Harman Kardon 2010 Annual Report Download - page 29

accounted for 10 percent of total consolidated net accounts receivable at June 30, 2010. We anticipate that Audi/
Volkswagen, BMW and Daimler will continue to account for a significant portion of our net sales and net
accounts receivables for the foreseeable future.
For the fiscal year ended June 30, 2010, approximately 73 percent of our sales were to automobile
manufacturers. Our automotive customers are not contractually obligated to any long-term purchase of our
products. The loss of Audi/Volkswagen, BMW, Daimler, or any of our other significant automotive customers
would have a material adverse effect on our total consolidated net sales, earnings and financial condition.
Backlog Orders
We manufacture automotive products and systems on a just-in-time basis and maintain sufficient inventories
of finished goods to meet customer orders in our Consumer and Professional divisions promptly. As a result, we
do not consider the level of backlog to be an important indication of our future performance. Our backlog was
approximately $40 million and $38 million at June 30, 2010 and 2009, respectively. We expect to deliver these
products within the next 12 months.
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 may 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, national electronics retailers, 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.
In the automotive audio market, we compete with Bose, Pioneer ASK, Foster Electric and Panasonic in the
sale of audio systems, and Alpine, Bosch, Panasonic, Continental, Visteon, Mitsubishi Electronics, Aisin Seiki
and Denso in the sale of electronics and infotainment systems to automotive manufacturers. We compete based
upon the strength of our brand names and the quality of our products. We believe our competitive position is
enhanced by our technical expertise in designing and integrating acoustics, navigation, speech recognition and
human-machine interfaces into complete infotainment systems uniquely adapted to the specific requirements of
each automobile model.
We believe JBL and Infinity are two of the most recognized loudspeaker brands in the world, and that our
high-end loudspeaker brand, Revel, extends our market position. Principal competitors in the consumer
loudspeaker market include Bose, Klipsch, Polk Audio, Bowers &Wilkins and Boston Acoustics. Competition in
the consumer home electronics market remains intense and is dominated by large Asian manufacturers. This
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