Sustained Innovation and Creativity - Toyota Industries Corporation

Reliance on Suppliers of Raw Materials andComponentsToyota Industries’ products rely on various raw materialsand components from suppliers outside the ToyotaIndustries Group. Toyota Industries has concluded basicbusiness contracts with these external suppliers andassumes it can carry out stable transactions for rawmaterials and components. However, Toyota Industries hasno assurances against future shortages of raw materialsand components, which arise from a global shortagedue to tight supply or an unforeseen accident involvinga supplier. Such shortages could have a negative effecton Toyota Industries’ product production and cause anincrease in costs, which could have an adverse impacton Toyota Industries’ fi nancial condition and businessresults.Environmental RegulationsIn view of its social responsibilities as a company,Toyota Industries strives to reduce any burden on theenvironment resulting from its production processes, aswell as strictly adheres to applicable environmentallaws and regulations. However, various environmentalregulations could also be revised and strengthenedin the future. Accordingly, any expenses necessary forcontinuous strict adherence to these environmentalregulations could result in increased business costs andhave an adverse impact on Toyota Industries’ fi nancialcondition and business results.Alliances with Other CompaniesAiming to expand its businesses, Toyota Industries engagesin joint activities with other companies through alliancesand joint ventures. However, a wildly fl uctuating markettrend or a disagreement between Toyota Industries andits partners, owing to business, fi nancial or other reasons,could prevent Toyota Industries from deriving the intendedbenefi ts of its alliances.Exchange Rate FluctuationsToyota Industries’ businesses encompass the productionand sales of products and the provision of servicesworldwide. Generally, the strengthening of the yenagainst other currencies (especially against the U.S. dollarand the euro, which account for a signifi cant portionof Toyota Industries’ sales) has an adverse impact onToyota Industries’ business, while a weakening of theyen has a favorable impact. An increase in the value ofcurrencies in countries or regions where Toyota Industriescarries out production could lead to an increase in localproduction, procurement and distribution costs. Suchan increase in costs could reduce Toyota Industries’price competitiveness. Additionally, because exportsales of several businesses are denominated mainly inyen, exchange rate fl uctuations could have an adverseimpact on Toyota Industries’ fi nancial condition andbusiness results due to a change in market prices.Share Price FluctuationsToyota Industries holds marketable securities, andtherefore bears the risk of price fl uctuation of theseshares. Based on fair market value of these shares atthe end of the fi scal year under review, Toyota Industrieshad unrealized gains. However, unrealized gains onmarketable securities could worsen depending on futureshare price movements. Additionally, a fall in share pricescould reduce the value of pension assets, leading to anincrease in the pension shortfall.Effects of Disasters, Power Blackouts andOther IncidentsToyota Industries carries out regular checks andinspections of its production facilities to minimize theeffect of production breakdown. However, there is noassurance Toyota Industries can completely preventor lessen the impact of man-made or natural disasters,including malfunctions of production facilities, fi res atproduction facilities and power blackouts. For example,the majority of Toyota Industries’ domestic productionfacilities and most of its business partners are situated inthe Chubu region. Therefore, a major earthquake suchas the Tokai Earthquake, or an incident that affects otheroperations, could delay or stop production or shipmentactivities. Such prolonged delays and stoppages couldhave an adverse impact on Toyota Industries’ fi nancialcondition and business results.Latent Risks Associated withInternational ActivitiesToyota Industries manufactures and sells products andprovides services in various countries. Such unforeseenfactors as social chaos, including political disruptions,terrorism and wars, as well as changes in economicconditions, could have an adverse impact on ToyotaIndustries’ fi nancial condition and business results.Retirement Benefi t LiabilitiesToyota Industries’ employee retirement benefi t expensesand liabilities are calculated based on expected ratesof return on pension assets as well as assumptions uponmaking actuarial calculations that incorporate discountrates and other factors. Therefore, differences betweenactual results and assumptions as well as changes inthe assumptions could have a signifi cant impact onrecognized expenses and calculated liabilities in futureaccounting periods.72 Toyota Industries Corporation Annual Report 2006