It is our continuing practice to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2012, 2011 and 2010, we had approximately $1.7 million of accrued interest related to uncertain tax positions, compared to $1.6 million as of March 31, 2009 and $1.7 million as of March 31, 2008.positions. 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, if any, during the next twelve months. Any such reduction could be impacted by other changes in unrecognized tax benefits.
The table below provides selected consolidated cash flow information for the periods indicated:
We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors including fluctuations in our net revenues and operating results, collection of accounts receivable, changes to inventory levels and timing of payments.
We enter into foreign currency forward-exchange contracts, which typically mature in one month intervals, to hedge theour exposure to foreign currency fluctuations of foreign currency-denominatedEuro, Great Britain Pound and Australian Dollar denominated cash, receivables payables, and cashpayables balances. We record on the Consolidated balance sheet at each reporting period the fair value of our forward-exchange contracts in the Consolidated balance sheets at each reporting period and record any fair value adjustments in our Consolidated statementstatements of operations. Gains and losses associated with currency rate changes on contracts are recorded within Interest and other income (expense), net in our Consolidated statements of operations, offsetting transaction gains and losses on the related assets and liabilities. Please see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional information.
We also have a hedging program to hedge a portion of forecasted revenues denominated in the Euro and Great Britain Pound with put and call option contracts used as collars. We also started hedginghedge a portion of the forecasted expenditures in Mexican PesoPesos with a cross-currency swap in the second quarter of fiscal 2010.swap. At each reporting period, we record the net fair value of our unrealized option contracts onin the Consolidated balance sheetsheets with related unrealized gains and losses as a component of Accumulated other comprehensive income, a separate element of Stockholders’ equity. Gains and losses associated with realized option contracts and swap contracts are recorded within Net revenues and Cost of revenues, respectively.respectively, in our Consolidated statements of operations. Please see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional information.
Our liquidity, capital resources, and results of operations in any period could be affected by the exercise of outstanding stock options, restricted stock grants to employees and the issuance of common stock under our employee stock purchase plan. Further, theESPP. The resulting increase in the number of outstanding shares from these equity grants and issuances could affect our earnings per share earnings;share; 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.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing and liquidity support or market risk or credit risk support to the Company.
CONTRACTUAL OBLIGATIONS
The following table summarizes the contractual obligations that we were reasonably likely to incur as of March 31, 20102012 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods.
| | Payments Due by Period | |
(in thousands) | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| | | | | | | | | | | | | | | |
Operating leases | | $ | 12,575 | | | $ | 4,598 | | | $ | 4,496 | | | $ | 2,794 | | | $ | 687 | |
Unconditional purchase obligations | | | 50,221 | | | | 50,221 | | | | - | | | | - | | | | - | |
Total contractual cash obligations | | $ | 62,796 | | | $ | 54,819 | | | $ | 4,496 | | | $ | 2,794 | | | $ | 687 | |
The reduction in our operating lease obligation beyond one year is primarily due to the expiration of a facility lease in our Mexico operations which we expect to renew upon expiration. |
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
(in thousands) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Revolving line of credit | | $ | 37,000 |
| | $ | — |
| | $ | 37,000 |
| | $ | — |
| | $ | — |
|
Operating leases | | 13,210 |
| | 5,355 |
| | 6,041 |
| | 1,128 |
| | 686 |
|
Unconditional purchase obligations | | 58,323 |
| | 58,323 |
| | — |
| | — |
| | — |
|
Total contractual cash obligations | | $ | 108,533 |
| | $ | 63,678 |
| | $ | 43,041 |
| | $ | 1,128 |
| | $ | 686 |
|
As of March 31, 2010,2012, the unrecognized tax benefits and related interest under the Income Tax Topic of the FASB ASC were $11.2$11.1 million and $1.7 million, respectively.respectively, and are included in Long-term income taxes payable in our Consolidated balance sheet. We are unable to reliably estimate the timing of future payments related to unrecognized tax benefits; however, Long-term income taxes payablebenefits and they are not included in our Consolidated balance sheet includes $12.9 million of these unrecognized benefits payable which has been excluded from the contractual obligations table above. We do not anticipate any material cash payments associated with our unrecognized tax benefits to be made within the next twelve months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussionOur consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. We believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
| |
•
| Revenue Recognition and Related Allowances |
| |
•
| Product Warranty Obligations |
Revenue Recognition and Related Allowances
We sell our products directly to customers and through other distribution channels, including distributors, retailers, carriers and original equipment manufacturers ("OEMs"). Commercial distributors and retailers represent our largest sources of net revenues. Sales through our distribution and retail channels are made primarily under agreements allowing for rights of return and include various sales incentive programs, such as rebates, advertising, price protection and other sales incentives. We have an established sales history for these arrangements and we record the estimated reserves and allowances at the time the related revenue is recognized. Customer sales returns are estimated based on historical data, relevant current data and the monitoring of inventory build-up in the distribution channel. The primary factors affecting our reserve for estimated customer sales returns include the general timing of historical returns and estimated return rates. The allowance for sales incentive programs is based on historical experience and contractual terms in the form of lump sum payments or sell-through credits. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Additionally, certain incentive programs require us to estimate, based on historical experience, the specific terms and conditions of the incentive and the estimated number of customers that will actually redeem the incentive.
We have not made any material changes in the accounting methodology we use to measure sales return reserves or incentive allowances during the past three fiscal years. Substantially all credits associated with these activities are processed within the following fiscal year and, therefore, do not require subjective long-term estimates; however, if actual results are not consistent with the assumptions and estimates used, we may be exposed to losses or gains that could be material. If we increased our estimate as of March 31, 2012 by a hypothetical 10%, our sales returns reserve and sales incentive allowance would have increased by approximately $0.8 million and $1.3 million, respectively. Net of the estimated value of the inventory that would be returned, this would have decreased gross profit and net income by approximately $1.7 million and $1.3 million, respectively.
Inventory Valuation
Inventories are valued at the lower of cost or market. The Company writes down inventories that have become obsolete or are in excess of anticipated demand or net realizable value. Our estimate of write downs for excess and obsolete inventory are based on a detailed analysis of financial conditionon-hand inventory and purchase commitments in excess of forecasted demand. Our products require long-lead time parts available from a limited number of vendors and, occasionally, last-time buys of raw materials for products with long lifecycles. The effects of demand variability, long-lead times and last-time buys have historically contributed to inventory write-downs. Our demand forecast considers projected future shipments, market conditions, inventory on hand, purchase commitments, product development plans and product life cycle, inventory on consignment and other competitive factors.
We have not made any material changes in the accounting methodology we use to estimate our inventory write-downs during the past three fiscal years. If the demand or market conditions for our products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of our inventory, we may be required to record additional write-downs, which would negatively affect our results of operations in the period the write-downs were recorded. If we increased our estimate as of March 31, 2012 by a hypothetical 10%, our inventory reserves and cost of revenues would have each increased by approximately $0.6 million and our net income would have been reduced by approximately $0.4 million.
Product WarrantyObligations
The Company records a liability for the estimated costs of warranties at the time the related revenue is recognized. Factors that affect the warranty obligation include product failure rates, estimated return rates, material usage and service related costs incurred in correcting product failures. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. If we increased our estimate as of March 31, 2012 by a hypothetical 10%, our warranty obligation and cost of revenues would have each increased by approximately $1.3 million and our net income would have been reduced by approximately $1.0 million.
Income Taxes
We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax assets when, based upon Plantronics’on available objective evidence, it is more likely than not that the benefit of such assets will not be realized.
We are subject to income taxes in the U.S. and foreign jurisdictions and our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years may be subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record a liability for such exposures. A number of years may elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified.
We recognize the impact of an uncertain income tax position on income tax expense at the largest amount that is more-likely-than-not to be sustained. An unrecognized tax benefit will not be recognized unless it has a greater than 50% likelihood of being sustained. We adjust our tax liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. We recognize interest and penalties related to income tax matters as part of our provision for income taxes.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by changes in tax law, the level of earnings and the results of tax audits.
Our provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign operations that we intend to reinvest indefinitely in the foreign operations. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes, subject to an adjustment for foreign tax credits, and foreign withholding taxes. Our current plans do not require repatriation of earnings from foreign operations to fund the U.S. operations because we generate sufficient domestic operating cash flow and have access to external funding under our line of credit. As a result, we do not expect a material impact on our business or financial flexibility with respect to undistributed earnings of our foreign operations.
Although we believe that our judgments and estimates are reasonable, actual results could differ and we may be exposed to losses or gains that could be material.
To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would generally require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU allows entities to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If this is the case, the entity is required to perform a more detailed two-step goodwill impairment test that is used to identify potential goodwill impairment and to measure the amount of goodwill impairment losses, if any, to be recognized. We adopted ASU 2011-08 in the fourth quarter of fiscal year 2012 and it did not have an impact on our financial statements. Refer to Note 8, Goodwill and Purchased Intangible Assets, of the Notes to Consolidated Financial Statements in this Form 10-K for details of our goodwill impairment analysis.
Recently Issued Pronouncements
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires an entity to disclose both net and gross information about assets and liabilities that have been offset, if any, and the related arrangements. The disclosures under this new guidance are required to be provided retrospectively for all comparative periods presented. We are required to implement this guidance effective for the first quarter of fiscal year 2014. We do not expect the adoption of ASU 2011-11 to have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, as amended, which requires us to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Certain of the provisions are effective for the us in the first quarter of fiscal year 2013 and will be applied retrospectively.
We intend to present other comprehensive income in two separate and consecutive statements.
ITEM 7A. 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 Item 1A, Risk Factors.
INTEREST RATE AND MARKET RISK
As of March 31, 2012 and 2011, we reported the following balances in cash and cash equivalents, short-term investments and long-term investments:
|
| | | | | | | | |
| | March 31, |
(in millions) | | 2012 | | 2011 |
Cash and cash equivalents | | $ | 209.3 |
| | $ | 277.4 |
|
Short-term investments | | 125.2 |
| | 152.6 |
|
Long-term investments | | 55.3 |
| | 39.3 |
|
As of March 31, 2012, our investments were composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S. Corporate Bonds and CDs.
Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. A portion of our cash is managed by external managers within the guidelines of our investment policy. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We typically invest in highly rated securities and our policy generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments to be high credit quality, primarily rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All highly liquid investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents. We classify our investments as either short-term or long-term based on each instrument's underlying effective maturity date. All short-term investments have effective maturities less than 12 months, while all long-term investments have effective maturities greater than 12 months or we do not currently have the ability to liquidate the investment. We may sell our investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. We recognized no material realized or unrealized net gains or losses during the years ended March 31, 2012 and 2011.
Interest rates in general were relatively unchanged in the year ended March 31, 2012 compared to the prior year; however, we earned slightly greater interest income due to a higher average investment portfolio in fiscal year 2012 compared with the prior year. During the year ended March 31, 2012, we generated approximately $1.5 million in interest income from our portfolio of cash equivalents and investments, compared to an immaterial amount in fiscal year 2011. A hypothetical increase or decrease in our interest rates by 10 basis points would have a minimal impact on our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to currency fluctuations, primarily in the Euro ("EUR"), Great Britain Pound ("GBP"), Australian Dollar ("AUD") and the Mexican Peso ("MX$"). We use a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. All of our hedging activities are entered into with large financial institutions, which we periodically evaluate for credit risks. We hedge our balance sheet exposure by hedging EUR, GBP and AUD denominated cash, receivables and payables balances, and our economic exposure by hedging a portion of anticipated EUR and GBP denominated sales and our MX$ denominated expenditures. We can provide no assurance that our strategy will be successful in the future and that exchange rate fluctuations will not materially adversely affect our business.
We experienced immaterial net foreign currency losses in the year ended March 31, 2012. Although we hedge a portion of our foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the Euro and the Great Britain Pound in comparison to the U.S. Dollar ("USD"), could result in material foreign exchange losses in future periods.
Non-designated Hedges
We hedge our EUR, GBP and AUD denominated cash, receivables and payables balances by entering into foreign exchange forward contracts.
The table below presents the impact on the foreign exchange gain (loss) of a hypothetical 10% appreciation and a 10% depreciation of the USD against the forward currency contracts as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | | | |
Currency - forward contracts | | Position | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
EUR | | Sell Euro | | $ | 25.3 |
| | $ | 2.5 |
| | $ | (2.5 | ) |
GBP | | Sell GBP | | $ | 5.8 |
| | $ | 0.6 |
| | $ | (0.6 | ) |
AUD | | Sell AUD | | $ | 2.7 |
| | $ | 0.3 |
| | $ | (0.3 | ) |
Cash Flow Hedges
Approximately 43%, 41% and 38% of net revenues in fiscal years 2012, 2011 and 2010, respectively, were derived from sales outside of the U.S., which were denominated predominantly in EUR and GBP in each of the fiscal years.
As of March 31, 2012, we had foreign currency put and call option contracts with notional amounts of approximately €63.7 million and £20.0 million denominated in EUR and GBP, respectively. As of March 31, 2011, we also had foreign currency put and call option contracts with notional amounts of approximately €52.7 million and £14.5 million denominated in EUR and GBP, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign currency denominated sales. If the USD is subjected to either a 10% appreciation or 10% depreciation versus these net exposed currency positions, we could realize a gain of $9.4 million or incur a loss of $8.1 million, respectively.
The table below presents the impact on the Black-Scholes valuation of our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD against the indicated option contract type for cash flow hedges as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | |
Currency - option contracts | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
Call options | | $ | 123.9 |
| | $ | 1.6 |
| | $ | (5.3 | ) |
Put options | | $ | 115.1 |
| | $ | 7.8 |
| | $ | (2.8 | ) |
Collectively, our swap contracts hedge against a portion of our forecasted MX$ denominated expenditures. As of March 31, 2012, we had cross currency swap contracts with notional amounts of approximately MX$317.5 million.
The table below presents the impact on the valuation of our cross-currency swap contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | |
Currency - cross-currency swap contracts | | USD Value of Cross-Currency Swap Contracts | | Foreign Exchange (Loss) From 10% Appreciation of USD | | Foreign Exchange Gain From 10% Depreciation of USD |
Position: Buy MX$ | | $ | 23.5 |
| | $ | (2.2 | ) | | $ | 2.7 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Plantronics, Inc.:
In our opinion, the consolidated financial statements which have been preparedlisted in accordancethe index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Plantronics, Inc. and its subsidiaries at March 31, 2012 and April 2, 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules appearing under Item 15(a)(2)present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 25, 2012
PLANTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
| | | | | | | |
| March 31, |
| 2012 | | 2011 |
ASSETS | |
| | |
Current assets: | |
| | |
Cash and cash equivalents | $ | 209,335 |
| | $ | 277,373 |
|
Short-term investments | 125,177 |
| | 152,583 |
|
Accounts receivable, net | 111,771 |
| | 103,289 |
|
Inventory, net | 53,713 |
| | 56,473 |
|
Deferred tax assets | 11,090 |
| | 11,349 |
|
Other current assets | 13,088 |
| | 16,653 |
|
Total current assets | 524,174 |
| | 617,720 |
|
Long-term investments | 55,347 |
| | 39,332 |
|
Property, plant and equipment, net | 76,159 |
| | 70,622 |
|
Goodwill and purchased intangibles, net | 14,388 |
| | 14,861 |
|
Other assets | 2,402 |
| | 2,112 |
|
Total assets | $ | 672,470 |
| | $ | 744,647 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
Current liabilities: | |
| | |
|
Accounts payable | $ | 34,126 |
| | $ | 33,995 |
|
Accrued liabilities | 52,067 |
| | 59,607 |
|
Total current liabilities | 86,193 |
| | 93,602 |
|
Deferred tax liabilities | 8,673 |
| | 3,526 |
|
Long-term income taxes payable | 12,150 |
| | 11,524 |
|
Revolving line of credit | 37,000 |
| | — |
|
Other long-term liabilities | 1,210 |
| | 1,143 |
|
Total liabilities | 145,226 |
| | 109,795 |
|
Commitments and contingencies (Note 10) |
|
| |
|
|
Stockholders' equity: | |
| | |
|
Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding | — |
| | — |
|
Common stock, $0.01 par value per share; 100,000 shares authorized, 47,160 shares and 50,043 shares issued at 2012 and 2011, respectively | 741 |
| | 720 |
|
Additional paid-in capital | 557,218 |
| | 499,027 |
|
Accumulated other comprehensive income | 6,357 |
| | 1,473 |
|
Retained earnings | 115,358 |
| | 192,468 |
|
Total stockholders' equity before treasury stock | 679,674 |
| | 693,688 |
|
Less: Treasury stock (common: 4,648 and 1,728 shares at 2012 and 2011, respectively) at cost | (152,430 | ) | | (58,836 | ) |
Total stockholders' equity | 527,244 |
| | 634,852 |
|
Total liabilities and stockholders' equity | $ | 672,470 |
| | $ | 744,647 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
Net revenues | $ | 713,368 |
| | $ | 683,602 |
| | $ | 613,837 |
|
Cost of revenues | 329,017 |
| | 321,846 |
| | 312,767 |
|
Gross profit | 384,351 |
| | 361,756 |
| | 301,070 |
|
Operating expenses: | | | |
| | |
|
Research, development and engineering | 69,664 |
| | 63,183 |
| | 57,784 |
|
Selling, general and administrative | 173,334 |
| | 163,389 |
| | 143,784 |
|
Gain from litigation settlement | — |
| | (5,100 | ) | | — |
|
Restructuring and other related charges | — |
| | (428 | ) | | 1,867 |
|
Total operating expenses | 242,998 |
| | 221,044 |
| | 203,435 |
|
Operating income | 141,353 |
| | 140,712 |
| | 97,635 |
|
Interest and other income (expense), net | 1,249 |
| | (56 | ) | | 3,105 |
|
Income from continuing operations before income taxes | 142,602 |
| | 140,656 |
| | 100,740 |
|
Income tax expense from continuing operations | 33,566 |
| | 31,413 |
| | 24,287 |
|
Income from continuing operations, net of tax | 109,036 |
| | 109,243 |
| | 76,453 |
|
Discontinued operations: | | | |
| | |
|
Loss from operations of discontinued AEG segment (including loss on sale) | — |
| | — |
| | (30,468 | ) |
Income tax benefit on discontinued operations | — |
| | — |
| | (11,393 | ) |
Loss from discontinued operations, net of tax | — |
| | — |
| | (19,075 | ) |
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
| | | | | |
Earnings (loss) per common share: | | | |
| | |
|
Basic | | | |
| | |
|
Continuing operations | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.58 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.18 |
|
Diluted | | | |
| | |
|
Continuing operations | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.55 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.16 |
|
| | | | | |
Shares used in basic per share calculations | 44,023 |
| | 47,713 |
| | 48,504 |
|
Shares used in diluted per share calculations | 45,265 |
| | 49,344 |
| | 49,331 |
|
| | | | | |
Cash dividends declared per common share | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
|
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
| | |
| | |
|
Depreciation and amortization | 13,760 |
| | 16,275 |
| | 18,144 |
|
Stock-based compensation | 17,481 |
| | 15,873 |
| | 14,577 |
|
Provision for (benefit from) doubtful accounts and sales allowances | 758 |
| | (8 | ) | | (243 | ) |
Provision for excess and obsolete inventories | 2,222 |
| | 1,099 |
| | 418 |
|
Benefit from deferred income taxes | (9,134 | ) | | (5,165 | ) | | (12,449 | ) |
Income tax benefit associated with stock option exercises | 5,637 |
| | 6,195 |
| | 3,669 |
|
Excess tax benefit from stock-based compensation | (7,043 | ) | | (5,747 | ) | | (2,247 | ) |
Amortization of premium on investments, net | 1,554 |
| | 578 |
| | — |
|
Impairment of goodwill and long-lived assets | — |
| | — |
| | 25,194 |
|
Non-cash restructuring charges | — |
| | — |
| | 6,261 |
|
Loss on sale of discontinued operations | — |
| | — |
| | 611 |
|
Other operating activities | 683 |
| | (5 | ) | | 384 |
|
Changes in assets and liabilities: | | | |
| | |
|
Accounts receivable, net | (9,402 | ) | | (15,086 | ) | | 388 |
|
Inventory, net | 606 |
| | 12,962 |
| | 27,620 |
|
Current and other assets | (67 | ) | | (2,280 | ) | | 2,868 |
|
Accounts payable | 131 |
| | 10,216 |
| | (9,048 | ) |
Accrued liabilities | (4,303 | ) | | 9,873 |
| | (1,001 | ) |
Income taxes | 18,529 |
| | 4,209 |
| | 11,205 |
|
Cash provided by operating activities | 140,448 |
| | 158,232 |
| | 143,729 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
|
Proceeds from sales of short-term investments | 78,554 |
| | 28,034 |
| | 4,000 |
|
Proceeds from maturities of short-term investments | 189,131 |
| | 114,495 |
| | 145,000 |
|
Purchase of short-term investments | (176,941 | ) | | (263,260 | ) | | (84,990 | ) |
Proceeds from sales of long-term investments | 9,935 |
| | 664 |
| | 750 |
|
Purchase of long-term investments | (90,954 | ) | | (48,870 | ) | | — |
|
Capital expenditures and other assets | (19,140 | ) | | (18,667 | ) | | (6,262 | ) |
Proceeds from sale of property, plant and equipment and assets held for sale | — |
| | 9,066 |
| | 277 |
|
Proceeds received from sale of AEG segment | — |
| | 1,625 |
| | 9,121 |
|
Cash (used for) provided by investing activities | (9,415 | ) | | (176,913 | ) | | 67,896 |
|
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
|
Repurchase of common stock | (273,791 | ) | | (105,522 | ) | | (49,652 | ) |
Proceeds from sale of treasury stock | 4,901 |
| | 4,192 |
| | 3,623 |
|
Proceeds from issuance of common stock | 38,222 |
| | 50,109 |
| | 32,581 |
|
Proceeds from revolving line of credit | 68,500 |
| | — |
| | — |
|
Repayments of revolving line of credit | (31,500 | ) | | — |
| | — |
|
Payment of cash dividends | (9,040 | ) | | (9,703 | ) | | (9,781 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (2,596 | ) | | (194 | ) | | — |
|
Excess tax benefit from stock-based compensation | 7,043 |
| | 5,747 |
| | 2,247 |
|
Cash used for financing activities | (198,261 | ) | | (55,371 | ) | | (20,982 | ) |
Effect of exchange rate changes on cash and cash equivalents | (810 | ) | | 1,464 |
| | 1,125 |
|
Net (decrease) increase in cash and cash equivalents | (68,038 | ) | | (72,588 | ) | | 191,768 |
|
Cash and cash equivalents at beginning of year | 277,373 |
| | 349,961 |
| | 158,193 |
|
Cash and cash equivalents at end of year | $ | 209,335 |
| | $ | 277,373 |
| | $ | 349,961 |
|
SUPPLEMENTAL DISCLOSURES | | | |
| | |
|
Cash paid for income taxes | $ | 20,752 |
| | $ | 29,180 |
| | $ | 11,663 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In | | Accumulated Other Comprehensive | | Retained | | Treasury | | Total Stockholders' |
| Shares | | Amount | | Capital | | Income | | Earnings | | Stock | | Equity |
Balances at March 31, 2009 | 48,892 |
| | $ | 678 |
| | $ | 386,224 |
| | $ | 8,855 |
| | $ | 203,936 |
| | $ | (74,326 | ) | | $ | 525,367 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 57,378 |
| | — |
| | 57,378 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,047 |
| | — |
| | — |
| | 1,047 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (3,630 | ) | | — |
| | — |
| | (3,630 | ) |
Comprehensive income | |
| | |
| | |
| |
|
| | |
| | |
| | 54,795 |
|
Exercise of stock options | 1,493 |
| | 15 |
| | 32,564 |
| | — |
| | — |
| | — |
| | 32,579 |
|
Issuance of restricted common stock | 154 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchase of restricted common stock | (18 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,781 | ) | | — |
| | (9,781 | ) |
Stock-based compensation | — |
| | — |
| | 14,877 |
| | — |
| | — |
| | — |
| | 14,877 |
|
Income tax benefit associated with stock options | — |
| | — |
| | (476 | ) | | — |
| | — |
| | — |
| | (476 | ) |
Repurchase of common stock | (1,935 | ) | | — |
| | — |
| | — |
| | — |
| | (49,652 | ) | | (49,652 | ) |
Sale of treasury stock | 284 |
| | — |
| | (4,782 | ) | | — |
| | — |
| | 8,405 |
| | 3,623 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (56,240 | ) | | 56,240 |
| | — |
|
Balances at March 31, 2010 | 48,870 |
| | 695 |
| | 428,407 |
| | 6,272 |
| | 195,293 |
| | (59,333 | ) | | 571,334 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,243 |
| | — |
| | 109,243 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,613 |
| | — |
| | — |
| | 1,613 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (6,419 | ) | | — |
| | — |
| | (6,419 | ) |
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 104,444 |
|
Exercise of stock options | 2,196 |
| | 22 |
| | 50,084 |
| | — |
| | — |
| | — |
| | 50,106 |
|
Issuance of restricted common stock | 424 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (26 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,703 | ) | | — |
| | (9,703 | ) |
Stock-based compensation | — |
| | — |
| | 15,873 |
| | — |
| | — |
| | — |
| | 15,873 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 4,319 |
| | — |
| | — |
| | — |
| | 4,319 |
|
Repurchase of common stock | (3,315 | ) | | — |
| | — |
| | — |
| | — |
| | (105,522 | ) | | (105,522 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (194 | ) | | (194 | ) |
Sale of treasury stock | 172 |
| | — |
| | 344 |
| | — |
| | — |
| | 3,848 |
| | 4,192 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (102,365 | ) | | 102,365 |
| | — |
|
Balances at March 31, 2011 | 48,315 |
| | 720 |
| | 499,027 |
| | 1,473 |
| | 192,468 |
| | (58,836 | ) | | 634,852 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,036 |
| | — |
| | 109,036 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | (788 | ) | | — |
| | — |
| | (788 | ) |
Unrealized gain on hedges, net of tax | — |
| | — |
| | — |
| | 5,618 |
| | — |
| | — |
| | 5,618 |
|
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 54 |
| | — |
| | — |
| | 54 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 113,920 |
|
Exercise of stock options | 1,831 |
| | 18 |
| | 38,201 |
| | — |
| | — |
| | — |
| | 38,219 |
|
Issuance of restricted common stock | 346 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (60 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,040 | ) | | — |
| | (9,040 | ) |
Stock-based compensation | — |
| | — |
| | 17,481 |
| | — |
| | — |
| | — |
| | 17,481 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 3,295 |
| | — |
| | — |
| | — |
| | 3,295 |
|
Repurchase of common stock | (8,027 | ) | | — |
| | — |
| | — |
| | — |
| | (273,791 | ) | | (273,791 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (75 | ) | | — |
| | — |
| | — |
| | — |
| | (2,596 | ) | | (2,596 | ) |
Sale of treasury stock | 182 |
| | — |
| | (786 | ) | | — |
| | — |
| | 5,687 |
| | 4,901 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (177,106 | ) | | 177,106 |
| | — |
|
Balances at March 31, 2012 | 42,512 |
| | $ | 741 |
| | $ | 557,218 |
| | $ | 6,357 |
| | $ | 115,358 |
| | $ | (152,430 | ) | | $ | 527,244 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plantronics, Inc. (“Plantronics” or the “Company”) is a leading worldwide designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand. In addition, the Company manufactures and markets, under the Clarity brand, specialty products, such as telephones for the hearing impaired, and other related products for people with special communication needs.
Founded in 1961, Plantronics is incorporated in the state of Delaware and trades on the New York Stock Exchange under the ticker symbol “PLT”.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
Management's Use of Estimates and Assumptions
The preparation of theseconsolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we baseThese estimates and judgmentsare based on historical experience and on various other factors that management believes to be reasonable underinformation available as of the circumstances,date of the results of which form the basis for making judgments about the carrying values of assets a nd liabilities. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Actual results maycould differ materially from those estimates under different assumptions or conditions.estimates.
We believe our most critical accounting policies and estimatesPrinciples of Consolidation
The consolidated financial statements include the following:accounts of Plantronics and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
| · | Allowance for Doubtful Accounts |
Certain financial statement reclassifications have been made to previously reported amounts to conform to the current year's presentation. | · | Inventory and Related Reserves |
| · | Product Warranty Obligations |
Segment Information | · | Goodwill and Intangibles |
Prior to December 1, 2009, the Company operated under two reportable segments, the Audio Communications Group (“ACG”) and the Audio Entertainment Group (“AEG”). As set forth in Note 4, Discontinued Operations, the Company completed the sale of Altec Lansing, its AEG segment, effective December 1, 2009, and, therefore, it is no longer included in continuing operations and the Company operates as one segment. Accordingly, the Company has classified the AEG operating results, including the loss on sale of AEG, as discontinued operations in the Consolidated statement of operations for all periods presented.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to the last day of March. Fiscal year 2012 ended on March 31, 2012 and consists of 52 weeks, fiscal year 2011 ended on April 2, 2011 and consists of 52 weeks, and fiscal year 2010 ended on April 3, 2010 and consists of 53 weeks. For purposes of presentation, the Company has indicated its accounting fiscal year as ending on March 31.
Revenue RecognitionFinancial Instruments
Revenue from salesCash, Cash Equivalents and Investments
The Company's investment policy and strategy are focused on preservation of products to customers is recognized when the following criteria have been met:
| · | title and risk of ownership are transferred to customers;
|
| · | persuasive evidence of an arrangement exists;
|
| · | the price to the buyer is fixed or determinable; and
|
| · | collection is reasonably assured.
|
We assess collectibility based on a customer’s credit quality as well as subjective factorscapital and trends including historical experience, the age of any existing accounts receivable balances, and geographic or country-specific risks and economic conditions that may affect a customer’s ability to pay. We defer revenue but recognize related cost of revenues if collectibility cannot be reasonably assured. We recognize revenue net of estimated product returns and expected payments to resellers for customer programs including cooperative advertising, marketing development funds, volume rebates, and special pricing programs.
Estimated product returns are deducted from revenues upon shipment, based on historical return rates, assumptions regarding the rate of sell-through to end users from our various channels based on historical sell-through rates and other relevant factors. Such estimates may need to be revised and could have an adverse impact on revenues if product lives vary significantly from management estimates, a particular selling channel experiences a higher than estimated return rate, or sell-through rates are slower causing inventory build-up.
Cooperative advertising and marketing development funds are accounted for in accordance with the Revenue Recognition Topicsupporting liquidity requirements. A portion of the FASB ASC. Under theseCompany's cash is managed by external managers within the guidelines we accrue for these funds as marketing expense if we receive a separately identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received; otherwise, the amount is recorded as a reductionCompany's investment policy. The Company's exposure to revenues.
Reductionsmarket risk for changes in interest rates relates primarily to revenue for expected and actual payments to resellers for volume rebates and pricing protection are based on actual expenses incurred during the period, estimates for what is due to resellers for estimated credits earned during the period and any adjustments for credits based on actual activity. If the actual payments exceed management’s estimates, this could result in an adverse impact on our revenues. Since management has historically been able to reliably estimateits investment portfolio. The Company's policy limits the amount of allowances required for future price adjustments and product returns, we recognize revenue, net of projected allowances, upon recognition of the related sale. In situations where management is unablecredit exposure to reliably estimate the amount of future price adjustments and product returns, we defer recognition of the revenue until the right to future price adjustments and product returns lapses, and we are no longer under any obligation to reduce the price or accept the return of the product.
If market conditions warrant, we may take action to stimulate demand, which could include increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in incremental reductions to revenue and margins at the time such incentives are offered. To the extent that we reduce pricing, we may incur reductions to revenue for price protection based on management’s estimate of inventory in the channel that is subject to such pricing actions.
Investments
The goals of our investment policy, in order of priority, are preservation of capital, maintenance of liquidity, diversification, and maximization of after-tax investment income. Investments are limited to investment grade securities with limitations by policy on the percent of the total portfolio invested in any one issue.issuer and requires investments to be rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All of ourhighly liquid investments are held in our name at a limited number of major financial institutions. Cash equivalents have a remaining maturitywith initial stated maturities of three months or less at the date of purchase;purchase are classified as cash equivalents. The Company classifies its investments as either short-term securitiesor long-term based on each instrument's underlying effective maturity date and reasonable expectations with regard to sales and redemptions of the instruments. All short-term investments have a remaining maturity of greatereffective maturities less than three12 months, at the date of purchase; andwhile all long-term investments have effective maturities greater than one year12 months or we dothe Company does not currently have the ability to liquidate the investment. investments. The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
As a result of the uncertainties in the credit market s and the UBS Bank right offer, as of March 31, 2009, the Company had classified all of its ARS investments as long-term since these investments were not currently liquid, and the Company would 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. As of March 31, 2010, our ARS portfolio is classified as short-term trading securities due to management’s intent to exercise our put option with UBS and our expectation that the ARS will be sold within twelve months with any unrealized losses recorded to Interest and other income (expense)2012, net.
Investments are carried at fair value based upon quoted market prices at the end of the reporting period where available. Our ARS investments are carried at fair value based on a discounted cash flow model. As of March 31, 2010, all investments except our ARS portfolio, arewere classified as available-for-sale with unrealized gains and losses recorded as a separate component of Accumulated other comprehensive income in Stockholders’ equity. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in Interest and other income (expense), net.
Impairment onFor investments is determined pursuant to the Investments - Debt and Equity Securities Topic of the FASB ASC in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results inwith an unrealized loss, being recordedthe factors considered in the review include the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost basis, severity of impairment, reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the investees, and whether the Company would be required to sell an investment due to liquidity or contractual reasons before its anticipated recovery. (See Note 5)
Foreign Currency Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative foreign currency call and put option contracts are valued using pricing models that use observable inputs. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as a separatefair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other comprehensive income in Stockholders’ equity. Such an unrealizedequity and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments that are not designated as accounting hedges, changes in fair value are recognized in earnings in the period of change. The Company does not affect net income (loss)hold or issue derivative financial instruments for speculative trading purposes. Plantronics enters into derivatives only with counterparties that are among the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized losslargest United States ("U.S.") banks, ranked by assets, in Interestorder to minimize its credit risk and other income (expense), net in the Consolidated statement of operations and reduces net income for the applicable accounting period. The differentiating factors between temporary and other-than-temporar y impairment are primarily the length of the time and the extent to which the market valuedate, no such counterparty has been less than cost, thefailed to meet its 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.obligations under such contracts. (See Note 16)
AllowanceProvision for Doubtful Accounts
We maintain allowancesThe Company maintains a provision for doubtful accounts for estimated losses resulting from the inability of ourits customers to make required payments. WePlantronics regularly performperforms credit evaluations of ourits customers’ financial conditions and considerconsiders factors such as historical experience, credit quality, age of the accounts receivable balances, and geographic or country-specific risks and economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts is reviewed quarterly and adjusted if necessary based on management’s assessment of a customer’s ability to pay. If the financial condition of customers should deteriorate, additional allowances may be required which could have an adverse impact on operating expenses.
Inventory and Related Reserves
Inventories are statedvalued at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Costs such as idle facility expense, double freight, and re-handling costs are accounted for as current-period charges. Additionally, we allocate fixed production overheads to the costs of conversion based on the normal capacity of the production facilities. All shippingShipping and handling costs incurred in connection with the sale of products are included in the costCost of revenues.
Our products utilize long-lead time parts whichManagement writes down inventories that have become obsolete or are available from a limited setin excess of vendors. The combined effectsanticipated demand or net realizable value to the lower of variability of demand among the customer base and significant long-lead time of single sourced materials has historically contributed to significant inventory write-downs, particularly in inventory for consumer products. For our commercial products, long life-cycles periodically necessitate last-time buys of raw materials which may be used over the course of several years. We routinely review inventory for usage potential, including fulfillment of customer warranty obligations and spare part requirements. If we believe that demand no longer allows us to sell our inventory above cost or at all, we write down that inventory to market or write-off the excess and obsolete inventory . Write-downs are determined by reviewing our demand forecast and by determining what inventory, if any, is not saleable. Our demand forecast projects future shipments using historical rates and takes into account market conditions, inventory on hand, purchase commitments, product development plans and product life expectancy, inventory on consignment, and other competitive factors. If our demand forecast is greater than actual demand and we fail to reduce our supply chain accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross profit.
At the point of inventory write-down, a new, lower-cost basis for thatvalue. Once inventory is established andwritten down, subsequent changes in facts and circumstances do not result in restoration to the restorationoriginal cost basis or an increase in that newly established costthe new, lower-cost basis.
Product Warranty ObligationsINTEREST RATE AND MARKET RISK
As of March 31, 2012 and 2011, we reported the following balances in cash and cash equivalents, short-term investments and long-term investments:
|
| | | | | | | | |
| | March 31, |
(in millions) | | 2012 | | 2011 |
Cash and cash equivalents | | $ | 209.3 |
| | $ | 277.4 |
|
Short-term investments | | 125.2 |
| | 152.6 |
|
Long-term investments | | 55.3 |
| | 39.3 |
|
As of March 31, 2012, our investments were composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S. Corporate Bonds and CDs.
Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. A portion of our cash is managed by external managers within the guidelines of our investment policy. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We typically invest in highly rated securities and our policy generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments to be high credit quality, primarily rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All highly liquid investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents. We classify our investments as either short-term or long-term based on each instrument's underlying effective maturity date. All short-term investments have effective maturities less than 12 months, while all long-term investments have effective maturities greater than 12 months or we do not currently have the ability to liquidate the investment. We may sell our investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. We recognized no material realized or unrealized net gains or losses during the years ended March 31, 2012 and 2011.
Interest rates in general were relatively unchanged in the year ended March 31, 2012 compared to the prior year; however, we earned slightly greater interest income due to a higher average investment portfolio in fiscal year 2012 compared with the prior year. During the year ended March 31, 2012, we generated approximately $1.5 million in interest income from our portfolio of cash equivalents and investments, compared to an immaterial amount in fiscal year 2011. A hypothetical increase or decrease in our interest rates by 10 basis points would have a minimal impact on our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to currency fluctuations, primarily in the Euro ("EUR"), Great Britain Pound ("GBP"), Australian Dollar ("AUD") and the Mexican Peso ("MX$"). We use a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. All of our hedging activities are entered into with large financial institutions, which we periodically evaluate for credit risks. We hedge our balance sheet exposure by hedging EUR, GBP and AUD denominated cash, receivables and payables balances, and our economic exposure by hedging a portion of anticipated EUR and GBP denominated sales and our MX$ denominated expenditures. We can provide no assurance that our strategy will be successful in the future and that exchange rate fluctuations will not materially adversely affect our business.
We experienced immaterial net foreign currency losses in the year ended March 31, 2012. Although we hedge a portion of our foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the Euro and the Great Britain Pound in comparison to the U.S. Dollar ("USD"), could result in material foreign exchange losses in future periods.
Non-designated Hedges
We hedge our EUR, GBP and AUD denominated cash, receivables and payables balances by entering into foreign exchange forward contracts.
The table below presents the impact on the foreign exchange gain (loss) of a hypothetical 10% appreciation and a 10% depreciation of the USD against the forward currency contracts as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | | | |
Currency - forward contracts | | Position | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
EUR | | Sell Euro | | $ | 25.3 |
| | $ | 2.5 |
| | $ | (2.5 | ) |
GBP | | Sell GBP | | $ | 5.8 |
| | $ | 0.6 |
| | $ | (0.6 | ) |
AUD | | Sell AUD | | $ | 2.7 |
| | $ | 0.3 |
| | $ | (0.3 | ) |
Cash Flow Hedges
Approximately 43%, 41% and 38% of net revenues in fiscal years 2012, 2011 and 2010, respectively, were derived from sales outside of the U.S., which were denominated predominantly in EUR and GBP in each of the fiscal years.
As of March 31, 2012, we had foreign currency put and call option contracts with notional amounts of approximately €63.7 million and £20.0 million denominated in EUR and GBP, respectively. As of March 31, 2011, we also had foreign currency put and call option contracts with notional amounts of approximately €52.7 million and £14.5 million denominated in EUR and GBP, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign currency denominated sales. If the USD is subjected to either a 10% appreciation or 10% depreciation versus these net exposed currency positions, we could realize a gain of $9.4 million or incur a loss of $8.1 million, respectively.
The table below presents the impact on the Black-Scholes valuation of our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD against the indicated option contract type for product warrantiescash flow hedges as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | |
Currency - option contracts | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
Call options | | $ | 123.9 |
| | $ | 1.6 |
| | $ | (5.3 | ) |
Put options | | $ | 115.1 |
| | $ | 7.8 |
| | $ | (2.8 | ) |
Collectively, our swap contracts hedge against a portion of our forecasted MX$ denominated expenditures. As of March 31, 2012, we had cross currency swap contracts with notional amounts of approximately MX$317.5 million.
The table below presents the impact on the valuation of our cross-currency swap contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD as of March 31, 2012 (in millions):
|
| | | | | | | | | | | | |
Currency - cross-currency swap contracts | | USD Value of Cross-Currency Swap Contracts | | Foreign Exchange (Loss) From 10% Appreciation of USD | | Foreign Exchange Gain From 10% Depreciation of USD |
Position: Buy MX$ | | $ | 23.5 |
| | $ | (2.2 | ) | | $ | 2.7 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Plantronics, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Plantronics, Inc. and its subsidiaries at March 31, 2012 and April 2, 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules appearing under Item 15(a)(2)present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the underlying contractual terms givenstandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the customer or end usermaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the product. assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 25, 2012
PLANTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
| | | | | | | |
| March 31, |
| 2012 | | 2011 |
ASSETS | |
| | |
Current assets: | |
| | |
Cash and cash equivalents | $ | 209,335 |
| | $ | 277,373 |
|
Short-term investments | 125,177 |
| | 152,583 |
|
Accounts receivable, net | 111,771 |
| | 103,289 |
|
Inventory, net | 53,713 |
| | 56,473 |
|
Deferred tax assets | 11,090 |
| | 11,349 |
|
Other current assets | 13,088 |
| | 16,653 |
|
Total current assets | 524,174 |
| | 617,720 |
|
Long-term investments | 55,347 |
| | 39,332 |
|
Property, plant and equipment, net | 76,159 |
| | 70,622 |
|
Goodwill and purchased intangibles, net | 14,388 |
| | 14,861 |
|
Other assets | 2,402 |
| | 2,112 |
|
Total assets | $ | 672,470 |
| | $ | 744,647 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
Current liabilities: | |
| | |
|
Accounts payable | $ | 34,126 |
| | $ | 33,995 |
|
Accrued liabilities | 52,067 |
| | 59,607 |
|
Total current liabilities | 86,193 |
| | 93,602 |
|
Deferred tax liabilities | 8,673 |
| | 3,526 |
|
Long-term income taxes payable | 12,150 |
| | 11,524 |
|
Revolving line of credit | 37,000 |
| | — |
|
Other long-term liabilities | 1,210 |
| | 1,143 |
|
Total liabilities | 145,226 |
| | 109,795 |
|
Commitments and contingencies (Note 10) |
|
| |
|
|
Stockholders' equity: | |
| | |
|
Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding | — |
| | — |
|
Common stock, $0.01 par value per share; 100,000 shares authorized, 47,160 shares and 50,043 shares issued at 2012 and 2011, respectively | 741 |
| | 720 |
|
Additional paid-in capital | 557,218 |
| | 499,027 |
|
Accumulated other comprehensive income | 6,357 |
| | 1,473 |
|
Retained earnings | 115,358 |
| | 192,468 |
|
Total stockholders' equity before treasury stock | 679,674 |
| | 693,688 |
|
Less: Treasury stock (common: 4,648 and 1,728 shares at 2012 and 2011, respectively) at cost | (152,430 | ) | | (58,836 | ) |
Total stockholders' equity | 527,244 |
| | 634,852 |
|
Total liabilities and stockholders' equity | $ | 672,470 |
| | $ | 744,647 |
|
The contractual terms may vary depending uponaccompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
Net revenues | $ | 713,368 |
| | $ | 683,602 |
| | $ | 613,837 |
|
Cost of revenues | 329,017 |
| | 321,846 |
| | 312,767 |
|
Gross profit | 384,351 |
| | 361,756 |
| | 301,070 |
|
Operating expenses: | | | |
| | |
|
Research, development and engineering | 69,664 |
| | 63,183 |
| | 57,784 |
|
Selling, general and administrative | 173,334 |
| | 163,389 |
| | 143,784 |
|
Gain from litigation settlement | — |
| | (5,100 | ) | | — |
|
Restructuring and other related charges | — |
| | (428 | ) | | 1,867 |
|
Total operating expenses | 242,998 |
| | 221,044 |
| | 203,435 |
|
Operating income | 141,353 |
| | 140,712 |
| | 97,635 |
|
Interest and other income (expense), net | 1,249 |
| | (56 | ) | | 3,105 |
|
Income from continuing operations before income taxes | 142,602 |
| | 140,656 |
| | 100,740 |
|
Income tax expense from continuing operations | 33,566 |
| | 31,413 |
| | 24,287 |
|
Income from continuing operations, net of tax | 109,036 |
| | 109,243 |
| | 76,453 |
|
Discontinued operations: | | | |
| | |
|
Loss from operations of discontinued AEG segment (including loss on sale) | — |
| | — |
| | (30,468 | ) |
Income tax benefit on discontinued operations | — |
| | — |
| | (11,393 | ) |
Loss from discontinued operations, net of tax | — |
| | — |
| | (19,075 | ) |
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
| | | | | |
Earnings (loss) per common share: | | | |
| | |
|
Basic | | | |
| | |
|
Continuing operations | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.58 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.18 |
|
Diluted | | | |
| | |
|
Continuing operations | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.55 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.16 |
|
| | | | | |
Shares used in basic per share calculations | 44,023 |
| | 47,713 |
| | 48,504 |
|
Shares used in diluted per share calculations | 45,265 |
| | 49,344 |
| | 49,331 |
|
| | | | | |
Cash dividends declared per common share | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
|
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
| | |
| | |
|
Depreciation and amortization | 13,760 |
| | 16,275 |
| | 18,144 |
|
Stock-based compensation | 17,481 |
| | 15,873 |
| | 14,577 |
|
Provision for (benefit from) doubtful accounts and sales allowances | 758 |
| | (8 | ) | | (243 | ) |
Provision for excess and obsolete inventories | 2,222 |
| | 1,099 |
| | 418 |
|
Benefit from deferred income taxes | (9,134 | ) | | (5,165 | ) | | (12,449 | ) |
Income tax benefit associated with stock option exercises | 5,637 |
| | 6,195 |
| | 3,669 |
|
Excess tax benefit from stock-based compensation | (7,043 | ) | | (5,747 | ) | | (2,247 | ) |
Amortization of premium on investments, net | 1,554 |
| | 578 |
| | — |
|
Impairment of goodwill and long-lived assets | — |
| | — |
| | 25,194 |
|
Non-cash restructuring charges | — |
| | — |
| | 6,261 |
|
Loss on sale of discontinued operations | — |
| | — |
| | 611 |
|
Other operating activities | 683 |
| | (5 | ) | | 384 |
|
Changes in assets and liabilities: | | | |
| | |
|
Accounts receivable, net | (9,402 | ) | | (15,086 | ) | | 388 |
|
Inventory, net | 606 |
| | 12,962 |
| | 27,620 |
|
Current and other assets | (67 | ) | | (2,280 | ) | | 2,868 |
|
Accounts payable | 131 |
| | 10,216 |
| | (9,048 | ) |
Accrued liabilities | (4,303 | ) | | 9,873 |
| | (1,001 | ) |
Income taxes | 18,529 |
| | 4,209 |
| | 11,205 |
|
Cash provided by operating activities | 140,448 |
| | 158,232 |
| | 143,729 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
|
Proceeds from sales of short-term investments | 78,554 |
| | 28,034 |
| | 4,000 |
|
Proceeds from maturities of short-term investments | 189,131 |
| | 114,495 |
| | 145,000 |
|
Purchase of short-term investments | (176,941 | ) | | (263,260 | ) | | (84,990 | ) |
Proceeds from sales of long-term investments | 9,935 |
| | 664 |
| | 750 |
|
Purchase of long-term investments | (90,954 | ) | | (48,870 | ) | | — |
|
Capital expenditures and other assets | (19,140 | ) | | (18,667 | ) | | (6,262 | ) |
Proceeds from sale of property, plant and equipment and assets held for sale | — |
| | 9,066 |
| | 277 |
|
Proceeds received from sale of AEG segment | — |
| | 1,625 |
| | 9,121 |
|
Cash (used for) provided by investing activities | (9,415 | ) | | (176,913 | ) | | 67,896 |
|
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
|
Repurchase of common stock | (273,791 | ) | | (105,522 | ) | | (49,652 | ) |
Proceeds from sale of treasury stock | 4,901 |
| | 4,192 |
| | 3,623 |
|
Proceeds from issuance of common stock | 38,222 |
| | 50,109 |
| | 32,581 |
|
Proceeds from revolving line of credit | 68,500 |
| | — |
| | — |
|
Repayments of revolving line of credit | (31,500 | ) | | — |
| | — |
|
Payment of cash dividends | (9,040 | ) | | (9,703 | ) | | (9,781 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (2,596 | ) | | (194 | ) | | — |
|
Excess tax benefit from stock-based compensation | 7,043 |
| | 5,747 |
| | 2,247 |
|
Cash used for financing activities | (198,261 | ) | | (55,371 | ) | | (20,982 | ) |
Effect of exchange rate changes on cash and cash equivalents | (810 | ) | | 1,464 |
| | 1,125 |
|
Net (decrease) increase in cash and cash equivalents | (68,038 | ) | | (72,588 | ) | | 191,768 |
|
Cash and cash equivalents at beginning of year | 277,373 |
| | 349,961 |
| | 158,193 |
|
Cash and cash equivalents at end of year | $ | 209,335 |
| | $ | 277,373 |
| | $ | 349,961 |
|
SUPPLEMENTAL DISCLOSURES | | | |
| | |
|
Cash paid for income taxes | $ | 20,752 |
| | $ | 29,180 |
| | $ | 11,663 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In | | Accumulated Other Comprehensive | | Retained | | Treasury | | Total Stockholders' |
| Shares | | Amount | | Capital | | Income | | Earnings | | Stock | | Equity |
Balances at March 31, 2009 | 48,892 |
| | $ | 678 |
| | $ | 386,224 |
| | $ | 8,855 |
| | $ | 203,936 |
| | $ | (74,326 | ) | | $ | 525,367 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 57,378 |
| | — |
| | 57,378 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,047 |
| | — |
| | — |
| | 1,047 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (3,630 | ) | | — |
| | — |
| | (3,630 | ) |
Comprehensive income | |
| | |
| | |
| |
|
| | |
| | |
| | 54,795 |
|
Exercise of stock options | 1,493 |
| | 15 |
| | 32,564 |
| | — |
| | — |
| | — |
| | 32,579 |
|
Issuance of restricted common stock | 154 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchase of restricted common stock | (18 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,781 | ) | | — |
| | (9,781 | ) |
Stock-based compensation | — |
| | — |
| | 14,877 |
| | — |
| | — |
| | — |
| | 14,877 |
|
Income tax benefit associated with stock options | — |
| | — |
| | (476 | ) | | — |
| | — |
| | — |
| | (476 | ) |
Repurchase of common stock | (1,935 | ) | | — |
| | — |
| | — |
| | — |
| | (49,652 | ) | | (49,652 | ) |
Sale of treasury stock | 284 |
| | — |
| | (4,782 | ) | | — |
| | — |
| | 8,405 |
| | 3,623 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (56,240 | ) | | 56,240 |
| | — |
|
Balances at March 31, 2010 | 48,870 |
| | 695 |
| | 428,407 |
| | 6,272 |
| | 195,293 |
| | (59,333 | ) | | 571,334 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,243 |
| | — |
| | 109,243 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,613 |
| | — |
| | — |
| | 1,613 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (6,419 | ) | | — |
| | — |
| | (6,419 | ) |
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 104,444 |
|
Exercise of stock options | 2,196 |
| | 22 |
| | 50,084 |
| | — |
| | — |
| | — |
| | 50,106 |
|
Issuance of restricted common stock | 424 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (26 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,703 | ) | | — |
| | (9,703 | ) |
Stock-based compensation | — |
| | — |
| | 15,873 |
| | — |
| | — |
| | — |
| | 15,873 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 4,319 |
| | — |
| | — |
| | — |
| | 4,319 |
|
Repurchase of common stock | (3,315 | ) | | — |
| | — |
| | — |
| | — |
| | (105,522 | ) | | (105,522 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (194 | ) | | (194 | ) |
Sale of treasury stock | 172 |
| | — |
| | 344 |
| | — |
| | — |
| | 3,848 |
| | 4,192 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (102,365 | ) | | 102,365 |
| | — |
|
Balances at March 31, 2011 | 48,315 |
| | 720 |
| | 499,027 |
| | 1,473 |
| | 192,468 |
| | (58,836 | ) | | 634,852 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,036 |
| | — |
| | 109,036 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | (788 | ) | | — |
| | — |
| | (788 | ) |
Unrealized gain on hedges, net of tax | — |
| | — |
| | — |
| | 5,618 |
| | — |
| | — |
| | 5,618 |
|
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 54 |
| | — |
| | — |
| | 54 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 113,920 |
|
Exercise of stock options | 1,831 |
| | 18 |
| | 38,201 |
| | — |
| | — |
| | — |
| | 38,219 |
|
Issuance of restricted common stock | 346 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (60 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,040 | ) | | — |
| | (9,040 | ) |
Stock-based compensation | — |
| | — |
| | 17,481 |
| | — |
| | — |
| | — |
| | 17,481 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 3,295 |
| | — |
| | — |
| | — |
| | 3,295 |
|
Repurchase of common stock | (8,027 | ) | | — |
| | — |
| | — |
| | — |
| | (273,791 | ) | | (273,791 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (75 | ) | | — |
| | — |
| | — |
| | — |
| | (2,596 | ) | | (2,596 | ) |
Sale of treasury stock | 182 |
| | — |
| | (786 | ) | | — |
| | — |
| | 5,687 |
| | 4,901 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (177,106 | ) | | 177,106 |
| | — |
|
Balances at March 31, 2012 | 42,512 |
| | $ | 741 |
| | $ | 557,218 |
| | $ | 6,357 |
| | $ | 115,358 |
| | $ | (152,430 | ) | | $ | 527,244 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plantronics, Inc. (“Plantronics” or the geographic region in which“Company”) is a leading worldwide designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, and accessories for the customer is located,business and consumer markets under the Plantronics brand. In addition, the Company manufactures and markets, under the Clarity brand, and type of product sold,specialty products, such as telephones for the hearing impaired, and other conditions, which affect or limitrelated products for people with special communication needs.
Founded in 1961, Plantronics is incorporated in the customer’s rights to return product under warranty. Where specific warranty return rights are given to customers, we accrue for the estimated coststate of those warranties at the time revenue is recognized. Generally, warranties start at the delivery date to the customer or end userDelaware and continue for one or two years, dependingtrades on the typeNew York Stock Exchange under the ticker symbol “PLT”.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
Management's Use of Estimates and brand,Assumptions
The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and the location in which the product was purchased. Where specific warranty return rights are not given to the customers but wh ere the customers are granted limited rights of return or discounts in lieu of warranty, we record these rights of return or discounts as adjustments to revenue. In certain circumstances, we may sell product without warranty, and, accordingly, no charge is taken for warranty. Factorsassumptions that affect the warranty obligation include sales terms, which obligate us to provide warranty, product failure rates, estimated return rates, material usage,reported amounts of assets and service delivery costs incurred in correcting product failures. We assessliabilities, the adequacydisclosure of contingent assets and liabilities at the date of the recorded warranty obligation quarterlyfinancial statements, and make adjustments to the obligation based on actual experiencereported amounts of revenues and changes in estimated future return rates. If ourexpenses during the reporting period. These estimates are less than the actual costs of providing warranty related services, we could be required to record additional warranty reserves, which would have a negative impact on our gross profit.
Goodwill and Intangibles
As a result of past acquisitions, we have recorded goodwill and intangible assets on the consolidated balance sheets. In accordance with current accounting standards, we classify intangible assets into three categories: (1) goodwill; (2) intangible assets with indefinite lives not subject to amortization; and (3) intangible assets with definite lives subject to amortization.
Goodwill and intangible assets with indefinite lives are not amortized. Management performs a review at least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, to determine if the carrying values of goodwill and indefinite lived intangible assets are impaired. In the third quarter of fiscal 2009, in considering the effects of the then current economic environment, we determined that sufficient indicators existed requiring us to perform an interim impairment review of our then two reporting segments, ACG and AEG. Further to this, in the second quarter of fiscal 2010, as a result of signing a non-binding letter of intent to sell Altec Lansing, our AEG segment, we determined that this triggered an interim impairment review of AEG.
Goodwill has been measured as the excess of the cost of acquisition over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level. Such impairment tests for goodwill include comparing the fair value of a reporting unit with its carrying value, including goodwill. The estimates of fair values of reporting units are based on the best information available as of the date of the assessment which primarily incorporate management assumptions about expected future cash flows, discount rates, overall market growthfinancial statements. Actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Plantronics and our percentage of that marketits wholly owned subsidiaries. All intercompany balances and growth rates in terminal values, estimated costs and other factors, which utili ze historical data, internal estimates, and, in some cases, outside data. Iftransactions have been eliminated.
Reclassifications
Certain financial statement reclassifications have been made to previously reported amounts to conform to the carrying value of the reporting unit exceeds our estimate of fair value, goodwill may become impaired, and we may be required to record an impairment charge, which would negatively impact our operating results.current year's presentation.
The fair value measurement of purchased intangible assets with indefinite lives involvesSegment Information
Prior to December 1, 2009, the estimation ofCompany operated under two reportable segments, the fair value which is based on our assumptions about expected future cash flows, discount rates, growth rates, estimated costsAudio Communications Group (“ACG”) and other factors which utilize historical data, internal estimates, and,the Audio Entertainment Group (“AEG”). As set forth in some cases, outside data. IfNote 4, Discontinued Operations, the carrying value of the indefinite useful life intangible asset exceeds our estimate of fair value, the asset may become impaired, and we may be required to record an impairment charge which would negatively impact its operating results.
Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from three to ten years. Long-lived assets, including intangible assets, are reviewed for impairment in accordance with the Property, Plant, and Equipment Topic of the FASB ASC whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a change in the assessment of future operations. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on t he amount that the carrying value of the asset exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
In the third quarter of fiscal 2009, as a result of the impairment indicators that existed, we performed a review of our long-lived assets within the AEG reporting unit to test for impairment in accordance with the accounting standards. Further to this, in the second quarter of fiscal 2010, as a result of signing a non-binding letter of intent to sell Altec Lansing, our AEG segment, we determined that this triggered an interim impairment review of AEG as it was now “more likely than not” that Altec Lansing would be sold; however, as our Board of Directors had not yet approvedCompany completed the sale of Altec Lansing, its AEG segment, effective December 1, 2009, and, therefore, it is no longer included in continuing operations and the assets did not qualifyCompany operates as one segment. Accordingly, the Company has classified the AEG operating results, including the loss on sale of AEG, as discontinued operations in the Consolidated statement of operations for “held for sale”all periods presented.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to the last day of March. Fiscal year 2012 ended on March 31, 2012 and consists of 52 weeks, fiscal year 2011 ended on April 2, 2011 and consists of 52 weeks, and fiscal year 2010 ended on April 3, 2010 and consists of 53 weeks. For purposes of presentation, the Company has indicated its accounting under the Property, Plantfiscal year as ending on March 31.
Financial Instruments
Cash, Cash Equivalents and Equipment TopicInvestments
The Company's investment policy and strategy are focused on preservation of capital and supporting liquidity requirements. A portion of the FASB ASC. We test our indefinite lived assets for impairmentCompany's cash is managed by comparingexternal managers within the fa ir valueguidelines of the intangible assetCompany's investment policy. The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company's policy limits the amount of credit exposure to any one issuer and requires investments to be rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All highly liquid investments with initial stated maturities of three months or less at the date of purchase are classified as cash equivalents. The Company classifies its carrying value. Ifinvestments as either short-term or long-term based on each instrument's underlying effective maturity date and reasonable expectations with regard to sales and redemptions of the instruments. All short-term investments have effective maturities less than 12 months, while all long-term investments have effective maturities greater than 12 months or the Company does not currently have the ability to liquidate the investments. The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
As of March 31, 2012, all investments were classified as available-for-sale with unrealized gains and losses recorded as a separate component of Accumulated other comprehensive income in Stockholders’ equity. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in Interest and other income (expense), net.
For investments with an unrealized loss, the factors considered in the review include the credit quality of the issuer, the duration that the fair value ishas been less than its carrying value, anthe adjusted cost basis, severity of impairment, charge is recognizedreason for the difference. We useddecline in value and potential recovery period, the proposed purchase pricefinancial condition and near-term prospects of the AEG segment’s netinvestees, and whether the Company would be required to sell an investment due to liquidity or contractual reasons before its anticipated recovery. (See Note 5)
Foreign Currency Derivatives
The Company accounts for its derivative instruments as either assets per the non-binding letter of intent signed during the quarter asor liabilities and carries them at fair value. Derivative foreign currency call and put option contracts are valued using pricing models that use observable inputs. The accounting for changes in the fair value of a derivative depends on the segment’s net assets. This resulted in a full impairmentintended use of the Altec Lansing trademarkderivative and trade name; therefore, wethe resulting designation. For derivative instruments designated as a fair value hedge, the gain or loss is recognized a non-cash impairment charge of $18.6 millionin earnings in the second quarterperiod of fiscal 2010 and recognizedchange together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a deferred tax benefit of $7.1 million associated with this impairment charge, which is included in discontinued operations forderivative instrument designated as a cash flow hedge, the fiscal year ended March 31, 2010.
As a resulteffective portion of the proposed purchase pricederivative’s gain or loss is initially reported as a component of Accumulated other comprehensive income in Stockholders’ equity and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the net assets of the AEG segment, we also evaluated the long-lived assets within the reporting unit. Thegain or loss is reported in earnings immediately. For derivative instruments that are not designated as accounting hedges, changes in fair value of the long-lived assets, which include intangibles and property, plant and equipment, was determined for each individual asset and compared to the asset’s relative carrying value. This resultedare recognized in a full impairment of the AEG intangibles and a partial impairment of its property, plant and equipment; therefore,earnings in the second quarterperiod of fiscal 2010, we recognized a non-cash intangible asset impairment charge of $6.6 million, of which $2.0 million relatedchange. The Company does not hold or issue derivative financial instruments for speculative trading purposes. Plantronics enters into derivatives only with counterparties that are among the largest United States ("U.S.") banks, ranked by assets, in order to customer relationships, $0.4 million relatedminimize its credit risk and to technology and $0.4 million relateddate, no such counterparty has failed to the inMotion trade name, and a non-cash impairment charge of $3.8 million related to property, plant and equ ipment. We recognized a deferred tax benefit of $2.5 million associated with these impairment charges. The impairment charge and tax benefit is recorded in discontinued operations for the fiscal year ended March 31, 2010.
In the fourth quarter of fiscal 2010, we performed the annual impairment test of the remaining goodwill. The fair value of the Company was determined using an equal weighting of the income approach and the market comparable approach. For the income approach, we made the following assumptions: the current economic downturn would recover in fiscal 2011 and 2012 and then growth in line with industry estimated revenues. Gross margin trends were consistent with historical trends. A 3% growth factor was used to calculate the terminal value after fiscal year 2018, consistent with the rate used in the prior year. The discount rate was 14% reflecting the current volatility of the stock prices of public companies within the consumer electronics industry. For the market comparable approach, we reviewed comparable companies in the industry. Revenue multiples were determined for these companies and an average multiple based on prior twelve months revenue of these companies of 0.5 was then applied to the unit revenue. A 10% control premium was added to determine the value on the marketable controlling interest basis. Cash and short-term investments were then added back to arrive at an indicated value on a marketable, controlling interest basis. Based on this review, the fair value substantially exceeded the carrying value, and, therefore, there was no impairment related to the remaining goodwill.
In addition, in the fourth quarter of fiscal 2010, we performed the annual impairment test of the remaining intangibles which indicated there was no impairment.
Income Taxesmeet its financial obligations under such contracts. (See Note 16)
We are subject to income taxes both in the U.S. as well as in several foreign jurisdictions. We must make certain estimates and judgments in determining income tax expenseProvision for the financial statements. These estimates occur in the calculation of tax benefits and deductions, tax credits, and tax assets and liabilities which are generated from differences in the timing of when items are recognized for book purposes and when they are recognized for tax purposes.
The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. As of March 31, 2010, we had $11.2 million of unrecognized tax benefits all of which would favorably impact the effective tax rate in future periods if recognized.We continue to follow the practice of recognizing interest and penalties related to income tax matters as a part of the provision for income taxes.
We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDoubtful Accounts
The following discusses our exposureCompany maintains a provision for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Plantronics regularly performs credit evaluations of its customers’ financial conditions and considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-specific risks and economic conditions that may affect a customer’s ability to pay.
Inventory and Related Reserves
Inventories are valued at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Shipping and handling costs incurred in connection with the sale of products are included in Cost of revenues.
Management writes down inventories that have become obsolete or are in excess of anticipated demand or net realizable value to the lower of cost or market risk related tovalue. Once inventory is written down, subsequent changes in interest ratesfacts and foreign currency exchange rates. This discussion contains forward-looking statements that are subjectcircumstances do not result in restoration to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forththe original cost basis or an increase in "Risk Factors Affecting Future Operating Results."the new, lower-cost basis.
INTEREST RATE AND MARKET RISK
We hadAs of March 31, 2012 and 2011, we reported the following balances in cash and cash equivalents, totaling $350.0 million at short-term investments and long-term investments:
|
| | | | | | | | |
| | March 31, |
(in millions) | | 2012 | | 2011 |
Cash and cash equivalents | | $ | 209.3 |
| | $ | 277.4 |
|
Short-term investments | | 125.2 |
| | 152.6 |
|
Long-term investments | | 55.3 |
| | 39.3 |
|
As of March 31, 2010 compared2012, our investments were composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S. Corporate Bonds and CDs.
Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. A portion of our cash is managed by external managers within the guidelines of our investment policy. Our exposure to $158.2 million at March 31, 2009.market risk for changes in interest rates relates primarily to our investment portfolio. We had short-termtypically invest in highly rated securities and our policy generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments totaling $19.2 million asto be high credit quality, primarily rated A or A2 and above, with the objective of March 31, 2010 compared to $60.0 million at March 31, 2009. We had no long-termminimizing the potential risk of principal loss. All highly liquid investments as of March 31, 2010 as compared to $23.7 million as of March 31, 2009. Cash equivalents have a remaining maturitywith initial maturities of three months or less at the date of purchase;purchase are classified as cash equivalents. We classify our investments as either short-term securitiesor long-term based on each instrument's underlying effective maturity date. All short-term investments have a remaining maturity of greatereffective maturities less than three12 months, at the date of purchase; andwhile all long-term investments have effective maturities greater than one year,12 months or we do not currently have the ability to liquidate the investment. AsWe may sell our investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. We recognized no material realized or unrealized net gains or losses during the years ended March 31, 2010, all of the ARS portfolio was held in our name at a limited number of major financial institutions2012 and were co ncentrated primarily in student loans. The ARS were classified as short-term trading securities due to management’s intent to exercise the put option with UBS and the expectation that the ARS will be sold within twelve months2011.
Interest rates have continued to decline in fiscal 2010general were relatively unchanged in the year ended March 31, 2012 compared to the prior year; however, we earned slightly greater interest income due to a higher average investment portfolio in fiscal year 2012 compared with the prior year. Our cash andDuring the year ended March 31, 2012, we generated approximately $1.5 million in interest income from our portfolio of cash equivalents net of short-term working capital needs, are primarily invested in U.S. Treasury funds, which hadand investments, compared to an average yield of approximately 0.10% for fiscal 2010. Approximately 40% of our interest incomeimmaterial amount in fiscal 2010 was derived from our ARS portfolio which had an average yield of approximately 0.71%. The ARS are currently resetting at rates of approximately 0.75% in April 2010. If these rates continue, our interest income will slightly increase in fiscal 2011 as compared to fiscal 2010. Beyond that, ayear 2011. A hypothetical increase or decrease in our interest rates by 10 basis points would have a minimal impact on our interest income. In addition, if we sell our ARS under the Rights during the period from June 30, 2010 through July 2, 2012 as we intend to do and invest the proceeds in a securities portfolio similar to our current cash, cash equivalents and short-term investment portfolio as of March 31, 2010, our interest income could decrease.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to currency fluctuations, primarily in the Euro ("EUR"), Great Britain Pound ("GBP"), Australian Dollar ("AUD") and the Mexican Peso ("MX$"). We use a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. All of our hedging activities are entered into with large financial institutions, including Wells Fargo, Bank of America Corporation, Goldman Sachs Group, Inc., and JPMorgan Chase & Co. who arewhich we periodically evaluatedevaluate for credit risks. We hedge our balance sheet exposure by hedging EuroEUR, GBP and Great Britain PoundAUD denominated cash, receivables payables, and cashpayables balances, and our economic exposure by hedging a portion of anticipated EuroEUR and Great Britain PoundGBP denominated sales and Mexican Pesoour MX$ denominated costs.expenditures. We can provide no assurance that our strategy will be successfully implementedsuccessful in the future and that exchange rate fluctuations will not materially adversely affect our businessbusiness.
We experienced immaterial net foreign currency losses in the future.
We experienced foreign currency gains in fiscal 2010, partially a result from our hedging activities.year ended March 31, 2012. Although we hedge a portion of our foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the Euro and the Great Britain Pound in comparison to the U.S. Dollar ("USD"), could result in material foreign exchange losses in future periods.
Non-designated Hedges
We hedge our EuroEUR, GBP and Great Britain PoundAUD denominated cash, receivables payables and cashpayables balances by entering into foreign exchange forward contracts.
The table below presents the impact on the foreign exchange gain (loss) of a hypothetical 10% appreciation and a 10% depreciation of the U.S. Dollar (“USD”)USD against the forward currency contracts as of March 31, 20102012 (in millions):
Currency - forward contracts | | Position | | USD Value of Net Foreign Exchange Contracts | | | Foreign Exchange Gain From 10% Appreciation of USD | | | Foreign Exchange (Loss) From 10% Depreciation of USD | |
Euro | | Sell Euro | | $ | 24.3 | | | $ | 2.4 | | | $ | (2.4 | ) |
Great Britain Pound | | Sell GBP | | | 3.0 | | | | 0.3 | | | | (0.3 | ) |
Net position | | | | $ | 27.3 | | | $ | 2.7 | | | $ | (2.7 | ) |
|
| | | | | | | | | | | | | | |
Currency - forward contracts | | Position | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
EUR | | Sell Euro | | $ | 25.3 |
| | $ | 2.5 |
| | $ | (2.5 | ) |
GBP | | Sell GBP | | $ | 5.8 |
| | $ | 0.6 |
| | $ | (0.6 | ) |
AUD | | Sell AUD | | $ | 2.7 |
| | $ | 0.3 |
| | $ | (0.3 | ) |
Cash Flow Hedges
Approximately 38%43%, 37%41% and 38% of net revenue from continuing operationsrevenues in fiscal 2008, 2009years 2012, 2011 and 2010, respectively, waswere derived from sales outside of the U.S., which were denominated predominantly denominated in the EuroEUR and the Great Britain PoundGBP in each of the fiscal years.
As of March 31, 2010,2012, we had foreign currency put and call option contracts with notional amounts of approximately €40.2€63.7 million and £10.8£20.0 million denominated in EurosEUR and Great Britain Pounds,GBP, respectively. As of March 31, 2010,2011, we also had foreign currency put and call option contracts with notional amounts of approximately €40.2€52.7 million and £10.8£14.5 million denominated in EurosEUR and Great Britain Pounds,GBP, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign currency denominated sales. If these net exposed currency positions arethe USD is subjected to either a 10% appreciation or 10% depreciation versus the U.S. Dollar,these net exposed currency positions, we could incurrealize a gain of $5.8$9.4 million or incur a loss of $5.0 million.$8.1 million, respectively.
The table below presents the impact on the Black-Scholes valuation of our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S. DollarUSD against the indicated option contract type for cash flow hedges as of March 31, 20102012 (in millions):
Currency - option contracts | | USD Value of Net Foreign Exchange Contracts | | | Foreign Exchange Gain From 10% Appreciation of USD | | | Foreign Exchange (Loss) From 10% Depreciation of USD | |
Call options | | $ | (76.7 | ) | | $ | 0.6 | | | $ | (2.6 | ) |
Put options | | | 71.4 | | | | 5.2 | | | | (2.4 | ) |
Net position | | $ | (5.3 | ) | | $ | 5.8 | | | $ | (5.0 | ) |
|
| | | | | | | | | | | | |
Currency - option contracts | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange (Loss) From 10% Depreciation of USD |
Call options | | $ | 123.9 |
| | $ | 1.6 |
| | $ | (5.3 | ) |
Put options | | $ | 115.1 |
| | $ | 7.8 |
| | $ | (2.8 | ) |
As of March 31, 2010, we had foreign currency swap contracts with notional amounts of approximately Mex$251.3 million and $19.6 million denominated in Mexican Peso and U.S. Dollars, respectively. Our cross-currencyCollectively, our swap contracts hedge against a portion of our forecasted Mexican PesoMX$ denominated expenditures. If these net exposedAs of March 31, 2012, we had cross currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. Dollar, we could incur a lossswap contracts with notional amounts of $1.8approximately MX$317.5 million and a gain of $2.2 million, respectively..
The table below presents the impact on the net present valuation of our cross-currency swap contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S. Dollar (“USD”)USD as of March 31, 20102012 (in millions):
Currency - cross-currency swap contracts | | USD Value of Cross-Currency Swap Contracts | | | Foreign Exchange (Loss) From 10% Appreciation of USD | | | Foreign Exchange Gain From 10% Depreciation of USD | |
Positon: Buy Peso | | $ | 19.6 | | | $ | (1.8 | ) | | $ | 2.2 | |
|
| | | | | | | | | | | | |
Currency - cross-currency swap contracts | | USD Value of Cross-Currency Swap Contracts | | Foreign Exchange (Loss) From 10% Appreciation of USD | | Foreign Exchange Gain From 10% Depreciation of USD |
Position: Buy MX$ | | $ | 23.5 |
| | $ | (2.2 | ) | | $ | 2.7 |
|
ITEMITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Plantronics, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Plantronics, Inc. and its subsidiaries at March 31, 2012 and April 3, 2010 and March 28, 2009,2, 2011, and the results of their operations and their cash flows for each of the three years in the period ended April 3, 2010March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement scheduleschedules appearing under Item 15(a)(2)present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company mai ntained,maintained, in all material respects, effective internal control over financial reporting as of April 3, 2010,March 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Bo ardBoard (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with auth orizationsauthorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 1, 2010May 25, 2012
PLANTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | March 31, | |
| | 2009 | | | 2010 | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 158,193 | | | $ | 349,961 | |
Short-term investments | | | 59,987 | | | | 19,231 | |
Accounts receivable, net | | | 83,657 | | | | 88,328 | |
Inventory, net | | | 119,296 | | | | 70,518 | |
Deferred income taxes | | | 12,486 | | | | 10,911 | |
Other current assets | | | 29,936 | | | | 21,782 | |
Assets held for sale | | | - | | | | 8,861 | |
Total current assets | | | 463,555 | | | | 569,592 | |
Long-term investments | | | 23,718 | | | | - | |
Property, plant and equipment, net | | | 95,719 | | | | 65,700 | |
Intangibles, net | | | 26,575 | | | | 3,449 | |
Goodwill | | | 14,005 | | | | 14,005 | |
Other assets | | | 9,548 | | | | 2,605 | |
Total assets | | $ | 633,120 | | | $ | 655,351 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 32,827 | | | $ | 23,779 | |
Accrued liabilities | | | 53,143 | | | | 45,837 | |
Total current liabilities | | | 85,970 | | | | 69,616 | |
Deferred tax liability | | | 8,085 | | | | 551 | |
Long-term income taxes payable | | | 12,677 | | | | 12,926 | |
Other long-term liabilities | | | 1,021 | | | | 924 | |
Total liabilities | | | 107,753 | | | | 84,017 | |
| | | | | | | | |
Commitments and contingencies (Note 11) | | | | | | | | |
Stockholders' equity: | | | | | | | | |
Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding | | | - | | | | - | |
Common stock, $0.01 par value per share; 100,000 shares authorized, 51,820 shares and 51,449 shares issued at 2009 and 2010, respectively | | | 678 | | | | 695 | |
Additional paid-in capital | | | 386,224 | | | | 428,407 | |
Accumulated other comprehensive income | | | 8,855 | | | | 6,272 | |
Retained earnings | | | 203,936 | | | | 195,293 | |
| | | 599,693 | | | | 630,667 | |
Less: Treasury stock (common: 2,928 and 2,579 shares at 2009 and 2010, respectively) at cost | | | (74,326 | ) | | | (59,333 | ) |
Total stockholders' equity | | | 525,367 | | | | 571,334 | |
Total liabilities and stockholders' equity | | $ | 633,120 | | | $ | 655,351 | |
|
| | | | | | | |
| March 31, |
| 2012 | | 2011 |
ASSETS | |
| | |
Current assets: | |
| | |
Cash and cash equivalents | $ | 209,335 |
| | $ | 277,373 |
|
Short-term investments | 125,177 |
| | 152,583 |
|
Accounts receivable, net | 111,771 |
| | 103,289 |
|
Inventory, net | 53,713 |
| | 56,473 |
|
Deferred tax assets | 11,090 |
| | 11,349 |
|
Other current assets | 13,088 |
| | 16,653 |
|
Total current assets | 524,174 |
| | 617,720 |
|
Long-term investments | 55,347 |
| | 39,332 |
|
Property, plant and equipment, net | 76,159 |
| | 70,622 |
|
Goodwill and purchased intangibles, net | 14,388 |
| | 14,861 |
|
Other assets | 2,402 |
| | 2,112 |
|
Total assets | $ | 672,470 |
| | $ | 744,647 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
|
Current liabilities: | |
| | |
|
Accounts payable | $ | 34,126 |
| | $ | 33,995 |
|
Accrued liabilities | 52,067 |
| | 59,607 |
|
Total current liabilities | 86,193 |
| | 93,602 |
|
Deferred tax liabilities | 8,673 |
| | 3,526 |
|
Long-term income taxes payable | 12,150 |
| | 11,524 |
|
Revolving line of credit | 37,000 |
| | — |
|
Other long-term liabilities | 1,210 |
| | 1,143 |
|
Total liabilities | 145,226 |
| | 109,795 |
|
Commitments and contingencies (Note 10) |
|
| |
|
|
Stockholders' equity: | |
| | |
|
Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding | — |
| | — |
|
Common stock, $0.01 par value per share; 100,000 shares authorized, 47,160 shares and 50,043 shares issued at 2012 and 2011, respectively | 741 |
| | 720 |
|
Additional paid-in capital | 557,218 |
| | 499,027 |
|
Accumulated other comprehensive income | 6,357 |
| | 1,473 |
|
Retained earnings | 115,358 |
| | 192,468 |
|
Total stockholders' equity before treasury stock | 679,674 |
| | 693,688 |
|
Less: Treasury stock (common: 4,648 and 1,728 shares at 2012 and 2011, respectively) at cost | (152,430 | ) | | (58,836 | ) |
Total stockholders' equity | 527,244 |
| | 634,852 |
|
Total liabilities and stockholders' equity | $ | 672,470 |
| | $ | 744,647 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | Fiscal Year Ended March 31, | |
| | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
Net revenues | | $ | 747,935 | | | $ | 674,590 | | | $ | 613,837 | |
Cost of revenues | | | 403,863 | | | | 382,659 | | | | 312,767 | |
Gross profit | | | 344,072 | | | | 291,931 | | | | 301,070 | |
Operating expenses: | | | | | | | | | | | | |
Research, development and engineering | | | 65,733 | | | | 63,840 | | | | 57,784 | |
Selling, general and administrative | | | 163,173 | | | | 155,678 | | | | 143,784 | |
Restructuring and other related charges | | | - | | | | 10,952 | | | | 1,867 | |
Total operating expenses | | | 228,906 | | | | 230,470 | | | | 203,435 | |
Operating income | | | 115,166 | | | | 61,461 | | | | 97,635 | |
Interest and other income (expense), net | | | 5,854 | | | | (3,544 | ) | | | 3,105 | |
Income from continuing operations before income taxes | | | 121,020 | | | | 57,917 | | | | 100,740 | |
Income tax expense from continuing operations | | | 29,008 | | | | 12,575 | | | | 24,287 | |
Income from continuing operations, net of tax | | | 92,012 | | | | 45,342 | | | | 76,453 | |
Discontinued operations: | | | | | | | | | | | | |
Loss from operations of discontinued AEG segment (including loss on sale) | | | (35,783 | ) | | | (142,633 | ) | | | (30,468 | ) |
Income tax benefit on discontinued operations | | | (12,166 | ) | | | (32,392 | ) | | | (11,393 | ) |
Loss on discontinued operations, net of tax | | | (23,617 | ) | | | (110,241 | ) | | | (19,075 | ) |
Net income (loss) | | $ | 68,395 | | | $ | (64,899 | ) | | $ | 57,378 | |
| | | | | | | | | | | | |
Earnings (loss) per common share | | | | | | | | | | | | |
Basic | | | | | | | | | | | | |
Continuing operations | | $ | 1.91 | | | $ | 0.93 | | | $ | 1.58 | |
Discontinued operations | | $ | (0.49 | ) | | $ | (2.27 | ) | | $ | (0.39 | ) |
Net income (loss) | | $ | 1.42 | | | $ | (1.34 | ) | | $ | 1.18 | |
| | | | | | | | | | | | |
Diluted | | | | | | | | | | | | |
Continuing operations | | $ | 1.87 | | | $ | 0.93 | | | $ | 1.55 | |
Discontinued operations | | $ | (0.48 | ) | | $ | (2.25 | ) | | $ | (0.39 | ) |
Net income (loss) | | $ | 1.39 | | | $ | (1.33 | ) | | $ | 1.16 | |
| | | | | | | | | | | | |
Shares used in basic per share calculations | | | 48,232 | | | | 48,589 | | | | 48,504 | |
Shares used in diluted per share calculations | | | 49,090 | | | | 48,947 | | | | 49,331 | |
| | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.20 | | | $ | 0.20 | | | $ | 0.20 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
Net revenues | $ | 713,368 |
| | $ | 683,602 |
| | $ | 613,837 |
|
Cost of revenues | 329,017 |
| | 321,846 |
| | 312,767 |
|
Gross profit | 384,351 |
| | 361,756 |
| | 301,070 |
|
Operating expenses: | | | |
| | |
|
Research, development and engineering | 69,664 |
| | 63,183 |
| | 57,784 |
|
Selling, general and administrative | 173,334 |
| | 163,389 |
| | 143,784 |
|
Gain from litigation settlement | — |
| | (5,100 | ) | | — |
|
Restructuring and other related charges | — |
| | (428 | ) | | 1,867 |
|
Total operating expenses | 242,998 |
| | 221,044 |
| | 203,435 |
|
Operating income | 141,353 |
| | 140,712 |
| | 97,635 |
|
Interest and other income (expense), net | 1,249 |
| | (56 | ) | | 3,105 |
|
Income from continuing operations before income taxes | 142,602 |
| | 140,656 |
| | 100,740 |
|
Income tax expense from continuing operations | 33,566 |
| | 31,413 |
| | 24,287 |
|
Income from continuing operations, net of tax | 109,036 |
| | 109,243 |
| | 76,453 |
|
Discontinued operations: | | | |
| | |
|
Loss from operations of discontinued AEG segment (including loss on sale) | — |
| | — |
| | (30,468 | ) |
Income tax benefit on discontinued operations | — |
| | — |
| | (11,393 | ) |
Loss from discontinued operations, net of tax | — |
| | — |
| | (19,075 | ) |
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
| | | | | |
Earnings (loss) per common share: | | | |
| | |
|
Basic | | | |
| | |
|
Continuing operations | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.58 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.48 |
| | $ | 2.29 |
| | $ | 1.18 |
|
Diluted | | | |
| | |
|
Continuing operations | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.55 |
|
Discontinued operations | $ | — |
| | $ | — |
| | $ | (0.39 | ) |
Net income | $ | 2.41 |
| | $ | 2.21 |
| | $ | 1.16 |
|
| | | | | |
Shares used in basic per share calculations | 44,023 |
| | 47,713 |
| | 48,504 |
|
Shares used in diluted per share calculations | 45,265 |
| | 49,344 |
| | 49,331 |
|
| | | | | |
Cash dividends declared per common share | $ | 0.20 |
| | $ | 0.20 |
| | $ | 0.20 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | Fiscal Year Ended March 31, | |
| | 2008 | | | 2009 | | | 2010 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | |
Net income (loss) | | $ | 68,395 | | | $ | (64,899 | ) | | $ | 57,378 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 28,486 | | | | 25,822 | | | | 18,144 | |
Stock-based compensation | | | 15,992 | | | | 15,742 | | | | 14,577 | |
Provision for (benefit from) sales allowances and doubtful accounts | | | (232 | ) | | | 2,698 | | | | (243 | ) |
Provision for excess and obsolete inventories | | | 7,776 | | | | 11,364 | | | | 418 | |
Benefit from deferred income taxes | | | (9,313 | ) | | | (26,853 | ) | | | (12,449 | ) |
Income tax benefit associated with stock option exercises | | | 1,459 | | | | 1,025 | | | | 3,669 | |
Excess tax benefit from stock-based compensation | | | (1,763 | ) | | | (592 | ) | | | (2,247 | ) |
Impairment of goodwill and long-lived assets | | | 517 | | | | 117,464 | | | | 25,194 | |
Non-cash restructuring charges | | | 1,557 | | | | 581 | | | | 6,261 | |
Loss on sale of discontinued operations | | | - | | | | - | | | | 611 | |
Other operating activities | | | 253 | | | | 358 | | | | 384 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Accounts receivable, net | | | (19,196 | ) | | | 50,706 | | | | 388 | |
Inventory, net | | | (8,273 | ) | | | (5,358 | ) | | | 27,620 | |
Other assets | | | (3,100 | ) | | | (6,935 | ) | | | 2,868 | |
Accounts payable | | | (2,060 | ) | | | (15,069 | ) | | | (9,048 | ) |
Accrued liabilities | | | 8,731 | | | | (6,701 | ) | | | (1,001 | ) |
Income taxes | | | 13,671 | | | | (203 | ) | | | 11,205 | |
Cash provided by operating activities | | | 102,900 | | | | 99,150 | | | | 143,729 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Proceeds from sales of short-term investments | | | 328,285 | | | | - | | | | 4,000 | |
Proceeds from maturities of short-term investments | | | - | | | | 30,000 | | | | 145,000 | |
Purchase of short-term investments | | | (347,135 | ) | | | (89,896 | ) | | | (84,990 | ) |
Proceeds from sales of long-term investments | | | - | | | | - | | | | 750 | |
Capital expenditures and other assets | | | (23,298 | ) | | | (23,682 | ) | | | (6,262 | ) |
Proceeds from sale of property and equipment | | | - | | | | - | | | | 277 | |
Proceeds received from sale of AEG segment | | | - | | | | - | | | | 9,121 | |
Funds released from escrow related to the Altec acquisition | | | - | | | | 406 | | | | - | |
Cash provided by (used for) investing activities | | | (42,148 | ) | | | (83,172 | ) | | | 67,896 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Purchase of treasury stock | | | (1,542 | ) | | | (17,817 | ) | | | (49,652 | ) |
Proceeds from sale of treasury stock | | | 5,346 | | | | 5,198 | | | | 3,623 | |
Proceeds from issuance of common stock | | | 9,762 | | | | 6,899 | | | | 32,581 | |
Payment of cash dividends | | | (9,711 | ) | | | (9,787 | ) | | | (9,781 | ) |
Excess tax benefit from stock-based compensation | | | 1,763 | | | | 592 | | | | 2,247 | |
Cash provided by (used for) financing activities | | | 5,618 | | | | (14,915 | ) | | | (20,982 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | 2,590 | | | | (5,961 | ) | | | 1,125 | |
Net (decrease) increase in cash and cash equivalents | | | 68,960 | | | | (4,898 | ) | | | 191,768 | |
Cash and cash equivalents at beginning of year | | | 94,131 | | | | 163,091 | | | | 158,193 | |
Cash and cash equivalents at end of year | | $ | 163,091 | | | $ | 158,193 | | | $ | 349,961 | |
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURES | | | | | | | | | | | | |
Cash paid for: | | | | | | | | | | | | |
Income taxes | | $ | 13,027 | | | $ | 12,519 | | | $ | 11,663 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2012 | | 2011 | | 2010 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
|
Net income | $ | 109,036 |
| | $ | 109,243 |
| | $ | 57,378 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
| | |
| | |
|
Depreciation and amortization | 13,760 |
| | 16,275 |
| | 18,144 |
|
Stock-based compensation | 17,481 |
| | 15,873 |
| | 14,577 |
|
Provision for (benefit from) doubtful accounts and sales allowances | 758 |
| | (8 | ) | | (243 | ) |
Provision for excess and obsolete inventories | 2,222 |
| | 1,099 |
| | 418 |
|
Benefit from deferred income taxes | (9,134 | ) | | (5,165 | ) | | (12,449 | ) |
Income tax benefit associated with stock option exercises | 5,637 |
| | 6,195 |
| | 3,669 |
|
Excess tax benefit from stock-based compensation | (7,043 | ) | | (5,747 | ) | | (2,247 | ) |
Amortization of premium on investments, net | 1,554 |
| | 578 |
| | — |
|
Impairment of goodwill and long-lived assets | — |
| | — |
| | 25,194 |
|
Non-cash restructuring charges | — |
| | — |
| | 6,261 |
|
Loss on sale of discontinued operations | — |
| | — |
| | 611 |
|
Other operating activities | 683 |
| | (5 | ) | | 384 |
|
Changes in assets and liabilities: | | | |
| | |
|
Accounts receivable, net | (9,402 | ) | | (15,086 | ) | | 388 |
|
Inventory, net | 606 |
| | 12,962 |
| | 27,620 |
|
Current and other assets | (67 | ) | | (2,280 | ) | | 2,868 |
|
Accounts payable | 131 |
| | 10,216 |
| | (9,048 | ) |
Accrued liabilities | (4,303 | ) | | 9,873 |
| | (1,001 | ) |
Income taxes | 18,529 |
| | 4,209 |
| | 11,205 |
|
Cash provided by operating activities | 140,448 |
| | 158,232 |
| | 143,729 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
|
Proceeds from sales of short-term investments | 78,554 |
| | 28,034 |
| | 4,000 |
|
Proceeds from maturities of short-term investments | 189,131 |
| | 114,495 |
| | 145,000 |
|
Purchase of short-term investments | (176,941 | ) | | (263,260 | ) | | (84,990 | ) |
Proceeds from sales of long-term investments | 9,935 |
| | 664 |
| | 750 |
|
Purchase of long-term investments | (90,954 | ) | | (48,870 | ) | | — |
|
Capital expenditures and other assets | (19,140 | ) | | (18,667 | ) | | (6,262 | ) |
Proceeds from sale of property, plant and equipment and assets held for sale | — |
| | 9,066 |
| | 277 |
|
Proceeds received from sale of AEG segment | — |
| | 1,625 |
| | 9,121 |
|
Cash (used for) provided by investing activities | (9,415 | ) | | (176,913 | ) | | 67,896 |
|
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
|
Repurchase of common stock | (273,791 | ) | | (105,522 | ) | | (49,652 | ) |
Proceeds from sale of treasury stock | 4,901 |
| | 4,192 |
| | 3,623 |
|
Proceeds from issuance of common stock | 38,222 |
| | 50,109 |
| | 32,581 |
|
Proceeds from revolving line of credit | 68,500 |
| | — |
| | — |
|
Repayments of revolving line of credit | (31,500 | ) | | — |
| | — |
|
Payment of cash dividends | (9,040 | ) | | (9,703 | ) | | (9,781 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (2,596 | ) | | (194 | ) | | — |
|
Excess tax benefit from stock-based compensation | 7,043 |
| | 5,747 |
| | 2,247 |
|
Cash used for financing activities | (198,261 | ) | | (55,371 | ) | | (20,982 | ) |
Effect of exchange rate changes on cash and cash equivalents | (810 | ) | | 1,464 |
| | 1,125 |
|
Net (decrease) increase in cash and cash equivalents | (68,038 | ) | | (72,588 | ) | | 191,768 |
|
Cash and cash equivalents at beginning of year | 277,373 |
| | 349,961 |
| | 158,193 |
|
Cash and cash equivalents at end of year | $ | 209,335 |
| | $ | 277,373 |
| | $ | 349,961 |
|
SUPPLEMENTAL DISCLOSURES | | | |
| | |
|
Cash paid for income taxes | $ | 20,752 |
| | $ | 29,180 |
| | $ | 11,663 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
| | Common Stock | | | Additional Paid-In | | | Accumulated Other Comprehensive | | | Retained | | | Treasury | | | Total Stockholders' | |
| | Shares | | | Amount | | | Capital | | | Income (Loss) | | | Earnings | | | Stock | | | Equity | |
Balances at March 31, 2007 | | | 48,065 | | | $ | 666 | | | $ | 340,661 | | | $ | 2,666 | | | $ | 550,165 | | | $ | (397,351 | ) | | $ | 496,807 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 68,395 | | | | - | | | | 68,395 | |
Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | 1,053 | | | | - | | | | - | | | | 1,053 | |
Unrealized loss on hedges, net of tax | | | - | | | | - | | | | - | | | | (4,436 | ) | | | - | | | | - | | | | (4,436 | ) |
Unrealized loss on long-term investments, net of tax | | | - | | | | - | | | | - | | | | (2,864 | ) | | | - | | | | - | | | | (2,864 | ) |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 62,148 | |
Exercise of stock options | | | 576 | | | | 6 | | | | 9,755 | | | | - | | | | - | | | | - | | | | 9,761 | |
Issuance of restricted common stock | | | 113 | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 1 | |
Repurchase of restricted common stock | | | (35 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Cash dividends declared | | | - | | | | - | | | | - | | | | - | | | | (9,711 | ) | | | - | | | | (9,711 | ) |
Stock-based compensation | | | - | | | | - | | | | 15,992 | | | | - | | | | - | | | | - | | | | 15,992 | |
Income tax benefit associated with stock options | | | - | | | | - | | | | (182 | ) | | | - | | | | - | | | | - | | | | (182 | ) |
Purchase of treasury stock | | | (82 | ) | | | - | | | | - | | | | - | | | | - | | | | (1,542 | ) | | | (1,542 | ) |
Sale of treasury stock | | | 307 | | | | - | | | | 3,429 | | | | - | | | | - | | | | 1,917 | | | | 5,346 | |
Balances at March 31, 2008 | | | 48,944 | | | | 673 | | | | 369,655 | | | | (3,581 | ) | | | 608,849 | | | | (396,976 | ) | | | 578,620 | |
Net income (loss) | | | - | | | | - | | | | - | | | | - | | | | (64,899 | ) | | | - | | | | (64,899 | ) |
Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | (2,606 | ) | | | - | | | | - | | | | (2,606 | ) |
Unrealized gain on hedges, net of tax | | | - | | | | - | | | | - | | | | 12,179 | | | | - | | | | - | | | | 12,179 | |
Unrealized gain on long-term investments, net of tax | | | - | | | | - | | | | - | | | | 2,863 | | | | - | | | | - | | | | 2,863 | |
Comprehensive loss | | | | | | | | | | | | | | | - | | | | | | | | | | | | (52,463 | ) |
Exercise of stock options | | | 359 | | | | 4 | | | | 6,894 | | | | - | | | | - | | | | - | | | | 6,898 | |
Issuance of restricted common stock | | | 187 | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 1 | |
Repurchase of restricted common stock | | | (20 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Cash dividends declared | | | - | | | | - | | | | - | | | | - | | | | (9,787 | ) | | | - | | | | (9,787 | ) |
Stock-based compensation | | | - | | | | - | | | | 15,742 | | | | - | | | | - | | | | - | | | | 15,742 | |
Income tax benefit associated with stock options | | | - | | | | - | | | | (1,025 | ) | | | - | | | | - | | | | - | | | | (1,025 | ) |
Purchase of treasury stock | | | (1,007 | ) | | | - | | | | - | | | | - | | | | - | | | | (17,817 | ) | | | (17,817 | ) |
Sale of treasury stock | | | 429 | | | | - | | | | (5,042 | ) | | | - | | | | - | | | | 10,240 | | | | 5,198 | |
Retirement of treasury stock | | | - | | | | - | | | | - | | | | - | | | | (330,227 | ) | | | 330,227 | | | | - | |
Balances at March 31, 2009 | | | 48,892 | | | | 678 | | | | 386,224 | | | | 8,855 | | | | 203,936 | | | | (74,326 | ) | | | 525,367 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 57,378 | | | | - | | | | 57,378 | |
Foreign currency translation adjustments | | | - | | | | - | | | | - | | | | 1,047 | | | | - | | | | - | | | | 1,047 | |
Unrealized loss on hedges, net of tax | | | - | | | | - | | | | - | | | | (3,630 | ) | | | - | | | | - | | | | (3,630 | ) |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,795 | |
Exercise of stock options | | | 1,493 | | | | 15 | | | | 32,564 | | | | - | | | | - | | | | - | | | | 32,579 | |
Issuance of restricted common stock | | | 154 | | | | 2 | | | | - | | | | - | | | | - | | | | - | | | | 2 | |
Repurchase of restricted common stock | | | (18 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Cash dividends declared | | | - | | | | - | | | | - | | | | - | | | | (9,781 | ) | | | - | | | | (9,781 | ) |
Stock-based compensation | | | - | | | | - | | | | 14,877 | | | | - | | | | - | | | | - | | | | 14,877 | |
Income tax benefit associated with stock options | | | - | | | | - | | | | (476 | ) | | | - | | | | - | | | | - | | | | (476 | ) |
Purchase of treasury stock | | | (1,935 | ) | | | - | | | | - | | | | - | | | | - | | | | (49,652 | ) | | | (49,652 | ) |
Sale of treasury stock | | | 284 | | | | - | | | | (4,782 | ) | | | - | | | | - | | | | 8,405 | | | | 3,623 | |
Retirement of treasury stock | | | - | | | | - | | | | - | | | | - | | | | (56,240 | ) | | | 56,240 | | | | - | |
Balances at March 31, 2010 | | | 48,870 | | | $ | 695 | | | $ | 428,407 | | | $ | 6,272 | | | $ | 195,293 | | | $ | (59,333 | ) | | $ | 571,334 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In | | Accumulated Other Comprehensive | | Retained | | Treasury | | Total Stockholders' |
| Shares | | Amount | | Capital | | Income | | Earnings | | Stock | | Equity |
Balances at March 31, 2009 | 48,892 |
| | $ | 678 |
| | $ | 386,224 |
| | $ | 8,855 |
| | $ | 203,936 |
| | $ | (74,326 | ) | | $ | 525,367 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 57,378 |
| | — |
| | 57,378 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,047 |
| | — |
| | — |
| | 1,047 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (3,630 | ) | | — |
| | — |
| | (3,630 | ) |
Comprehensive income | |
| | |
| | |
| |
|
| | |
| | |
| | 54,795 |
|
Exercise of stock options | 1,493 |
| | 15 |
| | 32,564 |
| | — |
| | — |
| | — |
| | 32,579 |
|
Issuance of restricted common stock | 154 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchase of restricted common stock | (18 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,781 | ) | | — |
| | (9,781 | ) |
Stock-based compensation | — |
| | — |
| | 14,877 |
| | — |
| | — |
| | — |
| | 14,877 |
|
Income tax benefit associated with stock options | — |
| | — |
| | (476 | ) | | — |
| | — |
| | — |
| | (476 | ) |
Repurchase of common stock | (1,935 | ) | | — |
| | — |
| | — |
| | — |
| | (49,652 | ) | | (49,652 | ) |
Sale of treasury stock | 284 |
| | — |
| | (4,782 | ) | | — |
| | — |
| | 8,405 |
| | 3,623 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (56,240 | ) | | 56,240 |
| | — |
|
Balances at March 31, 2010 | 48,870 |
| | 695 |
| | 428,407 |
| | 6,272 |
| | 195,293 |
| | (59,333 | ) | | 571,334 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,243 |
| | — |
| | 109,243 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | 1,613 |
| | — |
| | — |
| | 1,613 |
|
Unrealized loss on hedges, net of tax | — |
| | — |
| | — |
| | (6,419 | ) | | — |
| | — |
| | (6,419 | ) |
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 104,444 |
|
Exercise of stock options | 2,196 |
| | 22 |
| | 50,084 |
| | — |
| | — |
| | — |
| | 50,106 |
|
Issuance of restricted common stock | 424 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (26 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,703 | ) | | — |
| | (9,703 | ) |
Stock-based compensation | — |
| | — |
| | 15,873 |
| | — |
| | — |
| | — |
| | 15,873 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 4,319 |
| | — |
| | — |
| | — |
| | 4,319 |
|
Repurchase of common stock | (3,315 | ) | | — |
| | — |
| | — |
| | — |
| | (105,522 | ) | | (105,522 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (194 | ) | | (194 | ) |
Sale of treasury stock | 172 |
| | — |
| | 344 |
| | — |
| | — |
| | 3,848 |
| | 4,192 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (102,365 | ) | | 102,365 |
| | — |
|
Balances at March 31, 2011 | 48,315 |
| | 720 |
| | 499,027 |
| | 1,473 |
| | 192,468 |
| | (58,836 | ) | | 634,852 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 109,036 |
| | — |
| | 109,036 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | (788 | ) | | — |
| | — |
| | (788 | ) |
Unrealized gain on hedges, net of tax | — |
| | — |
| | — |
| | 5,618 |
| | — |
| | — |
| | 5,618 |
|
Unrealized gain on investments, net of tax | — |
| | — |
| | — |
| | 54 |
| | — |
| | — |
| | 54 |
|
Comprehensive income |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 113,920 |
|
Exercise of stock options | 1,831 |
| | 18 |
| | 38,201 |
| | — |
| | — |
| | — |
| | 38,219 |
|
Issuance of restricted common stock | 346 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Repurchase of restricted common stock | (60 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends | — |
| | — |
| | — |
| | — |
| | (9,040 | ) | | — |
| | (9,040 | ) |
Stock-based compensation | — |
| | — |
| | 17,481 |
| | — |
| | — |
| | — |
| | 17,481 |
|
Income tax benefit associated with stock options | — |
| | — |
| | 3,295 |
| | — |
| | — |
| | — |
| | 3,295 |
|
Repurchase of common stock | (8,027 | ) | | — |
| | — |
| | — |
| | — |
| | (273,791 | ) | | (273,791 | ) |
Employees' tax withheld and paid for restricted stock and restricted stock units | (75 | ) | | — |
| | — |
| | — |
| | — |
| | (2,596 | ) | | (2,596 | ) |
Sale of treasury stock | 182 |
| | — |
| | (786 | ) | | — |
| | — |
| | 5,687 |
| | 4,901 |
|
Retirement of treasury stock | — |
| | — |
| | — |
| | — |
| | (177,106 | ) | | 177,106 |
| | — |
|
Balances at March 31, 2012 | 42,512 |
| | $ | 741 |
| | $ | 557,218 |
| | $ | 6,357 |
| | $ | 115,358 |
| | $ | (152,430 | ) | | $ | 527,244 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PLANTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plantronics, Inc. (“Plantronics” or “the Company”the “Company”) is a leading worldwide designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand. In addition, the Company manufactures and markets, under the Clarity brand, specialty products, such as telephones for the hearing impaired, and other related products for people with special communication needs.
Founded in 1961, Plantronics is incorporated in the state of Delaware and trades on the New York Stock Exchange under the ticker symbol “PLT”.
| |
2. | SIGNIFICANT ACCOUNTING POLICIES |
Management's Use of Estimates and Assumptions
The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Plantronics and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Reclassifications
Certain financial statement reclassifications have been made to previously reported amounts to conform to the current years’year's presentation.
Segment Information
Prior to December 1, 2009, the Company operated under two reportable segments, the Audio Communications Group (“ACG”) and the Audio Entertainment Group (“AEG”). As set forth in Note 4, Discontinued Operations, the Company completed the sale of Altec Lansing, its AEG segment, effective December 1, 2009, and, therefore, it is no longer included in continuing operations and the Company operates as one segment. Accordingly, the Company has classified the AEG operating results, including the loss on sale of AEG, as discontinued operations in the Consolidated statement of operations for all periods presented.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to the last day of March. Fiscal year 20102012 ended on April 3, 2010March 31, 2012 and consists of 5352 weeks, fiscal year 20092011 ended on March 28, 2009April 2, 2011 and consists of 52 weeks, and fiscal year 20082010 ended on March 29, 2008April 3, 2010 and consists of 5253 weeks. For purposes of presentation, the Company has indicated its accounting fiscal year as ending on March 31.
Financial Instruments
Cash, Cash Equivalents and Investments
The carrying valuesCompany's investment policy and strategy are focused on preservation of certaincapital and supporting liquidity requirements. A portion of the Company’s financial instruments, includingCompany's cash cash equivalents, short-term available-for-saleis managed by external managers within the guidelines of the Company's investment policy. The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company's policy limits the amount of credit exposure to any one issuer and requires investments accounts receivable,to be rated A or A2 and accounts payable approximate fair value due to their short maturities.
Cash and Cash Equivalents
minimizing the potential risk of principal loss. All highly liquid investments with remaininginitial stated maturities of three months or less at the date of purchase are classified as cash equivalents.
Investments
The goalsCompany classifies its investments as either short-term or long-term based on each instrument's underlying effective maturity date and reasonable expectations with regard to sales and redemptions of the Company’s investment policy, in order of priority, are preservation of capital, maintenance of liquidity, diversification, and maximization of after-tax investment income. Investments are limited to investment grade securities with limitations by policy on the percent of the total portfolio invested in any one issue.instruments. All of the Company’sshort-term investments are held in the Company’s name at a limited number of major financial institutions. Short-term securities have a remaining maturity of greatereffective maturities less than three12 months, at the date of purchase, andwhile all long-term investments have effective maturities greater than one year12 months or we dothe Company does not currently have the ability to liquidate the investment. Asinvestments. The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of March 31, 2009, the Company’s Auction Rate Securities (“ARS”) that the Co mpany did not have the ability and intent to liquidate within the next twelve months were classified as long-term investments. As of March 31, 2010, the Company’s ARS portfolio is classified as a short-term trading security due to management’s intent to exercise the put option with UBS and the expectation that the ARS will be sold within twelve months. (See Note 6)credit deterioration, or for duration management.
Investments are carried at fair value based upon quoted market prices at the end of the reporting period where available. The Company’s ARS investments are carried at fair value based on a discounted cash flow model. As of March 31, 2010,2012, all investments except the ARS portfolio, arewere classified as available-for-sale with unrealized gains and losses recorded as a separate component of Accumulated other comprehensive income in Stockholders’ equity. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in Interest and other income (expense), net.
Impairment onFor investments is determined pursuant to the Investments - Debt and Equity Securities Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results inwith an unrealized loss, being recorded as a separate component of Accumulated other comprehensive income (loss) in Stockholders’ Equity. Such an unrealized loss does not affect net income (loss) for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in Interest and other income (expense), netfactors considered in the Consolidated statement of operations and reduces net income forreview include the applicable accounting period. The differentiating factors between temporary and other-than-temporary impairment are primarily the lengthcredit quality of the time andissuer, the extent to whichduration that the marketfair value has been less than the adjusted cost basis, severity of impairment, reason for the decline in value and potential recovery period, the financial condition and near-term prospects of the issuerinvestees, and whether the intent and ability of PlantronicsCompany would be required to retainsell an investment due to liquidity or contractual reasons before its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.recovery. (See Note 5)
Foreign Currency Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative foreign currency call and put option contracts are valued using pricing models that use observable inputs. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other comprehensive income in Stockholders’ equity and subsequently reclassified into earnings when the hedged exposure affects earnings. The i neffectiveineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments that are not designated as accounting hedges, under the Derivatives and Hedging Topic of the FASB ASC, changes in fair value are recognized in earnings in the period of change. The Company does not hold or issue derivative financial instruments for speculative trading purposes. Plantronics enters into derivatives only with counterparties that are among the largest United States ("U.S.") banks, ranked by assets, in order to minimize its credit risk and to date, no such counterparty has failed to meet its financial obligations under such contracts. (See Note 14)16)
AllowanceProvision for Doubtful Accounts
The Company maintains allowancesa provision for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Plantronics regularly performs credit evaluations of its customers’ financial conditions and considers factors such as historical experience, credit quality, age of the accounts receivable balances, and geographic or country-specific risks and economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts is reviewed quarterly and adjusted if necessary based on management’s assessment of a customer’s ability to pay. If the financial condition of customers should deteriorate, additional allowances may be required which could have an adverse impact on operating expenses.
Inventory and Related Reserves
Inventories are statedvalued at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Costs such as idle facility expense, double freight, and re-handling costs are accounted for as current-period charges. Additionally, the Company allocates fixed production overheads to the costs of conversion based on the normal capacity of the production facilities. All shippingShipping and handling costs incurred in connection with the sale of products are included in the costCost of revenues.
The Company’s products utilize long-lead time parts whichManagement writes down inventories that have become obsolete or are available from a limited setin excess of vendors. The combined effectsanticipated demand or net realizable value to the lower of variability of demand among the customer base and significant long-lead time of single sourced materials has historically contributed to significant inventory write-downs, particularly in inventory for consumer products. For the Company’s commercial products, long life-cycles periodically necessitate last-time buys of raw materials which may be used over the course of several years. The Company routinely reviews inventory for usage potential, including fulfillment of customer warranty obligations and spare part requirements. If the Company believes that demand no longer allows the Company to sell inventory above cost or at all, management writes down that inventory to market or writes-off the excess and obsolete inventory. Write-downs are determined by reviewing the Company’s demand forecast and by determining what inventory, if any, is not saleable. The Company’s demand forecast projects future shipments using historical rates and takes into account market conditions, inventory on hand, purchase commitments, product development plans and product life expectancy, inventory on consignment, and other competitive factors. If the Company’s demand forecast is greater than actual demand and the Company fails to reduce its supply chain accordingly, it could be required to write down additional inventory, which would have a negative impact on the Company’s gross profit.
At the point of inventory write-down, a new, lower-cost basis for thatvalue. Once inventory is established andwritten down, subsequent changes in facts and circumstances do not result in restoration to the restorationoriginal cost basis or an increase in that newly established costthe new, lower-cost basis.
Product Warranty Obligations
The Company provides for product warranties in accordance with the underlying contractual terms given to the customer or end user of the product. The contractual terms may vary depending upon the geographic region in which the customer is located, the brand and type of product sold, and other conditions, which affect or limit the customer’s rights to return product under warranty. Where specific warranty return rights are given to customers, management accruesrecords a liability for the estimated costcosts of those warranties at the time the related revenue is recognized. Generally, warranties start atThe specific warranty terms and conditions range from one to two years starting from the delivery date to the customer or end user and continue for one or two years,vary depending onupon the type and brand,product sold and the locationcountry in which the product was purchased. Where specific warranty return rights are not given to t he customers but where the customers are granted limited rights of return or discounts in lieu of warranty, management records these rights of return or discounts as adjustments to revenue. In certain circumstances, the Company may sell product without warranty, and, accordingly, no charge is taken for warranty.does business. Factors that affect the warranty obligationobligations include sales terms, which obligate the Company to provide warranty, product failure rates, estimated return rates, material usage and service delivery costs incurred in correcting product failures. Management assesses the adequacy
Goodwill and Purchased Intangibles
As a resultGoodwill has been measured as the excess of past acquisitions, the Company has recorded goodwillcost of acquisition over the amount assigned to tangible and identifiable intangible assets on the consolidated balance sheets. In accordance with current accounting principles, the Company classifies intangible assets into three categories: (1) goodwill; (2) intangible assets with indefinite lives not subject to amortization; and (3) intangible assets with definite lives subject to amortization.
Goodwill and intangible assets with indefinite lives are not amortized.acquired less liabilities assumed. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs a review to determine if the carrying valuesvalue of goodwill and indefinite lived intangible assets areis impaired.
Goodwill has been measured as the excess of the cost of acquisition over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level. Such impairment tests for goodwill include comparingThe Company determines its reporting units by assessing whether discrete financial information is available and if segment management regularly reviews the results of that component. The Company has determined it has one reporting unit.
The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, the first step of the two-step impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill. The estimates of fair values of reporting units are based on the best information available as of the date of the assessment which primarily incorporate management assumptions about expected future cash flows, discount rates, overall market growth and the Company’s percentage of that market and growth rates in terminal values, estimated costs and other fact ors, which utilize historical data, internal estimates, and, in some cases, outside data. If the carrying value of the reporting unit exceeds management’s estimate of fair value, goodwill may become impaired, and the Company may be required to record an impairment charge, which would negatively impact its operating results. (See Note 8)
The fair value measurement of purchased intangible assets with indefinite lives involves the estimation of the fair value which is based on management assumptions about expected future cash flows, discount rates, growth rates, estimated costs and other factors which utilize historical data, internal estimates, and, in some cases, outside data. If the carrying value of the indefinite useful life intangible asset exceeds management’s estimate of fair value, the asset may become impaired, and the Company may be required to record an impairment charge which would negatively impact its operating results.
Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from three to ten years. Long-lived assets, including intangible assets, are reviewed for impairment in accordance with the Property, Plant, and Equipment Topic of the FASB ASC whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a change in the assessment of future operations. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is b ased on the amount that the carrying value of the asset exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. (See Note 9)
Property, Plant and Equipment
Property, plant and equipment areis stated at cost less accumulated depreciation and amortization. Depreciation is principally calculated using the straight-line method over the estimated useful lives of the respective assets, which range from fivetwo to 30thirty years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the remaining lease term. Consolidated depreciation and amortization expense, including both continuing and discontinued operations, for fiscal 2008, 2009 and 2010 was $20.3 million, $19.6 million and $16.4 million, respectively. In addition, the Company incurred $5.2 million of accelerated depreciation in Fiscal 2010 related to Assets held for Sale on its Suzhou China facilities which was incl uded in Restructuring and other related charges on the Consolidated statement of earnings.
Costs associated with internal-use software are recorded in accordance with the Intangibles –- Goodwill and Other Topic of the ASC.Accounting Standards Codification ("ASC"). Capitalized software costs are amortized on a straight-line basis over the estimated useful life. Unamortized capitalized software costs
Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company recognizes an impairment charge in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to the assets. No material impairment losses were $9.6 millionincurred in the periods presented.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and $7.3 millionliabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1
The Company's Level 1 financial assets consist of cash, money market funds, U.S. Treasury Bills, and derivative foreign currency forward contracts that are traded in an active market with sufficient volume and frequency of transactions. Level 1 financial liabilities consist of derivative contracts that have closed but have not settled.
The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.
Level 2
The Company's Level 2 financial assets and liabilities consist of Government Agency Securities, Commercial Paper, U.S. Corporate Bonds, Certificates of Deposit ("CDs"), and derivative foreign currency call and put option contracts.
The fair value of Level 2 investment securities is determined based on other observable inputs, including multiple non-binding quotes from independent pricing services. Non-binding quotes are based on proprietary valuation models that are prepared by the independent pricing services and use algorithms based on inputs such as observable market data, quoted market prices for similar securities, issuer spreads and internal assumptions of the broker. The Company corroborates the reasonableness of non-binding quotes received from the independent pricing services using a variety of techniques depending on the underlying instrument, including: (i) comparing them to actual experience gained from the purchases and maturities of investment securities, (ii) comparing them to internally developed cash flow models based on observable inputs, and (iii) monitoring changes in ratings of similar securities and the related impact on fair value.
The fair value of Level 2 derivative foreign currency call and put option contracts is determined using pricing models that use observable market inputs.
Level 3
The fair value of Level 3 financial instruments is determined using inputs that are unobservable and reflect the Company's estimate of assumptions that market participants would use in pricing the asset or liability. The Company had no Level 3 assets or liabilities as of March 31, 20092012 or 2011.
In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and 2010, respectively.certain other items at fair value. The consolidated amounts amortized to expense in both continuing and discontinued operations were $2.4 million, $3.1 million, and $3.0 million in fiscal 2008, 2009 and 2010, respectively.Company has not elected the fair value option for any eligible financial instruments.
Revenue Recognition
RevenueThe Company sells its products directly to customers and through other distribution channels, including distributors, retailers, carriers and original equipment manufacturers ("OEMs"). The Company's revenue is derived primarily from salesthe sale of products to customersheadsets, telephone headset systems and accessories for the business and consumer markets and is recognized when the following criteriapersuasive evidence of an arrangement exists, delivery has occurred or services have been met:
| · | title and risk of ownership are transferred to customers; |
| · | persuasive evidence of an arrangement exists; |
| · | the price to the buyer is fixed or determinable; and |
| · | collection is reasonably assured. |
rendered, the sales price is fixed or determinable and collection is reasonably assured. These criteria are usually met at the time of product shipment; however, the Company defers revenue when any significant obligations remain and to date this has accounted for less than 1% of the Company's Net revenues. Customer purchase orders and/or contracts are used to determine the existence of an arrangement. Product is considered delivered once it has been shipped and title and risk of loss have been transferred to the customer. The Company assesses whether a price is fixed or determinable based upon the selling terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectibility based on a customer’scustomer's credit quality, as well as subjective factors and trends, including historical experience, the age of any existing accounts receivable balances and geographic or country-specific risks and economic conditions that may affect a customer’scustomer's ability to pay.
Sales through retail and distribution channels are made primarily under agreements or commitments allowing for rights of return and include various sales incentive programs, such as rebates, advertising, price protection and other sales incentives. The Company defershas an established sales history for these arrangements and records the estimated reserves and allowances at the time the related revenue but recognizes related cost of revenues if collectibility cannot be reasonably assured. Plantronics recognizes revenue net ofis recognized. Sales return reserves are estimated product returns and expected payments to resellers for customer programs including cooperative advertising, marketing development funds, volume rebates, and special pricing programs.
Estimated product returns are deducted from revenues upon shipment, based on historical return rates, assumptions regardingdata, relevant current data and the ratemonitoring of sell-through to end users from our various channelsinventory build-up in the distribution channel. The allowance for sales incentive programs is based on historical sell-through rates,experience and other relevant factors. Such estimates may need to be revised and could have an adverse impact on revenues if product lives vary significantly from management estimates, a particular selling channel experiences a higher than estimated return rate,contractual terms or commitments in the form of lump sum payments or sell-through rates are slower causing inventory build-up.credits.
Cooperative advertisingResearch, Development and marketingEngineering
Research, development fundsand engineering costs are accounted for in accordanceexpensed as incurred and consist primarily of compensation costs, outside services, including legal fees associated with protecting the Revenue Recognition TopicCompany's intellectual property, expensed materials, depreciation, and an allocation of the FASB ASC. Under these guidelines, the Company accrues for these funds as marketing expense if it receives a separately identifiable benefit in exchangeoverhead expenses, including facilities, IT and can reasonably estimate the fair value of the identifiable benefit received; otherwise, it is recorded as a reduction to revenues.human resources costs.
Reductions to revenue for expected and actual payments to resellers for volume rebates and pricing protection are based on actual expenses incurred during the period, estimates for what is due to resellers for estimated credits earned during the period and any adjustments for credits based on actual activity. If the actual payments exceed management’s estimates, this could result in an adverse impact on the Company’s revenues. Since management has historically been able to reliably estimate the amount of allowances required for future price adjustments and product returns, the Company recognizes revenue, net of projected allowances, upon recognition of the related sale. In situations where management is unable to reliably estimate the amount of future price adjustments and product returns, t he Company defers recognition of the revenue until the right to future price adjustments and product returns lapses, and the Company is no longer under any obligation to reduce the price or accept the return of the product.
If market conditions warrant, Plantronics may take actions to stimulate demand, which could include increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in incremental reductions to revenues and margins at the time such incentives are offered. To the extent that Plantronics reduces pricing, the Company may incur reductions to revenue for price protection based on management’s estimate of inventory in the channel that is subject to such pricing actions.
Advertising Costs
The Company expenses all advertising costs as incurred. Consolidated advertisingAdvertising expense included in both continuing and discontinued operations for the years ended March 31, 2008, 20092012, 2011 and 2010 was $9.9$2.6 million $6.9, $2.4 million and $4.6$4.6 million, respectively.
Income Taxes
The Company is subject to income taxes both in the U.S. as well as in severaland foreign jurisdictions. The Company must make certain estimates and judgments in determining incomeAt any one time, multiple tax expense for its financial statements. These estimates occur inyears are subject to audit by the calculation ofvarious tax benefits and deductions, tax credits, and tax assets and liabilities which are generated from differences in the timing of when items are recognized for book purposes and when they are recognized for tax purposes.authorities.
The Company recognizes the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain incomeunrecognized tax positionbenefit will not be recognized unless it has a greater than 50% likelihood of being sustained. As of March 31, 2010, theThe Company had $11.2 million ofadjusts its tax liability for unrecognized tax benefits allin the period in which an uncertain tax position is effectively settled, the statute of which would favorably impactlimitations expires for the effectiverelevant taxing authority to examine the tax rate in future periods if recognized.position, or when more information becomes available. The Company continues to follow the practice of recognizingrecognizes interest and penalties related to income tax matters as a part of theits provision for income taxes. (See Note 17)
The Company accounts for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. (See Note 15)
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period, less common stock subject to repurchase. Diluted earnings per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock options, the vesting of awards of restricted stock awards and the estimated shares to be purchased under the Company’s employee stock purchase plan, which are reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of stock-based compensation cost for future services that the Company has not yet recognized, and the amount of tax benefit that would be recorded in additional paid-in capital upon exercise are assumed to be used to repurchase shares. (See Note 16)18)
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (expense).income. Other comprehensive income (loss) refers to income, expenses, gains, and losses that under generally accepted accounting principlesU.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss).income. Accumulated other comprehensive income, as presented in the accompanying consolidated balance sheets, consists of foreign currency translation adjustments, unrealized gains and losses on derivatives designated as cash flow hedges, net of tax, and unrealized gains and losses related to the Company’s investments, net of tax.
Foreign Operations and Currency Translation
The functional currency of the Company’s foreign sales and marketing offices, except as noted in the following paragraph, is the local currency of the respective operations. For these foreign operations, the Company translates assets and liabilities into U.S. dollars using the period-end exchange rates in effect as of the balance sheet date and translates revenues and expenses using the average monthly exchange rates. The resulting cumulative translation adjustments are included in Accumulated other comprehensive income, a separate component of Stockholders' equity in the accompanying consolidated balance sheets.
The functional currency of the Company’s European finance, sales and logistics headquarters in the Netherlands, sales office and warehouse in Japan, manufacturing facilities in Tijuana, Mexico and logistic and research and development facilities in China, is the U.S. Dollar. For these foreign operations, assets and liabilities denominated in foreign currencies are re-measured at the period-end or historical rates, as appropriate. Revenues and expenses are re-measured at average monthly rates which the Company believes to be a fair approximation of actual rates. Currency transaction gains and losses are recognized in current operations. Realized foreign currency exchange gains (losses) were $0.9 million, $(6.3) million, and $1.0 million in fiscal 2008, 2009 and 2010, respectively.(See Note 16)
Stock-Based Compensation Expense
The Company applies the provisions of the Compensation – Stock Compensation Topic of the FASB ASC, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on estimated fair values.
The Company has elected to adopt the alternative transition method for calculating the tax effects of stock-based compensation pursuant to the accounting principle. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of the accounting principle. (See Note 12)
Treasury Shares
TheFrom time to time, the Company repurchases treasury shares in accordance with approved repurchase plans. On January 25, 2008, the Board of Directors authorized the repurchase of 1,000,000 shares of common stock under which the Company may purchase shares in the open market, depending on the market conditions, from time to time. During fiscal 2008 and 2009, the Company repurchased 1,000,000 shares of its common stock, under this repurchase plandepending on market conditions, in the open market at a total cost of $18.3 million and an average price of $18.30 per share. On November 10, 2008,or through privately negotiated transactions, in accordance with programs authorized by the Board of Directors authorized a new plan to repurchase 1,000,000Directors. Repurchased shares of common stock. During fiscal 2009 and 2010, the Company repurchased 1,000,000 shares of its commonare held as treasury stock under this plan in the open market at a total cost of $23.7 million and an a verage price of $23.66 per share. On November 27, 2009, the Board of Directors authorized a new plan to repurchase 1,000,000 shares of common stock. During fiscal 2010, the Company repurchased 1,000,000 shares of its common stock under this plan in the open market at a total cost of $26.3 million and an average price of $26.26 per share.
On March 1, 2010, the Board of Directors authorized a new plan to repurchase 1,000,000 shares of common stock. During fiscal 2010, the Company repurchased 24,100 shares of its common stock under this plan in the open market at a total cost of $0.8 million and an average price of $31.31 per share. As of March 31, 2010, there were 975,900 remaining shares authorized for repurchase.
On January 13, 2009 and December 2, 2009, the Companyuntil such time as they are retired 16.0 million shares and 2.0 million shares, respectively,or re-issued. Retirements of treasury stock are non-cash equity transactions in which werethe reacquired shares are returned to the status of authorized but unissued shares. These were non-cash equity transactions in whichshares and the cost of the reacquired shares wasis recorded as a deductionreduction to both retainedRetained earnings and treasuryTreasury stock. (See Note 13)
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term securities,and long-term investments and trade receivables.
Plantronics’ investment policies for cash limit investments to those that are short-term and low risk and also limit the amount of credit exposure to any one issuer and restrict placement of these investments to issuers evaluated as creditworthy. Cash equivalents have a remaining maturityAs of three months or less at the date of purchase. Short-term securities have a remaining maturity of greater than three months at the date of purchase. Long-term investments have maturities greater than one year or we do not currently have the ability to liquidate the investment. As a result of the uncertai nties in the credit markets and the UBS right offer, as of March 31, 2009,2012 and 2011, the Company had classified all of its ARS investments as long-term since theseCompany's investments were not currently liquid,composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S. Corporate Bonds and the Company would 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. As of March 31, 2010, the Company’s ARS portfolio is classified as a short-term trading security due to management’s intent to exercise the put option with UBS and the expectation that the ARS will be sold within twelve months.CDs.
Concentrations of credit risk with respect to trade receivables are generally limited due to the large number of customers that comprise the Company’s customer base and their dispersion across different geographies and markets. Plantronics performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. The Company maintains an allowancea provision for uncollectibledoubtful accounts receivable based upon expected collectibility of all accounts receivable.
Certain inventory components that meetrequired by the Company’s requirementsCompany are only available only from a limited number of suppliers. The rapid rate of technological change and the necessity of developing and manufacturing products with short lifecycles may intensify these risks. The inability to obtain components as required, or to develop alternative sources, as required in the future, could result in delays or reductions in product shipments, which in turn could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
| |
3. | RECENT ACCOUNTING PRONOUNCEMENTS |
Recently Adopted Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU allows entities to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If this is the case, the entity is required to perform a more detailed two-step goodwill impairment test that is used to identify potential goodwill impairment and to measure the amount of goodwill impairment losses, if any, to be recognized. The Company adopted ASU 2011-08 in the fourth quarter of fiscal year 2012 and it did not have an impact on the Company's financial statements. Refer to Note 8, Goodwill and Purchased Intangible Assets, for details of the goodwill impairment analysis.
Recently Issued Pronouncements
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU requires the Company to disclose both net and gross information about assets and liabilities that have been offset, if any, and the related arrangements. The disclosures under this new guidance are required to be provided retrospectively for all comparative periods presented. The Company is required to implement this guidance effective for the first quarter of fiscal 2014 and does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, as amended, which requires the Company to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Certain of the provisions are effective for the Company in its first quarter of fiscal 2013 and will be applied retrospectively. The Company intends to present other comprehensive income in two separate and consecutive statements.
| |
4. | DISCONTINUED OPERATIONS |
The Company entered into an Asset Purchase Agreement on October 2, 2009 to sell Altec Lansing, its AEG segment ("AEG"), for which the sale was completed effective December 1, 2009. AEG was engaged in the design, manufacture, sales and marketing of audio solutions and related technologies. All of the revenues in the AEG segment were derived from the sale of Altec Lansing products. All operations of AEG have been classified as discontinued operations in the Consolidated statement of operations for all periods presented.
There was no income or loss from discontinued operations for the fiscal years ended March 31, 2012 and 2011. The results from discontinued operations for the fiscal year ended March 31, 2010 were as follows (in thousands):
|
| | | | |
Net revenues | | $ | 64,916 |
|
Cost of revenues | | (53,127 | ) |
Operating expenses | | (16,433 | ) |
Impairment of goodwill and long-lived assets | | (25,194 | ) |
Restructuring and other related charges | | (19 | ) |
Loss on sale of AEG | | (611 | ) |
Loss from operations of discontinued AEG segment (including loss on sale of AEG) | | (30,468 | ) |
Tax benefit from discontinued operations | | (11,393 | ) |
Loss on discontinued operations, net of tax | | $ | (19,075 | ) |
The Company recognized a pre-tax loss on the sale of Altec Lansing in fiscal year 2010, calculated as follows (in thousands):
|
| | | | |
Proceeds received upon close | | $ | 11,075 |
|
Escrow payments received to date | | 2,065 |
|
Remaining escrow payments to be received (subsequently received in fiscal year 2011) | | 1,625 |
|
Payment to purchaser for adjustment for final value of net assets under APA | | (3,956 | ) |
Total estimated proceeds | | 10,809 |
|
Book value of net assets sold | | (11,057 | ) |
Costs incurred upon closing | | (363 | ) |
Loss on sale of AEG | | $ | (611 | ) |
| |
5. | CASH, CASH EQUIVALENTS AND INVESTMENTS |
The following table presents the Company's cash, cash equivalents and investments as of March 31, 2012 and 2011:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | March 31, 2012 | | March 31, 2011 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
Cash | | $ | 147,338 |
| | $ | — |
| | $ | — |
| | $ | 147,338 |
| | $ | 136,804 |
| | $ | — |
| | $ | — |
| | $ | 136,804 |
|
Cash equivalents | | 61,996 |
| | 2 |
| | (1 | ) | | 61,997 |
| | 140,569 |
| | 1 |
| | (1 | ) | | 140,569 |
|
Total Cash and cash equivalents | | $ | 209,334 |
| | $ | 2 |
| | $ | (1 | ) | | $ | 209,335 |
| | $ | 277,373 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 277,373 |
|
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | $ | 61,898 |
| | $ | 22 |
| | $ | (24 | ) | | $ | 61,896 |
| | $ | 105,849 |
| | $ | 17 |
| | $ | (3 | ) | | $ | 105,863 |
|
Commercial Paper | | 20,041 |
| | 1 |
| | (3 | ) | | 20,039 |
| | 30,071 |
| | 5 |
| | (1 | ) | | 30,075 |
|
Corporate Bonds | | 38,300 |
| | 60 |
| | (4 | ) | | 38,356 |
| | 11,212 |
| | 4 |
| | — |
| | 11,216 |
|
Certificates of Deposit ("CDs") | | 4,883 |
| | 3 |
| | — |
| | 4,886 |
| | 5,420 |
| | 9 |
| | — |
| | 5,429 |
|
Total Short-term investments | | $ | 125,122 |
| | $ | 86 |
| | $ | (31 | ) | | $ | 125,177 |
| | $ | 152,552 |
| | $ | 35 |
| | $ | (4 | ) | | $ | 152,583 |
|
| | | | | | | | | | | | | | | | |
Long-term investments: | | | | | | | | | | | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | $ | 29,814 |
| | $ | 24 |
| | $ | (1 | ) | | $ | 29,837 |
| | $ | 17,387 |
| | $ | 4 |
| | $ | — |
| | $ | 17,391 |
|
Corporate Bonds | | 25,507 |
| | 29 |
| | (26 | ) | | 25,510 |
| | 19,086 |
| | 8 |
| | (35 | ) | | 19,059 |
|
CDs | | — |
| | — |
| | — |
| | — |
| | 2,879 |
| | 3 |
| | — |
| | 2,882 |
|
Total Long-term investments | | $ | 55,321 |
| | $ | 53 |
| | $ | (27 | ) | | $ | 55,347 |
| | $ | 39,352 |
| | $ | 15 |
| | $ | (35 | ) | | $ | 39,332 |
|
| | | | | | | | | | | | | | | | |
Total cash, cash equivalents and investments | | $ | 389,777 |
| | $ | 141 |
| | $ | (59 | ) | | $ | 389,859 |
| | $ | 469,277 |
| | $ | 51 |
| | $ | (40 | ) | | $ | 469,288 |
|
As of March 31, 2012 and 2011, all of the Company's investments are classified as available-for-sale securities.
The following table summarizes the amortized cost and fair value of the Company's cash equivalents, short-term investments and long-term investments, classified by stated maturity as of March 31, 2012 and 2011:
|
| | | | | | | | | | | | | | | | |
(in thousands) | | March 31, 2012 | | March 31, 2011 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in 1 year or less | | $ | 187,118 |
| | $ | 187,174 |
| | $ | 293,121 |
| | $ | 293,152 |
|
Due in 1 to 3 years | | 55,321 |
| | 55,347 |
| | 39,352 |
| | 39,332 |
|
Total | | $ | 242,439 |
| | $ | 242,521 |
| | $ | 332,473 |
| | $ | 332,484 |
|
The Company did not incur any material realized or unrealized net gains or losses for the fiscal years ended March 31, 2012 and 2011.
| |
6. | FAIR VALUE MEASUREMENTS |
The following table represents the Company's fair value hierarchy for its financial assets and liabilities:
Fair Values as of March 31, 2012:
|
| | | | | | | | | | | | |
(in thousands) | | Level 1 | | Level 2 | | Total |
Cash and cash equivalents: | | | | | | |
Cash | | $ | 147,338 |
| | $ | — |
| | $ | 147,338 |
|
U.S. Treasury Bills | | 50,000 |
| | — |
| | 50,000 |
|
Commercial Paper | | — |
| | 11,997 |
| | 11,997 |
|
Short-term investments: | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | 12,898 |
| | 48,998 |
| | 61,896 |
|
Commercial Paper | | — |
| | 20,039 |
| | 20,039 |
|
Corporate Bonds | | — |
| | 38,356 |
| | 38,356 |
|
CDs | | — |
| | 4,886 |
| | 4,886 |
|
Long-term investments: | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | 6,647 |
| | 23,190 |
| | 29,837 |
|
Corporate Bonds | | — |
| | 25,510 |
| | 25,510 |
|
Other current assets: | | | | | | |
Derivative assets | | — |
| | 2,658 |
| | 2,658 |
|
Total assets measured at fair value | | $ | 216,883 |
| | $ | 175,634 |
| | $ | 392,517 |
|
| | | | | | |
Accrued liabilities: | | | | | | |
Derivative liabilities | | $ | 7 |
| | $ | 714 |
| | $ | 721 |
|
Fair Values as of March 31, 2011:
|
| | | | | | | | | | | | |
(in thousands) | | Level 1 | | Level 2 | | Total |
Cash and cash equivalents: | | | | | | |
Cash | | $ | 136,804 |
| | $ | — |
| | $ | 136,804 |
|
U.S. Treasury Bills | | 74,991 |
| | — |
| | 74,991 |
|
Commercial Paper | | — |
| | 22,495 |
| | 22,495 |
|
Corporate Bonds | | — |
| | 3,082 |
| | 3,082 |
|
CDs | | — |
| | 2,001 |
| | 2,001 |
|
Money Market Accounts | | 38,000 |
| | — |
| | 38,000 |
|
Short-term investments: | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | 71,756 |
| | 34,107 |
| | 105,863 |
|
Commercial Paper | | — |
| | 30,075 |
| | 30,075 |
|
Corporate Bonds | | — |
| | 11,216 |
| | 11,216 |
|
CDs | | — |
| | 5,429 |
| | 5,429 |
|
Long-term investments: | | | | | | |
U.S. Treasury Bills and Government Agency Securities | | 7,955 |
| | 9,436 |
| | 17,391 |
|
Corporate Bonds | | — |
| | 19,059 |
| | 19,059 |
|
CDs | | — |
| | 2,882 |
| | 2,882 |
|
Other current assets: | | | | | | |
Derivative assets | | — |
| | 360 |
| | 360 |
|
Total assets measured at fair value | | $ | 329,506 |
| | $ | 140,142 |
| | $ | 469,648 |
|
| | | | | | |
Accrued liabilities: | | | | | | |
Derivative liabilities | | $ | 27 |
| | $ | 4,174 |
| | $ | 4,201 |
|
Refer to Note 16, Foreign Currency Derivatives, which discloses the nature of the Company's derivative assets and liabilities as of March 31, 2012 and 2011.
| |
7. | DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS |
Accounts receivable, net:
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Accounts receivable | | $ | 133,233 |
| | $ | 125,137 |
|
Provisions for returns | | (7,613 | ) | | (10,437 | ) |
Provisions for promotions, rebates and other | | (12,756 | ) | | (10,460 | ) |
Provisions for doubtful accounts and sales allowances | | (1,093 | ) | | (951 | ) |
Accounts receivable, net | | $ | 111,771 |
| | $ | 103,289 |
|
Inventory, net:
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Raw materials | | $ | 14,062 |
| | $ | 15,315 |
|
Work in process | | 2,740 |
| | 2,558 |
|
Finished goods | | 36,911 |
| | 38,600 |
|
Inventory, net | | $ | 53,713 |
| | $ | 56,473 |
|
Property, plant and equipment, net:
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Land | | $ | 6,531 |
| | $ | 5,867 |
|
Buildings and improvements (useful life: 7-30 years) | | 67,417 |
| | 55,256 |
|
Machinery and equipment (useful life: 2-10 years) | | 90,643 |
| | 87,001 |
|
Software (useful life: 5-6 years) | | 28,951 |
| | 27,096 |
|
Construction in progress | | 2,323 |
| | 8,556 |
|
| | 195,865 |
| | 183,776 |
|
Accumulated depreciation and amortization | | (119,706 | ) | | (113,154 | ) |
Property, plant and equipment, net | | $ | 76,159 |
| | $ | 70,622 |
|
Depreciation and amortization expense for fiscal years 2012, 2011 and 2010 was $13.3 million, $13.7 million and $16.4 million, respectively. In addition, the Company incurred $5.2 million of accelerated depreciation in fiscal year 2010 related to discontinued operations at its former Suzhou China facilities, which was included in Restructuring and other related charges on the Consolidated statements of operations.
Unamortized capitalized software costs were $6.7 million and $7.4 million at March 31, 2012 and 2011, respectively. Amortization expense related to capitalized software costs in fiscal years 2012, 2011 and 2010 was $3.1 million, $3.1 million, and $3.0 million, respectively.
Accrued liabilities:
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Employee compensation and benefits | | $ | 24,458 |
| | $ | 27,478 |
|
Warranty obligation | | 13,346 |
| | 11,016 |
|
Accrued advertising and sales and marketing | | 1,317 |
| | 2,873 |
|
Accrued other | | 12,946 |
| | 18,240 |
|
Accrued liabilities | | $ | 52,067 |
| | $ | 59,607 |
|
Changes in the warranty obligation, which are included as a component of Accrued liabilities in the Consolidated balance sheets, are as follows:
|
| | | | | | | | |
| | Year ended March 31, |
(in thousands) | | 2012 | | 2011 |
Warranty obligation at beginning of period | | $ | 11,016 |
| | $ | 11,006 |
|
Warranty provision relating to products shipped during the year | | 17,061 |
| | 14,769 |
|
Deductions for warranty claims processed | | (14,731 | ) | | (14,759 | ) |
Warranty obligation at end of period | | $ | 13,346 |
|
| $ | 11,016 |
|
| |
8. | GOODWILL AND PURCHASED INTANGIBLE ASSETS |
Goodwill
The Company has goodwill of $14.0 million as of March 31, 2012 and 2011 and there were no changes in the carrying value during the fiscal years then ended.
In fiscal years 2012 and 2011, for purposes of the annual goodwill impairment test, the Company determined there to be no reporting units below its operating segment; therefore, the annual goodwill impairment analysis was performed at the segment level in both of these years.
In the fourth quarter of fiscal year 2012, the Company identified qualitative factors that may affect the fair value of the reporting unit, including changes in the Company's industry, competitive environment, business strategy, and product mix; current and historical budgeted to actual performance; Company and peer market capitalization trends; macro-economic conditions and currency rate fluctuations. The Company also considered the results of its most recent fair value calculation and the amount by which the fair value of the reporting unit exceeded its carrying value, as well as the extent to which the inputs and assumptions in the fair value calculation would need to deteriorate in order for the reporting unit's fair value to fall below carrying value. Based on the assessment of the foregoing factors, the Company concluded there to be no indication of goodwill impairment.
In the fourth quarter of fiscal year 2011, the Company elected to use the fair value carry forward approach previously allowed under the Intangibles - Goodwill and Other Topic of the FASB ASC and determined each of the relevant criteria had been met. As a result of this determination, the Company concluded it was appropriate to carry forward the fair value from the valuation performed in the fourth quarter of fiscal year 2010 and concluded there to be no indication of goodwill impairment.
Purchased Intangible Assets
The following table presents the carrying value of purchased intangible assets with remaining net book values as of March 31, 2012 and 2011:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2012 | | March 31, 2011 | | | |
| | Gross | | Accumulated | | Net | | Gross | | Accumulated | | Net | | | |
(in thousands) | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | | Useful Life |
Technology | | $ | 3,000 |
| | $ | (3,000 | ) | | $ | — |
| | $ | 3,000 |
| | $ | (2,812 | ) | | $ | 188 |
| | 6 |
| years |
Customer relationships | | 1,705 |
| | (1,322 | ) | | 383 |
| | 1,705 |
| | (1,044 | ) | | 661 |
| | 8 |
| years |
OEM relationships | | 27 |
| | (27 | ) | | — |
| | 27 |
| | (20 | ) | | 7 |
| | 7 |
| years |
Total | | $ | 4,732 |
| | $ | (4,349 | ) | | $ | 383 |
| | $ | 4,732 |
| | $ | (3,876 | ) | | $ | 856 |
| | | |
Amortization expense relating to intangible assets was immaterial for fiscal year 2012, and for fiscal year 2011 and 2010 was $2.6 million and $1.8 million, respectively.
The Company tests its indefinite lived intangible assets for impairment by comparing the fair value of the intangible asset with its carrying value. If the fair value is less than its carrying value, an impairment charge is recognized for the difference. As of March 31, 2012, the Company had no indefinite lived intangible assets other than goodwill; however, the Company had previously reported indefinite lived intangible assets for which impairment or accelerated amortization charges were recorded in prior years presented in the Consolidated statements of operations and these are discussed below.
During the fourth quarter of fiscal year 2011, the Company finalized a long-term product development strategy and in doing so, evaluated the extent to which acquired technology would be used in future products. As part of this analysis, the Company elected to abandon certain of its acquired technology and therefore, recorded $1.4 million in accelerated amortization expense in the fourth quarter of fiscal year 2011 to reflect the revised estimate of the asset's useful life.
During the second quarter of fiscal year 2010, management entered into a non-binding letter of intent to sell Altec Lansing, the Company’s AEG segment. The Company concluded that this triggered an interim impairment review as it was now more likely than not that the segment would be sold; however, as the Company’s Board of Directors had not yet approved the sale of the segment, the assets did not qualify for “held for sale” accounting under the Property, Plant and Equipment Topic of the FASB ASC. The Company tests its indefinite lived assets for impairment by comparing the fair value of the intangible asset with its carrying value. If the fair value is less than its carrying value, an impairment charge is recognized for the difference. The Company used the proposed purchase price of the AEG segment net assets per the non-binding letter of intent signed during the quarter as the fair value of the segment’s net assets. This resulted in a full impairment of the Altec Lansing trademark and trade name; therefore, the Company recognized a non-cash impairment charge of $18.6 million in the second quarter of fiscal year 2010 and recognized a deferred tax benefit of $7.1 million associated with this impairment charge, which is included in discontinued operations for the fiscal year ended March 31, 2010.
As a result of the proposed purchase price of the net assets of the AEG segment, the Company also evaluated the long-lived assets within the reporting unit. The fair value of the long-lived assets, which included purchased intangible assets and property, plant and equipment, was determined for each individual asset and compared to the asset’s relative carrying value. This resulted in a full impairment of the AEG intangibles and a partial impairment of its property, plant and equipment; therefore, in the second quarter of fiscal year 2010, the Company recognized non-cash impairment charges of $6.6 million and $3.8 million related to purchased intangible assets and property, plant and equipment, respectively. The Company recognized a deferred tax benefit of $2.5 million associated with these impairment charges. The impairment charges and tax benefit are recorded in discontinued operations for the year ended March 31, 2010.
| |
9. | RESTRUCTURING AND OTHER RELATED CHARGES |
The Company recorded the restructuring activities discussed below applying the guidance of either the Exit or Disposal Cost Obligations Topic and the Compensation - Nonretirement Postemployment Benefits Topic of the FASB ASC.
In fiscal year 2009, the Company announced various restructuring activities that were completed as of December 31, 2010. These actions consisted of reductions in force throughout all of the Company's geographies along with a plan to close its manufacturing operations in its Suzhou, China facility due to the decision to outsource the manufacturing of Bluetooth products to a third party supplier in China. There were no restructuring charges during the years ended March 31, 2012 or 2011; however, in fiscal year 2011 the Company recorded an immaterial net gain upon the sale of a facility located in China impacted by the restructuring activities. In fiscal year 2010, the Company recorded restructuring charges of $1.9 million, consisting of severance and benefits along with facilities and equipment charges.
| |
10. | COMMITMENTS AND CONTINGENCIES |
Minimum Future Rental Payments
The Company leases certain equipment and facilities under operating leases expiring in various years through fiscal year 2022. The terms of some of the Company's leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.
Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2012 are as follows:
|
| | | | |
Fiscal Year Ending March 31, | | (in thousands) |
2013 | | $ | 5,355 |
|
2014 | | 4,392 |
|
2015 | | 1,649 |
|
2016 | | 887 |
|
2017 | | 241 |
|
Thereafter | | 686 |
|
Total minimum future rental payments | | $ | 13,210 |
|
Total rent expense for operating leases was approximately $5.9 million, $5.6 million, and $6.0 million in fiscal years 2012, 2011 and 2010, respectively.
Certain operating leases provide for renewal options for periods from one to three years. In the normal course of business, operating leases are generally renewed or replaced by other leases.
Indemnifications
The Company entered into an Asset Purchase Agreement ("Agreement") on October 2, 2009 to sell Altec Lansing, its AEG segment. Under the Agreement, as amended, the Company made representations and warranties to the purchaser about the condition of AEG, including matters relating to intellectual property, taxes, employee or environmental matters, and fraud. No indemnification costs have been recorded as of March 31, 2012 or March 31, 2011.
Other Guarantees and Obligations
The Company sells substantially all of its products to end users through distributors, retailers, OEMs, and telephony service providers (collectively "customers"). As is customary in the Company’s industry and as provided for in local law in the U.S. and other jurisdictions, Plantronics’ standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of its products. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various trigger events relating to the sale and use of its products and services. In addition, Plantronics also provides protection to customers against claims related to undiscovered liabilities, additional product liability, or environmental obligations. In the Company’s experience, claims made under these indemnifications are rare and the associated estimated fair value of th ethe liability is not material.
3. | RECENT ACCOUNTING PRONOUNCEMENTS |
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-6, Improving Disclosures About Fair Value Measurements, that amends existing disclosure requirements under the Fair Value Measurements and Disclosures Topic of the ASC by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. For Plantronics, this ASU is effective for the fourth quarter of fiscal 2010, except for the requirement to provide level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective beginning the first quarter of fiscal 2012. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on the Company’s consolidated financial statements.
4. | DISCONTINUED OPERATIONS |
The Company entered into an Asset Purchase Agreement on October 2, 2009, a First Amendment to the Asset Purchase Agreement on November 30, 2009, a Side Letter to the Asset Purchase Agreement on January 8, 2010, and a second Side Letter to the Asset Purchase Agreement on February 15, 2010 (collectively, the “APA”) to sell Altec Lansing, its AEG segment, which was completed effective December 1, 2009. AEG was engaged in the design, manufacture, sales and marketing of audio solutions and related technologies. All of the revenues in the AEG segment were derived from sales of Altec Lansing products. All operations of AEG have been classified as discontinued operations in the Consolidated statement of operations for all periods presented.
Pursuant to the APA, we received approximately $11.1 million upon closing of the transaction. In addition, the Company originally recorded $5.1 million in contingent escrow assets which primarily consisted of amounts for (1) potential customer short payments on accounts receivable for sales related reserves that were sold to the Purchaser, (2) potential indemnification claims,Claims and (3) potential adjustments related to the final valuation of net assets sold in comparison to the target net asset value. In the fourth quarter of fiscal 2010, the Company received $2.1 million of the escrow and released $1.4 million of the escrow for potential customer short payments as this was not utilized. The remaining escrow amounts of $1.6 million are included in Other current assets on the Consolidated balance sheet as of March 31, 2010 as they are all collectable within one year.
The final purchase price was based on certain post closing adjustments which were finalized in the fourth quarter of fiscal 2010. Consequently, the actual proceeds and net assets sold varied from the amounts reported in the third quarter of fiscal 2010 based on the final net asset value as compared to the target net asset value per the APA.
Under the terms of the APA, the Company sold the following net assets, valued at their book value (in thousands):
Inventory, net | | $ | 17,702 | |
Sales related reserves included in Accounts receivable, net | | | (4,724 | ) |
Property, plant and equipment, net | | | 1,012 | |
Warranty obligation accrual | | | (383 | ) |
Accrual for inventory claims at manufacturers | | | (657 | ) |
Adjustment for final assets transferred | | | (1,893 | ) |
Total net assets sold | | $ | 11,057 | |
Litigation
The Company retained all existing AEG related accounts receivable, accounts payable and certain other liabilities as of the close date.
The Company recorded a loss of $0.6 million in fiscal 2010 on the sale of Altec Lansing which is calculated as follows (in thousands):
Proceeds received upon close | | $ | 11,075 | |
Escrow payments received to date | | | 2,065 | |
Remaining escrow payments to be received | | | 1,625 | |
Payment to purchaser for adjustment for final value of net assets under APA | | | (3,956 | ) |
Total estimated proceeds | | | 10,809 | |
Book value of net assets sold | | | (11,057 | ) |
Costs incurred upon closing | | | (363 | ) |
Loss on sale of AEG | | $ | (611 | ) |
The results from discontinued operations, including the loss on sale of Altec Lansing, for the fiscal years 2008, 2009 and 2010 are as follows:
(in thousands) | | Year Ended March 31, | |
| | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
Net revenues | | $ | 108,351 | | | $ | 91,029 | | | $ | 64,916 | |
Cost of revenues | | | (103,318 | ) | | | (86,932 | ) | | | (53,127 | ) |
Operating expenses | | | (37,232 | ) | | | (28,144 | ) | | | (16,433 | ) |
Impairment of goodwill and long-lived assets | | | - | | | | (117,464 | ) | | | (25,194 | ) |
Restructuring and other related charges | | | (3,584 | ) | | | (1,122 | ) | | | (19 | ) |
Loss on sale of AEG | | | - | | | | - | | | | (611 | ) |
Loss from operations of discontinued AEG segment (including loss on sale of AEG) | | | (35,783 | ) | | | (142,633 | ) | | | (30,468 | ) |
Tax benefit from discontinued operations | | | (12,166 | ) | | | (32,392 | ) | | | (11,393 | ) |
Loss on discontinued operations, net of tax | | $ | (23,617 | ) | | $ | (110,241 | ) | | $ | (19,075 | ) |
The following table presents the Company’s investments at March 31, 2009 and 2010:
(in thousands) | | Balances at March 31, 2009 | | | Balances at March 31, 2010 | |
| | Adjusted Cost Basis | | | Unrealized Gain(Loss) | | | Accrued Interest | | | Fair Value | | | Adjusted Cost Basis | | | Unrealized Gain(Loss) | | | Accrued Interest | | | Fair Value | |
Short-term investments: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury Bills | | $ | 59,977 | | | $ | - | | | $ | 10 | | | $ | 59,987 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Auction rate securities | | | - | | | | - | | | | - | | | | - | | | | 19,231 | | | | - | | | | - | | | | 19,231 | |
Total short-term investments | | | 59,977 | | | | - | | | | 10 | | | | 59,987 | | | | 19,231 | | | | - | | | | - | | | | 19,231 | |
Long-term investments: | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Auction rate securities | | | 23,718 | | | | - | | | | - | | | | 23,718 | | | | - | | | | - | | | | - | | | | - | |
Total long-term investments | | | 23,718 | | | | - | | | | - | | | | 23,718 | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total short-term and long-term investments | | $ | 83,695 | | | $ | - | | | $ | 10 | | | $ | 83,705 | | | $ | 19,231 | | | $ | - | | | $ | - | | | $ | 19,231 | |
At March 31, 2009, all of the Company’s short-term investments consisted of U.S. Treasury Bills and were classified as available-for-sale. At March 31, 2010, the Company’s short-term investments consisted of auction rate securities (“ARS”), classified as trading securities.
At March 31, 2009, all of the Company’s long-term investments consisted of ARS which were transferred from available-for-sale to trading securities in the third quarter of fiscal 2009. At the time of transfer, the Company recorded unrealized losses of $4.0 million related to its ARS within Interest and other income (expense), net in the Consolidated statement of operations which was offset in part by an unrealized gain based on the fair value of the associated put option of $3.9 million also recorded to Interest and other income (expense), net.
The Company did not incur any material net realized or unrealized gains or losses in the years ended March 31, 2008, 2009 or 2010.
6. | FAIR VALUE MEASUREMENTS |
The Company adopted the fair value measurement and disclosure principles for its financial assets and liabilities on April 1, 2008. In accordance with the accounting principles, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities as of March 31, 2009 and 2010:
Fair value as of March 31, 2009 | | | | | | | | | | | | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | |
Money market funds | | $ | 61,604 | | | $ | - | | | $ | - | | | $ | 61,604 | |
U.S. Treasury Bills | | | 109,981 | | | | - | | | | - | | | | 109,981 | |
Derivative assets | | | - | | | | 7,613 | | | | - | | | | 7,613 | |
Auction rate securities - trading securities | | | - | | | | - | | | | 23,718 | | | | 23,718 | |
Derivative - UBS Rights Agreement | | | - | | | | - | | | | 4,180 | | | | 4,180 | |
Reserve Primary Fund | | | - | | | | - | | | | 162 | | | | 162 | |
Total assets measured at fair value | | $ | 171,585 | | | $ | 7,613 | | | $ | 28,060 | | | $ | 207,258 | |
| | | | | | | | | | | | | | | | |
Derivative liabilities | | $ | 950 | | | $ | 875 | | | $ | - | | | $ | 1,825 | |
Fair value as of March 31, 2010 | | | | | | | | | | | | |
(in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | |
Money market funds | | $ | 29,000 | | | $ | - | | | $ | - | | | $ | 29,000 | |
U.S. Treasury Bills | | | 250,979 | | | | - | | | | - | | | | 250,979 | |
Derivative assets | | | 232 | | | | 2,845 | | | | - | | | | 3,077 | |
Auction rate securities - trading securities | | | - | | | | - | | | | 19,231 | | | | 19,231 | |
Derivative - UBS Rights Agreement | | | - | | | | - | | | | 3,985 | | | | 3,985 | |
Reserve Primary Fund | | | - | | | | - | | | | - | | | | - | |
Total assets measured at fair value | | $ | 280,211 | | | $ | 2,845 | | | $ | 23,216 | | | $ | 306,272 | |
| | | | | | | | | | | | | | | | |
Derivative liabilities | | $ | 29 | | | $ | 74 | | | $ | - | | | $ | 103 | |
Level 1 assets consist of money market funds, U.S. Treasury Bills, and derivative foreign currency forward contracts that are traded in an active market with sufficient volume and frequency of transactions. Level 1 liabilities consist of derivative contracts that have closed but have not settled. Fair value of Level 1 instruments is measured based on the quoted market price of identical securities.
Level 2 assets and liabilities consist of derivative foreign currency call and put option contracts. Fair value is determined using a Black-Scholes valuation model using inputs that are observable in the market. During the year ended March 31, 2010, the Company did not have any transfers between Level 1 and Level 2 fair value instruments.
Level 3 assets consist mainly of ARS primarily comprised of interest bearing state sponsored student loan revenue bonds guaranteed by the Department of Education. These ARS investments are designed to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, typically every 7 or 35 days; however, the uncertainties in the credit markets have affected all of the Company’s holdings, and, as a consequence, these investments are not currently liquid. As a result, the Company will not be able to access these funds until a future auction of these investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2029 to 2039. 60; All of the ARS investments were investment grade quality and were in compliance with the Company’s investment policy at the time of acquisition. The Company has used a discounted cash flow model to determine an estimated fair value of the Company’s investment in ARS. The key assumptions used in preparing the discounted cash flow model include current estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, and expected holding periods of the ARS.
In November 2008, the Company accepted an agreement (the “Agreement”) from UBS AG (“UBS”), the investment provider for its then $28.0 million par value ARS portfolio, providing the Company with certain rights related to its ARS (the “Rights”). The Rights permit the Company to require UBS to purchase the Company’s ARS at par value, which is defined as the price equal to the liquidation preference of the ARS plus accrued but unpaid dividends or interest, at any time during the period from June 30, 2010 through July 2, 2012. Conversely, UBS has the right, in its discretion, to purchase or sell the Company’s ARS at any time until July 2, 2012, so long as the Company receives payment at par value upon any sale or liquidation. As of March 31, 2010, the remaining par value of the ARS portfolio is $23.3 million as a result of $4.7 million in proceeds received in fiscal 2010 from the sale of certain bonds within the portfolio at par value. The Company expects to sell its remaining ARS under the Rights: however, if the Rights are not exercised before July 2, 2012 they will expire and UBS will have no further rights or obligation to buy the Company’s ARS. So long as the Company holds the Rights, it will continue to accrue interest as determined by the auction process or the terms of the ARS if the auction process fails. UBS’s obligations under the Rights are not secured and do not require UBS to obtain any financing to support its performance obligations under the Rights. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Rights.
The Rights represent a firm agreement in accordance with the Derivatives and Hedging Topic of the FASB ASC. The enforceability of the Rights results in a put option and should be recognized as a free standing asset separate from the ARS. Upon acceptance of the offer from UBS, the Company recorded the put option at fair value of $3.9 million using the Black-Scholes options pricing model. As of March 31, 2009, the fair value of the put option was $4.2 million and was recorded within Other assets in the Consolidated balance sheet with a corresponding credit to Interest and other income (expense), net in the Consolidated statements of operations in fiscal 2009. As of March 31, 2010, the fair value of the put option was $4.0 million and was included in Other current assets in the Consolidated bala nce sheet, resulting in an unrealized loss of $0.2 million included in Interest and other income (expense), net in the Consolidated statements of operations in fiscal 2010. The put option does not meet the definition of a derivative instrument under the Derivatives and Hedging Topic of the FASB ASC; therefore, the Company has elected to measure the put option at fair value under the Financial Instruments Topic of the FASB ASC in order to match the changes in the fair value of the ARS. As a result, unrealized gains and losses are and will be included in earnings in future periods.
As a result of the Company’s ability to hold its ARS investments to maturity, the Company classified the entire ARS investment balance as long-term investments on its consolidated balance sheet as of March 31, 2009. Prior to accepting the UBS offer, the Company recorded its ARS investments as available-for-sale and any unrealized gains or losses were recorded to Accumulated other comprehensive income within Stockholders’ equity. In connection with the acceptance of the UBS offer in November 2008, resulting in the right to require UBS to purchase the ARS at par value beginning on June 30, 2010, the Company transferred its ARS from long-term investments available-for-sale to long-term trading securities. The transfer to trading securities in November 2008 reflects management’s intent to exercise its put option during the period from June 30, 2010 to July 3, 2012. Prior to the Agreement with UBS, the intent was to hold the ARS until the market recovered. At the time of transfer in November 2008, the Company recognized a loss on the ARS of approximately $4.0 million in Interest and other income (expense), net.
As of March 31, 2009, Level 3 assets also include the Company’s holdings in the Reserve Primary Money Market Fund (the “Reserve”) which experienced a decline in net asset value to $0.97 per share due to its exposure to investments held in Lehman Brothers Holdings, Inc. which filed for Chapter 11 bankruptcy protection on September 15, 2008. As a result, Level 1 and Level 2 inputs are not available to value the investment and the Company determined the fair value based on Level 3 inputs which consisted of reviewing the Reserve’s underlying securities portfolio comprised primarily of discounted notes, certificates of deposit and commercial paper issued by highly-rated institutions. Based on this analysis, the Company concluded that the fair value of its holdings in the Reserve was lower than t he carrying value. As a result, the Company recorded a realized loss of $0.1 million included in Interest and other income (expense), net in its consolidated statement of income for fiscal 2009. As of March 31, 2009, the Reserve was classified as a receivable within Other current assets in the Consolidated balance sheet as, in September 2008, the Company attempted to redeem in full all of its holdings in the Reserve and it reasonably expects that distributions from the Reserve will occur within the next twelve months. During fiscal 2009, the Company received distributions totaling approximately $1.7 million on its holdings. In fiscal 2010, the Company received additional distributions of $0.3 million which resulted in a minimal realized gain in fiscal 2010. As of March 31, 2010, the Company has received substantially all its distributions.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for fiscal 2009 and 2010:
| | Year ended March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | | | | |
Balance at beginning of period | | $ | 25,136 | | | $ | 28,060 | |
Change in temporary valuation adjustment included in Accumulated other comprehensive income | | | 2,863 | | | | - | |
Unrealized gain (loss) on ARS included in Interest and other income (expense), net | | | (4,281 | ) | | | 263 | |
Recognition of Rights agreement and unrealized gains in Interest and other income (expense), net | | | 3,904 | | | | - | |
Unrealized gain (loss) on Rights included in Interest and other income (expense), net | | | 276 | | | | (195 | ) |
Proceeds from sales of ARS | | | - | | | | (4,750 | ) |
Transfer of Reserve Primary Fund from Level 1 to Level 3 | | | 162 | | | | - | |
Distributions received from Reserve Primary Fund | | | - | | | | (162 | ) |
Balance at end of period | | $ | 28,060 | | | $ | 23,216 | |
7. | DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS |
Accounts receivable, net:
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | |
Accounts receivable | | $ | 118,221 | | | $ | 118,199 | |
Provisions for returns | | | (7,592 | ) | | | (13,812 | ) |
Provisions for promotions, rebates and other | | | (22,961 | ) | | | (13,780 | ) |
Allowance for doubtful accounts | | | (2,984 | ) | | | (1,846 | ) |
Reserve for sales allowances | | | (1,027 | ) | | | (433 | ) |
Accounts receivable, net | | $ | 83,657 | | | $ | 88,328 | |
As noted in Note 4, Discontinued Operations, as part of the sale of Altec Lansing in December 2009, approximately $4.7 million of sales related reserves, including provisions for returns and provisions for promotions, rebates, and other, were assumed along with other liabilities by the purchaser.
Inventory, net:
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | |
Purchased parts | | $ | 37,646 | | | $ | 13,287 | |
Work in process | | | 4,494 | | | | 2,791 | |
Finished goods | | | 77,156 | | | | 54,440 | |
Inventory, net | | $ | 119,296 | | | $ | 70,518 | |
As noted in Note 4, Discontinued Operations, the Company sold approximately $17.7 million of its net inventory in conjunction with the sale of Altec Lansing in the third quarter of fiscal 2010.
If forecasted revenue and gross margin rates are not achieved, it is possible that the Company may have increased requirements for inventory provisions.
Assets held for sale:
(in thousands) | | March 31, 2010 | |
| | | |
Land rights | | $ | 514 | |
Buildings and improvements | | | 8,227 | |
Machinery and equipment | | | 120 | |
Assets held for sale | | $ | 8,861 | |
To further improve the Company’s Bluetooth product profitability, in the fourth quarter of fiscal 2009, the Company decided to close its Suzhou, China manufacturing operations and outsource the manufacturing of its Bluetooth products to an existing supplier in China. As the Company planned to exit the manufacturing facility in the second quarter of fiscal 2010, accelerated depreciation was recorded from the decision date of March 24, 2009 to the estimated exit date to reflect changes in useful lives and estimated residual values of the assets that would be taken out of service prior to the end of their original service period. The accelerated depreciation was recorded as a part of the Q4 Fiscal 2 009 Restructuring Action as discussed in Note 10. There were no assets held for sale as of March 31, 2009.
In July 2009, the Company stopped all manufacturing processes in the Suzhou location. As a result, the building and related fixed assets were transferred, at the lower of their carrying value or fair value less the costs to sell, to Assets held for sale in the Condensed consolidated balance sheet. The fair value of the building was based on a current appraisal value adjusted for expected selling costs. The Company subsequently reduced the fair value of the building as it received a non-binding letter of intent from a buyer in the fourth quarter of fiscal 2010 and expects the sale to be completed within a one year period from the time when it met the applicable criteria for “held for sale accounting” at an amount approximating its carrying value. The assets held for sale were measu red at fair value using unobservable inputs and, therefore, are a Level 3 fair value measure.
Property, plant and equipment, net:
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | |
Land | | $ | 8,234 | | | $ | 5,867 | |
Buildings and improvements (useful life: 7-30 years) | | | 74,334 | | | | 54,437 | |
Machinery and equipment (useful life: 5-10 years) | | | 106,129 | | | | 89,505 | |
Software (useful life: 5 years) | | | 29,231 | | | | 25,642 | |
Construction in progress | | | 2,069 | | | | 836 | |
| | | 219,997 | | | | 176,287 | |
Accumulated depreciation and amortization | | | (124,278 | ) | | | (110,587 | ) |
Property, plant and equipment, net | | $ | 95,719 | | | $ | 65,700 | |
Accrued liabilities:
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | |
Employee compensation and benefits | | $ | 17,380 | | | $ | 21,987 | |
Warranty accrual | | | 12,424 | | | | 11,006 | |
Accrued advertising and sales and marketing | | | 3,286 | | | | 3,036 | |
Accrued other | | | 20,053 | | | | 9,808 | |
Accrued liabilities | | $ | 53,143 | | | $ | 45,837 | |
Changes in the warranty obligation, which are included as a component of accrued liabilities on the consolidated balance sheets, are as follows:
| | Year ended March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | | | | |
Warranty obligation at beginning of period | | $ | 10,441 | | | $ | 12,424 | |
Warranty provision relating to products shipped during the year | | | 21,595 | | | | 14,482 | |
Deductions for warranty claims processed | | | (19,612 | ) | | | (15,517 | ) |
Warranty provision transferred with sale of AEG | | | - | | | | (383 | ) |
Warranty obligation at end of period | | $ | 12,424 | | | $ | 11,006 | |
The changes in the carrying value of goodwill during the fiscal years ended March 31, 2009 and 2010 were as follows:
(in thousands) | | Continuing Operations1 | | | Discontinued Operations2 | | | Consolidated | |
| | | | | | | | | |
Balance at March 31, 2008: | | | | | | | | | |
Goodwill | | $ | 14,116 | | | $ | 55,055 | | | $ | 69,171 | |
Accumulated impairment losses | | | - | | | | - | | | | - | |
| | | 14,116 | | | | 55,055 | | | | 69,171 | |
Carrying value adjustments | | | (111 | ) | | | (406 | ) | | | (517 | ) |
Impairment to goodwill | | | - | | | | (54,649 | ) | | | (54,649 | ) |
| | | | | | | | | | | | |
Balance at March 31, 2009 | | $ | 14,005 | | | $ | - | | | $ | 14,005 | |
(in thousands) | | Continuing Operations1 | | | Discontinued Operations2 | | | Consolidated | |
| | | | | | | | | |
Balance at March 31, 2009: | | | | | | | | | |
Goodwill | | $ | 14,005 | | | $ | 54,649 | | | $ | 68,654 | |
Accumulated impairment losses | | | - | | | | (54,649 | ) | | | (54,649 | ) |
| | | 14,005 | | | | - | | | | 14,005 | |
Carrying value adjustments | | | - | | | | - | | | | - | |
Impairment to goodwill | | | - | | | | - | | | | - | |
| | | | | | | | | | | | |
Balance at March 31, 2010 | | $ | 14,005 | | | $ | - | | | $ | 14,005 | |
| 1 | Continuing operations is referenced in the discussion below to the prior ACG business segment. |
| 2 | Discontinued operations is referenced in the discussion below to the prior AEG business segment which was sold on December 1, 2009. |
In the third quarter of fiscal 2009, the Company considered the effect of the current economic environment and determined that sufficient indicators existed requiring it to perform an interim impairment review of the Company’s two reporting segments, ACG and AEG. The indicators primarily consisted of (1) a decline in revenue and operating margins during the third quarter and the projected future operating results, (2) deteriorating industry and economic trends, and (3) the decline in the Plantronics’ stock price for a sustained period.
In accordance with the Intangibles – Goodwill and Other Topic of the FASB ASC, the Company utilized a two-step method for determining goodwill impairment. In step one, the fair value of each reporting unit, which the Company has determined to be consistent with its then operating segments, is determined and compared to the carrying value.
The fair value of the ACG reporting unit was determined using an equal weighting of the income approach and the market comparable approach. For the income approach, the Company made the following assumptions: the current economic downturn would continue through fiscal 2010, followed by a recovery period in fiscal 2011 and 2012 and then growth in line with industry estimated revenues. Gross margin trends were consistent with historical trends. A 3% growth factor was used to calculate the terminal value of its reporting units after fiscal year 2017, consistent with the rate used in the prior year. The discount rate was adjusted from 13% used in the prior year to 14% reflecting the current volatility of the stock prices of public companies within the consumer electronics industry. 0; For the market comparable approach, the Company reviewed comparable companies in the industry. Revenue multiples were determined for these companies and an average multiple based on prior twelve months revenue of these companies of 0.5 was then applied to the unit revenue. A 10% control premium was added to determine the value on the marketable controlling interest basis. Cash and short-term investments were then added back to arrive at an indicated value on a marketable, controlling interest basis. Based on this review, the fair value exceeded the carrying value indicating that there was no impairment related to the ACG reporting unit.
The fair value of the AEG reporting unit was determined using an equal weighting of the income approach and the underlying asset approach. For the income approach, the Company made the following assumptions: the current economic downturn would continue through fiscal 2010, followed by a recovery period in fiscal 2011 and 2012 with slightly better than historical growth and then growth in line with industry norms for each of the major product lines (Docking Audio and PC Audio). Gross margin assumptions reflect improved margins as the revenue grows. A 5% growth factor was used to calculate the terminal value of its reporting units, consistent with the rate used in the prior year. The discount rate was adjusted from 14% used in the prior year to 15% reflecting the current volatility of the stock prices of public companies within the consumer electronics industry. For the underlying asset approach, the asset and liability balances were adjusted to their fair value equivalents. The fair value of the equity of the business is then indicated by the sum of the fair value of the assets less the fair value of the liabilities. Based on this review, the Company determined that the goodwill related to the AEG reporting unit was impaired requiring the Company to perform step two, in which the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, to determine the implied fair value of the goodwill. The impairment charge, if any, is measured as the difference between the implied fair value of the goodwill and its carrying value. This resulted in the impairment of 100% of the goodwill related to the AEG reporting segment; therefore, a non-cash impairment charge of $54.7 million was recognized in the third quarter of fiscal 2009 which is included in discontinued operations in the Consolidated statement of operations. There was no tax benefit associated with this impairment charge.
During fiscal 2009, the Company received a $0.4 million refund from the escrow account related to the Altec Lansing acquisition. In addition, the Company adjusted the deferred tax account and goodwill account balances also related to the purchase of Altec Lansing. This resulted in a reduction of goodwill of $0.1 million.
In the fourth quarter of fiscal 2010, the Company performed the annual impairment test of the remaining goodwill. The fair value of the Company was determined using an equal weighting of the income approach and the market comparable approach. For the income approach, the Company made the following assumptions: the current economic downturn would recover in fiscal 2011 and 2012 and then growth in line with industry estimated revenues. Gross margin trends were consistent with historical trends. A 3% growth factor was used to calculate the terminal value after fiscal year 2018, consistent with the rate used in the prior year. The discount rate was 14% reflecting the current volatility of the stock prices of public companies within the consumer electronics industry. 60;For the market comparable approach, the Company reviewed comparable companies in the industry. Revenue multiples were determined for these companies and an average multiple based on prior twelve months revenue of these companies of 0.5 was then applied to the unit revenue. A 10% control premium was added to determine the value on the marketable controlling interest basis. Cash and short-term investments were then added back to arrive at an indicated value on a marketable, controlling interest basis. Based on this review, the fair value substantially exceeded the carrying value, and, therefore, there was no impairment related to the remaining goodwill.
The following tables present the carrying value of acquired intangible assets with remaining net book values as of the periods:
As of March 31, 2009 (in thousands) | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Amount | | Useful Life |
| | | | | | | | | | |
Technology | | $ | 9,460 | | | $ | (5,728 | ) | | $ | 3,732 | | 3-10 years |
Patents | | | 1,420 | | | | (1,257 | ) | | | 163 | | 7 years |
Customer relationships | | | 4,405 | | | | (787 | ) | | | 3,618 | | 3-8 years |
Trade name - inMotion | | | 500 | | | | (56 | ) | | | 444 | | 3 years |
Trade name - Altec Lansing | | | 18,600 | | | | - | | | | 18,600 | | Indefinite |
OEM relationships | | | 27 | | | | (9 | ) | | | 18 | | 7 years |
Total | | $ | 34,412 | | | $ | (7,837 | ) | | $ | 26,575 | | |
As of March 31, 2010 (in thousands) | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Amount | | Useful Life |
| | | | | | | | | | |
Technology | | $ | 6,500 | | | $ | (4,064 | ) | | $ | 2,436 | | 3-10 years |
Patents | | | 720 | | | | (660 | ) | | | 60 | | 7 years |
Customer relationships | | | 1,705 | | | | (765 | ) | | | 940 | | 3-8 years |
OEM relationships | | | 27 | | | | (14 | ) | | | 13 | | 7 years |
Total | | $ | 8,952 | | | $ | (5,503 | ) | | $ | 3,449 | | |
The consolidated aggregate amortization expense in both continuing and discontinued operations relating to intangible assets for fiscal 2008, 2009 and 2010 was $8.1 million, $6.2 million and $1.8 million, respectively.
During the third quarter of fiscal 2009, the Company considered the effect of the current economic environment and determined that sufficient indicators existed requiring it to perform an interim impairment review of the Company’s two reporting segments, ACG and AEG. The indicators primarily consisted of (1) a decline in revenue and operating margins during the current quarter and the projected future operating results, (2) deteriorating industry and economic trends, and (3) the decline in the Plantronics’ stock price for a sustained period.
The Company tests its indefinite lived assets for impairment by comparing the fair value of the intangible asset with its carrying value. If the fair value is less than its carrying value, an impairment charge is recognized for the difference. The Company used the income approach to test the Altec Lansing trademark and trade name for impairments in the third quarter of fiscal 2009 with the following assumptions: the current economic downturn would continue through fiscal 2010, followed by a recovery period in fiscal 2011 and 2012 and then growth in line with industry estimated revenues for royalties and each of the major AEG product lines (Docking Audio and PC Audio). A 5% growth factor was used to calculate the terminal value, consistent with the rate used in the prior year. The discount rat e was adjusted from 14% to 15% reflecting the current volatility of the stock prices of public companies within the consumer electronics industry. This resulted in a partial impairment of the Altec Lansing trademark and trade name; therefore, the Company recognized a non-cash impairment charge of $40.5 million in the third quarter of fiscal 2009 which is included in discontinued operations on the Consolidated statement of operations. The Company recognized a deferred tax benefit of $15.4 million associated with this impairment charge.
The Company also reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the amount that the carrying value of the asset exceeds its fair value based on the discounted future cash flows. As a result of the decline in forecasted revenues, operating margin and cash flows related to the AEG segment, the Company also evaluated the long-lived assets within the reporting unit. The fair value of the long-lived assets, which include intangibles and property, plant a nd equipment, was determined for each individual asset and compared to the asset’s relative carrying value. This resulted in a partial impairment of certain long-lived assets; therefore, in the third quarter of fiscal 2009, the Company recognized a non-cash intangible asset impairment charge of $18.2 million, of which $9.1 million related to technology, $6.7 million related to customer relationships and $2.4 million related to the inMotion trade name, and a non-cash impairment charge of $4.1 million related to property, plant and equipment which is included in discontinued operations on the Consolidated statement of operations. The Company recognized a deferred tax benefit of $8.5 million associated with these impairment charges.
In the fourth quarter of fiscal 2009, the Company performed the annual impairment test of the Altec Lansing trademark and trade name, which indicated that there was no further impairment. The assumptions used in the annual impairment review performed during the fourth quarter of fiscal 2009 were consistent with the assumptions used in the interim impairment review in the third quarter of fiscal 2009 as no significant changes were identified.
During the second quarter of fiscal 2010, the Company considered the effect of certain alternatives being evaluated by management for the AEG segment during the quarter on its intangible assets. During the second quarter management entered into a non-binding letter of intent to sell Altec Lansing, the Company’s AEG segment. The Company concluded that this triggered an interim impairment review as it was now “more likely than not” that the segment would be sold; however, as the Company’s Board of Directors had not yet approved the sale of the segment, the assets did not qualify for “held for sale” accounting under the Property, Plant and Equipment Topic of the FASB ASC. The Company tests its indefinite lived assets for impairment by comparing the fair value of the inta ngible asset with its carrying value. If the fair value is less than its carrying value, an impairment charge is recognized for the difference. The Company used the proposed purchase price of the AEG segment net assets per the non-binding letter of intent signed during the quarter as the fair value of the segment’s net assets. This resulted in a full impairment of the Altec Lansing trademark and trade name; therefore, the Company recognized a non-cash impairment charge of $18.6 million in the second quarter of fiscal 2010 and recognized a deferred tax benefit of $7.1 million associated with this impairment charge, which is included in discontinued operations for the fiscal year ended March 31, 2010.
As a result of the proposed purchase price of the net assets of the AEG segment, the Company also evaluated the long-lived assets within the reporting unit. The fair value of the long-lived assets, which include intangibles and property, plant and equipment, was determined for each individual asset and compared to the asset’s relative carrying value. This resulted in a full impairment of the AEG intangibles and a partial impairment of its property, plant and equipment; therefore, in the second quarter of fiscal 2010, the Company recognized a non-cash intangible asset impairment charge of $6.6 million, of which $2.0 million related to customer relationships, $0.4 million related to technology and $0.4 million related to the inMotion trade name, and a non-cash impairment charge of $3.8 million related to prope rty, plant and equipment. The Company recognized a deferred tax benefit of $2.5 million associated with these impairment charges. The impairment charge and tax benefit is recorded in discontinued operations for the fiscal year ended March 31, 2010.
The intangible assets that were impaired during the second quarter of fiscal 2009 were measured at their fair value using unobservable inputs and, therefore, are Level 3 fair value measures.
In the fourth quarter of fiscal 2010, the Company performed the annual impairment test of the remaining intangibles which indicated that there was no impairment.
The estimated future amortization expense for each fiscal year subsequent to fiscal 2010 is as follows:
Fiscal Year Ending March 31, | | (in thousands) | |
2011 | | $ | 1,194 | |
2012 | | | 821 | |
2013 | | | 630 | |
2014 | | | 454 | |
2015 | | | 350 | |
Total estimated amortization expense | | $ | 3,449 | |
10. | RESTRUCTURING AND OTHER RELATED CHARGES |
The Company recorded the restructuring activities discussed below applying the guidance of either the Exit or Disposal Cost Obligations Topic and the Compensation – Nonretirement Postemployment Benefits Topic of the FASB ASC.
Q3 Fiscal 2008 Restructuring Action
In November 2007, the Company announced plans to close AEG’s manufacturing facility in Dongguan, China, shut down a related Hong Kong research and development, sales and procurement office and consolidate procurement, research and development activities for AEG in our Shenzhen, China site. The selling, general, and administrative functions of AEG in China have been consolidated with those of ACG throughout the Asia-Pacific region. These actions resulted in the elimination of all manufacturing operation positions in Dongguan, China and certain related support functions. This restructuring plan was part of a strategic initiative designed to reduce fixed costs by outsourcing the majority of AEG manufacturing to a network of qualified contract manufacturers already in place. In November 200 7, 730 employees were notified of their termination, 708 in manufacturing, 20 in research and development and 2 in selling, general, and administrative. As of December 31, 2008, all employees had been terminated. Restructuring and other related charges of approximately $3.7 million related to this restructuring plan, of which $3.6 million was recorded in fiscal 2008 and $0.1 million recorded in fiscal 2009 and included in discontinued operations for the periods presented. The total restructuring charges of $3.7 million consist of $1.4 million for the write-off of facilities and equipment and accelerated depreciation, $1.4 million for severance and benefits, and $0.9 million in professional and administrative and other fees. All restructuring and other related charges under this plan have been recorded as of March 31, 2009 and all amounts have been paid.
Q3 Fiscal 2009 Restructuring Action
In the third quarter of fiscal 2009, the Company had a reduction in force at AEG’s operations in Luxemburg and Shenzhen, China and ACG’s operations in China as part of the strategic initiative designed to reduce costs. A total of 624 employees were notified of their termination, all of whom had been terminated as of December 31, 2009. On January 14, 2009, the Company announced additional reductions in force related to this restructuring plan which included an additional 199 employees located in ACG’s Tijuana, Mexico, U.S., and other global locations who were notified of their termination. An additional three employees were notified of their termination in the first quarter of fiscal 2010. A total of 826 employees, primarily in operations positions but also including other fu nctions, were notified of their termination under this restructuring action, all of whom, except ten employees, had been terminated as of March 31, 2009. In fiscal 2009, the Company recorded $8.8 million of Restructuring and other charges for these activities, of which $0.8 million related to the AEG segment and is included in discontinued operations and $8.0 million related to the ACG segment. These costs primarily consisted of $8.1 million in severance and benefits and $0.6 million for the write-off of leasehold improvements due to consolidation of facilities. All costs had been recorded and paid as of March 31, 2010.
Q4 Fiscal 2009 Restructuring Action
At the end of the fourth quarter of fiscal 2009, the Company announced a plan to close our ACG manufacturing operations in our Suzhou, China facility due to the decision to outsource the manufacturing of our Bluetooth products in China. A total of 656 employees, primarily in operations positions but also including other functions, were notified of their termination, of which 623 employees have been terminated as of March 31, 2010. The remaining employees are expected to terminate throughout fiscal 2011.
In fiscal 2009, the Company recorded $3.0 million of Restructuring and other charges related to this action, primarily consisting of severance and benefits. In fiscal 2010, the Company recorded an additional $1.9 million of Restructuring and other related charges consisting of $0.8 million of severance and benefits and $1.1 million of non-cash charges including $0.7 million for the acceleration of depreciation on building and equipment associated with research and development and administrative functions due to the change in the assets’ useful lives as a result of the assets being taken out of service prior to their original service period and $0.4 million of additional loss on Assets held for sale. In addition, in fiscal 2010, the Company recorded non-cash charges of $5.2 million for accelerated depreciatio n related to the building and equipment associated with manufacturing operations which is included in Cost of revenues. To date, the Company has recorded a total of $10.1 million of costs related to this action: $4.9 million in Restructuring and related charges which include $3.8 million of severance and benefits, $0.7 million of accelerated depreciation charges and $0.4 million loss on Assets held for sale, and $5.2 million in Cost of revenues for accelerated depreciation. Substantially all the costs related to this action have been recorded as of March 31, 2010 and the remaining payments will be made throughout fiscal 2011.
The following table summarizes the Company’s restructuring activities during fiscal years 2009 and 2010 and the restructuring accrual as of the end of each fiscal year:
(in thousands) | | Severance and Benefits | | | Facilities and Equipment | | | Other | | | Total | |
| | | | | | | | | | | | |
Restructuring accrual at March 31, 2008 | | $ | 292 | | | $ | - | | | $ | 514 | | | $ | 806 | |
| | | | | | | | | | | | | | | | |
Restructuring and other related charges - continuing operations | | | 10,269 | | | | 581 | | | | 102 | | | | 10,952 | |
Restructuring and other related charges - discontinued operations | | | 1,077 | | | | (36 | ) | | | 81 | | | | 1,122 | |
Cash payments | | | (6,170 | ) | | | 107 | | | | (712 | ) | | | (6,775 | ) |
Non-cash | | | - | | | | (535 | ) | | | - | | | | (535 | ) |
Restructuring accrual at March 31, 2009 | | | 5,468 | | | | 117 | | | | (15 | ) | | | 5,570 | |
| | | | | | | | | | | | | | | | |
Restructuring and other related charges - continuing operations | | | 832 | | | | 1,050 | | | | (15 | ) | | | 1,867 | |
Restructuring and other related charges - discontinued operations | | | 19 | | | | - | | | | - | | | | 19 | |
Cash payments | | | (6,229 | ) | | | - | | | | (67 | ) | | | (6,296 | ) |
Non-cash | | | 75 | | | | (1,167 | ) | | | 97 | | | | (995 | ) |
Restructuring accrual at March 31, 2010 | | $ | 165 | | | $ | - | | | $ | - | | | $ | 165 | |
The restructuring accrual is included in accrued liabilities in the Company’s consolidated balance sheet.
11. | COMMITMENTS AND CONTINGENCIES |
MINIMUM FUTURE RENTAL PAYMENTS. The Company leases certain equipment and facilities under operating leases expiring in various years through fiscal 2017. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2010 are as follows:
Fiscal Year Ending March 31, | | (in thousands) | |
| | | |
2011 | | $ | 4,598 | |
2012 | | | 2,349 | |
2013 | | | 2,147 | |
2014 | | | 1,682 | |
2015 | | | 1,112 | |
Thereafter | | | 687 | |
Total minimum future rental payments | | $ | 12,575 | |
Total consolidated rent expense for operating leases included in both continuing and discontinued operations was approximately $6.4 million, $6.9 million, and $6.0 million in fiscal 2008, 2009 and 2010, respectively.
EXISTENCE OF RENEWAL OPTIONS. Certain operating leases provide for renewal options for periods from one to three years. In the normal course of business, operating leases are generally renewed or replaced by other leases.
INDEMNIFICATIONS. Under the terms of the Asset Purchase Agreement, dated October 2, 2009, a First Amendment to the Asset Purchase Agreement, dated November 30, 2009, a Side Letter to the Asset Purchase Agreement, dated January 8, 2010, and a second Side Letter to the Asset Purchase Agreement, dated February 15, 2010 (collectively, the “Purchase Agreement”) to sell Altec Lansing, the Company’s AEG segment, the Company agreed to indemnify the purchaser following the closing of the transaction up to its one year anniversary against specified losses in connection with the AEG business and generally retain responsibility for various legal liabilities that may accrue. The Company also made representations and warranties to the purchaser about the condition of AEG, including matters relating to intellec tual property, employee matters and environmental laws. No indemnification costs have been recorded as of March 31, 2010.
CLAIMS AND LITIGATION. Six class action lawsuits have been filed against the Company alleging that its Bluetooth headsets may cause noise-induced hearing loss. Shannon Wars et al. vs. Plantronics, Inc. was filed on November 14, 2006 in the U.S. District Court for the Eastern District of Texas. Lori Raines, et al. vs. Plantronics, Inc. was filed on October 20, 2006 in the U.S. District Court, Central District of California. Kyle Edwards, et al vs. Plantronics, Inc. was filed on October 17, 2006 in the U.S. District Court, Middle District of Florida. Ralph Cook vs. Plantronics, Inc. was filed on February 8, 2007 in the U.S. District Court for the Eastern District of Virginia. Randy Pierce vs. Plantronics, Inc. was filed on January 10, 2007 in the U.S. District Court for the Eastern District of Arkansas. Bruce Schiller, et al vs. Plantronics, Inc. was filed on October 10, 2006 in the Superior Court of the State of California in and for the County of Los Angeles. The complaints state that they do not seek damages for personal injury to any individual. These complaints seek various remedies, including injunctive relief requiring the Company to include certain additional warnings with its Bluetooth headsets and to redesign the headsets to limit the volume produced, or, alternatively, to provide the user with th e ability to determine the level of sound emitted from the headset. Plaintiffs also seek unspecified general, special, and punitive damages, as well as restitution. The federal cases have been consolidated for all pre-trial purposes in the U.S. District Court for the Central District of Los Angeles before Judge Fischer. The California State Court case was dismissed by the plaintiffs. The parties agreed in principle to settle their claims. The U.S. District Court for the Central District of Los Angeles signed an order approving the final settlement of the lawsuit entitled In Re Bluetooth Headset Products Liability Litigation brought against Plantronics, Inc., Motorola, Inc and GN Netcom, Inc. alleging that the three companies failed to adequately warn consumers of the potential for long term noise induced hearing loss if they used Bluetooth he adsets. The companies contested the claims of the lawsuit but settled the lawsuit on a nationwide basis for an amount which the Company believes is less than the cost of litigating and winning the lawsuit. On September 25, 2009, the Court signed a judgment in the case resolving all matters except the issue of outstanding attorneys’ fees, which will be split among the three defendants. On October 22, 2009, the Court issued an order setting the class counsel’s attorneys’ fees and costs and the incentive award at the maximum amounts agreed to by the parties in their settlement. The objectors to the settlement have filed a notice of appeal, and the appeal is in process. The Company believes that any loss related to these proceedings would not be material and have adequately reserved for these costs in the consolidated financial statements.
In addition, the Company is presently engagedinvolved in various legal actionsproceedings arising in the normal course of conducting business. For such legal proceedings, where applicable, the Company has accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to the Company's financial condition, results of operations or cash flows. The Company believes that it is unlikely thatnot able to estimate an amount or range of any reasonably possible additional losses because of the preliminary nature of many of these actions willproceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the variable treatment of claims made in many of these proceedings and the difficulty of predicting the settlement value of many of these proceedings;however, based upon the Company's historical experience, the resolution of these proceedings is not expected to have a material adverse impact on its 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 the Company’sCompany's financial condition, results of operations or cash flows.
Accumulated Other Comprehensive IncomeIn May 2011, the Company entered into a credit agreement ("Credit Agreement") with Wells Fargo Bank, National Association ("Bank"). The Credit Agreement provides for a $100.0 million unsecured revolving line of credit ("line of credit") and, if requested by the Company, the Bank may increase its commitment thereunder by up to $100.0 million, for a total facility size of up to $200.0 million. As of March 31, 2012, the Company had outstanding borrowings of $37.0 million under the line of credit.
Loans under the Credit Agreement bear interest at the election of the Company (i) at the Bank's announced prime rate less 1.50% per annum, (ii) at a daily one month LIBOR rate plus 1.10% per annum or (iii) at an adjusted LIBOR rate, for a term of one, three or six months, plus 1.10% per annum. Interest on the loans is payable quarterly in arrears. In addition, the Company pays a fee equal to 0.20% per annum on the average daily unused amount of the line of credit, which is payable quarterly in arrears.
Principal, together with accrued and unpaid interest, is due on the maturity date, May 9, 2014. The Company may prepay the loans and terminate the commitments in whole at any time, without premium or penalty, subject to reimbursement of certain costs in the case of LIBOR loans.
The components of accumulated other comprehensive income were as follows:Company's obligations under the Credit Agreement are guaranteed by the Company's domestic subsidiaries, subject to certain exceptions.
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | | | | |
Accumulated unrealized gain on cash flow hedges, net of tax of $400 and $100, respectively | | $ | 6,334 | | | $ | 2,705 | |
| | | | | | | | |
Accumulated foreign currency translation adjustments | | | 2,521 | | | | 3,567 | |
| | | | | | | | |
Accumulated other comprehensive income | | $ | 8,855 | | | $ | 6,272 | |
The line of credit requires the Company to comply with a maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") and a minimum EBITDA coverage ratio, in each case at each fiscal quarter end and determined on a rolling four-quarter basis. In addition, the Company and its subsidiaries are required to maintain unrestricted cash, cash equivalents and marketable securities plus availability under the Credit Agreement at the end of each fiscal quarter of at least $200.0 million.
DuringThe line of credit contains affirmative covenants, including covenants regarding the first halfpayment of fiscal 2009, the Company recorded further temporary declines in the fair market value of $1.1 million related to its ARS investments. In the third quarter of fiscal 2009, as a result of changing the classification of the ARS from available-for-sale to trading securities, the Company recorded an other-than-temporary loss of $4.0 million in Interesttaxes and other income (expense), net inliabilities, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. The line of credit also contains negative covenants, among other things, limiting, subject to certain monetary thresholds, the Consolidated statement of operations, which reversed the unrealized losses recorded in Accumulated other comprehensive income. (See Note 6)
Capital Stock
In March 2002, the Company established a stock purchase rights plan under which stockholders may be entitled to purchase the Company’s stock or stock of an acquirerability of the Company to incur debt, make capital expenditures, grant liens, make acquisitions and make investments. The events of default under the line of credit include payment defaults, cross defaults with certain other indebtedness, breaches of covenants, judgment defaults and bankruptcy and insolvency events involving the Company or any of its subsidiaries. The Company was in compliance with all covenants at a discounted price in the event of certain efforts to acquire control of the Company. The rights expire on the earliest of (a) April 12,March 31, 2012 or (b) the exchange or redemption of the rights pursuant to the rights plan..
On January 25, 2008, the Board of Directors authorized the repurchase of 1,000,000 shares of common stock under a new share repurchase program. During fiscal 2008 and 2009, the Company repurchased 1,000,000 shares of its common stock under this repurchase plan in the open market at a total cost of $18.3 million and an average price of $18.30 per share. On November 10, 2008, the Board of Directors authorized a new plan to repurchase 1,000,000 shares of common stock. During fiscal 2009 and 2010, we repurchased 1,000,000 shares of our common stock under this plan in the open market at a total cost of $23.7 million and an average price of $23.66 per share. On November 27, 2009, the Board of Directors authorized a new plan to repurchase 1,000,000 shares of common stock. During fiscal 20 10, we repurchased 1,000,000 shares of our common stock under this plan in the open market at a total cost of $26.3 million and an average price of $26.26 per share. On March 1, 2010, the Board of Directors authorized a new plan to repurchase 1,000,000 shares of common stock. During fiscal 2010, we repurchased 24,100 shares of our common stock under this plan in the open market at a total cost of $0.8 million and an average price of $31.31 per share. As of March 31, 2010, there were 975,900 remaining shares authorized for repurchase.
Primarily through employee benefit plans, we reissued 429,743 treasury shares for proceeds of $5.2 million during the year ended March 31, 2009 and 284,090 treasury shares for proceeds of $3.6 million during the year ended March 31, 2010.
In fiscal 2009 and 2010, the Company paid quarterly cash dividends of $0.05 per share resulting in total dividends of $9.8 million in each year. On May 4, 2010, the Company announced that the Board of Directors had declared the Company’s twentieth quarterly cash dividend of $0.05 per share of the Company’s common stock, payable on June 10, 2010 to stockholders of record on May 20, 2010.
| |
12. | STOCK PLANS AND STOCK-BASED COMPENSATION |
Stock Option Plans
Stock options granted subsequent to September 2007 generally vest over a three-year period. Options granted prior to June 1999 and afterfrom September 2004 but before Octoberto September 2007 generally vested over a four-year period and those options granted subsequent to May 1999 but before October 2004period. Restricted stock grants generally vestedhave vesting periods over a five-year period. In July 1999,three or four years, depending on the Stock Option Plansize of the grant. The Management Equity Committee wasis authorized to make option and restricted stock grants to employees who are not senior executives pursuant to guidelines approved by the Compensation Committee and subject to quarterly reporting to the Compensation Committee. The Company currently grants options and restricted stock from only the 2003 Stock Plan. The Company settles stock option exercises and releases of vested restricted stock with newly issued common shares.
2003 Stock Plan
In June 2003, the Board of Directors ("Board") and stockholders approved the Plantronics Inc. Parent Corporation 2003 Stock Plan (the "2003 Stock Plan"). The 2003 Stock Plan, which has a term of 10 years (unless amended or terminated earlier by the Board) and is due to expire in September 2013, provides for incentive stock options, non-qualified stock options, restricted stock awards, stock appreciation rights, and restricted stock units. As of March 31, 2010,2012, there have been 9,000,00011,900,000 shares of common stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) cumulatively reserved since inception under the 2003 Stock Plan for issuance to employees, directors and consultants of Plantronics. The Company may not grant more than 20% of the 1,000,000 shares initially reserved for issuance as Restricted Stock Awards and Restricted Stock Units. The Company amended the Plan to provide that awards of restricted stock and restricted stock units with a per share or per unit purchase price lower than 100% of fair ma rket value on the grant date will be counted against the total number of shares issuable under the Plan as 2.5 shares for every 1 share subject thereto. Non-employee members of the Board of Directors receive annual grants of 2,000 restricted shares on the date of the annual stockholder’s meeting.
Under the 2003 Stock Plan, incentiveall stock options may not be granted at less than 100% of the estimated fair market value of the Company’sCompany's common stock at the date of grant. Incentive stock options may not be granted at less than 100% of the estimated fair market value of the Company's common stock at the date of grant, as determined by the Board, of Directors, and the option term may not exceed 7 years. Incentive stock options granted to a 10% stockholder may not be granted at less than 110% of the estimated fair market value of the common stock at the date of grant and the option term may not exceed five years. All
Awards of restricted stock options granted onand restricted stock units with a per share or after May 16, 2001, may not be granted atper unit purchase price less than 100% of the estimated fair market value on the grant date that were granted from July 26, 2006 through August 4, 2011 are counted against the total number of shares issuable under the Company’s commonPlan as 2.5 shares for every 1 share subject thereto. No participant shall receive restricted stock at the date of grant.awards in any fiscal year having an aggregate initial value greater than $2.0 million, and no participant shall receive restricted stock units in any fiscal year having an aggregate initial value greater than $2.0 million.
The 2003 Stock Plan which has a term of 10 years (unless amended or terminated earlier by the Board of Directors) and is due to expire in September 2013, provides for incentive stock options as well as nonqualified stockAt March 31, 2012, options to purchase shares of common stock,. At March 31, 2010, options to purchase 4,926,6112,828,087 shares of common stock and unvested restricted stock of 815,440were outstanding, and 1,809,622there were 2,608,941 shares were available for future grant under the 2003 Stock Plan.
Plan which takes into account the 2.5 ratio for grants of restricted stock during the specific time period as noted above. 1993 Stock Option Plan
In September 1993, the Board of Directors approved the Plantronics Inc. Parent Corporation 1993 Stock Option Plan (the "1993 Stock Option Plan"). Under the 1993 Stock Option Plan, there were 22,927,726 shares of common stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization, or certain corporate reorganizations) cumulatively reserved since inception for issuance to employees and consultants of Plantronics. The 1993 Stock Option Plan, which provided for incentive stock options as well as nonqualified stock options to purchase shares of common stock, had a term of 10 years and years; therefore, the ability to grant new options under this 1993 Stock Option Plan expired in September 2003. At March 31, 2010,2012, options to purchase 2,647,282 shares of common stock were out standing under the 1993 Stock Option Plan.
Directors’ Stock Option Plan
In September 1993, the Board of Directors adopted a Directors' Stock Option Plan (the "Directors' Option Plan") and has cumulatively reserved since inception a total of 300,000 shares of common stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) for issuance to non-employee directors of Plantronics. At the end of fiscal 2010, options to purchase 45,000475,788 shares of common stock were outstanding under the Directors'1993 Stock Option Plan. All options were granted at fair market value and generally vest over a four-year period. The ability to grant new options under the Directors’ Option Plan expired by its terms in September 2003, and the non-employee directors may participate in the 2003 Stock Plan.
Inducement Plan
In August 2005, the Board of Directors reserved 145,000 shares for the issuance of stock awards to Altec Lansing employees (the “Inducement Plan”). Subsequent to the Altec Lansing acquisition, the Company granted 129,000 stock options to purchase shares of common stock at a weighted average exercise price of $33.49, which was equal to the fair value of the underlying stock on the grant date. The Company also issued 5,000 shares of restricted stock to Altec Lansing employees with a purchase price of $0.01 per share under the Inducement Plan. At March 31, 2010, options to purchase 12,500 shares of common stock were outstanding and the remaining shares of common stock under the Inducement Plan were not available for future grants as the reservation of such shares was subsequently canceled.
2002 Employee Stock Purchase Plan ("ESPP")
On June 10, 2002, the Board of Directors of Plantronics approved the 2002 Employee Stock Purchase Plan (the "2002 ESPP"),ESPP, which was approved by the stockholders on July 17, 2002, to provide certain employees with an opportunity to purchase Plantronics' common stock through payroll deductions. The plan qualifies under Section 423 of the Internal Revenue Code. Under the 2002 ESPP, which is effective through June 2012, the purchase price of Plantronics’Plantronics' common stock is equal to 85% of the lesser of the fair market value closing price of Plantronics’Plantronics' common stock on (i) the first day of the offering period, or (ii) the last day of the offering period. Each offering period is generally six months long. On July 29, 2009, 500,000 shares were added to the plan. There were 238,844, 337,538182,209, 170,376 and 281,598, shares issued under the 2002 ESPP in fiscal 2008, 2009years 2012, 2011 and 2010, respectively. At March 31, 2010,2012, there were 670,395317,810 shares reserved for future issuance under the 2002 ESPP.
Stock-based Compensation
The following table summarizes the amount of stock-based compensation expense included in the Consolidated statements of operations for the periods presented:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
(in thousands) | | 2012 | | 2011 | | 2010 |
Cost of revenues | | $ | 2,212 |
| | $ | 2,202 |
| | $ | 1,929 |
|
| | | | | | |
Research, development and engineering | | 3,917 |
| | 3,765 |
| | 3,505 |
|
Selling, general and administrative | | 11,352 |
| | 9,906 |
| | 9,443 |
|
Stock-based compensation expense included in operating expenses | | 15,269 |
| | 13,671 |
| | 12,948 |
|
Total stock-based compensation | | 17,481 |
| | 15,873 |
| | 14,877 |
|
Income tax benefit | | (5,463 | ) | | (4,892 | ) | | (4,746 | ) |
Total stock-based compensation expense, net of tax | | $ | 12,018 |
| | $ | 10,981 |
| | $ | 10,131 |
|
For the year ended March 31, 2010, stock-based compensation expense presented in the table above includes $1.2 million recorded in discontinued operations.
As of March 31, 2012, the total unrecognized compensation cost related to unvested stock options was $8.7 million and is expected to be recognized over a weighted average period of 1.9 years. The total unrecognized compensation cost related to non-vested restricted stock awards was $16.9 million and is expected to be recognized over a weighted average period of 2.5 years.
Stock Option Plan Activity
Stock Options
The following is a summary of the Company’s stock option activity during fiscal 2010:year 2012:
| | Options Outstanding | |
| | Number of Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life | | | Aggregate Intrinsic Value | |
| | (in thousands) | | | | | | (in years) | | | (in thousands) | |
Outstanding at March 31, 2009 | | | 8,893 | | | $ | 25.25 | | | | | | | |
Options granted | | | 1,348 | | | $ | 20.65 | | | | | | | |
Options exercised | | | (1,493 | ) | | $ | 21.81 | | | | | | $ | 9,025 | |
Options forfeited or expired | | | (1,117 | ) | | $ | 25.55 | | | | | | | | |
Outstanding at March 31, 2010 | | | 7,631 | | | $ | 25.06 | | | | 3.4 | | | $ | 57,778 | |
Exercisable at March 31, 2010 | | | 5,557 | | | $ | 26.87 | | | | 2.6 | | | $ | - | |
|
| | | | | | | | | | | | | |
| Options Outstanding |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| (in thousands) | | | | (in years) | | (in thousands) |
Outstanding at March 31, 2011 | 5,360 |
| | $ | 25.58 |
| | | | |
Options granted | 654 |
| | $ | 34.93 |
| | | | |
Options exercised | (1,831 | ) | | $ | 20.88 |
| | | | |
Options forfeited or expired | (879 | ) | | $ | 38.96 |
| | | | |
|
Outstanding at March 31, 2012 | 3,304 |
| | $ | 26.47 |
| | 3.7 |
| | $ | 45,544 |
|
Vested and expected to vest at March 31, 2012 | 3,225 |
| | $ | 26.29 |
| | 3.6 |
| | $ | 45,044 |
|
Exercisable at March 31, 2012 | 2,316 |
| | $ | 23.79 |
| | 2.8 |
| | $ | 38,137 |
|
Options outstandingThe total intrinsic values of stock options exercised during fiscal years 2012, 2011 and 2010 were $27.6 million, $26.2 million and $9.0 million, respectively. Intrinsic value is defined as the amount by which the fair value of March 31, 2010 include 7.5 million shares that are vested or expected to vest with a weighted averagethe underlying stock exceeds the exercise price at the time of $25.16, a weighted average remaining contractual life of 3.4 years and an aggregate intrinsic value of $56.0 million.option exercise. The total cash received from employees as a result of employee stock option exercises during fiscal 2010year 2012 was $32.6 million. The Company settles employee stock option exercises with newly issued common shares approved by stockholders for inclusion in the 1993 Stock Plan or the 2003 Stock Plan.$38.2 million.
Restricted Stock
The following is a summary of the Company’s restricted stock award activity during the fiscal 2010:year 2012:
| | Number of Shares | | | Weighted Average Grant Date Fair Value | |
| | (in thousands) | | | | |
Non-vested at March 31, 2009 | | | 363 | | | $ | 20.39 | |
Granted | | | 154 | | | $ | 24.62 | |
Vested | | | (137 | ) | | $ | 22.36 | |
Forfeited | | | (19 | ) | | $ | 20.98 | |
Non-vested at March 31, 2010 | | | 361 | | | $ | 21.41 | |
|
| | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| (in thousands) | | |
Non-vested at March 31, 2011 | 688 |
| | $ | 29.52 |
|
Granted | 391 |
| | $ | 36.37 |
|
Vested | (202 | ) | | $ | 27.35 |
|
Forfeited | (62 | ) | | $ | 30.91 |
|
Non-vested at March 31, 2012 | 815 |
| | $ | 33.37 |
|
The totalweighted average grant-date fair value of restricted stock awardsis based on the quoted market price of the Company's common stock on the date of grant. The weighted average grant-date fair values of restricted stock granted during fiscal years 2012, 2011 and 2010 were $36.37, $33.54 and $24.62, respectively. The total grant-date fair values of restricted stock that vested during the year ended March 31, fiscal years 2012, 2011 and 2010 was $3.1 million.
Stock-Based Compensation$5.5 million, $3.1 million and $3.1 million, respectively.
The following table summarizes the amount of stock-based compensation expense included in the consolidated statements of operations, including both continuing and discontinued operations for the periods presented:
| | Fiscal Year Ended March 31, | |
(in thousands) | | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
Cost of revenues | | $ | 2,474 | | | $ | 2,265 | | | $ | 1,929 | |
| | | | | | | | | | | | |
Research, development and engineering | | | 3,552 | | | | 3,663 | | | | 3,505 | |
Selling, general and administrative | | | 9,966 | | | | 9,814 | | | | 9,443 | |
Stock-based compensation expense included in operating expenses | | | 13,518 | | | | 13,477 | | | | 12,948 | |
| | | | | | | | | | | | |
Total stock-based compensation | | | 15,992 | | | | 15,742 | | | | 14,877 | |
| | | | | | | | | | | | |
Income tax benefit | | | (5,173 | ) | | | (4,940 | ) | | | (4,746 | ) |
| | | | | | | | | | | | |
Total stock-based compensation expense, net of tax | | $ | 10,819 | | | $ | 10,802 | | | $ | 10,131 | |
Stock based compensation included in discontinued operations was $1.0 million, $1.0 million and $1.2 million for fiscal 2008, 2009 and 2010, respectively, including $0.3 million related to stock option modification charges in connection with the sale of the AEG segment.
As of March 31, 2010, the total unrecognized compensation cost related to unvested stock options was $13.7 million which is expected to be recognized over a weighted average period of 1.9 years, the total unrecognized compensation cost related to non-vested restricted stock awards was $5.6 million which is expected to be recognized over a weighted average period of 2.7 years, and the total unrecognized compensation cost related to the ESPP was $0.4 million which is expected to be fully recognized during the first two quarters of fiscal 2011.
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 grantthe stock options and ESPP shares granted during the respective periods is estimated on the date of grant using the straight-line attribution approach with the following weighted average assumptions:
| | Employee Stock Options | | | Employee Stock Purchase Plan | |
Fiscal Year Ended March 31, | | 2008 | | | 2009 | | | 2010 | | | 2008 | | | 2009 | | | 2010 | |
Expected volatility | | | 39.6 | % | | | 51.6 | % | | | 53.7 | % | | | 45.3 | % | | | 63.0 | % | | | 49.0 | % |
Risk-free interest rate | | | 4.0 | % | | | 2.9 | % | | | 2.0 | % | | | 3.4 | % | | | 0.9 | % | | | 0.2 | % |
Expected dividends | | | 0.8 | % | | | 1.2 | % | | | 1.0 | % | | | 0.9 | % | | | 1.6 | % | | | 0.8 | % |
Expected life (in years) | | | 4.2 | | | | 4.4 | | | | 4.5 | | | | 0.5 | | | | 0.5 | | | | 0.5 | |
Weighted-average grant date fair value | | $ | 9.35 | | | $ | 7.65 | | | $ | 8.71 | | | $ | 6.20 | | | $ | 4.56 | | | $ | 7.22 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Employee Stock Options | | ESPP |
Fiscal Year Ended March 31, | | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
Expected volatility | | 45.3 | % | | 45.7 | % | | 53.7 | % | | 37.3 | % | | 38.7 | % | | 49.0 | % |
Risk-free interest rate | | 1.0 | % | | 1.4 | % | | 2.0 | % | | 0.1 | % | | 0.2 | % | | 0.2 | % |
Expected dividends | | 0.6 | % | | 0.6 | % | | 1.0 | % | | 0.6 | % | | 0.6 | % | | 0.8 | % |
Expected life (in years) | | 4.0 |
| | 4.2 |
| | 4.5 |
| | 0.5 |
| | 0.5 |
| | 0.5 |
|
Weighted-average grant date fair value | | $ | 12.06 |
| | $ | 11.92 |
| | $ | 8.71 |
| | $ | 8.69 |
| | $ | 8.67 |
| | $ | 7.22 |
|
The Company recognizes the grant-date fair value of stock-based compensation as compensation expense in the Consolidated statements of operations using the straight-line attribution approach over the service period for which the stock-based compensation is expected to vest.
The expected stock price volatility for the years ended March 31, 2008, 20092012, 2011 and 2010 was determined based on an equally weighted average of historical and implied volatility. Implied volatility is based on the volatility of the Company’s publicly traded options on its common stock with a termterms of six months or less. The Company determined that a blend of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. The expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The dividend yield assumption is based on our current dividend and the market price of our common stock at the date of grant.
13. COMMON STOCK REPURCHASES
From time to time, the Company's Board authorizes programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Repurchased shares are held as treasury stock until such time as they are retired or re-issued. During the years ended March 31, 2012, 2011 and 2010, the Company repurchased 8,027,287, 3,315,000 and 1,935,100 shares of its common stock, respectively, for a total cost of $273.8 million, $105.5 million and $49.7 million, respectively. Of the total 8,027,287 shares repurchased in fiscal year 2012, 4,327,770 shares were repurchased in privately negotiated transactions and 3,699,517 shares were repurchased in the open market. All repurchases in fiscal years 2011 and 2010 were made in the open market. Repurchases by the Company pursuant to the Board authorized programs during fiscal years 2012, 2011 and 2010 are discussed in detail below. As of March 31, 2012, there were 633,613 remaining shares authorized for repurchase.
Privately Negotiated Transactions
In May 2011, pursuant to a Board authorized accelerated share repurchase ("ASR") program, the Company entered into two separate Master Confirmation and Supplemental Confirmations (“May 2011 ASR Agreements”) with Goldman, Sachs & Co. (“Goldman”) consisting of a "Collared ASR Agreement" and an "Uncollared ASR Agreement". In August 2011, the Company entered into an additional Supplemental Confirmation with Goldman, consisting of an uncollared ASR ("August 2011 Uncollared ASR Agreement"). Details of these transactions are described further below.
In accordance with the Equity topic of the FASB Accounting Standards Codification ("ASC"), the Company accounted for each agreement with Goldman as two separate transactions: (i) as shares of common stock acquired in a treasury stock transaction recorded on the acquisition date and (ii) as a forward contract indexed to the Company’s own common stock. As such, the Company accounted for the shares that it received under the May 2011 ASR Agreements and the August 2011 Uncollared ASR Agreement as a repurchase of its common stock for the purpose of calculating earnings per common share. The Company has determined that the forward contracts indexed to the Company’s common stock met all of the applicable criteria for equity classification in accordance with the Derivatives and Hedging topic of the FASB ASC and, therefore, were not accounted for as derivative instruments.
May 2011 ASR Agreements
Under the May 2011 ASR Agreements, the Company paid Goldman $100.0 million in May 2011. As of March 31, 2012, Goldman delivered 2,831,519 shares of the Company's common stock under the Collared ASR and Uncollared ASR Agreements.
As of March 31, 2012, the Company received a total of 1,398,925 shares from Goldman under the Collared ASR Agreement at a total cost of $50.0 million and an average price per share of $35.74 based on the volume-weighted average price ("VWAP") of the Company's common stock during the term of the Collared ASR Agreement, less a discount.
As of March 31, 2012, the Company received a total of 1,432,594 shares from Goldman under the Uncollared ASR Agreement at a total cost of $50.0 million and an average price per share of $34.90 based on the VWAP of the Company's common stock during the term of the Uncollared ASR Agreement, less a discount.
August 2011 Uncollared ASR Agreement
Under the August 2011 Uncollared ASR Agreement, the Company paid Goldman $50.0 million in August 2011. As of March 31, 2012, the Company received a total of 1,496,251 shares from Goldman at a total cost of $50.0 million and an average price per share of $33.42 based on the VWAP of the Company's common stock during the term of the agreement, less a discount.
Open Market Repurchases
Under the Board authorized programs, during the years ended March 31, 2012, 2011 and 2010, the Company repurchased 3,699,517, 3,315,000 and 1,935,100 shares of its common stock, respectively, in the open market for a total cost of $123.8 million, $105.5 million and $49.7 million, respectively, and an average price per share of $33.46, $31.83 and $25.66, respectively. The Company financed the repurchases using a combination of funds generated from operations and borrowings under its revolving line of credit.
In addition, the Company withheld shares valued at $2.6 million during the year ended March 31, 2012, compared to an immaterial amount in fiscal year 2011 and none in fiscal year 2010, in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under the Company's stock plans. The amounts withheld were equivalent to the employees' minimum statutory tax withholding requirements and are reflected as a financing activity within the Company's Consolidated statements of cash flows. These share withholdings have the effect of share repurchases by the Company as they reduce the number of shares outstanding as a result of the vesting.
Treasury Stock Retirement
During the years ended March 31, 2012, 2011 and 2010, the Company retired 5,000,000, 4,000,000 and 2,000,000 shares of treasury stock, respectively, at a total value of 177.1 million, 102.4 million, and 56.2 million, respectively. These were non-cash equity transactions in which the cost of the reacquired shares was recorded as a reduction to both Retained earnings and Treasury stock. The shares were returned to the status of authorized but unissued shares.
14. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income were as follows:
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Accumulated unrealized gain (loss) on cash flow hedges, net of an immaterial tax impact | | $ | 1,904 |
| | $ | (3,715 | ) |
Accumulated foreign currency translation adjustments | | 4,392 |
| | 5,181 |
|
Accumulated unrealized gain on investments, net of an immaterial tax impact | | 61 |
| | 7 |
|
Accumulated other comprehensive income | | $ | 6,357 |
| | $ | 1,473 |
|
13. | |
15. | EMPLOYEE BENEFIT PLANS |
Subject to eligibility requirements, substantially all employees, with the exception of direct labor and certain executives, participate in quarterly cash profit sharing plans. The profit sharing benefits are based on the Company’s results of operations before interest and taxes, adjusted for other items. The profit sharing is calculated and paid quarterly. Profit sharing payments are allocated to employees based on each participating employee's base salary as a percent of all participants' base salaries.
The profit sharing plan provides for the distribution of 5% of quarterly profits to qualified employees. Total profit sharing payments were $4.4 million, $3.6 million, and $3.2 million for fiscal 2008, 2009 and 2010, respectively.
The Company has a defined contribution benefit plan under Section 401(k) of the Internal Revenue Code, which covers substantially all U.S. employees. Eligible employees may contribute pre-tax amounts to the plan thatvia payroll withholdings, subject to certain limitations. Under the plan, the Company matches 50% of the first 6% of employees' compensation and provides a non-elective companyCompany contribution equal to 3% of base salary. All matching contributions are 100% vested immediately. Total Company contributions in fiscal 2008, 2009year 2012, 2011 and 2010 were $3.8$3.8 million $3.9, $3.7 million, and $3.7$3.7 million, respectively.
14. | |
16. | FOREIGN CURRENCY DERIVATIVES |
The Company uses derivative instruments primarily to manage exposures to foreign currency risks. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency. The program is not designed for trading or speculative purposes. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.
In accordance with Derivatives and Hedging Topic of the FASB ASC, the Company recognizes derivative instruments as either assets or liabilities on the balance sheet at fair value. Changes in fair value (i.e., gains or losses) of the derivatives are recorded as Net revenues or Interest and other income (expense), net or as Accumulated other comprehensive income.
Refer to Note 6, Fair Value Measurements, which discloses the Company's fair value hierarchy for its derivative instruments.
Non-Designated Hedges
The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and liabilities denominated in currencies other than the functional currency of the reporting entity. These foreign exchange forward contracts are not subject to the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC, but are carried at fair value with changes in the fair value recorded within Interest and other income (expense), net onin the Consolidated statementstatements of operations in accordance with the Foreign Currency Matters Topic of the FASB ASC. Gains and losses on these contracts are intended to offset the imp actimpact of foreign exchange rate changes on the underlying foreign currency denominated assets and liabilities, and therefore, do not subject the Company to material balance sheet risk. The Company does not enter into foreign currency forward contracts for trading purposes.
As of March 31, 2010,2012, the Company had foreign currency forward contracts of €18.0 million and £2.0 million denominated in Euros and("EUR"), Great Britain Pounds. As of March 31, 2009, the Company had foreign currencyPounds ("GBP") and Australian Dollars ("AUD"). These forward contracts hedge against a portion of €18.7 millionthe Company's foreign currency-denominated cash balances, receivables and £6.5 million denominated in Euros and Great Britain Pounds.
payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. Dollar equivalent (“USD”USD Equivalent”), at March 31, 2010:2012:
| | Local Currency | | | USD Equivalent | | Position | | Maturity |
| | (in thousands) | | | (in thousands) | | | | |
Euro ("EUR") | | | 18,000 | | | $ | 24,265 | | Sell EUR | | 1 month |
Great Britain Pound ("GBP") | | | 2,000 | | | $ | 3,036 | | Sell GBP | | 1 month |
|
| | | | | | | | | | |
| Local Currency | | USD Equivalent | | Position | | Maturity |
| (in thousands) | | (in thousands) | | | | |
EUR | 19,000 |
| | $ | 25,349 |
| | Sell EUR | | 1 month |
GBP | 3,600 |
| | $ | 5,756 |
| | Sell GBP | | 1 month |
AUD | 2,600 |
| | $ | 2,688 |
| | Sell AUD | | 1 month |
As of March 31, 2011, the notional value of the Company's foreign currency forward contracts was €18.0 million, £4.0 million and A$3.4 million denominated in EUR, GBP and AUD, respectively.
Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in netimmaterial gains of $0.9 million in fiscal 2008, net losses of $6.3 million in fiscal 2009,year 2012, 2011 and net gains of $1.0 million in fiscal 2010, which are included in Interest and other income (expense), net in the Consolidated statements of operations.
Cash Flow Hedges
The Company’s hedging activities include a hedging program to hedge the economic exposure from anticipated EuroEUR and Great Britain PoundGBP denominated sales. The Company hedges a portion of these forecasted foreign denominated sales with currency options. These transactions are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC. The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Net revenues when the hedged exposure affects earnings. Any ineffective portionsportion of related gains or losses areis recorded in the Consolidated statements of operations immediately. On a monthly basis, the Company enter senters into option contracts with a one-year term. It does not purchase options for trading purposes. As of March 31, 2010,2012, the Company had foreign currency put and call option contracts of approximately €40.2€63.7 million and £10.8 million.£20.0 million. As of March 31, 2009,2011, it had foreign currency put and call option contracts of approximately €48.4€52.7 million and £14.4 million.£14.5 million.
In fiscal 2008, 2009year 2012, a realized loss of $2.4 million on cash flow hedges was recognized in Net revenues in the Consolidated statement of operations. In fiscal years 2011 and 2010, realized gains (losses) of $(3.9)$2.5 million $4.5 and $1.8 million and $1.8 million, respectively, on cash flow hedges were recognized in Net revenues in the Consolidated statements of operations. The Company expects to reclassify the entire amountgain of $2.5$1.2 million, net of gains accumulatedtax, in Accumulated other comprehensive income as of March 31, 2012 to Net revenues during the next 12 months due to the recognition of the hedged forecasted sales.
In the second quarter of fiscal 2010, theThe Company began hedginghedges expenditures denominated in Mexican Peso (“MX$”), which are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC. The Company hedges a portion of the forecasted PesoMX$ denominated expenditures with a cross-currency swap. The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Cost of revenues when the hedged exposure affects operations. Any ineffective portion of related gains or losses is recorded in the Consolidated statements of operations immediately. As of March 31, 2010,2012 and 2011, the Company had foreign currency swap contracts of approximately Mex$25 1.3 million. ThereMX$317.5 million and MX$343.9 million, respectively.
In fiscal years 2012, 2011 and 2010, there were no swap contracts as of March 31, 2009.
In fiscal 2010,material realized gains of $0.5 million on PesoMX$ cash flow hedges were recognized in Cost of revenues in the Consolidated statements of operations. Thereoperations and there were no realizedmaterial gains or losses in fiscal 2009. The Company expects to reclassify the entire amount of $0.3 million of gains accumulated inAccumulated other comprehensive income as of March 31, 2012 to Cost of revenuesbe recognized during the next 12 months due to the recognition of the hedged forecasted expenditures.
The following table summarizes the Company’snotional value of the Company's outstanding PesoMX$ currency swaps and approximate U.S. Dollar equivalent (“USD”),USD Equivalent at March 31, 2010:2012:
| | Local Currency | | | USD Equivalent | | Position | | Maturity |
| | (in thousands) | | | (in thousands) | | | | |
Mexican Peso | | | 251,270 | | | $ | 19,630 | | Buy Peso | | Monthly over 12 months |
|
| | | | | | | | | | | |
| | Local Currency | | USD Equivalent | | Position | | Maturity |
| | (in thousands) | | (in thousands) | | | | |
MX$ | | 317,500 |
| | $ | 23,511 |
| | Buy MX$ | | Monthly over 12 months |
The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.
Fair Value of Derivative Contracts
The fair value of derivative contracts wereunder the Derivatives and Hedging Topic of the FASB ASC was as follows:
| | | | Derivative Assets Reported in Other Current Assets | | | | Derivative Liabilities Reported in Other Current Accrued Liabilities | |
(in thousands) | | Balance Sheet Line Item | | March 31, 2009 | | | March 31, 2010 | | Balance Sheet Line Item | | March 31, 2009 | | | March 31, 2010 | |
| | | | | | | | | | | | | | | |
Foreign exchange contracts designated as cash flow hedges | | Other current assets | | $ | 7,613 | | | $ | 2,845 | | Accrued liabilities | | $ | 875 | | | $ | 74 | |
Total derivatives designated as hedging instruments | | | | | 7,613 | | | | 2,845 | | | | | 875 | | | | 74 | |
| | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts not designated | | Other current assets | | | - | | | | - | | Accrued liabilities | | | 2 | | | | - | |
Total derivatives | | | | $ | 7,613 | | | $ | 2,845 | | | | $ | 877 | | | $ | 74 | |
80 |
| | | | | | | | | | | | | | | | |
| | Derivative Assets Reported in Other Current Assets | | Derivative Liabilities Reported in Accrued Liabilities |
(in thousands) | | March 31, 2012 | | March 31, 2011 | | March 31, 2012 | | March 31, 2011 |
Foreign exchange contracts designated as cash flow hedges | | $ | 2,658 |
| | $ | 360 |
| | $ | 721 |
| | $ | 4,201 |
|
Effect of Designated Derivative Contracts on Accumulated Other Comprehensive Income
The following table represents only the balance of designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC as of March 31, 20092012 and 2010,2011 and the pre-tax impact of designated derivative contracts on Accumulated other comprehensive income ("OCI") for fiscal years ended March 31, 20092012 and 2010:2011:
| | (in thousands) | | March 31, 2008 | | | Amount of gain (loss) recognized in OCI (effective portion) | | | Amount of gain (loss) reclassified from OCI to income (loss) (effective portion) | | | March 31, 2009 | | | Gain (loss) included in OCI as of March 31, 2011 | | Amount of gain (loss) recognized in OCI (effective portion) | | Amount of gain (loss) reclassified from OCI to income (loss) (effective portion) | | Gain (loss) included in OCI as of March 31, 2012 |
| | | | | | | | | | | | | |
Foreign exchange contracts designated as cash flow hedges | | $ | (6,217 | ) | | $ | 17,460 | | | $ | 4,505 | | | $ | 6,738 | | | $ | (3,814 | ) | | $ | 2,951 |
| | $ | (2,800 | ) | | $ | 1,937 |
|
|
| | | | | | | | | | | | | | | | |
(in thousands) | | Gain (loss) included in OCI as of March 31, 2010 | | Amount of gain (loss) recognized in OCI (effective portion) | | Amount of gain (loss) reclassified from OCI to income (loss) (effective portion) | | Gain (loss) included in OCI as of March 31, 2011 |
Foreign exchange contracts designated as cash flow hedges | | $ | 2,771 |
| | $ | (3,668 | ) | | $ | 2,917 |
| | $ | (3,814 | ) |
(in thousands) | | March 31, 2009 | | | Amount of gain (loss) recognized in OCI (effective portion) | | | Amount of gain (loss) reclassified from OCI to income (loss) (effective portion) | | | March 31, 2010 | |
| | | | | | | | | | | | |
Foreign exchange contracts designated as cash flow hedges | | $ | 6,738 | | | $ | (1,685 | ) | | $ | 2,282 | | | $ | 2,771 | |
Effect of Designated Derivative Contracts on the Consolidated Statements of Operations
The effect of designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in Net revenuesGross profit in the Consolidated statements of operations was as follows:
| | Fiscal Year Ended March 31, | |
(in thousands) | | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
Gain (loss) on foreign exchange contracts designated as cash flow hedges | | $ | (3,945 | ) | | $ | 4,505 | | | $ | 2,282 | |
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
(in thousands) | | 2012 | | 2011 | | 2010 |
Gain (loss) on foreign exchange contracts designated as cash flow hedges | | $ | (2,800 | ) | | $ | 2,917 |
| | $ | 2,282 |
|
Effect of Non-Designated Derivative Contracts on the Consolidated Statements of Operations
The effect of non-designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in Interest and other income (expense), net in the Consolidated statements of operations was as follows:
| | Fiscal Year Ended March 31, | |
(in thousands) | | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
Gain (loss) on foreign exchange contracts | | $ | (5,015 | ) | | $ | 5,590 | | | $ | (996 | ) |
81 |
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
(in thousands) | | 2012 | | 2011 | | 2010 |
Gain (loss) on foreign exchange contracts | | $ | 1,009 |
| | $ | (1,800 | ) | | $ | (996 | ) |
Income tax expense from continuing operations for fiscal years 2008, 20092012, 2011 and 2010 consisted of the following:
(in thousands) | | Fiscal Year Ended March 31, | |
| | 2008 | | | 2009 | | | 2010 | |
| | | |
Current: | | | | | | | | | |
Federal | | $ | 20,990 | | | $ | 6,140 | | | $ | 17,761 | |
State | | | 3,087 | | | | 2,452 | | | | 2,290 | |
Foreign | | | 9,144 | | | | 4,739 | | | | 7,241 | |
Total current provision for income taxes | | | 33,221 | | | | 13,331 | | | | 27,292 | |
| | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | |
Federal | | | (2,525 | ) | | | 1,323 | | | | (2,841 | ) |
State | | | (776 | ) | | | (1,603 | ) | | | (199 | ) |
Foreign | | | (912 | ) | | | (476 | ) | | | 35 | |
Total deferred benefit for income taxes | | | (4,213 | ) | | | (756 | ) | | | (3,005 | ) |
Income tax expense from continuing operations | | $ | 29,008 | | | $ | 12,575 | | | $ | 24,287 | |
|
| | | | | | | | | | | | |
(in thousands) | | Fiscal Year Ended March 31, |
| | 2012 | | 2011 | | 2010 |
Current: | | |
| | |
| | |
Federal | | $ | 23,844 |
| | $ | 22,601 |
| | $ | 17,761 |
|
State | | 2,719 |
| | 1,077 |
| | 2,290 |
|
Foreign | | 5,080 |
| | 5,888 |
| | 7,241 |
|
Total current provision for income taxes | | 31,643 |
| | 29,566 |
| | 27,292 |
|
Deferred: | | | | |
| | |
|
Federal | | 2,324 |
| | 475 |
| | (2,841 | ) |
State | | (569 | ) | | 1,262 |
| | (199 | ) |
Foreign | | 168 |
| | 110 |
| | 35 |
|
Total deferred benefit for income taxes | | 1,923 |
| | 1,847 |
| | (3,005 | ) |
Income tax expense from continuing operations | | $ | 33,566 |
| | $ | 31,413 |
| | $ | 24,287 |
|
The components of income from continuing operations before income taxes for fiscal years 2008, 20092012, 2011 and 2010 are as follows:
| | Fiscal Year Ended March 31, | |
(in thousands) | | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | |
United States | | $ | 51,192 | | | $ | 32,671 | | | $ | 51,392 | |
Foreign | | | 69,828 | | | | 25,246 | | | | 49,348 | |
Income from continuing operations before income taxes | | $ | 121,020 | | | $ | 57,917 | | | $ | 100,740 | |
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
(in thousands) | | 2012 | | 2011 | | 2010 |
United States | | $ | 79,589 |
| | $ | 75,426 |
| | $ | 51,392 |
|
Foreign | | 63,013 |
| | 65,230 |
| | 49,348 |
|
Income from continuing operations before income taxes | | $ | 142,602 |
| | $ | 140,656 |
| | $ | 100,740 |
|
The following is a reconciliation between statutory federal income taxes and the income tax expense from continuing operations for fiscal years 2008, 2009,2012, 2011 and 2010:2010:
(in thousands) | | Fiscal Year Ended March 31, | |
| | 2008 | | | 2009 | | | 2010 | |
Tax expense at statutory rate | | $ | 42,357 | | | $ | 20,272 | | | $ | 35,259 | |
Foreign operations taxed at different rates | | | (14,685 | ) | | | (4,546 | ) | | | (11,166 | ) |
State taxes, net of federal benefit | | | 2,312 | | | | 849 | | | | 2,091 | |
Research and development credit | | | (612 | ) | | | (3,117 | ) | | | (1,383 | ) |
Other, net | | | (364 | ) | | | (883 | ) | | | (514 | ) |
Income tax expense from continuing operations | | $ | 29,008 | | | $ | 12,575 | | | $ | 24,287 | |
|
| | | | | | | | | | | | |
(in thousands) | | Fiscal Year Ended March 31, |
| | 2012 | | 2011 | | 2010 |
Tax expense at statutory rate | | $ | 49,911 |
| | $ | 49,229 |
| | $ | 35,259 |
|
Foreign operations taxed at different rates | | (16,973 | ) | | (16,308 | ) | | (11,166 | ) |
State taxes, net of federal benefit | | 2,149 |
| | 2,340 |
| | 2,091 |
|
Research and development credit | | (1,392 | ) | | (3,234 | ) | | (1,383 | ) |
Other, net | | (129 | ) | | (614 | ) | | (514 | ) |
Income tax expense from continuing operations | | $ | 33,566 |
| | $ | 31,413 |
| | $ | 24,287 |
|
The effective tax rate for fiscal years 2008, 20092012, 2011 and 2010 was 24.0%23.5%, 21.7%22.3%, and 24.1% respectively. The effective tax rate for fiscal 2010year 2012 is higher than the previous year due primarily due to the incrementalreduced benefit associated with the release of a higher amount of tax reserves resulting from the lapse of the statute of limitations in certain jurisdictions in fiscal 2009 and reducedU.S. federal tax credits in fiscal 2010 as the research tax credit was available for only nine months compared to fifteen months in fiscal 2009 due toyear 2012 as the reinstatementcredit expired in December 2011; therefore, the effective tax rate for fiscal year 2012 included the benefit of the credit for only three quarters. Because the credit was reinstated in October 2008December 2010 retroactively to January 1, 2008.
2010, the effective tax rate for fiscal year 2011 includes the impact of credits earned in the fourth quarter of fiscal year 2010. 82
In comparison to fiscal year 2010, the decrease in the effective tax rate for fiscal year 2011 was due primarily to the increased benefit from the U.S. Federal research tax credit.
The effective tax rate for fiscal years 2008, 20092012, 2011 and 2010 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates,rates, income tax credits, state taxes, and other factors. The future tax rate could be impacted by a shift in the mix of domestic and foreign income, tax treaties with foreign jurisdictions, changes in tax laws in the U.S. or internationally or a change in estimate of future taxable income which could result in a valuation allowance being required.
Permanently reinvested foreign earnings were approximately $374.8$491.0 million at March 31, 2010.2012. The determination of the tax liability that would be incurred if these amounts were remitted back to the U.S. is not practical.practical but would likely be material. The Company's provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign operations that it intends to reinvest indefinitely in the foreign operations. If these earnings were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, subject to an adjustment for foreign tax credits, and foreign withholding taxes. The Company's current plans do not require repatriation of earnings from foreign operations to fund the U.S. operations because it generates sufficient domestic operating cash flow and has access to external funding under its line of credit. As a result, the Company does not expect a material impact on its business or financial flexibility with respect to undistributed earnings of its foreign operations.
Deferred tax assets and liabilities represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of our deferred tax assets and liabilities as of March 31, 20092012 and 20102011 are as follows:
| | March 31, | |
(in thousands) | | 2009 | | | 2010 | |
| | | | | | |
Accruals and other reserves | | $ | 9,887 | | | $ | 8,316 | |
Net operating loss carryover | | | 3,118 | | | | 2,833 | |
Stock compensation | | | 8,714 | | | | 7,946 | |
Other deferred tax assets | | | 4,141 | | | | 4,553 | |
Valuation allowance | | | (123 | ) | | | (1,399 | ) |
Total deferred tax assets | | | 25,737 | | | | 22,249 | |
| | | | | | | | |
Deferred gains on sales of properties | | | (2,096 | ) | | | (2,033 | ) |
Purchased intangibles | | | (10,024 | ) | | | (1,288 | ) |
Unremitted earnings of certain subsidiaries | | | (3,064 | ) | | | (2,486 | ) |
Fixed asset depreciation | | | (3,949 | ) | | | (3,619 | ) |
Other deferred tax liabilities | | | (2,203 | ) | | | (2,463 | ) |
Total deferred tax liabilities | | | (21,336 | ) | | | (11,889 | ) |
| | | | | | | | |
Net deferred tax asset/(liabilities) | | $ | 4,401 | | | $ | 10,360 | |
|
| | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 |
Accruals and other reserves | | $ | 9,822 |
| | $ | 9,850 |
|
Net operating loss carry forward | | 6,317 |
| | 5,095 |
|
Stock compensation | | 1,388 |
| | 5,519 |
|
Other deferred tax assets | | 3,561 |
| | 4,417 |
|
Valuation allowance | | (6,088 | ) | | (5,274 | ) |
Total deferred tax assets | | 15,000 |
| | 19,607 |
|
Deferred gains on sales of properties | | (1,881 | ) | | (1,954 | ) |
Purchased intangibles | | (143 | ) | | (323 | ) |
Unremitted earnings of certain subsidiaries | | (3,064 | ) | | (3,064 | ) |
Fixed asset depreciation | | (5,309 | ) | | (4,244 | ) |
Other deferred tax liabilities | | (2,186 | ) | | (2,199 | ) |
Total deferred tax liabilities | | (12,583 | ) | | (11,784 | ) |
Net deferred tax assets | | $ | 2,417 |
| | $ | 7,823 |
|
The Company evaluates its deferred tax assets including a determination of whether a valuation allowance is necessary based upon its ability to utilize the assets using a more likely than not analysis. Deferred tax assets are only recorded to the extent that they are realizable based upon past and future income. The Company has a long established earnings history with taxable income in its carryback years and forecasted future earnings. The Company has concluded that except for the specific items discussed below, no valuation allowance is required.
AsThe valuation allowance of $6.1 million million as of March 31, 2010, the Company has state tax credit carryforwards of $1.9 million with no expiration provisions.
The Company established a valuation allowance of $1.1 million during fiscal 20082012 was related to the temporary decline in fair market value of its ARS. The valuation allowance was recorded to Accumulated other comprehensive income. During fiscal 2009, the decline in fair value of the ARS was treated as an other-than-temporary loss and the valuation allowance of $1.1 million was reversed. The loss was mostly offset by the value of the Rights offer from UBS the Company accepted during fiscal 2009. The $0.1 million valuation allowance established during fiscal 2009 for the tax effect of the net loss from the decline in value of the ARS offset by the Rights was reversed during fiscal 2010 as a result of net gains during the fiscal year on the value of the ARS offset by the Rights. During fi scal 2009, the Company also established a $0.1 million valuation allowance in relation to the operating losses of one of itsa foreign subsidiaries where there issubsidiary with an insufficient history of earnings to support the realization of the deferred tax asset. During fiscal 2010, the valuation allowance increased to $1.4 millionasset and for another foreign subsidiary with uncertain utilization of which $0.8 millionresearch incentives.
The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. As of March 31, 2008, 20092012, 2011 and 2010, the Company had $12.4$11.1 million $11.1, $10.5 million and $11.2$11.2 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of the end of fiscal 2010March 31, 2012 would favorably impact the effective tax rate in future periods if recognized.
A reconciliation of the change in the amount of gross unrecognized income tax benefits for the periods is as follows:
| | March 31, | |
(in thousands) | | 2008 | | | 2009 | | | 2010 | |
Balance at beginning of period | | $ | 12,456 | | | $ | 12,436 | | | $ | 11,090 | |
Increase (decrease) of unrecognized tax benefits related to prior years | | | 396 | | | | (155 | ) | | | 100 | |
Increase of unrecognized tax benefits related to the current year | | | 2,977 | | | | 2,205 | | | | 2,016 | |
Decrease of unrecognized tax benefits related to settlements | | | (3,156 | ) | | | - | | | | - | |
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations | | | (237 | ) | | | (3,396 | ) | | | (2,005 | ) |
Balance at end of period | | $ | 12,436 | | | $ | 11,090 | | | $ | 11,201 | |
|
| | | | | | | | | | | | |
| | March 31, |
(in thousands) | | 2012 | | 2011 | | 2010 |
Balance at beginning of period | | $ | 10,458 |
| | $ | 11,201 |
| | $ | 11,090 |
|
Increase (decrease) of unrecognized tax benefits related to prior years | | 116 |
| | (960 | ) | | 100 |
|
Increase of unrecognized tax benefits related to the current year | | 2,074 |
| | 2,185 |
| | 2,016 |
|
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations | | (1,507 | ) | | (1,968 | ) | | (2,005 | ) |
Balance at end of period | | $ | 11,141 |
| | $ | 10,458 |
| | $ | 11,201 |
|
The Company’sCompany's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The interest related to unrecognized tax benefits was $1.7 millionas of March 31, 2010 is approximately $1.7 million, compared to $1.6 million as of March 31, 20092012 and $1.7 million as of fiscal 2008.2011. No penalties have been accrued.
Although the timing and outcome of income tax audits is highly uncertain, it is possible that certain unrecognized tax benefits related to various jurisdictions may be reduced as a result of the lapse of the applicable statute of limitations by the end of fiscal 2011. The Company cannot reasonably estimate the reductions at this time. Any such reduction could be impacted by other changes in unrecognized tax benefits.
The Company and its subsidiaries are subject to taxation in various foreign and state jurisdictions as well as in the U.S. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years prior to 2007 or state income tax examinations prior to 2006.2009. The Company is under examination by the California Franchise Tax Board for its 2007 and 2008 tax years. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to fiscal 2004,2006, except for the United Kingdom and Germany which havehas been concluded for tax years prior to fiscal 2008.year 2010.
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of such examinations cannot be predicted with certainty. If any issues addressed in the tax examinations are resolved in a manner inconsistent with the Company's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Although timing of any resolution and/or closure of tax examinations is not certain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next twelve months.
16. | |
18.
| COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
|
The following table sets forth the computation of basic and diluted earnings (loss) per share:
The following table presents long-lived assets by geographic area on a consolidated basis: