Harman Kardon 2007 Annual Report Download - page 44

Download and view the complete annual report

Please find page 44 of the 2007 Harman Kardon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 95

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95

31
We present below a summary of our operating income by reportable business segment:
Percent
Percent
Percent
Fiscal
of net
Fiscal of net
Fiscal of net
($000s omitted)
2007
sales
2006 sales
2005 sales
Automotive $
340,116
13.6% 336,795 15.1%
347,834 16.3%
Consumer
13,587
2.7% 50,813 10.3%
26,958 6.5%
Professional
80,968
14.4% 59,278 11.5%
45,498 9.3%
Other
(48,284)
---
(49,645) ---
(69,309) ---
Total $
386,387
10.9% 397,241 12.2%
350,981 11.6%
Interest Expense
Interest expense, net, was $1.5 million compared to $13.0 million last year. Our net interest expense
decreased primarily due to the repayment of debt. Our fiscal 2007 interest expense, net, included $8.1
million of interest income primarily related to interest on our cash and cash equivalents and short-term
investment balances. In fiscal 2006 and 2005, interest income was $12.2 million and $7.6 million,
respectively.
We had average borrowings of $170.2 million in fiscal 2007 compared to $342.0 million and $340.3
million in fiscal 2006 and 2005, respectively. We used interest rate swaps during fiscal 2006 and 2005 to
effectively convert fixed rate debt to variable rate debt. The weighted average borrowings exclude the
average fair value of the interest rate swaps of $2.5 million and $11.8 million in fiscal 2006 and 2005. No
interest rate swaps were used in fiscal 2007.
Our weighted average interest rate in fiscal 2007 was 5.6 percent. In fiscal 2006 and 2005, the weighted
average interest rates were 7.4 percent and 5.3 percent, respectively. Our fiscal 2007 weighted average
interest rates have decreased compared to the prior year due to the majority of our outstanding debt
shifting from higher rate senior debt to lower rate revolving credit facilities.
Our interest expense in fiscal 2008 is expected to increase substantially as a result of the financing
associated with our proposed merger with Parent.
Miscellaneous Expenses
We recorded miscellaneous expenses, net, of $2.7 million in fiscal 2007. In fiscal 2006 and 2005, we
spent $8.0 million and $5.1 million, respectively. The fiscal 2007 expense was comprised primarily of
bank charges. Bank charges were $2.6 million, $2.5 million and $2.7 million in fiscal 2007, 2006 and
2005, respectively. In fiscal 2006, we incurred a $4.9 million expense for repurchase premiums
associated with the buyback of over 90 percent of our then-outstanding senior notes. These premiums
also include a charge on the termination of interest rate swap contracts.
Income Taxes
Our fiscal 2007 effective tax rate was 18.4 percent. This tax rate was impacted by non-recurring tax
items, including a $51 million net gain resulting from a recent court decision that allows certain taxpayers
to recognize foreign tax credits. The effective tax rate was also impacted by a $4 million tax charge