currency translation effects, which

was partially offset by increased overseas unit sales. Honda estimates that, had the

exchange rate remained unchanged from the previous year, net sales for the year would

have increased by approximately 18.5 billion, or 1.2%. Operating income decreased

51.3 billion, or 34.0%, to 99.9 billion from the previous fiscal year, due mainly to

increased raw material costs, the negative foreign currency effects, and increased

SG&A expenses, despite the change in sales price and decreased R&D expenses.


8/8/2019 NA_Honda_09_A

22/92

JAPAN

Total industry demand for motorcycles in Japan in fiscal 2009 was approximately

550 thousand units*, about 21% lower than in the previous year. Although salesof motorcycles in the 51cc125cc class were strong, this decrease in demand

was due mainly to restrictions on emissions of motorcycles, such demographic

factors as the decline in the number of younger people, the decline in the

number of people who acquire motorcycle driving licenses and the shortage of

motorcycle parking spaces in city areas.

Amid these difficult operating conditions, Honda strengthened its lineup by

launching the CB223S, a road sports model in April 2008, and an all-new 50cc

Monkey leisure model for the first time in 30 years in February 2009 and newly in-

troducing the VTR, a naked road sports model in March 2009. In addition, in July

2008, Honda launched the all-new CBR1000RR and the CBR1000RR-ABS ,

equipped with electronically controlled Combined ABS for super sports models.

In fiscal 2009, although sales of new models and the Lead 110 scooter werestrong, Hondas sales in all categories were lackluster because of more-intense

market competition and other factors. As a result, Hondas total sales for the year

were down 25.4%, to 232,000 units.

In production activities, based on its concept of a people-friendly and envi-

ronmentally-responsible plant, Honda introduced its latest cutting-edge, highly

efficient manufacturing technologies. Also, Honda began production at its new

Kumamoto Factory in April 2008, which will be the leader plant for worldwide

motorcycle production.

* Source: Japan Automobile Manufacturers Association (JAMA)

NORTH AMERICATotal demand for motorcycles and all-terrain vehicles (ATVs) in the United States*

during calendar 2008 declined 16% from the previous year, to approximately 1.33

million units. Although demand for mid-size motorcycles and scooters appears to

have increased because of the increase in gasoline prices during the first half of

the year, spending on recreational products shrank along with the emergence of

the subprime loan issue, and market conditions deteriorated sharply following the

financial crisis in September.

VTR (Japan)

A naked road sports model, the VTR has undergone a fullmodel change and become a higher eco-performance bikewith a sporty design.

CB223S (Japan)

A light road sports model with simple, basic styling


Motorcycle Business


8/8/2019 NA_Honda_09_A

23/92

8/8/2019 NA_Honda_09_A

24/92

ASIA

Demand for motorcycles is continuing to expand in Asia, where they are an es-

sential means of transportation. In calendar 2008, despite the unfavorable impactof declines in agricultural product prices in the second half of the year, total de-

mand*1 for motorcycles in the principal countries of Asia rose approximately 6%,

to about 37.9 million units, as a result of a strong economic performance in the

first half of the year.

By country, in India, sales were about 7.4 million units, approximately the

same as in the previous year. Unit sales were driven by a variety of factors, in-

cluding the favorable impact of lower excise duties, which contributed to expan-

sion in demand for motorcycles, and weak consumer confidence because of the

deterioration of economic conditions from the latter half of the year. In Indonesia,

sales for the year were up 33%, to about 6.5 million units, boosted by increases

in the farm household income and despite the tightening of credit criteria from the

latter half of the year onward. Sales in Thailand rose 7%, to about 1.7 millionunits, supported by favorable economic growth in the first half of the year, despite

declines in agricultural product prices in the latter half.

Amid these business conditions, in Thailand, Honda launched its CZi 110

family-sport model which offers a highly eco-friendly performance and low fuel

consumption and the Clicki, equipped with an automatic transmission and

PGM-FI (electronic fuel injection) in July 2008. In addition, the Wave 110 i110cc

bike equipped with a new model engine was launched in January 2009. The

Wave series of motorcycles are a key lineup in Asia, with annual sales of about

2.6 million units, in seven countries, mainly in the ASEAN region. Following the

introduction in Thailand, Honda plans to introduce this Wave series lineup to the

rest of the ASEAN region. In Vietnam, Honda introduced the WaveRSX in April

2008. In India, Honda Motorcycle and Scooter India Private Limited, Hondas

wholly owned subsidiary, introduced the CBF Stunner125cc motorcycle in June

2008 and theActiva scooter, powered by a new 110cc engine offering improved

fuel economy in March 2009.

CBF Stunner(India)

With an appearance and equipment that are in a higher class,the CBF Stunneremphasizes style and drive feel.

CZ-i 110 (Thailand)

With a newly developed 110cc FI engine, the CZ-i 110 offersan 18% improvement in fuel economy and a 25% increase inpower.


Motorcycle Business


8/8/2019 NA_Honda_09_A

25/92

OTHER REGIONS

In Brazil, the principal market within Other Regions, total demand in calendar

2008 increased to approximately 1.91 million units, due to favorable economic

growth in the first half of the year. Unit sales in Other Regions (South America, the

Middle & Near East, Africa and Oceania) consolidated unit sales rose 9.5% over

the previous fiscal year, to 1,763,000 units, due mainly to strong sales of new

models such as the CG125 FAN and CG150 TITAN, in Brazil.

Also in Brazil, Honda launched its CG150 TITAN MIXsmall motorcycle,

equipped with its Mix Fuel Injection System in March 2009, which enables flexible

mixture of bio-ethanol and gasoline fuels. This technology helps to reduce CO2

emissions and contributes to reduction in the burden of fuel costs.

Activa (India)

This is the first full model change for theActiva, a bike that hascome to be admired and is in wide use.

BeAT(Indonesia)

Offers compactness, advanced design, good fuel economy,and a pleasant ride

CG150 TITAN MIX(Brazil)

A compact motorcycle equipped with Hondas original flexiblefuels technology

Second motorcycle plant in Vietnam

In addition, in Indonesia, P.T. Astra Honda Motor, a company accounted for

under the equity method, launched the BeATwith an automatic transmission inJune 2008 and the BLADEin December.

Hondas unit sales in Asia*2 for fiscal 2009 rose 13.4%, to 7,523,000 units,

due mainly to the favorable sales of the all-new CBF Stunnerin India and theAir

Blade, 110cc scooter in Vietnam.

In production activities, in India, Hero Honda Motors Ltd., a company ac-

counted for under the equity method, began operations at its third factory in April

2008, thus bringing that companys total annual production capacity in India to

6.15 million units together with the capacity of Honda Motorcycle and Scooter

India Private Limited. In Vietnam, Honda began the production of scooters

and 125cc Cub scooters at its second plant in that country, and brought Hondas

total annual production capacity in Vietnam to 1.5 million units.

*1: The motorcycle registration market includes eight countries: Thailand, Indonesia, Malaysia, the Philippines,Vietnam, India, Pakistan and China.

*2: This total includes sales of completed products of Honda and its consolidated subsidiaries and unit sales ofparts to Hondas affiliate companies accounted for under the equity methods for use in local production bysuch companies.


8/8/2019 NA_Honda_09_A

26/92

331

Thousands

4,000

3,000

2,000

1,000

0

05 06 07 08 09


Unit Sales


Yen (billions)

10,000

7,500

5,000

2,500

0

05 06 07 08 09


76.7%



Japan 615 556 (9.6) %

North America 1,850 1,496 (19.1)

Europe 391 350 (10.5)

Asia 755 793 5.0

Other Regions 314 322 2.5

Total 3,925 3,517 (10.4) %


Japan 1,321,005 1,225,384 (7.2) %

North America 5,209,446 3,723,877 (28.5)Europe 1,182,666 923,580 (21.9)

Asia 1,048,463 1,079,585 3.0

Other Regions 727,811 721,978 (0.8)

Total 9,489,391 7,674,404 (19.1) %



Automobile Business


8/8/2019 NA_Honda_09_A

27/92

392

57.5%94,893

6.8%

6,616

10.4%

Hondas unit sales of automobiles totaled 3,517 thousand units, decreased by 10.4%

from the previous fiscal year. Unit sales in Japan totaled 556 thousand units, decreased

by 9.6%. Overseas unit sales totaled 2,961 thousand units, decreased by 10.5%, due

mainly to a decrease in unit sales in North America, which was offset in part by an

increase in unit sales in Asia and Other Regions including Brazil.

Revenue from external customers decreased 1,814.9 billion, or 19.1%, to 7,674.4

billion from the previous fiscal year, due to the negative foreign currency translation

effects and lower unit sales. Honda estimates that, had the exchange rate remained

unchanged from the previous year, net sales for the year would have decreased by

approximately 889.9 billion, or 9.4%.

Operating income decreased 637.1 billion, or 96.3%, to 24.5 billion, from the

previous fiscal year, due mainly to a decrease in income attributable to the decreased

net sales in North America and Japan, the negative foreign currency effects, an

increase in fixed costs per unit as a result of production cuts, increased raw material

costs, changes in the model mix brought by shift of customers demands towards more

compact and fuel efficient models along with expenses related to withdrawal from

some racing activities and cancellations of development of new models, despite

continuing cost reduction, the change in sales price, a decrease in costs for product

warranties, decreased R&D expenses and reduced sales incentives in North America.


8/8/2019 NA_Honda_09_A

28/92

Total automobile demand in Japan*1 (as measured by the number of regular vehi-

cle registrations (661cc or higher) and mini-vehicles (660cc or lower)) for the fiscalyear showed approximately 12% decline compared with the previous year to 4.7

million units, reflecting the decline in demand as the financial crisis began to have

an impact on the economy from September 2008.

Of this total, regular vehicle registrations declined approximately 16% from the

previous year, to about 2.89 million units, as the global financial crisis began to

have an impact on the real economy. Sales of mini-vehicles held relatively stable

because of the favorable effects of the introduction of new models by various man-

ufacturers and the increasing trend toward driving smaller cars, however, from No-

vember 2008 onward the economy moved into a downturn, and mini-vehicle sales

for the fiscal year fell 4% from the level of the previous year, to 1.81 million units.

Amid these business operating conditions, Honda worked to strengthen its

product lineup by introducing the new model FREED, a brand-new compact mini-van that is easy to handle and offers a spacious cabin with stylish design in May

2008, a new version of the Odysseyminivan in October, and the all-new Life in

November. In addition, in February 2009, Honda launched the Insight, a brand-

new hybrid vehicle that incorporates a lightweight, compact hybrid system inside

a compact body, while offering superior fuel economy and fun driving.

Although registrations of the Honda Fit and new models FREED and Insight

were strong, as a result of market headwind, overall unit sales dropped 9.6% be-

low the level of the previous fiscal year, to 556,000 units.

In production activities, Honda reduced output in response to the worldwide

decline in unit sales and the need to make adjustments in inventories. As a conse-

quence, the number of automobiles production during the fiscal year was down

11.4%, to 1,148,000 units. In response to sudden changes in global markets,

Honda transferred all production of the Stream model from the Suzuka Factory to

the Saitama Factory. Also, production of the Fit for the North American market be-

gan at the Saitama Factory in addition to the Suzuka Factory. The start-up of pro-

duction at the Yorii Factory, which was scheduled for 2010, has been postponed

for two years or more. Also, plans for beginning the manufacturing of mini-vehicles

at the Yokkaichi Factory of Yachiyo Industry Co., Ltd., have been postponed for

one year or more.

*1: Source: JAMA

Accord(Japan)

Inspired by the key phrase advanced quality, theAccordoffers everything in performance and function plus a majorimprovement in quality.

Odyssey(Japan)

Offers a smoother ride even better than previous minivans withits low-slung styling

JAPAN


Automobile Business


8/8/2019 NA_Honda_09_A

29/92

In calendar 2008, total demand in the United States*1 declined 18% from the pre-

vious year, to about 13,190,000 units. As a result of the increase in gasoline pricesin the first half of the year, a shift from light trucks such as large sports utility vehi-

cles (SUVs) and pickup trucks to the fuel-efficient smaller car segment continued.

However, by the latter half of the year, sales of compact cars and light trucks had

also dropped significantly. Especially from October, the market showed major

contraction as a result of the effects of the financial crisis on the real economy, the

deterioration in employment conditions, restraint in consumer spending, the

adoption of more stringent credit criteria by f inancial institutions, and other factors.

Under these circumstances, Honda aggressively introduced new models. In

the Honda channel, the all-new Pilot was launched in May 2008, the all-new Fit in

August, and the new Insight hybrid car in March 2009. Similarly, through its Acura

channel, model introductions included the all-new TSXin April 2008, and the all-

new TL in September.Amid this business operating environment, Hondas unit sales of its competi-

tive lineup of compact cars expanded in the first half of the year as gasoline

prices rose, while other automakers reported declining sales. In May 2008, the

Honda Civic took the number one spot for new car sales among all models on

the market.

However, along with the deterioration in the real economy, sales began to fall

in all segments, and, for the fiscal year, unit sales in North America as a whole

declined 19.1%, to 1,496,000 units. Although sales of the all-new TSXheld firm,

due to its attractive price, sales of higher-priced models such as light trucks, the

Odyssey, the Pilot and the Acura MDX, as well as the Acura TL dropped sub-

stantially, reflecting decline in consumer sentiment and demand.

In the area of production, manufacturing of the Civic at the new automobile

production plant in Indiana started in October 2008, but because of the sudden

decline in demand, Honda had made production cutbacks at the major plants in

North America. As a result, the number of automobiles production declined

13.2% from the previous fiscal year, to 1,251,000 units.

*1: Source: Wards Auto

TSX(North America)

An entry-level Acura with sportier styling and easier handling

NORTH AMERICA

New factory in Indiana

Fit (North America)

A subcompact passenger car with a sporty ride, reflectingclose attention to design

TL (North America)

A luxury sedan offering a dynamic driving experience

Insight(North America)


8/8/2019 NA_Honda_09_A

30/92

During calendar 2008, demand in the principal markets of Spain, Italy, and the

United Kingdom declined along with the unfavorable impact of the financial crisisfrom September 2008. As a consequence, total demand in Europe*1 fell approxi-

mately 8%, to about 14,710,000 units. On the other hand, total demand in Russia

increased approximately 13% from the previous year, to 2,930,000 units.

Amid this business environment, although Honda introduced the all-new Ac-

cord in June andJazz(sold as the Fit in Japan) in October 2008 into European

markets, unit sales in this region were down 10.5% from the previous year to

350,000 units mainly due to decreased total demands.

In production activities, Honda of the U.K. Manufacturing Ltd., a Honda U.K.

subsidiary, made production adjustments in response to the sudden decline in au-

tomobile demand. As a result, production at Hondas U.K. plant decreased 29.4%,

to 175,000 units compared to the same period of the previous fiscal year.

*1: Source: Association des Constructeurs Europeens dAutomobiles (the European automobile association) (Pas-senger cars, figures include 27 EU countries and 3 European Free Trade Association (EFTA) countries.)

*2: Source: Association of European Businesses

In Asia, total demand in principal countries*1 in calendar 2008 increased over the

previous year to about 15,100,000 units, despite the impact of the global financial

crisis from September 2008 onward.

Under this business operating environment, Honda introduced the all-new Fit in

Taiwan in October 2008. Honda also introduced the all-new City, a small sedan in

Thailand, in September 2008, and subsequently to India and other countries in

Asia. The number of countries in Asia that are offering tax breaks to stimulate de-mand for fuel-efficient compact cars is increasing. In the compact car market,

where continued growth is expected, Honda is introducing the Cityand theJazzto

follow the Civic,Accord, and CR-V, as consistent volume sales products.

During the fiscal 2009, total sales (comprising finished automobiles of Honda

and its consolidated subsidiaries and unit sales of parts to Hondas affiliated com-

panies accounted for under the equity method) rose 5.0% over the level of the pre-

vious fiscal year, to 793,000 units. Sales of the CityandJazzmodels held strong in

Thailand, Indonesia, Malaysia, and elsewhere. Similarly, sales of the newAccord

Accord(Europe)

A sporty look combining superior driving stability with high-level safety and environmental performance

Jazz(Europe)

Featuring top-class utility, high-level fuel economy, andmonoform design

ASIA

EUROPE


Automobile Business


8/8/2019 NA_Honda_09_A

31/92

Announcement event for the Cityin India

New fourth plant in Thailand

City(Asia)

Offers high value as a new benchmark for sub-compactsedans

Fit FFV(Brazil)

Popular in Brazil as a flexible-fuel vehicle (FFV), the Fit FFVleaps ahead of previous models in styling, fuel economy, anddriving pleasure.

through Guangzhou Honda Automobile Co., Ltd. (an affiliate accounted for under

the equity method), and sales of the CR-Vthrough Dongfeng Honda AutomobileCo., Ltd. (an affiliate accounted for under the equity method) were also strong.

In production, with an eye to future growth in the Asia/Oceania region, Honda

began production at its second plant in Thailand in October 2008, which has an

annual production capacity of 60,000 units. In India, in view of the drastic changes

in the market environment, Honda announced that plans for the start-up of a new

automobile plant have been postponed.

*1: The total includes 11 countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Singapore, Taiwan,South Korea, India, Pakistan, and China

Total demand in principal markets in the Other Regions increased, due mainly to

economic expansion in the first half of the fiscal year, although conditions becamestagnant in the latter half of the year as a result of the financial crisis from Septem-

ber 2008 onward.

Total demand in Brazil*1 in calendar 2008 was approximately 2,670,000 units,

approximately 14% higher than in the previous year. On the other hand, total de-

mand in Australia*2 decreased 4% from the previous year, to approximately

1,010,000 units.

Amid this business operating environment, Honda worked to strengthen its

lineup of automobiles and increase sales in Brazil. In addition to the existing Civic

FFVmodel which is able to run on a flexible mixture of gasoline and ethanol fuel,

Honda has expanded the flexible-fuel vehicle (FFV) version to the Fit model in No-

vember 2008.

During fiscal 2009, even though unit sales in Australia, the Middle East, and

certain other areas declined, Honda reported increases in unit sales in Brazil due

mainly to favorable sales of the all-new Fit, supported by the implementation of a

tax reduction on industrial products in Brazil and other developments. Similarly,

Honda reported increased sales in the Argentine market. As a result, unit sales in

Other Regions rose 2.5%, to 322,000 units.

*1: Source: ANFAVEA (Associaao Nacional dos Fabricantes de Veiculos Automotores (the Brazilian automobileassociation)(includes passenger vehicles and light commercial vehicles)

*2: Source: Federal Chamber of Automotive Industries (the Australian automobile association)

OTHER REGIONS


8/8/2019 NA_Honda_09_A

32/92

331

Thousands

8,000

6,000

4,000

2,000

0

05 06 07 08 09


Unit Sales


Yen (billions)

500

400

300

200

0

05 06 07 08

100

09


3.4%



Japan 550 516 (6.2) %

North America 2,415 1,893 (21.6)

Europe 1,693 1,306 (22.9)

Asia 915 970 6.0

Other Regions 484 502 3.7

Total 6,057 5,187 (14.4) %


Japan 147,775 115,252 (22.0) %

North America 109,445 80,124 (26.8)Europe 96,847 71,126 (26.6)

Asia 39,449 50,739 28.6

Other Regions 27,678 25,824 (6.7)

Total 421,194 343,065 (18.5) %





8/8/2019 NA_Honda_09_A

33/92

Hondas unit sales of power products totaled 5,187 thousand units, decreased by

14.4% from the previous fiscal year. Unit sales in Japan totaled 516 thousand units,

decreased by 6.2%. Overseas unit sales totaled 4,671 thousand units, decreased by

15.2%, due mainly to decreased unit sales in North America and Europe. Revenue

from external customers decreased 78.1 billion, or 18.5%, to 343.0 billion, from the

previous fiscal year, due mainly to the decreased unit sales of power products and

negative foreign currency translation effects. Honda estimates that, had the exchange

rate remained unchanged from the previous fiscal year, net sales for the year would

have decreased by approximately 49.0 billion, or 11.7%. Operating loss was 15.4

billion, a decrease of 37.8 billion from the previous fiscal year, due mainly to a

decrease in income attributable to the decreased net sales and increase in R&D

expenses in other businesses, despite decreased SG&A expenses.


8/8/2019 NA_Honda_09_A

34/92

In Japan, Honda newly launched the Yukios SB800, snow blower which is com-

pact and lightweight and clears snow with a blade. Honda also newly intro-duced the Pianta FV200, a gas-powered mini tiller that uses the same butane

gas canisters that are used in households for powering portable gas stoves. In

addition, Honda introduced its original thin-film solar cells that reduce CO 2

emissions in the manufacturing process and satisfy specifications for use in

public and industrial applications.

Unit sales in Japan were down 6.2%, to 516,000 units, because of the de-

cline in sales of water pumps, GXseries engines for electric power generators

sold to original equipment manufacturers (OEM*), and other products.

* OEM (Original equipment manufacturer) refers to the manufacturing of products and components sold undera third-party brand.

Yukios GX390

In Asia outside of Japan, Honda newly launched engines specially designed for

longtail boats, the GX160, the GX200 and the GX390, which are in wide use as a

major means of water transportation, featuring improved handling and durability.

In addition, in China, Honda newly introduced its superior-performance HRJ196

lawn mowers that are compact, lightweight and easy to use.

Unit sales in Asia, excluding Japan, increased 6.0% from the previous fiscal

year, to 970,000 units, as a result of expansion in sales of WB20XTpumps in In-

donesia and increases in sales ofGX160 general-purpose engines for OEM use

in water pumps and other applications in China.

ASIA

JAPAN

Unit sales in North America declined 21.6%, to 1,893,000 units. Factors ac-

counting for this decline were weakness in the sales of general-purpose engines

for OEM use in construction equipment, high-pressure washers, and lawn mow-

ers as well as weakness in the sales of lawn mowers, due to the downturn in the

U.S. economy.

NORTH AMERICA

In Europe, unit sales declined 22.9%, to 1,306,000 units. Sales ofGXand GC

series engines for OEM use in construction machinery, generators, and other ap-

plications declined.

EUROPE




8/8/2019 NA_Honda_09_A

35/92

In October 2007, consolidated subsidiary Honda Soltec Co., Ltd., began the pro-

duction of thin-film solar cells for household use and entered the public-sector

and industrial markets for these products in October 2008. Currently, Honda

Soltec is strengthening its capabilities for expanding sales.

In 2008, subsidiary Honda Aircraft Company, Inc., built a new international head-

quarters facility at the Piedmont Triad International Airport in Greensboro, North

Carolina, in the United States. The move into the new headquarters was complet-

ed in May. Honda Aircraft has begun to take orders in the United States as well as

Canada, Mexico, and Europe for its HondaJet aircraft. R&D is currently in progress

with a target date for beginning deliveries in 2011.

Also, Honda Aero, Inc., which is responsible for Hondas aircraft engine busi-

ness, has built a plant and headquarters facility near the airport in Burlington,

North Carolina and moved to the new headquarters in July 2008. This company is

scheduled to begin production of Hondas HF120 turbofan engines in 2011 and

aims to expand production to 200 units annually.

SOLAR CELL BUSINESS

AVIATION BUSINESS

COGENERATION UNITS

HondaJet

Thin-film solar cells

Cogeneration units

Honda Soltec Co., Ltd.

HF120 compact turbofan engine (aircraft engine)

An original Honda design, the HF120 has low emissions thatare ahead of regulatory standards plus top-class fuel economyand a quiet operation.

OTHER REGIONS

In Other Regions, unit sales rose 3.7% over the previous fiscal year, to 502,000

units, as a result of higher unit sales in the Middle East ofGX390 general-purposeengines for OEM use in construction machinery and generators and increased

sales ofGXseries general-purpose engines in South America.

Honda began to sell its household-use cogeneration unit equipped with the

ECOWILL system in Japan in March 2003 through gas companies. In addition,

Honda began to sell cogeneration units in the United States in March 2007.

Looking ahead, Honda will aim for an expansion in sales of cogeneration units.

Moreover, Honda is now developing its original core unit with the aim of mak-

ing it more compact and more efficient, and has plans to launch a new type of

cogeneration unit within the next two to three years featuring smaller size, higher

efficiency, and a high level of eco-compatibility.


8/8/2019 NA_Honda_09_A

36/92

Note: The finance subsidiariesreceivables category above includes items that have been reclassified as trade receivables and other assets.

Yen (billions)

05 06 07 08

600

450

300

150

0

09


Net Sales


Yen (billions)

05 06 07 08

6,000

4,500

3,000

1,500

0

09

Finance Subsidiaries Receivables, NetPercentage of Net Sales by Business

5.8%


Non-current Current


Japan 23,405 24,083 2.9 %

North America 483,925 527,905 9.1

Europe 13,234 12,685 (4.1)

Asia 4,936 4,736 (4.1)

Other Regions 8,053 12,852 59.6

Total 533,553 582,261 9.1 %

Finance Subsidiaries Receivables, Net Yen (millions) 2008 2009 % change

Non-current 2,884,264 2,571,152 (10.9)%

Current 1,817,033 1,596,642 (12.1)

Total 4,701,297 4,167,794 (11.4)%





8/8/2019 NA_Honda_09_A

37/92

To support the sale of its products, Honda provides retail lending and leasing to cus-

tomers and wholesale financing to dealers through our finance subsidiaries in Japan,the United States, Canada, the United Kingdom, Germany, Brazil and Thailand. In

North America, the financial crisis had a severe impact on the economy, the deteriora-

tion in employment conditions, deterioration in consumer sentiment and other factors.

As a result, the environment for financial services business remained under pressure.

The total amount of finance subsidiariesreceivables and property on operating

leases of finance subsidiaries decreased by 2.2%, to 4,860.1 billion from the previ-

ous fiscal year, due mainly to currency translation effects. Revenue from external cus-

tomers in the financial services business increased 48.7 billion, or 9.1%, to 582.2

billion from the previous fiscal year, due mainly to an increase in operating lease reve-

nue. Honda estimates that, had the exchange rate remained unchanged from the pre-

vious fiscal year, revenue for the year would have increased by approximately 124.7

billion, or 23.4%.Operating income decreased 37.1 billion, or 31.5%, to 80.6 billion from the pre-

vious fiscal year, due mainly to an increase in provisions for credit losses and losses on

lease residual values in North America and negative foreign currency effects, despite an

increase in income attributable to higher revenue. In North America, prices of SUVs and

minivans in the used car market dropped in the first half of the fiscal year, and losses

on lease residual values of these models increased.

In addition, from September onward, losses on lease residual values of sedans and

other passenger vehicles increased. Moreover, provisions for credit losses also in-

creased as the ability of certain customers to pay their debts declined.

Our finance subsidiaries in North America have historically accounted for all leases

as direct financing leases. However, starting in the fiscal year ended March 31, 2007,

some of the leases that do not qualify for direct financing lease accounting treatment

are accounted for as operating leases. Generally, direct financing lease revenues and in-

terest income consist of the recognition of finance lease revenue at the inception of the

lease arrangement and subsequent recognition of the interest income component of to-

tal lease payments using the effective interest method. In comparison, operating lease

revenues include the recognition of the gross lease payment amounts on a straight-line

basis over the term of the lease arrangement, and operating lease vehicles are depreci-

ated to their estimated residual value on a straight-line basis over the term of the lease.

It is not anticipated that the differences in accounting for operating leases and direct fi-

nancing leases will have a material net impact on Hondas results of operations overall;

however, operating lease revenues and associated depreciation of leased assets do re-

sult in differing presentation and timing compared to those of direct financing leases.During the fiscal year ending March 31, 2010, the decline in receivables is forecast

to persist, as there are concerns that the downturn in the U.S. economy will continue,

thus causing prolonged stagnation in the automobile market. Looking ahead, Honda

will work to substantially improve its financial services and respond to changes in the

operating environment.

REVIEW OF PERFORMANCE

Pilot

Goldwing

RL


8/8/2019 NA_Honda_09_A

38/92

Due to the current economic situation, there are concerns that the

economies of Japan, the U.S. and Europe will experience a down-

turn. In addition, the pace of economic growth of Asian countries

outside of Japan is expected to slow down. Moreover, given the

many uncertainties in the global business environment in which

Honda operates, including political and economic instability, fluctu-

ations in oil and raw material prices, and volatility in the currency

and financial markets, Honda expects that this will continue to be

an extremely challenging environment in which to do business.

With these circumstances in mind, Honda seeks to further

strengthen its corporate structure by making it more flexible and

dynamic and therefore, better able to meet the needs of its cus-

tomers and society as a whole as well as respond to changes in

the business environment. Also, in order to improve the competi-

tiveness of its products, Honda will endeavor to enhance its R&D,production and sales capabilities. Furthermore, Honda will continue

to enhance its reputation in the community through Companywide

activities. Honda recognizes that further enhancing the following

specific areas is essential to its success:

In connection with its efforts to develop the most effective safety

and environmental technologies, Honda will continue to be innova-

tive in advanced technology and products. Honda aims to create

and introduce new value-added products to quickly respond to

specific needs in various markets around the world. Honda will also

continue its efforts to conduct research on experimental technolo-

gies for the future.

Honda will establish and enhance efficient and flexible production

systems at its global production bases and supply high quality

products, with the aim of meeting the needs of its customers in

each region.

Honda will remain proactive in its efforts to expand product lines

through the innovative use of IT and will show its continued com-

mitment to different customers among the world by upgrading its

sales and service structure.

In response to increasing customer demand, Honda will upgrade

its quality control by enhancing the functions of and coordination

among the development, purchasing, production, sales and service

departments.

1.Research and Development

2.Production Efficiency

3. Sales Efficiency

4. Product Quality

Honda is working to develop safety technologies that enhance ac-

cident prediction and prevention, technologies to help reduce the

risk of injuries to passengers and pedestrians from car accidents,

and technologies that enhance compatibility between large and

small vehicles, as well as expand its line-up of products incorporat-

ing such technologies. Honda will reinforce and continue to ad-

vance its contribution to traffic safety in motorized societies in Ja-

pan and abroad. Honda also intends to remain active in a

variety of traffic safety programs, including advanced driving and

motorcycling training programs provided by local dealerships.

Honda will step up its efforts to create better, cleaner and more fu-

el-efficient engine technologies and to further improve recyclablesthroughout its product lines. Honda will also work to advance fuel

cell technology and steadily promote its new solar cell business. In

addition, Honda will further its efforts to minimize its environmental

impact. To this end, Honda sets global targets to reduce the envi-

ronmental burden as measured by the Life Cycle Assessment*, in

all areas of business, spanning production, logistics and sales.

In addition to continuing to provide products incorporating Hondas

advanced safety and environmental technologies, Honda will con-

tinue striving to enhance its social reputation by, among other

things, strengthening its corporate governance, compliance, and

risk management as well as participating in community activities

and making philanthropic contributions.

Through these Company-wide activities, Honda will strive to

become a company whose presence is welcomed by our share-

holders, customers and society.

7. Continuing to Enhance Hondas Social Reputation

and Communication with the Community

6. The Environment

5. Safety Technologies

*Life Cycle Assessment: A comprehensive system for quantifying the impact

Hondas products have on the environment at the different stages in their life

cycles, from material procurement and energy consumption to waste

disposal.


Preparing for the Future

8/8/2019 NA_Honda_09_A

39/92

1.Hondas operations are subject to currency fluctuations

Honda has manufacturing operations throughout the world, including Ja-

pan, and exports products and components to various countries. Honda

purchases materials and sells its products in foreign currencies. Therefore,

currency fluctuations may affect Hondas pricing of products sold and ma-

terials purchased. Accordingly, currency fluctuations have an effect on

Hondas results of operations and financial condition, as well as Hondas

competitiveness, which will over time affect its results. Since Honda ex-

ports many products and components from Japan and generates a sub-

stantial portion of its revenues in currencies other than the Japanese yen,Hondas results of operations would be adversely affected by an apprecia-

tion of the Japanese yen against other currencies, in particular the U.S.

dollar.

2.Hondas hedging of currency and interest rate risk exposes Honda to

other risks

Although it is impossible to hedge against all currency or interest rate risk,

Honda uses derivative financial instruments in order to reduce the sub-

stantial effects of currency fluctuations and interest rate exposure on our

cash flow and financial condition. These instruments include foreign cur-

rency forward contracts, currency swap agreements and currency option

contracts, as well as interest rate swap agreements. Honda has entered

into, and expects to continue to enter into, such hedging arrangements.

As with all hedging instruments, there are risks associated with the use of

such instruments. While limiting to some degree our risk fluctuations in

currency exchange and interest rates by utilizing such hedging instru-

ments, Honda potentially forgoes benefits that might result from other

fluctuations in currency exchange and interest rates. Honda is also ex-

posed to the risk that its counterparties to hedging contracts will default

on their obligations. Honda manages exposure to counterparty credit risk

by limiting the counterparties to major international banks and financial in-

stitutions meeting established credit guidelines. However, any default by

such counterparties might have an adverse effect on Honda.

1. Honda may be adversely affected by market conditions

Honda conducts its operations in Japan and throughout the world, includ-

ing North America, Europe and Asia. A sustained loss of consumer confi-

dence in these markets, which may be caused by continued economicslowdown, recession, rising fuel prices, financial crisis or other factors

could trigger a decline in demand for automobiles, motorcycles and pow-

er products that may adversely affect Hondas results of operations.

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

Prices for automobiles, motorcycles and power products in certain mar-

kets may experience sharp changes over short periods of time. This vola-

tility is caused by many factors, including fierce competition, which is

increasing, short-term fluctuations in demand from underlying economic

conditions, changes in tariffs, import regulations and other taxes, shortag-

es of certain supplies, high material prices and sales incentives by Honda

or other manufacturers or dealers. There can be no assurance that suchprice volatility will not continue or intensify or that price volatility will not

occur in markets that to date have not experienced such volatility. Overca-

pacity within the industry has increased and will likely continue to increase

if the economic downturn continues in Hondas major markets or world-

wide, leading, potentially, to further increased price pressure. Price volatili-

ty in any or all of Hondas markets could adversely affect Hondas results

of operations in a particular period.

Relating to Hondas Industry

Risks Relating Hondas Business Generally

1.The automobile, motorcycle and power product industries are subject

to extensive environmental and other governmental regulation

Regulations regarding vehicle emission levels, fuel economy, noise and

safety and noxious substances, as well as levels of pollutants from pro-

duction plants, are extensive within the automobile, motorcycle and power

product industries. These regulations are subject to change, and are often

made more restrictive. The costs to comply with these regulations can be

significant to Hondas operations.

2.Honda is reliant on the protection and preservation of its intellectualproperty

Honda owns or otherwise has rights in a number of patents and trade-

marks relating to the products it manufactures, which have been obtained

over a period of years. These patents and trademarks have been of value

in the growth of Hondas business and may continue to be of value in the

future. Honda does not regard any of its businesses as being dependent

upon any single patent or related group of patents. However, an inability

to protect this intellectual property generally, or the illegal breach of some

or a large group of Hondas intellectual property rights, would have an ad-

verse effect on Hondas operations.

3.Honda is subject to legal proceedings

Honda is subject to a number of suits, investigations and/or proceedings

under relevant laws and regulations of various jurisdictions. A negative out-

come in one or more of these pending legal proceedings could adversely

affect Hondas business, financial condition or results of operations.

Legal and Regulatory RisksCurrency and Interest Rate Risks


Risk Factors

8/8/2019 NA_Honda_09_A

40/92

6.Risk related to Pension and Other Postret irement Benefits

Honda has pension plans and provides other post-retirement benefits.

The amounts of pension benefits, lump-sum payments and other post-

retirement benefits are primarily based on the combination of years ofservice and compensation. The funding policy is to make periodic contri-

butions as required by applicable regulations. Benefit obligations and

pension costs are based on assumptions of many factors, including the

discount rate, the rate of salary increase and the expected long-term rate

of return on plan assets. Differences in actual expenses and costs or

changes in assumptions could affect Hondas pension costs and benefit

obligations, including Hondas cash requirements to fund such obliga-

tions, which could materially affect our financial condition and results of

operations.

7.As a holder of ADSs, you will have fewer rights than a shareholder has

and you will have to act through the depositary to exercise those rights

The rights of shareholders under Japanese law to take various actions, in-

cluding voting their shares, receiving dividends and distributions, bringing

derivative actions, examining a companys accounting books and records,

and exercising appraisal rights, are available only to holders of record. Be-

cause the depositary, through its custodian agents, is the record holder of

the Shares underlying the ADSs, only the depositary can exercise those

rights in connection with the deposited Shares. The depositary will make

efforts to vote the Shares underlying your ADSs as instructed by you and

will pay to you the dividends and distributions collected from us. However,

in your capacity as an ADS holder, you will not be able to bring a deriva-

tive action, examine our accounting books and records or exercise ap-

praisal rights through the depositary.

8.Rights of shareholders under Japanese law may be more limited than

under the law of other jurisdictions

Our Articles of Incorporation, Regulations of the Board of Directors, Regu-

lations of the Board of Corporate Auditors and the Japanese CompanyLaw govern our corporate affairs. Legal principles relating to such matters

as the validity of corporate procedures, directors and officers fiduciary

duties, and shareholders rights may be different from those that would

apply if we were a U.S. company. Shareholders rights under Japanese

law may not be as extensive as shareholders rights under the laws of the

United States. You may have more difficulty in asserting your rights as a

shareholder than you would as a shareholder of a U.S. corporation. In ad-

dition, Japanese courts may not be willing to enforce liabilities against us

in actions brought in Japan that are based upon the securities laws of the

United States or any U.S. state.

9.Because of daily price range limitations under Japanese stock exchange

rules, you may not be able to sell your shares of our Common Stock at

a particular price on any particular trading day, or at all

Stock prices on Japanese stock exchanges are determined on a real-time

basis by the equilibrium between bids and offers. These exchanges are

order-driven markets without specialists or market makers to guide price

formation. To prevent excessive volatility, these exchanges set daily up-

ward and downward price fluctuation limits for each stock, based on the

previous days closing price. Although transactions may continue at the

upward or downward limit price if the limit price is reached on a particular

trading day, no transactions may take place outside these limits. Conse-

quently, an investor wishing to sell at a price above or below the relevant

daily limit may not be able to sell his or her shares at such price on a par-

ticular trading day, or at all.

1.Hondas financial services business conducts business under highly

competitive conditions in an industry with inherent risksHondas financial services business offers various financing plans de-

signed to increase the opportunity for sales of its products and to gener-

ate financing income. However, customers can also obtain financing for

the lease or purchase of Hondas products through a variety of other

sources that compete with our financing services, including commercial

banks and finance and leasing companies. The financial services offered

by us also involve credit risk as well as risks relating to lease residual val-

ues, cost of capital and access to funding. Competition for customers

and/or these risks may affect Hondas results of operations in the future.

2.Honda relies on various suppliers for the provision of certain raw

material and components

Honda purchases raw materials, and certain components and parts, from

numerous external suppliers, and relies on some key suppliers for some

items and the raw materials it uses in the manufacture of its products.

Hondas ability to continue to obtain these supplies in an efficient and

cost-effective manner is subject to a number of factors, some of which

are not within Hondas control. These factors include the ability of its sup-

pliers to provide a continued source of supply and Hondas ability to com-

pete with other users in obtaining the supplies. Loss of a key supplier in

particular may affect our production and increase our costs.

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

Honda conducts its businesses worldwide, and in several countries, Hon-

da conducts businesses through joint ventures with local entities, in part

due to the legal and other requirements of those countries. These busi-

nesses are subject to various regulations, including the legal and other re-

quirements of each country. If these regulations or the business conditions

or policies of these local entities change, it may have an adverse affect onHondas business, financial condition or results of operations.

4.Honda may be adversely affected by wars, use of force by foreign

countries, terrorism, multinational conflicts, natural disasters, epidemics

and labor strikes

Honda conducts its businesses worldwide, and its operations may vari-

ously be subject to wars, use of force by foreign countries, terrorism, mul-

tinational conflicts, natural disasters, epidemics, labor strikes and other

events beyond our control which may delay or disrupt Hondas local oper-

ations in the affected regions, including the purchase of raw materials and

parts, the manufacture, sales and distribution of products and the provi-

sion of services. Delays or disruptions in one region may in turn affect our

global operations. If such delay or disruption occurs and continues for a

long period of t ime, Hondas business, financial condition or results of op-

erations may be adversely affected.

5.Honda may be adversely affected by inadvertent disclosure of

confidential information

Although Honda maintains internal controls through established proce-

dures to keep confidential information including personal information of its

customers and relating parties, such information may be inadvertently dis-

closed. If this occurs, Honda may be subject to, and may be adversely af-

fected by, claims for damages from the customers or parties affected.

Also, inadvertent disclosure of confidential business or technical informa-

tion to third parties may result in a loss of Hondas competitiveness.

Risks Relating to Hondas Operations


Risk Factors

8/8/2019 NA_Honda_09_A

41/92

Corporate Governance

With respect to business execution, Honda has established a

system for operating its organizational units that reflects its funda-

mental corporate philosophy. For example, separate headquarters

have been set up for each region, business, and function, and a

member of the Board of Directors or an operating officer has been

assigned to each headquarters and main division. In addition, by

having the Executive Council and regional operating boards deliber-

ate important matters concerning management, the Company imple-

ments a system that enables swift and appropriate decision making.

With respect to internal control, compliance systems and risk

management systems have been designed and implemented ap-

propriately following the basic policies for the design of internal

controls decided by the Board of Directors.

To enhance even further the trust and understanding of share-

holders and investors, Hondas basic policy emphasizes the appro-priate disclosure of Company information, such as by disclosing fi-

nancial results on a quarterly basis and timely and accurately giving

public notice of and disclosing its management strategies. Honda

will continue raising its level of transparency in the future.

Based on its fundamental corporate philosophy, the Company is

working to enhance corporate governance as one of its most im-

portant management issues. Our aim is to have our customers and

society, as well as our shareholders and investors, place even

greater trust in us and to ensure that Honda is a company that so-

ciety wants to exist.

To ensure objective control of the Companys management, out-

side directors and outside corporate auditors are appointed to the

Board of Directors and the Board of Corporate Auditors, which are

responsible for the supervision and auditing of the Company. Honda

has also introduced an operating officer system, aimed at strength-

ening both the execution of business operations at the regional and

local levels and making management decisions quickly and appro-

priately. The term of office of each director is limited to one year, and

the amount of remuneration payable to them is determined accord-ing to a standard that reflects their performance in the Company.

Our goal in doing this is to maximize the flexibility with which our di-

rectors respond to changes in the operating environment.

1. Basic Stance Regarding Corporate Governance

2. Company Management Organization

(As of June 23, 2009)

Board of Corporate Auditors 5 auditors(Outside Corporate Auditors 3 auditors)

Domestic Factories

Risk Management Officer

Regional SalesOperations

(Japan)

Regional Operations(North America)

Regional Operations(Latin America)

Regional Operations(Europe, the Middle &Near East and Africa)

Regional Operations(Asia / Oceania)

Regional Operations(China)

Regional OperatingBoard(Japan)

Regional OperatingBoard

(North America)


(Latin America)


(Europe, the Middle &

Near East and Africa)


(Asia / Oceania)

Regional OperatingBoard(China)

Compliance Officer

Business Ethics Committee

Business Ethics Improvement Proposal Line

Honda Driving Safety Promotion Center

Corporate Planning Division

Corporate Communications Division New Business Development and Planning Office Aero Engine Business Office Aircraft Operation Office Motorcycle Quality Innovation Division Auto Quality Innovation Division Power Product Quality Innovation Division Quality Assurance Division Certification & Regulation Compliance DivisionIT Division

Motorcycle Operations

Automobile OperationsPower Product Operations

Customer Service Operations

Production Operations

Purchasing Operations

Business Support Operations

Business Management Operations

Corporate Project Quality Audit & Compliance Division Audit Office 26 staff Corporate Auditors OfficeHonda R&D Co., Ltd.

Honda Engineering Co., Ltd.

Board of Directors 21 directors(Outside Directors 2 directors)

President & CEO

Executive Council


8/8/2019 NA_Honda_09_A

42/92

The Board of Directors consists of 21 directors, including two out-

side directors. The Board deliberates important matters related to

business execution and other items designated by law based on its

established deliberation standards, assesses business risk, and

then makes decisions on such matters after due consideration. The

Board also controls and supervises the execution of management.

During the fiscal year under review (April 1, 2008, to March 31,

2009), the Board of Directors met 10 times.

The Board of Corporate Auditors consists of five corporate auditors,

including three outside corporate auditors. In accordance with the

Companys auditing standards, auditing policies, apportionment of

responsibilities, and other such matters as determined by the Boardof Corporate Auditors, each corporate auditor audits the directors

execution of duties. Corporate auditors accomplish these audits

through various means, including attending meetings of the Board of

Directors and inspecting the state of the Companys assets and lia-

bilities. In addition, a Corporate Auditors Office was established to

provide direct support to the Board of Corporate Auditors.

The Company maintains Standards for Reporting to Corporate

Auditors to ensure that relevant matters are reported to corporate

auditors in a timely and accurate manner. The standards require reg-

ular reports to be submitted to corporate auditors on the business

conditions of the Company and its subsidiaries, the maintenance

and operation of internal control systems, and any other matters

that would have a substantial impact on the Company or its sub-

sidiaries. In addition, corporate auditors are required to attend Ex-

ecutive Council and other important meetings. In fiscal 2009, the

Board of Corporate Auditors met 13 times.

The Board of Corporate Auditors has certified Hideki Okada, a

corporate auditor of the Company, as an audit committee financial

expert, as set out in the rules of the Securities and Exchange

Commission pursuant to Section 407 of the U.S. Sarbanes-Oxley

Act of 2002. As stipulated in Item 8, Article 121, of the Company

Law Enforcement Regulations, Hideki Okada has substantial

knowledge related to finance and accounting.

Candidates for directors are decided by resolution of the Board of

Directors. Candidates for c

na_honda_09_a

Documents