Harman Kardon 2008 Annual Report Download - page 47

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29
In fiscal 2007, Professional net sales were 8 percent higher than fiscal 2006. Foreign currency translation
contributed approximately $8 million to the net sales increase compared to the prior year. Professional
sales growth was driven by new JBL Pro and Crown products as well as the introduction of new digital
audio mixing consoles.
Gross Profit
Gross profit margin in fiscal 2008 was 27.0 percent, a decrease of 7.1 percentage points compared to the
prior year. The decrease in gross profit margin was primarily related to several automotive platform
launches, increased shipments of lower margin mid-level infotainment systems to automotive customers,
higher Automotive warranty costs, and lower Consumer margins in multiple product categories.
Accelerated depreciation of $3.8 million related to restructuring programs contributed to the decrease in
gross profit margin.
Fiscal 2007 gross profit margin decreased 1.4 percentage points from the prior year to 34.1 percent. The
decline was primarily due to competition in the Consumer multimedia market. Automotive product mix
and higher manufacturing costs also contributed to the decrease in gross profit margin. These lower
margins were partially offset by increased margins in our Professional business.
A summary of our gross profit by reportable business segment is presented below:
Percent Percent Percent
Fiscal of net Fiscal of net Fiscal of net
($000s omitted) 2008 Sales 2007 sales 2006 sales
Automotive $ 746,429 25.1% 872,838 35.0% 805,152 36.0%
Consumer 124,478 23.4% 126,392 25.4% 160,212 32.5%
Professional 243,499 39.8% 216,976 38.7% 193,129 37.3%
Other/Unallocated (5,000) --- (5,000) --- (5,923) ---
Total $ 1,109,406 27.0% 1,211,206 34.1% 1,152,570 35.5%
Automotive – Automotive gross profit margin declined 9.9 percentage points in fiscal 2008. The decrease
is primarily related to several platform launches, a higher portion of our sales for lower margin mid-level
infotainment systems, higher warranty costs, and lower margins on PND sales. Automotive platform
launches begin their life cycles at their lowest gross margins. As previously stated, sales growth was
driven by infotainment system sales to Chrysler and BMW primarily for their mid-level vehicles. We
also had lower sales to Mercedes due to a decrease in production for the E-Class and price reductions.
Historically, sales of these high-level infotainment systems generated higher margins for our Automotive
division. In fiscal 2008, our warranty liabilities increased $77.5 million partially due to an engineering
change made on a product that has been in production for a number of years. Due to a supplier
discontinuation, we implemented a new memory chip with existing software during the product’s life
cycle. The software and memory chip combination developed an incompatibility over time.
In fiscal 2007, automotive gross profit margin decreased 1.0 percentage points compared to fiscal 2006.
The decrease primarily resulted from higher manufacturing costs and product mix.
Consumer – In fiscal 2008, Consumer gross profit margin decreased 2.0 percentage points compared to
the prior year. The gross profit margin was adversely affected by competitive pricing pressure,