Edgar Filing: HONDA MOTOR CO LTD

Form 6-K for August 2003

No.1-7628

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF August 2003

COMMISSION FILE NUMBER: 1-07628

HONDA GIKEN KOGYO KABUSHIKI KAISHA

(Name of registrant)

HONDA MOTOR CO., LTD.

(Translation of registrant’s name into English)

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

(Address of principal executive officers)

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

Form 20-F * Form 40-F

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

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

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

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

Yes No

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

Contents

Exhibit 1:

On August 7, 2003, Honda Europe Motorcycle S.r.l. started imports of the “XR125L” motorcycle produced by Honda’s subsidiary in Brazil, Moto Honda da Amazonia Ltda., with European sales starting in Germany. (Ref. #C03-048)

Exhibit 2:

On August 8, 2003, Honda Motor Co., Ltd. began a new automobile production joint venture with Dongfeng Motor Corp. in China - Dongfeng Honda Automobile (Wuhan) Co., Ltd. - for the production of Honda vehicles. (Ref. #C03-049)

Exhibit 3:

On August 19, 2003, Honda Parts Manufacturing Corp., Honda Motor Company’s parts manufacturing subsidiary in the Philippines, held an inauguration ceremony and began production of manual transmissions for automobiles at a new plant adjacent to its existing facility. (Ref. #C03-051)

Exhibit 4:

On August 26, 2003, Honda Motor Co., Ltd., announced the release of the new GX35, a 360-degree-inclinable, 4-stroke engine (35.8cc displacement) that will serve as a power source for trimmers and a variety of other handheld power equipment manufacturers on an OEM basis. (Ref. #P03-004)

Exhibit 5:

On August 26, 2003, Honda Motor Co., Ltd. announced that overseas production increased 19.9% in July over the corresponding month in 2002, the 31^st consecutive month of growth in that category. (Ref. #C03-053)

Exhibit 6:

On August 27, 2003 Honda Motor Co., Ltd. announced that as of August 2003, its cumulative worldwide production for automobiles reached 50 million units. (Ref. #C03-054)

Exhibit 7:

Annual report for the fiscal year ended March 31, 2003 (which was to be mailed to ADR stockholders for the Company in August 2003).

Exhibit 8:

English summary of Honda Report to Stockholders No. 118, which was prepared full in Japanese and mailed to stockholders of Honda Common Stock in Japan in August 2003.

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

HONDA GIKEN KOGYO

KABUSHIKI KAISHA

( HONDA MOTOR CO., LTD )

/s/ Satoshi Aoki

Satoshi Aoki

Senior Managing and

Representative Director

Date: September 12, 2003

LOGO

ref. #C03-048

Honda Starts European Sales of the Brazil-made “XR125L.”

Tokyo, August 7, 2003 — Honda Europe Motorcycle S.r.l. has started imports of the “XR125L” motorcycle produced by Honda’s subsidiary in Brazil, Moto Honda da Amazonia Ltda., with European sales starting in Germany. The sales will be extended to other countries in Europe including France and the U.K. This is the first time for Honda to sell a Brazil-made motorcycle in Europe.

The “XR125L” is a stylish 125cc model featuring an air-cooled, four-stroke, single-cylinder engine. Compared to the previous model, the sales price has been lowered, with sales in Germany set at 2,890 euros (suggested retail price). The annual unit sales forecast is 3,500 for the whole of Europe.

Honda’s Brazil-made motorcycles have already been exported to Central and South America, North America, Africa, Mexico, Australia and other areas. Due to the success of CRF150F, CRF230F which started to be exported to North America in the fall of 2002, the number of units exported from Brazil from January to June 2003 reached a new high of 37,000 units (225.6% compared to the previous year)

Honda, thus far, has exported motorcycles from China to Japan, Africa, Central and South America, and the Middle and Near East, from Thailand to Europe and Oceania, and from India to Europe, Africa, the Middle and Near East, and Central and South America. Taking advantage of the management resources of each region throughout the world and complementing the products as required between the regions, Honda will manufacture products in and supply them to the optimum locations to meet the ever diversifying customer needs. This is the basic idea of “Made by Global Honda” and Honda will further promote this strategy.

LOGO

Brazil-made “XR125L”

Main specifications of “XR125L”

L x W x H (m):

2.060 x 0.810 x 1.130

Engine type:

Air-cooled, four-stroke, single-cylinder

Displacement (cm³):

124

Manufacturing location:

Moto Honda da Amazonia Ltda. (Brazil)

PR materials and photographs of the Brazil-made “XR125L” can be downloaded from the following URL from August 7, 2003. To download, please use browser software such as Internet Explorer and directly type http://www.honda.co.jp/PR/ into the address bar.

(The above site is for the exclusive use of the press.)

LOGO

C03-049

Honda Announces New Automobile Production Plan in China

with Dongfeng Motor Corp.

Wuhan, August 8, 2003 – Honda Motor Co., Ltd. has begun a new automobile production joint venture with Dongfeng Motor Corp. in China — Dongfeng Honda Automobile (Wuhan) Co., Ltd. — for the production of Honda vehicles. An existing plant in Wuhan, Hubei will be upgraded to serve as the production site for Honda’s small SUV, the CR-V, with production slated to start during the first half of 2004. The annual production volume has been set at 30,000 units.

A new joint venture company, Dongfeng Honda Motor (Wuhan) Co., has been established with Honda assuming 50% of the shares of Wuhan Grand Motor Co., Ltd., which owns the vehicle production plant in Wuhan, Hubei. The equipment at this plant will be upgraded and enhanced for the 2004 production start-up. This will include the introduction of new welding and final quality control processes as well as improvements to the existing assembly and painting equipment, a total investment of approximately 44 million U.S. dollars. Employment will total approximately 600 associates.

In 1994, Honda and Dongfeng Motor established a joint venture automobile parts production company, Dongfeng Honda Automobile Parts Co., Ltd. (Huizhou, Guangdong), with the understanding that producing engines and complete vehicles was a future possibility. In 1998, as a part of a passenger car production project in Guangzhou, Honda and Dongfeng Motor established Dongfeng Honda Engine Co., Ltd. to produce engines for the Accord and Odyssey models.

Honda is pursuing this production project in Wuhan in accordance with the Chinese government’s policy guidelines for the automobile industry, in order to meet the expanding demand and diversifying needs of the Chinese automobile market which is expected to continue to grow rapidly in the future.

Outline of the new joint venture company

Name of the company:	Dongfeng Honda Automobile (Wuhan) Co., Ltd.
Established:	July 2003
Capital:	28 million U.S. dollars (about 3.4 billion yen)
Capitalization Ratio:	Honda Motor Co., Ltd.	50%
	Dongfeng Motor Corp.	50%
Location:	Economic & Technological Development District, Wuhan, Hubei
Employment:	About 600 associates (at the start of production)
Model to be produced:	CR-V
Production volume:	30,000 units/year
Production start:	First half of 2004

LOGO

Honda Parts Manufacturing Corp. (Head office: Suburbs of Manila, President: Haruyuki Inami), Honda Motor Company’s parts manufacturing subsidiary in the Philippines, made the following announcement on August 19 (Tues.,) 2003, at 12:00 local time (13:00 Japan time.)

C03-051

Honda Begins Production of Manual Transmissions at New Plant in the Philippines

Manila, August 19, 2003 — Honda Parts Manufacturing Corp., Honda Motor Company’s parts manufacturing subsidiary in the Philippines, held an inauguration ceremony today and began production of manual transmissions for automobiles at a new plant adjacent to its existing facility . The production capacity of the new plant is 140,000 manual transmissions per year, representing a capital investment of approximately 2 billion yen. The expansion will also increase employment by approximately 200 associates.

Since July 2002, Honda Parts Manufacturing Corp. has manufactured manual transmissions within the existing service parts plant and supplied them to Honda automobile plants within the ASEAN region. Production output in the fiscal year 2002 totaled approximately 16,000 units. Through the completion of the new plant, production for the current fiscal year, ending March 2004, is expected to reach approximately 60,000 units. In addition to supplying manual transmissions to countries within the ASEAN region, they will also be supplied to Honda automobile plants outside the ASEAN region, mainly in Europe.

Under the concept of “Made by Global Honda,” Honda has been working to establish a highly efficient and flexible global production and parts procurement network, making optimal use of the competitiveness of its production facilities located in every region of the world. The production start-up of the new manual transmission plant in the Philippines and the beginning of exports to countries outside the ASEAN region represents a part of this strategy. By capitalizing on its highly competitive production facilities in Asia, which produce both low cost and high quality components, Honda’s goal is to meet the increasing demand for automobile production while further enhancing its global competitiveness.

Outline of Honda Parts Manufacturing Corp.

Established:

December 1992

Location:

Laguna Technopark, Suburbs of Manila, Philippines

Representative:

Haruyuki Inami, President

Employment:

Approx. 330 associates (projected for March 2004)

Capital Investment:

810.8 million peso (approx. 1.8 billion yen) * 1 peso = 2.2 yen

Capitalization Ratio:

Honda Motor Co., Ltd. 100%

Production Start-up:

January 1994 (for automobile service parts)

July 2002 (for manual transmissions)

Products:

Manual transmissions

Automobile service parts (Mainly stamped parts including the bulkhead)

Annual Capacity:

140,000 manual transmissions

LOGO

ref. #P03-004

Honda Releases the New GX35 –A 360-degree-inclinable,

Ultra-Small 4-Stroke Engine

August 26, 2003—Honda Motor Co., Ltd. has announced the release of the new GX35, a 360-degree-inclinable, 4-stroke engine (35.8cc displacement) that will serve as a power source for trimmers and a variety of other handheld power equipment. Honda will also be supplying the engine to other power equipment manufacturers on an OEM basis.

The GX35 features the same lightweight and compact design, 360-degree-inclinability, and outstanding environmental performance as the 25cc-displacement GX25 that debuted in 2002 as the ideal engine for handheld operation, along with powerful output and tenacious torque for improved work efficiency.

The engine’s oil-immersed timing belt OHC configuration makes it possible to incorporate the valve train into the oil reservoir for substantial weight and volume savings. Honda’s original rotary slinger pumping lubrication system ensures full oil lubrication no matter what the engine angle, allowing it to be continuously operated or stored in any position.

The GX35 offers superb environmental performance, achieving a top-class^*1 ranking under US EPA (Environmental Protection Agency) Phase 2 regulations—the most stringent in the world—while achieving a power-to-weight ratio on par with that of a 2-stroke engine. It also delivers an outstanding balance of all-round performance combined with low noise and low vibration, for efficient, carefree operation. The GX35 also clears Japanese domestic Phase 2^*2 voluntary emissions regulations for 2011, and is expected to qualify for Stage 2^*3 certification under EU emissions regulations well ahead of the 2007 deadline.

EPA: Class I-A (under 65cc displacement) and Class IV (20cc-50cc displacement)

Japan Land Engine Manufacturers Association (LEMA) voluntary exhaust emissions regulations for small utility gasoline engines

EU Class SH2 (20cc-50cc displacement)

LOGO

GX35 360-degree-inclinable 4-stroke engine

l	Annual projected sales, worldwide: 70,000 units

l	Suggested list price (consumption tax not included): ¥38,000

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l Main Features of the GX35

O 360-degree-inclinable

•

Employs Honda’s original rotary slinger pumping lubrication system, which ensures full oil lubrication no matter what the engine angle, allowing the engine to be continuously operated or stored in any position.

O Tenacious power output

•

Specially selected valve timing settings deliver powerful output over a broad range of operating speeds. Ample low-speed torque ensures tenacious operating performance even when the engine speed falls under high-load conditions.

O Smooth starting and superb acceleration

•

Mechanical decompression results in a major reduction in starter rope pull weight, combining easy, efficient operation with the outstanding startup reliability that 4-stroke engines are known for.

•

An accelerator pump-equipped carburetor and ample low-to-midrange torque result in nimble acceleration immediately after startup, on par with that of a 2-stroke.

O High environmental performance

•

A Honda e-SPEC engine that achieves top-class^*1 ranking in American EPA (Environmental Protection Agency) Phase 2 regulations and CARB (California Air Review Board) Tier II regulations—the most stringent in the world.

•

The GX35 clears Japanese domestic Phase 2^*2 voluntary emissions regulations established by the Japan Land Engine Manufacturers Association for 2011, and is also expected to receive Stage 2^*3 certification under EU emissions regulations well ahead of the 2007 deadline. (EU Stage 1 emissions regulations first came into effect in 2004.) Starting with the GX35, Honda intends to earn Stage 2 certification for its entire lineup of engines sold in Europe well before the regulations come into effect.

EPA: Class I-A; CARB: under 65cc displacement

Japan Land Engine Manufacturers Association (LEMA) voluntary exhaust emissions regulations for small utility gasoline engines

EU Class SH2 (20cc-50cc displacement)

•

Top-of-class fuel economy and low oil consumption.

O Maintenance

•

The engine is designed to allow the cover to be removed by loosening a single bolt. The air cleaner cover can be removed and replaced with just one hand.

O Design

•

Built tough, with a full-cover construction that reduces snagging on branches or other objects during heavy operation. A side guard has also been added to the lower part of the muffler to handle rugged use.

•

Designed with a low center of gravity and a shape that doesn’t catch on the operator’s elbow, for greater operability and maneuverability.

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lSpecifications

Model Name		GX35
Type		e-SPEC air-cooled 4-stroke single-cylinder OHC
Displacement (cm³)		35.8
L x W x H (mm)		198x234x240
Outfitted Weight (kg)		3.88
Dry Weight(kg)		3.33
No. of Cylinders / Bore x Stroke (mm)		1 / 39x30
Maximum Output/Engine Speed (kW[PS]/rpm)		1.2[1.6]/7,000
Maximum Torque (N-m[kg-m]/rpm)		1.9[0.19]/5,500
Direction of Rotation		Counterclockwise (viewed from output shaft side)
Fuel Type		Automotive-grade unleaded gasoline
Fuel Tank Capacity (L)		0.65
Fuel Consumption (g/kW-h [g/PS-h])		360 [265]
Oil Reservoir Capacity(L)		0.1
Carburetor		Diaphragm type (overflow return)
Ignition		Transistorized magneto
Spark Plug		NGK CM5H/CMR5H
Starter		Recoil type

lCustomer Inquiries

Engine Department, Power Products Division

Honda Motor Co., Ltd.

3-15-1 Senzui, Asaka-shi, Saitama-ken, Japan 351-0024

TEL: +81-48-468-9009 FAX: +81-48-468-9017

Publicity information for the GX35 is available from the following URL:

http://www.honda.co.jp/PR/

(This site is intended solely for the use of journalists.)

-3-

LOGO

Ref.#C03-053

Honda Overseas Production Up 19.9% In July

August 26, 2003 — Honda Motor Co., Ltd., announced today that overseas production increased 19.9% in July over the same month in 2002, the 31st consecutive month of growth in that category.

Global production increased slightly by 0.9% for the month and was up 3.4% compared to the first seven months of 2002. Overseas production for the same period was up 20.9% over the previous year, led by a 14.3% increase in the United States and a 67.7% increase in Asia.

Domestic sales were down 17.3% in July. The Fit again was Honda’s best-seller for the month, totaling 14,695 units. Honda’s Life mini-vehicle (9,309 units) and Step-WGN (6,526 units) were the other best-sellers for the month.

Exports in July were down 11.5%, primarily because of decreased shipments to North America and Asia.

PRODUCTION, SALES, EXPORTS (July 2003)

PRODUCTION

	July			Annual Total-2003
	Units	Vs.7/02		Units	Vs.2002
Domestic (CBU+CKD)	100,636	-17.6	%	680,575	-15.6	%
Overseas (CBU only)	142,645	+19.9	%	1,062,235	+20.9	%
Worldwide Total *	243,281	+0.9	%	1,742,810	+3.4	%

excludes overseas CKD

REGIONAL PRODUCTION

	July			Annual Total-2003
	Units	Vs.7/02		Units	Vs.2002
North America	93,200	+11.1	%	741,014	+12.4	%
(USA only)	63,145	+9.3	%	506,770	+14.3	%
Europe	14,313	-11.3	%	111,191	+11.0	%
Asia	28,997	+61.7	%	172,554	+67.7	%
Others	6,135	+504.4	%	37,476	+132.5	%
Regional Total	142,645	+19.9	%	1,062,235	+20.9	%

-1-

SALES

	July				Annual Total-2003
Vehicle type	Units		Vs.7/02		Units		Vs.2002
Passenger Cars & Light Trucks	40,437		-20.9	%	296,972		-18.3	%
(Imports)	(2,015	)	+152.2	%	(13,675	)	+133.4	%
Mini Vehicles	19,048		-8.4	%	135,727		-23.3	%
Honda Brand TTL	59,485		-17.3	%	432,699		-19.9	%

EXPORTS

	July			Annual Total-2003
	Units	Vs.7/02		Units	Vs.2002
North America	21,110	-14.0	%	144,904	-14.1	%
(USA only)	20,212	-9.5	%	127,297	-13.8	%
Europe	9,013	-2.4	%	74,657	+69.4	%
Asia	1,481	-61.6	%	12,084	-42.2	%
Others	6,869	+18.3	%	42,972	+17.3	%
Total	38,473	-11.5	%	274,617	+1.6	%

For further information, please contact:

Masaya Nagai

Shigeki Endo

Tatsuya David Iida

Honda Motor Co., Ltd. Corporate Communications Division

Telephone: 03-5412-1512

Facsimile: 03-5412-1545

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LOGO

C03-054

Honda’s Cumulative Worldwide Production for Automobiles

Reaches 50 Million Units

Tokyo, August 27, 2003 — Honda Motor Co., Ltd. today announced that as of August 2003, its cumulative worldwide production for automobiles had reached 50 million units.

In 1963, Honda started automobile production with the mini truck, T360, and the small sports car, S500. Production volume increased through the subsequent introduction of such vehicles as N360 (in 1967), Civic (in 1972) and Accord (in 1976). After a period of twenty years, in 1983, cumulative worldwide production of automobiles reached 10 million units. Automobile production in the U.S. began in 1982 and quickly expanding in scale greatly contributing to Honda’s production total.

Cumulative worldwide production of automobiles reached 20 million units in 1990 and 30 million units in 1995. As production in Asia and other areas expanded, cumulative production of automobiles reached 40 million units in 1999 and 50 million units in August 2003.

Based on its fundamental policy of “Manufacture where there is demand,” Honda has actively engaged in overseas production activities. Starting with knockdown production of mini vehicles (N600 and TN 600) in Taiwan in 1969, Honda began automobile production (Accord) in the U.S.A. in 1982, as the first Japanese automobile manufacturer to do so. Production sites expanded to various locations worldwide and Honda is currently producing automobiles in a total of 19 sites in 15 countries.

Of the 50 million units, approximately 33.8 million units were produced in Japan and 12.6 million units in North America. The Civic series comprisesapproximately 15 million units and the Accord series approximately 13 million units.

-1-

<Honda’s worldwide automobile production sites>

(*1)

Year when production of complete vehicles commenced

As of August 2003

Country	Site	*(1) Production start-up**	Major production model
Japan	Saitama Factory Suzuka Factory Tochigi Factory Yokkaichi Factory, Yachiyo Industry Co., Ltd.	1963 1967 1990 1985	Accord, CR-V, Odyssey(*2), Step Wgn Civic, Fit, mini vehicles NSX, S2000, Insight Mini vehicles

U. S. A	Honda of America Mfg., Inc. Honda Manufacturing of Alabama, LLC	1982 2001	Accord, Civic, Element Odyssey

Canada	Honda Canada Inc.	1986	Civic, MDX, Pilot

Mexico	Honda de Mexico S. A. de C. V.	1995	Accord

Brazil	Honda Automoveis do Brazil, Ltda.	1997	Civic, Fit

U. K.	Honda of the U. K, Mfg., Ltd.	1992	Civic, CR-V

Turkey	Honda Turkiye A. S.	1997	Civic

Thailand	Honda Automobile (Thailand) Co., Ltd.	*1984	Accord, Civic, CR-V

Malaysia	Honda Malaysia Sdn Bhd.	*1969	Accord, Civic, CR-V, City

Indonesia	P. T. Honda Prospect Motor	*1975	Civic, CR-V, Stream

Philippine	Honda Cars Philippines Inc.	1992	Civic, CR-V

India	Honda Siel Cars India Ltd.	1997	Accord, City

Pakistan	Honda Atlas Cars (Pakistan) Ltd.	1994	Civic, City

China	Guangzhou Honda Automobile Co., Ltd.	1999	Accord, Odyssey(*2)

Taiwan	Honda Taiwan Co., Ltd.	*1969	CR-V

(*2)

Japan specification Odyssey

Related publicity information and photographs are available from August 27, 2003 at the following URL:

http://www.honda.co.jp/PR/

Please enter this URL directly into an internet browser (Internet Explorer, etc.)

(This site is intended solely for the use of journalists.)

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<Major events in the progress of Honda’s automobile production

towards reaching the 50 million-unit mark>

1948		Honda Motor Co., Ltd. established

1963		Production of the mini truck “T360” and the small sports car“S500”started

1965		Export of automobiles (S600) started

1967		N360 released

1969		Knockdown production of N600 and TN600 started in Taiwan.

		(Honda’s first overseas production)

		Production of N360 started in Malaysia

1972		Civic released

1975		Production of mini truck “TN ”, Life, Civic started in Indonesia

1976		Accord released

1978		Cumulative worldwide production of automobiles reaches 5 million units

1982		Production of Accord started in U.S.A.

1983		Cumulative worldwide production of automobiles reaches 10 million units

1984		Production of Accord started in Thailand

1986		Production of Accord started in Canada

1990		Cumulative worldwide production of automobiles reaches 20 million units

		Midship sports car, the NSX, released

1992		Local production of Accord started in U.K.

1994		Local production of Civic started in Pakistan

1995		Cumulative worldwide production of automobiles reaches 30 million units

		Production of Accord started in Mexico

		CR-V released

1997		Production of Civic started in Brazil

		Production of City started in India

		Production of Civic started in Turkey

1999		Cumulative worldwide production of automobiles reaches 40 million units

		Production of Accord started in China

		Open sports car, Honda S2000, released

2001		Cumulative production of automobiles manufactured in North America reaches 10 million units

		Fit(Jazz) released

2003		Cumulative worldwide production of automobiles reaches 50 million units

-3-

<Honda’s yearly cumulative world production of automobiles>

(Thousands of units)

	Domestic production	World production	Cumulative world production	*For reference: Production in major countries
	Domestic production	World production	Cumulative world production	U.S.A.	Canada	U.K.	Thailand
1963	1.5	1.5	1.5
1964	22.6	22.6	24.1
1965	52.5	52.5	76.6
1966	57.8	57.8	134.4
1967	149.3	149.3	283.7
1968	318.8	318.8	602.5
1969	364.9	364.9	967.4
1970	392.9	392.9	1,360.3
1971	308.6	308.6	1,668.9
1972	330.6	330.6	1,999.5
1973	355.0	355.0	2,354.5
1974	428.8	428.8	2,783.3
1975	413.8	413.8	3,197.1
1976	560.1	560.1	3,757.1
1977	664.9	664.9	4,422.1
1978	742.7	742.7	5,164.7
1979	801.9	807.3	5,972.0
1980	956.9	963.9	6,935.9
1981	1,008.9	1,051.8	7,987.7
1982	1,014.8	1,091.3	9,079.1	1.0
1983	1,032.4	1,169.9	10,249.0	55.3
1984	989.0	1,203.2	11,452.2	138.6			0.8
1985	1,120.3	1,360.0	12,812.2	145.3			1.2
1986	1,236.4	1,579.3	14,391.5	238.2	0.5		0.8
1987	1,241.1	1,720.6	16,112.1	324.1	15.7		3.5
1988	1,293.4	1,868.8	17,980.8	366.4	50.0		7.2
1989	1,363.2	1,949.2	19,930.0	362.4	86.6		10.4
1990	1,383.7	1,988.9	21,918.9	435.4	106.0		12.0
1991	1,358.4	1,995.5	23,914.4	451.2	99.2		12.6
1992	1,199.8	1,835.0	25,749.4	458.3	104.1	1.1	17.2
1993	1,150.8	1,764.0	27,513.5	403.8	100.6	32.1	23.7
1994	997.7	1,722.0	29,235.4	498.7	108.3	42.9	29.5
1995	967.3	1,795.2	31,030.6	553.0	106.1	91.2	26.0
1996	1,093.1	2,085.1	33,115.7	634.4	144.5	105.9	44.5
1997	1,306.4	2,317.0	35,432.8	648.3	165.2	108.1	35.0
1998	1,243.5	2,329.5	37,762.2	694.7	179.8	112.3	15.3
1999	1,221.0	2,425.2	40,187.4	685.9	274.9	114.5	32.7
2000	1,223.9	2,485.2	42,672.6	677.1	326.8	74.0	35.9
2001	1,284.7	2.653.3	45,326.0	694.7	371.0	114.2	45.7
2002	1,386.4	2,899.2	48,225.1	752.7	361.0	176.7	67.5
2003(1-7)	680.6	1,742.8	49,967.9	506.8	234.2	111.2	67.9
August forecast	74.0	210.0	50,177.9	68.0	26.0	7.0	7.0

Cumulative total	33,794.5	50,177.9		9,794.1	2,860.6	1,091.2	496.3

* Domestic production

Based on data reported by JAMA (CBU + CKD)

* World production

Up to 1996: total domestic production (CBU + CKD) plus export KD set

From 1997: total domestic production (CBU + CKD) plus overseas production (based on line-off figures excluding CKD)

* Production in major countries

Production records based on local line-off figures

LOGO

ANNUAL REPORT 2003

FOR THE YEAR ENDED MARCH 31, 2003

Honda Motor Co., Ltd.

CONTENTS

FINANCIAL HIGHLIGHTS		1

TO OUR SHAREHOLDERS		3

REVIEW OF OPERATIONS		9

MOTORCYCLE BUSINESS		10

AUTOMOBILE BUSINESS		14

FINANCIAL SERVICES		18

OTHERS		19

FOCUS:

BUSINESS PROGRESS IN ASIA		21

ENVIRONMENT AND SAFETY		29

CORPORATE GOVERNANCE		32

Honda’s HISTORY		35

CORPORATE INFORMATION		36

PRINCIPAL MANUFACTURING FACILITIES		37

BOARD OF DIRECTORS AND CORPORATE AUDITORS		38

FINANCIAL SECTION		39

INVESTOR INFORMATION		84

CORPORATE PROFILE

Established in 1948, Honda Motor Co., Ltd., is one of today’s leading manufacturers of automobiles and the largest manufacturer of motorcycles in the world. The Company is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products that incorporate Honda’s highly efficient internal combustion engine technologies, ranging from small general-purpose engines to specialty sports cars. Approximately 15.5 million Honda engines were sold worldwide during the fiscal year ended March 31, 2003.

By following a corporate strategy that emphasizes speed, efficiency, flexibility and innovation in every facet of the Company’s operations–from product development and manufacturing to marketing – Honda strives to achieve the ultimate goal of satisfying its customers. Through a worldwide commitment to advancing this objective, Honda – and its many partners who share this commitment – have succeeded in creating a global network that comprises 439 subsidiaries and affiliates, and continue to supply Honda products to most of the industrialized countries of the world.

This annual report contains the consolidated financial statements of Honda Motor Co., Ltd., and its subsidiaries, prepared for holders of Honda American and European shares. Please note that the financial statements appearing in the Notice of Convocation of the 79th Ordinary General Meeting of Stockholders, which was held in Tokyo, Japan, on June 24, 2003, were prepared on the basis of accounting principles generally accepted in Japan in accordance with the Japanese Commercial Code and related solely to Honda Motor Co., Ltd., and were not consolidated with those of its subsidiaries. On May 30, 2003, the original notice in the Japanese language was mailed to holders of Honda common stock in Japan and an English translation thereof was mailed to holders of Honda American depositary shares.

CAUTION WITH RESPECT TO FORWARD-LOOKING STATEMENTS

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.

Although Honda believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth below.

Honda believes that the following important factors, among others, in some cases have affected, and in the future, could affect, its operations: the political, economic and social conditions in Japan, the United States and elsewhere, including 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 that such current or future conditions and policies affect the automobile, motorcycle and power products industries and markets in Japan and the United States, 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 products 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; and the effects of economic stagnation or recession in Honda’s principal markets and exchange rate fluctuations on the Company’s results of operations.

FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

Honda Motor Co., Ltd. and Subsidiaries

I. Financial Data

Years ended or at March 31	Yen (millions except per share amounts)						U.S. dollars (millions except per share amounts)
	2001		2002		2003		2003
Net sales and other operating revenue	¥	6,463,830	¥	7,362,438	¥	7,971,499	$	66,319
Operating income		406,960		639,296		689,449		5,736
Income before income taxes and equity in income of affiliates		384,976		551,342		609,755		5,073
Net Income		232,241		362,707		426,662		3,550
Per common share (Basic)		238.34		372.23		439.43		3.66
Per American depositary share (Basic)*		119.17		186.11		219.71		1.83
Cash dividends paid during the period		22,412		24,360		30,176		251
Per common share		23		25		31		0.26
Per American depositary share*		11.5		12.5		15.5		0.13
Stockholders’ equity		2,230,291		2,573,941		2,629,720		21,878
Per common share		2,288.87		2,641.55		2,734.69		22.75
Per American depositary share*		1,144.43		1,320.77		1,367.34		11.37
Total assets		5,667,409		6,940,795		7,681,291		63,904
Depreciation		170,342		194,944		220,874		1,838
Capital expenditures		285,687		303,424		316,991		2,637
ROE (%)		11.2		15.1		16.4		—
Equity ratio (%)		39.4		37.1		34.2		—

Honda’s common stock-to-ADR exchange ratio was changed from two shares of common stock to one ADR, to one share of common stock to two ADRs, effective January 10, 2002. Per American depositary share information has been restated for all periods presented to reflect this four-for-one ADR split.

LOGO

Throughout this annual report, the United States dollar amounts have been translated from Japanese yen solely for the convenience of the reader at the rate of ¥120.20=US$1, the mean of the telegraphic transfer selling exchange rate and the telegraphic transfer buying exchange rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2003.

FINANCIAL HIGHLIGHTS

II. Operating Data

	Yen (millions)						U.S. dollars (millions)
Years ended or at March 31	2001		2002		2003		2003
Net Sales Breakdown
Japan
Motorcycle Business	¥	97,016	¥	101,587	¥	98,391	$	819
Automobile Business		1,529,428		1,654,238		1,513,596		12,592
Others		113,896		112,921		136,719		1,137

North America
Motorcycle Business	¥	259,688	¥	348,832	¥	329,073	$	2,738
Automobile Business		2,999,478		3,529,560		3,926,848		32,669
Others		222,638		269,535		312,005		2,596

Europe
Motorcycle Business	¥	157,300	¥	172,378	¥	175,736	$	1,462
Automobile Business		311,295		336,844		420,292		3,497
Others		53,135		54,330		65,933		549

Other Regions
Motorcycle Business	¥	291,300	¥	325,103	¥	374,895	$	3,118
Automobile Business		391,125		409,100		579,358		4,820
Others		37,531		48,010		38,653		322

Total
Motorcycle Business	¥	805,304	¥	947,900	¥	978,095	$	8,137
Automobile Business		5,231,326		5,929,742		6,440,094		53,578
Others		427,200		484,796		553,310		4,604


	thousands
Unit Sales Breakdown
Japan
Motorcycle		407		404		432
Automobile		776		878		849
Power Products		164		409		472

North America
Motorcycle		519		590		610
Automobile		1,346		1,368		1,522
Power Products		1,412		1,601		1,872

Europe
Motorcycle		341		315		305
Automobile		191		176		207
Power Products		1,269		1,012		1,290

Other Regions
Motorcycle		3,851		4,786		6,733
Automobile		267		244		310
Power Products		1,039		904		950

Total
Motorcycle		5,118		6,095		8,080
Automobile		2,580		2,666		2,888
Power Products		3,884		3,926		4,584

The geographic breakdown is based on the location of affiliated and unaffiliated customers.

TO OUR SHAREHOLDERS

TO OUR SHAREHOLDERS

The Year in Review

Looking at the economic environment surrounding Honda during fiscal 2003, ended March 31, 2003, the U.S. economy showed some signs of recovery, but then slowed again. At the same time, the economies in the major European countries were sluggish, while Asian countries displayed strong overall growth. In Japan, the economic situation remained unfavorable, with consumer spending in a slump.

Within this environment, Honda’s vision for the year 2010 remains focused on being a company that our customers and society want to exist. We have developed various strategies for creating new value, cultivated businesses that are firmly rooted in local communities, and contributed to the improvement of safety and the environment, based on our three directions: “Value Creation”, “Glocalization” and “Commitment to the Future”. By following these directions, Honda improved its efficiency and speed in the areas of development, production and sales, and strengthened its foundation for dealing flexibly with global trends.

During fiscal 2003, Honda sold 8,080,000 motorcycles, 2,888,000 automobiles, and 4,584,000 power products, representing records in each category. Most importantly, this enabled us to expand our relationships with new customers.

Net sales and other operating revenue, operating income, income before income taxes and equity in income of affiliates, and net income all reached record highs. Thanks to an increase in sales volume overseas, net sales grew by 8.3% over the previous year to ¥7,971.4 billion.

TO OUR SHAREHOLDERS

Operating income increased by 7.8% to ¥689.4 billion, due mainly to increased revenue in Europe and Asia together with ongoing cost cutting efforts, which more than offset increased selling, general and administrative expenses as well as research and development costs.

Income before income taxes and equity in income of affiliates increased by 10.6% to ¥609.7 billion and net income improved 17.6% to ¥426.6 billion including the contributions of higher equity in income of affiliates, mainly in the Asian region. In addition, basic net income per common share reached ¥439.43.

Looking at Honda’s efforts during the fiscal year by business category, in our motorcycle business we introduced new products with new value that meet our customers’ varied needs. We also actively switched to environment-friendly four-stroke engines.

In the Asian region, where the market is expanding along with an economic recovery, motorcycles are positioned as a highly convenient mode of transportation, and Honda boosted its sales significantly by offering products that meet customer needs at affordable prices. Moreover, in Latin America, where the economic environment is unfavorable, we managed to expand our sales by offering attractive, new products. As a result of these efforts, the overall unit sales volume of motorcycles grew by 32.6% to 8,080,000 units.

In our automobile business, we have been working to improve environmental performance and safety, while strengthening our product lineup by introducing attractive new products that offer new value to meet the needs of our customers. Automobile unit sales rose by 8.3% to 2,888,000 units, mainly because of favorable sales in North America.

Honda strengthened its position in the passenger car segment in the North American market by carrying out a full model change of the Accord, our mainstay model, with favorable sales. We moved to expand our product lineup in order to meet a wider range of customers by launching the Element, designed to appeal to younger generations, and the Pilot sport utility vehicle (SUV) – both in the light truck segment, where the market has continued to grow. As a result of these efforts, our sales in North America in fiscal 2003 rose by 11.3% to a record 1,522,000 units, even as overall demand in the U.S. in calendar 2002 dropped from the previous year to 16.84 million units.

In Japan, the overall market for automobiles during fiscal 2003 was flat at 5.86 million units, while Honda’s sales in the subcompact car segment were favorable, with the Fit achieving the best-selling car title in calendar 2002. However, Honda’s unit sales dropped by 3.3% to 849,000 units, due to intensified competition in the minivan segment with overall demand shifting to the subcompact car segment.

In Europe, we have launched products that better meet the market’s needs, reorganized our sales network, improved the capacity utilization rate at our automobile plant in the United Kingdom by manufacturing the CR-V for the North American market, and worked to reduce costs. As a result, while the economies of the major European countries were sluggish, our automobile unit sales in Europe during fiscal 2003 rose by 17.6% to 207,000 units. This was due primarily to strong sales of the Jazz in the growing subcompact car segment and the successful full model change of the CR-V in the SUV segment. In addition, production at the U.K. auto plant grew by 42.7% to 186,000 units. Consequently, profitability also improved.

TO OUR SHAREHOLDERS

The total sales volume registered in Asia, Oceania, South America, the Middle East and Africa grew 27% to 310,000 units. In the Asian region, where the market has experienced remarkable expansion, we conducted aggressive sales activities making good use of our motorcycle business experience and our strong brand image. Thanks to these sales activities, coupled with a full model change of both the CR-V and City in the ASEAN region, and the successful launch of the Odyssey minivan in China, we achieved a significant sales increase in Asia. In response to this increasing sales demand, we began producing automobiles at new factories in Malaysia, Indonesia and Taiwan. And, in China, we increased our annual production capacity from 50,000 units to 120,000 units.

Looking at our power products business, Honda has applied its environmentally-friendly engine technology to a variety of commonly used products, including general-purpose engines, electric generators, outboard engines, water pumps, and lawnmowers. As a result, we have been able to meet a wide variety of customer needs, ranging from commercial to home-use equipment. In fiscal 2003, we equipped an outboard engine with our newly developed four-stroke engine, which offers superior environmental performance, and marketed it worldwide. We introduced, first in Japan, a lighter weight version of our four-stroke general-purpose engine, which can be operated in any position. Unit sales of power products increased by 16.8% to 4,584,000 units, boosted by our efforts to have original equipment manufacturers in Europe and North America equip their products with Honda engines.

Toward our commitment to the environmental challenge, one of the most important issues we face today, Honda expanded its lineup of automobiles equipped with our “i” series engines, which offer lower exhaust emissions and higher fuel economy. At the same time, we have also begun limited lease-sales of the FCX fuel cell vehicle in Japan and the U.S. – the first step toward the realization of a zero emissions vehicle to protect the interests of the next generation.

Further, in our motorcycle business, in addition to switching to a four-stroke engine, in January 2003 we launched scooter models in Europe equipped with an electronically controlled fuel injection system (PGM-FI), which simultaneously reduces fuel consumption and cuts exhaust emissions.

Our View of the Future

Fears of a progressing slowdown in the U.S. economies, and its impact on the global business environment are anticipated to increase, and competition in the Japanese market is expected to intensify amid continuing weak consumer spending. Other global concerns, including the situation in Iraq, are also expected to affect the overall global economies. In these circumstances, Honda expects competition in each of its markets to remain challenging.

Competition among companies is likely to grow more intense amid global corporate mergers and acquisitions. Faced with these challenges, Honda intends to work actively to improve the safety and environmental functionality of our products, while continuing to rapidly develop products that create new value for our customers around the world.

TO OUR SHAREHOLDERS

Our Efforts in Each Business

In fiscal 2004, we expect to boost our unit sales in each product segment, with motorcycle sales reaching 9,480,000 units, automobile sales reaching 3,110,000 units, and power product sales reaching 5,180,000 units.

In our motorcycle business, we will expand operations mainly in Asia. In markets such as India, China and Indonesia where a small percentage of the population own a motorcycle, we intend to cultivate latent demand by introducing products that are reasonably priced and offer high added value. In addition, we are continuing to expand our local production capacity in order to meet the growing demand in these markets. In China, we began motorcycle-related research and development in Shanghai in April with the goal of creating a product strategy that can rapidly reflect the needs of our local customers.

In our automobile business, in the North American light truck segment, the Pilot and the Element, which were launched in 2002, will make a contribution for a full year, even as sales of the Odyssey and Acura MDX will remain stable. In order to meet the robust demand from our customers for these North American-made light truck models, we completed the expansion of the second production line at our Canadian plant in January 2003 and began building a second production line at our Alabama plant, which is on target for completion in the spring 2004. When this line is finished, our annual production capacity in North America will reach 1.4 million vehicles, including a light truck production capacity of 495,000 vehicles. Thus, we are working to strengthen our business on the production side in the light truck segment, which has grown to account for more than 50% of the U.S. automobile market.

To beef up our product lineup in the passenger car segment, we are planning a complete makeover of our Acura TL luxury performance sedan this fall, following the successful launch in April of our new Acura TSX sports sedan.

In Japan, where the market environment is likely to remain unfavorable, we launched the Canadian-made SUV MDX in fiscal 2003 and the U.S.-made light truck Element in April 2003 and the luxury sedan Inspire in June 2003. In the minivan segment, where the ownership volume is increasing, we are planning to make some full and minor model changes in order to improve the attractiveness of our product lineup.

In Europe, we introduced the all-new Accord in January 2003 and have plans to add Honda’s independently developed diesel engine version during this fiscal year. This move should improve the attractiveness of our products in Europe, as demand for diesel–powered models in this class are expected to continue expanding. On the production side, we will continue efforts to improve the cost competitiveness at our U.K. auto plant by increasing the parts procurement from our facilities in Asia and working to further reduce costs.

In other regions, we plan to expand our business in the subcompact car category, which represents the major part of the automobile market. For this purpose we have introduced the Fit in Brazil in April 2003, to be followed by the Fit Saloon in China. We are also boosting the production capacity at our automobile plant in Guangzhou City, China to 240,000 units p.a. by the spring of 2004. This year in the ASEAN region, we also began selling the City and the Accord, both of which were launched in Thailand in 2002.

TO OUR SHAREHOLDERS

In our power products business, we expanded the production capacity of general-purpose engines at our factory in Thailand last year. This year, we plan to export these engines to Europe and North America.

In Japan, we are expanding our products designed for home use, including a series of compact push-type lawn-mowers and a series of hybrid snow blowers.

Expansion of Global Networking

Honda has long been committed to manufacturing products close to the customer as a means to develop highly effective and efficient operations and quickly meet our customers’ needs. But we are also expanding our product lineup and improving our production efficiency and cost competitiveness by making greater use of Honda’s resources on a global basis. We continue to advance this “Made by Global Honda” approach by incorporating the energy and power of our Asian operations into our global networking.

In our motorcycle business, along with expanding our complementary supply network centered in China and Thailand, we are planning to develop products made in India and Brazil for global distribution and greatly increase models supplied from various regions in the world. As a first move, in April, we began exporting to Europe a 100cc Indian made scooter that carries the price equivalent to a 50cc scooter.

In our automobile business, in the ASEAN region where major tariff reductions continue, we are incorporating new factories into our network, while eliminating redundant production of models in multiple plants. Thus, we aim to build a highly efficient complementary supply system between each market. Accompanying the launch of the City sedan, which underwent a full model change in the ASEAN region and the Gulf states of the Middle East, we increased the annual production capacity at our Thai factory–where the City is assembled–from 100,000 units to 120,000 units in May 2003.

In addition to finished cars, in the area of powertrains, we will start exporting transmissions manufactured in Indonesia and the Philippines to our U.K. auto plant this fall. We are also establishing a new auto plant in China. This will mark the first time a foreign automaker has set up a joint-venture plant in China to produce passenger cars exclusively for export. In 2004, we plan to start production at this plant and export to Europe and other parts of Asia.

The Environment and Safety

Our efforts to make lower emission vehicles and reduce CO₂ emissions are not limited to fuel cell cars and hybrid cars. We are also working harder than ever to make our conventional gasoline-powered engines more environmentally friendly.

TO OUR SHAREHOLDERS

In our motorcycle business, this year we plan to launch on the Asian market a low-emission model equipped with our electronically controlled fuel injection system (PGM-FI), which we are already selling in Europe. At the same time, we are working actively to reduce the burden placed on the environment by promoting the Green Factory concept in various areas of production and conducting environmental load calculation analysis in areas such as distribution and sales. Through all of these means, we will continue to strive to minimize the impact from our entire operations on the global environment.

Redistribution of Profits to Our Shareholders

Honda considers redistribution of profits to shareholders as one of the most important management issues. Accordingly, we attempt to increase our corporate value through research and development, which is indispensable for future growth, and through capital expenditures to expand our operations.

We will increase our annual dividend per common share by ¥4 to ¥32 for fiscal 2003 and plan to increase it by another ¥6 to ¥38 per common share in fiscal 2004.

In addition, with the goal of activating capital strategies, we acquired a total of 14.38 million shares of common stock of Honda Motor Co., Ltd. amounting to ¥63 billion during the period from June 25, 2002 to April 15, 2003. Moreover, based on a resolution at the 79th ordinary general meeting of shareholders on June 24, 2003, we intend to purchase common stock through the market, with an upper limit of 25 million shares or the amount of ¥100 billion during the period leading up to the next ordinary general meeting of shareholders.

Finally, I would like to say that I will take on weighty responsibilities as Honda’s new president during the year, as we make further efforts to promote the “Made by Global Honda” concept, based on the foundation laid by Honda’s former President Hiroyuki Yoshino. I intend to strengthen the company’s efforts in the three directions of “Value Creation”, “Glocalization”, and “Commitment to the Future”, with the aim of ensuring that Honda is a company that our customers and society want to exist.

We hope that we will be able to count on the continued support of all of our shareholders.

June 24, 2003

LOGO

Takeo Fukui

President and Chief Executive Officer

REVIEW OF OPERATIONS

LOGO

REVIEW OF OPERATIONS—MOTORCYCLE BUSINESS

MOTORCYCLE BUSINESS

LOGO

Fiscal 2003 Results

In fiscal 2003, motorcycle unit sales, including all-terrain vehicles (ATVs) and personal watercraft (PWC), jumped 32.6% to 8,080,000 units, mainly as a result of robust sales in other regions, centered on Asia. Revenue grew by 3.2% to ¥978.0 billion due to an increase in unit sales and a positive translation effect from the depreciation of the yen against the euro. Operating income dropped by 15.6% to ¥58.7 billion and the operating margin was 6.0%.

Thousands

% change

Yen (millions)

% change

2002

2003

2003/2002

2002

2003

2003/2002

Japan

404

432

6.9

Japan

101,587

98,391

(3.1

North America

590

610

3.4

North America

348,832

329,073

(5.7

)

Europe

315

305

(3.2

)

Europe

172,378

175,736

1.9

Other Regions

4,786

6,733

40.7

Other Regions

325,103

374,895

15.3

Total

6,095

8,080

32.6

Total

947,900

978,095

3.2

LOGO

REVIEW OF OPERATIONS—MOTORCYCLE BUSINESS

LOGO

JAPAN

In Japan, unit sales were up by 6.9% to 432,000 units, mainly as a result of stronger scooter sales. In fiscal 2003, we launched the scooter Today, which is manufactured in China, and comes fully equipped but at a reasonable price. We also introduced the leisure bike Solo, which has a unique design, and made a full model change to the CB1300 Super Four sports bike, together with improving its handling. The light motorcycle market has been expanding, and we improved the performance of the scooter Fusion for this market in response to requirements from young users.

NORTH AMERICA

In North America, unit sales rose by 3.4% to 610,000 units, mainly because of an increase in sales of ATVs and off-road bikes. The new products we launched in North America included the ATV TRX650FA, which realizes superior driving performance and handling capabilities, the sports bike ST1300, and the super sports bike CBR600RR, which offers excellent performance. We also launched the off-road bikes CRF150F and CRF230F, our first Brazilian-made models exported to North America.

REVIEW OF OPERATIONS—MOTORCYCLE BUSINESS

LOGO

EUROPE

In Europe, the economy remained sluggish and the markets in the individual European countries contracted. In this situation, Honda’s unit sales shrank by 3.2% to 305,000 units. Sales declined in all countries except the United Kingdom, where unit sales increased mainly due to favorable scooter sales.

Regarding new products, we launched the Thai-made Innova, the 125cc cub-model, as a part of the achievement of our “Made by Global Honda” approach. We also introduced the Pantheon in the steadily growing scooter segment. This scooter features Honda’s electronically controlled fuel injection system (PGM-FI), which we recently developed for use with light motorcycles.

OTHER REGIONS

In other regions (i.e., Asia, Oceania, Latin America, the Middle East and Africa), unit sales surged 40.7% to 6,733,000 units.

In the Asian region, which is showing particularly strong growth, we launched the family bike Wave100 in Thailand, at a price we managed to lower through our cost cutting efforts. In India, we introduced the sporty scooter Dio, which features European-style. And, in Indonesia, we marketed the 125cc cub-model Karisma, with an exterior design modified to meet local customers’ tastes. Sales of all of these products were favorable. In South America, we launched the sport motorbikes NXR125 and NXR150.

REVIEW OF OPERATIONS—MOTORCYCLE BUSINESS

LOGO

Business Development in Fiscal 2004

In fiscal year ending March 2004, we project that motorcycle unit sales including all-terrain vehicles (ATVs) and personal watercraft (PWC) to rise by 17.3% to 9,480,000 units.

In Japan, we will launch a second Chinese-made product with attractive price to follow the Today. In the sport model category, we have begun to introduce in Japan, as well as in Europe and North America, the CBR600RR as our new core sports model for the future. The CBR600RR was developed using technology from the RC211V, which posted a formidable performance in winning the MotoGP road race world championship last year. We plan for fiscal 2004 unit sales in Japan to remain at the previous year’s level of 430,000 units.

In North America, we expect overall demand to slow a bit, including demand for ATVs. In this situation, Honda aims to increase sales by launching new motorcycle and ATV models, along with strengthening its sales network. We are planning for an increase in unit sales in fiscal 2004 by 9.8% to 670,000 units.

In Europe, we expect the market environment to remain unfavorable. Our plan for fiscal 2004 calls for unit sales to shrink by 4.9% to 290,000 units.

In other regions, we intend to increase our production capacities to meet the growing demand in Asia for motorcycles, and our unit sales in fiscal 2004 are expected to rise by 20.2% to 8,090,000 units. In addition to models that are manufactured for export at our factories in China and Thailand, we are developing scooters made at our factory in India and motorcycles built in Brazil for sale around the world. We plan to greatly increase models that are supplied across regions, in addition to supply from Japan. In Latin America, we will strengthen our sales network and expand sales by improving the attractiveness of our products, enhancing our price competitiveness, and upgrading our sales network.

REVIEW OF OPERATIONS—AUTOMOBILE BUSINESS

AUTOMOBILE BUSINESS

LOGO

Fiscal 2003 Results

In fiscal 2003, automobile unit sales grew by 8.3% to 2,888,000 units as a result of favorable sales in North America and other regions, centered on Asia, except Japan. Net sales increased by 8.6%, to ¥6,440 billion, mainly due to increased unit sales, which offset the negative impact from the appreciation of the yen against the U.S. dollar. Operating income expanded by 7.6% to ¥560.1 billion, and operating margin was 8.7%.

Thousands

% change

Yen (millions)

% change

2002

2003

2003/2002

2002

2003

2003/2002

Japan

878

849

(3.3

Japan

1,654,238

1,513,596

(8.5

North America

1,368

1,522

11.3

North America

3,529,560

3,926,848

11.3

Europe

176

207

17.6

Europe

336,844

420,292

24.8

Other Regions

244

310

27.0

Other Regions

409,100

579,358

41.6

Total

2,666

2,888

8.3

Total

5,929,742

6,440,094

8.6

LOGO

REVIEW OF OPERATIONS—AUTOMOBILE BUSINESS

LOGO

JAPAN

During fiscal 2003, overall industry demand for automobiles in Japan totaled 5,860,000 units, about the same level as the previous year. While Honda enjoyed brisk sales of the Fit, Mobilio, and all-new Accord, which received Japan’s Car of the Year award, unit sales of the Step Wagon and Stream declined. As a result, unit sales in Japan fell by 3.3% to 849,000 units.

The new products Honda launched in fiscal 2003 were the Fit 1.5T, equipped with a newly developed 1.5L VTEC engine that combines high performance with high fuel economy, the Fit Aria, a small sedan manufactured in Thailand, and the Canadian-made SUV MDX.

NORTH AMERICA

During the calendar 2002, overall industry demand for automobiles in the United States dropped by 2% to 16,840,000 units.

Despite this situation, Honda’s unit sales of automobiles in North America rose by 11.3% to a record high 1,522,000 units in fiscal 2003. This was attributable to the launch of two new models, the Pilot and Element, in addition to steady sales of the all-new Accord and favorable sales of light truck models, such as CR-V and Odyssey.

In order to meet increased demand for light trucks in the North American market, Honda boosted its local production capacity in North America. At the Canadian automobile assembly plant, we expanded the production capacity on the first and second lines by 30,000 units, bringing the overall annual production capacity to 390,000 units. Of this figure, the production capacity for light trucks is 195,000 units. Moreover, the Alabama automobile assembly plant, which began production in November 2001, reached its full capacity of 150,000 units a year, bringing the total annual production capacity in North America for light trucks and passenger cars to 1,250,000 units.

REVIEW OF OPERATIONS—AUTOMOBILE BUSINESS

LOGO

EUROPE

In Europe, the economy remained weak, but Honda’s unit sales in that region grew by 17.6% to 207,000 units, thanks to strong sales of the Jazz and CR-V.

Further, we added a diesel car to our Civic lineup, as demand for diesel cars is particularly strong in continental Europe. Thus, we managed to meet a wide range of customer needs. In addition to increased sales within the region, exports of the CR-V to North America increased, and the capacity utilization rate at our U.K. plant improved remarkably. Our U.K. plant, which celebrated ten years of operations in October 2002, achieved the cumulative production of the 1,000,000-unit mark in February 2003.

OTHER REGIONS

Unit sales in other regions increased by 27% to 310,000 units, as a result of sales growth in Asia. Especially in China, the passenger car market broke through the 1,000,000-unit mark in calendar 2002. Honda’s sales in China were favorable, and we began local production there of the Odyssey, in addition to the Accord. In order to meet growing local demand, we increased our annual production capacity in China to 120,000 units.

In the ASEAN region, we increased production capacity at our Thai plant, with the goal of meeting expanding demand inside and outside the region. In addition, we began operations at new automobile assembly plants in Malaysia, Indonesia, and Taiwan.

Business Development in Fiscal 2004

In the year ending March 2004, we plan to increase automobile unit sales by 7.7% to 3,110,000 units.

The sales environment in Japan is likely to remain unfavorable. However, in addition to starting sales of the North American-made SUV MDX and the Element, we will work to improve the attractiveness of our products in the minivan segment by making substantial improvements and full model changes to existing models. For our sedan models and minivehicles as well, we will work to strengthen our products through full model changes.

REVIEW OF OPERATIONS—AUTOMOBILE BUSINESS

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Further, in order to improve our sales efficiency, we are developing a nationwide IT infrastructure. With this strategy, we project a 0.7% increase in our fiscal 2004 unit sales, to 855,000 units.

In the North American region, sales of the Odyssey, Pilot, and Acura MDX are expected to continue growing thanks to the full-scale operations at the first production line at the Alabama automobile assembly plant and an increased production capacity at the Canadian automobile assembly plant. We project fiscal 2004 unit sales to increase by 2.5% to 1,560,000 units, due to stable sales of the all-new Accord and the introduction of new models, such as the Element, which we launched in December 2002, the sports sedan Acura TSX, which we put on the market this spring, and the luxury performance sedan Acura TL, which will have a full model change this fall. In addition, we are building a second line at our Alabama plant in order to increase our production capacity for light trucks. In the spring of 2004, the annual production capacity at the Alabama plant will total 300,000 units.

In Europe, we expect steady sales of the remodeled Accord, launched at the beginning of 2003, supported by a diesel-powered version to be added during this year. Moreover, we will improve the attractiveness of the the core model of our European automobile business, such as the U.K.-built Civic. We project unit sales in Europe to grow by 1.4% to 210,000 units in fiscal 2004.

We expect unit sales in other regions to rise by 56.5% to 485,000 units in fiscal 2004. In China, which is experiencing dramatic growth, we will boost our local production capacity to 240,000 units a year, and strive to meet the expanding demand in that country. In addition to the Accord and Odyssey, which we have been marketing in China thus far, we intend to introduce the subcompact car Fit Saloon, with aims to expand our customer base. In Thailand, we increased our annual production capacity to 120,000 units in May 2003 in order to meet growing demand. Further, in the Asian region, we will continue to enhance our regional complementary supply network for products and components. In Korea, which has the third largest automobile market in Asia following Japan and China, we will start sales of imported automobiles from the beginning of 2004 by expanding the function of our existing local motorcycle sales subsidiary.

REVIEW OF OPERATIONS—FINANCIAL SERVICES

FINANCIAL SERVICES

At our financial services business, we offer a variety of financial services to our customers and dealers through financial subsidiaries in Japan and abroad, with the aim of providing sales support for our products. In fiscal 2003, net sales at our financial services business, including intersegment sales, rose by 15.1% to ¥240.9 billion, mainly because of favorable sales of automobiles in North America. Operating income was up by 37.5% to ¥61.9 billion.

In fiscal 2003, accompanying the expansion of our automobile business in Asia, we established a financial subsidiary in Thailand with an eye toward improving our support to customers. This is in addition to our other financial subsidiaries in Japan, the United States, Canada, the United Kingdom, Germany, and Brazil.

Based on the continued growth of our automobile business mainly in North America, in fiscal 2004 we expect our financial services business to expand.

	Yen (millions)				% change
	2002		2003		2003/2002
Noncurrent	¥	1,808,861	¥	2,230,020	23.3	%
Current		995,087		1,097,541	10.3

Total	¥	2,803,948	¥	3,327,561	18.7	%

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REVIEW OF OPERATIONS—OTHERS

OTHERS

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Fiscal 2003 Results

In fiscal 2003, power products unit sales, which are included in Honda’s other businesses, expanded by 16.8% to 4,584,000 units as a result of sales growth of general-purpose engines in all four regions.

	Thousands		% change
	2002	2003	2003/2002
Japan	409	472	15.4	%
North America	1,601	1,872	16.9
Europe	1,012	1,290	27.5
Other Regions	904	950	5.1

Total	3,926	4,584	16.8	%

Net sales from other businesses, including power products, rose by 11% to ¥326.3 billion mainly as a result of an increase in unit sales of power products. Operating income jumped 112.3% to ¥8.5 billion.

In Japan, unit sales of power products rose by 15.4% to 472,000 units. In North America, in addition to general-purpose engines, sales of lawnmowers have been favorable. As a result, unit sales in that region grew by 16.9% to 1,872,000 units. In Europe, unit sales were up by 27.5% to 1,290,000 units. In other regions, unit sales rose by 5.1% to 950,000 units.

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REVIEW OF OPERATIONS—OTHERS

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New products we launched around the world in fiscal 2003 included the GX25 four-stroke general-purpose engine, which can operate in any position, the BF15 four-stroke outboard engine and the BF20, a new addition to the series. The BF15 and the BF20 are equipped with a newly developed engine with excellent environmental performance. We also introduced the HS980i and HS1180i hybrid snowblowers in Japan and Europe. In North America, we launched the HRZ216 push-type lawnmower, which offers superior ease of use. In India, we marketed the EXK1200 and EXK2000 power generators, which meet the strictest noise regulations in the world.

Along with our goal to expand sales of our Thai-made GX medium-sized engines around the world, and to boost our sales of GX medium-sized engines produced in China, we expect unit sales of power products to grow by 13% to 5,180,000 units in fiscal 2004.

FOCUS: BUSINESS PROGRESS IN ASIA

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FOCUS: BUSINESS PROGRESS IN ASIA

Business Progress in Asia

For nearly a decade, Honda has organized its business activities into five regional operations in Japan, North America, Latin America, Europe, and Asia/Oceania with the goal to be more customer-focused, flexible and efficient. Among these regions, our business in Asia has recently become even more significant for Honda. As a result of the remarkable economic growth in China, in April 2003, we established our sixth Regional Operation in China.

In fiscal 2003, operating income in the segment of “Other regions” including Asia grew by approximately 50% to ¥61.0 billion. In addition, since the majority of our business partners in Asia are joint-venture companies, their financial performance is included in Honda’s equity in income of affiliates. The Asia/Oceania region contributed about 80% of the Company’s equity in income of affiliates of ¥61.9 billion during fiscal 2003.

As a result of the relatively higher rate of economic growth in the Asian region, the trend towards motorization has advanced and the market for motorcycles and automobiles is expanding rapidly. However, considering the large populations in Asian markets and the still relatively low ownership ratios, we believe there remains a significant amount of latent demand. In the growing Asian market, Honda should be able to take advantage of its strengths to bring joy to its customers and maintain solid growth.

Honda’s strength in the Asian region lies in our unique business structure, which combines the two businesses of motorcycles and automobiles. While the Asian region is experiencing dramatic economic growth, there are many people there who cannot afford an automobile or motorcycle. Through its high quality, yet reasonably priced motorcycles, Honda has played a leading role to expand demand. In addition, by manufacturing in the Asian region, we have been able to respond quickly to meet the needs of the market, while establishing a high quality and competitive supplier network through various technological collaborations with our vendors.

In short, a small investment in the motorcycle business has enabled us to put down deep roots in the local community with minimal risks, and to learn about the customers, society, industry, and market in this region. This, in turn, has facilitated the smooth start-up of our automobile business in Asia, which represents a larger investment.

Highlights of Honda’s business strategy in Asia excluding Japan are as follows.

FOCUS: BUSINESS PROGRESS IN ASIA

Motorcycle Business

The motorcycle market in Asia, notably in the ASEAN region, suffered a substantial decline immediately following the currency crisis in 1997. However, the market soon experienced a rapid recovery. Specifically, from 1998 to 2002, overall demand for motorcycles in the major seven countries of India, Indonesia, Thailand, China, Malaysia, the Philippines, and Vietnam expanded by about 75%.

By making full use of our production technology and product development capabilities, Honda has been able to lead the expansion of market demand through products, which reflect customer needs for excellent durability and economy, while cultivating the “latent demand” of customers who previously were not able to afford a motorcycle.

Following is a summary of the market situation and Honda’s business growth in the major regions.

ASEAN REGION

Looking at the motorcycle ownership rates in each of the ASEAN countries, there still appears to be a very large amount of latent demand. In Taiwan, where economic development is one step ahead of the rest of Asia, there already is one motorcycle owned for every two people. By comparison, in the Philippines there is one motorcycle for every 63 people, in Indonesia one for every 15 people, in Vietnam one for every seven people, and in both Thailand and Malaysia one motorcycle for every four people. Further, analyzing the ownership of motorcycles by household income, in Thailand, 6.4 million households representing 38% of the total, do not have a motorcycle. In Indonesia, 40 million households, representing 86% of the total, do not have a motorcycle.

Honda’s strategy is to cultivate the latent demand in these areas by launching new products with affordable prices as a result of cost-cutting efforts.

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FOCUS: BUSINESS PROGRESS IN ASIA

Looking at major markets, in Thailand, we have successfully launched several popular models like the Wave100, Dream 125 and Wave 125. Thanks to these models, in 2002, motorcycle unit sales reached the record of 966,000 units, or an increase of 42% from a year ago. In Indonesia, due to favorable sales of our mainstay models Supra and Legenda, unit sales in 2002 totaled 1,430,000 units, up 58% from last year. In the future, we will continue efforts to increase Honda customers through marketing products that meet local needs.

Diffusion of Motorcycles in Asia

	Units in use	Diffusion rate
	(Thousands)	(persons/unit)
Philippines	1,220	62.7
Indonesia	13,560	15.4
Vietnam	10,000	7.3
Thailand	14,500	4.3
Malaysia	5,610	4.2
Taiwan	11,730	1.9

Source: Honda

INDIA

The motorcycle market in India has about tripled in size over the past 10 years. In 2002, industry demand totaled 5 million units, making India the second largest market in the world following China. India has achieved steady growth in the global economic framework following economic liberalization in 1992 and membership in the WTO in 1994. Western-style culture has entered the country while the old traditions have remained intact, and people’s lifestyles have been rapidly diversifying. Until around 1998, locally manufactured two-cycle scooters with gears dominated the market. However, many customers supported the Splendor motorcycle launched in 1994, which is manufactured by the joint venture company Hero Honda Motors Ltd. They also came to appreciate new types of scooters, such as the Activa and Dio manufactured by Honda’s wholly-owned subsidiary Honda Motorcycle and Scooter India (Private) Ltd.(HMSI). In 2002, combined unit sales of the two companies totaled 1,814,000 units, consisting of 1,680,000 units sold by Hero Honda Motors sales and 134,000 units by HMSI.

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FOCUS: BUSINESS PROGRESS IN ASIA

We believe that the motorcycle market in India will continue to expand for a while, due to rising income levels accompanying economic growth and the still developing transportation infrastructure. Honda expects that the motorcycle market in India will grow to the 10 million-unit level, almost equivalent to China. Honda will continue the effort to provide a full line-up of motorcycles and scooters from Honda group companies, in order to meet the diversifying needs of our customers.

CHINA

The motorcycle market in China has been expanding steadily, in part because the country was not directly affected by the 1997 currency crisis. In 2002, total unit sales of motorcycles in China totaled 12,380,000 units. While the market is growing, hundreds of small and medium-sized local manufacturers were aggressively competing on price. In addition, Honda faced a greater challenge due to an increased number of counterfeit models made to resemble Honda products.

Within this market environment, in December 2001, aiming at providing our customers with attractive products, Honda established the joint venture company Sundiro Honda Motorcycle Co., Ltd., seeking to incorporate our partner’s cost competitiveness and sales network with Honda’s advanced technological expertise. In fiscal 2003, Honda’s motorcycle unit sales in China rose steadily centered on this new joint venture company. Honda also started operations at a motorcycle research facility in Shanghai in April 2003, in order to quickly develop new products according to Honda’s “market-in” approach.

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FOCUS: BUSINESS PROGRESS IN ASIA

Automobile Business

In 1998, the automobile market in the Asia/Oceania region shrank 16% to 4,290,000 units. This decline proved temporary, as the market showed a gradual recovery. In 2002, the market reached 6,870,000 units, a record high for the second consecutive year.

ASEAN REGION

The automobile market in the ASEAN region has expanded continuously since it hit bottom in 1998. In 2002, the market rebounded to 1,310,000 units, close to the sales level before the currency crisis. Within this environment, Honda’s automobile unit sales outperformed the growth of the market and totaled 91,000 units in 2002.

Under the challenging circumstances surrounding the currency crisis, Honda managed the situation through various countermeasures, including the timely introductions of new products and increased cost competitiveness. Based on the diversifying needs of our customers, Honda launched new models such as the City, Civic, Accord, and CR-V. Honda also greatly improved its cost competitiveness. Making active use of trade agreements within the Asian region, such as the AICO (ASEAN Industrial Cooperation) and the CEPT (Common Effective Preferential Tariff), we raised our local procurement ratio and “inter-group complementary supply ratio”.

The third measure we adopted was to establish an organization that ensures rapid decision-making, coordinating Honda’s entire business resources in the areas of development, manufacturing and sales. As a part of this effort, the automobile businesses in Malaysia, Indonesia, the Philippines, and Thailand are now managed by Honda subsidiaries. In the ASEAN region, as in other regions, Honda intends to expand its business by introducing products that meet local market needs and improving cost competitiveness.

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FOCUS: BUSINESS PROGRESS IN ASIA

CHINA

Honda began its automobile business in China in 1994 with the establishment of a joint venture parts manufacturing company called Dongfeng Honda Auto Parts Co., Ltd. Today, our automobile business in China is centered on two joint venture companies; Guangzhou Honda Automobile Co., Ltd., which manufactures and distributes automobiles, and Dongfeng Honda Engine Co., Ltd., which manufactures automobile engines. In 2002, the overall automobile market in China grew by 40% to 3,250,000 units, including 1,130,000 passenger cars. In 1998, Honda began its automobile business in China with an annual production of 30,000 units. In 2002, our annual production grew to 59,000 units. In short, Honda has made a dramatic growth with cumulative production of 150,000 automobiles in just four years.

We attribute Honda’s strong auto sales in China to our marketing strategy. When we started our automobile business, the most important strategic issue was the selection of the target customers and the model to be produced within the annual capacity of 30,000 units. We launched the latest U.S. version of the Accord, targeting the affluent class that emerged along with the reforms and market liberalization that were taking place in China. And, our sales expanded steadily as the Chinese economy developed.

At the same time, over the past few years the profile of automobile users in China has changed significantly along with the expansion of the automobile market. Previously, the main users included government agencies and offices, foreign companies and taxi services. Individual users accounted for only 20% of the total. In 2002, however, the percentage of individual users grew sharply, to 58%. When individuals became the majority customers, after-sales service such as maintenance became more important.

Honda has sought to establish a sales network to quickly respond to this change with the focuses on (1) automobile sales, (2) after-sales service, (3) supply of parts, and (4) the provision of sales information. We consider the establishment of this sales network as one of the key factors of Honda’s expanding automobile business.

In addition, Honda’s concept and vision of manufacturing have been shared among our local partners and associates, which we believe is another key aspect of our growth. This includes the importance of the activities to focus on high quality products at the factory. Further, we have developed our business with a close relationship with the local community. For example, we have promoted a “green factory” approach by applying sewage processing standards at our factories that are stricter than the local requirements.

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FOCUS: BUSINESS PROGRESS IN ASIA

Guangzhou Honda began mass production of automobiles at the end of 1998. At the end of 1999, it reached an annual production volume of 30,000 units. The production capacity has been gradually increased since the year 2000, reaching 60,000 units in 2002, and 120,000 units in the spring of 2003. Guangzhou Honda represents Honda’s “small born” concept of starting small and growing with the needs and capabilities of the local market.

During the year 2003, Guangzhou Honda will launch the Fit Saloon in the compact car segment in response to the needs of the growing market. In conjunction with this plan, we are working to double the current production capacity there again to 240,000 units during 2004.

In this way, we think that Honda will be able to bring joy to its customers and continue expanding by taking advantage of our strengths in the growing Asian market.

Note;

All the years in this chapter are on calendar basis unless otherwise specified.

Honda’s Production Facilities in Asia (excluding Japan)

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ENVIRONMENT AND SAFETY

ENVIRONMENT AND SAFETY

Honda established and announced the “Honda Environment Statement” in 1992, in which it announced that “as a responsible member of society whose task lies in the preservation of the global environment, the company will make every effort to contribute to human health and the preservation of the global environment in each phase of its corporate activity. Only in this way will we be able to count on a successful future not only for our company, but for the entire world.”

Based on this statement and Honda’s “Commitment to the Future” as one of the directions within Honda’s 2010 vision, we continue our focus on the contributions to safety and the environment. Honda fulfills this commitment through its ongoing development of safety technology, its development of technology aimed at reducing emissions, its corporate activism, and its focus on developing alternative forms of energy. The following is a review of Honda’s achievement in this area in FY2003.

Motorcycles

Cleaner exhaust gas

Goals for calendar year(CY) 2005:

By CY2005, Honda’s goal is to reduce total hydrocarbon emissions to one-third of 1995 levels for all new motorcycles in Japan, the U.S., Europe and Thailand.

Progress report:

In fiscal 2003, ended March 2003, cleaner-burning four-stroke engines represented 70% of all Honda motorcycles sold in Japan, and hydrocarbon emissions from new motorcycles were cut to one-quarter of 1995 levels.

In Japan, the launch of the Today scooter, with its four-stroke engine, helped reduce hydrocarbon emissions to 19.1% of 1995 levels, down one percentage point from the year before. Honda ended production of two-stroke-engine vehicles in fiscal 2003, with the exception of a few specialty vehicles.

The 125cc Pantheon scooter, which went on sale in Europe in January 2003, features a combination of the compact PGM-FI (electronically controlled fuel injection system) and the HECS (Honda Evolutional Catalyzing System), which reduces CO emissions to one-third of the European standard, hydrocarbons to one-fifth, and NOx to half.

Improving fuel efficiency

Goals for CY2005:

By CY2005, Honda plans to improve average fuel efficiency by 30%, relative to 1995 levels, in Japan, the U.S., Europe and Thailand.

Progress report:

Honda has expanded its use of four-stroke engines in Japan and abroad.

Honda effectively completed the transition to four-stroke-engine vehicles in fiscal 2003, with the exception of a few specialty vehicles.

As a result of increased sales of cleaner four-stroke-engine vehicles, average fuel consumption improved by 29.5% in fiscal 2003, compared with 1995 levels.

With a CY2005 target of 30%, Honda plans to expand in stages its use of PGM-FI in smaller vehicles.

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Automobiles

Cleaner exhaust gas

Goals for CY2005:

Honda plans to reduce new car exhaust emissions of hydrocarbons plus NOx by 75%, relative to 1995 levels.

Honda’s goal is to have all of its vehicles in Japan designated as “green,” by reducing emissions to less than 50% of the 2000 governmental standards – and have most of its passenger vehicles approved as “ultra-low-emission” passenger cars under the standards issued by the Ministry of Land, Infrastructure and Transport.

ENVIRONMENT AND SAFETY

Progress report:

Both hydrocarbon and NOx emissions cut by 72.5%, excluding freight vehicles.

Exhaust emissions reduced to less than half of 2000 emissions standards for all models, required by the standards, excluding freight vehicles. 10% of Honda cars (7 types) are approved as “ultra-low-emission” vehicles under the standards issued by the Ministry of Land, Infrastructure and Transport, up from 6% (4 types).

Improving fuel efficiency

Goals for CY2005:

By CY2005, Honda’s goal is to achieve 2010 governmental standards in all weight categories in Japan.

By CY2005, Honda plans to improve the average fuel efficiency by approximately 25%.

Progress report:

Honda has achieved above standards in six out of seven weight categories.

Average fuel efficiency has been improved by 41% relative to 1995 levels, achieving the CY2005 improvement target of 25% for the second consecutive year.

Safety

HiDS (Honda intelligent Driver Support System)

In October 2002, Honda introduced the Accord sedan and wagon in Japan equipped with technology that assists the driver in maintaining the vehicle in the center of the lane, while maintaining a steady speed and a set distance from the car ahead.

CMS (Collision Mitigation brake System)

Honda has developed the world’s first Collision Mitigation brake System (CMS) which determines the likelihood of a collision based on driving conditions, distance to the vehicle ahead, and relative speeds, and uses visual and audio warnings to prompt the driver to take preventative action. In the remodeled Inspire that went on sale in June 2003, Honda introduced the CMS with a new “E-pretensioner”, which retracts the seatbelts in anticipation of impact.

Power products

Cleaner exhaust gas

Goals for CY2005:

Honda’s goal is to reduce the average hydrocarbon and NOx emissions globally by approximately 30% by 2005, relative to 1995 levels.

Progress report:

The goal of a 30% average reduction was met in fiscal 2002, followed by a further reduction of approximately 34% achieved by fiscal 2003.

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ENVIRONMENT AND SAFETY

Improving fuel efficiency

Goals for CY2005:

Honda’s goal is to improve fuel efficiency by 30%, on average, by CY2005, relative to 1995 levels.

Progress report:

By the end of fiscal 2003, power products as a whole had achieved a 23% improvement in fuel efficiency by using digital CDI (Capacity Discharge Ignition), hemispherical combustion chambers, crossflow centered ignition plug technology, in outboard engines.

Fuel Cell Vehicles

On December 2, 2002, Honda delivered a Honda FCX fuel cell vehicle to the prime minister’s official residence. The vehicle was to be leased to the Cabinet office. On the same day, a Honda FCX fuel cell vehicle built under U.S. specifications was also delivered to the City of Los Angeles. The Honda FCX was the first fuel cell car to receive certification from both the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB). The Honda FCX represents a further realization of Honda’s desire to contribute to the protection of the environment through products and technology.

Green factories

Goals for CY2005:

Honda’s goal is to achieve an energy unit* goal of 22.4 CO₂ ton per ¥100 million for its plants in Japan, an 18.5% reduction from 1990 levels.

Progress report:

Honda surpassed its target, achieving an energy unit* of 22.2 CO₂ ton per ¥100 million, a 19.3% reduction from 1990 levels.

Energy unit: energy consumption per unit of production output.

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CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

Basic Stance on Corporate Governance

Based on the fundamental corporate philosophies, the Company is working to improve its corporate governance as one of the most important management issues with the aim of ensuring that Honda will be a company, our shareholders, customers and society want to exist.

Honda’s organization reflects its fundamental corporate philosophies. Each regional operation carries out its businesses so as to quickly and efficiently respond to customer needs around the world, while each business operation makes arrangements for each product, establishing a system of high effectiveness and efficiency.

In addition, the Audit Office intends to carry out more effective audits of the performance of each division’s business, and each division aims to establish a systematic framework for enhancing compliance and risk management, while advancing the self-reliance of each organization.

To ensure an objective control on the Company’s management, outside directors and corporate auditors are appointed to be members of the Board of Directors and the Board of Corporate Auditors, which are responsible for supervision and auditing of the Company. With regard to the directors, the term of their office is limited to one year and the amount of remuneration payable to them is determined according to a standard that reflects their contributions to the Company. The goal is to heighten maneuverability so as to cope with any changes in the management environment.

For shareholders and investors, the Company’s basic policy emphasizes the disclosure of financial results on a quarterly basis, as well as the timely and accurate disclosure of its management strategies. The Company will remain committed to such disclosures in the future.

CORPORATE GOVERNANCE

The Company’s Activities on Corporate Governance

Management organization of the Company’s corporate governance for decision making, execution, supervision and others

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1. Management Organization

The Company supervises and audits its business activities through its Board of Directors and Board of Corporate Auditors.

The Board of Directors consists of 36 directors, including one outside director, and makes decisions on important business activities and other legal matters. The Board of Directors also supervises the execution of the Company’s businesses. In April 2003, in order to ensure proactive decision-making, the Board of Directors set up an Assets and Loan Management Committee, which is responsible for deciding upon the disposal of the Company’s important assets and related matters.

The Board of Corporate Auditors is composed of four corporate auditors, including two outside corporate auditors. In accordance with the rules of auditing policy and the apportionment of responsibilities as determined by the Board of Corporate Auditors, each corporate auditor audits the execution by directors of their duties through various means, including attendance at meetings of the Board of Directors and inspections regarding the status of Company assets and liabilities. Two outside corporate auditors were elected at the Company’s Ordinary General Meeting of Shareholders held on June 24, 2003 and they comprise half the number of corporate auditors so as to strengthen their independence. In connection with this, Corporate Auditors’ Office was newly established in April 2003 to provide direct support to the Board of Corporate Auditors.

In order to ensure a proper auditing of the Company’s accounts, the Board of Corporate Auditors and the Board of Directors receive auditing reports based on the Commercial Code’s Audit Special Exceptions Law, the Securities and Exchange Law, and the Securities Exchange Acts of the U.S.A. In addition, they supervise the election of independent auditors, their remuneration and non-audit services.

CORPORATE GOVERNANCE

2. Execution of Management

The Company has established the Management Council being composed of eight representative directors and four managing directors. Along with discussing in advance items to be resolved at meetings of the Board of Directors, this Management Council discusses important management issues as directed by the Board of Directors.

Based on the fundamental corporate philosophies, Honda will promote the Company’s long–term businesses in each region to ensure that Honda will be a company that our customers and society want to exist. The Company’s management organization contains six regional operations, including a newly established operation in China in April 2003. Regional executive officers are assigned to be in charge of the business operations in each region, with the aim of heightening the autonomy of the region and ensuring speedy decision-making. In addition, regional executive councils located at each regional operation discuss important management issues in the region within the bounds of the authority conferred upon them by the Management Council.

The Company’s four business operations – motorcycles, automobiles, power products, and spare parts – formulate the medium and long-term plans for their business development, and each operation aims to maximize its business performance on a global basis. The Company’s production operations and purchasing operations support production related departments so that they can implement the most efficient allocation of production and procurement on a global scale. These efforts are aimed at increasing company-wide efficiencies.

At the Company’s major production facilities in Japan and overseas, operational executive officers are responsible for rapid decision-making. In addition, the Business Management Operations and the Business Support Operations make adjustments on a company-wide basis with the aim of ensuring the optimal allocation of resources.

Research and development are conducted principally at the independent subsidiaries of the Company. Honda R&D Co., Ltd. is responsible for product research, while Honda Engineering Co., Ltd. is responsible for research in the area of production technology. The Company carries out unrestricted and generous research and development with the aim of creating, through application of the latest technologies, products that are both distinctive and internationally competitive.

3. Internal Control

The Audit Office (its Japanese name was changed from “Kansashitsu” to “Gyoumu – Kansashitsu” in April 2003) is an independent supervisory department under the direct control of the president. This office audits the performance of each department.

In addition to the newly established “Honda Conduct Guideline” to be shared within the entire Honda group, the Company also intends to set up a systematic framework for compliance and risk management in which each division of Honda group works to ensure compliance and prevent management risks, and to verify the status on a regular basis under the supervision by the director in charge. In addition to the new appointment of a director in charge of compliance and risk management, the Company intends to improve its organization by setting up a “Business Ethics Committee” to deliberate matters related to corporate ethics and compliance, as well as “Business Ethics Improvement Proposal Line”, which will receive suggestions related to corporate ethics issues.

Honda’s HISTORY

Honda’s HISTORY

1946		Soichiro Honda establishes Honda Technical Research Institute

1947		Honda’s first product, the A-type bicycle engine, produced

1948		Honda Motor Co., Ltd., incorporated (capital: one million yen)

1949		Dream D-type (two-stroke, 98cc), Honda’s first motorcycle, produced

1952		Head office moved to Tokyo

1957		Listed on the Tokyo Stock Exchange

1958		Super Cub motorcycle released

1959		American Honda Motor Co., Inc., established Honda racing team participates in the Isle of Man TT Race, taking sixth place in the 125cc class

1960		Motorcycle production begins at Suzuka Factory Honda R&D Co., Ltd., established

1961		Honda racing team sweeps first five places in Isle of Man TT Race (125cc, 250cc)

1962		American Depositary Receipts (ADRs) issued at market price Adopted consolidated accounting using U.S. Securities and Exchange Commission (SEC) standards Construction of Suzuka Circuit completed

1963		Honda Benelux N.V. (Belgium) begins production of motorcycles Honda’s first sports car (S500) and light truck (T360) released

1964		Automobile production begins at Saitama Factory, Sayama

1965		Thai Honda Mfg. Co., Ltd. (Bangkok) established Honda U.K. Ltd., established in London E300 portable generator introduced Honda wins its first F1 victory, in Mexico

1966		S800 sales and export commenced

1967		Motorcycle production begins in Thailand Automobile production begins at Suzuka Factory

1968		Cumulative motorcycle production reaches 10 million units

1969		Automobile and motorcycle production commenced in Malaysia Cumulative domestic power product production reaches one million units

1971		Knockdown motorcycle production begins in Mexico

1972		Details of CVCC low-emission engine system announced CVCC engine complies with the U.S. Muskie Act of 1975 Civic released

1973		Motorcycle production begins in the Philippines

1974		Motorcycle production begins in Indonesia

1975		Automobile production begins in Indonesia

1976		Kumamoto Factory inaugurated Motorcycle production begins at Honda Italia Industriale S.p.A. Accord CVCC (1,600cc) introduced Civic series cumulative production reaches one million units

1977		ADRs listed on the New York Stock Exchange (NYSE) Consolidated financial disclosure commenced Motorcycle production begins at Moto Honda da Amazonia Ltda., in Manaus, Brazil

1979		Quarterly financial disclosure commenced Honda America Mfg., Inc., begins motorcycle production

1980		Cumulative Accord production reaches one million units

1981		Listed on the London Stock Exchange Cumulative power products production reaches five million units

1982		Honda of America Mfg., Inc., begins automobile production

1983		Listed on the Zurich, Geneva and Basel stock exchanges Honda signs joint development agreement with Rover Group Ltd.

1984		Automobile production commenced in Thailand Cumulative motorcycle production in Belgium reaches one million units

1985		Listed on the Paris Stock Exchange Motorcycle engine production begins in the U.S. Motorcycle production commenced in India Motorcycle engine production commenced in Malaysia Cumulative power products production reaches 10 million units

1986		Automobile production begins at Honda Canada Inc. Motorcycle production commenced in Spain Power products production commenced in France

1987		Cumulative motorcycle production in Brazil reaches one million units Cumulative domestic motorcycle production reaches 50 million units, a world first Cumulative Civic production reaches five millions units

1988		Motorcycle production begins in Mexico Automobile production begins at Honda New Zealand Cumulative automobile production reaches 15 million units High-performance VTEC engine announced

1989		Second automobile plant in the U.S. begins production in East Liberty, Ohio Honda Motor Europe Ltd. (U.K.) established Cumulative power products production reaches 15 million units

1991		Honda posts its 60th Grand Prix victory in the Brazil GP

1992		Automobile production in the U.K. begins Cumulative Super Cub production reaches 20 million units, a world record Cumulative automobile production reaches 20 million units Cumulative power products production reaches 20 million units

1993		Honda’s power product engines meet California emission regulations, a world first

1994		Automobile production commenced in the Philippines Automobile production commenced in Pakistan New automobile plant constructed in Thailand

1995		Honda introduced first gasoline-powered vehicle to meet ULEV (Ultra Low Emission Vehicle) standards Cumulative world production for the Civic reaches 10 million units Cumulative automobile production in North America reaches five million units Cumulative automobile production reaches 30 million units Automobile production begins in Mexico

1996		Motorcycle production begins in Turkey Step Wagon released Human robot prototype announced

1997		ISO 14001 certification achieved for Hamamatsu Factory and Tochigi Factory Automobile production begins in Brazil Automobile production begins in Turkey ISO 14001 certification achieved for Belgium auto parts plant Motorcycle production commenced in Vietnam Cumulative motorcycle production reaches 100 million units Construction of Twin Ring Motegi completed

1998		50th anniversary Cumulative automobile production reaches seven million units in North America Automobile production commenced in India

1999		Automobile production commenced in China Fuel cell vehicle FCX-V1 and FCX-V2 announced

2000		Cumulative Accord production in the U.S. reaches 5 million units FCX-V3 fuel cell vehicle announced ASIMO humanoid robot announced

2001		Honda Headquarters achieves ISO 14001 environmental management certification Cumulative total of automobiles manufactured in North America reaches 10 million Production begins at new motorcycle production company in India New small car, the Fit, released FCX-V4 fuel cell vehicle announced Minimum investment unit lowered to 100 shares, from 1,000 Second automobile plant in the U.K. commenced operations New automobile plant in the U.S., Honda Manufacturing of Alabama, LLC, commenced operations

2002		Common stock-to-ADR exchange ratio changed from two shares of common stock to one ADR, to one share of common stock to two ADRs Celebrated 25th anniversary of listing on the NYSE; ASIMO rang the opening bell for trading Government certification to the passenger car plant in China exclusively for export Honda FCX fuel cell vehicle delivered both in Japan and the U.S

2003		Cumulative automobile production in the United Kingdom reaches one million units New automobile plant in Taiwan commenced operations New automobile plant in Malaysia commenced operations New automobile plant in Indonesia commenced operations

CORPORATE INFORMATION

CORPORATE INFORMATION

Honda Motor Co., Ltd.

Established

September 24, 1948

Principal Lines of Business

Manufacture, sale, lease and repair of motorcycles, automobiles and power products

Head Office

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

PRINCIPAL SUBSIDIARIES (Percentage owned by the Honda Group)

As of March 31, 2003

JAPAN

Honda R&D Co., Ltd. (100%)

Saitama

Technical research and development work for Honda products

Honda Engineering Co., Ltd. (100%)

Saitama

Manufacture and sale of machine tools,equipment and production techniques including plant layout

Yutaka Giken Co., Ltd. (69.7%)

Shizuoka

Manufacture of parts for Honda products

Honda Foundry Co., Ltd. (82.1%)

Saitama

Manufacture of parts for Honda products

Honda Lock Mfg. Co., Ltd. (100%)

Miyazaki

Manufacture of parts for Honda products

Asama Giken Co., Ltd. (77.5%)

Nagano

Manufacture of parts for Honda products

Honda Finance Co., Ltd. (100%)

Tokyo

Financing for the sale and leasing of Honda Products

Suzuka Circuitland Co., Ltd. (86.0%)

Mie

Rental of a racing circuit

Honda Trading Corp. (100%)

Tokyo

Import and export of parts for Honda products

Honda Sogo Tatemono Co., Ltd. (70.0%)

Tokyo

Lease of buildings

NORTH AMERICA

American Honda Motor Co., Inc. (100%)

U.S.A.

Distribution of Honda products

Honda North America, Inc. (100%)

U.S.A.

Coordination of operations

Honda of America Mfg., Inc. (100%)

U.S.A.

Manufacture of Honda products

American Honda Finance Corporation (100%)

U.S.A.

Financing for the sale and leasing of Honda products

Honda Manufacturing of Alabama, LLC (100%)

U.S.A.

Manufacture of Honda products

Honda Transmission Manufacturing of America, Inc. (100%)

U.S.A.

Manufacture of parts for Honda products

Celina Aluminum Precision Technology Inc. (100%)

U.S.A

Manufacture of parts for Honda products

Honda Power Equipment Manufacturing, Inc. (100%)

U.S.A

Manufacture of Honda parts and products

Honda R&D Americas, Inc. (100%)

U.S.A.

Technical research and development work for Honda products

Cardington Yutaka Technologies Inc. (100%)

U.S.A.

Manufacture of Honda parts and products

Honda of South Carolina Manufacturing, Inc. (100%)

U.S.A.

Manufacture of Honda products

Honda Trading America Corp. (100%)

U.S.A.

Import and export of parts for Honda products

Honda Engineering North America, Inc. (100%)

U.S.A.

Manufacture and sale of machine tools,equipment and production techniques,including plant layout

Honda Canada Inc. (100%)

Canada

Manufacture and distribution of Honda products

Honda Canada Finance, Inc. (100%)

Canada

Financing for the sale and leasing of Honda products

Honda de Mexico, S.A. de C.V. (100%)

Mexico

Manufacture and distribution of Honda parts and products

EUROPE

Honda Europe N.V. (100%)

Belgium

Distribution of Honda parts and products

Honda Motor Europe Ltd. (100%)

U.K.

Coordination of operations Distribution of Honda products

Honda of the U.K. Manufacturing Ltd. (100%)

U.K.

Manufacture of Honda products

Honda Finance Europe plc. (100%)

U.K.

Financing for the sale of Honda products

Honda Motor Europe (South) S.A. (100%)

France

Distribution of Honda products

Honda Europe Power Equipment S.A. (100%)

France

Manufacture and distribution of Honda products

Honda Motor Europe (North) G.m.b.H. (100%)

Germany

Distribution of Honda products

Honda Bank G.m.b.H. (100%)

Germany

Financing for the sale of Honda products

Honda R&D Europe (Deutschland) G.m.b.H. (100%)

Germany

Technical research and development work for Honda products

Honda Italia Industriale S.p.A. (100%)

Italy

Manufacture and distribution of Honda products

Montesa Honda S.A. (88.1%)

Spain

Manufacture and distribution of Honda products

PRINCIPAL MANUFACTURING FACILITIES

ASIA AND OTHER AREAS

Honda Motorcycle and Scooter India (Private) Limited (100%)

India

Manufacture and distribution of Honda products

Honda Siel Cars India Ltd. (99.0%)

India

Manufacture and distribution of Honda products

P.T.Honda Prospect Motor (51.0%)

Indonesia

Manufacture and distribution of Honda products

Honda Malaysia Sdn. Bhd. (51.0%)

Malaysia

Manufacture and distribution of Honda products

Honda Atlas Cars (Pakistan) Ltd. (51.0%)

Pakistan

Manufacture and distribution of Honda products

Honda Philippines, Inc. (99.6%)

Philippines

Manufacture and distribution of Honda products

Honda Cars Philippines, Inc. (54.2%)

Philippines

Manufacture and distribution of Honda products

Honda Taiwan Co., Ltd. (100%)

Taiwan

Manufacture and distribution of Honda products

Asian Honda Motor Co., Ltd. (100%)

Thailand

Distribution of Honda products

Honda Automobile (Thailand) Co., Ltd. (91.4%)

Thailand

Manufacture and distribution of Honda products

Thai Honda Manufacturing Co., Ltd. (60%)

Thailand

Manufacture of Honda products

Honda Vietnam Co., Ltd. (70%)

Vietnam

Manufacture and distribution of Honda products

Honda South America Ltda. (100%)

Brazil

Coordination of operations

Holding Company

Honda Automoveis do Brasil Ltda. (100%)

Brazil

Manufacture and distribution of Honda products

Moto Honda da Amazonia Ltda. (100%)

Brazil

Manufacture and distribution of Honda products

Honda Componentes da Amazonia Ltda. (100%)

Brazil

Manufacture of parts for Honda products

Honda Turkiye A.S. (100%)

Turkey

Manufacture and distribution of Honda products

Honda Australia Pty., Ltd. (100%)

Australia

Distribution of Honda products

Honda New Zealand Ltd. (100%)

New Zealand

Distribution of Honda products

PRINCIPAL MANUFACTURING FACILITIES

As of March 31, 2003

	Location	Start of operations	Number of employees	Principal products manufactured

Japan	Sayama,Saitama Takanezawa,Tochigi Hamamatsu,Shizuoka Suzuka,Mie Ohzu, Kumamoto	Nov.1964 May.1990 Apr.1954 May.1960 Mar.1976	5,420 905 3,629 7,658 2,813	Automobiles Automobiles Motorcycles,power products and transmissions Automobiles Motorcycles,power products and engines

U.S.A.	Marysville,Ohio Anna,Ohio East Liberty,Ohio Lincoln,Alabama Swepsonville,North Carolina Timmonsville,South Carolina	Sep.1979 Jul.1985 Dec.1989 Nov.2001 Aug.1984 Jul.1998	7,965 2,767 2,535 2,513 389 1,525	Motorcycles,automobiles and all-terrain vehicles Engines Automobiles Automobiles Power products All-terrain vehicles

Canada	Alliston,Ontario	Nov.1986	4,266	Automobiles

Mexico	El Salto	Mar.1988	1,487	Motorcycles and automobiles

U.K.	Swindon	Jul.1989	4,245	Automobiles and engines

France	Ormes	Jan.1985	185	Power products

Italy	Atessa	Apr.1977	652	Motorcycles,power products and engines

Spain	Barcelona	May.1980	287	Motorcycles

India	Greater Noida, Uttar Pradesh	Dec.1997	790	Automobiles

Indonesia	Karawang	Feb.2003	630	Automobiles

Malaysia	Melaka	Jan.2003	581	Automobiles

Pakistan	Lahore	Oct.1993	310	Automobiles

Philippines	Manila	May.1973	521	Motorcycles and power products

Taiwan	Pingtung	Jan.2003	530	Automobiles

Thailand	Ayutthaya Bangkok	Jan.1993 Apr.1965	1,618 2,391	Automobiles Motorcycles and power products

Vietnam	Vinhphuc	Dec.1997	826	Motorcycles

Brazil	Sumare	Sep.1997	759	Automobiles
	Manaus	Jan.1977	4,693	Motorcycles and power products

Turkey	Gebze	Dec.1997	420	Automobiles

BOARD OF DIRECTORS AND CORPORATE AUDITORS

BOARD OF DIRECTORS AND CORPORATE AUDITORS

LOGO

REPRESENTATIVE DIRECTORS

FRONT ROW

Yoshihide Munekuni Chairman			Takeo Fukui President and Chief Executive Officer

BACK ROW

Satoshi Aoki Senior Managing Director	Minoru Harada Senior Managing Director	Koichi Amemiya Executive Vice President	Michiyoshi Hagino Senior Managing Director	Motoatsu Shiraishi Senior Managing Director	Hiroshi Okubo Senior Managing Director

MANAGING DIRECTORS

DIRECTORS

DIRECTOR AND

ADVISOR

Atsuyoshi Hyogo

Satoshi Dobashi

Satoshi Toshida

Koki Hirashima

Koichi Kondo

Yasuo Ikenoya

Toru Onda

Akira Takano

Takanobu Ito

Satoru Kishi

Mikio Yoshimi

Masaaki Kato

Shigeru Takagi

Masahiro Yoshimura

Hiroshi Kuroda

Akio Hamada

Teruo Kowashi

Seiichi Moriguchi

Tetsuo Iwamura

Takashi Yamamoto

Masaru Takabayashi

Tatsuhiro Oyama

Suguru Kanazawa

Manabu Nishimae

Fumihiko Ike

Masaya Yamashita

Hiroshi Kobayashi

Hiroyuki Yoshino

CORPORATE AUDITORS

Kunihiro Chujo

Koji Miyajima

Koukei Higuchi

Kuniyasu Yamada

(As of June 24, 2003)

FINANCIAL SECTION

CONTENTS

FINANCIAL SUMMARY		40

FINANCIAL REVIEW		42

CONSOLIDATED BALANCE SHEETS		54

CONSOLIDATED STATEMENTS OF INCOME		56

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		57

CONSOLIDATED STATEMENTS OF CASH FLOWS		58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		59

INDEPENDENT AUDITORS’ REPORT		81

SELECTED QUARTERLY FINANCIAL DATA (Unaudited and Not Reviewed)		82

NET SALES AND OPERATING INCOME BY BUSINESS SEGMENT		83

FINANCIAL SECTION—FINANCIAL SUMMARY

FINANCIAL SUMMARY

Honda Motor Co.,Ltd. and Subsidiaries

Years ended or at March 31	1993			1994			1995			1996			1997			1998
Sales, income, and dividends
Net sales and other operating revenue	¥	4,132,435		¥	3,862,716		¥	3,966,164		¥	4,252,250		¥	5,293,302		¥	5,999,738
Operating income		108,756			78,328			107,916			143,633			401,447			462,313
Income before income taxes and equity in income of affiliates		88,564			46,890			94,287			115,134			390,722			443,351
Income taxes		53,208			33,719			44,904			58,281			189,044			201,278
Equity in income of affiliates		1,801			10,528			12,142			13,948			19,490			18,552
Net income		37,157			23,699			61,525			70,801			221,168			260,625
As percentage of sales		0.9	%		0.6	%		1.6	%		1.7	%		4.2	%		4.3	%
Cash dividends paid during the period		13,620			13,631			13,635			13,638			13,640			16,563
Research and development		199,233			188,815			203,004			220,573			251,128			285,863
Interest expense		43,426			35,379			34,382			30,601			27,514			27,655
Assets, long-term debt, and stockholders’ equity
Total assets	¥	3,012,896		¥	2,921,084		¥	3,014,410		¥	3,516,113		¥	4,191,294		¥	4,815,265
Long-term debt		569,479			612,511			589,537			656,461			734,255			677,750
Stockholders’ equity		1,030,867			967,345			1,017,462			1,144,540			1,388,430			1,607,914

Depreciation		173,733			143,229			125,115			125,007			141,351			153,337
Capital expenditures		168,205			121,838			128,644			150,489			217,782			309,517

Per common share
Net income:
Basic	¥	38.19		¥	24.34		¥	63.16		¥	72.68		¥	227.00		¥	267.49
Diluted		37.94			24.28			63.00			72.63			226.97			267.45
Cash dividends paid during the period		14			14			14			14			14			17
Stockholders’ equity		1,058.80			993.47			1,044.44			1,174.73			1,425.04			1,650.14
Per American depositary share
Net income:
Basic		19.09			12.17			31.58			36.34			113.50			133.74
Diluted		18.97			12.14			31.50			36.31			113.48			133.72
Cash dividends paid during the period		7.0			7.0			7.0			7.0			7.0			8.5
Stockholders’ equity		529.40			496.73			522.22			587.36			712.52			825.07

Sales progress
Sales amounts:*
Japan	¥	1,379,748		¥	1,282,771		¥	1,326,487		¥	1,540,463		¥	1,826,284		¥	1,710,813
		33	%		33	%		33	%		36	%		35	%		29	%
Overseas		2,752,687			2,579,945			2,639,677			2,711,787			3,467,018			4,288,925
		67	%		67	%		67	%		64	%		65	%		71	%
Total	¥	4,132,435		¥	3,862,716		¥	3,966,164		¥	4,252,250		¥	5,293,302		¥	5,999,738
		100	%		100	%		100	%		100	%		100	%		100	%


Unit sales:
Motorcycles		4,035			4,251			4,910			5,488			5,325			5,257
Automobiles		1,793			1,753			1,794			1,887			2,184			2,343
Power Products		1,450			1,632			1,909			2,268			2,521			2,857

Number of employees		90,900			91,300			92,800			96,800			101,100			109,400

Exchange rate (yen amounts per U.S.dollar)
Rates for the period-end	¥	116		¥	103		¥	89		¥	106		¥	124		¥	132
Average rates for the period		125			108			99			96			113			123

FINANCIAL SECTION—FINANCIAL SUMMARY

													Yen (millions)			U.S. dollars (millions)
Years ended or at March 31	1999			2000			2001			2002			2003			2003
Sales, income, and dividends
Net sales and other operating revenue	¥	6,231,041		¥	6,098,840		¥	6,463,830		¥	7,362,438		¥	7,971,499		$	66,319
Operating income		548,698			426,230			406,960			639,296			689,449			5,736
Income before income taxes and equity in income of affiliates		520,511			416,063			384,976			551,342			609,755			5,073
Income taxes		229,624			170,434			178,439			231,150			245,065			2,039
Equity in income of affiliates		14,158			16,786			25,704			42,515			61,972			516
Net income		305,045			262,415			232,241			362,707			426,662			3,550
As percentage of sales		4.9	%		4.3	%		3.6	%		4.9	%		5.4	%
Cash dividends paid during the period		20,463			20,463			22,412			24,360			30,176			251
Research and development		311,632			334,036			352,829			395,176			436,863			3,635
Interest expense		27,890			18,920			21,400			16,769			12,207			102
Assets, long-term debt, and stockholders’ equity
Total assets	¥	5,034,247		¥	4,898,428		¥	5,667,409		¥	6,940,795		¥	7,681,291		$	63,904
Long-term debt		673,084			574,566			368,173			716,614			1,140,182			9,486
Stockholders’ equity		1,763,855			1,930,373			2,230,291			2,573,941			2,629,720			21,878

Depreciation		177,666			172,139			170,342			194,944			220,874			1,838
Capital expenditures		237,080			222,891			285,687			303,424			316,991			2,637


													Yen			U.S. dollars
Per common share
Net income:	¥	313.05		¥	269.31		¥	238.34		¥	372.23		¥	439.43		$	3.66
Basic		313.05			269.31			238.34			372.23			439.43			3.66
Diluted		21			21			23			25			31			0.26
Cash dividends paid during the period		1,810.20			1,981.07			2,288.87			2,641.55			2,734.69			22.75
Stockholders’ equity
Per American depositary share
Net income:
Basic		156.52			134.65			119.17			186.11			219.71			1.83
Diluted		156.52			134.65			119.17			186.11			219.71			1.83
Cash dividends paid during the period		10.5			10.5			11.5			12.5			15.5			0.13
Stockholders’ equity		905.10			990.53			1,144.43			1,320.77			1,367.34			11.37


													Yen (millions)			U.S. dollars (millions)
Sales progress
Sales amounts:*
Japan	¥	1,556,333		¥	1,612,191		¥	1,740,340		¥	1,868,746		¥	1,748,706		$	14,548
		25	%		26	%		27	%		25	%		22	%
Overseas		4,674,708			4,486,649			4,723,490			5,493,692			6,222,793			51,771
		75	%		74	%		73	%		75	%		78	%
Total	¥	6,231,041		¥	6,098,840		¥	6,463,830		¥	7,362,438		¥	7,971,499		$	66,319
		100	%		100	%		100	%		100	%		100	%


													Thousands
Unit sales:
Motorcycles		4,295			4,436			5,118			6,095			8,080
Automobiles		2,333			2,473			2,580			2,666			2,888
Power Products		3,412			4,057			3,884			3,926			4,584

Number of employees		112,200			112,400			114,300			120,600			126,900


Exchange rate (yen amounts per U.S.dollar)
Rates for the period-end	¥	121		¥	106		¥	124		¥	133		¥	120
Average rates for the period		128			112			111			125			122

The geographic breakdown of sales amounts is based on the location of customers.

Notes:	1.	The amounts for the fiscal year ended March 31,2003, have been translated into U.S. dollars at the rate of ¥120.20=US$1, the mean of the telegraphic transfer selling exchange rate and the telegraphic transfer buying exchange rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2003.
	2.	Net income per common (or American depositary) share amounts are computed based on Statement of Financial Accounting Standards (SFAS) No.128, “Earnings per Share.” All net income per common (or American depositary) share data presented prior to fiscal 1998 has been restated to conform with the provisions of SFAS No.128.
	3.	The Company adopted Statement of Financial Accounting Standards (SFAS) No.109, “Accounting for Income Taxes,” from the fiscal year ended March 31, 1994, and applied the provisions of SFAS No.109 retroactively to April 1,1991.Accordingly, the consolidated financial results for fiscal year 1993 have been restated.
	4.	Effective April 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No.115, “Accounting for Certain Investments in Debt and Equity Securities.” Net unrealized gains on marketable equity securities,less related income taxes,are included in accumulated other comprehensive income (loss) in the statements of stockholders’ equity, and net income for the fiscal year ended March 31,1995,was not affected by the adoption of this Statement.
	5.	Effective fiscal 2000,due to the change in method of business segment categorization, all prior years’ unit sales under Sales progress have been restated to reflect the change: i.e., unit sales of all-terrain vehicles (ATVs) are now included in Motorcycles,but were previously included in Power Products.
	6.	Previously, revenue from domestic sales of general-purpose engines to customers who install them in products that are subsequently exported were recorded as overseas sales. However, due to various factors including changes in transaction formats and contract terms,as of fiscal 2002,such sales are now recorded as domestic sales.
	7.	Honda’s common stock-to-ADR exchange ratio was changed from two shares of common stock to one ADR, to one share of common stock to two ADRs, effective January 10,2002. Per American depositary share information has been restated for all periods presented to reflect this four-for-one ADR split.

FINANCIAL SECTION—FINANCIAL REVIEW

FINANCIAL REVIEW

Net Sales and Other Operating Revenue

Honda’s consolidated net sales and other operating revenue (hereafter “net sales”) for fiscal 2003, ended March 31, 2003, amounted to ¥7,971.4 billion, up 8.3% from the previous fiscal year.

Of the amount, domestic net sales decreased by ¥120 billion or 6.4%, to ¥1,748.7 billion, while overseas net sales increased by ¥729.1 billion, or 13.3% to ¥6,222.7 billion.

Net sales included currency translation effects due to the appreciation of the yen to the U.S. dollar, which had a negative impact on foreign currency-denominated revenue from Honda’s overseas subsidiaries when translated into yen.

Honda estimates net sales excluding the effects of currency translation to have risen approximately by 9.1%.

Operating Income

Operating income amounted to ¥689.4 billion, which was an increase by 7.8% from the previous fiscal year. Increased net sales, predominantly in Europe and Asia, and the Company’s cost-cutting strategies have more than offset deterioration of the model mix as well as increases in selling, general and administrative (SG&A) expenses and research and development (R&D) expenses.

Selling, General and Administrative (SG&A) Expenses/Research and Development (R&D) Expenses

SG&A expenses for fiscal 2003 increased by ¥143.2 billion or 11.1%, to ¥1,434.9 billion, reflecting increases in product warranty-related expenses and labor expenses. R&D expenses increased by ¥41.6 billion or 10.5%, to ¥436.8 billion.

Income before Income Taxes and Equity in Income of Affiliates

Income before Income Taxes and Equity in Income of Affiliates was up 10.6%, to ¥609.7 billion.

Other income & expenses, net improved by ¥8.2 billion from the previous fiscal year, due mainly to a decline in losses on currency exchanges, which offset increases in losses on securities sold, impairment losses on available for sale marketable equity securities, and losses on derivative instruments.

Equity in Income of Affiliates

Equity in income of affiliates climbed 45.8%, to ¥61.9 billion. This increase was due mainly to boosted gains posted by affiliates in Asia, representing around 80% of Honda’s overall equity in income of affiliates.

Net Income

Net income amounted to ¥426.6 billion, an increase of 17.6%. The effective tax rate was 40.2%, a decline by 1.7 percentage points from the previous fiscal year.

Basic net income per common share amounted to ¥439.43, compared with ¥372.23 in fiscal 2002.

Liquidity and Capital Resources

Honda’s policy is to maintain sufficient capital resources, a sufficient level of liquidity and a sound balance sheet for purposes of its business activities.

LOGO

FINANCIAL SECTION—FINANCIAL REVIEW

Honda funds its capital expenditures primarily through cash generated by operations. Honda funds its financial programs for customers and dealers primarily from medium-term notes and commercial paper, as well as asset-backed securities issued in securitizations of finance receivables.

Net cash provided by operating activities amounted to ¥688.1 billion for fiscal 2003, decreasing ¥61.8 billion over fiscal 2002. Notwithstanding an increase in net income of ¥426.6 billion, this decrease was mainly due to an increase in inventories.

Net cash used by investing activities amounted to ¥1,073.5 billion for fiscal 2003, increasing ¥186.9 billion over fiscal 2002. This increase was mainly due to an increase in purchase of finance subsidiaries’ receivables.

Net cash provided by financing activities amounted to ¥346.9 billion for fiscal 2003, increasing ¥39.3 billion over fiscal 2002. Notwithstanding a decrease in short-term debt, this increase was due to an increase in proceeds from long-term debt.

As a result of the foregoing, Honda’s consolidated cash and cash equivalents amounted to ¥547.4 billion as of March 31, 2003, a net decrease of ¥62.0 billion from a year ago.

Honda’s total debt increased in fiscal 2003 by ¥262.7 billion to ¥2,322.4 billion. Short-term debt decreased in fiscal 2003 by ¥157.1 billion to ¥877.9 billion. The current portion of long-term debt decreased in fiscal 2003 by ¥3.6 billion to ¥304.3 billion. Long-term debt increased in fiscal 2003 by ¥423.5 billion to ¥1,140.1 billion.

Honda’s general policy is to provide amounts necessary for future capital expenditures from funds generated from operations. With the current levels of cash and cash equivalents and other liquid assets, as well as credit lines with banks, Honda believes that it maintains a sufficient level of liquidity.

Notwithstanding Honda’s current financial condition, it is possible that circumstances such as a decrease in operating revenues due to a decrease in market size as a result of a recession, or instability in the financial markets, such as rapid changes in exchange rates between the yen and other major currencies, may adversely affect Honda’s liquidity. In such a situation, Honda may undertake future financings through debt and/or equity related offerings to supplement funds generated by operations. Honda has good relationships with banks with global operations.

The cost and availability of unsecured funding to Honda and its finance subsidiaries generally depend on credit ratings received with respect to Honda. Some of Honda’s short- and long-term debt securities are rated by two U.S. nationally recognized rating agencies: Moody’s Investors Service, Inc. and Standard & Poor’s Rating Services. In addition, short-term and long-term unsecured debt securities issued by Honda or its financial subsidiaries are also rated in several local markets by locally recognized rating agencies. These ratings are not, however, recommendations to buy, sell or hold securities. These rating agencies issue their ratings based on their assessment of the credit risk associated with particular securities Honda or its finance subsidiaries issue, which assessment is based on information Honda provides to the rating agencies or other sources they consider reliable. Each rating agency may have different criteria in evaluating the risk associated with a company, and thus different rating agencies’ ratings should be evaluated independently from one another. These ratings are subject to revision or withdrawal at any time by the assigning rating agency.

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FINANCIAL SECTION—FINANCIAL REVIEW

Honda and its finance subsidiaries are currently given investment-grade ratings on their short-term and long-term unsecured debt securities from credit rating agencies. Accordingly, Honda believes that it is in a position to be able to obtain sufficient funding necessary for its growth.

The following table shows the ratings of short-term and long-term unsecured debt securities issued by Honda or its finance subsidiaries by Moody’s and Standard & Poor’s as of the date of this annual report.

	Credit ratings for
	Short-term unsecured debt securities	Long-term unsecured debt securities
Moody’s Investors Service	P-1	A1
Standard & Poor’s Rating Services	A-1	A+

For the purpose of accelerating the receipt of cash related to its finance receivables, Honda periodically securitizes and sells pools of these receivables. In these securitizations, Honda sells a portfolio of finance receivables to a special purpose entity, which is established for the limited purpose of buying and reselling finance receivables. Honda remains as a servicer and is paid a servicing fee for its services. The special purpose entity transfers the receivables to a trust or bank conduit, which issues interest-bearing asset-backed securities or commercial paper, respectively, to investors. Honda retains certain subordinated interests in the sold receivables in the form of subordinated certificates, servicing assets and residual interest in certain cash reserves provided as credit enhancements for investors. Honda applies significant assumptions regarding prepayments, credit losses and average interest rates in estimating expected cash flows from the trust or bank conduit, which affects the recoverability of Honda’s retained interests in the sold receivables. Honda periodically evaluates these assumptions and adjusts them, if appropriate, to reflect the performance of the receivables.

The following table shows Honda’s contractual obligations at March 31, 2003:

CONTRACTUAL OBLIGATIONS

Yen (millions)

Payments due by period

At March 31, 2003

Total

Less than
1 year

1–3
years

4–5
years

After 5

years

Long-term debt including current installments

1,444,524

304,342

955,597

179,693

4,892

Operating leases

104,543

27,144

31,027

16,477

29,895

FINANCIAL SECTION—FINANCIAL REVIEW

At March 31, 2003, Honda had commitments for purchases of property, plant and equipment of approximately ¥24.3 billion.

Also at March 31, 2003, Honda has guaranteed approximately ¥88.2 billion of bank loan of employees for their housing costs. If an employee defaults on his/her loan payments, Honda is required to perform under the guarantee. The undiscounted maximum amount of Honda’s obligation to make future payments in the event of defaults is approximately ¥88.2 billion. As of March 31, 2003, no amount has been accrued for any estimated losses under the obligations, as it is probable that the employees will be able to make all scheduled payments.

Capital Expenditures

Manufacturing-related expenditures in fiscal 2003 were applied to the expansion of manufacturing facilities, streamlining efforts, and the replacement of older equipment. Other expenditures included funds used to augment sales and R&D facilities.

Total consolidated capital expenditures were ¥316.9 billion, or ¥13.5 billion higher than the previous fiscal year.

Capital expenditures by business segment were as follows:

	Yen (millions)
	2002		2003
Motorcycle Business	¥	29,929	¥	37,496
Automobile Business		264,657		270,263
Financial Services		676		646
Other Businesses		8,162		8,586

Total	¥	303,424	¥	316,991

Honda invested ¥37.4 billion in its motorcycle business, mainly for the introduction of new models and improvement of manufacturing operations. Capital expenditures in the automobile business amounted to ¥270.2 billion.

Honda invested mainly to launch new models and a new manufacturing system both for itself and for Honda of America Mfg., Inc.

Funds were also applied to start construction of a second assembly line at Honda Manufacturing of Alabama, LLC to produce finished vehicles and engines.

Expenditures in the financial services business totaled ¥0.6 billion, while investment in other businesses, mainly to fund the expansion and renewal of power product manufacturing equipment and the renovation of motor sports facilities, came to ¥8.5 billion.

Disposal and sales of manufacturing facilities during the period had no material impact.

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FINANCIAL SECTION—FINANCIAL REVIEW

Research and Development (R&D) Expenses

The aim of Honda’s R&D activities is to create, through application of the latest technologies, products that are both distinctive and internationally competitive. To this end, the company has set up as independent corporate entities to perform R&D activities, thereby enabling engineers to engage in R&D with greater independence. Principal companies responsible for product research include Honda R&D Co., Ltd., Honda R&D Americas, Inc., and Honda R&D Europe (Deutschland) G.m.b.H., while research in the area of production technology is carried out principally by Honda Engineering Co., Ltd., and Honda Engineering North America, Inc. Each company cooperates closely with the communities in which it operates.

R&D expenses in fiscal 2003 totaled ¥436.8 billion.

R&D Activities

MOTORCYCLES

Honda seeks to meet the diverse needs of its motorcycle customers by providing products that offer value-added features and enable swift and effective development in overseas markets. At the same time, the Company is stepping up efforts to develop leading motorcycle technologies that contribute resolution of various environmental and safety issues.

As a result of these efforts, in Japan and Europe, Honda introduced a completely remodeled CB1300 Super Four motorcycle that incorporates a built-in air injection system and PGM-FI to realize much lower gas emissions. In Japan, Honda also introduced the newly developed Today scooter with a powerful air-cooled four-stroke engine and a combination brake system (linked front and rear brakes), as well as the Solo leisure bike, which has a unique design. In North America, the Company launched the TRX650 FA ATV, which realizes enhanced driving performance and handling capabilities, as well as the ST1300 sports bike, which is designed for high-speed, long-distance touring. In North America and Europe, Honda introduced its new CBR600RR super sports bike, using an ultra-rigid aluminum frame incorporating a new die cast structure and a new Unit Pro-Link rear suspension system to improve cornering capability. In India, Honda launched the sporty scooter Dio, which is equipped with an air-cooled four-stroke engine providing improved fuel economy, durability and quietness. In Latin America, Honda introduced its new concept design NXR125 and NXR150 onroad/offroad sports bikes for long-distance touring with their larger-sized fuel tanks. Honda continues to promote local development in overseas markets and launched the Wave scooter in China, which was co-developed with Sundiro Honda Motorcycle Co., Ltd.

Motorcycle-related R&D expenses in fiscal 2003 were ¥73.4 billion.

AUTOMOBILES

In addition to meeting customer needs by developing products with innovative technologies and new features, Honda is also actively engaged in the development of new solutions to environmental and safety issues.

In fiscal 2003, Honda globally launched a fully remodeled Accord that realized higher engine performance, improved fuel efficiency and lower emissions. The new Accord features several new systems, which include newly developed side curtain air bags for the Japanese and North American markets, as well as the Honda intelligent Driver Support System for the Japanese market, which helps maintain driving lanes and control speed and distances between other cars when traveling on highways. The new Accord received the 2002-2003 Japan Car of the Year award. In Japan, Honda introduced the Fit 1.5T, with a newly developed1.5-liter VTEC engine, and the Fit Aria (named the City in Thailand), an advanced small sedan with a compact body but a large trunk space, as well as various seat arrangements. In North America, Honda introduced the Pilot, equipped with a 3.5-liter V-6 VTEC engine and lightweight, and highly efficient state-of-the-art Honda VTM-4 4WD system, and the Element, a new concept SUV.

In the area of fuel cell vehicles, Honda has developed the FCX and started lease-sales in Japan and the United States in early December 2002. The FCX, compared with the FCX-V4 test vehicle, has improved engine torque and output at medium and high speeds, resulting in better acceleration and higher maximum speed. In addition, an improved high-pressure hydrogen fuel tank has extended the cruising distance. In July 2002, the FCX became the first fuel-cell vehicle in the world to be certified by the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board. Honda also developed a 2.2-liter diesel engine “i-CTDi” with aims to provide environmentally friendliness of being high efficient, cleaner, and less noisy. This engine employs a lightweight, compact and highly rigid all-aluminum block manufactured using Honda’s proprietary engineering technologies.

Automobile-related R&D expenses amounted to ¥351.5 billion in fiscal 2003.

FINANCIAL SECTION—FINANCIAL REVIEW

OTHERS

In the area of power products, Honda’s R&D efforts are directed toward new products that respond to customer needs, as well as the evolution of technologies that enhance the environmental performance of its products.

New products launched globally during fiscal 2003 include the GX25 four-stroke general-purpose engine, which can operate in any position thanks to its unique oil lubrication system, and the BF15 and BF20 four-stroke outboard engines, which meet the new environmental emission regulations of the California Air Resources Board that will come into effect in 2008. Honda also introduced the HS980i and HS1180i hybrid snow blowers in Japan and Europe. These snow blowers feature the Company’s hybrid technology that combines a gasoline engine to power the apparatus and generate electricity for an electric motor for forward locomotion. Honda launched the locally developed HRZ216 push-type lawnmower in North America. In India Honda also introduced the EXK1200 and EXK2000 electric generators, which meet the strictest noise regulations in the world.

R&D expenditures in this area amounted to ¥11.8 billion.

Honda continued its research into promising technologies for the future. One such project is a joint-venture project with Nagoya University to identify and clarify the mechanism of a gene that reduces the height of rice plant. The purpose of this research is to develop technologies to increase crop yield. In the field of small jet aircrafts, Honda developed a prototype aircraft body and its engine. In addition, Honda developed a prototype of a lightweight, high performance, fuel efficient and cleaner piston-engine for next generation airplanes. Honda also successfully developed a new generation of thin-film photovoltaic cells mainly using non-silicon compounds that will make it possible to significantly lower the per unit cost of electricity generated through solar energy. The solar cells are installed in Honda’s Hosoe plant at the Hamamatsu factory and Tochigi Technical Center of Honda Engineering Co., Ltd., with aims to bring the research of solar energy into development stage. The Company also continued development of ASIMO, an advanced humanoid robot developed with the aim of creating a walking robot. Development during the year focused on improving ASIMO’s environmental awareness functions, which allow it to assess the position of obstacles and to turn to avoid collisions, as well as spatial awareness of sound.

Expenses stemming from fundamental research are borne by the Company’s business segments to which the research most closely relates and are included in the figures above.

Segment Information

The following segment information has been prepared in accordance with a Ministerial Ordinance under the Securities and Exchange Law of Japan,which requires certain additional information to be disclosed, including business and geographical segment information.

Business Segments

Business segments are based on Honda ’s business organization and the similarity of the principal products within each segment, as well as the relevant markets for such products.

MOTORCYCLES

In fiscal 2003, brisk sales of the Today scooter model pushed domestic unit sales up 6.9%, to 432,000 units. Overseas unit sales rose by 34.4%, to 7,648,000 units, due mainly to solid gains in Asia. As a result, total unit sales of motorcycles were 8,080,000 units, an increase of 32.6%. Net sales from the motorcycle segment increased by 3.2% to ¥978 billion, due mainly to increased unit sales combined with positive currency translation effects through depreciation of the yen against the euro. Operating income decreased by 15.6% from the previous fiscal year, amounting to ¥58.7 billion.

FINANCIAL SECTION—FINANCIAL REVIEW

AUTOMOBILES

Unit sales in Japan decreased by 3.3%, to 849,000 units, mainly due to a decline in sales of minivans like the Step Wagon and Stream, although small cars such as the Fit and Mobilio showed favorable sales. Overseas unit sales rose by 14.0%, to 2,039,000 units, due mainly to favorable sales in North America led by the introduction of new models such as the Pilot and Element, together with increased sales of the CR-V and Odyssey. In addition, expanded sales in Europe also contributed to the increase in unit sales.

As a result, total unit sales of automobiles were 2,888,000 units, an increase of 8.3%. Net sales from automobile segment advanced 8.6%, amounting to ¥6,440 billion, due mainly to growth in overseas unit sales which offset the negative impact of currency translation through the appreciation of the yen against the U.S. dollar. Operating income grew 7.6%, to ¥560.1 billion.

FINANCIAL SERVICES

Net sales from Honda’s financial services business climbed 15.1%, to ¥240.9 billion. Operating income surged 37.5%, to ¥61.9 billion.

OTHER BUSINESSES

Unit sales of power products in Japan rose 15.4%, to 472,000 units. Overseas unit sales grew 16.9%, to 4,112,000 units, mainly due to brisk sales in North America and Europe. Total unit sales of power products rose 16.8%, to 4,584,000 units, which increased net sales of other businesses by 11.0%, to ¥326.3 billion. Operating income grew 112.3%, to ¥8.5 billion.

Geographical Segments

Geographical segments are based on the location of the Company and its subsidiaries.

JAPAN

Increased export sales of automobiles contributed to a 2.8% increase in net sales in Japan in fiscal 2003, amounting to ¥3,918.9 billion. Operating income decreased by 20.2% from the previous fiscal year, amounting to ¥202.3 billion.

NORTH AMERICA

Net sales in North America increased by 9.4%, to ¥4,711.9 billion. This increase is attributed to increased unit sales of automobiles and power products, which offset negative effects of currency translation caused by the appreciation of the yen against the U.S. dollar. Operating income decreased by 0.9%, to ¥398.7 billion.

EUROPE

Increased unit sales of automobiles and power products, together with positive effects of currency translation contributed to a 36.6% increase in net sales in Europe, which amounted to ¥824.5 billion. Operating income improved by ¥49.5 billion, to ¥14.1 billion.

OTHER REGIONS

Increased unit sales of motorcycles, automobiles and power products contributed to a 42.1% increase in net sales in other regions, to ¥788.4 billion. Operating income increased by 49.9%, to ¥61 billion.

Application of Critical Accounting Policies

Critical accounting policies are those that require the application of managements’ most difficult, subjective or complex judgments often as a need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The following is not intended to be a comprehensive list of all our accounting policies. Our significant accounting policies are more fully described in note 1 to the consolidated financial statements.

Honda has identified the following critical accounting policies with respect to its financial presentation.

FINANCIAL SECTION—FINANCIAL REVIEW

PRODUCT WARRANTY

Honda warrants its vehicles for specific periods of time. Product warranties vary depending upon the nature of the product, the geographic location of its sale and other factors. Accordingly, the Company provides for estimated warranty expenses at the time the vehicles are sold to customers. Estimated warranty expenses are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs.

Included in our warranty expense accruals are costs for general warranties on vehicles Honda sells, product recalls and service actions outside the general warranties. Management believes that the accounting estimate related to warranty reserves is a “critical accounting estimate” because changes in it can materially affect net income, and it requires management to estimate the frequency and amounts of future claims, which are inherently uncertain. Management’s policy is to continuously monitor the warranty liabilities to determine their adequacy, therefore, the warranty reserve is maintained at an amount management deems adequate to cover estimated warranty expense. Actual claims incurred in the future may differ from the original estimates, which may result in material revisions to the warranty reserve.

ALLOWANCE FOR CREDIT LOSSES

Finance subsidiaries of the Company provide wholesale financing to dealers and retail lending and direct financing leases to consumers mainly in order to support sales of the products principally in North America. The Company recognizes the receivables derived from those services as finance subsidiaries-receivables. The allowance for credit losses on the finance subsidiaries-receivables is based on a review and evaluation of historical loss experience, the size and composition of the receivables, the credit quality of the portfolio, current economic events and conditions and other pertinent factors. Management believes that the accounting estimate related to allowance for credit losses is a “critical accounting estimate” because it requires management to make assumptions about inherently uncertain items including future economic trends, credit risks and other factors. The allowance for credit losses is maintained at an amount management deems adequate to cover estimated losses on finance receivables. However, actual losses incurred may differ from the original estimates if economic conditions change or if different assumptions are used.

ALLOWANCE FOR LOSSES ON LEASE RESIDUAL VALUES

Finance subsidiaries of the Company purchase insurance to cover a substantial amount of the estimated value of all vehicles leased to customers at the end of leasing period for direct financing leases. The Company initially determines the residual value based on appraisals and estimates. The allowance for losses on lease residual values is recognized to cover estimated losses on the uninsured portion of the vehicles’ lease residual values. The lease residual values are estimated based on historical experience including residual value losses and forward-looking information including our new product plans. Management believes that the accounting estimate related to allowance for losses on lease residual values is a “critical accounting estimate” because it is highly susceptible to change from period to period as it requires management to make assumptions about future economic trends and the lease residual value. The allowance is maintained at an amount management deems adequate to cover estimated losses on the uninsured portion of the vehicles’ lease residual values. However, changes in economic factors or in the estimated lease residual value may result in adjustments to the allowance.

PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company has various pension plans covering substantially all of their employees in Japan and in certain foreign countries. Benefit obligations and pension costs are based on assumptions of many factors, including discount rate, rate of salary increase and expected long-term rate of return. The discount rate and expected long-term rate of return are determined based on management’s evaluation of current market conditions including changes in interest rates. The salary increase assumptions reflect our actual experience as well as near-term outlook. The discount rate and rate of salary increase at March 31, 2003 are 2.0% and 2.3%, respectively, expected long-term rate of return for the year ended March 31, 2003 is 4.0% for Japanese plans. The discount rate and rate of salary increase at March 31, 2003 are 5.5-7.0% and 4.0-6.7%, respectively, and the expected long-term rate of return for the year ended March 31, 2003 is 6.8-8.5% for foreign plans. Management believes that the accounting estimates related to pensions are “critical accounting estimates” because changes in them can materially affect the Company’s financial condition and results of operations. Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods and can affect the recorded obligation immediately. Management believes that the assumptions used are appropriate. However, differences in actual experience or changes in assumptions could affect our pension costs and obligations.

FINANCIAL SECTION—FINANCIAL REVIEW

Business Segment Information

	Yen (millions)
Years ended or at March 31	2002			2003
Net sales and other operating revenue:
Motorcycle Business
Sales to unaffiliated customers	¥	947,900		¥	978,095
Automobile Business
Sales to unaffiliated customers		5,929,742			6,440,094
Financial Services
Sales to unaffiliated customers		201,906			237,958
Intersegment sales		7,409			3,037

Total		209,315			240,995
Other Businesses
Sales to unaffiliated customers		282,890			315,352
Intersegment sales		10,968			10,971

Total		293,858			326,323
Eliminations		(18,377	)		(14,008	)

Consolidated	¥	7,362,438		¥	7,971,499

Operating income:
Motorcycle Business	¥	69,656		¥	58,766
Automobile Business		520,510			560,103
Financial Services		45,084			61,989
Other Businesses		4,046			8,591

Consolidated	¥	639,296		¥	689,449

Assets:
Motorcycle Business	¥	754,512		¥	798,530
Automobile Business		3,377,470			3,624,639
Financial Services		2,917,170			3,505,017
Other Businesses		240,735			241,085
Corporate assets and eliminations		(349,092	)		(487,980	)

Consolidated	¥	6,940,795		¥	7,681,291

Depreciation:
Motorcycle Business	¥	22,129		¥	25,311
Automobile Business		165,508			187,839
Financial Services		786			804
Other Businesses		6,521			6,920

Consolidated	¥	194,944		¥	220,874

Capital expenditures:
Motorcycle Business	¥	29,929		¥	37,496
Automobile Business		264,657			270,263
Financial Services		676			646
Other Businesses		8,162			8,586

Consolidated	¥	303,424		¥	316,991

FINANCIAL SECTION—FINANCIAL REVIEW

Geographical Segment Information

	Yen (millions)
Years ended or at March 31	2002			2003
Net sales and other operating revenue:
Japan
Sales to unaffiliated customers	¥	2,087,765		¥	1,975,518
Transfers between geographical segments		1,723,269			1,943,465

Total		3,811,034			3,918,983
North America
Sales to unaffiliated customers		4,163,951			4,580,004
Transfers between geographical segments		143,987			131,906

Total		4,307,938			4,711,910
Europe
Sales to unaffiliated customers		570,170			663,032
Transfers between geographical segments		33,335			161,551

Total		603,505			824,583
Others
Sales to unaffiliated customers		540,552			752,945
Transfers between geographical segments		14,259			35,515

Total		554,811			788,460
Eliminations		(1,914,850	)		(2,272,437	)

Consolidated	¥	7,362,438		¥	7,971,499

Operating income:
Japan	¥	253,431		¥	202,329
North America		402,395			398,708
Europe		(35,338	)		14,185
Others		40,711			61,020
Eliminations		(21,903	)		13,207

Consolidated	¥	639,296		¥	689,449

Assets:
Japan	¥	2,177,095		¥	2,392,252
North America		3,679,762			4,182,861
Europe		514,535			535,507
Others		374,801			472,259
Corporate assets and eliminations		194,602			98,412

Consolidated	¥	6,940,795		¥	7,681,291

FINANCIAL SECTION—FINANCIAL REVIEW

Unaudited Consolidated Balance Sheets Divided into Non–Financial Services Businesses and Finance Subsidiaries

At March 31, 2002 and 2003	Yen (millions)
At March 31, 2002 and 2003	2002			2003
ASSETS
Non-financial services businesses
Current Assets:	¥	2,745,407		¥	2,987,609
Cash and cash equivalents		590,798			530,343
Trade accounts and notes receivable		455,019			450,241
Inventories		645,218			751,980
Other current assets		1,054,372			1,255,045
Investments and advances		529,763			557,971
Property,plant and equipment,at cost		1,368,405			1,376,137
Other assets		221,104			325,398

Total assets		4,864,679			5,247,115

Finance subsidiaries
Cash and cash equivalents		18,643			17,061
Finance subsidiaries — short-term receivables,net		995,547			1,106,917
Finance subsidiaries — long-term receivables,net		1,811,502			2,231,804
Other assets		91,478			149,235

Total assets		2,917,170			3,505,017
Eliminations		(841,054	)		(1,070,841	)

Total assets	¥	6,940,795		¥	7,681,291

Liabilities and Stockholders’ Equity
Non–financial services businesses
Current liabilities:	¥	1,869,129		¥	1,950,980
Short-term debt		302,732			241,039
Current portion of long-term debt		8,052			9,753
Trade payables		845,990			835,302
Accrued expenses		544,144			653,570
Other current liabilities		168,211			211,316
Long-term debt		34,565			32,805
Other liabilities		539,909			789,031

Total liabilities		2,443,603			2,772,816

Finance subsidiaries

Short-term debt		1,361,807			1,400,962
Current portion of long-term debt		299,962			294,596
Accrued expenses		137,844			128,870
Long-term debt		684,907			1,111,069
Other liabilities		145,811			269,252

Total liabilities		2,630,331			3,204,749
Eliminations		(707,080	)		(925,994	)

Total liabilities		4,366,854			5,051,571

Common stock		86,067			86,067
Capital surplus		172,529			172,529
Legal reserves		28,969			29,391
Retained earnings		2,765,600			3,161,664
Accumulated other comprehensive income (loss)		(479,175	)		(763,165	)
Treasury stock		(49	)		(56,766	)

Total stockholders’ equity		2,573,941			2,629,720

Total liabilities and stockholders’ equity	¥	6,940,795		¥	7,681,291

FINANCIAL SECTION—FINANCIAL REVIEW

Unaudited Consolidated Statements of Cash Flows Divided into Non–Financial Services Businesses and Finance Subsidiaries

	Yen (millions)
	2002						2003
Years ended March 31, 2002 and 2003	Non-financial services businesses			Finance subsidiaries			Non-financial services businesses			Finance subsidiaries
Cash flows from operating activities:
Net income	¥	339,392		¥	23,735		¥	412,636		¥	14,265
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		194,158			786			220,070			804
Deferred income taxes		(33,301	)		41,387			(18,139	)		86,572
Equity in income of affiliates		(43,162	)		—			(62,638	)		—
Loss on derivative instruments and related others		6,931			14,809			(1,956	)		38,939
Decrease (increase) in trade accounts and notes receivable		5,438			—			(19,774	)		—
Decrease (increase) in inventories		10,191			—			(146,574	)		—
Increase (decrease) in trade payables		(13,828	)		—			28,273			—
Other, net		204,088			(1,309	)		131,705			163

Net cash provided by operating activities		669,907			79,408			543,603			140,743

Cash flows from investing activities:
Decrease (increase) in investments and advances		(89,633	)		(1,349	)		(122,255	)		(551	)
Capital expenditures		(302,748	)		(676	)		(316,345	)		(646	)
Proceeds from sales of property, plant and equipment		7,162			254			16,273			165
Decrease (increase) in finance subsidiaries –receivables		—			(588,875	)		—			(796,314	)

Net cash used in investing activities		(385,219	)		(590,646	)		(422,327	)		(797,346	)

Cash flows from financing activities:
Increase (decrease) in short-term debt		(47,430	)		141,266			(70,207	)		156,825
Proceeds from long-term debt		13,503			610,567			8,240			767,749
Repayment of long-term debt		(45,295	)		(270,791	)		(9,886	)		(283,589	)
Proceeds from issuance of common stock		—			19,878			—			16,967
Cash dividends paid		(24,391	)		(389	)		(30,221	)		(194	)
Increase (decrease) in commercial paper classified as long-term debt		—			649			—			(2,131	)
Payment for purchase of treasury stock		—			—			(56,717	)		—

Net cash provided by (used in) financing activities		(103,613	)		501,180			(158,791	)		655,627

Effect of exchange rate changes on cash and cash equivalents		20,776			129			(22,940	)		(606	)