Harman Kardon 2009 Annual Report Download - page 32

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Item 1A. Risk Factors
In addition to the other information included in this report, you should carefully consider the risk factors
described below.
Decreased demand from our customers in the automotive industry may adversely affect our results of
operations.
For the year ended June 30, 2009, approximately 65 percent of our sales were to automobile
manufacturers. As a result, our financial performance depends, in large part, on conditions in the automotive
industry, which is highly dependent on general economic conditions and has recently experienced significant
difficulty. Certain of our customers have publicly announced their financial difficulties, including some of our
major customers. As a result, we have and may continue to experience reductions in orders from these
customers. If one or more of our significant automotive customers experiences, or continues to experience,
continued or increased financial difficulty, as a result of a prolonged economic downturn or otherwise, this would
have a further adverse effect on our business due to further decreased demand, the potential inability of these
companies to make full payment on amounts owed to us, or both. In addition, our customer supply agreements
generally provide for reductions in pricing of our products over the period of production. Pricing pressures may
intensify as a result of cost cutting initiatives of our customers in the current economic environment. If we are
unable to generate sufficient production cost savings in the future to offset future price reductions, our results of
operations may be adversely affected.
A decrease in discretionary spending would likely reduce our sales.
Our sales are dependent on discretionary spending by consumers, which has been materially adversely
impacted by economic conditions affecting disposable consumer income and retail sales. In addition, our sales of
audio, electronic and infotainment products to automotive customers are dependent on the overall success of the
automobile industry, and the success of premium automobiles in particular, as well as the willingness of
automobile purchasers to pay for the option of a premium branded automotive audio system or a multi-function
digital infotainment system. Global demand for and production of premium vehicles, including certain vehicle
models that incorporate our products, has recently declined significantly in the difficult economic environment.
This “mix shift” has had a negative impact on our results of operations. Consumer trends such as this could
continue or accelerate in the future.
The current economic environment may adversely affect the availability and cost of credit and consumer
spending patterns.
Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness will
depend on our operating and financial performance, which in turn is subject to prevailing economic
conditions. The subprime mortgage crisis and disruptions in the financial markets, including the bankruptcy and
restructuring of major financial institutions, may adversely impact the availability of credit already arranged, and
the availability and cost of credit in the future. The disruptions in the financial markets have also had an adverse
effect on the global economy, which has negatively impacted consumer spending patterns. This has resulted in
reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price
competition. There can be no assurances that government responses to the disruptions in the financial markets
will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit.
Our products may not satisfy shifting consumer demand or compete successfully with competitors’ products.
Our business is based on the demand for premium audio and video products and our ability to introduce
distinctive new products that anticipate changing consumer demands and capitalize upon emerging
technologies. If we fail to introduce new products, misinterpret consumer preferences or fail to respond to
changes in the marketplace, consumer demand for our products could decrease and our brand image could
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