Harman Kardon 2011 Annual Report Download - page 86

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The principal amounts, unamortized discount and net carrying amounts of the liability components and the
equity components for the Convertible Senior Notes as of June 30, 2011 and 2010 are as follows:
Principal
Balance
Unamortized
Discount
Net
Carrying
Amount
Equity
Component
June 30, 2011 .......................... $400,000 $(21,599) $378,401 $48,323
June 30, 2010 .......................... $400,000 $(37,307) $362,693 $48,323
At June 30, 2011, the unamortized discount is recognized as a reduction in the carrying value of the
Convertible Senior Notes in the Consolidated Balance Sheets and is being amortized to Interest expense, net in
our Consolidated Statement of Operations over the expected remaining term of the Convertible Senior Notes of
16 months.
Debt issuance costs of $4.8 million were recorded in connection with this transaction and are included in
Other assets in our Consolidated Balance Sheets and are also being amortized to Interest expense, net in our
Consolidated Statements of Operations over the expected remaining term of the Convertible Senior Notes. The
unamortized balance of debt issuance costs at June 30, 2011 and 2010 was $1.1 million and $1.8 million,
respectively.
Total interest expense related to the Convertible Senior Notes for the fiscal years ended June 30, 2011, 2010
and 2009, includes $5.0 million in all fiscal years of contractual cash interest expense and an additional $15.7
million, $14.8 million and $13.9 million of noncash interest expense, respectively, related to the amortization of
the discount and $0.8 million, $0.8 million and $0.2 million, respectively, related to the amortization of debt
issuance costs.
The Indenture contains covenants, one of which required us to calculate the ratio of Consolidated Total Debt
to Consolidated EBITDA, as defined in the Indenture, each time we incurred additional indebtedness, for the
most recently ended four quarter period (the “Incurrence of Debt Covenant”). On January 12, 2010, we entered
into a supplemental indenture to the Indenture (the “Supplemental Indenture”) which amended the Incurrence of
Debt Covenant. Under the Supplemental Indenture, we were permitted to, without complying with the ratio of
Consolidated Total Debt to Consolidated EBITDA of 3.25 to 1.00: (a) incur revolving extensions of credit under
the 2009 Credit Agreement, up to a maximum amount of $231.6 million, and (b) incur additional indebtedness,
subject to a requirement to make a pro rata offer to purchase a principal face amount of the Convertible Senior
Notes equal to 50 percent of the aggregate amount of such indebtedness so incurred, plus accrued and unpaid
interest thereon. The Incurrence of Debt Covenant lapsed on October 23, 2010, and was no longer applicable to
us after this date. At June 30, 2011, we were in compliance with all covenants under the Indenture, as amended.
Registration Rights Agreement
On October 23, 2007, we entered into a Registration Rights Agreement requiring us to register the
Convertible Senior Notes and the shares contingently issuable upon conversion of the Convertible Senior
Notes. On October 23, 2008, we filed an automatically effective registration statement with the SEC to meet this
requirement. We are required to keep the registration statement effective until the earlier of (a) such time as the
Convertible Senior Notes and the shares contingently issuable under the Convertible Senior Notes (1) are sold
under an effective registration statement or pursuant to Rule 144 of the Securities Act of 1933, (2) are freely
transferable under Rule 144 more than one year following October 23, 2007, or (3) cease to be outstanding, and
(b) five years and three months following October 23, 2007. In the event that we fail to keep the registration
statement effective as required under the Registration Rights Agreement, additional interest will accrue on the
Convertible Senior Notes at the rate of 0.25 percent per annum. We do not believe it is probable that we will fail
to comply with the Registration Rights Agreement. Therefore, no liability for additional interest has been
recorded.
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