Harman Kardon 2007 Annual Report Download - page 49

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36
subsidiaries purchase products and raw materials in various currencies. As a result, we may be exposed to
cost changes relative to local currencies in the markets to which we sell our products. To mitigate these
risks, we enter into forward foreign exchange contracts. Also, foreign currency positions are partially
offsetting and are netted against one another to reduce exposure.
We presently estimate the effect on projected 2008 income before income taxes, based upon a recent
estimate of foreign exchange transactional exposure, of a uniform strengthening or uniform weakening of
the transaction currency rates of 10 percent would be to increase or decrease income before income taxes
by approximately $35 million. As of June 30, 2007, we had hedged a portion of our estimated foreign
currency transactions using forward exchange contracts.
We presently estimate the effect on projected 2008 income before income taxes, based upon a recent
estimate of foreign exchange translation exposure (translating the operating performance of our foreign
subsidiaries into U.S. Dollars), of a uniform strengthening or weakening of the U.S. Dollar by 10 percent
would be to increase or decrease income before income taxes by approximately $40 million.
Competitive conditions in the markets in which we operate may limit our ability to increase prices in the
event of adverse changes in currency exchange rates. For example, certain products made in the U.S. are
sold outside of the U.S. Sales of these products are affected by the value of the U.S. Dollar relative to
other currencies. Any long-term strengthening of the U.S. Dollar could depress the demand for these U.S.
manufactured products and reduce sales. However, due to the multiple currencies involved in our
business and the netting effect of various simultaneous transactions, our foreign currency positions are
partially offsetting.
Actual gains and losses in the future may differ materially from the hypothetical gains and losses
discussed above based on changes in the timing and amount of interest rate and foreign currency
exchange rate movements and our actual exposure and hedging transactions.