Harman Kardon 2010 Annual Report Download - page 53

Download and view the complete annual report

Please find page 53 of the 2010 Harman Kardon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

Consumer—Consumer gross profit as a percentage of net sales increased 3.3 percentage points to 26.6
percent in fiscal year 2010 compared to the prior fiscal year. The increase in gross profit for the year ended
June 30, 2010 compared to the prior fiscal year was primarily due to lower inventory write-offs and savings
achieved through our STEP Change initiatives.
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 fiscal 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.
Professional—Professional gross profit as a percentage of net sales increased 1.5 percentage points to 38.7
percent in fiscal year 2010 compared to the prior fiscal year. The increase in gross profit for the year ended
June 30, 2010 compared to the prior fiscal year was due to improved leverage of fixed overhead costs due to
higher sales volumes, savings achieved through our STEP Change initiatives and favorable product mix.
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 fiscal 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) were $774.2 million in fiscal year 2010 compared
to $831.4 million in the prior fiscal year, a decrease of $57.2 million. As a percentage of net sales, SG&A
decreased 6.1 percentage points in fiscal year 2010 compared to the prior fiscal year. Foreign currency translation
unfavorably impacted SG&A by $20.5 million. The decrease in SG&A compared to the prior fiscal year was
primarily due to lower restructuring expenses of $77.4 million and research and development costs (“R&D” net
of higher variable compensation and benefit expenses due to improved performance). R&D was $322.7 million
or 9.6 percent of net sales in fiscal year 2010 compared to $325.1 million or 11.4 percent of net sales in the prior
fiscal year. Employee compensation and benefit costs are also included in SG&A.
SG&A was $831.4 million in fiscal year 2009 compared to $945.4 million in fiscal year 2008, a decrease of
$114.0 million. Despite the decline in SG&A, SG&A as a percentage of net sales for fiscal year 2009 increased
5.9 percentage points to 29.1 percent compared to the prior fiscal year due to the decrease in net sales. Foreign
currency translation unfavorably impacted SG&A by $43.4 million, when compared to the prior fiscal year.
Other factors contributing to the decrease in SG&A included an overall reduction in selling, advertising,
promotion and other general and administrative expenses resulting from prior restructuring actions, a reduction in
R&D of $67.2 million, of which $22.6 million was related to foreign currency translation, $15.4 million due to
net proceeds from the sale of certain of our speech recognition assets within our Automotive segment, $13.3
million of lower share-based compensation expense and lower benefit expenses due to the suspension of 401(k)
match and profit sharing contributions, a benefit from stock option forfeitures due to executive retirements, and
reductions in selling, advertising and promotion expenses. These decreases were partially offset by an increase in
restructuring expenses of $50.6 million and SG&A included $13.8 million in merger costs in fiscal year 2008.
R&D was $325.1 million or 11.4 percent of net sales in fiscal year 2009 compared to $392.4 million or 9.6
percent of net sales in the prior fiscal year.
We continue to incur costs relating to our restructuring program, which is designed to address our global
footprint, cost structure, technology portfolio, human resources and internal processes. We recorded restructuring
charges in SG&A of $13.5 million, $90.9 million and $40.3 million in fiscal years 2010, 2009 and 2008,
respectively. Restructuring is further described under the caption “Restructuring” later in this discussion.
32