Harman Kardon 2007 Annual Report Download - page 20

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7
Customers/Industry Concentration
We are subject to various risks related to our dependence on key customers. Sales to DaimlerChrysler
accounted for 25 percent of our total consolidated net sales for the fiscal year ended June 30, 2007. The
majority of these sales were to the Mercedes-Benz division. Accounts receivable due from DaimlerChrysler
accounted for 19 percent of total consolidated accounts receivable at June 30, 2007.
We anticipate that DaimlerChrysler will continue to account for a significant portion of our net sales and
accounts receivables for the foreseeable future.
The loss of sales to DaimlerChrysler, or to any of our other significant automotive customers, would have
a material adverse effect on our total consolidated net sales, earnings and financial position. For the fiscal
year ended June 30, 2007, approximately 70 percent of our sales were to automobile manufacturers.
These automotive customers are not obligated to any long-term purchase of our products.
Backlog Orders
We manufacture automotive products and systems on a just-in-time basis and maintain sufficient inventories
of finished goods to meet Consumer and Professional customer orders promptly; therefore, we do not
consider the level of backlog to be an important indication of our future performance. Our backlog was
approximately $27 million at June 30, 2007. We expect to deliver these products within the next twelve
months. Our backlog was approximately $31 million at June 30, 2006.
Warranty Liabilities
We warrant our products to be free from defects in materials and workmanship for periods ranging from six
months to six years from the date of purchase, depending on the business segment and product. The warranty
is a limited warranty, and it may impose certain shipping costs on the customer and exclude deficiencies in
appearance except for those evident when the product is delivered. Dealers and warranty service providers
normally perform warranty service for loudspeakers and electronics in the field, using parts we supply on
an exchange basis. Estimated warranty liabilities are based upon past experience with similar types of
products, the technological complexity of certain products, replacement cost and other factors. We take
these factors into consideration when assessing the adequacy of our warranty provisions for periods still open
to claim.
Competition
The audio industry is fragmented and competitive and includes numerous manufacturers offering audio
products that vary widely in price, quality and distribution methods. Consumer home, multimedia and mobile
aftermarket products are offered through audio specialty stores, discount stores, department stores, mail order
firms and Internet merchants. Automotive and computer manufacturers also offer branded audio products as
options. Music instrument retailers, professional audio dealers, contractors and installers offer professional
products and customers can also purchase these products on a contract bid basis. We concentrate primarily on
the higher-quality, higher-priced segments of the audio market and compete based upon the strength of our
brand names, the quality of our products, our ability to provide integrated systems and our comprehensive
marketing, engineering and manufacturing resources.