20-F 1 d24614d20f.htm ANNUAL REPORT ANNUAL REPORT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 1-7628

 

 

HONDA GIKEN KOGYO KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

 

 

HONDA MOTOR CO., LTD.

(Translation of Registrant’s name into English)

 

 

JAPAN

(Jurisdiction of incorporation or organization)

No. 1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo 107-8556, Japan

(Address of principal executive offices)

Rikako Suzuki

prj_h_ir2@hm.honda.co.jp, +81-3-5412-1134, No. 1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo 107-8556, Japan

(Name, E-mail and/or Facsimile number, Telephone and Address of Company Contact Person)

 

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which  registered

Common Stock*   HMC   New York Stock Exchange
American Depositary Shares**

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Title of each class

 

Outstanding as of March 31, 2021***

Common Stock   1,726,655,268****

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act,    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such file).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ☒   Accelerated filer    ☐    Non-accelerated filer    ☐   Emerging growth company    ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ☐    International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒    Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

*

Not for trading purposes, but only in connection with the registration of American Depositary Shares, each representing one share of Common Stock.

 

**

American Depositary Receipts evidence American Depositary Shares, each American Depositary Share representing one share of Common Stock.

 

***

Unless otherwise indicated in this Form 20-F, “outstanding shares” excludes the number of shares held by the BIP Trust (as defined under Item 6.B. “Compensation-The Board Incentive Plan”).

 

****

Shares of Common Stock include 70,044,953 shares represented by American Depositary Shares.

 

 

 


Table of Contents

PART I

  

Item 1. Identity of Directors, Senior Management and Advisers

     1  

Item 2. Offer Statistics and Expected Timetable

     1  

Item 3. Key Information

     1  

A. Selected Financial Data

     1  

B. Capitalization and Indebtedness

     2  

C. Reason for the Offer and Use of Proceeds

     2  

D. Risk Factors

     2  

Item 4. Information on the Company

     8  

A. History and Development of the Company

     8  

B. Business Overview

     9  

C. Organizational Structure

     33  

D. Property, Plants and Equipment

     34  

Item 4A. Unresolved Staff Comments

     36  

Item 5. Operating and Financial Review and Prospects

     36  

A. Operating Results

     36  

B. Liquidity and Capital Resources

     60  

C. Research and Development

     62  

D. Trend Information

     66  

E. Off-Balance Sheet Arrangements

     66  

F. Tabular Disclosure of Contractual Obligations

     66  

G. Safe Harbor

     66  

Item 6. Directors, Senior Management and Employees

     67  

A. Directors and Senior Management

     67  

B. Compensation

     82  

C. Board Practices

     87  

D. Employees

     87  

E. Share Ownership

     88  

Item 7. Major Shareholders and Related Party Transactions

     88  

A. Major Shareholders

     88  

B. Related Party Transactions

     89  

C. Interests of Experts and Counsel

     89  

Item 8. Financial Information

     89  

A. Consolidated Statements and Other Financial Information

     89  

B. Significant Changes

     91  

Item 9. The Offer and Listing

     91  

A. Offer and Listing Details

     91  

B. Plan of Distribution

     91  

C. Markets

     91  

D. Selling Shareholders

     91  

E. Dilution

     91  

F. Expenses of the Issue

     91  

Item 10. Additional Information

     91  

A. Share Capital

     91  

B. Memorandum and Articles of Association

     91  

C. Material Contracts

     93  

D. Exchange Controls

     93  

E. Taxation

     93  


Table of Contents

F. Dividends and Paying Agents

     97  

G. Statement by Experts

     97  

H. Documents on Display

     97  

I. Subsidiary Information

     98  

Item 11. Quantitative and Qualitative Disclosure about Market Risk

     98  

Item 12. Description of Securities Other than Equity Securities

     98  

A. Debt Securities

     98  

B. Warrants and Rights

     98  

C. Other Securities

     98  

D. American Depositary Shares

     98  

PART II

  

Item 13. Defaults, Dividend Arrearages and Delinquencies

     100  

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

     100  

Item 15. Controls and Procedures

     100  

Item 16A. Audit Committee Financial Expert

     101  

Item 16B. Code of Ethics

     101  

Item 16C. Principal Accountant Fees and Services

     101  

Item 16D. Exemptions from the Listing Standards for Audit Committees

     102  

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     102  

Item 16F. Change in Registrant’s Certifying Accountant

     102  

Item 16G. Corporate Governance

     103  

Item 16H. Mine Safety Disclosure

     106  

PART III

  

Item 17. Financial Statements

     107  

Item 18. Financial Statements

     107  

Item 19. Exhibits

     107  


Table of Contents

PART I

Unless the context otherwise requires, the terms “we”, “us”, “our”, “Registrant”, “Company” and “Honda” as used in this Annual Report each refer to Honda Motor Co., Ltd. and its consolidated subsidiaries.

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The selected consolidated financial data set out below for each of the five fiscal years ended March 31, 2021 have been derived from our consolidated financial statements that were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

You should read the IFRS selected consolidated financial data set out below together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements contained in this Annual Report.

 

    Fiscal years ended March 31,  
    Yen (millions, except Per Share Data)  
    2017     2018     2019     2020     2021  

Consolidated Statement of Income Data:

         

Sales revenue

  ¥ 13,999,200     ¥ 15,361,146     ¥ 15,888,617     ¥ 14,931,009     ¥ 13,170,519  

Operating profit

    840,711       833,558       726,370       633,637       660,208  

Share of profit of investments accounted for using the equity method

    164,793       247,643       228,827       164,203       272,734  

Profit before income taxes

    1,006,986       1,114,973       979,375       789,918       914,053  

Profit for the year

    679,394       1,128,639       676,286       509,932       695,444  

Profit for the year attributable to owners of the parent

    616,569       1,059,337       610,316       455,746       657,425  

Consolidated Statement of Financial Position Data:

         

Total assets

    18,958,123       19,349,164       20,419,122       20,461,465       21,921,030  

Financing liabilities, including current and non-current

    6,809,118       6,799,010       7,331,120       7,469,686       7,720,985  

Equity attributable to owners of the parent

    7,295,296       7,933,538       8,267,720       8,012,259       9,082,306  

Total equity

    7,569,626       8,234,095       8,565,790       8,286,023       9,372,839  

Common stock

    86,067       86,067       86,067       86,067       86,067  

Per Share Data:

         

Weighted average number of common shares outstanding

         

Basic and diluted (thousands of shares)

    1,802,282       1,793,088       1,763,983       1,752,006       1,726,638  

Earnings per share attributable to owners of the parent*1

         

Basic and diluted

  ¥ 342.10     ¥ 590.79     ¥ 345.99     ¥ 260.13     ¥ 380.75  

Dividends declared during the period per common share*2

    90.00       97.00       110.00       112.00       84.00  
    (US$ 0.80     (US$ 0.91     (US$ 0.99     (US$ 1.03     (US$ 0.76

 

*1 

Earnings per share has been calculated by dividing profit for the year attributable to owners of the parent available to common shareholders by the weighted average number of common shares outstanding during the period.

 

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*2 

A year-end dividend of ¥54 ($0.49) per common share aggregating ¥93.2 billion ($842 million) relating to fiscal year 2021 was resolved by the Company’s Board of Directors in May 2021. This dividend was paid in June 2021. U.S. dollar amounts for dividends per share are translated from yen at the year-end exchange rate of each period.

B. Capitalization and Indebtedness

Not applicable.

C. Reason for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the risks described below before making an investment decision. If any of the risks described below actually occurs, Honda’s business, financial condition or operating results could be adversely affected. In that event, the trading prices of Honda’s common shares and American Depositary Shares could decline, and you may lose all or part of your investment. Additional risks not currently known to Honda or that Honda now deems immaterial may also harm Honda and affect your investment.

Risks relating to the spread of coronavirus disease 2019 (COVID-19)

The World Health Organization (WHO) declared COVID-19 a pandemic in March 2020. Thereafter, COVID-19 continued to spread worldwide, and due to various responses resulting from the spread of COVID-19 including outing and travel restrictions in various countries, there has been stagnation of consumers’ consumptions and corporate economic activities. Despite widespread vaccinations in certain countries, it is still unclear at present as to when COVID-19 will end.

As a result of governmental travel restriction measures, the production activities of some of Honda’s production bases in Japan and overseas are affected mainly due to restrictions on employees’ commute to the workplaces and delays in the supply of parts within the supply chain. Also, some dealers in Japan and overseas have been obliged to suspend business, shorten business hours, or reduce services such as inspections and repairs.

Although much of our business activities have resumed, the duration of the spread of COVID-19, market trends, and economic trends remain uncertain. Unpredictable future trends may adversely affect Honda’s business and operating results, such as through factory downtime and business suspensions or shortening of business hours at dealers and decrease in sales units, in addition to increased costs to maintain prolonged infection prevention countermeasures.

The spread of COVID-19 may also have an impact on the risks discussed below.

Regional Risk

Honda conducts business operations in countries worldwide and is exposed to risks including changes in local laws and regulations, agreements, institutions and business practices, such as tariffs, import and export regulations, and taxes, wars, terrorism, political uncertainty, worsening security situation, change in political regime and labor strikes in those countries or neighboring regions. If such unforeseeable events occur, and operations are delayed or suspended, Honda’s business and operating results could be adversely affected.

Particularly among them, Honda recognizes the following as the main risks that could also significantly affect Honda’s mid- and long-term initiatives regarding further electrification of the products, more widespread use and evolution of driver-assistive technologies, and further provision of mobility services.

 

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For the scale of business in each region that may be affected by such changes in local laws and regulations and systems in the future, see “(d) Supplemental Geographical Information” of note “(4) Segment Information” to the accompanying consolidated financial statements.

1. Status of Trade Agreements

Trends in the negotiations regarding trade agreements, particularly those related to the United States, could have adverse effects on Honda’s business and operating results. Honda will continue to monitor the status of negotiations and take action in consideration of the impact on Honda. The United States-Mexico-Canada Agreement (USMCA) took effect in July 2020. The revision of various rules such as the rules of country of origin for automobiles sold within the regions covered in USMCA may adversely affect Honda’s business in North America.

2. Status of Personal Information Protection Rules

In recent years, personal information protection rules have been rapidly developed in countries around the world, as exemplified by the California Consumer Privacy Act that took effect in January 2020. As such, fines may be imposed if violations of rules occur, including the leakage of personal information, in accordance with the rules of each country, and this could have an adverse effect on Honda’s business and operating results. This risk may be magnified by initiatives for other next-generation technologies such as provision of mobility services, which involve greater collection and management of personal information.

3. Status of Economic Security Policies

If any governmental policy concerning export control, data protection or otherwise concerning trade security in the United States and/or China is strengthened, this could possibly require relevant countermeasure cost for the business activities involving production, development, purchasing, and sales, etc., which could adversely affect Honda’s business operations in North America, Asia, and other regions.

Purchasing and Procurement Risk

Honda aims to sustain the procurement of good products at reasonable prices in a timely manner, purchases raw materials and parts from numerous external suppliers, and relies on certain suppliers for some of the raw materials and parts which it uses to manufacture its products. Honda’s ability to continue to obtain these supplies in an efficient manner at appropriate cost levels is subject to a number of factors, some of which are outside of Honda’s control. These factors include the ability of its suppliers to provide a continued supply of raw materials and parts and Honda’s ability to compete with other users in obtaining the supplies.

In case it becomes impossible to receive the supply of materials and parts from suppliers on a continuous basis or in case of losing any key supplier, this could lead to delays in or the suspension of Honda’s manufacturing operations and a loss of Honda’s competitiveness, which could adversely affect Honda’s business and operating results. For example, a shortage in the procurement of semiconductors has become manifest for Honda, which has led to such effects as the suspension or decrease of production of automobiles at some of Honda’s production bases in Japan and overseas. Moreover, purchasing and procurement risk could also significantly affect Honda’s mid- and long-term initiatives, particularly regarding further electrification of the products, more widespread use and evolution of driver-assistive technologies, and further provision of mobility services.

Information Security Risk

Honda uses a wide range of information systems and networks relating to information services and driving support in its business activities and its products, including in areas managed by subcontractors. Especially in recent years, IoT and other information technologies, which have evolved rapidly, have become indispensable for control of vehicles.

 

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Meanwhile, the means of cyberattacks that take place have become more advanced and sophisticated, targeting organizations around the world. For example, on June 8, 2020, Honda experienced a cyber-attack, which widely affected personal computers when they accessed Honda’s internal system. As a result, Honda’s business operation suspended temporarily at several locations including Honda’s production bases.

Any additional cyber-attacks could have similar or more serious effects on our business, or substantially impact Honda’s mid- and long-term initiatives, particularly regarding more widespread use and evolution of driver-assistive technologies and further provision of mobility services.

There is a possibility that, in addition to external cyber-attacks, any equipment malfunction, any management deficiency or human error at Honda or within any of its subcontractors, or any natural disaster, infrastructure failure or any other unforeseen circumstances could also result in the suspension of important operations and services, leakage of confidential or personal information, inappropriate processing of documents and information, or the destruction or falsification of important data.

When such event occurs, Honda’s business and operating results could be adversely affected in terms of damage to its brand image or social reputation, liability to customers or parties affected, payment of financial penalties, delays in or suspension of Honda’s manufacturing operations, and a loss of Honda’s competitiveness.

Risks relating to Environmental Regulations

Carrying out its business operations in countries around the world, Honda is subject to wide-ranging regulations covering the environmental issues related to fuel efficiency, exhaust emissions, noise, toxic substances, recycling, and other matters.

For the regulations concerning fuel efficiency and exhaust in particular, there has been implementation of or planning for their revisions around the world. Depending on the trends for the revisions and what the revised regulations may stipulate, Honda’s measures in response and related expenses could possibly weigh on its production, development, purchasing and sales activities, etc., in the Motorcycle, Automobile, Life creation and other business operations. This could adversely affect Honda’s business and operating results.

Moreover, these risks could significantly affect Honda’s mid- and long-term initiatives, particularly regarding further electrification of the products.

Intellectual Property Risk

Honda owns or otherwise has rights in a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks include those that could significantly affect Honda’s mid- and long-term initiatives, particularly regarding more widespread use and evolution of driver-assistive technologies and further provision of mobility services, among other areas.

The inability to protect this intellectual property generally, the illegal infringement of some or a large group of Honda’s intellectual property rights, or the suspension of manufacturing and/or sales activities and the payment of large amounts of damages as a result of lawsuits on infringement of patent rights and license fees, could have an adverse effect on Honda’s business and operating results.

Natural Disasters Risk

The suspension and delay in business activities such as production, development, purchasing and sales as a result of damage caused to Honda’s operation sites and employees by earthquakes, floods, windstorms, infections and other natural disasters may adversely affect Honda’s business and operating results. Also, if any of Honda’s business partners suffer any such damage, or if there is any disruption of the infrastructure due to a natural disaster, this may adversely affect Honda’s business and operating results.

 

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Financial & Economic Risk

1. Economic Trends and Economic Fluctuations Risks

Honda conducts business operations in the countries throughout the world. Honda has manufacturing operations and sells products in various regions and countries. These business activities may be affected by economic slowdowns, currency fluctuation or other factors, which could result in decreased sales due to market contraction, increases in component procurement prices and product sales prices, higher credit risk for Honda’s business, and higher financing interest rates, among others. Accordingly, these changes may have an adverse effect on Honda’s business and operating results.

2. Currency Fluctuations Risk

Honda has manufacturing operations throughout the world, including Japan, and exports products and components to various countries. Honda purchases materials and components and sells its products and components in foreign currencies. Therefore, currency fluctuations could affect Honda’s pricing of materials purchased and products sold. Accordingly, currency fluctuations may have an adverse effect on Honda’s business and operating results.

Business Alliances and Joint Ventures Risk

Honda engages in business operations through alliances and joint ventures with other companies in expectation of synergy effects and increased efficiency, or to meet the requirements of the countries in which business development is being undertaken.

As Honda advances its mid- and long-term initiatives, particularly regarding further electrification of the products, more widespread use and evolution of driver-assistive technologies, and further provision of mobility services, the utilization of alliances and other forms of partnership are gaining importance.

If disagreements in business, profit or technology leakage, delays in decision-making or poor operating results at business partners occur among the parties to an alliance or joint venture, or if conditions to an alliance or joint venture are changed or cancelled, it may have an adverse effect on Honda’s business and operating results.

Relating to Industry Market Risk

Honda conducts its operations in Japan and countries throughout the world, including North America, Europe and Asia. A sustained loss of consumer confidence in these markets, which may be caused by an extended economic slowdown, recession, changes in consumer preferences and needs, rising fuel prices, financial crisis, increases in product prices due to increases in material costs or decreases in supply volume, intensifying competition with other companies or other factors could trigger a decline in demand for Honda’s products that may adversely affect Honda’s business and operating results.

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

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

 

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Legal Risk

Honda could be subject to lawsuits, various investigations and legal proceedings under relevant laws and regulations of various jurisdictions. A negative outcome in any such current or future legal proceedings brought against Honda could adversely affect Honda’s business and operating results.

Honda is subject to risks relating to its obligations to provide post-employment benefits

Honda has various pension plans and provides other post-employment benefits, in which the amount of benefits is basically determined based on the level of salary, service years, and other factors. Contributions are also regularly reviewed and adjusted as necessary to the extent permitted by laws and regulations. Defined benefit obligations and defined benefit costs are based on assumptions of a variety of factors, including the discount rate and the rate of salary increase. Changes in assumptions could affect Honda’s defined benefit costs and obligations, including Honda’s cash requirements to fund such obligations in the future, which could adversely affect Honda’s operating results.

Honda’s success depends in part on the value of its brand image, which could be diminished by product defect

One of the important factors behind corporate sustainability is trust and support for the Honda brand from our customers, society and the communities in which Honda conducts business operations. In order to support this brand image, Honda endeavors to gain the trust of society in all types of corporate activities, including ensuring product quality and compliance with laws and regulations, conducting risk management, and enhancing internal controls related to corporate governance. However, if for some unforeseeable reason the Honda brand image is damaged or Honda is unable to communicate information in a timely manner and deal with such information appropriately, this could adversely affect Honda’s business and operating results.

Risks Relating to Honda’s ADSs

A holder of ADSs will have fewer rights than a shareholder has and such holder will have to act through the depositary to exercise those rights

The rights of shareholders under Japanese law to take various actions, including exercising voting rights inherent in their shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records, and exercising appraisal rights, are available only to holders of record. Because the depositary, through its custodian agents, is the record holder of the Shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited Shares. The depositary will make efforts to exercise votes regarding the Shares underlying the ADSs as instructed by the holders and will pay to the holders the dividends and distributions collected from the Company. However, in the capacity as an ADS holder, such holder will not be able to bring a derivative action, examine our accounting books or records or exercise appraisal rights through the depositary.

Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions

The Company’s Articles of Incorporation, Regulations of the Board of Directors, Regulations of the Nominating Committee, Regulations of the Audit Committee, Regulations of the Compensation Committee, and the Company Law of Japan (the “Company Law”) govern corporate affairs of the Company. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties, and shareholders’ rights may be different from those that would apply if the Company were a U.S. company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of the United States. An ADS holder may have more difficulty in asserting his/her rights as a shareholder than such an ADS holder would as a shareholder of a U.S. corporation. In addition, Japanese courts may not be willing to enforce liabilities against the Company in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.

 

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Because of daily price range limitations under Japanese stock exchange rules, a holder of ADSs may not be able to sell his/her shares of the Company’s Common Stock at a particular price on any particular trading day, or at all

Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

U.S. investors may have difficulty in serving process or enforcing a judgment against the Company, its directors or executive officers

The Company is a limited liability, joint stock corporation incorporated under the laws of Japan. Most of its directors and executive officers reside in Japan. All or substantially all of the Company’s assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon the Company or these persons or to enforce against the Company or these persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgment of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

The Company’s shareholders of record on a record date may not receive the dividend they anticipate

The customary dividend payout practice and relevant regulatory regime of publicly listed companies in Japan may differ from that followed in foreign markets. The Company’s dividend payout practice is no exception. While the Company may announce forecasts of year-end and interim dividends prior to the record date, these forecasts are not legally binding. The actual payment of year-end dividends requires a resolution of the Company’s Board of Directors. If the Board of Directors adopt such a resolution, the year-end dividend payment is made to shareholders as of the applicable record date, which is currently specified as March 31 by the Company’s Articles of Incorporation. However, such a resolution of the Board of Directors is usually made at a meeting of the Board of Directors held in April. The payment of interim dividends also requires a resolution of the Company’s Board of Directors. If the board adopts such a resolution, the dividend payment is made to shareholders as of the applicable record date, which is currently specified as September 30 by the Articles of Incorporation. However, the board usually does not adopt a resolution with respect to an interim dividend until after the record date.

Shareholders of record as of an applicable record date may sell shares after the record date in anticipation of receiving a certain dividend payment based on the previously announced forecasts. However, since these forecasts are not legally binding and resolutions to pay dividends are usually not adopted until after the record date, our shareholders of record on record dates for year-end and interim dividends may not receive the dividend they anticipate.

Cautionary Statement with Respect to Forward-Looking Statements in This Annual Report

This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements included in this Annual Report are based on the current assumptions and beliefs of Honda in light of the information currently available to it, and involve known and unknown risks, uncertainties, and other factors. Such risks, uncertainties and other factors may cause Honda’s actual results, performance,

 

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achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors are generally set forth in Item 3.D “Risk Factors” and include, without limitation:

 

   

the political, economic and social conditions in Japan and throughout the world including North America, Europe and Asia, including economic slowdowns, recessions, changes in consumer preferences, rising fuel prices, financial crises, exchange rates and other factors, as well as the relevant governments’ specific policies with respect to economic growth, inflation, taxation, currency conversion, imports and sources of supplies and the availability of credit, particularly to the extent such current or future conditions and policies affect the automobile, motorcycle and power product industries and markets in Japan and other markets throughout the world in which Honda conducts its business, and the demand, sales volume and sales prices for Honda’s automobiles, motorcycles and power products;

 

   

the effects of competition in the automobile, motorcycle and power product markets on the demand, sales volume and sales prices for Honda’s automobiles, motorcycles and power products;

 

   

Honda’s ability to finance its working capital and capital expenditure requirements, including obtaining any required external debt or other financing upon favorable interest rates or other terms;

 

   

the effects of environmental, personal information and other governmental regulations and legal proceedings; and

 

   

the effects of events such as environmental or man-made disasters, pandemics, cyber-attacks or other events affecting Honda, its suppliers, customers or the economy as a whole.

Honda undertakes no obligation and has no intention to publicly update any forward-looking statement after the date of this Annual Report. Investors are advised to consult any further disclosures by Honda in its subsequent filings pursuant to the Securities Exchange Act of 1934.

Item 4. Information on the Company

A. History and Development of the Company

Honda Motor Co., Ltd. is a limited liability, joint stock corporation incorporated on September 24, 1948 under the Commercial Code of Japan as Honda Giken Kogyo Kabushiki Kaisha. It was formed as a successor to the unincorporated enterprise established in 1946 by the late Soichiro Honda to manufacture motors for motorized bicycles.

Since its establishment, 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. Honda develops, manufactures and markets motorcycles, automobiles and power products globally.

Honda’s principal executive office is located at 1-1, Minami-Aoyama 2-chome, Minato-ku, Tokyo, 107-8556, Japan. Its telephone number is +81-3-3423-1111. We maintain a website at https://global.honda/investors/ that contains information about our Company.

The United States Securities and Exchange Commission (the “SEC”) maintains a website at https://www.sec.gov/ which contains in electronic form each of the reports and other information that we have filed electronically with the SEC.

Principal Capital Investments

In the fiscal years ended March 31, 2019, 2020 and 2021, Honda’s capital expenditures were ¥2,657.2 billion, ¥2,858.3 billion and ¥2,567.1 billion, respectively, on an accrual basis. Also, capital expenditures excluding those with respect to equipment on operating leases were ¥618.5 billion, ¥613.4 billion

 

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and ¥565.2 billion, respectively, on an accrual basis. For further details of Honda’s capital expenditures during fiscal year 2021, see Item 4.D “Property, Plants and Equipment” of this Annual Report.

B. Business Overview

General

Honda’s business segments are the Motorcycle business operations, Automobile business operations, Financial services business operations, and Life creation and other businesses operations.

The following tables show the breakdown of Honda’s revenue from external customers by category of business and by geographical markets based on the location of the customer for the fiscal years ended March 31, 2019, 2020 and 2021:

 

     Fiscal years ended March 31,  
     2019     2020     2021  
     Yen (billions)  

Motorcycle Business

   ¥ 2,100.1         ¥ 2,059.3         ¥ 1,787.2      

Automobile Business

     11,072.1       9,959.0       8,567.2  

Financial Services Business

     2,365.3       2,586.9       2,494.2  

Life Creation and Other Businesses

     350.9       325.6       321.7  
  

 

 

   

 

 

   

 

 

 

Total

   ¥   15,888.6     ¥   14,931.0     ¥   13,170.5  
  

 

 

   

 

 

   

 

 

 

 

     Fiscal years ended March 31,  
     2019     2020     2021  
     Yen (billions)  

Japan

   ¥ 2,042.8         ¥ 1,985.9         ¥ 1,849.2      

North America

     8,519.0       8,164.3       7,080.8  

Europe

     660.9       568.7       511.7  

Asia

     3,793.7       3,449.8       3,250.1  

Other Regions

     872.0       762.0       478.4  
  

 

 

   

 

 

   

 

 

 

Total

   ¥   15,888.6     ¥   14,931.0     ¥   13,170.5  
  

 

 

   

 

 

   

 

 

 

Motorcycle Business

In 1949, Honda began mass production of motorcycles with the Dream D-Type, followed by other models such as the Benly and the Cub F-Type. By 1957, Honda became the top Japanese manufacturer in terms of motorcycle production volume. Honda expanded its business overseas by establishing American Honda Motor Co., Inc. in the United States in 1959. Honda first started overseas production in Belgium in 1963.

Honda produces a wide range of motorcycles, with engine displacement ranging from the 50cc class to the 1800cc class. Honda’s motorcycle lineup uses internal combustion engine of air- or water-cooled, and in single, two, four or six-cylinder configurations. Honda also has electric vehicles in its lineup. Honda’s motorcycle lineup consists of sports, business and commuter models. Honda also produces a range of off-road vehicles, including all-terrain vehicles (ATVs) and side-by-sides (SxS).

 

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The following table sets out unit sales for Honda’s Motorcycle business, including motorcycles, all-terrain vehicles (ATVs) and side-by-sides (SxS) and revenue from Motorcycle business, and the breakdown by geographical markets based on the location of the customer for the fiscal years ended March 31, 2019, 2020 and 2021:

 

    Fiscal years ended March 31,  
    2019     2020     2021  
    Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue     Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue     Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue  
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
 

Japan

    207       207     ¥ 79.2       205       205     ¥ 77.2       215       215     ¥ 88.1  

North America

    301       301       188.2       330       330       203.8       332       332       197.1  

Europe

    249       249       159.6       239       239       144.3       234       234       146.9  

Asia

    18,224       11,201         1,375.2       17,262       10,348       1,338.7       13,319       8,451       1,149.8  

Other Regions

    1,257       1,257       297.7       1,304       1,304       295.0       1,032       1,032       205.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    20,238       13,215     ¥ 2,100.1       19,340       12,426     ¥ 2,059.3       15,132       10,264     ¥ 1,787.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Motorcycle revenue as a percentage of total sales revenue

        13         14         14

 

* 

Honda Group Unit Sales is the total unit sales of completed products of Honda, its consolidated subsidiaries and its affiliates and joint ventures accounted for using the equity method. Consolidated Unit Sales is the total unit sales of completed products corresponding to consolidated sales revenue to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries.

See Item 4. D. “Property, Plants and Equipment” for information regarding principal manufacturing facilities.

For further information on recent operations and a financial review of the Motorcycle business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.

Automobile Business

Honda started Automobile business operations in 1963 with the T360 mini truck and the S500 small sports car models. Honda subsequently launched a series of mass-production models including the CIVIC in 1972 and the ACCORD in 1976, which established a base for its Automobile business. In 1969, production of the mini vehicles N600 and TN600 began in Taiwan using component parts sets. In 1982, Honda became the first Japanese automaker to begin local automobile production in the United States (with the ACCORD model) and later conducted local development and expanded production activities to include light truck models. In 1986, the Acura Brand was established and an exclusive sales network was launched in the United States.

Honda’s vehicles use gasoline engines of three, four or six-cylinder configurations, diesel engines, gasoline-electric hybrid systems and gasoline-electric plug-in hybrid systems. Honda also offers other alternative fuel-powered vehicles such as battery electric vehicles, fuel cell vehicles, and flexible fuel vehicles.

Honda’s principal automobile products include the following vehicle models: (in alphabetical order)

Passenger cars:

ACCORD, CITY, CIVIC, CRIDER, FIT/JAZZ

Light trucks:

BREEZE, CR-V, FREED, ODYSSEY, PILOT, VEZEL/HR-V, XR-V

 

 

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Mini vehicles:

N-BOX

The following table sets out Honda’s unit sales of automobiles and revenue from Automobile business and the breakdown by geographical markets based on the location of the customer for the fiscal years ended March 31, 2019, 2020 and 2021:

 

    Fiscal years ended March 31,  
    2019     2020     2021  
    Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue     Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue     Honda Group
Unit Sales*
    Consolidated
Unit Sales*
    Revenue  
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
    Units
(thousands)
    Units
(thousands)
    Yen
(billions)
 

Japan

    719       643     ¥ 1,590.2       672       589     ¥ 1,473.7       592       520     ¥ 1,321.4  

North America

    1,954       1,954       6,165.5       1,825       1,825       5,650.6       1,480       1,480       4,679.3  

Europe

    169       169       427.3       133       133       359.2       101       101       290.3  

Asia

    2,233       734       2,360.6       1,952       563       2,049.4       2,247       390       2,037.5  

Other Regions

    248       248       528.3       208       208       425.9       126       126       238.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      5,323         3,748     ¥ 11,072.1         4,790         3,318     ¥ 9,959.0         4,546         2,617     ¥ 8,567.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Automobile revenue as a percentage of total sales revenue

        70         67         65

 

* 

Honda Group Unit Sales is the total unit sales of completed products of Honda, its consolidated subsidiaries and its affiliates and joint ventures accounted for using the equity method. Consolidated Unit Sales is the total unit sales of completed products corresponding to consolidated sales revenue to external customers, which consists of unit sales of completed products of Honda and its consolidated subsidiaries. Certain sales of automobiles that are financed with residual value type auto loans by our Japanese finance subsidiaries and sold through our consolidated subsidiaries are accounted for as operating leases in conformity with IFRS and are not included in consolidated sales revenue to the external customers in our Automobile business. Accordingly, they are not included in Consolidated Unit Sales, but are included in Honda Group Unit Sales of our Automobile business.

See Item 4. D. “Property, Plants and Equipment” for information regarding principal manufacturing facilities.

For further information on recent operations and a financial review of the Automobile business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.

Financial Services Business

We offer a variety of financial services to our customers and dealers through finance subsidiaries in countries including Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand, with the aim of providing sales support for our products. The services of these subsidiaries include retail lending, leasing to customers and other financial services, such as wholesale financing to dealers.

 

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The following table sets out Honda’s revenue from Financial services business and the breakdown by geographical markets based on the location of the customer for the fiscal years ended March 31, 2019, 2020 and 2021:

 

     Fiscal years ended March 31,  
         2019             2020             2021      
     Yen (billions)  

Japan

   ¥ 285.8         ¥ 358.8         ¥ 380.3      

North America

         2,029.9           2,176.6           2,070.5  

Europe

     12.9       11.8       11.2  

Asia

     11.4       14.7       15.0  

Other Regions

     25.2       24.8       17.0  
  

 

 

   

 

 

   

 

 

 

Total

   ¥ 2,365.3     ¥ 2,586.9     ¥ 2,494.2  
  

 

 

   

 

 

   

 

 

 

Financial Services revenue as a percentage of total sales revenue

     15     17     19

For further information on recent operations and a financial review of the Financial services business, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.

Life Creation and Other Businesses

Honda’s Power product business began in 1953 with the introduction of the model H, its first general purpose engine. Since then, Honda has manufactured a variety of power products including general purpose engines, generators, water pumps, lawn mowers, riding mowers, robotic mowers, brush cutters, tillers, snow blowers, outboard marine engines, walking assist devices and portable battery inverter power sources. In 2019, Honda had renamed Power product business to Life creation business. This renaming represents Honda’s intention to evolve Power product business as a function to create new value for “mobility” and “daily lives”, which includes existing power products business as well as new businesses for the future, including energy business. Energy business consists of portable and swappable battery rechargeable with renewable energy and energy management service for EV owners to charge their car with the renewables.

In Other businesses, Honda began deliveries of the HondaJet aircraft in December 2015.

The following table sets out Honda’s revenue from Life creation and other businesses and the breakdown by geographical markets based on the location of the customer for the fiscal years ended March 31, 2019, 2020 and 2021:

 

     Fiscal years ended March 31,  
     2019     2020     2021  
     Honda Group
Unit Sales /
Consolidated
Unit Sales*
     Revenue     Honda Group
Unit Sales /
Consolidated
Unit Sales*
     Revenue     Honda Group
Unit Sales /
Consolidated
Unit Sales*
     Revenue  
     Units
(thousands)
     Yen
(billions)
    Units
(thousands)
     Yen
(billions)
    Units
(thousands)
     Yen
(billions)
 

Japan

     336      ¥ 87.5       312      ¥ 76.1       336      ¥ 59.2  

North America

     3,049        135.3       2,848        133.1       2,617        133.7  

Europe

     984        60.9       845        53.2       929        63.2  

Asia

     1,559        46.4       1,375        46.8       1,405        47.6  

Other Regions

     373        20.7       321        16.2       336        17.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     6,301      ¥ 350.9       5,701      ¥ 325.6       5,623      ¥ 321.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Life Creation and Other businesses revenue as a percentage of total sales revenue

        2        2        2

 

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* 

Honda Group Unit Sales is the total unit sales of completed power products of Honda, its consolidated subsidiaries and its affiliates and joint ventures accounted for using the equity method. Consolidated Unit Sales is the total unit sales of completed power products corresponding to consolidated sales revenue to external customers, which consists of unit sales of completed power products of Honda and its consolidated subsidiaries. In Life creation business, there is no discrepancy between Honda Group Unit Sales and Consolidated Unit Sales since no affiliate and joint venture accounted for using the equity method was involved in the sale of Honda power products.

For further information on recent operations and a financial review of the Life creation and other businesses, see “Operating Results” in “Item 5. Operating and Financial Review and Prospects”.

Marketing and Distribution

Most of Honda’s products are distributed under the Honda trademarks in Japan and/or in overseas markets.

In fiscal year 2021, approximately 88% of Honda’s motorcycle units on a group basis were sold in Asia. Approximately 49% of Honda’s automobile units (including sales under the Acura Brand) on a group basis were sold in Asia followed by 33% in North America and 13% in Japan. Approximately 47% of Honda’s power products units on a group basis were sold in North America followed by 25% in Asia and 17% in Europe.

Sales and Service

In Japan, Honda produces and sells motorcycles, automobiles, and power products through its domestic sales subsidiaries and independent retail dealers. In overseas markets, Honda also provides motorcycles, automobiles, and power products through its principal foreign sales subsidiaries, which distribute Honda’s products to local wholesalers and retail dealers.

In fiscal year 2021, approximately 97% of Honda’s overseas sales were made through its principal foreign sales subsidiaries, which distribute Honda’s products to local wholesalers and retail dealers.

Honda sells spare parts and provides after-sales services through retail dealers directly or via its overseas operations, independent distributors and licensees.

Components and Parts, Raw Materials and Sources of Supply

Honda manufactures the major components and parts used in its products, including engines, frames and transmissions. Other components and parts, such as shock absorbers, electrical equipment and tires, are purchased from numerous suppliers. The principal raw materials used by Honda are steel plate, aluminum, special steels, steel tubes, paints, plastics and zinc, which are purchased from several suppliers. The most important raw material purchased is steel plate, accounting for approximately 36% of Honda’s total purchases of raw materials.

No single supplier accounted for more than 5% of the Company’s purchases of major components and parts and principal raw materials during the fiscal year ended March 31, 2021.

Ordinarily, Honda does not have and does not anticipate having any difficulty in obtaining its required materials from suppliers and considers its contracts and business relations with the suppliers to be satisfactory. The Company does not believe any of its Japanese domestic suppliers are substantially more dependent on foreign suppliers than Japanese suppliers generally. However, it should be noted that Japanese industry in general is heavily dependent on foreign suppliers for substantially all of its raw materials.

 

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Seasonality

Honda’s motorcycles and power products have historically experienced some seasonality. However, this seasonality has not generally been material to our financial results.

Environmental and Safety Regulation

Honda is subject to various government regulations, including environmental and safety regulations for automobiles, motorcycles and power products. Such regulations relate to items such as emissions, fuel economy, recycling and safety and have had, and are expected to continue to have, material effects on Honda’s business. Honda has incurred significant compliance and other costs in connection with such regulations and will incur future compliance and other costs for new and upcoming regulations. Relevant environmental and safety regulations are described below.

Outline of Environmental and Safety Regulation for Automobiles

1. Emissions

Japan

In 2010, the Central Environmental Council in the Ministry of Environment reviewed the JC08 mode for emission testing and began to consider the introduction of the Worldwide harmonized Light vehicle Test Procedure (WLTP). In 2015, the Central Environmental Council in the Ministry of Environment (MOE) decided to introduce WLTP. From October 2018, emission test based on WLTP has been obligatory instead of JC08 mode.

In March 2018, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) introduced the Real Driving Emissions (RDE) examination for diesel vehicles. It will be applicable to new models of vehicles beginning in October 2022 and to existing models of vehicles beginning in October 2024.

In February 2019, the MLIT adopted the Global Technical Regulation No.19 (Evaporative emission test procedure for WLTP) for domestic regulation.

The MOE decided to introduce the particle number (PN) regulation for diesel/gasoline direct injection vehicles from one year after the date of its 14th report, which was made on August 20, 2020.

In December 2020, MOE announced the plan targeting the transition to the electrification of automobiles by around 2030, which covers hybrid vehicles, plug-in hybrid vehicles, electric vehicles and fuel cell vehicles.

The United States

Increasingly stringent emission regulations under the Clean Air Act have been enacted since the 1990s by the U.S. federal government.

Under the Clean Air Act, the State of California is permitted to establish its own emission control standards to the extent they are more stringent than federal standards. Pursuant to this authority, the California Air Resources Board (CARB) adopted the California Low Emission Vehicle Program in 1990, aiming to establish the strictest emission regulations in the world.

In August 2012, the CARB issued the Advanced Clean Car package of regulations, which included amendments to the California Low Emission Vehicle Program III (LEV III) and Zero Emission Vehicle (ZEV) regulations. The LEV III regulation, which applies to 2015 and subsequent model years, tightened limits on emissions and evaporative emissions. The ZEV regulation was revised so that requirements could be satisfied by

 

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TZEV (Transitional ZEV) and ZEV alone for 2018 and subsequent model years. Also, for 2018 and subsequent model years, the credit value eligible for each ZEV category was decreased drastically, which consequently increases the required sales volume dramatically. The BEVx category, which includes battery electric vehicles with auxiliary power units, was also added as a ZEV category. Currently, many states have adopted California LEV III and ZEV regulations.

In March 2014, the Environmental Protection Agency (EPA) finalized Tier 3 regulation, the federal emission and fuel standards. Tier 3 requires gasoline fuels at a pump to have an average sulfur content of 10 parts-per-million, which is already implemented in Europe and Japan. It also sets exhaust and evaporative emission standards equivalent to California LEV III. In other words, it enables auto manufacturers to sell some of the same vehicles they sell in California in states that have not adopted LEV III.

In October 2015, the CARB issued the Final Statement Of Reasons for rulemaking (FSOR), to amend the current LEV III regulation in order to align its standards further with the finalized federal Tier 3 regulation.

In October 2020, the CARB held a public workshop explaining the Advanced Clean Cars II (ACC II) regulations, which are new environmental regulations applicable to new light- and medium-duty vehicles in and after the 2026 model year. The ACC II regulations contain modifications of the criteria pollutant and greenhouse gas (GHG) regulations, preliminary proposals to support wider scale adoption of new ZEVs, and the preliminary staff projections of costs for future battery electric vehicle (BEV) technologies.

Canada

On July 16, 2015, the Environment Canada (current Environment and Climate Change Canada) issued the final regulation of amendment to emission regulation whose requirements refer to Tier 3 regulations in the United States.

Europe

In 2005, the European Union created new emission standards (the Euro 5 and Euro 6 regulations) and comprehensive requirements for gasoline vehicles and diesel vehicles.

The Euro 5 regulation required limits on particle number emissions from diesel vehicles, and implemented new test measurements for PM mass emissions from gasoline vehicles with direct injection engines and diesel vehicles in and after September 2011.

The Euro 6 regulation was implemented in September 2014. Emission limits for diesel vehicles were lowered even more than the Euro 5 levels for NOx and THC plus NOx. Additionally, Euro 6 requires limits on particle numbers from gasoline vehicles with direct injection engines.

The required ethanol density of test fuel was also increased, starting from September 2016.

The testing cycle to measure emissions has gradually been transitioning from New European Driving Cycle (NEDC) to Worldwide harmonized Light duty driving Test Cycle (WLTC) beginning from September 2017.

The European Commission implemented regulations regarding the Real Driving Emissions (RDE) using Portable Emissions Measurement System (PEMS). The monitoring phase started from April 2016 and RDE testing with emission limits started from September 2017 for NOx and PN (particle number).

The new Evaporative Emissions Test started from September 2019. The testing cycle was updated from NEDC to WLTP in conformity with the United Nations Economic Commission for Europe (UNECE) GTR No. 19.

 

 

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On December 11, 2019, the European Commission released its communication on the “EU Green Deal”, which is intended to be the most ambitious package of measures that the European Commission has ever proposed, aiming for Europe to become the world’s first climate-neutral continent (economy) by 2050.

The Green Deal is designed as a set of 10 deeply transformative policies and more than 50 supporting legislative actions. One of the policies (Sustainable and smart mobility) includes “Euro7 as more stringent pollutant emissions standards for combustion-engine vehicles”. The European Commission will propose Euro7 by end of 2021.

China

China implemented Step 6a emission regulations in July 2020, based on the Euro 6 regulation. Step 6a regulations were implemented in July 2020 and Step 6b regulations will be implemented in July 2023.

In order to reduce dependence on foreign sources of crude oil and reduce air pollution, which are viewed as serious problems, the Chinese government has implemented various infrastructure projects and subsidy policies and has been preparing the relevant national standards and a certification system in order to encourage broad use of new energy vehicles such as electric vehicles, plug-in hybrid electric vehicles, and fuel-cell electric vehicles.

India

India implemented Bharat Stage VI (BS VI) regulations from April 2020, skipping the implementation of BS V regulations. The BS VI regulations feature two phases. The second phase is expected to apply from April 2023 with more stringent particle number and on-board diagnostic requirements and compliance for RDE.

Thailand

Thailand is scheduled to implement Euro 5 regulation by 2022 and Euro 6 regulation by 2023.

Malaysia

Malaysia is scheduled to implement Euro 4 regulation from July 2020 for new vehicles and January 2022 for all gasoline vehicles.

Indonesia

Indonesia introduced Euro 4 regulation from April 2017 for new models of vehicles and October 2018 for existing models of vehicles.

Brazil

Brazil is scheduled to implement PROCONVE L7 from 2022 and L8 from 2025. This regulation is a unique Brazilian regulation based on U.S. regulations.

2. Fuel Economy / CO2

Japan

In June 2010, MLIT and the Ministry of Economy, Trade and Industry (METI) jointly established a committee and commenced a study to formulate new fuel economy standards for passenger motor vehicles for 2020. The new standards were announced in March 2013. The next term fuel economy standards improve the 2015 standards by 19.6% and adopt the Corporate Average Fuel Economy (CAFE) calculation method.

 

 

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Fuel specifications for E10 fuel, which is gasoline blended with 10% ethanol, were revised and included in the April 2012 announcement setting forth the details of safety standards under the Road Transport Vehicle Law. Ethanol blended fuel is a “biomass fuel”. Biomass fuel is regarded as an effective countermeasure for CO2 reduction. CO2 emissions after burning ethanol fuel produced with biomass resources (such as plants or wood) are not counted as CO2 emissions under the Kyoto Protocol.

In 2015, MLIT and METI examined the new fuel economy standards for small commercial vehicles.

In autumn 2016, WLTC mode was introduced into fuel economy standards, in addition to JC08 mode.

In March 2018, MLIT and METI jointly established a committee and commenced a study to formulate new fuel economy standards for passenger motor vehicles for 2030. The new standards, announced in January 2020, require an improvement in fuel efficiency of 32.4% over the 2016 standards and adopted the Corporate Average Fuel Economy (CAFE) calculation method.

In April 2020, it became mandatory to measure the fuel consumption of fuel cell vehicles in WLTP mode and electric mileage of electric vehicles in WLTC mode.

The United States

The National Highway Traffic Safety Administration (NHTSA) and EPA issued a regulation in August 2012 regarding GHG / CAFE regulations from the 2017 through 2025 model years. The standard for the 2025 model year is 163 g-CO2/mile or a 54.5 mpg industry average. The CARB also issued a regulation that was nearly equivalent to the EPA’s GHG regulations in August 2012. In December 2012, the CARB amended its GHG regulation so that a manufacturer is also deemed to comply with the CARB GHG regulations if it complies with EPA-GHG from the 2017 through 2025 model years.

When GHG / CAFE regulation was legislated in 2012, the EPA and the NHTSA announced that they, in coordination with the CARB, would perform a mid-term evaluation re-examining the appropriateness of limit values for 2022-2025 model years by April 2018. Accordingly, the EPA, the NHTSA and the CARB jointly issued a joint technical assessment report in July 2016 (a technical report, and not a decision document). In January 2017, the EPA solely issued the final determination that they would not change the 2022-2025 model years standards established in 2012.

In March 2017, former president Trump issued executive order “Promoting Energy Independence and Economic Growth” which includes rescinding the “Climate Action Plan” announced by former president Obama.

The CARB decided in March 2017 not to change the GHG regulations applicable for the 2022-2025 model years, and, on April 2, 2018, the EPA announced that the GHG requirement for 2022-2025 model years needs reconsideration.

On September 27, 2019, the EPA and the NHTSA jointly issued Part 1 of the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule Part 1: One National Program” replacing the current GHG / CAFE regulations.

The SAFE Vehicles Rule Part 1 clarified that federal law supersedes state law and withdrew a preemption waiver (Federal Priority) previously granted to allow the state of California to set its own GHG emission standards different from the federal standards set by EPA.

In March 2020, the EPA and the NHTSA jointly published the SAFE Vehicles Rule Part 2. Under the new SAFE rule, both GHG and CAFE requirements will increase in stringency by 1.5% per year during 2021-2026 model years. The CO2 standard for the 2026 model year is industry average of 199 g-CO2/mile.

 

 

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In September 2020, the Governor of California signed an executive order stating that 100% of in-state sales of new cars and light truck would be ZEV by 2035. Following the California Governor’s announcement, a number of states have followed suit.

In January 2021, President Biden issued an executive order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis which called for such as review of SAFE Vehicles Rule and other regulations.

Canada

The government of Quebec in Canada finalized the standard to mandate each automaker to sell a certain minimum number of ZEVs starting from the 2018 model year.

In May 2019, the government of British Columbia also adopted a bill to mandate ZEV sales from 2025.

In June 2019, the Environment and Climate Change Canada signed an agreement with the CARB in the United States to promote cooperation in reducing GHG emissions.

Europe

In 2014, a new regulation was issued, requiring EU fleet-wide target of 95 g CO2/km for 2020 based on NEDC testing procedure.

The current European type-approval procedure for fuel consumption and CO2 emissions of cars based on NEDC has been gradually replaced with WLTP beginning from September 2017. During the transitional years, WLTP-measured CO2 values are calculated to NEDC CO2 values to check compliance to the NEDC based CO2 target. A new WLTP based target for each manufacturer will be set from 2021.

On November 8, 2017, the European Commission proposed a new CO2 standard beyond 2025. The European Parliament and Council reached a provisional inter institutional agreement on the European Commission proposal during the fifth trilogue meeting on December 17, 2018.

The agreed target beyond 2025 is negative 15%. The agreed target beyond 2030 is negative 37.5% for new passenger cars and negative 31% for light commercial vehicles, respectively, compared to the 2021 average of all manufacturers’ EU fleet-wide target.

The agreement also provide that, for zero- and low-emission vehicles, a benchmark equal to 15% share of the respective fleets of newly registered passenger cars and light commercial vehicles shall apply from January 1, 2025, and a benchmark equal to 35% share of the fleet of newly registered passenger cars and a benchmark equal to 30% share of the fleet of newly registered light commercial vehicles shall apply from January 1, 2030.

On December 11, 2019, the European Commission released its communication on the EU Green Deal. See “—Outline of Environmental and Safety Regulation for Automobiles—1. Emissions—Europe”. One policy in the EU Green Deal (EU’s climate ambition for 2030 and 2050) includes “CO2 performance of cars”. The European Commission will release a proposal to strengthen the automobile CO2 Regulation by July 2021.

China

China adopted a fuel consumption regulation for passenger vehicles in 2004. Step 1 of this regulation was implemented in 2005, Step 2 of this regulation was implemented in 2008 and Step 3 of this regulation was implemented in 2012. In addition, China implemented Step 4 of this regulation in 2016. Step 5 was implemented in 2021.

 

 

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Newly published GB and GB/T standards (Chinese national standards issued by the Standardization Administration of China) include an amendment to measurement methods of fuel consumption for light-duty vehicles.

India

India has promulgated rules to introduce fuel economy / CO2 regulations in 2017 and 2022 in a phased manner.

Brazil

Brazil is scheduled to implement new fuel economy / CO2 regulations from 2022.

3. Recycling / End-of-Life Vehicles (ELV) / Chemicals and hazardous substances

Japan

Japan enacted the Automobile Recycling Law in July 2002, which required manufacturers to take back air bags, fluorocarbon and shredder residue derived from end-of-life vehicles (ELV), which became effective on January 1, 2005. ELV processing costs are collected from owners of cars currently in use and purchasers of new cars.

Europe

On December 30, 2006, the European Union adopted the Regulation concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), which became effective on June 1, 2007. From June 1, 2008, any manufacturer or importer of chemical substances is required to submit a registration to the European Chemicals Agency, based on annual production or import quantity levels. Submitting a pre-registration between June 1 and December 1, 2008 will allow the manufacturer or importer to extend the deadline for submitting the registration for existing chemical substances. The list of Substances of Very High Concern (SVHC) is amended periodically to include new substances. Upon a request by a consumer, a supplier of a product containing SVHC must provide the consumer with sufficient information, including at least the name of the substance, within 45 days.

On February 18, 2011, the first set of substances which require authorization for use after specified dates were announced. Manufacturers using these substances in Europe must either be authorized for use after submitting an application or use substitute substances. Substances which require authorization will be added periodically.

China

On June 23, 2017, China implemented automobile recycling laws partially following the regulations established by the European Union.

India

India has a plan to implement automobile recycling laws in the near future.

4. Safety

Japan

Japan Automobile Standards Internationalization Center (JASIC), which is organized by the MLIT and Japan Automobile Manufacturers Association (JAMA), among others, has started to review a proposal for the

 

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unification of Safety/Environment Standards, vehicle categories and certification in order to promote further internationalization of standards and certifications. JASIC made the proposal to other contracting parties of the 58 / 98 Agreement in 2009 and reached an agreement among the contracting parties by 2017.

In October 2016, the MLIT adopted UN R138, which regulates the reduced audibility of “quiet road transport vehicles”, including electric vehicles.

In February 2017, the MLIT adopted UN R139, which regulates Brake Assist Systems.

In February 2017, the MLIT adopted UN R140, which regulates Electronic Stability Control (ESC) Systems.

In February 2017, the MLIT adopted UN R141, which regulates Tyre Pressure Monitoring Systems (TPMS).

In February 2017, the MLIT adopted UN R142, which regulates tyre installation.

In January 2021, the MLIT adopted UN R153, which regulates fuel system integrity and electric power train safety in rear-end collisions.

In January 2021, the MLIT adopted UN R155, which regulates cyber security and cyber security management.

In January 2021, the MLIT adopted UN R156, which regulates software updates and software update management systems.

In January 2021, the MLIT adopted UN R157, which regulates automated lane keep systems (ALKS).

To achieve the highest level of traffic safety in Japan, MLIT developed a strategy to introduce fully automated driving in the latter half of the 2020s. To develop harmonized regulations for automated driving, MLIT is joining ITS / AD Informal Working Group under WP29 of the United Nations. MLIT is co-chairman of Informal Working Group together with the United Kingdom.

In 2019, the Cabinet decided on a bill to develop a system to secure the safety of automated driving.

MLIT is considering introducing a regulation regarding “Accident Emergency Call Systems (AECS)”.

In 2019, the MLIT adopted UN R152, which regulates “Advanced Emergency Braking System (AEBS)”.

Inspection of on-board diagnostics (OBD) will be required from October 2024 for inspections of vehicles with electronic control devices.

The United States

In March 2014, the NHTSA issued a final rule for FMVSS No. 111, which requires that rear visibility technology be installed in all new vehicles weighing under 10,000 pounds. The purpose is to reduce death and injury resulting from incidents when the driver is backing up. Manufacturers had to comply with the new requirements for 10% of all vehicles produced from May 2016 to April 2017. From May 2017 to April 2018, 40% must comply and all vehicles by May 2018.

In September 2016, the NHTSA issued the Federal Automated Vehicles Policy for safety testing and deployment of automated vehicles. This policy comprises four sections: vehicle performance guidance for

 

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automated vehicles, model state policy, current regulatory tools, and modern regulatory tools. The vehicle performance guidance section outlines a 15 point “safety assessment” for the safe design, development, testing and deployment of automated vehicles.

In December 2016, the NHTSA issued a final rule to newly establish FMVSS141, a standard for minimum sound requirements for hybrid and electric vehicles. The purpose of FMVSS141 is to reduce the number of injuries that result from electric and hybrid vehicle crashes with pedestrians by providing a sound level and sound characteristics necessary for these vehicles to be detected and recognized by pedestrians. Manufacturers must comply with the new requirements for 50% of all hybrid and electric vehicles produced from September 2018, and all hybrid and electric vehicles in or after September 2019.

In January 2017, the NHTSA issued a proposed regulation to establish a new FMVSS150 (vehicle-to-vehicle (V2V) communications) standard. FMVSS150 specifies performance requirements for V2V communications capability and the mandatory equipment requirements of V2V function. FMVSS150 applies to new passenger cars, multi-purpose vehicles, trucks, and buses with a gross vehicle weight rating of 10,000 pounds (4,536 kg) or less. FMVSS150 has a provision for a scheduled phase-in.

In September 2017, the NHTSA issued a voluntary guidance “A Vision for Safety” to update the Federal Automated Vehicle Policy issued in 2016. Manufacturers may demonstrate how they address the safety elements contained in this guidance by publishing a Voluntary Safety Assessment for automated driving system (SAE Level 3 through 5).

In February 2018, the NHTSA issued a final rule for FMVSS141, a standard for minimum sound requirement for hybrid and electric vehicle. The purpose of this amendment is to clarify the details of technical requirement and reschedule phase-in schedule (1 year delay).

In February 2020, the NHTSA issued a proposed rule for FMVSS 200 series to establish a new “Occupant Protection for Automated Driving Systems”. This proposed rule seeks to adopt safety requirements for vehicles with Automated Driving Systems (ADS) that lack traditional manual controls by revising the requirements and test procedures to account for the removal of manually operated driving controls.

In April, 2020, NHTSA issued “FMVSS Considerations for Vehicles with Automated Driving Systems: Volume 1” to provide interpretation verifying the legality of ADS-DV (an SAE International (SAE) level 4 or level 5) which are not equipped with manually operated driving controls against FMVSS regulations on the premise of existing manually operated driving controls.

In September 2020, NHTSA amended FMVSS141 “Minimum Sound Requirements for Hybrid and Electric Vehicles” to extend phase-in timing, responding to the petition from manufacturers because of the challenges manufacturers have encountered in complying with FMVSS 141 due to disruptions in the supply chain caused by the COVID–19 public health emergency. The application of FMVSS141 has been extended to March 1, 2021, a half year later from the previous phase-in end schedule (September 1, 2020).

In October 2020, NHTSA proposed to revise the child restraint system (CRS) concerning FMVSS 208 “Occupant crash protection” to improve the CRS safety in crashes and proposed to revise the CRS lists in line with the currently in-production CRSs.

In January 2021, NHTSA issued a draft of “Cybersecurity Best Practices for the Safety of Modern Vehicles (2020 update)” to update non-binding and voluntary guidance, which NHTSA had issued its first edition in 2016, to the automotive industry for improving motor vehicle cybersecurity.

In January 2021, NHTSA issued “FMVSS Considerations for Vehicles with Automated Driving Systems: Volume 2” to provide interpretation verifying the legality of ADS-DV (an SAE International (SAE) level 4 or

 

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level 5) which are not equipped with manually operated driving controls against FMVSS regulations on the premise of existing manually operated driving controls. This Volume 2 mainly covered FMVSS that were not studied in Volume 1.

Europe

Legislation regarding a new system called “eCall” was finalized in 2017. The EU eCall for new vehicle types became effective on March 31, 2018.

In August 2018, the EU commission issued a regulation to significantly revise the legal framework for the EU type-approval. This regulation introduces a market surveillance system for managing the conformity of motor vehicles available on the market and adds a requirement of an expiration date for vehicle type approval. This EU type-approval came into effect on September 1, 2020.

In March 2019, the Committee of the Permanent Representatives of the Governments of the Member States to the European Union approved amendments to the “General safety regulation”. Road traffic safety in the EU has improved during the last decade, but recently the decrease in the number of road fatalities has stagnated.

To address this issue, the revised General Safety Regulations came into force in January 2020 and will be applied to vehicles from July 2022, which is 30 months after the enforcement. The revised General Safety Regulations include mandatory equipment such as advanced driver assistance systems (ADAS).

In addition to making ADAS equipment mandatory, the revised General Safety Regulation will also enact legislation for self-driving cars in 2026. As a response, rules for cyber security management systems formulated by UNECE WP29 in June 2020 has been incorporated into the revised General Safety Regulation, and it will be mandatory from July 2022 as with other items of the revised General Safety Regulation. In addition, software updates will become more important with advanced electronic controls, so software update management systems will also be required from July 2022 to check whether appropriate updates have been made to the vehicle. Legislative proposals will be made by the European Commission in the third quarter of 2021.

For the first time, process approval has been introduced into cyber security management systems and software update management systems for vehicle type approval. This is not only for vehicles, but for everything from development to production and sales. This is to ensure that manufacturers are taking protective measures against cyber-attacks in the scene.

In January 10, 2019, the EU Commission issued a regulation complementing Union type-approval legislation with regard to the withdrawal of the United Kingdom from the EU (i.e. Brexit).

China

Vehicle safety regulations in China were drafted with reference to the UNECE standards and cover almost the same matters as the UNECE standards. However, these regulations also include unique provisions which take into account the distinctive characteristics of the Chinese market environment and the rules differ from the latest UNECE standards. In addition, as rulemaking related to autonomous vehicles accelerates, multiple ICV (Intelligent Connecting Vehicle) standards will be promulgated in the future.

Future safety regulations are described as follows:

Newly published GB and GB/T standards (Chinese national standards issued by the Standardization Administration of China) include:

 

  +

Event Data Recorder (EDR),

 

 

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  +

Amendment to Electric vehicles traction battery safety requirements, and

 

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Amendment to Electric vehicles safety requirements.

Newly established GB and GB/T standards (not yet published) include:

 

  +

Establishment of Technical requirements related to cyber security, and

 

  +

Amendment to Battery electric passenger cars – Specifications.

India

In India, the government had amended AIS-145, a new standard for additional safety features, which became mandatory from July 2019. Specific safety features pursuant to this standard include a speed alert system, driver seat belt reminder, manual override for the central locking system, driver air bags and vehicle reverse parking alerts.

United Nations

Following a long discussion, Revision 3 of the 1958 Agreement was adopted at the 169th WP29 and the official document (UN Agreement) was published in October 2017. This Revision 3 was entered into force on September 14, 2017. The 1958 Agreement, an intergovernmental agreement of United Nations Economic Commission for Europe (UN/ECE) signed in 1958, aims at establishing a unified standard for the structure, safety and environment performance of wheeled vehicles, equipment and parts and promoting reciprocal recognition of approvals for such wheeled vehicles, equipment and parts. The major changes of Revision 3 are:

 

  +

Introduction of the International Whole Vehicle Type Approval (IWVTA) (The current agreement covers only components and systems),

 

  +

Issuance of UN Regulation (UN R)’s certificate of former series (Acceptance is optional in each country), and

 

  +

Review of the majoritarian provisions (Ratio of the adoption is changed from two-thirds and more to four-fifths and more).

IWVTA is a system that develops mutual recognition of automobile certification from “unit of equipment” to “vehicle unit”. This system was introduced via Japan’s proposal, and Japan has served as the chairman and led the discussion since then. This system was adopted at the 173rd WP29, as UN R No.0 and entered into force on July 19, 2018.

Brazil

On June 24, 2020, The Brazil transport authority (CONTRAN) issued a resolution to approve affixing of license plates under the previous license plate specification on and after January 31, 2020.

On October 22, 2020, CONTRAN issued a resolution to postpone those applicable dates of some safety items due to COVID-19 impact.

The National Traffic Department (DENATRAN) issued an ordinance regarding the vehicle safety labelling program on April 1, 2020.

The National Institute of Metrology, Standardization and Industrial Quality (INMETRO) issued an Ordinance on November 17, 2020, which amended “Regulation for Technical Quality on Child Restraint Systems” and “Requirements for assessment of compliance for Child Restraint Systems”.

 

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DENATRAN issued an Ordinance amending the requirements of vehicle safety label program on December 2, 2020.

INMETRO issued an Ordinance amending quality technical regulations for new tires on October 21, 2020.

An Act of cyber security related to the products listed in the Reference List of Telecommunications Products published by the National Telecommunications Agency that have the function of terminal equipment with an Internet connection or telecommunications network infrastructure equipment was announced on January 5, 2021.

Outline of Environmental and Safety Regulation for Motorcycles

1. Emissions

Japan

Japan published the next phase (Euro 5) level emission regulation to be implemented from December 2020.

The United States

The state of California started to consider introducing the Euro 5 level emission regulation.

Europe

Euro 5 requirements other than catalyst monitoring of OBD (Onboard Diagnostics Regulation) started to apply to new vehicle models from January 2020 and started to apply to all vehicles registered from January 2021. Catalyst monitoring will apply to new vehicle models from January 2024 and will apply to all vehicles registered from January 2025.

On December 11, 2019, the European Commission released its communication on the EU Green Deal. See “—Outline of Environmental and Safety Regulation for Automobiles—1. Emissions—Europe”.

India

Ministry of Road Transport & Highways, the Government of India implemented an emission regulation called BS IV, which applied to new motorcycles from April 2016 and to all motorcycles registered from April 2017. India also published a BS VI regulation (Euro 5 level exhaust emission regulation), which started to apply from April 2020, except OBD stage 2, which will apply from 2023.

China

China started to consider introducing the Euro 5 level emission regulation.

Other Asian Countries

Thailand published the 7th phase (Euro 4) level emission regulation to be implemented from March 2020.

Indonesia, Vietnam and Philippine are implementing emission regulations based on European regulations (Euro 3). In addition, consideration of the introduction of Euro 4 has started.

Brazil

Brazil published a new emission regulation called PROMOT 5 (Euro 5 level exhaust emission regulation), which will apply to new motorcycles from January 2023 and to all motorcycles registered from January 2025.

 

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The OBD stage 2 requirement will apply to new models of motorcycles from January 2025 and will apply to all motorcycles registered from January 2027.

2. Recycling / Chemicals and hazardous substances

Europe

The same REACH compliance required for motor vehicles is required for motorcycles.

The European Union has a plan to implement motorcycle recycling laws in the near future.

China

China has a plan to implement motorcycle recycling laws in the near future.

India

India has announced a plan to implement motorcycle recycling laws in the near future.

Vietnam

Vietnam implemented motorcycle recycling laws on January 1, 2018.

3. Safety

Japan

Japan has introduced safety regulations based on UNECE regulations as described below.

Japan issued new standards for advanced brake system (ABS: Anti-lock Brake System/ CBS: Combined Brake System) which applied to new type motorcycles from October 2018, and will apply to all motorcycles from October 2021.

Japan adopted electric safety requirements for battery motorcycles (UN R136), and the requirements applied to new type motorcycles from January 2018, and applied to all motorcycles from January 2020.

Japan adopted “Hydrogen and Fuel Cell Vehicles of category L” (UN R146), which became applicable to all motorcycles from January 2, 2019.

Japan adopted “Installation of lighting and light-signaling devices” (UN R53), which will become applicable to all motorcycles from September 1, 2023.

The United States

There is no new regulation information for motorcycle safety.

Europe

On January 10, 2019, the EU Commission issued a regulation complementing Union type-approval legislation with regard to Brexit.

India

In India, the Auto Headlight On (AHO) function, which automatically turns on the head lamps when the engine is running, shall be installed on all two-wheelers manufactured on and after April 1, 2017. New vehicle

 

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models certified on and after April 1, 2018, all vehicles manufactured on and after April 1, 2019 shall be equipped with an advanced brake system. For advanced brake systems, two-wheeled vehicles with engine capacity of not more than 125cc, continuous rated or net power not more than 11kW and power/weight ratio not more than 0.1 kW/kg shall be equipped with ABS or CBS. All other categories of two-wheeled vehicles shall be equipped with ABS. Furthermore, the Automotive Industry Standard Committee (AISC) published AIS 146, 147 and 148. These are the standards for stand, external projection and footrest strength. These standards became closer to those required by the European regulations.

In addition, AIS-156 for electric safety requirements for electric motorcycles are currently being prepared based on UNR136.

China

China introduced a requirement for an advanced braking system, which shall be installed on new vehicle models manufactured on and after July 1, 2019, and also on all motorcycles manufactured on and after July 1, 2020. Motorcycles with engine capacity of more than 150cc and not exceeding 250cc shall be equipped with ABS or CBS. Motorcycles with engine capacity of more than 250cc shall be equipped with ABS.

Electric motorcycle safety regulations were introduced in January 2021.

Other Asian Countries

Thailand started to consider introducing the Braking (UN R78), Electric motorcycle safety (UN R136) and Lighting installation (UN R53) regulation.

Indonesia, and Vietnam have been introducing various regulations regarding lighting and braking based on UN Regulations.

The Philippines has begun considering additional regulations to include an auto headlight on (AHO) function that automatically turns on the headlamps when the engine is running. (From June 2021)

Brazil

The Brazil transport authority (CONTRAN) issued a standard concerning motorcycle braking based on the UNECE Brake regulation (R78.03) as well as a new regulation mandating ABS/CBS installation. The Brazilian standardization authority (INMETRO) currently mandates parts certification for tires and batteries, but added drive/driven sprocket, drive chain and muffler to the scope of application from March 24, 2019 at customs clearance. Brazilian government issued lighting regulation based on previous UNECE regulations; these regulations were implemented from January 1, 2019.

On January 31, 2020, CONTRAN implemented new requirements for license plates based on the Mercosur standards. In addition, the requirements for holes for sealing of license plates have been repealed, since QR codes are printed on the plates instead.

Outline of Environmental and Safety Regulation for Power Products

1. Emissions

The United States

In November 2015, CARB presented a policy to develop a regulation to replace 25% of spark-ignition engine products circulating in the market with zero-emission products by 2030. Currently, rulemaking activities regarding research are led by CARB.

 

 

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In April 2016, CARB has published an evaporative emission regulation applicable to outboard engines implementing from the 2018 model year and later.

In November 2017, CARB has published a final regulation to amend California’s evaporative emission regulation for small off-road spark-ignition equipment.

In December 2020, the “Portable Generator Safety Standard Bill” was submitted to the House of Representatives. It would require, if passed, a CO safety shutoff system and CO emissions restrictions for portable generators.

Europe

The European Commission has finalized strengthened exhaust emission regulation for non-road small spark-ignition engines (commonly known as Stage 5 regulation). Its limit values of exhaust emission follow the U.S. EPA phase 3 and the effective date is January 2018 for new certifications and January 1, 2019 for the engines newly placed in the market.

On December 11, 2019, the European Commission released its communication on the EU Green Deal. See “—Outline of Environmental and Safety Regulation for Automobiles—1. Emissions—Europe”.

In 2020, the European Commission issued a proposed regulation of Delegated Reg. Monitoring Non-Road Mobile Machinery (NRMM) in service engines of less than 56kW or more than 560kW.

China

An exhaust emission standard was introduced in China on March 1, 2011. Its requirements are based on the European exhaust emission regulations and are applicable to small spark-ignition engines for non-road mobile machinery with 19 kW or less. The phase 2 regulation with durability requirement started from January 1, 2014. The phase 3 regulation is under development.

In 2019, Chinese authorities strengthened monitoring of emissions in the market, and emission control regulations were enacted in each province and city.

Thailand

In 2019, the Thai Ministry of Industry issued a draft standard for environmental performance of small air-cooled gasoline engines.

2. Recycling / Chemicals and hazardous substances

Europe

The same REACH compliance required for motor vehicles is required for power products. In June 2011, the European Union Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS) had been wholly revised and most power products were within its scope after 2019.

China

On July 1, 2016, a regulation similar to European RoHS has entered into force. The first list of target products was published on March 12, 2018.

 

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3. Safety

Japan

The Agricultural Technology Innovation Engineering Research Center of National Agriculture and Food Research Organization has decided to conduct safety inspection of agricultural machinery that has replaced agricultural machinery safety appraisal from July 31, 2018.

In July 2020, the Snow Thrower Safety Council has revised the safety standard for labeling and safety manuals to include warnings regarding the invalidated deadman clutch mechanism for operating levers on snow throwers.

In June 2021, the Snow Thrower Safety Council plans to revise safety standards to add performance criteria allowing snow throwers to stop safely when moving backwards.

The United States

In November 2016, the U.S. Consumer Product Safety Commission promulgated a notice of proposed rule-making in the Federal Register, which proposes to restrict the carbon monoxide emission from portable generator rated 19kW and below. This regulation was proposed to address the carbon monoxide poisoning injuries occurring from portable generators.

In April 2018, an American National Standard Institute (ANSI) Standard for portable generators were amended.

Europe

In the United Kingdom, on September 13, 2018, the Department for Business, Energy and Industrial Strategy (BEIS) issued a guidance in the form of a technical notice to explain the future arrangement on the regulations for most products subject to the new EU rules.

The EU Commission plans to enhance existing noise regulation applicable to equipment intended to be used outdoors. This is a comprehensive rulemaking including expansion of the scope of regulation, enhanced noise limits, change to the conformity assessment system, among other things.

In 2019, the EU Commission began discussions for a revision of the Machinery Directive.

In 2020, discussions to revise the Low Voltage Directive, Battery Directive and Recreational Craft Directive have been initiated.

China

The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) has issued final regulations for spark-ignition engines which include a wide variety of requirements such as machinery safety, thermal protection, electrical safety, and others. It became effective in 2015.

In 2019, a recommended standard for lawn mower safety requirements was issued by the State Administration for Market Regulation (SAMR).

The Ministry of Agriculture of the People’s Republic of China plans to revise the “Qualification program to promote agricultural machinery regarding tillers” in July, 2021. Products that comply with this standard will be listed in the “Product Catalogue of Agricultural Machinery Promoted by the Nation”.

 

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Thailand

In July 2020, The Ministry of Industry issued the notification on provisions of design, development, making and usage of the TIS mark for industrial products.

Preparing for the Future

Management Policies and Strategies

Honda has two Fundamental Beliefs: “Respect for the Individual”, and “The Three Joys” (the Joy of Buying, the Joy of Selling, and the Joy of Creating). “Respect for the Individual” calls on Honda to nurture and promote these characteristics in our company by respecting individual differences and trusting each other as equal partners. “The Three Joys” are based on “Respect for the Individual”, and is the philosophy of creating joy together with everyone involved in Honda’s activities, with the joy of its customers as the driving force.

Based on these Fundamental Beliefs, Honda strives to improve its corporate value by sharing joy with all people, and with our shareholders in particular, by practicing its Mission Statement: “Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction”.

Honda has also defined its vision toward 2030 as “Serve people worldwide with the ‘joy of expanding their life’s potential’”, and will take initiatives in the following three directions.

1. Toward a clean and safe/secure society

2. Creating value for “mobility” and “daily lives”

3. Accommodate the different characteristics of people and society

Honda is thoroughly committed to the environment and safety, reaffirming the value of “eliminating the burden on the global environment” and “achieving safety that protects precious lives”.

1. Toward a clean and safe/secure society

Setting forth its goals of realizing 2050 carbon neutrality and zero traffic collision fatalities, Honda will take initiatives in various areas.

Toward the realization of carbon neutrality

Going forward, Honda will actively promote the introduction of electric vehicles based on electric-powered motor technology which it has been developing as a leader in environmentalism. Honda aims to create a recycling-oriented society with “zero environmental impact” so that people can live sustainably on the earth toward the realization of carbon neutrality. Therefore, Honda will work on the three pillars of carbon neutrality, clean energy and resource circulation. Honda will set targets in line with the “1.5 Celsius scenario” of the Paris Agreement, aiming for zero environmental impact throughout the life cycle of our products, including not only the products produced and sold by Honda, but also its corporate activities.

Toward the realization of zero traffic collision fatalities

As part of its responsibility as a mobility company, Honda is researching, developing, and working toward the adoption of safety technology based on its philosophy of “Safety for Everyone”, with the aim of realizing a “collision-free mobile society” where everyone who uses roads can live safely. Honda will work toward the goal of zero traffic collision fatalities involving the Group’s motorcycles and automobiles globally by 2050. In addition to the collision safety features Honda has long been working on, it is currently working toward the adoption and evolution of its safety and driver-assistive system, “Honda SENSING”.

 

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In addition to such safety technology, Honda has long been promoting awareness of traffic safety in order to realize a society where all people who use roads, such as drivers and pedestrians, can move safely with safety awareness. Going forward, Honda will carry out this initiative globally.

2. Creating value for “mobility” and “daily lives”

Honda will focus on three areas, namely mobility, robotics and energy, in order to provide people with the joy and freedom of mobility and the joy of making their lives better.

Joy and freedom of mobility

Using Honda’s unique strengths resulting from its wide range of mobility products including motorcycles and automobiles, Honda will use partnerships with other companies in various regions to begin new mobility services that provide mobility without restraint in every aspect of life.

Joy of making life better

Honda will work on creating a system that allows people to share and enjoy safe and secure clean energy in their daily lives through mobility.

3. Accommodate the different characteristics of people and society

Honda will provide optimal products and services for diverse society, and to all people with a wide variety of cultures and values, whether they live in developed or emerging nations.

As one of the initiatives in these directions, Honda has begun taking initiatives to realize “Honda eMaaS” concept. By connecting mobility service and energy service, “Honda eMaaS” provides mobility to people while at the same time contributing to the expanded use of renewable energy.

This “Honda eMaaS” concept aims to seamlessly connect mobility and people’s daily lives and provide people with the joy of making their lives better in a carbon-free manner through integrated management of Honda’s electric products such as electrified mobility and energy equipment, which are expected to increase in the future.

Management Challenges

The business environment surrounding Honda has come to a major turning point. Values are diversifying, the population is aging, urbanization is accelerating, climate change is worsening, and the industrial structure is changing due to progress in technologies such as the use of electric-powered motors, autonomous driving and IoT, all on a global basis. In addition, values of the society and individuals as well as awareness of global environmental issues have changed dramatically due to the spread of COVID-19. It is vital to ensure “strong products, strong Mono-zukuri (the art of making things) and strong businesses” which are essential for future growth.

Looking at the market environment of the Motorcycle business, competition with not only existing manufacturers but also emerging manufacturers is intensifying. The operating environment continues to change more rapidly than ever as seen by the need to make efforts to deal with tighter environmental regulations in each country and expansion of new markets. Honda has set a CO2 reduction target rate that far exceeds the governmental targets for emerging markets, and is aiming to become an environmental leader in motorcycles, not only through the use of electric-powered motors, but also through improved fuel efficiency and the use of biofuels.

 

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With regard to electrification in the Automobile business, Honda will work to achieve carbon neutrality in accordance with the characteristics of each region, including customer acceptance, available infrastructure and the spread of renewable energy.

The Life creation and other businesses will provide new value for mobility and daily lives through the existing “provision of power products” and “new businesses for the future”, including the energy business. In addition, by connecting electrified mobility and energy services, Honda will contribute to the expansion of freedom of mobility and the use of renewable energy, and work toward the realization of carbon neutrality.

Challenges to be Addressed Preferentially

Considering the business environment, Honda will work on the following new challenges directed at the next generation to provide value unique to Honda with a view to contributing to solving various social issues while continuing to achieve sustainable growth.

1. Prepare for future growth

Next-generation technologies

In the automobile industry in the future, the ability to respond to electrification, driver-assistive technologies, connected technologies and other technological innovations will likely determine the competitiveness of a company. Honda will work to develop products and services equipped with such next-generation technologies in the Motorcycle, Automobile and Life creation businesses, and ensure business feasibility as early as possible.

As for electrification, Honda will further expand the lineup of Electric Vehicles (EVs) and Fuel Cell Vehicles (FCVs) based on electric-powered motor technology it has been developing. To this end, Honda will work to respond to changes in car manufacturing throughout the value chain. In particular, for batteries, Honda is developing its proprietary all-solid-state batteries, and will begin verifying production technology on a demonstration line from the fiscal year ending March 31, 2022.

Regarding driver-assistive technologies, Honda will work to promote and evolve “Honda SENSING”, a safety and driver-assistive system, for the purpose of preventing accidents. Going forward, Honda will push ahead with efforts for joint development and commercialization in preparation for future society while utilizing partnerships with other companies, and leverage the knowledge and know-how accumulated through the research and development of level 3 automated driving to further enhance the intelligence of ADAS, which increases the percentage of collision patterns covered by ADAS. Through these efforts, Honda will aim to realize a clean and safe/secure society.

New businesses

In “Honda eMaaS”, Honda’s energy technology is expected to contribute to the effective utilization of electric power for society as a whole. For example, Honda’s electrified mobility and energy equipment function as temporary electric power storage/discharge devices, contributing to stabilization of electric power. To this end, in the mobility service, efforts need to be made in the areas of mobility and goods transport services using electric vehicles. In the energy service, efforts need to be made in the area of mobile power supply, by not only “using” energy equipment as a power source for mobility but also enabling them to “create” electric power and “connect” with the power supplies for the household so that electricity can be used efficiently whenever and wherever needed.

Honda intends to serve people worldwide with the “joy of expanding their life’s potential” by proposing solutions in these areas.

 

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2. Solidify existing businesses

Honda will enhance the business strategy formulation function by steadily proceeding with the next initiatives, and build a highly competitive Mono-zukuri foundation to realize strong businesses.

Build a structure to realize strategies

In order to build strong businesses that can immediately respond to changes in the environment and can provide products that satisfy customer needs in a timely manner, Honda has established a unified operational structure which integrates S-E-D-B (Sales, Engineering, Development and Buying) areas.

This enables the formulation of business strategies based on a big-picture view of product planning, development, buying/purchasing, engineering/production and sales, and the swift implementation of such strategies. At the same time, Honda will realize Mono-zukuri reform and stable production with high-precision development of new models through frontloading and operation which integrates the entire process from development through mass-production.

Mono-zukuri reform

In the Automobile business, Honda has strengthened its global models and regional models according to the needs of each region, with the aim of manufacturing challenging products unique to Honda. Efficient Mono-zukuri, in addition to product appeal, is indispensable for further enhancing the competitiveness of such models. To this end, Honda is working to strengthen the structure in each area. Introducing the Honda Architecture, which is a company-wide initiative that increases the efficiency of development and expands parts-sharing for mass-production models, Honda will sequentially apply it, starting with the global models, and expand its application. By doing so, Honda will enhance the efficiency of existing businesses and repurpose those man-hours to conduct research and development in advanced areas, thereby accelerating development for the future.

Steady progress is being made in optimizing the production capacity in all regions, and Honda will improve its global capacity utilization rate.

Further improve quality

To achieve a new level of outstanding quality of products, Honda has continued activities to further improve quality at every stage: design, development, production, sales and service including suppliers. Going forward, Honda will team up with other companies, including those from other industries, to challenge new forms of mobility that incorporate electrification, driver-assistive technologies and IoT in creating new value through open innovation. To that end, Honda will evolve its activities to realize a new level of outstanding quality, by pursuing the utmost quality not only in products and services provided to customers but also in every area of business at all points of customer contact, alongside evolution in “mobility” and “daily lives”.

Also, in the Automobile business, in April 2020 the quality innovation departments for all operations were integrated, and Quality Innovation Operations was newly established and commenced activities.

Continue to enhance Honda’s social reputation and communication with the community

In addition to continuing to provide products incorporating Honda’s advanced safety and environmental technologies, Honda will continue striving to enhance its social reputation by, among other things, strengthening its corporate governance, compliance, and risk management, as well as participating in community activities and making philanthropic contributions.

Through these company-wide activities, Honda aims to be a company that society, which includes our shareholders, our investors and our customers, wants to exist.

 

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C. Organizational Structure

As of March 31, 2021, the Company had 81 Japanese subsidiaries and 267 overseas subsidiaries. The following table sets out for each of the Company’s principal subsidiaries, the country of incorporation, function and percentage ownership and voting interest held by Honda.

 

Company

  Country of
Incorporation
 

                             Function                        

  Percentage
Ownership

and
Voting Interest
 

Honda R&D Co., Ltd.

  Japan   Research & Development              100.0  

Honda Finance Co., Ltd.

  Japan   Finance     100.0  

American Honda Motor Co., Inc.

  U.S.A.   Coordination of Subsidiaries Operation and Sales     100.0  

Honda Aero., Inc.

  U.S.A.   Manufacturing     100.0  

Honda of America Mfg., Inc.

  U.S.A.   Manufacturing     100.0  

American Honda Finance Corporation

  U.S.A.   Finance     100.0  

Honda Aircraft Company, LLC

  U.S.A.   Research & Development,
Manufacturing and Sales
    100.0  

Honda Manufacturing of Alabama, LLC

  U.S.A.   Manufacturing     100.0  

Honda Manufacturing of Indiana, LLC

  U.S.A.   Manufacturing     100.0  

Honda Transmission Mfg. of America, Inc.

  U.S.A.   Manufacturing     100.0  

Honda R&D Americas, Inc.

  U.S.A.   Research & Development     100.0  

Honda Canada Inc.

  Canada   Manufacturing and Sales     100.0  

Honda Canada Finance Inc.

  Canada   Finance     100.0  

Honda de Mexico, S.A. de C.V.

  Mexico   Manufacturing and Sales     100.0  

Honda Motor Europe Limited

  U.K.   Coordination of Subsidiaries Operation and Sales     100.0  

Honda of the U.K. Manufacturing Ltd.

  U.K.   Manufacturing     100.0  

Honda Finance Europe plc

  U.K.   Finance     100.0  

Honda Bank GmbH

  Germany   Finance     100.0  

Honda Turkiye A.S

  Turkey   Manufacturing and Sales     100.0  

Honda Motor (China) Investment Co., Ltd.

  China   Coordination of Subsidiaries
Operation and Sales
    100.0  

Honda Auto Parts Manufacturing Co., Ltd.

  China   Manufacturing     100.0  

Honda Motorcycle & Scooter India (Private) Ltd.

  India   Manufacturing and Sales     100.0  

Honda Cars India Limited

  India   Manufacturing and Sales     100.0  

P.T. Honda Precision Parts Manufacturing

  Indonesia   Manufacturing     100.0  

P.T. Honda Prospect Motor

  Indonesia   Manufacturing and Sales     51.0  

Honda Malaysia Sdn Bhd

  Malaysia   Manufacturing and Sales     51.0  

Honda Philippines Inc.

  Philippines   Manufacturing and Sales     99.6  

Honda Taiwan Co., Ltd.

  Taiwan   Sales     100.0  

Asian Honda Motor Co., Ltd.

  Thailand   Coordination of Subsidiaries
Operation and Sales
    100.0  

Honda Leasing (Thailand) Co., Ltd.

  Thailand   Finance     100.0  

Honda Automobile (Thailand) Co., Ltd.

  Thailand   Manufacturing and Sales     89.0  

Thai Honda Manufacturing Co., Ltd.

  Thailand   Manufacturing and Sales     72.5  

Honda Vietnam Co., Ltd.

  Vietnam   Manufacturing and Sales     70.0  

Honda Motor de Argentina S.A.

  Argentina   Manufacturing and Sales     100.0  

Honda South America Ltda.

  Brazil   Coordination of Subsidiaries
Operation
    100.0  

Banco Honda S.A.

  Brazil   Finance     100.0  

Honda Automoveis do Brasil Ltda.

  Brazil   Manufacturing and Sales     100.0  

Moto Honda da Amazonia Ltda.

  Brazil   Manufacturing and Sales     100.0  

 

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D. Property, Plants and Equipment

The following table sets out information, as of March 31, 2021, with respect to Honda’s principal manufacturing facilities, all of which are owned by Honda:

 

Location

   Number of
Employees
    

Principal Products Manufactured

Sayama, Saitama, Japan

     4,997      Automobiles

Naka-ku, Hamamatsu, Shizuoka, Japan

     2,033      Power products and transmissions

Suzuka, Mie, Japan

     5,931      Automobiles

Ozu-machi, Kikuchi-gun, Kumamoto, Japan

     2,685      Motorcycles, all-terrain vehicles,
power products and engines

Greensboro, North Carolina, U.S.A

     744      Aircraft

Burlington, North Carolina, U.S.A.

     85      Aircraft engines

Marysville, Ohio, U.S.A.

     5,115      Automobiles

Anna, Ohio, U.S.A.

     2,378      Engines

East Liberty, Ohio, U.S.A.

     2,250      Automobiles

Lincoln, Alabama, U.S.A.

     4,444      Automobiles and engines

Greensburg, Indiana, U.S.A.

     2,687      Automobiles

Alliston, Canada

     4,283      Automobiles and engines

El Salto, Mexico

     231      Motorcycles

Celaya, Mexico

     4,704      Automobiles

Swindon, U.K.

     2,696      Automobiles and engines

Gebze, Turkey

     1,090      Motorcycles and automobiles

Gurugram, India

     2,284      Motorcycles

Alwar, India

     2,652      Motorcycles and automobiles

Narasapura, India

     1,825      Motorcycles

Ahemdabad, India

     807      Motorcycles

Karawang, Indonesia

     2,751      Automobiles and engines

Melaka, Malaysia

     2,191      Automobiles

Batangas,Philippines

     1,314      Motorcycles

Ayutthaya, Thailand

     2,738      Automobiles

Prachinburi, Thailand

     1,237      Automobiles

Bangkok, Thailand

     3,873      Motorcycles and power products

Phuc Yen, Vietnam

     4,717      Motorcycles and automobiles

Duy Tien, Vietnam

     595      Motorcycles

Buenos Aires, Argentina

     466      Motorcycles

Sumare, Brazil

     2,011      Automobiles

Itirapina, Brazil

     1,009      Automobiles

Manaus, Brazil

     6,558      Motorcycles and power products

In addition to its manufacturing facilities, the Company’s properties in Japan include sales offices and other sales facilities in major cities, repair service facilities, and R&D facilities.

As of March 31, 2021, the Company’s property, with a net book value of approximately ¥2.1 billion, was subject to specific mortgages securing indebtedness.

Capital Expenditures

Capital expenditures in the fiscal year ended March 31, 2021 were applied to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities.

 

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Total capital expenditures for the year amounted to ¥2,323.1 billion, decreased by ¥297.3 billion from the previous year. Also, total capital expenditures, excluding equipment on operating leases, for the year amounted to ¥321.2 billion, decreased by ¥54.3 billion from the previous year. Spending by business segment is shown below.

 

    Fiscal years ended March 31,  
    2020     2021     Increase
(Decrease)
 
    Yen (millions)  

Motorcycle Business

  ¥ 67,827         ¥ 30,483         ¥  (37,344

Automobile Business

    293,771       281,617       (12,154

Financial Services Business

     2,245,073        2,002,158       (242,915

Financial Services Business (Excluding Equipment on Operating Leases)

    180       260       80      

Life Creation and Other Businesses

    13,865       8,934       (4,931

Total

  ¥ 2,620,536     ¥ 2,323,192     ¥ (297,344

Total (Excluding Equipment on Operating Leases)

  ¥ 375,643     ¥ 321,294     ¥  (54,349

Intangible assets are not included in the table above.

In Motorcycle business, we made capital expenditures of ¥30,483 million in the fiscal year ended March 31, 2021. Funds were allocated to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities.

In Automobile business, we made capital expenditures of ¥281,617 million in the fiscal year ended March 31, 2021. Funds were allocated to the introduction of new models, as well as the improvement, streamlining and modernization of production facilities, and improvement of sales and R&D facilities.

In Financial services business, capital expenditures excluding equipment on operating leases amounted to ¥260 million in the fiscal year ended March 31, 2021, while capital expenditures for equipment on operating leases were ¥2,001,898 million.

In Life creation and other businesses, capital expenditures of ¥8,934 million in the fiscal year ended March 31, 2021, were deployed to upgrade, streamline, and modernize manufacturing facilities, and to improve R&D facilities.

Plans after fiscal year 2021

Our management mainly considers economic trends of each region, demand trends, situation of competitors and our business strategy such as introduction plans of new models in determining the future of projects.

The estimated amounts of capital expenditures for the fiscal year ending March 31, 2022 are shown below.

 

     Fiscal year ending
March 31, 2022
 
     Yen (millions)  

Motorcycle Business

   ¥ 41,900  

Automobile Business

     260,000  

Financial Services Business

     400  

Life Creation and Other Businesses

     17,700  
  

 

 

 

Total

   ¥  320,000  
  

 

 

 

 

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The estimated amount of capital expenditures for Financial services business in the above table does not include equipment on operating leases.

Intangible assets are not included in the table above.

Item 4A. Unresolved Staff Comments

We do not have any unresolved written comments provided by the staff of the SEC regarding our periodic reports under the Securities Exchange Act of 1934.

Item 5. Operating and Financial Review and Prospects

You should read the following discussion of our critical accounting policies and our financial positions and operating results together with our consolidated financial statements included in this Annual Report.

A. Operating Results

Overview

Business Environment

Looking at the economic environment surrounding Honda, its consolidated subsidiaries and its affiliates accounted for under the equity method in the fiscal year ended March 31, 2021, it continued to be difficult mainly due to the spread of COVID-19 infection and the impact of semiconductor supply shortage. In the United States, the economy slowed down mainly due to worsening unemployment rate and personal consumption, despite factors such as the effects of the government’s economic stimulus measures. In Europe, as the economic activity was restrained amid difficult economic conditions, the economy showed weakness. In Asia, the economy slowed in India, Thailand and Indonesia. Meanwhile, China experienced a moderate recovery mainly due to factors including the effects of government stimulus measures. In Japan, economic activity was restricted and the economy slowed down.

The trends, uncertainties, demands, commitments and events identified below may continue or recur, impacting the Company’s future financial results.

Impacts relating to the spread of COVID-19 on Honda’s consolidated financial results

While the global economy which had slowed down due to the spread of COVID-19 has been on a recovery track, it has still affected Honda’s consolidated financial results for the fiscal year ended March 31, 2021.

Resulting from travel restriction measures by government, Honda’s production bases in Japan and overseas were also affected by suspended or reduced production mainly due to restrictions on employees’ commute to the workplaces and delays in the supply of parts within the supply chain. Some dealers in Japan and overseas were obliged to suspend business, shorten business hours, or reduce services such as inspections and repairs. As of March 31, 2021, Honda has been largely resuming its business activities and there is no significant impact on its businesses in major countries or regions.

In addition, see “Risks relating to the spread of coronavirus disease 2019 (COVID-19)” in Item 3.D. “Risk Factors”.

Overview of Fiscal Year 2021 Operating Performance

Honda‘s consolidated sales revenue for the fiscal year ended March 31, 2021, decreased from the fiscal year ended March 31, 2020, due mainly to decreased sales revenue in all business operations. Operating profit

 

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increased from the previous fiscal year, due mainly to decreased selling, general and administrative expenses as well as continuing cost reduction, which was partially offset by a decrease in profit attributable to decreased sales revenue and model mix.

Motorcycle Business

Honda’s consolidated unit sales of motorcycles, all-terrain vehicles (ATVs), and side-by-sides (SxS) in fiscal year 2021 totaled 10,264 thousand units, decreased by 17.4% from the previous fiscal year, due mainly to a decrease in consolidated unit sales primarily in India and Vietnam.

Automobile Business

Honda’s consolidated unit sales of automobiles in fiscal year 2021 totaled 2,617 thousand units, decreased by 21.1% from the previous fiscal year, due to a decrease in consolidated unit sales in all regions.

Life Creation and Other Businesses

Honda’s consolidated unit sales of power products in fiscal year 2021 totaled 5,623 thousand units, decreased by 1.4% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in North America, which offset an increase in consolidated unit sales primarily in Europe and Asia.

Fiscal Year 2021 Compared with Fiscal Year 2020

Sales Revenue

Honda’s consolidated sales revenue for the fiscal year ended March 31, 2021, decreased by ¥1,760.4 billion, or 11.8%, to ¥13,170.5 billion from the fiscal year ended March 31, 2020, due mainly to decreased sales revenue in all business operations. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥1,410.9 billion, or 9.4%, compared to the decrease as reported of ¥1,760.4 billion, which includes negative foreign currency translation effects.

Operating Costs and Expenses

Operating costs and expenses decreased by ¥1,787.0 billion, or 12.5%, to ¥12,510.3 billion from the previous fiscal year. Cost of sales decreased by ¥1,411.9 billion, or 11.9%, to ¥10,439.6 billion from the previous fiscal year, due mainly to a decrease in costs attributable to decreased consolidated sales revenue in all business operations. Selling, general and administrative expenses decreased by ¥309.8 billion, or 18.9%, to ¥1,331.7 billion from the previous fiscal year. Research and development expenses decreased by ¥65.2 billion, or 8.1%, to ¥738.8 billion from the previous fiscal year.

Operating Profit

Operating profit increased by ¥26.5 billion, or 4.2%, to ¥660.2 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses as well as continuing cost reduction, which was partially offset by a decrease in profit attributable to decreased sales revenue and model mix. Honda estimates that by excluding negative foreign currency effects of approximately ¥47.1 billion, operating profit would have increased by approximately ¥73.6 billion.

With respect to the discussion above of the changes, management identified factors and used what it believes to be a reasonable method to analyze the respective changes in such factors. Management analyzed changes in these factors at the levels of the Company and its material consolidated subsidiaries. “Foreign

 

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currency effects” consist of “translation adjustments”, which come from the translation of the currency of foreign subsidiaries’ financial statements into Japanese yen, and “foreign currency adjustments”, which result from foreign-currency-denominated transaction. With respect to “foreign currency adjustments”, management analyzed foreign currency adjustments primarily related to the following currencies: U.S. dollar, Japanese yen and others at the level of the Company and its material consolidated subsidiaries. The estimates excluding the foreign currency effects are not on the same basis as Honda’s consolidated financial statements, and do not conform to IFRS. Furthermore, Honda does not believe that these measures are substitute for the disclosure required by IFRS. However, Honda believes that such estimates excluding the foreign currency effects provide financial statements users with additional useful information for understanding Honda’s results.

Profit before Income Taxes

Profit before income taxes increased by ¥124.1 billion, or 15.7%, to ¥914.0 billion from the previous fiscal year. The main factors behind this increase, except factors relating to operating profit, are as follows:

Share of profit of investments accounted for using the equity method had a positive impact of ¥108.5 billion, due mainly to an increase in profit attributable to increased sales revenue at affiliates and joint ventures in Asia as well as recognition of reversal of impairment losses which had been previously recognized on the investments in certain companies accounted for using the equity method.

Finance income and finance costs had a negative impact of ¥10.9 billion, due mainly to decreased interest income. For further details, see note “(22) Finance Income and Finance Costs” to the accompanying consolidated financial statements.

Income Tax Expense

Income tax expense decreased by ¥61.3 billion, or 21.9%, to ¥218.6 billion from the previous fiscal year. The average effective tax rate decreased by 11.5 percentage points to 23.9% from the previous fiscal year. For further details, see “(a) Income Tax Expense” of note “(23) Income Taxes” to the accompanying consolidated financial statements.

Profit for the Year

Profit for the year increased by ¥185.5 billion, or 36.4%, to ¥695.4 billion from the previous fiscal year.

Profit for the Year Attributable to Owners of the Parent

Profit for the year attributable to owners of the parent increased by ¥201.6 billion, or 44.3%, to ¥657.4 billion from the previous fiscal year.

Profit for the Year Attributable to Non-controlling Interests

Profit for the year attributable to non-controlling interests decreased by ¥16.1 billion, or 29.8%, to ¥38.0 billion from the previous fiscal year.

Business Segments

Motorcycle Business

Honda’s consolidated unit sales of motorcycles, all-terrain vehicles (ATVs) and side-by-sides (SxS) totaled 10,264 thousand units, decreased by 17.4% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in Asia.

 

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Sales revenue from external customers decreased by ¥272.0 billion, or 13.2%, to ¥1,787.2 billion from the previous fiscal year, due mainly to decreased consolidated unit sales. The impact of price changes was immaterial on sales revenue. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥174.5 billion, or 8.5%, compared to the decrease as reported of ¥272.0 billion, which includes negative foreign currency translation effects.

Operating costs and expenses decreased by ¥210.9 billion, or 11.9%, to ¥1,562.6 billion from the previous fiscal year. Cost of sales decreased by ¥169.7 billion, or 11.4%, to ¥1,324.9 billion, due mainly to a decrease in costs attributable to decreased consolidated unit sales. Selling, general and administrative expenses decreased by ¥28.1 billion, or 14.1%, to ¥171.4 billion. Research and development expenses decreased by ¥13.1 billion, or 16.5%, to ¥66.2 billion.

Operating profit decreased by ¥61.0 billion, or 21.4%, to ¥224.6 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales volume and model mix, which was partially offset by continuing cost reduction as well as decreased selling, general and administrative expenses.

Japan

Total industry demand for motorcycles in Japan* was approximately 370 thousand units in fiscal year 2021, an increase of approximately 4% from the previous fiscal year.

Honda’s consolidated unit sales in Japan increased 4.9% to 215 thousand units in fiscal year 2021, mainly due to the effects of launching the new CT125 Hunter Cub model.

 

* 

Source: JAMA (Japan Automobile Manufacturers Association)

North America

Total demand for motorcycles and all-terrain vehicles (ATVs) in the United States*, the principal market within North America, increased around 18% from the previous year to approximately 780 thousand units in calendar year 2020.

Honda’s consolidated unit sales in North America increased 0.6% from the previous fiscal year to 332 thousand units in fiscal year 2021.

 

* 

Source: MIC (Motorcycle Industry Council)

The total includes motorcycles and ATVs, but does not include side-by-sides (SxS).

Europe

Total demand for motorcycles in Europe* increased around 1% from the previous year to approximately 970 thousand units in calendar year 2020.

Honda’s consolidated unit sales in Europe decreased 2.1% from the previous fiscal year to 234 thousand units in fiscal year 2021, mainly due to decreases in sales units of the CB500 model series.

 

* 

Based on Honda research. Only includes the following 10 countries: the United Kingdom, Germany, France, Italy, Spain, Switzerland, Portugal, the Netherlands, Belgium and Austria.

Asia

Total demand for motorcycles in India, the largest market within Asia, decreased around 24% from the previous year to approximately 14,110 thousand units in calendar year 2020. Total demand for motorcycles in other countries in Asia* decreased around 23% from the previous calendar year to approximately 17,190 thousand units. This was mainly due to decreases in demand in Indonesia and China.

 

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Honda’s consolidated unit sales in Asia were 8,451 thousand units in fiscal year 2021, a decrease by 18.3% from the previous fiscal year, mainly due to decreases in sales units of the Activa model series in India and the Wave and Air Blade model series in Vietnam.

Honda’s consolidated unit sales do not include sales by P.T. Astra Honda Motor in Indonesia, which is accounted for using the equity method. P.T. Astra Honda Motor’s unit sales for fiscal year 2021 decreased around 45% from the previous fiscal year to approximately 2,690 thousand units, mainly due to decreases in sales units of the BeAT and Vario model series.

 

* 

Based on Honda research. Only includes the following seven countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Pakistan, and China.

Other Regions

Total demand for motorcycles in Brazil*, the principal market within Other Regions, decreased around 14% from the previous year to approximately 930 thousand units in calendar year 2020.

In Other Regions (including South America, the Middle East, Africa, Oceania, and other areas), Honda’s consolidated unit sales decreased 20.9% from the previous fiscal year to 1,032 thousand units in fiscal year 2021 due mainly to decreases in sales units of the CG160 and Biz model series in Brazil.

 

* 

Source: ABRACICLO (the Brazilian Association of Motorcycle, Moped, and Bicycle Manufacturers)

Automobile Business

Honda’s consolidated unit sales of automobiles totaled 2,617 thousand units, decreased by 21.1% from the previous fiscal year, due to a decrease in consolidated unit sales in all regions.

Sales revenue from external customers decreased by ¥1,391.8 billion, or 14.0%, to ¥8,567.2 billion from the previous fiscal year, due mainly to decreased consolidated unit sales. The impact of price changes was immaterial on sales revenue. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥1,202.8 billion, or 12.1%, compared to the decrease as reported of ¥1,391.8 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales decreased by ¥1,415.2 billion, or 13.9%, to ¥8,779.3 billion from the previous fiscal year.

Operating costs and expenses decreased by ¥1,352.2 billion, or 13.5%, to ¥8,689.0 billion from the previous fiscal year. Cost of sales decreased by ¥1,152.1 billion, or 14.2%, to ¥6,972.8 billion, due mainly to a decrease in costs attributable to decreased consolidated unit sales. Selling, general and administrative expenses decreased by ¥152.3 billion, or 12.5%, to ¥1,069.0 billion. Research and development expenses decreased by ¥47.7 billion, or 6.9%, to ¥647.1 billion.

Operating profit decreased by ¥63.0 billion, or 41.1%, to ¥90.2 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales volume and model mix, which was partially offset by decreased selling, general and administrative expenses as well as continuing cost reduction.

 

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Proportion of retail unit sales by vehicle category and principal automobile products:

 

    Fiscal year ended
March 31,
 
    2020     2021  

Passenger cars:

    48     43
ACCORD, CITY, CIVIC, CRIDER, FIT/JAZZ    

Light trucks:

    45     50
BREEZE, CR-V, FREED, ODYSSEY, PILOT, VEZEL/HR-V, XR-V    

Mini vehicles:

    7     7

N-BOX

   

Although there are various factors that affect the profitability of each vehicle category, sales price is an important factor in determining profitability. In general, the weighted average sales price in the light trucks category is higher relative to the total average sales price, while the weighted average sales price in the mini vehicles category, which is unique to the Japanese market, is relatively lower, although sales price varies from model to model.

In general, the contribution margin of the light trucks category tends to be higher relative to the total weighted average contribution margin because the sales price is higher, while the contribution margin of the mini vehicles category tends to be relatively lower because the sales price is lower, although the level of contribution margin varies from model to model. For example, in Japan and the United States, which are the main sales markets for our automobiles, the contribution margin of our light trucks category was approximately 25% higher, our passenger cars category was approximately 10% lower and our mini vehicles category was approximately 45% lower than total weighted average contribution margin for the fiscal year ended March 31, 2021. It should be noted that we define contribution margin as an amount per unit of net sales minus material cost, which is thought to increase in almost direct proportion to net sales volume.

Japan

Total demand for automobiles in Japan*1 decreased around 8% from the previous fiscal year to approximately 4,650 thousand units in fiscal year 2021.

Honda’s consolidated unit sales in Japan decreased 11.7% from the previous fiscal year to 520 thousand units*2 in fiscal year 2021, due mainly to decreases in sales units of the N-BOX model series.

Honda’s unit production of automobiles in Japan decreased 14.9% from the previous fiscal year to 687 thousand units in fiscal year 2021. This was mainly because of restrictions on the supply of parts and the decline in demand.

 

*1 

Source: JAMA (Japan Automobile Manufacturers Association), as measured by the number of regular vehicle registrations (661cc or higher) and mini vehicles (660cc or lower)

 

*2 

Certain sales of automobiles that are financed with residual value type auto loans by our Japanese finance subsidiaries and sold through our consolidated subsidiaries are accounted for as operating leases in conformity with IFRS and are not included in consolidated sales revenue to external customers in the Automobile business. Accordingly, they are not included in consolidated unit sales.

North America

Total industry demand for automobiles in the United States*, the principal market within North America, decreased around 15% from the previous year to approximately 14,570 thousand units in calendar year 2020.

 

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Honda’s consolidated unit sales in North America decreased 18.9% from the previous fiscal year to 1,480 thousand units in fiscal year 2021, due mainly to decreases in sales units of the ACCORD and CIVIC models.

Honda manufactured 1,397 thousand units in North America in fiscal year 2021, a decrease of 19.5% from the previous fiscal year, mainly due to a decrease in demand and the effects of restrictions on the supply of parts.

 

* 

Source: Autodata

Europe

Total demand for automobiles in Europe* decreased around 24% from the previous year to approximately 11,960 thousand units in calendar year 2020.

Honda’s consolidated unit sales in Europe decreased 24.1% from the previous fiscal year to 101 thousand units in fiscal year 2021, mainly due to decreases in sales units of the CIVIC and CR-V models.

Unit production at Honda’s U.K. plant in fiscal year 2021 decreased 24.0% from the previous fiscal year to 71 thousand units, due to decreases in sales units of the CIVIC model.

 

* 

Source: ACEA (Association des Constructeurs Europeens d’Automobiles (the European Automobile Manufacturers’ Association)) New passenger car registrations cover 27 EU countries, three EFTA countries and the U.K.

Asia

Total demand for automobiles in China, the largest market within Asia, decreased around 2% from the previous year to approximately 25,310 thousand units*1 in calendar year 2020. Total demand for automobiles in other countries in Asia decreased around 24% from the previous calendar year to approximately 6,050 thousand units*2. This was mainly due to the decreases in demand in India and Indonesia.

Honda’s consolidated unit sales in Asia decreased 30.7% from the previous fiscal year to 390 thousand units in fiscal year 2021. The decrease was mainly attributable to decreases in sales units of the BRIO and HR-V models in Indonesia, and the JAZZ and CIVIC models in Thailand.

Honda’s consolidated unit sales do not include unit sales of Dongfeng Honda Automobile Co., Ltd. and GAC Honda Automobile Co., Ltd., both of which are joint ventures accounted for using the equity method in China. Unit sales in China increased 33.8% from the previous fiscal year to 1,858 thousand units in fiscal year 2021, mainly due to the increases in sales units of the BREEZE and CR-V models.

Honda’s unit production by consolidated subsidiaries in Asia decreased 33.6% from the previous fiscal year to 402 thousand units*3 in fiscal year 2021.

Meanwhile, unit production by Chinese joint ventures Dongfeng Honda Automobile Co., Ltd. and GAC Honda Automobile Co., Ltd. increased 37.0% from the previous fiscal year to 1,877 thousand units in fiscal year 2021.

 

*1 

Source: CAAM (China Association of Automobile Manufacturers)

 

*2 

The total is based on Honda research and includes the following eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Taiwan, India and Pakistan.

 

*3 

The total includes the following eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Taiwan, India and Pakistan.

 

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Other Regions

Total industry demand for automobiles in Brazil, the principal market within Other Regions, decreased around 27% from the previous year to approximately 1,950 thousand units* in calendar year 2020.

In Other Regions (including South America, the Middle East, Africa, Oceania, and other areas), Honda’s consolidated unit sales decreased 39.4% from the previous fiscal year to 126 thousand units in fiscal year 2021, mainly due to decreases in sales units of the FIT and HR-V models in Brazil.

Unit production at Honda’s plant in Brazil decreased 42.1% from the previous fiscal year to 72 thousand units in fiscal year 2021, due mainly to the decrease in demand.

 

* 

Source: ANFAVEA (Associação Nacional dos Fabricantes de Veiculos Automotores (the Brazilian Automobile Association)) The total includes passenger cars and light commercial vehicles.

Financial Services Business

To support the sale of its products, Honda provides retail lending and leasing to customers and wholesale financing to dealers through its finance subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand.

Total amount of receivables from financial services and equipment on operating leases of finance subsidiaries on March 31, 2021, increased by ¥547.2 billion, or 5.6%, to ¥10,334.4 billion from March 31, 2020. Honda estimates that by applying Japanese yen exchange rates as of March 31, 2020, total amount of receivables from financial services and equipment on operating leases of finance subsidiaries as of March 31, 2021 would have increased by approximately ¥257.0 billion, or 2.6%, from March 31, 2020.

Sales revenue from external customers decreased by ¥92.6 billion, or 3.6%, to ¥2,494.2 billion from the previous fiscal year, due mainly to decreased revenues on disposition of lease vehicles. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥33.1 billion, or 1.3%, compared to the decrease as reported of ¥92.6 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales decreased by ¥94.1 billion, or 3.6%, to ¥2,506.7 billion from the previous fiscal year.

Operating costs and expenses decreased by ¥231.4 billion, or 9.7%, to ¥2,149.8 billion from the previous fiscal year. Cost of sales decreased by ¥114.7 billion, or 5.2%, to ¥2,099.2 billion from the previous fiscal year, due mainly to a decrease in costs attributable to decreased revenues on disposition of lease vehicles. Selling, general and administrative expenses decreased by ¥116.6 billion, or 69.8%, to ¥50.5 billion from the previous fiscal year, due mainly to a decrease in allowance for credit losses.

Operating profit increased by ¥137.2 billion, or 62.5%, to ¥356.9 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses.

Life Creation and Other Businesses

Honda’s consolidated unit sales of power products totaled 5,623 thousand units, decreased by 1.4% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in North America.

Sales revenue from external customers decreased by ¥3.8 billion, or 1.2%, to ¥321.7 billion from the previous fiscal year, due mainly to decreased sales revenue in Other businesses. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥0.4 billion, or 0.1%, compared to the decrease as reported of ¥3.8 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales decreased by ¥8.8 billion, or 2.5%, to ¥341.8 billion from the previous fiscal year.

 

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Operating costs and expenses decreased by ¥22.2 billion, or 5.9%, to ¥353.4 billion from the previous fiscal year. Cost of sales decreased by ¥5.1 billion, or 1.8%, to ¥287.4 billion, due mainly to a decrease in costs attributable to decreased sales revenue in Other businesses. Selling, general and administrative expenses decreased by ¥12.6 billion, or 23.8%, to ¥40.6 billion. Research and development expenses decreased by ¥4.3 billion, or 14.7%, to ¥25.4 billion from the previous fiscal year.

Operating loss was ¥11.6 billion, an improvement of ¥13.4 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses as well as continuing cost reduction, which was partially offset by decreased sales revenue in Other businesses. In addition, operating loss of aircraft and aircraft engines included in the Life creation and Other businesses was ¥32.3 billion, an improvement of ¥9.9 billion from the previous fiscal year.

Japan

Honda’s consolidated unit sales in Japan increased 7.7% from the previous fiscal year to 336 thousand units in fiscal year 2021, mainly due to the increases in sales of OEM engines* and generators.

 

* 

OEM (Original Equipment Manufacturer) engines: refers to engines installed on products sold under a third-party brand.

North America

Honda’s consolidated unit sales in North America decreased 8.1% from the previous fiscal year to 2,617 thousand units in fiscal year 2021, mainly due to the decrease in sales of OEM engines, which offset the increase mainly in the sales of generators.

Europe

Honda’s consolidated unit sales in Europe increased 9.9% from the previous fiscal year to 929 thousand units in fiscal year 2021, mainly due to the increases in sales of lawnmowers and OEM engines, which offset the decrease in sales of generators.

Asia

Honda’s consolidated unit sales in Asia increased 2.2% from the previous fiscal year to 1,405 thousand units in fiscal year 2021. This was mainly due to the increases in sales of OEM engines, which offset the decrease in sales of generators.

Other Regions

Honda’s consolidated unit sales in Other Regions (including South America, the Middle East, Africa, Oceania, and other areas) increased 4.7% from the previous fiscal year to 336 thousand units in fiscal year 2021, mainly due to the increases in sales of OEM engines.

Geographical Information

Japan

In Japan, sales revenue from domestic and export sales decreased by ¥555.0 billion, or 12.6%, to ¥3,867.8 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating loss was ¥75.9 billion, an increase of ¥47.7 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix, which was partially offset by decreased selling, general and administrative expenses.

 

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North America

In North America, where the United States is the principal market, sales revenue decreased by ¥1,075.9 billion, or 12.6%, to ¥7,480.8 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating profit increased by ¥150.5 billion, or 49.3%, to ¥455.8 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses as well as continuing cost reduction, which was partially offset by a decrease in profit attributable to decreased sales revenue and model mix.

Europe

In Europe, sales revenue decreased by ¥90.7 billion, or 11.7%, to ¥681.8 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating profit increased by ¥12.4 billion, or 83.1%, to ¥27.4 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses.

Asia

In Asia, sales revenue decreased by ¥400.9 billion, or 10.4%, to ¥3,458.7 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business and Motorcycle business. Operating profit decreased by ¥67.6 billion, or 21.2%, to ¥251.8 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix, which was partially offset by decreased selling, general and administrative expenses.

Other Regions

In Other Regions, sales revenue decreased by ¥259.1 billion, or 37.4%, to ¥434.4 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business as well as negative foreign currency translation effects. Operating loss was ¥5.0 billion, a decrease of ¥42.3 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix, which was partially offset by continuing cost reduction.

Fiscal Year 2020 Compared with Fiscal Year 2019

Sales Revenue

Honda’s consolidated sales revenue for the fiscal year ended March 31, 2020, decreased by ¥957.6 billion, or 6.0%, to ¥14,931.0 billion from the fiscal year ended March 31, 2019, due mainly to decreased sales revenue in the Automobile business as well as negative foreign currency translation effects, which was partially offset by increased sales revenue in the Financial services business. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥599.2 billion, or 3.8%, compared to the decrease as reported of ¥957.6 billion, which includes negative foreign currency translation effects.

Operating Costs and Expenses

Operating costs and expenses decreased by ¥864.8 billion, or 5.7%, to ¥14,297.3 billion from the previous fiscal year. Cost of sales decreased by ¥729.2 billion, or 5.8%, to ¥11,851.6 billion from the previous fiscal year, due mainly to a decrease in costs attributable to decreased consolidated sales revenue in the Automobile business. Selling, general and administrative expenses decreased by ¥132.8 billion, or 7.5%, to ¥1,641.5 billion from the previous fiscal year. Research and development expenses totaled to ¥804.1 billion basically unchanged from the previous fiscal year.

 

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Operating Profit

Operating profit decreased by ¥92.7 billion, or 12.8%, to ¥633.6 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix as well as negative foreign currency effects, which was partially offset by continuing cost reduction as well as decreased selling, general and administrative expenses. Honda estimates that by excluding negative foreign currency effects of approximately ¥105.8 billion, operating profit would have increased by approximately ¥13.1 billion.

With respect to the discussion above of the changes, management identified factors and used what it believes to be a reasonable method to analyze the respective changes in such factors. Management analyzed changes in these factors at the levels of the Company and its material consolidated subsidiaries. “Foreign currency effects” consist of “translation adjustments”, which come from the translation of the currency of foreign subsidiaries’ financial statements into Japanese yen, and “foreign currency adjustments”, which result from foreign-currency-denominated transaction. With respect to “foreign currency adjustments”, management analyzed foreign currency adjustments primarily related to the following currencies: U.S. dollar, Japanese yen and others at the level of the Company and its material consolidated subsidiaries. The estimates excluding the foreign currency effects are not on the same base as Honda’s consolidated financial statements, and do not conform to IFRS. Furthermore, Honda does not believe that these measures are substitute for the disclosure required by IFRS. However, Honda believes that such estimates excluding the foreign currency effects provide financial statements users with additional useful information for understanding Honda’s results.

Profit before Income Taxes

Profit before income taxes decreased by ¥189.4 billion, or 19.3%, to ¥789.9 billion. The main factors behind this decrease, except factors relating to operating profit, are as follows:

Share of profit of investments accounted for using the equity method had a negative impact of ¥64.6 billion, due mainly to a decrease in profit attributable to decreased sales revenue at affiliates and joint ventures in Asia.

Finance income and finance costs had a negative impact of ¥32.1 billion, due mainly to effect from gains or losses on foreign exchange. For further details, see note “(22) Finance Income and Finance Costs” to the accompanying consolidated financial statements.

Income Tax Expense

Income tax expense decreased by ¥23.1 billion, or 7.6%, to ¥279.9 billion from the previous fiscal year. The average effective tax rate increased by 4.5 percentage points to 35.4% from the previous fiscal year. For further details, see “(a) Income Tax Expense” of note “(23) Income Taxes” to the accompanying consolidated financial statements.

Profit for the Year

Profit for the year decreased by ¥166.3 billion, or 24.6%, to ¥509.9 billion from the previous fiscal year.

Profit for the Year Attributable to Owners of the Parent

Profit for the year attributable to owners of the parent decreased by ¥154.5 billion, or 25.3%, to ¥455.7 billion from the previous fiscal year.

Profit for the Year Attributable to Non-controlling Interests

Profit for the year attributable to non-controlling interests decreased by ¥11.7 billion, or 17.9%, to ¥54.1 billion from the previous fiscal year.

 

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Business Segments

Motorcycle Business

Honda’s consolidated unit sales of motorcycles, all-terrain vehicles (ATVs) and side-by-sides (SxS) totaled 12,426 thousand units, decreased by 6.0% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in Asia.

Sales revenue from external customers decreased by ¥40.8 billion, or 1.9%, to ¥2,059.3 billion from the previous fiscal year, due mainly to decreased consolidated unit sales as well as negative foreign currency translation effects. The impact of price changes was immaterial on sales revenue. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have increased by approximately ¥24.8 billion, or 1.2%, compared to the decrease as reported of ¥40.8 billion, which includes negative foreign currency translation effects.

Operating costs and expenses decreased by ¥34.8 billion, or 1.9%, to ¥1,773.6 billion from the previous fiscal year. Cost of sales decreased by ¥11.6 billion, or 0.8%, to ¥1,494.6 billion, due mainly to a decrease in costs attributable to decreased consolidated unit sales as well as negative foreign currency effects. Selling, general and administrative expenses decreased by ¥16.0 billion, or 7.4%, to ¥199.6 billion. Research and development expenses decreased by ¥7.1 billion, or 8.3%, to ¥79.3 billion.

Operating profit decreased by ¥5.9 billion, or 2.0%, to ¥285.6 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales volume and model mix as well as negative foreign currency effects, which was partially offset by continuing cost reduction.

Japan

Total industry demand for motorcycles in Japan* was approximately 360 thousand units in fiscal year 2020, a decrease of approximately 3% from the previous fiscal year.

Honda’s consolidated unit sales in Japan decreased 1.0% to 205 thousand units in fiscal year 2020, a decline from the previous fiscal year, mainly due to decreases primarily in sales of the Super Cub 110, which offset the increases primarily in sales of the Tact.

 

* 

Source: JAMA (Japan Automobile Manufacturers Association)

North America

Total demand for motorcycles and all-terrain vehicles (ATVs) in the United States*, the principal market within North America, increased around 1% from the previous year to approximately 660 thousand units in calendar year 2019.

Honda’s consolidated unit sales in North America increased 9.6% from the previous fiscal year to 330 thousand units in fiscal year 2020. This was mainly due to an increase in sales of side-by-sides (SxS), led by the Talon 1000R primarily in the United States.

 

* 

Source: MIC (Motorcycle Industry Council) The total includes motorcycles and ATVs, but does not include side-by-sides (SxS).

Europe

Total demand for motorcycles in Europe* increased around 4% from the previous year to approximately 960 thousand units in calendar year 2019.

 

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Honda’s consolidated unit sales in Europe decreased 4.0% from the previous fiscal year to 239 thousand units in fiscal year 2020, mainly due to decreases primarily in sales of the SH300i, which offset increases primarily in sales of the CB650R.

 

* 

Based on Honda research. Only includes the following 10 countries: the United Kingdom, Germany, France, Italy, Spain, Switzerland, Portugal, the Netherlands, Belgium and Austria.

Asia

Total demand for motorcycles in Asia* decreased around 7% from the previous year to approximately 41,090 thousand units in calendar year 2019.

Looking at market conditions by country, in calendar year 2019, demand in India decreased around 13% from the previous year to approximately 18,790 thousand units. Demand in Indonesia increased around 3% from the previous year to approximately 6,500 thousand units. Demand in China decreased around 6% from the previous year to approximately 6,500 thousand units. Demand in Vietnam decreased around 4% from the previous year to approximately 3,250 thousand units. Demand in Pakistan decreased around 3% from the previous year to approximately 2,050 thousand units. Demand in Thailand decreased around 3% from the previous year to approximately 1,740 thousand units.

Honda’s consolidated unit sales in Asia were 10,348 thousand units in fiscal year 2020, a decrease by 7.6% from the previous fiscal year, mainly due to decreases primarily in sales of the Activa model in India, which offset increases primarily in sales of such commuter models as the RS150R in Malaysia.

Honda’s consolidated unit sales do not include sales by P.T. Astra Honda Motor in Indonesia, which is accounted for using the equity method. P.T. Astra Honda Motor’s unit sales for fiscal year 2020 decreased around 2.3% from the previous fiscal year to approximately 4,850 thousand units, mainly due to decreases primarily in sales of the BeAT model, which offset increases primarily in sales of the new Genio model.

 

* 

Based on Honda research. Only includes the following eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, India, Pakistan and China.

Other Regions

Total demand for motorcycles in Brazil*, the principal market within Other Regions, increased around 13% from the previous year to approximately 1,080 thousand units in calendar year 2019.

In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), Honda’s consolidated unit sales increased 3.7% from the previous fiscal year to 1,304 thousand units in fiscal year 2020 due mainly to an increase in sales of the Elite 125 in Brazil.

 

* 

Source: ABRACICLO (the Brazilian Association of Motorcycle, Moped, and Bicycle Manufacturers)

Automobile Business

Honda’s consolidated unit sales of automobiles totaled 3,318 thousand units, decreased by 11.5% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in all regions.

Sales revenue from external customers decreased by ¥1,113.0 billion, or 10.1%, to ¥9,959.0 billion from the previous fiscal year, due mainly to decreased consolidated unit sales. The impact of price changes was immaterial on sales revenue. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥872.9 billion, or 7.9%, compared to the decrease as reported of ¥1,113.0 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales decreased by ¥1,093.1 billion, or 9.7%, to ¥10,194.6 billion from the previous fiscal year.

 

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Operating costs and expenses decreased by ¥1,036.7 billion, or 9.4%, to ¥10,041.3 billion from the previous fiscal year. Cost of sales decreased by ¥878.6 billion, or 9.8%, to ¥8,124.9 billion, due mainly to a decrease in costs attributable to decreased consolidated unit sales. Selling, general and administrative expenses decreased by ¥163.1 billion, or 11.8%, to ¥1,221.4 billion. Research and development expenses increased by ¥5.1 billion, or 0.7%, to ¥694.9 billion.

Operating profit decreased by ¥56.3 billion, or 26.9%, to ¥153.3 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales volume and model mix as well as negative foreign currency effects, which was partially offset by decreased selling, general and administrative expenses as well as continuing cost reduction.

Proportion of retail unit sales by vehicle category and principal automobile products:

 

     Fiscal year ended
March 31,
 
     2019     2020  

Passenger cars:

     50     48
Accord, Brio, City, Civic, Crider, Fit/Jazz     

Light trucks:

     43     45
CR-V, Freed, Odyssey, Pilot, Vezel/HR-V, XR-V     

Mini vehicles:

     7     7
N-BOX     

Although there are various factors that affect the profitability of each vehicle category, sales price is an important factor in determining profitability. In general, the weighted average sales price in the light trucks category is higher relative to the total average sales price, while the weighted average sales price in the mini vehicles category, which is unique to the Japanese market, is relatively lower, although sales price varies from model to model.

In general, the contribution margin of the light trucks category tends to be higher relative to the total weighted average contribution margin because the sales price is higher, while the contribution margin of the mini vehicles category tends to be relatively lower because the sales price is lower, although the level of contribution margin varies from model to model. For example, in Japan and the United States, which are the main sales markets for our automobiles, the contribution margin of our light trucks category was approximately 30% higher, our passenger cars category was approximately 20% lower and our mini vehicles category was approximately 45% lower than total weighted average contribution margin for the fiscal year ended March 31, 2020. It should be noted that we define contribution margin as an amount per unit of net sales minus material cost, which is thought to increase in almost direct proportion to net sales volume.

Japan

Total demand for automobiles in Japan*1 decreased around 4% from the previous fiscal year to approximately 5,030 thousand units in fiscal year 2020.

Honda’s consolidated unit sales in Japan decreased 8.4% from the previous fiscal year to 589 thousand units*2 in fiscal year 2020. This was mainly because of the impact of restrictions on the supply of parts for the new N-WGN, which offset increases primarily in sales of the Freed.

Honda’s unit production of automobiles in Japan decreased 11.4% from the previous fiscal year to 808 thousand units in fiscal year 2020. This was mainly because of decreases due to effects of restrictions on the supply of parts for the new N-WGN.

 

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*1 

Source: JAMA (Japan Automobile Manufacturers Association), as measured by the number of regular vehicle registrations (661cc or higher) and mini vehicles (660cc or lower)

*2 

Certain sales of automobiles that are financed with residual value type auto loans by our Japanese finance subsidiaries and sold through our consolidated subsidiaries are accounted for as operating leases in conformity with IFRS and are not included in consolidated sales revenue to external customers in the Automobile business. Accordingly, they are not included in consolidated unit sales.

North America

Total industry demand for automobiles in the United States*, the principal market within North America, decreased around 1% from the previous year to approximately 17,040 thousand units in calendar year 2019. This result reflected decreased demand for passenger cars, despite a continued increase for light trucks.

Honda’s consolidated unit sales in North America decreased 6.6% from the previous fiscal year to 1,825 thousand units in fiscal year 2020. This decrease was mainly attributable to the effect of a decrease in sales of the Civic model, despite increases primarily in sales of the Passport model.

Honda manufactured 1,736 thousand units in fiscal year 2020, a decrease of 3.7% from the previous fiscal year, mainly due to decreases in demand for passenger cars.

 

*

Source: Autodata

Europe

Total demand for automobiles in Europe* decreased around 1% from the previous year to approximately 15,800 thousand units in calendar year 2019, mainly due to the slowdown in the diesel market.

Honda’s consolidated unit sales in Europe decreased 21.3% from the previous fiscal year to 133 thousand units in fiscal year 2020, mainly due to decreases primarily in sales of the Civic model.

Unit production at Honda’s U.K. plant in fiscal year 2020 decreased 36.8% from the previous fiscal year to 95 thousand units, mainly attributable to the effect of a decrease in sales of the Civic model.

 

* 

Source: ACEA (Association des Constructeurs Europeens d’Automobiles (the European Automobile Manufacturers’ Association)) New passenger car registrations cover 27 EU countries, three EFTA countries and the U.K.

Asia

Total demand for automobiles in China, the largest market within Asia, decreased around 8% from the previous year to approximately 25,760 thousand units*1 in calendar year 2019. Total demand for automobiles in other countries in Asia decreased around 9% from the previous calendar year to approximately 7,810 thousand units*2. This was mainly due to decreases in demand in India and Indonesia.

Honda’s consolidated unit sales in Asia decreased 23.3% from the previous fiscal year to 563 thousand units in fiscal year 2020. The decrease was mainly attributable to the decrease in sales of the Amaze in India, and the City in Malaysia.

Honda’s consolidated unit sales do not include unit sales of Dongfeng Honda Automobile Co., Ltd. and GAC Honda Automobile Co., Ltd., both of which are joint ventures accounted for using the equity method in China. Unit sales in China decreased 7.3% from the previous fiscal year to 1,389 thousand units in fiscal year 2020. The decrease was mainly attributable to a decrease in sales of the Fit model, despite the effect of launching the new Envix model and the Inspire.

 

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Honda’s unit production by consolidated subsidiaries in Asia decreased 24.4% from the previous fiscal year to 606 thousand units*3 in fiscal year 2020.

Meanwhile, unit production by Chinese joint ventures Dongfeng Honda Automobile Co., Ltd. and GAC Honda Automobile Co., Ltd. decreased 8.1% from the previous fiscal year to 1,370 thousand units in fiscal year 2020.

 

*1

Source: CAAM (China Association of Automobile Manufacturers)

*2 

The total is based on Honda research and includes the following eight countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Taiwan, India and Pakistan.

*3 

The total includes the following nine countries: Thailand, Indonesia, Malaysia, the Philippines, Vietnam, Taiwan, India, Pakistan and China.

Other Regions

Total industry demand for automobiles in Brazil, the principal market within Other Regions, increased around 8% from the previous year to approximately 2,660 thousand units* in calendar year 2019.

In Other Regions (including South America, the Middle East, Africa, Oceania and other areas), Honda’s consolidated unit sales decreased 16.1% from the previous fiscal year to 208 thousand units in fiscal year 2020, mainly due to decreases primarily in sales of the City and Fit models in Brazil.

Unit production at Honda’s plant in Brazil decreased 10.9% from the previous fiscal year to 124 thousand units in fiscal year 2020.

 

* 

Source: ANFAVEA (Associação Nacional dos Fabricantes de Veiculos Automotores (the Brazilian Automobile Association)) The total includes passenger cars and light commercial vehicles.

Financial Services Business

To support the sale of its products, Honda provides retail lending and leasing to customers and wholesale financing to dealers through its finance subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand.

Total amount of receivables from financial services and equipment on operating leases of finance subsidiaries on March 31, 2020, decreased by ¥66.8 billion, or 0.7%, to ¥9,787.2 billion from March 31, 2019. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, total amount of receivables from financial services and equipment on operating leases of finance subsidiaries as of March 31, 2020 would have increased by approximately ¥123.3 billion, or 1.3%, compared to the previous fiscal year.

Sales revenue from external customers increased by ¥221.6 billion, or 9.4%, to ¥2,586.9 billion from the previous fiscal year, due mainly to increased revenues on disposition of lease vehicles and operating lease revenues. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have increased by approximately ¥266.1 billion, or 11.2%, compared to the increase as reported of ¥221.6 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales increased by ¥220.8 billion, or 9.3%, to ¥2,600.9 billion from the previous fiscal year.

Operating costs and expenses increased by ¥237.1 billion, or 11.1%, to ¥2,381.2 billion from the previous fiscal year. Cost of sales increased by ¥187.5 billion, or 9.3%, to ¥2,214.0 billion from the previous fiscal year, due mainly to an increase in costs attributable to increased revenues on disposition of lease vehicles and operating lease revenues. Selling, general and administrative expenses increased by ¥49.6 billion, or 42.2%, to ¥167.2 billion from the previous fiscal year, due mainly to an increase in allowance for credit losses.

 

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Operating profit decreased by ¥16.2 billion, or 6.9%, to ¥219.7 billion from the previous fiscal year, due mainly to increased selling, general and administrative expenses, which was partially offset by an increase in profit attributable to increased sales revenue.

Life Creation and Other Businesses

Honda’s consolidated unit sales of power products totaled 5,701 thousand units, decreased by 9.5% from the previous fiscal year, due mainly to a decrease in consolidated unit sales in all regions.

Sales revenue from external customers decreased by ¥25.3 billion, or 7.2%, to ¥325.6 billion from the previous fiscal year, due mainly to decreased consolidated unit sales in Life creation business. Honda estimates that by applying Japanese yen exchange rates of the previous fiscal year to the current fiscal year, sales revenue for the year would have decreased by approximately ¥17.2 billion, or 4.9%, compared to the decrease as reported of ¥25.3 billion, which includes negative foreign currency translation effects. Sales revenue including intersegment sales decreased by ¥26.6 billion, or 7.1%, to ¥350.6 billion from the previous fiscal year.

Operating costs and expenses decreased by ¥12.4 billion, or 3.2%, to ¥375.7 billion from the previous fiscal year. Cost of sales decreased by ¥8.4 billion, or 2.8%, to ¥292.6 billion, due mainly to a decrease in costs attributable to decreased consolidated unit sales in Life creation business. Selling, general and administrative expenses decreased by ¥3.2 billion, or 5.7%, to ¥53.3 billion. Research and development expenses decreased by ¥0.7 billion, or 2.4%, to ¥29.7 billion from the previous fiscal year.

Operating loss was ¥25.0 billion, an increase of ¥14.1 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales volume and model mix. In addition, operating loss of aircraft and aircraft engines included in the Life creation and other businesses was ¥42.2 billion, an increase of ¥2.0 billion from the previous fiscal year.

Japan

Honda’s consolidated unit sales in Japan decreased 7.1% from the previous fiscal year to 312 thousand units in fiscal year 2020, mainly due to a decrease in sales of OEM engines* and other factors, which offset the increase primarily in the sales of generators.

 

* 

OEM (Original Equipment Manufacturer) engines: refers to engines installed on products sold under a third-party brand.

North America

Honda’s consolidated unit sales in North America decreased 6.6% from the previous fiscal year to 2,848 thousand units in fiscal year 2020, mainly due to a decrease in the sales of OEM engines, which offset an increase primarily in the sales of lawnmowers.

Europe

Honda’s consolidated unit sales in Europe decreased 14.1% from the previous fiscal year to 845 thousand units in fiscal year 2020, mainly due to a decrease in sales of OEM engines and lawnmowers.

Asia

Honda’s consolidated unit sales in Asia decreased 11.8% from the previous fiscal year to 1,375 thousand units in fiscal year 2020. This was mainly due to a decrease in sales of OEM engines and brush cutters.

 

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Other Regions

Honda’s consolidated unit sales in Other Regions (including South America, the Middle East, Africa, Oceania and other areas) decreased 13.9% from the previous fiscal year to 321 thousand units in fiscal year 2020, mainly due to decreases in the sales of OEM engines and water pumps.

Geographical Information

Japan

In Japan, sales revenue from domestic and export sales decreased by ¥425.3 billion, or 8.8%, to ¥4,422.9 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating loss was ¥28.1 billion, a decrease of ¥28.1 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix as well as negative foreign currency effects, which was partially offset by decreased selling, general and administrative expenses.

North America

In North America, where the United States is the principal market, sales revenue decreased by ¥467.1 billion, or 5.2%, to ¥8,556.8 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business as well as negative foreign currency translation effects, which was partially offset by increased sales revenue in the Financial services business. Operating profit increased by ¥5.5 billion, or 1.9%, to ¥305.3 billion from the previous fiscal year, due mainly to continuing cost reduction as well as decreased selling, general and administrative expenses, which was partially offset by a decrease in profit attributable to decreased sales revenue and model mix.

Europe

In Europe, sales revenue decreased by ¥154.8 billion, or 16.7%, to ¥772.5 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating profit was ¥14.9 billion, an increase of ¥21.6 billion from the previous fiscal year, due mainly to continuing cost reduction as well as an increase in profit attributable to increased sales revenue and model mix.

Asia

In Asia, sales revenue decreased by ¥412.5 billion, or 9.7%, to ¥3,859.7 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business. Operating profit decreased by ¥84.6 billion, or 20.9%, to ¥319.5 billion from the previous fiscal year, due mainly to a decrease in profit attributable to decreased sales revenue and model mix, which was partially offset by continuing cost reduction.

Other Regions

In Other Regions, sales revenue decreased by ¥70.8 billion, or 9.3%, to ¥693.6 billion from the previous fiscal year, due mainly to decreased sales revenue in the Automobile business as well as negative foreign currency translation effects. Operating profit increased by ¥14.6 billion, or 64.9%, to ¥37.2 billion from the previous fiscal year, due mainly to decreased selling, general and administrative expenses as well as continuing cost reduction, which was partially offset by negative foreign currency effects.

Application of Critical Accounting Policies

Critical accounting policies are those which require us to apply the most difficult, subjective or complex judgments, often requiring us to make estimates about the effect of matters that are inherently uncertain and which may change in subsequent periods, or for which the use of different estimates that could have reasonably

 

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been used in the current period would have had a material impact on the presentation of our financial position and results of operations. Further changes in the economic environment surrounding us, effects by market conditions, effects of currency fluctuations or other factors have combined to increase the uncertainty inherent in such estimates and assumptions.

Regarding the spread of COVID-19, economic activities in major countries or regions have been on a recovery trend as of the date of this report. Honda accounted for estimates using the assumptions that the market will recover to pre-COVID-19 level. As the spread of COVID-19 may have more adverse impact on market trend and economic conditions, actual results in any future periods could differ materially from the estimates.

The following is not intended to be a comprehensive list of all our accounting policies. Our significant accounting policies are described in note “(3) Significant Accounting Policies” to the accompanying consolidated financial statements.

We have identified the following critical accounting policies with respect to our financial presentation.

Product Warranty

We warrant our products for specific periods of time. We also provide specific warranty programs, including product recalls, as needed. Product warranties vary depending upon the nature of the product, the geographic location of their sales and other factors.

We recognize costs for general warranties on products we sell and for specific warranty programs, including product recalls. We recognize general estimated warranty costs at the time products are sold to customers. We also recognize specific estimated warranty program costs when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Estimated warranty costs are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs, including current sales trends, the expected number of units to be affected and the estimated average repair cost per unit for warranty claims. Our products contain certain parts manufactured by third party suppliers that typically warrant these parts.

We believe our provision for product warranties is a “critical accounting estimate” because changes in the calculation can materially affect profit for the year attributable to owners of the parent, and require us to estimate the frequency and amounts of future claims, which are inherently uncertain.

Our policy is to continuously monitor warranty cost accruals to determine the adequacy of the accrual. Therefore, warranty expense accruals are maintained at an amount we deem adequate to cover estimated warranty expenses.

Actual claims incurred in the future may differ from the original estimates, which may result in material revisions to the warranty expense accruals.

 

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The changes in the provision for those product warranties and sales revenue for the years ended March 31, 2019, 2020 and 2021 are as follows:

 

    Yen (millions)  
    2019     2020     2021  

Provisions for product warranties

     

Balance at beginning of year

  ¥ 457,596     ¥ 458,482     ¥ 380,689  
 

 

 

   

 

 

   

 

 

 

Effect of changes in accounting policy

  ¥ (4,536   ¥ —       ¥ —    
 

 

 

   

 

 

   

 

 

 

Adjusted balance at beginning of year

  ¥ 453,060     ¥ 458,482     ¥ 380,689  
 

 

 

   

 

 

   

 

 

 

Provision*

  ¥ 247,194     ¥ 212,275     ¥ 272,076  

Write-offs

    (231,230     (250,522     (166,206

Reversal

    (17,596     (26,843     (22,002

Exchange differences on translating foreign operations

    7,054       (12,703     16,466  
 

 

 

   

 

 

   

 

 

 

Balance at end of year

  ¥ 458,482     ¥ 380,689     ¥ 481,023  
 

 

 

   

 

 

   

 

 

 

Sales revenue

  ¥ 15,888,617     ¥ 14,931,009     ¥ 13,170,519  

 

* 

Provisions for product warranties accrued during the period for the years ended March 31, 2019, 2020 and 2021 are ¥247.1 billion, ¥212.2 billion and ¥272.0 billion, respectively, due mainly to the future warranty costs for product recalls in the Automobile business.

Credit Losses

Our finance subsidiaries provide retail lending and leasing to customers and wholesale financing to dealers primarily to support sales of our products. Honda includes retail and finance lease receivables (“consumer finance receivables”) derived from those services in receivables from financial services, and operating leases are classified as equipment on operating leases. Honda also includes wholesale receivables in receivables from financial services.

Credit losses are an expected cost of extending credit. The majority of the credit risk is with consumer financing. Credit risk on consumer finance receivables can be affected by general economic conditions. Adverse changes such as a rise in unemployment can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. Exposure to credit risk on consumer finance receivables is managed by monitoring and adjusting underwriting standards, which affect the level of credit risk that is assumed, pricing contracts for expected losses, and focusing collection efforts to minimize losses.

Our finance subsidiaries are also exposed to credit risk on equipment on operating leases. A portion of our finance subsidiaries’ operating leases are expected to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The factors affecting credit risk on operating leases and management of the risk are similar to that of consumer finance receivables.

Credit risk on dealer finance receivables is affected primarily by the financial strength of the dealers within the portfolio, the value of collateral securing the financings, and economic factors that could affect the creditworthiness of dealers. Exposure to credit risk in dealer financing is managed by performing comprehensive reviews of dealers prior to establishing financing arrangements and monitoring the payment performance and creditworthiness of dealers with existing financing arrangements on an ongoing basis.

The allowance for credit losses is management’s estimate of expected credit loss on receivables from financial services. Our finance subsidiaries evaluate these estimates, at minimum, on a quarterly basis.

 

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The allowance for credit losses is measured at amounts according to the three-stage expected credit loss (ECL) model:

 

  Stage 1

12-month ECL for financial assets without a significant increase in credit risk since initial recognition

 

  Stage 2

Lifetime ECL for financial assets with a significant increase in credit risk since initial recognition but that are not credit-impaired

 

  Stage 3

Lifetime ECL for credit-impaired financial assets

Lifetime ECL represents ECL that results from all possible default events over the expected life of a financial asset. 12-month ECL is the portion of lifetime ECL that results from default events that are possible within 12 months after the reporting date. ECL is a probability-weighted estimate of the difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted at the original effective interest rates.

To determine whether credit risk has increased significantly, consumer finance receivables are assessed both individually and collectively. Individual assessments are based on delinquencies. Consumer finance receivables 30 days or greater past due have historically experienced increased default rates and therefore are considered to have a significant increase in credit risk. Collective assessments are performed for groups of consumer finance receivables with shared risk characteristics such as the period of initial recognition, collateral type, original term, and credit score considering relative changes in expected default rates since initial recognition. Dealer finance receivables are assessed at the individual dealership level to determine whether credit risk has increased significantly considering payment performance and other factors such as changes in the financial condition of the dealership and compliance with debt covenants.

Our definition of default on receivables from financial services varies depending on internal risk management practices of each of our finance subsidiaries. Our most significant finance subsidiary located in the United States considers delinquencies of 60 days past due to be in default. Collection efforts on consumer finance receivables are escalated after becoming 60 days past due including repossession of the underlying vehicles if it has been determined that the borrower is unable to perform on their obligations. Defaulted consumer finance receivables are considered to be credit-impaired. Dealer finance receivables are considered to be credit-impaired when there is evidence we will be unable to collect all amounts due in accordance with the original contractual terms including significant financial difficulty of the dealership, a breach of contract, such as a default or delinquency, or bankruptcy.

At the finance subsidiary in the United States, the estimated uncollectible portion of consumer finance receivables are written-off at 120 days past due or upon repossession of the underlying vehicle. Although various statutory regulations limit the length of time and circumstances when enforcement activities can be taken, in general, the outstanding contractual balances continue to be subject to enforcement activities for several years after write-offs. The portion of outstanding contractual balances that is estimated to be uncollectible reflects our expectations of collections from enforcement activities. Dealer finance receivables are written-off when there is no reasonable expectation of recovery.

At the finance subsidiary in the United States, ECL of consumer finance receivables is measured for groups of financial assets with shared risk characteristics by reflecting historical results, current conditions, and forward-looking factors such as unemployment rates, used vehicles prices, and consumer debt service burdens. Estimated losses on operating leases due to early terminations are also measured collectively, using estimation techniques similar to those applied for consumer finance receivables.

We believe our allowance for credit losses and impairment losses on operating leases is a “critical accounting estimate” because it requires significant judgment about inherently uncertain items. Our finance

 

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subsidiaries regularly review the adequacy of the allowance for credit losses and impairment losses on operating leases. The estimates are based on information available at the end of each reporting period. However, actual losses may differ from the original estimates as a result of actual results varying from those assumed in our estimates.

As an example of the sensitivity of the allowance calculation, the following scenario demonstrates the impact that a deviation in one of the primary factors estimated as part of our allowance calculation would have on the remeasurement and allowance for credit losses. If we had experienced a 10% increase in write-offs during fiscal year 2021, the remeasurement for fiscal year 2021 and the allowance balance at the end of fiscal year 2021 would have increased by approximately ¥5.8 billion and ¥3.7 billion, respectively. Note that this sensitivity analysis may be asymmetric and is specific to the base conditions in fiscal year 2021.

Additional Narrative of the Change in Credit Loss

The following tables summarize our allowance for credit losses on receivables from financial services:

 

     Yen (millions)  

For the year ended March 31, 2019

   Retail     Finance
lease
    Wholesale     Total  

Allowance for credit losses

        

Balance at beginning of year

   ¥ 32,076     ¥ 821     ¥ 1,906     ¥ 34,803  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of changes in accounting policy

   ¥ 4,599     ¥ —       ¥ —       ¥ 4,599  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted balance at beginning of year

   ¥ 36,675     ¥ 821     ¥ 1,906     ¥ 39,402  
  

 

 

   

 

 

   

 

 

   

 

 

 

Remeasurement

   ¥ 33,873     ¥ 92     ¥ 755     ¥ 34,720  

Write-offs

     (30,986     (125     153       (30,958

Exchange differences on translating foreign operations

     198       (58     (101     39  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

   ¥ 39,760     ¥ 730     ¥ 2,713     ¥ 43,203  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance of receivables from financial services

   ¥ 4,602,848     ¥ 142,855     ¥ 712,214     ¥ 5,457,917  

Average balance of receivables from financial services

   ¥ 4,462,772     ¥ 150,766     ¥ 661,846     ¥ 5,275,384  

Write-offs as a % of average balance of receivables from financial services

     0.69     0.08     (0.02 )%      0.59

Allowance as a % of ending balance of receivables from financial services

     0.86     0.51     0.38     0.79

 

     Yen (millions)  

For the year ended March 31, 2020

   Retail     Finance
lease
    Wholesale     Total  

Allowance for credit losses

        

Balance at beginning of year

   ¥ 39,760     ¥ 730     ¥ 2,713     ¥ 43,203  
  

 

 

   

 

 

   

 

 

   

 

 

 

Remeasurement

   ¥ 54,833     ¥ 142     ¥ 1,905     ¥ 56,880  

Write-offs

     (31,436     (130     (1,784     (33,350

Exchange differences on translating foreign operations

     (2,916     (52     (297     (3,265
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

   ¥ 60,241     ¥ 690     ¥ 2,537     ¥ 63,468  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance of receivables from financial services

   ¥ 4,440,364     ¥ 125,958     ¥ 666,992     ¥ 5,233,314  

Average balance of receivables from financial services

   ¥ 4,552,643     ¥ 132,568     ¥ 651,139     ¥ 5,336,350  

Write-offs as a % of average balance of receivables from financial services

     0.69     0.10     0.27     0.62

Allowance as a % of ending balance of receivables from financial services

     1.36     0.55     0.38     1.21

 

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     Yen (millions)  

For the year ended March 31, 2021

   Retail     Finance
lease
    Wholesale     Total  

Allowance for credit losses

        

Balance at beginning of year

   ¥ 60,241     ¥ 690     ¥ 2,537     ¥ 63,468  
  

 

 

   

 

 

   

 

 

   

 

 

 

Remeasurement

   ¥ (4,778   ¥ 142     ¥ (402   ¥ (5,038

Write-offs

     (20,733     (107     18       (20,822

Exchange differences on translating foreign operations

     (444     88       114       (242
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

   ¥ 34,286     ¥ 813     ¥ 2,267     ¥ 37,366  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance of receivables from financial services

   ¥ 4,847,906     ¥ 126,766     ¥ 486,138     ¥ 5,460,810  

Average balance of receivables from financial services

   ¥ 4,547,545     ¥ 123,547     ¥ 501,943     ¥ 5,173,035  

Write-offs as a % of average balance of receivables from financial services

     0.46     0.09     0.00     0.40

Allowance as a % of ending balance of receivables from financial services

     0.71     0.64     0.47     0.68

The following table provides information related to losses on operating leases due to customer defaults:

 

     Yen (millions)  
         2019              2020              2021      

Remeasurement for credit losses on past due lease payments under operating leases

   ¥ 4,436      ¥ 3,046      ¥ 3,287  

Impairment losses (reversal of impairment losses) on operating leases due to early termination

   ¥ 11,217      ¥ 36,037      ¥ (16,321

Fiscal Year 2021 Compared with Fiscal Year 2020

The remeasurement for credit losses on receivables from financial services for the fiscal year ended March 31, 2021 decreased by ¥61.9 billion, from the fiscal year ended March 31, 2020. Write-offs of receivables from financial services for the fiscal year ended March 31, 2021 decreased by ¥12.5 billion, or 37.6%, from the fiscal year ended March 31, 2020.

Impairment losses (reversal of impairment losses) on operating leases due to early termination for fiscal year ended March 31, 2021 decreased by ¥52.3 billion, from the fiscal year ended March 31, 2020.

The decrease in the remeasurement for credit losses and the reversal of impairment losses on operating leases due to early termination are primarily due to a decrease in credit risk in our North American finance subsidiaries. The North American economy is experiencing a recovery as a result of the government’s economic stimulus measures in North America resulting in a positive change in forward-looking factors including unemployment rates. The positive changes in forward-looking factors has resulted in a decrease in credit risk in our North American finance subsidiaries.

The decrease in write-offs was primarily attributable to lower default frequencies resulted from the positive effect of the government’s economic stimulus measures in North America and the relief including payment deferrals for customers in our North American finance subsidiaries.

Fiscal Year 2020 Compared with Fiscal Year 2019

The remeasurement for credit losses on receivables from financial services for the fiscal year ended March 31, 2020 increased by ¥22.1 billion, or 63.8%, from the fiscal year ended March 31, 2019. Write-offs of receivables from financial services for the fiscal year ended March 31, 2020 increased by ¥2.3 billion, or 7.7%, from the fiscal year ended March 31, 2019.

 

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Impairment losses on operating leases due to early termination for the fiscal year ended March 31, 2020 increased by ¥24.8 billion, or 221.3%, from the fiscal year ended March 31, 2019.

The increase in the remeasurement for credit losses and impairment losses on operating leases due to early termination is primarily due to an increase in credit risk by estimated impact of the spread of COVID-19 in our North American finance subsidiaries. As a result of the spread of COVID-19, the economy is experiencing a deterioration resulting in an adverse change in forward-looking factors such as unemployment rates and used vehicles prices. An adverse change in forward-looking factors has resulted in an increase in credit risk in our North American finance subsidiaries.

The increase in write-offs was primarily attributable to higher default frequencies of retail loans for consumers with higher credit risk and those loans of used vehicles in our North American finance subsidiaries.

Losses on Lease Residual Values

Our finance subsidiaries in North America determine contractual residual values of lease vehicles at lease inception based on expectations of end of term used vehicle values, taking into consideration external industry data and our own historical experience. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealers are sold through online and physical auctions. We are exposed to risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values at the end of the lease term.

We assess our estimates for end of term market values of lease vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles that we expect to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends, and market information on new and used vehicles. For operating leases, adjustments to estimated residual values are made on a straight-line basis over the remaining term of the lease and are recognized as depreciation expense. For finance leases, if there is an objective evidence that recognition of losses on lease residual values is needed, downward adjustments for declines in estimated residual values are included in the finance lease receivables as a loss on lease residual values.

We also review our equipment on operating leases for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. If impairment conditions are met, impairment losses are measured by the amount carrying values exceed their recoverable amounts.

We believe that our estimated losses on lease residual values and impairment losses are a “critical accounting estimate” because it is highly susceptible to market volatility and requires us to make assumptions about future economic trends and lease residual values, which are inherently uncertain. We believe that the assumptions used are appropriate. However, actual losses incurred may differ from original estimates as a result of actual results varying from those assumed in our estimates.

If future auction values for all Honda and Acura vehicles in our North American operating lease portfolio as of March 31, 2021 were to decrease by approximately ¥10,000 per unit from our present estimates, holding all other assumptions constant, the total impact would be an increase in depreciation expense by approximately ¥7.2 billion, which would be recognized over the remaining lease terms. Similarly, if future return rates for our existing portfolio of all Honda and Acura vehicles were to increase by one percentage point from our present estimates, the total impact would be an increase in depreciation expense by approximately ¥1.4 billion, which

 

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would be recognized over the remaining lease terms. Note that this sensitivity analysis may be asymmetric and is specific to the base conditions in fiscal year 2021. Also, declines in auction values are likely to have a negative effect on return rates which could affect the sensitivities.

Post-employment Benefits

We have various pension plans covering substantially all of our employees in Japan and certain employees in foreign countries. Defined benefit obligations and defined benefit costs are based on assumptions of many factors, including the discount rate and the rate of salary increase. The discount rate is determined by reference to market yields at the end of the reporting period on high quality corporate bonds that is consistent with the currency and estimated term of the post-employment benefit obligations. The rate of salary increase reflects our actual experience as well as near-term outlook. Our assumed discount rate and rate of salary increase for Japanese plans as of March 31, 2021 were 0.7% and 1.5%, respectively. Our assumed discount rate and rate of salary increase for foreign plans as of March 31, 2021 were 2.1 - 3.4% and 2.0 - 3.1%, respectively.

We believe that the accounting estimates related to our pension plans are a “critical accounting estimate” because changes in these estimates can materially affect our financial position and results of operations.

We believe that the assumptions currently used are appropriate. However, changes in assumptions could affect our defined benefit costs and obligations, including our cash requirements to fund such obligations in the future. Actual results may differ from our assumptions, and the difference is recognized in other comprehensive income when it is incurred and reclassified immediately to retained earnings.

For information on the effect of change in the assumed discount rate on our defined benefit obligations, see “4) Sensitivity analysis” of note “(18) Employee Benefits” to the accompanying consolidated financial statements.

Deferred Tax Assets

We consider the probability that a portion of or all of the deductible temporary differences, carryforward of unused tax losses and carryforward of unused tax credit can be utilized against future taxable profits in the recognition of deferred tax assets. In assessing recoverability of deferred tax assets, we consider the scheduled reversal of deferred tax liabilities, projected future taxable profit and tax planning strategies.

We believe that our accounting for the deferred tax assets is a “critical accounting estimate” because it requires us to evaluate and assess the probability of future taxable profit and our business plan, which are inherently uncertain.

Based upon the level of historical taxable profit and projections for future taxable profit over the periods for which the deferred tax assets are deductible, we believe it is probable that we will utilize the benefits of these deferred tax assets as of March 31, 2020 and 2021. Uncertainty of estimates of future taxable profit could increase due to changes in the economic environment surrounding us, effects by market conditions, effects of currency fluctuations or other factors.

New Accounting Pronouncements Not Yet Adopted

For a description of new accounting pronouncements not yet adopted, see “(d) New Accounting Standards and Interpretations Not Yet Adopted” of note “(2) Basis of Preparation” to the accompanying consolidated financial statements.

B. Liquidity and Capital Resources

Overview of Capital Requirements, Sources and Uses

The policy of Honda is to support its business activities by maintaining sufficient capital resources, a sufficient level of liquidity and a sound balance sheet.

 

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Honda’s main business is the manufacturing and sale of motorcycles, automobiles and power products. To support this business, Honda also funds financial programs for customers and dealers.

Honda requires working capital mainly to purchase parts and raw materials required for production, as well as to maintain inventory of finished products and cover receivables from dealers and for providing financial services. Honda also requires funds for capital expenditures, mainly to introduce new models, upgrade, rationalize and renew production facilities, as well as to expand and reinforce sales and R&D facilities.

Honda meets its working capital requirements primarily through cash generated by operations, bank loans and corporate bonds. Honda believes that its working capital is sufficient for the Company’s present requirements. The year-end balance of liabilities associated with the Company and its subsidiaries’ funding for non-Financial services businesses was ¥480.0 billion as of March 31, 2021. In addition, the Company’s finance subsidiaries fund financial programs for customers and dealers primarily from medium-term notes, bank loans, securitization of finance receivables and equipment on operating leases, commercial paper and corporate bonds. The year-end balance of liabilities associated with these finance subsidiaries’ funding for Financial services business was ¥7,248.2 billion as of March 31, 2021.

There are no material seasonal variations in Honda’s borrowing requirements.

Cash Flows

Fiscal Year 2021 Compared with Fiscal Year 2020

Consolidated cash and cash equivalents on March 31, 2021 increased by ¥85.6 billion from March 31, 2020, to ¥2,758.0 billion. The reasons for the increases or decreases for each cash flow activity, when compared with the previous fiscal year, are as follows:

Net cash provided by operating activities amounted to ¥1,072.3 billion of cash inflows. Cash inflows from operating activities increased by ¥92.9 billion compared with the previous fiscal year, due mainly to decreased payments for selling, general and administrative expenses as well as parts and raw materials, which was partially offset by decreased cash received from customers.

Net cash used in investing activities amounted to ¥796.8 billion of cash outflows. Cash outflows from investing activities increased by ¥177.4 billion compared with the previous fiscal year, due mainly to increased payments for acquisitions of other financial assets, which was partially offset by decreased payments for additions to property, plant and equipment.

Net cash used in financing activities amounted to ¥283.9 billion of cash outflows. Cash outflows from financing activities increased by ¥196.5 billion compared with the previous fiscal year, due mainly to increased repayments of financing liabilities.

Fiscal Year 2020 Compared with Fiscal Year 2019

Consolidated cash and cash equivalents on March 31, 2020 increased by ¥178.2 billion from March 31, 2019, to ¥2,672.3 billion. The reasons for the increases or decreases for each cash flow activity, when compared with the previous fiscal year, are as follows:

Net cash provided by operating activities amounted to ¥979.4 billion of cash inflows. Cash inflows from operating activities increased by ¥203.4 billion compared with the previous fiscal year, due mainly to a decrease in receivables from financial services, despite increased payments for parts and raw materials.

Net cash used in investing activities amounted to ¥619.4 billion of cash outflows. Cash outflows from investing activities increased by ¥41.9 billion compared with the previous fiscal year, due mainly to increased

 

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payments for additions to and internally developed intangible assets as well as decreased proceeds from sales and redemptions of other financial assets, which was partially offset by decreased payments for additions to property, plant and equipment.

Net cash used in financing activities amounted to ¥87.4 billion of cash outflows. Cash outflows from financing activities increased by ¥110.3 billion compared with the previous fiscal year, due mainly to increased repayments of financing liabilities as well as purchases of treasury stock.

Liquidity

The ¥2,758.0 billion in cash and cash equivalents as of March 31, 2021 is mainly denominated in U.S. dollars and in Japanese yen, with the remainder denominated in other currencies.

Honda’s cash and cash equivalents as of March 31, 2021 corresponds to approximately 2.5 months of sales revenue, and Honda believes it has sufficient liquidity for its business operations.

At the same time, Honda is aware of the possibility that various factors, such as recession-induced market contraction and financial and foreign exchange market volatility, may adversely affect liquidity. For this reason, finance subsidiaries that carry total short-term borrowings of ¥983.9 billion have committed lines of credit equivalent to ¥1,122.8 billion that serve as alternative liquidity for the commercial paper issued regularly to replace debt. Honda believes it currently has sufficient credit limits, extended by prominent international banks, as of the date of the filing of Honda’s Form 20-F.

Honda’s financing liabilities as of March 31, 2021 are mainly denominated in U.S. dollars, with the remainder denominated in Japanese yen and in other currencies. For further information regarding financing liabilities, see note “(15) Financing Liabilities” and “(25) Financial Risk Management” to the accompanying consolidated financial statements.

Honda’s short- and long-term debt securities are rated by credit rating agencies, such as Moody’s Investors Service, Inc., Standard & Poor’s Rating Services, and Rating and Investment Information, Inc. The following table shows the ratings of Honda’s unsecured debt securities by Moody’s, Standard & Poor’s and Rating and Investment Information as of March 31, 2021.

 

     Credit ratings for  
     Short-term
unsecured debt securities
     Long-term
unsecured debt securities
 

Moody’s Investors Service

     P-2        A3  

Standard & Poor’s Rating Services

     A-2        A-  

Rating and Investment Information

     a-1+        AA  

The above ratings are based on information provided by Honda and other information deemed credible by the rating agencies. They are also based on the agencies’ assessment of credit risk associated with designated securities issued by Honda. Each rating agency may use different standards for calculating Honda’s credit rating, and also makes its own assessment. Ratings can be revised or nullified by agencies at any time. These ratings are not meant to serve as a recommendation for trading in or holding Honda’s unsecured debt securities.

C. Research and Development

The Company and its consolidated subsidiaries use the most-advanced technologies and conduct R&D activities with the goal of creating distinctive products that are internationally competitive. Product-related R&D is conducted mainly by the Company, Honda R&D Co., Ltd., and Honda R&D Americas, Inc. R&D on production technologies centers around the Company and Honda Engineering North America, Inc. in the United States. All of these entities work in close association with our other entities and businesses in their respective regions. In the fiscal year ended March 31, 2021, the Company and the automobile product development division excluding the design function etc. of Honda R&D Co., Ltd. were integrated and the Company merged with

 

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Honda Engineering Co., Ltd., with an aim to transition from the structure where sales, manufacturing, development and procurement divisions operate independently to a new structure where each process of planning and concept making, development, launch and mass-production of a new product are coordinated closely.

In addition, the Innovative Research Excellence—Power Unit & Energy center and the Design center were newly established in Honda R&D Co., Ltd. In the area of power unit technologies, which is a source of Honda’s competitive strength, the Innovative Research Excellence—Power Unit & Energy center will fully demonstrate the strengths of Honda as a company that has a broad range of technologies and strive to increase the value of its product for the future with integration of research and development functions for power unit and energy technologies for motorcycles, automobiles, power products and business jets. The Design center will strengthen the consistent Honda brand across products with integration of design functions for products of motorcycles, automobiles and life creation as well.

A portion of the R&D expenditures at the Company and its consolidated subsidiaries has been capitalized, and recorded as intangible assets. For details regarding R&D expenses recognized in the consolidated statements of income, see note “(21) Research and Development” to the accompanying consolidated financial statements.

R&D activities by segment are as follows.

Motorcycle Business

In the Motorcycle business, Honda is engaged in research and development activities with the policy of “maximizing the organizational climate of self-challenge and forming a Mono-zukuri (the art of making things) team capable of continually creating products that delight our customers by overcoming changes in the business environment and offering reasonable prices.”

Among major technological achievements, in January 2021 we launched three new models of the PCX series, equipped with the new Honda Enhanced Smart Power Plus (eSP+) engine. The engine achieves high-output power and environmental performance at the same time. In particular, we adopted a hybrid system in the PCX e:HEV by combining the eSP+ engine with a motor assist system powered by high-output power lithium-ion battery and adding a drive assist function.

In December 2020, we launched Honda e: business motorcycles. They are powered by the Honda Mobile Power Pack portable battery, and replacing the battery with charged Mobile Power Packs enables rides without waiting times for charging. The GYRO e:, launched in March 2021, is one such motorcycle and gives drivers peace of mind that comes with three-wheel motorcycles. In addition, the adoption of a large and low-floor rear deck and a reverse assist function increases ease of operation in pick-up/delivery services. We will contribute to a quieter and cleaner living environment by working to spread the use of eco- and the user-friendly Honda e: business motorcycle series.

In March 2021, we launched the Rebel 1100, featuring a body that is lightweight, has a low center of gravity and size that enables easy handling, and equipped with an engine with easily manageable output characteristic. While maintaining the underlying styling image of the Rebel series, the model ensures a comfortable ride and enables a sporty drive despite being a cruiser. With strong traction performance and a pulsating feel, engine characteristic that smoothly rises to high rotation range and riding modes that enable drivers to select the drive feeling they prefer, it offers the joy of riding.

Also in March 2021, we launched the X-ADV, a large crossover model with improved power performance and convenience. The power unit delivers increase in the maximum output power and outstanding environmental performance at the same time, as a result of lighter parts, including the piston, and optimization of the air intake and exhaust system. In addition, the newly adopted throttle-by-wire system makes it possible to select riding modes, as it is possible for the Rebel 1100.

 

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Based on the architecture scheme characteristic of high-mix low-volume production of large motorcycles, we will work on the development of large models by establishing a structure that enables us to offer diverse and appealing products efficiently.

R&D expenditures in this segment incurred during the fiscal years ended March 31, 2019, 2020 and 2021 were ¥85.1 billion, ¥83.6 billion and ¥61.6 billion, respectively.

Automobile Business

In the Automobile business, Honda is engaged in research and development activities under the policy of “demonstrate collective strength for appealing and strong products, and ensure continuing growth of the Automobile business by deepening the process of Mono-zukuri.”

Among major technological achievements, in February 2021 we unveiled the new VEZEL for the first time in the world. In the online World Premiere, the exterior and interior design, which has been totally revamped for the full model change, was announced, and a new hybrid model, equipped with Honda’s two-motor e:HEV hybrid system, was added. In addition to offering a linear and comfortable sense of acceleration, the new VEZEL enables selection from three drive modes, as well as from different degrees of deceleration when the accelerator is off. Equipped with Honda SENSING as a standard feature and a number of functions from the on-board communication module Honda CONNECT for the first time as a Honda vehicle, the new VEZEL has improved convenience and enhanced safety and driver-assistive equipment.

In December 2020, we announced the 2022 model of the MDX, a luxury SUV. On a newly developed platform for light trucks, a double wishbone front suspension was adopted for the first time in the MDX to increase rigidity. Equipped with the 3.5L VTEC V6 engine and a 10-speed automatic transmission, the model achieves ride comfort and sporty handling at the same time.

In August 2020, we started delivering the new Honda e electric vehicle in Europe, and in October 2020, we launched the product in Japan. Honda has set a target to realize carbon neutrality by 2050 and has been accelerating electrification of mobility products. As a mobility product developed with attention to the essence of electric vehicles and based on flexible thinking with an eye toward the future, the Honda e realizes a simple and modern design, powerful and clean drive, and ease of handling, and is equipped with a range of advanced functions. The wide vision instrument panel, adopted in a Honda vehicle for the first time in the world, enables flexible operation in the driver’s seat and passenger seat, as well as the use of apps through smartphone connection. In addition, Honda Personal Assistant, which uses Cloud AI to recognize voices and provide information, and other advanced technologies are installed. The Honda Parking Pilot, a parking support system, allows parking under automated driving to make it easy for drivers to park in a narrow space. The vehicle can be used to supply electricity to buildings and as a power source for electronic devices, thereby not only serving everyday use but also offering peace of mind at the time of disasters.

Additionally, in September 2020 we unveiled the Honda SUV e:concept, a concept model which indicates the direction of mass-production of the Honda brand’s first electric vehicle to be introduced in China. The model is equipped with omnidirectional ADAS, the next-generation Honda SENSING safety and driver-assistive system with improved recognition, predication and decision-making performance, as well as with advanced connected functions. We have been working on its development to offer a value based on mobility experiences that bring about joy of riding.

In March 2021, we launched the all-new LEGEND in Japan, equipped with Honda SENSING Elite. Developed under the goal of zero traffic collision fatalities by 2050, Honda SENSING Elite represents a new step forward in the area of advanced safety technology. The Traffic Jam Pilot function, a technology qualifying for Level 3 automated driving (conditional automated driving in limited areas), for which Honda has received type designation from the Japanese Ministry of Land, Infrastructure, Transport and Tourism, enables the automated driving system to drive the vehicle under certain conditions, instead of the driver. The system detects the conditions of the driver by monitoring inside the vehicle, using satellite information and other data. Based on

 

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such a wide range of information, the main ECU makes proper recognitions, predictions and decisions and realizes sophisticated driving control to assist the driver to achieve high-quality and smooth driving.

R&D expenditures in this segment incurred during the fiscal years ended March 31, 2019, 2020 and 2021 were ¥703.6 billion, ¥707.2 billion and ¥692.5 billion, respectively.

Life Creation and Other Businesses

In the Life creation and other businesses, Honda is engaged in research and development activities based on the policy of “creating the lifestyles of the future, taking usefulness and joy to the next level.”

Among major technological achievements, in October 2020 we launched the LiB-AID E500 for Work, a compact, light and robust business-use condenser, which adopts Honda’s unique sine wave inverter. Taking advantage of the high-quality power supply of the conventional model and the extensibility characterized by parallel connection of the products for large-capacity power generation, the product realized robustness required on the frontline, ultraviolet resistance and improved impact resistance at the time of carrying.

In March 2021, we presented how the Honda Mobile Power Pack portable battery is being used to expand the potential of mobility and people’s daily lives. The Honda Mobile Power Pack e:Prototype is a large-capacity lithium-ion battery capable of storing more than 1.3kWh of electricity, intended for use as a power source for various mobility products and other equipment. Incorporating feedback obtained through demonstration testing, the external design features improved convenience and ease of operation. The Honda Power Pod e:Prototype is a charger/discharger that serves as an emergency power source for household and outdoor use. Operating two units of the product in parallel enables electricity supply for a longer period of time. The Honda Power Storage e:Concept proposes possible secondary use of the Mobile Power Packs as a power source for household use when they are no longer suitable for use with mobility products.

In August 2020, to help solve the power supply shortage problem in times of a disaster, we announced a plan for demonstration testing of Moving e, a mobile power generation/output system. The system features Toyota Motor Corporation’s fuel cell bus that can carry a large amount of hydrogen, equipped with Honda’s portable external power output device and portable battery. Availing it to municipalities and businesses, we will verify the effectiveness of the system as a “phase-free” system, which can be used not only for power supply in times of a disaster but also in normal times.

In this way, we are striving to create new value, aiming to “serve people worldwide with the joy of expanding their life’s potential.”

In aircraft business, Honda has created new value with uniquely developed leading-edge technology. We have been building an operating base in order to grow our aircraft business from a long-term perspective. In January 2021, we obtained type certification for the HondaJet in Russia, and began operation of the first aircraft. Also in January 2021, a new hangar began its operation, aiming to increase the capacity to store various spare parts as part of the strengthening of our customer support structure. In calendar year 2020, the HondaJet became the most delivered aircraft in the world in the small jet category for the fourth consecutive year and achieved a global share of more than 50%. We will continue to upgrade the structure for further vitalization of the business jet market.

R&D expenditures in this segment during the fiscal years ended March 31, 2019, 2020 and 2021 were ¥31.2 billion, ¥30.5 billion and ¥25.8 billion, respectively.

Patents and Licenses

As of March 31, 2021, Honda owned more than 17,900 patents in Japan and more than 25,200 patents abroad. Honda also had applications pending for more than 7,300 patents in Japan and for more than 16,200 patents abroad. While Honda considers that, in the aggregate, Honda’s patents are important, it does not consider

 

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any one of such patents, or any related group of them, to be of such importance that the expiration or termination thereof would materially affect Honda’s business.

D. Trend Information

See Item 5.A “Operating Results” for information required by this item.

E. Off-Balance Sheet Arrangements

Loan commitments

Honda maintains unused balances on committed lines to dealers based on loan commitment contracts. The undiscounted maximum amount of this potential obligation as of March 31, 2021 was ¥92.7 billion. Although committed lines have been extended, they will not necessarily be withdrawn, as certain contracts contain terms and conditions of withdrawal that require screening of the obligor’s credit standing.

Guarantee of employee loans

As of March 31, 2021, we guaranteed ¥8.3 billion of employee bank loans for their housing costs. If an employee defaults on his/her loan payments, we are required to perform under the guarantee. The undiscounted maximum amount of our potential obligation to make future payments in the event of defaults is ¥8.3 billion. As of March 31, 2021, no amount has been accrued for any estimated losses under the obligations, as it was probable that the employees would be able to make all scheduled payments.

F. Tabular Disclosure of Contractual Obligations

The following table shows our contractual obligations as of March 31, 2021:

Contractual Obligations

 

     Yen (millions)  
            Payments due by period  
    
Total
     Within
1 year
     1-3
years
     3-5
years
    
Thereafter
 

Financing liabilities

   ¥ 7,837,560      ¥ 3,083,901      ¥ 3,143,148      ¥ 1,087,075      ¥ 523,436  

Other financial liabilities

     491,629        145,476        73,481        43,709        228,963  

Purchase and other commitments*1

     55,571        49,647        5,849        75        —    

Contributions to defined benefit pension plans*2

     42,052        42,052        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 8,426,812      ¥ 3,321,076      ¥ 3,222,478      ¥ 1,130,859      ¥ 752,399  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*1

Honda had commitments for purchases of property, plant and equipment as of March 31, 2021.

*2

Since contributions beyond the next fiscal year are not currently determinable, contributions to defined benefit pension plans reflect only contributions expected for the next fiscal year.

G. Safe Harbor

All information disclosed under Item 5. E and F contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Such statements are based on management’s assumptions and beliefs taking into account information currently available to it. Therefore, please be advised that Honda’s actual results could differ materially from those described in these forward-looking statements as a result of numerous factors, including general economic conditions in Honda’s principal markets and foreign exchange rates between the Japanese yen and the U.S. dollar, and other major currencies, as well as other factors detailed from time to time.

 

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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Effective on June 23, 2021, Honda adopted a “company with three committees” corporate governance system (the “Three Committees system”) under Japan’s Company Law upon approval on the amendments to the Articles of Incorporation relating thereto at its Ordinary General Meeting of Shareholders held on June 23, 2021. Under the Three Committees system, Honda has no Board of Corporate Auditors and the function of corporate audit is implemented by the Audit Committee within the Board of Directors.

For Japanese companies which employ the Three Committees system, including Honda, Japan’s Company Law requires that such companies have a board of directors and one or more executive officers, and within the board of directors, a nominating committee (the “Nominating Committee”), an audit committee (the “Audit Committee”), and a compensation committee (the “Compensation Committee”) shall be established. Each of these three committees shall consist of three or more directors, a majority of which shall be outside directors. The members of each of the three committees as well as executive officers are elected by the resolution of the board of directors. In addition, Honda’s regulations of each of the three committees provide that the chairperson of each committee shall be elected from the Outside Directors who are members of the relevant committee by the resolution of the Board of Directors. For the Audit Committee, Honda’s regulations of the committee provide that full-time member of the Audit Committee shall be assigned by the resolution of the Board of Directors. The normal term of office of a director and an executive officer is one year. Directors and executive officers may serve any number of consecutive terms.

Honda’s Articles of Incorporation provide for the Board of Directors of not more than 15 Directors. Honda’s Board of Directors may appoint one Chairperson of the Board of Directors from among Directors. Also, Honda’s Board of Directors appoints one President and Executive Officer and may appoint several Executive Vice Presidents and Executive Officers, Senior Managing Executive Officers and Managing Executive Officers from among executive officers. The President and Executive Officer represents the Company. In addition, the Board of Directors may appoint, pursuant to its resolutions, Executive Officers who shall each represent the Company. Under the Company Law, a representative executive officer individually has authority to represent the company generally in the conduct of its affairs. The Board of Directors has an authority to determine the execution of business of the Company and to supervise the execution of duties of Directors and Executive Officers. Executive Officers are entitled to determine the execution of business of the Company which is entrusted by the Board of Directors and to execute business of the Company.

Under the Company Law, the Nominating Committee has the responsibility to determine the content of proposals regarding the election and dismissal of directors to be submitted to a general meeting of shareholders. The Audit Committee has the following responsibilities: (i) auditing the execution of duties by directors and executive officers and preparing audit reports and (ii) determining the content of proposals regarding the election and dismissal of accounting auditors and the refusal to reelect accounting auditors to be submitted to a general meeting of shareholders. The Compensation Committee has the responsibility to determine the content of the financial benefits as consideration for the execution of the duties, such as remuneration and bonuses, of directors and executive officers. As described above, not less than half of the members of each of the three committees must be outside directors. Each of the outside directors is required to meet all of the following independence requirements: the relevant person must be (1) a person who is not an executive director, executive officer, manager or any other employee of the company or any of its subsidiaries and has not been in such position for ten years prior to the assumption of office; (2) if the relevant person assumed an office of a non-executive director, accounting councilor or corporate auditor of the company or any of its subsidiaries during the ten years mentioned in (1) above, a person who had not been an executive director, executive officer, manager or any other employee of the company or any of its subsidiaries for further ten years prior to the assumption of such office; (3) a person who is not a director, corporate auditor, executive officer, manager or any other employee of the parent company or who is not a natural person controlling the company; (4) a person who is not an executive director, executive officer, manager or any other employee of a company which is controlled by the parent

 

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company or by the natural person controlling the company; and (5) a person who is not a spouse or one of a certain kinds of relatives of (a) a director, executive officer, manager or any other important employee of the company or (b) the natural person controlling the company. In addition, Honda has established additional independence requirements for the Outside Directors, the “Criteria for Independence of Outside Directors” as described in Exhibit 1.4 by the resolution of the Board of Directors, and all of Outside Directors meet the criteria. With respect to audit reports prepared by the audit committee, each member of the committee may note his or her opinion in the audit report if his or her opinion is different from the opinion expressed in the audit report. In addition, the Company is required to appoint independent certified public accountants as accounting auditors. Such independent certified public accountants have as their primary statutory duties to audit the consolidated and non-consolidated financial statements of the Company prepared in accordance with the Company Law to be submitted by a director to general meetings of shareholders and to prepare an accounting audit report thereon and to notify the contents of such report to the specified member of the audit committee (or, if such member is not specified, any member of the committee) and the specified director in charge.

The following table provides the names, date of birth, current positions held and brief biographies, term of office and number of shares owned of all the members of the Board of Directors and composition of the Three Committees. Also the names, date of birth, current positions held and brief biographies, term of office and number of shares owned of the Executive Officers (who are not concurrently the members of the Board of Directors) of the Company are provided below.

Members of the Board of Directors

 

Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
Chairman and
Director
     

Toshiaki Mikoshiba

(November 15, 1957)

  Joined Honda Motor Co., Ltd. in April 1980     *3       48,300  
 

 

President of Guangqi Honda Automobile Co., Ltd.,
appointed in April 2011

   
  Managing Officer of the Company,
appointed in April 2014
   
  Chief Officer for Regional Operations (Europe Region),
appointed in April 2014
   
  President and Director of Honda Motor Europe Ltd.,
appointed in April 2014
   
  Senior Managing Officer of the Company,
appointed in April 2015
   
  Chief Officer for Regional Operations (North America),
appointed in April 2016
   
 

President and Director of Honda North America, Inc.,

appointed in April 2016

   
 

President, Chief Executive Officer and Director of American Honda Motor Co., Inc.,

appointed in April 2016

   
  In Charge of Sales and Marketing of the Company,
appointed in April 2017
   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
  Senior Managing Director,
appointed in June 2017
   
 

President, Chief Executive Officer and Director of Honda North America, Inc.,

appointed in April 2018

   
 

Chairman, Chief Executive Officer and Director of Honda North America, Inc.,

appointed in November 2018

   
 

Chairman, Chief Executive Officer and Director of American Honda Motor Co., Inc.,

appointed in November 2018

   
 

Chairman and Director of the Company,

appointed in April 2019 (presently held)

   
 

Chairman of the Board of Directors,

appointed in April 2019 (presently held)

   
 

Director in Charge of Government and Industry Relations,

appointed in April 2019

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
Director
and Representative Executive Officers
     

Toshihiro Mibe

(July 1, 1961)

  Joined Honda Motor Co., Ltd. in April 1987     *3       19,400  
 

 

Managing Officer of Honda R&D Co., Ltd.,
appointed in April 2012

   
  Operating Officer of the Company,
appointed in April 2014
   
  Executive in Charge of Powertrain Business for Automobile Operations,
appointed in April 2014
   
  Head of Powertrain Production Supervisory Unit of Automobile Production for Automobile Operations,
appointed in April 2014
   
  Executive in Charge of Powertrain Business and Drivetrain Business for Automobile Operations,
appointed in April 2015
   
  Head of Drivetrain Business Unit in Automobile Production for Automobile Operations,
appointed in April 2015
   
  Senior Managing Officer and Director of Honda R&D Co., Ltd.,
appointed in April 2016
   
  Managing Officer of the Company,
appointed in April 2018
   
  Executive Vice President and Director of Honda R&D Co., Ltd.,
appointed in April 2018
   
  President and Representative Director of Honda R&D Co., Ltd.,
appointed in April 2019
   
 

In Charge of Intellectual Property and Standardization of the Company,

appointed in April 2019

   
 

Senior Managing Officer,

appointed in April 2020

   
  In Charge of Mono-zukuri (Research & Development, Production, Purchasing, Quality, Parts, Service, Intellectual Property, Standardization and IT),
appointed in April 2020
   
  Risk Management Officer,
appointed in April 2020
   
 

Senior Managing Director,

appointed in June 2020

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
  Director in Charge of Mono-zukuri (Research & Development, Production, Purchasing, Quality, Parts, Service, Intellectual Property, Standardization and IT),
appointed in June 2020
   
  President and Representative Director,
appointed in April 2021
   
  Chief Executive Officer,
appointed in April 2021 (presently held)
   
 

Director, President and Representative Executive Officer,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Seiji Kuraishi

(July 10, 1958)

  Joined Honda Motor Co., Ltd. in April 1982     *3       38,700  
 

 

Operating Officer and Director,
appointed in April 2011

   
 

Operating Officer,

appointed in June 2011
(resigned from position as Director)

   
  President of Honda Motor (China) Technology Co., Ltd.,
appointed in November 2013
   
  Managing Officer of the Company,
appointed in April 2014
   
  Senior Managing Officer,
appointed in April 2016
   
  Executive Vice President, Executive Officer and Representative Director,
appointed in June 2016
   
  Risk Management Officer,
appointed in June 2016
   
  Corporate Brand Officer,
appointed in June 2016 (presently held)
   
  Chief Operating Officer,
appointed in April 2017 (presently held)
   
  In Charge of Strategy, Business Operations and Regional Operations, appointed in April 2017    
  Executive Vice President and Representative Director,
appointed in June 2017
   
 

Director in Charge of Strategy, Business Operations and Regional Operations,

appointed in April 2019

   
 

Chief Officer for Automobile Operations,

appointed in April 2019

   
 

Director, Executive Vice President and Representative Executive Officer,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
Director, Senior Managing Executive Officer      

Kohei Takeuchi

(February 10, 1960)

  Joined Honda Motor Co., Ltd. in April 1982     *3       27,900  
 

 

Operating Officer,
appointed in April 2011

   
  Chief Officer for Business Management Operations,
appointed in April 2013
   
  Operating Officer and Director,
appointed in June 2013
   
  Managing Officer and Director,
appointed in April 2015
   
  Senior Managing Officer and Director,
appointed in April 2016
   
  Chief Officer for Driving Safety Promotion Center,
appointed in April 2016
   
  Chief Financial Officer
(Accounting, Finance, Human Resources, Corporate Governance and IT),
appointed in April 2017
   
  Senior Managing Director,
appointed in June 2017
   
 

Chief Financial Officer and Director in Charge of Finance and Administration (Accounting, Finance, Human Resources, Corporate Governance and IT),

appointed in April 2019

   
 

Compliance Officer,

appointed in April 2019 (presently held)

   
 

Chief Financial Officer and Director in Charge of Finance and Administration (Accounting, Finance, Human Resources, and Corporate Governance),

appointed in April 2020

   
 

Chief Financial Officer,

appointed in April 2021 (presently held)

   
 

Director, Senior Managing Executive Officer,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Directors

     

Asako Suzuki

(January 28, 1964)

  Joined Honda Motor Co., Ltd. in April 1987     *3       10,700  
 

 

President of Dongfeng Honda Automobile Co., Ltd.,

appointed in April 2014

   
 

Operating Officer of the Company,

appointed in April 2016

   
 

Vice Chief Officer for Regional Operations (Japan),

appointed in April 2018

   
 

Chief Officer for Human Resources and Corporate Governance Operations,

appointed in April 2019

   
 

Operating Executive,

appointed in April 2020

   
 

Director,

appointed in June 2021 (presently held)

   

Masafumi Suzuki

(April 23, 1964)

  Joined Honda Motor Co., Ltd. in April 1987     *3       55,420  
 

 

General Manager of Regional Operation Planning Office for Regional Operations (Europe, CIS, the Middle & Near East and Africa),
appointed in April 2012

   
 

 

General Manager of Accounting Division for Business Management Operations,
appointed in April 2013

   
 

Director (Full-time Audit and Supervisory Committee Member),

appointed in June 2017

   
 

Director,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Kunihiko Sakai

(March 4, 1954)

 

Public Prosecutor of Tokyo District Public Prosecutors’ Office,

appointed in April 1979

    *3       800  
 

President of Research and Training Institute of Ministry of Justice,

appointed in June 2012

   
 

Superintending Prosecutor of Takamatsu High Public Prosecutors’ Office,

appointed in July 2014

   
 

Superintending Prosecutor of Hiroshima High Public Prosecutors’ Office,

appointed in September 2016 (resigned in March 2017)

   
  Registered with the Dai-Ichi Tokyo Bar Association in April 2017    
 

Advisor Attorney to TMI Associates,

appointed in April 2017 (presently held)

   
 

Audit and Supervisory Board Member (Outside) of Furukawa Electric Co., Ltd.,

appointed in June 2018 (presently held)

   
 

Director (Audit and Supervisory Committee Member) of the Company,

appointed in June 2019

   
 

Director of the Company,

appointed in June 2021 (presently held)

   

Fumiya Kokubu

(October 6, 1952)

  Joined Marubeni Corporation in April 1975     *3       300  
 

 

Senior Executive Vice President of Marubeni Corporation,

appointed in April 2012

   
 

Senior Executive Vice President, Member of the Board of Marubeni Corporation,

appointed in June 2012

   
 

President and CEO, Member of the Board of Marubeni Corporation,

appointed in April 2013

   
 

Chairman of the Board of Marubeni Corporation,

appointed in April 2019 (presently held)

   
 

Outside Director of Taisei Corporation,

appointed in June 2019 (presently held)

   
 

Director of the Company,

appointed in June 2020 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Yoichiro Ogawa

(February 19, 1956)

  Joined Tohmatsu & Aoki Audit Corporation (currently Deloitte Touche Tohmatsu LLC) in October 1980     *3        
 

 

Registered as Japanese Certified Public Accountant in March 1984

   
 

Vice Chairman of the Board of Directors of Deloitte Touche Tohmatsu Limited (United Kingdom),

appointed in June 2011

   
 

Deputy CEO of Deloitte Touche Tohmatsu LLC,

appointed in October 2013

   
 

Deputy CEO of Tohmatsu Group (currently Deloitte Tohmatsu Group),

appointed in October 2013

   
 

Global Managing Director for Asia Pacific of Deloitte Touche Tohmatsu Limited (United Kingdom),

appointed in June 2015 (resigned in May 2018)

   
 

CEO of Deloitte Tohmatsu Group,

appointed in July 2015

   
 

Senior Advisor of Deloitte Tohmatsu Group,

appointed in June 2018 (resigned in October 2018)

   
  Founder of Yoichiro Ogawa CPA Office in November 2018 (presently held)    
 

Outside Audit & Supervisory Board Member of Recruit Holdings Co., Ltd.,

appointed in June 2020 (presently held)

   
 

Director of the Company,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Kazuhiro Higashi

(April 25, 1957)

  Joined Resona Group in April 1982     *3        
 

 

Director, Deputy President and Representative Executive Officer of Resona Holdings, Inc.,

appointed in April 2011

   
 

Executive Officer of Resona Bank, Limited,

appointed in April 2011

   
 

Representative Director, Deputy President and Executive Officer of Resona Bank, Limited,

appointed in April 2012

   
  Director, President and Representative Executive Officer of Resona Holdings, Inc.,
appointed in April 2013
   
  Representative Director, President and Executive Officer of Resona Bank, Limited,
appointed in April 2013
   
  Chairman of Osaka Bankers Association,
appointed in June 2013 (resigned in June 2014)
   
 

Chairman of the Board, President, and Representative Director of Resona Bank, Limited,

appointed in April 2017

   
  Chairman of Osaka Bankers Association,
appointed in June 2017 (resigned in June 2018)
   
 

Chairman of the Board, President, Representative Director and Executive Officer of Resona Bank, Limited,

appointed in April 2018

   
 

Chairman and Director of Resona Holdings, Inc.,

appointed in April 2020 (presently held)

   
 

Chairman and Director of Resona Bank, Limited,

appointed in April 2020 (presently held)

   
 

Outside Director of Sompo Holdings, Inc.,

appointed in June 2020 (presently held)

   
 

Director of the Company,

appointed in June 2021 (presently held)

   

Ryoko Nagata

(July 14, 1963)

  Joined Japan Tobacco Inc. in April 1987     *3        
 

 

Executive Officer of Japan Tobacco Inc.,

appointed in June 2008

   
 

Standing Audit & Supervisory Board Member of Japan Tobacco Inc.,

appointed in March 2018 (presently held)

   
 

Director of the Company,

appointed in June 2021 (presently held)

   

 

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*1

Effective on June 23, 2021, Honda adopted the Three Committees system under Japan’s Company Law upon approval on the amendments to the Articles of Incorporation relating thereto at its Ordinary General Meeting of Shareholders held on June 23, 2021.

*2

Directors Mr. Kunihiko Sakai, Mr. Fumiya Kokubu, Mr. Yoichiro Ogawa, Mr. Kazuhiro Higashi and Ms. Ryoko Nagata are Outside Directors.

*3

The term of office of a Director is until at the close of the ordinary general meeting of shareholders of the fiscal year ending March 31, 2022 after his/her election to office at the close of the ordinary general meeting of shareholders on June 23, 2021.

Composition of the Three Committees under the Board of Directors

·: Chairperson : Member

 

Director’s Name    Nominating Committee    Audit Committee    Compensation Committee
Toshihiro Mibe             
Seiji Kuraishi             
Asako Suzuki             
Masafumi Suzuki             
Kunihiko Sakai           
Fumiya Kokubu    ·        
Yoichiro Ogawa         ·   
Kazuhiro Higashi            ·
Ryoko Nagata             

Executive Officers (who are not concurrently the members of the Board of Directors)

 

Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
Managing Executive Officers      

Noriya Kaihara

(August 4, 1961)

  Joined Honda Motor Co., Ltd. in April 1984     *4       20,200  
 

 

General Manager of Automobile Quality Assurance Division,

appointed in April 2012

   
 

Operating Officer,

appointed in April 2013

   
 

Chief Quality Officer,

appointed in April 2013

   
 

Operating Officer and Director,

appointed in June 2013

   
 

Chief Officer for Customer Service Operations

appointed in April 2014

   
 

Head of Service Supervisory Unit for Automobile Operations,

appointed in April 2014

   
 

Chief Officer for Customer First Operations,

appointed in April 2016

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 
 

Operating Officer,

appointed in June 2017
(resigned from position as Director)

   
 

Managing Officer,

appointed in April 2018

   
 

Chief Officer for Purchasing Operations

appointed in April 2018

   
 

Head of Business Supervisory Unit for Automobile Operations,

appointed in April 2020

   
 

Chief Officer for Customer First Operations,

appointed in April 2021 (presently held)

   
 

Risk Management Officer,

appointed in April 2021 (presently held)

   
 

Managing Executive Officer,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Noriaki Abe

(October 8, 1962)

  Joined Honda Motor Co., Ltd. in April 1986     *4       15,900  
 

 

General Manager of Overseas Operation Office No. 2 for Regional Operations (Asia and Oceania),

appointed in April 2011

   
 

Operating Officer,

appointed in April 2014

   
 

Chief Officer for Regional Operations (Asia and Oceania),

appointed in April 2014

   
 

President and Director of Asian Honda Motor Co., Ltd.,

appointed in April 2014

   
 

President and Director of Honda Automobile (Thailand) Co., Ltd.,

appointed in April 2014

   
 

Chief Officer for Motorcycle Operations of the Company,

appointed in April 2017

   
 

Managing Officer,

appointed in April 2019

   
 

Chief Officer for Regional Operations (Japan),

appointed in April 2021 (presently held)

   
 

Chief Officer for Traffic Safety Promotion Operations,

appointed in April 2021 (presently held)

   
 

Managing Executive Officer,

appointed in June 2021 (presently held)

   

 

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Name
(Date of birth)

 

Current Positions and Biographies with Registrant

  Term     Number of
Shares Owned
 

Yasuhide Mizuno

(October 7, 1963)

  Joined Honda Motor Co., Ltd. in April 1986     *4       22,100  
 

 

President of Dongfeng Honda Automobile Co., Ltd.,

appointed in April 2010

   
 

Operating Officer of the Company,

appointed in April 2014

   
 

President of Guangqi Honda Automobile Co., Ltd.,

appointed in April 2014

   
 

Chief Officer for Regional Operations (China) of the Company,

appointed in April 2016

   
 

President of Honda Motor (China) Investment Co., Ltd.,

appointed in April 2016

   
 

President of Honda Motor (China) Technology Co., Ltd.,

appointed in April 2016

   
 

Managing Officer of the Company,

appointed in April 2019

   
 

Chief Officer for Automobile Operations,

appointed in May 2020 (presently held)

   
 

Managing Executive Officer,

appointed in June 2021 (presently held)

   

Keiji Ohtsu

(July 7, 1964)

  Joined Honda R&D Co., Ltd. in April 1983     *4       12,900  
 

 

Operating Officer of Honda R&D Co., Ltd.,

appointed in April 2013

   
 

Managing Officer of Honda R&D Co., Ltd.,

appointed in April 2014

   
 

Operating Officer of the Company,

appointed in April 2018

   
 

Chief Quality Officer,

appointed in April 2018

   
 

Operating Executive,

appointed in April 2020

   
 

Chief Officer for Quality Innovation Operations,

appointed in April 2020

   
 

In Charge of Certification & Regulation Compliance Division,

appointed in April 2020

   
 

In Charge of Quality & Compliance Audit Division,

appointed in April 2020

   
 

Managing Officer,

appointed in April 2021

   
 

President and Representative Director of Honda R&D Co., Ltd.,

appointed in April 2021 (presently held)

   
 

Managing Executive Officer of the Company,

appointed in June 2021 (presently held)

   

 

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*4

The term of office of an Executive Officer is until at the close of the first Board of Directors meeting held after the ordinary general meeting of shareholders of the fiscal year ending March 31, 2022 after his/her appointment to office.

*5

The Company adopts an operating officer system to strengthen operations in regions and local workplaces, and implement quick and appropriate decisions. Operating Officers under the operating officer system are not statutory positions under the Company Law and do not conform to the definition of “Directors and Senior Management” as defined in Form 20-F. The Company’s Managing Officers under the operating officer system, as voluntarily disclosed in Japan, are as follows:

 

Managing Officers

  

Michimasa Fujino

   President and Director of Honda Aircraft Company, LLC

Shinji Aoyama

   Chief Officer for Regional Operations (North America)
   President, Chief Executive Officer and Director of American Honda Motor Co., Inc.

Mitsugu Matsukawa

   President and Director of Honda Development & Manufacturing of America, LLC

Katsushi Inoue

   Chief Officer for Regional Operations (China)
   President of Honda Motor (China) Investment Co., Ltd.
   President of Honda Motor (China) Technology Co., Ltd.

Hisao Takahashi

   General Manager of Mono-zukuri Center for Automobile Operations
   Director of Honda R&D Co., Ltd.

Yoshishige Nomura

   Chief Officer for Motorcycle Operations

 

*6

The Company introduced the Operating Executive position effective April 1, 2020, with the aim of advancing its corporate executive structure and enabling the Company to address changes in the business environment with greater speed and flexibility. Operating Executives will engage in company operations, with responsibility for business execution in their respective areas under the direction and supervision of management. Operating Executives are not statutory positions under the Company Law and do not conform to the definition of “Directors and Senior Management” as defined in Form 20-F.

There is no family relationship between any Director, Executive Officer or Operating Officer and any other Director, Executive Officer or Operating Officer.

None of Honda’s members of the Board of Directors or Executive Officers is party to a service contract with Honda or any of its subsidiaries that provides for benefits upon termination of employment.

B. Compensation

Method of determining the policy for determining individual remuneration of Directors and Executive Officers

The policy shall be determined by a resolution of the Compensation Committee.

Overview of the policy for determining individual remuneration of Directors and Executive Officers

The Company’s remuneration structure for Directors and Executive Officers shall be designed with the aim of motivating them to contribute not only to short-term, but also to mid- to long-term business results, to enable the sustainable enhancement of the corporate value, and shall consist of a fixed monthly remuneration paid as compensation for the performance of their duties, an executive bonus linked to the business results for the relevant fiscal year, and a stock compensation linked to mid- to long-term business results.

 

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Monthly remuneration, based on the remuneration standards approved by the Compensation Committee, shall be paid in an amount that is suitable for attracting diverse and exceptional human resources, while taking into consideration the payment standards of other companies etc.

Executive bonuses, where the business results of each fiscal year, dividends to shareholders, the standards of bonuses of employees and other matters are used as indicators, shall be determined and paid in cash by a resolution of the Compensation Committee based on the actual correlation between each indicator and the payment amount in the past fiscal years, and the business conditions of the fiscal year.

Stock compensation shall be paid in the Company’s stock and money and linked to business results in the mid- to long-term based on the standards and procedures approved by the Compensation Committee, so that the stock compensation functions as a sound incentive aimed at sustainable growth.

The guideline for stock compensation is determined based on financial indicators, such as consolidated operating margin, and the degree of growth in non-financial indicators, such as brand value and ESG (Environmental, Social and Governance). The amount of stock compensation is determined within the range of 50%-150% of the performance coefficient based on the degree of growth rate of each indicator during the most recent three fiscal years in accordance with the calculation method resolved by the Compensation Committee.

The above guideline determining the amount of bonus is selected in order to measure the degree of contribution to corporate value for each fiscal year and to measure the degree of achievement of corporate responsibility to shareholders and employees. The above guideline determining the amount of stock compensation is selected in order to achieve sustainable growth and enhancement of corporate value over the mid- to long term.

Regarding the amount of performance-linked remuneration, while a specific target of the guideline is not set, the amount of bonus is determined based on the relationship between the guidelines and amounts of bonus paid in the past as well as of the current business conditions, and the amount of stock compensation is determined based on the degree of growth of the Company during the most recent three fiscal years.

Remuneration of Executive Officers shall consist of monthly remuneration paid based on the remuneration standards approved by the Compensation Committee as well as executive bonuses and stock compensation, whose ratio will be determined as follows. If performance-linked remuneration is paid at the base amount, 50% of the total remuneration will consist of monthly remuneration which is a fixed remuneration, and the rest 50% will consist of performance-linked remuneration, such as the bonus and stock compensation.

Remuneration paid to Outside Directors and Directors who do not concurrently serve as Executive Officers, shall consist only of monthly remuneration based on remuneration standards approved by the Compensation Committee.

In order to advance the Company’s sustainable growth and enhance its corporate value over the mid- to long-term by sharing common interests with the shareholders through having a shareholding in the Company, even Directors and Executive Officers who are not eligible for stock compensation shall acquire the Company’s stock by contributing a certain portion of their fixed remuneration to the Officers Shareholding Association.

Directors and Executive Officers shall continuously hold throughout their term of office and for one year after their retirement any stock of the Company acquired as stock compensation or acquired through the Officers Shareholding Association.

 

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Details of remuneration for Directors and Operating Officers in the current fiscal year

Regarding remuneration and other related matters, it is paid based on the contents approved at the Ordinary General Meeting of Shareholders held on June 15, 2017. These contents are that the amount of remuneration for Directors (excluding Audit and Supervisory Committee Members) shall be no more than 1,160 million yen per year, while the remuneration for Outside Directors shall be no more than 34 million yen, and the remuneration for Directors who are Audit and Supervisory Committee Members shall be no more than 270 million per year. At the time of the approval, there were nine Directors (of which two are Outside Directors; excluding Director who are Audit and Supervisory Committee Members) and there were five Directors who belong to the Audit and Supervisory Committee.

Besides the amount of the remuneration provided above, it was approved at the Ordinary General Meeting of Shareholders held on June 14, 2018 that, for the Directors and Operating Officers who conduct business execution and who are residents of Japan, a new stock compensation scheme providing delivery or grant of shares in the Company and monetary compensation in an amount equivalent to the conversion proceeds of shares in the Company along with the dividends on shares in the Company will be introduced. The maximum amount of funds contributed by the Company was set at 3,910 million yen for the trust period (approximately three years). At the time of the approval, five Directors and 16 Operating Officers were eligible for this scheme.

The Board of Directors has the authority to determine policies relating to determination of the amount of remuneration paid to the Company’s Directors as well as the relevant calculation methods. The scope of such authority and discretionary power of the Board of Directors to determine and approve the remuneration standards as well as the amount of remuneration paid to the Directors shall be within the allowed amount of remuneration set by the Ordinary General Meeting of Shareholders. If the Board of Directors seeks to determine or change the remuneration structure or the remuneration standards for the Directors, it shall discuss the matter after hearing the opinions formed in advance by the Audit and Supervisory Committee.

In the process of determining the remuneration of Directors for this business year, introduction of a new stock compensation scheme was approved at the meeting of the Board of Directors held on May 15, 2018, while changes in the remuneration standards were approved at the meeting of the Board of Directors on February 18, 2020. In addition, the amounts of bonus to be paid to Directors were decided at the meeting of the Board of Directors held on May 14, 2021. Furthermore, introduction of a new stock compensation scheme was approved at the meeting of the Board of Directors on May 15, 2018, based on the opinions that the suggested change and procedures were appropriate by the Audit and Supervisory Committee Meeting held on May 9, 2018, while changes in the remuneration standards were approved at the meeting of the Board of Directors on February 18, 2020, based on the opinions that the suggested change and procedures were appropriate by the Audit and Supervisory Committee Meeting held on February 7, 2020.

Remuneration of executive Directors shall consist of monthly remuneration which is a fixed remuneration and performance-linked remuneration, whose ratio will be determined as follows. If performance-linked remuneration is paid at the base amount, 50% of the total remuneration will consist of monthly remuneration, and the rest 50% will consist of performance-linked remuneration, such as the bonus and stock compensation.

Remuneration paid to Outside Directors and other non-executive Directors (excluding Audit and Supervisory Committee Members) shall consist only of monthly remuneration based on remuneration standards approved by the Board of Directors.

Remuneration of the Directors who are members of the Audit and Supervisory Committee shall consist only of monthly remuneration determined by discussion among Directors who are members of the Audit and Supervisory Committee.

In addition, regarding the guideline for performance-linked remuneration, the bonus amount is determined based on the business results of each fiscal year, dividends paid to shareholders and the standards of bonuses of

 

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employees and other factors. The guideline for stock compensation is determined based on financial indicators, such as consolidated operating margin, and the degree of growth in non-financial indicators, such as brand value and ESG (Environmental, Social and Governance).

The above guideline determining the amount of bonus is selected in order to measure the degree of contribution to corporate value for each fiscal year and to measure the degree of achievement of corporate responsibility to shareholders and employees. The above guideline determining the amount of stock compensation is selected in order to achieve sustainable growth and enhancement of corporate value over the mid- to long term.

Regarding the amount of performance-linked remuneration, while a specific target of the guideline is not set, the amount of bonus is determined at each meeting of the Board of Directors based on the relationship between the guidelines and amounts of bonus paid in the past as well as of the current business condition and future prospects.

The amount of stock compensation is determined within the range of 50%-150% of the performance coefficient based on the degree of growth of the Company during the most recent three fiscal years and calculated using the method determined at the Board of Directors.

The evaluation results of the guidelines for the current fiscal year for performance-linked remuneration are as follows. Bonuses are reduced by 20% from the base amount, and stock compensation is paid with a performance-linked coefficient of 97%.

Reasons for the Board of Directors to determine that the details of individual remuneration for Directors in the current fiscal year are in line with the determination policy

The details of individual remuneration for Directors are determined by the remuneration standards, etc., approved by the Board of Directors within the scope of authority granted by the Ordinary General Meeting of Shareholders, and the resolutions of the Board of Directors.

The Board of Directors includes five Outside Directors and when making decisions or changes to the remuneration structure for the officers and remuneration standards, etc., the Board of Directors shall deliberate after hearing the opinions formed by the Audit and Supervisory Committee in advance.

Therefore, the Board of Directors believes that the individual remuneration for Directors in the current fiscal year is in line with the determination policy.

The total amount of fixed monthly remuneration paid to the Company’s Directors during the fiscal year ended March 31, 2021 was ¥683 million. This amount includes fixed monthly remuneration paid to two Directors who retired during the fiscal year. The amount of fixed monthly remuneration paid to the Directors includes amount of fixed monthly remuneration paid to those Directors who were also Directors or Corporate Auditors of subsidiaries of the Company.

The total amount of bonuses and stock compensation for the Company’s Directors accrued for the fiscal year ended March 31, 2021 were ¥95 million and ¥129 million, respectively.

 

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The amounts of fixed monthly remuneration paid, bonuses and stock compensation accrued during the year ended March 31, 2021 are as follows:

 

     Fixed remuneration      Performance-linked remuneration      Total  
     Remuneration      Bonus      Stock
compensation
        
     Number
of persons
     Yen
(millions)
     Number
of persons
     Yen
(millions)
     Number
of persons
     Yen
(millions)
     Yen
(millions)
 

Directors excluding Audit and Supervisory Committee Members and outside Directors

     7      ¥ 452        4      ¥ 95        5      ¥ 129      ¥ 677  

Outside Directors excluding Audit and Supervisory Committee Members

     3        33        —          —          —          —          33  

Audit and Supervisory Committee Members excluding outside Directors

     2        145        —          —          —          —          145  

Outside Audit and Supervisory Committee Members

     3        50        —          —          —          —          50  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

         15      ¥ 683              4      ¥ 95              5      ¥ 129      ¥ 907  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The amount of fixed monthly remuneration paid to Toshiaki Mikoshiba during the fiscal year ended March 31, 2021 was ¥108 million.

The amount of fixed monthly remuneration paid to Takahiro Hachigo during the fiscal year ended March 31, 2021 was ¥91 million. The amount of bonus and stock compensation for Takahiro Hachigo accrued for the fiscal year ended March 31, 2021 were ¥27 million and ¥46 million, respectively.

The amount of fixed monthly remuneration paid to Seiji Kuraishi during the fiscal year ended March 31, 2021 was ¥59 million. The amount of bonus and stock compensation for Seiji Kuraishi accrued for the fiscal year ended March 31, 2021 were ¥23 million and ¥30 million, respectively.

The Board Incentive Plan

The Company resolved to introduce a new stock compensation scheme (the “Scheme”) for Directors and Operating Officers who conduct business execution and who are residents of Japan at its Board of Directors meeting on May 15, 2018 and the 94th Ordinary General Meeting of Shareholders on June 14, 2018 (the approval at such Meeting of Shareholders, the “Shareholder Approval”). The scheme covers Executive Officers, Operating Officers and a part of Operating Executives who are residents of Japan. (hereinafter Executive Officers, Operating Officers and a part of Operating Executives, covered by the Scheme referred to as “Executive Officers, Etc.”). The Scheme is a stock compensation scheme that uses a “BIP (Board Incentive Plan) trust” (a “BIP Trust”), which is similar to performance share and restricted stock compensation plans used in the United States. Under the Scheme, Executive Officers, Etc. will be awarded and receive the Company shares and money in accordance with their positions and the degree of growth in management indicators of the Company, such as financial results and corporate value. The Scheme was introduced for the purpose of further motivating Executive Officers, Etc. to pursue sustained improvement of corporate value of the Company in the medium to long term as well as common interests with shareholders.

The basic structure of the Scheme and the payment methods thereunder are in principle as set forth below:

The Company will entrust money within the scope prescribed in the Shareholder Approval and create a BIP Trust, beneficiaries of which are Executive Officers, Etc. who satisfy beneficiary requirements.

 

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The BIP Trust will be an individually-operated specified trust of money other than cash trust (third party beneficiary trust). In accordance with the instructions of the trust administrator, a third party certified public accountant who has no interests in the Company, the BIP Trust will acquire the Company’s shares of common stock from the stock market using the source of the fund. The number of shares to be acquired shall be within the scope prescribed in the Shareholder Approval.

The trust agreement creating the BIP Trust is entered into effect and the Scheme is effective on August 20, 2018. During the term of the BIP Trust, which is from August 20, 2018 to August 31, 2021, the Company shall grant Executive Officers, Etc. base points determined by their positions, taking into consideration factors including work responsibilities and duties.

The trustees of the BIP Trust are Mitsubishi UFJ Trust and Banking Corporation and The Master Trust Bank of Japan, Ltd. We set ¥2,409 million as the amount of the trust money, which includes remunerations and expenses relating to maintenance of the trust. While up to 1,310,000 shares of the Company’s common stock were originally planned to be bought from the market for the purpose of this BIP Trust, 713,600 shares were actually bought for this purpose during the period from August 22, 2018 to August 31, 2018. The Company is the holder of vested rights, and the residual assets the Company can receive during the liquidation of the BIP Trust will be limited to the amount of reserve fund for maintenance of the trust. The voting rights of the shares of common stock held by the BIP Trust will not be exercised.

C. Board Practices

See Item 6.A “Directors and Senior Management” for information concerning the Company’s Directors required by this item.

D. Employees

The following tables list the number of Honda full-time employees as of March 31, 2019, 2020 and 2021.

As of March 31, 2019

 

Total

  

Motorcycle
Business

  

Automobile
Business

  

Financial Services
Business

  

Life Creation and
Other Businesses

219,722

   45,319    162,278    2,442    9,683

 

  

 

  

 

  

 

  

 

As of March 31, 2019, Honda had 219,722 full-time employees, including 153,215 local nationals employed in its overseas operations.

As of March 31, 2020

 

Total

  

Motorcycle
Business

  

Automobile
Business

  

Financial Services
Business

  

Life Creation and
Other Businesses

218,674

   47,013    159,555    2,455    9,651

 

  

 

  

 

  

 

  

 

As of March 31, 2020, Honda had 218,674 full-time employees, including 151,530 local nationals employed in its overseas operations.

As of March 31, 2021

 

Total

  

Motorcycle
Business

  

Automobile
Business

  

Financial Services
Business

  

Life Creation and
Other Businesses

211,374

   46,255    153,413    2,385    9,321

 

  

 

  

 

  

 

  

 

 

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As of March 31, 2021, Honda had 211,374 full-time employees, including 143,878 local nationals employed in its overseas operations.

Most of the Company’s regular employees in Japan, except management personnel, are required by the terms of the Company’s collective bargaining agreement with its labor union to become members of the Federation of All Honda Workers’ Union (AHWU), which is affiliated with the Japan Council of the International Metalworkers’ Federation. Approximately 86% of the employees of the Company and its Japanese subsidiaries were members of AHWU as of March 31, 2021.

In Japan, basic wages are negotiated annually and the average increases in wages of the Company’s employees in the fiscal year ended March 31, 2019, 2020 and 2021 were 2.4%, 2.1% and 2.0%, respectively. In addition, in accordance with Japanese custom, each employee is paid a semi-annual bonus. Bonuses are negotiated during wage negotiations and are based on the overall performance of the Company or the applicable subsidiary in the previous year, the outlook for the current year and other factors.

The Company has had labor contracts with its labor union in Japan since 1970. These contracts are renegotiated with respect to basic wages and other working conditions. The regular employees of the Company’s Japanese subsidiaries are covered by similar contracts. Since 1957, neither the Company nor any of its subsidiaries has experienced any strikes or other labor disputes that materially affected its business activities. The Company considers labor relations with its employees to be very good.

E. Share Ownership

The total amount of the Company’s voting securities owned by its Directors as a group as of June 23, 2021 is as follows. The individual ownership of each of the Directors is listed next to their names under Item 6.A. Directors and Senior Management.

 

Title of Class

 

Amount Owned

 

% of Class

Common Stock   201,520 shares   0.012%

The Company’s full-time employees are eligible to participate in the Honda Employee Shareholders’ Association, whereby participating employees contribute a portion of their salaries to the Association and the Association purchases shares of the Company’s Common Stock on their behalf. As of March 31, 2021, the Association owned 7,164,303 shares of the Company’s common stock.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

As of March 31, 2021, 1,811,428,430 shares of Honda’s Common Stock were issued and 1,726,655,268 shares were outstanding.

The following table shows the shareholders of record that owned 5% or more of the issued shares of Honda’s Common Stock as of March 31, 2021:

 

Name

   Shares owned
(thousands)
     Ownership
(%)
 

The Master Trust Bank of Japan, Ltd. (Trust Account)

     164,774        9.5  

Custody Bank of Japan, Ltd. (Trust Account)

     117,856        6.8  

According to a statement on Schedule 13G (Amendment No. 4) filed by Sumitomo Mitsui Trust Holdings, Inc. with the SEC on February 5, 2021, Sumitomo Mitsui Trust Holdings, Inc. directly and indirectly held, as of December 31, 2020, 114,171,900 shares, or 6.3% of the then issued shares, of Honda’s Common Stock.

 

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According to a statement on Schedule 13G (Amendment No. 17) filed by Mitsubishi UFJ Financial Group, Inc. with the SEC on February 2, 2021, Mitsubishi UFJ Financial Group, Inc. directly and indirectly held, as of December 31, 2020, 101,382,553 shares, or 5.9% of the then issued shares, of Honda’s Common Stock. According to a statement on Schedule 13G (Amendment No. 6) filed by BlackRock, Inc. with the SEC on January 29, 2021, BlackRock, Inc. directly and indirectly held, as of December 31, 2020, 97,321,697 shares, or 5.4% of the then issued shares, of Honda’s Common Stock.

None of the above shareholders has voting rights that are different from those of our other shareholders.

ADSs representing American Depositary Shares are issued by JPMorgan Chase Bank, N.A., as Depositary. The normal trading unit is 100 American Depositary Shares. Total issued shares of Honda as of the close of business on March 31, 2021 were 1,811,428,430 shares of Common Stock, of which 70,044,953 shares represented by ADSs and 330,306,813 shares not represented by ADSs were owned by residents of the United States. The number of holders of record of the Company’s shares of Common Stock in the United States was 208 at March 31, 2021.

To the knowledge of Honda, it is not directly or indirectly owned or controlled by any other corporation, by any government, or by any other natural or legal person or persons severally or jointly. As far as is known to the Company, there are no arrangements, the operation of which may at a subsequent date, result in a change in control of the Company.

B. Related Party Transactions

Honda purchases materials, supplies and services from numerous suppliers throughout the world in the ordinary course of business, including firms with which Honda is affiliated.

During the fiscal year ended March 31, 2021, Honda had sales of ¥1,073.6 billion and purchases of ¥1,166.0 billion with affiliates and joint ventures accounted for using the equity method. As of March 31, 2021, Honda had receivables of ¥322.1 billion from affiliates and joint ventures, and had payables of ¥158.2 billion to affiliates and joint ventures.

Honda does not consider the amounts involved in such transactions to be material to its business.

C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

1 – 3. Consolidated Financial Statements

Honda’s audited consolidated financial statements are included under “Item 18—Financial Statements”.

4. Not applicable.

5. Not applicable.

6. Export Sales

See “Item 4—Information on the Company—Marketing and Distribution”.

 

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7. Legal Proceedings

Various legal proceedings are pending against us. We believe that such proceedings constitute ordinary routine litigation incidental to our business.

Honda is subject to potential liability under various lawsuits and claims. Honda recognizes a provision for loss contingencies when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Honda reviews these pending lawsuits and claims periodically and adjusts the amounts recognized for these contingent liabilities, if necessary, by considering the nature of lawsuits and claims, the progress of the case and the opinions of legal counsel.

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 provision. Punitive damages are claimed in certain of these lawsuits.

After consultation with legal counsel, and taking into account all known factors pertaining to existing lawsuits and claims, Honda believes that the ultimate outcome of such lawsuits and pending claims should not result in liability to Honda that would be likely to have an adverse material effect on its consolidated financial position or results of operations.

8. Profit Redistribution Policy

The Company strives to carry out its operations worldwide from a global perspective and to increase its corporate value. With respect to the redistribution of profits to its shareholders, which we consider to be one of the most important management issues, the Company’s basic policy is to determine such distributions after taking into account, among others, its retained earnings for future growth and consolidated earnings performance based on a long-term perspective. With respect to dividends, the present goal is to realize a return ratio (i.e. the ratio of the total of the dividend payment to consolidated profit for the year attributable to owners of the parent) of approximately 30%.

The Company’s basic policy for dividends is to make quarterly distributions. The Company may determine dividends from surplus by a resolution of the Board of Directors.

The Company may also acquire its own shares at a timing that it deems optimal, with the goal of improving efficiency of the Company’s capital structure and implementing a flexible capital strategy.

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

The Company determined total dividends for the year ended March 31, 2021 were ¥110 per share. Quarterly dividends per share for the year ended March 31, 2021 were as follows: the first quarter ¥11, the second quarter ¥19, the third quarter ¥26, the fourth quarter ¥54 per share.

Details of Distribution of Surplus (Record dates of the fiscal year ended March 31, 2021)

 

     Resolution of
the Board of
Directors
     Resolution of
the Board of
Directors
     Resolution of
the Board of
Directors
     Resolution of
the Board of
Directors
 
     August 5, 2020      November 6, 2020      February 9, 2021      May 14, 2021  

Dividend per Share of Common Stock

(yen)

     11.00        19.00        26.00        54.00  

Total Amount of Dividends

(millions of yen)

     18,999        32,818        44,909        93,272  

 

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The Board of Directors of the Company, at its meeting held on May 14, 2021, resolved that the Company changes its Profit Redistribution Policy in which the Company will strive to pay stable and continuous dividends aiming at a consolidated dividend payout ratio of approximately 30% and that the basic policy for dividends is to make semiannual distributions (an interim dividend and a year-end dividend).

The necessary amendments to the Articles of Incorporation were approved at the Ordinary General Meeting of Shareholders of the Company on June  23, 2021.

B. Significant Changes

Except otherwise disclosed in this Annual Report on Form 20-F, no significant change has occurred since the date of the annual financial statements.

Item 9. The Offer and Listing

A. Offer and Listing Details

Honda’s shares have traded on the Tokyo Stock Exchange (TSE) since its shares were first listed on the TSE in 1957. Our ordinary shares are traded on the TSE under the symbol “7267”.

Since February 11, 1977, American Depositary Shares (each representing one share of Common Stock and evidenced by American Depositary Receipts (ADRs)) have been listed and traded on the New York Stock Exchange (the NYSE) under the symbol “HMC”, having been traded on the over-the-counter markets in the United States since 1962.

B. Plan of Distribution

Not applicable.

C. Markets

See Item 9.A, “Offer and Listing Details”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Set forth below is certain information relating to Honda’s Common Stock, including brief summaries of the relevant provisions of Honda’s Articles of Incorporation and Share Handling Regulations as currently in effect,

 

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and of the Company Law of Japan (the “Company Law”) and related legislation. Additionally, the information called for by Items 10.B.3, 4, 5, 6, 7, 8, 9 and 10 of Form 20-F is included in Exhibit 2.7 to this Annual Report “Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934—Common Stock” and is incorporated by reference herein.

Objects and Purposes

Article 2 of the Articles of Incorporation of Honda states that its purpose is to engage in the following businesses:

 

   

Manufacture, sale, lease and repair of motor vehicles, ships and vessels, aircraft and other transportation machinery and equipment.

 

   

Manufacture, sale, lease and repair of prime movers, agricultural machinery and appliances, generators, processing machinery and other general machinery and apparatus, electric machinery and apparatus and precision machinery and apparatus.

 

   

Manufacture and sale of fiber products, paper products, leather products, lumber products, rubber products, chemical industry products, ceramic products, metal products and other products.

 

   

Overland transportation business, marine transportation business, air transportation business, warehousing business, travel business and other transport business and communication business.

 

   

Sale of sporting goods, articles of clothing, stationery, daily sundries, pharmaceuticals, drink and foodstuffs and other goods.

 

   

Financial business, nonlife insurance agency business, life insurance agency business, construction business including building construction work and real estate business, including real estate brokerage.

 

   

Publishing business, advertising business, translation business, interpretation business, management consultancy business, information services including information processing, information communication and information provision, industrial planning and design, comprehensive security business and labor dispatch services.

 

   

Management of parking garages, driving schools, training and education facilities, racecourses, recreation grounds, sporting facilities, marina facilities, hotels, restaurants and other facilities.

 

   

Electricity generation and supply and sale of electricity.

 

   

Manufacture, sale and licensing of equipment, parts and supplies and all other relevant business activities and investments relating to each of the foregoing items.

Provisions Regarding Directors and Executive Officers

There is no provision in Honda’s Articles of Incorporation as to a Director’s power to vote on a proposal, arrangement or contract in which the Director is materially interested, but the Company Law and Honda’s regulations of the Board of Directors provide that such Director is required to refrain from voting on such matters at the Board of Director’s meetings.

The Company Law provides that compensation for directors and executive officers of a company which adopts a “company with three committees” corporate governance system, including Honda, is determined at the compensation committee within the board of directors, and the Articles of Incorporation of the Company also include the equivalent provisions. The compensation committee shall establish the compensation policy as well as determine the compensation for directors and executive officers.

The Company Law provides that a significant loan from a third party to a company should be approved by the board of directors.

 

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There is no mandatory retirement age for directors under the Company Law or Honda’s Articles of Incorporation.

The Company Law provides that any articles of incorporation of a company having no restriction on a transfer of its shares, including Honda, may not provide any requirement concerning the number of shares one individual must hold in order to qualify him or her as a director.

Shareholders’ Register Manager

With effect from June 20, 2020, Mitsubishi UFJ Trust and Banking Corporation, located at 4-5 Marunouchi 1-chome, Chiyoda-ku, Tokyo, 100-8212, Japan, is the Shareholders’ Register Manager for Honda’s shares. Mitsubishi UFJ Trust and Banking Corporation maintains Honda’s register of shareholders and records the names and addresses of its shareholders and other relevant information in its register of shareholders upon notice thereof from JASDEC, as described in Exhibit 2.7 to this Annual Report “Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934—Common Stock—Rights of the Shares—Record Date”.

C. Material Contracts

All contracts concluded by Honda during the two years preceding this filing were entered into in the ordinary course of business.

D. Exchange Controls

There are no laws, decrees, regulations or other legislation of Japan which materially affect our ability to import or export capital for our use or our ability to pay dividends or other payments to non-resident holders of our shares.

E. Taxation

Japanese Taxes

The following is a summary of the principal Japanese tax consequences as of the date of filing of this Form 20-F to owners of Honda’s shares or ADSs who are non-resident individuals or non-Japanese corporations without a permanent establishment in Japan to which income from Honda’s shares is attributable. The tax treatment is subject to possible changes in the applicable Japanese laws or double taxation conventions occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor. Potential investors should consult their own tax advisers as to:

 

   

the overall tax consequences of the acquisition, ownership and disposition of shares or ADSs, including specifically the tax consequences under Japanese law;

 

   

the laws of the jurisdiction of which they are resident; and

 

   

any tax treaty between Japan and their country of residence.

Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by Japanese corporations.

In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to a non-resident of Japan or a non-Japanese corporation is (a) 20.42% for dividends to be paid on or before December 31, 2037, and (b) 20% for dividends to be paid thereafter. With respect to dividends paid on listed

 

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shares issued by Japanese corporations (such as Honda’s shares) to a non-resident of Japan or a non-Japanese corporation, the aforementioned 20.42% or 20% withholding tax rate is reduced to (i) 15.315% for dividends to be paid on or before December 31, 2037, and (ii) 15% for dividends to be paid thereafter, except for dividends paid to any individual shareholder who holds 3% or more of the issued shares of that corporation. Japan has entered into income tax treaties, conventions or agreements with various countries, whereby the maximum withholding tax rate is generally set at 15% or 10% for portfolio investors. Under the income tax treaty between Japan and the United States, the maximum withholding tax rate is generally set at 10% for portfolio investors.

Pursuant to the Convention Between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “U.S.-Japan Tax Treaty”), a portfolio investor that is a U.S. holder is generally subject to Japanese withholding tax on dividends on shares at a rate of 10%. Under Japanese tax law, the maximum rate applicable under the tax treaties, conventions or agreements shall be applicable except when such maximum rate is more than the Japanese statutory rate.

Gains derived from the sale outside Japan of common stock or Depositary Receipts by a non-resident of Japan or a non-Japanese corporation, or from the sale of common stock within Japan by a non-resident of Japan or by a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or corporation taxes. Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired common stock or Depositary Receipt as a legatee, heir or donee, even if the individual is not a Japanese resident.

United States Taxes

This section describes the material U.S. federal income tax consequences of the ownership of shares or ADSs by U.S. holders, as defined below. It applies only to persons who hold shares or ADSs as capital assets for tax purposes.

This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the U.S.-Japan Tax Treaty (the “Treaty”). These authorities are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

For purposes of the Treaty and the Code, U.S. holders of ADRs evidencing ADSs will be treated as the owners of the shares represented by those ADRs. Exchanges of shares for ADRs and ADRs for shares generally will not be subject to U.S. federal income tax. For purposes of this discussion, a “U.S. holder” is a beneficial owner of shares or ADSs that is, for U.S. federal income tax purposes, (i) a citizen or resident individual of the United States, (ii) a domestic corporation, (iii) an estate whose income is subject to United States federal income tax regardless of its source, or (iv) a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust; and that, for purposes of the Treaty, is not ineligible for benefits under the Treaty with respect to income and gain from the shares or ADSs.

This section does not apply to a person who is a member of a special class of holders subject to special rules, including a dealer in securities, a trader in securities that elects to use a mark-to-market method of accounting for its securities holdings, a tax-exempt organization, a life insurance company, a person liable for alternative minimum tax, a person that actually or constructively owns 10% or more of the combined voting power of the voting stock or of the total value of the stock of Honda, a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, a person that purchases or sells shares or ADSs as part of a wash sale for tax purposes, or a person whose functional currency is not the U.S. dollar.

If a partnership holds the shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the

 

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shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in the shares or ADSs.

This summary is not a comprehensive description of all the tax considerations that may be relevant with respect to a U.S. holder’s shares or ADSs. Each beneficial owner of shares or ADSs should consult its own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares and ADSs in its particular circumstances.

Taxation of Dividends

Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of any dividend paid by Honda out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) to a U.S. holder is subject to U.S. federal income taxation. A U.S. holder must include any Japanese tax withheld from the dividend payment in this gross amount even though it does not in fact receive it.

Dividends paid to a noncorporate U.S. holder that constitute qualified dividend income will be taxable to such U.S. holder at the preferential rates applicable to long-term capital gains provided that the noncorporate U.S. holder holds the shares or ADSs with respect to which the dividends are paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends that Honda pays with respect to the shares or ADSs generally will be qualified dividend income if, in the year you receive the dividend, the ADSs are readily tradable on an established securities market in the United States. Our ADSs are listed on the New York Stock Exchange and we therefore expect that dividends that you receive on the ADSs will be qualified dividend income. Dividends that Honda pays with respect to the shares generally will be qualified dividend income if we are eligible for the benefits of the Treaty in the year that you receive the dividend. We believe that we are currently eligible for the benefits of the Treaty, and we therefore believe that dividends on the shares are currently qualified dividend income. There can be no assurance, however, that we will continue to qualify under the Treaty in future taxable years.

A U.S. holder must include the dividend in its taxable income when the holder, in the case of shares, or the Depositary, in the case of ADSs, receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution that a U.S. holder must include in its income will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date of the dividend distribution, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the U.S. holder includes the dividend payment in income to the date it converts the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the U.S. for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of U.S. holder’s basis in the shares or ADSs and thereafter as capital gain. However, Honda does not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, a U.S. holder should expect to generally treat distributions that Honda makes as dividends.

Subject to certain limitations, the Japanese tax withheld in accordance with the Treaty and paid over to Japan will be creditable or deductible against a U.S. holder’s United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to a U.S. holder under Japanese law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holder’s U.S. federal income tax liability.

 

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Dividends will generally be income from sources outside the U.S. and will generally be “passive” income for purposes of computing the foreign tax credit allowable to such U.S. holder.

Taxation of Capital Gains

Subject to the PFIC rules discussed below, if a U.S. holder sells or otherwise disposes of its shares or ADSs, it will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that it realizes and its tax basis, determined in U.S. dollars, in its shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes.

Passive Foreign Investment Company (PFIC) Rules

Honda believes its shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes. This conclusion is a factual determination that is made annually and thus may be subject to change.

In general, Honda will be a PFIC with respect to a U.S. holder if for any taxable year in which such holder held shares or ADSs of Honda:

 

   

at least 75% of Honda’s gross income for the taxable year is passive income; or

 

   

at least 50% of the value, determined on the basis of a quarterly average, of Honda’s assets is attributable to assets that produce or are held for the production of passive income.

Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income.

If Honda is treated as a PFIC, and a U.S. holder does not make a mark-to-market election, as described below, that U.S. holder will be subject to special rules with respect to:

 

   

any gain it realizes on the sale or other disposition of its shares or ADSs; and

 

   

any excess distribution that Honda makes to the U.S. holder (generally, any distributions to it during a single taxable year that are greater than 125% of the average annual distributions received by it in respect of the shares or ADSs during the three preceding taxable years or, if shorter, its holding period for the shares or ADSs).

Under these rules:

 

   

the gain or excess distribution will be allocated ratably over the U.S. holder’s holding period for the shares or ADSs,

 

   

the amount allocated to the taxable year in which it realized the gain or excess distribution will be taxed as ordinary income,

 

   

the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year, and

 

   

the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.

 

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Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

If a U.S. holder owns shares or ADSs in a PFIC that are treated as marketable stock, such U.S. holder may make a mark-to-market election. If a U.S. holder makes this election, it will not be subject to the PFIC rules described above. Instead, in general, a U.S. holder will include as ordinary income each year the excess, if any, of the fair market value of its shares or ADSs at the end of the taxable year over its adjusted basis in its shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. holder will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously-included income as a result of the mark-to-market election). The U.S. holder’s basis in the shares or ADSs will be adjusted to reflect any such income or loss amounts.

Shares or ADSs held by a U.S. holder will be treated as stock in a PFIC if Honda was a PFIC at any time during the U.S. holder’s holding period in its shares or ADSs, even if Honda is not currently a PFIC, unless a U.S. holder has made a mark-to-market election with respect to its shares or ADSs or the U.S. holder has otherwise made a “purging election” with respect to its shares or ADSs.

In addition, notwithstanding any election that a U.S. holder makes with regard to the shares or ADSs, dividends that a U.S. holder receives from Honda will not constitute qualified dividend income to such U.S. holder if Honda is a PFIC (or is treated as a PFIC with respect to such U.S. holder) in either the taxable year of the distribution or the preceding taxable year. Dividends that a U.S. holder receives that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, the U.S. holder must include the gross amount of any such dividend paid by Honda in the U.S. holder’s gross income, and it will be subject to tax at rates generally applicable to ordinary income.

If a U.S. holder owns shares or ADSs during any year that Honda is a PFIC with respect to such U.S. holder, it must file Internal Revenue Service Form 8621, subject to certain applicable exceptions set forth in Internal Revenue Service regulations. Each U.S. holder should consult its own tax advisors regarding the PFIC rules and potential filing and other requirements.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

Honda is subject to the information requirements of the Securities Exchange Act of 1934 and, in accordance therewith, it will file annual reports on Form 20-F and furnish other reports and information on Form 6-K with the Securities and Exchange Commission. These reports and other information can be inspected without charge at the public reference room at the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies of such material by mail from the public reference room of the Securities and Exchange Commission at prescribed fees. You may obtain information on the operation of the Securities and Exchange public reference room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a web site at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. Also, as a foreign private issuer, Honda is exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing and content of proxy statements to shareholders.

 

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I. Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosure about Market Risk

The information required under this Item 11 is set forth in “(b) Market Risk” of note “(25) Financial Risk Management” to the accompanying consolidated financial statements.

Item 12. Description of Securities Other than Equity Securities

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

3. Fees and charges

JPMorgan Chase Bank, N.A., as ADR depositary, collects fees for delivery and surrender of ADSs directly from investors, or from intermediaries acting for them, depositing ordinary shares or surrendering ADSs for the purpose of withdrawal. The ADR depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees.

 

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The charges of the ADR depositary payable by investors are as follows:

 

Category
(as defined by SEC)

  

Depositary Actions

 

Associated Fee

(a) Depositing or substituting the underlying shares   

Each person to whom ADRs are issued against deposits of Shares, including deposits and issuances in respect of:

 

•  Share distributions, stock split, rights, merger

 

•  Exchange of securities or any other transaction or event or other distribution affecting the ADSs or the deposited securities

  USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered
(b) Receiving or distributing dividends    Not applicable  
(c) Selling or exercising rights    Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities   USD 5.00 for each 100 ADSs (or portion thereof)
(d) Withdrawing an underlying security
   Acceptance of ADRs surrendered for withdrawal of deposited securities
  USD 5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered
(e) Transferring, splitting or grouping receipts
   Transfers, combining or grouping of depositary receipts
  USD 2.50 per ADS certificate
(f) General depositary services, particularly those charged on an annual basis    Not applicable  

Category

  

Depositary Actions

 

Associated Fee

(g) Expenses of the depositary   

Expenses incurred on behalf of holders in connection with

 

•  Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment

 

•  The depositary’s or its custodian’s compliance with applicable law, rule or regulation

 

•  Stock transfer or other taxes and other governmental charges

 

•  Cable, telex, facsimile transmission/delivery

 

•  Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars
(which are paid out of such foreign currency)

 

•  Any other charge payable by the depositary or its agents

  Expenses payable at the sole discretion of the depositary by billing holders or by deducting charges from one or more dividends or other cash distributions

4. Direct / Indirect Payment Disclosure

Honda does not receive any reimbursement from the depositary bank. JPMorgan Chase Bank, N.A. agreed to waive an out-of-pocket expense of $50,000 associated with the administration of the ADR program. The out-of-pocket expenses relate to depositary service administration, including but not limited to, dividend

 

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disbursement and proxy process. From April 1, 2020 to March 31, 2021, the Depositary waived $161,486.53 in expenses related to the Ordinary General Meeting of Shareholders.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934) as of March 31, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date.

Management’s Report on Internal Control over Financial Reporting

The management of Honda is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.

Our management assessed the effectiveness of internal control over financial reporting as of March 31, 2021 based on the criteria established in “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, our management concluded that our internal control over financial reporting was effective as of March 31, 2021.

The Company’s independent registered public accounting firm has audited the effectiveness of the Company’s internal control over financial reporting, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

No significant changes were made in our internal control over financial reporting for the fiscal year ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Item 16A. Audit Committee Financial Expert

Honda’s Audit Committee has determined that Mr. Yoichiro Ogawa and Mr. Masafumi Suzuki are each qualified as an “audit committee financial expert” as defined by the rules of the SEC. Additionally, Mr. Ogawa and Mr. Suzuki each meet the independence requirements applicable under Section 303A.06 of the New York Stock Exchange Listed Company Manual.

Item 16B. Code of Ethics

Honda has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of Honda’s code of ethics is attached as an exhibit to this Annual Report on Form 20-F.

Item 16C. Principal Accountant Fees and Services

KPMG AZSA LLC has served as Honda’s independent registered public accounting firm for each of the fiscal years in the three-year period ended March 31, 2021, for which audited financial statements appear in this Annual Report on Form 20-F.

The following table presents the aggregate fees for professional services and other services rendered by KPMG AZSA LLC and the various member firms of KPMG International to Honda in fiscal year 2020 and 2021:

 

     Yen (millions)  
     2020      2021  

Audit Fees

   ¥ 4,210      ¥ 4,152  

Audit-Related Fees

     157        127  

All Other Fees

     19        11  
  

 

 

    

 

 

 

Total

   ¥ 4,386      ¥ 4,290  
  

 

 

    

 

 

 

“Audit Fees” means fees for audit services, which are professional services provided by independent auditors for the audit of our annual financial statements or for services that are normally provided by independent auditors with respect to any submissions required under applicable laws and regulations.

“Audit-Related Fees” means fees for audit-related services, which are assurance services provided by independent auditors that are reasonably related to the carrying out of auditing or reviewing of our financial reports and other related services. This category includes fees for agreed-upon or expanded audit procedures related to accounting and/or other records.

“All Other Fees” mainly includes fees for services rendered with respect to advisory services.

Pre-approval policies and procedures of the Audit Committee

Under applicable SEC rules, the Audit Committee must pre-approve audit services, audit-related services, tax services and other services to be provided by the principal accountant to ensure that the independence of the principal accountant under such rules is not impaired as a result of the provision of any of these services.

While, as a general rule, specific pre-approval must be obtained for these services to be provided, the Audit Committee has adopted pre-approval policies and procedures which list particular audit and non-audit services that may be provided without specific pre-approval. The Audit Committee reviews this list of services on an annual basis, and is informed of each such service that is actually provided. Historically, prior to the establishment of our Audit Committee on June 23, 2021, such general pre-approval was conducted by the predecessor to our Audit Committee, our former Audit and Supervisory Committee, a legally separate and independent body from the Board of Directors that had been previously established under Japanese law to perform a similar corporate function.

 

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All services to be provided to us by the principal accountant and its affiliates which are not specifically set forth in this list must be specifically pre-approved by the Audit Committee. Historically, prior to the establishment of our Audit Committee on June 23, 2021, such activities were required to be pre-approved by our former Audit and Supervisory Committee.

None of the services described above in this Item 16C. were waived from the pre-approval requirements pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth certain information with respect to purchases by Honda of its own shares during the fiscal year ended March 31, 2021. There were no purchases of Honda’s shares by its affiliated purchasers during that fiscal year.

 

Period

   (a)
Total
Number of
Shares
Purchased*
     (b)
Average
Price Paid
per Share
     (c)
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
     (d)
Maximum Yen
Amount of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
 

April 1 to April 30, 2020

     78      ¥ 2,348        —          —    

May 1 to May 31, 2020

     24      ¥ 2,534        —          —    

June 1 to June 30, 2020

     233      ¥ 2,777        —          —    

July 1 to July 31, 2020

     136      ¥ 2,783        —          —    

August 1 to August 31, 2020

     152      ¥ 2,706        —          —    

September 1 to September 30, 2020

     102      ¥ 2,642        —          —    

October 1 to October 31, 2020

     232      ¥ 2,534        —          —    

November 1 to November 30, 2020

     147      ¥ 2,736        —          —    

December 1 to December 31, 2020

     268      ¥ 3,043        —          —    

January 1 to January 31, 2021

     264      ¥ 2,867        —          —    

February 1 to February 28, 2021

     98      ¥ 2,818        —          —    

March 1 to March 31, 2021

     150      ¥ 3,005            —          —    
  

 

 

    

 

 

    

 

 

    

Total

     1,884      ¥ 2,733        —       
  

 

 

    

 

 

    

 

 

    

 

*

For each month, the number of shares shown in column (a) in excess of the number of shares shown in column (c) represents the aggregate number of shares representing less than one unit that Honda purchased from the holders thereof upon their request. For an explanation of the right of such holders, see “Japanese Unit Share System” and “Right of a Holder of Shares Representing Less Than One Voting Unit to Require Honda to Purchase or Sell Its Shares” under Item 10.B of this Annual Report. Total number of shares purchased does not include purchases of BIP trust.

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

 

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Item 16G. Corporate Governance

Companies listed on the New York Stock Exchange (the “NYSE”) must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual.

However, listed companies that are foreign private issuers, such as Honda, are permitted to follow home country practice in lieu of certain provisions of Section 303A.

The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE Listed Company Manual and those followed by Honda.

 

Corporate Governance Practices Followed by
NYSE-listed U.S. Companies

 

Corporate Governance Practices Followed by Honda

A NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual.   Effective on June 23, 2021, Honda adopted a “company with three committees” corporate governance system (the “Three Committees system”) under Japan’s Company Law upon approval on the amendments to the Articles of Incorporation relating thereto at its Ordinary General Meeting of Shareholders held on June 23, 2021.
  For Japanese companies which employ the Three Committees system, including Honda, Japan’s Company Law requires that such companies have a board of directors and one or more executive officers, and within the board of directors, a nominating committee (the “Nominating Committee”), an audit committee (the “Audit Committee”), and a compensation committee (the “Compensation Committee”) shall be established. Each of these committees shall consist of three or more directors, a majority of which shall be “outside directors” as defined below. Honda’s Articles of Incorporation provides for its Board of Directors consisting of no more than 15 members. Honda currently has eleven Directors (including five Outside Directors) and seven Executive Officers. The Nominating Committee has four members, of which three are Outside Directors. The Audit Committee has five members, of which three are Outside Directors. The Compensation Committee has four members, of which three are Outside Directors. Under Japan’s Company Law, the members of three committees are elected by the resolutions of the board of directors. In addition, Honda‘s regulations of each of the three committees provide that the chairperson of each committee shall be elected from the Outside Directors who are members of the relevant committee by the resolution of the Board of Directors.
  “Outside director” is defined as a director who meets all of the following independence requirements: the relevant person must be (1) a person who is not an

 

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Corporate Governance Practices Followed by
NYSE-listed U.S. Companies

 

Corporate Governance Practices Followed by Honda

  executive director, executive officer, manager or any other employee of the company or any of its subsidiaries and has not been in such position for ten years prior to the assumption of office; (2) if the relevant person assumed an office of a non-executive director, accounting councilor or corporate auditor of the company or any of its subsidiaries during the ten years mentioned in (1) above, a person who had not been an executive director, executive officer, manager or any other employee of the company or any of its subsidiaries for further ten years prior to the assumption of such office; (3) a person who is not a director, corporate auditor, executive officer, manager or any other employee of the parent company or who is not a natural person controlling the company; (4) a person who is not an executive director, executive officer, manager or any other employee of a company which is controlled by the parent company or by the natural person controlling the company; and (5) a person who is not a spouse or one of a certain kinds of relatives of (a) a director, executive officer, manager or any other important employee of the company or (b) the natural person controlling the company. Companies which employ the Three Committees system, including Honda shall have at least two “outside directors”.
 

 

In addition, the listing rules of the Tokyo Stock Exchange, which Honda is subject to (but reference to “corporate auditor” below is not applicable to Honda), require listed companies to have at least one “independent” director or corporate auditor, and to make efforts to have at least one “independent” director. Requirements for an independent director/corporate auditor are more stringent than those for outside directors or outside corporate auditors. Unlike an outside director/corporate auditor, an independent director/corporate auditor may not be (a) a person who is, or has been until recently, a major business counterparty or an executive director, executive officer, manager or employee of the major business counterparties, (b) a person who is, or has been until recently, a professional advisor receiving significant remuneration from the company, (c) a person who has been, for ten years prior to the assumption of office, a director, executive officer, manager or employee, or corporate auditor of the parent company or an executive director or executive officer, manager or employee of the parent company’s subsidiaries, or

 

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Corporate Governance Practices Followed by
NYSE-listed U.S. Companies

 

Corporate Governance Practices Followed by Honda

  (d) a relative of persons mentioned in (a), (b) and (c) or a relative of certain scope of persons such as directors of the parent company or any of its subsidiaries. Currently, Honda has five Outside Directors all of whom are also independent Directors. Furthermore, Honda has established additional independence requirements for the Outside Directors, the “Criteria for Independence of Outside Directors” as described in Exhibit 1.4 by the resolution of the Board of Directors, and all of Outside Directors meet the criteria.
A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors meeting the independence requirements under Section 303A.02 of the NYSE Listed Company Manual, and the audit committee must have at least three members.  

On June 23, 2021, pursuant to a resolution of the Ordinary General Meeting of Shareholders, Honda has an Audit Committee, as one of the Three Committees within its Board of Directors.

 

Honda is required to satisfy the requirements set forth Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees. However, as a foreign private issuer, Honda is not subject to the independence requirements applicable to U.S. issuers pursuant to Section 303A.02 of the NYSE Listed Company manual. Additionally, as a foreign private issuer, Honda is not subject to the additional requirements under the Section 303A .07 of the NYSE Listed Company manual, including that the audit committee be made up of at least three members.

 

 

Under Japan’s Company Law, the audit committee has the following responsibilities: (i) auditing the execution of duties by directors and executive officers, and preparing audit reports and (ii) determining the content of proposals regarding the election and dismissal of accounting auditors and the refusal to reelect accounting auditors to be submitted to a general meeting of shareholders. The Audit Committee shall consist of at least three directors and a majority shall be outside directors. Each director, including an Audit Committee member, has a one-year term. Honda’s regulations of the Audit Committee provide that full-time member of the Audit Committee shall be established by the resolution of the Board of Directors.

A NYSE-listed U.S. company must have a nominating/corporate governance committee entirely of independent directors.   Honda’s Directors are elected at a general meeting of shareholders. Its Board of Directors does not have the power to fill vacancies thereon.

 

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Corporate Governance Practices Followed by
NYSE-listed U.S. Companies

 

Corporate Governance Practices Followed by Honda

 

 

A proposal to elect a Director must be determined by the Nominating Committee and Honda’s Board of Directors itself does not have the power to determine a proposal to elect a Director.

 

Under Japan’s Company Law, the Nominating Committee is responsible for determining the content of proposals regarding the election and dismissal of directors to be submitted to a general meeting of shareholders. The Nominating Committee shall consist of at least three directors and a majority shall be outside directors. Each director, including a Nominating Committee member, has a one-year term.

A NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors. Compensation committee members must satisfy the additional independence requirements under Section 303A.02(a)(ii) of the NYSE Listed Company Manual. A compensation committee must also have authority to retain or obtain the advice of compensation and other advisers, subject to prescribed independence criteria that the committee must consider prior to engaging any such adviser.  

The compensation of Honda’s Directors and Executive Officers is determined by the Compensation Committee within the Board of Directors, and a General Meeting of Shareholders of the Company does not have the power to determine the compensation of Directors.

 

Under Japan’s Company Law, the Compensation Committee shall establish the compensation policy as well as determine the compensation for directors and executive officers. The Compensation Committee shall consist of at least three directors and a majority shall be outside directors. Each director, including a Compensation Committee member, has a one-year term.

A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan.   Honda has a stock compensation scheme (the “Scheme”) for Honda’s Executive Officers, Operating Officers and a part of Operating Executives who are residents of Japan (collectively, “Executive Officers Etc.”). Under the Scheme, which uses a Board Incentive Plan trust (the “BIP Trust”), Honda’s shares and money will be delivered and paid to Executive Officers Etc. in accordance with their positions and the degree of growth in management indicators of Honda such as performance and corporate value. The period of the BIP Trust shall be from August 2018 to August 2021 (scheduled), provided, however, that this period may be extended by a resolution of the Board of Directors for another three years by amending the trust agreement and entrusting additional amounts to the BIP Trust within the scope of the approval at the Ordinary General Meeting of Shareholders.

Item 16H. Mine Safety Disclosure

Not applicable.

 

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