Harman Kardon 2010 Annual Report Download - page 65

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Foreign Currency Risk
We maintain significant operations in Germany, the United Kingdom, France, Austria, Hungary, Mexico,
and China. 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 2011 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 $60.0 million. As of June 30, 2010, we had hedged a portion of our estimated foreign currency
transactions using forward exchange contracts.
We presently estimate the effect on projected 2011 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 $1.8 million.
Changes in currency exchange rates, principally the change in the value of the Euro compared to the
U.S. Dollar, have an impact on our reported results when the financial statements of foreign subsidiaries are
translated into U.S. Dollars. Over half our sales are denominated in Euros. The average exchange rate for the
Euro versus the U.S. Dollar for the year ended June 30, 2010 increased 1.4 percent from the same period in the
prior fiscal year.
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 Europe are sold in
the U.S. Sales of these products are affected by the value of the U.S. Dollar relative to the Euro. Any weakening
of the U.S. Dollar could depress the demand for these European manufactured products in the U.S. 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. In addition, our foreign
currency hedging program is designed to limit our exposure.
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.
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