Plantronics 2009 Annual Report Download - page 47

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39
Cost of Revenues and Gross Profit
Cost of revenues consists primarily of direct manufacturing and contract manufacturer costs, including material and direct labor, our
operations management team and indirect labor such as supervisors and warehouse workers, freight expense, warranty expense,
reserves for excess and obsolete inventory, depreciation, royalties, and an allocation of overhead expenses, including facilities and IT
costs.
Consolidated
(in thousands)
Net revenues $ 800,154 $ 856,286 $ 56,132 7.0% $ 856,286 $ 765,619 $ (90,667) (10.6)%
Cost of revenues 491,339 507,181 15,842 3.2% 507,181 469,591 (37,590) (7.4)%
Consolidated gross profi
t
$ 308,815 $ 349,105 $ 40,290 13.0% $ 349,105 $ 296,028 $ (53,077) (15.2)%
Consolidated gross profit % 38.6% 40.8% 2.2 ppt. 40.8% 38.7% (2.1) ppt.
Fiscal Year Ended Fiscal Year Ended
March 31, March 31, Increase March 31, March 31, Increase
2007 2008 (Decrease) 2008 2009 (Decrease)
Audio Communications Group
Net revenues $ 676,514 $ 747,935 $ 71,421 10.6% $ 747,935 $ 674,590 $ (73,345) (9.8)%
Cost of revenues 381,034 403,863 22,829 6.0% 403,863 382,659 (21,204) (5.3)%
Segment gross profi
t
$ 295,480 $ 344,072 $ 48,592 16.4% $ 344,072 $ 291,931 $ (52,141) (15.2)%
Segment gross profit % 43.7% 46.0% 2.3 ppt. 46.0% 43.3% (2.7) ppt.
Audio Entertainment Group
Net revenues $ 123,640 $ 108,351 $ (15,289) (12.4)% $ 108,351 $ 91,029 $ (17,322) (16.0)%
Cost of revenues 110,305 103,318 (6,987) (6.3)% 103,318 86,932 (16,386) (15.9)%
Segment gross profit
$ 13,335 $ 5,033 $ (8,302) (62.3)% $ 5,033 $ 4,097 $ (936) (18.6)%
Segment gross profit % 10.8% 4.6% (6.2) ppt. 4.6% 4.5% (0.1) ppt.
The increase in 2008 and the decrease in 2009 in consolidated gross profit are both attributable to ACG, which accounted for
approximately 99% of consolidated gross profit in both fiscal 2008 and 2009.
Fluctuations in the gross profit of ACG and AEG in fiscal 2009 compared to fiscal 2008 were as follows:
ACG
The decrease in gross profit was primarily due to lower net revenues. As a percentage of net revenues, gross profit decreased 2.7
percentage points primarily due to the following:
· a 2.9 percentage point detriment mostly due to a higher proportion of consumer products than commercial products in the
overall revenue mix. While consumer products carry lower margins than commercial products, the level of product margin
on our consumer products has increased significantly primarily due to cost reductions;
· a 0.7 percentage point detriment from higher freight expenses and other manufacturing costs; and
· a 0.6 percentage point detriment from higher excess and obsolete inventory provisions. These higher provisions were in part
a result of our decision to end of life certain models in our Bluetooth portfolio of products coinciding with the decline in
consumer demand due to poor economic conditions and our announcement in March 2009 to outsource Bluetooth
manufacturing to an existing supplier in China, thus limiting the number of Bluetooth models to transition.
These decreases in gross profit were partially offset by a 1.5 percentage point benefit from material cost reductions which improved
the product margin on Bluetooth products.