Honda 2010 Annual Report Download - page 34

1. Honda’s financial services business conducts business under highly
competitive conditions in an industry with inherent risks
Honda’s financial services business offers various financing plans designed
to increase the opportunity for sales of its products and to generate fi-
nancing income. However, customers can also obtain financing for the
lease or purchase of Honda’s products through a variety of other sources
that compete with our financing services, including commercial banks and
finance and leasing companies. The financial services offered by us also in-
volve credit risk as well as risks relating to lease residual values, cost of
capital and access to funding. Competition for customers and/or these
risks may affect Honda’s results of operations in the future.
2. Honda relies on various suppliers for the provision
of certain raw material and components
Honda purchases raw materials, and certain components and parts, from
numerous external suppliers, and relies on some key suppliers for some
items and the raw materials for manufacturing of its products. Honda’s
ability to continue to obtain these supplies in an efficient and cost-effec-
tive manner is subject to a number of factors, some of which are not with-
in Honda’s control. These factors include the ability of its suppliers to pro-
vide a continued source of supply and Honda’s ability to compete with
other users in obtaining the supplies. Loss of a key supplier in particular
may affect our production and increase our costs.
3. Honda conducts its operations in various regions of the world
Honda conducts its businesses worldwide, and in several countries, Honda
conducts businesses through joint ventures with local entities, in part due
to the legal and other requirements of those countries. These businesses
are subject to various regulations, including the legal and other require-
ments of each country. If these regulations or the business conditions or
policies of these local entities change, it may have an adverse effect on
Honda’s business, financial condition or results of operations.
4. Honda may be adversely affected by wars, use of force by foreign
countries, terrorism, multinational conflicts, natural disasters,
epidemics and labor strikes
Honda conducts its businesses worldwide, and its operations may variously
be subject to wars, use of force by foreign countries, terrorism, multina-
tional conflicts, natural disasters, epidemics, labor strikes and other events
beyond our control that may delay or disrupt Honda’s local operations in
the affected regions, including the purchase of raw materials and parts,
the manufacture, sales and distribution of products and the provision of
services. Delays or disruptions in one region may in turn affect our global
operations. If such delay or disruption occurs and continues for a long pe-
riod of time, Honda’s business, financial condition or results of operations
may be adversely affected.
5. Honda may be adversely affected by inadvertent disclosure
of confidential information
Although Honda maintains internal controls through established proce-
dures to keep confidential information, including personal information of
its customers and relating parties, such information may be inadvertently
disclosed. If this occurs, Honda may be subject to, and may be adversely
affected by, claims for damages from the customers or parties affected.
Also, inadvertent disclosure of confidential business or technical informa-
tion to third parties may result in a loss of Honda’s competitiveness.
6. Risk related to pension and other postretirement benefits
Honda has pension plans and provides other post-retirement benefits. The
amounts of pension benefits, lump-sum payments and other post-retire-
ment benefits are primarily based on the combination of years of service
and compensation. The funding policy is to make periodic contributions as
required by applicable regulations. Benefit obligations and pension costs
are based on assumptions of many factors, including the discount rate,
the rate of salary increase and the expected long-term rate of return on
plan assets. Differences in actual expenses and costs or changes in as-
sumptions could affect Honda’s pension costs and benefit obligations, in-
cluding Honda’s cash requirements to fund such obligations, which could
materially affect our financial condition and results of operations.
7. As a holder of ADSs, you will have fewer rights than a shareholder
has and you will have to act through the depositary to exercise
those rights
The rights of shareholders under Japanese law to take various actions, in-
cluding exercising voting rights inherent to their shares, receiving dividends
and distributions, bringing derivative actions, examining a company’s ac-
counting books and records, and exercising appraisal rights, are available
only to holders of record. Because the depositary, through its custodian
agents, is the record holder of the Shares underlying the ADSs, only the
depositary can exercise those rights in connection with the deposited
Shares. The depositary will make efforts to vote the Shares underlying
your ADSs as instructed by you and will pay to you the dividends and dis-
tributions collected from us. However, in your capacity as an ADS holder,
you will not be able to bring a derivative action, examine our accounting
books and records or exercise appraisal rights through the depositary.
8. Rights of shareholders under Japanese law may be more limited
than under the law of other jurisdictions
Our Articles of Incorporation, Regulations of the Board of Directors, Regu-
lations of the Board of Corporate Auditors and the Japanese Company
Law govern our corporate affairs. Legal principles relating to such matters
as the validity of corporate procedures, directors’ and officers’ fiduciary
duties, and shareholders’ rights may be different from those that would
apply if we were a U.S. company. Shareholders’ rights under Japanese law
may not be as extensive as shareholders’ rights under the laws of the Unit-
ed States. You may have more difficulty in asserting your rights as a share-
holder than you would as a shareholder of a U.S. corporation. In addition,
Japanese courts may not be willing to enforce liabilities against us in
actions brought in Japan that are based upon the securities laws of the
United States or any U.S. state.
9. Because of daily price range limitations under Japanese stock exchange
rules, you may not be able to sell your shares of our Common Stock at
a particular price on any particular trading day, or at all
Stock prices on Japanese stock exchanges are determined on a real-time
basis by the equilibrium between bids and offers. These exchanges are
order-driven markets without specialists or market makers to guide price
formation. To prevent excessive volatility, these exchanges set daily upward
and downward price fluctuation limits for each stock, based on the previ-
ous day’s closing price. Although transactions may continue at the upward
or downward limit price if the limit price is reached on a particular trading
day, no transactions may take place outside these limits. Consequently, an
investor wishing to sell at a price above or below the relevant daily limit
may not be able to sell his or her shares at such price on a particular trad-
ing day, or at all.
Risk Factors
Risks Relating to Honda’s Operations
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