Harman Kardon 2009 Annual Report Download - page 57

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our cash and cash equivalents and short-term investment balances and the variances from year to year are due to
fluctuations in those balances and changes in interest rates. Interest expense primarily relates to interest for the
1.25 percent Convertible Senior Notes (the “Notes”) and our revolving credit facility and amortization of debt
issuance costs. The decrease in interest expense from fiscal year 2009 compared to fiscal year 2008 is due to a
decrease in short-term LIBOR rates coupled with the fact that fiscal year 2008 includes only a partial year of
interest expense for the Notes, partially offset by fiscal year 2009 including higher interest expense on the
revolving credit facility beginning in the fourth quarter of fiscal year 2009. The increase in interest expense in
fiscal year 2008 compared to the prior year was due to the issuance of the Notes in October 2007.
We had average borrowings outstanding of $521.0 million in fiscal year 2009 compared to $401.0 million in
fiscal year 2008 and $170.2 million in fiscal year 2007. Our weighted average interest rate was 2.6 percent, 3.5
percent and 5.6 percent in fiscal years 2009, 2008 and 2007, respectively.
The interest rate on our old revolving credit facility was based on LIBOR plus 37 to 90 basis points, plus a
commitment fee of 8 to 22.5 basis points. The interest rate spread and commitment fee were determined based
upon our interest coverage ratio and senior unsecured debt rating. Interest rates for borrowings under the
Amended Credit Agreement increased to three percent above the applicable base rate and four percent over
LIBOR for Eurocurrency loans. We expect interest expense to increase due to both the increase in interest rates
and the increase in borrowings under the Amended Credit Agreement.
Miscellaneous Expenses, net
We recorded miscellaneous expenses, net, of $3.5 million in fiscal year 2009, compared to $5.4 million and
$2.7 million in fiscal year 2008 and 2007, respectively, primarily consisting of bank charges. Bank charges were
$3.7 million, $3.3 million and $2.6 million in fiscal years 2009, 2008 and 2007, respectively.
Income Taxes
Our fiscal year 2009 effective tax rate was a benefit of 18.8 percent. The effective tax rate was lower than
the U.S. Federal statutory rate of 35 percent due to a significant portion of the goodwill impairment charge being
non-deductible for tax purposes or approximately $82.6 million in lost tax benefit. The effective tax rates in
fiscal years 2008 and 2007 were 13.8 percent and 18.4 percent, respectively.
Financial Condition
Liquidity and Capital Resources
We primarily finance our working capital requirements through borrowings under our revolving credit
facility, cash generated by operations, and trade credit. In fiscal year 2009, we also received additional financing
to fund our working capital requirements with the net proceeds from the public offering of our common stock.
Cash and cash equivalents were $590.6 million and $223.1 million at June 30, 2009 and 2008, respectively.
During fiscal year 2009, cash was primarily used to make investments in our manufacturing facilities, fund
product development and restructuring programs and meet the working capital needs of our business segments.
We will continue to have cash requirements to support seasonal working capital needs, investments in our
manufacturing facilities, interest and principal payments and restructuring payments. We intend to use cash on
hand and cash generated by operations to meet these requirements. The credit markets have recently experienced
adverse conditions. Our existing cash and cash equivalents may decline and our financial condition may be
adversely affected in the event of continued volatility in the credit markets or further economic deterioration. We
expect that credit market and industry conditions will continue to be weak in the near future. However, we
believe that in this difficult environment our cash on hand of $590.6 million as of June 30, 2009 and our
operating cash flows will be adequate to meet our cash requirements for operations, restructuring and necessary
capital expenditures over the next 12 months. Below is a more detailed discussion of our cash flow activities
during the year ended June 30, 2009.
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