Honda 2008 Annual Report Download - page 60

A n n u a l R e p o r t 2 0 0 8
5 8
Japanese Plans Yen (billions)
Assumptions Percentage point change (%) Funded status Equity Pension expense
Discount rate +0.5/–0.5 –89.5/+100.8 +45.2/–57.6 –4.7/+5.9
Expected long-term rate of return +0.5/–0.5 — — –3.6/+3.6
Foreign Plans Yen (billions)
Assumptions Percentage point change (%) Funded status Equity Pension expense
Discount rate +0.5/–0.5 –36.2/+41.0 +27.7/–31.7 –5.6/+7.5
Expected long-term rate of return +0.5/–0.5 — — –2.2/+2.2
*1 Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, 2008.
*2 Funded status for fiscal 2008 is affected by March 31, 2008 assumptions. Pension expense for fiscal 2008 is affected by March 31, 2007
assumptions.
(Income Taxes)
Honda adopted the provision of FASB Interpretation No. 48
“Accounting for Uncertainty in Income Taxes” (FIN No. 48) on
April 1, 2007. Honda is subject to income tax examinations
in many tax jurisdictions. We recognize the tax benefit from
an uncertain tax position based on the technical merits of
the position when the position is more likely than not to be
sustained upon examination. Benefits from tax positions
that meet the more likely than not recognition threshold are
measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate resolution.
We performed a comprehensive review of any uncertain tax
positions in accordance with FIN No. 48.
We believe our accounting for tax uncertainties is a “critical
accounting estimate” because it requires us to evaluate and
assess the probability of the outcome that could be realized
upon ultimate resolution. Our estimates may change in the
future due to new developments.
We believe that our estimates and assumptions of
unrecognized tax benefits are reasonable, however, if our
estimates of unrecognized tax benefits and potential tax benefits
are not representative of actual outcomes, our consolidated
financial statements could be materially affected in the period of
settlement or when the statutes of limitations expire, as we treat
these events as discrete items in the period of resolution.
Quantitative and Qualitative Disclosure About Market
Risk
Honda is exposed to market risks, which are changes in
foreign currency exchanges rates, in interest rates and in prices
of marketable equity securities. Honda is a party to derivative
financial instruments in the normal course of business in order
to manage risks associated with changes in foreign currency
exchange rates and in interest rates. Honda does not hold any
derivative financial instruments for trading purposes.
(Foreign Currency Exchange Rate Risk)
Foreign Exchange Risk
2007 2008
Yen (millions) Average
contractual
rate (Yen)
Yen (millions) Average
contractual
rate (Yen)
Contract
amounts Fair value
Contract
amounts Fair value
Forward Exchange Contract
To sell US$ ¥336,005 1,299 117.84 ¥214,797 9,199 104.25
To sell EUR 60,305 (963) 154.35 40,963 64 157.99
To sell CA$ 16,548 (67 ) 100.88 14,146 560 101.72
To sell GBP 173,894 (1,352 ) 228.48 70,227 2,739 207.07
To sell other foreign currencies 36,344 (670 ) — 12,147 362 —
To buy US$ 9,864 (122 ) 114.93 7,104 (196) 102.92
To buy other foreign currencies 11,358 (85 ) — 2,272 (29) —
Cross-currencies 334,676 (1,533 ) —254,189 (517) —
Total ¥978,994 (3,493 ) ¥615,845 12,182
Currency Option Contracts
Option purchased to sell US$ ¥ — — — ¥ 96,720 877 —
Option written to sell US$ — — — 136,005 (502) —
Option purchased to sell other currencies 2,317 24 — 17,378 409 —
Option written to sell other currencies 3,476 (42 ) —22,101 (457) —
Total ¥5,793 (18 ) ¥272,204 327