Harman Kardon 2011 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 fiscal year ended June 30, 2011, 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 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. 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 could be 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 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, could decline in a difficult economic environment. This decline could have a
negative impact on our results of operations.
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 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 may result 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 $14.5 billion of awarded business at June 30, 2011 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 actual platform sales volumes, and thus the ultimate amount of revenue that we derive from such
platforms, are not committed. If actual production orders from our customers are not consistent with the
projections we use in calculating the amount of our awarded business we could realize substantially less revenue
over the life of these projects than the currently projected estimate of $14.5 billion.
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