Isuzu 2006 Annual Report Download - page 25

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Isuzu Motors Limited Annual Report 2006
vehicle manufacturers on an OEM basis. Sales to these customers are
affected by fluctuations in production and sales at these customer com-
panies, and other factors over which the Isuzu group has no control,
and therefore they could have a negative effect on the earnings and fi-
nancial position of the Isuzu group.
5. Suppliers, subcontractors, etc., of parts and materials
The Isuzu group sources the raw materials, components, and prod-
ucts required for production from outside suppliers. Should supply-
demand conditions significantly exceed suppliers’ capacity, it is pos-
sible that we are unable to source sufficient volume. Shortages of, and
delays in the supply of parts, etc., could have a negative impact on the
earnings and financial position of the Isuzu group. It is also possible that
a tight supply-demand situation for raw materials, etc., may result in
price increases, which may also have a negative impact on the earnings
and financial position the Isuzu group if we are unable to absorb them
through our own efforts such as improving productivity or by passing
on sales prices, resulting in rising costs.
6. Product defects
At its plants both inside and outside of Japan, the Isuzu group manu-
factures its products according to the strictest globally accepted quality
control standards. However, in the unusual event of a large-scale recall
or product liability award (we are covered by product liability insur-
ance, but in the case of costs exceeding insurance cover), there could
be a negative impact on the earnings and financial position of the Isuzu
group.
7. Joint ventures
The Isuzu group engages in business in some countries in the form
of joint ventures due to legal and other requirements of each country.
Changes in management policy, operating environment, etc., of these
joint ventures can affect their earnings performance, which could pro-
duce a negative impact on the earnings and financial position of the
Isuzu group.
8. Disasters, power outages, and other interruptions
To minimize the potential of a negative impact due to an interruption
in the manufacturing process, the Isuzu group regularly conducts di-
saster prevention inspections and facilities examinations at all our sites.
However, we may not be able to completely eliminate or minimize the
impact that would arise from a disaster, power outage, or other inter-
ruption during the manufacturing process.
9. Securities investments
The Isuzu group invests in securities to produce, sell, and distribute
its products as well as to build and maintain good relationships with its
business partners. For marketable securities, a downturn in share prices
could have a negative impact on the earnings and financial position of
the Isuzu group. Isuzu provides management guidance and advice to
companies—including those in which we have invested through non-
marketable securities—that can have a strong influence over our own
business results. However, if the financial condition of the companies
in which we have invested were to deteriorate due to factors such as a
worsening business environment, this could have a negative impact on
the earnings and financial position of the Isuzu group.
10. Retirement obligations and deferred tax assets
The figures recorded for “retirement obligations” and “deferred
tax assets” are estimates that reflect the judgment of management.
Because of the uncertain nature of estimates, in some cases actual re-
sults may vary from initial estimates, and this could have a negative im-
pact on earnings results.
11. Potential risks associated with international activities and
foreign ventures
The Isuzu group conducts some of its manufacturing and marketing
activities outside of Japan—in the U.S. and in developing and emerging
markets in Asia. The following risks are inherent in such overseas busi-
ness development, and could have a negative impact on the earnings
and financial position of the Isuzu group.
• Unfavorable changes in the political or business climate
• Difficulties in recruiting and retaining personnel
• Inadequate technological infrastructure could have a negative im-
pact on our manufacturing activities or our customers’ support of our
products and services
• Potential negative tax consequences
• Social unrest stemming from terrorism, war, or other factors
12. Limits on intellectual property protection
The Isuzu group has accumulated technology and expertise that dif-
ferentiates us from our rivals; however, in certain regions due to legal
restrictions we are unable to fully protect, or we are able to only partly
protect some of our proprietary technology and expertise through in-
tellectual property rights. As a result, we may be unable to effectively
prevent third parties from using our intellectual property to make simi-
lar products.
13. Legal requirements
The Isuzu group is subject to various government regulations in the
countries in which it does business, such as business and investment ap-
provals, export controls designed to protect national security, and other
import/export regulations such as tariff rules. We are also subject to
legal requirements concerning areas such as commerce, antitrust, pat-
ents, consumer rights, taxation, foreign exchange, environmental pres-
ervation, recycling, and safety. Unexpected changes in these regulations
could have a negative impact on the earnings and financial position
of the Isuzu group. Exhaust emissions regulations are generally being
tightened amid growing environmental awareness. Since substantial in-
vestment is required to comply with these regulations, failure to gener-
ate sufficient sales to recover this investment could have a negative im-
pact on the earnings and financial position of the Isuzu group.
14. Sale of Kawasaki Plant property
We have been notified of a claim for damages stemming from soil
contamination of natural origin at a parcel of property at our Kawasaki
Plant location, which we sold in July 2001 to the Urban Renaissance
Agency, an independent administrative institution. Depending on the
course of this claim, this could have a negative impact on the earnings
and financial position of the Isuzu group.
15. Preferred shares
Isuzu issued preferred shares on December 26, 2002. These shares
could be exchanged for common shares at some time in the future, and
this could result in the dilution of existing common shares.