Toyota 2012 Annual Report Download - page 76

TOYOTA ANNUAL REPORT 2012
Toyota Global Vision Changes for Making
Ever-Better Cars President
ʼ
s Message Medium- to Long-Term
Growth Initiatives Special Feature Management and Corporate Information Investor Information
Business and
Performance Review Financial Section
Management's Discussion and Analysis of Financial Condition and Results of Operations
management program, which recognizes the
unpredictability of financial markets and seeks to
reduce the potentially adverse effects on Toyota
ʼ
s
operating results.
The financial instruments included in the
market risk analysis consist of all of Toyota
ʼ
s cash
and cash equivalents, marketable securities,
finance receivables, securities investments,
long-term and short-term debt and all derivative
financial instruments. Toyota
ʼ
s portfolio of
derivative financial instruments consists of
forward foreign currency exchange contracts,
foreign currency options, interest rate swaps,
interest rate currency swap agreements and
interest rate options. Anticipated transactions
denominated in foreign currencies that are
covered by Toyota
ʼ
s derivative hedging are not
included in the market risk analysis. Although
operating leases are not required to be included,
Toyota has included these instruments in
determining interest rate risk.
Toyota has foreign currency exposures related to
buying, selling and financing in currencies other
than the local currencies in which it operates.
Toyota is exposed to foreign currency risk related
to future earnings or assets and liabilities that are
exposed due to operating cash flows and various
financial instruments that are denominated in
foreign currencies. Toyota
ʼ
s most significant
foreign currency exposures relate to the U.S.
dollar and the euro.
are instantaneous parallel shifts in the yield
curve. However, in reality, changes are rarely
instantaneous. Although certain assets and
liabilities may have similar maturities or periods
to repricing, they may not react correspondingly
to changes in market interest rates. Also, the
interest rates on certain types of assets and
liabilities may fluctuate with changes in market
interest rates, while interest rates on other types
of assets may lag behind changes in market
rates. Finance receivables are less susceptible
to prepayments when interest rates change and,
as a result, Toyota
ʼ
s model does not address
prepayment risk for automotive related finance
receivables. However, in the event of a change
in interest rates, actual loan prepayments may
deviate significantly from the assumptions used
in the model.
Commodity price risk is the possibility of higher
or lower costs due to changes in the prices of
commodities, such as non-ferrous alloys
(
e.g.,
aluminum
)
, precious metals
(
e.g., palladium,
platinum and rhodium
)
and ferrous alloys, which
Toyota uses in the production of motor vehicles.
Toyota does not use derivative instruments to
hedge the price risk associated with the purchase
of those commodities and controls its commodity
price risk by holding minimum stock levels.
Toyota holds investments in various available-
Toyota uses a value-at-risk analysis
(“
VAR
”)
to evaluate its exposure to changes in foreign
currency exchange rates. The VAR of the
combined foreign exchange position represents
a potential loss in pre-tax earnings that was
estimated to be ¥107.6 billion and ¥87.9 billion
at March 31, 2011 and 2012, respectively. Based
on Toyota
ʼ
s overall currency exposure
(
including
derivative positions
)
, the risk during fiscal 2012
to pre-tax cash flow from currency movements
was on average ¥87.9 billion, with a high of ¥95.6
billion and a low of ¥82.5 billion.
The VAR was estimated by using a Monte
Carlo Simulation Method and assumed 95%
confidence level on the realization date and a
10-day holding period.
Toyota is subject to market risk from exposures
to changes in interest rates based on its
financing, investing and cash management
activities. Toyota enters into various financial
instrument transactions to maintain the desired
level of exposure to the risk of interest rate
fluctuations and to minimize interest expense.
The potential decrease in fair value resulting
from a hypothetical 100 basis point upward shift
in interest rates would be approximately ¥139.6
billion as of March 31, 2011 and ¥144.2 billion as
of March 31, 2012.
There are certain shortcomings inherent
to the sensitivity analyses presented. The
model assumes that interest rate changes
for-sale equity securities that are subject to
price risk. The fair value of available-for-sale
equity securities was ¥960.2 billion as of March
31, 2011 and ¥1,034.3 billion as of March 31, 2012.
The potential change in the fair value of these
investments, assuming a 10% change in prices,
would be approximately ¥96.0 billion as of March
31, 2011 and ¥103.4 billion as of March 31, 2012.
■
Foreign Currency Exchange Rate Risk
■
Interest Rate Risk
■
Commodity Price Risk
■
Equity Price Risk
0820
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