Harman Kardon 2007 Annual Report Download - page 42

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Below is a summary of our SG&A expenses by reportable business segment:
Percent
Percent Percent
Fiscal of net Fiscal of net Fiscal of net
($000s omitted) 2007 sales 2006 sales 2005 sales
Automotive $ 532,722 21.4% 468,357 20.9% 391,912 18.4%
Consumer 112,805 22.7%
109,399 22.2% 97,025 23.3%
Professional 136,008 24.3%
133,851 25.9% 127,475 26.2%
Other/Unallocated
43,284 --- 43,722 --- 64,309 ---
Total $ 824,819 23.2% 755,329 23.3% 680,721 22.5%
Automotive – Automotive R&D costs were $286.5 million in fiscal 2007, representing 11.5 percent of net
sales. Fiscal 2006 R&D costs were $232.2 million, or 10.4 percent of net sales. These costs were
incurred to develop audio, electronic and infotainment systems for an expanding list of automotive
platforms. Our infotainment systems are increasingly based on scalable software allowing us to
efficiently design systems for luxury, mid-range and entry-level vehicles. During fiscal 2007, we
received a major infotainment systems award from BMW that will encompass virtually their entire model
range. This sophisticated system will include HD and satellite radio capabilities, second and third
dimensional navigation, traffic information, voice recognition, Internet browser and wireless connectivity.
We also develop various systems for Mercedes-Benz, Audi, PSA Peugeot Citroën and Porsche in Europe.
In the United States and Asia, we develop audio systems for Toyota, Lexus, Hyundai, Chrysler and
Harley-Davidson. Automotive SG&A expenses also include restructuring costs of $5.7 million in fiscal
2007 and $7.3 million in fiscal 2006.
Consumer – SG&A expenses as a percent of net sales increased 0.5 percentage points in fiscal 2007 when
compared to the prior year due primarily to higher selling expenses. These expenses and R&D costs are
the most significant SG&A cost components in the Consumer segment. Selling expenses include salaries
and benefits for sales personnel, marketing costs, trade show and product literature costs. Selling
expenses were higher in fiscal 2007 to market new multimedia products and PNDs. R&D costs are
incurred to develop multimedia products including accessories for music players such as the iPod and
music-enabled cell phones. We also develop home electronic equipment and loudspeakers for use at
home and in vehicles. R&D costs were $34.2 million, $36.3 million and $29.9 million for fiscal 2007,
2006 and 2005, respectively. Fiscal 2007 and 2006 restructuring expenses included in SG&A expenses
were $1.0 million and $0.4 million, respectively.
Professional – Professional SG&A expenses as a percent of net sales decreased 1.6 percentage points in
fiscal 2007 when compared to fiscal 2006. Similar to Consumer, the primary components of Professional
SG&A expenses are selling and R&D costs. Selling expenses are incurred to support a broad range of
branded audio products. These products are marketed to audio professionals for use in public places such
as concert halls, stadiums and houses of worship. Selling expenses were $49.6 million, $49.3 million and
$47.0 million in fiscal 2007, 2006 and 2005, respectively. A significant amount of R&D costs have been
incurred to develop our HiQnet networking protocol. This protocol simplifies and centralizes the
monitoring and control of complex professional audio systems. R&D costs in fiscal 2007, 2006 and 2005
were $35.7 million, $33.2 million and $31.1 million, respectively. Professional also had $0.4 million of