Harman Kardon 2007 Annual Report Download - page 48

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35
future, we expect these systems to include additional functionality that will include driver assist safety
measures. Consumer will continue to develop new products that emphasize mobility such as the
emerging music-enabled cell phones. Professional will focus on expanding their lineup of products that
are enabled with their HiQnet protocol.
We presently expect our proposed merger with KHI Parent to be completed in the fourth quarter of
calendar 2007. Following the merger, we will be a wholly owned subsidiary of Parent. Affiliates of
KKR and GSCP will hold a majority of the common stock of Parent. This transaction will result in a
significant increase in our outstanding debt and we will incur substantial transaction, financing and other
expenses in connection with the transaction that are expected to have a material effect on our financial
condition and results of operations at and for our fiscal year ended June 30, 2008 and future periods.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are required to include information about potential effects of changes in interest rates and currency
exchange rates in our periodic reports filed with the Securities and Exchange Commission.
Interest Rate Sensitivity/Risk
At June 30, 2007, interest on approximately 22 percent of our borrowings was determined on a fixed rate
basis. The interest rates on the balance of our debt are subject to changes in U.S. and European short-term
interest rates. To assess exposure to interest rate changes, we have performed a sensitivity analysis
assuming a hypothetical 100 basis point increase or decrease in interest rates across all outstanding debt
and investments. Our analysis indicates that the effect on fiscal 2007 net income of such an increase or
decrease in interest rates would be approximately $0.4 million. Based on June 30, 2006 positions, the
impact of such changes in interest rates was approximately $0.9 million to fiscal 2006 net income.
The following table provides information as of June 30, 2007 about our financial instruments that are
sensitive to changes in interest rates and debt obligations. The table presents principal cash flows and
related average interest rates by contractual maturity dates. Weighted average variable rates are generally
based on LIBOR as of the reset dates. The information is presented in U.S. dollar equivalents as of June
30, 2007.
Principal Payments and Interest Rates by Contractual Maturity Dates
Fiscal Years Ending June 30,
Fair
value
(assets)/
($ millions) 2008 2009 2010 2011 2012 Thereafter Total liabilities
Debt obligation (US$)
$18.4 0.1 55.1 0.1 0.1 0.5 $ 74.3 $ 74.3
Average interest rate 7.13% 5.00% 6.02% 5.00% 5.00% 5.00% ---
---
Foreign Currency Risk
We maintain significant operations in Germany, the United Kingdom, France, Austria, Hungary, Mexico,
Switzerland and Sweden. As a result, we are subject to market risks arising from changes in foreign
currency exchange rates, principally the change in the value of the Euro compared to the U.S. Dollar. Our