Plantronics 2006 Annual Report Download - page 60

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Consolidated
Fiscal Year Ended Fiscal Year Ended
March 31, March 31, Increase March 31, March 31, Increase
($ in thousands) 2004 2005 (Decrease) 2005 2006 (Decrease)
Consolidated
Net revenues $416,965 $559,995 $143,030 34.3% $559,995 $750,394 $190,399 34.0%
Cost of revenues 200,995 271,537 70,542 35.1% 271,537 424,140 152,603 56.2%
Consolidated Gross profit $215,970 $288,458 $ 72,488 33.6% $288,458 $326,254 $ 37,796 13.1%
Consolidated Gross profit % 51.8% 51.5% (0.3) ppt. 51.5% 43.5% (8.0) ppt.
In comparison to fiscal 2006, the increase in the consolidated gross profit in fiscal 2006 is primarily
attributable to incremental gross margin of $36.9 million from our acquisition of Altec Lansing and
overall higher revenues. Despite the incremental gross profit from the Audio Entertainment Group, our
gross profit as a percent of revenues decreased by approximately eight percentage points which is
attributable to two main factors. One, manufacturing costs in the Audio Communications Group
increased. Two, Altec Lansing’s gross profit as a percentage of revenues, including the impact of purchase
accounting, is lower than the Plantronics’ core business gross profit as a percentage of revenues.
Therefore, by combining the lower gross profit of the Audio Entertainment business with the higher
gross profit of the Audio Communications business, the gross profit of the consolidated company is
reduced.
Our manufacturing facility in Suzhou, China began production in the fourth quarter fiscal 2006. As a
result, depreciation expense associated with the facility commenced in the fourth quarter, which has
caused and will continue to cause, higher costs in the short run and will negatively affect our gross profits.
Once our manufacturing facility in Suzhou, China is running at full utilization, we expect that this
facility, assuming other factors remain constant, will reduce manufacturing costs and thus improve gross
profit.
In comparison to fiscal 2004, our fiscal 2005 gross profit margins decreased slightly, which was primarily
due to a product mix shift towards lower margin products, particularly our Bluetooth products within our
mobile products, and a greater contribution of wireless products within our Office and Contact Center
products. These were offset in part by continued component cost reductions, manufacturing efficiencies
and favorable exchange rates net of hedging losses.
Gross profit margin may vary depending on the product mix, customer mix, channel mix, amount of
excess and obsolete inventory charges, changes in our warranty repair costs or return rates, royalty
payments, competitive pricing and discounts or customer incentives, 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.
54 ⯗Plantronics