Notes to the Financial Statements

Note 26: Financial Instruments

26A: Financial Instrument Categories

The accounting policies for financial instruments have been applied to the line items below:

Consolidated University
This year Last year This year Last year
  $000 $000   $000 $000
FINANCIAL ASSETS          
Fair value through surplus or deficit
-Held for trading  
Other Financial Assets 0 297   0 0
Total held for trading 0 297   0 0
 
Loans and Receivables      
Cash and Cash Equivalents 11,564 10,500   10,381 10,193
Trade and Other Receivables 13,811 11,874   11,630 9,847
Inter Company Balances 0 0   4,759 3,787
Prepayments 4,395 2,690   4,395 2,690
Short Term Investments 12,000 9,058   12,000 9,058
Investments in Associates 2,191 2,084   875 875
Investments 609 586   2,414 2,392
Loans and Receivables 146 146   146 146
Total Loans and Receivables 44,716 36,938   46,600 38,988
 
FINANCIAL LIABILITIES  
Fair value through surplus or deficit  
-Held for trading    
Derivative Financial Instruments 0 22   0 22
Total held for trading 0 22   0 22
 
Financial Liabilities at Amortised Cost  
Income in Advance 27,830 26,162   27,796 26,126
Trade and Other Payables 12,256 10,885   11,535 10,295
University of Waikato Research Trust Payable 0 0   15,796 15,595
Total Financial Liabilities at Amortised Cost 40,087 37,047   55,127 52,016

26B: Fair Value Hierarchy Disclosures

For those instruments recognised at fair value on the balance sheet, fair values are determined according to the following hierarchy:

  • Quoted market price - Financial instruments with quoted prices for identical instruments in active markets.
  • Valuation technique using observable inputs - Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
  • Valuation techniques with significant non-observable inputs - Financial instruments valued using models where one or more significant inputs are not observable.

The following table analyses the basis of the valuation of classes of financial instruments measured at fair value on the balance sheet:

Valuation technique
Total Quoted market price Observable inputs Significant non-observable inputs
  $000 $000 $000 $000
31 December 2010 - University
Financial assets      
Shares 0 0 0 0
Financial liabilities    
Derivatives 0 0 0 0
31 December 2010 - Group  
Financial assets    
Shares 0 0 0 0
Financial liabilities    
Derivatives 0 0 0 0
31 December 2009 - University    
Financial assets    
Shares 0 0 0 0
Financial liabilities    
Derivatives 22 0 22 0
31 December 2009 - Group    
Financial assets    
Shares 297 297 0 0
Financial liabilities    
Derivatives 22 0 22 0

26C: Financial Instrument Risks

The University's activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The University has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market risk
The effective interest rates on investments range from 3.53% to 4.79% (2009 - 3.42% to 4.34%).

There was a finance lease recognised in 2006 with an effective interest rate of 12.07% in 2010. (2009 - 12.07%).

There were no term loans for 2010 (2009 - none).

Fair Value Interest Rate Risk
The estimated fair value of the University's financial instruments are equivalent to their carrying amounts in the financial statements. The University's exposure to fair value interest rate risk is limited to its bank deposits which are held at fixed rates of interest, and a finance lease.

Cash Flow Interest Rate Risk
Cash flow interest rate risk is the risk that the cash flows from a financial instrument will fluctuate because of changes in market interest rates. Investments issued at variable interest rates expose the University to cash flow interest rate risk.

The University holds a mixture of fixed rate and floating call rate deposits. At 31 December the University had $7.8m (2009 $8.8m) invested in variable rate deposits and the balance in fixed rate deposits.

Sensitivity analysis
The tables below illustrate the potential effect on the surplus or deficit and equity (excluding general funds) for reasonably possible market movements, with all other variables held constant, based on financial instrument exposures at balance date.

INTEREST RATE RISK

University This Year Last Year
Instrument +100bps -100bps +100bps -100bps
  $000 $000 $000 $000
Variable rate deposits 78 ( 78 ) 88 ( 88 )
 
Consolidated This Year Last Year
Instrument +100bps -100bps +100bps -100bps
  $000 $000 $000 $000
Variable rate deposits 84 ( 84 ) 90 ( 90 )

CURRENCY RISK

University This Year Last Year
Instruments held in USD +10% -10% +10% -10%
  $000 $000 $000 $000
Creditors 9 ( 11 ) 7 ( 8 )
Debtors ( 3 ) 4 ( 6 ) 6
US dollar account ( 13 ) 16 ( 75 ) 92
 
Consolidated This Year Last Year
Instruments held in USD +10% -10% +10% -10%
  $000 $000 $000 $000
Creditors 13 ( 16 ) 7 ( 9 )
Debtors ( 8 ) 10 ( 7 ) 7
US dollar account ( 33 ) 41 ( 75 ) 92
 
University and Consolidated This Year Last Year
Instruments held in EUR +10% -10% +10% -10%
  $000 $000 $000 $000
Creditors 3 ( 4 ) 2 ( 3 )
Debtors - - ( 7 ) 8
 
University and Consolidated This Year Last Year
Instruments held in AUD +10% -10% +10% -10%
  $000 $000 $000 $000
Creditors 9 ( 11 ) 7 ( 9 )
Debtors - - ( 47 ) 57
 
University and Consolidated This Year Last Year
Instruments held in GBP +10% -10% +10% -10%
  $000 $000 $000 $000
Creditors 9 ( 12 ) 3 ( 4 )
Debtors 2 3 2 3

The instruments held in CAD, JPY and SGD had minimal values, accordingly no analysis is provided.

Explanation of interest rate risk sensitivity
The interest rate sensitivity is based on a reasonable possible movement in interest rate, with all other variables held constant, measured as a basis points (BPS) movement. For example a decrease in 100 bps is equivalent to a decrease in interest rates of 1%.

Explanation of currency risk sensitivity
The foreign exchange sensitivity is based on a reasonable possible movement in foreign exchange rates, with all other variables held constant, measured as a percentage movement in the foreign exchange rate.

CREDIT RISK

Credit risk is the risk that a third party will default on its obligation to the University causing the University to incur a loss.

Financial instruments which potentially subject the University to credit risk principally consist of bank balances, intercompany balances and accounts receivable.

Credit risk in respect of bank and short term deposits is reduced by spreading deposits over major New Zealand registered trading banks with minimum S&P long-term credit rating of A+ or minimum Moody’s Investors long term credit rating of A. Receivables are unsecured, but are subject to credit control.

No collateral is held.

Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to Standard and Poor’s credit ratings (if available) or to historical information about counterparty default rates:

  Consolidated University
  2010 2009 2010 2009
  $000 $000 $000 $000
Counterparties with credit ratings
Cash at bank and term deposits
AA- 23,564 19,558 22,381 19,251
 
Counterparties without credit ratings
Debtors and other receivables
Existing counterparty with no defaults in the past 13,811 11,874 11,630 9,847
Existing counterparty with defaults in the past - - - -
Total debtors and other receivables 13,811 11,874 11,630 9,847
 
Loans to related parties
Existing counterparty with no defaults in the past - - 4,759 3,787
Existing counterparty with defaults in the past - - - -
Total loans to related parties - - 4,759 3,787

LIQUIDITY RISK

Liquidity risk is the risk that the University will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities.

The University is expected to maintain combined cash reserves and committed credit lines available to a minimum of 120% of the forecast peak funding requirements at any one point of time in the following 12 month period.

The table below analyses the University's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

University Less than 6 months Between 6 months and 1 year Between 1 and 5 years
2010 $000 $000 $000
Creditors and other payables 11,535 0 0
Borrowings 82 82 655
Current Employee Entitlements 4,017 838 0
 
2009      
Creditors and other payables 10,295 0 0
Borrowings 122 102 655
Current Employee Entitlements 3,499 828 0
 
Consolidated Less than 6 months Between 6 months and 1 year Between 1 and 5 years
2010 $000 $000 $000
Creditors and other payables 12,256 0 0
Borrowings 82 82 655
Current Employee Entitlements 4,409 838 0
 
2009
Creditors and other payables 10,885 0 0
Borrowings 122 102 655
Current Employee Entitlements 3,787 828 0


<< Note 25: Leases Table of contents Note 27: Related Party Transactions >>

In New Zealand

0800 WAIKATO

International

+64 7 856 2889