annual report - Harvey Norman Company Reports & Announcements

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35. Derivative Financial Instruments (continued)
(c) Forward currency contracts – cash flow hedges (continued)
The forward currency contracts are considered to be highly effective hedges as they are matched against forecast
inventory purchases and firm committed invoice payments for inventory purchases. During the year the hedges were
100% effective (2011: 100% effective), therefore gain or loss on the contracts attributable to the hedged risk is taken
directly to equity. When the inventory is delivered the amount recognised in equity is adjusted to the stock account in
the Statement of Financial Position.
Movement in forward currency contract cash flow hedge reserve:
C O N S O L I D A T E D
2012 2011
$000 $000
Increase/(Decrease)
Opening balance 4 2
Transferred to inventory (4) (2)
Charged to other comprehensive income (26) 4
Closing balance
(d) Interest rate swap contracts – cash flow hedges
Under interest rate swap contracts, the consolidated entity agrees to exchange the difference between fixed and
floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the
consolidated entity to mitigate the risk of changing interest rates on the cash flow exposures on the issued variable
rate debt held.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts
outstanding as at reporting date:
Outstanding floating for fixed contracts Average
contracted fixed
interest rate
Notional principal
amount
$000
(26)
4
Fair value
(Loss)/Gain
$000
30 June 2012
Less than 1 year 5.51% 100,000 (1,015)
1 to 2 years 4.97% 50,000 (984)
2 to 5 years 5.38% 300,000 (17,800)
30 June 2011
Less than 1 year - - -
1 to 2 years 5.37% 200,000 (1,034)
2 to 5 years 5.09% 100,000 (202)
The floating rate on the Australian interest rate swap is the Australian BBSY. The interest rate swap settles on a monthly
basis and the settlement dates coincide with the dates on which interest is payable on the underlying debt. The
swap is matched directly against the appropriate loan and interest expense and is considered to be highly effective.
The swap is settled on a net basis. The swap is measured at fair value and the gain or loss attributable to the hedged
risk is taken directly to equity and reclassified into profit and loss when the interest expense is recognised.
Movement in interest rate swap contract cash flow hedge reserve:
CONS O L I D A T E D
2012 2011
$000 $000
Increase/(Decrease)
Opening balance (866) (1,203)
Transferred to interest expense/interest income 97 (57)
Charged to equity (13,091) 394
Closing balance
(13,860)
(866)
121