Honda Motor Co., Ltd. Annual Report 2008 Honda Motor Co., Ltd. Year Ended March 31, 2008 Annual Report 2008 This annual report is printed on recycled paper using soy ink with no volatile organic content. Furthermore, a waterless printing process was used to prevent toxic emissions. Printed in Japan WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb Corporate Profile Honda Motor Co., Ltd., operates under the basic principles of “Respect for the Individual” and “The Three Joys”—expressed as “The Joy of Buying,” “The Joy of Selling” and “The Joy of Creating.” “Respect for the Individual” reflects our desire to re- spect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, “The Three Joys” express our belief and desire that each person working in or coming into contact with our company, directly or through our products, should share a sense of joy through that experience. In line with these basic principles, since its establishment in 1948, Honda has remained on the leading edge by creating new value and providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. In addi- tion, the Company has conducted its activities with a commitment to protecting the environment and enhancing safety in a mobile society. The Company has grown to become the world’s largest motorcycle manufacturer and one of the leading automakers. With a global network of 501* subsidiaries and affiliates accounted for under the equity method, Honda develops, manufac- tures and markets a wide variety of products, ranging from small general-purpose engines and scooters to specialty sports cars, to earn the Company an outstanding reputation from customers worldwide. *As of March 31, 2008 Reports Published by Honda CSR Report This report provides an overview of Honda’s position on corpo- rate social responsibility (CSR) activities and an overview of its performance in the areas of quality and safety, the environment, stakeholders, and corporate citizenship during the fiscal year ended March 31, 2008. http://world.honda.com/CSR/ Philanthropy Report This report explains Honda’s position on philanthropy and profiles major performance areas during the fiscal year ended March 31, 2008. http://world.honda.com/community/ Driving Safety Promotion Report This report (available only in Japanese) summarizes Honda’s efforts to promote safe driving and principal activities in this area in 2007. Annual Report This report outlines Honda’s operating performance for the fiscal year ended March 31, 2008. http://world.honda.com/investors/annualreport/ Honda’s Major Areas of Disclosure—Web Sites Corporate profile http://world.honda.com/profile/ Environmental Report CSR http://world.honda.com/CSR/ Investor relations http://world.honda.com/investors/ This report describes Honda’s position on environmental initia- Environment http://world.honda.com/environment/ tives, its environmental performance for the fiscal year ended Community http://world.honda.com/community/ March 31, 2008, and future environmental targets. Safety http://world.honda.com/safety/ http://world.honda.com/environment/ecology/2008report/ Promoting safer driving http://world.honda.com/safety/safer-driving/ Caution with Respect to Forward-Looking Statements This annual report contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities 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, foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro and other major currencies, and extensive environmental and other governmental regulations, as well as other factors detailed from time to time. WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb Contents 2 The Power of Dreams 4 Financial Highlights 6 Summary of Operating Results by Business 8 To Our Shareholders 15 Review of Operations Motorcycle Business Automobile Business Power Product and Other Businesses Financial Services Business 34 Preparing for the Future 35 Risk Factors 37 Corporate Governance 44 Board of Directors, Corporate Auditors and Operating Officers Cover CBR600RR 47 Financial Section A super sport bike well-known for its light, high-performance engine, compact body, and outstanding driving performance, the CBR600RR carries forward the Honda tradition for developing machines that embody 117 Corporate Information cutting-edge technology and styling and are formidable contenders in MotoGP (FIM Road Principal Manufacturing Facilities Racing World Championship Grand Prix). Honda Group Accord A luxury sedan developed with the aims of Honda’s History offering both “dynamism” and “intelligence” in all aspects of design, space, driving Investor Information performance and functions, the Honda Accord seeks to offer ever-higher levels of sporty driving and refinement, while substantially enhancing the basic performance features of driving, cornering, and stopping. BF50 While carrying forward the Honda tradition of offering lightness and a compact package that is at the top levels in its class, the BF50 is a medium-sized four-stroke outboard engine that achieves substantially improved fuel economy in the cruising range. WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb Annual Report 2008 1 Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, re- search & development centers and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues. WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb 2 WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb Annual Report 2008 3 Financial Highlights Financial Data Honda Motor Co., Ltd., and Subsidiaries Years ended March 31 Yen U.S. dollars (millions except per share data) (millions except per share data) 2006 2007 2008 2008 Net sales and other operating revenue ¥ 9,907,996 ¥11,087,140 ¥12,002,834 $119,801 Operating income 868,905 851,879 953,109 9,513 Income before income taxes, minority interest 829,904 792,868 895,841 8,941 and equity in income of affiliates Equity in income of affiliates 99,605 103,417 118,942 1,187 Net income 597,033 592,322 600,039 5,989 Cash dividends paid during the period 71,061 140,482 152,590 1,523 Research and development 510,385 551,847 587,959 5,868 Total assets 10,631,400 12,036,500 12,615,543 125,916 Stockholders’ equity 4,125,750 4,482,611 4,544,265 45,356 Capital expenditures 457,841 627,066 654,030 6,528 (excluding purchase of operating lease assets) Depreciation 262,225 361,747 417,393 4,166 (excluding property on operating leases) Per share data Net income ¥ 324.33 ¥ 324.62 ¥ 330.54 $ 3.30 Dividends paid 38.5 77.0 84.0 0.84 Stockholders’ equity 2,259.26 2,460.28 2,504.36 25.00 Note: The consolidated financial statements as of and for the year ended March 31, 2008 have been translated into U.S. dollars at the rate of ¥100.19=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2008. Those U.S. dollar amounts presented in the consolidated financial statements and related notes are included solely for the reader. This translation should not be construed as a representation that all the amounts shown could be converted into U.S. dollars. Net Sales and Other Operating Revenue Operating Income and Operating Margin Equity in Income of Affiliates Unit Sales Motorcycles Automobiles Power Products Yen Yen Yen (billions) (billions) (%) (billions) (Thousands) (Thousands) (Thousands) 12,000 1,000 10.0 120 12,000 4,000 8,000 10,000 100 10,000 750 7.5 3,000 6,000 8,000 80 8,000 6,000 500 5.0 60 6,000 2,000 4,000 4,000 40 4,000 250 2.5 1,000 2,000 2,000 20 2,000 0 0 0 0 0 0 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 Operating Income (left scale) Operating Margin (right scale) Japan North America Europe Asia Other Regions Net Income and Return on Equity (ROE) Total Assets, Stockholders’ Equity, and Capital Expenditures and Depreciation Net Sales Stockholders’ Equity per Common Share (Excluding Property on Operating Leases) Motorcycle Business Automobile Business Financial Services Business Power Product and Other Businesses Yen Yen Yen Yen Yen Yen Yen (billions) (%) (billions) Yen (billions) (billions) (billions) (billions) (billions) 600 20.0 12,500 2,500 600 2,000 10,000 600 500 500 10,000 2,000 8,000 400 450 15.0 1,500 400 400 7,500 1,500 6,000 300 300 10.0 1,000 300 5,000 1,000 4,000 200 200 200 150 5.0 500 2,500 500 2,000 100 100 0 0 0 0 0 0 0 0 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 Net Income (left scale) Total Assets (left scale) Capital expenditures Japan North America Europe Asia Other Regions ROE (right scale) Stockholders’ Equity (left scale) Depreciation Stockholders’ Equity per Common Share (right scale) WorldReginfo - bc9832be-05b4-4eaa-80a4-f78d1968d3bb 4 Annual Report 2008 Operating Data Years ended March