Harman Kardon 2010 Annual Report Download - page 97

Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
Foreign Exchange Risk Management
We use foreign exchange contracts to hedge the price risk associated with foreign denominated forecasted
purchases of materials used in our manufacturing process and to manage currency risk associated with operating
costs in certain operating units. These contracts generally mature in one year or less. A portion of these contracts
are designated as cash flow hedges.
At June 30, 2010 and 2009, we had outstanding foreign exchange contracts which are summarized below:
June 30, 2010 June 30, 2009
Gross Notional
Value
Fair Value
Asset/
(Liability)(1)
Gross Notional
Value
Fair Value
Asset/
(Liability)(1)
Currency Hedged (Buy/Sell):
U.S. Dollar/Euro .................... $511,600 $25,852 $176,872 $(13,039)
Swiss Franc/U.S. Dollar .............. 13,922 922 13,814 (52)
Euro/British Pound .................. 7,343 (32) 5,614 6
Japanese Yen/Euro ................... 6,786 137 6,225 (58)
Swiss Franc/Euro .................... 9,282 772 4,835 (66)
Swedish Krona/Euro ................. 5,389 7 5,452 65
Danish Krone/Euro .................. 1,150 (1) 73,136 (4)
Canadian Dollar/U.S. Dollar ........... 22,972 182
Other ............................. 4,528 (230) 6,891 (244)
Total .............................. $560,000 $27,427 $315,811 $(13,210)
(1) Represents the net receivable/(payable) included in our Consolidated Balance Sheets.
Cash Flow Hedges
We designate a portion of our foreign exchange contracts as cash flow hedges of foreign currency
denominated purchases. As of June 30, 2010 and June 30, 2009, we had $511.6 million and $199.8 million of
forward and option contracts maturing through June 2011 and June 2010, respectively, in various currencies to
hedge foreign currency denominated assets. These contracts are recorded at fair value in the accompanying
Consolidated Balance Sheets. The changes in fair value for these contracts on a spot to spot basis are reported in
AOCI and are reclassified to either cost of sales or SG&A, depending on the nature of the underlying asset or
liability that is being hedged, in our Consolidated Statements of Operations, in the period or periods during
which the underlying transaction occurs. If it becomes apparent that an underlying forecasted transaction will not
occur, the amount recorded in AOCI related to the hedge is reclassified to Other expenses, in our Consolidated
Statements of Operations, in the then-current period. Amounts relating to such reclassifications were immaterial
for the years ended June 30, 2010, 2009 and 2008.
Changes in the fair value of the derivatives are highly effective in offsetting changes in the cash flows of the
hedged items because the amounts and the maturities of the derivatives approximate those of the forecasted
exposures. Any ineffective portion of the derivative is recognized in the current period in our Consolidated
Statements of Operations, in the same line item in which the foreign currency gain or loss on the underlying
hedged transaction was recorded. No amount of ineffectiveness was recognized in our Consolidated Statements
of Operations for the fiscal years ended June 30, 2010, 2009 and 2008 and all components of each derivative’s
gain or loss, with the exception of forward points (see below), were included in the assessment of hedge
ineffectiveness. At June 30, 2010 and 2009, the fair value of these contracts was a net asset of $21.5 million and
a net liability of $11.3 million, respectively. The amount associated with these hedges that is expected to be
reclassified from AOCI to earnings within the next 12 months is a loss of $17.0 million.
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