FORM 10-K - Harman

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Harman International Industries, Incorporated and Subsidiaries (Dollars in thousands, except per-share data and unless otherwise indicated) The Notes are convertible at the option of the holders: • during any calendar quarter commencing after December 31, 2007, if the closing price of our common stock exceeds 130 percent of the conversion price for at least 20 trading days during any period of 30 consecutive trading days, ending on the last trading day of the preceding calendar quarter; • during the five business day period immediately after any five-day trading period in which the trading price per $1,000 principal amount of the Notes for each day of the trading period was less than 98 percent of the product of (1) the closing price of our common stock on such date and (2) the conversion rate on such date; • upon the occurrence of specified corporate transactions that are described in the Indenture; or • at any time after June 30, 2012 until the close of business on the business day immediately prior to October 15, 2012. Upon conversion, a holder will receive in respect of each $1,000 of principal amount of Notes to be converted an amount in cash equal to the lesser of (a) $1,000 or (b) the conversion value, determined in the manner set forth in the Indenture. If the conversion value per Note exceeds $1,000, we will also deliver, at our election, cash or common stock or a combination of cash and common stock for the conversion value in excess of $1,000. If not converted, the Notes are due October 15, 2012. Debt issuance costs of $4.8 million associated with this transaction were capitalized and are being amortized to interest expense in our Consolidated Statements of Operations over the term of the Notes. The unamortized balance of debt issuance costs at June 30, 2009 was $3.2 million. Covenants The Indenture contains covenants, one of which requires us to calculate the ratio of Consolidated Total Debt to Consolidated EBITDA, as defined in the Indenture, for the most recently ended four quarter period, each time we incur additional indebtedness. In April 2009, we have exceeded the minimum ratio for this covenant and, as a result, we will not be able to incur additional indebtedness without obtaining a waiver from the holders of a majority in principal amount of the Notes. We do not intend to incur additional indebtedness unless we obtain a waiver or are able to satisfy this covenant. If we were to incur additional indebtedness, at a time when we failed to meet the minimum ratio of Consolidated Total Debt to Consolidated EBITDA (unless we received a waiver), we would be in violation of our covenant under the Indenture. If the violation is not remedied within 60 days, the Notes could become due, which would have a material adverse affect on our financial condition and our results of operations, and would also lead to an event of default under the Amended Credit Agreement and the acceleration of the loans thereunder. We believe that we will be in compliance with these covenants for at least the next 12 months. The covenant prohibiting the incurrence of additional debt expires on October 23, 2010. Senior Notes In July 2007, our 7.32% senior notes due July 2007 matured, and the remaining outstanding principal amount of $16.5 million was retired. Registration Rights Agreement On October 23, 2007, we entered into a Registration Rights Agreement requiring us to register the Notes and the shares contingently issuable upon conversion of the 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 67
Harman International Industries, Incorporated and Subsidiaries (Dollars in thousands, except per-share data and unless otherwise indicated) registration statement effective until the earlier of (a) such time as the Notes and the shares contingently issuable under the 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 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. Note 7 – Derivatives We are exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect our operating results, financial position and cash flows. We manage our exposure to these risks through our regular operating and financial activities and when appropriate, through the use of derivative financial instruments. These derivative instruments are utilized to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative contracts, including foreign currency spot and forward contracts and an interest rate swap, to manage foreign currency and interest rate exposures. Our primary foreign currency exposure is the Euro. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes. We are required to recognize all derivative instruments as either assets or liabilities at fair value in our Consolidated Balance Sheets. As permitted, certain of these derivative contracts have been designated for cash flow hedge accounting treatment, whereby gains and losses are reported within accumulated other comprehensive income, until the underlying transaction occurs. Certain of our derivatives, for which hedge accounting is not applied, are effective as economic hedges. These derivative contracts are required to be recognized each period at fair value, with gains and losses reported in earnings, and therefore do result in some level of earnings volatility. The level of volatility will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest markets during the period. The related cash flow impacts of all our derivative activities are reflected as cash flows from operating activities. Derivatives, by their nature involve varying degrees of market and credit risk. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments, because these transactions are executed with a diversified group of major financial institutions. Furthermore, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. Foreign Exchange Risk Management We use foreign currency forward contracts to hedge the price risk associated with foreign denominated forecasted purchases of materials used in our manufacturing process and to manage currency risk associated with operating costs in certain operating units. These contracts generally mature in one year or less. A portion of these contracts are designated as cash flow hedges. 68
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Touching lives with premium audio a
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Financial Highlights FIVE-YEAR SUMM
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To Our Shareholders FROM THE CHAIRM
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Harman’s Professional Division la
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(opposite) Harman’s partnership w
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(above left) Harman’s new GreenEd
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Forward-Looking Statements This rep
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electronic devices. Our branded aud
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ole in developing the emerging Ethe
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We also produce professional amplif
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For the fiscal year ended June 30,
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We believe that our facilities are
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suffer. In addition, our competitor
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Covenants in our existing debt agre
Page 37 and 38: usiness. From time to time, third p
Page 39 and 40: On November 30, 2007, the Boca Rato
Page 41 and 42: Item 4. Submission of Matters to a
Page 43 and 44: Part II Item 5. Market for Registra
Page 45 and 46: Item 7. Management’s Discussion a
Page 47 and 48: assets and liabilities. Actual resu
Page 49 and 50: tax assets to an amount we believe
Page 51 and 52: Consumer net sales increased 7 perc
Page 53 and 54: HiQnet products as we achieved econ
Page 55 and 56: Other SG&A expenses increased $16.9
Page 57 and 58: our cash and cash equivalents and s
Page 59 and 60: Borrowings Under Revolving Credit F
Page 61 and 62: The Notes are convertible at the op
Page 63 and 64: Interest Rate Sensitivity/Risk At J
Page 65 and 66: Item 8. Consolidated Financial Stat
Page 67 and 68: Report of Independent Registered Pu
Page 69 and 70: CONSOLIDATED STATEMENTS OF OPERATIO
Page 71 and 72: HARMAN INTERNATIONAL INDUSTRIES, IN
Page 73 and 74: Harman International Industries, In
Page 83 and 84: Note 5 - Goodwill Harman Internatio
Page 87: Harman International Industries, In
Page 99 and 100: Excess Tax Benefits Harman Internat
Page 113 and 114: Item 9. Changes in and Disagreement
Page 115 and 116: Part IV Item 15. Exhibits and Finan
Page 117 and 118: Exhibit No. Exhibit Description 10.
Page 119 and 120: Exhibit No. Exhibit Description 10.
Page 121 and 122: Schedule II Classification HARMAN I
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Page 125: 400 Atlantic Street, Suite 1500 Sta
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FORM 10-K - Harman

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