Harman Kardon 2008 Annual Report Download - page 5

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3
Harman InternatIonal annual report 2008
Fiscal Year 2008 has been a time of remarkable transition at Harman International. A cancelled private equity
transaction, following a complex, one-year CEO succession search, distracted the company from its execution
on a record backlog of new automotive platforms. We paid the price in unusually high engineering costs,
warranty issues, and poor performance in the Portable Navigation Device (PND) business which we have
since dramatically streamlined. Although these clearly impacted margins, we have met our planned launch
commitments and maintained the confidence of our customers.
Against this backdrop, I am pleased to report some very encouraging developments during Fiscal Year 2008.
Although we faced, like others, an economic climate that is very fragile, we grew net sales to $4.113 billion,
an increase of 16 percent, and our cash flow from operations increased by 47 percent to $317 million.
Operating income for the fiscal year was sharply restrained by the factors noted earlier.
All three Harman divisions enjoyed net sales increases for the year during a period of general market
weakness. The Harman Professional division continues to be a performance leader, posting both record
sales and earnings for the year. Automotive operating income declined sharply, remaining as the focus of many
operational improvements. In the Consumer division, we have hard work ahead to improve profitability before
we grow the top line – improving execution on new product launches and geographic penetration while
sharpening the cost structure so that we may seize the right market opportunities.
We incurred $46 million of restructuring costs during the year. To address operational efficiency, we
announced the closure of four high-cost facilities, launching an era of dramatic footprint optimization.
We completed a world-class automotive manufacturing facility in China, while doubling capacity at our plants
in Mexico and Hungary. To address structural efficiency, we outsourced our Information
Technology infrastructure services, created a shared financial services center, and
outsourced selected warehousing and distribution activities.
The company also made a series of key leadership changes to support its evolving
strategy. We expanded our board to nine members, of whom seven are independent.
We invited Brian Carroll of KKR to join the board, bringing global financial expertise.
Dr. Harald Einsmann, a former group president at Procter & Gamble, also joined
the board – along with Gary Steel, a seasoned global human resources executive
with ABB Group, and Kenneth Reiss, a former managing partner with Ernst & Young.
Ann McLaughlin Korologos, who has served the Harman Board with distinction since
1995, was elected as Lead Director. These changes bring a rich global diversity
which now spans four nationalities from the Americas, Europe and Asia.
In May, Dr. Sidney Harman announced that he would retire as Chairman
concurrent with the new fiscal year. He has retained his equity holdings
in the company and remains its largest individual shareholder. I am
privileged to succeed Dr. Harman as Chairman and Chief Executive
Officer from July 1st, and thank him for his support and more than
50 years of leadership.
From tHe CHaIrman and CHIeF exeCutIve oFFICer