Honda 2013 Annual Report Download - page 46

Japanese Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –91.1/+102.6 +34.3/–44.2 –2.0/+2.6
Expected long-term rate of return +0.5/–0.5 — — –4.0/+4.0
Foreign Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –62.1/+71.1 +36.6/–45.4 –5.5/+6.3
Expected long-term rate of return +0.5/–0.5 — — –2.1/+2.1
*1 Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, 2013.
*2 Funded status for fiscal 2013 is affected by March 31, 2013 assumptions.
Pension expense for fiscal 2013 is affected by March 31, 2012 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 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 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.
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 currency forward exchange contracts and purchased
option contracts are used to hedge currency risk of sale
commitments denominated in foreign currencies (principally
U.S. dollars).
Foreign currency written option contracts are entered into
in combination with purchased option contracts to offset
premium amounts to be paid for purchased option contracts.
Annual Report 201344