Plantronics 2009 Annual Report Download - page 40

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
We are a leading worldwide designer, manufacturer, and marketer of lightweight communications headsets, telephone headset
systems, and accessories for the business and consumer markets under the Plantronics brand. We are also a leading manufacturer and
marketer of high quality docking audio products, computer and home entertainment sound systems, and a line of headphones for
personal digital media under our Altec Lansing brand. In addition, we manufacture and market, under our Clarity brand, specialty
telephone products, such as telephones for the hearing impaired, and other related products for people with special communication
needs.
We ship a broad range of products to over 80 countries through a worldwide network of distributors, original equipment
manufacturers (“OEMs”), wireless carriers, retailers, and telephony service providers. We have well-developed distribution channels
in North America, Europe, Australia and New Zealand, where use of our products is widespread. Our distribution channels in other
regions of the world are less mature, and, while we primarily serve the contact center markets in those regions, we are expanding into
the office, mobile and entertainment, digital audio, and specialty telephone markets in additional international locations.
Consolidated net revenues in fiscal 2009 were $765.6 million, which is a decrease of 11% from fiscal 2008 net revenues which were
$856.3 million. The year-over-year decrease was primarily attributable to the global recession, resulting in a decrease in demand for
our products. We had an operating loss of $81.2 million in fiscal 2009 as compared to an operating income of $79.4 million in fiscal
2008, a decrease to $160.6 million, primarily due to a $117.5 million impairment charge in the third quarter of fiscal 2009 related to
certain AEG goodwill and long-lived assets along with a decrease in gross margin which was the result of the decreased revenue due
to the weakened global economy and restructuring and other related charges of $12.1 million related to various actions taken in efforts
to reduce our cost structure and adapt to the current economic conditions.
In our ACG segment, the $73.3 million decrease in net revenues for fiscal 2009 was primarily due to lower OCC product revenues of
$90.3 million driven by a weakened economy due to the global recession offset in part by an increase of $15.5 million in sales of
mobile headsets. The mobile headset growth was driven by increased Bluetooth retail placements from an improved product portfolio
and demand attributable to certain hands-free driving laws that went into effect in the U.S. in fiscal 2009.
Wireless products represent an opportunity for growth both in the office market and for mobile applications. The office wireless
market, in particular, represents a strong opportunity for profitable growth over many years. However, due to weak economic
conditions during fiscal 2009, office wireless net revenues decreased by $43.0 million or 17% in fiscal 2009 compared to fiscal
2008. In the Mobile market, particularly for consumer applications, margins are typically lower than for our enterprise applications
due to the level of competition and pricing pressures. Our strategy for improving the profitability of mobile consumer products is to
differentiate our products from our competitors and to provide compelling solutions under our brand with regard to features, design,
ease of use, and performance. Also, to further improve Bluetooth profitability, we announced a restructuring plan in the March 2009
to close ACG’s Suzhou, China manufacturing operations in fiscal 2010 in order to outsource manufacturing of our Bluetooth products
to an existing supplier in China.
In our AEG segment, net revenues decreased from $108.4 million in fiscal 2008 to $91.0 million in fiscal 2009, and the operating loss
increased from $35.8 million to $142.6 million for the corresponding period due to a $117.5 million non-cash impairment charge on
goodwill and long-lived assets.
We focused on cost reductions in the AEG segment and completed the closure of AEG’s manufacturing operations in Dongguan,
China and relocated the research and development activities previously in Dongguan, China to Shenzhen, China as part of the 2008
restructuring plan. We have outsourced most of AEG manufacturing to a network of qualified contract manufacturers already in place
and do a limited amount of manufacturing of AEG products in our plant in Suzhou, China. We also closed AEG’s sales and
procurement office in Hong Kong and consolidated the sales, procurement and research and development activities into our Shenzhen,
China location. Additionally, we completed the consolidation of our selling, general and administrative functions for most of our Asia
Pacific operations into our Suzhou, China facility. We implemented further restructuring plans in fiscal 2009 which included
reductions in force in AEG’s operations in Milford, Pennsylvania, Luxemburg and Shenzhen, China along with reductions in ACG’s
China and US locations.