Harman Kardon 2008 Annual Report Download - page 56

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38
The following table provides information as of June 30, 2008 about our financial instruments that are
sensitive to changes in interest rates. 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, 2008.
Principal Payments and Interest Rates by Contractual Maturity Dates
Fiscal Years Ending June 30,
Fair
value
(assets)/
($ millions) 2009 2010 2011 2012 2013 Thereafter Total liabilities
Debt obligation $0.1 25.1 0.1 0.1 0.1 0.3 $ 25.8 $ 25.8
Average interest rate 5.00% 3.39% 5.00% 5.00% 5.00% 5.00% --- ---
Foreign Currency Risk
We maintain significant operations in Germany, the United Kingdom, France, Austria, Hungary, Mexico,
China 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 versus the U.S. Dollar. Our 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
transactional risks, we enter into 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 2009 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 $50 million. As of June 30, 2008, we had hedged a portion of our estimated foreign
currency transactions using forward exchange contracts.
We presently estimate the effect on projected 2009 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 $16 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.