Harman Kardon 2008 Annual Report Download - page 55

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37
Company also closed its Consumer manufacturing facility in Bedford, Massachusetts. The Company has
started the transfer of JBL production from Northridge, California to our plant in Tijuana, Mexico. We
have also down-sized our factory in Motala, Sweden and closed our operations in South Africa. As
previously mentioned, our PND business has been re-positioned and is exclusively focused on the
Automotive aftermarket premium sector.
We also took several actions to outsource non-core activities. Highlights included outsourcing global IT
infrastructure to Wipro Technologies and warehousing/distribution operations for Consumer and
Professional Divisions to Ryder System.
We expanded our manufacturing capacity in Tijuana, Mexico and Szekesfehervar, Hungary, and have
started production at a new factory in Suzhou, China.
Complementing these initiatives, we launched a detailed market opportunity assessment and channel
strategy for China to accelerate the penetration of our premium brands and products in this large, fast-
growing region.
Business Outlook
The Company has initiated a detailed five-year strategic planning process to address cost base and global
competitiveness, including manufacturing footprint, procurement, technology portfolio, emerging market
growth, and talent management. Plan highlights include defined reductions in the number of
manufacturing, engineering and operating locations, global footprint optimization, and improved
processes for forecasting, quality and risk management. As part of our implementation, the Company
launched on July 1, 2008 a sweeping cost and productivity improvement program called “STEP Change.”
This 24-month program, which is inclusive of previously announced initiatives, is expected to yield
$400 million in sustainable annual savings beyond fiscal year 2010. We also plan to aggressively pursue
emerging market opportunities and better match our technology efforts with evolving market trends. We
believe fiscal 2009 will be a challenging year as we execute our strategic plan. However, we feel these
initiatives are necessary to return our company to long-term profitable growth.
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, 2008, interest on approximately 94 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 2008 net income of such an increase and
decrease in interest rates would be approximately $1.7 million. Based on June 30, 2007 positions, the
impact of such changes in interest rates were approximately $0.4 million to fiscal 2007 net income.