Harman Kardon 2009 Annual Report Download - page 45

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the information presented in other sections of
this Annual Report on Form 10-K, including “Item 1. Business,” “Item 6. Selected Financial Data,” and “Item
8. Financial Statements and Supplementary Data.” This discussion contains forward-looking statements which
are based on our current expectations and experience and our perception of historical trends, current market
conditions, including customer acceptance of our new products, current economic data, expected future
developments, including foreign currency exchange rates, and other factors that we believe are appropriate
under the circumstances. These statements involve risks and uncertainties that could cause actual results to differ
materially from those suggested in the forward-looking statements. See “Risk Factors” included in Item 1A of
Part I of this report. Unless otherwise indicated, “Harman,” “the Company,” “we,” “our,” and “us” are used
interchangeably to refer to Harman International Industries, Incorporated and its consolidated subsidiaries.
We begin our discussion with an overview of our Company to give you an understanding of our business
and the markets we serve. We then discuss recent developments. This is followed by a discussion of our critical
accounting policies, and then by a discussion of our results of operations for the fiscal years ended June 30, 2009,
2008 and 2007. We include in this discussion an analysis of certain significant period-to-period variances in our
Consolidated Statements of Operations and an analysis of our restructuring program. We also provide specific
information regarding our four business segments: Automotive, Consumer, Professional and Other. We then
discuss our financial condition at June 30, 2009 with a comparison to June 30, 2008. This section contains
information regarding our liquidity, capital resources and cash flows from operating, investing and financing
activities. We complete our discussion with an update on our business outlook.
Executive Overview
We believe we are a worldwide leader in the development, manufacturing and marketing of high-quality,
high-fidelity audio products and electronic systems. We have developed, both internally and through a series of
strategic acquisitions, a broad range of product offerings sold under renowned brand names in our principal
markets. We also believe that we are a leader in digitally integrated infotainment systems for the automotive
industry. Our AKG, Crown, JBL, Infinity, Harman/Kardon, Lexicon, dbx, Studer/Soundcraft, Mark Levinson and
Becker brand names are well-known worldwide for premium quality and performance. We have built these
brands by developing our engineering, manufacturing and marketing competencies, and have employed these
resources to establish our Company as a leader in the markets we serve.
We report our business on the basis of four segments. Our Automotive, Consumer and Professional
segments are based on the end-user markets we serve. Our fourth segment, Other, includes our QNX business,
which was previously reported in our Automotive segment. This realignment reflects our focus on growing the
QNX business in other non-automotive industries. Our Professional segment now includes our Harman Specialty
business which was previously reported within our Consumer segment. Our Harman Specialty business includes
Mark Levinson, Revel and Lexicon branded products. This realignment reflects our focus on growing our
Harman Specialty business in the Professional segment.
Fiscal year 2009 was an extremely challenging year due to worldwide economic weakness, particularly in
the second half of the year. The unfavorable economic conditions, as well as the pace of the negative downturn
put significant pressure on our business. The downturn in the economy adversely affected our sales and
profitability. Our profitability was down in fiscal year 2009 due to lower volumes and gross profit margin, a
goodwill impairment charge and restructuring charges. The decrease in gross profit margin was primarily related
to several new Automotive platform launches, called “Start of Production” (“SOP”), which typically start their
life cycle at their lowest margins. These negative factors were partially offset by cost-savings achieved as a result
of our STEP Change program. Also, to control costs, we are maintaining strict expense controls and higher
hurdle rates for capital project approvals. We believe that fiscal year 2010 will also be a challenging year as we
continue to execute on our strategic plan. We feel these initiatives have positioned our Company to weather the
downturn, emerge as a strong competitor and return Harman to long-term profitable growth.
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