Honda 2011 Annual Report Download - page 44

Operating and Financial Review
Net Sales and Other Operating Revenue
Honda’s consolidated net sales and other operating revenue
(hereafter, “net sales”) for the fiscal year ended March 31, 2011,
increased ¥357.6 billion, or 4.2%, to ¥8,936.8 billion from the fiscal
year ended March 31, 2010, due mainly to increased net sales in
automobile business and motorcycle business, which was partially
offset by a decrease in net sales attributable to negative foreign
currency translation effects. Honda estimates that by applying
Japanese yen exchange rates of the previous fiscal year to the
current fiscal year, net sales for the year would have increased by
approximately ¥743.3 billion, or 8.7%, compared to the increase as
reported of ¥357.6 billion, which includes negative foreign currency
translation effects.
Operating Costs and Expenses
Operating costs and expenses increased ¥151.6 billion, or 1.8%, to
¥8,367.0 billion from the previous fiscal year. Cost of sales increased
¥82.1 billion, or 1.3%, to ¥6,496.8 billion from the previous fiscal
year, due mainly to an increase in costs attributable to increased net
sales and the effect of raw material fluctuations, which was partially
offset by continuing cost reduction and positive foreign currency
effects. Selling, general and administrative expenses increased
¥45.3 billion, or 3.4%, to ¥1,382.6 billion from the previous fiscal
year, due mainly to an increase in selling expenses attributable to
increased net sales, the impact of the Earthquake, which was
partially offset by a decrease in provisions for credit losses in financial
services business, and positive foreign currency effects. R&D
expenses increased by ¥24.2 billion, or 5.2%, to ¥487.5 billion from
the previous fiscal year, due mainly to improving safety and
environmental technologies and enhancing of the attractiveness of
the products.
Operating Income
Operating income increased ¥206.0 billion, or 56.6%, to ¥569.7
billion from the previous fiscal year, due mainly to an increase in
income attributable to increased net sales and continuing cost
reduction, which was partially offset by increased selling, general
and administrative expenses and R&D expenses, negative foreign
currency effects and the impact of the Earthquake. Excluding
negative foreign currency effects of ¥137.6 billion, Honda estimates
operating income increased ¥343.6 billion.
With respect to the discussion above of the changes, management
identified the factors and used what it believes to be a reasonable
method to analyze the respective changes in such factors.
Management analyzed changes in these factors at the levels of the
Company and its material consolidated subsidiaries. “Foreign
currency effects” consist of “translation adjustments”, which come
from the translation of the currency of foreign subsidiaries’ financial
statements into Japanese yen, and “foreign currency adjustments”,
which result from foreign-currency-denominated sales. With respect
to “foreign currency adjustments”, management analyzed foreign
currency adjustments primarily related to the following currencies:
U.S. dollar, Canadian dollar, Euro, British pound, Brazilian real and
Japanese yen, at the level of the Company and its material
consolidated subsidiaries.
Income before Income Taxes
and Equity in Income of Affiliates
Income before income taxes and equity in income of affiliates
increased ¥294.3 billion, or 87.6%, to ¥630.5 billion. Main factors of
this increase except factors relating to operating income are as
follows;
Unrealized gains and losses related to derivative instruments had
a negative impact of ¥30.4 billion. Other income (expenses) excluding
unrealized gains and losses related to derivative instruments had a
positive impact of ¥118.8 billion, due mainly to a gain on sales of
investments in affiliates related to the dissolution of a joint venture
and an increase in foreign currency transaction gains.
Income Tax Expense
Income tax expense increased ¥59.9 billion, or 40.8%, to ¥206.8
billion from the previous fiscal year. The effective tax rate decreased
10.9 percentage points, to 32.8% from the previous fiscal year. The
decrease in the effective tax rate was due mainly to a decrease in a
portion of unrecognized tax benefits related to transfer pricing
matters of overseas transactions between the Company and foreign
affiliates.
Equity in Income of Affiliates
Equity in income of affiliates increased ¥46.4 billion, or 49.8%, to
¥139.7 billion, due mainly to an increase in income attributable to
increased net sales and continuing cost reduction at affiliates in
Japan and Asia.
Net Income
Net income increased ¥280.8 billion, or 99.4%, to ¥563.4 billion
from the previous fiscal year.
12,000
Yen (billions)
10,000
8,000
6,000
4,000
2,000
2007 2008 2009 2010 2011
0
Net Sales and Other Operating Revenue
Years ended March 31
42
Financial Review