BUSINESS RESULTS
Brisk sales of automobiles in Japan and the United States in fiscal 2002 supported a 3.3% increase in unit sales worldwide, to 2,666,000. Growth in unit sales and the positive impact of a weaker yen pushed segment revenue up 13.4% from the previous fiscal year, to ¥5,929.7 billion ($44,501 million). Operating income soared 62.6%, to ¥520.5 billion ($3,906 million). Accordingly, the operating margin was 8.8%.

JAPAN
Although total industry demand in Japan edged down, to 5.82 million units, unit sales of Honda vehicles rose 13.1%, to 878,000, mainly attributable to firm sales of the popular Step Wagon and Stream minivans, as well as the introduction of the Fit, a new subcompact car, and the all-new Mobilio, a 7-passenger compact minivan. Sales of the Life and Vamos minivehicles and the That's, a new style of minivehicle, also enjoyed a favorable response from consumers. Reflecting strong sales of the Fit, Step Wagon and Stream through our three dealer channels in Japan – Primo, Clio and Verno – Honda automobiles, including imports, accounted for over 15% of overall domestic automobile sales.

NORTH AMERICA
Total U.S. automobile industry sales remained fairly level with the previous year, at 17.1 million units for calendar year 2001. Brisk sales of the Canadian-made Acura MDX luxury SUV, as well as healthy shipments of the redesigned CR-V, the Acura RSX, which was launched in July, and the Civic led to a 1.6% increase in unit sales in North America, to a new record of 1,368,000. In response to a sharp climb in demand in North America for the Odyssey minivan, we commenced production of this model at Honda Manufacturing of Alabama, LLC (HMA), our new plant in Lincoln, Alabama, which began operating in November 2001, well ahead of the original schedule. In addition to the Odyssey, HMA produces the V-6 engines that are installed in the car. With its annual production capacity slated to reach 150,000 units in late 2002, HMA is expected to significantly enhance our presence in the North American light truck market, as well as boost our regional automobile production capacity to 1,220,000 units.

EUROPE
In Europe, the positive effects of the launch of new models in the auto industry, as well as growing demand for diesel-powered automobiles, were not sufficient to offset slowing economic conditions. Honda's automobile unit sales were hampered mainly because of lower sales of the Accord and the HR-V SUV. As a consequence, despite steady gains in the second half-reflecting the introduction of the new Jazz, known as the Fit in Japan-a weaker performance in the first half prompted a 7.9% decline in unit sales in the region, to 176,000.

During fiscal 2002, our U.K. manufacturing subsidiary Honda of the U.K. Manufacturing Ltd. (HUM) completed its second automobile plant, where it began production of the Civic 5-door series. As a result, our automobile production capacity in the United Kingdom rose to 250,000 units. HUM's lineup also includes the Civic 3-door, which is sold in Europe and, from fiscal 2002, exported to Japan and North America. In April 2002, we also commenced exports of the redesigned CR-V from the plant to North America. Also during the period, the plant started production of a new Civic for the European market mounted with a 1.7-liter diesel engine from Isuzu Motors Limited, in a bid to expand sales in the region and ensure a high capacity utilization rate at HUM.

OTHER REGIONS
Combined unit sales in other regions slipped 8.6%, to 244,000, as declines in Taiwan and Australia countered solid gains in China. During the period, we took decisive steps to expand operations in this geographical segment, including the addition of a V-6 version to our Accord lineup in China and the launch of the Accord in India – our second model in that country, joining the City – and the Stream in Indonesia. In Malaysia, newly established automobile manufacturing and distribution joint venture DRB-Oriental-Honda Sdn. Bhd. commenced construction of a new automobile plant. In Indonesia, manufacturing and distribution joint venture P.T. Honda Prospect Motor also began building an automobile plant, near Jakarta. These new plants are scheduled to come on line in the early part of calendar 2003.

OUTLOOK
Our current forecast for Honda's overall automobile unit sales is for a 7.3% increase, to 2,860,000. We anticipate a challenging environment in Japan throughout fiscal 2003. Nonetheless, we believe that efforts to cultivate new markets through the launch of new subcompact cars will sustain growth. With this in mind, we forecast domestic unit sales of 920,000, up 4.8%.

In North America, we will step up output of the Odyssey. In June 2002, we started sales of the highly anticipated new Pilot SUV, produced on the No. 2 line at Honda of Canada Mfg., Inc. (HCM), and will start production of the Element new concept model in late 2002, at the East Liberty plant of Honda of America Mfg., Inc., in Ohio, which will strengthen our model lineup. Further, we will launch a fully redesigned Accord in the fall. Thanks to these efforts, we anticipate unit sales of 1,490,000, up 8.9%.

In Europe, we will continue assertive marketing efforts for the Jazz and the Civic 5-door series, including the diesel version, along with exports of between 50,000 and 60,000 CR-Vs and approximately 15,000 Civic 3-doors to North America to enhance production capacity utilization. We forecast unit sales in the European market of 190,000, up 8.0%.

In other regions, we expect unit sales to advance 6.6%, to 260,000. Growth in the Chinese market is expected to necessitate the expansion of our local automobile production capacity to 120,000 units, from the current 50,000, by fiscal 2003 year-end. As part of our drive to build a Global Supply Network for finished automobiles, we will expand capacity in Thailand and begin producing a new subcompact car with a view to commencing exports to Japan within fiscal 2003. With the start of production at new plants in Malaysia and Indonesia, we will work to reinforce our operating foundation in Asia and establish a more competitive cost structure by increasing the use of locally sourced parts. We also plan to start manufacturing and distributing a new subcompact car in Brazil.