Harman Kardon 2011 Annual Report Download - page 50

Download and view the complete annual report

Please find page 50 of the 2011 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 128

  • 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

Gross profit as a percentage of net sales increased 3.7 percentage points to 26.3 percent in fiscal year 2010
compared to the prior fiscal year. The increase in gross profit as a percentage of net sales was primarily due to
lower restructuring charges relating to accelerated depreciation, improved leverage of fixed overhead costs due to
higher sales volumes and savings achieved through our STEP Change cost reduction program, partially offset by
inventory write-downs associated with our exit from the PND distribution channel.
A summary of our gross profit by business segment is as follows:
Year Ended June 30,
($ in thousands) 2011
Percentage
of Net
Sales 2010
Percentage
of Net
Sales 2009
Percentage
of Net
Sales
Automotive ........................ $621,153 22.7% $587,248 23.8% $385,406 19.2%
Consumer ......................... 118,199 28.1% 99,062 26.6% 83,072 23.3%
Professional ........................ 247,172 40.3% 202,558 38.7% 183,211 37.2%
Other ............................. 826 * (3,710) * (6,339) *
Total ............................. $987,350 26.2% $885,158 26.3% $645,350 22.6%
* Percent not meaningful.
Automotive—Automotive gross profit as a percentage of net sales decreased 1.1 percentage points to 22.7
percent in fiscal year 2011 compared to the prior fiscal year. The decrease in gross profit as a percentage of net
sales was primarily due to unfavorable product mix, specifically an increase in lower margin infotainment
business and a temporary reduction in higher margin audio business due to customer production facility
shutdowns as a result of the earthquake and tsunami in Japan. We believe these earthquake related facility
shutdowns are temporary in nature and that customer production levels will return to normal levels in the near
term. We estimate the impact on our gross profit was a decline of approximately $15.0 million. Production
related to these customers has already begun to improve and is expected to normalize in the near term. Our gross
profit was also negatively impacted by a $3.7 million customer claim related to defective third-party software
and a $2.3 million raw material price increase related to supply constraints of rare earth minerals used in the
manufacture of speakers. These decreases were partially offset by improved leverage of fixed overhead costs due
to higher sales volumes and savings achieved through our STEP Change cost reduction program and lower
warranty expense.
Automotive gross profit as a percentage of net sales increased 4.6 percentage points to 23.8 percent in fiscal
year 2010 compared to the prior fiscal year. The increase in gross profit as a percentage of net sales was
primarily due to improved leverage of fixed overhead costs due to higher sales volumes and savings achieved
through our STEP Change cost reduction program and lower warranty expense, partially offset by unfavorable
product mix.
Consumer—Consumer gross profit as a percentage of net sales increased 1.5 percentage points to 28.1
percent in fiscal year 2011 compared to the prior fiscal year. The increase in gross profit as a percentage of net
sales compared to the prior fiscal year was primarily due to favorable gross margin from Selenium, our recently
acquired Brazilian operation, lower inventory write-offs and savings achieved through our STEP Change cost
reduction program.
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 as a percentage of net sales was
primarily due to lower inventory write-offs and savings achieved through our STEP Change cost reduction
program.
Professional—Professional gross profit as a percentage of net sales increased 1.6 percentage points to 40.3
percent in fiscal year 2011 compared to the prior fiscal year. The increase in gross profit as a percentage of net
sales was primarily due to our pricing power, a favorable product mix shift, lower restructuring charges, savings
achieved through our STEP Change cost reduction program and new product introductions.
32