Honda 2014 Annual Report Download - page 32

Financial Section: Financial Review
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, 2014, increased by ¥1,964.5 billion, or 19.9%,
to ¥11,842.4 billion from the fiscal year ended March 31, 2013, due mainly to
increased net sales in Automobile business and Motorcycle business operations
as well as positive 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 ¥458.4
billion, or 4.6%, compared to the increase as reported of ¥1,964.5 billion, which
includes positive foreign currency translation effects.
Operating Costs and Expenses
Operating costs and expenses increased by ¥1,759.0 billion, or 18.8%, to
¥11,092.1 billion from the previous fiscal year. Cost of sales increased by ¥1,415.9
billion, or 19.3%, to ¥8,761.0 billion from the previous fiscal year, due mainly to an
increase in costs attributable to increased consolidated unit sales in Automobile
business and Motorcycle business, and negative foreign currency effects. Selling,
general and administrative expenses increased by ¥269.2 billion, or 18.9%, to
¥1,696.9 billion from the previous fiscal year, due mainly to increased product
warranty expenses and increase in selling expenses attributable to increased
consolidated unit sales in Automobile business and Motorcycle business. R&D
expenses increased by ¥73.8 billion, or 13.2%, to ¥634.1 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 by ¥205.4 billion, or 37.7%, to ¥750.2 billion from the
previous fiscal year, due mainly to an increase in income attributable to increased
net sales and positive foreign currency effects, which was partially offset by
increased selling, general and administrative expenses and increased R&D
expenses. Excluding positive foreign currency effects of ¥288.7 billion, Honda
estimates operating income decreased by ¥83.2 billion.
(With respect to the discussion above of the changes, management identified
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, Euro, Japanese yen and others 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 by ¥240.0
billion, or 49.1%, to ¥728.9 billion. The main factors behind this increase, except
factors relating operating income, are as follows:
Unrealized gains and losses related to derivative instruments had a positive
impact of ¥74.4 billion. Other income (expenses) excluding unrealized gains and
losses related to derivative instruments had a negative impact of ¥39.8 billion, due
mainly to an increase in foreign currency transaction losses.
Income Tax Expense
Income tax expense increased by ¥73.6 billion, or 41.2%, to ¥252.6 billion from the
previous fiscal year. The effective tax rate decreased 1.9 percentage points to 34.7%
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 mat-
ters of overseas transactions between the Company and foreign affiliates.
Equity in Income of Affiliates
Equity in income of affiliates increased by ¥49.7 billion, or 60.1%, to ¥132.4 billion,
due mainly to an increase in income attributable to increased net sales at affiliates
in Asia and a recognition of impairment loss on certain investments in affiliates,
which was included in the previous fiscal year.
Yen (billions)
Net Sales and Other
Operating Revenue
Fiscal years ended March 31
4,000
8,000
12,000
010 11 12 13 14
Honda Motor Co., Ltd. Annual Report 2014 31
6 Financial Section
1 The Power of Dreams
2 Financial Highlights
3 To Our Shareholders
4 Review of Operations
5 Corporate Governance
7
Investor Relations
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