HONDA FINANCIAL RESULTS 2005/2006
April 26 2006.
Honda Motor Co., Ltd. today announced its consolidated financial results for the fiscal fourth quarter and the fiscal year ended March 31, 2006.
Fourth Quarter Results
Honda's consolidated net income for the fiscal fourth quarter ended March 31, 2006 totaled JPY 219.5 billion (USD 1,869 million), an increase of 133.4% from the same period in 2005. Basic net income per Common Share for the quarter amounted to JPY 239.78 (USD 2.04), compared to JPY 101.43 for the same period in 2005. Two of Honda's American Depository Shares represent one Common Share.
Consolidated net sales and other operating revenue (herein referred to as "revenue") for the quarter amounted to JPY 2,833.7 billion (USD 24,123 million), an increase of 20.6% over the same period in 2005. Revenue was positively affected by currency translations, which were translations of foreign-currency-denominated revenue from Honda's overseas subsidiaries into Japanese yen. Honda estimates that if the exchange rate of yen had remained unchanged from the same period in 2005, revenue for the quarter would have increased by approximately 10.5%.
Consolidated operating income for the fiscal fourth quarter totaled JPY 340.8 billion (USD 2,901 million), an increase of 142.8% compared to the same period in 2005. This increase in operating income was primarily due to the positive impact of currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue and gain on return of the substitutional portion of the Employees' Pension Funds to the Japanese government (herein referred to as "return"), which offset the negative impact of increased selling, general and administrative (SG&A) expenses and research and development (R&D) expenses.
Consolidated income before income taxes for the quarter totaled JPY 334.8 billion (USD 2,850 million), an increase of 159.3% from the same period in 2005.
Equity in income of affiliates, which is mainly attributable to Asian affiliates accounted for under the equity method, amounted to JPY 22.7 billion (USD 194 million) for the quarter, an increase of 16.3% from the same period in 2005.
The gain on "return" of JPY 138.0 billion (USD 1,175 million) which was recorded in the fiscal fourth quarter ended March 31, 2006, was included in the result of consolidated operating income and consolidated income before income taxes. Accordingly, the result of amount of the relevant income after tax that was recorded by the "return" was included in the consolidated net income for the fiscal fourth quarter ended March 31, 2006.

Business Segment
With respect to Honda's sales in the fiscal fourth quarter by business category, motorcycle unit sales totaled 2,413 thousand units, a decrease of 11.2% from the same period in 2005. Motorcycle unit sales in Japan was 93 thousand units, approximately the same level as the corresponding period in 2005. Overseas unit sales was 2,320 thousand units, a decrease of 11.6% from the same period in 2005, due mainly to a decrease in unit sales of parts for local production at affiliates accounted for under the equity method in Asia*. Revenue from sales to unaffiliated customers increased 20.2%, to JPY 391.4 billion (USD 3,332 million), due mainly to positive currency translation effects and the positive impact of the change in model mix, offsetting the negative impact of decreased unit sales. Operating income increased by 124.5% to JPY 60.5 billion (USD 516 million), due mainly to the positive currency effects caused by the depreciation of the Japanese yen, increased profits attributable to higher revenue, an decrease in unrealized profit in inventories and gain on "return," offsetting negative impact of the increased SG&A expenses.
* Of the net sales of Honda-brand motorcycle products that are manufactured and sold by overseas affiliates accounted for under the equity method, those with respect to which parts for manufacturing were not supplied from Honda or such affiliates are not included in net sales and other operating revenue, in conformity with U.S. generally accepted accounting principles. Accordingly, these unit sales are not included in the financial results and forecasts. Such products amounted 1,070 thousand units for the fiscal fourth quarter.
Honda's unit sales of automobiles was 901 thousand units, increased by 4.9% from the same period in 2005. In Japan, unit sales of automobiles decreased 2.6% to 190 thousand units. Overseas unit sales increased 7.1% to 711 thousand units, due mainly to continued strong sales in North America. Revenue from sales to unaffiliated customers increased 20.3% to JPY 2,250.1 billion (USD 19,155 million) during the quarter, due to the positive currency translation impact and increased unit sales, mainly in North America. Operating income increased 168.3% to JPY 243.0 billion (USD 2,069 million), due mainly to the positive impact of currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue, change in sales price in North America and gain on "return", which offset the negative impact of the increased SG&A expenses such as increase in logistic costs caused by higher oil prices and increased R&D expenses.
Revenue from sales to unaffiliated customers in financial services business increased 28.1% to JPY 82.8 billion (USD 705 million), due mainly to positive currency translation effects and the increased revenue due to the growth of the automobile business in North America. Operating income increased 32.3% to JPY 23.9 billion (USD 204 million), due mainly to the positive impact of the currency effects caused by the depreciation of the Japanese yen, higher revenue due to an increased finance-subsidiaries receivable from growth of business and the decreased SG&A due to the reversal of the allowance for losses on lease residual values that was attributable to the increase in used-car prices, which offset negative impact of increased funding costs.
Unit sales of power products in Japan totaled 138 thousand units, an increase of 17.9% and overseas unit sales was 1,981 thousand units, increased by 18.8%. Total unit sales of power products was 2,119 thousand units, up by 18.8 % from the same period in 2005. Increased unit sales of general-purpose engines in North America and Europe, and general-purpose engines and cogeneration units in Japan, were the major contributing factors to this increase. Revenue from sales to unaffiliated customers in power products and other businesses increased by 22.6% to JPY 109.3 billion (USD 930 million), due mainly to an increase in unit sales of power products. Operating income was JPY 13.2 billion (USD 112 million), an increase of 183.2% from the same period in 2005, due mainly to the positive impact of the currency effects caused by the depreciation of the Japanese yen, an increased profit attributable to higher revenue and gain on "return", which offset increased SG&A expenses.

Geographical Segment
With respect to Honda's sales for the fiscal fourth quarter by geographical segment, in Japan, revenue for exports and domestic sales was JPY 1,179.6 billion (USD 10,042 million), up by 7.9% compared to the same period in 2005, due primarily to increased unit sales for exports in the automobile business. Operating income in Japan was JPY 184.8 billion (USD 1,573 million), up by 265.1%, due primarily to the positive impact of the currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue and gain on "return" of JPY 138.0 billion (USD 1,175 million), which offset the negative impact of the increase in SG&A expenses, such as an increase in logistic costs caused by higher oil prices and R&D expenses.
In North America, revenue increased by 26.6% from the same period in 2005 to JPY 1,625.3 billion (USD 13,836 million), due mainly to the positive currency translation effects and increased unit sales in all of Honda's business segments, particularly the motorcycle, automobile, financial services and power product businesses. Operating income increased by 43.8% to JPY 105.8 billion (USD 901 million) from the same period in 2005, due primarily to the positive impact of the currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue and change in sales price in North America, which offset the negative impact of the increased sales incentives and the negative impact of increased funding.
In Europe, revenue for the quarter increased by 24.2% to JPY 353.5 billion (USD 3,010 million) compared to the same period of the previous year, due primarily to the positive currency translation effects and increased unit sales in all of Honda's business segments. Operating income in Europe decreased by 15.3% to JPY 9.8 billion (USD 84 million), due mainly to the negative impact of the increase in SG&A expenses, offsetting the positive impact of increased profit attributable to higher revenue.
In Asia, revenue increased by 19.3% to JPY 285.8 billion (USD 2,433 million) from the same period of the previous year, due primarily to the positive currency translation effects and increased unit sales in all of Honda's business segments. Operating income increased by 82.3% to JPY 12.7 billion (USD 109 million) from the same period of the previous year, due mainly to the positive impact of currency effects caused by the depreciation of the Japanese yen and increased profit attributable to higher revenue. 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 for the fourth quarter increased by 21.6% to JPY 161.3 billion (USD 1,373 million) compared to the same period of the previous year, due mainly to the positive currency translation effects and the increased revenue in motorcycle business, mainly in South America. Operating income increased by 153.8% from the same period of the previous year to JPY 11.6 billion (USD 100 million), due mainly to the positive impact of currency effects caused by the depreciation of the Japanese yen and increased profit attributable to higher revenue, offsetting the negative impact of the increase in SG&A expenses.

Fiscal Year Results
Honda's consolidated net income for the fiscal year ended March 31, 2006, totaled JPY 597.0 billion (USD 5,082 million), an increase of 22.8% from the same period in 2005. Basic net income per Common Share for the fiscal year amounted to JPY 648.67 (USD 5.52), compared to JPY 520.68 for the same period in 2005. Two of Honda's American Depositary Shares represent one Common Share.
Consolidated revenue for the period amounted to JPY 9,907.9 billion (USD 84,345 million), an increase of 14.5% over the same period in 2005. Revenue was positively affected by currency translations, which were translations of foreign-currency-denominated revenue from Honda's overseas subsidiaries into yen. Honda estimates that if the exchange rate of yen had remained unchanged from that in the same period in 2005, revenue for the fiscal year would have increased by approximately 9.3%.
Consolidated operating income for the fiscal year totaled JPY 868.9 billion (USD 7,397 million), an increase of 37.7% over the same period in 2005. This was primarily due to positive currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue, continuing cost reduction effects and gain on "return," which offset the negative impact of increased SG&A and R&D expenses.
Consolidated income before income taxes for the fiscal year totaled JPY 814.6 billion (USD 6,935 million), an increase of 24.0% from the same period in 2005.
Equity in income of affiliates, which is mainly attributable to Asian affiliates accounted for under the equity method for the fiscal year amounted to JPY 99.6 billion (USD 848 million), which was up 3.7%.
The gain on "return" of JPY 138.0 billion (USD 1,175 million) which was recorded in the fiscal year ended March 31, 2006, was included in the result of consolidated operating income and consolidated income before income taxes. Accordingly, the result of amount of the relevant income after tax that was recorded by the "return" was included in the consolidated net income for the fiscal year ended March 31, 2006.

Business Segment
With respect to Honda's sales in the fiscal year by business category, motorcycle unit sales totaled 10,271 thousand units, down 2.0% from the same period in 2005. Motorcycle unit sales in Japan decreased 2.6% to 368 thousand units, and overseas unit sales was 9,903 thousand units, which was down 2.0% from the same period in 2005, mainly due to a decrease in unit sales of parts for local production at affiliates accounted for under the equity method in Asia*. Revenue from sales to unaffiliated customers increased 11.7%, to JPY 1,225.8 billion (USD 10,435 million), due mainly to the positive impact of the currency translation effects and the change in model mix, offsetting negative impact of decreased unit sales. Operating income increased by 64.4% to JPY 113.9 billion (USD 970 million), due mainly to the positive impact of currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue, continuing cost reduction effects and gain on "return," offsetting the negative impact of the increase in SG&A and R&D expenses.
* Of the net sales of Honda-brand motorcycle products that are manufactured and sold by overseas affiliates accounted for under the  equity method, those with respect to which parts for manufacturing were not supplied from Honda or such affiliates are not included in net sales and other operating revenue, in conformity with U.S. generally accepted accounting principles. Accordingly, these unit sales are not included in the financial results and forecasts. Such products amounted 2,600 thousand units for the fiscal year.
Honda's unit sales of automobiles increased by 4.6% from the same period in 2005 to 3,391 thousand units. In Japan, unit sales of automobiles decreased 2.2% to 696 thousand units. Overseas unit sales increased 6.5% to 2,695 thousand units, due mainly to increased unit sales in North America. Revenue from sales to unaffiliated customers increased 14.9%, to JPY 8,004.6 billion (USD 68,142 million) during the period, due to the positive currency translation effects and increased unit sales mainly in North America and Europe. Operating income increased by 38.9% to JPY 628.3 billion (USD 5,349 million), due mainly to the positive impact of currency effects caused by the depreciation of the Japanese yen, an increase in profit attributable to higher revenue, continuing cost reduction effects and gain on "return," which offset the negative impact of increase in SG&A and R&D expenses.
Revenue from sales to unaffiliated customers in the financial services business increased 20.0% to JPY 306.8 billion (USD 2,612 million), due to the growth of the automobile business in North America. Operating income increased 0.8% to JPY 90.5 billion (USD 771 million), due primarily to the positive impact of currency effects caused by the depreciation of the Japanese yen, higher revenue due to an increased finance-subsidiaries receivable from growth of business and decreased SG&A expenses which offset increased funding costs.
Unit sales of power products in Japan totaled 487 thousand units, an increase of 12.7%. Overseas unit sales were 5,389 thousand units, an increase of 10.7%, and total unit sales of power products was 5,876 thousand units, up by 10.9 % from the same period in 2005. Increased unit sales, mainly in North America and Europe, was major contributing factor to this increase. Revenue from sales to unaffiliated customers in power product and other businesses increased by 11.3% to JPY 370.6 billion (USD 3,155 million), due mainly to increased unit sales. Operating income increased 86.3% to JPY 35.9 billion (USD 306 million), due mainly to positive currency effects caused by the depreciation of the Japanese yen, the increased profit attributable to higher revenue and gain on "return", which offset the negative impact of the increase in SG&A expenses.

Geographical Segment
With respect to Honda's sales for the year by geographical segment, in Japan, revenue for exports and domestic sales was JPY 4,437.8 billion (USD 37,779 million), up by 7.2% compared to the same period in 2005, due primarily to the increased revenue for exports in the automobile business and increased revenue in the motorcycle, power product and other businesses, which offset the negative impact of decreased unit sales in domestic automobile business. Operating income in Japan was JPY 370.9 billion (USD 3,158 million), up by 100.6%, due primarily to the positive impact of the currency effects caused by the depreciation of the yen, increased profit attributable to higher revenue and continuing cost reduction effects and gain on "return" of JPY 138.0 billion (USD 1,175 million), which offset the negative impact of the increase in SG&A and R&D expenses.
In North America, revenue increased by 19.4% from the same period of the previous year to JPY 5,616.3 billion (USD 47,811 million), due mainly to positive currency translation impact and the increased revenue in all of Honda's business segments. Operating income in North America increased by 10.2% to JPY 353.9 billion (USD 3,013 million), due primarily to the positive impact of currency effects caused by the depreciation of the Japanese yen and the increased profit attributable to higher revenue, which offset the negative impact of the increase in SG&A expenses.
In Europe, revenue for the period increased by 14.0% to JPY 1,189.5 billion (USD 10,126 million) compared to the same period of the previous year, due mainly to the positive currency translation impact and the increased revenue in all of Honda's business segments. Operating income in Europe decreased by 36.2% to JPY 26.3 billion (USD 224 million), due mainly to the negative impact of the changes in model mix and increased SG&A expenses, offsetting the positive impact of the currency effects caused by the depreciation of the Japanese yen and the increased profit attributable to higher revenue.
In Asia, revenue increased by 15.9% to JPY 997.3 billion (USD 8,491 million) from the same period of the previous year, due mainly to positive currency translation impact and the increased revenue in all of Honda's business segments. Operating income increased by 7.1% to JPY 64.9 billion (USD 553 million) from the same period of the previous year, due mainly to the positive impact of the currency effects caused by the depreciation of the Japanese yen, increased profit attributable to higher revenue and continuing cost reduction, which offset the negative impact of the increase in 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 for the year increased by 22.7% to JPY 571.6 billion (USD 4,867 million) compared to the same period of the previous year, due mainly to positive impact of the currency translation effects and the increased revenue in all of Honda's business segments mainly in South America. Operating income increased by 72.2% from the same period of the previous year to JPY 57.1 billion (USD 487 million), due mainly to the positive currency effects caused by the depreciation of the Japanese yen, the increased profit attributable to higher revenue and continuing cost reduction effects, offsetting the negative impact of the increase in SG&A expenses.

Forecasts for the Fiscal Year Ending March 31, 2007
As for the global economy, the U.S. and Asian economies are expected to grow steadily, and Japan and Europe are also expected to maintain their moderate economic recovery. However, the global environment in which surrounding Honda's management is working still lacks transparency because of global political and economic uncertainty, fluctuations in oil prices, and currency movements. As a result, we expect to see continued severe situations. Under such circumstances, in regard to the forecasts of the financial results for the fiscal year ending March 31, 2007, Honda projects consolidated results to be as shown below: