Honda 2012 Annual Report Download - page 46

2012 were 2.0% and 2.1%, respectively, and our assumed
expected long-term rate of return for the year ended March
31, 2012 was 3.0% for Japanese plans. Our assumed dis-
count rate and rate of salary increase as of March 31, 2012
were 4.6~5.2% and 1.5~4.4%, respectively, and our
assumed expected long-term rate of return for fiscal 2012
was 6.5~7.5% for foreign plans.
We believe that the accounting estimates related to our
pension plans is “critical accounting estimate” because
changes in these estimates can materially affect our financial
condition and results of operations.
Actual results may differ from our assumptions, and the
difference is accumulated and amortized over future periods.
Therefore, the difference generally will be reflected as our
recognized expenses in future periods. We believe that the
assumptions currently used are appropriate, however, differ-
ences in actual expenses or changes in assumptions could
affect our pension costs and obligations, including our cash
requirements to fund such obligations.
The following table shows the effect of a 0.5% change in
the assumed discount rate and the expected long-term rate
of return on our funded status, equity and pension expense.
Japanese Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –84.0/+94.4 +32.1/–42.1 –2.6/+3.4
Expected long-term rate of return +0.5/–0.5 — — –3.9/+3.9
Foreign Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –50.0/+57.2 +21.0/–24.3 –4.8/+5.5
Expected long-term rate of return +0.5/–0.5 — — –1.8/+1.8
*1 Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, 2012.
*2 Funded status for fiscal 2012 is affected by March 31, 2012 assumptions.
Pension expense for fiscal 2012 is affected by March 31, 2011 assumptions.
Income Taxes
Honda is subject to income tax examinations in many tax
jurisdictions because Honda conducts its operations in
various regions of the world. 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 resolu-
tion. We performed a comprehensive review of any uncer-
tain tax positions.
We believe our accounting for tax uncertainties is a
“critical accounting estimate” because it requires us to evalu-
ate 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 unrec-
ognized 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 settle-
ment or when the statutes of limitations expire, as we treat
these events as discrete items in the period of resolution.
Annual Report 201244