Harman Kardon 2007 Annual Report Download - page 45

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32
resulting from a dividend from South Africa. Exclusive of these items, our fiscal 2007 tax rate was 30.4
percent. During fiscal 2007, we made tax payments of $145.4 million, primarily in Germany.
The effective tax rates in fiscal 2006 and 2005, were 32.4 percent and 30.6 percent, respectively. In fiscal
2006, we repatriated $500 million from our foreign subsidiaries under the “American Jobs Creation Act
of 2004.” This decision resulted in a $3.4 million tax charge during fiscal 2006.
During the quarter ended March 31, 2005 we changed our method of accounting for reporting changes in
interim periods to liabilities resulting from changes in judgments or settlements related to uncertain tax
positions. We had previously accounted for such changes in judgments and settlements as adjustments to
the estimated annual effective rate. We changed our method to account for such changes in judgments and
settlements as a discrete item in the interim period of the change. This discrete method recognizes the
effect of any change in reserve only in the quarter of the change. The newly adopted accounting method is
preferable because it better reflects our consolidated financial position and operations at the time of the
change in uncertain tax positions. The adoption of this accounting method did not have an effect on our
fiscal 2005 financial statements.
Financial Condition
Liquidity and Capital Resources
We primarily finance our working capital requirements through cash generated by operations, borrowings
under revolving credit facilities and trade credit, if needed. During fiscal 2007, cash was primarily used
to repurchase shares of our common stock, reduce debt, make investments in our manufacturing facilities,
make tax payments primarily in Germany, and meet our working capital needs. Cash and cash
equivalents were $106.1 million at June 30, 2007 compared to $291.8 million at June 30, 2006.
We will continue to have cash requirements to support seasonal working capital needs, investments in our
manufacturing facilities, interest and principal payments, and dividend payments. We intend to use cash
on hand, cash generated by operations and borrowings under our revolving credit facility to meet these
requirements. We believe that cash from operations and our borrowing capacity, if needed, will be
adequate to meet our normal cash requirements over the next twelve months. The proposed merger will
result in significantly higher debt and related interest payments.
Below is a more detailed discussion of our cash flow activities during fiscal 2007.
Operating Activities
Net cash provided by operating activities in fiscal 2007 was $215.3 million compared to $400.0 million in
fiscal 2006. The reduction in operating cash flows was primarily due to a decrease in accrued liabilities
and increases in inventories and accounts receivable. These increases were partially offset by higher net
income in fiscal 2007.
Working capital, excluding cash and short-term debt, was $329.9 million at June 30, 2007 compared to
$106.7 million at June 30, 2006. The increase is primarily due to higher inventories and accounts
receivable. Automotive inventories increased significantly due to our entry into the PND market in fiscal
2007. Although the accounts receivable balance was higher than a year ago, days sales outstanding was