Plantronics 2008 Annual Report Download - page 41

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35
96% and 99% of consolidated gross profit in fiscal 2007 and 2008, respectively.
Fluctuations in the gross profit of ACG and AEG in fiscal 2008 compared to fiscal 2007 were as follows:
ACG
The increase in gross profit was primarily due to higher net revenues. As a percentage of net revenues, gross profit increased 2.3
percentage points primarily due to the following:
· a 1.6 percentage point benefit from cost reductions on wireless office and Bluetooth products;
· a 1.5 percentage point improvement primarily resulting from improved productivity in our manufacturing process;
· a 0.7 percentage point benefit from foreign exchange;
· a 0.6 percentage point benefit from a reduction in excess and obsolete inventory costs.
These benefits in gross profit were partially offset by a 2.1 percentage point decrease primarily due to higher warranty costs
primarily due to increased sales of mobile and entertainment headsets through retail channels where open box warranty returns
often occur more frequently than through other sales channels, higher freight expenses as a result of increased rates, a longer
supply chain, and a less favorable product mix as corded products, which typically have higher margins than cordless products,
were a lower percentage of overall revenues.
AEG
As a percentage of net revenues, gross profit decreased 6.2 percentage points primarily due to the following:
· a 6.2 percentage point decline due to a 12% decline in the overall sales volume and reduced selling prices of surplus
inventory, primarily in the Docking Audio category;
· increased freight, duty, royalties and warehousing which yielded a 5.4 percentage point decline.
The decline in gross profit was partially offset by a 5.3 percentage point benefit resulting from a decrease in claims from suppliers
and decreased excess and obsolete inventory costs due to the sale of slow moving product to liquidators.
Fluctuations in the gross profit of ACG and AEG in fiscal 2007 compared to fiscal 2006 were as follows:
ACG
The increase in gross profit was primarily due to higher net revenues. As a percentage of net revenues, gross profit decreased 2.2
percentage points primarily due to the following:
· a 3.1 percentage point decline due to a product mix shift towards consumer products, which have lower gross margins
than many of our office products, coupled with competitive pricing pressure, especially on consumer Bluetooth headsets;
· a 0.6 percentage point decline in excess and obsolete inventory costs;
· a 0.5 percentage point decline due to higher warranty costs as a result of increased sales and shift in product mix towards
wireless products which have a higher rate of return under warranty and higher product costs;
·a 0.4 percentage point decline due to stock-based compensation charges;
· a 0.2 percentage point decline resulting from an increase in capacity in our production facilities in Suzhou, China and
Tijuana, Mexico, in preparation for anticipated future demand, primarily related to our Bluetooth products.
These declines in gross profit were partially offset by a 2.6 percentage point favorable impact primarily due to better component
pricing which we were able to obtain through our expanded presence in China, better factory utilization at our plant in Tijuana,
Mexico and improvements in manufacturing yields.
AEG
Gross profit for fiscal 2007 reflects twelve months of operations compared to approximately seven and one-half months of
operations in fiscal 2006, from the time of acquisition in August 2005 through year-end. As a percentage of net revenues, gross
profit decreased 19.8 percentage points primarily due to the following:
· competitive pricing pressures resulting in significant discounting and price protection programs, particularly for the
Docking Audio product category, which yielded a 4.6 percentage point decline;
· a 2.1 percentage point decline due to a product mix shift towards PC Audio products, which have lower gross margins