Toyota 2015 Annual Report Download - page 194

TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Postretirement benefits other than pensions and postemployment benefits -
Toyota’s U.S. subsidiaries provide certain health care and life insurance benefits to eligible retired
employees. In addition, Toyota provides benefits to certain former or inactive employees after employment, but
before retirement. These benefits are provided through various insurance companies, health care providers and
others. The costs of these benefits are recognized over the period the employee provides credited service to
Toyota. Toyota’s obligations under these arrangements are not material.
21. Derivative financial instruments:
Toyota employs derivative financial instruments, including foreign exchange forward contracts, foreign
currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage
its exposure to fluctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives
for speculation or trading.
Fair value hedges -
Toyota enters into interest rate swaps and interest rate currency swap agreements mainly to convert its
fixed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing interest rate risk
exposure. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on
a portfolio basis. Toyota uses interest rate currency swap agreements to hedge exposure to currency exchange
rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and
loans payable issued in foreign currencies are hedged by concurrently executing interest rate currency swap
agreements, which involve the exchange of foreign currency principal and interest obligations for each functional
currency obligations at agreed-upon currency exchange and interest rates.
For the years ended March 31, 2014, 2015 and 2016, the ineffective portion of Toyota’s fair value hedge
relationships was not material. For fair value hedging relationships, the components of each derivative’s gain or
loss are included in the assessment of hedge effectiveness.
Undesignated derivative financial instruments -
Toyota uses foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate
currency swap agreements, and interest rate options, to manage its exposure to foreign currency exchange rate
fluctuations and interest rate fluctuations from an economic perspective, and for some of which Toyota is unable
to or has elected not to apply hedge accounting.
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