form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
T QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended December 26, 2009
OR
£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ________to _________
Commission file number
1-12696
Plantronics,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0207692
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
345
Encinal Street
Santa Cruz,
California 95060
(Address
of principal executive offices)
(Zip
Code)
(831)
426-5858
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes T No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes £ No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer T
|
|
Accelerated
filer £
|
|
Non-accelerated
filer £
(Do
not check if a smaller reporting company)
|
|
Smaller
reporting company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No T
As of
January 23, 2010, 48,257,826 shares of common stock were
outstanding.
FORM
10-Q
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
|
Page No.
|
|
|
Item
1. Financial Statements (Unaudited):
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
26
|
|
|
|
42
|
|
|
|
45
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
46
|
|
|
|
46
|
|
|
|
62
|
|
|
|
63
|
|
|
|
64
|
Plantronics,
the logo design, Clarity, Savi, and Sound Innovation are trademarks or
registered trademarks of Plantronics, Inc.
iPod
is a trademark of Apple Inc., registered in the U.S. and other
countries.
The
Bluetooth name and the Bluetooth trademarks are owned by Bluetooth SIG, Inc. and
are used by Plantronics, Inc. under license.
All
other trademarks are the property of their respective owners.
Part
I -- FINANCIAL INFORMATION
Item 1. Financial
Statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands)
(Unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
158,193 |
|
|
$ |
283,503 |
|
Short-term
investments
|
|
|
59,987 |
|
|
|
33,222 |
|
Accounts
receivable, net
|
|
|
83,657 |
|
|
|
113,291 |
|
Inventory,
net
|
|
|
119,296 |
|
|
|
70,914 |
|
Deferred
income taxes
|
|
|
12,486 |
|
|
|
10,097 |
|
Other
current assets
|
|
|
29,936 |
|
|
|
33,219 |
|
Assets
held for sale
|
|
|
- |
|
|
|
8,926 |
|
Total
current assets
|
|
|
463,555 |
|
|
|
553,172 |
|
Long-term
investments
|
|
|
23,718 |
|
|
|
- |
|
Property,
plant and equipment, net
|
|
|
95,719 |
|
|
|
67,866 |
|
Intangibles,
net
|
|
|
26,575 |
|
|
|
3,758 |
|
Goodwill
|
|
|
14,005 |
|
|
|
14,005 |
|
Other
assets
|
|
|
9,548 |
|
|
|
3,168 |
|
Total
assets
|
|
$ |
633,120 |
|
|
$ |
641,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
32,827 |
|
|
$ |
31,397 |
|
Accrued
liabilities
|
|
|
53,143 |
|
|
|
56,993 |
|
Total
current liabilities
|
|
|
85,970 |
|
|
|
88,390 |
|
Deferred
tax liability
|
|
|
8,085 |
|
|
|
58 |
|
Long-term
income taxes payable
|
|
|
12,677 |
|
|
|
13,506 |
|
Other
long-term liabilities
|
|
|
1,021 |
|
|
|
958 |
|
Total
liabilities
|
|
|
107,753 |
|
|
|
102,912 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
678 |
|
|
|
685 |
|
Additional
paid-in capital
|
|
|
386,224 |
|
|
|
402,523 |
|
Accumulated
other comprehensive income
|
|
|
8,855 |
|
|
|
2,946 |
|
Retained
earnings
|
|
|
203,936 |
|
|
|
173,488 |
|
|
|
|
599,693 |
|
|
|
579,642 |
|
Less: Treasury
stock, at cost
|
|
|
(74,326 |
) |
|
|
(40,585 |
) |
Total
stockholders' equity
|
|
|
525,367 |
|
|
|
539,057 |
|
Total
liabilities and stockholders' equity
|
|
$ |
633,120 |
|
|
$ |
641,969 |
|
The
accompanying notes are an integral part of these unaudited Condensed
consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
152,616 |
|
|
$ |
165,935 |
|
|
$ |
546,492 |
|
|
$ |
451,555 |
|
Cost
of revenues
|
|
|
92,199 |
|
|
|
85,566 |
|
|
|
304,159 |
|
|
|
238,251 |
|
Gross
profit
|
|
|
60,417 |
|
|
|
80,369 |
|
|
|
242,333 |
|
|
|
213,304 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
16,645 |
|
|
|
14,780 |
|
|
|
50,721 |
|
|
|
41,991 |
|
Selling,
general and administrative
|
|
|
38,579 |
|
|
|
37,502 |
|
|
|
123,887 |
|
|
|
103,599 |
|
Restructuring
and other related charges
|
|
|
288 |
|
|
|
332 |
|
|
|
288 |
|
|
|
1,767 |
|
Total
operating expenses
|
|
|
55,512 |
|
|
|
52,614 |
|
|
|
174,896 |
|
|
|
147,357 |
|
Operating
income
|
|
|
4,905 |
|
|
|
27,755 |
|
|
|
67,437 |
|
|
|
65,947 |
|
Interest
and other income (expense), net
|
|
|
(1,499 |
) |
|
|
1,422 |
|
|
|
(3,129 |
) |
|
|
3,653 |
|
Income
from continuing operations before income taxes
|
|
|
3,406 |
|
|
|
29,177 |
|
|
|
64,308 |
|
|
|
69,600 |
|
Income
tax expense (benefit) from continuing operations
|
|
|
(2,748 |
) |
|
|
5,974 |
|
|
|
11,464 |
|
|
|
17,562 |
|
Income
from continuing operations
|
|
|
6,154 |
|
|
|
23,203 |
|
|
|
52,844 |
|
|
|
52,038 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations of discontinued AEG segment (including loss on sale of
AEG)
|
|
|
(124,418 |
) |
|
|
(515 |
) |
|
|
(137,221 |
) |
|
|
(30,292 |
) |
Income
tax benefit on discontinued operations
|
|
|
(26,255 |
) |
|
|
(562 |
) |
|
|
(30,510 |
) |
|
|
(11,408 |
) |
Income
(loss) on discontinued operations, net of tax
|
|
|
(98,163 |
) |
|
|
47 |
|
|
|
(106,711 |
) |
|
|
(18,884 |
) |
Net
income (loss)
|
|
$ |
(92,009 |
) |
|
$ |
23,250 |
|
|
$ |
(53,867 |
) |
|
$ |
33,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.13 |
|
|
$ |
0.48 |
|
|
$ |
1.09 |
|
|
$ |
1.07 |
|
Discontinued
operations
|
|
$ |
(2.03 |
) |
|
$ |
0.00 |
|
|
$ |
(2.19 |
) |
|
$ |
(0.39 |
) |
Net
income (loss)
|
|
$ |
(1.90 |
) |
|
$ |
0.48 |
|
|
$ |
(1.11 |
) |
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.13 |
|
|
$ |
0.47 |
|
|
$ |
1.08 |
|
|
$ |
1.06 |
|
Discontinued
operations
|
|
$ |
(2.02 |
) |
|
$ |
0.00 |
|
|
$ |
(2.17 |
) |
|
$ |
(0.38 |
) |
Net
income (loss)
|
|
$ |
(1.90 |
) |
|
$ |
0.47 |
|
|
$ |
(1.10 |
) |
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
48,449 |
|
|
|
48,632 |
|
|
|
48,641 |
|
|
|
48,632 |
|
Diluted
|
|
|
48,522 |
|
|
|
49,625 |
|
|
|
49,113 |
|
|
|
49,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
The
accompanying notes are an integral part of these unaudited Condensed
consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(53,867 |
) |
|
$ |
33,154 |
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
20,597 |
|
|
|
14,133 |
|
Non-cash
restructuring charges - accelerated depreciation
|
|
|
- |
|
|
|
6,196 |
|
Stock-based
compensation
|
|
|
12,087 |
|
|
|
10,756 |
|
Provision
(benefit) from sales allowances and doubtful accounts
|
|
|
1,709 |
|
|
|
(581 |
) |
Provision
for excess and obsolete inventories
|
|
|
4,859 |
|
|
|
278 |
|
Benefit
from deferred income taxes
|
|
|
(28,804 |
) |
|
|
(8,824 |
) |
Income
tax benefit associated with stock option exercises
|
|
|
938 |
|
|
|
1,809 |
|
Excess
tax benefit from stock-based compensation
|
|
|
(591 |
) |
|
|
(1,105 |
) |
Impairment
of goodwill and long-lived assets
|
|
|
117,464 |
|
|
|
25,194 |
|
Loss
on sale of discontinued operations
|
|
|
- |
|
|
|
826 |
|
Other
operating activities
|
|
|
209 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
27,469 |
|
|
|
(26,548 |
) |
Inventory,
net
|
|
|
(15,334 |
) |
|
|
27,435 |
|
Other
assets
|
|
|
(6,985 |
) |
|
|
256 |
|
Accounts
payable
|
|
|
(15,739 |
) |
|
|
(1,430 |
) |
Accrued
liabilities
|
|
|
(5,732 |
) |
|
|
4,072 |
|
Income
taxes
|
|
|
1,511 |
|
|
|
2,910 |
|
Cash
provided by operating activities
|
|
|
59,791 |
|
|
|
88,778 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from maturities of short-term investments
|
|
|
- |
|
|
|
85,000 |
|
Purchase
of short-term investments
|
|
|
(29,919 |
) |
|
|
(34,998 |
) |
Proceeds
from sale of long-term investments
|
|
|
- |
|
|
|
750 |
|
Proceeds
from sales of property, plant and equipment
|
|
|
- |
|
|
|
277 |
|
Capital
expenditures and other assets
|
|
|
(20,881 |
) |
|
|
(4,339 |
) |
Proceeds
received from sale of AEG segment
|
|
|
- |
|
|
|
11,075 |
|
Funds
released from escrow related to Altec acquisition
|
|
|
406 |
|
|
|
- |
|
Cash
provided by (used for) investing activities
|
|
|
(50,394 |
) |
|
|
57,765 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
(17,327 |
) |
|
|
(28,784 |
) |
Proceeds
from sale of treasury stock
|
|
|
2,938 |
|
|
|
1,612 |
|
Proceeds
from issuance of common stock
|
|
|
6,899 |
|
|
|
10,431 |
|
Payment
of cash dividends
|
|
|
(7,343 |
) |
|
|
(7,362 |
) |
Excess
tax benefit from stock-based compensation
|
|
|
591 |
|
|
|
1,105 |
|
Cash
used for financing activities
|
|
|
(14,242 |
) |
|
|
(22,998 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(4,794 |
) |
|
|
1,765 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(9,639 |
) |
|
|
125,310 |
|
Cash
and cash equivalents at beginning of period
|
|
|
163,091 |
|
|
|
158,193 |
|
Cash
and cash equivalents at end of period
|
|
$ |
153,452 |
|
|
$ |
283,503 |
|
|
|
|
|
|
|
|
|
|
Non
cash activity:
|
|
|
|
|
|
|
|
|
Retirement
of treasury shares
|
|
$ |
- |
|
|
$ |
56,240 |
|
The
accompanying notes are an integral part of these unaudited Condensed
consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF
PRESENTATION
The
accompanying unaudited Condensed consolidated financial statements (“financial
statements”) of Plantronics, Inc. (“Plantronics” or “the Company”) have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) applicable to interim financial
information. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements have been prepared on a basis
consistent with the March 31, 2009 audited consolidated financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
to fairly state the information set forth herein. The financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2009, which was filed with the SEC on
May 26, 2009. The results of operations for the interim period ended
December 31, 2009 are not indicative of the results to be expected for the
entire fiscal year and any future period.
The
financial statements include the accounts of Plantronics and its wholly owned
subsidiaries. All intercompany balances and transactions have been
eliminated.
The
Company’s fiscal year ends on the Saturday closest to the last day of
March. The Company’s current fiscal year ends on April 3, 2010 and
consists of 53 weeks and the prior fiscal year ended on March 28, 2009 and
consisted of 52 weeks. The Company’s results of operations for the
three months ended on December 26, 2009 and December 27, 2008 each contain 13
weeks. The Company’s results of operations for the nine months ended
on December 26, 2009 and December 27, 2008 each contain 39 weeks. For
purposes of presentation, the Company has indicated its accounting year as
ending on March 31 and its interim quarterly periods as ending on the applicable
month end.
Prior to
December 1, 2009, the Company operated under two reportable segments, the Audio
Communications Group (“ACG”) and the Audio Entertainment Group
(“AEG”). As set forth in Note 2, Discontinued Operations, the Company
completed the sale of Altec Lansing, its AEG segment, effective December 1,
2009, and, therefore, it is no longer included in continuing operations and the
Company operates as one segment. Accordingly, the Company has
classified the AEG operating results, including the loss on sale of AEG, as
discontinued operations in the Consolidated statement of operations for all
periods presented.
Certain
financial statement reclassifications have been made to previously reported
amounts to conform to the current year presentation.
The
Condensed consolidated statement of operations for the nine months ended
December 31, 2009 includes a correcting adjustment of approximately $1.3 million
in Cost of revenues related to an overstatement of duty expense in prior
periods, beginning in the third quarter of fiscal 2005 through the fourth
quarter of fiscal 2009. The Company assessed the materiality of the
error as required by the Accounting Changes and Error Corrections Topic of the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) and determined that the impact of the correcting adjustment will not be
material to its projected full year results for fiscal 2010. In
addition, the Company does not believe the error is material to the amounts
reported in prior periods.
The
Company has evaluated all subsequent events through January 27, 2010, the
issuance date of the Condensed consolidated financial statements for the three
and nine months ended December 31, 2009. All appropriate subsequent
event disclosures, if any, have been made in the notes to the Company’s
Condensed consolidated financial statements.
2. DISCONTINUED
OPERATIONS
The
Company entered into an Asset Purchase Agreement on October 2, 2009, a First
Amendment to the Asset Purchase Agreement on November 30, 2009, and a Side
Letter to the Asset Purchase Agreement on January 8, 2010 (collectively,
the “APA”) to sell certain net assets of Altec Lansing, its AEG segment, which
was completed effective December 1, 2009. AEG was engaged in the
design, manufacture, sales and marketing of audio solutions and related
technologies. All of the revenues in the AEG segment were derived
from sales of Altec Lansing products. All operations of AEG have been
classified as discontinued operations in the Consolidated statement of
operations for all periods presented.
Pursuant
to the APA, we received approximately $11.1 million upon closing of the
transaction. In addition, the Company has recorded $5.1 million in
contingent escrow assets which primarily consist of amounts for 1) potential
customer short payments on accounts receivable for sales related reserves that
were transferred to the Purchaser, 2) potential indemnification claims, and 3)
potential adjustments related to the final valuation of net assets transferred
in comparison to the target net asset value. The escrow amounts are
included in Other current assets on the Consolidated balance sheet as of
December 31, 2009 as they are all collectable within one year.
The final
purchase price is based on certain post closing adjustments to be finalized in
the fourth quarter of fiscal 2010. Consequently, the actual proceeds
will vary from these amounts based on the final net asset value as compared to
the target net asset value per the APA. As such, the Company has
recorded a payable to the purchaser of approximately $2.7 million which is
included in Other current liabilities on the Consolidated balance sheet as of
December 31, 2009. This amount will be due upon final settlement of
the purchase price which is expected in the fourth quarter of fiscal 2010 at
which time the corresponding escrow amount will be released.
Under the
terms of the APA, the Company sold the following net assets, valued at their
book value (in thousands):
Inventory,
net
|
|
$ |
17,702 |
|
Sales
related reserves included in Accounts receivable, net
|
|
|
(3,659 |
) |
Property,
plant and equipment
|
|
|
1,012 |
|
Warranty
obligation accrual
|
|
|
(383 |
) |
Accrual
for inventory claims at manufacturers
|
|
|
(657 |
) |
Total
net assets transferred
|
|
$ |
14,015 |
|
The
Company retained all existing AEG related accounts receivable, accounts payable
and certain other liabilities as of the close date.
The
Company has recorded a loss of $0.8 million on the sale of the AEG segment which
is calculated as follows (in thousands):
Proceeds
received upon close
|
|
$ |
11,075 |
|
Escrow
payments to be received
|
|
|
5,125 |
|
Total
estimated proceeds
|
|
|
16,200 |
|
Book
value of net assets transferred
|
|
|
(14,015 |
) |
Payable
to purchaser - adjustment for final value of net assets to
APA
|
|
|
(2,711 |
) |
Costs
incurred upon closing
|
|
|
(300 |
) |
Loss
on sale of AEG
|
|
$ |
(826 |
) |
The
results from discontinued operations, including the loss on disposal of Altec,
for the three and nine months ended December 31, 2008 and 2009 are as
follows:
(in thousands)
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
30,220 |
|
|
$ |
23,328 |
|
|
$ |
72,364 |
|
|
$ |
65,248 |
|
Cost
of revenues
|
|
|
(29,772 |
) |
|
|
(18,273 |
) |
|
|
(69,180 |
) |
|
|
(52,886 |
) |
Operating
expenses
|
|
|
(6,642 |
) |
|
|
(4,744 |
) |
|
|
(21,946 |
) |
|
|
(16,615 |
) |
Impairment
of goodwill and long-lived assets
|
|
|
(117,464 |
) |
|
|
- |
|
|
|
(117,464 |
) |
|
|
(25,194 |
) |
Restructuring
and other related charges
|
|
|
(760 |
) |
|
|
- |
|
|
|
(995 |
) |
|
|
(19 |
) |
Loss
on disposal of Altec Lansing
|
|
|
- |
|
|
|
(826 |
) |
|
|
- |
|
|
|
(826 |
) |
Loss
from operations of discontinued AEG segment (including loss on sale of
AEG)
|
|
|
(124,418 |
) |
|
|
(515 |
) |
|
|
(137,221 |
) |
|
|
(30,292 |
) |
Tax
expense (benefit) from discontinued operations
|
|
|
(26,255 |
) |
|
|
(562 |
) |
|
|
(30,510 |
) |
|
|
(11,408 |
) |
Income
(loss) on discontinued operations, net of tax
|
|
$ |
(98,163 |
) |
|
$ |
47 |
|
|
$ |
(106,711 |
) |
|
$ |
(18,884 |
) |
3.
DETAILS OF CERTAIN BALANCE SHEET COMPONENTS
Inventory,
net
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Inventory,
net:
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
37,646 |
|
|
$ |
14,281 |
|
Work
in process
|
|
|
4,494 |
|
|
|
3,672 |
|
Finished
goods
|
|
|
77,156 |
|
|
|
52,961 |
|
Inventory,
net
|
|
$ |
119,296 |
|
|
$ |
70,914 |
|
As noted
in Note 2, Discontinued Operations, the Company sold approximately $17.7 million
of its net inventory in conjunction with the sale of AEG in the third quarter of
fiscal 2010.
If
forecasted revenue and gross margin rates are not achieved, it is possible that
the Company may have increased requirements for inventory
provisions.
Accrued
Liabilities
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
$ |
17,380 |
|
|
$ |
22,088 |
|
Warranty
obligation accrual
|
|
|
12,424 |
|
|
|
11,859 |
|
Accrued
advertising and sales and marketing
|
|
|
3,286 |
|
|
|
5,497 |
|
Accrued
other
|
|
|
20,053 |
|
|
|
17,549 |
|
Accrued
liabilities
|
|
$ |
53,143 |
|
|
$ |
56,993 |
|
Changes
during the nine months ended December 31, 2009 in the warranty obligation
accrual, which is included as a component of Accrued liabilities in the
Condensed consolidated balance sheets, are as follows:
|
|
Nine
Months Ended
|
|
(in thousands)
|
|
December 31, 2009
|
|
|
|
|
|
Warranty
obligation accrual at March 31, 2009
|
|
$ |
12,424 |
|
Warranty
provision relating to products shipped during the period
|
|
|
11,070 |
|
Deductions
for warranty claims processed during the period
|
|
|
(11,635 |
) |
Warranty
obligation accrual at December 31, 2009
|
|
$ |
11,859 |
|
Assets
Held for Sale
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
|
|
|
Land
rights
|
|
$ |
514 |
|
Buildings
and improvements
|
|
|
8,292 |
|
Machinery
and equipment
|
|
|
120 |
|
Assets
held for sale
|
|
$ |
8,926 |
|
To
further improve the Company’s Bluetooth product
profitability, in the fourth quarter of fiscal 2009, the Company decided to
close its Suzhou, China manufacturing operations and outsource the manufacturing
of its Bluetooth
products to an existing supplier in China. As the Company planned to
exit the manufacturing facility in the second quarter of fiscal 2010,
accelerated depreciation was recorded to reflect changes in useful lives and
estimated residual values of the assets that would be taken out of service prior
to the end of their original service period. The accelerated
depreciation was recorded as a part of the Q4 Fiscal 2009 Restructuring Action
as discussed in Note 6. There were no assets held for sale as of
March 31, 2009.
In July
2009, the Company stopped all manufacturing processes in the Suzhou
location. As a result, the building and related fixed assets were
transferred at the lower of their carrying value or fair value less the costs to
sell to Assets held for sale in the Condensed consolidated balance
sheet. The fair value of the building was based on a current
appraisal value adjusted for expected selling costs. The Company is
currently marketing these assets for sale and expects the sale to be completed
within a one year period from the time when they met the applicable criteria for
‘held for sale accounting” at an amount approximating their carrying
values. The Company further reduced the fair value of these assets by
$0.3 million in the third quarter of fiscal 2010 based on discussions with
interested parties. The assets held for sale were measured at fair
value using unobservable inputs and, therefore, are a level 3 fair value
measure.
4.
INVESTMENTS AND FAIR VALUE MEASUREMENTS
The
following table represents the Company’s investments at March 31, 2009 and
December 31, 2009:
(in thousands)
|
|
March 31, 2009
|
|
|
December 31, 2009
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Accrued
|
|
|
Fair
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Accrued
|
|
|
Fair
|
|
|
|
Basis
|
|
|
Gain(Loss)
|
|
|
Interest
|
|
|
Value
|
|
|
Basis
|
|
|
Gain(Loss)
|
|
|
Interest
|
|
|
Value
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury Bills
|
|
$ |
59,977 |
|
|
$ |
- |
|
|
$ |
10 |
|
|
$ |
59,987 |
|
|
$ |
9,998 |
|
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
10,000 |
|
Auction
rate securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,222 |
|
|
|
- |
|
|
|
- |
|
|
|
23,222 |
|
Total
short-term investments
|
|
|
59,977 |
|
|
|
- |
|
|
|
10 |
|
|
|
59,987 |
|
|
|
33,220 |
|
|
|
- |
|
|
|
2 |
|
|
|
33,222 |
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
23,718 |
|
|
|
- |
|
|
|
- |
|
|
|
23,718 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
long-term investments
|
|
|
23,718 |
|
|
|
- |
|
|
|
- |
|
|
|
23,718 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
short-term and long-term investments
|
|
$ |
83,695 |
|
|
$ |
- |
|
|
$ |
10 |
|
|
$ |
83,705 |
|
|
$ |
33,220 |
|
|
$ |
- |
|
|
$ |
2 |
|
|
$ |
33,222 |
|
At
December 31, 2009, the Company’s short-term investments consisted of U.S.
Treasury Bills classified as available-for-sale and auction rate securities
(“ARS”) classified as trading securities. At March 31, 2009, all of
the Company’s short-term investments consisted of U.S. Treasury Bills and were
classified as available-for-sale. At March 31, 2009, all of the
Company’s long-term investments consisted of ARS and were classified as trading
securities. There were no long-term investments at December 31,
2009.
The
Company did not incur any realized gains or losses in the three or nine months
ended December 31, 2009 or 2008. In the three and nine months ended
December 31, 2009, the Company incurred an unrealized gain of $1.2 million and
$0.3 million, respectively, on the ARS which was recorded to Interest and other
income (expense), net in the Condensed consolidated statement of
operations. There were no unrealized losses recorded in the Condensed
consolidated statement of operations for the three or nine months ended December
31, 2008.
The
following tables represent the Company’s fair value hierarchy for its financial
assets and liabilities:
Fair
Values as of December 31, 2009:
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds and treasury bills
|
|
$ |
112,499 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
112,499 |
|
Derivative
assets
|
|
|
1,817 |
|
|
|
840 |
|
|
|
- |
|
|
|
2,657 |
|
Auction
rate securities - trading securities
|
|
|
- |
|
|
|
- |
|
|
|
23,222 |
|
|
|
23,222 |
|
Derivative
- UBS Rights Agreement
|
|
|
- |
|
|
|
- |
|
|
|
3,995 |
|
|
|
3,995 |
|
Reserve
Primary Fund
|
|
|
- |
|
|
|
- |
|
|
|
33 |
|
|
|
33 |
|
Total
assets measured at fair value
|
|
$ |
114,316 |
|
|
$ |
840 |
|
|
$ |
27,250 |
|
|
$ |
142,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
154 |
|
|
$ |
1,886 |
|
|
$ |
- |
|
|
$ |
2,040 |
|
Fair
Values as of March 31, 2009:
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds and treasury bills
|
|
$ |
171,585 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
171,585 |
|
Derivative
assets
|
|
|
- |
|
|
|
7,613 |
|
|
|
- |
|
|
|
7,613 |
|
Auction
rate securities - trading securities
|
|
|
- |
|
|
|
- |
|
|
|
23,718 |
|
|
|
23,718 |
|
Derivative
- UBS Rights Agreement
|
|
|
- |
|
|
|
- |
|
|
|
4,180 |
|
|
|
4,180 |
|
Reserve
Primary Fund
|
|
|
- |
|
|
|
- |
|
|
|
162 |
|
|
|
162 |
|
Total
assets measured at fair value
|
|
$ |
171,585 |
|
|
$ |
7,613 |
|
|
$ |
28,060 |
|
|
$ |
207,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
950 |
|
|
$ |
875 |
|
|
$ |
- |
|
|
$ |
1,825 |
|
Level 1
assets and liabilities consist of money market funds and closed derivative
foreign currency forward contracts that are traded in an active market with
sufficient volume and frequency of transactions. Fair value is
measured based on the quoted market price of identical securities.
Level 2
assets and liabilities consist of derivative foreign currency call and put
option contracts. Fair value is determined using a Black-Scholes
valuation model using inputs that are observable in the market.
Level 3
assets consist of auction rate securities (“ARS”), primarily comprised of
interest bearing state sponsored student loan revenue bonds guaranteed by the
Department of Education. Historically, these ARS investments have
provided liquidity via an auction process that resets the applicable interest
rate at predetermined calendar intervals, typically every 7 or 35 days. The
recent uncertainties in the credit markets have affected all of the Company’s
holdings, and, as a consequence, these investments are not currently
liquid. As a result, the Company will not be able to access these
funds until a future auction of these investments is successful, the underlying
securities are redeemed by the issuer, or a buyer is found outside of the
auction process. Maturity dates for these ARS investments range from
2029 to 2039. All of the ARS investments were investment grade
quality and were in compliance with the Company’s investment policy at the time
of acquisition. The Company currently has the ability to hold these
ARS investments until a recovery of the auction process or until
maturity.
As of
December 31, 2009 and March 31, 2009, the Company used a discounted cash flow
model to determine an estimated fair value of the Company’s investment in ARS
classified as Level 3 assets. The key assumptions used in preparing
the discounted cash flow model include current estimates for interest rates,
timing and amount of cash flows, credit and liquidity premiums and expected
holding periods of the ARS.
In
November 2008, the Company accepted an agreement (the “Agreement”) with UBS AG
(“UBS”), the investment provider for its $27.3 million par value ARS portfolio,
providing the Company with certain rights related to its ARS (the
“Rights”). The Rights permit the Company to require UBS to purchase
the Company’s ARS at par value, which is defined as the price equal to the
liquidation preference of the ARS plus accrued but unpaid dividends or interest,
at any time during the period from June 30, 2010 through July 2,
2012. Conversely, UBS has the right, in its discretion, to purchase
or sell the Company’s ARS at any time until July 2, 2012, as long as the Company
receives payment at par value upon any sale or liquidation. The
Company expects to sell its ARS under the Rights; however, if the Rights are not
exercised before July 2, 2012, they will expire and UBS will have no further
rights or obligation to buy the Company’s ARS. As long as the Company
holds the Rights, it will continue to accrue interest as determined by the
auction process or the terms of the ARS if the auction process
fails. UBS’s obligations under the Rights are not secured and do not
require UBS to obtain any financing to support its performance obligations under
the Rights. UBS has disclaimed any assurance that it will have
sufficient financial resources to satisfy its obligations under the
Rights. The Company has classified the ARS portfolio as Short-term
investments in its Condensed consolidated balance sheet as of December 31, 2009
based on its intent to exercise the UBS right and the Company’s expectation that
the ARS will be sold within 12 months. As of March 31, 2009, the
balance was included in Long-term investments.
The
Rights represent a firm agreement in accordance with the Derivatives and Hedging
Topic of the FASB ASC. The enforceability of the Rights results in a
put option and is recognized as a free standing asset separate from the
ARS. Upon acceptance of the offer from UBS in November 2008, the
Company recorded the put option at fair value of $3.9 million using the
Black-Scholes options pricing model. For the three and nine months
ended December 31, 2009, the Company recorded unrealized losses of $1.2 million
and $0.2 million, respectively, on the put option. The fair value of
the put option is recorded within Other assets in the Condensed consolidated
balance sheet as of March 31, 2009 and in Other current assets as of December
31, 2009. The corresponding unrealized gain or loss is included in
Interest and other income (expense), net in the Condensed consolidated statement
of operations. The put option does not meet the definition of a
derivative instrument under the Derivatives and Hedging Topic of the FASB ASC;
therefore, the Company has elected to measure the put option at fair value under
the Financial Instruments Topic of the FASB ASC in order to match the changes in
the fair value of the ARS. As a result, unrealized gains and losses
on the Rights are, and will be, included in earnings in future
periods.
Prior to
accepting the UBS offer, the Company recorded its ARS investments as
available-for-sale and any unrealized gains or losses were recorded to
Accumulated other comprehensive income within Stockholders’
Equity. In connection with the acceptance of the UBS offer in
November 2008, resulting in the right to require UBS to purchase the ARS at par
value beginning on June 30, 2010, the Company transferred its ARS from long-term
investments available-for-sale to long-term trading securities. The
transfer to trading securities in November 2008 reflects management’s intent to
exercise its put option during the period from June 30, 2010 to July 3,
2012. Prior to the Agreement with UBS, the intent was to hold the ARS
until the market recovered. At the time of transfer in November 2008,
the Company recognized a loss on the ARS of approximately $4.0 million in
Interest and other income (expense), net in the third quarter of fiscal
2009. In the three and nine months ended December 31, 2009,
unrealized gains of $1.2 million and $0.3 million, respectively, were recorded
to Interest and other income (expense), net. This was offset by
unrealized losses of $1.2 million and $0.2 million recorded on the Rights in the
three and nine months ended December 31, 2009, respectively. The
Company reclassified all of its ARS to short-term as of December 31,
2009.
The
following table provides a summary of changes in fair value of the Company’s
Level 3 financial assets during the three and nine months ended December 31,
2009:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(in thousands)
|
|
December 31, 2009
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
27,272 |
|
|
$ |
28,060 |
|
Unrealized
gain (loss) on ARS included in Interest and other income,
net
|
|
|
1,207 |
|
|
|
254 |
|
Unrealized
gain (loss) on Rights included in Interest and other income,
net
|
|
|
(1,190 |
) |
|
|
(185 |
) |
Proceeds
from sales of ARS
|
|
|
- |
|
|
|
(750 |
) |
Distributions
received from Reserve Primary Fund
|
|
|
(39 |
) |
|
|
(129 |
) |
Balance
at end of period
|
|
$ |
27,250 |
|
|
$ |
27,250 |
|
5.
GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
as of March 31, 2009 and December 31, 2009 was $14.0 million.
The
following tables present the carrying value of acquired intangible assets with
remaining net book values as of each period:
|
|
March 31, 2009
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
Useful
|
(in thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$ |
9,460 |
|
|
$ |
(5,728 |
) |
|
$ |
3,732 |
|
|
$ |
6,500 |
|
|
$ |
(3,851 |
) |
|
$ |
2,649 |
|
3-10
years
|
Patents
|
|
|
1,420 |
|
|
|
(1,257 |
) |
|
|
163 |
|
|
|
720 |
|
|
|
(634 |
) |
|
|
86 |
|
7
years
|
Customer
relationships
|
|
|
4,405 |
|
|
|
(787 |
) |
|
|
3,618 |
|
|
|
1,705 |
|
|
|
(696 |
) |
|
|
1,009 |
|
3-8
years
|
Trade
name - inMotion
|
|
|
500 |
|
|
|
(56 |
) |
|
|
444 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
3
years
|
Trade
name - Altec Lansing
|
|
|
18,600 |
|
|
|
- |
|
|
|
18,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Indefinite
|
OEM
relationships
|
|
|
27 |
|
|
|
(9 |
) |
|
|
18 |
|
|
|
27 |
|
|
|
(13 |
) |
|
|
14 |
|
7
years
|
Total
|
|
$ |
34,412 |
|
|
$ |
(7,837 |
) |
|
$ |
26,575 |
|
|
$ |
8,952 |
|
|
$ |
(5,194 |
) |
|
$ |
3,758 |
|
|
The
Company reviews goodwill and purchased intangible assets with indefinite lives
for impairment annually during the fourth quarter of the fiscal year or more
frequently if events or circumstances indicate that an impairment loss may have
occurred. Accounting principles generally accepted in the U.S.
require goodwill be tested at least annually using a two-step process that
begins with identifying potential impairment. Potential impairment is
identified if the fair value of the reporting unit to which goodwill applies is
less than the book value of the related reporting unit, including such
goodwill. Where the book value of the reporting unit, including
related goodwill, is greater than the reporting unit’s fair value, the second
step of the goodwill impairment is performed to measure the amount of impairment
loss, if any.
In the
third quarter of fiscal 2009, the Company considered the effect of the current
economic environment and determined that sufficient indicators existed requiring
it to perform an interim impairment review of the Company’s then two reporting
segments, Audio Communications Group (“ACG”) and Audio Entertainment Group
(“AEG”). The indicators primarily consisted of (1) a decline in
revenue and operating margins during the third quarter and the projected future
operating results, (2) deteriorating industry and economic trends, and (3) the
decline in the Plantronics’ stock price for a sustained period.
In step
one of the process, the fair value of each reporting unit, which the Company has
determined to be consistent with its operating segments, is determined and
compared to the carrying value.
The fair
value of the ACG reporting unit was determined using an equal weighting of the
income approach and the market comparable approach. For the income
approach, the Company made the following assumptions: the current
economic downturn would continue through fiscal 2010, followed by a recovery
period in fiscal 2011 and 2012 and then growth in line with industry estimated
revenues. Gross margin trends were consistent with historical
trends. A 3% growth factor was used to calculate the terminal value
of its reporting units after fiscal year 2017, consistent with the rate used in
the prior year. The discount rate was adjusted from 13% used in the
prior year to 14% reflecting the current volatility of the stock prices of
public companies within the consumer electronics industry at that
time. For the market comparable approach, the Company reviewed
comparable companies in the industry. Revenue multiples were
determined for these companies and an average multiple based on prior 12 months
revenue of these companies of 0.5 was then applied to the unit
revenue. A 10% control premium was added to determine the value on
the marketable controlling interest basis. Cash and short-term
investments were then added back to arrive at an indicated value on a
marketable, controlling interest basis. Based on this review, the
fair value exceeded the carrying value indicating that there was no impairment
related to the ACG reporting unit.
The fair
value of the AEG reporting unit was determined using an equal weighting of the
income approach and the underlying asset approach. For the income
approach, the Company made the following assumptions: the current economic
downturn would continue through fiscal 2010, followed by a recovery period in
fiscal 2011 and 2012 with slightly better than historical growth and then growth
in line with industry norms for each of the major product lines (Docking Audio
and PC Audio). Gross margin assumptions reflect improved margins as
the revenue grows. A 5% growth factor was used to calculate the
terminal value of its reporting units, consistent with the rate used in the
prior year. The discount rate was adjusted from 14% used in the prior
year to 15% reflecting the volatility of the stock prices of public companies
within the consumer electronics industry at that time. For the
underlying asset approach, the asset and liability balances were adjusted to
their fair value equivalents. The fair value of the equity of the
business is then indicated by the sum of the fair value of the assets less the
fair value of the liabilities. Based on this review, the Company
determined that the goodwill related to the AEG reporting unit was impaired
requiring the Company to perform step two, in which the fair value of the
reporting unit is allocated to all of the assets and liabilities of the
reporting unit, including any unrecognized intangible assets, to determine the
implied fair value of the goodwill. The impairment charge, if any, is
measured as the difference between the implied fair value of the goodwill and
its carrying value. This resulted in the impairment of 100% of the
goodwill related to the AEG reporting segment; therefore, a non-cash impairment
charge of $54.7 million was recognized in the third quarter of fiscal 2009 which
is included in discontinued operations in the Consolidated statement of
operations. There was no tax benefit associated with this impairment
charge.
The
Company tests its indefinite lived assets for impairment by comparing the fair
value of the intangible asset with its carrying value. If the fair
value is less than its carrying value, an impairment charge is recognized for
the difference. This resulted in a partial impairment of the Altec
Lansing trademark and trade name; therefore, the Company recognized a non-cash
impairment charge of $40.5 million in the third quarter of fiscal 2009 which is
included in discontinued operations. The Company recognized a
deferred tax benefit of $15.4 million associated with this impairment
charge.
The
Company also reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the
asset. Measurement of an impairment loss for long-lived assets that
management expects to hold and use is based on the amount that the carrying
value of the asset exceeds its fair value based on the discounted future cash
flows. As a result of the decline in forecasted revenues, operating
margin and cash flows related to the AEG segment, the Company also evaluated the
long-lived assets within the reporting unit. The fair value of the
long-lived assets, which include intangibles and property, plant and equipment,
was determined for each individual asset and compared to the asset’s relative
carrying value. This resulted in a partial impairment of the certain
long-lived assets; therefore, in the third quarter of fiscal 2009, the Company
recognized a non-cash intangible asset impairment charge of $18.2 million, of
which $9.1 million related to technology, $6.7 million related to customer
relationships and $2.4 million related to the inMotion trade name, and a
non-cash impairment charge of $4.1 million related to property, plant and
equipment. The Company recognized a deferred tax benefit of $8.5
million associated with these impairment charges. The impairment is
included in discontinued operations in the three and nine months ended December
31, 2008.
In the
fourth quarter of fiscal 2009, the Company performed the annual impairment test
of the Altec Lansing trademark and trade name and the goodwill related to the
ACG reporting unit, which indicated that there was no impairment at that
time. The assumptions used in the annual impairment review performed
during the fourth quarter of fiscal 2009 were consistent with the assumptions
used in the interim impairment review in the third quarter of fiscal 2009 as no
significant changes were identified.
The
Company evaluates the recoverability of its property and equipment and other
assets, including purchased intangible assets, whenever events or changes in
circumstances indicate an impairment has occurred. An impairment loss
is recognized when the net book value of such assets exceeds the estimated
future undiscounted cash flows attributable to the assets or the business to
which the assets relate. Impairment losses, if any, are measured as
the amount by which the carrying value exceeds the fair value of the
assets.
During
the second quarter of fiscal 2010, the Company considered the effect of certain
alternatives being evaluated by management for the AEG segment during the
quarter on its intangible assets. During the second quarter
management entered into a non-binding letter of intent to sell certain assets
along with the assumption of certain liabilities of the AEG
segment. The Company concluded that this triggered an interim
impairment review as it was now “more likely than not” that the segment would be
sold; however, as the Company’s Board of Directors had not yet approved the
final sale of the segment, the assets did not qualify for “held for sale”
accounting under the Property, Plant and Equipment Topic of the FASB
ASC. The Company tests its indefinite lived assets for impairment by
comparing the fair value of the intangible asset with its carrying
value. If the fair value is less than its carrying value, an
impairment charge is recognized for the difference. The Company used
the proposed purchase price of the AEG segment net assets per the non-binding
letter of intent signed during the quarter as the fair value of the segment’s
net assets. This resulted in a full impairment of the Altec Lansing
trademark and trade name; therefore, the Company recognized a non-cash
impairment charge of $18.6 million in the second quarter of fiscal 2010 and
recognized a deferred tax benefit of $7.1 million associated with this
impairment charge, which is included in discontinued operations for the nine
months ended December 31, 2009.
As a
result of the proposed purchase price of the net assets of the AEG segment, the
Company also evaluated the long-lived assets within the reporting
unit. The fair value of the long-lived assets, which include
intangibles and property, plant and equipment, was determined for each
individual asset and compared to the asset’s relative carrying
value. This resulted in a full impairment of the AEG intangibles and
a partial impairment of its property, plant and equipment; therefore, in the
second quarter of fiscal 2010, the Company recognized a non-cash intangible
asset impairment charge of $6.6 million, of which $2.0 million related to
customer relationships, $0.4 million related to technology and $0.4 million
related to the inMotion trade name, and a non-cash impairment charge of $3.8
million related to property, plant and equipment. The Company
recognized a deferred tax benefit of $2.5 million associated with these
impairment charges. The impairment charge and tax benefit is recorded
in discontinued operations for the nine months ended December 31,
2009.
The
intangible assets that were impaired during the second quarter of fiscal 2009
were measured at their fair value using unobservable inputs and, therefore, are
level 3 fair value measures.
For the
three months ended December 31, 2009, the Company did not identify any potential
impairment related to its remaining intangible assets. For the
nine months ended December 31, 2009, there have not been any events or changes
in circumstances indicating an impairment may have occurred which would trigger
an interim impairment review of goodwill.
The
aggregate amortization expense relating to purchased intangible assets for the
three and nine months ended December 31, 2008 was $1.6 million and $5.6 million,
respectively and $0.3 million and $1.4 million for the three and nine months
ended December 31, 2009 respectively. Of these amounts, $1.1 million
and $4.2 million were recorded to discontinued operations for the three and nine
months ended December 31, 2008, respectively and $0.5 millon for the nine months
ended December 31, 2009, respectively. There was no amortization
expense recorded to discontinued operations for the three months ended December
31, 2009 as a result of the AEG intangibles being fully impaired in the second
quarter of fiscal 2010.
The
estimated future amortization expense of purchased intangible assets as of
December 31, 2009 is as follows:
Fiscal Year Ending March
31,
|
|
(in thousands)
|
|
2010
(remaining three months)
|
|
$ |
309 |
|
2011
|
|
|
1,194 |
|
2012
|
|
|
821 |
|
2013
|
|
|
630 |
|
2014
|
|
|
454 |
|
Thereafter
|
|
|
350 |
|
Total
estimated amortization expense
|
|
$ |
3,758 |
|
6.
RESTRUCTURING AND OTHER RELATED CHARGES
The
Company recorded the restructuring activities discussed below applying the
guidance of either the Exit or Disposal Cost Obligations Topic and the
Compensation – Nonretirement Postemployment Benefits Topic of the FASB
ASC.
Q3 Fiscal 2009 Restructuring
Action
In the
third quarter of fiscal 2009, the Company had a reduction in force at AEG’s
operations in Luxemburg and Shenzhen, China and ACG’s operations in China as
part of the strategic initiative designed to reduce costs. A total of
624 employees were notified of their termination, all of whom were terminated as
of December 31, 2008. On January 14, 2009, the Company announced
additional reductions in force related to this restructuring plan which included
termination of an additional 199 employees located in ACG’s Tijuana, Mexico,
U.S., and other global locations. An additional three employees were
notified of their termination in the first quarter of fiscal 2010. A
total of 826 employees, primarily in operations positions but also including
other functions, were notified of their termination under this restructuring
action, all of which had been terminated as of September 30, 2009. In
the three and nine months ended December 31, 2008, the Company recorded $1.0
million of restructuring charges in discontinued operations related to the AEG
segment and $0.7 million in Restructuring and other related charges related to
the ACG segment.
To date,
the Company has recorded $8.8 million of restructuring charges related to these
activities, of which $0.8 million related to the AEG segment is included in
discontinued operations, and $8.0 million related to the ACG segment is included
in Restructuring and other related charges. These costs consisted of
$8.1 million in severance and benefits, $0.6 million for the write-off of
leasehold improvements due to consolidation of facilities, and $0.1 million in
other associated costs. No additional charges were incurred for the
nine months ended December 31, 2009. All costs had been incurred and
paid as of September 30, 2009.
Q4 Fiscal 2009 Restructuring
Action
At the
end of the fourth quarter of fiscal 2009, the Company announced a plan to close
its ACG manufacturing operations in its Suzhou, China facility due to the
decision to outsource the manufacturing of our Bluetooth products to a third
party supplier in China. A total of 656 employees, primarily in
operations positions but also including other functions, were notified of their
termination, of which 619 employees have been terminated as of December 31,
2009. The Company exited the manufacturing portion of the facility in
July 2009 at which time the remaining assets were classified as Assets held for
sale on the Condensed consolidated balance sheet (see Note 3). Most
of the remaining employees are expected to terminate by the end of the first
quarter of fiscal 2011.
In fiscal
2009, the Company recorded $3.0 million of Restructuring and other related
charges, primarily consisting of severance and benefits. During the
nine months ended December 31, 2009, the Company recorded an additional $1.8
million of Restructuring and other related charges consisting of $0.8 million of
severance and benefits and $1.0 million of non-cash charges including $0.7
million for the acceleration of depreciation on building and equipment
associated with research and development and administrative functions due to the
change in the assets’ useful lives as a result of the assets being taken out of
service prior to their original service period, and $0.3 million of additional
loss on Assets held for sale recorded in the three months ended December 31,
2009. In addition, in the nine months ended December 31, 2009, the
Company recorded non-cash charges of $5.2 million for accelerated depreciation
related to the building and equipment associated with manufacturing operations
which is included in Cost of revenues. To date, the Company has
recorded a total of $10.0 million of costs related to this action: $4.8 million
in Restructuring and related charges which include $3.8 million of severance and
benefits, $0.7 million of accelerated depreciation charges and $0.3 million loss
on Assets held for sale, and $5.2 million in Cost of revenues for accelerated
depreciation. Substantially all the costs related to this action have
been recorded as of December 31, 2009 and the remaining payments will be made
primarily over the next six months.
The
following table summarizes the movement in the Company’s restructuring accrual
during the nine months ended December 31, 2009:
(in thousands)
|
|
Severance and Benefits
|
|
|
Facilities and Equipment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
accrual at March 31, 2009
|
|
$ |
5,468 |
|
|
$ |
117 |
|
|
$ |
(15 |
) |
|
$ |
5,570 |
|
Restructuring
and other related charges
|
|
|
816 |
|
|
|
985 |
|
|
|
(15 |
) |
|
|
1,786 |
|
Cash
payments
|
|
|
(5,852 |
) |
|
|
- |
|
|
|
(67 |
) |
|
|
(5,919 |
) |
Non-cash
charges and adjustments
|
|
|
75 |
|
|
|
(1,102 |
) |
|
|
97 |
|
|
|
(930 |
) |
Restructuring
accrual at December 31, 2009
|
|
$ |
507 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
507 |
|
The
restructuring accrual is included in Accrued liabilities in the Company’s
Condensed consolidated balance sheet.
7.
STOCK-BASED COMPENSATION
The
following table summarizes the amount of stock-based compensation expense
included in the Condensed consolidated statements of operations:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
$ |
504 |
|
|
$ |
485 |
|
|
$ |
1,784 |
|
|
$ |
1,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
803 |
|
|
|
910 |
|
|
|
2,775 |
|
|
|
2,558 |
|
Selling,
general and administrative
|
|
|
2,274 |
|
|
|
2,633 |
|
|
|
7,528 |
|
|
|
7,106 |
|
Stock-based
compensation expense included in operating expenses
|
|
|
3,077 |
|
|
|
3,543 |
|
|
|
10,303 |
|
|
|
9,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation
|
|
|
3,581 |
|
|
|
4,028 |
|
|
|
12,087 |
|
|
|
11,056 |
|
Income
tax benefit
|
|
|
(1,060 |
) |
|
|
(1,223 |
) |
|
|
(3,794 |
) |
|
|
(3,511 |
) |
Total
stock-based compensation, net of tax
|
|
$ |
2,521 |
|
|
$ |
2,805 |
|
|
$ |
8,293 |
|
|
$ |
7,545 |
|
Stock
based compensation included in discontinued operations was $0.6 million and $1.1
million for the three and nine months ended December 31, 2009, respectively,
including $0.3 million recorded as closing charges as part of the loss on sale
of AEG in both periods, and $0.2 million and $0.7 million for the three and nine
months ended December 31, 2008.
Stock
Options
The
following is a summary of the Company’s stock option activity during the nine
months ended December 31, 2009:
|
|
Options Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in
years)
|
|
|
(in thousands)
|
|
Outstanding
at March 31, 2009
|
|
|
8,893 |
|
|
$ |
25.25 |
|
|
|
|
|
|
|
Options
granted
|
|
|
1,322 |
|
|
$ |
20.48 |
|
|
|
|
|
|
|
Options
exercised
|
|
|
(521 |
) |
|
$ |
20.04 |
|
|
|
|
|
|
|
Options
forfeited or expired
|
|
|
(1,002 |
) |
|
$ |
25.58 |
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
8,692 |
|
|
$ |
24.79 |
|
|
|
3.61 |
|
|
$ |
34,903 |
|
Vested
and expected to vest at December 31, 2009
|
|
|
8,473 |
|
|
$ |
24.91 |
|
|
|
3.55 |
|
|
$ |
33,577 |
|
Exercisable
at December 31, 2009
|
|
|
6,333 |
|
|
$ |
26.53 |
|
|
|
2.75 |
|
|
$ |
20,048 |
|
The total
intrinsic value of options exercised during the nine months ended December 31,
2008 and 2009 was $2.0 million and $2.6 million, respectively.
As of
December 31, 2009, total unrecognized compensation cost related to unvested
stock options was $16.2 million which is expected to be recognized over a
weighted average period of 2.1 years.
Restricted
Stock
The
following is a summary of the Company’s restricted stock activity during the
nine months ended December 31, 2009:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
|
|
Non-vested
at March 31, 2009
|
|
|
363 |
|
|
$ |
20.39 |
|
Granted
|
|
|
142 |
|
|
$ |
24.08 |
|
Vested
|
|
|
(115 |
) |
|
$ |
22.41 |
|
Forfeited
|
|
|
(4 |
) |
|
$ |
16.37 |
|
Non-vested
at December 31, 2009
|
|
|
386 |
|
|
$ |
21.19 |
|
As of
December 31, 2009, total unrecognized compensation cost related to non-vested
restricted stock awards was $6.2 million, which is expected to be recognized
over a weighted average period of 2.9 years. The total fair value of
restricted stock awards vested during the nine months ended December 31, 2009
was $2.6 million.
Valuation
Assumptions
The
Company estimates the fair value of stock options and ESPP shares using a
Black-Scholes option valuation model. The fair value of each option
grant is estimated on the date of grant using the straight-line attribution
approach with the following weighted average assumptions:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Employee Stock Options
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Expected
volatility
|
|
|
56.9 |
% |
|
|
50.9 |
% |
|
|
51.6 |
% |
|
|
53.8 |
% |
Risk-free
interest rate
|
|
|
2.7 |
% |
|
|
2.1 |
% |
|
|
2.9 |
% |
|
|
2.0 |
% |
Expected
dividends
|
|
|
1.6 |
% |
|
|
0.8 |
% |
|
|
1.2 |
% |
|
|
1.0 |
% |
Expected
life (in years)
|
|
|
4.4 |
|
|
|
4.5 |
|
|
|
4.4 |
|
|
|
4.5 |
|
Weighted-average
grant date fair value
|
|
$ |
5.53 |
|
|
$ |
9.97 |
|
|
$ |
7.66 |
|
|
$ |
8.66 |
|
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
|
|
|
|
|
|
|
|
47.7 |
% |
|
|
58.1 |
% |
Risk-free
interest rate
|
|
|
|
|
|
|
|
|
|
|
1.9 |
% |
|
|
0.3 |
% |
Expected
dividends
|
|
|
|
|
|
|
|
|
|
|
0.8 |
% |
|
|
0.8 |
% |
Expected
life (in years)
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
Weighted-average
grant date fair value
|
|
|
|
|
|
|
|
|
|
$ |
6.85 |
|
|
$ |
7.45 |
|
There was
no new ESPP cycle started during the three months ended December 31,
2009.
8.
COMPREHENSIVE INCOME (LOSS)
The
components of comprehensive income (loss) for the three and nine months ended
December 31, 2008 and 2009 are as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Net
income (loss)
|
|
$ |
(92,009 |
) |
|
$ |
23,250 |
|
|
$ |
(53,867 |
) |
|
$ |
33,154 |
|
Unrealized
gain (loss) on cash flow hedges, net of tax
|
|
|
4,316 |
|
|
|
3,355 |
|
|
|
12,868 |
|
|
|
(7,355 |
) |
Foreign
currency translation gain (loss), net of tax
|
|
|
(2,232 |
) |
|
|
18 |
|
|
|
(2,522 |
) |
|
|
1,446 |
|
Unrealized
gain on long-term investments, net of tax
|
|
|
3,177 |
|
|
|
- |
|
|
|
2,864 |
|
|
|
- |
|
Comprehensive
income (loss)
|
|
$ |
(86,748 |
) |
|
$ |
26,623 |
|
|
$ |
(40,657 |
) |
|
$ |
27,245 |
|
9. FOREIGN CURRENCY
DERIVATIVES
The
Company uses derivative instruments primarily to manage exposures to foreign
currency risks. The Company’s primary objective in holding
derivatives is to reduce the volatility of earnings and cash flows associated
with changes in foreign currency. The program is not designed for
trading or speculative purposes. The Company’s derivatives expose the
Company to credit risk to the extent that the counterparties may be unable to
meet the terms of the agreements. The Company seeks to mitigate such
risk by limiting its counterparties to major financial institutions and by
spreading the risk across several major financial institutions. In
addition, the potential risk of loss with any one counterparty resulting from
this type of credit risk is monitored on an ongoing basis.
In
accordance with the Derivatives and Hedging Topic of the FASB ASC, the Company
recognizes derivative instruments as either assets or liabilities on the balance
sheet at fair value. Changes in fair value (i.e., gains or losses) of
the derivatives are recorded as Net revenues or Interest and other income
(expense), net in the Condensed consolidated statement of operations or as
Accumulated other comprehensive income in the Condensed consolidated balance
sheet.
Non-Designated
Hedges
The
Company enters into foreign exchange forward contracts to reduce the impact of
foreign currency fluctuations on assets and liabilities denominated in
currencies other than the functional currency of the reporting
entity. These foreign exchange forward contracts are not subject to
the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB
ASC, but are carried at fair value with changes in the fair value recorded
within Interest and other income, net on the Condensed consolidated statement of
operations in accordance with the Foreign Currency Matters Topic of the FASB
ASC. Gains and losses on these contracts are intended to offset the
impact of foreign exchange rate changes on the underlying foreign currency
denominated assets and liabilities, and therefore, do not subject the Company to
material balance sheet risk. The Company does not enter into foreign
currency forward contracts for trading purposes.
As of
December 31, 2009, the Company had foreign currency forward contracts of €20.6
million and ₤4.5 million denominated in Euros and Great Britain Pounds,
respectively. These forward contracts hedge against a portion of the
Company’s foreign currency-denominated receivables, payables and cash
balances.
The
following table summarizes the Company’s outstanding foreign exchange currency
contracts, and approximate U.S. dollar equivalent (“USD”), at December 31,
2009:
|
|
Local Currency
|
|
|
USD Equivalent
|
|
|
Position
|
|
|
Maturity
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Euro
("EUR")
|
|
|
20,600 |
|
|
$ |
29,529 |
|
|
Sell
Euro
|
|
|
1
month
|
|
Great
Britain Pound ("GBP")
|
|
|
4,500 |
|
|
$ |
7,178 |
|
|
Sell
GBP
|
|
|
1
month
|
|
Foreign
currency transactions, net of the effect of hedging activity on forward
contracts, resulted in a net loss of $1.9 million and $5.4 million in the three
and nine months ended December 31, 2008, respectively, and net gains of $0.6
million and $2.2 million in the three and nine months ended December 31, 2009,
respectively, which are included in Interest and other income (expense), net in
the Condensed consolidated statement of operations.
Cash
Flow Hedges
The
Company’s hedging activities include a hedging program to hedge the economic
exposure from anticipated Euro and Great Britain Pound denominated
sales. The Company hedges a portion of these forecasted foreign
denominated sales with currency options. These transactions are
designated as cash flow hedges and are accounted for under the hedge accounting
provisions of the Derivatives and Hedging Topic of the FASB ASC. The
effective portion of the hedge gain or loss is initially reported as a component
of Accumulated other comprehensive income and subsequently reclassified into Net
revenues when the hedged exposure affects earnings. Any ineffective
portion of related gains or losses is recorded in the Condensed consolidated
statements of operations immediately. On a monthly basis, the Company
enters into option contracts with a one-year term. It does not
purchase options for trading purposes. As of December 31, 2009, the
Company had foreign currency put and call option contracts of approximately
€40.1 million and £10.6 million. As of March 31, 2009, it had foreign
currency put and call option contracts of approximately €48.4 million and £14.4
million.
In the
three and nine months ended December 31, 2009, realized losses of $1.9 million
and realized gains of $2.5 million, respectively, on cash flow hedges were
recognized in Net revenues in the Condensed consolidated statements of
operations compared to $3.1 million and $0.5 million in realized gains for the
same periods in the prior year. The Company expects to reclassify the
entire amount of $1.2 million of losses, net of tax, in Accumulated other
comprehensive income to Net revenues during the next 12 months due to the
recognition of the hedged forecasted sales.
In the
second quarter of fiscal 2010, the Company began hedging expenditures
denominated in Mexican Peso ("Mex$") which are designated as cash flow
hedges and are accounted for under the hedge accounting provisions of the
Derivatives and Hedging Topic of the FASB ASC. The Company hedges a
portion of the forecasted Peso denominated expenditures with a cross-currency
swap. The effective portion of the hedge gain or loss is initially
reported as a component of Accumulated other comprehensive income and
subsequently reclassified into Cost of revenues when the hedged exposure affects
operations. Any ineffective portion of related gains or losses is
recorded in the Condensed consolidated statements of operations
immediately. As of December 31, 2009, the Company had foreign
currency swap contracts of approximately Mex$58.4 million. There were
no swap contracts as of March 31, 2009.
In the
three and nine months ended December 31, 2009, realized gains of $0.1 million
and $0.2 million, respectively, on Peso cash flow hedges were recognized in Cost
of revenues in the Condensed consolidated statements of
operations. There were no realized gains or losses for the same
periods in the prior year. The Company expects to reclassify the
entire amount of $0.2 million of gains accumulated in other comprehensive income
to Cost of revenues during the next 12 months due to the recognition of the
hedged forecasted expenditures.
The
following table summarizes the Company’s outstanding Peso currency swaps, and
approximate U.S. dollar equivalent (“USD”), at December 31, 2009:
|
|
Local Currency
|
|
|
USD Equivalent
|
|
|
Position
|
|
|
Maturity
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Mexican
Peso
|
|
|
58,400 |
|
|
$ |
4,293 |
|
|
Buy
Peso
|
|
|
Monthly
over 3 months
|
|
The
amounts in the tables below include fair value adjustments related to the
Company’s own credit risk and counterparty credit risk.
Fair
Value of Derivative Contracts
Fair
value of derivative contracts under the Derivatives and Hedging Topic of the
FASB ASC were as follows:
|
|
Derivative
Assets Reported
|
|
|
Derivative
Liabilities Reported
|
|
|
|
in Other Current Assets
|
|
|
in Other Current Accrued
Liabilities
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts designated as cash flow hedges
|
|
$ |
7,613 |
|
|
$ |
840 |
|
|
$ |
875 |
|
|
$ |
1,886 |
|
Total
derivatives designated as hedging instruments
|
|
|
7,613 |
|
|
|
840 |
|
|
|
875 |
|
|
|
1,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts not designated
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Total
derivatives
|
|
$ |
7,613 |
|
|
$ |
840 |
|
|
$ |
877 |
|
|
$ |
1,888 |
|
Effect
of Designated Derivative Contracts on Accumulated Other Comprehensive
Income
The
following table represents only the balance of designated derivative contracts
under the Derivatives and Hedging Topic of the FASB ASC as of March 31, 2009 and
December 31, 2009, and the impact of designated derivative contracts on
Accumulated other comprehensive income for the nine months ended December 31,
2009:
(in thousands)
|
|
March 31,
2009
|
|
|
Amount
of gain (loss)recognized in OCI (effective
portion)
|
|
|
Amount
of gain (loss)reclassified from OCI to income (loss) (effective portion)
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts designated as cash flow hedges
|
|
$ |
6,738 |
|
|
$ |
(5,054 |
) |
|
$ |
2,730 |
|
|
$ |
(1,046 |
) |
Effect
of Designated Derivative Contracts on the Condensed Consolidated Statements of
Operations
The
effect of designated derivative contracts under the Derivatives and Hedging
Topic of the FASB ASC on results of operations recognized in gross profit in the
Condensed consolidated statements of operations was as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on foreign exchange contracts designated as cash flow
hedges
|
|
$ |
3,136 |
|
|
$ |
(1,756 |
) |
|
$ |
467 |
|
|
$ |
2,730 |
|
Effect
of Non-Designated Derivative Contracts on the Condensed Consolidated Statements
of Operations
The
effect of non-designated derivative contracts under the Derivatives and Hedging
Topic of the FASB ASC on results of operations recognized in Interest and other
income (expense), net in the Condensed consolidated statement of operations was
as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on foreign exchange contracts
|
|
$ |
2,974 |
|
|
$ |
624 |
|
|
$ |
4,180 |
|
|
$ |
(2,874 |
) |
10.
INCOME TAXES
The
amounts related to discontinued operations have been excluded from the
discussion below as discontinued operations are separately classified for all
periods presented.
The
effective tax rate for the three and nine months ended December 31, 2009 was
20.5% and 25.2%, respectively, compared to (80.7)% and 17.8% for the same
periods a year ago. The higher effective tax rate for the three
months ended December 31, 2009 compared to the tax benefit for the same period a
year ago is primarily due to the incremental benefit associated with the release
of a higher amount of tax reserves resulting from the lapse of the statute of
limitations in certain jurisdictions in the prior period. The
increase in the effective tax rate for the nine months ended December 31, 2009
compared to the same period a year ago is primarily due to the release of larger
tax reserves in the first and third quarters of fiscal 2009 resulting from the
lapse of the statute of limitations in certain jurisdictions than released in
the current year periods and certain fiscal 2010 foreign restructuring charges
with minimal tax benefit. The effective tax rate differs from the
statutory rate due to the impact of foreign operations taxed at different
statutory rates, income tax credits, state taxes, and other
factors. The future tax rate could be impacted by a shift in the mix
of domestic and foreign income, tax treaties with foreign jurisdictions, changes
in tax laws in the United States (“U.S.”) or internationally, or a change in
estimates of future taxable income which could result in a valuation allowance
being required.
For the
three and nine months ended December 31, 2008, the Company recognized a tax
benefit of $2.1 million and $3.8 million, respectively consisting of $1.8
million and $3.3 million in tax reserves, respectively, and $0.3 million and
$0.5 million of related interest, respectively, due to the lapse of the statute
of limitations in certain jurisdictions. The Company recognized a tax
benefit of $1.2 million in both the three and nine months ended December 31,
2009 consisting of $1.0 million in tax reserves and $0.2 million of related
interest, due to the lapse of the statute of limitations in certain
jurisdictions. As of December 31, 2009, the Company had $11.7 million
of unrecognized tax benefits compared to $11.1 million at March 31, 2009
recorded in Long-term income taxes payable on the Condensed consolidated balance
sheet, all of which would favorably impact the effective tax rate in future
periods if recognized.
The
Company's continuing practice is to recognize interest and/or penalties related
to income tax matters in Income tax expense. As of December 31, 2009,
the Company had approximately $1.8 million of accrued interest related to
unrecognized tax benefits, compared to $1.6 million as of March 31,
2009. No penalties have been accrued.
Although
the timing and outcome of income tax audits is highly uncertain, it is possible
that certain unrecognized tax benefits may be reduced as a result of the lapse
of the applicable statutes of limitations in federal, state and foreign
jurisdictions within the next 12 months. Currently, the Company
cannot reasonably estimate the amount of reductions, if any, during the next 12
months. Any such reduction could be impacted by other changes in
unrecognized tax benefits.
The
Company files income tax returns in the U.S. federal jurisdiction, various
states and foreign jurisdictions. We are no longer subject to U.S. federal tax
examinations by tax authorities for fiscal years prior to 2006 or state income
tax examinations prior to 2005. Foreign income tax matters for
material tax jurisdictions have been concluded through tax years before 2004,
except for the United Kingdom, and France which have been concluded through
fiscal 2006, and Germany which has been concluded through fiscal
2007.
11.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
The
following table sets forth the computation of basic and diluted earnings (loss)
per share:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands, except per share
data)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
6,154 |
|
|
$ |
23,203 |
|
|
$ |
52,844 |
|
|
$ |
52,038 |
|
Loss
from discontinued operations
|
|
|
(98,163 |
) |
|
|
47 |
|
|
|
(106,711 |
) |
|
|
(18,884 |
) |
Net
income (loss)
|
|
$ |
(92,009 |
) |
|
$ |
23,250 |
|
|
$ |
(53,867 |
) |
|
$ |
33,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares-basic
|
|
|
48,449 |
|
|
|
48,632 |
|
|
|
48,641 |
|
|
|
48,632 |
|
Dilutive
effect of employee equity incentive plans
|
|
|
73 |
|
|
|
993 |
|
|
|
472 |
|
|
|
672 |
|
Weighted
average shares-diluted
|
|
|
48,522 |
|
|
|
49,625 |
|
|
|
49,113 |
|
|
|
49,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.13 |
|
|
$ |
0.48 |
|
|
$ |
1.09 |
|
|
$ |
1.07 |
|
Discontinued
operations
|
|
$ |
(2.03 |
) |
|
$ |
0.00 |
|
|
$ |
(2.19 |
) |
|
$ |
(0.39 |
) |
Net
income (loss)
|
|
$ |
(1.90 |
) |
|
$ |
0.48 |
|
|
$ |
(1.11 |
) |
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.13 |
|
|
$ |
0.47 |
|
|
$ |
1.08 |
|
|
$ |
1.06 |
|
Discontinued
operations
|
|
$ |
(2.02 |
) |
|
$ |
0.00 |
|
|
$ |
(2.17 |
) |
|
$ |
(0.38 |
) |
Net
income (loss)
|
|
$ |
(1.90 |
) |
|
$ |
0.47 |
|
|
$ |
(1.10 |
) |
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially
dilutive securities excluded from earnings per diluted share because their
effect is anti-dilutive
|
|
|
9,191 |
|
|
|
4,810 |
|
|
|
7,792 |
|
|
|
5,768 |
|
As a
result of classifying the AEG segment as discontinued operations, the
denominator for the three and nine months ended December 31, 2008 used in
determining whether the inclusion of potential common shares for diluted
earnings per share would have been anti-dilutive has been revised as its
dilution effect is based on Income from continuing operations as compared to Net
income (loss) previously.
12.
REVENUE AND MAJOR CUSTOMERS
Plantronics
designs, manufactures, markets and sells headsets for business and consumer
applications, and other specialty products for the hearing
impaired. With respect to headsets, it makes products for use in
offices and contact centers, with mobile and cordless phones, and with computers
and gaming consoles. Major product categories include “Office and
Contact Center”, which includes corded and cordless communication headsets,
audio processors and telephone systems; “Mobile”, which includes Bluetooth and corded products
for mobile phone applications; “Gaming and Computer Audio”, which includes PC
and gaming headsets; and “Clarity”, which includes specialty products marketed
for hearing impaired individuals.
The
following table presents net revenues by product group:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and Contact Center
|
|
$ |
101,694 |
|
|
$ |
103,096 |
|
|
$ |
344,027 |
|
|
$ |
292,522 |
|
Mobile
|
|
|
36,011 |
|
|
|
46,951 |
|
|
|
156,804 |
|
|
|
113,926 |
|
Gaming
and Computer Audio
|
|
|
8,531 |
|
|
|
11,072 |
|
|
|
27,129 |
|
|
|
28,897 |
|
Clarity
|
|
|
6,380 |
|
|
|
4,816 |
|
|
|
18,532 |
|
|
|
16,210 |
|
Total
net revenues
|
|
$ |
152,616 |
|
|
$ |
165,935 |
|
|
$ |
546,492 |
|
|
$ |
451,555 |
|
No
customer accounted for 10% or more of total net revenues for the three or nine
months ended December 31, 2008 and 2009. As of March 31, 2009, no
customer accounted for 10% or more of accounts receivable, net. As of
December 31, 2009, one customer, which is a retail account, accounted for
approximately 13% of accounts receivable, net due to stronger holiday consumer
sales in the current year and seasonal terms.
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
CERTAIN
FORWARD-LOOKING INFORMATION:
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange
Act”). Forward-looking statements may generally be identified
by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,”
“will,” or “shall” and similar expressions, or the negative of these
terms. Specific forward-looking statements contained within this Form
10-Q include statements containing our expectations regarding (i) the United
States (“U.S.”) and world economy, (ii) our restructuring programs and estimated
savings, (iii) our objective to maintain our profitability, be cash flow
positive, increase our return on invested capital, and improve our competitive
position, (iv) our ability to continue to focus on certain strategic
initiatives, (v) the future of Unified Communications (“UC”) technologies,
including their implementation, growth in deployments, the effect on headset
adoption, and our expectation concerning our revenue opportunity from UC, (vi)
our position in the UC market, (vii) our expenses, including research and
development expenses and sales, general and administrative
expenses, and (viii) maintaining revenue growth, in addition to other
statements regarding our future operations, results of operations, financial
condition, prospects and business strategies, (ix) our auction rate securities
portfolio, including our agreement with UBS AG, (x) the sale of the Altec
Lansing business including the effect of the transaction on our business and
operating results, (xi) the level of cash flow and the timing of the
receipt of any such cash flow resulting from the sale, and (xii) our
anticipated capital expenditures for the remainder of fiscal 2010 in addition to
other statements regarding our future operations, financial condition and
prospects and business strategies. Such forward-looking statements
are based on current expectations and assumptions and are subject to risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements. Factors that could cause actual results
and events to differ materially from such forward-looking statements are
included, but not limited to, those discussed in the section entitled “Risk
Factors” herein and other documents filed with the Securities and Exchange
Commission. We undertake no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events, or otherwise. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking
statements.
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. 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. Effective December 1, 2009, we sold Altec Lansing, our Audio
Entertainment Group (“AEG”) segment which manufactured and marketed docking
audio products, computer and home entertainment sound systems, and a line of
headphones for personal digital media under the Altec Lansing
brand. All results of operations of Altec have been included in
discontinued operations for the periods presented.
We ship a
broad range of products to over 65 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.
Our net
revenues increased from $152.6 million in the third quarter of fiscal 2009 to
$165.9 million in the third quarter of fiscal 2010, primarily driven by an
increase in sales of our Bluetooth headsets for the
mobile market which increased 32% or $10.8 million from the same quarter a year
ago. The higher net revenues from these products in the current
quarter was the result of a stronger holiday season than in the prior year and a
product mix of more higher-end offerings which resulted in higher average
selling prices on our Bluetooth
volumes. Net revenues for the third quarter of fiscal 2010 in all
other product categories also increased resulting from stronger overall demand
in the current quarter compared to a year ago with the exception of Clarity
which decreased by $1.6 million due to lower OEM revenues in Europe and lower
state government program shipments in the U.S.
Our gross
profit as a percentage of net revenue increased from 39.6% in the third quarter
of fiscal 2009 to 48.4% in the third quarter of fiscal 2010 due to Bluetooth profitability
improvements along with lower overall manufacturing costs. Our
strategy for improving the profitability of our mobile consumer products by
differentiating our products from our competitors and providing compelling
solutions under our brand with regard to features, design, ease of use, and
performance has contributed to an increase in the margins for our Bluetooth
products. Also contributing to the improvement in Bluetooth profitability, was
the closure of manufacturing operations in Suzhou, China in July 2009 and
outsourcing manufacturing of our Bluetooth products to an
existing supplier in China which reduced our manufacturing costs.
Our
income from continuing operations increased from $6.2 million in the third
quarter of fiscal 2009 to $23.2 million in the third quarter of fiscal 2010
primarily due to the higher net revenues along with lower costs as a result of
our reduced cost structure.
In fiscal
2010, we are focused on the following key corporate goals to maximize long-term
shareholder value:
|
·
|
Be
profitable and cash flow positive. The restructuring plans
implemented in fiscal 2009 along with other cost cutting measures have
significantly decreased our operating expenses and overall cost
structure. In addition, in the current quarter we completed the
sale of Altec Lansing which had historically generated operating
losses. We believe our cost structure is aligned with current
market conditions and supports our plans to remain profitable and cash
flow positive; however, we continue to monitor and realign our cost
structure as needed to match actual economic conditions while continuing
to invest in new products and sales and support for Unified Communications
(“UC”) and other key market
opportunities.
|
|
·
|
Establish
strong UC market position for future growth. We continue
to focus on UC technologies as we believe the implementation of UC by the
business market will be a significant long-term driver of office headset
adoption, and, as a result, a key long-term driver of revenue and profit
growth.
|
|
·
|
Improve
return on invested capital. We are focused on increasing
our profits and reducing our net assets with the goal of improving our
return on invested capital. Initiatives designed to reduce
invested capital include: the transition to an outsourced original design
manufacturing model for Bluetooth which is
helping to reduce inventory and positions us to sell our plant in China; a
tightening of capital expenditures which we believe will yield more than a
50% reduction in capital expenditures globally in fiscal 2010 compared to
fiscal 2009; and leveraging the investments we have made in supply chain
management systems to reduce inventory and improve inventory
turns. In addition, capital freed up from the completion of the
sale of Altec Lansing will be redeployed to its highest and best
use.
|
Our
results of operations for the nine months ended December 31, 2009 demonstrated
progress on these key corporate initiatives. In the first nine months
of fiscal 2010, we had $23.2 million in income from continuing
operations. We had our third quarter of shipments of UC products
which consists of the Savi™ product family. We also decreased net
inventory by $48.4 million due in part to the transition of the manufacturing of
our Bluetooth products
to an outsourced supplier which was completed in July 2009 and the sale of Altec
Lansing in the third quarter. In addition, capital expenditures were
$4.3 million for the nine months ended December 31, 2009, a decrease of 79% from
$20.9 million in the comparable year ago period.
RESULTS
OF OPERATIONS
The
following tables set forth, for the periods indicated, the Condensed
consolidated statements of operations data which is derived from the
accompanying unaudited consolidated financial statements. The
financial information and the ensuing discussion should be read in conjunction
with the accompanying unaudited Condensed consolidated financial statements and
notes thereto. We have classified the AEG operating results as
discontinued operations in the Consolidated statement of operations for all
periods presented.
(in thousands except
percentages)
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
152,616 |
|
|
|
100.0 |
% |
|
$ |
165,935 |
|
|
|
100.0 |
% |
|
$ |
546,492 |
|
|
|
100.0 |
% |
|
$ |
451,555 |
|
|
|
100.0 |
% |
Cost
of revenues
|
|
|
92,199 |
|
|
|
60.4 |
% |
|
|
85,566 |
|
|
|
51.6 |
% |
|
|
304,159 |
|
|
|
55.7 |
% |
|
|
238,251 |
|
|
|
52.8 |
% |
Gross
profit
|
|
|
60,417 |
|
|
|
39.6 |
% |
|
|
80,369 |
|
|
|
48.4 |
% |
|
|
242,333 |
|
|
|
44.3 |
% |
|
|
213,304 |
|
|
|
47.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
16,645 |
|
|
|
10.9 |
% |
|
|
14,780 |
|
|
|
8.9 |
% |
|
|
50,721 |
|
|
|
9.3 |
% |
|
|
41,991 |
|
|
|
9.3 |
% |
Selling,
general and administrative
|
|
|
38,579 |
|
|
|
25.3 |
% |
|
|
37,502 |
|
|
|
22.6 |
% |
|
|
123,887 |
|
|
|
22.7 |
% |
|
|
103,599 |
|
|
|
22.9 |
% |
Restructuring
and other related charges
|
|
|
288 |
|
|
|
0.2 |
% |
|
|
332 |
|
|
|
0.2 |
% |
|
|
288 |
|
|
|
0.1 |
% |
|
|
1,767 |
|
|
|
0.4 |
% |
Total
operating expenses
|
|
|
55,512 |
|
|
|
36.4 |
% |
|
|
52,614 |
|
|
|
31.7 |
% |
|
|
174,896 |
|
|
|
32.1 |
% |
|
|
147,357 |
|
|
|
32.6 |
% |
Operating
income (loss)
|
|
|
4,905 |
|
|
|
3.2 |
% |
|
|
27,755 |
|
|
|
16.7 |
% |
|
|
67,437 |
|
|
|
12.3 |
% |
|
|
65,947 |
|
|
|
14.6 |
% |
Interest
and other income (expense), net
|
|
|
(1,499 |
) |
|
|
(1.0 |
%) |
|
|
1,422 |
|
|
|
1.0 |
% |
|
|
(3,129 |
) |
|
|
(0.5 |
%) |
|
|
3,653 |
|
|
|
0.7 |
% |
Income
from continuing operations before income taxes
|
|
|
3,406 |
|
|
|
2.2 |
% |
|
|
29,177 |
|
|
|
17.6 |
% |
|
|
64,308 |
|
|
|
11.7 |
% |
|
|
69,600 |
|
|
|
15.3 |
% |
Income
tax expense (benefit)
|
|
|
(2,748 |
) |
|
|
(1.8 |
%) |
|
|
5,974 |
|
|
|
3.6 |
% |
|
|
11,464 |
|
|
|
2.1 |
% |
|
|
17,562 |
|
|
|
3.8 |
% |
Income
from continuing operations
|
|
|
6,154 |
|
|
|
4.0 |
% |
|
|
23,203 |
|
|
|
14.0 |
% |
|
|
52,844 |
|
|
|
9.6 |
% |
|
|
52,038 |
|
|
|
11.5 |
% |
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations of discontinued AEG segment (including loss on sale of
AEG)
|
|
|
(124,418 |
) |
|
|
(81.5 |
%) |
|
|
(515 |
) |
|
|
(0.3 |
%) |
|
|
(137,221 |
) |
|
|
(25.1 |
%) |
|
|
(30,292 |
) |
|
|
(6.7 |
%) |
Income
tax benefit on discontinued operations
|
|
|
(26,255 |
) |
|
|
(17.2 |
%) |
|
|
(562 |
) |
|
|
(0.3 |
%) |
|
|
(30,510 |
) |
|
|
(5.6 |
%) |
|
|
(11,408 |
) |
|
|
(2.5 |
%) |
Loss
on discontinued operations
|
|
|
(98,163 |
) |
|
|
(64.3 |
%) |
|
|
47 |
|
|
|
0.0 |
% |
|
|
(106,711 |
) |
|
|
(19.5 |
%) |
|
|
(18,884 |
) |
|
|
(4.2 |
%) |
Net
income (loss)
|
|
$ |
(92,009 |
) |
|
|
(60.3 |
%) |
|
$ |
23,250 |
|
|
|
14.0 |
% |
|
$ |
(53,867 |
) |
|
|
(9.9 |
%) |
|
$ |
33,154 |
|
|
|
7.3 |
% |
NET
REVENUES
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and Contact Center
|
|
$ |
101,694 |
|
|
$ |
103,096 |
|
|
$ |
1,402 |
|
|
|
1.4 |
% |
|
$ |
344,027 |
|
|
$ |
292,522 |
|
|
$ |
(51,505 |
) |
|
|
(15.0 |
%) |
Mobile
|
|
|
36,011 |
|
|
|
46,951 |
|
|
|
10,940 |
|
|
|
30.4 |
% |
|
|
156,804 |
|
|
|
113,926 |
|
|
|
(42,878 |
) |
|
|
(27.3 |
%) |
Gaming
and Computer Audio
|
|
|
8,531 |
|
|
|
11,072 |
|
|
|
2,541 |
|
|
|
29.8 |
% |
|
|
27,129 |
|
|
|
28,897 |
|
|
|
1,768 |
|
|
|
6.5 |
% |
Clarity
|
|
|
6,380 |
|
|
|
4,816 |
|
|
|
(1,564 |
) |
|
|
(24.5 |
%) |
|
|
18,532 |
|
|
|
16,210 |
|
|
|
(2,322 |
) |
|
|
(12.5 |
%) |
Total
net revenues
|
|
$ |
152,616 |
|
|
$ |
165,935 |
|
|
$ |
13,319 |
|
|
|
8.7 |
% |
|
$ |
546,492 |
|
|
$ |
451,555 |
|
|
$ |
(94,937 |
) |
|
|
(17.4 |
%) |
Plantronics
is engaged in the design, manufacture, marketing and sales of headsets for
business and consumer applications, and other specialty products. We
make headsets for use in office and contact centers, with mobile and cordless
phones, and with computers and gaming consoles. Major product
categories include “Office and Contact Center”, or “OCC”, which is defined as
corded and cordless communication headsets, amplifiers and telephone systems;
“Mobile”, which is
defined as Bluetooth
and corded products for mobile phone applications; “Gaming and Computer Audio”,
which is defined as gaming and PC headsets; and “Clarity”, which includes
specialty products marketed for hearing impaired individuals.
OCC
products represent our largest source of revenues, while Mobile products
represent our largest unit volumes. Wireless office systems and
Mobile Bluetooth
headsets represented 56% of net revenues in the third quarter of fiscal 2010
compared to 54% in the third quarter of fiscal 2009. Revenues may
vary due to seasonality, the timing of the introduction of new products,
discounts and other incentives and channel mix.
We have a
“book and ship” business model, whereby we ship most orders to our customers
within 48 hours of receipt of those orders. Thus, we cannot rely on
the level of backlog to provide visibility into potential future
revenues.
Net
revenues increased 9% from $152.6 million in the third quarter of fiscal 2009 to
$165.9 million in the third quarter of fiscal 2010 which is mostly a result of
higher Mobile revenues due to a stronger holiday season. Net revenues
decreased by 17% from $546.5 million in the nine months ended December 31, 2008
to $451.6 million in the nine months ended December 31 mostly due to lower
Mobile and OCC revenues. The decline in Mobile revenues is primarily
due to the fact that we received a benefit in the first six months of fiscal
2009 attributable to increased demand for our Bluetooth headsets as a
result of hands-free legislation that was enforced in the states of California
and Washington in the U.S. beginning on July 1, 2008. OCC revenues
decreased primarily due to weaker economic conditions.
Fluctuations
in the net revenues for the three months ended December 31, 2009 compared to the
same quarter a year ago were primarily a result of the following:
|
·
|
Mobile
net revenues increased $10.9 million primarily due to a stronger holiday
season with an improved unit mix of revenues from higher price-point
products and some benefit from hands-free driving legislation being
enforced in Canada and Europe.
|
|
·
|
Gaming
and Computer Audio increased by $2.5 million due to higher sales of
Unified Communication products and the strength of the product
portfolio.
|
Fluctuations
in the net revenues for the nine months ended December 31, 2009 compared to the
same period a year ago were as follows:
|
·
|
OCC
net revenues decreased $51.5 million mostly due to lower volumes as a
result of weaker global economic
conditions.
|
|
·
|
Mobile
net revenues decreased $42.9 million due to the first six months of fiscal
2009 including a benefit in Bluetooth headsets
revenues from demand attributable to hands-free driving legislation being
enforced in the states of California and Washington beginning on July 1,
2008. In addition, there was overall weaker consumer spending
in the December quarter of fiscal 2009 as a result of the global
recession.
|
Geographical
Information
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States ("U.S.")
|
|
$ |
91,594 |
|
|
$ |
99,157 |
|
|
$ |
7,563 |
|
|
|
8.3 |
% |
|
$ |
344,986 |
|
|
$ |
281,316 |
|
|
$ |
(63,670 |
) |
|
|
(18.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe,
Middle East and Africa
|
|
|
42,383 |
|
|
|
41,617 |
|
|
|
(766 |
) |
|
|
(1.8 |
%) |
|
|
129,220 |
|
|
|
107,089 |
|
|
|
(22,131 |
) |
|
|
(17.1 |
%) |
Asia
Pacific
|
|
|
8,041 |
|
|
|
12,462 |
|
|
|
4,421 |
|
|
|
55.0 |
% |
|
|
34,860 |
|
|
|
33,383 |
|
|
|
(1,477 |
) |
|
|
(4.2 |
%) |
Americas,
excluding United States
|
|
|
10,598 |
|
|
|
12,699 |
|
|
|
2,101 |
|
|
|
19.8 |
% |
|
|
37,426 |
|
|
|
29,767 |
|
|
|
(7,659 |
) |
|
|
(20.5 |
%) |
Total
international net revenues
|
|
|
61,022 |
|
|
|
66,778 |
|
|
|
5,756 |
|
|
|
9.4 |
% |
|
|
201,506 |
|
|
|
170,239 |
|
|
|
(31,267 |
) |
|
|
(15.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$ |
152,616 |
|
|
$ |
165,935 |
|
|
$ |
13,319 |
|
|
|
8.7 |
% |
|
$ |
546,492 |
|
|
$ |
451,555 |
|
|
$ |
(94,937 |
) |
|
|
(17.4 |
%) |
Consolidated
U.S. net revenue, as a percentage of total net revenues, was consistent in
comparison to the same periods in the last year; however, U.S. net revenue in
absolute dollars increased 8% in the three months ended December 31, 2009 due to
higher revenue from Mobile products and decreased 19% in the nine months ended
December 31, 2009 due to the weakened economy and as a result of the higher net
revenues from our Bluetooth product portfolio
in the nine months ended December 31, 2008 due to demand attributable to
hands-free driving legislation being enforced in the states of California and
Washington beginning July 1, 2008. Consolidated international net
revenues were also consistent as a percentage of total net revenues but
increased by 9% absolute dollars from the third quarter of fiscal 2009 due to
stronger demand in the Asia Pacific and decreased 16% from the nine months ended
December 31, 2008 due to the overall weakened global economy.
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 allocations of overhead costs, including facilities and IT
costs.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
152,616 |
|
|
$ |
165,935 |
|
|
$ |
13,319 |
|
|
|
8.7 |
% |
|
$ |
546,492 |
|
|
$ |
451,555 |
|
|
$ |
(94,937 |
) |
|
|
(17.4 |
%) |
Cost
of revenues
|
|
|
92,199 |
|
|
|
85,566 |
|
|
|
(6,633 |
) |
|
|
(7.2 |
%) |
|
|
304,159 |
|
|
|
238,251 |
|
|
|
(65,908 |
) |
|
|
(21.7 |
%) |
Consolidated
gross profit
|
|
$ |
60,417 |
|
|
$ |
80,369 |
|
|
$ |
19,952 |
|
|
|
33.0 |
% |
|
$ |
242,333 |
|
|
$ |
213,304 |
|
|
$ |
(29,029 |
) |
|
|
(12.0 |
%) |
Consolidated
gross profit %
|
|
|
39.6 |
% |
|
|
48.4 |
% |
|
|
8.8 |
|
ppt. |
|
|
|
44.3 |
% |
|
|
47.2 |
% |
|
|
2.9 |
|
ppt. |
|
In the
third quarter of fiscal 2010, compared to the same period a year ago, gross
profit increased 33%, from $60.4 million in the third quarter of fiscal 2009 to
$80.4 million in the third quarter of fiscal 2010. This
increase was due to higher revenues, lower manufacturing costs, and lower
warranty provisions.
For the
nine months ended December 31, 2009 compared to the same quarter a year ago,
gross profit decreased 12%, from $242.3 million in the prior year period to
$213.3 million in the first nine months of fiscal 2010. This
decrease in gross profit was mostly due to lower revenues partially offset by
lower manufacturing costs.
The
increase in gross profit in the three months ended December 31, 2009 as compared
to the same quarter a year ago was primarily due to higher net
revenues. As a percentage of net revenues, the increase in gross
profit of 8.8 percentage points was primarily due to the following:
|
·
|
a
4.4 percentage point benefit from lower manufacturing costs as a result of
the costs being spread over higher production volumes, manufacturing
efficiencies, and lower factory costs related to the closure of our
Suzhou, China manufacturing facility in July
2009;
|
|
·
|
a
2.4 percentage point benefit from higher product margins mostly driven by
improved Bluetooth product
margins which are due to lower costs as a result of our outsourcing
arrangement entered into in fiscal 2010 along with higher-end offerings
within the portfolio; and
|
|
·
|
a
2.0 percentage point benefit from lower warranty provisions due to lower
warranty rates than in the prior year
period.
|
The
decrease in gross profit in the nine months ended December 31, 2009 as compared
to the same period a year ago was primarily due to lower net revenues partially
offset by lower manufacturing costs. However, as a percentage of net
revenues, gross profit increased by 2.9 percentage points primarily due to the
following:
|
·
|
a
2.3 percentage point benefit from higher product margins driven by a
favorable product mix with a higher portion of OCC revenues which
generally have a higher gross margin than other product categories and
lower Bluetooth
and OCC product costs;
|
|
·
|
a
1.9 percentage point benefit from improved manufacturing efficiencies,
lower freight expenses from fewer material receipts and lower fuel
surcharges, and lower duty expense;
|
|
·
|
a
1.3 percentage point benefit from lower requirements for warranty and
excess and obsolete inventory
provisions;
|
|
·
|
a
1.5 percentage point detriment from the impact of lower production volumes
on manufacturing costs; and
|
|
·
|
a
1.1 percentage point detriment from accelerated depreciation expenses
related to the closure of our Suzhou, China manufacturing facility in July
2009.
|
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. In addition, if we do not properly anticipate changes in
demand, we have in the past, and may in the future, incur significant costs
associated with writing off excess and obsolete inventory or incur charges for
adverse purchase commitments. While we are focused on actions to
improve our gross profit through supply chain management, improvements in
product launches, outsourcing manufacturing of our Bluetooth products in China
which includes the closure of our manufacturing operations in Suzhou, China,
various other restructuring actions to decrease our operating expenses and
overall cost structure, and improving the effectiveness of our marketing
programs, there can be no assurance that these actions will be
successful. Gross profit may also vary based on return rates, the
amount of product sold for which royalties are required to be paid, the rate at
which royalties are calculated, 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, depreciation, expensed materials and an
allocation of overhead expenses, including facilities, human resources, and IT
costs.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
$ |
16,645 |
|
|
$ |
14,780 |
|
|
$ |
(1,865 |
) |
|
|
(11.2 |
%) |
|
$ |
50,721 |
|
|
$ |
41,991 |
|
|
$ |
(8,730 |
) |
|
|
(17.2 |
%) |
%
of total net revenues
|
|
|
10.9 |
% |
|
|
8.9 |
% |
|
|
(2.0 |
) |
ppt. |
|
|
|
9.3 |
% |
|
|
9.3 |
% |
|
|
- |
|
ppt. |
|
In the
three and nine months ended December 31, 2009, compared to the same periods a
year ago, research, development and engineering expenses decreased in absolute
dollars and as a percentage of revenue as a result of cost reduction
efforts.
For the
three months ended December 31, 2009, expenses decreased mostly due to lower
compensation costs of $0.9 million as a result of workforce
reductions.
For the
nine months ended December 31, 2009, expenses also decreased in absolute dollars
but remained flat as a percentage of revenue due to lower net
revenues. The decrease in absolute dollars is primarily due to lower
compensation costs of $3.9 million as a result of workforce reductions and $3.1
million of lower research and development project expenses as a result of
efficiency improvements, including lower project material and equipment expenses
as a benefit from outsourcing our Bluetooth headset
manufacturing.
We
anticipate that our research, development and engineering expenses will increase
slightly from the current quarter level in the remaining quarter of fiscal 2010
as we continue to invest in UC.
SELLING,
GENERAL AND ADMINISTRATIVE
Selling,
general and administrative expenses consist primarily of compensation costs,
marketing costs, professional service fees, travel expenses, litigation costs,
allocations of overhead expenses, including facilities, human resources and IT
costs and bad debt expense.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$ |
38,579 |
|
|
$ |
37,502 |
|
|
$ |
(1,077 |
) |
|
|
(2.8 |
%) |
|
$ |
123,887 |
|
|
$ |
103,599 |
|
|
$ |
(20,288 |
) |
|
|
(16.4 |
%) |
%
of total net revenues
|
|
|
25.3 |
% |
|
|
22.6 |
% |
|
|
(2.7 |
) |
ppt. |
|
|
|
22.7 |
% |
|
|
22.9 |
% |
|
|
0.2 |
|
ppt. |
|
For the
three and nine months ended December 31, 2009, compared to the same periods a
year ago, selling, general and administrative expenses decreased as a result of
actions taken to reduce costs which began in the third quarter of fiscal
2009.
For the
three months ended December 31, 2009, expenses decreased mostly due to lower
marketing and sales promotion expenses of $1.6 million and lower provisions for
bad debt of $1.3 million partially offset by an increase of $1.9 million in
compensation expenses due to higher variable-based compensation on higher
revenues offset in part by lower headcount as a result of our restructuring
actions.
For the
nine months ended December 31, 2009, expenses decreased primarily as a result of
cost reductions, including lower marketing and sales promotion expenses of $8.2
million, lower professional service fees of $3.1 million, lower travel and
entertainment expenses of $2.7 million, and lower compensation costs of $4.2
million related to reduced headcount starting in the fourth quarter of fiscal
2009 from our restructuring actions partially offset by higher variable-based
compensation costs.
We
anticipate our selling, general and administrative expenses will remain at
approximately the same level in the remaining quarter of fiscal
2010.
IMPAIRMENT
OF GOODWILL AND LONG-LIVED ASSETS
We review
goodwill and purchased intangible assets with indefinite lives for impairment
annually during the fourth quarter of the fiscal year or more frequently if
indicators of impairment exist. In the third quarter of fiscal 2009,
in considering the effects of the economic environment at the time we determined
that sufficient indicators existed requiring us to perform an interim impairment
review of our two reporting segments at that time, ACG and AEG. In
addition, as a result of the decline in forecasted revenues, operating margin
and cash flows related to the AEG segment, we also reviewed our long-lived
assets within the reporting unit for impairment. These reviews
resulted in non-cash impairment charges of $117.5 million recorded in the third
quarter of fiscal 2009 which consisted of $54.7 million related to the goodwill
arising from the purchase of Altec Lansing in August 2005 representing 100% of
the goodwill in the AEG segment, $58.7 million related to intangible assets
primarily associated with the Altec Lansing trademark and trade name and $4.1
million related to property, plant and equipment related to the AEG
segment. The impairment charge is included in discontinued operations
in the Consolidated statement of operations for the three and nine months ended
December 31, 2008.
In
preparing our financial statements for the second quarter of fiscal 2010, we
considered the effect of certain alternatives considered by management for the
AEG segment during the quarter on our intangible assets. During the
second quarter, we entered into a non-binding letter of intent to sell certain
assets along with the assumption of certain liabilities of the AEG
segment. We concluded that this triggered an interim impairment
review as it was now more likely than not that the segment would be sold;
however, as our Board of Directors had not yet approved the final sale of the
segment, the assets did not qualify for “held for sale”
accounting. This review resulted in non-cash impairment charges of
$25.2 million recorded in the second quarter of fiscal 2010 which consisted of
$21.4 million related to intangible assets primarily associated with the Altec
Lansing trademark and trade name and $3.8 million related to property, plant and
equipment related to the AEG segment. The impairment charge is
included in discontinued operations in the Consolidated statement of operations
for the nine months ended December 31, 2009.
RESTRUCTURING
AND OTHER RELATED CHARGES
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
and other related charges
|
|
$ |
288 |
|
|
$ |
332 |
|
|
$ |
44 |
|
|
|
15.3 |
% |
|
$ |
288 |
|
|
$ |
1,767 |
|
|
$ |
1,479 |
|
|
|
513.5 |
% |
%
of total net revenues
|
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
- |
|
ppt. |
|
|
|
0.1 |
% |
|
|
0.4 |
% |
|
|
0.3 |
|
ppt. |
|
Q3 Fiscal 2009 Restructuring
Action
In the
third quarter of fiscal 2009, we had a reduction in force at AEG’s operations in
Luxemburg and Shenzhen, China and ACG’s operations in China as part of the
strategic initiative designed to reduce costs. A total of 624
employees were notified of their termination, all of whom were terminated as of
December 31, 2008. On January 14, 2009, we announced additional
reductions in force related to this restructuring plan which included
termination of an additional 199 employees located in ACG’s Tijuana, Mexico,
U.S., and other global locations. An additional three employees were
notified of their termination in the first quarter of fiscal 2010. A
total of 826 employees, primarily in operations positions but also including
other functions, were notified of their termination under this restructuring
action, all of which had been terminated as of September 30, 2009. In
the three and nine months ended December 31, 2008, we recorded $1.0 million of
restructuring charges in discontinued operations related to the AEG segment and
$0.7 million in Restructuring and other related charges related to the ACG
segment.
To date,
we have recorded $8.8 million of restructuring charges related to these
activities, of which $0.8 million related to the AEG segment is included in
discontinued operations and $8.0 million related to the ACG segment is included
in Restructuring and other related charges. These costs consisted of
$8.1 million in severance and benefits, $0.6 million for the write-off of
leasehold improvements due to consolidation of facilities, and $0.1 million in
other associated costs. No additional charges were incurred for the
nine months ended September 30, 2009. We believe that substantially
all of the costs have been incurred and paid as of December 31,
2009. We currently expect cost savings as a result of this
restructuring plan, including the actions announced in January 2009, to be
approximately $16.3 million in fiscal 2010 consisting of reduced employee
related costs in all functions and reduced facility and related costs in
operations due to consolidation of facilities.
Q4 Fiscal 2009 Restructuring
Action
At the
end of the fourth quarter of fiscal 2009, we announced a plan to close our ACG
manufacturing operations in our Suzhou, China facility due to the decision to
outsource the manufacturing of our Bluetooth products to a third
party supplier in China. A total of 656 employees, primarily in
operations positions but also including other functions, were notified of their
termination, of which 619 employees have been terminated as of December 31,
2009. We exited the manufacturing portion of the facility in July
2009 at which time the remaining assets were classified as Assets held for sale
on the Condensed consolidated balance sheet (see Note 3). Most of the
remaining employees are expected to terminate by the end of the first quarter of
fiscal 2011.
In fiscal
2009, we recorded $3.0 million of Restructuring and other related charges,
primarily consisting of severance and benefits. During the nine
months ended December 31, 2009, we recorded an additional $1.8 million of
Restructuring and other related charges in the ACG segment consisting of $0.8
million of severance and benefits and $1.0 million of non-cash charges including
$0.7 million for the acceleration of depreciation on building and equipment
associated with research and development and administrative functions due to the
change in the assets’ useful lives as a result of the assets being taken out of
service prior to their original service period and $0.3 million of additional
loss on Assets held for sale recorded in the three months ended December 31,
2009. In addition, in the nine months ended December 31, 2009, we
recorded non-cash charges of $5.2 million for accelerated depreciation related
to the building and equipment associated with manufacturing operations which is
included in Cost of revenues. To date, we have recorded a total of
$10.0 million of costs related to this action: $4.8 million in
Restructuring and related charges which include $3.8 million of severance and
benefits, $0.7 million of accelerated depreciation charges and $0.3 million loss
on Assets held for sale, and $5.2 million in Cost of revenues for accelerated
depreciation. Substantially all the costs related to this action have
been recorded as of December 31, 2009 and the remaining payments will be made
primarily over the next six months.
We
currently expect cost savings as a result of this restructuring plan to be
approximately $14.0 million in fiscal 2010 and $22.0 million in fiscal
2011. These anticipated cost savings for fiscal 2010 and 2011 consist
primarily of fixed operations costs of $6.0 million and $11.0 million,
respectively, product margin improvements due to outsourcing of $5.0 million and
$7.0 million, respectively, and research and development expenses of $3.0
million and $4.0 million, respectively.
OPERATING
INCOME
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
4,905 |
|
|
$ |
27,755 |
|
|
$ |
22,850 |
|
|
|
465.9 |
% |
|
$ |
67,437 |
|
|
$ |
65,947 |
|
|
$ |
(1,490 |
) |
|
|
(2.2 |
%) |
%
of total net revenues
|
|
|
3.2 |
% |
|
|
16.7 |
% |
|
|
13.5 |
|
ppt. |
|
|
|
12.3 |
% |
|
|
14.6 |
% |
|
|
2.3 |
|
ppt. |
|
In the
three months ended December 31, 2009, compared to the same period in the prior
year, consolidated operating income increased mostly due to higher net revenues
and associated gross profit along with reductions in operating
expenses. In the nine months ended December 31, 2009, compared to the
same period in the prior year, operating income decreased due to lower net
revenues offset partially by lower operating expenses due to efforts to reduce
costs.
INTEREST
AND OTHER INCOME (EXPENSE), NET
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
$ |
(1,499 |
) |
|
$ |
1,422 |
|
|
$ |
2,921 |
|
|
|
(194.9 |
%) |
|
$ |
(3,129 |
) |
|
$ |
3,653 |
|
|
$ |
6,782 |
|
|
|
(216.7 |
%) |
%
of total net revenues
|
|
|
(1.0 |
%) |
|
|
1.0 |
% |
|
|
2.0 |
|
ppt. |
|
|
|
(0.5 |
%) |
|
|
0.7 |
% |
|
|
1.2 |
|
ppt. |
|
In the
three and nine months ended December 31, 2009, compared to the same periods in
the prior year, interest and other income (expense), net increased primarily due
to foreign currency exchange gains in the fiscal 2010 as compared to foreign
currency exchange losses in the prior year periods as a result of the strength
of the U.S. dollar. The increases from the foreign currency exchange
gains were partially offset by lower interest income as a result of declining
interest rates despite higher average cash and investment balances.
INCOME
TAX EXPENSE
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
Increase
|
|
(in thousands except
percentages)
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
$ |
3,406 |
|
|
$ |
29,177 |
|
|
$ |
25,771 |
|
|
|
756.6 |
% |
|
$ |
64,308 |
|
|
$ |
69,600 |
|
|
$ |
5,292 |
|
|
|
8.2 |
% |
Income
tax expense (benefit) from continuing operations
|
|
|
(2,748 |
) |
|
|
5,974 |
|
|
|
8,722 |
|
|
|
(317.4 |
%) |
|
|
11,464 |
|
|
|
17,562 |
|
|
|
6,098 |
|
|
|
53.2 |
% |
Income
from continuing operations
|
|
$ |
6,154 |
|
|
$ |
23,203 |
|
|
$ |
17,049 |
|
|
|
277.0 |
% |
|
$ |
52,844 |
|
|
$ |
52,038 |
|
|
$ |
(806 |
) |
|
|
(1.5 |
%) |
Effective
tax rate
|
|
|
(80.7 |
%) |
|
|
20.5 |
% |
|
|
101.2 |
|
ppt. |
|
|
|
17.8 |
% |
|
|
25.2 |
% |
|
|
7.4 |
|
ppt. |
|
The
amounts related to discontinued operations have been excluded from the
discussion below as discontinued operations are separately classified for all
periods presented.
The
effective tax rate for the three and nine months ended December 31, 2009 was
20.5% and 25.2%, respectively, compared to (80.7)% and 17.8% for the same
periods a year ago. The higher effective tax rate for the three
months ended December 31, 2009 compared to the tax benefit for the same period a
year ago is primarily due to the incremental benefit associated with the release
of higher amount of tax reserves resulting from the lapse of the statute of
limitations in certain jurisdictions in the prior period. The
increase in the effective tax rate for the nine months ended December 31, 2009
compared to the same period a year ago is primarily due to the release of larger
tax reserves in the first and third quarters of fiscal 2009 resulting from the
lapse of the statute of limitations in certain jurisdictions than released in
the current year periods and certain fiscal 2010 foreign restructuring charges
with minimal tax benefit. The effective tax rate differs from the
statutory rate due to the impact of foreign operations taxed at different
statutory rates, income tax credits, state taxes and other
factors. The future tax rate could be impacted by a shift in the mix
of domestic and foreign income, tax treaties with foreign jurisdictions, changes
in tax laws in the U.S. or internationally, or a change in estimates of future
taxable income which could result in a valuation allowance being
required.
For the
three and nine months ended December 31, 2008, we recognized a tax benefit of
$2.1 million and $3.8 million, respectively, consisting of $1.8 million and $3.3
million in tax reserves, respectively, and $0.3 million and $0.5 million of
related interest, respectively, due to the lapse of the statute of limitations
in certain jurisdictions. We recognized a tax
benefit of $1.2 million in both the three and nine months ended December 31,
2009, consisting of $1.0 million in tax reserves and $0.2 million of related
interest, due to the lapse of the statute of limitations in certain
jurisdictions. As of December 31, 2009, we had $11.7 million of
unrecognized tax benefits compared to $11.1 million as of March 31, 2009
recorded in Long-term income taxes payable on the Condensed consolidated balance
sheet, all of which would favorably impact the effective tax rate in future
periods if recognized.
It is our
continuing practice to recognize interest and/or penalties related to income tax
matters in Income tax expense. As of December 31, 2009, we had approximately
$1.8 million of accrued interest related to unrecognized tax benefits, compared
to $1.6 million as of March 31, 2009. No penalties have been
accrued.
Although
the timing and outcome of income tax audits is highly uncertain, it is possible
that certain unrecognized tax benefits may be reduced as a result of the lapse
of the applicable statutes of limitations in federal, state and foreign
jurisdictions within the next 12 months. Currently, we cannot
reasonably estimate the amount of reductions, if any, during the next 12
months. Any such reduction could be impacted by other changes in
unrecognized tax benefits.
We file
income tax returns in the U.S. federal jurisdiction, various states and foreign
jurisdictions. We are no longer subject to U.S. federal tax
examinations by tax authorities for years prior to 2006 and state income tax
examinations prior to 2005. Foreign income tax matters for material
tax jurisdictions have been concluded through tax years before fiscal 2004,
except for the United Kingdom and France which have been concluded through
fiscal 2006, and Germany which has been concluded through fiscal
2007.
DISCONTINUED
OPERATIONS
We
entered into an Asset Purchase Agreement (“APA”) on October 2, 2009, as
subsequently amended, to sell certain net assets of Altec Lansing, our AEG
segment, which was completed effective December 1, 2009. All of the
revenues in the AEG segment were derived from sales of Altec Lansing
products. All operations of AEG have been classified as discontinued
operations in the Consolidated statement of operations for all periods
presented. The results from discontinued operations includes a loss
of $0.8 million on disposal of Altec Lansing in the three and nine months ended
December 31, 2009.
FINANCIAL
CONDITION
The table
below provides selected Condensed consolidated cash flow information for the
periods presented:
|
|
Nine
Months Ended
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$ |
59,791 |
|
|
$ |
88,778 |
|
|
|
|
|
|
|
|
|
|
Cash
used for capital expenditures and other assets
|
|
$ |
(20,881 |
) |
|
$ |
(4,339 |
) |
Cash
provided by maturities of investments,net
|
|
|
(29,919 |
) |
|
|
50,752 |
|
Cash
provided by other investing activities
|
|
|
406 |
|
|
|
277 |
|
Cash
provided from sale of AEG segment
|
|
|
- |
|
|
|
11,075 |
|
Cash
provided by (used for) investing activities
|
|
$ |
(50,394 |
) |
|
$ |
57,765 |
|
|
|
|
|
|
|
|
|
|
Cash
used for financing activities
|
|
$ |
(14,242 |
) |
|
$ |
(22,998 |
) |
Cash
Flows from Operating Activities
Cash
flows from operating activities for the nine months ended December 31, 2009
consisted of net income of $33.2 million, non-cash charges of $48.9 million and
working capital sources of cash of $6.7 million. Non-cash charges
related primarily to $25.2 million related to the impairment charge on AEG
long-lived assets in discontinued operations, $14.1 million of depreciation and
amortization, $10.8 million of stock-based compensation and $6.1 million of
non-cash restructuring charges on assets associated with the closure of our
Suzhou, China manufacturing facility as part of our Q4 Fiscal 2009 Restructuring
Action. Working capital sources of cash consisted primarily of a
decrease in inventory of $27.4 million due to increased net revenues during
fiscal 2010. Note that the decrease in net inventory on the balance
sheet from March 31, 2009 was $48.4 million; however, $17.7 million of the
decrease is due to inventory sold as part of the sale of Altec Lansing which is
included against the proceeds from the sale of AEG in Cash flows from investing
activities. The working capital sources of cash was offset in part by
working capital uses of cash primarily from an increase in accounts receivable
as a result of higher net revenues during the period. The days sales
outstanding (“DSO”) as of December 31, 2009 decreased to 61 days from 63 days as
of December 31, 2008 which was primarily due to the higher net revenues during
the period as a result of a stronger holiday season. The DSO
calculation is based on Net revenues from continuing operations and consolidated
accounts receivable which includes AEG receivables as these assets did not
transfer with the sale. We estimate our DSO for the fourth quarter of
fiscal 2010 to decrease to the mid-fifty day range after the effect of the
remaining AEG receivables is eliminated upon collection.
Cash
flows from operating activities for the nine months ended December 31, 2008
consisted of net loss of $53.9 million, non-cash charges of $128.5 million and
working capital uses of cash of $14.8 million. Non-cash charges
related primarily to $117.5 million related to the impairment of goodwill and
long-lived assets in discontinued operations, $20.6 million of depreciation and
amortization, $12.1 million of stock-based compensation and a provision for
excess and obsolete inventory of $4.9 million which was offset in part by a
benefit from deferred income taxes of $28.8 million. Working capital
uses of cash consisted primarily of increases in inventory primarily related to
increased purchases of our consumer product inventory and payment of accounts
payable and accrued liabilities which fluctuate with the timing of
payments. Working capital sources of cash consisted primarily of
decreases in accounts receivable due to higher overall collections and income
taxes payable which fluctuate based on the timing of
payments. The DSO as of December 31, 2008 was consistent at 63
days as compared to December 31, 2007.
Cash
Flows from Investing Activities
Net cash
flows provided by investing activities for the nine months ended December 31,
2009 primarily consisted of net proceeds from the redemption of short-term
investments of $50.0 million, $11.1 million of proceeds from the sale of Altec
Lansing and capital expenditures of $4.3 million primarily related to IT
projects and tooling costs.
Net cash
flows used for investing activities for the nine months ended December 31, 2008
primarily consisted of purchases of short-term investments of $29.9 million and
capital expenditures of $20.9 million primarily related to construction costs of
the new corporate data center and the engineering center in our Santa Cruz,
California headquarters along with various IT projects.
Cash
Flows from Financing Activities
Net cash
flows from financing activities for the nine months ended December 31, 2009
primarily consisted of $28.8 million related to the repurchase of common stock
and dividend payments of $7.4 million which was partially offset by $10.4
million in proceeds from the exercise of employee stock options and $1.6 million
in proceeds from the sale of treasury stock.
Net cash
flows used by financing activities for the nine months ended December 31, 2008
primarily consisted of $17.3 million related to the repurchase of common stock
and dividend payments of $7.3 million, which was partially offset by $6.9
million in proceeds from the exercise of employee stock options and $2.9 million
in proceeds from the sale of treasury stock.
Liquidity
and Capital Resources
Our
primary discretionary cash requirements historically have been to repurchase
stock and for capital expenditures, including tooling for new products and
building and leasehold improvements for facilities expansion. At
December 31, 2009, we had working capital of $464.8 million, including $316.7
million of cash, cash equivalents and short-term investments, compared with
working capital of $377.6 million, including $218.2 million of cash, cash
equivalents and short-term investments at March 31, 2009. The
increase in working capital of approximately $87.2 million is primarily a result
of the increase in cash and cash equivalents and short term investments of $98.5
million, of which $23.7 million is a result of the reclassification of
investments to short term, and accounts receivable of $29.6 million offset in
part by a decrease in inventory of $48.4 million.
For the
remainder of fiscal 2010, we expect to spend an additional $1.5 million to $2.0
million in capital expenditures, primarily consisting of IT related expenditures
and tooling for new products. In comparison to the prior fiscal year,
we expect total capital expenditures of $6.0 million to $6.5 million in fiscal
2010, a decrease from the $23.7 million spent in fiscal 2009. We
expect the level of capital expenditures to increase slightly in fiscal
2011.
On
January 25, 2008, the Board of Directors authorized the repurchase of 1,000,000
shares of common stock under which authorization the Company may purchase shares
in the open market from time to time. During fiscal 2008 and 2009, we
repurchased 1,000,000 shares of our common stock under this repurchase plan in
the open market at a total cost of $18.3 million and an average price of $18.30
per share.
On
November 10, 2008, the Board of Directors authorized a new plan to repurchase
1,000,000 shares of common stock. During fiscal 2009, we repurchased
89,000 shares of our common stock under this plan in the open market at a total
cost of $1.0 million and an average price of $11.54 per share. In the
first quarter of fiscal 2010, we repurchased an additional 26,000 shares under
this plan in the open market at a total cost of approximately $0.4 million and
an average price of $17.11 per share. In the second quarter of fiscal
2010, we repurchased an additional 165,900 shares under this plan in the open
market at a total cost of approximately $4.0 million and an average price of
$24.24 per share. In the third quarter of fiscal 2010, we repurchased
the remaining 719,100 shares under this plan in the open market at a total cost
of approximately $18.2 million and an average price of $25.26.
On
November 27, 2009, the Board of Directors authorized the repurchase of 1,000,000
shares under a new repurchase plan. In the third quarter of fiscal
2010, we repurchased 242,900 shares in the open market at a total cost of
approximately $6.5 million and an average price of $26.80 per
share. As of December 31, 2009, there were 757,100 remaining shares
authorized for repurchase under the current plan.
On
December 2, 2009, we retired 2.0 million shares of treasury stock which was
returned to the status of authorized but unissued shares. This was a
non-cash equity transaction in which the cost of the reacquired shares was
recorded as a reduction to both Retained earnings and Treasury stock in the
Condensed consolidated balance sheet as of December 31, 2009.
Our cash
and cash equivalents as of December 31, 2009 consist of U.S. Treasury or
Treasury-Backed funds and bank deposits with third party financial
institutions. While we monitor bank balances in our operating
accounts and adjust the balances as appropriate, these balances could be
impacted if the underlying financial institutions fail or if there are other
adverse conditions in the financial markets. Cash balances are held
throughout the world, including substantial amounts held outside of the
U.S. Most of the amounts held outside of the U.S. could be
repatriated to the U.S., but, under current law, would be subject to U.S.
federal income taxes, less applicable foreign tax credits, upon
repatriation.
We hold a
variety of auction rate securities (“ARS”), primarily comprised of interest
bearing state sponsored student loan revenue bonds guaranteed by the Department
of Education. These ARS investments are designed to provide liquidity
via an auction process that resets the applicable interest rate at predetermined
calendar intervals, typically every 7 or 35 days; however, the uncertainties in
the credit markets have affected all of our holdings, and, as a consequence,
these investments are not currently liquid. As a result, we will not
be able to access these funds until a future auction of these investments is
successful, the underlying securities are redeemed by the issuer, or a buyer is
found outside of the auction process. Maturity dates for these ARS
investments range from 2029 to 2039. All of the ARS investments were
investment grade quality and were in compliance with our investment policy at
the time of acquisition. We currently have the ability to hold these
ARS investments until a recovery of the auction process or until
maturity.
In
November 2008, we accepted an agreement (the “Agreement”) with UBS AG (“UBS”),
the investment provider for our $27.3 million par value ARS portfolio, providing
us with certain rights related to our ARS (the “Rights”). The Rights
permit us to require UBS to purchase our ARS at par value, which is defined as
the price equal to the liquidation preference of the ARS plus accrued but unpaid
dividends or interest, at any time during the period from June 30, 2010 through
July 2, 2012. Conversely, UBS has the right, in its discretion, to
purchase or sell our ARS at any time until July 2, 2012, so long as we receive
payment at par value upon any sale or liquidation. We expect to sell
our ARS under the Rights; however, if the Rights are not exercised before July
2, 2012, they will expire and UBS will have no further rights or obligation to
buy our ARS. As long as we hold the Rights, we will continue to
accrue interest as determined by the auction process or the terms of the ARS if
the auction process fails. UBS’s obligations under the Rights are not
secured and do not require UBS to obtain any financing to support its
performance obligations under the Rights. UBS has disclaimed any
assurance that it will have sufficient financial resources to satisfy its
obligations under the Rights. We have classified the ARS portfolio as
Short-term investments in our Condensed consolidated balance sheet as of
December 31, 2009 based on our intent to exercise the UBS right and our
expectation that the ARS will be sold within 12 months. As of March
31, 2009, the balance was included in Long-term investments.
The
Rights represent a firm agreement in accordance with the Derivatives and Hedging
Topic of the FASB ASC. The enforceability of the Rights results in a
put option and is recognized as a free standing asset separate from the
ARS. Upon acceptance of the offer from UBS in November 2008, we
recorded the put option at fair value of $3.9 million using the Black-Scholes
options pricing model. For the three and nine months ended December
31, 2009, the Company recorded unrealized losses of $1.2 million and $0.2
million, respectively, on the put option. The fair value of the put
option is recorded within Other assets in the Condensed consolidated balance
sheet as of March 31, 2009 and in Other current assets as of December 31, 2009
with the corresponding unrealized loss included in Interest and other income
(expense), net in the Condensed consolidated statement of operations. The put option does not
meet the definition of a derivative instrument under the Derivatives and Hedging
Topic of the FASB ASC; therefore, we have elected to measure the put option at
fair value under the Financial Instruments Topic of the FASB ASC in order to
match the changes in the fair value of the ARS. As a result,
unrealized gains and losses on the Rights are and will be included in earnings
in future periods.
Prior to
accepting the UBS offer in November 2008, we recorded our ARS investments as
available-for-sale and any unrealized gains or losses were recorded to
Accumulated other comprehensive income within Stockholders’
Equity. In connection with the acceptance of the UBS offer in
November 2008, resulting in the right to require UBS to purchase the ARS at par
value beginning on June 30, 2010, we transferred our ARS from long-term
investments available-for-sale to long-term trading securities. The
transfer to trading securities reflects management’s intent to exercise our put
option during the period from June 30, 2010 to July 3, 2012. Prior to
the Agreement with UBS, the intent was to hold the ARS until the market
recovered. At the time of transfer in November 2008, we recognized a
loss on the ARS of approximately $4.0 million in Interest and other income,
net. In the three and nine months ended December 31, 2009,
unrealized gains of $1.2 million and $0.3 million, respectively, were recorded
to Interest and other income (expense), net. This was offset by
unrealized losses of $1.2 million and $0.3 million recorded on the Rights in the
three and nine months ended December 31, 2009, respectively.
The
valuation of our investment portfolio is subject to uncertainties that are
difficult to predict. Factors that may impact its valuation include
changes to credit ratings of the securities as well as to the underlying assets
supporting those securities, rates of default of the underlying assets,
underlying collateral value, discount rates and ongoing strength and quality of
market credit and liquidity.
If the
current market conditions deteriorate further, or the anticipated recovery in
market values does not occur, we may incur further other-than-temporary
impairment charges resulting in unrealized losses in our statement of operations
which would reduce net income. We continue to monitor the market for
ARS transactions and consider the impact, if any, on the fair value of our
investments.
Our
investments are intended to establish a high-quality portfolio that preserves
principal, meets liquidity needs, avoids inappropriate concentrations and
delivers an appropriate yield in relationship to our investment guidelines and
market conditions. We are currently limiting our investments in ARS
to our current holdings and increasing our investments in more liquid
investments.
We enter
into foreign currency forward-exchange contracts, which typically mature in one
month, to hedge our exposure to foreign currency fluctuations of foreign
currency-denominated receivables, payables, and cash balances. We
record in the Condensed consolidated balance sheet at each reporting period the
fair value of our forward-exchange contracts and record any fair value
adjustments in our Consolidated statement of operations. Gains and
losses associated with currency rate changes on contracts are recorded within
Interest and other income, net, offsetting transaction gains and losses on the
related assets and liabilities.
We also
have a hedging program to hedge a portion of forecasted revenues denominated in
the Euro and Great Britain Pound with put and call option contracts used as
collars. We also started hedging a portion of the forecasted
expenditures in Mexican Pesos with a cross-currency swap in the second quarter
of fiscal 2010. At each reporting period, we record the net fair
value of our unrealized option contracts in the Condensed consolidated balance
sheet with related unrealized gains and losses as a component of Accumulated
other comprehensive income, a separate element of Stockholders’
Equity. Gains and losses associated with realized option and swap
contracts are recorded within Net revenue and Cost of Revenues.
Our
liquidity, capital resources, and results of operations in any period could be
affected by the exercise of outstanding stock options, restricted stock grants
to employees, and the issuance of common stock under our employee stock purchase
plan. Further, the resulting increase in the number of outstanding
shares could affect our per share earnings; however, we cannot predict the
timing or amount of proceeds from the sale or exercise of these securities, or
whether they will be exercised at all.
We
believe that our current cash, cash equivalents and cash provided by operations
will be sufficient to fund operations for at least the next 12 months and do not
believe that any reduction in the liquidity of the ARS will have a material
impact on our overall ability to meet our liquidity needs; however, any
projections of future financial needs and sources of working capital are subject
to uncertainty. See “Certain Forward-Looking Information” and “Risk
Factors” in this Quarterly Report on Form 10-Q for factors that could affect our
estimates for future financial needs and sources of working
capital.
OFF
BALANCE SHEET ARRANGEMENTS
We have
not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, subordinated retained interests, derivative instruments or
other contingent arrangements that expose us to material continuing risks,
contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing and liquidity support or market
risk or credit risk support to the Company.
CONTRACTUAL
OBLIGATIONS
There
have been no material changes in our contractual obligations outside the normal
course of business since the fiscal year ended March 31, 2009. At
December 31, 2009, the unrecognized tax benefits and related interest under the
Income Tax Topic of the FASB ASC were $11.7 million and $1.8 million,
respectively. We are unable to reliably estimate the timing of future
payments related to unrecognized tax benefits; however, Long-term income taxes
payable on our Condensed consolidated balance sheet includes these unrecognized
tax benefits. We do not anticipate any material cash payments
associated with our unrecognized tax benefits to be made within the next 12
months.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
For a
complete description of what we believe to be the critical accounting policies
that affect our more significant judgments and estimates used in the preparation
of our financial statements, refer to our Annual Report on Form 10-K for the
fiscal year ended March 31, 2009. There have been no changes to our
critical accounting policies during the nine months ended December 31,
2009.
Recent
Accounting Pronouncements
There are
no new accounting pronouncements during the current period that impact the
Company.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
The
following discusses our exposure to market risk related to changes in interest
rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a
number of factors including those set forth in “Risk Factors.”
INTEREST
RATE RISK
We had
cash and cash equivalents totaling $158.2 million at March 31, 2009 compared to
$283.5 million at December 31, 2009. Cash equivalents have a
maturity when purchased of three months or less. We had short-term
investments of $60.0 million at March 31, 2009 compared to $33.2 million as of
December 31, 2009 which have maturities of greater than three months and are
classified as available-for-sale. We had long-term investments of
$23.7 million as of March 31, 2009 and no long-term investments as of December
31, 2009. Long-term investments have maturities greater than one
year, or we do not currently have the ability to liquidate the
investment. All of the long-term investments as of March 31, 2009
were held in our name at a limited number of major financial institutions and
consisted of ARS, concentrated primarily in student loans. The ARS
were classified as short-term investments as of December 31, 2009.
Interest
rates declined in the three and nine month periods of fiscal 2010 compared to
the same periods in the prior year. Our cash and cash equivalents,
net of short-term working capital needs, are primarily invested in U.S. Treasury
funds, which had an average yield of approximately 0.01% in the third quarter of
fiscal year 2010. Approximately 29% of our interest income in
the third quarter of fiscal 2010 was derived from our $27.3 million par value
ARS portfolio which had an average yield of approximately 0.66%. The
ARS are currently resetting at rates of approximately 0.57% in January
2010. If these rates continue, our interest income will decrease
slightly from the third quarter of fiscal 2010. A hypothetical
increase or decrease in our interest rates by 10 basis points would have a
minimal impact on our interest income. In addition, if we sell our
ARS under the Rights during the period from June 30, 2010 through July 2, 2012,
as we intend to do, and invest the proceeds in a securities portfolio similar to
our current cash, cash equivalents and short-term investment portfolio as of
December 31, 2009, our interest income could decrease.
FOREIGN
CURRENCY EXCHANGE RATE RISK
We use a
hedging strategy to diminish, and make more predictable, the effect of currency
fluctuations. All of our hedging activities are entered into with
large financial institutions including Wells Fargo, Bank of America Corporation,
The Goldman Sachs Group, Inc., and JPMorgan Chase & Co. who we periodically
evaluate for credit risks. We hedge our balance sheet exposure by
hedging Euro and Great Britain Pound denominated receivables, payables, and cash
balances, our Mexican Peso denominated expenditures and our economic exposure by
hedging a portion of anticipated Euro and Great Britain Pound denominated
sales. We can provide no assurance that our strategy will be
successfully implemented and that exchange rate fluctuations will not materially
adversely affect our business in the future.
We
experienced foreign currency gains in the third quarter of fiscal 2010,
including benefits from our hedging activities. Although we hedge a
portion of our foreign currency exchange exposure, continued weakening of
certain foreign currencies, particularly the Euro and the Great Britain Pound in
comparison to the U.S. Dollar, could result in foreign exchange losses in future
periods.
Non-designated
Hedges
We hedge
our Euro and Great Britain Pound denominated receivables, payables and cash
balances by entering into foreign exchange forward contracts.
The table
below presents the impact on the foreign exchange gain (loss) of a hypothetical
10% appreciation and a 10% depreciation of the U.S. dollar against the forward
currency contracts as of December 31, 2009 (in millions):
Currency
- forward contracts
|
Position
|
|
USD Value of Net Foreign Exchange
Contracts
|
|
|
Foreign Exchange Gain From 10% Appreciation of
USD
|
|
|
Foreign Exchange (Loss) From 10% Depreciation of
USD
|
|
Euro
|
Sell
Euro
|
|
$ |
29.5 |
|
|
$ |
3.0 |
|
|
$ |
(3.0 |
) |
Great
Britain Pound
|
Sell
GBP
|
|
|
7.2 |
|
|
|
0.7 |
|
|
|
(0.7 |
) |
Net
position
|
|
|
$ |
36.7 |
|
|
$ |
3.7 |
|
|
$ |
(3.7 |
) |
Cash
Flow Hedges
In the
third quarter of fiscal 2010, approximately 40% of net revenues were derived
from sales outside the U.S., which were predominately denominated in the Euro
and the Great Britain Pound.
As of
December 31, 2009, we had foreign currency call option contracts of
approximately €40.1 million and £10.6 million denominated in Euros and Great
Britain Pounds, respectively. In addition, as of December 31, 2009,
we had foreign currency put option contracts of approximately €40.1 million and
£10.6 million denominated in Euros and Great Britain Pounds,
respectively. Collectively, our option contracts hedge against a
portion of our forecasted foreign currency denominated sales. If
these net exposed currency positions are subjected to either a 10% appreciation
or 10% depreciation versus the U.S. Dollar, we could incur a gain of $5.6
million or a loss of $6.3 million.
The table
below presents the impact on the Black-Scholes valuation of our currency option
contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S.
dollar against the indicated option contract type for cash flow hedges as of
December 31, 2009 (in millions):
Currency
- option contracts
|
|
USD
Value of Net Foreign Exchange Contracts
|
|
|
Foreign
Exchange Gain From 10% Appreciation of
USD
|
|
|
Foreign
Exchange (Loss) From 10% Depreciation of
USD
|
|
Call
options
|
|
$ |
(75.1 |
) |
|
$ |
2.6 |
|
|
$ |
(5.1 |
) |
Put
options
|
|
|
69.8 |
|
|
|
3.0 |
|
|
|
(1.2 |
) |
Net
position
|
|
$ |
(5.3 |
) |
|
$ |
5.6 |
|
|
$ |
(6.3 |
) |
As of
December 31, 2009, we had cross currency swap contract of approximately Mex$58.4
million. Collectively, our
swap contracts hedge against a portion of our forecasted Mexican Peso
denominated expenditures.
The table
below presents the impact on the Black-Scholes valuation of our currency swap
contract of a hypothetical 10% appreciation and a 10% depreciation of the U.S.
dollar against the swap contract for cash flow hedges as of December 31, 2009
(in millions):
|
|
USD
Value of Net Foreign Exchange Contracts
|
|
|
Foreign
Exchange (Loss) From 10% Appreciation of
USD
|
|
|
Foreign
Exchange Gain From 10% Depreciation of
USD
|
|
Swap
contract
|
|
$ |
4.3 |
|
|
$ |
(0.4 |
) |
|
$ |
0.5 |
|
Item
4. Controls and Procedures
|
(a)
|
Evaluation
of disclosure controls and
procedures
|
Our
management evaluated, with the participation of our Chief Executive Officer and
our Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form
10-Q. Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange Act of 1934 (i)
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (ii) is
accumulated and communicated to Plantronics’ management, including our Chief
Executive Officer and our Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
|
(b)
|
Changes
in internal control over financial
reporting
|
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We
are presently engaged in various legal actions arising in the normal course of
our business. We believe that it is unlikely that any of these
actions will have a material adverse impact on our operating results; however,
because of the inherent uncertainties of litigation, the outcome of any of these
actions could be unfavorable and could have a material adverse effect on our
financial condition, results of operations or cash flows. The U.S.
District Court for the Central District of Los Angeles signed an order approving
the final settlement of the lawsuit entitled In Re Bluetooth Headset Products
Liability Litigation brought against Plantronics, Inc., Motorola, Inc and
GN Netcom, Inc. alleging that the three companies failed to adequately warn
consumers of the potential for long term noise induced hearing loss if they used
Bluetooth
headsets. The companies contested the claims of the lawsuit, but
settled the lawsuit on a nationwide basis for an amount which we believe is less
than the cost of litigating and winning the lawsuit. On September 25,
2009, the Court signed a judgment in the case resolving all matters except the
issue of outstanding attorneys’ fees, which will be split amount the three
defendants. On October 22, 2009, the Court issued an order setting
the class counsel’s attorneys’ fees and costs and the incentive award at the
maximum amounts agreed to by the parties in their settlement. The
objectors to the settlement have filed a notice of appeal. Otherwise, there
were no material developments in the litigation on which we reported in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2009.
Investors
in our stock should carefully consider the following risk factors in connection
with any investment in our stock. Our stock price will reflect the
performance of our business relative to, among other things, our competition,
expectations of securities analysts or investors, and general economic market
conditions and industry conditions. Our business, financial condition
and results of operations could be materially adversely affected if any of the
following risks occur. Accordingly, the trading price of our stock
could decline, and investors could lose all or part of their
investment.
Economic
conditions could continue to materially adversely affect the
Company.
Our
operations and performance depend significantly on worldwide economic
conditions. Uncertainty about current global economic conditions
poses a risk as consumers and businesses have postponed spending in response to
tighter credit, negative financial news and/or declines in income or asset
values, which have had a material negative effect on demand for our
products. Other factors that have influenced demand include job loss
and creation, volatility in fuel and other energy costs, conditions in the
residential real estate and mortgage markets, labor and healthcare costs, access
to credit, consumer confidence, and other macroeconomic factors affecting
consumer spending behavior. These and other economic factors have had
a material adverse effect on demand for our products and on our financial
condition and operating results and may continue to have such an effect in the
future.
As a
result of the worldwide economic conditions described above, revenue in all
portions of our business declined in the fourth quarter of fiscal 2009 and in
most portions of our business in the first and second quarters of fiscal 2010 in
comparison to the comparable periods in the prior years. In the third
quarter of fiscal 2010, net revenues grew by 9% compared to the same period in
the prior year. Throughout fiscal 2010, net revenues increased on a sequential
quarterly basis; however, there is no assurance that there will not be another
economic slowdown or downturn. If conditions deteriorate further, our
forecasted demand may not materialize to the levels we require to achieve our
anticipated financial results, which, in turn, could have a material adverse
effect on our revenue, profitability and the market price of our
stock.
A
significant portion of our profits comes from the contact center
market. We have experienced a significant decline in that market and
a further decline in demand could materially adversely affect our
results. The economic conditions described above have resulted in a
reduction in the establishment of new contact centers and in capital investments
to expand or upgrade existing centers, and this has negatively affected our
business. We are not able to predict when economic conditions will
improve or when an increase in the establishment of new contact centers or an
increase in capital investments in contact centers may occur. Because
of our reliance on the contact center market, we have been more affected by
changes in the rate of contact center establishment and expansion and the
communications products used by contact center agents than would a company
serving a broader market. Any further decrease in the demand for
contact centers and related headset products will cause a further decrease in
the demand for our products which will materially adversely affect our business,
financial condition and results of operations.
Failure
to meet our anticipated demand projections could create excess levels of
inventory, which would result in additional reserves for excess and obsolete
inventory, negatively impacting our financial results.
Our
operating results are difficult to predict, and fluctuations may cause
volatility in the trading price of our common stock.
Given the
nature of the markets in which we compete, our revenues and profitability are
difficult to predict for many reasons, including the following:
|
·
|
Our operating results are highly
dependent on the volume and timing of orders received during the quarter,
which are difficult to forecast. Customers generally order on
an as-needed basis, and we typically do not obtain firm, long-term
purchase commitments from our customers. As a result, our
revenues in any quarter depend primarily on orders booked and shipped in
that quarter.
|
|
·
|
We incur a large portion of our
costs in advance of sales orders because we must plan research and
production, order components and enter into development, sales and
marketing, and other operating commitments prior to obtaining firm
commitments from our customers. In the event we acquire too
much inventory for certain products, the risk of future inventory
write-downs increases. In the event we have inadequate
inventory to meet the demand for particular products, we may miss
significant revenue opportunities or incur significant expenses such as
air freight, expediting shipments, and other negative variances in our
manufacturing processes as we attempt to make up for the
shortfall. When a significant portion of our revenue is derived
from new products, forecasting the appropriate volumes of production is
even more difficult.
|
|
·
|
In
connection with the sale of AEG, we also entered into a Transition Service
Agreement (“TSA”) with the acquirer at the time of sale which each party
is providing services to each other for a limited period. As a result of
the transition of employees, information technology services, facilities,
customers and suppliers to the acquirer and the continued services under
the TSA, our business may be disrupted which may affect our operating
results.
|
Fluctuations
in our operating results may cause volatility in the trading price of our common
stock.
If
we do not match production to demand, we may lose business or our gross margins
could be materially adversely affected.
Our
industry is characterized by rapid technological changes, frequent new product
introductions, short-term customer commitments and rapid changes in
demand. We determine production levels based on our forecasts of
demand for our products. Actual demand for our products depends on
many factors, which makes it difficult to forecast. We have
experienced differences between our actual and our forecasted demand in the past
and expect differences to arise in the future.
Some of
our products utilize long-lead time parts which are available from a limited set
of vendors. The combined effects of variability of demand among the
customer base and significant long-lead time of single sourced materials has
historically contributed to significant inventory write-downs, particularly in
inventory for consumer products. For Business-to-Business (“B2B”)
products, long life-cycles periodically necessitate last-time buys of raw
materials which may be used over the course of several years. We
routinely review inventory for usage potential, including fulfillment of
customer warranty obligations and spare part requirements. We write
down to net realizable value the excess and obsolete inventory. We
evaluate the future realizable value of inventories and impact on gross margins,
taking into consideration product life cycles, technological and product
changes, demand visibility and other market conditions. We believe
our current process for writing down inventory appropriately balances the risk
in the marketplace with a fair representation of the realizable value of our
inventory.
In view
of the uncertainties inherent in the recovery from the global recession, it is
particularly difficult to make accurate forecasts in this business
environment. Significant unanticipated fluctuations in supply or
demand and the global trend towards consignment of products could cause the
following operating problems, among others:
|
·
|
If
forecasted demand does not develop, we could have excess inventory and
excess capacity. Over-forecast of demand could result in higher
inventories of finished products, components and
sub-assemblies. In addition, because our retail customers have
pronounced seasonality, we must build inventory well in advance of the
December quarter in order to stock up for the anticipated future
demand. If we were unable to sell these inventories, we would
have to write off some or all of our inventories of excess products and
unusable components and sub-assemblies. Excess manufacturing
capacity could lead to higher production costs and lower
margins.
|
|
·
|
If
demand increases beyond that forecasted, we would have to rapidly increase
production. We currently depend on suppliers to provide
additional volumes of components and sub-assemblies, and we are
experiencing greater dependence on single source suppliers; therefore, we
might not be able to increase production rapidly enough to meet unexpected
demand. There could be short-term losses of sales while we are
trying to increase production.
|
|
·
|
The
production and distribution of Bluetooth and other
wireless headsets presents many significant manufacturing, marketing and
other operational risks and uncertainties
including:
|
|
·
|
our
dependence on third parties to supply key components, many of which have
long lead times;
|
|
·
|
our
ability to forecast demand for the variety of new products within this
product category for which relevant data is incomplete or unavailable;
and
|
|
·
|
longer
lead times with suppliers than commitments from some of our
customers.
|
|
·
|
If
we are unable to deliver products on time to meet the market window of our
retail customers, we will lose opportunities to increase revenues and
profits, or we may incur penalties for late delivery. We may
also be unable to sell these finished goods, which would result in excess
or obsolete inventory.
|
Any of
the foregoing problems could materially and adversely affect our business,
financial condition and results of operations.
Our
consumer business may have an adverse effect on our financial
condition.
Our
consumer business which primarily consists of Bluetooth headsets and
computer and gaming headsets is highly competitive. The risks faced
in connection with this include the following:
|
·
|
competition may continue to
increase in the retail markets more than we
expect;
|
|
·
|
our ability to meet the market
windows for consumer
products;
|
|
·
|
difficulties retaining or
obtaining shelf space for consumer products in our sales
channel;
|
|
·
|
difficulties in achieving a
sufficient gross margin and uncertainties in the demand for Bluetooth headsets and computer and gaming
headsets; and
|
|
·
|
the global economic weakness has
lessened the amount spent generally by consumers decreasing the demand for
consumer products.
|
We
have strong competitors and expect to face additional competition in the
future. If we are unable to compete effectively, our results of
operations may be adversely affected.
All of
our markets are intensely competitive. We could experience a decline
in average selling prices, competition on sales terms and conditions or
continual performance, technical and feature enhancements from our competitors
in the retail market. Also, aggressive industry pricing practices
have resulted in downward pressure on margins from both our primary competitors
as well as from less established brands.
Currently,
our single largest competitor is GN Store Nord A/S (“GN”), a Danish
telecommunications conglomerate with whom we experience price competition in the
business markets. Motorola is a significant competitor in the
consumer headset market, primarily in the mobile Bluetooth market, and has a
brand name that is very well known and supported with significant marketing
investments. Motorola also benefits from the ability to bundle other
offerings with its headsets. We are also experiencing competition
from other consumer electronics companies that currently manufacture and sell
mobile phones or computer peripheral equipment. These competitors
generally are larger, offer broader product lines, bundle or integrate with
other products’ communications headset tops and bases manufactured by them or
others, offer products containing bases that are incompatible with our headset
tops and have substantially greater financial, marketing and other resources
than we do.
Competitors
in audio devices vary by product line. The most competitive product
line is headsets for cell phones where we compete with Motorola, Nokia, GN’s
Jabra brand, Sony Ericsson, Samsung, Aliph’s Jawbone brand, and Belkin among
many others. Many of these competitors have substantially greater
resources than we have, and each of them has established market positions in
this business. In the PC and office and contact center markets, the
largest competitor is GN, as well as Sennheiser Communications. For
PC and gaming headset applications, our primary competitor is
Logitech. Our product markets are intensely competitive, and market
leadership changes frequently as a result of new products, designs and
pricing. We are facing additional competition from companies,
principally located in the Asia Pacific region, which offer very low cost
headset products, including products that are modeled on or are direct copies of
our products. These new competitors are offering very low cost
products which results in pricing pressure in the market. If market
prices are substantially reduced by such new entrants into the headset market,
our business, financial condition or results of operations could be materially
adversely affected.
If we do
not continue to distinguish our products, particularly our retail products,
through distinctive, technologically advanced features and design, as well as
continue to build and strengthen our brand recognition, our business could be
harmed. If we do not otherwise compete effectively, demand for
our products could decline, our gross margins could decrease, we could lose
market share, and our revenues and earnings could decline.
The
success of our business depends heavily on our ability to effectively market our
products, and our business could be materially adversely affected if markets do
not develop as we expect.
We
compete in the business market for the sale of our office and contact center
products. We believe that our greatest long-term opportunity for
profit growth is in the office market, and our foremost strategic objective for
this segment is to increase headset adoption. To this end, we are
investing in creating new products that are more appealing in functionality and
design as well as targeting certain vertical segments to increase
sales. We continue to believe that the implementation of UC
technologies by large corporations will be a significant long-term driver of
office headset adoption, and, as a result, a key long-term driver of revenue and
product growth. UC is the integration of voice and video-based
communications systems enhanced with software applications and IP
networks. It may include the integration of devices and media
associated with a variety of business workflows and applications, including
e-mail, instant messaging, presence, audio, video and web conferencing and
unified messaging. UC seeks to provide seamless connectivity and user
experience for enterprise workers regardless of their location and environment,
improving the overall business efficiency and providing more effective
collaboration among an increasingly distributed workforce. Despite
weak economic conditions, trial deployments of UC solutions and headsets
continue to grow, with some evidence that the cost savings and productivity
enhancements derived from UC are driving the expansion of existing deployments
in both the U.S. and Europe. We can give no assurance that
significant growth in UC will occur. However, we believe that we are
well positioned in the UC market and that our competitive position continues to
improve.
Our
ability to realize our UC plans and to achieve the financial results projected
to arise from UC adoption could be adversely affected by the following factors:
(i) the risk that, as UC becomes more widely adopted, competitors will offer
solutions that will effectively commoditize our headsets which, in turn, will
reduce the sales prices for our headsets; (ii) our plans are dependent upon
adoption of our UC solution by major platform providers such as Microsoft,
Avaya, IBM and Cisco, and we have a limited ability to influence such providers
with respect to the functionality of their platforms, their rate of deployment,
and their willingness to integrate their platforms with our solutions; (iii) the
development of UC solutions is technically complex and this may delay or
obstruct our ability to introduce solutions to the market on a timely basis and
that are cost effective, feature rich, stable and attractive to our customers;
(iv) our development of UC solutions is dependent on our ability to design,
develop and manufacture complex electronic systems comprised of hardware,
firmware and software that must work in a wide variety of environments and
multiple variations; (v) as UC becomes more widely adopted we anticipate that
competition for market share will increase, and some competitors may have
superior technical and economic resources, and (vi) UC solutions may not be
adopted with the breadth and speed in the marketplace that we currently
anticipate, and (vii) UC may evolve rapidly and unpredictably and our ability to
adapt to those changes and future requirements may impact our
profitability in this market and our overall margins.
Because
the major providers of UC systems utilize complex and proprietary platforms in
which our UC solutions will be integrated, it will be necessary for us to expand
our technical support capabilities. This expansion will result in
additional expenses to hire the personnel and develop the infrastructure
necessary to adequately serve our UC customers. Our support
expenditures may substantially increase over time as these platforms evolve and
as UC becomes more commonly adopted.
If these
investments do not generate incremental revenue, our business could be
materially affected. We are also experiencing a more aggressive and
competitive environment with respect to price in our business markets, leading
to increased order volatility which puts pressure on profitability and could
result in a loss of market share if we do not respond effectively.
We also
compete in the consumer market for the sale of our mobile, gaming, and Clarity
products. We believe that effective product promotion is highly
relevant in the consumer market, which is dominated by large brands that have
significant consumer mindshare. We have invested in marketing
initiatives to raise awareness and consideration of the Plantronics’
products. We believe this will help increase preference for
Plantronics and promote headset adoption overall. The consumer market
is characterized by relatively rapid product obsolescence, and we are at risk if
we do not have the right products at the right time to meet consumer
needs. In addition, some of our competitors have significant brand
recognition, and we are experiencing more competition in pricing actions, which
can result in significant losses and excess inventory.
If we are
unable to stimulate growth in our business, if our costs to stimulate demand do
not generate incremental profit, or if we experience significant price
competition, our business, financial condition, results of operations and cash
flows could suffer. In addition, failure to effectively market our
products to customers could lead to lower and more volatile revenue and
earnings, excess inventory and the inability to recover the associated
development costs, any of which could also have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
We
sell our products through various channels of distribution that can be volatile,
and failure to establish and maintain successful relationships with our channel
partners could materially adversely affect our business, financial condition or
results of operations. We have experienced the bankruptcy of certain
customers and further bankruptcies or financial difficulties of our customers
may occur.
We sell
substantially all of our products through distributors, retailers, OEMs and
telephony service providers. Our existing relationships with these
parties are not exclusive and can be terminated by either party without
cause. Our channel partners also sell or can potentially sell
products offered by our competitors. To the extent that our
competitors offer our channel partners more favorable terms or more compelling
products, such partners may decline to carry, de-emphasize or discontinue
carrying our products. In the future, we may not be able to retain or
attract a sufficient number of qualified channel partners. Further,
such partners may not recommend or may stop recommending our
products. In the future, our OEMs or potential OEMs may elect to
manufacture their own products that are similar to those we currently sell to
them. The inability to establish or maintain successful relationships
with distributors, OEMs, retailers and telephony service providers or to expand
our distribution channels could materially adversely affect our business,
financial condition or results of operations. Finally, as a result of
the global recession we have experienced the bankruptcy of certain customers,
and it is not possible to predict whether additional bankruptcies of our
customers may occur.
As a
result of the evolution of our Business-to-Consumer (“B2C”) business, our
customer mix is changing, and certain retailers, OEMs and wireless carriers are
becoming more significant. This greater reliance on certain large
channel partners could increase the volatility of our revenues and
earnings. In particular, we have several large customers whose order
patterns are difficult to predict. Offers and promotions by these
customers may result in significant fluctuations of their purchasing activities
over time. If we are unable to anticipate the purchase requirements
of these customers, our revenues may be adversely affected, or we may be exposed
to large volumes of inventory that cannot be immediately resold to other
customers.
Our
business will be materially adversely affected if we are not able to develop,
manufacture and market new products in response to changing customer
requirements and new technologies.
The
market for our products is characterized by rapidly changing technology,
evolving industry standards, short product life cycles and frequent new product
introductions. As a result, we must continually introduce new
products and technologies and enhance existing products in order to remain
competitive.
The
technology used in our products is evolving more rapidly now than it has
historically, and we anticipate that this trend may
accelerate. Historically, the technology used in lightweight
communications headsets has evolved slowly. New products have
primarily offered stylistic changes and quality improvements rather than
significant new technologies. Our increasing reliance and focus on
the consumer market has resulted in a growing portion of our products
incorporating new technologies, experiencing shorter lifecycles and a need to
offer deeper product lines. We believe this is particularly true for
our newer emerging technology products especially in the mobile, computer,
residential and certain parts of the office markets. In particular,
we anticipate a trend towards more integrated solutions that combine audio,
video, and software functionality, while currently our focus is limited to audio
products.
We have
been experiencing a trend away from corded headsets to cordless
products. In general, our corded headsets have had higher gross
margins than our cordless products, but the margin on cordless headsets is
trending higher. In addition, we expect that office phones will begin
to incorporate Bluetooth functionality,
which would open the market to consumer Bluetooth headsets and reduce
the demand for our traditional office telephony headsets and adapters as well as
impacting potential revenues from our own wireless headset systems, resulting in
lost revenue and lower margins. Should we not be able to maintain the
higher margins on our cordless products that we recently achieved, our revenue
and profits will decrease.
In
addition, innovative technologies such as UC have moved the platform for certain
of our products from our customers’ closed proprietary systems to open platforms
such as the PC. In turn, the PC has become more open as a result of
such technologies as cloud computing and open source code
development. As a result, we are exposed to the risk that current and
potential competitors could enter our markets and commoditize our products by
offering similar products.
The
success of our products depends on several factors, including our ability
to:
|
·
|
anticipate technology and market
trends;
|
|
·
|
develop innovative new products
and enhancements on a timely
basis;
|
|
·
|
distinguish our products from
those of our competitors;
|
|
·
|
create industrial design that
appeals to our customers and
end-users;
|
|
·
|
manufacture and deliver
high-quality products in sufficient volumes;
and
|
|
·
|
price our products
competitively.
|
If we are
unable to develop, manufacture, market and introduce enhanced or new products in
a timely manner in response to changing market conditions or customer
requirements, including changing fashion trends and styles, it will materially
adversely affect our business, financial condition and results of
operations. Furthermore, as we develop new generations of products
more quickly, we expect that the pace of product obsolescence will increase
concurrently. The disposition of inventories of excess or obsolete
products may result in reductions to our operating margins and materially
adversely affect our earnings and results of operations.
We
depend on original design manufacturers and contract manufacturers who may not
have adequate capacity to fulfill our needs or may not meet our quality and
delivery objectives which could have an adverse effect on our
business.
Original
design manufacturers and contract manufacturers produce key portions of our
product lines for us, including all of our Bluetooth
products. Our reliance on these original design manufacturers and
contract manufacturers involves significant risks, including reduced control
over quality and logistics management, the potential lack of adequate capacity
and loss of services. Financial instability of our manufacturers or
contractors resulting from the global recession or otherwise could result in our
having to find new suppliers which could increase our costs and delay our
product deliveries. These manufacturers and contractors may also
choose to discontinue building our products for a variety of
reasons. Consequently, we may experience delays in the timeliness,
quality and adequacy of product deliveries, any of which could harm our business
and operating results.
In the
fourth quarter of fiscal 2009, we announced our plan to outsource the
manufacturing of all of our Bluetooth headsets to
GoerTek, Inc., which is an existing supplier located in Weifang,
China. As a result, we stopped our manufacturing operations in our
Suzhou, China facility during the second quarter of fiscal 2010. The
manufacturing of our Bluetooth products is
therefore dependent upon GoerTek’s ability to deliver the quantities of products
that we demand in a timely manner and to meet our quality
standards. In the event that GoerTek is unable to meet our
requirements or becomes unable to remain in business as a result of the global
recession or otherwise, our Bluetooth business could be
severely and materially affected as it may be difficult to ramp-up a new
manufacturer on a timely and cost effective basis.
Prices
of certain raw materials, components and sub-assemblies may rise or fall
depending upon global market conditions.
We have
experienced volatility in costs from our suppliers, particularly in light of the
price fluctuations of oil and other products in the U.S. and around the
world. We may continue to experience volatility which could affect
profitability and/or market share. If we experience cost increases
and are unable to pass these on to our customers or to achieve operating
efficiencies that offset these increases, our business, financial condition and
results of operations may be materially and adversely affected.
The
failure of our suppliers to provide quality components or services in a timely
manner could adversely affect our results.
Our
growth and ability to meet customer demand depends in part on our ability to
obtain timely deliveries of raw materials, components, sub-assemblies and
products from our suppliers. We buy raw materials, components and
sub-assemblies from a variety of suppliers and assemble them into finished
products. We also have certain of our products manufactured for us by
third party suppliers. The cost, quality, and availability of such
goods are essential to the successful production and sale of our
products. Obtaining raw materials, components, sub-assemblies and
finished products entails various risks, including the following:
|
·
|
Rapid
increases in production levels to meet unanticipated demand for our
products could result in higher costs for components and sub-assemblies,
increased expenditures for freight to expedite delivery of required
materials, and higher overtime costs and other expenses. These
higher expenditures could lower our profit margins. Further, if
production is increased rapidly, there may be decreased manufacturing
yields, which may also lower our
margins.
|
|
·
|
We
obtain certain raw materials, sub-assemblies, components and products from
single suppliers, including all of our Bluetooth products from
GoerTek, Inc. Alternate sources for these items are not readily
available. Any failure of our suppliers to remain in business,
to provide us with the quantity of components or products that we need or
to purchase the raw materials, subcomponents and parts required by them to
produce and provide to us the components or products we need could
materially adversely affect our business, financial condition and results
of operations.
|
|
·
|
Although
we generally use standard raw materials, parts and components for our
products, the high development costs associated with emerging wireless
technologies require us to work with only a single source of silicon
chip-sets on any particular new product. We, or our supplier(s)
of chip-sets, may experience challenges in designing, developing and
manufacturing components in these new technologies which could affect our
ability to meet market schedules. Due to our dependence on
single suppliers for certain chip-sets, we could experience higher prices,
a delay in development of the chip-set, or the inability to meet our
customer demand for these new products. Additionally, these
suppliers or other suppliers may enter into bankruptcy, discontinue
production of the parts we depend on or may not be able to produce due to
financial difficulties or the global recession. If this occurs,
we may have difficulty obtaining sufficient product to meet our
needs. This could cause us to fail to meet customer
expectations. If customers turn to our competitors to meet
their needs, there could be a long-term adverse impact on our revenues and
profitability. Our business, operating results and financial
condition could therefore be materially adversely affected as a result of
these factors.
|
|
·
|
Because
of the lead times required to obtain certain raw materials,
sub-assemblies, components and products from certain foreign suppliers, we
may not be able to react quickly to changes in demand, potentially
resulting in either excess inventories of such goods or shortages of the
raw materials, sub-assemblies, components and products. Lead
times are particularly long on silicon-based components incorporating
radio frequency and digital signal processing technologies and such
components are an increasingly important part of our product
costs. In particular, many B2C customer orders have shorter
lead times than the component lead times, making it increasingly necessary
to carry more inventory in anticipation of those orders, which may not
materialize. Failure in the future to match the timing of
purchases of raw materials, sub-assemblies, components and products to
demand could increase our inventories and/or decrease our revenues and
could materially adversely affect our business, financial condition and
results of operations.
|
|
·
|
Most
of our suppliers are not obligated to continue to provide us with raw
materials, components and sub-assemblies. Rather, we buy most
of our raw materials, components and subassemblies on a purchase order
basis. If our suppliers experience increased demand or
shortages, it could affect deliveries to us. In turn, this
would affect our ability to manufacture and sell products that are
dependent on those raw materials, components and
subassemblies. Any such shortages would materially adversely
affect our business, financial condition and results of
operations.
|
We
have significant foreign manufacturing operations or rely on third party
manufacturers that are inherently risky, and a significant amount of our
revenues are generated internationally.
We have a
manufacturing facility in Tijuana, Mexico. We stopped our manufacturing
operations at our Suzhou, China facility during the second quarter of fiscal
2010. We also have suppliers and other vendors throughout Asia,
including GoerTek, Inc. who will be the sole manufacturer of our Bluetooth products located in
Weifang, China. We also generate a significant amount of our revenues
from foreign customers. The inherent risks of international
operations could materially adversely affect our business, financial condition
and results of operations.
The types
of risks faced in connection with international operations and sales include,
among others:
|
·
|
fluctuations in foreign exchange
rates;
|
|
·
|
cultural differences in the
conduct of business;
|
|
·
|
greater difficulty in accounts
receivable collection and longer collection
periods;
|
|
·
|
the impact of the global
recession;
|
|
·
|
reduced protection for
intellectual property rights in some
countries;
|
|
·
|
unexpected changes in regulatory
requirements;
|
|
·
|
tariffs and other trade
barriers;
|
|
·
|
political conditions, civil
unrest or criminal activities within each
country;
|
|
·
|
the management and operation of
an enterprise spread over various
countries;
|
|
·
|
the burden and administrative
costs of complying with a wide variety of foreign laws and regulations;
and
|
We
are exposed to fluctuations in foreign currency exchange rates which may
adversely affect our gross profit and profitability.
Fluctuations
in foreign currency exchange rates impact our revenues and profitability because
we report our financial statements in U.S. dollars, whereas a significant
portion of our sales to customers are transacted in other currencies,
particularly the Euro and the Great Britain Pound
(“GBP”). Furthermore, fluctuations in foreign currencies impact our
global pricing strategy resulting in our lowering or raising selling prices in
one or more currencies in order to avoid disparity with U.S. dollar prices and
to respond to currency-driven competitive pricing actions. We also
have significant manufacturing operations in Mexico and fluctuations in the
currency exchange rate can impact our gross profit and
profitability. Currency exchange rates are difficult to predict, and
we may not be able to predict changes in exchange rates in the
future. We hedged a portion of our Euro and GBP forecasted revenue
exposure for the future 12 month period, which offset the impact of a stronger
dollar during the past fiscal year. In addition, in the second
quarter of fiscal 2010 we began hedging a portion of our Peso forecasted cost of
revenues. However, over time, the current exchange rates or a further
increase in the value of the U.S. dollar relative to the Euro, the GBP or the
Peso could negatively impact our revenues, gross profit and profitability in the
future.
Our
corporate tax rate may increase, which could adversely impact our cash flow,
financial condition and results of operations.
We have
significant operations in various tax jurisdictions throughout the world, and a
substantial portion of our taxable income historically has been generated in
jurisdictions outside of the U.S. Currently, some of our operations
are taxed at rates substantially lower than U.S. tax rates. If our
income in these lower tax jurisdictions were no longer to qualify for these
lower tax rates, if the applicable tax laws were rescinded or changed, or if the
mix of our earnings shifts from lower rate jurisdictions to higher rate
jurisdictions, our operating results could be materially adversely
affected. While we are looking at opportunities to reduce our tax
rate, there is no assurance that our tax planning strategies will be
successful. In addition, many of these strategies will require a
period of time to implement. Moreover, if U.S. or other foreign tax
authorities change applicable tax laws or successfully challenge the manner in
which our profits are currently recognized, our overall taxes could increase,
and our business, cash flow, financial condition and results of operations could
be materially adversely affected.
The
provisions of the Income Tax Topic of the FASB ASC clarify the accounting for
uncertainty in income tax positions. This interpretation requires
that we recognize in the consolidated financial statements only those tax
positions determined to be more likely than not of being sustained which has the
potential to add more variability to our future effective tax
rates.
We
are subject to environmental laws and regulations that expose us to a number of
risks and could result in significant liabilities and costs.
There are
multiple initiatives in several jurisdictions regarding the removal of certain
potential environmentally sensitive materials from our products to comply with
the European Union (“EU”) and other Directives on the Restrictions of the use of
Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) and
on Waste Electrical and Electronic Equipment (“WEEE”). In certain
jurisdictions, the RoHS legislation was enacted as of July 1, 2006; however,
other jurisdictions have delayed implementation. While we believe
that we will have the resources and ability to fully meet the requirements of
the RoHS and WEEE directives universally, if unusual occurrences arise, or, if
we are wrong in our assessment of what it will take to fully comply, there is a
risk that we will not be able to comply with the legislation as passed by the EU
member states or other global jurisdictions. If this were to happen,
a material negative effect on our financial results may occur.
We are
subject to various federal, state, local and foreign environmental laws and
regulations on a global basis, including those governing the use, discharge and
disposal of hazardous substances in the ordinary course of our manufacturing
process. Although we believe that our current manufacturing
operations comply in all material respects with applicable environmental laws
and regulations, it is possible that future environmental legislation may be
enacted or current environmental legislation may be interpreted in any given
country to create environmental liability with respect to our facilities,
operations, or products. To the extent that we incur claims for
environmental matters exceeding reserves or insurance for environmental
liability, our operating results could be negatively impacted.
Our
products are subject to various regulatory requirements, and changes in such
regulatory requirements may adversely impact our gross margins as we comply with
such changes or reduce our ability to generate revenues if we are unable to
comply.
Our
products must meet the requirements set by regulatory authorities in the
numerous jurisdictions in which we sell them. For example, certain of
our office and contact center products must meet certain standards to work with
local phone systems. Certain of our wireless office and mobile
products must work within existing frequency ranges permitted in various
jurisdictions. As regulations and local laws change, we must modify
our products to address those changes. Regulatory restrictions may
increase the costs to design, manufacture and sell our products, resulting in a
decrease in our margins or a decrease in demand for our products if the costs
are passed along. Compliance with regulatory restrictions may impact
the technical quality and capabilities of our products reducing their
marketability.
We
have intellectual property rights that could be infringed on by others, and we
may infringe on the intellectual property rights of others.
Our
success depends in part on our ability to protect our copyrights, patents,
trademarks, trade dress, trade secrets, and other intellectual property,
including our rights to certain domain names. We rely primarily on a
combination of nondisclosure agreements and other contractual provisions as well
as patent, trademark, trade secret, and copyright laws to protect our
proprietary rights. Effective trademark, patent, copyright, and trade
secret protection may not be available in every country in which our products
and media properties are distributed to customers. The process of
seeking intellectual property protection can be lengthy and
expensive. Patents may not be issued in response to our applications,
and any patents that may be issued may be invalidated, circumvented or
challenged by others. If we are required to enforce our intellectual
property or other proprietary rights through litigation, the costs and diversion
of management's attention could be substantial. In addition, the
rights granted under any intellectual property may not provide us competitive
advantages or be adequate to safeguard and maintain our proprietary rights.
Moreover, the laws of certain countries do not protect our proprietary rights to
the same extent as do the laws of the U.S. If we do not enforce and
protect our intellectual property rights, it could materially adversely affect
our business, financial condition and results of operations.
Patents,
copyrights, trademarks and trade secrets are owned by individuals or entities
that may make claims or commence litigation based on allegations of infringement
or other violations of intellectual property rights. As we have
grown, the intellectual property rights claims against us have
increased. There has also been a general trend of increasing
intellectual property assertion against corporations that make and sell
products. Our products and technologies may be subject to certain
third-party claims and, regardless of the merits of the claim, intellectual
property claims are often time-consuming and expensive to litigate, settle, or
otherwise resolve. In addition, to the extent claims against us are
successful, we may have to pay substantial monetary damages or discontinue the
manufacture and distribution of products that are found to be in violation of
another party’s rights. We also may have to obtain, or renew on less
favorable terms, licenses to manufacture and distribute our products, which may
significantly increase our operating expenses. In addition, many of
our agreements with our distributors and resellers require us to indemnify them
for certain third-party intellectual property infringement
claims. Discharging our indemnity obligations may involve
time-consuming and expensive litigation, may result in substantial settlements
or damages awards, may result in our products being enjoined, and may result in
the loss of a distribution channel or retail partner.
We
are exposed to potential lawsuits alleging defects in our products and/or other
claims related to the use of our products.
The use
of our products exposes us to the risk of product liability and hearing loss
claims. These claims have in the past been, and are currently being,
asserted against us. None of the previously resolved claims have
materially affected our business, financial condition or results of operations,
nor do we believe that any of the pending claims will have such an
effect. Although we maintain product liability insurance, the
coverage provided under our policies could be unavailable or insufficient to
cover the full amount of any such claim. Therefore, successful
product liability or hearing loss claims brought against us could have a
material adverse effect upon our business, financial condition and results of
operations.
Our
mobile headsets are used with mobile telephones. There has been
continuing public controversy over whether the radio frequency emissions from
mobile telephones are harmful to users of mobile phones. We
believe that there is no conclusive proof of any health hazard from the use of
mobile telephones but research in this area is incomplete. We have
tested our headsets through independent laboratories and have found that use of
our corded headsets reduces radio frequency emissions at the user's head to
virtually zero. Our Bluetooth and other wireless
headsets emit significantly less powerful radio frequency emissions than mobile
phones. However, if research establishes a health hazard from the use
of mobile telephones or public controversy grows even in the absence of
conclusive research findings, there could be an adverse impact on the demand for
mobile phones, which could reduce demand for headset
products. Likewise, should research establish a link between radio
frequency emissions and wireless headsets and public concern in this area grows,
demand for our wireless headsets could be reduced creating a material adverse
effect on our financial results.
There is
also continuing and increasing public controversy over the use of mobile
telephones by operators of motor vehicles. While we believe that our
products enhance driver safety by permitting a motor vehicle operator to
generally be able to keep both hands free to operate the vehicle, there is no
certainty that this is the case, and we may be subject to claims arising from
allegations that use of a mobile telephone and headset contributed to a motor
vehicle accident. We maintain product liability insurance and general
liability insurance that we believe would cover any such
claims. However, the coverage provided under our policies could be
unavailable or insufficient to cover the full amount of any such
claim. Therefore, successful product liability claims brought against
us could have a material adverse effect upon our business, financial condition
and results of operations.
Our
stock price may be volatile and the value of your investment in Plantronics
stock could be diminished.
The
market price for our common stock may continue to be affected by a number of
factors, including:
|
·
|
uncertain economic conditions,
including the length of the recovery from the domestic and global
recession, inflationary pressures, and the decline in investor confidence
in the market place;
|
|
·
|
changes in our published
forecasts of future results of
operations;
|
|
·
|
quarterly variations in our or
our competitors' results of operations and changes in market
share;
|
|
·
|
the announcement of new products
or product enhancements by us or our
competitors;
|
|
·
|
further deterioration of the
current economy could impact our decision to declare future
dividends;
|
|
·
|
the loss of services of one or
more of our executive officers or other key
employees;
|
|
·
|
changes in earnings estimates or
recommendations by securities
analysts;
|
|
·
|
developments in our
industry;
|
|
·
|
sales of substantial numbers of
shares of our common stock in the public
market;
|
|
·
|
general economic, political, and
market conditions, including market volatility;
and
|
|
·
|
other factors unrelated to our
operating performance or the operating performance of our
competitors.
|
We
have intangible assets and goodwill recorded on our balance sheet, and we have
recently recognized impairment losses. If the carrying value of our
goodwill or intangible assets is not recoverable, an impairment loss may be
recognized, which would adversely affect our financial results.
As a
result of the acquisition of Altec Lansing and Volume Logic in fiscal 2006, we
recorded a significant amount of goodwill and intangible assets on our balance
sheet.
During
the third quarter of fiscal 2009, as a result of the effect of the economic
conditions at the time on the business, we impaired all of the Altec goodwill
and a portion of the intangibles assets. During the second quarter of
fiscal 2010, as a result of signing a non-binding letter of intent to sell Altec
Lansing, we wrote off all remaining related intangible assets due to further
impairment.
We have
$17.8 million of remaining goodwill and intangible asset as of December 31,
2009. It is not possible at this time to determine if any future
impairment charge would result or, if it does, whether such charge would be
material related to these remaining assets. If such a charge is
necessary, it may have a material adverse affect our financial
results.
There
remain risks from the sale of Altec Lansing, our discontinued AEG business
segment.
Under the
terms of the Asset Purchase Agreement, dated October 2, 2009, a First Amendment
to the Asset Purchase Agreement, dated November 30, 2009, and a Side Letter to
the Asset Purchase Agreement, dated January 8, 2010, (collectively, the
“Purchase Agreement”), we retained certain assets and liabilities of Altec
Lansing as of the closing date, December 1, 2009, including accounts receivable,
accounts payable and certain other liabilities. We expect these net assets to
result in additional operating cash flow once the retained working capital
assets are monetized in fiscal 2010. We also retained the use of
certain strategic assets, including the right to use the Altec Lansing brand for
specific music applications for three years. We can offer no
assurance as to the level of cash flow, if any, that may result from such assets
nor as to the timing of the receipt of any such cash flow.
The
remaining significant risks faced related to the sale of Altec Lansing include
the following:
|
·
|
Under
the Purchase Agreement, the final purchase price is based on a target net
asset value. Based on the final net asset value at closing, we
have recorded a liability payable back to the Purchaser of approximately
$2.7 million as a result of the shortfall in the final
value. We have provided the final net asset value transferred
to the Purchaser which is subject to final review by the
Purchaser. If the Purchaser does not agree on the final value,
we could spend further time and expenses in properly determining the value
of the net assets transferred in addition to any potential increase in the
amount which may be due back to the
Purchaser.
|
|
·
|
As
part of the sale, we retained the existing AEG accounts receivable balance
as of December 1, 2009. However, all sales related reserves on
the accounts receivable were transferred to the Purchaser. As a
result of the sale and which balances were transferred, customers may be
confused as to whom payment is due. As part of the Purchase
Agreement, we established and recorded an escrow of $2.5 million which
consists of a holdback for potential customer short payments on the AEG
accounts receivable for sales related reserves that were transferred to
the Purchaser. If the actual amount of customer offsets to our
accounts receivable is greater than the escrow holdback, we will be
required to collect additional amounts from the
Purchaser.
|
|
·
|
In
connection with the sale of Altec Lansing, we also entered into a
Transition Service Agreement (“TSA”) with the Purchaser at the time of
sale by which each party agrees to provide services to each other for a
limited period. As a result of the transition of employees,
information technology services, facilities, customers and suppliers to
the acquirer and the continued services under the TSA, our business may be
disrupted until the transition services are completed which may affect our
operating results.
|
In
addition, pursuant to the Purchase Agreement, we have agreed to indemnify the
Purchaser following the closing of the transaction against specified losses in
connection with the AEG business and generally retain responsibility for various
legal liabilities that may accrue. We have also made representations
and warranties to the Purchaser about the condition of AEG, including matters
relating to intellectual property, employee matters and environmental
laws. Following the closing, if the Purchaser makes an
indemnification claim because it has suffered a loss or a third party has
commenced an action against the Purchaser, we may incur substantial expenses
resolving the Purchaser’s claim or defending the Purchaser and ourselves against
the third party action, which would harm our operating results. In
addition, our ability to defend ourselves may be impaired because most of our
former AEG employees are employees of the Purchaser and our management may have
to devote a substantial amount of time to resolving the claim, and, as we are no
longer in the AEG business, we may not be able to readily offer products,
service and intellectual property in settlement. In addition, these
indemnity claims may divert management attention from our continued
business. It may also be difficult to determine whether a claim from
a third party stemmed from actions taken by us or the Purchaser and we may
expend substantial resources trying to determine which party has responsibility
for the claim.
We
may be required to record further impairment charges in future quarters as a
result of the decline in value of our investments in auction rate
securities.
We hold a
variety of auction rate securities (“ARS”) primarily comprised of interest
bearing state sponsored student loan revenue bonds guaranteed by the Department
of Education. These ARS investments are designed to provide liquidity
via an auction process that resets the applicable interest rate at predetermined
calendar intervals, typically every 7 or 35 days. However, the
uncertainties in the credit markets have affected all of our holdings, and, as a
consequence, these investments are not currently liquid. As a result,
we will not be able to access these funds until a future auction of these
investments is successful, the underlying securities are redeemed by the issuer,
or a buyer is found outside of the auction process. Maturity dates
for these ARS investments range from 2029 to 2039.
The
valuation of our investment portfolio is subject to uncertainties that are
difficult to predict. Factors that may impact its valuation include
changes to credit rating, interest rate changes, and general liquidity in the
Student Loan Market.
In
November 2008, we accepted an agreement (the “Agreement”) from UBS AG (“UBS”),
the investment provider for our $27.3 million par value ARS portfolio, granting
us certain rights relating to our ARS (the “Rights”). The Rights
permit us to require UBS to purchase our ARS at par value, which is defined as
the price equal to the liquidation preference of the ARS plus accrued but unpaid
dividends or interest, at any time during the period from June 30, 2010 to July
2, 2012. Conversely, UBS has the right, in its discretion, to
purchase or sell the ARS at any time until July 2, 2012, so long as we receive
payment at par value upon any sale or liquidation. We expect to sell
our ARS under the Rights; however, if we do not exercise the Rights before July
2, 2012, they will expire and UBS will have no further rights or obligation to
buy the ARS. As long as we hold the Rights, the ARS will continue to
accrue interest as determined by the auction process or the terms of the
ARS. UBS’s obligations under the Rights are not secured and do not
require UBS to obtain any financing to support its performance obligations under
the Rights. UBS has disclaimed any assurance that it will have
sufficient financial resources to satisfy its obligations under the
Rights.
Although
we currently have the ability to hold these ARS investments until a recovery of
the auction process, until maturity or until purchased by UBS, if UBS does not
purchase the ARS as per their Agreement, the current market conditions
deteriorate further or a recovery in market values does not occur, we may incur
further other-than-temporary impairment charges resulting in further losses in
our statement of operations, which would reduce net income.
War,
terrorism, public health issues or other business interruptions could disrupt
supply, delivery or demand of products, which could negatively affect our
operations and performance.
War,
terrorism, public health issues or other business interruptions whether in the
U.S. or abroad, have caused or could cause damage or disruption to international
commerce by creating economic and political uncertainties that may have a strong
negative impact on the global economy, our company, and our suppliers or
customers. Our major business operations are subject to interruption
by earthquake, flood or other natural disasters, fire, power shortages,
terrorist attacks, and other hostile acts, public health issues, flu or similar
epidemics, and other events beyond our control. Our corporate
headquarters, information technology, manufacturing, certain research and
development activities, and other critical business operations, are located near
major seismic faults or flood zones. While we are partially insured
for earthquake-related losses or floods, our operating results and financial
condition could be materially affected in the event of a major earthquake or
other natural or manmade disaster.
Although
it is impossible to predict the occurrences or consequences of any of the events
described above, such events could significantly disrupt our
operations. In addition, should major public health issues arise,
including pandemics, we could be negatively impacted by the need for more
stringent employee travel restrictions, limitations in the availability of
freight services, governmental actions limiting the movement of products between
various regions, delays in production ramps of new products, and disruptions in
the operations of our manufacturing vendors and component
suppliers. Our operating results and financial condition could be
adversely affected by these events.
Our
business could be materially adversely affected if we lose the benefit of the
services of key personnel.
Our
success depends to a large extent upon the services of a limited number of
executive officers and other key employees. The unanticipated loss of
the services of one or more of our executive officers or key employees could
have a material adverse effect upon our business, financial condition and
results of operations.
We also
believe that our future success will depend in large part upon our ability to
attract and retain additional highly skilled technical, management, sales and
marketing personnel. Competition for such personnel is
intense. We may not be successful in attracting and retaining such
personnel, and our failure to do so could have a material adverse effect on our
business, operating results or financial condition.
We
are required to evaluate our internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such
evaluation could result in a loss of investor confidence in our financial
reports and have an adverse effect on our stock price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to
report on, and our independent registered public accounting firm to attest to,
the effectiveness of our internal control over financial
reporting. We have an ongoing program to perform the system and
process evaluation and testing necessary to comply with these
requirements.
We have
and will continue to incur significant expenses and management resources for
Section 404 compliance on an ongoing basis. In the event that our
chief executive officer, chief financial officer or independent registered
public accounting firm determines in the future that our internal control over
financial reporting is not effective as defined under Section 404, investor
perceptions may be adversely affected and could cause a decline in the market
price of our stock.
Provisions
in our charter documents and Delaware law and our adoption of a stockholder
rights plan may delay or prevent a third party from acquiring us, which could
decrease the value of our stock.
Our Board
of Directors has the authority to issue preferred stock and to determine the
price, rights, preferences, privileges and restrictions, including voting and
conversion rights, of those shares without any further vote or action by the
stockholders. The issuance of our preferred stock could have the
effect of making it more difficult for a third party to acquire
us. In addition, we are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which could also have the
effect of delaying or preventing our acquisition by a third
party. Further, certain provisions of our Certificate of
Incorporation and bylaws could delay or make more difficult a merger, tender
offer or proxy contest, which could adversely affect the market price of our
common stock.
In 2002,
our Board of Directors adopted a stockholder rights plan, pursuant to which we
distributed one right for each outstanding share of common stock held by
stockholders of record as of April 12, 2002. Because the rights may
substantially dilute the stock ownership of a person or group attempting to take
us over without the approval of our Board of Directors, the plan could make it
more difficult for a third party to acquire us, or a significant percentage of
our outstanding capital stock, without first negotiating with our Board of
Directors regarding such acquisition.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
The
actual declaration of future dividends and the establishment of record and
payment dates are subject to final determination by the Audit Committee of the
Board of Directors of Plantronics each quarter after its review of our financial
performance.
Share
Repurchase Programs
The
following table presents a month-to-month summary of the stock purchase activity
in the third quarter of fiscal 2010:
|
|
Total
Number of Shares
Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs 1
|
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or Programs 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
27, 2009 to October 24, 2009
|
|
|
67,000 |
|
|
$ |
26.54 |
|
|
|
67,000 |
|
|
|
652,100 |
|
October
25, 2009 to November 28, 2009
|
|
|
390,000 |
|
|
$ |
25.53 |
|
|
|
390,000 |
|
|
|
262,100 |
|
November
29, 2009 to December 26, 2009
|
|
|
505,000 |
|
|
$ |
24.92 |
|
|
|
505,000 |
|
|
|
757,100 |
|
1
|
On
November 10, 2008, the Board of Directors authorized a new plan to
repurchase 1,000,000 shares of common stock. During fiscal
2009, we repurchased 89,000 shares of our common stock under this plan in
the open market at a total cost of $1.0 million and an average price of
$11.54 per share. As of March 31, 2009, there were 911,000
remaining shares authorized for repurchase. In the first
quarter of fiscal 2010, we repurchased an additional 26,000 shares under
this plan in the open market at a total cost of approximately $0.4 million
and an average price of $17.11 per share. In the second quarter
of fiscal 2010, we repurchased an additional 165,900 shares under this
plan in the open market at a total cost of approximately $4.0 million and
an average price of $24.24 per share. In the third quarter of
fiscal 2010, we repurchased the remaining 719,100 shares under this plan
in the open market at a total cost of approximately $18.2 million and an
average price of $25.26.
|
2
|
On
November 27, 2009, the Board of Directors authorized the repurchase of
1,000,000 shares under a new repurchase plan. In the third
quarter of fiscal 2010, we repurchased 242,900 shares in the open market
at a total cost of approximately $6.5 million and an average price of
$26.80 per share. As of December 31, 2009, there were 757,100
remaining shares authorized for repurchase under the current
plan.
|
We have
filed the following documents as Exhibits to this Form 10-Q:
|
Asset
Purchase Agreement, dated October 2, 2009, by and among Plantronics, Inc.,
Plantronics, B.V., and Audio Technologies Acquisition,
LLC.
|
|
First
Amendment to Asset Purchase Agreement, dated November 30, 2009, by and
among Plantronics, Inc., Plantronics, B.V., Altec Lansing, LLC (f/k/a
Audio Technologies Acquisition, LLC) and Audio Technologies Acquisition
B.V.
|
|
Side
Letter, dated January 8, 2010, to the Asset Purchase Agreement, dated
October 2, 2009, by and among Plantronics, Inc., Plantronics, B.V., and
Audio Technologies Acquisition, LLC., as amended by that certain First
Amendment to Asset Purchase Agreement, dated November 30, 2009, by and
among Plantronics, Inc., Plantronics, B.V., Altec Lansing, LLC (f/k/a
Audio Technologies Acquisition, LLC), and Audio Technologies Acquisition
B.V.
|
|
Certification
of the President and CEO Pursuant to Rule
13a-14(a)/15d-14(a).
|
|
Certification
of Senior VP, Finance and Administration, and CFO Pursuant to Rule
13a-14(a)/15d-14(a).
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
PLANTRONICS,
INC.
|
|
|
|
|
Date:
January 27, 2010
|
By: /s/ Barbara
V. Scherer
|
|
|
|
Barbara
V. Scherer
|
|
|
|
Senior
Vice President - Finance and Administration and Chief Financial
Officer
|
|
|
|
(Principal
Financial Officer and Duly Authorized Officer of the
Registrant)
|
64