Plantronics 2006 Annual Report Download - page 59

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part ii
)higher freight and duty costs resulting from a higher proportion of more expensive air shipments
than cheaper ocean shipments.
We expect gross profit pressures from the factors mentioned above as well as from competitive pricing to
continue for the near future. 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 China, and improving the effectiveness of our marketing programs.
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.
Audio Entertainment Group
Fiscal Year Ended
March 31, March 31, Increase
($ in thousands) 2005 2006 (Decrease)
Audio Entertainment Group
Net revenues $ — $120,669 $120,669
Cost of revenues — 83,703 83,703
Segment Gross profit $ — $ 36,966 $ 36,966
Segment Gross profit % 30.6% 30.6 ppt.
In fiscal 2006, gross profit represents results since the acquisition of Altec Lansing on August 18, 2005.
Gross profit for the period has been negatively impacted by the following key factors:
)a 5.6 percentage point impact due to purchase accounting. We recorded $4.6 million relating to
the manufacturing profit capitalized to inventories, all of which was fully amortized by the end
of the third quarter of fiscal 2006. We also had $2.1 million in amortization expense relating to
technology assets acquired in the Altec Lansing acquisition. The amortization expense associ-
ated with the technology assets is expected to continue to reduce gross profit for the next six to
eight years;
)a provision for excess and obsolete materials due to an unanticipated shift in demand; and
)royalties payable to third parties. Certain products require royalties to be paid to third parties,
and the mix of products for which royalties are required to be paid can negatively impact gross
profit.
Gross profit may vary depending on the product mix, competitive pricing pressures, amount of excess and
obsolete inventory charges, return rates, the amount of product sold in which royalties are required to be
paid and the rate at which royalties are calculated, and other factors. A further shift towards the newer,
but lower margin, portable products may cause downward pressure on our gross profit.
AR 2006 ⯗53