UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(MARK
ONE)
x
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended March 28, 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)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Name
of each exchange on which registered
|
|||
|
COMMON
STOCK, $.01 PAR VALUE
|
NEW
YORK STOCK EXCHANGE
|
|||
|
PREFERRED
SHARE PURCHASE RIGHTS
|
NEW
YORK STOCK EXCHANGE
|
Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
x
No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨
No
x
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
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
x
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 definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one).
|
Large
Accelerated Filer
x
|
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 Act). Yes
¨
No
x
The
aggregate market value of the common stock held by non-affiliates of the
Registrant, based upon the closing price of $22.60 for shares of the
Registrant's common stock on September 26, 2008, the last business day of the
registrant’s most recently completed second fiscal quarter as reported by the
New York Stock Exchange, was approximately $1,104,192,709. In
calculating such aggregate market value, shares of common stock owned of record
or beneficially by officers, directors, and persons known to the Registrant to
own more than five percent of the Registrant's voting securities as of September
26, 2008 (other than such persons of whom the Registrant became aware only
through the filing of a Schedule 13G filed with the Securities and Exchange
Commission) were excluded because such persons may be deemed to be affiliates.
This determination of affiliate status is for purposes of this calculation only
and is not conclusive.
As of
April 25, 2009, 48,891,819 shares of common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant's Proxy Statement for its 2009 Annual Meeting of Stockholders
to be held on July 29, 2009 are incorporated by reference into Part III of this
Annual Report on Form 10-K.
Pl
antron
ics, Inc.
FORM
10-K
For
the Year Ended March 31, 2009
TABLE
OF CONTENTS
|
Part
I.
|
Page
|
|
|
Item
1.
|
1
|
|
|
Item 1A.
|
13
|
|
|
Item 1B.
|
26
|
|
|
Item
2.
|
26
|
|
|
Item
3.
|
27
|
|
|
Item
4.
|
27
|
|
|
Part
II.
|
||
|
Item
5.
|
28
|
|
|
Item
6.
|
30
|
|
|
Item
7.
|
32
|
|
|
Item 7A.
|
58
|
|
|
Item
8.
|
60
|
|
|
Item
9.
|
99
|
|
|
Item 9A.
|
99
|
|
|
Item
9B.
|
99
|
|
|
Part
III.
|
||
|
Item
10.
|
100
|
|
|
Item
11.
|
100
|
|
|
Item
12.
|
100
|
|
|
Item
13.
|
101
|
|
|
Item
14.
|
101
|
|
|
Part
IV.
|
||
|
Item
15.
|
102
|
|
|
|
104
|
Plantronics,
the Plantronics logo design, Altec Lansing, Clarity, CS70N, inMotion, and Sound
Innovation are trademarks or registered trademarks of Plantronics,
Inc.
DECT™ is
a trademark of ETSI registered for the benefit of its members in
France and other jurisdictions.
Apple
and iPod are trademarks 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
This
Annual Report on Form 10-K is filed with respect to our fiscal year
2009. Each of our fiscal years ends on the Saturday closest to the
last day of March. Fiscal year 2009 ended on March 28, 2009, fiscal
year 2008 ended on March 29, 2008, and fiscal year 2007 ended on March 31,
2007. Each fiscal year consisted of 52 weeks.
For purposes of consistent
presentation, we have indicated in this report that each fiscal year ended
"March 31" of the given year, even though the actual fiscal year end may have
been on a different date.
CERTAIN
FORWARD-LOOKING INFORMATION
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These statements may generally be identified
by the use of such words as "expect," "anticipate," "believe," "intend," "plan,"
"will," or "shall," and are based on current expectations and entail various
risks and uncertainties. Our actual results could differ materially
from those anticipated in such forward-looking statements as a result of a
number of factors, including, but not limited to the factors discussed in the
subsection entitled "Risk Factors" in Item 1A of this Form 10-K. This
Annual Report on Form 10-K and our Annual Report to Stockholders should be read
in conjunction with these risk factors. We undertake no obligation to
update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
ITEM
1.
BUSI
NESS
COMPANY
BACKGROUND
Plantronics, Inc. (“Plantronics,” “the
Company,” “we”, “our,” or “us”) is a leading worldwide designer, manufacturer,
and marketer of lightweight communications headsets, telephone headset systems,
and accessories for the business and consumer markets under the Plantronics
brand. We are also a leading manufacturer and marketer of high
quality docking audio products, computer and home entertainment sound systems,
and a line of headphones for personal digital media under our Altec Lansing
brand. In addition, we manufacture and market, under our Clarity brand,
specialty telephone products, such as telephones for the hearing impaired, and
other related products for people with special communication needs.
We ship a
broad range of communications products to over 80 countries through a worldwide
network of distributors, retailers, wireless carriers, original equipment
manufacturers (“OEMs”), 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.
Plantronics
was founded and incorporated in the State of California in 1961 and initially
became a public company in 1977. We then became a private company in
a leveraged buyout in 1989 and subsequently reincorporated in the State of
Delaware. In 1994, Plantronics again became a public company listed
on the New York Stock Exchange under the ticker symbol “PLT”.
Plantronics
acquired the Walker Equipment Corporation and Ameriphone, Inc. in 1986 and 2002,
respectively. In January 2004, we changed the name of our Walker and
Ameriphone businesses to Clarity. Clarity is a leading supplier of
telephones with advanced sound processing, notification systems, assisted
listening devices and other communications devices for the hearing-impaired
markets.
On April
4, 2005, Plantronics acquired Octiv, Inc., which we renamed Volume Logic, Inc.,
(“Volume Logic”). Volume Logic’s intellectual property provides enhancements for
both the digital music and telephony audio experiences.
On August
18, 2005, Plantronics acquired Altec Lansing Technologies, Inc. (“Altec
Lansing”), a market leader in docking and personal computer (“PC”) audio
systems. The acquisition of Altec Lansing enabled us to combine our
expertise in voice communication with Altec Lansing’s expertise in music
entertainment to meet the full audio needs of the consumer in their personal and
professional lives. Altec Lansing, which is now a division of
Plantronics, designs and manufactures digital PC audio systems for PCs and
docking audio devices in all price ranges that complement the style and
electronics of the most advanced PCs, televisions, iPods and other MP3 players,
docking audio devices, smartphones, and entertainment centers.
Our
business is organized into two reportable segments: the Audio
Communications Group (“ACG”) and the Audio Entertainment Group
(“AEG”).
|
|
·
|
Audio
Communications Group
: Our ACG segment is
our core business and 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 offices and
contact centers, with mobile and cordless phones, and with computers and
gaming consoles. Plantronics headsets are communications tools,
providing freedom to use your hands while staying “connected,” freedom to
move around, and freedom from using keyboards by enhancing speech
recognition capabilities. We apply a variety of technologies to
develop high quality products to meet the needs of our customers, whether
it is for communications or personal entertainment. Plantronics
headsets are widely used with cell phones, in contact centers, in the
office, in the home, for computer applications such as Unified
Communications (“UC”), Voice over Internet Protocol (“VoIP”), for gaming,
and for other specialty applications. Our major product
categories include
Office and
Contact Center (“OCC”)
, 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. All
products developed and managed by ACG are included in this segment and are
generally sold under the Plantronics and Clarity
brands.
|
|
|
·
|
Audio
Entertainment Group:
Our AEG segment is engaged in the
design, manufacture, sales and marketing of audio solutions and related
technologies. We offer docking audio products, computer and
digital audio systems, headphones and microphones for personal digital
media, and digital radio frequency audio systems. Our
major product categories include
Docking
Audio
, which
includes all speakers whether USB, AC or battery-powered that work with
portable digital players, such as Apple iPod and other MP3 players;
PC
Audio
, which
includes self-powered speaker systems used for computers and other
multi-media application systems; and
Other
, which includes all of our
personal audio (headphones) and home audio systems. All
products developed and managed by AEG are included in this
segment. Such products are generally sold under the Altec
Lansing brand and/or the inMotion
sub-brand.
|
In the
second quarter of fiscal 2008, the Company transitioned the responsibility and
management of the Altec Lansing branded PC headsets from AEG to ACG, and as a
result, effective July 1, 2007, the revenue and resulting gross profit from all
PC headsets is included in the ACG reporting segment within the Gaming and
Computer Audio category.
We
provide access free of charge through a link on our website
(www.plantronics.com), to the following filings as soon as reasonably
practicable after they are electronically filed with or furnished to the
Securities and Exchange Commission: our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those
reports filed or furnished pursuant to Section 13 (a) or 15(d) of the Securities
Exchange Act of 1934.
Our
principal executive offices are located at 345 Encinal Street, Santa Cruz, CA,
95060. Our telephone number is (831) 426-5858. Our
internet address is
www.plantronics.com
. Our
Investor Relations website, which contains, among other things, documents
regarding our corporate governance and our Board committee charters, is also
accessible through
www.plantronics.com
.
BUSINESS
SEGMENTS AND MARKET INFORMATION
In fiscal
2009, our ACG segment accounted for $674.6 million of our net revenues and our
AEG segment accounted for $91.0 million of our net revenues. Further
information on our segments, as required by Statement of Financial Accounting
Standards No. 131 (“Disclosures about Segments of an Enterprise and Related
Information”) and Item 101(b) of Regulation S-K, can be found in the
Consolidated Financial Statements and related notes herein.
The
following are discussions of the industry background, the key markets and
product offerings for both our ACG and AEG segments.
AUDIO
COMMUNICATIONS GROUP
General
Industry Background
ACG
operates predominantly in the consumer electronics market and focuses on the
design, manufacture and distribution of headsets for business and consumer
applications, and other specialty products for the hearing
impaired. Our ACG segment targets enhanced communications for offices
and contact centers, mobile and cordless phones, and computers and gaming
consoles. We offer our products primarily under two brands –
Plantronics
and
Clarity
, although we also
offer music-first headsets under the
Altec Lansing
brand.
On a
long-term basis, the demand for headsets has grown in both our traditional
markets, such as the enterprise markets, as well as in the consumer
market. In each of these markets, the trend towards wireless products
has been a significant factor. In fiscal 2009, the impact of the
global recession caused demand to decrease. However, we believe that
the long-term trend will resume as the global recession eases and eventually is
replaced by economic growth.
Our
headset products enhance communications by providing the following
benefits:
|
·
|
better sound quality that
provides clearer conversations on both ends of a call through a variety of
features and technologies, including noise-canceling microphones, Digital
Signal Processing (“DSP”), and
more;
|
|
·
|
wireless freedom allowing people
to take and make calls as they move freely around their office or home
without cords or cables;
|
|
·
|
multi-tasking benefits that allow
people to use a computer, a Personal Data Assistant (“PDA”) or other
device, take notes and organize files while talking hands
free;
|
|
·
|
contributing to greater driving
safety and enabling a motor vehicle operator to comply with hands-free
legislation by having both hands free to drive while talking on a cell
phone;
|
|
·
|
voice command and control that
let people take advantage of voice dialing and/or other voice-based
features to make communications and the human/electronic interface more
natural and convenient;
|
|
·
|
providing ergonomic relief from
repetitive stress injuries and discomfort associated with placing a
telephone handset between the shoulder and
neck;
|
|
·
|
providing greater comfort and
convenience than a telephone alone on longer
calls;
|
|
·
|
enabling emerging UC integration
and PC and VoIP applications, including speech recognition, Internet
telephony and gaming;
|
|
·
|
providing a convenient means for
connecting between various applications and voice networks, whether that
be between land line and mobile phones, or between PC-based communications
and other networks; and
|
|
·
|
providing greater privacy than
speakerphones, and with wireless products, the ability to move from public
to private space when
required.
|
The
proliferation of desktop computing makes communications headsets a product of
choice in many occupations because they permit the user to be more efficient in
an ergonomically comfortable environment. Growing awareness of driver
safety and impending or already existing hands-free legislation requiring
mandatory hands-free devices for cell phone communications in cars, has led to
increased headset adoption for cell phone users. The increased
adoption of new and existing technologies, such as UC,
Bluetooth
, VoIP, Digital
Enhanced Cordless Telecommunications (“DECT
™
”), and DSP, each of which
is described below, also contributed to the increase in demand for telephone
headsets in the following ways:
|
|
·
|
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.
|
|
|
·
|
Bluetooth
wireless technology is a
short-range communications technology intended to replace the cables
connecting portable and/or fixed devices while maintaining high levels of
security. The key features of
Bluetooth
technology are robustness, low
power and low cost. The
Bluetooth
specification defines a uniform
structure for a wide range of devices to connect and communicate with each
other.
Bluetooth
technology has achieved global
acceptance such that any
Bluetooth
enabled device,
almost
anywhere in
the world, can connect to other
Bluetooth
enabled devices in
proximity.
|
|
|
·
|
VoIP
is a technology that allows a
person to make telephone calls using a broadband Internet connection
instead of a regular (or analog) phone line. VoIP converts the
voice signal from a person’s telephone into a digital signal that travels
over the Internet and then converts it back at the other end so that the
caller can speak to anyone with a regular (or analog) phone
line.
|
|
|
·
|
DECT
™
is
a technology that optimizes
audio quality, lowers interference with other wireless devices, and is
digitally encrypted for maximum call
security.
|
|
|
·
|
DSP
is a technology that delivers
acoustic protection and optimal sound quality through noise reduction,
echo cancellation, and other algorithms to improve both transmit and
receive quality.
|
Markets
Our ACG
products are designed to meet the needs of specific markets and applications
such as offices (ranging from enterprise to home offices), contact centers,
mobile devices (such as cell phones and PDAs), computer and gaming, residential
and other specialty applications. These markets and applications are
increasingly overlapping as work styles and lifestyles change, and people use
devices for multiple applications such as communication, music, and video
entertainment. We serve these markets through our following product
groups:
Office
and Contact Center
The
office market comprises our largest revenue stream with a broad range of
communications headsets, including high-end, ergonomically designed headsets,
audio processors, and telephone systems. Growth in this market comes
from three main factors:
|
|
·
|
the
adoption of wireless solutions and the freedom they
allow;
|
|
|
·
|
increasing
deployment of UC systems; and
|
|
|
·
|
a growing awareness of the
benefits of headsets.
|
The
contact center market is our second largest revenue stream and most mature
market. We believe that the long-term outlook for the contact center
is one of modest growth. We expect that contact centers will
increasingly adopt VoIP technology to help improve productivity and reduce
costs. We develop headsets specifically tailored to VoIP applications
and, as VoIP adoption increases, we believe that we will continue to lead in new
product performance.
Mobile
Mobile
represents our largest unit volume market and provides a significant opportunity
for growth, especially now that we have largely completed the transition from
corded to
Bluetooth
products for mobile phone applications. Use of headsets is growing
worldwide, particularly due to continued
Bluetooth
technology adoption
and hands-free legislation for cell phones. As headsets become more
mainstream, users are becoming more fashion conscious and style has become as
important as functionality and technology. Our mobile headsets merge
technological innovations with style.
Entertainment
and Computer Audio
Entertainment
and Computer Audio headsets, whether they are used for interactive on-line
gaming or switching between music and phone calls for multi-functional devices,
represent an emerging market opportunity for us.
We
believe that a number of fundamental factors are likely to increase our
customers’ need for PC-compatible headsets in the future, including the
convergence of telephony and entertainment, internet multimedia applications
such as streaming audio and video, VoIP, gaming, and video
conferencing. As devices providing these users’ needs converge, our
headsets may need to be PC-compatible, cell phone compatible, MP3 compatible or
various combinations of these. We are monitoring our product roadmap
to meet these potential future customer requirements.
Home
and Home Office (“H2O”)
Home and
Home Office represents an emerging market. Telephone usage in these
environments often requires mobility, the performance of multiple tasks, and
work-at-home lifestyles. We expect the use of headsets in this market
to increase with the growth in home offices, remote workers, and professionals
working from home.
Specialty
Products
Our
specialty products address the unique needs of various consumer groups, one of
which is the increasing number of people suffering from hearing loss
worldwide. Clarity offers a comprehensive range of communications
products that serve customers with mild, moderate, and severe hearing loss as
well as the deaf community. Our distribution of these products
includes specialized distributors, retail, government programs, audiologists
and other health care professionals.
AUDIO
ENTERTAINMENT GROUP
General
Industry Background
AEG
operates predominantly in the consumer electronics market and focuses on the
design, manufacture and distribution of a wide range of products, such as
docking audio systems, multimedia speakers, headphones, and other audio
products. Our AEG segment targets advanced audio solutions for
personal computers, video gaming, personal audio, MP3 players and home
theater. We offer our products primarily under two brands – Altec
Lansing
and
inMotion.
The
consumer electronics market is undergoing a significant transformation where, as
a result of digital technology and increased availability of digital content, a
variety of once isolated market segments, including televisions, DVD players,
stereos, CD players, cameras and PCs are converging to create a market for new
network devices. This change is driving the demand for new high-end,
flexible digital solutions in home theater, video gaming and personal
audio. Higher portability, connectivity and wireless technology are
other industry trends, especially in the mobile markets, that require high-end
audio solutions. Our success in this market will depend on our
ability to develop and provide innovative solutions that maximize the audio
functions of devices such as MP3 players, such as the Apple iPod, satellite
radio and music enabled cellular phones, including the Apple
iPhone. To this end, the inMotion product line provides a portable
audio system for MP3 players, including the iPod and iPhone, CDs, and other
portable audio players. The major manufacturers in this changing and
demanding industry require certain key competencies, which are:
|
|
·
|
leadership in
innovation;
|
|
|
·
|
a powerful brand;
and
|
|
|
·
|
global
distribution.
|
Because
our AEG products are primarily consumer goods sold in the retail channel, the
holiday sales in the December quarter typically account for a seasonal spike in
net revenues.
In fiscal 2009, our AEG segment was
adversely impacted by continued
pressures from
strong competition, declines in foreign
exchange rates and weak economic conditions. These are
the
key factor
s
affecting revenue as well as gross
margin for our AEG segment and the Company as a whole
. We substantially completed
the refreshment of the AEG product line in fiscal 2009 but did not achieve the
anticipated results due to a weaker than expected holiday season and the
economic decline due to the global recession.
We are evaluating various
alternatives to achieve profitability for AEG and project the segment will
generate relatively small losses in the first half of fiscal 2010 and should be
profitable in the second half of fiscal 2010 based on new products with lower
costs comprising most of the sales mix by the second half of the
fiscal year.
Markets
Docking
Audio
Our
Docking Audio market provides the largest revenue source in the AEG business,
and includes all speakers whether USB, AC or battery-powered that work with
portable digital players, such as iPod or MP3 players under the inMotion brand,
and also portable speakers for use with other audio solutions such as music
enabled cellular phones. We believe there is a significant growth
opportunity for us driven by the growth of the MP3 player and cellular
markets. Our future growth in this market depends on the growth of
the MP3 player market, our ability to successfully attach to new generations of
MP3 players, and the design and development of competitively priced products
that keep up with this rapidly developing and highly competitive
market.
PC
Audio
Our
second largest overall market in the AEG business in terms of revenue is the PC
Audio market, first identified with the PC-speaker. PC Audio, or
“active powered” products are defined as self-powered speaker systems used for
computers and other multi-media application systems. Typical
applications of PC Audio products include PC audio, gaming, and home
theater. We believe there are opportunities for this market to grow
if we:
|
|
·
|
continue efforts to maintain our
strength in this category domestically, while expanding into international
markets; and
|
|
|
·
|
introduce new products that
incorporate breakthrough technologies and
designs.
|
Other
The
remainder of the AEG products, which represent a small portion of total AEG net
revenues, include a wide array of headphone products for portable stereos, CD
players, MP3 players and other audio devices, and home audio and home theater
products.
In the
second quarter of fiscal 2008, the Company transitioned the responsibility and
management of Altec Lansing branded PC headsets from the AEG segment to the ACG
segment, and as a result, effective July 1, 2007, the revenue and resulting
gross profit from all PC headsets is included in the ACG reporting segment
within the Gaming and Computer Audio category.
FOREIGN
OPERATIONS
In fiscal
2007, 2008 and 2009 net revenues outside the U.S. accounted for approximately
39%, 39% and 38%, respectively, of our total net revenues. Revenues
derived from foreign sales generally are subject to additional risks such as
fluctuations in exchange rates, increased tariffs, the imposition of other trade
barriers, and potential currency restrictions. In fiscal 2009, we
continued to engage in hedging activities to limit our transaction and economic
exposures, and to mitigate our exchange rate risks. We hedged a
portion of our positions in the Euro and the Great Britain Pound, which
constitute the most significant portion of our currency
exposure. Further information regarding our foreign operations, as
required by Item 101(d) of Regulation S-K, can be found in the Consolidated
Financial Statements and related notes herein.
COMPETITION
The
market for our products is very competitive and some of our competitors have
significant financial resources, as well as production, marketing, engineering
and other capabilities to develop, manufacture, market and sell their
products.
In the
ACG segment, one of our primary competitors is GN Netcom, a subsidiary of GN
Great Nordic Ltd., a Danish telecommunications conglomerate, who competes with
us in the office, contact center, and mobile markets and on a limited scale, in
the PC market. In addition, Motorola, Logitech, and Aliph are
significant competitors in the consumer headset market and Sennheiser
Communications is a competitor in the computer, office, and contact center
markets. We also believe there may be increased competition from the
major cell phone device makers such as Nokia, Motorola, Sony, Samsung and
Apple.
We
believe the principal factors for ACG to be successful and competitive in each
of its markets are the following:
|
|
·
|
our understanding of emerging
markets and new technologies, such as UC, and our ability to react quickly
to the opportunities that they
provide;
|
|
|
·
|
our ability to bring to market
products that deliver on performance, product design, style, comfort,
features, sound quality, simplicity, price and
reliability;
|
|
|
·
|
maintenance of our brand name
recognition and reputation;
|
|
|
·
|
superior customer service,
support and warranty terms;
and
|
|
|
|
|
|
·
|
effective and efficient
distribution channels that allow us to meet delivery
schedules.
|
In the
AEG segment, our major competitors include Bose, Apple, Logitech, Creative Labs,
iHome, and Harman International. AEG predominantly serves the
consumer electronics market. This market is principally served by the
retail channel, and, to a lesser extent, through certain OEMs. We are
experiencing a new dynamic in the consumer electronics industry driven by the
digital evolution that is influencing the way consumers look for solutions to
their musical entertainment needs. Our key competition is coming from
new and existing solution providers that offer a convenient, cost effective and
lifestyle-compatible method of delivering content when people want it, where
they want it, and how they want it.
We
believe the principal factors for AEG to be successful and competitive in each
of its markets are the following:
|
|
·
|
our understanding of changing
market trends, consumer needs, technologies and our ability to capitalize
on the opportunities resulting from these market
changes;
|
|
|
·
|
bringing to market
well-differentiated products that perform well against competitive
offerings, price, style, brand, and effective displays in retail
settings;
|
|
|
·
|
efficient and cost-effective
supply chain processes; and
|
|
|
·
|
excellent channel service
and support with a reputation for
quality.
|
We believe that we have competed
successfully with respect to these factors with our ACG products; however, we
have not recently competed successfully with our AEG
products.
We
substantially completed the refreshment of the AEG product line in fiscal 2009
but did not achieve the anticipated results due to a weaker than expected
holiday season and the economic decline due to the global recession.
We are evaluating various
alternatives to achieve profitability for AEG and project the segment will
generate relatively small losses in the first half of fiscal 2010 and should be
profitable in the second half of fiscal 2010 based on new products with lower
costs comprising most of the sales mix by the second half of the
fiscal year.
RESEARCH
AND DEVELOPMENT
We
believe that the future success of our business depends upon our ability to
enhance our existing products, to develop compelling new products, to develop
cost effective products, to qualify these products with our customers, to
successfully introduce these products to existing and new markets on a timely
basis, and to commence and sustain volume production to meet customer
demands.
During
fiscal 2009, we developed innovative products that enabled us to better address
changing customer demands and emerging market trends. Specifically,
we introduced a number of new products, which featured new technologies to
address both the ACG and AEG market trends. Our goal is to bring the
right products to market at the right time, and we will continue to improve our
development processes during fiscal 2010.
Our core
R&D focus in fiscal 2010 is on UC which will require incremental investments
in firmware and software engineering to ensure the broad compatibility of our
products in the enterprise systems with which they will be
deployed. We are also investing in this area with the goal of
increasing the value-add of our products and offerings. We expect to
reduce the level of internal staffing and the related expense in
Bluetooth
new product
development and rely to a greater extent on development partners. We
will also continue our efforts to improve the efficiency of our development
processes through strategic architecting, common platforms, increased use of
software tools, and better training.
The
success of new product introductions is dependent on a number of factors,
including appropriate new product selection, timely completion and introduction
of new product designs, cost-effective manufacturing of such products, quality
of new products, the acceptance of new technologies such as
Bluetooth
, and general market
acceptance of new products. Traditionally, the technology of
telephone headsets has evolved slowly, and our product life cycles have
historically been relatively long. The next generation products
usually include stylistic changes and quality improvements, but these products
are based on technology that is similar to our existing products. Our newer
emerging technology products, particularly in the mobile and computer markets,
are exhibiting shorter life cycles more similar to the consumer electronics
market and are consequently more sensitive to market trends and
fashion. With the acquisition of Altec Lansing, we have increased our
consumer business in the electronics markets. We believe that
changes in technology will come at a faster pace. In addition, to
avoid product obsolescence, we will continue to monitor technological changes in
telephony, as well as users' demands for new technologies.
During
fiscal 2007, 2008 and 2009, we incurred approximately $71.9 million, $77.0
million and $72.1 million, respectively, in research, development and
engineering expenses. Historically, we have conducted most of our
research and development with an in-house staff, with limited use of
contractors. Key locations for our research and development staff are
our facilities in the United States (“U.S.”), Mexico, China, and the United
Kingdom. During the fourth quarter of fiscal 2006, we opened a design
facility in Suzhou, China, co-located with our other Asia Pacific hub
operations, which focused primarily on ACG products. In March
2009, we announced our plans to outsource the production of our
Bluetooth
products in
China. As a result, our manufacturing facility in Suzhou, China will
be closed, and we are currently in the process of putting the facility and the
related land rights up for sale. Our intention is for
Bluetooth
research and
development, supply chain management as well as sales, marketing and
administrative support functions, which are all part of our Asia Pacific hub, to
continue to be led from our Suzhou facility until our Suzhou facility is sold,
at which time, our employees will be relocated to a new nearby location better
suited for their continuing responsibilities. In the second half of
fiscal 2008 and the first half of fiscal 2009, in conjunction with our
restructuring of AEG’s China operations, we moved AEG’s research and development
facilities which had been located in Dongguan, China and Hong Kong to a new site
located in Shenzhen, China.
SALES
AND DISTRIBUTION
We
maintain a direct sales force worldwide to provide ongoing customer support and
service globally. We use commissioned manufacturers' representatives to assist
in selling through the retail channel. We have substantially
integrated our sales organization between our two business
segments.
We have a
well-established, multi-level worldwide distribution network to support our
customers’ needs. To more efficiently and effectively service
customer orders, we have substantially integrated our distribution processes for
our ACG and AEG businesses in order to take advantages of synergies, which has
resulted in a reduced number of distribution centers. We are
continuing to evaluate our logistics processes, and are in the process of
implementing new strategies to further reduce our transportation
costs. Currently, we have distribution centers located in the
following locations:
|
|
·
|
Tijuana,
Mexico, which provides logistics services for products destined for
customers
in
the U.S., Canada, Asia Pacific, and Latin America
regions;
|
|
|
·
|
Etten-Leur,
Netherlands, which provides logistics services for products shipped to
customers in our Europe, Middle East and Africa
market;
|
|
|
·
|
Milford,
Pennsylvania, which provides logistics services for products which are
primarily shipped to customers in the
US;
|
|
|
·
|
Hong
Kong, which provides logistics services for products which are shipped to
our Tijuana, Mexico, Milford, Pennsylvania and Netherlands distribution
centers as well as to customers located in
Asia;
|
|
|
·
|
Suzhou,
China, which provides logistics services for products which are shipped
within Mainland China;
|
|
|
·
|
Melbourne,
Australia, which provides logistics services for products which are
shipped to the retail channel in Australia and New
Zealand;
|
|
|
·
|
Sao
Paulo, Brazil, which provides logistics services for products which are
shipped to customers within Brazil;
and
|
|
|
·
|
Tokyo,
Japan, which provides logistics services for products which are shipped to
customers within Japan.
|
We use
third party warehouses in Etten-Leur, Netherlands as well as in Hong Kong,
Australia, Brazil and Japan. We operate all other warehouse
facilities.
Our
commercial distributors include headset specialists, national wholesalers, and
regional wholesalers. The wholesalers typically offer a wide variety of
products from multiple vendors to both resellers and end users. Our
commercial distribution channel generally maintains inventory of our
products.
Our
retail channel consists of (1) consumer electronics retailers, consumer products
retailers, office supply distributors; (2) catalog and mail order companies; (3)
mass merchants; (4) warehouse clubs; and (5) wireless carrier stores. Our
AEG products are predominantly distributed through retailers. In addition,
ACG headsets are sold through retailers who sell headsets to corporate
customers, small businesses, and to individuals who use them for a variety of
personal and professional purposes. Revenues from this channel are
cyclical, with our third fiscal quarter typically being the strongest quarter
due to holiday seasonality. Our retail channel also maintains a
substantial inventory of our products, and a substantial amount of our domestic
retail partners manage inventories of both ACG and AEG products on
consignment.
We have a
broad, diverse group of customers whose businesses are located throughout the
world. Our principal customers are distributors, retailers, carriers,
and OEMs. Our commercial distributors and retailers represent our
first and second largest sales channels in terms of net revenues, respectively.
Our two business segments share many of the same customers. No
customer accounted for more than 10% of our consolidated net revenues in fiscal
2007, 2008 or 2009.
Our
telephony OEMs and manufacturers of automatic call distributor systems and other
telecommunications and computer equipment providers also utilize our headsets.
Contact center equipment OEMs do not typically manufacture their own
peripheral products and, therefore, distribute our headsets under their own
private label, or as a Plantronics-branded product. Mobile OEMs include
both manufacturers of cell phones and wireless carriers. Wireless carriers
do not manufacture headsets, but distribute our headsets as a
Plantronics-branded product or under their own private label. Mobile
OEMs, on the other hand, generally require their own design and will sell
products under their private label.
Our
telephony service provider channel is comprised of telephone service providers
that purchase headsets from us for use by their own agents. Certain
service providers also resell headsets to their customers.
Computer
OEMs include both manufacturers of computer hardware (including PCs and
specialized components and accessories for PCs) and software. Most
computer OEMs do not manufacture headsets but look for manufacturers such as
Plantronics to supply headsets that can be used with their
products.
We also
make direct sales as a General Services Administration (“GSA”) contractor to
certain government agencies, including NASA and the FAA. In addition,
certain distributors are authorized resellers under a GSA schedule price list
and sell our products to government customers pursuant to that
agreement. These sales did not comprise a significant portion of our
net revenues in fiscal 2009.
Our
products may also be purchased directly from our website at
www.plantronics.com
.
BACKLOG
Our
backlog of unfilled orders was $28.0 million at March 31, 2009 compared to $35.5
million at March 31, 2008. We include all purchase orders scheduled
for delivery over the next 12 months in backlog. For both segments of
our business, we have a “book and ship” business model whereby we fulfill the
majority of our orders within 48 hours of our receipt of the
order. Our backlog is occasionally subject to cancellation or
rescheduling by the customer on short notice with little or no
penalty. Because of our “book and ship” model, as well as the
uncertainty of order cancellations or rescheduling, we do not believe our
backlog as of any particular date is indicative of actual sales for any future
period and, therefore, should not be used as a measure of future
revenue.
MANUFACTURING
AND SOURCES OF MATERIALS
Manufacturing
operations for our ACG products consist primarily of assembly and
testing. We have two main manufacturing facilities, which are located
in Tijuana, Mexico and Suzhou, China. In March 2009, we entered into
an agreement with an existing third party contract manufacturer to outsource the
manufacturing of our
Bluetooth
products in China
which will result in the discontinuance of manufacturing of our
Bluetooth
products at the
Suzhou, China facility in fiscal 2010. We have a substantially
smaller assembly operation in California, and our assembly operation in the
United Kingdom which was closed during fiscal 2009. In addition, we
outsource the manufacturing of a limited number of our products to third
parties, typically in China and other countries in
Asia.
Prior to
the fourth quarter of fiscal 2008, approximately half of our AEG products were
manufactured at a facility in Dongguan, China, and the remainder of the products
were outsourced to a limited number of third party contract manufacturers who
are predominantly located in China. We shut down our Dongguan, China
facility at the end of the third quarter of fiscal 2008 and, in fiscal 2009, we
principally outsourced production to third party manufacturers in China along
with the limited use of our Suzhou, China facility.
We
purchase the components for our ACG products, including proprietary semi-custom
integrated circuits, amplifier boards and other electrical components, primarily
from suppliers in Asia, Mexico, the U.S., and Europe. We purchase the
components for our AEG products from suppliers in China, which was managed from
our procurement office in Shenzhen, China. The majority of our
components and sub-assemblies used in our manufacturing operations are obtained,
or are reasonably available, from dual-source suppliers, although we do have a
certain number of sole-source suppliers.
As a
result of our restructuring activities in fiscal 2008 in Hong Kong and China for
our AEG products and in fiscal 2009 in China and Mexico for our ACG products, we
expect to be able to reduce manufacturing costs as well as costs associated with
procurement activities.
We
procure materials to meet forecasted customer requirements. Special
products and certain large orders are quoted for delivery after receipt of
orders at specific lead times. We maintain minimum levels of finished
goods based on market demand in addition to inventories of raw materials, work
in process, and sub-assemblies and components. We write-down
inventory items determined to be either excess or obsolete.
ENVIRONMENTAL
MATTERS
We have
complied with the European Union 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
requirements. Additionally, we are compliant with the RoHS
initiatives in China and Korea.
We are
subject to various federal, state, local and foreign environmental laws and
regulations, including those governing the use, discharge and disposal of
hazardous substances in the ordinary course of our manufacturing
process. We believe that our current manufacturing operations comply
in all material respects with applicable environmental laws and
regulations. However, it is possible that future environmental
legislation may be enacted or current environmental legislation may be
interpreted to create environmental liability with respect to our facilities,
operations, or products.
INTELLECTUAL
PROPERTY
We maintain a program of seeking patent
protection for our technologies when we believe it is commercially
appropriate. As of March 31, 2009, we had 475 worldwide patents in
force, expiring
between
2009 and 2033.
Our
success will depend in part on our ability to obtain patents and preserve other
intellectual property rights covering the design and operation of our
products. We intend to continue to seek patents on our inventions
when commercially appropriate. The process of seeking patent
protection can be lengthy and expensive, and there can be no assurance that
patents will be issued for currently pending or future applications or that our
existing patents or any new patents issued will be of sufficient scope or
strength or provide meaningful protection or any commercial advantage to
us. We may be subject to, or may initiate, litigation or patent
office interference proceedings, which may require significant financial and
management resources. The failure to obtain necessary licenses or
other rights or the advent of litigation arising out of any such intellectual
property claims could have a material adverse effect on our
operations.
We own
trademark registrations in the U.S. and a number of other countries with respect
to the Plantronics, Clarity and Altec Lansing trademarks as well as the names of
many of our products and product features. We currently have U.S. and
foreign trademark applications pending in connection with certain new products
and product features. We also attempt to protect our trade secrets
and other proprietary information through comprehensive security measures,
including agreements with customers and suppliers, and proprietary information
agreements with employees and consultants. We may seek copyright
protection where we believe it is applicable. We own a number of
domain name registrations and intend to seek more as
appropriate. There can be no assurance that our existing or future
copyright registrations, trademarks, trade secrets or domain names will be of
sufficient scope or strength or provide meaningful protection or any commercial
advantage to us.
EMPLOYEES
On March
31, 2009, we employed approximately 3,600 people worldwide, including
approximately 1,900 and 700 employees at our manufacturing facilities in
Tijuana, Mexico and Suzhou, China, respectively. To our knowledge, no
employees are currently covered by collective bargaining
agreements. We experienced a brief work stoppage in our Suzhou, China
plant as a result of our March 2009 restructuring announcement that we will be
discontinuing
Bluetooth
production at this location in fiscal 2010. That stoppage was
resolved, and we believe that in China, and throughout the world, our employee
relations are good.
Set forth
below is certain information regarding the executive officers of Plantronics and
their ages as of March 31, 2009.
|
NAME
|
AGE
|
POSITION
|
||
|
Ken
Kannappan
|
49
|
President
and Chief Executive Officer
|
||
|
Clay
Hausmann
|
37
|
Vice
President, Corporate Marketing
|
||
|
Don
Houston
|
54
|
Senior
Vice President, Sales
|
||
|
Barry
Margerum
|
57
|
Chief
Strategy Officer
|
||
|
Vicki
Marion
|
55
|
President,
Audio Entertainment Group
|
||
|
Renee
Niemi
|
44
|
Vice
President, General Manager, Mobile & Entertainment
|
||
|
Mike
Perkins
|
50
|
Vice
President, Product Development & Technology
|
||
|
Barbara
Scherer
|
53
|
Senior
Vice President, Finance & Administration and Chief Financial
Officer
|
||
|
Joyce
Shimizu
|
54
|
Vice
President, General Manager Home & Home Office
|
||
|
Carsten
Trads
|
53
|
President,
Clarity Equipment
|
||
|
Philip
Vanhoutte
|
53
|
Managing
Director, Europe, Middle East & Africa
|
||
|
Larry
Wuerz
|
51
|
Senior
Vice President, Worldwide Operations
|
||
|
Chuck
Yort
|
50
|
Vice
President, General Manager, Business to Business
Solutions
|
Mr.
Kannappan joined Plantronics in 1995 as Vice President of Sales and was promoted
to various positions prior to being named President and Chief Operating Officer
in March 1998. In 1999, he was promoted to Chief Executive Officer
and appointed to the Board of Directors. Prior to joining
Plantronics, Mr. Kannappan was Senior Vice President of Investment Banking for
Kidder, Peabody & Co. Incorporated, where he was employed from 1985
to1995. Mr. Kannappan has a Bachelor of Arts degree in Economics from
Yale University and a Master of Business Administration from
Stanford University. Mr. Kannappan is also a Director of Mattson
Technology, Inc., a supplier of advanced process equipment for the semiconductor
industry.
Mr.
Hausmann joined Plantronics in 2005 as Vice President, Corporate Communications
and was promoted to Vice President, Corporate Marketing in
2006. Prior to joining Plantronics, Mr. Hausmann served as Managing
Director of the San Francisco and Los Angeles Offices of Ogilvy Public Relations
Worldwide. Mr. Hausmann has a Bachelor of Arts degree in Broadcast
Journalism from the S.I. Newhouse School of Public Communications at
Syracuse University.
Mr.
Houston joined Plantronics in 1996 as Vice President of Sales and was promoted
to Senior Vice President of Sales in 1998. From 1995 through 1996,
Mr. Houston served as Vice President of Worldwide Sales for Proxima Corporation,
a designer, developer, manufacturer and marketer of multi-media projection
products. From 1985 to 1995, Mr. Houston held a number of positions
at Calcomp, Inc., which is engaged in the business of manufacturing computer
peripherals for the CAD and graphic market, including Regional Sales Manager and
Vice President of Sales, Service and Marketing. Prior to 1985, Mr.
Houston held various sales and marketing management positions with IBM
Corporation. Mr. Houston graduated from the University of Arizona
with a Bachelor of Science degree in Business/Marketing.
Mr.
Margerum joined Plantronics in 1994 as Vice President of Marketing and was
promoted in 1996 to President and General Manager of the Computer and Mobile
Systems Group. In 1997, he left Plantronics to become President and
CEO of Euphonix, Inc., a public company in the high-end audio equipment space.
In 2000, he re-joined Plantronics and in 2004 became Vice President of
Strategy and Business Development and in 2008, he was named Chief Strategy
Officer. Prior to joining Plantronics, from 1989 to 1994, Mr.
Margerum was CEO of Mitem Corporation, a middleware software
company. From 1980 to 1989, he was Vice President of Marketing for
GRiD Systems Corporation, a laptop computer manufacturer, where he held a
variety of marketing and sales positions. Mr. Margerum also worked
for Apple, Inc. and IBM Corporation. Mr. Margerum holds a Bachelor of
Science in Engineering from Princeton University and a Master of Business
Administration from Stanford University.
Ms.
Marion joined Plantronics in 2007 as President of the Audio Entertainment Group.
Prior to joining Plantronics, Ms. Marion was an angel investor, director
and advisor for Rivet International from 2006 to 2007. She held CEO
positions at Viadux, Inc. from 2001 to 2006 and also at Jabra Corporation from
1996 to 2001. Ms. Marion also held senior management positions at IRT
Corporation from 1987 to 1995. Ms. Marion holds a Bachelor of Arts in
Economics from Stanford University.
Ms. Niemi
joined Plantronics in 2005 with nearly 21 years experience in the mobile
computing and communications industries. Prior to joining
Plantronics, Ms. Niemi held senior positions with companies such as Visto
Corporation, Mobilesys, Inc., Xircom and NEC Technologies and was most recently
at Danger, Inc. Ms. Niemi also spent close to seven years at Xircom,
Inc. where she served as Vice President of Worldwide Marketing, responsible for
branding, product strategy, market development, e-commerce, and
marketing. Ms. Niemi graduated from Santa Clara University with
a Bachelor of Science degree in Electrical Engineering. She also
earned a certificate in General Management for High Technology from
Stanford University’s IEEE Joint Program.
Mr.
Perkins joined Plantronics in 2008 as Vice President, Product Development and
Technology. Prior to joining Plantronics, he held various positions
at HP including Vice President/General Manager of HP’s Voodoo Business Unit and
several Research and Development Vice President roles in HP’s locations in
California, Grenoble, France and Bristol, England. Prior to his
positions at HP, he was the Senior Vice President Research and Development at
LeapFrog Enterprises from 2002 to 2005. Mr. Perkins holds a
Bachelor of Science degree in Applied Mechanics and Biomedical Engineering from
the University of California at San Diego.
Ms.
Scherer joined Plantronics in 1997 as Vice President of Finance &
Administration and Chief Financial Officer. In 1998, Ms. Scherer was
promoted to Senior Vice President of Finance & Administration and Chief
Financial Officer. Prior to joining Plantronics, Ms. Scherer held
various executive management positions in the data storage industry, principally
with Micropolis Corporation, did strategic planning with the Boston Consulting
Group, and was a member of the corporate finance team at ARCO. Ms.
Scherer has Bachelor degrees in Economics and in Environmental Studies from the
University of California, Santa Barbara and received a Master of Business
Administration from the Yale School of Organization and Management. Ms.
Scherer is also a Director of Keithley Instruments Inc, a supplier of
measurement and testing devices.
Ms.
Shimizu joined Plantronics in 1983 and in 2005 was named Vice President, General
Manager of the Home and Home Office Business Group. Prior to this
promotion, she had served as our Vice President of Strategic Portfolio and
Product Management since 2003. She also previously served as our
President of the Mobile Communications product group. From 1995 to
1999, Ms. Shimizu was the Senior Marketing Director for the Computer and Mobile
Systems product group, the predecessor to the Mobile Communications product
group. Ms. Shimizu held various positions prior to 1995 in our
marketing and sales organizations. Ms. Shimizu received a Bachelor's degree in
Japanese from the University of California, Los Angeles and a Master of Business
Administration from the Monterey Institute of International
Studies.
Mr. Trads
joined Clarity (formerly Walker-Ameriphone) in 2003 as
President. From 1994 until joining Plantronics, Mr. Trads held
various positions within GN ReSound, a manufacturer of hearing aids and
audiological measurement equipment. From 1998 to 2003, Mr. Trads
served as President of GN ReSounds’ North American operation and from 1994 until
1998 he served as a Senior Vice President at its headquarters in Copenhagen,
Denmark, where he was a member of the executive management committee and the
global management group and also led the sales and marketing
organization. From 1991 to 1994, Mr. Trads was Vice President of
Sales and Marketing for Dancall Radio A/S, a manufacturer of cell phones and
cordless phones. From 1985 to 1991, he held management positions in
the distribution and marketing divisions of Bang and Olufsen Group, a global
manufacturer of consumer electronics. Mr. Trads holds a degree in
Business Administration and Management from the
Copenhagen Business School in Denmark.
Mr.
Vanhoutte joined Plantronics in 2003 as Managing Director of Europe, Middle East
and Africa (“EMEA”). From 2001 until 2003, he served as Corporate Vice
President of Marketing at Sony Ericsson Mobile Communications. From
2000 to 2001, Mr. Vanhoutte served as Vice President of Strategic Market
Development at Ericsson’s Personal Communications Division. From 1998
until 2000, he served as Senior Vice President of Products, Marketing and Sales
at MCI WorldCom’s International Division in London. From 1994 until
1998, Mr. Vanhoutte held various marketing and general management positions at
Dell Computer Corporation including, General Manager for the Business Systems
Division in the U.S., Managing Director for Dell Direct in the United Kingdom
and Ireland, and Vice President of Products, Marketing & Services for
EMEA. Beginning in 1991, he worked for Nokia Data as Vice President of
Marketing, which was merged into Fujitsu-ICL Systems Inc. where he continued as
Vice President of Marketing, Personal Systems and Client-Server Division until
1994. From 1985 until 1991, Mr. Vanhoutte worked in various European
marketing and division manager roles with Wang Laboratories. He started
his career at Arthur Andersen’s Benelux Information Consulting Division in 1977
where he specialized in structured programming and office automation. Mr.
Vanhoutte studied Applied Economics and Engineering at the University of Leuven,
Belgium.
Mr. Wuerz
joined Plantronics in 2007 as Senior Vice President of Worldwide Operations.
Prior to Plantronics, Mr. Wuerz spent 28 years at Hewlett-Packard (“HP”)
where he held several senior positions. Most recently, Mr. Wuerz was
the Worldwide Vice President of Operations and Supply Chain for the Desktop
Personal Computer organization, including consumer, commercial and workstation
PCs. Prior to this role, Mr. Wuerz held the same title for HP’s Consumer Desktop
Personal Computer organization. In addition to Mr. Wuerz’s operations
roles at HP, he also held senior positions in other functional areas, including
Research and Development and Human Resources. Mr. Wuerz holds a Master of
Science in Electrical Engineering degree from Stanford University and a Bachelor
of Science in Electrical Engineering from the University of Missouri –
Rolla.
Mr. Yort
joined Plantronics in 2005 as Vice President and General Manager of
Business-to-Business Solutions. Prior to joining Plantronics, Mr.
Yort was Vice President of Business Development at Venturi Wireless, where he
led strategic relations with mobile wireless carriers and infrastructure
players. Before Venturi, he was the Vice President of Business
Development and Marketing at PolyFuel, Inc., a pioneer in direct methanol fuel
cell-powered products. From 1998 to 2000, Mr. Yort directed Palm,
Inc.’s enterprise business as its general manager. He has also held
management positions at 3Com, HP and Inmac. Mr. Yort has a Master of
Business Administration from Stanford University's Graduate School of
Business and a Bachelor of Science in Engineering degree and a Bachelor of Arts
degree from Princeton University.
Executive
officers serve at the discretion of the Board of Directors. There are
no family relationships between any of the directors and executive officers of
Plantronics.
ITEM
1A. RISK
FAC
TORS
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
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.
The
current financial turmoil affecting the banking system and
financial markets and the possibility that additional financial
institutions may consolidate or go out of business has resulted in a tightening
in the credit markets, a low level of liquidity in many financial markets,
and extreme volatility in fixed income, credit, currency, and equity
markets. There could be a number of follow-on effects from the
credit crisis on our business, including the insolvency of key suppliers or
their inability to obtain credit to finance development and/or manufacture
products resulting in product delays,; inability of customers, including
channel partners, to obtain credit to finance purchases of our products;
and insolvencies of our customers and/or channel partners.
Other
effects may include the failure of derivative counterparties and other financial
institutions negatively impacting our treasury operations. Other income
and expense also could vary materially from expectations depending on gains
or losses realized on the sale or exchange of financial instruments;
impairment charges resulting from revaluations of debt and
equity securities and other investments; interest rates; cash
balances; and changes in fair value of derivative instruments. The current
volatility in the financial markets and overall economic uncertainty
increase the risk the actual amounts realized in the future on our
financial instruments could differ significantly from the fair values
currently assigned to them.
As a
result of the worldwide economic conditions described above, revenue in all
portions of our business has declined in the fourth quarter of fiscal
2009. We currently believe that revenue in fiscal 2010 will be lower
than in fiscal 2009. If conditions deteriorate further, our
forecasted demand may not materialize to the levels we require to achieve our
anticipated financial results, which could in turn 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 will 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.
In the
office market, voluntary turnover and new hiring typically lead to an increase
in office product sales due to the purchase of equipment for new
employees. However, as a result of the global recession, the sales of
our office products have declined because our customers are cutting costs,
reducing hiring and/or laying-off employees. This decrease in sales
of office products has made it difficult to generate the revenue and margin
necessary to achieve our targeted financial results.
In
addition, as a result of the economic slowdown, we have received returns from
our retailers of products in excess of our historical experience
rates. If product returns continue at such levels or increase, our
revenues will be negatively impacted since returns net against
revenue. Failure to meet our anticipated demand projections has
created excess levels of inventory, which has resulted in additional reserves
for excess and obsolete inventory, negatively impacting our financial
results.
During
the third quarter of fiscal 2009, as a result of the effect of the current
economic conditions on the business, an impairment review was triggered which
resulted in an impairment charge in our AEG reporting segment of $54.7 million
of goodwill, $58.7 million of intangible assets and $4.1 million of property,
plant and equipment. We performed our annual impairment review of
goodwill and purchased intangible assets with indefinite lives in the fourth
quarter of fiscal 2009 which did not indicate any further impairment of goodwill
or intangible assets. However, if forecasted gross profit growth
rates are not achieved due to further declines in the current economic
conditions, it is reasonably possible that we could incur additional impairment
charges as a result of our next annual impairment tests in the fourth quarter of
fiscal 2010 or that an impairment review may be triggered for the remaining
intangible assets which could require an additional impairment charge in the
future. We will continue to evaluate the recoverability of the
carrying amount of our goodwill and long-lived assets on an ongoing basis, and
we may incur substantial impairment charges, which would adversely affect our
financial results. There can be no assurance that the outcome of such
reviews in the future will not result in substantial impairment
charges.
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
the ACG segment, our prices and gross margins are generally lower for
sales to Business-to-Consumer (“B2C”) customers compared to sales to our
Business-to-Business (“B2B”) customers. In addition, our prices
and gross margins can vary significantly by product line as well as within
product lines. Therefore, our profitability depends, in part, on the
mix of our B2B to B2C customers as well as our product mix. In the
AEG segment, our prices and gross margins are generally lower for our PC
Audio products than for our Docking Audio products; therefore, our
profitability depends, in part, on our mix of PC Audio to Docking Audio
products. The size and timing of our product mix and
opportunities in these markets are difficult to
predict.
|
|
|
·
|
We
have substantially refreshed our AEG product line; however, market
adoption of new products is difficult to
predict.
|
|
|
·
|
A
significant portion of our annual retail sales for AEG generally occurs in
the third fiscal quarter, thereby increasing the difficulty of predicting
revenues and profitability from quarter to quarter and in managing
inventory levels.
|
Fluctuations
in our operating results may cause volatility in the trading price of our common
stock.
Our
consumer business has had and may continue to have an adverse effect on our
financial condition.
Our
consumer business which primarily consists of our AEG segment,
Bluetooth
headsets and
computer and gaming headsets has been and will continue to be significantly
impacted by the weak retail environment which could negatively impact our
revenue, gross profit and operating results. The risks faced in
connection with this include the following:
|
|
·
|
we
believe that the turnaround for AEG is largely dependent on the market
success of its new product portfolio. We placed some of the
products within our new portfolio beginning in the Fall of 2008 which
continued through the end of fiscal 2009 and will continue through fiscal
2010, although ongoing product refreshes on a routine basis after that
will also be required. The development of these new products
may not evolve as anticipated. There can be no assurance that
these new products will be successful and, during the time we are
developing the new products, our competitors are selling products to our
customers and increasing their market
share;
|
|
|
·
|
competition
may continue to increase in the retail markets more than we
expect;
|
|
|
·
|
meeting
the spring and fall market windows for consumer
products;
|
|
|
·
|
difficulties
retaining or obtaining shelf space for consumer products in our sales
channel;
|
|
|
·
|
difficulties
retaining or improving the brand recognition associated with the Altec
Lansing brand during the
turnaround;
|
|
|
·
|
difficulties
in achieving a sufficient gross margin and uncertainties in the demand for
consumer audio products in the current economic environment;
and
|
|
|
·
|
the
global downturn in the economy has lessened the amount spent generally by
consumers decreasing the demand for our consumer
products.
|
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 change, 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 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 (“E&O”) 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 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:
|
|
|
·
|
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.
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 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.
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. In the Audio Entertainment business, competitors include
Bose, Apple, Logitech, Creative Labs, iHome, and Harman
International.
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 in ACG 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. 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 during the recession or
thereafter. 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) 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 (v) UC solutions may not be adopted with the breadth and
speed in the marketplace that we currently anticipate.
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, computer audio,
gaming, Altec Lansing 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.
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, particularly with respect to our AEG business.
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 and speakers 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 speaker, 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 are
also 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 and most
of our AEG 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.
We
recently announced that we will 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 plan to stop manufacturing in our Suzhou,
China facility in the first half of fiscal 2010. The manufacturing of
our
Bluetooth
products
will therefore be dependent upon GoerTek to deliver timely the quantities of
products that we demand 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 requires 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 to 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 that are inherently risky, and
a significant amount of our revenues are generated internationally.
We have a
manufacturing facility in Tijuana, Mexico and a design and manufacturing
facility in Suzhou, China. In our Suzhou, China location, we intend
to stop our manufacturing operations in 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
|
|
|
·
|
currency
restrictions.
|
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 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. During the last half of fiscal
2009, we experienced an unfavorable impact on our net income primarily as a
result of the weakening of the Euro and GBP against the U.S.
dollar. Currency exchange rates are difficult to predict, and we may
not be able to predict changes in exchange rates in the future. We
hedge a portion of our Euro and GBP forecasted revenue exposure for the future
12 month period, which partially offset the impact of a stronger dollar during
part of fiscal 2009. However, over time, the current exchange rates
or a further increase in the value of the U.S. dollar relative to the Euro or
the GBP could negatively impact our revenues, gross profit and profitability in
the future.
We
have intangible assets and goodwill recorded on our balance sheet and we have
recently recognized an impairment loss. If the carrying value of our
goodwill or intangible assets is not recoverable, a further 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 current
economic conditions on the business, an impairment review was triggered which
resulted in an impairment of $54.7 million of goodwill, $58.7 million of
intangible assets related to the purchase of Altec Lansing and $4.1 million of
AEG property, plant and equipment.
We
completed our annual review of goodwill and purchased intangible assets with
indefinite lives for impairment during the fourth quarter of fiscal 2009 which
indicated that there was no further impairment of goodwill or intangible
assets. Given the current economic environment and the uncertainties
regarding the impact on the business, there can be no assurance that the
estimates and assumptions regarding the duration of the current economic
downturn, or the period or strength of recovery, made for purposes of testing
the goodwill and indefinite lived intangible assets for impairment during the
third and fourth quarter of fiscal 2009 will prove to be accurate predictions of
the future. If the assumptions regarding forecasted revenue or margin
growth rates of the AEG reporting unit are not achieved or if certain
alternatives being evaluated by management to improve the profitability of the
AEG segment do not materialize, it is reasonably possible we may be required to
record additional impairment charges related to the Altec Lansing trademark and
trade name in future periods, whether in connection with our next annual
impairment review in the fourth quarter of fiscal 2010 or prior to that if
indicators of impairment exist. It is also reasonably possible that
an impairment review may be triggered for the remaining intangible assets
associated with Altec Lansing. The net book value of these intangible
assets as of March 31, 2009 was $21.9 million. It is not possible at
this time to determine if any such future impairment charge would result or, if
it does, whether such charge would be material.
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 foreign 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 FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”),
clarifies 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 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
who 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 reduces 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 and severity of 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;
|
|
|
·
|
our
ability to successfully complete the product refresh for the Altec Lansing
products and turn around the AEG
business;
|
|
|
·
|
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
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 $28.0 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. So long as we hold the Rights, the ARS
will continue to accrue interest as determined by the auction process of 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.
In
connection with the acceptance of the UBS offer in November 2008, 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 the Rights option during the period 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, we 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, an increase of $1.1 million
from the unrealized loss of $2.9 million recorded in Accumulated other
comprehensive income (loss) within Stockholders’ Equity as of March 31,
2008. In the fourth quarter of fiscal 2009, an additional unrealized
loss of $0.3 million was recorded in Interest and other income (expense), net
which was offset by a $0.3 million unrealized gain on 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 the current
market conditions deteriorate further, a recovery in market values does not
occur or UBS does not purchase, we may incur further other-than-temporary
impairment charges resulting in realized 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, 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.
We have a
production facility in Mexico, which is one of the countries that has been most
affected by the H1N1 “swine flu” virus. We have not experienced any
disruption in our operations as a result of the emergence of the swine flu
virus. However, the manufacturing and distribution of our products in
Mexico could be severely impacted if the Mexican government were to close or
quarantine our facilities in Mexico or if we had to temporarily close our
facilities due to an outbreak of the swine flu or a similar disease or
epidemic. Concerns related to the swine flu have not been limited to
Mexico, and swine flu or other epidemics could also affect our other
facilities. In addition, these factors could also affect our
suppliers, leading to a shortage of components, or our customers, leading to a
reduction in their demand for our products.
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, including
pandemics, arise, 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
1B. UNR
ESOL
VED STAFF COMMENTS
None.
ITEM
2. PRO
PER
TIES
Our
principal executive offices are located in Santa Cruz,
California. Our facilities are located throughout the Americas,
Europe, and Asia. The table below lists the major facilities owned or
leased as of March 31, 2009:
|
Location
|
Square
Footage
|
Lease/Own
|
Primary
Use
|
|
Audio
Communications Group
|
|||
|
Chattanooga,
Tennessee
|
16,650
|
Lease
|
Light
Assembly, Sales and Marketing, Engineering,
Administration
|
|
Hoofddorp,
Netherlands
|
14,788
|
Lease
|
Administrative
|
|
San
Diego, California
|
10,248
|
Lease
|
Industrial
and Office Space
|
|
Santa
Cruz, California
|
79,253
|
Own
|
Light
Assembly, Sales and Marketing, Engineering,
Administration
|
|
Santa
Cruz, California
|
44,183
|
Own
|
Light
Assembly, Sales, Engineering, Administration
|
|
Santa
Cruz, California
|
39,892
|
Own
|
Light
Assembly, Sales, Engineering, Administration
|
|
Santa
Cruz, California
|
18,250
|
Lease
|
Light
Assembly, Sales, Engineering, Administration
|
|
Santa
Cruz, California
|
20,325
|
Lease
|
Light
Assembly, Sales, Engineering, Administration
|
|
Shenzhen,
China
|
23,250
|
Lease
|
Engineering,
Administration and Design Center
|
|
Suzhou,
P.R. China
1
|
145,732
|
Own
|
Assembly
|
|
Suzhou,
P.R.China
|
64,051
|
Own
|
Engineering,
Administration and Design Center
|
|
Tijuana,
Mexico
|
95,980
|
Lease
|
Engineering,
Assembly, Administration
|
|
Tijuana,
Mexico
|
61,785
|
Lease
|
Engineering,
Assembly
|
|
Tijuana,
Mexico
|
289,589
|
Lease
|
Logistic
and Distribution Center
|
|
Tijuana,
Mexico
|
53,732
|
Lease
|
Engineering,
Assembly, Design Center
|
|
Wootton
Basset, UK
|
21,824
|
Own
|
Light
Assembly, Sales, Engineering, Administration
|
|
Wootton
Basset, UK
|
15,970
|
Own
|
Light
Assembly, Sales, Engineering, Administration
|
|
Wootton
Basset, UK
|
5,445
|
Lease
|
Sales
and Marketing
|
|
Audio
Entertainment Group
|
|||
|
Milford,
Pennsylvania
|
187,000
|
Own
|
Sales
and Marketing, Engineering, Administration,
Distribution
|
We
believe that our existing properties are suitable and generally adequate for our
current business; however, future growth may require that we obtain additional
space.
|
1
|
In
March 2009, we announced our plans to outsource the production of our
Bluetooth
products in China. As a result, our facility in Suzhou, China
will be closed, and we are currently in the process of putting the
facility and the related land rights up for sale. Our intention
is for
Bluetooth
research and development, supply chain management as well as sales,
marketing and administrative support functions, which are all part of our
Asia Pacific hub, to continue to be led from our Suzhou facility until our
Suzhou facility is sold, at which time, our employees will be relocated to
a new nearby location better suited for their continuing
responsibilities.
|
ITEM
3. LEGAL PR
OCEE
DINGS
Six class
action lawsuits have been filed against the Company alleging that our
Bluetooth
headsets may cause
noise-induced hearing loss.
Shannon Wars et al. vs. Plantronics,
Inc.
was filed on November 14, 2006 in the U.S. District Court for the
Eastern District of Texas.
Lori Raines, et al. vs. Plantronics,
Inc.
was filed on October 20, 2006 in the U.S. District Court, Central
District of California.
Kyle Edwards, et al vs. Plantronics,
Inc.
was filed on October 17, 2006 in the U.S. District Court, Middle
District of Florida.
Ralph Cook vs. Plantronics,
Inc.
was filed on February 8, 2007 in the U.S. District Court for the
Eastern District of Virginia.
Randy Pierce vs. Plantronics,
Inc.
was filed on January 10, 2007 in the U.S. District Court for the
Eastern District of Arkansas.
Bruce Schiller, et al vs.
Plantronics, Inc.
was filed on October 10, 2006 in the Superior Court of
the State of California in and for the County of Los Angeles. The
complaints state that they do not seek damages for personal injury to any
individual. These complaints seek various remedies, including
injunctive relief requiring the Company to include certain additional warnings
with its
Bluetooth
headsets and to redesign the headsets to limit the volume produced, or,
alternatively, to provide the user with the ability to determine the level of
sound emitted from the headset. Plaintiffs also seek unspecified
general, special, and punitive damages, as well as restitution. The
federal cases have been consolidated for all pre-trial purposes in the U.S.
District Court for the Central District of Los Angeles before Judge
Fischer. The California State Court case was dismissed by the
plaintiffs. The parties agreed in principle to settle their claims.
The Court granted preliminary approval of their proposed nationwide
settlement. The parties are in process of providing notice of the proposed
settlement to the nationwide class. Objections to and opt outs of the
settlement are being received. The Court is scheduled to hear the
objections in early July 2009. We anticipate that the settlement will
be approved in the second quarter of fiscal 2010. We believe that any
loss related to these proceedings would not be material and have adequately
reserved for these costs in the consolidated financial statements.
In
addition, 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.
ITEM
4. SUBMISSION OF MA
TTER
S TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR REG
ISTR
ANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES
Price Range
of Common Stock
Our
common stock is publicly traded on the New York Stock Exchange. The
following table sets forth the low and high sales prices as reported by an
independent source, under the symbol PLT, for each period
indicated.
|
Low
|
High
|
|||||||
|
Fiscal
2008
|
||||||||
|
First
Quarter
|
$ | 22.82 | $ | 26.22 | ||||
|
Second
Quarter
|
25.77 | 29.92 | ||||||
|
Third
Quarter
|
22.32 | 32.71 | ||||||
|
Fourth
Quarter
|
17.82 | 26.00 | ||||||
|
Fiscal
2009
|
||||||||
|
First
Quarter
|
$ | 18.89 | $ | 25.18 | ||||
|
Second
Quarter
|
20.69 | 26.06 | ||||||
|
Third
Quarter
|
9.89 | 22.52 | ||||||
|
Fourth
Quarter
|
7.84 | 14.06 | ||||||
Cash
Dividends
In fiscal
2008 and 2009, we declared quarterly cash dividends of $0.05 per share resulting
in total dividends declared of $9.7 million and $9.8 million in each year,
respectively.
On May 5,
2009, the Company announced that the Board of Directors had declared the
Company’s twentieth quarterly cash dividend of $0.05 per share of the Company’s
common stock, payable on June 10, 2009 to stockholders of record on May 20,
2009.
As of
March 31, 2009, we had a credit agreement with a major bank containing covenants
that would limit our ability to pay cash dividends on shares of our common stock
except under certain conditions. However, effective April 1, 2009, we
terminated the credit agreement as we believe we have sufficient cash on hand
along with anticipated cash flow to meet future operational
requirements. Therefore, we are no longer subject to any
covenants that limit our ability to declare and pay dividends. 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
At March
31, 2007, we had no remaining shares of common stock authorized for repurchase
under previous repurchase programs. On January 25, 2008, the Board of
Directors authorized the repurchase of 1,000,000 shares of common stock under
which 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. As of
March 31, 2009, there were 911,000 remaining shares authorized for
repurchase.
The
following table presents a month-to-month summary of the stock purchase activity
in the fourth quarter of fiscal 2009:
|
Total
Number of
|
Maximum
Number
|
|||||||||||||||
|
Shares
Purchased
|
of
Shares that May
|
|||||||||||||||
|
as
Part of Publicly
|
Yet
Be Purchased
|
|||||||||||||||
|
Total
Number of
|
Average
Price
|
Announced
Plans
|
Under
the Plans
|
|||||||||||||
|
Shares
Purchased
|
Paid
per Share
|
or
Programs
|
or
Programs
|
|||||||||||||
|
December
28, 2008 to January 24, 2009
|
26,700 | $ | 11.93 | 26,700 | 926,700 | |||||||||||
|
January
25, 2009 to February 28, 2009
|
15,700 | $ | 10.86 | 15,700 | 911,000 | |||||||||||
|
March
1, 2009 to March 28, 2009
|
- | $ | - | - | 911,000 | |||||||||||
See Note
11 of our Notes to Consolidated Financial Statements for more information
regarding our stock repurchase programs.
As of
April 25, 2009, there were approximately 80 holders of record of our common
stock. Because many of our shares of common stock are held by brokers
and other institutions on behalf of stockholders, we are unable to estimate the
total number of stockholders represented by these record
holders.
ITEM
6. SELECTED FINANCIAL
DATA
SELECTED
FINANCIAL DATA
The
following selected financial information has been derived from our audited
consolidated financial statements. The information set forth below is
not necessarily indicative of results of future operations and should be read in
conjunction with Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the Consolidated Financial Statements
and notes thereto included in Item 8 of this Form 10-K in order to fully
understand factors that may affect the comparability of the information
presented below.
|
Fiscal
Year Ended March 31,
|
||||||||||||||||||||
|
2005
|
2006
1
|
2007
2
|
|
2008
2,3,4
|
2009
2,3,4,5,6
|
|||||||||||||||
|
(in
thousands, except earnings (loss) per share)
|
||||||||||||||||||||
|
STATEMENT
OF OPERATIONS DATA:
|
||||||||||||||||||||
|
Net
revenues
|
$ | 559,995 | $ | 750,394 | $ | 800,154 | $ | 856,286 | $ | 765,619 | ||||||||||
|
Net
income (loss)
|
$ | 97,520 | $ | 81,150 | $ | 50,143 | $ | 68,395 | $ | (64,899 | ) | |||||||||
|
Basic
net income (loss) per common share
|
$ | 2.02 | $ | 1.72 | $ | 1.06 | $ | 1.42 | $ | (1.34 | ) | |||||||||
|
Diluted
net income (loss) per common share
|
$ | 1.92 | $ | 1.66 | $ | 1.04 | $ | 1.39 | $ | (1.34 | ) | |||||||||
|
Cash
dividends declared per common share
|
$ | 0.15 | $ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||||||
|
Shares
used in basic per share calculations
|
48,249 | 47,120 | 47,361 | 48,232 | 48,589 | |||||||||||||||
|
Shares
used in diluted per share calculations
|
50,821 | 48,788 | 48,020 | 49,090 | 48,589 | |||||||||||||||
|
BALANCE
SHEET DATA:
|
||||||||||||||||||||
|
Cash,
cash equivalents, and short-term investments
|
$ | 242,814 | $ | 76,732 | $ | 103,365 | $ | 163,091 | $ | 218,180 | ||||||||||
|
Total
assets
|
$ | 487,929 | $ | 612,249 | $ | 651,304 | $ | 741,393 | $ | 633,120 | ||||||||||
|
Long-term
liabilities
|
$ | 2,930 | $ | 1,453 | $ | 696 | $ | 14,989 | $ | 13,698 | ||||||||||
|
Total
stockholders' equity
|
$ | 405,719 | $ | 435,621 | $ | 496,807 | $ | 578,620 | $ | 525,367 | ||||||||||
|
1
|
On August 18, 2005, we completed
the acquisition of Altec Lansing, a privately-held
Pennsylvania
corporation for a cash purchase
price including acquisition costs of approximately $165 million. The
results of operations of Altec Lansing have been included in our
consolidated results of operations subsequent to the acquisition on August
18, 2005.
|
|
2
|
We began recognizing the
provisions of SFAS No. 123(R) beginning in fiscal 2007; as a result, $16.9
million, $16.0 million and $15.7 million in stock-based
compensation expense has been included in our consolidated results of
operations for the years ended March 31, 2007, 2008 and 2009,
respectively
. See Note 11
of
the Consolidated
Financial Statements and related notes, included elsewhere,
herein.
|
|
3
|
In
November 2007, we announced plans to close AEG’s manufacturing facility in
Dongguan, China, to shut down a related Hong Kong research and
development, sales and procurement office and to consolidate procurement,
research and development activities for AEG in the Shenzhen, China
site. As a result of these activities, $3.6 million and $0.1
million in restructuring and other related charges has been included in
our consolidated results of operations for the years ended March 31, 2008
and 2009, respectively. See Note 8 of the Consolidated
Financial Statements and related notes, included elsewhere,
herein.
|
|
4
|
In the first quarter of fiscal
2008, we adopted the provisions of FIN 48; as a result, the liability of
$13.5 million for uncertain tax provisions not expected to be paid within
the next twelve months was reclassified to long-term income taxes
payable. See Note 14 of the Consolidated Financial Statements
and related notes, included elsewhere,
herein.
|
|
5
|
In
the third quarter of fiscal 2009, we recorded non-cash impairment charges
in the amount of $
11
7.5 million
which consisted of $54.7 million related to the goodwill arising from the
purchase of Altec Lansing in August 2005, $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. See Notes 6 and 7 of the Consolidated
Financial Statements and related notes, included elsewhere,
herein.
|
|
6
|
During
fiscal 2009, we announced several restructuring plans which included
reductions in force in both AEG and ACG’s operations including the planned
closure of ACG’s Suzhou, China
Bluetooth
manufacturing
facility in fiscal 2010. As a result of these activities, $12.0
million in restructuring and other related charges has been included in
our consolidated results of operations for the year ended March 31,
2009. See Note 8 of the Consolidated Financial Statements and
related notes, included elsewhere,
herein.
|
ITEM
7. MANAGEMENT'S DIS
CUSS
ION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a
leading worldwide designer, manufacturer, and marketer of lightweight
communications headsets, telephone headset systems, and accessories for the
business and consumer markets under the Plantronics brand. We are
also a leading manufacturer and marketer of high quality docking audio products,
computer and home entertainment sound systems, and a line of headphones for
personal digital media under our Altec Lansing brand. In addition, we
manufacture and market, under our Clarity brand, specialty telephone products,
such as telephones for the hearing impaired, and other related products for
people with special communication needs.
We ship a
broad range of products to over 80 countries through a worldwide network of
distributors, original equipment manufacturers (“OEMs”), wireless carriers,
retailers, and telephony service providers. We have well-developed
distribution channels in North America, Europe, Australia and New Zealand, where
use of our products is widespread. Our distribution channels in other
regions of the world are less mature, and, while we primarily serve the contact
center markets in those regions, we are expanding into the office, mobile and
entertainment, digital audio, and specialty telephone markets in additional
international locations.
Consolidated
net revenues in fiscal 2009 were $765.6 million, which is a decrease of 11% from
fiscal 2008 net revenues which were $856.3 million. The
year-over-year decrease was primarily attributable to the global recession,
resulting in a decrease in demand for our products. We had an
operating loss of $81.2 million in fiscal 2009 as compared to an operating
income of $79.4 million in fiscal 2008, a decrease to $160.6 million, primarily
due to a $117.5 million impairment charge in the third quarter of fiscal 2009
related to certain AEG goodwill and long-lived assets along with a decrease in
gross margin which was the result of the decreased revenue due to the weakened
global economy and restructuring and other related charges of $12.1 million
related to various actions taken in efforts to reduce our cost structure and
adapt to the current economic conditions.
In our
ACG segment, the $73.3 million decrease in net revenues for fiscal 2009 was
primarily due to lower OCC product revenues of $90.3 million driven by a
weakened economy due to the global recession offset in part by an increase of
$15.5 million in sales of mobile headsets. The mobile headset growth
was driven by increased
Bluetooth
retail
placements from an improved product portfolio and demand attributable to certain
hands-free driving laws that went into effect in the U.S. in fiscal
2009.
Wireless
products represent an opportunity for growth both in the office market and for
mobile applications. The office wireless market, in particular,
represents a strong opportunity for profitable growth over many
years. However, due to weak economic conditions during fiscal 2009,
office wireless net revenues decreased by $43.0 million or 17% in fiscal 2009
compared to fiscal 2008. In the Mobile market, particularly for
consumer applications, margins are typically lower than for our enterprise
applications due to the level of competition and pricing pressures. Our
strategy for improving the profitability of mobile consumer products is to
differentiate our products from our competitors and to provide compelling
solutions under our brand with regard to features, design, ease of use, and
performance. Also, to further improve
Bluetooth
profitability, we
announced a restructuring plan in the March 2009 to close ACG’s Suzhou, China
manufacturing operations in fiscal 2010 in order to outsource manufacturing of
our
Bluetooth
products
to an existing supplier in China.
In our
AEG segment, net revenues decreased from $108.4 million in fiscal 2008 to $91.0
million in fiscal 2009, and the operating loss increased from $35.8 million to
$142.6 million for the corresponding period due to a $117.5 million non-cash
impairment charge on goodwill and long-lived assets.
We
focused on cost reductions in the AEG segment and completed the closure of AEG’s
manufacturing operations in Dongguan, China and relocated the research and
development activities previously in Dongguan, China to Shenzhen, China as part
of the 2008 restructuring plan. We have outsourced most of AEG
manufacturing to a network of qualified contract manufacturers already in place
and do a limited amount of manufacturing of AEG products in our plant in Suzhou,
China. We also closed AEG’s sales and procurement office in Hong Kong
and consolidated the sales, procurement and research and development activities
into our Shenzhen, China location. Additionally, we completed the
consolidation of our selling, general and administrative functions for most of
our Asia Pacific operations into our Suzhou, China facility. We
implemented further restructuring plans in fiscal 2009 which included reductions
in force in AEG’s operations in Milford, Pennsylvania, Luxemburg and Shenzhen,
China along with reductions in ACG’s China and US locations.
Throughout
fiscal 2009, we remained focused on our long-term strategy to capitalize on the
opportunities in the office and mobile markets and be well-positioned for
Unified Communications ("UC"). While staying focused on our long-term
strategy, we also made decisions to broadly reduce spending in light of the
global recession and its impact on our market and near-term revenue
potential. We believe we now have the right balance between short and
long-term considerations and that we will maintain, if not increase, our
relative competitive position through the economic downturn and its eventual
recovery.
Looking
forward into fiscal 2010, we are focused on the following key corporate goals to
maximize long-term shareholder value:
|
|
·
|
Be
profitable
and cash flow positive
.
We
announced and implemented several restructuring plans in fiscal 2009 along
with other cost cutting measures, including management salary reductions,
to significantly decrease our operating expenses and overall cost
structure. We also began reducing inventory in the second half of
fiscal 2009 and have plans for improved inventory management and
lower capital expenditures and operating expenses in fiscal 2010
than in fiscal 2009. We believe our cost structure is now aligned
with current market conditions and supports our plans to be profitable and
cash flow positive in fiscal 2010; however, we will monitor and
realign our cost structure as needed to match the actual economic
conditions.
|
|
|
·
|
Establish
strong Unified Communications market position for future
growth.
We will continue to focus on Unified
Communications technologies as we believe the implementation of UC 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
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
capital include the transition to an outsourced original design
manufacturer model for
Bluetooth
which will reduce inventory and ultimately enable us to sell our plant in
China; a broad-based tightening of capital expenditures which we believe
will yield 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.
|
We intend
for the following discussion of our financial condition and results of
operations to provide information that will assist in understanding our
financial statements and therefore, this discussion should be read in
conjunction with the financial statements and accompanying
notes.
ANNUAL
RESULTS OF OPERATIONS
The
following tables set forth, for the periods indicated, the consolidated
statements of operations data and data by segment. The financial
information and the ensuing discussion should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
|
Consolidated
|
||||||||||||||||||||||||
|
(in
thousands)
|
Fiscal
Year Ended March 31,
|
|||||||||||||||||||||||
|
2007
|
2008
|
2009
|
||||||||||||||||||||||
|
Net
revenues
|
$ | 800,154 | 100.0 | % | $ | 856,286 | 100.0 | % | $ | 765,619 | 100.0 | % | ||||||||||||
|
Cost
of revenues
|
491,339 | 61.4 | % | 507,181 | 59.2 | % | 469,591 | 61.3 | % | |||||||||||||||
|
Gross
profit
|
308,815 | 38.6 | % | 349,105 | 40.8 | % | 296,028 | 38.7 | % | |||||||||||||||
|
Operating
expense:
|
||||||||||||||||||||||||
|
Research,
development and engineering
|
71,895 | 9.0 | % | 76,982 | 9.0 | % | 72,061 | 9.4 | % | |||||||||||||||
|
Selling,
general and administrative
|
182,108 | 22.7 | % | 189,156 | 22.1 | % | 175,601 | 22.9 | % | |||||||||||||||
|
Restructuring
and other related charges
|
- | 0.0 | % | 3,584 | 0.4 | % | 12,074 | 1.6 | % | |||||||||||||||
|
Impairment
of goodwill and long-lived assets
|
- | 0.0 | % | - | 0.0 | % | 117,464 | 15.4 | % | |||||||||||||||
|
Gain
on sale of land
|
(2,637 | ) | (0.3 | )% | - | 0.0 | % | - | 0.0 | % | ||||||||||||||
|
Total
operating expenses
|
251,366 | 31.4 | % | 269,722 | 31.5 | % | 377,200 | 49.3 | % | |||||||||||||||
|
Operating
income (loss)
|
57,449 | 7.2 | % | 79,383 | 9.3 | % | (81,172 | ) | (10.6 | )% | ||||||||||||||
|
Interest
and other income (expense), net
|
4,089 | 0.5 | % | 5,854 | 0.7 | % | (3,544 | ) | (0.5 | )% | ||||||||||||||
|
Income
(Loss) before income taxes
|
61,538 | 7.7 | % | 85,237 | 10.0 | % | (84,716 | ) | (11.1 | )% | ||||||||||||||
|
Income
tax expense (benefit)
|
11,395 | 1.4 | % | 16,842 | 2.0 | % | (19,817 | ) | (2.6 | )% | ||||||||||||||
|
Net
income (loss)
|
$ | 50,143 | 6.3 | % | $ | 68,395 | 8.0 | % | $ | (64,899 | ) | (8.5 | )% | |||||||||||
|
Audio
Communications Group
|
||||||||||||||||||||||||
|
(in
thousands)
|
Fiscal
Year Ended March 31,
|
|||||||||||||||||||||||
|
2007
|
2008
|
2009
|
||||||||||||||||||||||
|
Net
revenues
|
$ | 676,514 | 100.0 | % | $ | 747,935 | 100.0 | % | $ | 674,590 | 100.0 | % | ||||||||||||
|
Cost
of revenues
|
381,034 | 56.3 | % | 403,863 | 54.0 | % | 382,659 | 56.7 | % | |||||||||||||||
|
Gross
profit
|
295,480 | 43.7 | % | 344,072 | 46.0 | % | 291,931 | 43.3 | % | |||||||||||||||
|
Operating
expense:
|
||||||||||||||||||||||||
|
Research,
development and engineering
|
61,583 | 9.1 | % | 65,733 | 8.8 | % | 63,840 | 9.5 | % | |||||||||||||||
|
Selling,
general and administrative
|
151,857 | 22.5 | % | 163,173 | 21.8 | % | 155,678 | 23.1 | % | |||||||||||||||
|
Restructuring
and other related charges
|
- | 0.0 | % | - | 0.0 | % | 10,952 | 1.6 | % | |||||||||||||||
|
Gain
on sale of land
|
(2,637 | ) | (0.4 | )% | - | 0.0 | % | - | 0.0 | % | ||||||||||||||
|
Total
operating expenses
|
210,803 | 31.2 | % | 228,906 | 30.6 | % | 230,470 | 34.2 | % | |||||||||||||||
|
Operating
income
|
$ | 84,677 | 12.5 | % | $ | 115,166 | 15.4 | % | $ | 61,461 | 9.1 | % | ||||||||||||
Audio
Entertainment Group
|
(in
thousands)
|
Fiscal
Year Ended March 31,
|
|||||||||||||||||||||||
|
2007
|
2008
|
2009
|
||||||||||||||||||||||
|
Net
revenues
|
$ | 123,640 | 100.0 | % | $ | 108,351 | 100.0 | % | $ | 91,029 | 100.0 | % | ||||||||||||
|
Cost
of revenues
|
110,305 | 89.2 | % | 103,318 | 95.4 | % | 86,932 | 95.5 | % | |||||||||||||||
|
Gross
profit
|
13,335 | 10.8 | % | 5,033 | 4.6 | % | 4,097 | 4.5 | % | |||||||||||||||
|
Operating
expense:
|
||||||||||||||||||||||||
|
Research,
development and engineering
|
10,312 | 8.3 | % | 11,249 | 10.4 | % | 8,221 | 9.0 | % | |||||||||||||||
|
Selling,
general and administrative
|
30,251 | 24.5 | % | 25,983 | 23.9 | % | 19,923 | 21.9 | % | |||||||||||||||
|
Restructuring
and other related charges
|
- | 0.0 | % | 3,584 | 3.3 | % | 1,122 | 1.2 | % | |||||||||||||||
|
Impairment
of goodwill and long-lived assets
|
- | 0.0 | % | - | 0.0 | % | 117,464 | 129.0 | % | |||||||||||||||
|
Total
operating expenses
|
40,563 | 32.8 | % | 40,816 | 37.6 | % | 146,730 | 161.1 | % | |||||||||||||||
|
Operating
loss
|
$ | (27,228 | ) | (22.0 | )% | $ | (35,783 | ) | (33.0 | )% | $ | (142,633 | ) | (156.6 | )% | |||||||||
Net
Revenues
Audio
Communications Group
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Net
revenues from unaffiliated customers:
|
|||||||||||||||||||||||||||||||||
|
Office
and Contact Center
|
$ | 475,323 | $ | 519,958 | $ | 44,635 | 9.4 | % | $ | 519,958 | $ | 429,669 | $ | (90,289 | ) | (17.4 | )% | ||||||||||||||||
|
Mobile
|
146,859 | 171,880 | 25,021 | 17.0 | % | 171,880 | 187,419 | 15,539 | 9.0 | % | |||||||||||||||||||||||
|
Gaming
and Computer Audio
|
30,162 | 33,612 | 3,450 | 11.4 | % | 33,612 | 34,052 | 440 | 1.3 | % | |||||||||||||||||||||||
|
Clarity
|
24,170 | 22,485 | (1,685 | ) | (7.0 | )% | 22,485 | 23,450 | 965 | 4.3 | % | ||||||||||||||||||||||
|
Total
segment net revenues
|
$ | 676,514 | $ | 747,935 | $ | 71,421 | 10.6 | % | $ | 747,935 | $ | 674,590 | $ | (73,345 | ) | (9.8 | )% | ||||||||||||||||
Audio
Entertainment Group
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Net
revenues from unaffiliated customers:
|
|||||||||||||||||||||||||||||||||
|
Docking
Audio
|
$ | 61,068 | $ | 55,399 | $ | (5,669 | ) | (9.3 | )% | $ | 55,399 | $ | 46,204 | $ | (9,195 | ) | (16.6 | )% | |||||||||||||||
|
PC
Audio
|
52,496 | 45,828 | (6,668 | ) | (12.7 | )% | 45,828 | 38,884 | (6,944 | ) | (15.2 | )% | |||||||||||||||||||||
|
Other
|
10,076 | 7,124 | (2,952 | ) | (29.3 | )% | 7,124 | 5,941 | (1,183 | ) | (16.6 | )% | |||||||||||||||||||||
|
Total
segment net revenues
|
$ | 123,640 | $ | 108,351 | $ | (15,289 | ) | (12.4 | )% | $ | 108,351 | $ | 91,029 | $ | (17,322 | ) | (16.0 | )% | |||||||||||||||
Our
consolidated net revenues decreased in fiscal 2009 as compared to fiscal 2008
primarily due to the impact of global economic weakness due to the global
recession. ACG, which accounted for 88% of the consolidated net
revenues for fiscal 2009, primarily decreased due to lower OCC product revenues
driven by a weakened economy offset in part by an increase in sales of Mobile
headsets due to an improved product portfolio and demand attributable to certain
hands-free driving laws going into effect in the U.S. in fiscal
2009. In the third quarter of fiscal 2009, we began shipping the next
generation of AEG products with the goal of creating a competitive portfolio to
increase revenues and improve profitability and market
share. However, due to the weakened global economy in fiscal 2009, we
did not benefit from these new products as we anticipated. We are
evaluating various alternatives to achieve profitability for AEG and project the
segment will generate relatively small losses in the first half of fiscal 2010
and should be profitable in the second half of fiscal 2010 based on new products
with lower costs comprising most of the sales mix by the second half of the
fiscal year. While we have experienced significant foreign exchange
fluctuations on our net revenues during the first half of the fiscal year, the
overall foreign exchange impact for the entire fiscal year was not
material.
Our consolidated net revenues increased in fiscal 2008 as compared to fiscal 2007 entirely due to growth in ACG net revenues, which accounted for approximately 87% of consolidated net revenues in fiscal 2008. The increase in ACG net revenues is primarily due to increased sales of our office wireless headset systems and mobile Bluetooth headsets. ACG unit volumes increased from fiscal 2007 to 2008 primarily as a result of increased mobile Bluetooth sales. In fiscal 2008, we also benefited from the weaker U.S. dollar as a portion of our sales are denominated in Euros and Great Britain Pounds. AEG net revenues accounted for approximately 13% of consolidated net revenues in fiscal 2008. In comparison to fiscal 2007, AEG net revenues decreased as we were in a product transition phase and had not yet introduced our new product portfolio.
Net
revenues may vary due to the timing of the introduction of new products,
seasonality, discounts and other incentives and channel mix.
ACG
Our
Office and Contact Center (“OCC”) products represent our largest source of
revenues while our Mobile products represent our largest unit
volumes. There has been a growing trend toward wireless products and
a corresponding shift away from our corded products. As a percentage
of consolidated ACG net revenues, wireless products represented 51%, 55% and 58%
for fiscal 2007, 2008 and 2009, respectively.
Primary
fluctuations in the net revenues of ACG in fiscal 2009 compared to fiscal 2008
were as follows:
|
|
·
|
OCC
product net revenues decreased by $90.3 million as a result of weak
economic conditions.
|
|
|
·
|
Mobile
product net revenues increased by $15.5 million primarily due to increased
retail placements as a result of an improved product portfolio as well as
demand attributable to hands-free driving legislation enacted in several
states in the U.S. in fiscal year 2009. Within this category of products,
Bluetooth product revenue grew $23.1 million partially offset by a decline
of $7.6 million in corded product
revenues.
|
|
|
.
|
Gaming
and Computer Audio increased by $0.4 million due to the strength of the
product portfolio, primarily in the U.S. retail
market.
|
|
|
.
|
Clarity
increased by $1.0 million primarily due to increased OEM sales in
Europe.
|
Fluctuations
in the net revenues of ACG in fiscal 2008 compared to fiscal 2007 were as
follows:
|
|
·
|
OCC
product net revenues increased as a result of growth of $35.8 million in
cordless products and $8.8 million from corded products. The
increases are primarily due to the addition of the CS70N to our product
line in fiscal 2008, corded product revenue growth internationally, mostly
in Europe and Asia Pacific, and some benefit from foreign exchange
rates.
|
|
|
·
|
Mobile
product net revenues increased as a result of market growth and greater
acceptance of our product portfolio which contributed to a year-over-year
increase of $29.8 million in our
Bluetooth
headsets net
revenues, partially offset by a decline of $4.8 million in net revenues
from corded mobile headsets.
|
|
|
·
|
Gaming
and Computer Audio product net revenues increased due to the transfer of
the Altec Lansing branded PC headsets into this category in fiscal
2008.
|
|
|
.
|
Clarity
decreased by $1.7 million due to lower shipments to state government
programs within the U.S. along with lower OEM sales in
Europe.
|
AEG
Our Altec
Lansing products are primarily consumer goods sold in the retail channel, and
sales are highly seasonal. The strongest revenues typically occur in
the December quarter due to the holiday period. Other trends that
also impact our AEG revenues include growth of the MP3 player market, and our
ability to successfully attach to new generations of MP3 players and to develop
products which keep up with the rapidly-developing Docking Audio and PC Audio
markets.
Primary
fluctuations in the net revenues of AEG in fiscal 2009 compared to fiscal 2008
were as follows:
|
|
·
|
Docking
Audio product net revenues decreased by $9.2 million due to a decline
in sales to warehouse clubs from the prior year along
with reduced sales of surplus
products.
|
|
|
·
|
PC
Audio product net revenues decreased by $6.9 million as a result of an
older product portfolio which is currently being refreshed, weaker
economic conditions in the U.S. and Europe along with a focus on selective
product placement with higher margin
customers.
|
|
|
·
|
Other
net revenues decreased by $1.2 million primarily due to a decrease of $1.7
million due to the transfer of responsibility for headset products to ACG
in the second quarter of fiscal 2008 partially offset by increased revenue
related to new product
introductions.
|
Fluctuations
in the net revenues of AEG in fiscal 2008 compared to fiscal 2007 were as
follows:
|
|
·
|
Docking
Audio product net revenues decreased primarily as a result of intense
competition in the MP3 accessories market, particularly in the U.S., our
reduced share of the MP3 accessories market and price
reductions.
|
|
|
·
|
PC
Audio product net revenues decreased primarily in Asia and the U.S. due to
increased competition and price
reductions.
|
|
|
·
|
Other
products net revenues decreased due to the transition of the Altec Lansing
branded PC headsets from the AEG segment to the ACG segment resulting in a
decrease of $7.0 million, partially offset by an increase in headphone and
other net revenues of $3.4
million.
|
Geographical
Information
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
|||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
||||||||||||||||||||||||||
|
Net
revenues from unaffiliated customers:
|
||||||||||||||||||||||||||||||||
|
United
States
|
$ | 490,551 | $ | 521,148 | $ | 30,597 | 6.2 | % | $ | 521,148 | $ | 472,239 | $ | (48,909 | ) | (9.4 | )% | |||||||||||||||
|
Europe,
Middle East and Africa
|
195,090 | 214,621 | 19,531 | 10.0 | % | 214,621 | 185,023 | (29,598 | ) | (13.8 | )% | |||||||||||||||||||||
|
Asia
Pacific
|
59,927 | 62,742 | 2,815 | 4.7 | % | 62,742 | 56,160 | (6,582 | ) | (10.5 | )% | |||||||||||||||||||||
|
Americas,
excluding United States
|
54,586 | 57,775 | 3,189 | 5.8 | % | 57,775 | 52,197 | (5,578 | ) | (9.7 | )% | |||||||||||||||||||||
|
Total
international net revenues
|
309,603 | 335,138 | 25,535 | 8.2 | % | 335,138 | 293,380 | (41,758 | ) | (12.5 | )% | |||||||||||||||||||||
|
Total
consolidated net revenues
|
$ | 800,154 | $ | 856,286 | $ | 56,132 | 7.0 | % | $ | 856,286 | $ | 765,619 | $ | (90,667 | ) | (10.6 | )% | |||||||||||||||
Consolidated
U.S. net revenue, as a percentage of total net revenues, increased 1% due to the
strength of our Bluetooth product portfolio and demand attributable to
hands-free driving legislation enacted in several states in the U.S. in fiscal
year 2009. Consolidated international net revenues, as a percentage
of total net revenues, decreased from 39% in fiscal 2008 to 38% in fiscal
2009.
In
comparison to fiscal 2007, fiscal 2008 consolidated international net revenues
as a percentage of total net revenues remained consistent at
39%. International net revenues for ACG, increased from 37% to 38%
primarily due to the strength of our Europe, Middle East and Africa (“EMEA”)
business in ACG; however, this increase was offset in part by decreased
international net revenue for AEG.
Cost
of Revenues and Gross Profit
Cost of
revenues consists primarily of direct manufacturing and contract manufacturer
costs, including material and direct labor, our operations management team and
indirect labor such as supervisors and warehouse workers, freight expense,
warranty expense, reserves for excess and obsolete inventory, depreciation,
royalties, and an allocation of overhead expenses, including facilities and IT
costs.
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Net
revenues
|
$ | 800,154 | $ | 856,286 | $ | 56,132 | 7.0 | % | $ | 856,286 | $ | 765,619 | $ | (90,667 | ) | (10.6 | )% | ||||||||||||||||
|
Cost
of revenues
|
491,339 | 507,181 | 15,842 | 3.2 | % | 507,181 | 469,591 | (37,590 | ) | (7.4 | )% | ||||||||||||||||||||||
|
Consolidated
gross profit
|
$ | 308,815 | $ | 349,105 | $ | 40,290 | 13.0 | % | $ | 349,105 | $ | 296,028 | $ | (53,077 | ) | (15.2 | )% | ||||||||||||||||
|
Consolidated
gross profit %
|
38.6 | % | 40.8 | % | 2.2 | ppt. | 40.8 | % | 38.7 | % | (2.1 | ) | ppt. | ||||||||||||||||||||
Audio
Communications Group
|
Net
revenues
|
$ | 676,514 | $ | 747,935 | $ | 71,421 | 10.6 | % | $ | 747,935 | $ | 674,590 | $ | (73,345 | ) | (9.8 | )% | ||||||||||||||||
|
Cost
of revenues
|
381,034 | 403,863 | 22,829 | 6.0 | % | 403,863 | 382,659 | (21,204 | ) | (5.3 | )% | ||||||||||||||||||||||
|
Segment
gross profit
|
$ | 295,480 | $ | 344,072 | $ | 48,592 | 16.4 | % | $ | 344,072 | $ | 291,931 | $ | (52,141 | ) | (15.2 | )% | ||||||||||||||||
|
Segment
gross profit %
|
43.7 | % | 46.0 | % | 2.3 | ppt. | 46.0 | % | 43.3 | % | (2.7 | ) | ppt. | ||||||||||||||||||||
Audio
Entertainment Group
|
Net
revenues
|
$ | 123,640 | $ | 108,351 | $ | (15,289 | ) | (12.4 | )% | $ | 108,351 | $ | 91,029 | $ | (17,322 | ) | (16.0 | )% | |||||||||||||||
|
Cost
of revenues
|
110,305 | 103,318 | (6,987 | ) | (6.3 | )% | 103,318 | 86,932 | (16,386 | ) | (15.9 | )% | |||||||||||||||||||||
|
Segment
gross profit
|
$ | 13,335 | $ | 5,033 | $ | (8,302 | ) | (62.3 | )% | $ | 5,033 | $ | 4,097 | $ | (936 | ) | (18.6 | )% | |||||||||||||||
|
Segment
gross profit %
|
10.8 | % | 4.6 | % | (6.2 | ) | ppt. | 4.6 | % | 4.5 | % | (0.1 | ) | ppt. | |||||||||||||||||||
The
increase in 2008 and the decrease in 2009 in consolidated gross profit are both
attributable to ACG, which accounted for approximately 99% of consolidated gross
profit in both fiscal 2008 and 2009.
Fluctuations
in the gross profit of ACG and AEG in fiscal 2009 compared to fiscal 2008 were
as follows:
ACG
The
decrease in gross profit was primarily due to lower net revenues. As a
percentage of net revenues, gross profit decreased 2.7 percentage points
primarily due to the following:
|
|
·
|
a
2.9 percentage point detriment mostly due to a higher proportion of
consumer products than commercial products in the overall revenue
mix. While consumer products carry lower margins than
commercial products, the level of product margin on our consumer products
has increased significantly primarily due to cost
reductions;
|
|
|
·
|
a
0.7 percentage point detriment from higher freight expenses and other
manufacturing costs; and
|
|
|
·
|
a
0.6 percentage point detriment from higher excess and obsolete inventory
provisions. These higher provisions were in part a result
of our decision to end of life certain models in our
Bluetooth
portfolio of
products coinciding with the decline in consumer demand due to poor
economic conditions and our announcement in March 2009 to outsource
Bluetooth
manufacturing
to an existing supplier in China, thus limiting the number of
Bluetooth
models to
transition.
|
These
decreases in gross profit were partially offset by a 1.5 percentage point
benefit from material cost reductions which improved the product margin on
Bluetooth
products.
AEG
As a
percentage of net revenues, AEG gross profit for fiscal 2009 was consistent with
fiscal 2008 with the following offsetting fluctuations.
|
|
·
|
a
2.8 percentage point benefit from cost reductions including lower
intangible asset amortization as a result of the impairment of certain
long-lived assets in the third quarter of fiscal
2009;
|
|
·
|
a
1.5 percentage point benefit from decreased discounting, price protection
programs and co-op advertising and marketing development funds
programs;
|
|
·
|
a
1.9 percentage point detriment from increased adverse purchase commitments
and higher warranty costs;
|
|
·
|
a
1.4 percentage point detriment due to increased freight and duty;
and
|
|
·
|
a
1.0 percentage point detriment due to a product mix shift to lower margin
products.
|
Fluctuations
in the gross profit of ACG and AEG in fiscal 2008 compared to fiscal 2007 were
as follows:
ACG
The
increase in gross profit was primarily due to higher net revenues. As a
percentage of net revenues, gross profit increased 2.3 percentage points
primarily due to the following:
|
|
·
|
a 1.6 percentage point benefit
from material cost reductions on wireless office and
Bluetooth
products;
|
|
|
·
|
a 1.5 percentage point benefit
primarily from improved productivity in our manufacturing
process;
|
|
|
·
|
a
0.7 percentage point benefit from foreign exchange;
and
|
|
|
·
|
a
0.6 percentage point benefit from a reduction in excess and obsolete
inventory costs.
|
These
benefits in gross profit were partially offset by a 2.1 percentage point
decrease primarily due to higher warranty costs primarily due to increased sales
of Mobile headsets through retail channels where open box warranty returns often
occur more frequently than through other sales channels, higher freight expenses
as a result of increased rates, a longer supply chain, and a less favorable
product mix as corded products, which typically have higher margins than
cordless products.
As a
percentage of net revenues, gross profit decreased 6.2 percentage points
primarily due to the following:
|
|
·
|
a
6.2 percentage point decline due to a 12% decline in the overall sales
volume and reduced selling prices of surplus inventory, primarily in
the Docking Audio category; and
|
|
|
·
|
increased
freight, duty, royalties and warehousing which yielded a 5.4 percentage
point decline.
|
The
decline in gross profit was partially offset by a 5.3 percentage point benefit
resulting from a decrease in claims from suppliers and decreased excess and
obsolete inventory costs due to the sale of slow moving product to
liquidators.
For both
our segments, 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, restructuring AEG’s China manufacturing and procurement functions,
including the shut down of our manufacturing plant in Dongguan, China, 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, expensed materials, depreciation and an
allocation of overhead expenses, including facilities, human resources, and IT
costs.
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
|||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
||||||||||||||||||||||||||
|
Research,
development and engineering
|
$ | 71,895 | $ | 76,982 | $ | 5,087 | 7.1 | % | $ | 76,982 | $ | 72,061 | $ | (4,921 | ) | (6.4 | )% | |||||||||||||||
|
%
of total consolidated net revenues
|
9.0 | % | 9.0 | % | 0.0 | ppt. | 9.0 | % | 9.4 | % | 0.4 | ppt. | ||||||||||||||||||||
|
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
|
Research,
development and engineering
|
$ | 61,583 | $ | 65,733 | $ | 4,150 | 6.7 | % | $ | 65,733 | $ | 63,840 | $ | (1,893 | ) | (2.9 | )% | |||||||||||||||
|
%
of total segment net revenues
|
9.1 | % | 8.8 | % | (0.3 | ) | ppt. | 8.8 | % | 9.5 | % | 0.7 | ppt. | |||||||||||||||||||
|
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
|
Research,
development and engineering
|
$ | 10,312 | $ | 11,249 | $ | 937 | 9.1 | % | $ | 11,249 | $ | 8,221 | $ | (3,028 | ) | (26.9 | )% | |||||||||||||||
|
%
of total segment net revenues
|
8.3 | % | 10.4 | % | 2.1 | ppt. | 10.4 | % | 9.0 | % | (1.4 | ) | ppt. | |||||||||||||||||||
In fiscal
2009, compared to fiscal 2008, consolidated research, development and
engineering expenses decreased primarily as we substantially completed the
refresh of the AEG product lines along with our efforts to reduce costs and
spending as we experienced a decline in revenues due to the global
recession. The $1.9 million decrease in ACG research, development,
and engineering expenses in fiscal 2009, compared to fiscal 2008 is primarily
due to lower project spending. In AEG, we began the refresh of the
AEG product lines in fiscal 2008 which we substantially completed during fiscal
2009. As such, we were able to decrease our research, development,
and engineering expenses in fiscal 2009 which is primarily due to decreased
headcount and related compensation costs along with the reduction in use of
outside firms for external design costs.
In fiscal
2008, compared to fiscal 2007, consolidated research, development and
engineering expenses increased primarily due to increased compensation
costs. The majority of the increase in research, development and
engineering expenses is attributable to the ACG segment. The $4.2
million increase in ACG research, development, and engineering expenses in
fiscal 2008, compared to fiscal 2007 is primarily related to higher compensation
and project expenses at our design centers in Suzhou, China, and in the
U.S. These increases are partially offset by reductions in program
and compensation expenses for Volume Logic technology development which was
absorbed by the B2B product development group. AEG expenses for
fiscal 2008 were relatively flat compared to the prior year.
Projects that the
research, development and engineering departments focused on during fiscal 2009
were:
|
|
·
|
the
design and development of wireless office system
products;
|
|
|
·
|
UC
products;
|
|
|
·
|
Bluetooth
products and
technology;
|
|
|
·
|
developing
common architectures across multiple products and increasing the use of
common components across product lines;
and
|
|
|
·
|
the
refresh of product lines for AEG.
|
|
|
|
We
anticipate that our consolidated research, development and engineering expenses
in fiscal 2010 will be lower in comparison to fiscal 2009.
Selling,
General and Administrative
Selling, general and administrative
expense consists primarily of compensation costs, marketing costs, professional
service fees, travel expenses, litigation costs, bad debt expense and
allocations of overhead expenses, including facilities, human resources and IT
costs.
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
|||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
||||||||||||||||||||||||||
|
Selling,
general and administrative
|
$ | 182,108 | $ | 189,156 | $ | 7,048 | 3.9 | % | $ | 189,156 | $ | 175,601 | $ | (13,555 | ) | (7.2 | )% | |||||||||||||||
|
%
of total consolidated net revenues
|
22.7 | % | 22.1 | % | (0.6 | ) | ppt. | 22.1 | % | 22.9 | % | 0.8 | ppt. | |||||||||||||||||||
|
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
|
Selling,
general and administrative
|
$ | 151,857 | $ | 163,173 | $ | 11,316 | 7.5 | % | $ | 163,173 | $ | 155,678 | $ | (7,495 | ) | (4.6 | )% | |||||||||||||||
|
%
of total segment net revenues
|
22.5 | % | 21.8 | % | (0.7 | ) | ppt. | 21.8 | % | 23.1 | % | 1.3 | ppt. | |||||||||||||||||||
|
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
|
Selling,
general and administrative
|
$ | 30,251 | $ | 25,983 | $ | (4,268 | ) | (14.1 | )% | $ | 25,983 | $ | 19,923 | $ | (6,060 | ) | (23.3 | )% | ||||||||||||||
|
%
of total segment net revenues
|
24.5 | % | 23.9 | % | (0.6 | ) | ppt. | 23.9 | % | 21.9 | % | (2.0 | ) | ppt. | ||||||||||||||||||
In fiscal
2009, compared to fiscal 2008, consolidated selling, general and administrative
expenses decreased primarily due to our efforts to reduce our cost structure
along with lower costs attributable to lower revenues and our response to the
weakening economic environment.
Fluctuations
in the selling, general and administrative expenses of ACG and AEG in fiscal
2009 compared to fiscal 2008 were as follows:
ACG
Selling,
general and administrative expenses decreased primarily due to the
following:
|
·
|
decreased marketing and sales
promotions of $6.2 million;
|
|
|
·
|
decreased
expenses of $3.9 million mostly due to lower performance-based
compensation costs; and
|
|
|
·
|
a
decrease of $2.0 million in travel and entertainment related
expenses.
|
These
decreases were offset in part by the following:
|
|
·
|
an
increase of $1.6 million in depreciation expenses;
and
|
|
|
·
|
an
increase of $1.9 million for provisions on doubtful accounts receivable
primarily due to the bankruptcy of a significant international
distributor.
|
AEG
Selling,
general and administrative expenses decreased primarily due to the
following:
|
|
·
|
decreased
compensation and recruitment costs of $2.0 million primarily related to
reduced headcount;
|
|
|
·
|
decreased
retail representative commissions of $1.0 million primarily due
to lower sales volume;
|
|
|
·
|
decreased
$1.1 million due to lower outside services due to completion of
integration related projects, reduced consulting costs from completion of
an Oracle project along with lower audit and legal fees;
and
|
|
|
.
|
decreased
intangibles amortization expense of $0.8 million as a result of the
impairment recognized in the third quarter of fiscal
2009.
|
In fiscal
2008, compared to fiscal 2007, consolidated selling, general and administrative
expenses increased due to increased compensation as a result of merit increases
and higher bonus and commission costs associated with higher net revenues and
profits in ACG, partially offset by a decrease in expenses in AEG.
Fluctuations
in the selling, general and administrative expenses of ACG and AEG in fiscal
2008 compared to fiscal 2007 were as follows:
ACG
Selling,
general and administrative expenses increased primarily due to the
following:
|
|
·
|
increased compensation expense of
$11.8 million as a result of merit increases and higher bonus and
commission costs associated with higher net revenues and profits;
and
|
|
|
·
|
increased
professional service fees of $3.4 million primarily related to increased
retail representation fees resulting from higher net revenues and
increased fees for accounting and tax
services.
|
These
increases were offset in part by a decrease of $3.8 million
in marketing and sales promotions.
AEG
Selling,
general and administrative expenses decreased primarily due to the
following:
|
|
·
|
decreased spending on integration
and retention of employe
es of $2.7 million as we have
completed significant portions of our planned systems integration;
and
|
|
|
·
|
increased
allocation of support services to cost of revenues and research and
development resulting in a decrease of
$1.1 million.
|
We
anticipate that our consolidated selling, general and administrative expenses in
fiscal 2010 will be lower in comparison to fiscal 2009.
Restructuring
and Other Related Charges
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Restructuring
and other related charges
|
$ | - | $ | 3,584 | $ | 3,584 | - | $ | 3,584 | $ | 12,074 | $ | 8,490 | 236.9 | % | ||||||||||||||||||
|
%
of total consolidated net revenues
|
0.0 | % | 0.4 | % | 0.4 | ppt. | 0.4 | % | 1.6 | % | 1.2 | ppt. | |||||||||||||||||||||
Audio
Communications Group
|
Restructuring
and other related charges
|
$ | - | $ | - | $ | - | - | $ | - | $ | 10,952 | $ | 10,952 | - | |||||||||||||||||||
|
%
of total segment net revenues
|
0.0 | % | 0.0 | % | - | ppt. | 0.0 | % | 1.6 | % | 1.6 | ppt. | |||||||||||||||||||||
Audio
Entertainment Group
|
Restructuring
and other related charges
|
$ | - | $ | 3,584 | $ | 3,584 | - | $ | 3,584 | $ | 1,122 | $ | (2,462 | ) | (68.7 | )% | |||||||||||||||||
|
%
of total segment net revenues
|
0.0 | % | 3.3 | % | 3.3 | ppt. | 3.3 | % | 1.2 | % | (2.1 | ) | ppt. | ||||||||||||||||||||
Q3
Fiscal 2008 Restructuring Action
In
November 2007, we announced plans to close AEG’s manufacturing facility in
Dongguan, China, shut down a related Hong Kong research and development, sales
and procurement office and consolidate procurement, research and development
activities for AEG in our Shenzhen, China site. The selling, general
and administrative functions of AEG in China have been consolidated with those
of ACG throughout the Asia-Pacific region. These actions resulted in
the elimination of all manufacturing operation positions in Dongguan, China and
certain related support functions. This restructuring plan is part of
a strategic initiative designed to reduce fixed costs by outsourcing the
majority of AEG manufacturing to a network of qualified contract manufacturers
already in place. In November 2007, 730 employees were notified of
their termination, 708 in manufacturing, 20 in research and development and 2 in
selling, general and administrative. As of December 31, 2008, all
employees had been terminated. Restructuring and other related
charges of approximately $3.7 million related to this restructuring plan, of
which $3.6 million was recorded in fiscal 2008 and $0.1 million recorded in
fiscal 2009. The total restructuring charges of $3.7 million consist
of $1.4 million for the write-off of facilities and equipment and accelerated
depreciation, $1.4 million for severance and benefits, and $0.9 million in
professional and administrative and other fees. All restructuring and
other related charges under this plan have been recorded as of March 31, 2009
and all amounts have been paid. Cost savings from this action,
primarily consisting of reduced employee expenses in all function and lower
facility costs, was approximately $3.0 million for fiscal 2009 which is expected
to remain at this level for fiscal 2010.
Q1
Fiscal 2009 Restructuring Action
In June
2008, we announced a reduction in force at AEG’s operations in Milford,
Pennsylvania as part of the strategic initiative designed to reduce
costs. A total of 31 employees were notified of their termination,
all of whom were terminated as of December 31, 2008. We recognized
$0.2 million of restructuring charges related to this activity in fiscal 2009,
consisting solely of severance, of which substantially all costs have been
recorded and paid as of March 31, 2009. Cost savings from this action
were $2.2 million in fiscal 2009 and we anticipate cost savings of approximately
$2.6 million in fiscal 2010, consisting of reduced employee expenses in all
functions.
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 had been terminated as
of December 31, 2009. On January 14, 2009, we announced additional
reductions in force related to this restructuring plan which included an
additional 199 employees located in ACG’s Tijuana, Mexico, U.S. and global
locations who were notified of their termination. A total of 823
employees, primarily in operations positions but also including other functions,
were notified of their termination under this restructuring action, all of whom,
except ten employees, had been terminated as of March 31, 2009. In
fiscal 2009, we recorded $8.8 million of restructuring charges related to these
activities, of which $0.8 million related to the AEG segment and $8.0 million
related to the ACG segment. 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. We believe that substantially all of the costs have been
incurred as of March 31, 2009, $2.6 million of which related to ACG had not been
paid as of March 31, 2009 and is expected to be paid in the first quarter of
fiscal 2010. We currently expect cost savings as a result of the
restructuring plan, including the actions announced in January 2009, to be
approximately $16.3 million in fiscal 2010 consisting of 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 in
China. A total of 656 employees, primarily in operations positions
but also included other functions, were notified of their termination of which
none of whom had been terminated as of March 31, 2009. Most of the
employees will be terminated in the second quarter of fiscal 2010 when we plan
to exit the manufacturing facility. In fiscal 2009, we recorded $3.0
million of restructuring charges in the ACG business segment, primarily
consisting of severance and benefits. We expect to incur total
restructuring and other related charges of $11.0 to $14.0 million related to
this action, including approximately $5.5 to $6.5 million in non-cash charges
related to accelerated depreciation, which will be recorded within cost of
revenues, $3.5 million in employee termination benefits of which $3.0 million
was recorded in fiscal 2009 and $2.0 to $4.0 million in other associated
costs. All remaining costs are expected to be incurred during fiscal 2010,
and all cash payments are expected to be funded from our operating cash
flows. We currently expect cost savings as a result of the 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
consists 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.
If
forecasted revenue and gross margin growth rates of either the ACG or AEG
segment are not achieved, it is reasonably possible that we will need to take
further restructuring actions which may result in additional restructuring and
other related charges in future periods. In addition, we continue to
review the AEG cost structure and may implement additional cost reduction
initiatives in the future.
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 current economic environment we determined
that sufficient indicators existed requiring us to perform an interim impairment
review of our two reporting segments, 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. There was
no impairment related to the ACG reporting unit.
We
performed our annual review of goodwill and purchased intangible assets with
indefinite lives for impairment in the fourth quarter of fiscal 2009 which
indicated that there was no further impairment of goodwill or intangible
assets. 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. Given the current
economic environment and the uncertainties regarding the impact on the business,
there can be no assurance that the estimates and assumptions regarding the
duration of the current economic downturn, or the period or strength of
recovery, made for purposes of testing the goodwill and indefinite lived
intangible assets for impairment during the third and fourth quarter of fiscal
2009 will prove to be accurate predictions of the future. If the
assumptions regarding forecasted revenue or margin growth rates of the AEG
reporting unit are not achieved or if certain alternatives being evaluated by
management to improve the profitability of the AEG segment do not materialize,
it is reasonably possible we may be required to record additional impairment
charges related to the Altec Lansing trademark and trade name in future periods,
whether in connection with our next annual impairment review in the fourth
quarter of fiscal 2010 or prior to that if indicators of impairment
exist. It is also reasonably possible that an impairment review may
be triggered for the remaining intangible assets associated with Altec
Lansing. The net book value of these intangible assets as of March
31, 2009 was $21.9 million. It is not possible at this time to
determine if any such future impairment charge would result or, if it does,
whether such charge would be material.
Gain
on Sale of Land
During
the first quarter of fiscal 2007, we sold a parcel of land in Frederick,
Maryland, for net proceeds of $2.7 million and recorded a gain of $2.6 million
from the sale of this property.
Operating Income
(Loss)
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Operating
income (loss)
|
$ | 57,449 | $ | 79,383 | $ | 21,934 | 38.2 | % | $ | 79,383 | $ | (81,172 | ) | $ | (160,555 | ) | (202.3 | )% | |||||||||||||||
|
%
of total consolidated net revenues
|
7.2 | % | 9.3 | % | 2.1 | ppt. | 9.3 | % | (10.6 | )% | (19.9 | ) | ppt. | ||||||||||||||||||||
Audio
Communications Group
|
Operating
income
|
$ | 84,677 | $ | 115,166 | $ | 30,489 | 36.0 | % | $ | 115,166 | $ | 61,461 | $ | (53,705 | ) | (46.6 | )% | ||||||||||||||||
|
%
of total segment net revenues
|
12.5 | % | 15.4 | % | 2.9 | ppt. | 15.4 | % | 9.1 | % | (6.3 | ) | ppt. | ||||||||||||||||||||
Audio
Entertainment Group
|
Operating
income (loss)
|
$ | (27,228 | ) | $ | (35,783 | ) | $ | (8,555 | ) | 31.4 | % | $ | (35,783 | ) | $ | (142,633 | ) | $ | (106,850 | ) | 298.6 | % | |||||||||||
|
%
of total segment net revenues
|
(22.0 | )% | (33.0 | )% | (11.0 | ) | ppt. | (33.0 | )% | (156.6 | )% | (123.6 | ) | ppt. | |||||||||||||||||||
In fiscal
2009, we had an operating loss of $81.2 million as compared to an
operating income of $79.4 million in fiscal 2008 due to lower net revenues, the
impairment of goodwill and long-lived assets recorded in the third quarter of
fiscal 2009 and increased restructuring and other related charges during fiscal
2009 offset in part by a reduction in normal operating expenses as a result of
cost savings programs.
In fiscal
2008, compared to fiscal 2007, consolidated operating income increased due to
higher net revenues and the 2.3 percentage point increase in gross profit in
ACG, despite the absence of the $2.6 million gain on sale of land recognized in
the first quarter of fiscal 2007 and restructuring and other related charges of
$3.6 million recognized in the third and fourth quarters of fiscal
2008. The improved operating results in ACG were partially offset by
increased operating losses in AEG, primarily due to lower net revenues and gross
profit and restructuring and other related charges.
Operating margins may vary based on
product mix shifts, product life cycles, and
seasonality.
We
believe the AEG segment will generate relatively small losses in the first half
of fiscal 2010 and should be profitable in the second half of fiscal 2010 based
on new products with lower costs comprising most of the mix by the second half
of the
fiscal
year.
Interest
and Other Income (Expense), Net
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
||||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
|||||||||||||||||||||||||||
|
Interest
and other income (expense), net
|
$ | 4,089 | $ | 5,854 | $ | 1,765 | 43.2 | % | $ | 5,854 | $ | (3,544 | ) | $ | (9,398 | ) | (160.5 | )% | |||||||||||||||
|
%
of total net revenues
|
0.5 | % | 0.7 | % | 0.2 | ppt. | 0.7 | % | (0.5 | )% | (1.2 | ) | ppt. | ||||||||||||||||||||
We had a
net interest and other expense in fiscal 2009 as compared to a net interest and
other income in fiscal 2008 due to higher foreign currency losses and lower
interest income as a result of lower interest rates on higher cash, cash
equivalents and short-term investments.
In
comparison to fiscal 2007, interest and other income (expense), net in fiscal
2008 increased primarily due to higher interest income as a result of higher
average cash balances and higher average yields, and lower interest expense
resulting from the repayment of our line of credit in the fourth quarter of
fiscal 2007.
Income
Tax Expense (Benefit)
Consolidated
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|||||||||||||||||||||||||||||||
|
March
31,
|
March
31,
|
Increase
|
March
31,
|
March
31,
|
Increase
|
|||||||||||||||||||||||||||
|
(in
thousands)
|
2007
|
2008
|
(Decrease)
|
2008
|
2009
|
(Decrease)
|
||||||||||||||||||||||||||
|
Income
(loss) before income taxes
|
$ | 61,538 | $ | 85,237 | $ | 23,699 | 38.5 | % | $ | 85,237 | $ | (84,716 | ) | $ | (169,953 | ) | (199.4 | )% | ||||||||||||||
|
Income
tax expense (benefit)
|
11,395 | 16,842 | 5,447 | 47.8 | % | 16,842 | (19,817 | ) | (36,659 | ) | (217.7 | )% | ||||||||||||||||||||
|
Net
income (loss)
|
$ | 50,143 | $ | 68,395 | $ | 18,252 | 36.4 | % | $ | 68,395 | $ | (64,899 | ) | $ | (133,294 | ) | (194.9 | )% | ||||||||||||||
|
Effective
tax rate
|
18.5 | % | 19.8 | % | 1.3 | ppt. | 19.8 | % | 23.4 | % | 3.6 | ppt. | ||||||||||||||||||||
In
comparison to fiscal 2008, the increase in the effective tax rate on the loss
before income taxes for fiscal 2009 is primarily due to the change in foreign
versus domestic income mix, the release of tax reserves resulting from the lapse
of the statute of limitations in certain jurisdictions and the reinstatement of
the U.S. research tax credit offset in part by the non-deductible goodwill
impairment charge and the release of the deferred tax liability resulting from
the impairment of the associated intangible assets.
In
comp
aris
on to
fiscal 2007, the increase in the effective rate for fiscal 2008 was primarily
due to reduced federal tax credits in fiscal 2008 as the research credit was
available for only nine months in fiscal 2008, compared to fifteen months in
fiscal 2007 due to reinstatement of the credit retroactively to January 1,
2006. We also benefited from a one-time solar credit in fiscal
2007.
Our
effective tax rate for fiscal 2009 differs from the statutory rate due to the
impact of foreign operations taxed at different statutory rates, income tax
credits, state taxes, the impairment of non-deductible goodwill and other
factors. Our effective tax rate for fiscal 2008 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, a return to profitability for the AEG business, or a change
in estimate of future taxable income which could result in a valuation allowance
being required.
On April
1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). Under
FIN 48, the impact of an uncertain income tax position on income tax expense
must be recognized at the largest amount that is more-likely-than-not to be
sustained. An uncertain income tax position will not be recognized
unless it has a greater than 50% likelihood of being sustained. There
were no material adjustments as a result of the adoption of FIN
48. As of March 31, 2009, we had $11.1 million of unrecognized tax
benefits compared to $12.4 million as of March 31, 2008, all of which would
favorably impact the effective tax rate in future periods if
recognized.
It is
our practice to recognize interest and/or penalties related to income tax
matters in income tax expense. As of March 31, 2009, we had
approximately $1.6 million of accrued interest related to uncertain tax
positions, compared to $1.7 million as of March 31, 2008. 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 twelve months. Currently, we cannot
reasonably estimate the amount of reductions during the next twelve
months.
We file
income tax returns in the U.S. federal jurisdiction, and various states and
foreign jurisdictions. We are no longer subject to either U.S.
federal or state income tax examinations by tax authorities for years prior to
2006 and 2005, respectively. Foreign income tax matters for material
tax jurisdictions have been concluded through tax years before 2004, except for
the United Kingdom, Germany and France which have been concluded through fiscal
2006.
FINANCIAL
CONDITION
The table
below provides selected consolidated cash flow information, for the periods
indicated:
|
Fiscal
Year Ended
|
||||||||||||
|
March
31,
|
March
31,
|
March
31,
|
||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Cash
provided by operating activities
|
$ | 73,048 | $ | 102,900 | $ | 99,150 | ||||||
|
Cash
used for capital expenditures and other assets
|
$ | (24,028 | ) | $ | (23,298 | ) | $ | (23,682 | ) | |||
|
Cash
provided by (used for) other investing activities
|
1,546 | (18,850 | ) | (59,490 | ) | |||||||
|
Cash
used for investing activities
|
$ | (22,482 | ) | $ | (42,148 | ) | $ | (83,172 | ) | |||
|
Cash
provided by (used for) financing activities
|
$ | (26,244 | ) | $ | 5,618 | $ | (14,915 | ) | ||||
Cash
Flows from Operating Activities
Cash
flows from operating activities in fiscal 2009 were $99.2 million and consisted
of our net loss of $64.9 million offset by non-cash charges of $147.6 million
and working capital sources of cash of $16.4 million. Non-cash
charges consisted primarily of $117.5 million related to the impairment of
goodwill and long-lived assets, $25.8 million of depreciation and amortization,
$15.7 million of stock-based compensation under SFAS No. 123(R), provision for
excess and obsolete inventory of $11.4 million, provision for sales allowances
and doubtful accounts of $2.7 million offset in part by a $26.9 million benefit
from deferred income taxes. Working capital sources of cash consisted
primarily of a decrease in accounts receivable of $50.7 million due to cash
collections and lower revenues. Days Sales Outstanding as of March
31, 2009 was 51 days compared to 57 as of March 31, 2008. Working
capital uses of cash consisted primarily of decreases in accounts payable and
accrued liabilities as we reduced our spending during the fiscal year, decreases
in gross inventory as we improved management of our inventory levels, and
increases in other assets. Inventory turns decreased to 3.2 as of
March 31, 2009 from 3.8 as of March 31, 2008 as a result of our higher inventory
balances and lower revenues.
Cash
flows from operating activities in fiscal 2008 were $102.9 million and consisted
of net income of $68.4 million, non-cash charges of $44.7 million and working
capital uses of cash of $10.2 million. Non-cash charges consisted
primarily of $28.5 million of depreciation and amortization, $16.0 million of
stock-based compensation under SFAS No. 123(R), provision for excess and
obsolete inventory of $7.8 million and restructuring and other related charges
of $1.6 million. Non-cash charges were partially offset by a $9.3
million non-cash benefit related to deferred income taxes. Working
capital uses of cash consisted primarily of increases in inventory and accounts
receivable. Inventory increased to support higher overall volumes and
the transition of manufacturing of consumer headsets to our manufacturing
facility in Suzhou, China. Inventory turns remained flat at 3.8 for
fiscal 2007 and 2008. Accounts receivable increased due to higher net
revenues. Days Sales Outstanding as of March 31, 2008 was 57 days
compared to 53 days as of March 31, 2007. Working capital sources of
cash consisted primarily of increases in accrued liabilities and income taxes
payable which fluctuate with the timing of payments.
Cash
flows from operating activities in fiscal 2007 were $73.0 million and consisted
of net income of $50.1 million, non-cash charges of $49.5 million and working
capital uses of cash of $26.6 million. Non-cash charges consisted
primarily of $29.2 million of depreciation and amortization, $16.9 million of
stock-based compensation under SFAS No. 123(R) and provision for excess and
obsolete inventory of $14.6 million. Non-cash charges were partially
offset by non-cash benefits of $8.4 million related to deferred income taxes and
a $2.5 million gain on the disposal of property, plant and
equipment. Working capital uses of cash consisted primarily of
increases in inventory related to finished goods for
Bluetooth
and wireless office
products and working capital sources of cash consisted primarily of a decrease
in accounts receivable and an increase in accounts payable and accrued
liabilities which fluctuate with the timing of payments.
We expect
that cash provided by operating activities may fluctuate in future periods as a
result of a number of factors including fluctuations in our net revenues and
operating results, collection of accounts receivable, changes to inventory
levels and timing of payments.
Cash
Flows from Investing Activities
In fiscal
2009, net cash flows used for investing activities was $83.2 million,
consisting of capital expenditures of $23.7 million and net purchases of
short-term investments of $59.9 million. Capital expenditures during
fiscal 2009 primarily related to $4.3 million in costs to
complete construction of the new corporate data center in our Santa
Cruz, California headquarters, $3.2 million for the construction of our
engineering center in Santa Cruz, California and $2.3 million for various IT
projects.
In fiscal
2008, net cash flows used for investing activities was $42.2 million,
consisting of capital expenditures of $23.3 million and net purchases of
short-term investments of $18.9 million. Capital expenditures during
fiscal 2008 primarily related to building improvements at our Santa Cruz,
California headquarters, including $2.7 million to complete the industrial
design wing and $1.2 million for work on the construction of the new corporate
data center, and $2.0 million for various IT
projects.
Net cash
flows used for investing activities in fiscal 2007 was $22.5 million and
consisted of capital expenditures of $24.0 million primarily related to building
improvements at our corporate headquarters in Santa Cruz, California, expansion
of a warehouse facility in Milford, Pennsylvania, and the purchase of machinery
and equipment, tooling, computers and software and net purchases of short-term
investments of $1.1 million, offset by $2.7 million related to the sale of land
in Frederick, Maryland in the first quarter of fiscal 2007.
We
anticipate our capital expenditures to decrease in fiscal 2010 from fiscal 2009
as we focus on improving return on invested capital and generating cash
flow. However, in the future, we may need additional facilities and
capital expenditures to support growth. We will continue to evaluate
new business opportunities and new markets. If we pursue new
opportunities or markets in areas in which we do not have existing facilities,
we may need additional expenditures to support future expansion.
Cash Flows from
Financing Activities
Net cash
flows used for financing activities in fiscal 2009 was $14.9 million and
consisted of $17.8 million related to repurchases of common stock and $9.8
million in dividend payments, which were partially offset by $6.9 million in
proceeds from the exercise of employee stock options, and $5.2 million in
proceeds from the sale of treasury stock related to employee stock plan
purchases.
Net cash
flows provided by financing activities in fiscal 2008 was $5.6 million and
consisted of $9.8 million in proceeds from the exercise of employee stock
options, $5.3 million in proceeds from the sale of treasury stock related to
employee stock plan purchases and $1.8 million of excess tax benefits from
stock-based compensation, which was partially offset by dividend payments of
$9.7 million and $1.6 million related to the repurchase of common
stock.
Net cash
flows used for financing activities in fiscal 2007 was $26.2 million and
consisted of $22.0 million related to the repayment of the line of credit which
was fully repaid in the fourth quarter of fiscal 2007, $4.0 million related to
the repurchase of common stock and dividend payments of $9.5
million. This was partially offset by $4.9 million in proceeds from
the sale of treasury stock related to employee stock plan purchases, $3.3
million in proceeds from the exercise of employee stock options and $1.2 million
of excess tax benefits from stock-based compensation.
On May 5,
2009, we announced that our Board of Directors had declared a cash dividend of
$0.05 per share of our common stock, payable on June 10, 2009 to stockholders of
record on May 20, 2009. We expect to continue our quarterly dividend of
$0.05 per common share. The actual declaration of future dividends,
and the establishment of record and payment dates, is subject to final
determination by the Audit Committee of the Board of Directors of Plantronics
each quarter after its review of our financial condition and financial
performance.
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
March 31, 2009, we had working capital of $377.6 million, including $218.2
million of cash, cash equivalents and short-term investments, compared with
working capital of $335.0 million, including $163.1 million of cash, cash
equivalents and short-term investments at March 31, 2008.
In fiscal
2010, we expect to spend $11.0 to $12.0 million in capital expenditures,
primarily consisting of IT related expenditures and tooling for new
products.
On January 25, 2008, the Board of
Directors authorized the repurchase of 1,000,000 shares of common stock under
which 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. As of March 31, 2009, there were 911,000 remaining shares
authorized for repurchase.
Our cash
and cash equivalents as of March 31, 2009 consists of U.S. Treasury or
Treasury-Backed funds and bank deposits with third party financial
institutions. These bank deposit balances are currently insured under
the Temporary Liquidity Guarantee (“TLG”) program administered by the Federal
Deposit Insurance Corporation (“FDIC”) insurance. The current terms
of the TLG providing for the unlimited insurance are in force through December
31, 2009. 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 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.
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.
In
November 2008, we accepted an agreement (the “Agreement”) from UBS AG (“UBS”),
the investment provider for our $28.0 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. So 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.
The
Rights represent a firm agreement in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). The enforceability of the Rights results in a put option and
should be recognized as a free standing asset separate from the
ARS. Upon acceptance of the offer from UBS, we recorded the put
option at fair value of $3.9 million using the Black-Scholes options pricing
model. As of March 31, 2009, the fair value of the put option was
$4.2 million and was recorded within Other assets in the Consolidated balance
sheet with a corresponding credit to Interest and other income
(expense), net in the Consolidated statements of operations for year ended March
31, 2009. The put option does not meet the definition of a derivative
instrument under SFAS No. 133. Therefore, we have elected to measure
the put option at fair value under SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”, in order to match the changes in
the fair value of the ARS. As a result, unrealized gains and losses
will be included in earnings in future periods.
As a
result of our intent and ability to hold our ARS investments to maturity, we
classified the entire ARS investment balance as long-term investments on our
consolidated balance sheet as of March 31, 2008 and 2009. 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 (loss) 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
(expense). In the fourth quarter of fiscal 2009, an additional
unrealized loss of $0.3 million was recorded to Interest and other income
(expense), net which was offset by a $0.3 million unrealized gain recorded on
the Rights.
As of
March 31, 2009, we utilized a discounted cash flow model to determine an
estimated fair value of our investments in ARS. 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.
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 temporary impairment charges
requiring us to record additional unrealized losses in Accumulated other
comprehensive income (loss). We could also incur other-than-temporary
impairment charges resulting in realized losses in our consolidated 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.
As of
March 31, 2009, we had a credit agreement with Wells Fargo N.A. (“Wells Fargo”)
which includes a $100 million revolving line of credit and a letter of credit
sub-facility. Borrowings under the line of credit are unsecured and
bear interest at the London inter-bank offered rate (“LIBOR”) plus
0.75%. The line of credit expires on August 1, 2010. At
March 31, 2009, there were no outstanding borrowings under the credit facility
and our commitments under a letter of credit sub-facility were $0.2
million. The amounts outstanding under the letter of credit
sub-facility are principally associated with purchases of
inventory. The terms of the credit facility contain covenants that
materially limit our ability to incur additional debt and pay dividends, among
other matters. They also require us to maintain a minimum annual net
income, a maximum leverage ratio and a minimum quick ratio. As a
result of our net loss incurred for the third quarter of fiscal 2009, we did not
meet the minimum net income covenant under the credit agreement. We
obtained a waiver of default due to this covenant from Wells Fargo for the
quarter ended December 31, 2008; however, we could not draw any funds on the
line of credit or new letter of credit advances until an additional amendment
was entered into with the bank. Due to overall net loss for fiscal
2009, we continued to be out of compliance with the covenants as of March 31,
2009. Effective April 1, 2009, we terminated our credit agreement as
we believe that our cash, cash equivalents and future cash flows provide
sufficient liquidity to fund our operating needs. Therefore, we are
no longer subject to the covenants of the credit agreement in fiscal
2010. In the first quarter of fiscal 2010, we entered into a standby
letter of credit agreement with Wells Fargo which we use to secure small letters
of credits with vendors as requested. As of April 25, 2009, we had
$0.2 million in commitments under the new agreement.
We enter
into foreign currency forward-exchange contracts, which typically mature in one
month, to hedge the exposure to foreign currency fluctuations of foreign
currency-denominated receivables, payables, and cash balances. We
record on the 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 (expense), 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. At each reporting period, we record the net fair value of
our unrealized option contracts on the consolidated balance sheet with related
unrealized gains and losses as a component of Accumulated other comprehensive
income (loss), a separate element of Stockholders’ Equity. Gains and
losses associated with realized option contracts are recorded within
revenue.
Our
liquidity, capital resources, and results of operations in any period could be
affected by the exercise of outstanding stock options, sale of restricted stock
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.
Our AEG
segment has incurred operating losses, including a non-cash goodwill and
long-lived asset impairment charge of $117.5 million in the third quarter of
fiscal 2009, utilizing more cash than has been generated by that
segment. AEG’s cash deficits have been funded by the cash surpluses
generated by ACG. We anticipate that ACG’s cash surpluses will be
sufficient to cover any cash deficits generated by AEG during fiscal
2010.
We
believe that our current cash, cash equivalents and cash provided by operations
will be sufficient to fund operations for at least the next twelve 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 Annual Report on Form 10-K 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
The
following table summarizes the contractual obligations that we were reasonably
likely to incur as of March 31, 2009 and the effect that such obligations are
expected to have on our liquidity and cash flows in future periods.
|
Payments
Due by Period
|
||||||||||||||||||||
|
Less
than
|
1-3
|
3-5
|
More
than
|
|||||||||||||||||
|
(in
thousands)
|
Total
|
1
year
|
years
|
years
|
5
years
|
|||||||||||||||
|
Operating
leases
|
$ | 14,774 | $ | 5,066 | $ | 5,678 | $ | 3,037 | $ | 993 | ||||||||||
|
Unconditional
purchase obligations
|
63,365 | 63,365 | - | - | - | |||||||||||||||
|
Total
contractual cash obligations
|
$ | 78,139 | $ | 68,431 | $ | 5,678 | $ | 3,037 | $ | 993 | ||||||||||
Effective
April 1, 2007, we adopted the provisions of FIN 48. As of March 31,
2009, the liabilities for uncertain tax positions and related interest were
$11.1 million and $1.6 million, respectively. We are unable to
reliably estimate the timing of future payments related to uncertain tax
positions; therefore, $12.7 million of income taxes payable has been excluded
from the table above. However, long-term income taxes payable on our
consolidated balance sheet includes these uncertain tax positions. We
do not anticipate material cash payments to be made within the next twelve
months associated with our uncertain tax positions.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations are
based upon Plantronics’ consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we base estimates and
judgments on historical experience and on various other factors that
Plantronics’ management believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.
Actual results may differ from those estimates under different assumptions or
conditions.
We
believe our most critical accounting policies and estimates include the
following:
|
|
·
|
Revenue
Recognition
|
|
|
·
|
Investments
|
|
|
·
|
Allowance for Doubtful
Accounts
|
|
|
·
|
Inventory and Related
Reserves
|
|
|
·
|
Product Warranty
Obligations
|
|
|
·
|
Goodwill and
Intangibles
|
|
|
·
|
Income
Taxes
|
Revenue
Recognition
Revenue
from sales of products to customers is recognized when the following criteria
have been met:
|
|
·
|
t
itle and risk of ownership are
transferred to customers;
|
|
|
·
|
p
ersuasive evidence of an
arrangement exists;
|
|
|
·
|
t
he price to the buyer is fixed or
determinable; and
|
|
|
·
|
c
ollection is reasonably
assured.
|
We assess
collectibility based on a customer’s credit quality, as well as subjective
factors and trends, including historical experience, the age of any existing
accounts receivable balances and geographic or country-specific risks and
economic conditions that may affect a customers’ ability to pay. We
defer revenue but recognize related cost of revenues if collectibility cannot be
reasonably assured. We recognize revenue net of estimated product
returns and expected payments to resellers for customer programs including
cooperative advertising, marketing development funds, volume rebates, and
special pricing programs.
Estimated
product returns are deducted from revenues upon shipment, based on historical
return rates, assumptions regarding the rate of sell-through to end users from
our various channels based on historical sell-through rates and other relevant
factors. Such estimates may need to be revised and could have an
adverse impact on revenues if product lives vary significantly from management
estimates, a particular selling channel experiences a higher than estimated
return rate, or sell-through rates are slower causing inventory
build-up.
Co-op
advertising and marketing development funds are accounted for in accordance with
EITF Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor’s Products”. Under these
guidelines, we accrue for these funds as marketing expense if we receive a
separately identifiable benefit in exchange and can reasonably estimate the fair
value of the identifiable benefit received; otherwise, the amount is recorded as
a reduction to revenues.
Reductions
to revenue for expected and actual payments to resellers for volume rebates and
pricing protection are based on actual expenses incurred during the period,
estimates for what is due to resellers for estimated credits earned during the
period and any adjustments for credits based on actual activity. If
the actual payments exceed management’s estimates, this could result in an
adverse impact on our revenues. Since management has historically
been able to reliably estimate the amount of allowances required for future
price adjustments and product returns, we recognize revenue, net of projected
allowances, upon recognition of the related sale. In situations where
management is unable to reliably estimate the amount of future price adjustments
and product returns, we defer recognition of the revenue until the right to
future price adjustments and product returns lapses, and we are no longer under
any obligation to reduce the price or accept the return of the
product.
If market
conditions warrant, we may take action to stimulate demand, which could include
increasing promotional programs, decreasing prices, or increasing
discounts. Such actions could result in incremental reductions to
revenue and margins at the time such incentives are offered. To the
extent that we reduce pricing, we may incur reductions to revenue for price
protection based on management’s estimate of inventory in the channel that is
subject to such pricing actions.
Investments
The goals
of our investment policy, in order of priority, are preservation of capital,
maintenance of liquidity, diversification and maximization of after-tax
investment income. Investments are limited to investment grade
securities with limitations by policy on the percent of the total portfolio
invested in any one issue. All of our investments are held in our
name at a limited number of major financial institutions. Investments
with remaining maturities greater than one year and ARS that we do not have the
ability and intent to liquidate within the next twelve months are classified as
long-term investments. Investments are carried at fair value based
upon quoted market prices at the end of the reporting period where
available. Our ARS investments are carried at fair value based on a
discounted cash flow model. As of March 31, 2009, all investments
except our ARS portfolio are classified as available-for-sale with
unrealized gains and losses recorded as a separate component of Accumulated
other comprehensive income (loss) in stockholders’ equity. The
specific identification method is used to determine the cost of securities
disposed of, with realized gains and losses reflected in Interest and other
income (expense), net. As of March 31, 2009, our ARS portfolio is
classified as long-term trading securities due to management’s intent to
exercise our put option with UBS Bank during the period from June 30, 2010 to
July 3, 2012 with any unrealized losses recorded to Interest and other income
(expense), net.
Impairment
on investments is determined pursuant to SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, and related guidance issued
by the FASB and SEC in order to determine the classification of the impairment
as “temporary” or “other-than-temporary”. A temporary impairment
charge results in an unrealized loss being recorded in the Other comprehensive
income (loss) component of Stockholders’ Equity. Such an unrealized loss
does not affect net income (loss) for the applicable accounting
period. An other-than-temporary impairment charge is recorded as a
realized loss in the consolidated statement of operations and reduces net income
for the applicable accounting period. The differentiating factors
between temporary and other-than-temporary impairment are primarily the length
of the time and the extent to which the market value has been less than cost,
the financial condition and near-term prospects of the issuer and the intent and
ability of Plantronics to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in market
value.
Allowance
for Doubtful Accounts
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We
regularly perform credit evaluations of our customers’ financial condition and
consider factors such as historical experience, credit quality, age of the
accounts receivable balances, and geographic or country-specific risks and
economic conditions that may affect a customer’s ability to pay. The
allowance for doubtful accounts is reviewed quarterly and adjusted if necessary
based on management’s assessment of a customer’s ability to pay. If
the financial condition of customers should deteriorate, additional allowances
may be required, which could have an adverse impact on operating
expenses.
Inventory
and Related Reserves
Inventories
are stated at the lower of cost or market. Cost is computed using
standard cost, which approximates actual cost, on a first-in, first-out
basis.
Costs
such as idle facility expense, double freight, and re-handling costs are
accounted for as current-period charges. Additionally, we allocate fixed
production overheads to the costs of conversion based on the normal capacity of
the production facilities. All shipping and handling costs incurred in
connection with the sale of products are included in the cost of
revenues.
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 our commercial 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. If we believe that demand no
longer allows us to sell our inventory above cost or at all, we write down that
inventory to market or write-off excess and obsolete
inventories. Write-downs are determined by reviewing our demand
forecast and by determining what inventory, if any, is not saleable. Our
demand forecast projects future shipments using historical rates and takes into
account market conditions, inventory on hand, purchase commitments, product
development plans and product life expectancy, inventory on consignment, and
other competitive factors. If our demand forecast is greater than actual
demand, and we fail to reduce our supply chain accordingly, we could be required
to write down additional inventory, which would have a negative impact on our
gross profit.
At the
point of inventory write-down, a new, lower-cost basis for that inventory is
established and subsequent changes in facts and circumstances do not result in
the restoration or increase in that newly established cost basis.
Product
Warranty
Obligations
We
provide for product warranties in accordance with the underlying contractual
terms given to the customer or end user of the product. The
contractual terms may vary depending upon the geographic region in which the
customer is located, the brand and type of product sold, and other conditions,
which affect or limit the customers’ rights to return product under
warranty. Where specific warranty return rights are given to
customers, we accrue for the estimated cost of those warranties at the time
revenue is recognized. Generally, warranties start at the delivery
date and continue for one or two years, depending on the type and brand, and the
location in which the product was purchased. Where specific warranty
return rights are not given to the customers but where the customers are granted
limited rights of return or discounts in lieu of warranty, we record these
rights of return or discounts as adjustments to revenue. In certain
circumstances, we may sell product without warranty, and accordingly, no charge
is taken for warranty. Factors that affect the warranty obligation
include sales terms, which obligate us to provide warranty, product failure
rates, estimated return rates, material usage, and service delivery costs
incurred in correcting product failures. We assess the adequacy of
the recorded warranty obligation quarterly and make adjustments to the
obligation based on actual experience and changes in estimated future return
rates. If our estimates are less than the actual costs of providing
warranty related services, we could be required to record additional warranty
reserves, which would have a negative impact on our gross profit.
Goodwill
and Intangibles
As a
result of past acquisitions, the Company has recorded goodwill and intangible
assets on the consolidated balance sheets. In accordance with SFAS No.
142, “Goodwill and Other Intangible Assets,” we classify intangible assets into
three categories: (1) goodwill; (2) intangible assets with indefinite lives not
subject to amortization; and (3) intangible assets with definite lives subject
to amortization.
Goodwill
and intangible assets with indefinite lives are not
amortized. Management performs a review at least annually, in the
fourth quarter of each fiscal year, or more frequently if indicators of
impairment exist, to determine if the carrying values of goodwill and indefinite
lived intangible assets are impaired. In the third quarter of fiscal
2009, in considering the effects of the current economic environment we
determined that sufficient indicators existed requiring us to perform an interim
impairment review of our two reporting segments, ACG and AEG.
Goodwill
has been measured as the excess of the cost of acquisition over the amount
assigned to tangible and identifiable intangible assets acquired less
liabilities assumed. The identification and measurement of goodwill
impairment involves the estimation of fair value at the Company’s reporting unit
level. Such impairment tests for goodwill include comparing the fair
value of a reporting unit with its carrying value, including goodwill. The
estimates of fair values of reporting units are based on the best information
available as of the date of the assessment, which primarily incorporate
management assumptions about expected future cash flows, discount rates, overall
market growth and our percentage of that market and growth rates in terminal
values, estimated costs, and other factors, which utilize historical data,
internal estimates, and in some cases outside data. If the carrying
value of the reporting unit exceeds our estimate of fair value, goodwill may
become impaired, and we may be required to record an impairment charge, which
would negatively impact our operating results.
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, we 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 our 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. For the
market comparable approach, we reviewed comparable companies in the
industry. Revenue multiples were determined for these companies and
an average multiple based on prior twelve 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.
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, we 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 our 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 current volatility of the stock prices of public companies
within the consumer electronics industry. 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.
For both
ACG and AEG, 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.
In
performing the impairment test for intangible assets with indefinite useful
lives, we compare the fair value of intangible assets with indefinite useful
lives to its carrying value. The fair value measurement of purchased
intangible assets with indefinite lives involves the estimation of the fair
value which is based on our assumptions about expected future cash flows,
discount rates, growth rates, estimated costs and other factors which utilize
historical data, internal estimates, and in some cases outside
data. If the carrying value of the indefinite useful life intangible
asset exceeds our estimate of fair value, goodwill may become impaired, and we
may be required to record an impairment charge which would negatively impact its
operating results.
The fair
value of the Altec Lansing trademark and trade name was determined using the
income approach with the same assumptions used for the income approach in
determining the fair value of the AEG reporting unit.
Given the
current economic environment and the uncertainties regarding the impact on our
business, there can be no assurance that our estimates and assumptions regarding
the duration of the current economic downturn, or the period or strength of
recovery, made for purposes of testing the goodwill and indefinite lived
intangible assets for impairment during the third and fourth quarter of fiscal
2009 will prove to be accurate predictions of the future. If our
assumptions regarding forecasted revenue or margin growth rates of the AEG
reporting unit are not achieved or if certain alternatives being evaluated by
management to improve the profitability of the AEG segment do not materialize,
it is reasonably possible we may be required to record additional impairment
charges related to the Altec Lansing trademark and trade name in future periods,
whether in connection with our next annual impairment review in the fourth
quarter of fiscal 2010 or prior to that if indicators of impairment
exist. It is not possible at this time to determine if any such
future impairment charge would result or, if it does, whether such charge would
be material.
If we
were to decrease the long-term growth rate or increase the discount rate used in
the income approach by one percentage point, there would be no change in the
goodwill impairment amount for the AEG reporting unit and it would not change
our conclusion that there was no goodwill impairment in the ACG reporting unit
in fiscal 2009. With respect to the Altec Lansing trademark and trade
name, if we were to decrease the long-term growth rate by one percentage point,
there would be no significant change in the impairment recorded in fiscal 2009;
however, a one percentage point increase in the discount rate would have
increased the impairment of the Altec Lansing trademark and trade name by
approximately $1.3 million in fiscal 2009.
Purchased
intangible assets with finite lives are amortized using the straight-line method
over the estimated economic lives of the assets, which range from three to ten
years. Long-lived assets, including intangible assets, are reviewed for
impairment in accordance with SFAS No. 144, “Impairment of Long-Lived Assets,”
(“SFAS No. 144”) whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Such conditions may
include an economic downturn or a change in the assessment of future
operations. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. Measurement of an impairment loss for long-lived
assets that we expect to hold and use is based on the amount that the carrying
value of the asset exceeds its fair value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
In the
third quarter of fiscal 2009, as a result of the impairment indicators that
existed, we performed a review of our long-lived assets within the AEG reporting
unit to test for impairment in accordance with SFAS No. 144. The fair
value of the intangible assets was determined using a discounted cash flow model
based on revenue and cost projections estimated by management for the periods
2010 through 2016 and the following discount rates: 13% for
technology, 14.7% for customer contracts and relationships and 15% for the
inMotion trade name.
If we
were to increase the discount rates used in the discounted cash flow approach by
one percentage point, there would be no significant change in the impairment
amount recorded in fiscal 2009 for the intangible assets with finite lives
within the AEG reporting unit.
Income
Taxes
We are
subject to income taxes both in the U.S. as well as in several foreign
jurisdictions. We must make certain estimates and judgments in
determining income tax expense for the financial statements. These
estimates occur in the calculation of tax benefits and deductions, tax credits,
and tax assets and liabilities which are generated from differences in the
timing of when items are recognized for book purposes and when they are
recognized for tax purposes.
On April 1, 2007, we adopted FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the
accounting for uncertainty in income tax positions. Under FIN 48, the
impact of an uncertain income tax position on income tax expense must be
recognized at the largest amount that is more-likely-than-not to be
sustained. An uncertain income tax position will not be recognized
unless it has a greater than 50% likelihood of being sustained. There were no
material adjustments as a result of the adoption of FIN 48. At the
adoption date, we had $12.4 million of unrecognized tax benefits. As
of March 31, 2009, we had $11.1 million of unrecognized tax benefits all of
which would favorably impact the effective tax rate in future periods if
recognized.
We continue to follow the practice of
recognizing interest and penalties related to income tax matters as a part of
the provision for income taxes.
We
account for income taxes under an asset and liability approach that requires the
expected future tax consequences of temporary differences between book and tax
bases of assets and liabilities to be recognized as deferred tax assets and
liabilities. Valuation allowances are established to reduce deferred
tax assets when, based on available objective evidence, it is more likely than
not that the benefit of such assets will not be realized.
ITEM
7A. QUA
NTIT
ATIVE 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 Affecting Future
Operating Results."
INTEREST
RATE AND MARKET RISK
We had
cash and cash equivalents totaling $163.1 million at March 31, 2008 compared to
$158.2 million at March 31, 2009. We had no short-term investments as
of March 31, 2008 compared to a short term investment balance of $60.0 million
at March 31, 2009. Cash equivalents have a maturity when purchased of
three months or less; short-term investments have a maturity of greater than
three months and are classified as available-for-sale. Long-term
investments of $23.7 million have maturities greater than one year, or we do not
currently have the ability to liquidate the investment. All of our
long-term investments are held in our name at a limited number of major
financial institutions and consist of ARS, concentrated primarily in student
loans. We have no exposure to sub-prime mortgage
securities.
Interest
rates have declined significantly in fiscal 2009 compared to 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 0.98% for fiscal year
2009. Approximately 29% of our interest income in fiscal 2009
was derived from our $28.0 million par value ARS portfolio which had an average
yield of approximately 3.0%. The ARS are currently resetting at rates
of approximately 1.0% in April 2009. If these rates continue, our
interest income will decrease by approximately $0.6 million in fiscal 2010 as
compared to fiscal 2009. Beyond that, 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 March 31, 2009, our
interest income could decrease.
As of
April 25, 2009, we had $0.2 million committed under the new standby letter of
credit agreement entered into in the first quarter of fiscal 2010. If
we choose to borrow additional amounts under this agreement in the future and
market interest rates rise, then our interest payments would increase
accordingly.
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
and JPMorgan Chase & Co. who are periodically evaluated for credit
risks. We hedge our balance sheet exposure by hedging Euro and Great
Britain Pound denominated receivables, payables, and cash balances, 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 losses in fiscal 2009 which our hedging activities
helped to reduce. However, the losses were larger than expected as a
result of higher net balance sheet exposures than forecasted along with losses
from currencies that we did not hedge. 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 March 31, 2009 (in millions):
|
Foreign
|
Foreign
|
||||||||||||
|
USD
Value of
|
Exchange
Gain
|
Exchange
(Loss)
|
|||||||||||
|
Net
Foreign
|
From
10%
|
From
10%
|
|||||||||||
|
Exchange
|
Appreciation
|
Depreciation
|
|||||||||||
|
Currency
- forward contracts
|
Position
|
Contracts
|
of
USD
|
of
USD
|
|||||||||
|
Euro
|
Sell
Euro
|
$ | 24.9 | $ | 2.5 | $ | (2.5 | ) | |||||
|
Great
Britain Pound
|
Sell
GBP
|
9.3 | 0.9 | (0.9 | ) | ||||||||
|
Net
position
|
$ | 34.2 | $ | 3.4 | $ | (3.4 | ) | ||||||
Cash
Flow Hedges
Approximately
39%, 39% and 38% of revenue in fiscal 2007, 2008 and 2009, respectively, was
derived from sales outside of the U.S., which were predominantly denominated in
the Euro and the Great Britain Pound in each of the fiscal years.
As of
March 31, 2009, we had foreign currency call option contracts with notional
amounts of approximately €48.4 million and £14.4 million denominated in
Euros and Great Britain Pounds, respectively. As of March 31, 2009,
we also had foreign currency put option contracts with notional amounts of
approximately €48.4 million and £14.4 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 $7.7 million or a loss of $7.5 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
March 31, 2009:
|
Foreign
|
Foreign
|
|||||||||||
|
USD
Value of
|
Exchange
Gain
|
Exchange
(Loss)
|
||||||||||
|
Net
Foreign
|
From
10%
|
From
10%
|
||||||||||
|
Exchange
|
Appreciation
|
Depreciation
|
||||||||||
|
Currency
- option contracts
|
Contracts
|
of
USD
|
of
USD
|
|||||||||
|
Call
options
|
$ | (95.3 | ) | $ | 1.6 | $ | (3.0 | ) | ||||
|
Put
options
|
90.0 | 6.1 | (4.5 | ) | ||||||||
|
Net
position
|
$ | (5.3 | ) | $ | 7.7 | $ | (7.5 | ) | ||||
ITEM
8. FINANCIAL ST
ATEM
ENTS AND SUPPLEMENTARY DATA
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of Plantronics, Inc.:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Plantronics, Inc. and its subsidiaries at March 28, 2009 and March
29, 2008, and the results of their operations and their cash flows for each of
the three years in the period ended March 28, 2009 in conformity with accounting
principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule appearing under Item
15(a)(1)
present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of March 28, 2009, based on
criteria established in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting.
Our responsibility is to express opinions on these financial statements, on the
financial statement schedule, and on the Company's internal control over
financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
As
discussed in Note 2 to the consolidated financial statements, effective April 1,
2007, the Company adopted the provision of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
San Jose,
California
May 26,
2009
PLANTRONICS,
INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
The
accompanying notes are an integral part of these consolidated financial
statements.
PLANTRONICS,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Net
revenues
|
$ | 800,154 | $ | 856,286 | $ | 765,619 | ||||||
|
Cost
of revenues
|
491,339 | 507,181 | 469,591 | |||||||||
|
Gross
profit
|
308,815 | 349,105 | 296,028 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research,
development and engineering
|
71,895 | 76,982 | 72,061 | |||||||||
|
Selling,
general and administrative
|
182,108 | 189,156 | 175,601 | |||||||||
|
Restructuring
and other related charges
|
- | 3,584 | 12,074 | |||||||||
|
Impairment
of goodwill and long-lived assets
|
- | - | 117,464 | |||||||||
|
Gain
on sale of land
|
(2,637 | ) | - | - | ||||||||
|
Total
operating expenses
|
251,366 | 269,722 | 377,200 | |||||||||
|
Operating
income (loss)
|
57,449 | 79,383 | (81,172 | ) | ||||||||
|
Interest
and other income (expense), net
|
4,089 | 5,854 | (3,544 | ) | ||||||||
|
Income
(loss) before income taxes
|
61,538 | 85,237 | (84,716 | ) | ||||||||
|
Income
tax expense (benefit)
|
11,395 | 16,842 | (19,817 | ) | ||||||||
|
Net
income (loss)
|
$ | 50,143 | $ | 68,395 | $ | (64,899 | ) | |||||
|
Net
income (loss) per share - basic
|
$ | 1.06 | $ | 1.42 | $ | (1.34 | ) | |||||
|
Shares
used in basic per share calculations
|
47,361 | 48,232 | 48,589 | |||||||||
|
Net
income (loss) per share - diluted
|
$ | 1.04 | $ | 1.39 | $ | (1.34 | ) | |||||
|
Shares
used in diluted per share calculations
|
48,020 | 49,090 | 48,589 | |||||||||
|
Cash
dividends declared per common share
|
$ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PLANTRONICS,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
income (loss)
|
$ | 50,143 | $ | 68,395 | $ | (64,899 | ) | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
29,151 | 28,486 | 25,822 | |||||||||
|
Stock-based
compensation
|
16,919 | 15,992 | 15,742 | |||||||||
|
Provision
for (benefit from) sales allowances and doubtful accounts
|
(288 | ) | (232 | ) | 2,698 | |||||||
|
Provision
for excess and obsolete inventories
|
14,551 | 7,776 | 11,364 | |||||||||
|
Benefit
from deferred income taxes
|
(8,430 | ) | (9,313 | ) | (26,853 | ) | ||||||
|
Income
tax benefit associated with stock option exercises
|
501 | 1,459 | 1,025 | |||||||||
|
Excess
tax benefit from stock-based compensation
|
(1,208 | ) | (1,763 | ) | (592 | ) | ||||||
|
Impairment
of goodwill, intangibles and long-lived assets
|
800 | 517 | 117,464 | |||||||||
|
Non-cash
restructuring charges
|
- | 1,557 | 581 | |||||||||
|
Other
operating activities
|
(2,535 | ) | 253 | 358 | ||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivable, net
|
4,538 | (19,196 | ) | 50,706 | ||||||||
|
Inventory,
net
|
(35,140 | ) | (8,273 | ) | (5,358 | ) | ||||||
|
Other
assets
|
(5,334 | ) | (3,100 | ) | (6,935 | ) | ||||||
|
Accounts
payable
|
1,382 | (2,060 | ) | (15,069 | ) | |||||||
|
Accrued
liabilities
|
8,712 | 8,731 | (6,701 | ) | ||||||||
|
Income
taxes payable
|
(714 | ) | 13,671 | (203 | ) | |||||||
|
Cash
provided by operating activities
|
73,048 | 102,900 | 99,150 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Proceeds
from sales of short-term investments
|
311,439 | 328,285 | - | |||||||||
|
Proceeds
from maturities of short-term investments
|
- | - | 30,000 | |||||||||
|
Purchase
of short-term investments
|
(312,560 | ) | (347,135 | ) | (89,896 | ) | ||||||
|
Proceeds
from the sale of land
|
2,667 | - | - | |||||||||
|
Capital
expenditures and other assets
|
(24,028 | ) | (23,298 | ) | (23,682 | ) | ||||||
|
Funds
released from escrow related to the Altec acquisition
|
- | - | 406 | |||||||||
|
Cash
used for investing activities
|
(22,482 | ) | (42,148 | ) | (83,172 | ) | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Purchase
of treasury stock
|
(4,021 | ) | (1,542 | ) | (17,817 | ) | ||||||
|
Proceeds
from sale of treasury stock
|
4,886 | 5,346 | 5,198 | |||||||||
|
Proceeds
from issuance of common stock
|
3,266 | 9,762 | 6,899 | |||||||||
|
Repayment
of line of credit
|
(22,043 | ) | - | - | ||||||||
|
Payment
of cash dividends
|
(9,540 | ) | (9,711 | ) | (9,787 | ) | ||||||
|
Excess
tax benefit from stock-based compensation
|
1,208 | 1,763 | 592 | |||||||||
|
Cash
(used for) provided by financing activities
|
(26,244 | ) | 5,618 | (14,915 | ) | |||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
1,106 | 2,590 | (5,961 | ) | ||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
25,428 | 68,960 | (4,898 | ) | ||||||||
|
Cash
and cash equivalents at beginning of year
|
68,703 | 94,131 | 163,091 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 94,131 | $ | 163,091 | $ | 158,193 | ||||||
|
SUPPLEMENTAL
DISCLOSURES
|
||||||||||||
|
Cash
paid for:
|
||||||||||||
|
Interest
|
$ | 632 | $ | 100 | $ | 101 | ||||||
|
Income
taxes
|
$ | 24,836 | $ | 13,027 | $ | 12,519 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PLANTRONICS,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(in
thousands)
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||||||||||||||
|
Additional
|
Deferred
|
Compre-
|
Stock-
|
|||||||||||||||||||||||||||||
|
Common
Stock
|
Paid-In
|
Stock-Based
|
hensive
|
Retained
|
Treasury
|
holders'
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Compensation
|
Income(Loss)
|
Earnings
|
Stock
|
Equity
|
|||||||||||||||||||||||||
|
Balances
at March 31, 2006
|
47,538 | $ | 662 | $ | 325,764 | $ | (8,599 | ) | $ | 3,634 | $ | 509,562 | $ | (395,402 | ) | $ | 435,621 | |||||||||||||||
|
Net
income
|
- | - | - | - | - | 50,143 | - | 50,143 | ||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
- | - | - | - | 2,006 | - | - | 2,006 | ||||||||||||||||||||||||
|
Unrealized
gain on hedges, net of tax
|
- | - | - | - | (2,974 | ) | - | - | (2,974 | ) | ||||||||||||||||||||||
|
Comprehensive
income
|
49,175 | |||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
331 | 3 | 3,262 | - | - | - | - | 3,265 | ||||||||||||||||||||||||
|
Issuance
of restricted common stock
|
79 | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||
|
Repurchase
of restricted common stock
|
(39 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
|
Cash
dividends declared
|
- | - | - | - | - | (9,540 | ) | - | (9,540 | ) | ||||||||||||||||||||||
|
Reclassification
of unamortized stock-based compensation upon adoption of SFAS
123(R)
|
- | - | (8,599 | ) | 8,599 | - | - | - | - | |||||||||||||||||||||||
|
Stock-based
compensation
|
- | - | 16,919 | - | - | - | - | 16,919 | ||||||||||||||||||||||||
|
Income
tax benefit associated with stock options
|
- | - | 501 | - | - | - | - | 501 | ||||||||||||||||||||||||
|
Purchase
of treasury stock
|
(175 | ) | - | - | - | - | - | (4,021 | ) | (4,021 | ) | |||||||||||||||||||||
|
Sale
of treasury stock
|
331 | - | 2,814 | - | - | - | 2,072 | 4,886 | ||||||||||||||||||||||||
|
Balances
at March 31, 2007
|
48,065 | 666 | 340,661 | - | 2,666 | 550,165 | (397,351 | ) | 496,807 | |||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 68,395 | - | 68,395 | ||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
- | - | - | - | 1,053 | - | - | 1,053 | ||||||||||||||||||||||||
|
Unrealized
loss on hedges, net of tax
|
- | - | - | - | (4,436 | ) | - | - | (4,436 | ) | ||||||||||||||||||||||
|
Unrealized
loss on long-term investments, net of tax
|
- | - | - | - | (2,864 | ) | - | - | (2,864 | ) | ||||||||||||||||||||||
|
Comprehensive
income
|
- | 62,148 | ||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
576 | 6 | 9,755 | - | - | - | - | 9,761 | ||||||||||||||||||||||||
|
Issuance
of restricted common stock
|
113 | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||
|
Repurchase
of restricted common stock
|
(35 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
|
Cash
dividends declared
|
- | - | - | - | - | (9,711 | ) | - | (9,711 | ) | ||||||||||||||||||||||
|
Stock-based
compensation
|
- | - | 15,992 | - | - | - | - | 15,992 | ||||||||||||||||||||||||
|
Income
tax benefit associated with stock options
|
- | - | (182 | ) | - | - | - | - | (182 | ) | ||||||||||||||||||||||
|
Purchase
of treasury stock
|
(82 | ) | - | - | - | - | - | (1,542 | ) | (1,542 | ) | |||||||||||||||||||||
|
Sale
of treasury stock
|
307 | - | 3,429 | - | - | - | 1,917 | 5,346 | ||||||||||||||||||||||||
|
Balances
at March 31, 2008
|
48,944 | 673 | 369,655 | - | (3,581 | ) | 608,849 | (396,976 | ) | 578,620 | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (64,899 | ) | - | (64,899 | ) | ||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
- | - | - | - | (2,606 | ) | - | - | (2,606 | ) | ||||||||||||||||||||||
|
Unrealized
loss on hedges, net of tax
|
- | - | - | - | 12,179 | - | - | 12,179 | ||||||||||||||||||||||||
|
Unrealized
loss on long-term investments, net of tax
|
- | - | - | - | 2,863 | - | - | 2,863 | ||||||||||||||||||||||||
|
Comprehensive
loss
|
(52,463 | ) | ||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
359 | 4 | 6,894 | - | - | - | - | 6,898 | ||||||||||||||||||||||||
|
Issuance
of restricted common stock
|
187 | 1 | - | - | - | - | - | 1 | ||||||||||||||||||||||||
|
Repurchase
of restricted common stock
|
(20 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
|
Cash
dividends declared
|
- | - | - | - | - | (9,787 | ) | - | (9,787 | ) | ||||||||||||||||||||||
|
Stock-based
compensation
|
- | - | 15,742 | - | - | - | - | 15,742 | ||||||||||||||||||||||||
|
Income
tax benefit associated with stock options
|
- | - | (1,025 | ) | - | - | - | - | (1,025 | ) | ||||||||||||||||||||||
|
Purchase
of treasury stock
|
(1,007 | ) | - | - | - | - | - | (17,817 | ) | (17,817 | ) | |||||||||||||||||||||
|
Sale
of treasury stock
|
429 | - | (5,042 | ) | - | - | - | 10,240 | 5,198 | |||||||||||||||||||||||
|
Retirement
of treasury stock
|
- | - | - | - | - | (330,227 | ) | 330,227 | - | |||||||||||||||||||||||
|
Balances
at March 31, 2009
|
48,892 | $ | 678 | $ | 386,224 | $ | - | $ | 8,855 | $ | 203,936 | $ | (74,326 | ) | $ | 525,367 | ||||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PLANTRONICS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
THE
COMPANY
|
Plantronics,
Inc. (“Plantronics” or “the Company”) is 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. The Company is also a leading manufacturer and
marketer of high quality docking audio products, computer and home entertainment
sound systems, and a line of headphones for personal digital media under the
Altec Lansing brand.
Founded
in 1961, Plantronics is incorporated in the state of Delaware and trades on the
New York Stock Exchange under the ticker symbol “PLT”.
|
2.
|
SIGNIFICANT ACCOUNTING
POLICIES
|
Management's
Use of Estimates and Assumptions
The
preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. These estimates are based on information
available as of the date of the financial statements. Actual results
could differ materially from those estimates.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Plantronics and its
wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Reclassifications
Certain
previously reported amounts have been reclassified to conform to the current
years’ presentation.
Segment
Information
The
Company has two reportable segments, Audio Communications Group (“ACG”) and
Audio Entertainment Group (“AEG”). (See Note 16)
Fiscal
Year
The
Company’s fiscal year ends on the Saturday closest to the last day of
March. Fiscal year 2009 ended on March 28, 2009, fiscal year 2008
ended on March 29, 2008, and fiscal year 2007 ended on March 31
2007. Each fiscal year consisted of 52 weeks. For purposes
of presentation, the Company has indicated its accounting year as ending on
March 31.
Financial
Instruments
The
carrying values of certain of the Company’s financial instruments, including
cash, cash equivalents, short-term investments, accounts receivable, and
accounts payable approximate fair value due to their short
maturities.
Cash
and Cash Equivalents
All
highly liquid investments with original or remaining maturities of three
months or less at the date of purchase are classified as cash
equivalents.
Investments
The goals
of the Company’s investment policy, in order of priority, are preservation of
capital, maintenance of liquidity, diversification and maximization of after-tax
investment income. Investments are limited to investment grade
securities with limitations by policy on the percent of the total portfolio
invested in any one issue. All of the Company’s investments are held
in the Company’s name at a limited number of major financial
institutions. Investments with remaining maturities greater than one
year and Auction Rate Securities (“ARS”) that the Company does not have the
ability and intent to liquidate within the next twelve months are classified as
long-term investments. Investments are carried at fair value based
upon quoted market prices at the end of the reporting period where
available. The Company’s ARS investments are carried at fair value
based on a discounted cash flow model. As of March 31, 2009, all
investments, except the ARS, are classified as available-for-sale with
unrealized gains and losses recorded as a separate component of Accumulated
other comprehensive income (loss) in Stockholders’ Equity. The
specific identification method is used to determine the cost of securities
disposed of, with realized gains and losses reflected in Interest and other
income (expense), net. As of March 31, 2009, the Company’s ARS
portfolio is classified as long-term trading securities due to management’s
intent to exercise our put option with UBS during the period from June 30, 2010
to July 3, 2012. (See Note 4)
Impairment
on investments is determined pursuant to SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, and related guidance issued
by the FASB and SEC in order to determine the classification of the impairment
as “temporary” or “other-than-temporary”. A temporary impairment
charge results in an unrealized loss being recorded in the Accumulated other
comprehensive income (loss) component of Stockholders’ Equity. Such an
unrealized loss does not affect net income (loss) for the applicable accounting
period. An other-than-temporary impairment charge is recorded as a
realized loss in the consolidated statement of operations and reduces net income
for the applicable accounting period. The differentiating factors
between temporary and other-than-temporary impairment are primarily the length
of the time and the extent to which the market value has been less than cost,
the financial condition and near-term prospects of the issuer and the intent and
ability of Plantronics to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in market
value.
Derivatives
The
Company accounts for its derivative instruments as either assets or liabilities
and carries them at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and the
resulting designation. For derivative instruments designated as a
fair value hedge, the gain or loss is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributed
to the risk being hedged. For a derivative instrument designated as a
cash flow hedge, the effective portion of the derivative’s gain or loss is
initially reported as a component of Accumulated other comprehensive income
(loss) in Stockholders’ Equity and subsequently reclassified into earnings when
the hedged exposure affects earnings. The ineffective portion of the
gain or loss is reported in earnings immediately. For derivative
instruments that are not designated as accounting hedges under Statement of
Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for
Derivative Instruments and Hedging Activities”, changes in fair value are
recognized in earnings in the period of change. The Company does not
hold or issue derivative financial instruments for speculative trading
purposes. Plantronics enters into derivatives only with
counterparties that are among the largest U.S. banks, ranked by assets, in order
to minimize its credit risk and to date, no such counterparty has failed to meet
its financial obligations under such contracts. (See Note 13)
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments. Plantronics regularly performs credit evaluations of its
customers’ financial condition and considers factors such as historical
experience, credit quality, age of the accounts receivable balances, and
geographic or country-specific risks and economic conditions that may affect a
customer’s ability to pay. The allowance for doubtful accounts is
reviewed quarterly and adjusted if necessary based on management’s assessment of
a customer’s ability to pay. If the financial condition of customers
should deteriorate, additional allowances may be required which could have an
adverse impact on operating expenses.
Inventory
and Related Reserves
Inventories
are stated at the lower of cost or market. Cost is computed using
standard cost, which approximates actual cost, on a first-in, first-out
basis.
Costs
such as idle facility expense, double freight, and re-handling costs are
accounted for as current-period charges. Additionally, the Company
allocates fixed production overheads to the costs of conversion based on the
normal capacity of the production facilities. All shipping and
handling costs incurred in connection with the sale of products are included in
the cost of revenues.
The
Company’s 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 the Company’s
commercial products, long life-cycles periodically necessitate last-time buys of
raw materials which may be used over the course of several years. The
Company routinely reviews inventory for usage potential, including fulfillment
of customer warranty obligations and spare part requirements. If the
Company believes that demand no longer allows the Company to sell inventory
above cost or at all, management writes down that inventory to market or
writes-off excess and obsolete inventories. Write-downs are
determined by reviewing the Company’s demand forecast and by determining what
inventory, if any, is not saleable. The Company’s demand forecast
projects future shipments using historical rates and takes into account market
conditions, inventory on hand, purchase commitments, product development plans
and product life expectancy, inventory on consignment, and other competitive
factors. If the Company’s demand forecast is greater than actual
demand, it could be required to write down additional inventory, which would
have a negative impact on the Company’s gross profit.
At the
point of inventory write-down, a new, lower-cost basis for that inventory is
established and subsequent changes in facts and circumstances do not result in
the restoration or increase in that newly established cost basis.
Product
Warranty Obligations
The
Company provides for product warranties in accordance with the underlying
contractual terms given to the customer or end user of the
product. The contractual terms may vary depending upon the geographic
region in which the customer is located, the brand and type of product sold, and
other conditions, which affect or limit the customers’ rights to return product
under warranty. Where specific warranty return rights are given to
customers, management accrues for the estimated cost of those warranties at the
time revenue is recognized. Generally, warranties start at the
delivery date and continue for one or two years, depending on the type and
brand, and the location in which the product was purchased. Where
specific warranty return rights are not given to the customers but where the
customers are granted limited rights of return or discounts in lieu of warranty,
management records these rights of return or discounts as adjustments to
revenue. In certain circumstances, the Company may sell product
without warranty, and accordingly, no charge is taken for
warranty. Factors that affect the warranty obligation include sales
terms, which obligate the Company to provide warranty, product failure rates,
estimated return rates, material usage, and service delivery costs incurred in
correcting product failures. Management assesses the adequacy of the
recorded warranty obligation quarterly and makes adjustments to the obligation
based on the actual experience and changes in estimates of future return
rates. If the Company’s estimates are less than the actual costs of
providing warranty related services, the Company could be required to record
additional warranty reserves, which would have a negative impact on its gross
profit.
Goodwill
and Intangibles
As a
result of past acquisitions, the Company has recorded goodwill and intangible
assets on the consolidated balance sheets. In accordance with SFAS No.
142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) the Company
classifies intangible assets into three categories: (1) goodwill; (2) intangible
assets with indefinite lives not subject to amortization; and (3) intangible
assets with definite lives subject to amortization.
Goodwill
and intangible assets with indefinite lives are not amortized. At
least annually, in the fourth quarter of each fiscal year, or more frequently if
indicators of impairment exist, management performs a review to determine if the
carrying values of goodwill and indefinite lived intangible assets are
impaired.
Goodwill
has been measured as the excess of the cost of acquisition over the amount
assigned to tangible and identifiable intangible assets acquired less
liabilities assumed. The identification and measurement of goodwill
impairment involves the estimation of fair value at the Company’s reporting unit
level. Such impairment tests for goodwill include comparing the fair
value of a reporting unit with its carrying value, including goodwill. The
estimates of fair values of reporting units are based on the best information
available as of the date of the assessment, which primarily incorporate
management assumptions about expected future cash flows, discount rates, growth
rates, estimated costs, and other factors, which utilize historical data,
internal estimates, and in some cases outside data. If the carrying value of the
reporting unit exceeds management’s estimate of fair value, goodwill may become
impaired, and the Company may be required to record an impairment charge, which
would negatively impact its operating results.
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. 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 twelve 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.
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 current volatility of the stock prices of public
companies within the consumer electronics industry. 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.
For both
ACG and AEG, 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. (See Note 6)
In
performing the impairment test for intangible assets with indefinite useful
lives, the Company compares the fair value of intangible assets with indefinite
useful lives to its carrying value. The fair value measurement of
purchased intangible assets with indefinite lives involves the estimation of the
fair value which is based on management assumptions about expected future cash
flows, discount rates, growth rates, estimated costs and other factors which
utilize historical data, internal estimates, and in some cases outside
data. If the carrying value of the indefinite useful life intangible
asset exceeds management’s estimate of fair value, goodwill may become impaired,
and the Company may be required to record an impairment charge which would
negatively impact its operating results.
Purchased
intangible assets with finite lives are amortized using the straight-line method
over the estimated economic lives of the assets, which range from three to ten
years. Long-lived assets, including intangible assets, are reviewed for
impairment in accordance with SFAS No. 144, “Impairment of Long-Lived Assets,”
(“SFAS No. 144”) whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Such conditions may
include an economic downturn or a change in the assessment of future
operations. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. 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. Long-lived assets to
be disposed of are reported at the lower of carrying amount or fair value less
costs to sell. (See Note 7)
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is principally calculated using the
straight-line method over the estimated useful lives of the respective assets,
which range from two to 30 years. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
estimated useful lives of the assets or the remaining lease
term. Depreciation and amortization expense for fiscal 2007, 2008 and
2009 was $20.8 million, $20.3 million and $19.6 million,
respectively.
Costs
associated with internal-use software are recorded in accordance with Statement
of Position No. 98-1 (“SOP 98-1”), “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.” Capitalized
software costs are amortized on a straight-line basis over the estimated useful
life. Unamortized capitalized software costs were $7.2 million and
$9.6 million at March 31, 2008 and 2009, respectively. The amounts
amortized to expense were $3.1 million, $2.4 million, and $3.1 million in fiscal
2007, 2008 and 2009, respectively.
Revenue
Recognition
Revenue
from sales of products to customers is recognized when the following criteria
have been met:
|
|
·
|
title and risk of ownership are
transferred to customers;
|
|
|
·
|
persuasive evidence of an
arrangement exists;
|
|
|
·
|
t
he price to the buyer is fixed or
determinable; and
|
|
|
·
|
c
ollection is reasonably
assured.
|
The
Company assesses collectibility based on a customer’s credit quality, as well as
subjective factors and trends, including historical experience, the age of any
existing accounts receivable balances and geographic or country-specific risks
and economic conditions that may affect a customer’s ability to
pay. The Company defers revenue but recognizes related cost of
revenues if collectibility cannot be reasonably assured. Plantronics
recognizes revenue net of estimated product returns and expected payments to
resellers for customer programs including cooperative advertising, marketing
development funds, volume rebates, and special pricing programs.
Estimated
product returns are deducted from revenues upon shipment, based on historical
return rates, assumptions regarding the rate of sell-through to end users from
our various channels based on historical sell-through rates and other relevant
factors. Such estimates may need to be revised and could have an
adverse impact on revenues if product lives vary significantly from management
estimates, a particular selling channel experiences a higher than estimated
return rate, or sell-through rates are slower causing inventory
build-up.
Co-op
advertising and marketing development funds are accounted for in accordance with
EITF Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor’s Products”. Under these
guidelines, the Company accrues for these funds as marketing expense if it
receives a separately identifiable benefit in exchange and can reasonably
estimate the fair value of the identifiable benefit received; otherwise, it is
recorded as a reduction to revenues.
Reductions
to revenue for expected and actual payments to resellers for volume rebates and
pricing protection are based on actual expenses incurred during the period,
estimates for what is due to resellers for estimated credits earned during the
period and any adjustments for credits based on actual activity. If
the actual payments exceed management’s estimates, this could result in an
adverse impact on the Company’s revenues. Since management has
historically been able to reliably estimate the amount of allowances required
for future price adjustments and product returns, the Company recognizes
revenue, net of projected allowances, upon recognition of the related
sale. In situations where management is unable to reliably estimate
the amount of future price adjustments and product returns, the Company defers
recognition of the revenue until the right to future price adjustments and
product returns lapses, and the Company is no longer under any obligation to
reduce the price or accept the return of the product.
If market
conditions warrant, Plantronics may take actions to stimulate demand, which
could include increasing promotional programs, decreasing prices, or increasing
discounts. Such actions could result in incremental reductions to
revenues and margins at the time such incentives are offered. To the
extent that Plantronics reduces pricing, the Company may incur reductions to
revenue for price protection based on management’s estimate of inventory in the
channel that is subject to such pricing actions.
Advertising
Costs
Plantronics
expenses all advertising costs as incurred. Advertising expense for
the years ended March 31, 2007, 2008 and 2009 was $13.2 million, $9.9 million
and $6.9 million, respectively.
Income
Taxes
Plantronics
is subject to income taxes both in the U.S. as well as in several foreign
jurisdictions. The Company must make certain estimates and judgments
in determining income tax expense for its financial statements. These
estimates occur in the calculation of tax benefits and deductions, tax credits,
and tax assets and liabilities which are generated from differences in the
timing of when items are recognized for book purposes and when they are
recognized for tax purposes.
On April
1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN
48”). Under FIN 48, the impact of an uncertain income tax position on
income tax expense must be recognized at the largest amount that is
more-likely-than-not to be sustained. An uncertain income tax
position will not be recognized unless it has a greater than 50% likelihood of
being sustained. There were no material adjustments as a result of
the adoption of FIN 48. At the adoption date, the Company had $12.4
million of unrecognized tax benefits, $9.8 million of which would affect income
tax expense if recognized. As of March 31, 2009, the Company had
$11.1 million of unrecognized tax benefits all of which would favorably impact
the effective tax rate in future periods if recognized. The Company
continues to follow the practice of recognizing interest and penalties related
to income tax matters as a part of the provision for income taxes.
Plantronics
accounts for income taxes under an asset and liability approach that requires
the expected future tax consequences of temporary differences between book and
tax bases of assets and liabilities to be recognized as deferred tax assets and
liabilities. Valuation allowances are established to reduce deferred
tax assets when, based on available objective evidence, it is more likely than
not that the benefit of such assets will not be realized.
Earnings
(Loss) Per Share
Basic
earnings (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares outstanding during the
period, less common stock subject to repurchase. Diluted earnings per
share is computed by dividing the net income for the period by the weighted
average number of shares of common stock and potentially dilutive common stock
outstanding during the period. Potentially dilutive common shares
include shares issuable upon the exercise of outstanding stock options, the
vesting of restricted stock awards and the estimated shares to be purchased
under the Company’s employee stock purchase plan, which are reflected in diluted
earnings per share by application of the treasury stock method. Under
the treasury stock method, the amount that the employee must pay for exercising
stock options, the amount of stock-based compensation cost for future services
that the Company has not yet recognized, and the amount of tax benefit that
would be recorded in additional paid-in capital upon exercise are assumed to be
used to repurchase shares. (See Note 15)
Comprehensive
Income (Loss)
Comprehensive
income (loss) consists of two components, net income (loss) and other
comprehensive income (expense). Other comprehensive income (loss)
refers to income, expenses, gains and losses that under generally accepted
accounting principles are recorded as an element of stockholders’ equity but are
excluded from net income (loss). Accumulated other comprehensive
income (loss), as presented in the accompanying consolidated balance sheets,
consists of foreign currency translation adjustments, unrealized gains and
losses on derivatives designated as cash flow hedges, net of tax and unrealized
gains and losses related to the Company’s investments, net of tax.
Foreign
Operations and Currency Translation
The
functional currency of the Company’s foreign sales and marketing offices, except
as noted in the following paragraph, is the local currency of the respective
operations. For these foreign operations, the Company translates
assets and liabilities into U.S. dollars using the period-end exchange rates in
effect as of the balance sheet date and translates revenues and expenses using
the average monthly exchange rates. The resulting cumulative
translation adjustments are included in Accumulated other comprehensive income
(loss), a separate component of Stockholders' Equity in the accompanying
consolidated balance sheets.
The
functional currency of the Company’s European finance, sales and logistics
headquarters in the Netherlands, sales office, warehouse and distribution center
in Hong Kong, sales office and warehouse in Japan, and manufacturing facilities
in Tijuana, Mexico and Suzhou, China and foreign research and development
facilities, is the U.S. dollar. For these foreign operations, assets
and liabilities denominated in foreign currencies are re-measured at the
period-end or historical rates, as appropriate. Revenues and expenses
are re-measured at average monthly rates which the Company believes to be a fair
approximation of actual rates. Currency transaction gains and losses
are recognized in current operations. Realized foreign currency
exchange gains (losses) were $2.3 million, $0.9 million, and $(6.3) million in
fiscal 2007, 2008 and 2009, respectively.
Stock-Based
Compensation Expense
The
Company applies SFAS No. 123-Revised 2004 (“SFAS No. 123(R)”) which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to employees and non-employee directors based on estimated fair
values.
Under
SFAS No. 123(R), the Company elected to apply the modified prospective
transition adoption method. Under this method, compensation expense
for share-based payments include: (a) compensation expense for all
stock-based payment awards granted prior to but not yet vested as of
April 2, 2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123, and (b) compensation
expense for all stock-based payment awards granted or modified on or after April
2, 2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). The estimated fair value of the
Company’s stock-based awards is amortized over the vesting period of the awards
on a straight-line basis. Compensation expense is recognized only for
those awards that are expected to vest, and as such, amounts have been reduced
by estimated forfeitures.
The
Company has elected to adopt the alternative transition method provided in FASB
Staff Position No. 123(R)-3, "Transition Election Related to Accounting for Tax
Effects of Share-Based Payment Awards" for calculating the tax effects of
stock-based compensation pursuant to SFAS No. 123(R). The alternative
transition method includes simplified methods to establish the beginning balance
of the additional paid-in capital pool ("APIC pool") related to the tax effects
of employee stock-based compensation, and to determine the subsequent impact on
the APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption of
SFAS No. 123(R).
Treasury
Shares
The
Company repurchases treasury shares in accordance with approved repurchase
plans. On November 10, 2008, the Board of Directors authorized a new
plan to repurchase 1,000,000 shares of common stock. During fiscal
2009, the Company repurchased 89,000 shares of 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.
On
January 13, 2009, the Company retired 16 million shares of treasury stock which
were 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 deduction to both retained earnings and treasury
stock.
Concentration
of Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash equivalents, short-term securities, long-term
investments, and trade receivables. Plantronics’ investment policies
for cash limit investments to those that are short-term and low risk and also
limit the amount of credit exposure to any one issuer and restrict placement of
these investments to issuers evaluated as creditworthy. As a result
of the uncertainties in the credit markets and the UBS offer, the Company has
classified all of its ARS investments as long-term since these investments are
not currently liquid, and 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. All of the ARS investments were investment grade
quality and were in compliance with the Company’s investment policy at the time
of acquisition. Cash equivalents have a maturity, when purchased, of
three months or less; short-term securities have a maturity, when purchased, of
greater than three months; and long-term investments have maturities greater
than one year, or we do not currently have the ability to liquidate the
investment. Concentrations of credit risk with respect to trade
receivables are generally limited due to the large number of customers that
comprise the Company’s customer base and their dispersion across different
geographies and markets. Plantronics performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of all
accounts receivable.
Certain
components that meet the Company’s requirements are available only from a
limited number of suppliers. The rapid rate of technological change
and the necessity of developing and manufacturing products with short lifecycles
may intensify these risks. The inability to obtain components as
required, or to develop alternative sources, as required in the future, could
result in delays or reductions in product shipments, which in turn could have a
material adverse effect on the Company’s business, financial condition, results
of operations and cash flows.
Other
Guarantees and Obligations
As is
customary in the Company’s industry, as provided for in local law in the U.S.
and other jurisdictions, Plantronics’ standard contracts provide remedies to its
customers, such as defense, settlement, or payment of judgment for intellectual
property claims related to the use of its products. From time to
time, the Company indemnifies customers against combinations of loss, expense,
or liability arising from various trigger events relating to the sale and use of
its products and services. In addition, Plantronics also provides
protection to customers against claims related to undiscovered liabilities,
additional product liability or environmental obligations. In the
Company’s experience, claims made under these indemnifications are rare and the
associated estimated fair value of the liability is not
material.
|
3.
|
RECENT ACCOUNTING
PRONOUNCEMENTS
|
In
February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
issued Staff Position (“FSP”) FAS No. 157-2, “Effective Date of FASB Statement
No. 157”, (“FSP FAS No. 157-2") which permitted the Company to defer the
effective date of SFAS No. 157, “Fair Value Measurements” (“SFAS No.
157”), until its first quarter of fiscal 2010 for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). SFAS No. 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. The Company believes that the
adoption of FSP FAS No. 157-2 for non-financial assets and liabilities will not
have an impact on its consolidated financial statements.
In April
2009, the FASB issued three FSPs related to fair value measurements, disclosures
and other-than-temporary impairments. FSP FAS No. 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly” (“FSP FAS No. 157-4”), provides additional guidance for estimating
fair value in accordance with SFAS No. 157 when the volume and level of activity
for an asset or liability have significantly decreased. FSP FAS No. 157-4 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. FSP FAS No. 115-2 and FSP FAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”, amends the
other-than-temporary impairment guidance in U.S. GAAP to make the guidance more
operational and to improve the presentation of other-than-temporary impairments
in the financial statements. Finally, FSP FAS No. 107-1 and APB No. 28-1,
“Interim Disclosures About Fair Value of Financial Instruments”, amends SFAS
No. 107, “Disclosures about Fair Value of Financial Instruments”, to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements and also amends
APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in all interim financial statements. The three FSPs are
effective for periods ending after June 15, 2009. Early adoption is
permitted for periods ending after March 15, 2009, however, the Company
elected to adopt the FSPs during the first quarter of 2010. The Company is
evaluating the impact, if any, the FSPs will have on its consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” ("SFAS No. 141(R)"), which replaces “SFAS No. 141”, “Business
Combinations”. SFAS No. 141(R) retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized and measured in purchase
accounting. It also changes the recognition of assets acquired and liabilities
assumed arising from contingencies, requires the capitalization of in-process
research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) is
effective for the Company beginning April 1, 2009 and will apply
prospectively to any business combinations completed on or after that date,
except that resolution of certain tax contingencies and adjustments to valuation
allowances related to business combinations, which previously were adjusted to
goodwill, will be recorded as income tax expense for all such adjustments after
April 1, 2009, regardless of the date of the original business
combination.
In April
2009, the FASB issued FSP FAS No. 141R-1, “Accounting for Assets and
Liabilities Assumed in a Business Combination That Arise From Contingencies”,
(“FSP FAS No. 141R-1”). FSP FAS No. 141R-1 amends and clarifies SFAS
No. 141(R) to address application issues regarding initial recognition and
measurement, subsequent measurement and accounting and disclosure of assets and
liabilities arising from contingencies in a business combination. FSP
FAS No. 141R-1 is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company believes FSP FAS No. 141R-1 may
have a material impact on the Company’s future consolidated financial statements
depending on the size and nature of any future business combinations that the
Company may enter into.
In April
2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS No. 142-3). FSP FAS No.142-3 amends the
factors an entity should consider in developing renewal or extension assumptions
used in determining the useful life of recognized intangible assets under FASB
Statement No. 142, “Goodwill and Other Intangible Assets”. FSP FAS
No. 142-3 applies prospectively to intangible assets that are acquired
individually or with a group of other assets in business combinations and asset
acquisitions. FSP FAS No. 142-3 is effective for financial statements
issued for the Company’s fiscal year beginning April 1, 2009. Early
adoption is prohibited. The Company is evaluating the impact, if any,
that FSP FAS No. 142-3 will have on its consolidated financial
statements.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities” (“FSP EITF
03-6-1”) which addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need
to be included in earnings allocation in computing earnings per share under the
two-class method as described in SFAS No. 128, “Earnings Per
Share.” Under the guidance in FSP EITF 03-6-1, unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two class
method. FSP EITF 03-6-1 is effective for the Company beginning April 1,
2009. All prior-period earnings per share data presented shall be adjusted
retrospectively. Early application is not permitted. The
Company believes the adoption that FSP EITF 03-6-1 will not have a material
impact on its consolidated financial statements.
|
4.
|
INVESTMENTS AND FAIR VALUE
MEASUREMENTS
|
The
following table presents the Company’s investments at March 31, 2008 and
2009:
|
(in
thousands)
|
Balances
at March 31, 2008
|
Balances
at March 31, 2009
|
||||||||||||||||||||||||||||||
|
Cost
|
Unrealized
|
Accrued
|
Fair
|
Adjusted
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 | ||||||||||||||||
|
Total
short-term investments
|
- | - | - | - | 59,977 | - | 10 | 59,987 | ||||||||||||||||||||||||
|
Long-term
investments:
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Auction
rate securities
|
28,000 | (2,864 | ) | - | 25,136 | 23,718 | - | - | 23,718 | |||||||||||||||||||||||
|
Total
long-term investments
|
28,000 | (2,864 | ) | - | 25,136 | 23,718 | - | - | 23,718 | |||||||||||||||||||||||
|
Total
short-term and long-term investments
|
$ | 28,000 | $ | (2,864 | ) | $ | - | $ | 25,136 | $ | 83,695 | $ | - | $ | 10 | $ | 83,705 | |||||||||||||||
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. There were no
short-term investments as of March 31, 2008. At March 31, 2008 and
2009, all of the Company’s long-term investments consisted of auction rate
securities (“ARS”). The ARS were classified as available-for-sale as
of March 31, 2008. During the third quarter of fiscal 2009, the
ARS were transferred to trading securities at which time the Company recorded
unrealized losses of $4.0 million related to its ARS within Interest and other
income (expense), net in the consolidated statement of operations which was
offset in part by an unrealized gain based on the fair value of the associated
put option of $3.9 million also recorded to Interest and other income (expense),
net. In the fourth quarter of fiscal 2009, an additional unrealized
loss of $0.3 million related to the ARS was recorded to Interest and other
income (expense), net offset by an unrealized gain of $0.3 million also recorded
to Interest and other income (expense), net. The Company did not
incur any material realized gains or losses in the years ended March 31, 2007,
2008 or 2009.
The
Company adopted SFAS No. 157 for financial assets and liabilities on April 1,
2008. In accordance with SFAS No. 157, the following table represents
the Company’s fair value hierarchy for its financial assets and liabilities as
of March 31, 2009:
|
(in
thousands)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
|
Money
market funds
|
$ | 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 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 mainly of 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 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.
As of
March 31, 2008 and 2009, the Company has used a discounted cash flow model to
determine an estimated fair value of the Company’s investment in
ARS. 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”) from UBS AG
(“UBS”), the investment provider for its $28.0 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, so long as the Company
receives payment at par value upon any sale or liquidation. The
Company expects to sell its ARS under the Right. 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. So 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
Rights represent a firm agreement in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). The enforceability of the Rights results in a put option and
should be recognized as a free standing asset separate from the
ARS. Upon acceptance of the offer from UBS, the Company recorded the
put option at fair value of $3.9 million using the Black-Scholes options pricing
model. As of March 31, 2009, the fair value of the put option was
$4.2 million and was recorded within Other assets in the Consolidated balance
sheet with a corresponding credit to Interest and other income (expense), net in
the Consolidated statements of operations in fiscal 2009. The put
option does not meet the definition of a derivative instrument under SFAS No.
133. Therefore, the Company has elected to measure the put option at
fair value under SFAS No. 159 in order to match the changes in the fair value of
the ARS. As a result, unrealized gains and losses will be included in
earnings in future periods.
As a
result of the Company’s ability to hold its ARS investments to maturity, the
Company has classified the entire ARS investment balance as long-term
investments on its consolidated balance sheet as of March 31, 2008 and
2009. 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 (loss) 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 fourth quarter of
fiscal 2009, an additional unrealized loss of $0.3 million was recorded to
Interest and other income (expense), net which was offset by a $0.3 million
unrealized gain recorded on the Rights.
As of
March 31, 2009, Level 3 assets also include the Company’s holdings in the
Reserve Primary Money Market Fund (the “Reserve”) which experienced a decline in
net asset value to $0.97 per share due to its exposure to investments held in
Lehman Brothers Holdings, Inc. which filed for Chapter 11 bankruptcy protection
on September 15, 2008. As a result, Level 1 and Level 2 inputs are
not available to value the investment and the Company determined the fair value
based on Level 3 inputs which consisted of reviewing the Reserve’s underlying
securities portfolio comprised primarily of discounted notes, certificates of
deposit and commercial paper issued by highly-rated
institutions. Based on this analysis, the Company concluded that the
fair value of its holdings in the Reserve was lower than the carrying
value. As a result, the Company recorded a realized loss of $0.1
million included in Interest and other income (expense), net in its consolidated
statement of income for fiscal 2009. As of March 31, 2009, the
Reserve was classified as a receivable within Other current assets in the
Consolidated balance sheet as, in September 2008, the Company attempted to
redeem in full all of its holdings in the Reserve and it reasonably expects that
distributions from the Reserve will occur within the next twelve
months. During fiscal 2009, the Company received distributions
totaling approximately $1.7 million on its holdings.
The
following table provides a summary of changes in fair value of the Company’s
Level 3 financial assets:
|
Changes
in Fair Value of Level 3 Financial Assets:
|
||||
|
Year
ended
|
||||
|
(in
thousands)
|
March
31, 2009
|
|||
|
Balance
at March 31, 2008
|
$ | 25,136 | ||
|
Change
in temporary valuation adjustment included in Accumulated other
comprehensive income (loss)
|
2,863 | |||
|
Unrealized
loss included in Interest and other income (expense), net
|
(4,281 | ) | ||
|
Recognition
of Rights agreement and unrealized gains in Interest and other income
(expense), net
|
3,904 | |||
|
Unrealized
gain included in Interest and other income (expense), net
|
276 | |||
|
Transfer
of Reserve Primary Fund from Level 1 to Level 3
|
162 | |||
|
Balance
at March 31, 2009
|
$ | 28,060 | ||
5. DETAILS
OF CERTAIN BALANCE SHEET ACCOUNTS
|
March
31,
|
||||||||
|
(in
thousands)
|
2008
|
2009
|
||||||
|
Accounts
receivable, net:
|
||||||||
|
Accounts
receivable
|
$ | 171,611 | $ | 118,221 | ||||
|
Less:
Provisions for returns, promotions and rebates
|
(38,383 | ) | (31,580 | ) | ||||
|
Less:
Allowance for doubtful accounts
|
(1,735 | ) | (2,984 | ) | ||||
| $ | 131,493 | $ | 83,657 | |||||
|
Inventory,
net:
|
||||||||
|
Purchased
parts
|
$ | 36,081 | $ | 37,646 | ||||
|
Work
in process
|
3,611 | 4,494 | ||||||
|
Finished
goods
|
87,396 | 77,156 | ||||||
| $ | 127,088 | $ | 119,296 | |||||
|
Property,
plant and equipment, net:
|
||||||||
|
Land
|
$ | 8,647 | $ | 8,234 | ||||
|
Buildings
and improvements (useful life: 7-30 years)
|
70,518 | 74,334 | ||||||
|
Machinery
and equipment (useful life: 2-10 years)
|
106,375 | 106,129 | ||||||
|
Software
(useful life: 5 years)
|
25,404 | 29,231 | ||||||
|
Construction
in progress
|
6,071 | 2,069 | ||||||
| 217,015 | 219,997 | |||||||
|
Less:
Accumulated depreciation and amortization
|
(118,485 | ) | (124,278 | ) | ||||
| $ | 98,530 | $ | 95,719 | |||||
|
Accrued
liabilities:
|
||||||||
|
Employee
compensation and benefits
|
$ | 25,089 | $ | 17,380 | ||||
|
Warranty
accrual
|
10,441 | 12,424 | ||||||
|
Accrued
advertising and sales and marketing
|
5,762 | 3,286 | ||||||
|
Accrued
other
|
26,026 | 20,053 | ||||||
| $ | 67,318 | $ | 53,143 | |||||
Changes
in the warranty obligation, which are included as a component of accrued
liabilities on the consolidated balance sheets, are as follows:
|
6.
|
GOODWILL
|
The
changes in the carrying value of goodwill during the fiscal years ended March
31, 2008 and 2009 by segment were as follows:
|
(in
thousands)
|
Audio
Communications Group
|
Audio
Entertainment Group
|
Consolidated
|
|||||||||
|
Balance
at March 31, 2007
|
$ | 11,214 | $ | 61,611 | $ | 72,825 | ||||||
|
Re-allocation
of goodwill
|
2,902 | (2,902 | ) | - | ||||||||
|
Carrying
value adjustments
|
- | (3,654 | ) | (3,654 | ) | |||||||
|
Balance
at March 31, 2008
|
$ | 14,116 | $ | 55,055 | $ | 69,171 | ||||||
|
Carrying
value adjustments
|
(111 | ) | (406 | ) | (517 | ) | ||||||
|
Impairment
to goodwill
|
- | (54,649 | ) | (54,649 | ) | |||||||
|
Balance
at March 31, 2009
|
$ | 14,005 | $ | - | $ | 14,005 | ||||||
In the
second quarter of fiscal 2008, the Company transitioned the responsibility and
management of the Altec branded headsets from the AEG segment to the ACG
segment; as a result, the related goodwill of $2.9 million was transferred from
AEG to ACG. During fiscal 2008, the Company adjusted deferred tax
account balances and long-term tax payable accounts related to the purchase of
Altec Lansing. The adjustments to the deferred tax assets and long
term payable account of $1.0 million and $2.6 million respectively, resulted in
a reduction of goodwill of $3.6 million.
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 two reporting
segments, ACG and 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
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No.
142”), the Company utilized a two-step method for determining goodwill
impairment. In step one, 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. 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 twelve 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 current volatility of the stock prices of public
companies within the consumer electronics industry. 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. There was no tax benefit associated with this impairment
charge.
In the
fourth quarter of fiscal 2009, the Company performed the annual impairment test
of the goodwill related to the ACG reporting unit, which indicated that there
was no impairment. 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.
During
fiscal 2009, the Company received a $0.4 million refund from the escrow account
related to the Altec Lansing acquisition. In addition, the Company
adjusted the deferred tax account and goodwill account balances also related to
the purchase of Altec Lansing. This resulted in a reduction of
goodwill of $0.1 million.
|
7.
|
INTANGIBLES
|
The
following tables present the carrying value of acquired intangible assets with
remaining net book values as of the periods:
|
March
31, 2008 (in thousands)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Amount
|
Useful
Life
|
|||||||||
|
Technology
|
$ | 30,160 | $ | (13,883 | ) | $ | 16,277 |
6-10
years
|
|||||
|
State
contracts
|
1,300 | (1,161 | ) | 139 |
7
years
|
||||||||
|
Patents
|
1,420 | (1,079 | ) | 341 |
7
years
|
||||||||
|
Customer
relationships
|
18,133 | (6,308 | ) | 11,825 |
3-8
years
|
||||||||
|
Trademarks
|
300 | (268 | ) | 32 |
7
years
|
||||||||
|
Trade
name - inMotion
|
5,000 | (1,641 | ) | 3,359 |
8
years
|
||||||||
|
Trade
name - Altec Lansing
|
59,100 | - | 59,100 |
Indefinite
|
|||||||||
|
OEM
relationships
|
700 | (262 | ) | 438 |
7
years
|
||||||||
|
Total
|
$ | 116,113 | $ | (24,602 | ) | $ | 91,511 | ||||||
|
March
31, 2009 (in thousands)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Amount
|
Useful
Life
|
|||||||||
|
Technology
|
$ | 9,460 | $ | (5,728 | ) | $ | 3,732 |
3-10
years
|
|||||
|
Patents
|
1,420 | (1,257 | ) | 163 |
7
years
|
||||||||
|
Customer
relationships
|
4,405 | (787 | ) | 3,618 |
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 |
7
years
|
||||||||
|
Total
|
$ | 34,412 | $ | (7,837 | ) | $ | 26,575 | ||||||
The
aggregate amortization expense relating to intangible assets for fiscal 2007,
2008 and 2009 was $8.3 million, $8.1 million and $6.2 million,
respectively.
During
the fourth quarter of fiscal 2007, the Company reorganized ACG’s Volume
Logic business and discontinued development work on a key
product. The Company also determined during the annual planning
process in the fourth quarter that revenue estimates for Volume Logic products
would be lower in the near term than anticipated at the acquisition date in
fiscal 2006. As a result of these combined triggering events, the
Company began a review of the recoverability of its Volume Logic-related
intangible assets. Recoverability was measured by a comparison of the assets’
carrying amount to their expected future undiscounted net cash flows. The
Company determined that the Volume Logic acquired technology intangible assets
representing anticipated license revenue had no remaining value and wrote off
the remaining carrying value of $0.8 million in cost of revenues.
During
the second quarter of fiscal 2008, the Company made a decision to terminate
AEG’s Professional Audio product line in order to focus on its core product
categories. As a result of this triggering event, the Company reviewed the
recoverability of the Professional Audio asset grouping including the related
technology intangible asset. Other than disposing of the remaining
inventory, the Company expects no further cash flows from the Professional Audio
product line. The Company determined that the intangible asset had no
remaining value and wrote off the remaining carrying value of $0.5 million in
cost of revenues.
During 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 two reporting segments,
ACG and AEG. The indicators primarily consisted of (1) a decline in
revenue and operating margins during the current 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.
Under
SFAS No. 142, 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 income approach to test the Altec Lansing trademark and trade name for
impairments in the third quarter of fiscal 2009 with 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 for royalties and each of the major AEG product lines
(Docking Audio and PC Audio). A 5% growth factor was used to
calculate the terminal value, consistent with the rate used in the prior
year. The discount rate was adjusted from 14% to 15% reflecting the
current volatility of the stock prices of public companies within the consumer
electronics industry. 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. The Company recognized a deferred tax benefit of $15.4 million
associated with this impairment charge.
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”), 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.
In the
fourth quarter of fiscal 2009, the Company completed the annual impairment test
of the Altec Lansing trademark and trade name, which indicated that there was no
further impairment. 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. Given the current economic environment and the
uncertainties regarding the impact on the business, there can be no assurance
that the estimates and assumptions regarding the duration of the current
economic downturn, or the period or strength of recovery, made for purposes of
testing the indefinite lived intangible assets for impairment during the third
and fourth quarter of fiscal 2009 will prove to be accurate predictions of the
future. If the assumptions regarding forecasted revenue or margin
growth rates of the AEG reporting unit are not achieved or if certain
alternatives being evaluated by management to improve the profitability of the
AEG segment do not materialize, it is reasonably possible the Company may be
required to record additional impairment charges related to the Altec Lansing
trademark and trade name in future periods, whether in connection with its next
annual impairment review in the fourth quarter of fiscal 2010 or prior to that
if indicators of impairment exist. It is also reasonably possible
that an impairment review may be triggered for the remaining intangible assets
associated with Altec Lansing. The net book value of these intangible
assets as of March 31, 2009 was $21.9 million. It is not possible at
this time to determine if any such future impairment charge would result or, if
it does, whether such charge would be material.
The
estimated future amortization expense for each fiscal year subsequent to fiscal
2009 is as follows:
|
Fiscal
Year Ending March 31,
|
(in
thousands)
|
|||
|
2010
|
$ | 2,470 | ||
|
2011
|
2,427 | |||
|
2012
|
1,643 | |||
|
2013
|
630 | |||
|
2014
|
805 | |||
|
Total
estimated amortization expense
|
$ | 7,975 | ||
8. RESTRUCTURING
AND OTHER RELATED CHARGES
The
Company recorded the restructuring activities discussed below in accordance with
SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”
(“SFAS No. 146”) and SFAS No. 112, “Employees’ Accounting for Post-employment
Benefits” (“SFAS No. 112”).
Q3
Fiscal 2008 Restructuring Action
In
November 2007, the Company announced plans to close AEG’s manufacturing facility
in Dongguan, China, shut down a related Hong Kong research and development,
sales and procurement office and consolidate procurement, research and
development activities for AEG in our Shenzhen, China site. The
selling, general and administrative functions of AEG in China have been
consolidated with those of ACG throughout the Asia-Pacific
region. These actions resulted in the elimination of all
manufacturing operation positions in Dongguan, China and certain related support
functions. This restructuring plan is part of a strategic initiative
designed to reduce fixed costs by outsourcing the majority of AEG manufacturing
to a network of qualified contract manufacturers already in place. In
November 2007, 730 employees were notified of their termination, 708 in
manufacturing, 20 in research and development and 2 in selling, general and
administrative. As of December 31, 2008, all employees had been
terminated. Restructuring and other related charges of approximately
$3.7 million related to this restructuring plan, of which $3.6 million was
recorded in fiscal 2008 and $0.1 million recorded in fiscal 2009. The
total restructuring charges of $3.7 million consist of $1.4 million for the
write-off of facilities and equipment and accelerated depreciation, $1.4 million
for severance and benefits, and $0.9 million in professional and administrative
and other fees. All restructuring and other related charges under
this plan have been recorded as of March 31, 2009 and all amounts have been
paid.
Q1
Fiscal 2009 Restructuring Action
In June
2008, the Company announced a reduction in force at AEG’s operations in Milford,
Pennsylvania as part of the strategic initiative designed to reduce
costs. A total of 31 employees were notified of their termination,
all of whom were terminated as of December 31, 2008. The Company
recognized $0.2 million of restructuring charges related to this activity in
fiscal 2009, consisting solely of severance, of which substantially all costs
have been recorded and paid as of March 31, 2009.
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 had been
terminated as of December 31, 2009. On January 14, 2009, the Company
announced additional reductions in force related to this restructuring plan
which included an additional 199 employees located in ACG’s Tijuana, Mexico,
U.S., and other global locations who were notified of their
termination. A total of 823 employees, primarily in operations
positions but also including other functions, were notified of their termination
under this restructuring action, all of whom, except ten employees, had been
terminated as of March 31, 2009. In fiscal 2009, the Company recorded
$8.8 million of restructuring charges related to these activities, of which $0.8
million related to the AEG segment and $8.0 million related to the ACG
segment. 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. The Company believes that substantially all of the costs have
been incurred as of March 31, 2009, $2.6 million of which related to
ACG has not been paid as of March 31, 2009 and is expected to be paid in the
first quarter of fiscal 2010.
Q4 Fiscal 2009 Restructuring
Action
At the
end of the fourth quarter of fiscal 2009, the Company 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 in
China. A total of 656 employees, primarily in operations positions
but also included other functions, were notified of their termination of which
none of whom had been terminated as of March 31, 2009. Most of the
employees will be terminated in the second quarter of fiscal 2010 when the
Company plans to exit the manufacturing facility. In fiscal 2009, the
Company recorded $3.0 million of restructuring charges in the ACG business
segment, primarily consisting of severance and benefits. The Company
expects to incur total restructuring and other related charges of $11.0 to $14.0
million related to this action, including approximately $5.5 to $6.5 million in
non-cash charges related to accelerated depreciation, which will be recorded
within cost of revenues, $3.5 million in employee termination benefits of which
$3.0 million was recorded in fiscal 2009 and $2.0 to $4.0 million in other
associated costs. All remaining costs are expected to be incurred during
fiscal 2010, and all cash payments are expected to be funded from our operating
cash flows.
If
forecasted revenue and gross margin growth rates of either the ACG or AEG
segment are not achieved, it is reasonably possible that the Company will need
to take further restructuring actions which may result in additional
restructuring and other related charges in future periods. In
addition, the Company continues to review the AEG cost structure and may
implement additional cost reduction initiatives in the future.
The
following table summarizes the Company’s restructuring activities:
|
(in
thousands)
|
Severance
and Benefits
|
Facilities
and Equipment
|
Other
|
Total
|
||||||||||||
|
Restructuring
and other related charges
|
$ | 1,272 | $ | 1,519 | $ | 793 | $ | 3,584 | ||||||||
|
Cash
payments
|
(980 | ) | - | (241 | ) | (1,221 | ) | |||||||||
|
Non-cash
|
- | (1,519 | ) | (38 | ) | (1,557 | ) | |||||||||
|
Restructuring
accrual at March 31, 2008
|
292 | - | 514 | 806 | ||||||||||||
|
Restructuring
and other related charges
|
11,346 | 545 | 183 | 12,074 | ||||||||||||
|
Cash
payments
|
(6,170 | ) | 107 | (712 | ) | (6,775 | ) | |||||||||
|
Non-cash
|
- | (535 | ) | - | (535 | ) | ||||||||||
|
Restructuring
accrual at March 31, 2009
|
$ | 5,468 | $ | 117 | $ | (15 | ) | $ | 5,570 | |||||||
The
restructuring accrual is included in accrued liabilities in the Company’s
consolidated balance sheet.
|
9.
|
BANK LINE OF
CREDIT
|
As of
March 31, 2009, the Company had a credit agreement with Wells Fargo which
includes a $100 million revolving line of credit and a letter of credit
sub-facility. Borrowings under the line of credit are unsecured and
bear interest at the London inter-bank offered rate (“LIBOR”) plus
0.75%. The line of credit expires on August 1, 2010. The
Company repaid the line of credit in the fourth quarter of fiscal
2007. At March 31, 2008 and 2009, there were no outstanding balances
on the line of credit and $1.4 million and $0.2 million committed under the
letter of credit sub-facility, respectively.
Borrowings
under the credit agreement are subject to certain financial covenants and
restrictions that materially limit the Company’s ability to incur additional
debt and pay dividends, among other matters. The Company was out of
compliance with the financial covenants under the credit agreement as of March
31, 2009. Effective April 1, 2009, the Company terminated its credit
agreement as it believes it has sufficient cash on hand along with anticipated
cash flow to meet future operational requirements. In the first
quarter of fiscal 2010, the Company entered into a standby letter of credit
agreement with Wells Fargo which is used to secure small letters of credits with
vendors as requested.
|
10.
|
COMMITMENTS AND
CONTINGENCIES
|
MINIMUM
FUTURE RENTAL PAYMENTS. The Company leases certain equipment and facilities
under operating leases expiring in various years through
2016. Minimum future rental payments under non-cancelable operating
leases having remaining terms in excess of one year as of March 31, 2009 are as
follows:
|
Fiscal
Year Ending March 31,
|
(in
thousands)
|
|||
|
2010
|
$ | 5,066 | ||
|
2011
|
3,942 | |||
|
2012
|
1,736 | |||
|
2013
|
1,720 | |||
|
2014
|
1,317 | |||
|
Thereafter
|
993 | |||
|
Total
minimum future rental payments
|
$ | 14,774 | ||
Total
rent expense for operating leases was approximately $5.1 million, $6.4 million,
and $6.9 million in fiscal 2007, 2008, and 2009, respectively.
EXISTENCE
OF RENEWAL OPTIONS. Certain operating leases provide for renewal options for
periods from one to three years. In the normal course of business, operating
leases are generally renewed or replaced by other leases.
CLAIMS
AND LITIGATION. The Company is presently engaged in various legal actions
arising in the normal course of business including six class action lawsuits
recently filed against the Company alleging that our
Bluetooth
headsets may cause
noise-induced hearing loss.
Shannon Wars et al. vs. Plantronics,
Inc.
was filed on November 14, 2006 in the U.S. District Court for the
Eastern District of Texas.
Lori Raines, et al. vs. Plantronics,
Inc.
was filed on October 20, 2006 in the U.S. District Court, Central
District of California.
Kyle Edwards, et al vs. Plantronics,
Inc.
was filed on October 17, 2006 in the U.S. District Court, Middle
District of Florida.
Ralph Cook vs. Plantronics,
Inc.
was filed on February 8, 2007 in the U.S. District Court for the
Eastern District of Virginia.
Randy Pierce vs. Plantronics,
Inc.
was filed on January 10, 2007 in the U.S. District Court for the
Eastern District of Arkansas.
Bruce Schiller, et al vs.
Plantronics, Inc.
was filed on October 10, 2006 in the Superior Court of
the State of California in and for the County of Los Angeles. The
complaints state that they do not seek damages for personal injury to any
individual. These complaints seek various remedies, including
injunctive relief requiring the Company to include certain additional warnings
with its
Bluetooth
headsets and to redesign the headsets to limit the volume produced, or,
alternatively, to provide the user with the ability to determine the level of
sound emitted from the headset. Plaintiffs also seek unspecified
general, special, and punitive damages, as well as restitution. The
federal cases have been consolidated for all pre-trial purposes in the U.S.
District Court for the Central District of Los Angeles before Judge
Fischer. The California State Court case was dismissed by the
plaintiffs. The parties have agreed in principle to settle their
claims. The Court granted preliminary approval of their proposed nationwide
settlement. The parties are in process of providing notice of the proposed
settlement to the nationwide class. Objections to and opt outs of the
settlement are being received. The Court is scheduled to hear the
objections in early July 2009. The Company anticipates that the
settlement will be approved in the second quarter of fiscal 2010. The
Company believes that any loss related to these proceedings would not be
material and has adequately reserved for these costs in the consolidated
financial statements.
|
11.
|
STOCKHOLDERS’
EQUITY
|
Accumulated
Other Comprehensive Income (Loss)
The
components of accumulated other comprehensive income (loss) were as
follows:
|
March
31,
|
||||||||
|
(in
thousands)
|
2008
|
2009
|
||||||
|
Net
income (loss)
|
$ | 68,395 | $ | (64,899 | ) | |||
|
Accumulated
unrealized loss on cash flow hedges, net of tax
|
(5,843 | ) | 12,179 | |||||
|
Accumulated
foreign currency translation adjustments
|
5,126 | (2,606 | ) | |||||
|
Accumulated
unrealized loss on long-term investments, net of tax
|
(2,864 | ) | 2,863 | |||||
| $ | 64,814 | $ | (52,463 | ) | ||||
During
the first and second quarter of fiscal 2009, the Company recorded further
temporary declines in the fair market value of $1.1 million related to its
ARS investments. In the third quarter of fiscal 2009, as a result of
changing the classification of the ARS from available-for-sale to trading
securities, the Company recorded an other-than-temporary loss of $4.0 million in
Interest and other income (expense), net in the Consolidated statement of
operations, which reversed the unrealized losses recorded in Accumulated other
comprehensive income (loss). (See Note 4)
Capital
Stock
In March
2002, the Company established a stock purchase rights plan under which
stockholders may be entitled to purchase the Company’s stock or stock of an
acquirer of the Company at a discounted price in the event of certain efforts to
acquire control of the Company. The rights expire on the earliest of
(a) April 12, 2012, or (b) the exchange or redemption of the rights pursuant to
the rights plan.
On
October 2, 2005, the Board of Directors authorized the repurchase of 1,000,000
shares of common stock under which the Company may, from time to time, purchase
shares, depending on market conditions, in the open market or privately
negotiated transactions. As of March 31, 2007, there were no
remaining shares authorized for repurchase. On January 25, 2008, the
Board of Directors authorized the repurchase of 1,000,000 shares of common stock
under a new share repurchase program. During fiscal 2008 and 2009,
the Company repurchased 1,000,000 shares of its 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, the Company repurchased 89,000
shares of its 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. Through employee benefit plans, we reissued 306,607
treasury shares for proceeds of $5.3 million during the year ended March 31,
2008 and 429,743 treasury shares for proceeds of $5.2 million during the year
ended March 31, 2009.
In fiscal
2008 and 2009, the Company paid quarterly cash dividends of $0.05 per share
resulting in total dividends of $9.7 million and $9.8 million in each year,
respectively.
The
Company’s current credit facility agreement contains covenants that materially
limit our ability to incur additional debt and pay dividends, among other
matters. The covenants also require the Company to maintain annual
net income, a maximum leverage ratio and a minimum quick
ratio. As of March 31, 2009, due to the net loss for fiscal
2009 including the impairment of goodwill and long-lived assets, the Company did
not meet the minimum net income covenant under the credit
agreement. However, effective April 1, 2009, the Company terminated
the credit agreement as it believes it has sufficient cash on hand along with
anticipated cash flow to meet future operational
requirements. Therefore, the Company will no longer be subject
to any covenants that limit its ability to declare and pay
dividends. 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.
On May 5,
2009, the Company announced that the Board of Directors had declared the
Company’s twentieth quarterly cash dividend of $0.05 per share of the Company’s
common stock, payable on June 10, 2009 to stockholders of record on May 20,
2009.
Stock
Option Plans
Employee
Stock Plan
In June
2003, the Board of Directors and stockholders approved the Plantronics Inc.
Parent Corporation 2003 Stock Plan (the "2003 Stock Plan"). Under the
2003 Stock Plan, 8,000,000 shares of common stock (which number is subject to
adjustment in the event of stock splits, reverse stock splits, recapitalization
or certain corporate reorganizations) were cumulatively reserved since inception
for issuance to employees, directors and consultants of
Plantronics. Under the 2003 Stock Plan, the Company may not grant
more than 20% of the 1,000,000 shares initially reserved for issuance as
Restricted Stock Awards and Restricted Stock Units. On July 23, 2008,
1.2 million shares were added to the plan. We have amended the Plan
to provide that awards of restricted stock and restricted stock units with a per
share or per unit purchase price lower than 100% of fair market value on the
grant date will be counted against the total number of shares issuable under the
Plan as 2.5 shares for every 1 share subject thereto. In addition,
Board of Directors receive annual grants of 2,000 restricted shares on the date
of the annual stockholder’s meeting. The 2003 Stock Plan has a term
of 10 years (unless amended or terminated earlier by the Board of Directors),
provides for incentive stock options as well as nonqualified stock options to
purchase shares of common stock, and is due to expire in September
2013. At March 31, 2009, options to purchase 6,741,106 shares of
common stock were outstanding and 1,930,959 shares were available for future
grant under the 2003 Stock Plan.
Under the
existing 2003 Stock Plan, incentive stock options may not be granted at less
than 100% of the estimated fair market value of the Company’s common stock at
the date of grant, as determined by the Board of Directors, and the option term
may not exceed 7 years. Incentive stock options granted to a 10%
stockholder may not be granted at less than 110% of the estimated fair market
value of the common stock at the date of grant and the option term may not
exceed five years. All stock options granted on or after May 16,
2001, may not be granted at less than 100% of the estimated fair market value of
the Company’s common stock at the date of grant.
In
September 1993, the Board of Directors approved the Plantronics Inc. Parent
Corporation 1993 Stock Option Plan (the "1993 Stock Option
Plan"). Under the 1993 Stock Option Plan, 22,927,726 shares of common
stock (which number is subject to adjustment in the event of stock splits,
reverse stock splits, recapitalization or certain corporate reorganizations)
were reserved cumulatively since inception for issuance to employees and
consultants of Plantronics. The 1993 Stock Option Plan, which
provided for incentive stock options as well as nonqualified stock options to
purchase shares of common stock, had a term of 10 years and the ability to grant
new options under this 1993 Stock Option Plan expired in September
2003. At March 31, 2009, options to purchase 3,976,169 shares of
common stock were outstanding under the 1993 Stock Option Plan.
Options
granted subsequent to September 2007 generally vested over a three-year
period. Options granted prior to June 1999 and after September 2004
but before October 2007 generally vested over a four-year period and those
options granted subsequent to May 1999 but before October 2004 generally vested
over a five-year period. In July 1999, the Stock Option Plan
Committee was authorized to make option grants to employees who are not senior
executives pursuant to guidelines approved by the Compensation Committee and
subject to quarterly reporting to the Compensation Committee.
Directors’
Stock Option Plan
In
September 1993, the Board of Directors adopted a Directors' Stock Option Plan
(the "Directors' Option Plan") and has reserved cumulatively since inception a
total of 300,000 shares of common stock (which number is subject to adjustment
in the event of stock splits, reverse stock splits, recapitalization or certain
corporate reorganizations) for issuance to non-employee directors of
Plantronics. At the end of fiscal year 2009, options to purchase 66,000 shares
of common stock were outstanding under the Directors' Option
Plan. All options were granted at fair market value and generally
vest over a four-year period. The ability to grant new options under
the Directors’ Option Plan expired by its terms in September 2003, and Directors
may participate in the 2003 Stock Plan.
Other
Stock Option Plan
In August
2005, the Board of Directors reserved 145,000 shares for the issuance of stock
awards to Altec Lansing employees (the “Inducement Plan”). Subsequent
to the Altec Lansing acquisition, the Company granted 129,000 stock options to
purchase shares of common stock at a weighted average exercise price of $33.49,
which was equal to the fair value of the underlying stock on the grant
date. The Company also issued 5,000 shares of restricted stock to
Altec Lansing employees with a purchase price of $0.01 per share under the
Inducement Plan. At March 31, 2009, options to purchase 40,875 shares
of common stock were outstanding and the remaining shares of common stock under
the Inducement Plan were not available for future grants as the reservation of
such shares was subsequently canceled.
Employee
Stock Purchase Plan
On June
10, 2002, the Board of Directors of Plantronics approved the 2002 Employee Stock
Purchase Plan (the "2002 ESPP"), which was approved by the stockholders on July
17, 2002, to provide certain employees with an opportunity to purchase common
stock through payroll deductions. On July 23, 2008, 0.5 million
shares were added to the plan. The plan qualifies under Section 423
of the Internal Revenue Code. Under the 2002 ESPP, which is effective
through June 2012, the purchase price of Plantronics’ common stock is equal to
85% of the lesser of the fair market value of Plantronics’ common stock on (i)
the first day of the offering period, or (ii) the last day of the offering
period. Each offering period is six months long. There
were 242,530, 238,844, and 337,538 shares issued under the 2002 ESPP in fiscal
2007, 2008 and 2009, respectively. At March 31, 2009, there were
451,993 shares reserved for future issuance under the ESPP.
Stock
Option Plan Activity
Stock
Options
The
following is a summary of the Company’s stock option activity during fiscal
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, 2008
|
8,561 | $ | 26.32 | ||||||||||
|
Options
granted
|
1,502 | $ | 18.77 | ||||||||||
|
Options
exercised
|
(359 | ) | $ | 19.22 | $ | 2,031 | |||||||
|
Options
forfeited or expired
|
(811 | ) | $ | 27.29 | |||||||||
|
Outstanding
at March 31, 2009
|
8,893 | $ | 25.25 |
3.60
|
$ | 35 | |||||||
|
Exercisable
at March 31, 2009
|
6,637 | $ | 26.82 |
2.90
|
$ | - | |||||||
Options
outstanding as of March 31, 2009 include 8.7 million shares that are vested or
expected to vest with a weighted average exercise price of $25.36, a weighted
average remaining contractual life of 3.59 years and an aggregate intrinsic
value of $0.1 million. The total cash received from employees as a
result of employee stock option exercises during fiscal 2009 was $6.9
million. The Company settles employee stock option exercises with
newly issued common shares approved by stockholders for inclusion in the 1993
Stock Plan or the 2003 Stock Plan.
Restricted
Stock
The
following is a summary of the Company’s restricted stock award activity during
the fiscal 2009:
|
Number
of Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||
|
(in
thousands)
|
||||||||
|
Non-vested
at March 31, 2008
|
288 | $ | 26.77 | |||||
|
Granted
|
187 | $ | 14.50 | |||||
|
Vested
|
(92 | ) | $ | 26.88 | ||||
|
Forfeited
|
(20 | ) | $ | 27.38 | ||||
|
Non-vested
at March 31, 2009
|
363 | $ | 20.39 | |||||
The total
fair value of restricted stock awards vested during the year ended March 31,
2009 was $2.5 million.
Stock-Based
Compensation
The
following table summarizes the amount of stock-based compensation expense
recorded under SFAS No. 123(R), included in the consolidated statements of
operations:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Cost
of revenues
|
$ | 2,908 | $ | 2,474 | $ | 2,265 | ||||||
|
Research,
development and engineering
|
3,835 | 3,552 | 3,663 | |||||||||
|
Selling,
general and administrative
|
10,176 | 9,966 | 9,814 | |||||||||
|
Stock-based
compensation expense included in operating expenses
|
14,011 | 13,518 | 13,477 | |||||||||
|
Total
stock-based compensation
|
16,919 | 15,992 | 15,742 | |||||||||
|
Income
tax benefit
|
(5,599 | ) | (5,173 | ) | (4,940 | ) | ||||||
|
Total
stock-based compensation expense, net of tax
|
$ | 11,320 | $ | 10,819 | $ | 10,802 | ||||||
As of
March 31, 2009, total unrecognized compensation cost related to unvested stock
options was $15.4 million which is expected to be recognized over a
weighted average period of 2.1 years. Total unrecognized compensation
cost related to non-vested restricted stock awards was $6.1 million as of March
31, 2009 which is expected to be recognized over a weighted average period of
2.9 years and there was $0.5 million of unrecognized compensation cost related
to the ESPP as of March 31, 2009 that is expected to be fully recognized during
the first two quarters of fiscal 2010.
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:
|
Employee
Stock Options
|
Employee
Stock Purchase Plan
|
|||||||||||||||||||||||
|
Fiscal
Year Ended March 31,
|
2007
|
2008
|
2009
|
2007
|
2008
|
2009
|
||||||||||||||||||
|
Expected
volatility
|
42.1 | % | 39.6 | % | 51.6 | % | 43.4 | % | 45.3 | % | 63.0 | % | ||||||||||||
|
Risk-free
interest rate
|
4.7 | % | 4.0 | % | 2.9 | % | 5.2 | % | 3.4 | % | 0.9 | % | ||||||||||||
|
Expected
dividends
|
1.0 | % | 0.8 | % | 1.2 | % | 1.2 | % | 0.9 | % | 1.6 | % | ||||||||||||
|
Expected
life (in years)
|
4.2 | 4.2 | 4.4 | 0.5 | 0.5 | 0.5 | ||||||||||||||||||
|
Weighted-average
grant date fair value
|
$ | 7.60 | $ | 9.35 | $ | 7.65 | $ | 4.74 | $ | 6.20 | $ | 4.56 | ||||||||||||
The
expected stock price volatility for the year ended March 31, 2007, 2008 and 2009
was determined based on an equally weighted average of historical and implied
volatility. Implied volatility is based on the volatility of the Company’s
publicly traded options on its common stock with a term of six months or less.
The Company determined that a blend of implied volatility and historical
volatility is more reflective of market conditions and a better indicator of
expected volatility than using purely historical volatility. The
expected life was determined based on historical experience of similar awards,
giving consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the
time of grant for periods corresponding with the expected life of the
option. The dividend yield assumption is based on our current
dividend and the market price of our common stock at the date of
grant.
|
12.
|
EMPLOYEE BENEFIT
PLANS
|
Subject
to eligibility requirements, substantially all ACG employees, with the exception
of direct labor and certain executives, participate in quarterly cash profit
sharing plans. The profit sharing benefits are based on ACG’s results
of operations before interest and taxes, adjusted for other items. The profit
sharing is calculated and paid quarterly. Profit sharing payments are
allocated to employees based on each participating employee's base salary as a
percent of all participants' base salaries. Eligible ACG employees in
the U.S. may defer a portion of their profit sharing under the 401(k)
plan.
The
profit sharing plan provides for the distribution of 5% of quarterly profits to
qualified employees. Total profit sharing payments were $3.6 million,
$4.4 million and $3.6 million for fiscal 2007, 2008 and 2009,
respectively.
The
Company has a 401(k) plan that matches 50% of the first 6% of compensation and
provides a non-elective company contribution equal to 3% of base
salary. Total Company contributions in fiscal 2008 and 2009 for
both the ACG and AEG segments were $3.8 million and $3.9 million,
respectively.
13.
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 Statement of Financial Accounting Standards No. 133 (“SFAS No.
133”), Accounting for Derivative Instruments and Hedging Activities, 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 or as Accumulated other comprehensive income (loss).
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivatives Instruments
and Hedging Activities (“SFAS No. 161”). SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133, and requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses on derivative
instruments, and disclosures about credit-risk related contingent features in
derivative agreements. The Company adopted the reporting requirements
of SFAS No. 161 during the fourth quarter of fiscal 2009.
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 SFAS No. 133, but are carried at fair
value with changes in the fair value recorded within Interest and other income
(expense), net on the statement of operations in accordance with SFAS No. 52,
"Foreign Currency Translation". 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. We do not
enter into foreign currency forward contracts for trading purposes.
As of
March 31, 2009, the Company had foreign currency forward contracts of €18.7
million and £6.5 million denominated in Euros and Great Britain Pounds. As of
March 31, 2008, the Company had foreign currency forward contracts of €15.8
million and £6.2 denominated in Euros and Great Britain Pounds.
The
following table summarizes the Company’s outstanding foreign exchange currency
contracts, and approximate U.S. dollar equivalent, at March 31, 2009 (local
currency and dollar amounts in thousands):
|
Local
Currency
|
USD
Equivalent
|
Position
|
Maturity
|
|||||||
|
EUR
|
18,700 | $ | 24,876 |
Sell
Euro
|
1
month
|
|||||
|
GBP
|
6,500 | 9,296 |
Sell
GBP
|
1
month
|
||||||
Foreign
currency transactions, net of the effect of hedging activity on forward
contracts, resulted in net gains of $2.3 million and $0.9 million in fiscals
2007 and 2008, respectively, and net losses of $6.3 million in fiscal 2009 and
are included in Interest and other income (expense), net in the Consolidated
statement of operation.
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 from
ACG. 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 SFAS No.
133. The effective portion of the hedge gain or loss is initially
reported as a component of Accumulated other comprehensive income (loss) and
subsequently reclassified into Net revenues when the hedged exposure affects
earnings. Any ineffective portions of related gains or losses are
recorded in the 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 March
31, 2008, the Company had foreign currency put and call option contracts of
approximately €48.4 million and £18.7 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 fiscal
2007, 2008, and 2009, realized gains (losses) of $(2.9) million, $(3.9) million
and $4.5 million on cash flow hedges were recognized in Net revenues in the
consolidated statements of operations. The Company expects to
reclassify the entire amount of $6.7 million of gains accumulated in other
comprehensive income (loss) to Net revenues during the next 12 months due to the
recognition of the hedged forecasted sales.
The
amount 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 SFAS No. 133 were as follows:
|
Derivative
Liabilites
|
||||||||||||||||||||||||
|
Derivative
Assets Reported
|
Reported
in Other Current
|
|||||||||||||||||||||||
|
in
Other Current Assets
|
Long-term
Investments
|
Accrued
Liabilities
|
||||||||||||||||||||||
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
March
31,
|
|||||||||||||||||||
|
(in
thousands)
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||||
|
Foreign
exchange contracts designated as cash flow hedges
|
$ | 177 | $ | 7,613 | $ | - | $ | - | $ | 6,394 | $ | 875 | ||||||||||||
|
Total
derivatives designated as hedging instruments
|
177 | 7,613 | - | - | 6,394 | 875 | ||||||||||||||||||
|
Foreign
exchange contracts not designated
|
- | - | - | - | (50 | ) | (2 | ) | ||||||||||||||||
|
Total
derivatives
|
$ | 177 | $ | 7,613 | $ | - | $ | - | $ | 6,444 | $ | 877 | ||||||||||||
Effect
of Designated Derivative Contracts on Accumulated Other Comprehensive Income
(Loss)
The
following table represents only the balance of designated derivative contracts
under SFAS No. 133 as of March 31, 2008 and 2009, and the impact of designated
derivative contracts on Accumulated other comprehensive income (loss) for the
fiscal year ended March 31, 2009:
|
Amount
of gain (loss)
|
Amount
of gain (loss)
|
|||||||||||||||
|
March
31,
|
recognized
in OCI
|
to
income (loss)
|
March
31,
|
|||||||||||||
|
(in thousands)
|
2008
|
(effective portion)
|
(effective portion)
|
2009
|
||||||||||||
|
Foreign
exchange contracts designated as cash flow hedges
|
$ | (6,217 | ) | $ | 17,460 | $ | 4,505 | $ | 6,738 | |||||||
Effect
of Designated Derivative Contracts on the Consolidated Statement of
Operations
The
effect of designated derivative contracts under SFAS No. 133 on results of
operations recognized in Net revenues in the Consolidated statement of
operations was as follows:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Foreign
exchange contracts designated as cash flow hedges
|
$ | (2,861 | ) | $ | (3,945 | ) | $ | 4,505 | ||||
Effect
of Non-Designated Derivative Contracts on the Consolidated Statement of
Operations
The
effect of non-designated derivative contracts under SFAS No. 133 on results of
operations recognized in Interest and other income (expense), net in the
Consolidated statement of operations was as follows:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Gain
(loss) on foreign exchange contracts
|
$ | (2,002 | ) | $ | (5,015 | ) | $ | 5,590 | ||||
14
.
INCOME TAXES
Income
tax expense (benefit) for fiscal 2007, 2008 and 2009 consisted of the
following:
|
(in
thousands)
|
Fiscal
Year Ended March 31,
|
|||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 12,587 | $ | 10,096 | $ | (1,071 | ) | |||||
|
State
|
1,976 | 2,443 | 1,735 | |||||||||
|
Foreign
|
6,158 | 9,242 | 4,934 | |||||||||
|
Total
current provision for income taxes
|
20,721 | 21,781 | 5,598 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(7,419 | ) | (3,210 | ) | (21,402 | ) | ||||||
|
State
|
(1,045 | ) | (778 | ) | (3,506 | ) | ||||||
|
Foreign
|
(862 | ) | (951 | ) | (507 | ) | ||||||
|
Total
deferred benefit for income taxes
|
(9,326 | ) | (4,939 | ) | (25,415 | ) | ||||||
|
Income
tax expense (benefit)
|
$ | 11,395 | $ | 16,842 | $ | (19,817 | ) | |||||
The
components of Income (loss) before income taxes for fiscal 2007, 2008 and 2009
are as follows:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
United
States
|
$ | 7,136 | $ | 19,980 | $ | (110,216 | ) | |||||
|
Foreign
|
54,402 | 65,257 | 25,500 | |||||||||
|
Income
(loss) before income tax expense (benefit)
|
61,538 | 85,237 | (84,716 | ) | ||||||||
The
following is a reconciliation between statutory federal income taxes and the
total income tax expense (benefit):
|
(in
thousands)
|
Fiscal
Year Ended March 31,
|
|||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Tax
expense (benefit) at statutory rate
|
$ | 21,538 | $ | 29,833 | $ | (29,651 | ) | |||||
|
Foreign
operations taxed at different rates
|
(9,646 | ) | (13,868 | ) | (3,574 | ) | ||||||
|
State
taxes, net of federal benefit
|
930 | 1,665 | (1,771 | ) | ||||||||
|
Research
and development credit
|
(1,978 | ) | (814 | ) | (3,117 | ) | ||||||
|
Goodwill
impairment
|
- | - | 19,127 | |||||||||
|
Other,
net
|
551 | 26 | (831 | ) | ||||||||
|
Income
tax expense (benefit)
|
$ | 11,395 | $ | 16,842 | $ | (19,817 | ) | |||||
The
effective tax rate for fiscal 2007, 2008 and 2009 was 18.5%, 19.8% and 23.4%,
respectively. The effective tax rate for fiscal 2009 is higher than the
previous year primarily due to the change in foreign versus domestic income mix,
the release of tax reserves resulting from the lapse of the statute of
limitations in certain jurisdictions and the reinstatement of the U.S. research
tax credit offset by the non-deductible goodwill impairment and the release of
the deferred tax liability resulting from the impairment of the associated
intangible assets.
The
effective tax rate for fiscal 2009 differs from the statutory rate due to the
impact of foreign operations taxed at different statutory rates, income tax
credits, state taxes, the impairment of non-deductible goodwill and other
factors. The effective tax rate for fiscal 2008 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.
Permanently
reinvested foreign earnings were approximately $337.7 million at March 31,
2009. The determination of the tax liability that would be incurred
if these amounts were remitted back to the U.S. is not practical.
Deferred
tax assets and liabilities represent the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of our deferred tax
assets and liabilities are as follows:
|
March
31,
|
||||||||
|
(in
thousands)
|
2008
|
2009
|
||||||
|
Accruals
and other reserves
|
$ | 12,249 | $ | 9,887 | ||||
|
Deferred
state tax
|
422 | 233 | ||||||
|
Deferred
foreign tax
|
685 | 254 | ||||||
|
Net
operating loss carryover
|
3,293 | 3,118 | ||||||
|
Stock
compensation
|
6,314 | 8,714 | ||||||
|
Other
deferred tax assets
|
3,325 | 3,654 | ||||||
|
Valuation
allowance
|
(1,088 | ) | (123 | ) | ||||
|
Total
deferred tax assets
|
25,200 | 25,737 | ||||||
|
Deferred
gains on sales of properties
|
(2,160 | ) | (2,096 | ) | ||||
|
Purchased
intangibles
|
(36,871 | ) | (10,024 | ) | ||||
|
Unremitted
earnings of certain subsidiaries
|
(3,064 | ) | (3,064 | ) | ||||
|
Fixed
asset depreciation
|
(1,358 | ) | (3,949 | ) | ||||
|
Other
deferred tax liabilities
|
(557 | ) | (2,203 | ) | ||||
|
Total
deferred tax liabilities
|
(44,010 | ) | (21,336 | ) | ||||
|
Net
deferred tax asset (liabilities)
|
$ | (18,810 | ) | $ | 4,401 | |||
The
Company evaluates its deferred tax assets including a determination of whether a
valuation allowance is necessary based upon its ability to utilize the assets
using a more likely than not analysis. Deferred tax assets are only
recorded to the extent that they are realizable based upon past and future
income. The Company has a long established earnings history with
taxable income in its carryback years and forecasted future
earnings. The Company has concluded that except for the specific
items discussed below, no valuation allowance is required.
As of
March 31, 2009, the Company has state tax credit carryforwards of $1.4 million
with no expiration provisions.
The
Company established a valuation allowance of $1.1 million during fiscal 2008
related to the temporary decline in fair market value of its ARS under SFAS No.
115. The valuation allowance was recorded to Accumulated other
comprehensive income (loss). During fiscal 2009, the decline in fair
value of the ARS was treated as an other-than-temporary loss and the valuation
allowance of $1.1 million was reversed. The loss was mostly offset by the value
of the Rights offer from UBS the Company accepted during fiscal
2009. A valuation allowance has been established for the tax effect
of the $0.1 million net loss from the decline in value of the ARS offset by the
Rights. The Company has also established a $0.1 million valuation
allowance in relation to the operating losses of one of its foreign subsidiaries
where there is an insufficient history of earnings to support realization of the
deferred tax asset.
On April 1, 2007, the
Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN
48”). Under FIN 48, the impact of an uncertain income tax position on
income tax expense must be recognized at the largest amount that is
more-likely-than-not to be sustained. An uncertain income tax position will not
be recognized unless it has a greater than 50% likelihood of being
sustained. There were no material adjustments as a result of the
adoption of FIN 48. At the adoption date, the Company had $12.4
million of unrecognized tax benefits. As of March 31, 2008 and March
31, 2009, respectively, the Company had $12.4 million and $11.1 million of
unrecognized tax benefits all of which would favorably impact the effective tax
rate in future periods if recognized
.
A
reconciliation of the change in the amount of gross unrecognized income tax
benefits for the periods is as follows:
|
March
31,
|
||||||||
|
(in
thousands)
|
2008
|
2009
|
||||||
|
Balance
at beginning of period
|
$ | 12,456 | $ | 12,436 | ||||
|
Increase
(decrease) of unrecognized tax benefits related to prior
years
|
396 | (155 | ) | |||||
|
Increase
of unrecognized tax benefits related to the current year
|
2,977 | 2,205 | ||||||
|
Decrease
of unrecognized tax benefits related to settlements
|
(3,156 | ) | - | |||||
|
Reductions
to unrecognized tax benefits related to lapse of applicable statute of
limitations
|
(237 | ) | (3,396 | ) | ||||
|
Balance
at end of period
|
$ | 12,436 | $ | 11,090 | ||||
The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. The interest related to
unrecognized tax benefits as of March 31, 2009 is approximately $1.6 million,
compared to $1.7 million as of March 31, 2008. 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 related to various jurisdictions may be
reduced as a result of the lapse of the applicable statute of limitations by the
end of fiscal 2010. The Company cannot reasonably estimate the
reductions at this time. Any such reduction could be impacted by other changes
in unrecognized tax benefits.
The
Company and its subsidiaries are subject to taxation in various foreign and
state jurisdictions as well as in the U.S. The Company’s U.S. federal
and state income tax returns are generally not subject to examination by the tax
authorities for tax years before 2006 and 2005,
respectively. Foreign income tax matters for material tax
jurisdictions have been concluded through tax years before 2003, except for the
United Kingdom, Germany and France which have been concluded through fiscal
2006.
|
15.
|
COMPUTATION OF EARNINGS (LOSS)
PER COMMON SHARE
|
The following table sets
forth the computation of basic and diluted earnings (loss) per
share
:
|
(in
thousands, except earnings per share)
|
Fiscal
Year Ended March 31,
|
|||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Net
income (loss)
|
$ | 50,143 | $ | 68,395 | $ | (64,899 | ) | |||||
|
Weighted
average shares-basic
|
47,361 | 48,232 | 48,589 | |||||||||
|
Dilutive
effect of employee equity incentive plans
|
659 | 858 | - | |||||||||
|
Weighted
average shares-diluted
|
48,020 | 49,090 | 48,589 | |||||||||
|
Earnings
(loss) per share-basic
|
$ | 1.06 | $ | 1.42 | $ | (1.34 | ) | |||||
|
Earnings
(loss) per share-diluted
|
$ | 1.04 | $ | 1.39 | $ | (1.34 | ) | |||||
|
Potentially
dilutive securities excluded from earnings per diluted share because their
effect is anti-dilutive
|
5,931 | 5,791 | 7,521 | |||||||||
For the year ended March
31, 2009, the Company incurred a net loss and the inclusion of stock options in
the shares used for computing diluted earnings per share would have been
anti-dilutive and would have reduced the net loss per share. Accordingly,
all potentially dilutive common shares attributable to employee equity incentive
plans have been excluded from the shares used to calculate diluted earnings per
share for this fiscal year
.
|
16.
|
SEGMENTS AND ENTERPRISE-WIDE
DISCLOSURES
|
The
Company evaluates its operating segments in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” (“SFAS
No. 131”). Plantronics’ President and Chief Executive Officer is
considered the Company’s chief operating decision maker (“CODM”) pursuant to
SFAS No. 131. The CODM allocates resources to and assesses the performance of
each operating segment using several metrics including information about segment
revenues, gross profit, operating income (loss) before interest and other income
(expense), net and income tax expense (benefit), and certain product line
information. Plantronics has two reportable operating segments, ACG
and AEG. ACG represents the original Plantronics business as operated
prior to the acquisition of Altec Lansing in the second quarter of fiscal 2006,
except as described below. AEG represents the Altec Lansing business
since the date of acquisition on August 18, 2005, and certain research,
development, and engineering initiatives, which commenced at the beginning of
the first quarter of fiscal 2006.
The
results of the reportable segments are derived directly from our internal
management reporting system. The accounting policies of each
operating segment results are substantially the same as those used by the
consolidated Company.
Financial
data for each reportable segment for the fiscal years ended March 31, 2007, 2008
and 2009 is as follows:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Net
revenues
|
||||||||||||
|
Audio
Communications Group
|
$ | 676,514 | $ | 747,935 | $ | 674,590 | ||||||
|
Audio
Entertainment Group
|
123,640 | 108,351 | 91,029 | |||||||||
|
Consolidated
net revenues
|
$ | 800,154 | $ | 856,286 | $ | 765,619 | ||||||
|
Gross
profit
|
||||||||||||
|
Audio
Communications Group
|
$ | 295,480 | $ | 344,072 | $ | 291,931 | ||||||
|
Audio
Entertainment Group
|
13,335 | 5,033 | 4,097 | |||||||||
|
Consolidated
gross profit
|
$ | 308,815 | $ | 349,105 | $ | 296,028 | ||||||
|
Operating
income (loss)
|
||||||||||||
|
Audio
Communications Group
|
$ | 84,677 | $ | 115,166 | $ | 61,461 | ||||||
|
Audio
Entertainment Group
|
(27,228 | ) | (35,783 | ) | (142,633 | ) | ||||||
|
Consolidated
operating income (loss)
|
$ | 57,449 | $ | 79,383 | $ | (81,172 | ) | |||||
In
the second quarter of fiscal 2008, the Company transitioned the responsibility
and management of the Altec Lansing branded PC headsets from the AEG segment to
the ACG segment, and as a result, effective July 1, 2007, the revenue and
resulting gross profit from all PC headsets is now included in the ACG reporting
segment within the Gaming and Computer Audio category. Because AEG
has not historically tracked costs and expenses by product line below material
cost, prior period segment financial data has not been restated as it is
impracticable to determine product line information down to the gross margin or
operating income level for periods prior to the second quarter of fiscal
2008. Net revenues and gross profit for ACG and AEG for the fiscal years
ended March 31, 2008 and March 31, 2009 under the old basis of segment reporting
would have been:
|
Fiscal
Year Ended
March
31,
|
||||||||
|
(in
thousands)
|
2008
|
2009
|
||||||
|
Net
revenues
|
||||||||
|
Audio
Communications Group
|
$ | 742,155 | $ | 667,023 | ||||
|
Audio
Entertainment Group
|
114,131 | 98,596 | ||||||
|
Consolidated
net revenues
|
$ | 856,286 | $ | 765,619 | ||||
|
Gross
profit
|
||||||||
|
Audio
Communications Group
|
$ | 341,999 | $ | 289,948 | ||||
|
Audio
Entertainment Group
|
7,106 | 6,080 | ||||||
|
Consolidated
gross profit
|
$ | 349,105 | $ | 296,028 | ||||
Audio
Communications Group
ACG
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 within ACG:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Net
revenues from unaffiliated customers:
|
||||||||||||
|
Office
and contact center
|
$ | 475,323 | $ | 519,958 | $ | 429,669 | ||||||
|
Mobile
|
146,859 | 171,880 | 187,419 | |||||||||
|
Gaming
and computer audio
|
30,162 | 33,612 | 34,052 | |||||||||
|
Clarity
|
24,170 | 22,485 | 23,450 | |||||||||
|
Total
segment net revenues
|
$ | 676,514 | $ | 747,935 | $ | 674,590 | ||||||
Audio
Entertainment Group
AEG is
engaged in the design, manufacture, sales and marketing of audio solutions and
related technologies. Major product categories include
“Docking Audio”, which includes all speakers, whether USB, AC or
battery-powered, that work with portable digital players such as iPod and other
MP3 players and “PC Audio”, which includes self-powered speaker systems used for
computers and other multi-media application systems. “Other”
includes headphones and home audio systems. Currently, all the
revenues in AEG are derived from sales of Altec Lansing products. The
following table presents Net revenues by product group within AEG:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Net
revenues from unaffiliated customers:
|
||||||||||||
|
Docking
Audio
|
$ | 61,068 | $ | 55,399 | $ | 46,204 | ||||||
|
PC
Audio
|
52,496 | 45,828 | 38,884 | |||||||||
|
Other
|
10,076 | 7,124 | 5,941 | |||||||||
|
Total
segment net revenues
|
$ | 123,640 | $ | 108,351 | $ | 91,029 | ||||||
Major
Customers
No
customer accounted for 10% or more of total net revenues for fiscal years 2007,
2008 and 2009, nor did any one customer account for 10% or more of accounts
receivable at March 31, 2008 or March 31, 2009.
Geographic
Information
For
purposes of geographic reporting, revenues are attributed to the geographic
location of the sales organization. The following table presents net
revenues by geographic area:
|
Fiscal
Year Ended March 31,
|
||||||||||||
|
(in
thousands)
|
2007
|
2008
|
2009
|
|||||||||
|
Net
sales from unaffiliated customers:
|
||||||||||||
|
United
States
|
$ | 490,551 | $ | 521,148 | $ | 472,239 | ||||||
|
Europe,
Middle East and Africa
|
195,090 | 214,621 | 185,023 | |||||||||
|
Asia
Pacific
|
59,927 | 62,742 | 56,160 | |||||||||
|
Americas,
excluding United States
|
54,586 | 57,775 | 52,197 | |||||||||
|
Total
International net revenues
|
309,603 | 335,138 | 293,380 | |||||||||
|
Total
Consolidated net revenues
|
$ | 800,154 | $ | 856,286 | $ | 765,619 | ||||||
The
following table presents long-lived assets by geographic area:
SUPPLEMENTARY
QUARTERLY FINANCIAL DATA
(Unaudited)
|
Quarter
Ended
|
||||||||||||||||
|
June
30,
|
September
30,
|
December
31,
|
March
31,
|
|||||||||||||
|
2007
|
2007
|
2007
1
|
2008 1,2 | |||||||||||||
|
(in
thousands, except income per share)
|
||||||||||||||||
|
Net
revenues
|
$ | 206,495 | $ | 208,224 | $ | 232,824 | $ | 208,743 | ||||||||
|
Gross
profit
|
$ | 83,546 | $ | 84,456 | $ | 93,757 | $ | 87,346 | ||||||||
|
Net
income
|
$ | 14,975 | $ | 16,522 | $ | 19,108 | $ | 17,790 | ||||||||
|
Basic
net income per common share
7
|
$ | 0.31 | $ | 0.34 | $ | 0.39 | $ | 0.37 | ||||||||
|
Diluted
net income per common share
7
|
$ | 0.31 | $ | 0.34 | $ | 0.39 | $ | 0.36 | ||||||||
|
Cash
dividends declared per common share
|
$ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | ||||||||
|
Quarter
Ended
|
||||||||||||||||
|
June
30,
|
September
30,
|
December
31,
|
March
31,
|
|||||||||||||
| 2008 1,3 | 2008 1 | 2008 4,5 | 2009 5,6 | |||||||||||||
|
(in
thousands, except income (loss) per share)
|
||||||||||||||||
|
Net
revenues
|
$ | 219,164 | $ | 216,856 | $ | 182,836 | $ | 146,763 | ||||||||
|
Gross
profit
|
$ | 90,879 | $ | 93,773 | $ | 60,865 | $ | 50,511 | ||||||||
|
Net
income (loss)
|
$ | 20,494 | $ | 17,648 | $ | (92,009 | ) | $ | (11,032 | ) | ||||||
|
Basic
net income (loss) per common share
7
|
$ | 0.42 | $ | 0.36 | $ | (1.90 | ) | $ | (0.23 | ) | ||||||
|
Diluted
net income (loss) per common share
7
|
$ | 0.42 | $ | 0.36 | $ | (1.90 | ) | $ | (0.23 | ) | ||||||
|
Cash
dividends declared per common share
|
$ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | ||||||||
Each of
the Company’s fiscal years ends on the Saturday closest to the last day of
March. The Company’s current and prior fiscal years consist of 52
weeks and each fiscal quarter consists of 13 weeks. Our interim
fiscal quarters for the first, second, third and fourth quarter of fiscal 2008
ended on June 30, 2007, September 29, 2007, December 29, 2007 and March 29,
2008, respectively, and our interim fiscal quarters for the first, second, third
and fourth quarter of fiscal 2009 ended on June 28, 2008, September 27, 2008,
December 27, 2008 and March 28, 2009, respectively. For purposes of
presentation, the Company has indicated its accounting year ended on March 31
and our interim quarterly periods as ending on the applicable month
end.
|
1
|
In November 2007, the Company
announced plans to close AEG’s manufacturing facility in Dongguan, China,
to shut down a related Hong Kong research and development, sales and
procurement office and to consolidate procurement, research and
development activities for AEG in the Shenzhen, China site. As
a result of these activities, $2.9 million and $0.7 million in
restructuring and other related charges was recorded in the third and
fourth quarters of fiscal 2008, respectively
.
In addition, in
fiscal 2009, $0.2 million and $(0.1) million in restructuring and other
related charges was recorded in the first and second quarters,
respectively.
|
|
2
|
In
the fourth quarter of fiscal 2008, the Company recorded adjustments to
foreign currency gains and losses recognized in prior periods, a
correction of depreciation expense and income tax expense related to prior
periods, and a reversal of an allowance for customer discounts recorded in
a prior period. The impact of these adjustments on fourth
quarter net income and earnings per share was a decrease of $1.9 million
and a decrease of $0.04, respectively. The Company and its
Audit Committee believe that such amounts are not material to the current
and previously reported financial
statements.
|
|
3
|
In
the first quarter of fiscal 2009, the Company announced a reduction in
force in AEG’s operations in Milford, Pennsylvania as part the strategic
initiative to reduce costs. As a result of these activities,
$0.2 million in restructuring and other related charges was recorded in
the first quarter of fiscal 2009.
|
|
4
|
In
the third quarter of fiscal 2009, the Company recorded non-cash impairment
charges in the amount of $117.5 million which consisted of $54.7 million
related to the goodwill arising from the purchase of Altec Lansing in
August 2005, $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.
|
|
5
|
In
the third quarter of fiscal 2009, the Company announced a reduction in
force in AEG’s operation in Luxemburg and Shenzhen, china and ACG’s
operations in China, Mexico and various other worldwide
locations. As a result of these activities, $1.0 million and
$7.8 million in restructuring and other related charges was recorded in
the third and fourth quarters of fiscal 2009,
respectively.
|
|
6
|
In
March 2009, the Company announced a restructuring plan to close its ACG
Suzhou, China manufacturing operations in fiscal 2010 in order to
outsource manufacturing of its
Bluetooth
products to
an existing supplier in China. As a result of these activities,
$3.0 million in restructuring and other related charges was recorded in
the fourth quarter of fiscal 2009.
|
|
7
|
Basic
and diluted earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly basic
and diluted per share information may not equal annual basic and diluted
earnings per share.
|
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCO
UNTI
NG
AND FINANCIAL DISCLOSURE
There
have been no disagreements with accountants on any matter of accounting
principles and practices or financial disclosure.
ITEM
9A. CONTROLS AND PRO
CED
URES
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 Annual Report on Form
10-K. 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.
Our
disclosure controls and procedures are designed to provide reasonable assurance
that such information is accumulated and communicated to our
management. Our disclosure controls and procedures include components
of our internal control over financial reporting. Management’s
assessment of the effectiveness of our internal control over financial reporting
is expressed at the level of reasonable assurance because a control system, no
matter how well designed and operated, can provide only reasonable, but not
absolute, assurance that the control system’s objectives will be
met.
Management’s Report on Internal Control
Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended). Our management conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the criteria set forth
in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this
evaluation, our management has concluded that, our internal control over
financial reporting was effective as of March 31, 2009, The Company’s
independent registered public accounting firm, PricewaterhouseCoopers LLP, has
issued an audit report on the our internal control over financial reporting
which appears on page 60 of this Form 10-K.
Changes
in internal control over financial reporting
|
|
|
There has
been no change in our internal control over financial reporting during the
fourth quarter of fiscal 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER I
NFOR
MATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OF
FICE
RS AND CORPORATE
GOVERNANCE
The
information regarding the identification and business experience of our
directors under the captions "Nominees" and “Business Experience of Directors”
under the main caption "Proposal One – Election of Directors" in our definitive
2009 Proxy Statement for the annual meeting of stockholders to be held on July
29, 2009 (“2009 Proxy Statement”), expected to be filed with the Securities and
Exchange Commission on or about June 12, 2009 is incorporated in this Item 10 by
reference. For information regarding the identification and business
experience of our executive officers, see "Employees" at the end of Item 1 in
Part I of this Annual Report on Form 10-K. Information regarding the standing
audit committee and names of the financial expert(s) in the audit committee,
under the caption "Corporate Governance” subhead “Audit Committee" in
our 2009 Proxy Statement is incorporated into this Item 10 by reference.
Information concerning filing requirements applicable to our executive officers
and directors under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance” in our 2009 Proxy Statement is incorporated into this Item 10 by
reference.
Code
of Ethics
Plantronics
has adopted a Worldwide Code of Business Conduct and Ethics (the “Code”), which
applies to all Plantronics’ employees, including directors and
officers. The Code is posted on the Plantronics’ corporate website
under the Corporate Governance section of Investor Relations portal (
www.plantronics.com
). We
intend to disclose future amendments to the Code, or any waivers of such
provisions granted to executive officers and directors, on this web site within
five business days following the date of such amendment or waiver.
Stockholders
may request a free copy of the Code from our Investor Relations department as
follows:
Plantronics,
Inc.
345
Encinal Street
Santa
Cruz, CA 95060
Attn:
Investor Relations
(831)
426-5858
Corporate
Governance Guidelines
Plantronics
has adopted the Corporate Governance Guidelines, which are available on
Plantronics' website under the Corporate Governance section of the Investor
Relations portal (
www.plantronics.com
). Stockholders
may request a free copy of the Corporate Governance Guidelines from the address
and phone numbers set forth above under “
Code of Ethics.”
ITEM
11. EXECUTIVE C
OMP
ENSATION
The
information required under this item is included under the captions "Executive
Compensation", "Compensation of Directors", “Report of Compensation Committee of
the Board of Directors” and “Compensation Committee Interlocks and Insider
Participation” in our 2009 Proxy Statement and is incorporated herein by
reference.
ITEM
12. SECURITY OW
NER
SHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required by this item is included under the captions “Equity
Compensation Plan Information” under the main caption “Proposal Three – Approval
of an Amendment to the 2002 Employee Stock Purchase Plan”, and "Security
Ownership of Principal Stockholders and Management" under the main caption
"Additional Information" in our 2009 Proxy Statement and is incorporated into
this Item 12 by this reference.
ITEM
13. CERTAIN RE
LATIO
NSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information required by this item is included under the caption "Proposal One –
Election of Directors” subhead “Director Independence" in the 2009 Proxy
Statement and is incorporated into this Item 13 by this reference.
ITEM
14. PRINCIPAL
ACCOUN
TING FEES AND SERVICES
The
information required by this item is included under the caption "Proposal Four"
in our 2009 Proxy Statement and is incorporated in this Item 14 by this
reference.
PART
IV
ITEM
15. EXHIBITS AND FI
NANC
IAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Annual Report on Form
10-K:
|
(1)
|
Financial
Statements.
The following
consolidated financial statements and supplementary information and Report
of Independent Registered Public Accounting Firm are included in Part II
of this Report.
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
60
|
|
CONSOLIDATED
BALANCE SHEETS
|
61
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
62
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
63
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
64
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
65
|
(2)
Financial Statement
Schedules.
PLANTRONICS,
INC.
SCHEDULE
II: VALUATION AND QUALIFYING
ACCOUNTS
AND RESERVES
(in
thousands)
|
Charged
|
||||||||||||||||
|
Balance
|
to
|
|||||||||||||||
|
at
|
Expenses
|
Balance
|
||||||||||||||
|
Beginning
|
or
Other
|
at
End
|
||||||||||||||
|
of
Year
|
Accounts
|
Deductions
|
of
Year
|
|||||||||||||
|
Allowance
for doubtful accounts:
|
||||||||||||||||
|
Year
ended March 31, 2007
|
$ | 5,366 | $ | 1,590 | $ | (1,878 | ) | $ | 5,078 | |||||||
|
Year
ended March 31, 2008
|
5,078 | (232 | ) | (3,111 | ) | 1,735 | ||||||||||
|
Year
ended March 31, 2009
|
1,735 | 1,784 | (535 | ) | 2,984 | |||||||||||
|
Warranty
reserves:
|
||||||||||||||||
|
Year
ended March 31, 2007
|
$ | 6,276 | $ | 15,946 | $ | (14,982 | ) | $ | 7,240 | |||||||
|
Year
ended March 31, 2008
|
7,240 | 22,095 | (18,894 | ) | 10,441 | |||||||||||
|
Year
ended March 31, 2009
|
10,441 | 21,595 | (19,612 | ) | 12,424 | |||||||||||
All other
schedules have been omitted because the required information is not present or
not present in the amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements or notes thereto.
3. Exhibits.
See Item 15(b)
below.
(b) Exhibits
We have
filed, or incorporated by reference into this Report, the exhibits listed on the
accompanying Index to Exhibits immediately following the signature page of this
Form 10-K.
(c)
Financial Statement Schedules
See Items
8 and 15(a) (2) above.
SIGNA
TURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
||
|
May
26, 2009
|
||
| By: /s/ Ken Kannappan | ||
|
Ken
Kannappan
|
||
|
Chief
Executive Officer
|
||
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS:
That the
undersigned officers and directors of Plantronics, Inc., a Delaware corporation,
do hereby constitute and appoint Ken Kannappan and Barbara Scherer, or either of
them, the lawful attorney-in-fact, with full power of substitution, for him in
any and all capacities, to sign any amendments to this report on Form 10-K and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes may
do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/ Ken
Kannappan
(Ken
Kannappan)
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
May
26, 2009
|
|
/s/ Barbara
Scherer
(Barbara
Scherer)
|
Senior
Vice President and Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
|
May
26, 2009
|
|
/s/
Marv
Tseu
(Marv
Tseu)
|
Chairman
of the Board and Director
|
May
26, 2009
|
|
/s/
Brian
Dexheimer
(
Brian Dexheimer
)
|
Director
|
May
26, 2009
|
|
/s/
Gregg
Hammann
(Gregg
Hammann)
|
Director
|
May
26, 2009
|
|
/s/
John
Hart
(John
Hart)
|
Director
|
May
26, 2009
|
|
/s/ Marshall
Mohr
(Marshall
Mohr)
|
Director
|
May
26, 2009
|
|
/s/
Roger
Wery
(Roger
Wery)
|
Director
|
May
26, 2009
|
EXHIBITS
INDEX
|
Exhibit
Number
|
Description
of Document
|
|
|
3.1.1
|
Amended
and Restated By-Laws of the Registrant (incorporated herein by reference
from Exhibit 3(ii) to the Registrant’s Current Report on Form 8-K, filed
on January 20, 2009).
|
|
|
3.2.1
|
2009
Restated Certificate of Incorporation of the Registrant filed with the
Secretary of State of Delaware on January 20, 2009 (incorporated herein by
reference from Exhibit 3(i) to the Registrant’s Current Report on Form
8-K, filed on January 20, 2009).
|
|
|
3.2.2
|
Certificate
of Retirement and Elimination of Preferred Stock and Common Stock of the
Registrant filed with the Secretary of State of Delaware on January 11,
1996 (incorporated herein by reference from Exhibit (3.3) of the
Registrant’s Annual Report on Form 10-K, filed on September 27,
1996).
|
|
|
3.3
|
Registrant’s
Certificate of Designation of Rights, Preferences and Privileges of Series
A Participating Preferred Stock filed with the Secretary of State of the
State of Delaware on April 1, 2002 (incorporated herein by reference from
Exhibit (3.6) to the Registrant’s Form 8-A, filed on March 29,
2002).
|
|
|
4.1
|
Preferred
Stock Rights Agreement, dated as of March 13, 2002 between the Registrant
and Equiserve Trust Company, N.A., including the Certificate of
Designation, the form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A, B, and C, respectively (incorporated
herein by reference from Exhibit (4.1) to the Registrant’s Form 8-A, filed
on March 29, 2002).
|
|
|
10.1*
|
Plantronics,
Inc. Non-EMEA Quarterly Profit Sharing Plan (incorporated herein by
reference from Exhibit (10.1) to the Registrant’s Report on Form 10-K,
filed on June 1, 2001).
|
|
|
10.2*
|
Form
of Indemnification Agreement between the Registrant and certain directors
and executives. (incorporated herein by reference from Exhibit (10.2) to
the Registrant’s Report on Form 10-K, filed on May 31,
2005).
|
|
|
10.3.1*
|
Regular
and Supplemental Bonus Plan (incorporated herein by reference from Exhibit
(10.4(a)) to the Registrant’s Report on Form 10-K, filed on June 1,
2001).
|
|
|
10.3.2*
|
Overachievement
Bonus Plan (incorporated herein by reference from Exhibit (10.4(b)) to the
Registrant’s Report on Form 10-K, filed on June 1,
2001).
|
|
|
10.3.3*
|
Executive
Incentive Plan (incorporated herein by reference from Exhibit 10.1 to the
Registrant’s Report on Form 8-K, filed on May 2,
2007.
|
|
|
10.3.4*
|
Executive
Incentive Plan, dated May 8, 2009, as
amended.
|
|
Exhibit
Number
|
Description
of Document
|
|
|
10.4.1
|
Lease
Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and
Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located
in Tijuana, Mexico (translation from Spanish original) (incorporated
herein by reference from Exhibit (10.5.1) of the Registrant's Quarterly
Report on Form 10-Q (File No. 001-12696), filed on June 1,
2004).
|
|
|
10.4.2
|
Lease
Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and
Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located
in Tijuana, Mexico (translation from Spanish original) (incorporated
herein by reference from Exhibit (10.5.2) of the Registrant's Quarterly
Report on Form 10-Q (File No. 001-12696), filed on August 6,
2004).
|
|
|
10.4.3
|
Lease
Agreement dated October 2004 between Finsa Portafolios, S.A. DE C.V.and
Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located
in Tijuana, Mexico (translation from Spanish original) (incorporated
herein by reference from Exhibit (10.5.4) of the Registrant's Quarterly
Report on Form 10-Q (File No. 001-12696), filed on August 6,
2004).
|
|
|
10.5
|
Lease
dated December 7, 1990 between Canyge Bicknell Limited and Plantronics
Limited, a subsidiary of the Registrant, for premises located in Wootton
Bassett, The United Kingdom (incorporated herein by reference from Exhibit
(10.32) to the Registrant’s Registration Statement on Form S-1 (as
amended), filed on October 20, 1993).
|
|
|
10.6*
|
Amended
and Restated 2003 Stock Plan (incorporated herein by reference from the
Registrant's Definitive Proxy Statement on Form 14-A, filed on May 26,
2004).
|
|
|
10.7*
|
1993
Stock Option Plan (incorporated herein by reference from Exhibit (10.8) to
the Registrant's Annual Report on Form 10-K, filed on June 21,
2002).
|
|
|
10.8.1*
|
1993
Director Stock Option Plan (incorporated herein by reference from Exhibit
(10.29) to the Registrant's Registration Statement on Form S-1 (as
amended), filed on October 20, 1993).
|
|
|
10.8.2*
|
Amendment
to the 1993 Director Stock Option Plan (incorporated herein by reference
from Exhibit (4.4) to the Registrant's Registration Statement on Form S-8,
filed on October 25, 1996).
|
|
|
10.8.3*
|
Amendment
No. 2 to the 1993 Director Stock Option Plan (incorporated herein by
reference from Exhibit (10.9(a)) to the Registrant's Report on Form 10-K,
filed on June 1, 2001).
|
|
|
10.8.4
*
|
Amendment
No. 3 to the 1993 Director Stock Option Plan (incorporated herein by
reference from Exhibit (10.9(b)) to the Registrant's Report on Form 10-K,
filed on June 1, 2001).
|
|
|
10.8.5*
|
Amendment
No. 4 to the 1993 Director Stock Option Plan (incorporated herein by
reference from Exhibit (10.9.5) to the Registrant's Annual Report on Form
10-K, filed on June 21, 2002).
|
|
|
10.9.1*
|
2002
Employee Stock Purchase Plan (incorporated herein by reference from the
Registrant's Definitive Proxy Statement on Form 14A, filed on June 3,
2005).
|
|
Exhibit
Number
|
Description
of Document
|
|
|
10.9.2
|
Trust
Agreement Establishing the Plantronics, Inc. Annual Profit
Sharing/Individual Savings Plan Trust (incorporated herein by reference
from Exhibit (4.3) to the Registrant's Registration Statement on Form S-8,
filed on January 7, 1997).
|
|
|
10.9.3*
|
Plantronics,
Inc. 401(k) Plan, effective as of April 2, 2000 (incorporated herein by
reference from Exhibit (10.11) to the Registrant's Report on Form 10-K,
filed on June 1, 2001).
|
|
|
10.10*
|
Resolutions
of the Board of Directors of Plantronics, Inc. Concerning Executive Stock
Purchase Plan (incorporated herein by reference from Exhibit (4.4) to the
Registrant's Registration Statement on Form S-8 (as amended), filed on
March 25, 1997).
|
|
|
10.11.1*
|
Plantronics,
Inc. Basic Deferred Compensation Plan, as amended August 8, 1996
(incorporated herein by reference from Exhibit (4.5) to the Registrant's
Registration Statement on Form S-8 (as amended) (File No. 333-19351),
filed on March 25, 1997).
|
|
|
10.11.2
|
Trust
Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation
Plan (incorporated herein by reference from Exhibit (4.6) to the
Registrant's Registration Statement on Form S-8 (as amended), filed on
March 25, 1997).
|
|
|
10.11.3
|
Plantronics,
Inc. Basic Deferred Compensation Plan Participant Election (incorporated
herein by reference from Exhibit (4.7) to the Registrant's Registration
Statement on Form S-8 (as amended), filed on March 25,
1997).
|
|
|
10.12.1*
|
Amended
and Restated Employment Agreement dated on or about January 26, 2009
between Registrant and Ken Kannappan (incorporated herein by reference
from Exhibit (10.2) to the Registrant's Current Report on Form 8-K, filed
on January 30, 2009).
|
|
|
10.12.2*
|
Employment
Agreement dated as of November 1996 between Registrant and Don Houston
(incorporated herein by reference from Exhibit (10.14.2) to the
Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on
June 2, 2003).
|
|
|
10.12.3*
|
Employment
Agreement dated as of March 1997 between Registrant and Barbara Scherer
(incorporated herein by reference from Exhibit (10.14.4) to the
Registrant's Annual Report on Form 10-K, filed on June 2,
2003).
|
|
|
10.12.4*
|
Employment
Agreement dated as of June 2003 between Registrant and Philip Vanhoutte
(incorporated herein by reference from Exhibit (10.12.4) to the
Registrant's Annual Report on Form 10-K, filed on May 31,
2005).
|
|
|
10.12.5*
|
Employment
Agreement dated as of May 2001 between Registrant and Joyce Shimizu
(incorporated herein by reference from Exhibit (10.14.5) to the
Registrant's Annual Report on Form 10-K, filed on June 2,
2003).
|
|
|
10.12.6*
|
Form
of Change of Control Severance Agreement, dated on or about January 26,
2009, between Registrant, Barbara Scherer, Don Houston and Rich Pickard
(incorporated by reference from Exhibit (10.1) to the Registrant’s Current
Report on Form 8-K, filed on January 30, 2009
|
|
|
10.13.1
|
Credit
Agreement dated as of October 31, 2003 between Registrant and Wells Fargo
Bank N.A. (incorporated herein by reference from Exhibit (10.1)
of the Registrant’s Quarterly Report on Form 10-Q, filed on November 7,
2003).
|
|
|
10.13.2
|
Credit
Agreement Amendment No. 1 dated as of August, 1, 2004, between Registrant
and Wells Fargo Bank N.A. (incorporated herein by reference from Exhibit
(10.15.2) to the Registrant’s Quarterly Report on Form 10-Q, filed on
November 5, 2004).
|
|
|
10.13.3
|
Credit
Agreement Amendment No.2 dated as of July 11, 2005, between Registrant and
Wells Fargo Bank National Association (incorporated herein by reference
from Exhibit (10.15.1) to the Registrant's Form 8-K, filed on July 15,
2005).
|
108