Harman Kardon 2010 Annual Report Download - page 35

our products. As a result, these products may not achieve market acceptance and our brand image could suffer. In
addition, our competitors may introduce superior designs or business strategies, impairing our distinctive image
and our products’ desirability which may cause consumers to defer or forego purchases of our products.
Product recalls by OEMs and the consequent negative impact on car sales may decrease demand for our
products which could adversely affect our results of operations.
Certain OEMs, such as our customer Toyota, have recently announced safety recalls on certain vehicles.
Recalls may result in decreased production levels due to (i) an OEM focusing its efforts on addressing the
problems underlying the recall, as opposed to generating new car sales volume, and (ii) consumers electing not to
purchase automobiles manufactured by the OEM initiating the recall. If OEMs continue to experience a reduction
in sales, especially OEMs that are our automotive customers, this may have an adverse effect on our business due
to decreased demand, the potential inability of these companies to make full payment on amounts owed to us, or
both.
Covenants in our existing debt agreements restrict our operations.
Our amended revolving credit facility and the indenture for our Convertible Senior Notes, as amended,
contain provisions that limit our operating and financing activities. Together, they limit our ability to, among
other things:
• incur revolving extensions of credit under the revolving credit facility and letters of credit greater than
$231.6 million;
• incur additional indebtedness;
• use a substantial portion of proceeds from sales of debt, equity or assets to fund working capital, capital
expenditures, product development and other corporate requirements;
• create or assume liens;
• enter into sale-leaseback transactions;
• engage in mergers or consolidations;
• make capital expenditures or investments;
• sell assets; and
• modify or prepay certain material debt.
Because of the restrictions in these debt agreements, we may have difficulty securing additional financing in
the form of additional indebtedness. In addition, our revolving credit facility contains other and more restrictive
covenants, including financial covenants that will require us to achieve specified financial and operating results
and maintain compliance with specified financial ratios. We may have to curtail some of our operations to
maintain compliance with these covenants. A violation of any of these covenants could result in a default under
these debt agreements, which could permit the lenders to accelerate the repayment of any borrowings outstanding
at that time, and the lenders under the revolving credit facility could act on the collateral package granted in
connection with the amended revolving credit facility. A default or acceleration under our debt agreements would
result in increased capital costs and could adversely affect our ability to operate our business and our results of
operations and financial condition.
Currency fluctuations may reduce profits on our foreign sales or increase our costs, either of which could
adversely affect our financial results.
A significant amount of our assets and operations are located, and the majority of our revenue is derived
from sales outside the United States. Consequently, we are subject to fluctuations in foreign currency exchange
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