form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_________________________
FORM
10-Q
(Mark
One)
T QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended June 28, 2008
OR
£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ________to _________
Commission file number
1-12696
Plantronics,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0207692
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
345
Encinal Street
Santa Cruz,
California 95060
(Address
of principal executive offices)
(Zip
Code)
(831)
426-5858
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes T No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer T
|
|
Accelerated
filer £
|
|
Non-accelerated
filer £
(Do
not check if a smaller reporting company)
|
|
Smaller
reporting company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No T.
As of
July 25, 2008, 48,925,009 shares of common stock were outstanding.
FORM
10-Q
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
|
Page
No.
|
|
|
Item
1. Financial Statements (Unaudited):
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3
|
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4
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5
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6
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19
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35
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37
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PART
II. OTHER INFORMATION
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38
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38
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53
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53
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54
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Part
I -- FINANCIAL INFORMATION
Item 1. Financial
Statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands)
(Unaudited)
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
163,091 |
|
|
$ |
190,188 |
|
Accounts
receivable, net
|
|
|
131,493 |
|
|
|
130,530 |
|
Inventory
|
|
|
127,088 |
|
|
|
136,974 |
|
Deferred
income taxes
|
|
|
13,760 |
|
|
|
13,763 |
|
Other
current assets
|
|
|
14,771 |
|
|
|
13,623 |
|
Total
current assets
|
|
|
450,203 |
|
|
|
485,078 |
|
Long-term
investments
|
|
|
25,136 |
|
|
|
24,205 |
|
Property,
plant and equipment, net
|
|
|
98,530 |
|
|
|
98,231 |
|
Intangibles,
net
|
|
|
91,511 |
|
|
|
89,505 |
|
Goodwill
|
|
|
69,171 |
|
|
|
69,171 |
|
Other
assets
|
|
|
6,842 |
|
|
|
6,429 |
|
Total
assets
|
|
$ |
741,393 |
|
|
$ |
772,619 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
47,896 |
|
|
$ |
63,032 |
|
Accrued
liabilities
|
|
|
67,318 |
|
|
|
60,352 |
|
Income
taxes payable
|
|
|
- |
|
|
|
2,416 |
|
Total
current liabilities
|
|
|
115,214 |
|
|
|
125,800 |
|
Deferred
tax liability
|
|
|
32,570 |
|
|
|
31,494 |
|
Long-term
income taxes payable
|
|
|
14,137 |
|
|
|
12,982 |
|
Other
long-term liabilities
|
|
|
852 |
|
|
|
824 |
|
Total
liabilities
|
|
|
162,773 |
|
|
|
171,100 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
673 |
|
|
|
674 |
|
Additional
paid-in capital
|
|
|
369,655 |
|
|
|
375,958 |
|
Accumulated
other comprehensive loss
|
|
|
(3,581 |
) |
|
|
(2,770 |
) |
Retained
earnings
|
|
|
608,849 |
|
|
|
626,893 |
|
|
|
|
975,596 |
|
|
|
1,000,755 |
|
Less: Treasury
stock, at cost
|
|
|
(396,976 |
) |
|
|
(399,236 |
) |
Total
stockholders' equity
|
|
|
578,620 |
|
|
|
601,519 |
|
Total
liabilities and stockholders' equity
|
|
$ |
741,393 |
|
|
$ |
772,619 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
Net
revenues
|
|
$ |
206,495 |
|
|
$ |
219,164 |
|
Cost
of revenues
|
|
|
122,949 |
|
|
|
128,285 |
|
Gross
profit
|
|
|
83,546 |
|
|
|
90,879 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
19,488 |
|
|
|
19,695 |
|
Selling,
general and administrative
|
|
|
46,111 |
|
|
|
48,398 |
|
Restructuring
and other related charges
|
|
|
- |
|
|
|
375 |
|
Total
operating expenses
|
|
|
65,599 |
|
|
|
68,468 |
|
Operating
income
|
|
|
17,947 |
|
|
|
22,411 |
|
Interest
and other income, net
|
|
|
1,334 |
|
|
|
1,540 |
|
Income
before income taxes
|
|
|
19,281 |
|
|
|
23,951 |
|
Income
tax expense
|
|
|
4,306 |
|
|
|
3,457 |
|
Net
income
|
|
$ |
14,975 |
|
|
$ |
20,494 |
|
|
|
|
|
|
|
|
|
|
Net
income per share - basic
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
Shares
used in basic per share calculations
|
|
|
47,835 |
|
|
|
48,679 |
|
|
|
|
|
|
|
|
|
|
Net
income per share - diluted
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
Shares
used in diluted per share calculations
|
|
|
48,681 |
|
|
|
49,245 |
|
|
|
|
|
|
|
|
|
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Cash
dividends declared per common share
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
14,975 |
|
|
$ |
20,494 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,102 |
|
|
|
7,123 |
|
Stock-based
compensation
|
|
|
4,113 |
|
|
|
4,268 |
|
Provision
for doubtful accounts
|
|
|
36 |
|
|
|
- |
|
Provision
for excess and obsolete inventories
|
|
|
5,388 |
|
|
|
1,327 |
|
Benefit
from deferred income taxes
|
|
|
(3,472 |
) |
|
|
(2,004 |
) |
Income
tax benefit associated with stock option exercises
|
|
|
120 |
|
|
|
272 |
|
Excess
tax benefit from stock-based compensation
|
|
|
(380 |
) |
|
|
(212 |
) |
Loss
on disposal of property, plant, and equipment
|
|
|
7 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(7,983 |
) |
|
|
993 |
|
Inventory
|
|
|
(15,037 |
) |
|
|
(11,213 |
) |
Other
assets
|
|
|
213 |
|
|
|
117 |
|
Accounts
payable
|
|
|
(3,034 |
) |
|
|
15,136 |
|
Accrued
liabilities
|
|
|
4,675 |
|
|
|
(5,375 |
) |
Income
taxes payable
|
|
|
6,128 |
|
|
|
3,083 |
|
Cash
provided by operating activities
|
|
|
12,851 |
|
|
|
34,009 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sales of short-term investments
|
|
|
66,185 |
|
|
|
- |
|
Purchase
of short-term investments
|
|
|
(70,260 |
) |
|
|
- |
|
Capital
expenditures and other assets
|
|
|
(6,322 |
) |
|
|
(4,790 |
) |
Cash
used for investing activities
|
|
|
(10,397 |
) |
|
|
(4,790 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
- |
|
|
|
(2,369 |
) |
Proceeds
from sale of treasury stock
|
|
|
375 |
|
|
|
371 |
|
Proceeds
from issuance of common stock
|
|
|
1,889 |
|
|
|
2,036 |
|
Payment
of cash dividends
|
|
|
(2,407 |
) |
|
|
(2,450 |
) |
Excess
tax benefit from stock-based compensation
|
|
|
380 |
|
|
|
212 |
|
Cash
provided by (used for) financing activities
|
|
|
237 |
|
|
|
(2,200 |
) |
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
271 |
|
|
|
78 |
|
Net
increase in cash and cash equivalents
|
|
|
2,962 |
|
|
|
27,097 |
|
Cash
and cash equivalents at beginning of period
|
|
|
94,131 |
|
|
|
163,091 |
|
Cash
and cash equivalents at end of period
|
|
$ |
97,093 |
|
|
$ |
190,188 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF
PRESENTATION
The
accompanying unaudited condensed consolidated financial statements (“financial
statements”) of Plantronics, Inc. (“Plantronics” or “the Company”) have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) applicable to interim financial
information. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements have been prepared on a basis
consistent with the March 31, 2008 audited consolidated financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
to fairly state the information set forth herein. The financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2008, which was filed with the SEC on
May 27, 2008. The results of operations for the interim period ended
June 30, 2008 are not indicative of the results to be expected for the entire
fiscal year and any future period.
The
financial statements include the accounts of Plantronics and its wholly owned
subsidiaries. All intercompany balances and transactions have been
eliminated.
The
Company has two reportable segments, Audio Communications Group (“ACG”) and
Audio Entertainment Group (“AEG”). Management allocates resources to
and assesses the performance of each operating segment using several metrics
including information about segment revenues, gross profit (loss), operating
income (loss) and certain product line information.
The
Company’s fiscal year 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. The current
fiscal year ends on March 28, 2009, and the prior fiscal year ended on March 29,
2008. The Company’s interim periods for the first quarters of fiscal
2008 and 2009 ended on June 30, 2007 and June 28, 2008,
respectively. For purposes of presentation, the Company has indicated
its accounting year as ending on March 31 and its interim quarterly periods as
ending on the applicable month end.
Certain
financial statement reclassifications have been made to the prior period amounts
to conform to the current year presentation.
2.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective
April 1, 2008, the Company adopted Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards No. 157, “Fair
Value Measurements” (“SFAS No. 157”), only with respect to financial assets and
liabilities recognized at fair value on a recurring basis. SFAS No.
157 defines fair value, establishes guidelines for measuring fair value and
expands disclosures regarding fair value measurements. In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13”, which amends SFAS No.
157 to exclude accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under SFAS No. 13,
“Accounting for Leases”. In February 2008, the FASB also issued FSP FAS 157-2,
“Effective Date of FASB Statement No. 157”, which delays the effective date of
SFAS No. 157 until the 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 partial adoption of SFAS No. 157 has not
had a material impact on the Company’s consolidated financial
statements.
Under
SFAS No. 157, fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation
techniques used to measure fair value under SFAS No. 157 must maximize the use
of observable inputs and minimize the use of unobservable inputs.
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements). The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
Level 1 –
Quoted prices in active markets for identical assets or liabilities that are
accessible at the measurement date;
Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
asset or liabilities; and
Level 3 –
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
See
Note 4 for information and related disclosures regarding the Company’s fair
value measurements.
SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”) became effective April 1, 2008. SFAS No. 159
permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS No. 159 also
amends certain provisions of SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” (“SFAS No. 115”). The Company
does not have any instruments for which it has elected the fair value
option. Therefore, SFAS No. 159 has not impacted the Company’s
consolidated financial statements.
Effective
April 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should
recognize a realized tax benefit associated with dividends on non-vested equity
shares, non-vested equity share units and outstanding equity share options
charged to retained earnings as an increase in additional paid in
capital. The amount recognized in additional paid in capital should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payment awards. The adoption of EITF
Issue No. 06-11 did not have a significant impact on the Company’s consolidated
financial statements.
Effective
April 1, 2008, the Company adopted EITF Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities”. EITF Issue No. 07-3 requires
non-refundable advance payments for goods and services to be used in future
research and development activities to be recorded as an asset and expense the
payments when the research and development activities are performed. The
adoption of EITF Issue No. 07-3 did not have a significant impact on the
Company’s 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. 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 in the 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 adjusted to income tax expense for all such adjustments after
April 1, 2009, regardless of the date of the original business
combination.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No.
161”). SFAS No. 161 requires enhanced disclosures about how and why an entity
uses derivative instruments, how derivative instruments and related hedged items
are accounted for and their effect on an entity’s financial position, financial
performance, and cash flows. SFAS No. 161 will be effective in the first quarter
of fiscal year 2010. The Company is evaluating the impact that this statement
will have, if any, on its consolidated financial statements.
In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets”. FSP 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”. This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset
acquisitions. FSP 142-3 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008. Early adoption is prohibited. The Company is
evaluating the impact, if any, that FSP 142-3 will have, if any, on its
consolidated financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company does not expect the
adoption of SFAS No. 162 to have a material effect 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 is evaluating the impact of the adoption of
FSP EITF 03-6-1, if any, to its consolidated financial statements.
3.
DETAILS OF CERTAIN BALANCE SHEET COMPONENTS
|
|
March 31,
|
|
|
June 30,
|
|
(in thousands)
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Inventory,
net:
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
36,081 |
|
|
$ |
39,631 |
|
Work
in process
|
|
|
3,611 |
|
|
|
4,075 |
|
Finished
goods
|
|
|
87,396 |
|
|
|
93,268 |
|
|
|
$ |
127,088 |
|
|
$ |
136,974 |
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
$ |
25,089 |
|
|
$ |
22,911 |
|
Warranty
accrual
|
|
|
10,441 |
|
|
|
11,419 |
|
Accrued
advertising and sales and marketing
|
|
|
5,762 |
|
|
|
4,632 |
|
Accrued
other
|
|
|
26,026 |
|
|
|
21,390 |
|
|
|
$ |
67,318 |
|
|
$ |
60,352 |
|
Changes
in the warranty obligation, which are included as a component of accrued
liabilities on the condensed consolidated balance sheets, are as follows (in
thousands):
Warranty
obligation at March 31, 2008
|
|
$ |
10,441 |
|
Warranty
provision relating to products shipped during the period
|
|
|
5,896 |
|
Deductions
for warranty claims processed during the period
|
|
|
(4,918 |
) |
Warranty
obligation at June 30, 2008
|
|
$ |
11,419 |
|
4.
INVESTMENTS AND FAIR VALUE MEASUREMENTS
The
following table represents the Company’s investments at March 31, 2008 and June
30, 2008:
(in thousands)
|
|
Balances at March 31,
2008
|
|
|
Balances at June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
$ |
28,000 |
|
|
$ |
(2,864 |
) |
|
$ |
- |
|
|
$ |
25,136 |
|
|
$ |
28,000 |
|
|
$ |
(3,795 |
) |
|
$ |
- |
|
|
$ |
24,205 |
|
Total
long-term investments
|
|
$ |
28,000 |
|
|
$ |
(2,864 |
) |
|
$ |
- |
|
|
$ |
25,136 |
|
|
$ |
28,000 |
|
|
$ |
(3,795 |
) |
|
$ |
- |
|
|
$ |
24,205 |
|
At June
30, 2008 and March 31, 2008, all of the Company’s investments were classified as
available-for-sale and consisted of Auction Rate Securities
(“ARS”). The Company did not incur any realized gains or losses in
the three months ended June 30, 2008 or 2007.
In
accordance with SFAS No. 157, the following table represents the Company’s fair
value hierarchy for its financial assets and liabilities as of June 30, 2008 (in
thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money
market funds
|
|
$ |
145,512 |
|
|
|
- |
|
|
|
- |
|
|
$ |
145,512 |
|
Derivative
assets
|
|
|
- |
|
|
|
144 |
|
|
|
- |
|
|
|
144 |
|
Auction
rate securities
|
|
|
- |
|
|
|
- |
|
|
|
24,205 |
|
|
|
24,205 |
|
Total
assets measured at fair value
|
|
$ |
145,512 |
|
|
$ |
144 |
|
|
$ |
24,205 |
|
|
$ |
169,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$ |
49 |
|
|
$ |
4,775 |
|
|
$ |
- |
|
|
$ |
4,824 |
|
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 these securities.
Level 2
assets and liabilities consist of derivative foreign currency call and put
option contracts. Fair value is determined using a Black-Scholes
valuation model using inputs that are observable in the market.
Level 3
assets consist of auction rate securities (“ARS”), primarily comprised of
interest bearing state sponsored student loan revenue bonds guaranteed by the
Department of Education. Historically, these ARS investments have provided
liquidity via an auction process that resets the applicable interest rate at
predetermined calendar intervals, typically every 7 or 35 days. The recent
uncertainties in the credit markets have affected all of our 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 either 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. The
Company currently has the ability to hold these ARS investments until a recovery
of the auction process or until maturity. The Company has classified the entire
ARS investment balance as long-term investments on its consolidated balance
sheet as of June 30, 2008 and March 31, 2008 because of the Company’s inability
to determine when its investments in ARS will settle.
Historically,
the fair value of ARS investments approximated par value due to the frequent
resets through the auction process. While the Company continues to earn
interest on its ARS investments at the maximum contractual rate, these
investments are not currently trading and therefore do not currently have a
readily determinable market value. Accordingly, the estimated fair value
of ARS no longer approximates par value.
The
Company has used a discounted cash flow model to determine the estimated fair
value of its investment in ARS as of June 30, 2008, consistent with March 31,
2008. The key assumptions used in preparing the discounted cash flow
model include estimates for interest rates, timing and amount of cash flows,
credit and liquidity premiums and expected holding periods of the
ARS.
Based on
this assessment of fair value, as of June 30, 2008 the Company determined there
was a further decline in the fair value of its ARS investments of $0.9 million,
which was deemed temporary. 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. The Company has recorded a full valuation allowance against
the associated deferred tax asset due to the potential inability to utilize
capital losses for tax purposes.
The
following table provides a summary of changes in fair value of the Company’s
Level 3 financial assets for the quarter ended June 30, 2008 (in
thousands):
Changes
in Fair Value of Level 3 Financial Assets:
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
$ |
25,136 |
|
Unrealized
loss included in other comprehensive loss
|
|
|
(931 |
) |
Balance
at June 30, 2008
|
|
$ |
24,205 |
|
5.
GOODWILL AND PURCHASED INTANGIBLE ASSETS
The
following table presents changes in the carrying value of acquired intangible
assets:
|
|
March 31, 2008
|
|
|
June 30,
2008
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
(in thousands) |
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Useful
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
$ |
30,160 |
|
|
$ |
(13,883 |
) |
|
$ |
16,277 |
|
|
$ |
30,160 |
|
|
$ |
(15,050 |
) |
|
$ |
15,110 |
|
6
- 10 years |
|
In-process
technology
|
|
|
996 |
|
|
|
(996 |
) |
|
|
- |
|
|
|
996 |
|
|
|
(996 |
) |
|
|
- |
|
Immediate
|
|
State
contracts
|
|
|
1,300 |
|
|
|
(1,161 |
) |
|
|
139 |
|
|
|
1,300 |
|
|
|
(1,207 |
) |
|
|
93 |
|
7
years
|
|
Patents
|
|
|
1,420 |
|
|
|
(1,079 |
) |
|
|
341 |
|
|
|
1,420 |
|
|
|
(1,130 |
) |
|
|
290 |
|
7
years
|
|
Customer
relationships
|
|
|
18,133 |
|
|
|
(6,308 |
) |
|
|
11,825 |
|
|
|
18,133 |
|
|
|
(6,858 |
) |
|
|
11,275 |
|
3
- 8 years
|
|
Trademarks
|
|
|
300 |
|
|
|
(268 |
) |
|
|
32 |
|
|
|
300 |
|
|
|
(279 |
) |
|
|
21 |
|
7
years
|
|
Trade
name - inMotion
|
|
|
5,000 |
|
|
|
(1,641 |
) |
|
|
3,359 |
|
|
|
5,000 |
|
|
|
(1,797 |
) |
|
|
3,203 |
|
8
years
|
|
Trade
name - Altec Lansing
|
|
|
59,100 |
|
|
|
- |
|
|
|
59,100 |
|
|
|
59,100 |
|
|
|
- |
|
|
|
59,100 |
|
Indefinite
|
|
OEM
relationships
|
|
|
700 |
|
|
|
(262 |
) |
|
|
438 |
|
|
|
700 |
|
|
|
(287 |
) |
|
|
413 |
|
7
years
|
|
Non-compete
agreements
|
|
|
200 |
|
|
|
(200 |
) |
|
|
- |
|
|
|
200 |
|
|
|
(200 |
) |
|
|
- |
|
5
years
|
|
Total
|
|
$ |
117,309 |
|
|
$ |
(25,798 |
) |
|
$ |
91,511 |
|
|
$ |
117,309 |
|
|
$ |
(27,804 |
) |
|
$ |
89,505 |
|
|
|
The
aggregate amortization expense relating to purchased intangible assets was $2.0
million for the three months ended June 30, 2007 and 2008. The
estimated future amortization expense of purchased intangible assets as of June
30, 2008 is as follows:
Fiscal Year Ending March 31,
|
|
(in thousands) |
|
Remainder
of 2009
|
|
$ |
5,866 |
|
2010
|
|
|
7,411 |
|
2011
|
|
|
7,368 |
|
2012
|
|
|
4,787 |
|
2013
|
|
|
3,213 |
|
Thereafter
|
|
|
1,760 |
|
Total
estimated amortization expense
|
|
$ |
30,405 |
|
Goodwill
as of March 31, 2008 and June 30, 2008 was $69.2 million.
The
Company reviews goodwill and purchased intangible assets with indefinite lives
for impairment annually during the fourth quarter of the fiscal year or more
frequently if events or circumstances indicate that an impairment loss may have
occurred. In the fourth quarter of fiscal 2008, the Company completed
the annual impairment test of goodwill and the Altec Lansing trade name,
which indicated that there was no impairment. There were also no events or
changes in circumstances during the three months ended June 30, 2008, which
triggered an impairment review. If forecasted revenue and margin growth
rates of the AEG segment are not achieved, it is reasonably possible that an
impairment review may be triggered for goodwill and purchased intangible assets
with indefinite lives prior to the next annual review in the fourth quarter of
fiscal 2009. It is also reasonably possible that an impairment review
may be triggered for the remaining intangible assets. If a triggering
event causes an impairment review to be required before the next annual review,
it is not possible to determine if an impairment charge would result or if such
charge would be material.
6.
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”).
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 the Shenzhen, China site. The
selling, general and administrative functions of AEG in China are in the process
of being consolidated with those of ACG throughout the Asia-Pacific
region. These actions will result in the elimination of all
manufacturing operation positions in Dongguan, China and certain related support
functions. In the third quarter of fiscal 2008, the production line
at the Dongguan, China facility was shut down. 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. The plan will proceed in phases and
is expected to be complete in the third quarter of fiscal 2009.
Restructuring
and other related charges of approximately $3.8 million related to this
restructuring plan have been recorded to date including $0.2 million recorded in
the first quarter of fiscal 2009. The total restructuring charges of
$3.8 million consists of $1.4 million for the write-off of facilities and
equipment and accelerated depreciation, $1.4 million for severance and benefits,
and $1.0 million in professional and administrative fees. We believe
that substantially all restructuring and other related charges have been
recorded as of June 30, 2008. As of June 30, 2008, approximately $0.5
million was unpaid and is expected to be paid during fiscal 2009.
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 June 30, 2008, 718 employees have been
terminated, 6 employees have left voluntarily and 6 employees will terminate
over the next two quarters.
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, of
which 25 had been terminated as of June 30, 2008. In the first
quarter of 2009, we recorded $0.2 million of restructuring charges, consisting
solely of severance, related to this activity of which $0.1 million was unpaid
as of June 30, 2008 and is expected to be paid in the second quarter of fiscal
2009. We believe that substantially all restructuring and
other related charges have been recorded as of June 30, 2008.
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
|
|
|
(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
|
|
$ |
285 |
|
|
|
(153 |
) |
|
|
243 |
|
|
$ |
375 |
|
Cash
|
|
|
(305 |
) |
|
|
110 |
|
|
|
(470 |
) |
|
|
(665 |
) |
Non-cash
|
|
|
- |
|
|
|
46 |
|
|
|
- |
|
|
|
46 |
|
Restructuring
accrual at June 30, 2008
|
|
$ |
272 |
|
|
$ |
3 |
|
|
$ |
287 |
|
|
$ |
562 |
|
The
restructuring accrual is included in accrued liabilities in the Company’s
consolidated balance sheet.
7.
STOCK-BASED COMPENSATION
The
following table summarizes the amount of stock-based compensation expense
recorded under SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”)
included in the condensed consolidated statements of operations:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
$ |
641 |
|
|
$ |
654 |
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
928 |
|
|
|
984 |
|
Selling,
general and administrative
|
|
|
2,544 |
|
|
|
2,630 |
|
Stock-based
compensation expense included in operating expenses
|
|
|
3,472 |
|
|
|
3,614 |
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation
|
|
|
4,113 |
|
|
|
4,268 |
|
Income
tax benefit
|
|
|
(1,309 |
) |
|
|
(1,301 |
) |
Total
stock-based compensation, net of tax
|
|
$ |
2,804 |
|
|
$ |
2,967 |
|
Stock
Options
The
following is a summary of the Company’s stock option activity during the first
quarter of 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
|
|
|
724 |
|
|
$ |
24.02 |
|
|
|
|
|
|
|
Options
exercised
|
|
|
(117 |
) |
|
$ |
17.40 |
|
|
|
|
|
|
|
Options
forfeited or expired
|
|
|
(168 |
) |
|
$ |
30.57 |
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
9,000 |
|
|
$ |
26.17 |
|
|
|
4.15 |
|
|
$ |
12,017 |
|
Vested
and expected to vest at June 30, 2008
|
|
|
8,779 |
|
|
$ |
26.23 |
|
|
|
4.10 |
|
|
$ |
11,849 |
|
Exercisable
at June 30, 2008
|
|
|
6,521 |
|
|
$ |
26.80 |
|
|
|
3.49 |
|
|
$ |
10,190 |
|
The total
intrinsic value of options exercised during the three months ended June 30, 2007
and 2008 was $1.1 million and $0.8 million, respectively.
As of
June 30, 2008, total unrecognized compensation cost related to unvested stock
options was $20.4 million which is expected to be recognized over a weighted
average period of 2.3 years.
Restricted
Stock
The
following is a summary of the Company’s restricted stock activity during the
first quarter of fiscal 2009:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
|
|
Non-vested
at March 31, 2008
|
|
|
288 |
|
|
$ |
26.77 |
|
Granted
|
|
|
20 |
|
|
$ |
23.45 |
|
Vested
|
|
|
(12 |
) |
|
$ |
28.09 |
|
Forfeited
|
|
|
- |
|
|
$ |
- |
|
Non-vested
at June 30, 2008
|
|
|
296 |
|
|
$ |
26.49 |
|
As of
June 30, 2008, total unrecognized compensation cost related to non-vested
restricted stock awards was $6.4 million, which is expected to be recognized
over a weighted average period of 2.9 years. The total fair value of
restricted stock awards vested during the three months ended June 30, 2008 was
$0.3 million.
Employee
Stock Purchase Plan (“ESPP”)
As of
June 30, 2008, there was $0.1 million of unrecognized compensation cost related
to the ESPP that is expected to be fully recognized during the next fiscal
quarter.
Valuation
Assumptions
The
Company estimates the fair value of stock options and ESPP shares using a
Black-Scholes option valuation model. The fair value of each option
grant is estimated on the date of grant using the straight-line attribution
approach with the following weighted average assumptions:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
Employee Stock Options
|
|
2007
|
|
|
2008
|
|
Expected
volatility
|
|
|
36.5 |
% |
|
|
47.0 |
% |
Risk-free
interest rate
|
|
|
4.6 |
% |
|
|
3.1 |
% |
Expected
dividends
|
|
|
0.8 |
% |
|
|
0.8 |
% |
Expected
life (in years)
|
|
|
4.4 |
|
|
|
4.4 |
|
Weighted-average
grant date fair value
|
|
$ |
8.40 |
|
|
$ |
9.51 |
|
There
were no new ESPP offering periods during the three months ended June 30, 2007
and 2008.
8.
COMPREHENSIVE INCOME
The
components of comprehensive income for the three months ended June 30, 2007 and
2008 are as follows:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
Net
income
|
|
$ |
14,975 |
|
|
$ |
20,494 |
|
Unrealized
loss on cash flow hedges, net of tax
|
|
|
(158 |
) |
|
|
1,491 |
|
Foreign
currency translation gain
|
|
|
398 |
|
|
|
252 |
|
Unrealized
loss on long-term investments, net of tax
|
|
|
- |
|
|
|
(931 |
) |
Comprehensive
income
|
|
$ |
15,215 |
|
|
$ |
21,306 |
|
9. FOREIGN CURRENCY
TRANSACTIONS
Non-Designated
Hedges
As of
June 30, 2008, the Company had foreign currency forward contracts of €11.4
million and ₤6.3 million denominated in Euros and Great British Pounds,
respectively. These forward contracts hedge against a portion of the
Company’s foreign currency-denominated receivables, payables and cash
balances.
The
following table summarizes the Company’s outstanding foreign exchange currency
contracts, and approximate U.S. dollar equivalent, at June 30, 2008 (local
currency and dollar amounts in thousands):
|
|
Local Currency
|
|
|
USD Equivalent
|
|
Position
|
|
Maturity
|
EUR
|
|
|
11,400 |
|
|
$ |
17,960 |
|
Sell
Euro
|
|
1
month
|
GBP
|
|
|
6,300 |
|
|
$ |
12,536 |
|
Sell
GBP
|
|
1
month
|
Foreign
currency transactions, net of the effect of hedging activity on forward
contracts, resulted in a net gain of $0.4 million and $0.5 million in the three
months ended June 30, 2007 and 2008, respectively.
Cash
Flow Hedges
As of
June 30, 2008, the Company had foreign currency put and call option contracts of
€47.5 million and £18.8 million. As of March 31, 2008, the
Company had foreign currency put and call option contracts of €48.4 million
and £18.7 million. Collectively, the Company’s option contracts are
collars to hedge against a portion of its forecasted foreign currency
denominated sales.
In the
three months ended June 30, 2007 and 2008, realized losses of $322,000 and $2.1
million on cash flow hedges were recognized in net revenues in the condensed
consolidated statements of operations. The Company expects to
reclassify the entire amount of $4.4 million of losses accumulated in other
comprehensive income to net revenues during the next 12 months due to the
recognition of the hedged forecasted sales.
10.
INCOME TAXES
The
effective tax rate for the three months ended June 30, 2008 was 14.4% compared
to 22.3% for the same period a year ago. The lower effective tax rate is
primarily due to the release of tax reserves resulting from the lapse of the
statute of limitations in certain jurisdictions during the first quarter of
fiscal 2009. The effective tax rate differs from the statutory rate
due to the impact of foreign operations taxed at different statutory rates,
income tax credits, state taxes, and other factors. The future tax rate could be
impacted by a shift in the mix of domestic and foreign income; tax treaties with
foreign jurisdictions; changes in tax laws in the United States or
internationally; or a change in estimates of future taxable income which could
result in a valuation allowance being required.
In
accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), in the quarter ended June 30, 2008, the Company
recognized a tax benefit of $1.7 million, consisting of $1.4 million in tax
reserves and $0.3 million of related interest due to the lapse of the statute of
limitations in certain jurisdictions. As of June 30, 2008, the Company had $11.5
million of unrecognized tax benefits compared to $12.4 million at March 31,
2008. All of the total unrecognized tax benefits would favorably
impact the effective tax rate in future periods if recognized.
The
Company's continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. As of June 30, 2008, the Company
had approximately $1.5 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, the Company cannot
reasonably estimate the amount of reductions during the next twelve months. Any
such reduction could be impacted by other changes in unrecognized tax
benefits.
The
Company files income tax returns in the U.S. federal jurisdiction, 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
2005 and 2004, respectively. Foreign income tax matters for material tax
jurisdictions have been concluded through tax years before 2003, except for the
United Kingdom, which has been concluded through fiscal 2005, and Germany and
France which have been concluded through fiscal 2006.
11.
COMPUTATION OF EARNINGS PER COMMON SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands, except per share
data)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
14,975 |
|
|
$ |
20,494 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares-basic
|
|
|
47,835 |
|
|
|
48,680 |
|
Dilutive
effect of employee equity incentive plans
|
|
|
846 |
|
|
|
565 |
|
Weighted
average shares-diluted
|
|
|
48,681 |
|
|
|
49,245 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share-basic
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share-diluted
|
|
$ |
0.31 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
Potentially
dilutive securities excluded from earnings per diluted share because their
effect is anti-dilutive
|
|
|
6,021 |
|
|
|
6,536 |
|
12. SEGMENT
INFORMATION
Financial
data for each segment for the three months ended June 30, 2007 and 2008 is as
follows:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in
thousands)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
|
|
|
|
Audio
Communications Group
|
|
$ |
185,572 |
|
|
$ |
198,527 |
|
Audio
Entertainment Group
|
|
|
20,923 |
|
|
|
20,637 |
|
Consolidated
net revenues
|
|
$ |
206,495 |
|
|
$ |
219,164 |
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
$ |
85,776 |
|
|
$ |
89,170 |
|
Audio
Entertainment Group
|
|
|
(2,230 |
) |
|
|
1,709 |
|
Consolidated
gross profit
|
|
$ |
83,546 |
|
|
$ |
90,879 |
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
$ |
28,986 |
|
|
$ |
29,023 |
|
Audio
Entertainment Group
|
|
|
(11,039 |
) |
|
|
(6,612 |
) |
Consolidated
operating income
|
|
$ |
17,947 |
|
|
$ |
22,411 |
|
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
office and contact centers, with mobile and cordless phones, and with computers
and gaming consoles. Major product categories include “Office and
Contact Center”, which is defined as 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 “Other”, which includes specialty products such as
Clarity products marketed for hearing impaired individuals. The
following table presents net revenues by product group within ACG:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
Office
and Contact Center
|
|
$ |
132,205 |
|
|
$ |
122,803 |
|
Mobile
|
|
|
41,238 |
|
|
|
59,882 |
|
Gaming
and Computer Audio
|
|
|
6,485 |
|
|
|
9,621 |
|
Other
|
|
|
5,644 |
|
|
|
6,221 |
|
Total
segment net revenues
|
|
$ |
185,572 |
|
|
$ |
198,527 |
|
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 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:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
Docking
Audio
|
|
$ |
10,291 |
|
|
$ |
9,772 |
|
PC
Audio
|
|
|
8,448 |
|
|
|
9,178 |
|
Other
|
|
|
2,184 |
|
|
|
1,687 |
|
Total
segment net revenues
|
|
$ |
20,923 |
|
|
$ |
20,637 |
|
In the
second quarter of fiscal 2008, the Company transitioned the responsibility and
management of the Altec Lansing branded headsets from the AEG segment to the ACG
segment, and, as a result, effective July 1, 2007, the revenue and resulting
profit from the Altec Lansing headsets are now included in the ACG reporting
segment within the Gaming and Computer Audio category. In the three
months ended June 30, 2007, AEG net revenue included $1.7 million related to
these headsets.
Major
Customers
No
customer accounted for 10% or more of total net revenues for the three months
ended June 30, 2007 and 2008, nor did any one customer account for 10% or more
of accounts receivable at March 31, 2008, and June 30, 2008.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
CERTAIN
FORWARD-LOOKING INFORMATION:
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange
Act”). Forward-looking statements may generally be identified
by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,”
“will,” or “shall” and similar expressions, or the negative of these
terms. Specific forward-looking statements contained within this Form
10-Q include, statements containing our expectations regarding (i) increasing
penetration of our products into the office markets, (ii) upgrading our
customers and developing compelling new products, (iii) growing our Bluetooth market share while
improving profitability, (iv) executing our turnaround plans for Altec Lansing,
including potential savings from the restructuring of Altec Lansing’s China and
United States operations, and (v) improving the overall profitability of the
Company, in addition to other statements regarding our future operations,
financial condition and prospects and business strategies. These
forward-looking statements are based on current expectations and assumptions and
are subject to risks and uncertainties that may cause actual results to differ
materially from the forward-looking statements. Factors that could cause actual
results and events to differ materially from such forward-looking statements are
included, but not limited to, those discussed in the section entitled “Risk
Factors” herein and other documents filed with the Securities and Exchange
Commission. We undertake no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events, or otherwise. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking
statements.
OVERVIEW
We are a
leading worldwide designer, manufacturer, and marketer of lightweight
communications headsets, telephone headset systems, and accessories for the
business and consumer markets under the Plantronics brand. 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 65 countries through a worldwide network of
distributors, original equipment manufacturers (“OEMs”), wireless carriers,
retailers, and telephony service providers. We have well-developed
distribution channels in North America, Europe, Australia and New Zealand, where
use of our products is widespread. Our distribution channels in other
regions of the world are less mature, and, while we primarily serve the contact
center markets in those regions, we are expanding into the office, mobile and
entertainment, digital audio, and specialty telephone markets in additional
international locations.
Our
consolidated net revenues increased from $206.5 million in the first quarter of
fiscal 2008 to $219.2 in the first quarter of fiscal 2009, which was primarily
attributable to increased sales of Bluetooth headsets for mobile
phone applications. Our net income increased from $15.0 million in
the first quarter of fiscal 2008 to $20.5 million in the first quarter of fiscal
2009 primarily due to improved gross margin on our consumer products in both our
segments. The increase in gross margin was also the result of our
continued effort to decrease product and transformation costs. In
addition, in the first quarter of fiscal 2009, our results of operations were
favorably impacted by a $1.7 million tax benefit related to the lapse of the
statute of limitations in certain jurisdictions.
In our
ACG segment, net revenues increased from $185.6 million in the first quarter of
fiscal 2008 to $198.5 million in the first quarter of fiscal 2009, primarily
driven by an increase in sales of our Bluetooth headsets for the
mobile market which increased 52% from the same quarter a year
ago. Growth in these products was the result of strong demand in the
first quarter, particularly in the United States, due in part to the hands-free
driving laws that went into effect July 1, 2008 in California and Washington and
to our improved market position relative to the same quarter last
year. Growth in these products was partially offset by a decline in
net revenues from office wireless and OCC corded and mobile corded
products.
In our
AEG segment, net revenues decreased slightly from $20.9 million in the first
quarter of fiscal 2008 to $20.6 million in the first quarter of fiscal 2009
primarily due to the fact that the year ago figures include revenue from PC and
Gaming headsets which were sold under the Altec Lansing brand and managed by AEG
at the time. Effective at the beginning of the second quarter of
fiscal 2008, we consolidated responsibility for PC and Gaming headsets,
regardless of brand, under ACG. Operating losses decreased to $6.6
million in the first quarter of fiscal 2009 compared to $11.0 million in the
corresponding period primarily due to lower requirements for excess and obsolete
inventory, reduced operating costs and expenses as a result of our restructuring
activities and tighter management promotions and discounts.
In fiscal
2009, our key corporate initiatives, explained below, are designed to increase
long-term sustainable shareholder value:
|
·
|
Strengthen
brand value of sound, style and simplicity.
We are investing in
a number of initiatives to further improve the sound quality and ease of
use of our products. Our brand promise is sound, style, and
simplicity, and we intend to continue investing resources to ensure we
deliver on this pledge to our
customers.
|
|
·
|
Maintain
revenue growth. We plan to continue to invest in research and
development to improve the overall sound quality and the appearance and
functionality of our products. We will seek to grow the office
market through the introduction of compelling, easy-to-use, wireless
products and demand generation
activities.
|
|
·
|
Improve
profitability. We
are continuing development of the cost effective high-end Bluetooth portfolio,
and, within the AEG business, we are developing new product lines that we
believe will help us to gain share and improve profit
margins.
|
RESULTS
OF OPERATIONS
The
following tables set forth, for the period indicated, the condensed consolidated
statements of operations data and data by segment. The financial
information and the ensuing discussion should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and notes
thereto.
Consolidated
(in thousands)
|
|
Three Months Ended
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
206,495 |
|
|
|
100.0 |
% |
|
$ |
219,164 |
|
|
|
100.0 |
% |
Cost
of revenues
|
|
|
122,949 |
|
|
|
59.5 |
% |
|
|
128,285 |
|
|
|
58.5 |
% |
Gross
profit
|
|
|
83,546 |
|
|
|
40.5 |
% |
|
|
90,879 |
|
|
|
41.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
19,488 |
|
|
|
9.5 |
% |
|
|
19,695 |
|
|
|
9.0 |
% |
Selling,
general and administrative
|
|
|
46,111 |
|
|
|
22.3 |
% |
|
|
48,398 |
|
|
|
22.1 |
% |
Restructuring
and other related charges
|
|
|
- |
|
|
|
0.0 |
% |
|
|
375 |
|
|
|
0.2 |
% |
Total
operating expenses
|
|
|
65,599 |
|
|
|
31.8 |
% |
|
|
68,468 |
|
|
|
31.3 |
% |
Operating
income
|
|
|
17,947 |
|
|
|
8.7 |
% |
|
|
22,411 |
|
|
|
10.2 |
% |
Interest
and other income, net
|
|
|
1,334 |
|
|
|
0.7 |
% |
|
|
1,540 |
|
|
|
0.8 |
% |
Income
before income taxes
|
|
|
19,281 |
|
|
|
9.4 |
% |
|
|
23,951 |
|
|
|
11.0 |
% |
Income
tax expense
|
|
|
4,306 |
|
|
|
2.1 |
% |
|
|
3,457 |
|
|
|
1.6 |
% |
Net
income
|
|
$ |
14,975 |
|
|
|
7.3 |
% |
|
$ |
20,494 |
|
|
|
9.4 |
% |
Audio
Communications Group
(in thousands)
|
|
Three Months Ended
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
185,572 |
|
|
|
100.0 |
% |
|
$ |
198,527 |
|
|
|
100.0 |
% |
Cost
of revenues
|
|
|
99,796 |
|
|
|
53.8 |
% |
|
|
109,357 |
|
|
|
55.1 |
% |
Gross
profit
|
|
|
85,776 |
|
|
|
46.2 |
% |
|
|
89,170 |
|
|
|
44.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
16,784 |
|
|
|
9.0 |
% |
|
|
17,197 |
|
|
|
8.7 |
% |
Selling,
general and administrative
|
|
|
40,006 |
|
|
|
21.6 |
% |
|
|
42,950 |
|
|
|
21.6 |
% |
Total
operating expenses
|
|
|
56,790 |
|
|
|
30.6 |
% |
|
|
60,147 |
|
|
|
30.3 |
% |
Operating
income
|
|
$ |
28,986 |
|
|
|
15.6 |
% |
|
$ |
29,023 |
|
|
|
14.6 |
% |
Audio
Entertainment Group
(in thousands)
|
|
Three Months Ended
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
20,923 |
|
|
|
100.0 |
% |
|
$ |
20,637 |
|
|
|
100.0 |
% |
Cost
of revenues
|
|
|
23,153 |
|
|
|
110.7 |
% |
|
|
18,928 |
|
|
|
91.7 |
% |
Gross
profit (loss)
|
|
|
(2,230 |
) |
|
|
(10.7 |
%) |
|
|
1,709 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
|
2,704 |
|
|
|
12.9 |
% |
|
|
2,498 |
|
|
|
12.1 |
% |
Selling,
general and administrative
|
|
|
6,105 |
|
|
|
29.2 |
% |
|
|
5,448 |
|
|
|
26.4 |
% |
Restructuring
and other related charges
|
|
|
- |
|
|
|
0.0 |
% |
|
|
375 |
|
|
|
1.8 |
% |
Total
operating expenses
|
|
|
8,809 |
|
|
|
42.1 |
% |
|
|
8,321 |
|
|
|
40.3 |
% |
Operating
loss
|
|
$ |
(11,039 |
) |
|
|
(52.8 |
%) |
|
$ |
(6,612 |
) |
|
|
(32.0 |
%) |
NET
REVENUES
Audio
Communications Group
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and Contact Center
|
|
$ |
132,205 |
|
|
$ |
122,803 |
|
|
$ |
(9,402 |
) |
|
|
(7.1 |
%) |
Mobile
|
|
|
41,238 |
|
|
|
59,882 |
|
|
|
18,644 |
|
|
|
45.2 |
% |
Gaming
and Computer Audio
|
|
|
6,485 |
|
|
|
9,621 |
|
|
|
3,136 |
|
|
|
48.4 |
% |
Other
|
|
|
5,644 |
|
|
|
6,221 |
|
|
|
577 |
|
|
|
10.2 |
% |
Total
segment net revenues
|
|
$ |
185,572 |
|
|
$ |
198,527 |
|
|
$ |
12,955 |
|
|
|
7.0 |
% |
Audio
Entertainment Group
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Docking
Audio
|
|
$ |
10,291 |
|
|
$ |
9,772 |
|
|
$ |
(519 |
) |
|
|
(5.0 |
%) |
PC
Audio
|
|
|
8,448 |
|
|
|
9,178 |
|
|
|
730 |
|
|
|
8.6 |
% |
Other
|
|
|
2,184 |
|
|
|
1,687 |
|
|
|
(497 |
) |
|
|
(22.8 |
%) |
Total
segment net revenues
|
|
$ |
20,923 |
|
|
$ |
20,637 |
|
|
$ |
(286 |
) |
|
|
(1.4 |
%) |
Compared
to the same quarter a year ago, consolidated net revenues increased 6%, from
$206.5 million in the first quarter of fiscal 2008 to $219.2 million in the
first quarter of fiscal 2009. All of the increase in net revenues was
attributable to the ACG segment, whose revenues accounted for approximately 91%
of consolidated net revenues. The increase in ACG revenues was driven
by the strength of Bluetooth and other consumer
products. We believe the increase was due to the strength of our
current product portfolio as well as an increase in domestic demand attributable
to hands-free legislation in the states of California and
Washington. AEG net revenues decreased compared to the same quarter a
year ago and accounted for approximately 9% of net revenues; however,
these results are not fully comparable as the year ago figures included $1.7
million of PC and Gaming headset revenue that, at the time, was managed by AEG
and sold under the Altec Lansing brand. Responsibility for all
PC and Gaming headsets, regardless of brand, was transferred to ACG effective
July 1, 2007. We are currently working on the next generation of
products for AEG with the goal of creating a sufficiently competitive portfolio
to increase revenues and improve profitability and market share.
ACG
ACG is
engaged in the design, manufacture, marketing and sales of headsets for business
and consumer applications, and other specialty products. We make
headsets for use in office and contact centers, with mobile and cordless phones,
and with computers and gaming consoles. Major product categories
include “Office and Contact Center”, which is defined as corded and cordless
communication headsets, amplifiers and telephone systems; “Mobile”, which is defined as Bluetooth and corded products
for mobile phone applications; “Gaming and Computer Audio”, which is defined as
gaming and PC headsets; and “Other”, which includes specialty products such as
Clarity products marketed for hearing impaired individuals.
Office
and Contact Center (“OCC”) products represent our largest source of revenues,
while Mobile products represent our largest unit volumes. Revenues
may vary due to seasonality, the timing of the introduction of new products,
discounts and other incentives and channel mix. There has been a growing trend
toward wireless products and a corresponding shift away from our corded
products. Wireless products represented 60% of net revenues in the
first quarter of fiscal 2009 compared to 54% in the first quarter of fiscal
2008.
We have a
“book and ship” business model, whereby we ship most orders to our customers
within 48 hours of receipt of those orders. Thus, we cannot rely on
the level of backlog to provide visibility into potential future
revenues.
Fluctuations
in the net revenues of ACG compared to the same quarter a year ago are described
below:
|
·
|
Mobile
net revenues increased $18.6 million entirely due to increased demand for
Bluetooth
headsets. Most of the revenue growth was in the United States
and was driven by growth from increased retail placements as a result of
an improved product portfolio as well as demand attributable to hands-free
driving legislation in the states of California and
Washington.
|
|
·
|
OCC
net revenues decreased $9.4 million mostly due to weaker economic
conditions in the United States and Europe. Corded products net
revenues decreased $8.7 million while cordless net revenues decreased $0.7
million.
|
|
·
|
Gaming
and Computer Audio product net revenues increased $3.1 million of which
$1.7 million is due to the transfer of responsibility of headset revenues
from AEG to ACG effective July 1, 2007. The remaining increase
is due to continued strength of the refreshed product line that was
launched in the fall of 2008.
|
AEG
AEG
operates predominantly in the consumer electronics market and focuses on the
design, manufacture and distribution of a wide range of products. Our
product offerings include computer and digital audio systems, digital radio
frequency audio systems, and portable audio products as well as headphones for
personal digital media. Major product categories include Docking Audio, which is
defined as all speakers whether AC or battery-powered that work with portable
digital players, such as iPod and other MP3 players; PC Audio, which is defined as
self-powered speaker systems used for computers and other multi-media
application systems; and Other, which includes
personal audio (headphones) and home audio systems. Currently, all of
the revenues in AEG are derived from our Altec Lansing-branded
products.
Due to
the fact that 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.
Net
revenues of AEG compared to the same quarter a year ago decreased $1.7 million
as a result of the transfer of responsibility for headset products to ACG offset
by increased headphone net revenues of $1.2 million, which experienced growth
across all geographic regions due to new product introductions.
Geographical
Information
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
131,108 |
|
|
$ |
134,402 |
|
|
$ |
3,294 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe,
Middle East and Africa
|
|
|
49,430 |
|
|
|
51,358 |
|
|
|
1,928 |
|
|
|
3.9 |
% |
Asia
Pacific
|
|
|
14,420 |
|
|
|
16,687 |
|
|
|
2,267 |
|
|
|
15.7 |
% |
Americas,
excluding United States
|
|
|
11,537 |
|
|
|
16,717 |
|
|
|
5,180 |
|
|
|
44.9 |
% |
Total
International
|
|
|
75,387 |
|
|
|
84,762 |
|
|
|
9,375 |
|
|
|
12.4 |
% |
Total
Consolidated |
|
$ |
206,495 |
|
|
$ |
219,164 |
|
|
$ |
12,669 |
|
|
|
6.1 |
% |
For the
three months ended June 30, 2008 compared to the same period a year ago,
international net revenues as a percentage of total net revenues increased from
37% to 39%, primarily due to an increase in ACG from 36% to 38%. For
the three months ended June 30, 2008 compared to the same period a year ago, AEG
domestic net revenues decreased from 61% to 52% and international net revenues
increased from 39% to 48% as a percentage of total net revenues.
COST OF
REVENUES AND GROSS PROFIT (LOSS)
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, depreciation, royalties, provision for excess and obsolete
inventory and an allocation of overhead costs, including facilities and IT
costs.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
206,495 |
|
|
$ |
219,164 |
|
|
$ |
12,669 |
|
|
|
6.1 |
% |
Cost
of revenues
|
|
|
122,949 |
|
|
|
128,285 |
|
|
|
5,336 |
|
|
|
4.3 |
% |
Consolidated
gross profit
|
|
$ |
83,546 |
|
|
$ |
90,879 |
|
|
$ |
7,333 |
|
|
|
8.8 |
% |
Consolidated
gross profit %
|
|
|
40.5 |
% |
|
|
41.5 |
% |
|
|
1.0 |
|
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
185,572 |
|
|
$ |
198,527 |
|
|
$ |
12,955 |
|
|
|
7.0 |
% |
Cost
of revenues
|
|
|
99,796 |
|
|
|
109,357 |
|
|
|
9,561 |
|
|
|
9.6 |
% |
Segment
gross profit
|
|
$ |
85,776 |
|
|
$ |
89,170 |
|
|
$ |
3,394 |
|
|
|
4.0 |
% |
Segment
gross profit %
|
|
|
46.2 |
% |
|
|
44.9 |
% |
|
|
(1.3 |
) |
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Entertainment Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
20,923 |
|
|
$ |
20,637 |
|
|
$ |
(286 |
) |
|
|
(1.4 |
%) |
Cost
of revenues
|
|
|
23,153 |
|
|
|
18,928 |
|
|
|
(4,225 |
) |
|
|
(18.2 |
%) |
Segment
gross profit (loss)
|
|
$ |
(2,230 |
) |
|
$ |
1,709 |
|
|
$ |
3,939 |
|
|
|
(176.6 |
%) |
Segment
gross profit (loss) %
|
|
|
(10.7 |
%) |
|
|
8.3 |
% |
|
|
19.0 |
|
|
ppt.
|
|
In the
first quarter of fiscal 2009, compared to the same quarter a year ago,
consolidated gross profit increased 9%, from $83.5 million in the first quarter
of fiscal 2008 to $90.9 million in the first quarter of fiscal
2009. The increase in consolidated gross profit was
attributable to the ACG segment, whose gross profit accounted for approximately
98% of consolidated gross profit and an increase in AEG gross profit which
accounted for approximately 2%.
Fluctuations
in the gross profit of ACG and AEG compared to the same quarter a year ago were
as follows:
ACG
The
increase in gross profit was primarily due to higher net revenues. As
a percentage of net revenues, the decrease in gross profit of 1.3 percentage
points is primarily due to the following:
|
·
|
a
4.3 percentage point decrement from a less favorable product mix with a
large increase in Mobile products which generally have a lower gross
margin than Office products;
|
|
·
|
a
0.5 percentage point decrement from higher freight expenses due to a
longer supply chain and higher
rates;
|
|
·
|
a
0.4 percentage point benefit from favorable foreign exchange
rates;
|
|
·
|
a
0.7 percentage point benefit from lower warranty and excess and obsolete
inventory provisions; and
|
|
·
|
a
2.4 percentage point benefit from material cost reductions and
improvements in manufacturing
efficiency.
|
AEG
The
increase in gross profit of approximately $4 million primarily reflected a lower
provision for excess and obsolete inventory costs in the 3 months ended June 30,
2008 due to better supply chain management of inventory levels along with the
sale of previously reserved inventory during the period.
For both
of our segments, product mix has a significant impact on gross profit as there
can be significant variances between our higher and 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, increasing the utilization of manufacturing capacity,
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 costs, including facilities, human resources, and IT
costs.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
$ |
19,488 |
|
|
$ |
19,695 |
|
|
$ |
207 |
|
|
|
1.1 |
% |
%
of total consolidated net revenues
|
|
|
9.5 |
% |
|
|
9.0 |
% |
|
|
(0.5 |
) |
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
$ |
16,784 |
|
|
$ |
17,197 |
|
|
$ |
413 |
|
|
|
2.5 |
% |
%
of total segment net revenues
|
|
|
9.0 |
% |
|
|
8.7 |
% |
|
|
(0.3 |
) |
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Entertainment Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
development and engineering
|
|
$ |
2,704 |
|
|
$ |
2,498 |
|
|
$ |
(206 |
) |
|
|
(7.6 |
%) |
%
of total segment net revenues
|
|
|
12.9 |
% |
|
|
12.1 |
% |
|
|
(0.8 |
) |
|
ppt.
|
|
In the
first quarter of fiscal 2009, compared to the same quarter a year ago,
consolidated research, development and engineering expenses increased due to
higher compensation costs primarily related to ACG headcount growth at our
design center in Suzhou, China partially offset by lower outside services and
design costs in AEG due to our continued efforts to reduce
costs.
Projects
that the research, development and engineering departments focused on
were:
|
·
|
the
design and development of wireless office system
products;
|
|
·
|
Bluetooth products and
technology;
|
|
·
|
product
line platforming; and
|
|
·
|
the
refresh of AEG product lines.
|
We
anticipate that our consolidated research, development and engineering expenses
will be fairly consistent with the current quarter throughout the remainder of
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
and an allocation of overhead costs, including facilities, human resources and
IT costs.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$ |
46,111 |
|
|
$ |
48,398 |
|
|
$ |
2,287 |
|
|
|
5.0 |
% |
%
of total consolidated net revenues
|
|
|
22.3 |
% |
|
|
22.1 |
% |
|
|
(0.2 |
) |
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$ |
40,006 |
|
|
$ |
42,950 |
|
|
$ |
2,944 |
|
|
|
7.4 |
% |
%
of total segment net revenues
|
|
|
21.6 |
% |
|
|
21.6 |
% |
|
|
- |
|
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Entertainment Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$ |
6,105 |
|
|
$ |
5,448 |
|
|
$ |
(657 |
) |
|
|
(10.8 |
%) |
%
of total segment net revenues
|
|
|
29.2 |
% |
|
|
26.4 |
% |
|
|
(2.8 |
) |
|
ppt.
|
|
In the
first quarter of fiscal 2009, compared to the same quarter a year
ago, selling, general and administrative expenses increased in ACG due
to higher compensation costs of $2.4 million as a result of merit increases
and higher marketing travel costs partially offset by expense decreases in AEG
related to decreased spending on integration and lower retail
representative commissions due to lower revenues.
We
anticipate our consolidated selling, general and administrative expenses will be
fairly consistent with the current quarter throughout the remainder of fiscal
2009.
RESTRUCTURING
AND OTHER RELATED CHARGES
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 the Shenzhen, China site. The
selling, general and administrative functions of AEG in China are in the process
of being consolidated with those of ACG throughout the Asia-Pacific
region. In the third quarter of fiscal 2008, the production line at
the Dongguan, China facility was shut down. The plan is proceeding in
phases and is expected to be complete in the third quarter of fiscal
2009.
Restructuring
and other related charges of approximately $3.8 million related to this
restructuring plan have been recorded to date including $0.2 million recorded in
the first quarter of fiscal 2009. The total restructuring charges of
$3.8 million consists of $1.4 million for the write-off of facilities and
equipment and accelerated depreciation, $1.4 million for severance and benefits,
and $1.0 million in professional and administrative fees. We believe
that substantially all restructuring and other related charges have been
recorded as of June 30, 2008. As of June 30, 2008, approximately $0.5
million was unpaid and is expected to be paid during fiscal 2009. As
a result of the restructuring plan, we currently expect cost savings of
approximately $3 million in fiscal 2009 and $4 million in fiscal
2010.
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 June 30, 2008, 718 employees had been
terminated, 6 employees had voluntarily terminated and 6 employees will
terminate over the next two quarters.
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 of
which 25 had been terminated as of June 30, 2008. In the first
quarter of fiscal 2009, we recorded $0.2 million of restructuring charges,
consisting solely of severance, related to this activity of which $0.1 million
was unpaid as of June 30, 2008 and is expected to be paid in the second quarter
of fiscal 2009. We believe that substantially all restructuring and
other related charges have been recorded as of June 30, 2008. We currently expect cost
savings as a result of the restructuring plan to be approximately $3 million in
fiscal 2009.
OPERATING
INCOME (LOSS)
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
17,947 |
|
|
$ |
22,411 |
|
|
$ |
4,464 |
|
|
|
24.9 |
% |
%
of total consolidated net revenues
|
|
|
8.7 |
% |
|
|
10.2 |
% |
|
|
1.5 |
|
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Communications Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
28,986 |
|
|
$ |
29,023 |
|
|
$ |
37 |
|
|
|
0.1 |
% |
%
of total segment net revenues
|
|
|
15.6 |
% |
|
|
14.6 |
% |
|
|
(1.0 |
) |
|
ppt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio
Entertainment Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
$ |
(11,039 |
) |
|
$ |
(6,612 |
) |
|
$ |
(4,427 |
) |
|
|
(40.1 |
%) |
%
of total segment net revenues
|
|
|
(52.8 |
%) |
|
|
(32.0 |
%) |
|
|
(20.8 |
) |
|
ppt.
|
|
Consolidated
operating income increased in the first quarter of fiscal 2009 mostly due to
higher gross profit from higher revenues which was partially offset by an
increase in operating expenses. ACG’s operating income was relatively
unchanged although gross profit increased from higher revenue but was mostly
offset by higher operating expenses. AEG’s operating loss was reduced
primarily from higher gross profit as a result of cost reduction efforts and
lower levels of discounts.
INTEREST
AND OTHER INCOME, NET
|
Three
Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands) |
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income, net
|
|
$ |
1,334 |
|
|
$ |
1,540 |
|
|
$ |
206 |
|
|
|
15.4 |
% |
%
of total consolidated net revenues
|
|
|
0.7 |
% |
|
|
0.8 |
% |
|
|
0.1 |
|
|
ppt.
|
|
In the
first quarter of fiscal 2009, compared to the same quarter a year ago, interest
and other income, net increased slightly primarily due to higher interest income
as a result of higher average cash balances offset in part by lower interest
rates and higher foreign currency gains.
At June
30, 2007 and 2008, there were no outstanding borrowings under the credit
facility.
INCOME
TAX EXPENSE
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Increase
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$ |
19,281 |
|
|
$ |
23,951 |
|
|
$ |
4,670 |
|
|
|
24.2 |
% |
Income
tax expense
|
|
|
4,306 |
|
|
|
3,457 |
|
|
|
(849 |
) |
|
|
(19.7 |
%) |
Net
income
|
|
$ |
14,975 |
|
|
$ |
20,494 |
|
|
$ |
5,519 |
|
|
|
36.9 |
% |
Effective
tax rate
|
|
|
22.3 |
% |
|
|
14.4 |
% |
|
|
(7.9 |
) |
|
ppt.
|
|
The
effective tax rate for the three months ended June 30, 2008 was 14.4% compared
to 22.3% for the same period a year ago. The lower effective tax rate was
primarily due to the release of tax reserves resulting from the lapse of the
statute of limitations in certain jurisdictions during the first quarter of
fiscal 2009. The effective tax rate differs from the statutory rate
due to the impact of foreign operations taxed at different statutory rates,
income tax credits, state taxes, and other factors. The future tax rate could be
impacted by a shift in the mix of domestic and foreign income; tax treaties with
foreign jurisdictions; changes in tax laws in the United States and/or
internationally; or a change in estimates of future taxable income which could
result in a valuation allowance being required.
In
accordance with FIN 48, for the quarter ended June 30, 2008, we recognized a tax
benefit of $1.7 million, consisting of $1.4 million in tax reserves and $0.3
million of related interest due to the lapse of the statute of limitations in
certain jurisdictions. As of June 30, 2008, we had $11.5 million of unrecognized
tax benefits compared to $12.4 million as of March 31, 2008. All of
the total unrecognized tax benefits would favorably impact the effective tax
rate in future periods if recognized.
It is our
continuing practice to recognize interest and/or penalties related to income tax
matters in income tax expense. As of June 30, 2008, we had approximately $1.5
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. Any such
reduction could be impacted by other changes in unrecognized tax
benefits.
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 2005 and 2004,
respectively. Foreign income tax matters for material tax jurisdictions have
been concluded through tax years before 2003, except for the United Kingdom,
which has been concluded through fiscal 2005, and Germany and France which have
been concluded through fiscal 2006.
FINANCIAL
CONDITION
The table
below provides selected condensed consolidated cash flow information for the
periods presented:
|
|
Three
Months Ended
|
|
|
|
June 30,
|
|
(in thousands)
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$ |
12,851 |
|
|
$ |
34,009 |
|
|
|
|
|
|
|
|
|
|
Cash
used for capital expenditures and other assets
|
|
|
(6,322 |
) |
|
|
(4,790 |
) |
Cash
used for other investing activities
|
|
|
(4,075 |
) |
|
|
- |
|
Cash
used for investing activities
|
|
|
(10,397 |
) |
|
|
(4,790 |
) |
|
|
|
|
|
|
|
|
|
Cash
provided by (used for) financing activities
|
|
$ |
237 |
|
|
$ |
(2,200 |
) |
Cash
Flows from Operating Activities
Cash
flows from operating activities for the three months ended June 30, 2008
consisted of net income of $20.5 million, non-cash charges of $10.8 million and
working capital sources of cash of $2.7 million. Non-cash charges
related primarily to $7.1 million of depreciation and amortization, $4.3 million
of stock-based compensation under SFAS No. 123(R) and a provision for excess and
obsolete inventory of $1.3 million. Working capital sources of cash
consisted primarily of increases in accounts payable and income taxes payable
which fluctuate based on the timing of payments and accounts receivable which
increased due to higher net revenues. The DSO as of June 30, 2008
increased to 54 days from 53 days as of June 30, 2007. Working
capital uses of cash consisted primarily of increases in inventory as a result
of revenue growth and anticipated demand and accrued liabilities which fluctuate
with the timing of payments.
Cash
flows from operating activities for the three months ended June 30, 2007
consisted of net income of $15 million, non-cash charges of $12.9 million and
working capital uses of cash of $15.0 million. Non-cash charges
related primarily to $7.1 million of depreciation and amortization, a provision
for excess and obsolete inventory of $5.4 million and $4.1 million of
stock-based compensation under SFAS No. 123(R). Working capital uses
of cash consisted primarily of increases in inventory and accounts receivable
and working capital sources of cash consisted primarily of increases in accounts
payable and accrued liabilities which fluctuate with the timing of
payments.
Cash
Flows from Investing Activities
Net cash
flows used for investing activities for the three months ended June 30, 2008
primarily consisted of capital expenditures of $4.8 million For the
three months ended June 30, 2007, net cash flows used for investing activities
primarily consisted of net purchases of short-term investments of $4.1 million
and capital expenditures of $6.3 million.
Cash
Flows from Financing Activities
Net cash
flows used by financing activities for the three months ended June 30, 2008
primarily consisted of dividend payments of $2.5 million and $2.4 million
related to the repurchase of common stock, which was partially offset by $2.0
million in proceeds from the exercise of employee stock options and $0.4 million
in proceeds from the sale of treasury stock. For the three months
ended June 30, 2007, net cash flows provided for financing activities primarily
consisted of $1.9 million in proceeds from the exercise of employee stock
options, $0.4 million in proceeds from the sale of treasury stock and $0.4
million of excess tax benefits from stock-based compensation, which was
partially offset by dividend payments of $2.4 million.
Liquidity
and Capital Resources
Our
primary discretionary cash requirements historically have been for capital
expenditures, including tooling for new products and leasehold improvements for
facilities expansion. For the remainder of fiscal 2009, we expect to
spend $18 to $22 million in capital expenditures, primarily for various IT
projects, tooling for new products, and completion of the new data center at our
facilities in Santa Cruz, California.
At June
30, 2008, we had working capital of $359.3 million, including $190.2 million of
cash and cash equivalents, compared with working capital of $335.0 million,
including $163.1 million of cash and cash equivalents at March 31,
2008.
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. Historically, these ARS investments have provided liquidity via an
auction process that resets the applicable interest rate at predetermined
calendar intervals, typically every 7 or 35 days. The recent uncertainties in
the credit markets have affected all of our holdings, and, as a consequence,
these investments are not currently liquid. As a result, we will not
be able to access these funds until a future auction of these investments is
successful, the underlying securities are redeemed by the issuer, or a buyer is
found outside of the auction process. Maturity dates for these ARS
investments range from 2029 to 2039. All of the ARS investments were
investment grade quality and were in compliance with our investment policy at
the time of acquisition. We currently have the ability to hold these ARS
investments until a recovery of the auction process or until maturity. We
classified the entire ARS investment balance as long-term investments on our
consolidated balance sheet as of March 31, 2008 because of our inability to
determine when our investments in ARS will settle.
Typically
the fair value of ARS investments approximates par value due to the frequent
resets throughout the auction process. While we continue to earn
interest on our ARS investments at the maximum contractual rate, these
investments are not currently trading and therefore do not currently have a
readily determinable market value. Accordingly, the estimated fair
value of ARS no longer approximates par value.
We have
used a discounted cash flow model to determine the estimated fair value of our
investments in ARS as of June 30, 2008. The key assumptions used in
preparing the discounted cash flow model include estimates for interest rates,
timing and amount of cash flows, credit and liquidity premiums and expected
holding periods of the ARS.
Based on
this assessment of fair value, as of June 30, 2008, we have experienced a
cumulative decline in the fair value of our ARS investments of $3.8 million,
including $0.9 million recorded in the first quarter of fiscal 2009, which is
deemed temporary. The further decline in fair value in the current
quarter was primarily due to the Single A Rated ARS which declined in value from
86.4% as of March 31, 2008 to 81.4% as of June 30, 2008.
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 loss. We could also incur other-than-temporary
impairment charges resulting in realized losses in our statement of operations
which would reduce net income. We continue to monitor the market for
ARS transactions and consider its 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 have decided to modify our current investment strategy by
limiting our investments in ARS to our current holdings and increasing our
investments in more liquid investments.
We have 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 line of credit was fully repaid
in the fourth quarter of fiscal 2007. At June 30, 2008, there were no
outstanding borrowings under the credit facility and our commitments under a
letter of credit sub-facility were $0.4 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. These covenants may adversely affect us to the extent that we
cannot comply with them. We are currently in compliance with the
covenants under our amended Credit 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 balance sheet at each reporting period the fair value of our
forward-exchange contracts and record any fair value adjustments in our results
of operations. Gains and losses associated with currency rate changes
on contracts are recorded within interest and other income, net, offsetting
transaction gains and losses on the related assets and liabilities.
We also
have a hedging program to hedge a portion of forecasted revenues denominated in
the Euro and Great British 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 balance sheet with related unrealized
gains and losses as a component of accumulated other comprehensive 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, 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
the AEG turnaround.
We
believe that our current cash, cash equivalents and cash provided by operations,
and our line of credit will be sufficient to fund operations for at least the
next twelve months; however, any projections of future financial needs and
sources of working capital are subject to uncertainty. See “Certain
Forward-Looking Information” and “Risk Factors” in this Quarterly Report on Form
10-Q for factors that could affect our estimates for future financial needs and
sources of working capital.
OFF
BALANCE SHEET ARRANGEMENTS
We have
not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, subordinated retained interests, derivative instruments or
other contingent arrangements that expose us to material continuing risks,
contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing and liquidity support or market
risk or credit risk support to the Company.
CONTRACTUAL
OBLIGATIONS
There
have been no material changes in our contractual obligations outside the normal
course of business since the fiscal year ended March 31, 2008; however, as
discussed in Note 10 of the Notes to the Condensed Consolidated Financial
Statements, we adopted the provisions of FIN 48 as of April 1,
2007. At June 30, 2008, the liabilities for uncertain tax benefits
and related interest were $11.5 million and $1.5 million,
respectively. We do not anticipate any material cash payments
associated with our uncertain tax positions to be made within the next 12
months.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
For a
complete description of what we believe to be the critical accounting policies
that affect our more significant judgments and estimates used in the preparation
of our financial statements, refer to our Annual Report on Form 10-K for the
fiscal year ended March 31, 2008. There have been no changes to
our critical accounting policies during the first quarter of fiscal
2009.
Recent
Accounting Pronouncements
Effective
April 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”)
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS No. 157”), only with respect to financial assets and liabilities
recognized at fair value on a recurring basis. SFAS No. 157 defines
fair value, establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. In February 2008, the
FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13”, which amends SFAS No. 157 to exclude accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13, “Accounting for
Leases”. In February 2008, the FASB also issued FSP FAS 157-2,
“Effective Date of FASB Statement No. 157”, which delays the effective date of
SFAS No. 157 until the 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 partial adoption of SFAS No. 157
has not had a material impact on the Company’s consolidated financial
statements.
Under
SFAS No. 157, fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation
techniques used to measure fair value under SFAS No. 157 must maximize the use
of observable inputs and minimize the use of unobservable inputs.
SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements). The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
Level 1 –
Quoted prices in active markets for identical assets or liabilities that are
accessible at the measurement date;
Level 2 –
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities; and
Level 3 –
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
See
Note 4 for information and related disclosures regarding the Company’s fair
value measurements.
SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”) became effective April 1, 2008. SFAS No. 159
permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. SFAS No.
159 also amends certain provisions of SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” (“SFAS No. 115”). The Company
does not have any instruments for which it has elected the fair value
option; therefore, SFAS No. 159 has not impacted the Company’s consolidated
financial statements.
Effective
April 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should
recognize a realized tax benefit associated with dividends on non-vested equity
shares, non-vested equity share units and outstanding equity share options
charged to retained earnings as an increase in additional paid in
capital. The amount recognized in additional paid in capital should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payment awards. The adoption of EITF Issue
No. 06-11 did not have a significant impact on the Company’s consolidated
financial statements.
Effective
April 1, 2008, the Company adopted EITF Issue No. 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities”. EITF Issue No. 07-3 requires
non-refundable advance payments for goods and services to be used in future
research and development activities to be recorded as an asset and expense the
payments when the research and development activities are
performed. The adoption of EITF Issue No. 07-3 did not have a
significant impact on the Company’s 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. 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 in the 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 adjusted to income tax expense for all such
adjustments after April 1, 2009, regardless of the date of the original business
combination.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No.
161”). SFAS No. 161 requires enhanced disclosures about how and why
an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for and their effect on an entity’s financial
position, financial performance, and cash flows. SFAS No. 161 will be
effective in the first quarter of fiscal year 2010. The Company is
evaluating the impact that this statement will have, if any, on its consolidated
financial statements.
In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets”. FSP 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”. This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset
acquisitions. FSP 142-3 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008. Early adoption is prohibited. The Company is
evaluating the impact that FSP 142-3 will have, if any, on its consolidated
financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company does not expect the
adoption of SFAS No. 162 to have a material effect 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 is evaluating the impact of the adoption of
FSP EITF 03-6-1, if any, to its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The
following discusses our exposure to market risk related to changes in interest
rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a
number of factors including those set forth in “Risk Factors.”
INTEREST
RATE RISK
We had
cash and cash equivalents totaling $163.1 million at March 31, 2008 compared to
$190.2 million at June 30, 2008. We had no short-term investments as
of March 31, 2008 and June 30, 2008. 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 have maturities greater
than one year, or we do not have the ability to currently
liquidate. All of our long-term investments are held in our name at a
limited number of major financial institutions and consist of auction rate
securities, concentrated primarily in student loans. We have no
exposure to sub-prime mortgage securities.
We
applied the same modeling technique as we used at March 31, 2008 to measure the
hypothetical changes in fair values in our long-term investments, excluding cash
and cash equivalents, held at June 30, 2008 that are sensitive to changes in
interest rates.
As of
July 25, 2008, we had no borrowings under the revolving line of credit facility
and $0.4 million committed under the letter of credit
sub-facility. If we choose to borrow amounts under this facility in
the future and market interest rates rise then our interest payments would
increase accordingly.
FOREIGN
CURRENCY EXCHANGE RATE RISK
We are
engaged in a hedging strategy to diminish, and make more predictable, the effect
of currency fluctuations. We hedge our balance sheet exposure by
hedging Euro and Great British Pound denominated receivables, payables, and cash
balances, and our economic exposure by hedging a portion of anticipated Euro and
Great British Pound denominated sales. We have no assurance our
strategy will be successfully implemented and that exchange rate fluctuations
will not materially adversely affect our business in the future.
Non-designated
Hedges
We hedge
our Euro and Great British Pound denominated receivables, payables and cash
balances by entering into foreign exchange forward contracts.
The table
below presents the impact of a hypothetical 10% appreciation and a 10%
depreciation of the U.S. dollar against the forward currency contracts as of
June 30, 2008 (in millions):
|
|
|
|
|
|
|
FX
|
|
|
FX
|
|
|
|
|
|
|
|
|
Gain
(Loss)
|
|
|
Gain
(Loss)
|
|
|
|
|
|
USD
Value
|
|
|
From
10%
|
|
|
From
10%
|
|
|
|
|
|
of
Net FX
|
|
|
Appreciation
|
|
|
Depreciation
|
|
Currency
- forward contracts
|
|
Position
|
|
Contracts
|
|
|
of USD
|
|
|
of USD
|
|
Euro
|
|
Sell
Euro
|
|
$ |
18.0 |
|
|
$ |
1.8 |
|
|
$ |
(1.8 |
) |
Great
British Pound
|
|
Sell
GBP
|
|
|
12.5 |
|
|
|
1.3 |
|
|
|
(1.3 |
) |
Net
position
|
|
|
|
$ |
30.5 |
|
|
$ |
3.1 |
|
|
$ |
(3.1 |
) |
Cash
Flow Hedges
In the
first quarter of fiscal 2009, approximately 39% of net revenues were derived
from sales outside the United States, which were predominately denominated in
the Euro and the Great British Pound.
As of
June 30, 2008, we had foreign currency call option contracts of approximately
€47.5 million and £18.8 million denominated in Euros and Great British
Pounds, respectively. As of June 30, 2008, we also had foreign
currency put option contracts of approximately €47.5 million and £18.8
million denominated in Euros and Great British Pounds,
respectively. Collectively, our option contracts hedge against a
portion of our forecasted foreign currency denominated sales.
The table
below presents the impact on 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 June 30, 2008 (in
millions):
|
|
|
|
|
FX
|
|
|
FX
|
|
|
|
|
|
|
Gain
(Loss)
|
|
|
Gain
(Loss)
|
|
|
|
USD
Value
|
|
|
From
10%
|
|
|
From
10%
|
|
|
|
of
Net FX
|
|
|
Appreciation
|
|
|
Depreciation
|
|
Currency
- option contracts
|
|
Contracts
|
|
|
of USD
|
|
|
of USD
|
|
Call
options
|
|
$ |
(109.7 |
) |
|
$ |
5.1 |
|
|
$ |
(9.5 |
) |
Put
options
|
|
|
104.5 |
|
|
|
5.0 |
|
|
|
(1.2 |
) |
Net
position
|
|
$ |
(5.2 |
) |
|
$ |
10.1 |
|
|
$ |
(10.7 |
) |
Item 4. Controls and Procedures
|
(a)
|
Evaluation
of disclosure controls and
procedures
|
We
maintain a set of disclosure controls and procedures that are designed to ensure
that information relating to Plantronics, Inc. required to be disclosed in
periodic filings under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure, and that
such information is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commissions rules and
forms.
In
connection with the filing of Form 10-Q for the quarter ended June 30, 2008, our
management, including the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of our disclosure controls and
procedures. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of June 30, 2008.
|
(b)
|
Changes
in internal control over financial
reporting
|
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are
presently engaged in various legal actions arising in the normal course of our
business. We believe that it is unlikely that any of these actions
will have a material adverse impact on our operating results; however, because
of the inherent uncertainties of litigation, the outcome of any of these actions
could be unfavorable and could have a material adverse effect on our financial
condition, results of operations or cash flows. There were no
material developments in the litigation on which we reported in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2008.
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 have been deteriorating, and there is a risk of a
recession.
Our
products and markets are subject to general economic conditions, and if there is
a slowing of national or international economic growth or an increase in
inflation, 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 the market price of our stock. In addition, we may
receive returns from our retailers of products in excess of our historical
experience rates. Should product returns vary significantly from our
estimate, revenues may be negatively impacted since returns net against
revenue. Failure to meet our anticipated demand projections could
create excess levels of inventory, which could result in additional reserves for
excess and obsolete inventory negatively impacting our financial
results.
Our
operating results are difficult to predict, and fluctuations may cause
volatility in the trading price of our common stock.
Given the
nature of the markets in which we compete, our revenues and profitability are
difficult to predict for many reasons, including the following:
|
·
|
our operating results are highly
dependent on the volume and timing of orders received during the quarter,
which are difficult to forecast. Customers generally order on
an as-needed basis, and we typically do not obtain firm, long-term
purchase commitments from our customers. As a result, our
revenues in any quarter depend primarily on orders booked and shipped in
that quarter;
|
|
·
|
we incur a large portion of our
costs in advance of sales orders because we must plan research and
production, order components and enter into development, sales and
marketing, and other operating commitments prior to obtaining firm
commitments from our customers. In the event we acquire too
much inventory for certain products, the risk of future inventory
write-downs increases. In the event we have inadequate
inventory to meet the demand for particular products, we may miss
significant revenue opportunities or incur significant expenses such as
air freight, expediting shipments, and other negative variances in our
manufacturing processes as we attempt to make up for the
shortfall. When a significant portion of our revenue is derived
from new products, forecasting the appropriate volumes of production is
even more difficult;
|
|
·
|
in
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 are working to refresh
virtually the entire AEG product line; however, market
adoption of new products is difficult to
predict;
|
|
·
|
a significant portion of our
annual retail sales for AEG generally occur 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 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 British 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. Over the last fiscal year,
we have experienced
a favorable impact on our gross profit as a result of the strength of the
Euro and GBP. Currency exchange
rates are difficult to predict, and we may not be able to predict changes
in exchange rates in the future. Consequently, our gross profit
and profitability could be negatively impacted in the future by currency
exchange rates; and
|
|
·
|
because we have significant
manufacturing operations in Mexico and China, fluctuations in currency
exchange rates in those two countries can impact our gross profit and
profitability.
|
Fluctuations
in our operating results may cause volatility in the trading price of our common
stock.
Prices
of certain raw materials, components and sub-assemblies may rise or fall
depending upon global market conditions.
We have
experienced cost increases from our suppliers and in light of the cost of oil,
food supplies and other products in the United States and around the world, we
may continue to receive cost increases, which could negatively affect
profitability and/or market share. If we are unable to pass these
increases 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.
Our
AEG segment has had and may continue to have an adverse effect on our financial
condition.
In fiscal
years 2007 and 2008, and the first quarter of fiscal 2009, we incurred
significant losses in our AEG segment. If the anticipated future
results of this business do not materialize as expected, or if we miss our
internal milestones in the turnaround, goodwill and other intangible assets
which were recorded as a result of the acquisition could become impaired and
could result in write-offs which would negatively impact our operating
results. The risks faced in connection with this include the
following:
|
·
|
we believe that the turnaround
for AEG is largely dependent on the
development of a new product portfolio. We are currently
working on the new portfolio with anticipated product placement in Fall
2008 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;
|
|
·
|
we
are in the process of restructuring AEG’s China
operations. Pursuant to a restructuring plan announced in
November 2007, we have closed AEG’s manufacturing facility in Dongguan,
China; are in the process of shutting down a related Hong Kong research
and development, sales and procurement office; and have consolidated
procurement, research and development activities for AEG in a new
Shenzhen, China site which we began to use in the fourth quarter of fiscal
2008. The selling, general and administrative functions of AEG
have been consolidated with those of ACG throughout the Asia-Pacific
region. These steps are 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. There is a risk that the consolidation of the AEG Asian
operations may cost more than we currently expect. There is
also a risk that the savings that we currently predict may not materialize
and that the timing of costs and benefits may be different than what we
currently expect. If the cost of consolidation is more than we
currently anticipate or the savings that we currently anticipate from
these activities do not materialize, our future financial results may be
adversely affected;
|
|
·
|
as a result of our restructuring,
we are relocating many of our research and development engineers and
procurement staff from Dongguan, China and Hong Kong into a Shenzhen,
China facility. As a result
of this change, we may lose key personnel which could negatively impact
our new AEG product portfolio
refresh;
|
|
·
|
we announced further AEG cost reductions in the first
quarter of fiscal 2009 with a reduction in force at the Milford, Pennsylvania operations. In
addition, we continue to review AEG’s costs structure and may
implement additional cost-cutting initiatives in the
future;
|
|
·
|
competition may continue to
increase in AEG’s markets more than we
expect;
|
|
·
|
meeting the spring and fall market
windows for AEG
products;
|
|
·
|
difficulties retaining or
obtaining shelf space for these products in our sales
channel;
|
|
·
|
difficulties retaining or
improving the brand recognition associated with the Altec Lansing brand during the
turnaround;
and
|
|
·
|
difficulties in integration of
the operations, technologies, and products of Altec Lansing. We have transitioned
a significant portion of Altec Lansing’s operations onto
our ERP system; however, we have not completed our integration
effort. There has been a significant cost to implement new
systems and business processes. We anticipate that there will
continue to be business processes and internal controls which will change
as a result of the
integration.
|
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 and alternate sources for these items are not readily
available. Any failure of our suppliers to remain in business
or to be able to purchase the raw materials, subcomponents and parts
required by them to produce and provide to us the parts 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 permit 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 discontinue production of the parts we
depend on. 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; and
|
|
·
|
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.
|
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. 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;
|
|
·
|
we
are increasing the use of design and manufacturing of Bluetooth headset
products at our new facilities in China. Development of new
wireless products and ramping of production can be
complex. Unexpected difficulties may arise. Failure
to meet our planned design deadlines or production quantities for new or
existing products can adversely affect our financial
results;
|
|
·
|
increasing
production beyond planned capacity involves increased tooling, test
equipment and hiring and training additional staff. Lead times to
increase tooling and test equipment are typically several months or more.
Once such additional capacity is in place, we incur increased
depreciation and the resulting overhead. Should we fail to ramp
production once capacity is in place, we would not be able to absorb this
incremental overhead, and this could lead to lower gross
margins; and
|
|
·
|
we
are working on a new initiative to re-engineer our supply chain by
implementing new product forecasting systems, increasing automation within
supply chain activities, improving the integrity of our supply chain data,
and creating dashboards in order to improve our ability to match
production to demand. If we are not able to successfully implement
this initiative, we may not be able to meet demand or compete effectively
with other companies who have successfully implemented similar
initiatives.
|
Any of
the foregoing problems could materially and adversely affect our business,
financial condition and results of operations.
We
have significant goodwill and intangible assets recorded on our balance
sheet. If the carrying value of our goodwill or intangible assets is
not recoverable, an impairment loss must 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 have significant goodwill and intangible assets recorded on our balance
sheet. Certain events or changes in circumstances, such as our
decision in fiscal 2008 to exit the Professional Audio business, would require
us to assess the recoverability of the carrying amount of our goodwill and
intangible assets. We wrote off approximately $0.5 million in intangible
assets associated with the Professional Audio product line in the AEG segment in
September 2007.
The
results of operations for the AEG business have been negatively impacted by
intense price competition, particularly in Docking Audio products, and our new
product introductions have not been as profitable as those in the prior
years. We have also had significant losses in fiscal 2007 and 2008
from excess and obsolete inventory and non-cancelable purchase
commitments. If we are unable to successfully introduce new,
profitable products and align the cost structure to the revenue base, our
anticipated future cash flows from the AEG business could be negatively
impacted.
We will
continue to evaluate the recoverability of the carrying amount of our goodwill
and intangible 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.
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. 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,
particularly in mobile, 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 unified communications have moved the
platform for certain of our products from our customers’ closed proprietary
systems to open platforms such as the personal computer. In turn, the
personal computer 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:
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anticipate technology and market
trends;
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develop innovative new products
and enhancements on a timely
basis;
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distinguish our products from
those of our competitors;
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create industrial design that
appeals to our customers and
end-users;
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manufacture and deliver
high-quality products in sufficient volumes;
and
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price our products
competitively.
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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.
Original
design manufacturers and contract manufacturers produce key portions of our
product lines for us. Beginning in the fourth quarter of fiscal 2008, most of
our AEG products were produced by contract manufacturers. 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
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
sell our products through various channels of distribution that can be volatile,
and failure to establish successful relationships with our channel partners
could materially adversely affect our business, financial condition or results
of operations.
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.
As a
result of the growth 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.
Certain
of our markets are intensely competitive. They could experience a
decline in average selling prices, competition on sales terms and conditions or
continual performance, technical and feature enhancements by 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. We are currently experiencing more
price competition from GN in the business markets than in the
past. 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 also
expect to face additional competition from companies, principally located in
Asia Pacific, which offer very low cost headset products, including products
that are modeled on or are direct copies of our products. These new
competitors are likely to offer very low cost products, which may result 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.
Reductions
in demand for iPod products, which are produced by Apple, Inc., may reduce
demand for certain of our Docking Audio products.
Certain
of our Docking Audio products marketed under our Altec Lansing brand were
developed for use with Apple, Inc.’s (“Apple”) iPod products. We have
a non-exclusive right to use the Apple interface with certain of our Docking
Audio products, and we are required to pay Apple a royalty for this
right. The risks faced in conjunction with our Apple related products
include, among others:
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if supply or demand for iPod
products decreases, demand for certain of our Docking Audio products could
be negatively affected;
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if Apple does not renew or
cancels our licensing agreement, our products may not be compatible with
iPods, resulting in loss of revenues and excess inventories, which would
negatively impact our financial
results;
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if Apple changes its iPod product
design more frequently than we update certain of our Docking Audio
products, certain of our products may not be compatible with the changed
design. Moreover, if Apple makes style changes to its products
more frequently than we update certain of our Docking Audio products,
consumers may not like the look of our products with the
iPod. Both of these factors could result in decreased demand
for our products, and excess inventories could result, which would
negatively impact our financial
results;
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Apple has introduced its own line
of iPod speaker products, which competes with certain of our Altec Lansing branded speaker
products. As the manufacturer of the iPod, Apple has unique
advantages with regard to product changes or introductions that we do not
possess, which could negatively impact our ability to compete effectively
against Apple’s speaker products. Moreover, certain consumers
may prefer to buy Apple’s iPod speakers rather than other vendors’
speakers because Apple is the manufacturer. As a result, this
could lead to decreased demand for our products, and excess inventories
could result, which would negatively impact our financial results;
and
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similar risks exist for MP3
players manufactured by companies other than
Apple.
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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 significant foreign manufacturing operations that are inherently risky, and
a significant amount of our revenues are generated internationally.
We
completed construction of a manufacturing facility and design center in Suzhou,
China in the fourth quarter of fiscal 2006, and we are transitioning new
products and outsourced production to our new facility to increase
production. If we are unable to effectively produce new products or
to transition outsourced production into our Suzhou facility, we may be unable
to meet demand for these products, and our margins on these products may
decrease. There are risks in operating the Suzhou factory and
expanding our competency in a rapidly evolving economy because, among other
reasons, we may be unable to attract sufficient qualified personnel,
intellectual property rights may not be enforced as we expect, electricity may
not be available as contemplated or the like. Should any of these
risks occur, we may be unable to maximize the output from the facility, and our
financial results may decrease from our anticipated levels. We also
purchase a number of turnkey products directly from vendors in
Asia. Further, most of our AEG products are manufactured by foreign
vendors, primarily in China. In addition, we assemble the majority of
our ACG headsets in our manufacturing facility located in Tijuana, Mexico, and
we obtain most of the components and sub-assemblies used in our products from
various foreign suppliers. The inherent risks of international
operations, either in Mexico or in Asia, could materially adversely affect our
business, financial condition and results of operations.
We also
generate a significant amount of our revenues from foreign
customers. The types of risks faced in connection with international
operations and sales include, among others:
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fluctuations in foreign exchange
rates ;
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cultural differences in the
conduct of business;
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greater difficulty in accounts
receivable collection and longer collection
periods;
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the impact of recessions in
economies outside of the United States;
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reduced protection for
intellectual property rights in some
countries;
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unexpected changes in regulatory
requirements;
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tariffs and other trade
barriers;
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political conditions in each
country;
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the management and operation of
an enterprise spread over various
countries;
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the burden and administrative
costs of complying with a wide variety of foreign laws;
and
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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:
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uncertain economic conditions,
including the possibility of a domestic and global recession, inflationary
pressures, and the decline in investor confidence in the market
place;
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changes in our published
forecasts of future results of
operations;
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quarterly variations in our or
our competitors' results of operations and changes in market
share;
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the announcement of new products
or product enhancements by us or our
competitors;
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the loss of services of one or
more of our executive officers or other key
employees;
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changes in earnings estimates or
recommendations by securities
analysts;
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developments in our
industry;
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sales of substantial numbers of
shares of our common stock in the public
market;
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the timing and success of the
integration of the AEG
business;
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our ability to successfully
complete the product refresh for the Altec Lansing products and turn
around the AEG business in a timeline
consistent with our internal financial
models;
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general economic, political, and
market conditions, including market volatility;
and
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other factors unrelated to our
operating performance or the operating performance of our
competitors.
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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.
During
the first quarter of fiscal 2008, the Company adopted the provisions of 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. 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
may be required to record 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, or ARS, primarily comprised of interest
bearing state sponsored student loan revenue bonds guaranteed by the Department
of Education. Historically these ARS investments have provided
liquidity via an auction process that resets the applicable interest rate at
predetermined calendar intervals, typically every 7 or 35 days. The
recent uncertainties in the credit markets have affected all of 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. During the fourth
quarter of fiscal 2008, we determined that there was a decline in the fair value
of our ARS investments of $2.9 million and a further decline of $0.9 million in
the first quarter of fiscal 2009, both of which are deemed
temporary.
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.
Although
we currently have the ability to hold these ARS investments until a recovery of
the auction process or until maturity, 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 loss. We could also incur 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
United States 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.
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.
We
have intellectual property rights that could be infringed by others, and we are
potentially at risk of infringement of the intellectual property rights of
others.
Our
success will depend 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 United States. If we do not
enforce and protect our intellectual property rights, it could materially
adversely affect our business, financial condition and results of
operations.
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 that 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.
There
were no material developments in the litigation on which we reported in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2008.
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.
The
adoption of voice-activated software or the deterioration of general economic
conditions may cause profits from our contact center products to
decline.
We are
seeing a proliferation of speech-activated and voice interactive software in the
market place. We have been re-assessing long-term growth prospects
for the contact center market given the growth rate and the advancement of these
new voice recognition-based technologies. Businesses that first
embraced these technologies to resolve labor shortages at the peak of the last
economic up cycle are now increasing spending on these technologies in order to
reduce costs. We may experience a decline in our sales to the contact
center market if businesses increase their adoption of speech-activated and
voice interactive software as an alternative to customer service
agents. Such adoption could cause a net reduction in contact center
agents, and our revenues in this market could decline.
A
significant portion of our profits comes from the contact center market, and a
decline in demand in that market could materially adversely affect our
results. While we believe that this market may grow in future
periods, this growth could be slow, or revenues from this market could be flat
or decline. Deterioration in general economic conditions could result
in a reduction in the establishment of new contact centers and in capital
investments to expand or upgrade existing centers, which could negatively affect
our business. Because of our reliance on the contact center market,
we will be affected more 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 decrease in the demand
for contact centers and related headset products could cause a decrease in the
demand for our products, which would materially adversely affect our business,
financial condition and results of operations.
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 determine in the future that our internal control over
financial reporting is not effective as defined under Section 404, investor
perceptions may be adversely affected and could cause a decline in the market
price of our stock.
Provisions
in our charter documents and Delaware law and our adoption of a stockholder
rights plan may delay or prevent a third party from acquiring us, which could
decrease the value of our stock.
Our Board
of Directors has the authority to issue preferred stock and to determine the
price, rights, preferences, privileges and restrictions, including voting and
conversion rights, of those shares without any further vote or action by the
stockholders. The issuance of our preferred stock could have the
effect of making it more difficult for a third party to acquire
us. In addition, we are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which could also have the
effect of delaying or preventing our acquisition by a third
party. Further, certain provisions of our Certificate of
Incorporation and bylaws could delay or make more difficult a merger, tender
offer or proxy contest, which could adversely affect the market price of our
common stock.
In 2002,
our Board of Directors adopted a stockholder rights plan, pursuant to which we
distributed one right for each outstanding share of common stock held by
stockholders of record as of April 12, 2002. Because the rights may
substantially dilute the stock ownership of a person or group attempting to take
us over without the approval of our Board of Directors, the plan could make it
more difficult for a third party to acquire us, or a significant percentage of
our outstanding capital stock, without first negotiating with our Board of
Directors regarding such acquisition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
We have a
credit agreement with a major bank containing covenants that limit our ability
to pay cash dividends on shares of our common stock except under certain
conditions. We believe that we will continue to meet the conditions
that make the payment of cash dividends permissible pursuant to the credit
agreement in the near future. 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 performance.
We have
filed the following documents as Exhibits to this Form 10-Q:
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Certification
of the President and CEO Pursuant to Rule
13a-14(a)/15d-14(a).
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Certification
of Senior VP, Finance and Administration, and CFO Pursuant to Rule
13a-14(a)/15d-14(a).
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Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350.
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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PLANTRONICS,
INC.
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Date:
August 6, 2008
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By: |
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/s/ Barbara V.
Scherer
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Barbara
V. Scherer
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Senior
Vice President - Finance and Administration and Chief Financial
Officer
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(Principal
Financial Officer and Duly Authorized Officer of the
Registrant)
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