Toyota 2006 Annual Report Download - page 76

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favorable operations at the affiliated companies, which were
partially offset by the decrease in the net gains on the transfer
to the government of the substitutional portion of an employee
pension fund of affiliated companies in Japan.
Net Income
Toyota’s net income increased by ¥9.2 billion, or 0.8%,
to ¥1,171.2 billion during fiscal 2005 compared with the
prior year.
Other Comprehensive Income and Loss
Other comprehensive income decreased by ¥275.8 billion to
¥123.9 billion for fiscal 2005 compared with the prior year. This
decrease resulted primarily from a decrease in unrealized hold-
ing gains on securities during fiscal 2005 of ¥38.4 billion com-
pared with unrealized holding gains of ¥329.7 billion in the
prior year reflected by the recovery of the Japanese stock market
and the lower gain adjustment in the minimum pension liability
component during fiscal 2005 of ¥9.8 billion compared to a
¥273.3 billion gain adjustment in the prior year due to the
transfer to the government of the substitutional portion of
employee pension funds of primarily the parent company. These
declines in the other comprehensive income were partially offset
by the foreign currency translation adjustments, which resulted
in ¥75.7 billion of gains in fiscal 2005 compared with losses of
¥203.3 billion in the prior year.
Outlook
Toyota expects that the global economy will grow moderately in
fiscal 2007, despite factors such as concerns about the U.S.
economy and high oil prices worldwide. Toyota expects that the
global automotive markets will remain at the same level as fiscal
2006. Toyota, for the purposes of this discussion is assuming an
average exchange rate of ¥110 to the U.S. dollar and ¥135 to
the euro. With these external factors in mind, Toyota expects
that net revenues for fiscal 2007 will increase compared with
fiscal 2006 as a result of expected increased sales volumes, with
the planned introduction of new models, particularly in North
America. Toyota expects that operating income will remain rela-
tively unchanged in fiscal 2007 compared with fiscal 2006.
Sales efforts are expected to increase unit sales and, together
with cost reduction efforts, increase operating income. On the
other hand, the assumed exchange rate of a slightly stronger
yen against the U.S. dollar and the euro, the anticipated
increases in depreciation expenses as a result of active capital
expenditures and expenditures relating to the research and
development of environmental technology such as hybrid vehi-
cles and fuel-cell, safety technology and other next-generation
technologies are expected to be offsetting factors. In addition,
the effects of cost reduction efforts may be influenced by fluctu-
ations in the prices of raw materials. Toyota expects that
income before income taxes, minority interest and equity in
earnings of affiliated companies and net income will decrease
slightly in fiscal 2007 due to the posting of a ¥143.3 billion gain
on exchange of marketable securities in fiscal 2006 that will not
recur in fiscal 2007. Exchange rate fluctuations can also materi-
ally affect Toyota’s operating results. In particular, a strengthen-
ing of the Japanese yen against the U.S. dollar can have a
material adverse effect on Toyota’s operating results. Please see
“Operating and Financial Review and Prospects Operating
Results—Overview—Currency Fluctuation”.
The foregoing statements are forward-looking statements
based upon Toyota’s management’s assumptions and beliefs
regarding economic conditions and market demand for
Toyota’s products. Please see “Cautionary Statement with
Respect to Forward-Looking Statements”. Toyota’s actual results
of operations could vary significantly from those described
above as a result of unanticipated changes in the factors
described above or other factors, including those described
“Risk Factors” in Toyota’s annual report on Form 20-F.
Liquidity and Capital Resources
Historically, Toyota has funded its capital expenditures and
research and development activities primarily through cash gen-
erated by operations.
Toyota expects to sufficiently fund its capital expenditures
and research and development activities in fiscal 2007 primarily
through cash and cash equivalents on hand and increases in
cash and cash equivalents from operating activities. See
“Information on the Company—Business Overview—Capital
Expenditures and Divestitures” in Toyota’s annual report on
Form 20-F for information regarding Toyota’s material capital
expenditures and divestitures for fiscal 2004, 2005 and 2006
and information concerning Toyota’s principal capital expendi-
tures and divestitures currently in progress.