Harman Kardon 2011 Annual Report Download - page 89

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in current earnings as Miscellaneous, net in our Consolidated Statements of Operations. For the years ended
June 30, 2011, 2010 and 2009, we recognized $1.2 million, $0.1 million and $2.4 million, respectively, in net
gains related to the change in forward points.
Economic Hedges
When hedge accounting is not applied to derivative contracts, or after former cash flow hedges have been
de-designated as balance sheet hedges, we recognize the gain or loss on the associated contracts directly in
current period earnings in either Miscellaneous, net or Cost of sales according to the underlying exposure in our
Consolidated Statements of Operations as unrealized exchange gains and losses. As of June 30, 2011 and 2010,
we had $207.5 million and $47.5 million, respectively, of forward contracts maturing through June 2012 and
November 2010, respectively, in various currencies to hedge foreign currency denominated intercompany loans
and other foreign currency denominated assets. At June 30, 2011 and 2010, the fair value of these contracts was a
liability of $9.7 million and $1.6 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
Miscellaneous, net.
Interest Rate Risk Management
We have one interest rate swap contract with a notional amount of $24.5 million and $21.7 million at
June 30, 2011 and 2010, respectively, in order 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 of ineffectiveness
in our Consolidated Statements of Operations in each of the fiscal years ended June 30, 2011, 2010 and 2009. All
components of the derivative loss were included in the assessment of the hedges effectiveness. 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 $0.8 million.
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