Harman Kardon 2010 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, 2010, approximately 73 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. As a result, we have and may continue to experience reductions in orders from our OEM 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 consumer 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 recent subprime mortgage crisis and disruptions in the financial markets, including the
bankruptcy and restructuring of major financial institutions, adversely impacted the availability of credit already
arranged, and may adversely impact 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.
We may not realize sales represented by awarded business.
Our current estimate of $12.2 billion of awarded business in our Automotive segment is calculated using
certain assumptions from our customers, including projected future sales volumes with respect to the applicable
platforms. Orders from our customers with respect to these platforms are not made pursuant to contractual
obligations and our customers can terminate arrangements with us at any time without penalty. Therefore, our
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