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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 7/15/03  Honda Motor Co Ltd                20-F        3/31/03    5:260                                    Donnelley Financial/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report                                       HTML  1,662K 
 2: EX-1.1      Articles of Incorporation                           HTML     51K 
 3: EX-1.2      Share Handling Regulations                          HTML     64K 
 4: EX-1.3      Regulations of the Board of Directors               HTML     27K 
 5: EX-1.4      Regulations of the Board of Corporate Auditors      HTML     57K 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

OR

For the fiscal year ended March 31, 2003

OR

For the transition period from              to             

Commission file number 1-7628

HONDA GIKEN KOGYO KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

HONDA MOTOR CO., LTD.

(Translation of Registrant’s name into English)

JAPAN

(Jurisdiction of incorporation or organization)

No. 1-1, 2-chome, Minami-Aoyama, Minato-ku, Tokyo 107-8556, Japan

(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  x    Item 18  ¨

* Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

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PART I

Unless the context otherwise requires, the terms “Registrant” and “Company” as used in this Annual Report each refer to Honda Motor Co., Ltd., and the term “Honda” as used in this Annual Report refers to Honda Motor Co., Ltd. and its subsidiaries.

Not applicable.

Not applicable.

The selected consolidated financial data set out below for each of the five fiscal years ended March 31, 2003 have been derived from the Company’s consolidated financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), except that they do not include segment information required under U.S. GAAP.

You should read the U.S. GAAP selected consolidated financial data set out below together with “Operating and Financial Review and Prospects” and the Company’s consolidated financial statements contained in this Annual Report.

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Weighted average number of shares outstanding

Net income per common share has been computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year.

Additionally, a year-end dividend of ¥16 ($0.13) per common share aggregating ¥15,386 million ($128 million) relating to fiscal 2003 was determined by the Company’s board of directors in April 2003 and approved by the Company’s shareholders in June 2003. This dividend was paid in June 2003.

Exchange Rates

In this Annual Report, yen amounts have been translated into U.S. dollars for the convenience of readers. Unless otherwise noted, the rate used for the translations was ¥120.20 = $1.00, which represents the approximate exchange rate quoted on the Tokyo Foreign Exchange Market on March 31, 2003. No representation is made that yen amounts could have been, or could be, converted into U.S. dollars at that rate or any other rate.

The following table sets out information regarding the noon buying rates for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York expressed in yen per $1.00 during the periods shown. On June 30 2003, the noon buying rate was ¥119.87 = $1.00. The average exchange rate for the period shown is the average of the month-end rates during the period.

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Not applicable.

Not applicable.

You should carefully consider the risks described below before making an investment decision. If any of the risks described below actually occurs, Honda’s business, financial condition or results of operations could be adversely affected. In that event, the trading prices of Honda’s common stock and American Depositary Shares could decline, and you may lose all or part of your investment. Additional risks not currently known to Honda or that Honda now deems immaterial may also harm Honda and affect your investment.

Honda may be adversely affected by market conditions

Japan is currently in the midst of a prolonged economic slowdown. A continued economic slowdown, recession or sustained loss of consumer confidence in Japan could trigger a significant decline in demand for automobiles, motorcycles and power products that may affect Honda’s results of operations. Additionally, Honda conducts its operations throughout over the world, including North America, Europe and Asia. Economic downturns in these markets may also affect Honda’s results of operations.

Prices for automobiles, motorcycles and power products can be volatile

Prices for automobiles, motorcycles and power products in certain markets have, at times, experienced sharp changes over short periods of time. This volatility is caused by many factors, including short-term fluctuations in demand, shortages of certain supplies, volatility in underlying economic conditions, changes in import regulations, excess inventory and increased competition. There can be no assurance that such price volatility will not continue or that price volatility will not occur in markets that to date have not experienced such volatility. Overcapacity within the industry has increased and will likely continue to increase if the economic downturn continues in Honda’s major markets or worldwide, leading, potentially, to further increased price pressure. Price volatility in any or all of Honda’s markets could adversely affect Honda’s results of operations in a particular period.

Honda’s operations are subject to currency fluctuations

Honda’s Japanese operations export automobiles, motorcycles, power products and automobile, motorcycle and power product components to over 130 countries, and its U.S. operations export these products to 48 countries. Changes in exchange rates have an effect on Honda’s results of operations, balance sheet and cash flow, as well as on Honda’s competitiveness, which will over time affect its results. In addition, currency fluctuations may affect Honda’s pricing of products sold and materials purchased in foreign currencies. Since Honda has substantial manufacturing operations in Japan and generates a substantial portion of its revenues in currencies other than the Yen, Honda’s results of operations would be adversely affected by an appreciation of the Yen against other currencies, in particular the U.S. dollar. See further “Quantitative and Qualitative Disclosure About Market Risk” in Item 11 and “Operating and Financial Review and Prospects” in Item 5.

Honda’s hedging of currency and interest rate risk exposes Honda to other risks

Although it is impossible to hedge against all currency or interest risk, Honda uses hedging instruments in order to reduce the effects of currency fluctuations and interest rate exposure. As with all hedging instruments, there are risks associated with the use of foreign currency forward contracts, currency swap agreements and

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currency option contracts, as well as interest rate swap agreements. While providing some protection from fluctuations in currency exchange and interest rates, by utilizing such hedging instruments Honda potentially forgoes benefits that might result from other fluctuations in currency exchange and interest rates. Honda has entered into, and expects to continue to enter into, such hedging arrangements. Honda manages exposure to counterparty credit risk by limiting the counterparties to major international banks and financial institutions meeting established credit guidelines. However, any default by such counterparties might have an adverse effect on Honda.

The automobile and motorcycle industries are subject to extensive environmental and other governmental regulation

Regulations regarding vehicle emission levels, fuel economy, noise and safety, as well as levels of pollutants from production plants, are extensive within the automobile and motorcycle industries. These regulations are subject to change, and are often made more restrictive. The costs to comply with these regulations can be significant to Honda’s operations. New legislation, such as the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act in the United States, will also subject Honda to additional expense, which could be significant.

Honda is reliant on the protection and preservation of its intellectual property

Honda owns or otherwise has rights in a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks have been of value in the growth of Honda’s business and may continue to be of value in the future. Honda does not regard any of its businesses as being dependent upon any single patent or related group of patents. However, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of Honda’s intellectual property rights, would have an adverse effect on Honda’s operations.

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 financing 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 involve risks relating to residual value, credit risk and cost of capital. Competition for customers and/or these risks may affect Honda’s results of operations in the future.

Honda relies on suppliers for the provision of certain raw materials 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 it uses in the manufacture of its products. Honda’s ability to continue to obtain these supplies in an efficient and cost-effective manner is subject to a number of factors, some of which are not within Honda’s control. These factors include the ability of its suppliers to provide 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.

Honda may be adversely affected by its joint ventures

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 may be affected by changes in the business condition or policy of these entities. Any or all of these factors may adversely affect Honda’s business, financial condition or results of operations.

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Honda may be adversely affected by natural disasters, wars, terrorism and labor strikes

Honda conducts its businesses worldwide, and its operations may variously be subject to natural disasters, disease, wars, terrorism or labor strikes which may delay or disrupt Honda’s local operations in the affected regions, including the acquisition of raw materials and parts, the manufacture, sales and distribution of products and the provision of services. If such delay or disruption occurs and continues for a long period of time, Honda’s business, financial condition or results of operations may be adversely affected.

Cautionary statement with respect to forward looking statements in this Annual Report

This Annual Report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements included in this Annual Report are based on the current assumptions and beliefs of Honda in light of the information currently available to it, and involve known and unknown risks, uncertainties, and other factors. Such risks, uncertainties and other factors may cause Honda’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors are generally set forth in Item 3.D “Risk Factors” and include, without limitation:

Honda undertakes no obligation to publicly update any forward-looking statement after the date of this Annual Report. Investors are advised to consult any further disclosures by Honda in its subsequent filings pursuant to the Securities and Exchange Act of 1934.

 A.    History and Development of the Company

Honda Motor Co., Ltd. is a limited liability, joint stock corporation incorporated on September 24, 1948 under the Commercial Code of Japan as Honda Giken Kogyo Kabushiki Kaisha. It was formed to succeed to the business of an unincorporated enterprise established in 1946 by the late Soichiro Honda to manufacture motors for motorized bicycles.

Honda develops, produces, and manufactures a variety of motor products, ranging from small general-purpose engines to specialty sports cars that incorporate Honda’s highly efficient internal combustion engine technology. Approximately 15.5 million Honda engines were sold worldwide during the fiscal year ended March 31, 2003.

Honda seeks to follow a corporate strategy that emphasizes speed, efficiency, flexibility and innovation in Honda’s operations, including in product development, manufacturing and marketing. In order to satisfy the needs of its customers, Honda has global network that comprises 439 subsidiaries and affiliates.

Honda’s principal executive office is located at 1-1, 2-chome, Minami-Aoyama, Minato-ku, Tokyo,  107-8556, Japan. Its telephone number is 81-3-3423-1111.

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Principal Capital Investments

In the fiscal years ended March 31, 2001, 2002 and 2003, Honda’s capital expenditures were ¥285.6 billion, ¥303.4 billion and 316.9 billion, respectively. For further details of Honda’s capital expenditures during fiscal 2003, see “Property, Plants and Equipment” included as “Item 4.C” of this Annual Report.

 B.    Business overview

Motorcycle Business

The following table sets out unit sales for Honda’s motorcycle business, including motorcycles, all-terrain vehicles (ATVs) and personal watercraft, and revenue from its motorcycle business during the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003:

Honda produces a wide range of motorcycles, ranging from the 50cc class to the 1,800cc class in cylinder displacement. Honda’s motorcycles use gasoline engines developed by Honda that are air- or water-cooled, two or four-cycle, and single, two, four or six cylinder. The Honda’s motorcycle line consists of sports (including trial and moto-cross racing), business and commuter models. Honda is the largest manufacturer of motorcycles in the world in terms of annual units of production.

Honda’s motorcycles are produced at two sites in Japan: Hamamatsu and Kumamoto. In fiscal 2003, the annual production output of these sites was 808,800 units. Honda’s motorcycles are also produced by subsidiaries in the United States, Italy, Spain, Brazil, Thailand, Vietnam and India. Annual output in those countries in fiscal 2003 was approximately 367,000, 143,900, 41,900, 777,600, 1,664,600, 421,200 and 166,800 units, respectively. Certain motorcycle components are manufactured in Japan and shipped to foreign plants for assembly. Each plant also buys locally made parts or manufactures parts using Honda’s know-how and technical guidance.

Automobile Business

The following table sets out Honda’s unit sales of automobiles and revenue from its automobile business during the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003:

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Honda’s principal automobile products includes the following vehicle models:

Passenger cars:

Accord, Civic, Acura TL, Acura RSX, Acura TSX,

Multi-wagons, Minivans, Sport Utility Vehicle:

Fit, Odyssey, CR-V, Pilot, Mobilio, Step Wagon, Acura MDX, Stream

Mini-vehicles:

Life, That’s, Vamos, Acty

Automobiles are produced by Honda at three sites in Japan: the Saitama factory, the Suzuka factory and the Tochigi factory. Our major production sites overseas are located in Ohio (U.S.A.), Alabama (U.S.A.), Alliston (Canada), Swindon (U.K.) and Ayutthaya (Thailand).

The manufacture of the Acty-Truck, Acty-Van, Life, Life-Dunk, Vamos and Vamos-Hobio is undertaken by Yachiyo Industry Co., Ltd., one of our affiliates.

Others

The following table sets out Honda’s revenue from other businesses during the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003:

In our financial services business, we offer a variety of financial services to our customers and dealers through financial subsidiaries in Japan and abroad, with the aim of providing sales support for our products.

Honda’s other businesses consist primarily of sales of power products and related parts. Honda manufactures a variety of power products including power tillers, portable generators, general purpose engines, grass cutters, outboard engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors (riding lawn mowers).

Power product unit sales for the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003 were 3,412,000, 4,057,000 , 3,884,000, 3,926,000 and 4,584,000 units, respectively.

Effective fiscal 2000, Honda changed its business segment categorization to include the ATV business in the motorcycle business. The ATV business was previously included in Other Businesses. All prior years’ figures in this Annual Report have been restated to reflect this change.

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Marketing and Distribution

Most of Honda’s products are distributed under registered Honda trademarks in Japan and/or in overseas markets. Major trademarks include HONDA, ACURA, ACCORD, CIVIC, FIT, ODYSSEY, CR-V, PILOT, MOBILIO, STEP WGN, MDX, STREAM, LIFE, THAT’S, VAMOS, ACTY, WAVE, GOLD WING, WAVE and CUB.

Sales in Japan

Sales of Honda motorcycles, automobiles, and power products in Japan are made through different distribution networks. Honda’s products are sold to consumers primarily by independent retail dealers throughout Japan.

Motorcycles are distributed through approximately 11,600 outlets, including approximately 1,400 PROS authorized dealerships. PROS dealerships are those in which all Honda’s Japanese motorcycle models are handled.

Honda’s distribution channel for automobiles in Japan consists of three dealer networks: PRIMO Shops, CLIO Shops and VERNO Shops, which sell different models of Honda automobiles. At present, 880 retail dealers operate 1,509 PRIMO Shops and sell the Saber, the Torneo, the Civic, the Life, the Acty, the Vamos and the That’s. Honda’s 83 retail dealers operate 505 CLIO Shops and sell the Accord series, the Inspire, the Legend, the Lagreat and the Avancier. 77 retail dealers operate 387 VERNO Shops and sell the NSX, the Saber, the Integra, the Torneo, the CR-V, the HR-V and the Honda S2000. In addition, the Odyssey, the Step WGN, the Partner, the Insight, the Stream, the Fit, the Fit Aria, the Mobilio and the Mobilio Spike are sold through all three dealer networks.

Power products are distributed in Japan primarily through the Company’s nine sales offices to approximately 1,500 retail dealers throughout Japan, including affiliates of the Company. A number of small engines are also sold to other manufacturers for use in their products.

The independent retail dealers who sell Honda’s products in Japan receive payment from customers by one of four payment methods: cash, bank loans, installment payments and financing by credit companies.

Service and parts related operations in Japan

Sales of spare parts and after sales services are mainly provided through retail dealers. Lectures on service technology are provided regularly by the Company’s Automobile Sales Operations (Japan).

Overseas sales

Approximately 96% of Honda’s overseas sales in Japan are made through its principal foreign sales subsidiaries, which distribute Honda’s products to local wholesalers and retail dealers.

In the United States, which is the largest market for Honda automobiles, American Honda Motor Co., Inc. (AHMC), a wholly-owned subsidiary of the Company, markets Honda’s products through a sales network of approximately 1,260 independent local dealers for automobiles, approximately 1,200 for motorcycles and approximately 3,000 for power products. Many of the motorcycle dealers and some of the automobile dealers also sell Honda’s power products. In 1986, Honda opened the first Acura automobile dealerships in the United States. The Acura network totaled 261 dealerships at the end of fiscal 2003. The Acura network offers the RSX, TL, CL, TSX, RL, NSX MDX and EL (Canada only) models.

With regard to the export of U.S.-built cars from North America, Honda is currently exporting such North American-built models as the Accord, the Odyssey, the Civic, the MDX and the Element to overseas markets. In fiscal 2003, Honda exported approximately 33,500 units from North America to 48 countries throughout the world.

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In Europe, subsidiaries of the Company in the United Kingdom, Germany, France, Belgium, the Netherlands, Spain, Switzerland, Austria, Italy and other European countries distribute Honda’s products through approximately 1,500 independent local dealers for automobiles, approximately 1,600 for motorcycles and approximately 3,700 for power products.

The Company exports motorcycle components to 20 countries, including the United States, Italy, the People’s Republic of China, South Korea, Indonesia, Thailand, India, Mexico and Brazil.

The Company exports automobile components to 13 countries, including the United States, Canada, Thailand, Malaysia, Indonesia, India, Turkey, Brazil, and China, where motorcycles and automobiles are manufactured by its subsidiaries, joint venture firms and licensees. Some of the components used in the production of these vehicles are supplied locally.

The Company also exports power product components to nine countries, including the United States, France, Thailand, India, Indonesia and Australia, where power products are manufactured by its subsidiaries, joint venture firms and licensees. Some of the components used in the production of these products are supplied locally.

Service and Parts related operations overseas

The Company provides its overseas subsidiaries, joint venture firms, independent distributors and licensees with spare parts and necessary technical information, which they in turn supply to wholesale or retail dealers, either directly or through one or more spare parts distributors.

Net Sales by Product Group and Region

Breakdown of Net Sales and Other Operating Revenue by Category of Activity

Breakdown of Net Sales and Other Operating Revenue by Geographical Markets

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Components and Parts, Raw Materials and Sources of Supply

Honda manufactures the major components and parts used in its products, including engines, frames and transmissions. Other components and parts, such as shock absorbers, electrical equipment and tires, are purchased from numerous suppliers. The principal raw materials used by Honda are steel plate, aluminum, special steels, steel tubes, paints, plastics and zinc, which are purchased from several suppliers. The most important raw material purchased is steel plate, accounting for approximately 47% of Honda’s total purchases of raw materials.

No single supplier accounted for more than 5% of the Company’s purchases of major components and parts and principal raw materials during the fiscal year ended March 31, 2003.

Honda does not have and does not anticipate having any difficulty in obtaining its required materials from suppliers and considers its contracts and business relations with suppliers to be satisfactory. The Company is not aware that any of its domestic suppliers are substantially more dependent on foreign suppliers than are Japanese suppliers generally. However, it should be noted that Japanese industry in general is heavily dependent on foreign suppliers for substantially all of its raw materials.

Seasonality

Honda’s motorcycle and power product businesses have historically experienced some seasonality, however, this seasonality has generally not been material to our financial results.

Environmental Protection

Outline of Environmental Protection for Automobiles

Japan

In 2002, The Central Environment Council in the Ministry of Environment created new long-term targets and comprehensive requirements for gasoline vehicles from 2005. Emissions limits have been lowered by more than 50% from the current level. Detailed requirements and test methods are discussed below.

The Air Pollution Law was enacted in 2000 to strengthen emissions regulations in place in Japan. Under this Act, a low emissions vehicle designation system was created whereby preferential tax treatment is available for vehicles whose emissions levels are below those designated in the Act. In 2001, the Automobile NOx Law, targeting large city areas, was revised to include specified particulate materials.

The United States

More comprehensive and stringent emission regulations under the Clean Air Act have been enacted since the 1990s by the U.S. federal government. Pursuant to the Act, the Environmental Protection Agency determined that it was necessary to tighten standards further and in February 2000 decided to adopt a more stringent vehicle emissions regulation applicable to passenger cars and light-duty trucks produced from model year 2004. Moreover, the new standard provides for gradual decreases in sulfur levels contained in fuel in the U.S. market.

Under the Clean Air Act, the State of California is permitted to establish its own, more stringent, emission control standards. As a result, the California Air Resources Board (CARB) adopted the “California Low Emission Vehicle Program” in 1990, aiming at establishing the strictest emission regulations in the world. In late 1998, CARB strengthened its regulatory standards through the introduction of new standards, known as the “California Low Emission Vehicle Program II” (LEV II). These new standards treat most light trucks the same as passenger cars and require both types of vehicles to meet the new emissions standards of LEV II. In January 2001, CARB approved modifications to the “Zero-Emission Vehicles” requirement, permitting gasoline SULEVs

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(Super Ultra Low Emission Vehicle), hybrid vehicles (Powered by gasoline engine and/or electric motor) and CNG (Compressed Natural Gas) vehicles to partially meet zero-emission requirements by satisfying certain additional requirements. The modified requirements also provide incentives for continued technology development. In 2003, CARB amended Zero-Emission Vehicles requirement to focus on the development of fuel cell vehicles, rather than battery electric vehicles.

Europe

In 1999, the European Union adopted EURO3 and EURO4 as comprehensive emissions regulations for passenger vehicles and heavy and light commercial vehicles. EURO3 was implemented in 2000 and EURO4 is to be implemented in 2005. In each EU country, standards such as for preferential automobile tax treatment have been established in respect of automobiles that comply with requirements prescribed in EURO4 and are offered for sale before its implementation.

Japan

In 1998, amendment was made to the Law Concerning Rationalization of Energy Usage to establish a fuel efficiency standard based on weight class. The standard will be tightened in 2005 for diesel-fueled automobiles. For gasoline automobiles, tighter standards, to be implemented in 2010, have been established.

In light of the CO2 reduction targets promulgated in the Kyoto protocol, the Japanese government will issue a fuel regulation for an interim ethanol blending limit (less than 5%) which will become effective in 2003. The Government intends to further increase this limit until the final target (10%) is achieved within a decade.

Ethanol blended fuel is a “Biomass fuel”. Biomass fuel is regarded as an effective countermeasure for CO2 reduction. CO2 emissions after burning any ethanol fuel, produced with biomass resources (such as plants or wood) are not counted toward CO2 emissions under the Kyoto protocol.

The United States

The Federal Motor Vehicle Information and Cost Savings Act requires automobile manufacturers to comply with the Corporate Average Fuel Economy (CAFE) standards. Under the CAFE standards, manufacturers are subject to substantial penalties if automobiles produced by them in any model year do not meet the average standards for each category. The CAFE standard for passenger cars has been 27.5 miles per gallon since 1990, and for light trucks 20.7 miles per gallon since 1996. Passenger cars are divided into the following two categories: “Domestic” and “Import”, and credits earned in one category may not be applied to another.

Taking into consideration that NAS (National Academy of Science) encouraged improving fuel economy in its Study Report issued in July 2001 and that both the U.S. Senate and the House of Representatives had heated discussions on raising the CAFE standards, it appears that regulations requiring improving fuel economy in the United States are likely.

In 2003, the National Highway Traffic Safety Administration (NHTSA) issued a new standard for model year 2005-2007 light trucks. The new rule will raise the current standard of 20.7 miles per gallon by 1.5 miles per gallon for over the next three years, as follows: 21.0 miles per gallon for model year 2005, 21.6 miles per gallon for model year 2006, and 22.2 miles per gallon for model year 2007.

Europe

In early 1999, the European Union reached a voluntary agreement with the European Automotive Manufacturers Association and established an average emissions target of 140 grams of carbon dioxide per

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kilometer for new cars offered for sale in the EU in 2008. The Japan Automobile Manufacturers Association (JAMA) and the Korean Automobile Manufacturers Association also came into a similar voluntary agreement targeting implementation in 2009. In 2003, in an interim review, the emissions reduction effort made by these associations will be reviewed and the possibility of setting a more stringent target of above 140 grams is now being discussed. The EU also recommend biomass fuel blends.

Japan

Japan enacted the Automobile Recycling Law in July 2002, which requires manufacturers to take back air bags and fluorocarbon and shredder residue derived from end-of-life vehicles (ELV) by the end of 2004. ELV processing costs are collected from owners of cars currently in use and purchasers of new cars. Detailed regulations are expected to be issued by the fall of 2004. With respect to the recycling of fluorocarbons, under the Fluorocarbons Recovery and Destruction Law, regulations took effect in October 2002. The fluorocarbons derived from ELVs must be collected for destruction. The last owners of vehicles must purchase tickets for the fluorocarbon processing costs.

Europe

In September 2000, the European Union approved a directive that requires its member states to promulgate regulations implementing the following by April 21, 2002:

Japan

Japanese safety regulations currently require manufacturers to equip their vehicles with safety features sufficient to assure passenger safety for both head-on (full wrap test) and side collisions (European test of passenger protection) occurring at speeds of up to 50 kilometers per hour. The introduction of European offset tests and laws based on the IHRA (International Harmonization Research Activity) testing method are currently being considered. The latter are likely to take effect in 2003.

The Ministry of Land, Infrastructure and Transport announced driving vision and pedestrian head protection standards as standards to be established in less than 2 years. The establishment of driving visibility standards is planned in June 2003. The rulemaking process for pedestrian head protection standards is in the final stage, toward establishment in 2005.

The United States

The Transportation Recall Enhancement, Accountability and Documentation Act (TREAD Act) was enacted in the United States on November 1, 2000. The Act required the NHTSA to upgrade federal motor vehicle safety standards relating to tires based on a vehicle test that takes into account the rollover propensity of vehicles. The Act also required the NHTSA to reinforce the recall system and safety standards. Items to be reinforced in the

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recall system include reporting obligations to the NHTSA in respect of recalls in foreign countries (overseas recall reporting requirements), which took effect in November 2002, and regulatory reporting of various manufacturers’ information to specify defects in earlier stages (early warning reporting requirements), which took effect in April 2003. Safety standards include the imposition of tire pressure monitoring system installation obligations (finalized in June 2002), an assessment method for active rollover, a testing method for child restraining equipment and tire standards. The Act also substantially increases the NHTSA’s authority to impose civil penalties for noncompliance with regulatory requirements and specifies possible criminal penalties for violations of the federal Fraud and False Statements Act.

In 2000, the National Highway Traffic Safety Administration issued various motor vehicle safety standards, including an interim final rule specifying performance requirements for advanced airbag systems. The rule imposes a new test method with stringent new injury criteria and sets forth a phase-in compliance schedule mandating that 20% of all vehicles produced by a manufacturer meet the new safety standard by 2003, 65% by 2004, and 100% by 2005.

Europe

The European Commission and automobile industry associations have reached a negotiated agreement on pedestrian protection requirements. As a first step toward implementation, work has been done toward a prohibition on auto manufacturers supplying rigid bull bars and improvement of the rate of anti-lock brake systems installed since the end of last year.

Regarding road fatalities reduction in the EU, the European Commission has established a project called “eSafety” aiming at cutting road fatalities in half by 2010. The project focuses on road accident prevention. To achieve this target, such issues as the introduction of new features on automobiles will be discussed.

Programs that provide customers with assessments of car safety functions and promote the development of car safety by automobile manufacturers are conducted in countries such as the United States, Japan, Australia and the EU. The principal items to be assessed under these programs are passenger protection and braking power. These are assessed with stricter standards or criteria than those required by statute. Introduction of pedestrian protection safety assessment in NCAP, currently under consideration in Japan, is to be implemented from mid 2003.

NCAP has been implemented worldwide as a passive safety performance evaluation program. However, in Europe, an environmental NCAP (ECO-TEST) featuring performance for emission and CO2, commissioned by FIA (the International Automobile Federation), was started in April 2003.

Outline of Environmental Protection for Motorcycles

Emissions

Japan

Japan has emissions regulations applicable to all classes of engine displacement. Some aspects of these requirements, such as for Hydro Carbon levels and durability, are stricter than the current European regulations, namely the EURO1 regulations. The Central Environment Council in the Ministry of Environment is expected to soon issue a final report on targets for 2006. The target level is expected to be similar to the EURO3 standards.

The United States

Emissions regulations regarding off-road motorcycles are expected to be introduced in 2006. In addition to this, EPA is planning to adopt California emissions standards regarding on-road motorcycles two years behind the adaptation schedule of California.

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Europe

The EU maintains emissions regulations (EURO1) for motorcycles, as well as the “Motor Cycle (& Moped)-Whole Vehicle Type Approval”, a uniform certification system for two or three-wheeled motor vehicles.

The EURO2 regulations, regulating emissions by engine displacement class, will be introduced in 2003 and EURO3 in 2006.

Other Regions

Other countries, mainly in Asia, have advanced the implementation of tighter emissions regulation based on European regulation.

In Thailand, a 4^th stage of the emissions control which is stricter than EURO1 has been enforced. A 5^th stage of the emissions control which is equivalent to or more severe than EURO-2 will be enforced from July of this year.

In China, EURO1 equivalent regulations have been introduced in 2003 and EURO2-equivalent regulations will be introduced in 2004. In India, regulations based on its own test method are in effect and further regulations are expected to be enacted in 2005.

In Brazil, EURO1-equivalent regulation has been enforced from the beginning of this year. The EURO2 stage will be started from the beginning of 2005.

Outline of Environmental Protection for Power Products

Emissions

The United States

The U.S. federal government enacted new engine emissions regulations that are applied to model year 1997 small non-road engines. These regulations also control emissions of engines in use whose model years are 2001 and beyond. In regards to marine engines, emission regulations for outboard engines and personal watercraft became implemented for model year 1998 products and will continue to be gradually strengthened every year until model year 2006.

In 1995 the State of California enacted new engine emissions regulations for small non-road engines. The State is now gradually shifting its focus on emissions regulations for engines in use manufactured in model year 2000 and beyond. Recently the State was considering introducing tighter tail-pipe emissions standards and adding requirements for evaporative emissions from small non-road engines. In regards to marine engines, the State enacted emissions regulations for model year 2001 outboard engines and personal watercraft that are equivalent to the U.S. federal government’s model year 2006 regulations. The State will further strengthen the regulations for these products in model year 2004 and model year 2008 respectively.

Europe

Emissions regulations regarding diesel non-road mobile machinery have been in place in the European Union. The EU has introduced regulations controlling gasoline engines from 2004 based on the contents of the current EPA regulations in the United States, and is currently considering the introduction of emissions regulations targeting outboard engines and personal watercraft from 2005. In addition, in respect of marine engines, emissions regulations have been implemented since 1993 in Bodensee, which is located between Switzerland, Germany and Austria.

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 C.    Organizational Structure

As of March 31, 2003, the Company had 139 Japanese subsidiaries and 173 overseas subsidiaries. The following table sets out for each of the Company’s principal subsidiaries the country of incorporation, function and percentage ownership and voting interest held by Honda.

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 D.    Property, Plants and Equipment

Honda’s manufacturing operations are principally conducted in 25 separate factories, five of which are located in Japan. The following table sets out information, as of March 31, 2003, with respect to Honda’s principal manufacturing facilities, all of which are owned by the Company:

In addition to its manufacturing facilities, the Company’s properties in Japan include sales offices and other sales facilities in major cities, repair service facilities, and research and development facilities.

We believe our production facilities and other properties, including the principal manufacturing facilities above, are suitable and adequate for the development, manufacture and sales of Honda’s products and parts.

As of March 31, 2003, the Company’s property, with a net book value of approximately ¥12,240 million, was subject to specific mortgages securing indebtedness.

Capital Expenditures

Manufacturing-related expenditures in fiscal 2003 were applied to the expansion of manufacturing facilities, streamlining efforts and the replacement of older equipment. Other expenditures included funds used to augment sales and R&D facilities. Total consolidated capital expenditures were ¥316.9 billion, or ¥13.5 billion higher than the previous fiscal year. Capital expenditures by segment were as follows:

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Honda invested ¥37.4 billion in its motorcycle business, mainly for the introduction of new models and improvement of manufacturing operations. Capital expenditures in the automobile business amounted to ¥270.2 billion. Honda invested mainly to launch new models and a new manufacturing system both for itself and for Honda of America Mfg., Inc. Funds were also applied to start of construction of a second assembly line at Honda Manufacturing of Alabama, LLC to produce finished vehicles and engines. Expenditures in the financial services business totaled ¥0.6 billion, while investment in other businesses, mainly to fund the expansion and renewal of power product manufacturing equipment and the renovation of motor sports facilities, came to ¥8.5 billion. Eliminations and sales of manufacturing facilities during the period had no material impact.

 A.     Operating Results

Overview

Looking at the economic environment surrounding Honda in the fiscal year ended March 31, 2003, the U.S. economy showed some signs of recovery, but generally remained sluggish. At the same time, the economies in the major European countries were also sluggish, while Asian countries displayed strong overall growth. In Japan, the economic situation remained unfavorable, with consumer spending in a slump.

We seek to offset adverse economic conditions by improved efficiency and speed in the areas of development, production, and sales and by strengthening our foundation for dealing flexibly with global trends.

During fiscal 2003, Honda sold 8,080,000 motorcycles, 2,888,000 automobiles, and 4,584,000 power products, representing records for us in each category.

Net sales and other operating revenue, operating income, income before income taxes, and net profit all reached record highs for us. Thanks to an increase in sales volume overseas, net sales grew by 8.3% over the previous year to ¥7,971.4 billion.

Operating income increased by 7.8% to ¥689.4 billion, due mainly to increased revenue in Europe and Asia together with ongoing cost cutting efforts, which more than offset increased selling, general and administrative expenses and research and development costs.

Income before income taxes and equity in income of affiliates increased by 10.6% to ¥609.7 billion and net profit increased 17.6% to ¥426.6 billion, including the contributions of higher equity in income of affiliates, mainly in the Asian region. In addition, basic and diluted net income per share was ¥439.43.

Looking at Honda’s efforts during fiscal 2003 by business category, in our motorcycle business, we introduced a number of new products. We also actively switched to four-stroke engines, which produce less emissions than two-stroke engines.

In the Asian region, where the market is expanding along with an economic recovery, motorcycles are positioned as a highly convenient and affordable mode of transportation, and Honda boosted its sales significantly by offering products that meet customer needs at affordable prices. Moreover, in Latin America, where the economic environment is unfavorable, we managed to expand our sales by offering new products. As a result of these efforts, the overall unit sales volume of motorcycles grew by 32.6% to 8,080,000 units.

In our automobile business, we have been working to improve environmental performance and safety, while strengthening our product lineup by introducing new products to meet the needs of our customers. Automobile unit sales rose by 8.3% to 2,888,000 units, mainly because of favorable sales in North America.

Honda strengthened its position in the passenger car segment in the North American market by carrying out a full model change of the Accord, our mainstay model, which had strong sales.

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We moved to expand our product lineup in order to meet a wider range of customers by launching the Element, designed to appeal to younger customers, and the Pilot sports utility vehicle (SUV), both of which are in the light truck segment, where the market has continued to grow. In part as a result of these efforts, our sales in North America in fiscal 2003 rose by 11.3% to a record 1,522,000 units, even as overall demand in the U.S. in calendar 2002 dropped from the previous year to 16.8 million units.

In Japan, the overall market for automobiles was flat, at approximately 5,860,000 units, during the fiscal year. During this period, Honda’s sales in the subcompact car segment were favorable, with the Fit achieving the best-selling car title in Japan in calendar 2002. However Honda’s unit sales dropped by 3.3% to 849,000 units, due to intensified competition in the minivan segment with overall demand shifting to the subcompact car segment.

In Europe, we have launched products to better meet the market’s needs, reorganized our sales network, improved the capacity utilization rate at our automobile plant in the United Kingdom by manufacturing the CR-V for the North American market, and worked to reduce costs.

As a result, while the economies of the major European countries were sluggish, our automobile unit sales in Europe during fiscal 2003 rose by 17.6% to 207,000 units. This was due primarily to strong sales of the Jazz in the growing subcompact car segment and the successful full model change of the CR-V in the SUV segment. In addition, production at the U.K. auto plant grew by 42.7% to 186,000 units. Consequently , profitability also improved.

The total sales volume registered in Asia, Oceania, South America, the Middle East, and Africa increased 27% to 310,000 units. In the Asian region, where the market has experienced remarkable expansion, we conducted increased sales activities making use of our motorcycle business experience and our strong brand image. In part due to these sales activities, coupled with a full model change of both the CR-V and City in the ASEAN region, and the successful launch of the Odyssey minivan in China, we achieved a significant sales increase in Asia. In response to this increasing sales demand, we began producing automobiles at new factories in Malaysia, Indonesia, and Taiwan. In China, we increased our annual production capacity from 50,000 units to 120,000 units.

Looking at our power products business, Honda has applied its lower emissions engine technology to a variety of commonly used products, including general-purpose engines, electric generators, outboard motors, water pumps, and lawn mowers. As a result, we have been able to meet a variety of customer needs, ranging from commercial to home-use equipment. In fiscal 2003, we equipped an outboard motor with our newly developed four-stroke engine, which offers superior environmental performance, and marketed it worldwide.

We introduced, first in Japan a lighter weight version of our 360-degree inclinable, mini four-stroke engine, which can be operated at any position. Unit sales of power products increased by 16.8% to 4,584,000 units, boosted by our efforts to have original equipment manufacturers in Europe and North America equip their products with Honda engines.

Honda also expanded its lineup of automobiles equipped with our “i” series engines, which offer lower exhaust emissions and higher fuel economy. At the same time, we have also begun limited lease-sales of the FCX fuel cell vehicle in Japan and the U.S.

Further, in our motorcycle business, in addition to switching to a four-stroke engine, in January 2003 we launched a 100cc scooter in Europe equipped with an electronically controlled fuel injection system (PGM-FI), which simultaneously reduces fuel consumption and cuts exhaust emissions.

Application of Critical Accounting Policies

Critical accounting policies are those that require the application of managements’ most difficult, subjective or complex judgments often as a need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The following is not intend to be a comprehensive list of all our accounting policies. Our significant accounting policies are more fully described in note 1 to the consolidated financial statements.

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Honda has identified the following critical accounting policies with respect to its financial presentation.

Product Warranty

Honda warrants its vehicles for specific periods of time. Product warranties vary depending upon the nature of the product, the geographic location of its sale and other factors. Accordingly, the Company provides for estimated warranty expenses at the time the vehicles are sold to customers. Estimated warranty expenses are provided based on historical warranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs. Included in our warranty expense accruals are costs for general warranties on vehicles Honda sells, product recalls and service actions outside the general warranties. Management believes that the accounting estimate related to warranty reserves is a “critical accounting estimate” because changes in it can materially affect net income, and it requires management to estimate the frequency and amounts of future claims, which are inherently uncertain. Management’s policy is to continuously monitor the warranty liabilities to determine their adequacy, therefore, the warranty reserve is maintained at an amount management deems adequate to cover estimated warranty expense. Actual claims incurred in the future may differ from the original estimates, which may result in material revisions to the warranty reserve.

Allowance for Credit Losses

Finance subsidiaries of the Company provide wholesale financing to dealers and retail lending and direct financing leases to consumers mainly in order to support sales of the products principally in North America. The Company recognizes the receivables derived from those services as finance subsidiaries-receivables.

The allowance for credit losses on finance subsidiaries-receivables is based on a review and evaluation of historical loss experience, the size and composition of the receivables, the credit quality of the portfolio, current economic events and conditions and other pertinent factors. Management believes that the accounting estimate related to allowance for credit losses is a “critical accounting estimate” because it requires management to make assumptions about inherently uncertain items including future economic trends, credit risks and other factors. The allowance for credit losses is maintained at an amount management deems adequate to cover estimated losses on finance receivables. However, actual losses incurred may differ from the original estimates if economic conditions change or if different assumptions are used.

Allowance for Losses on Lease Residual Values

Finance subsidiaries of the Company purchase insurance to cover a substantial amount of the estimated value of all vehicles leased to customers at the end of leasing period for direct financing leases. The Company initially determines the residual value based on appraisals and estimates. The allowance for losses on lease residual values is recognized to cover estimated losses on the uninsured portion of the vehicles’ lease residual values. The lease residual values are estimated based on historical experience including residual value losses and forward-looking information including our new product plans.

Management believes that the accounting estimate related to allowance for losses on lease residual values is a “critical accounting estimate” because it is highly susceptible to change from period to period as it requires management to make assumptions about future economic trends and the lease residual value. The allowance is maintained at an amount management deems adequate to cover estimated losses on the uninsured portion of the vehicles’ lease residual values. However, changes in economic factors or in the estimated lease residual value may result in adjustments to the allowance.

Pension and Other Postretirement Benefits

The Company has various pension plans covering substantially all of their employees in Japan and in certain foreign countries. Benefit obligations and pension costs are based on assumptions of many factors, including discount rate, rate of salary increase and expected long-term rate of return. The discount rate and expected long-term rate of return are determined based on management’s evaluation of current market conditions including

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changes in interest rates. The salary increase assumptions reflect our actual experience as well as near-term outlook. The discount rate and rate of salary increase at March 31, 2003 are 2.0% and 2.3%, respectively, expected long-term rate of return for the year ended March 31, 2003 is 4.0% for Japanese plans. The discount rate and rate of salary increase at March 31, 2003 are 5.5-7.0% and 4.0-6.7%, respectively, and the expected long-term rate of return for the year ended March 31, 2003 is 6.8-8.5% for foreign plans. Management believes that the accounting estimates related to pensions are “critical accounting estimates” because changes in them can materially affect the Company’s financial condition and results of operations. Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods and can affect the recorded obligation immediately. Management believes that the assumptions used are appropriate. However, differences in actual experience or changes in assumptions could affect our pension costs and obligations.

Fiscal 2003 Compared with Fiscal 2002

Net Sales and Other Operating Revenue

Honda’s consolidated net sales and other operating revenue (hereafter “net sales”) for fiscal 2003, ended March 31, 2003, amounted to ¥7,971.4 billion, up 8.3% from the previous fiscal year.

Of that amount, domestic net sales decreased by ¥120 billion or 6.4%, to ¥1,748.7 billion, while overseas net sales increased by ¥729.1 billion, or 13.3% to ¥6,222.7 billion.

Net sales included currency translation effects due to the appreciation of the yen to the U.S. dollar, which had a negative impact on foreign currency-denominated revenue from Honda’s overseas subsidiaries when translated into yen.

Operating Income

Operating income amounted to ¥689.4 billion, which was an increase by 7.8% from the previous fiscal year.

Increased net sales, predominantly in Europe and Asia, and the Company’s cost-cutting strategies have more than offset deterioration of the model mix as well as increases in selling, general and administrative (SG&A) expenses and research and development (R&D) expenses.

Sales, General and Administrative Expenses / Research and Development Expenses

Sales, general and administrative expenses for fiscal 2003 increased by ¥143.2 billion, to ¥1,434.9 billion, reflecting increases in product warranty-related expenses and labor expenses.

Research and development expenses increased by ¥41.6 billion, to ¥436.8 billion.

Income before Income Taxes and Equity in Income of Affiliates

Income before Income Taxes and Equity in Income of Affiliates was up 10.6%, to ¥609.7 billion.

Other income & expenses, net improved by ¥8.2 billion from the previous fiscal year, due mainly to a decline in losses on currency exchanges, which offset increases in losses on securities sold, impairment losses on available for sale marketable equity securities, and losses on derivative instruments.

Equity in Income of Affiliates

Equity in income of affiliates climbed 45.8%, to ¥61.9 billion. This increase was due mainly to boosted gains posted by affiliates in Asia, representing around 80% of Honda’s overall equity in income of affiliates.

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Net Income

Net income amounted to ¥426.6 billion, an increase of 17.6%. The effective tax rate was 40.2%, a decline by 1.7 percentage points from the previous fiscal year.

Basic net income per common share amounted to ¥439.43, compared with ¥372.23 in fiscal 2002.

Segment Disclosure under Japanese Law

Honda discloses business and geographical segment information with respect to its U.S. GAAP consolidated financial results in accordance with the requirements of a Ministerial Ordinance under the Securities and Exchange Law of Japan. The segment reporting requirements under the Ministerial Ordinance differ in certain material respects from the segment reporting requirements under U.S. GAAP. The U.S. GAAP consolidated financial statements of Honda included in this Annual Report do not include segment information required under U.S. GAAP.

Under the Japanese segment reporting requirements, business segments are based on Honda’s business organization and the similarity of the principal products within each segment, as well as the relevant markets for such products: the Motorcycle Business segment consists of motorcycles, ATVs, personal watercraft and relevant parts; the Automobile Business segment consists of automobiles and relevant parts; the Financial Services segment consists of financial and insurance services business; and the Other Businesses segment consists of other businesses, including power products and relevant parts.

The following tables set out Honda’s business and geographical segment information, prepared in accordance with Japanese segment reporting requirements, for the fiscal years ended March 31, 2002 and 2003.

(A)    Business Segment Information

As of and for the year ended March 31, 2003