Harman Kardon 2010 Annual Report Download - page 98

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Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
We elected to exclude forward points from the effectiveness assessment. At the end of the period we
calculated the excluded amount, which is the fair value relating to the change in forward points that is recorded to
current earnings as Miscellaneous, net in our Consolidated Statements of Operations. For the years ended
June 30, 2010, 2009 and 2008, we recognized $0.1 million, $2.4 million and $0.6 million, respectively, in net
gains related to the change in forward points.
Economic Hedges
When hedge accounting is not applied to derivative contracts, we recognize the gain or loss on the
associated contracts directly in current period earnings in either other expense or cost of sales according to the
underlying exposure in our Consolidated Statements of Operations as unrealized exchange gains/(losses). As of
June 30, 2010 and 2009, we had $47.5 million and $116.0 million, respectively, of forward contracts maturing
through November 2010 and February 2010, respectively, in various currencies to hedge foreign currency
denominated intercompany loans and other foreign currency denominated assets. At June 30, 2010 and 2009, the
fair value of these contracts was a liability of $1.6 million and $0.4 million, respectively. Adjustments to the
carrying value of the foreign currency forward contracts offset the gains and losses on the underlying loans and
other foreign denominated assets in other non-operating income.
Interest Rate Risk Management
We have one interest rate swap contract with a notional amount of $21.7 million and $26.1 million at
June 30, 2010 and 2009, respectively, to manage our interest rate exposure and effectively convert interest on an
operating lease from a variable rate to a fixed rate. The objective of the swap is to offset changes in rent expenses
caused by interest rate fluctuations. The interest rate swap contract is designated as a cash flow hedge. At the end
of each reporting period, the discounted fair value of the swap contract is calculated and recorded in AOCI and
reclassified to rent expense, within SG&A in our Consolidated Statements of Operations, in the then current
period. If the hedge is determined to be ineffective, the ineffective portion will be reclassified from AOCI and
recorded as rent expense, within SG&A. We recognized less than $0.1 million, zero and zero ineffectiveness in
our Consolidated Statements of Operations for the fiscal years ended June 30, 2010, 2009 and 2008, respectively.
All components of the derivative loss were included in the assessment of the hedges effectiveness in all periods
presented. The amount associated with the swap contract that is expected to be recorded as rent expense in the
next 12 months is a loss of $0.7 million.
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