annual report - Harvey Norman Company Reports & Announcements

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 34. Financial Risk Management (continued) (e) Fair Value of Financial Instruments (continued) Quoted market price represents the fair value determined based on quoted prices on active markets as at the <strong>report</strong>ing date without any deduction for transaction costs. The fair value of the listed equity investments are based on quoted market prices and are included in level 1. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. Foreign currency forward contracts are measured using quoted forward exchange rates. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. These instruments are included in level 2. In the circumstances where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in level 3. (f) Capital Risk Management Policy When managing capital, management‟s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The capital structure of the consolidated entity consists of debt, which includes the borrowings disclosed in Note 16 and 19, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Notes 22, 23 and 24 respectively. None of the consolidated entity‟s entities are subject to externally imposed capital requirements. Management monitor capital through the debt to equity ratio (borrowings / total equity). The target for the consolidated entity‟s debt to equity ratio is a tolerance level of up to 50%. The debt to equity ratios based on continuing operations at 30 June 2012 and 2011 were as follows: C O N S O L I D A T E D 2012 2011 $000 $000 Borrowings (a) 779,347 651,758 Total equity (b) 2,281,620 2,235,378 Debt to equity ratio 34.16% If cash and cash equivalents were to be deducted from total borrowings, the net debt to equity ratio would have been 26.60% for the year ended 30 June 2012 and 21.87% for the year ended 30 June 2011. (a) Borrowings for the purpose of calculating this debt to equity ratio consists of: Bank overdraft; Borrowings (current and non-current); Commercial bills payable (current and non-current); Derivatives payable (current and non-current); Lease liabilities (current and non-current); and Non trade amounts owing to directors, other related parties and other unrelated persons. (b) For the purpose of calculating this debt to equity ratio, total equity for the current year excluded the negative acquisition reserve of $14.74 million. 29.16% 119
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 35. Derivative Financial Instruments 120 Hedging Instruments The following table details the derivative hedging instruments as at balance date. The fair value of a hedging derivative is classified as a non current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. CO N S O L I D A T E D 2012 2011 $000 $000 Current Assets Forward currency contracts – held for trading - 8 Current Liabilities Interest swap contracts – cash flow hedges 1,015 - Forward currency contracts – held for trading 147 - Forward currency contracts – cash flow hedges 37 - Non-current Liabilities Forward currency contracts – held for trading - 28 Forward currency contracts – cash flow hedges - 6 Interest swap contracts – cash flow hedges 18,784 1,235 (a) Forward currency contracts – held for trading The consolidated entity has entered into forward currency contracts which are economic hedges but do not satisfy the requirements of hedge accounting. CONSOLIDA TED 2012 2011 Currency Average Exchange Rate Buy Sell Buy Sell 2012 2011 $000 $000 $000 $000 Euro (0-12 months) 79.79 75.02 4,660 - 666 - US Dollar (0-12 months) - - - - - - Euro (12-18 months) - 70.90 - - 1,415 - US Dollar (12-18 months) - 106.09 - - 353 - Total These contracts are fair valued by comparing the contracted rate to the market rates at balance date. All movements in fair value are recognised in profit or loss in the period they occur. The net fair value losses on foreign currency derivatives during the year were $0.15 million for the consolidated entity (2011: $0.02 million). (b) Forward currency contracts – cash flow hedges The consolidated entity purchases inventories from various overseas countries. As such, the consolidated entity is exposed to foreign exchange risk from various currency exposures, primarily with respect to: United States dollars; and Euro. In order to protect against exchange rate movements and to manage the inventory costing process, the consolidated entity has entered into forward exchange contracts to purchase US dollars and Euro. These contracts are hedging highly probable forecasted purchases and they are timed to mature when payments are scheduled to be made. The following table details the forward foreign currency contracts outstanding as at <strong>report</strong>ing date: CONSOLIDA TED 2012 2011 Currency Average Exchange Rate Buy Sell Buy Sell 2012 2011 $000 $000 $000 $000 Euro (0-12 months) 79.21 - 1,553 - - - US Dollar (0-12 months) 100.31 - 241 - - - Euro (12-18 months) - 73.76 - - 914 - US Dollar (12-18 months) - 104.08 - - 69 - Total 4,660 1,794 - - 2,434 983 - -
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2012 ANNUAL REPORT HOLDINGS LIMITED
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2 Contents Company Information 1 Co
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CHAIRMAN‟S REPORT Business Perfor
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CHAIRMAN‟S REPORT (CONTINUED) Our
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CHAIRMAN‟S REPORT (CONTINUED) Bre
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CHAIRMAN‟S REPORT (CONTINUED) Sal
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CHAIRMAN‟S REPORT (CONTINUED) Slo
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DIRECTOR‟S REPORT Your directors
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DIRECTOR‟S REPORT (CONTINUED) Com
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DIRECTOR‟S REPORT (CONTINUED) Div
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DIRECTOR‟S REPORT (CONTINUED) Rem
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DIRECTORS‟ REPORT (CONTINUED) Rem
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DIRECTORS‟ REPORT (CONTINUED) Rem
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DIRECTORS‟ REPORT (CONTINUED) Aud
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CORPORATE GOVERNANCE STATEMENT (CON
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STATEMENT OF FINANCIAL POSITION AS
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STATEMENT OF COMPREHENSIVE INCOME F
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STATEMENT OF CHANGES IN EQUITY FOR
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STATEMENT OF CASH FLOWS FOR THE YEA
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OPERATING SEGMENTS (CONTINUED) Oper
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OPERATING SEGMENTS (CONTINUED) OPER
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OPERATING SEGMENTS (CONTINUED) Oper
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STATEMENT OF SIGNIFICANT ACCOUNTING
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Page 69 and 70: STATEMENT OF SIGNIFICANT ACCOUNTING
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Page 77 and 78: NOTES TO THE FINANCIAL STATEMENTS (
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Page 143 and 144: DIRECTORY OF HARVEY NORMAN, DOMAYNE
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