Harman Kardon 2009 Annual Report Download - page 52

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A summary of our gross profit by business segment is presented below:
Year Ended June 30,
($ in thousands) 2009
Percentage
of Net
Sales 2008
Percentage
of Net
Sales 2007
Percentage
of Net
Sales
Automotive ..................... $385,406 19.2% $ 713,917 24.4% $ 846,443 34.4%
Consumer ...................... 83,072 23.3% 124,083 24.1% 127,958 26.6%
Professional ..................... 183,211 37.2% 243,894 38.9% 215,410 37.3%
Other .......................... 22,927 62.3% 27,512 67.3% 21,395 64.5%
Total .......................... $674,616 23.3% $1,109,406 27.0% $1,211,206 34.1%
Automotive—Automotive gross profit as a percentage of net sales declined 5.2 percentage points to 19.2
percent in fiscal year 2009 compared to the prior year. The decline in gross profit was due to lower factory
utilization associated with the decrease in sales, Daimler’s strategic decision to move to dual-sourcing on select
models, changes in sales mix at Audi/Volkswagen, BMW and Porsche and restructuring costs incurred in
connection with announced plant downsizings or closings in California, Indiana, France and Sweden and a
warranty center in New Jersey, partially offset by a one-time warranty charge incurred in fiscal year 2008
relating to engineering charges for one of our products. Restructuring costs recorded at these locations relate to
accelerated depreciation on machinery and equipment.
Automotive gross profit as a percentage of net sales declined 10.0 percentage points to 24.4 percent in fiscal
year 2008 compared to the prior year. The decline in gross profit was 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. 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 year 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.
Consumer—Consumer gross profit as a percentage of net sales declined 0.8 percentage points to 23.3
percent in fiscal year 2009 compared to the prior year. The decline in gross profit was primarily due to under-
absorption of fixed costs due to lower sales volumes, partially offset by higher product margins due to the exit of
unprofitable lines of business.
Consumer gross profit as a percentage of net sales in fiscal year 2008 declined 2.5 percentage points to 24.1
percent compared to the prior year. The decline in gross profit was primarily due to competitive pricing pressure,
particularly in the multimedia market and general economic weakness in North America and Europe. The mobile
market has also become increasingly competitive and gross margins on PNDs and in-vehicle iPod adapters were
pressured downward during fiscal year 2008.
Professional—Professional gross profit as a percentage of net sales declined 1.7 percentage points to 37.2
percent in fiscal year 2009 compared to the prior year. The decline in gross profit was primarily due to lower
factory utilization associated with sales declines, partially offset by favorable product mix and lower factory
overhead costs.
Professional gross profit as a percentage of net sales margin improved 1.6 percentage points to 38.9 percent
in fiscal year 2008 compared to the prior year. The improvement was primarily due to higher sales of products
enabled with the HiQnet protocol and manufacturing efficiency improvements, partially offset by higher costs on
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