Honda Motor Co., Ltd. Reports Consolidated Financial Results for the Fiscal Second Quarter and the First Half Ended September 30, 2006

TOKYO, Oct. 25 /PRNewswire-FirstCall/ -- Honda Motor Co., Ltd. today announced its consolidated financial results for the fiscal second quarter and the fiscal first half ended September 30, 2006.

Second Quarter Results

Honda's consolidated net income for the fiscal second quarter ended September 30, 2006 totaled JPY 127.9 billion (USD 1,085 million), a decrease of 4.3% from the corresponding period in 2005. Basic net income per Common share for the quarter amounted to JPY 70.05 (USD 0.59), compared to JPY 72.45 for the corresponding period in 2005. One of Honda's American Depository Shares represents one Common Share.

Consolidated net sales and other operating revenue (herein referred to as "revenue") for the quarter amounted to JPY 2,630.8 billion (USD 22,314 million), an increase of 12.5% from the corresponding period in 2005. This increase was due mainly to increased revenue in automobile business in North America and Asia. Honda estimates that if the exchange rate of the Japanese Yen had remained unchanged from the corresponding period in 2005, revenue for the quarter would have increased by approximately 7.2%.

Consolidated operating income for the quarter totaled JPY 193.0 billion (USD 1,637 million), an increase of 18.6% compared to the corresponding period in 2005. This increase in operating income was primarily due to the positive impact of increased profit attributable to higher revenue, continuing cost reduction effects and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the change in model mix, the soaring raw material costs, the increased SG&A expenses and the increased R&D expenses.

Consolidated income before income taxes and equity in income of affiliates for the quarter totaled JPY 158.8 billion (USD 1,348 million), a decrease of 6.2% from the corresponding period in 2005. This decrease was primarily due to the loss on derivative instruments.

Equity in income of affiliates, which is mainly attributable to increased sales in automobile business in China, amounted to JPY 27.4 billion (USD 233 million) for the quarter, an increase of 5.3% from the corresponding period in 2005.

Business Segment

With respect to Honda's sales for the fiscal second quarter by business segment, unit sales of motorcycles totaled 2,816 thousand units, an increase of 13.1% from the corresponding period in 2005. Unit sales in Japan were 98 thousand units, a decrease of 5.8%. Overseas unit sales was 2,718 thousand units, an increase of 14.0%, due mainly to the healthy unit sales in India and Brazil, offsetting the negative impact of the decrease in unit sales of parts for local production at Honda's affiliates accounted for under the equity method in Indonesia which was caused by a decline in the market environment. Revenue from unaffiliated customers increased 16.6%, to JPY 335.5 billion (USD 2,846 million) from the corresponding period in 2005, due mainly to the increased unit sales and the positive impact of the currency translation effects. Operating income increased by 8.3 % to JPY 32.0 billion (USD 272 million) from the corresponding period in 2005, due mainly to the positive impact of the increased profit attributable to higher revenue and the currency effects caused by the depreciation of the Japanese yen, offsetting the negative impact of the increased SG&A expenses.

Honda's unit sales of automobiles were 884 thousand units, increased by 6.0% from the corresponding period in 2005. In Japan, unit sales decreased 6.6% to 171 thousand units. Overseas unit sales increased 9.5% to 713 thousand units, due to the increased unit sales in North America attributable to good sales of, for example, the Civic and the Fit and the increase in unit sales of parts for local production at Honda's affiliates accounted for under the equity method in China. Revenue from unaffiliated customers increased 10.9% to JPY 2,098.8 billion (USD 17,802 million) from the corresponding period in 2005, due to the increased unit sales and the positive impact of the currency translation effects. Operating income increased 29.5% to JPY 130.8 billion (USD 1,110 million) from the corresponding period in 2005, due mainly to the positive impact of the increased profit attributable to higher revenue, the change in sales price in North America, continuing cost reduction effects, the decreased SG&A expenses and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the change in model mix and the soaring raw material costs.

Revenue from unaffiliated customers in financial services business increased 30.7% to JPY 98.0 billion (USD 832 million) from the corresponding period in 2005, due to the increased sale attributable to the increase of finance subsidiaries-receivables from the growth of automobile business in North America and the positive impact of the currency translation effects. Operating income decreased 8.7% to JPY 22.6 billion (USD 192 million) from the corresponding period in 2005, due primarily to the negative impacts of the increase in funding costs and SG&A expenses, despite the positive impact of the increased profit from attributable to higher revenue due to an increased finance subsidiaries-receivables from the growth of business and the currency effects caused by the depreciation of the Japanese yen.

Honda's unit sales of power products were 1,187 thousand units, up by 4.0 % from the corresponding period in 2005. In Japan, unit sales totaled 127 thousand units, an increase of 7.6%. Overseas unit sales was 1,060 thousand units, an increase of 3.6%, due mainly to the positive impact of the increased unit sales of general-purpose engines in North America and Asia. Revenue from unaffiliated customers in power product and other businesses increased by 19.7% to JPY 98.4 billion (USD 835 million) from the corresponding period in 2005, due mainly to the increased unit sales of power products and the positive impact of the currency translation effects. Operating income was JPY 7.4 billion (USD 63 million), which was approximately the same level as the corresponding period in 2005. This was primarily due to the positive impact of the increased profit attributable to higher revenue and the currency effects caused by the depreciation of the Japanese yen, which exactly offset the negative impact of the increased SG&A expenses.

Geographical Segment

With respect to Honda's sales for the fiscal second quarter by geographical segment, in Japan, revenue for domestic and exports sales was JPY 1,175.8 billion (USD 9,973 million), up by 9.0% compared to the corresponding period in 2005, due primarily to the increased revenue from exports in automobile business, which offset the negative impact of the decreased unit sales in domestic automobile business. Operating income was JPY 68.9 billion (USD 585 million) from the corresponding period in 2005, up by 9.6%, due primarily to the positive impact of the increased profit attributable to higher revenue, continuing cost reduction effects and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the change in model mix, the soaring raw material costs and the increased SG&A expenses.

In North America, revenue increased by 12.5% to JPY 1,421.0 billion (USD 12,053 million) from the corresponding period in 2005, due mainly to the increased unit sales in automobile and power product businesses and the positive impact of the currency translation effects. Operating income increased by 39.7% to JPY 95.7 billion (USD 812 million) from the corresponding period in 2005, due primarily to the positive impact of the increased profit attributable to higher revenue, the change in sales price in automobile business, the decreased SG&A expenses and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the soaring raw material costs, the increased sales incentives and the change in model mix.

In Europe, revenue increased by 16.4% to JPY 310.7 billion (USD 2,636 million) compared to the corresponding period in 2005, due primarily to the increased unit sales in automobile business and the positive impact of the currency translation effects. Operating income increased by 1,009.2% to JPY 9.0 billion (USD 77 million) from the corresponding period in 2005, due mainly to the positive impact of the increased profit attributable to higher revenue, continuing cost reduction effects and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the change in model mix.

In Asia, revenue increased by 35.6% to JPY 313.5 billion (USD 2,659 million) from the corresponding period in 2005, due primarily to the increased unit sales in all of the business segments and the positive impact of the currency translation effects. Operating income increased by 15.4% to JPY 18.2 billion (USD 155 million) from the corresponding period in 2005, due mainly to the positive impact of the increased profit attributable to higher revenue and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the increased SG&A expenses.

In Asia, in addition to subsidiaries, many affiliates accounted for under the equity method manufacture and sell Honda-brand products. Operating income does not include income from these affiliates. Income from these affiliates is recorded as equity in income of affiliates and reflected in net income.

In other regions, revenue increased by 33.8% to JPY 196.3 billion (USD 1,665 million) compared to the corresponding period in 2005, due mainly to the increased unit sales in all of the business segments and the positive impact of the currency translation effects. Operating income increased by 41.5% to JPY 21.4 billion (USD 182 million) from the corresponding period in 2005, due mainly to the positive impact of the increased profit attributable to higher revenue and the currency effects caused by the depreciation of the Japanese yen, offsetting the negative impact of the increased SG&A expenses.

First Half-Year Results

Honda's consolidated net income for the fiscal first half year ended September 30, 2006 totaled JPY 271.3 billion (USD 2,301 million), an increase of 11.0% from the corresponding period in 2005. Basic net income per Common share for the period amounted to JPY 148.52 (USD 1.26), compared to JPY 132.32 for the corresponding period in 2005. One of Honda's American Depository Shares represents one Common Share.

Consolidated revenue for the period amounted to JPY 5,230.5 billion (USD 44,365 million), an increase of 13.7% from the corresponding period in 2005. Honda estimates that if the exchange rate of the Japanese yen had remained unchanged from the corresponding period in 2005, revenue for the period would have increased by approximately 7.5%.

Consolidated operating income for the period totaled JPY 396.5 billion (USD 3,363 million), an increase of 19.1% compared to the corresponding period in 2005. This increase in operating income was primarily due to the positive impact of the increased profit attributable to higher revenue, continuing cost reduction effects and the currency effects caused by the depreciation of the Japanese yen, which offset the negative impact of the change in model mix, the soaring raw material costs and increased SG&A expenses.

Consolidated income before income taxes and equity in income of affiliates for the period totaled JPY 345.8 billion (USD 2,934 million), an increase of 10.3% from the corresponding period in 2005.

Equity in income of affiliates amounted to JPY 57.6 billion (USD 489 million) for the period, an increase of 22.1% from the corresponding period in 2005.

Forecasts for the Fiscal Year Ending March 31, 2007

In regard to the forecasts of the financial results for the fiscal year ending March 31, 2007, Honda projects consolidated and unconsolidated results to be as shown below:

FY2007 Forecasts for Consolidated Results Fiscal year ending March 31, 2007 Yen (billions) Changes from FY 2006 Net sales and other operating revenue 11,000 +11.0% Operating income 820 - 5.6% Income before income taxes and equity in income of affiliates 745 - 8.5% Net income 555 - 7.0% Basic net income per Common share 304.33 - FY2007 Forecasts for Unconsolidated Results Fiscal year ending March 31, 2007 Yen (billions) Changes from FY 2006 Net sales 4,010 + 6.7% Operating income 200 -16.6% Ordinary income 325 + 1.0% Net income 265 -12.2%

These forecasts are based on the assumption that the average exchange rates for the Japanese yen to the U.S. Dollar and the Euro for the second half year ending March 31, 2007 will be JPY 115 and JPY 145 and for the full year ending March 31, 2007, JPY 115 and JPY 145, respectively.

Dividend per Share of Common Stock for Fiscal Year 2007

During the year ending March 31, 2007, the Company decided to distribute the interim cash dividend of JPY 30 per share as of the record dated September 30, 2006. It also intends to distribute third quarter and the year-end cash dividends of JPY 17 per share of the record date on December 31,2006 and March 31, 2007, respectively. As a result, total cash dividends for the year ending March 31, 2007 are planned to be JPY 64 per share. The Company did a two-for-one stock split for the Company's common stock effective July 1, 2006. Had the stock split not been carried out, interim dividends would have corresponded to JPY 60 per share, an increase of JPY 20 per share for the interim dividends paid during the previous fiscal year, and annual dividends would have corresponded to JPY 128, an increase of JPY 28 per share from the annual dividends paid for fiscal 2006.

More information can be found at http://world.honda.com/investors/financialresult/

This announcement contains "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on management's assumptions and beliefs taking into account information currently available to it. Therefore, please be advised that Honda's actual results could materially differ from those described in these forward-looking statements as a result of numerous factors, including general economic conditions in Honda's principal markets and foreign exchange rates between the Japanese yen and the U.S. dollar, the Euro and other major currencies, as well as other factors detailed from time to time. The various factors for increases and decreases in income have been classified in accordance with a method that Honda considers reasonable.