Plantronics 2008 Annual Report Download - page 42

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than our Docking Audio products;
· a 4.6 percentage point decline due to increased co-op advertising and marketing development funds programs along with
higher product returns;
· a 4.1 percentage point decline from increased requirements for excess and obsolete inventory costs of $2.1 million and
adverse purchase commitments of $3.0 million due to unanticipated shifts in demand;
· increased freight expense, due in part to surcharges related to rising fuel costs, which resulted in a 1.3 percentage point
decline.
For both our segments, product mix has a significant impact on gross profit as there can be significant variances between our
higher and our lower margin products. Therefore, small variations in product mix, which can be difficult to predict, can have a
significant impact on gross profit. In addition, if we do not properly anticipate changes in demand, we have in the past, and may
in the future incur significant costs associated with writing off excess and obsolete inventory or incur charges for adverse purchase
commitments. While we are focused on actions to improve our gross profit through supply chain management, improvements in
product launches, increasing the utilization of manufacturing capacity, particularly in our new facility in Suzhou, China,
restructuring AEG’s China manufacturing and procurement functions, including the shut down of our manufacturing plant in
Dongguan, China, and improving the effectiveness of our marketing programs, there can be no assurance that these actions will be
successful. Gross profit may also vary based on return rates, the amount of product sold for which royalties are required to be
paid, the rate at which royalties are calculated, and other factors.
Research, Development and Engineering
Research, development and engineering costs are expensed as incurred and consist primarily of compensation costs, outside
services, including legal fees associated with protecting our intellectual property, expensed materials, depreciation and an
allocation of overhead expenses, including facilities, human resources, and IT costs.
Consolidated
(in thousands)
Research, development and engineering $ 62,798 $ 71,895 $ 9,097 14.5% $ 71,895 $ 76,982 $ 5,087 7.1%
% of total consolidated net revenues 8.4% 9.0% 0.6 ppt. 9.0% 9.0% 0.0 ppt.
Fiscal Year Ended Fiscal Year Ended
March 31, March 31, Increase March 31, March 31, Increase
2006 2007 (Decrease) 2007 2008 (Decrease)
Audio Communications Group
Research, development and engineering $ 56,570 $ 61,583 $ 5,013 8.9% $ 61,583 $ 65,733 $ 4,150 6.7%
% of total segment net revenues 8.9% 9.1% 0.2 ppt. 9.1% 8.8% (0.3) ppt.
Audio Entertainment Group
Research, development and engineering $ 6,228 $ 10,312 $ 4,084 65.6% $ 10,312 $ 11,249 $ 937 9.1%
% of total segment net revenues 5.1% 8.3% 3.2 ppt. 8.3% 10.4% 2.1 ppt.
In fiscal 2008, compared to fiscal 2007, consolidated research, development and engineering expenses increased primarily due to
increased compensation costs. The majority of the increase in research, development and engineering expenses is attributable to
the ACG segment.
The $4.2 million increase in ACG research, development, and engineering expenses in fiscal 2008, compared to fiscal 2007 is
primarily related to higher compensation and project expenses at our design centers in Suzhou, China, and in the U.S. These
increases are partially offset by reductions in program and compensation expenses for Volume Logic technology development
which was absorbed by the B2B product development group. AEG expenses for fiscal 2008 were relatively flat compared to the
prior year.
Projects that the research, development and engineering departments focused on were:
· the design and development of wireless office system products;
·Bluetooth products and technology;
· product line platforming;
· refresh of product lines for AEG.
In fiscal 2007, compared to fiscal 2006, consolidated research, development and engineering expenses increased primarily due to