Harman Kardon 2011 Annual Report Download - page 35

course of our business. Other incidents may arise from events that are or may be beyond our ability to control
and may damage our brands, such as counterfeit and knock-off products, litigation and claims, and illegal activity
targeted at us or others. Consumer demand for our products and our brands’ value could diminish significantly if
any such incidents or other matters erode consumer confidence in us or our products, and if we do not implement
a brand protection program that sufficiently addresses the issue of counterfeit and knock-off products, among
other things, this would likely result in lower net sales and, ultimately, lower income, which in turn could
materially and adversely affect our business and results of operations.
Covenants in our existing debt agreements restrict our operations.
Our 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 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 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 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
rates, especially the Euro. Translation losses resulting from currency fluctuations may adversely affect the profits
from our foreign operations and have a negative impact on our financial results. In addition, we purchase certain
foreign-made products. Although we hedge a portion of our foreign currency exposure and, due to the multiple
currencies involved in our business, foreign currency positions partially offset and are netted against one another
to reduce exposure, we cannot assure you that fluctuations in foreign currency exchange rates will not make these
products more expensive to purchase. Increases in our cost of purchasing these products could negatively impact
our financial results if we are not able to pass those increased costs on to our customers.
Our operations could be harmed by factors including political instability and changes in regulations that
govern international transactions.
The risks inherent in international trade may reduce our international sales and harm our business and the
businesses of our distributors and suppliers. These risks include:
• changes in tariff regulations;
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