Tesco 2006 Annual Report Download - page 112

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110 Tesco plc
Notes to the Parent company financial statements continued
Note 10 Derivative financial instruments continued
Hedging activities
Fair value hedges
The Company uses interest rate swaps and cross-currency swaps to hedge the fair value of fixed rate bonds.
The fixed rate bonds are hedged against changes to their fair value resulting from changes in interest rates and foreign
exchange rates.
The fair value of swaps used for fair value hedging at the Balance Sheet date was a liability of £99m.
Cash flow hedges
The Company uses forward foreign exchange contracts and currency options to hedge the cost of future purchases of goods
for resale, where those purchases are denominated in a currency other than that of the Company. The hedging instruments are
primarily used to hedge purchases in Euros and US Dollars. The cash flows hedged will occur within one year of the Balance
Sheet date.
At the Balance Sheet date, the total notional amount of outstanding forward foreign exchange contracts to which the Company
has committed was £548m.
The fair value of currency derivatives that are designated as effective cash flow hedges was an asset of £4m. This amount has been
deferred as a component of equity.
Net investment hedges
The Company uses forward foreign exchange contracts, currency denominated borrowings and currency options to hedge the
exposureof a proportion of its non-Sterling denominated assets against changes in value due to changes in foreign exchange rates.
The fair value of theseinstruments at the Balance Sheet date was a liability of £117m.
Financial instruments not qualifying for hedge accounting
The Company has a number of financial instruments which do not meet the criteria for hedge accounting.
These instruments include forward foreign exchange contracts, currency options, caps, collars and interest rate swaps.
The fair value of these instruments at the Balance Sheet date was a liability of £5m.
Note 11 Share-based payments
Tesco PLC’s equity settled share-based payment schemes comprise various share option schemes designed to reward Executive
Directors. For further information on these schemes, including the valuation models and assumptions used, see note 22 to the
Group financial statements.
The number of options and weighted average exercise price (WAEP) of share option schemes relating to Tesco PLC’s employees are:
For the year ended 25 February 2006
Approved Unapproved
Savings-related share option share option Nil cost
share option scheme scheme scheme share options
Options WAEP Options WAEP Options WAEP Options WAEP
Outstanding at
26 February2005 43,206 194.83 278,079 114.42 10,667,969 230.95 1,126,257 0.00
Granted 7,788 248.00 28,776 312.75 2,405,116 312.75 2,333,201 0.00
Exercised (8,520) 198.00 (262,890) 109.62 (1,005,058) 248.02 – –
Outstanding at
25 February 2006 42,474 203.95 43,965 272.93 12,068,027 245.83 3,459,458 0.00
Exercisable as at
25 February 2006 – – – – 4,185,280 – – –
Exercise price range (pence) – – – – – 164.00 to
259.00 – Nil
Weighted average remaining
contractual life (years) – – – – – 5.36 – –