Honda 2007 Annual Report Download - page 111

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2007, respectively. All amounts recorded in accumulated
other comprehensive income (loss) as year-end are expected
to be recognized in earnings within the next twelve months.
The period that hedges the changes in cash flows related to
the risk of foreign currency rate is at most around two
months.
There are no derivative financial instruments where hedge
accounting has been discontinued due to the forecasted
transaction no longer being probable. The Company
excludes financial instruments’ time value component from
the assessment of hedge effectiveness, of which amount
was ¥421 million loss for the year ended March 31, 2006,
and ¥1,187 million ($10 million) loss for the year ended
March 31, 2007, respectively. There are no derivative
financial instruments that have been assessed as being
ineffectiveness.
Derivative financial instruments not designated as
accounting hedges
Changes in the fair value of derivative financial instruments
not designated as accounting hedges are recognized in
earnings in the period of the change.
Interest rate swap agreements generally involve the
exchange of fixed and floating rate interest payment obliga-
tions without the exchange of the underlying principal
amount. At March 31, 2006 and 2007, the notional principal
amounts of interest rate swap agreements were ¥3,857,748
million and ¥4,198,463 million ($35,565 million), respectively.
to make future payments in the event of defaults is ¥46,737
million and ¥41,151 million ($349 million), respectively, at
March 31, 2006 and 2007. At March 31, 2007, no amount
has been accrued for any estimated losses under the obliga-
tions, as it is probable that the employees will be able to
make all scheduled payments.
Honda warrants its vehicles for specific periods of time.
Product warranties vary depending upon the nature of the
product, the geographic location of its sale and other factors.
18. Commitments and Contingent Liabilities
At March 31, 2007, Honda had commitments for purchases
of property, plant and equipment of approximately ¥78,027
million ($661 million).
Honda has entered into various guarantee and indemnifi-
cation agreements. At March 31, 2006 and 2007, Honda
has guaranteed ¥46,737 million and ¥41,151 million ($349
million) of bank loan of employees for their housing costs,
respectively. If an employee defaults on his/her loan pay-
ments, Honda is required to perform under the guarantee.
The undiscounted maximum amount of Honda’s obligation
The changes in provisions for those product warranties for each of the years in the two-year period ended March 31, 2007
are as follow:
U.S. dollars
Yen (millions)
(millions) (note 2)
2006 2007 2007
Balance at beginning of year ¥268,429 ¥283,947 $2,405
Warranty claims paid during the period (126,834) (113,454) (961)
Liabilities accrued for warranties issued during the period 125,732 143,280 1,214
Changes in liabilities for pre-existing warranties during the period 332 605 5
Foreign currency translation 16,288 2,725 23
¥283,947 ¥317,103 $2,686
With respect to product liability, personal injury claims or
lawsuits, Honda believes that any judgment that may be
recovered by any plaintiff for general and special damages
and court costs will be adequately covered by Honda’s insur-
ance and reserves. Punitive damages are claimed in certain
of these lawsuits. Honda is also subject to potential liability
under other various lawsuits and claims. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 5,
“Accounting for Contingencies”, Honda has recorded a con-
tingent liability when it is probable that an obligation has
been incurred and the amount of loss can be reasonably
estimated. Honda reviews these pending lawsuits and claims
periodically and adjusts the amounts recorded for these
contingent liabilities, if necessary, by considering the nature
of lawsuits and claims, the progress of the case and the
opinions of legal counsel. Honda does not record liabilities for