10-Q 1 form10q.htm PLANTRONICS, INC 10-Q 1-1-2011 form10q.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 1, 2011

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 1-12696

Plantronics, Inc.
(Exact name of registrant as specified in its charter)

Delaware
77-0207692
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

345 Encinal Street
Santa Cruz, California   95060
(Address of principal executive offices)
(Zip Code)

(831) 426-5858
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer S
 
Accelerated filer £
 
Non-accelerated filer £
 
Smaller reporting company £
       
(Do not check if a smaller reporting company)
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

As of January 29, 2011, 48,870,157 shares of common stock were outstanding.
 


 
1

 

PLT logo
 
Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Page No.
   
Item 1. Financial Statements (Unaudited):
 
   
3
   
4
   
5
   
6
   
22
   
33
   
36
   
PART II. OTHER INFORMATION
 
   
37
   
37
   
49
   
50
   
51

Plantronics, the logo design, Clarity, Savi, and Sound Innovation are trademarks or registered trademarks of Plantronics, Inc.

The Bluetooth name and the Bluetooth trademarks are owned by Bluetooth SIG, Inc. and are used by Plantronics, Inc. under license.

All other trademarks are the property of their respective owners.


Part I -- FINANCIAL INFORMATION

Item 1. Financial Statements.

PLANTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

   
December 31,
   
March 31,
 
   
2010
   
2010
 
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 257,887     $ 349,961  
Short-term investments
    156,419       19,231  
Accounts receivable, net
    111,514       88,328  
Inventory, net
    64,032       70,518  
Deferred income taxes
    11,065       10,911  
Other current assets
    21,007       21,782  
Assets held for sale
    -       8,861  
Total current assets
    621,924       569,592  
Long-term investments
    18,091       -  
Property, plant and equipment, net
    67,376       65,700  
Intangibles, net
    2,539       3,449  
Goodwill
    14,005       14,005  
Other assets
    1,913       2,605  
Total assets
  $ 725,848     $ 655,351  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable
  $ 22,216     $ 23,779  
Accrued liabilities
    51,078       45,837  
Total current liabilities
    73,294       69,616  
Deferred tax liability
    2,981       551  
Long-term income taxes payable
    11,916       12,926  
Other long-term liabilities
    946       924  
Total liabilities
    89,137       84,017  
                 
Stockholders' equity:
               
Common stock
    718       695  
Additional paid-in capital
    489,314       428,407  
Accumulated other comprehensive income
    3,909       6,272  
Retained earnings
    168,592       195,293  
Total stockholders' equity before treasury stock
    662,533       630,667  
Less:  Treasury stock, at cost
    (25,822 )     (59,333 )
Total stockholders' equity
    636,711       571,334  
Total liabilities and stockholders' equity
  $ 725,848     $ 655,351  

The accompanying notes are an integral part of these unaudited Condensed consolidated financial statements.


PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net revenues
  $ 181,585     $ 165,935     $ 510,525     $ 451,555  
Cost of revenues
    85,777       85,566       239,310       238,251  
Gross profit
    95,808       80,369       271,215       213,304  
Operating expenses:
                               
Research, development and engineering
    16,373       14,780       46,480       41,991  
Selling, general and administrative
    43,319       37,502       118,747       103,599  
Restructuring and other related charges
    (428 )     332       (428 )     1,767  
Total operating expenses
    59,264       52,614       164,799       147,357  
Operating income
    36,544       27,755       106,416       65,947  
Interest and other income (expense), net
    (20 )     1,422       615       3,653  
Income from continuing operations before income taxes
    36,524       29,177       107,031       69,600  
Income tax expense from continuing operations
    4,972       5,974       24,104       17,562  
Income from continuing operations
    31,552       23,203       82,927       52,038  
Discontinued operations:
                               
Loss from operations of discontinued AEG segment (including loss on sale of AEG)
    -       (515 )     -       (30,292 )
Income tax benefit on discontinued operations
    -       (562 )     -       (11,408 )
Income (loss) on discontinued operations, net of tax
    -       47       -       (18,884 )
Net income
  $ 31,552     $ 23,250     $ 82,927     $ 33,154  
                                 
Earnings (loss) per common share:
                               
Basic
                               
Continuing operations
  $ 0.66     $ 0.48     $ 1.74     $ 1.07  
Discontinued operations
  $ -     $ -     $ -     $ (0.39 )
Net income
  $ 0.66     $ 0.48     $ 1.74     $ 0.68  
                                 
Diluted
                               
Continuing operations
  $ 0.64     $ 0.47     $ 1.68     $ 1.06  
Discontinued operations
  $ -     $ -     $ -     $ (0.38 )
Net income
  $ 0.64     $ 0.47     $ 1.68     $ 0.67  
                                 
Shares used in computing earnings (loss) per common share:
                               
Basic
    47,649       48,632       47,621       48,632  
Diluted
    49,431       49,625       49,271       49,304  
                                 
Cash dividends declared per common share
  $ 0.05     $ 0.05     $ 0.15     $ 0.15  

The accompanying notes are an integral part of these unaudited Condensed consolidated financial statements.


PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

   
Nine Month Ended
 
   
December 31,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 82,927     $ 33,154  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    11,329       14,133  
Non-cash restructuring charges - accelerated depreciation
    -       6,196  
Stock-based compensation
    11,965       10,756  
Provision for (benefit from) sales allowances and doubtful accounts
    105       (581 )
Provision for excess and obsolete inventories
    664       278  
Benefit from deferred income taxes
    (4,348 )     (8,824 )
Income tax benefit associated with stock option exercises
    5,329       1,809  
Excess tax benefit from stock-based compensation
    (4,900 )     (1,105 )
Impairment of goodwill and long-lived assets
    -       25,194  
Loss on sale of discontinued operations
    -       826  
Other operating activities
    192       247  
                 
Changes in assets and liabilities:
               
Accounts receivable, net
    (22,720 )     (26,548 )
Inventory, net
    5,780       27,435  
Other assets
    (184 )     256  
Accounts payable
    (1,563 )     (1,430 )
Accrued liabilities
    4,310       4,072  
Income taxes
    (2,417 )     2,910  
Cash provided by operating activities
    86,469       88,778  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from maturities of short-term investments
    7,495       85,000  
Proceeds from sale of short-term investments
    23,250       -  
Purchase of short-term investments
    (159,882 )     (34,998 )
Proceeds from sale of long-term investments
    -       750  
Purchase of long-term investments
    (22,077 )     -  
Proceeds from sales of property, plant and equipment and assets held for sale
    9,024       277  
Capital expenditures and other assets
    (12,100 )     (4,339 )
Proceeds from sale of AEG segment
    1,625       11,075  
Cash (used for) provided by investing activities
    (152,665 )     57,765  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Purchase of treasury stock
    (70,344 )     (28,784 )
Proceeds from sale of treasury stock
    2,033       1,612  
Proceeds from issuance of common stock
    44,703       10,431  
Payment of cash dividends
    (7,263 )     (7,362 )
Excess tax benefit from stock-based compensation
    4,900       1,105  
Cash used for financing activities
    (25,971 )     (22,998 )
Effect of exchange rate changes on cash and cash equivalents
    93       1,765  
Net (decrease) increase in cash and cash equivalents
    (92,074 )     125,310  
Cash and cash equivalents at beginning of period
    349,961       158,193  
Cash and cash equivalents at end of period
  $ 257,887     $ 283,503  
                 
Non cash activity:
               
Retirement of treasury shares
  $ 102,365     $ 56,240  

The accompanying notes are an integral part of these unaudited Condensed consolidated financial statements.


PLANTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited Condensed consolidated financial statements (“financial statements”) of Plantronics, Inc. (“Plantronics” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information.  Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the financial statements have been prepared on a basis consistent with the March 31, 2010 audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth herein.  The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010, which was filed with the SEC on June 1, 2010.  The results of operations for the interim period ended December 31, 2010 are not indicative of the results to be expected for the entire fiscal year or any future period.

The financial statements include the accounts of Plantronics and its wholly owned subsidiaries.  All intercompany balances and transactions have been eliminated.

The Company’s fiscal year ends on the Saturday closest to the last day of March.  The Company’s current fiscal year ends on April 2, 2011 and consists of 52 weeks and the prior fiscal year ended on April 3, 2010 and consisted of 53 weeks.  The Company’s results of operations for the three and nine months ended on January 1, 2011 and December 26, 2009 each contain 13 weeks and 39 weeks, respectively.    For purposes of presentation, the Company has indicated its accounting year as ending on March 31 and its interim quarterly periods as ending on the applicable month end.

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 3, 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.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605)—Multiple Deliverable Revenue Arrangements (“ASU 2009-13”).  ASU 2009-13 eliminates the residual method of allocation and requires the relative selling price method when allocating deliverables of a multiple-deliverable revenue arrangement.  The determination of the selling price for each deliverable requires the use of a hierarchy designed to maximize the use of available objective evidence including vendor specific objective evidence, third party evidence of selling price, or estimated selling price.

In October 2009, the FASB also issued ASU No. 2009-14, Software (Topic 985)—Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”).  ASU 2009-14 excludes tangible products containing software and non-software components that function together to deliver the product’s essential functionality, from the scope of ASC 605-985, Software-Revenue Recognition.

ASU 2009-13 and ASU 2009-14 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and must be adopted in the same period using the same transition method.  If adoption is elected in a period other than the beginning of a fiscal year, the amendments in these standards must be applied retrospectively to the beginning of the fiscal year.  Full retrospective application of these amendments to prior fiscal years is optional.  The Company implemented both ASU 2009-13 and ASU 2009-14 in the second quarter of fiscal 2011 with retrospective application to the beginning of fiscal 2011 for transactions that were initiated or materially modified during fiscal 2011.  Implementation of these ASUs did not have a material impact on reported net revenues as compared to net revenues under previous guidance as the Company does not typically enter into multiple element arrangements.  In addition, the new guidance did not change the units of accounting within sales arrangements and the elimination of the residual method for the allocation of arrangement consideration had no material impact on the amount and timing of reported net revenues.


For fiscal 2011 and future periods, when a revenue arrangement contains multiple elements, such as hardware and software products and/or services, the Company allocates revenue to each element based on its vendor specific objective evidence if available, third party evidence of selling price if vendor specific objective evidence is not available, or estimated selling price if neither vendor specific objective evidence or third party evidence of selling price is available.  The Company generally uses either third party evidence or the estimated selling price due to the nature of the products contained in the multiple element arrangements.

3. 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, the Company received approximately $11.1 million upon closing of the transaction.  In addition, the Company originally recorded $5.1 million in contingent escrow assets, which consisted primarily of amounts for (1) potential customer short payments on accounts receivable for sales related reserves that were sold to the Purchaser, (2) potential indemnification obligations, 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.  In the third quarter of fiscal 2011, the Company received all remaining escrow amounts of $1.6 million.

Under the terms of the APA, the Company sold the following net assets, valued at their book value (in thousands) as of December 1, 2009:

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  

The Company retained all existing AEG related accounts receivable, accounts payable and certain other liabilities as of the close date.



There was no income or loss from discontinued operations for the three and nine months ended December 31, 2010.  The results from discontinued operations for the three and nine months ended December 31, 2009 were as follows:

   
Three Months
Ended
December 31,
   
Nine Months
Ended
December 31,
 
(in thousands)
 
2009
   
2009
 
             
Net revenues
  $ 23,328     $ 65,248  
Cost of revenues
    (18,273 )     (52,886 )
Operating expenses
    (4,744 )     (16,615 )
Impairment of goodwill and long-lived assets
    -       (25,194 )
Restructuring and other related charges
    -       (19 )
Loss on disposal of Altec Lansing
    (826 )     (826 )
Loss from operations of discontinued AEG segment (including loss on sale of AEG)
    (515 )     (30,292 )
Tax benefit from discontinued operations
    (562 )     (11,408 )
Income (loss) on discontinued operations, net of tax
  $ 47     $ (18,884 )

4. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS

Accounts receivable, net:

   
December 31,
   
March 31,
 
(in thousands)
 
2010
   
2010
 
             
Accounts receivable
  $ 138,042     $ 118,199  
Provisions for returns
    (12,473 )     (13,812 )
Provisions for promotions, rebates and other
    (12,927 )     (13,780 )
Allowance for doubtful accounts
    (882 )     (1,846 )
Reserve for sales allowances
    (246 )     (433 )
Accounts receivable, net
  $ 111,514     $ 88,328  

Inventory, net:

   
December 31,
   
March 31,
 
(in thousands)
 
2010
   
2010
 
             
Raw materials
  $ 19,693     $ 13,287  
Work in process
    1,465       2,791  
Finished goods
    42,874       54,440  
Inventory, net
  $ 64,032     $ 70,518  

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.

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 assets held for sale were measured at fair value using unobservable inputs and, therefore, are a Level 3 fair value measure.


In July 2010, the Company entered into a binding contract for the sale of the building and related assets, which approximated the carrying value of the Assets held for sale.  During the third quarter of fiscal 2011, the Company sold the Assets held for sale resulting in a net gain of $0.4 million.  The gain on sale of the Assets held for sale is recorded in Restructuring and other related charges in the Condensed consolidated statements of operations for the three and nine months ended December 31, 2010.  As of December 31, 2010, the Company had no remaining Assets held for sale.

The following table summarizes the components of Assets held for sale as of March 31, 2010:

   
March 31,
 
(in thousands)
 
2010
 
       
Land use rights
  $ 514  
Buildings and improvements
    8,227  
Machinery and equipment
    120  
Assets held for sale
  $ 8,861  

Accrued Liabilities:

   
December 31,
   
March 31,
 
(in thousands)
 
2010
   
2010
 
             
Employee compensation and benefits
  $ 25,716     $ 21,987  
Warranty obligation accrual
    10,768       11,006  
Accrued advertising and sales and marketing
    2,101       3,036  
Accrued other
    12,493       9,808  
Accrued liabilities
  $ 51,078     $ 45,837  

Changes during the nine months ended December 31, 2010 in the warranty obligation accrual, which is included as a component of Accrued liabilities in the Condensed consolidated balance sheets, are as follows:

   
Nine Months Ended
 
(in thousands)
 
December 31, 2010
 
       
Warranty obligation accrual at March 31, 2010
  $ 11,006  
Warranty provision relating to products shipped during the period
    10,973  
Deductions for warranty claims processed during the period
    (11,211 )
Warranty obligation accrual at December 31, 2010
  $ 10,768  



5. CASH, CASH EQUIVALENTS, AND INVESTMENTS

The following table represents the Company’s cash, cash equivalents, and investments as of December 31, 2010 and March 31, 2010:

(in thousands)
 
December 31, 2010
   
March 31, 2010
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
                                                 
Cash and cash equivalents
  $ 257,887     $ -     $ -     $ 257,887     $ 349,961     $ -     $ -     $ 349,961  
                                                                 
Short-term investments:
                                                               
U.S. Treasury Bills and Government Agency Securities
  $ 131,971     $ 24     $ -     $ 131,995     $ -     $ -     $ -     $ -  
Commercial Paper, U.S. Corporate Bonds and Certificates
  of Deposit ("CDs")
    24,415       10       (1 )     24,424       -       -       -       -  
Auction Rate Securities
    -       -       -       -       19,231       -       -       19,231  
Total Short-term investments
  $ 156,386     $ 34     $ (1 )   $ 156,419     $ 19,231     $ -     $ -     $ 19,231  
                                                                 
Long-term investments:
                                                               
U.S. Treasury Bills and Government Agency Securities
  $ 8,823     $ 4     $ (2 )   $ 8,825     $ -     $ -     $ -     $ -  
U.S. Corporate Bonds and CDs
    9,256       11       (1 )     9,266       -       -       -       -  
Total Long-term investments
  $ 18,079     $ 15     $ (3 )   $ 18,091     $ -     $ -     $ -     $ -  
                                                                 
Total cash, cash equivalents, and investments
  $ 432,352     $ 49     $ (4 )   $ 432,397     $ 369,192     $ -     $ -     $ 369,192  

As of December 31, 2010, the Company’s investments are classified as available-for-sale securities.  At March 31, 2010, the Company’s short-term investments consisted of Auction Rate Securities (“ARS”) classified as trading securities and the Company had no long-term investments.

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 December 31, 2010 and March 31, 2010:

(in thousands)
 
December 31, 2010
   
March 31, 2010
 
   
Amortized
Cost
   
Fair Value
   
Amortized
Cost
   
Fair Value
 
                         
Due in 1 year or less
  $ 341,494     $ 341,527     $ 299,910     $ 299,210  
Due in 1 to 5 years
    18,079       18,091       -       -  
Total
  $ 359,573     $ 359,618     $ 299,910     $ 299,210  

The Company did not incur any material realized or unrealized net gains or losses in the three or nine months ended December 31, 2010 or 2009.


The Company did not hold any investments that had been in an unrealized loss position of 12 months or greater as of December 31, 2010.  The following table provides the breakdown of the Company’s investments with unrealized losses as of December 31, 2010:

(in thousands)
 
Less than 12 months
 
   
Fair Value
   
Gross
Unrealized
Losses
 
U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S. Corporate Bonds and CDs
  $ 11,483     $ (4 )
Total
  $ 11,483     $ (4 )

6. FAIR VALUE MEASUREMENTS

The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities:

Fair Values as of December 31, 2010:

(in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
                         
Money market funds
  $ 30,126     $ -     $ -     $ 30,126  
U.S. Treasury Bills and Government Agency Securities
    255,616       40,187       -       295,803  
Commerical Paper, U.S. Corporate Bonds and CDs
    -       33,689       -       33,689  
Derivative assets
    216       879       -       1,095  
Total assets measured at fair value
  $ 285,958     $ 74,755     $ -     $ 360,713  
                                 
Derivative liabilities
  $ 12     $ 1,069     $ -     $ 1,081  

Fair Values 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  
Total assets measured at fair value
  $ 280,211     $ 2,845     $ 23,216     $ 306,272  
                                 
Derivative liabilities
  $ 29     $ 74     $ -     $ 103  

Level 1 financial 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 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 financial assets and liabilities consist of Government Agency Securities, Commercial Paper, U.S. Corporate Bonds, CDs, and derivative foreign currency call and put option contracts.  Fair value is determined using inputs that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations, such as the Black Scholes valuation model, in which all significant inputs are observable or can be derived principally from or corroborated with observable market data covering substantially the full term of the assets or liabilities. During the three and nine months ended December 31, 2010, the Company did not have any transfers between Level 1 and Level 2 fair value instruments.



The Company had no Level 3 financial assets or liabilities as of December 31, 2010.  Level 3 financial assets as of March 31, 2010 consisted of ARS, composed primarily of interest bearing state sponsored student loan revenue bonds guaranteed by the Department of Education.  The Company exercised its option under the UBS Rights Agreement and sold all of its remaining ARS to UBS at par value in June 2010.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets during the nine months ended December 31, 2010:

   
Nine Months Ended
 
(in thousands)
 
December 31, 2010
 
       
Balance at beginning of period
  $ 23,216  
Unrealized net gain on ARS and Rights included in Interest and other income, net
    34  
Proceeds from sale of ARS
    (23,250 )
Balance at end of period
  $ -  

7. GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill as of December 31, 2010 and March 31, 2010 was $14.0 million.

The following tables present the carrying value of acquired intangible assets with remaining net book values as of each period:

   
December 31, 2010
   
March 31, 2010
   
                                       
   
Gross
   
Accumulated
   
Net
   
Gross
   
Accumulated
   
Net
 
Useful
(in thousands)
 
Amount
   
Amortization
   
Amount
   
Amount
   
Amortization
   
Amount
 
Life
                                       
Technology
  $ 6,500     $ (4,700 )   $ 1,800     $ 6,500     $ (4,064 )   $ 2,436  
3-10 years
Patents
    720       (720 )     -       720       (660 )     60  
7 years
Customer relationships
    1,705       (975 )     730       1,705       (765 )     940  
3-8 years
OEM relationships
    27       (18 )     9       27       (14 )     13  
7 years
Total
  $ 8,952     $ (6,413 )   $ 2,539     $ 8,952     $ (5,503 )   $ 3,449    

The aggregate amortization expense relating to purchased intangible assets for the three and nine months ended December 31, 2010 was $0.3 million and $0.9 million, respectively, and $0.3 million and $1.4 million for the three and nine months ended December 31, 2009, respectively.  There was no amortization expense recorded to discontinued operations for the three and nine months ended December 31, 2010.  There was no amortization expense recorded to discontinued operations for the three months ended December 31, 2009 and $0.5 million was recorded for the nine months ended December 31, 2009.

The Company reviews goodwill and purchased intangible assets with indefinite lives for impairment annually during the fourth quarter of the fiscal year or more frequently if events or circumstances indicate that an impairment loss may have occurred.  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.  For the three and nine months ended December 31, 2010, the Company did not identify any potential impairment related to its remaining intangible assets and there have not been any events or changes in circumstances indicating an impairment may have occurred which would trigger an interim impairment review of goodwill.

During the second quarter of fiscal 2010, the Company entered into a non-binding letter of intent to sell Altec Lansing, the Company’s former AEG segment.  The Company concluded that this action triggered an interim impairment review as it became “more likely than not” that the segment would be sold.  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.  In the second quarter of fiscal 2010, the Company recognized a non-cash impairment charge of $18.6 million, which represented the remaining value of the AEG trademark and trade name.  The Company recognized a deferred tax benefit of $7.1 million associated with this impairment charge.  The impairment charge, net of tax, is included in discontinued operations.


In connection with its evaluation of the recoverability of the intangible assets related to the Altec Lansing trademark and trade name, the Company also evaluated the long-lived assets within the reporting unit.  The fair value of the long-lived assets, which includes intangibles and property, plant and equipment, was determined for each individual asset and compared to the assets’ relative carrying values.  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 ended September 30, 2009, the Company recognized a non-cash intangible asset impairment charge of $6.6 million, of which $2.0 million related to customer relationships, $0.4 million related to technology and $0.4 million related to the inMotion trade name, and a non-cash impairment charge of $3.8 million related to property, plant and equipment.  The Company recognized a deferred tax benefit of $2.5 million associated with these impairment charges.  The impairment charge, net of tax, is included in discontinued operations.

The intangible assets impaired during the second quarter ended September 30, 2009 were measured at their fair value using unobservable inputs and, therefore, were level 3 fair value measures.

The estimated future amortization expense of purchased intangible assets as of December 31, 2010 is as follows:

Fiscal Year Ending March 31,
 
(in thousands)
 
2011 (remaining three months)
  $ 283  
2012
    822  
2013
    630  
2014
    454  
2015
    350  
Thereafter
    -  
Total estimated amortization expense
  $ 2,539  

8. RESTRUCTURING AND OTHER RELATED CHARGES

The Company recorded the restructuring activities discussed below, applying the guidance of the Exit or Disposal Cost Obligations Topic and the Compensation – Nonretirement Postemployment Benefits Topic of the FASB ASC.

The Company announced various restructuring activities in fiscal 2009 in an effort to reduce its cost structure due to the worldwide recession and the impact of the recession on the Company’s revenues.  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 our Bluetooth products to a third party supplier in China.  The Company exited the manufacturing portion of the facility in July 2009, at which time the remaining assets were classified as Assets held for sale on the Condensed consolidated balance sheet (see Note 4).  Approximately 1,500 employees from functions across the Company were notified of their termination under these actions and substantially all of these employees have been terminated as of December 31, 2010.

As a result of these various actions, the Company recorded approximately $1.8 million of Restructuring and other related charges during the nine months ended December 31, 2009, consisting of severance and benefits along with facilities and equipment charges.  In addition, during the nine months ended December 31, 2009, the Company recorded non-cash charges of $5.2 million for accelerated depreciation related to the building and equipment associated with manufacturing operations which is included in Cost of revenues.  There were no charges during the nine months ended December 31, 2010; however, in the third quarter of fiscal 2011, the Company completed the sale of the Assets held for sale resulting in a net gain of $0.4 million which was recorded in Restructuring and other related charges.

As of December 31, 2010, the Company has recorded a total of $19.1 million of costs related to these actions, which includes $12.2 million of severance and benefits and $6.9 million in non-cash charges related to accelerated depreciation charges, the write-off of facilities and equipment and impairment loss on Assets held for sale.  All of these costs and the gain on sale were recorded in Restructuring and other related charges with the exception of $5.2 million of accelerated depreciation which was recorded in Cost of revenues.  Substantially all the costs related to these actions have been paid.


9. STOCK-BASED COMPENSATION

The following table summarizes the amount of stock-based compensation expense included in the Condensed consolidated statements of operations:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Cost of revenues
  $ 574     $ 485     $ 1,672     $ 1,392  
                                 
Research, development and engineering
    958       910       2,862       2,558  
Selling, general and administrative
    2,644       2,633       7,431       7,106  
Stock-based compensation expense included in operating expenses
    3,602       3,543       10,293       9,664  
                                 
Total stock-based compensation
    4,176       4,028       11,965       11,056  
Income tax benefit
    (1,298 )     (1,223 )     (3,644 )     (3,511 )
Total stock-based compensation, net of tax
  $ 2,878     $ 2,805     $ 8,321     $ 7,545  

The above table includes stock-based compensation in discontinued operations which was not material for the three and nine months ended December 31, 2010 and was $0.6 million and $1.1 million for the three and nine months ended December 31, 2009, respectively, including $0.3 million recorded as closing charges as part of the loss on sale of AEG in both periods.

Stock Options

The following is a summary of the Company’s stock option activity during the nine months ended December 31, 2010:

   
Options Outstanding
 
         
Weighted
   
Weighted
       
         
Average
   
Average
   
Aggregate
 
   
Number of
   
Exercise
   
Remaining
   
Intrinsic
 
   
Shares
   
Price
   
Contractual Life
   
Value
 
   
(in thousands)
         
(in years)
   
(in thousands)
 
Outstanding at March 31, 2010
    7,631     $ 25.06              
Options granted
    503     $ 32.63              
Options exercised
    (1,948 )   $ 22.94              
Options forfeited or expired
    (547 )   $ 35.85              
Outstanding at December 31, 2010
    5,639     $ 25.42       3.30     $ 69,219  
Vested and expected to vest at December 31, 2010
    5,516     $ 25.39       3.24     $ 67,945  
Exercisable at December 31, 2010
    4,180     $ 25.75       2.44     $ 50,644  

The total intrinsic value of options exercised during the nine months ended December 31, 2010 and 2009 was $22.8 million and $2.6 million, respectively.  Intrinsic value is defined as the amount by which the fair value of the underlying stock exceeds the exercise price at the time of option exercise.

As of December 31, 2010, total unrecognized compensation cost related to unvested stock options was $11.1 million, which is expected to be recognized over a weighted average period of 1.8 years.


Restricted Stock

The following is a summary of the Company’s restricted stock activity during the nine months ended December 31, 2010:

         
Weighted
Average
 
   
Number of
   
Grant Date
 
   
Shares
   
Fair Value
 
   
(in thousands)
       
Non-vested at March 31, 2010
    361     $ 21.41  
Granted
    491     $ 33.54  
Vested
    (127 )   $ 22.20  
Forfeited
    (8 )   $ 28.26  
Non-vested at December 31, 2010
    717     $ 29.51  

As of December 31, 2010, total unrecognized compensation cost related to non-vested restricted stock awards was $14.9 million, which is expected to be recognized over a weighted average period of 3.1 years.  The total fair value of restricted stock awards vested during the nine months ended December 31, 2010 was $2.8 million.

Valuation Assumptions

The Company estimates the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) shares using a Black-Scholes option valuation model.  The fair value of stock option and ESPP shares granted during the respective periods is estimated on the date of grant using the following weighted average assumptions:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
Employee Stock Options
 
2010
   
2009
   
2010
   
2009
 
Expected volatility
    45.3 %     50.9 %     45.9 %     53.8 %
Risk-free interest rate
    0.9 %     2.1 %     1.4 %     2.0 %
Expected dividends
    0.6 %     0.8 %     0.6 %     1.0 %
Expected life (in years)
    4.2       4.5       4.2       4.5  
Weighted-average grant date fair value
  $ 12.88     $ 9.97     $ 11.86     $ 8.66  
ESPP
                               
Expected volatility
                    41.8 %     58.1 %
Risk-free interest rate
                    0.2 %     0.3 %
Expected dividends
                    0.7 %     0.8 %
Expected life (in years)
                    0.5       0.5  
Weighted-average grant date fair value
                  $ 8.02     $ 7.45  

The Company recognizes the grant-date fair value of stock-based compensation as compensation expense in the Condensed consolidated statements of operations using the straight-line attribution approach over the service period for which the stock-based compensation is expected to vest.

No purchase rights were granted under the ESPP during the three months ended December 31, 2010 and 2009.


10. COMPREHENSIVE INCOME

The components of comprehensive income for the three and nine months ended December 31, 2010 and 2009 are as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
Net income
  $ 31,552     $ 23,250     $ 82,927     $ 33,154  
Unrealized gain (loss) on cash flow hedges, net of tax
    1,124       3,355       (2,890 )     (7,355 )
Foreign currency translation gain (loss), net of tax
    (227 )     18       495       1,446  
Unrealized gain (loss) on investments, net of tax
    (10 )     -       32       -  
Comprehensive income
  $ 32,439     $ 26,623     $ 80,564     $ 27,245  

11. FOREIGN CURRENCY DERIVATIVES

Non-Designated Hedges

The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and liabilities denominated in currencies other than the functional currency of the reporting entity.  These foreign exchange forward contracts are not subject to the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC, but are carried at fair value with changes in the fair value recorded within Interest and other income, net, on the Condensed consolidated statement of operations in accordance with the Foreign Currency Matters Topic of the FASB ASC.  Gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated assets and liabilities, and therefore, do not subject the Company to material balance sheet risk.  The Company does not enter into foreign currency forward contracts for trading purposes.

As of December 31, 2010, the Company had foreign currency forward contracts denominated in Euros, Great Britain Pounds, and Australian Dollars.  These forward contracts hedge against a portion of the Company’s foreign currency-denominated receivables, payables and cash balances.

The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. dollar equivalent (“USD”) at December 31, 2010:

   
Local Currency
   
USD Equivalent
 
Position
 
Maturity
   
(in thousands)
   
(in thousands)
       
Euro ("EUR")
    20,000     $ 26,518  
Sell Euro
 
1 month
Great Britain Pound ("GBP")
    1,900     $ 2,923  
Sell GBP
 
1 month
Australian Dollar ("AUD")
    2,700     $ 2,725  
Sell AUD
 
1 month

Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in an immaterial net loss in the three months ended December 31, 2010 and a $0.2 million net gain in the nine months ended December 31, 2010 compared to net gains of $0.6 million and $2.2 million in the three and nine months ended December 31, 2009, respectively, which are included in Interest and other income, net, in the Condensed consolidated statement of operations.

Cash Flow Hedges

The Company’s hedging activities include a hedging program to hedge the economic exposure from anticipated Euro and Great Britain Pound denominated sales.  The Company hedges a portion of these forecasted foreign denominated sales with currency options.  These transactions are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC.  The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Net revenues when the hedged exposure affects earnings.  Any ineffective portion of related gains or losses is recorded in the Condensed consolidated statements of operations immediately.  On a monthly basis, the Company enters into option contracts with a one-year term.  It does not purchase options for trading purposes.  As of December 31, 2010, the Company had foreign currency put and call option contracts of approximately €47.2 million and £12.6 million.  As of March 31, 2010, the Company had foreign currency put and call option contracts of approximately €40.2 million and £10.8 million.


In the three and nine months ended December 31, 2010, realized gains on cash flow hedges of $0.7 million and $2.6 million, respectively, were recognized in Net revenues in the Condensed consolidated statements of operations, compared to realized losses of $1.9 million and realized gains of $2.5 million, respectively, for the same periods in the prior year.  The Company expects to reclassify the entire loss of $0.3 million, net of tax, in Accumulated other comprehensive income to Net revenues during the next 12 months due to the recognition of the hedged forecasted sales.

The Company hedges expenditures denominated in Mexican Peso (“MX$”), which are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC.  The Company hedges a portion of the forecasted MX$ denominated expenditures with a cross-currency swap.  The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Cost of revenues when the hedged exposure affects operations.  Any ineffective portion of related gains or losses is recorded in the Condensed consolidated statements of operations immediately.  As of December 31, 2010 and March 31, 2010, the Company had foreign currency swap contracts of approximately MX$78.5 million and MX$251.3 million, respectively.

In the three and nine months ended December 31, 2010, realized gains of $0.1 million and $0.2 million, respectively, on MX$ cash flow hedges were recognized in Cost of revenues in the Condensed consolidated statements of operations, compared to realized gains of $0.1 million and $0.2 million, respectively, for the same periods in the prior year.  The Company expects to reclassify the entire gain of $0.2 million, net of tax, in Accumulated other comprehensive income to Cost of revenues during the next 12 months due to the recognition of the hedged forecasted expenditures.

The following table summarizes the notional value of the Company’s outstanding Peso currency swaps and approximate U.S. dollar equivalent (“USD”) at December 31, 2010:

   
Local Currency
   
USD Equivalent
 
Position
 
Maturity
   
(in thousands)
   
(in thousands)
       
MX$
    78,500     $ 6,133  
Buy Peso
 
Monthly over 3
months

The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.

Fair Value of Derivative Contracts

Fair value of derivative contracts under the Derivatives and Hedging Topic of the FASB ASC were as follows:

   
Derivative Assets
   
Derivative Liabilities
 
   
Reported in Other Current Assets
   
Reported in Accrued Liabilities
 
   
December 31,
   
March 31,
   
December 31,
   
March 31,
 
(in thousands)
 
2010
   
2010
   
2010
   
2010
 
                         
Foreign exchange contracts designated as cash flow hedges
  $ 879     $ 2,845     $ 1,069     $ 74  
Total derivatives designated as hedging instruments
    879       2,845       1,069       74  
                                 
Foreign exchange contracts not designated
    -       -       -       -  
Total derivatives
  $ 879     $ 2,845     $ 1,069     $ 74  


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 December 31, 2010 and March 31, 2010, and the impact of designated derivative contracts before tax on Accumulated other comprehensive income for the nine months ended December 31, 2010:

(in thousands)
 
March 31,
2010
   
Amount of (loss) recognized in OCI (effective portion)
   
Amount of gain reclassified from OCI to income (loss) (effective portion)
   
December 31,
2010
 
                         
Foreign exchange contracts designated as cash flow hedges
  $ 2,771     $ (205 )   $ 2,756     $ (190 )

Effect of Designated Derivative Contracts on the Condensed Consolidated Statements of Operations

The effect of designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in gross profit in the Condensed consolidated statements of operations was as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Gain (loss) on foreign exchange contracts designated as cash flow hedges
  $ 817     $ (1,756 )   $ 2,756     $ 2,730  

Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations

The effect of non-designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in Interest and other income, net in the Condensed consolidated statement of operations was as follows:

`
 
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Gain (loss) on foreign exchange contracts
  $ 814     $ 624     $ 285     $ (2,874 )

12. RESEARCH AND DEVELOPMENT GRANTS

As of December 31, 2010, the Company has received approximately $1.1 million in Mexican government grant funds that are designated for use in various research and development activities.  The Company’s accounting policy is to offset research and development expenses or reduce the cost basis of capital expenditures as incurred against the funds received, depending upon the terms of the grant.  In the nine months ended December 31, 2010, the Company utilized all of these funds against research and development expenses and capital expenditures.

13. INCOME TAXES

The amounts related to discontinued operations have been excluded from the discussion below as discontinued operations are classified separately for all periods presented.

The effective tax rate for the three and nine months ended December 31, 2010 was 13.6% and 22.5%, respectively, compared to 20.5% and 25.2%, respectively, for the same periods a year ago.  The lower effective tax rate for both the three and nine months ended December 31, 2010 compared to the same periods a year ago is due primarily to the reinstatement of the United States (“U.S.”) federal research tax credit during the current quarter and a change in estimate on certain tax reserves. The effective tax rate differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates, tax credits, state taxes, and other factors.  The future tax rate could be impacted by a shift in the mix of domestic and foreign income, tax treaties with foreign jurisdictions, changes in tax laws in the U.S. or internationally, or a change in estimates of future taxable income which could result in a valuation allowance being required.


The Company recognized a tax benefit of $2.4 million in both the three and nine months ended December 31, 2010, consisting of $2.2 million in tax reserves and $0.2 million of related interest due to the lapse of the statute of limitations in certain jurisdictions and a change in estimate on certain tax reserves.  In the three and nine months ended December 31, 2009, the Company recognized a tax benefit of $1.2 million, consisting of $1.0 million in tax reserves and $0.2 million of related interest, due to the lapse of the statute of limitations in certain jurisdictions. As of December 31, 2010, the Company had $10.3 million of unrecognized tax benefits, compared to $11.2 million at March 31, 2010, recorded in Long-term income taxes payable on the Condensed consolidated balance sheet, all of which would favorably impact the effective tax rate in future periods if recognized.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in Income tax expense.  The accrued interest related to unrecognized tax positions is $1.6 million as of December 31, 2010 as compared to $1.7 million as of March 31, 2010.  No penalties have been accrued.

Although the timing and outcome of income tax audits is highly uncertain, it is possible that certain unrecognized tax benefits may be reduced as a result of the lapse of the applicable statutes of limitations in federal, state and foreign jurisdictions within the next twelve months.  Currently, the Company cannot reasonably estimate the amount of reductions, if any, during the next twelve months.  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 2008.  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 2005, except for the United Kingdom which has been concluded for tax years prior to fiscal 2008.


14. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands, except per share data)
 
2010
   
2009
   
2010
   
2009
 
                         
Numerator:
                       
Income from continuing operations
  $ 31,552     $ 23,203     $ 82,927     $ 52,038  
Income (loss) from discontinued operations
    -       47       -       (18,884 )
Net income
  $ 31,552     $ 23,250     $ 82,927     $ 33,154  
                                 
Denominator:
                               
Weighted average common shares-basic
    47,649       48,632       47,621       48,632  
Dilutive effect of employee equity incentive plans
    1,782       993       1,650       672  
Weighted average common shares-diluted
    49,431       49,625       49,271       49,304  
                                 
Earnings (loss) per common share-basic:
                               
Continuing operations
  $ 0.66     $ 0.48     $ 1.74     $ 1.07  
Discontinued operations
  $ -     $ -     $ -     $ (0.39 )
Net income
  $ 0.66     $ 0.48     $ 1.74     $ 0.68  
                                 
Earnings (loss) per common share-diluted:
                               
Continuing operations
  $ 0.64     $ 0.47     $ 1.68     $ 1.06  
Discontinued operations
  $ -     $ -     $ -     $ (0.38 )
Net income
  $ 0.64     $ 0.47     $ 1.68     $ 0.67  
                                 
Potentially dilutive securities excluded from earnings (loss) per common share-diluted because their effect is anti-dilutive
    1,321       4,810       1,607       5,768  


15. REVENUE AND MAJOR CUSTOMERS

The Company designs, manufactures, markets and sells headsets for business and consumer applications, and other specialty products for the hearing impaired.  With respect to headsets, it makes products for use in offices and contact centers, with mobile and cordless phones, and with computers and gaming consoles.  Major product categories include “Office and Contact Center”, which includes corded and cordless communication headsets, audio processors and telephone systems; “Mobile”, which includes Bluetooth and corded products for mobile phone applications; “Gaming and Computer Audio”, which includes PC and gaming headsets; and “Clarity”, which includes specialty telephone products marketed for hearing impaired individuals.

The following table presents net revenues by product group:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues from unaffiliated customers:
                       
Office and Contact Center
  $ 122,949     $ 103,096     $ 358,480     $ 292,522  
Mobile
    43,208       46,951       109,446       113,926  
Gaming and Computer Audio
    10,544       11,072       28,048       28,897  
Clarity
    4,884       4,816       14,551       16,210  
Total net revenues
  $ 181,585     $ 165,935     $ 510,525     $ 451,555  

The following table presents net revenues by geography:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
   
December 31,
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues from unaffiliated customers:
                       
U.S.
  $ 104,299     $ 99,157     $ 304,391     $ 281,316  
                                 
Europe, Middle East and Africa
    46,506       41,617       121,587       107,089  
Asia Pacific
    16,499       12,462       47,404       33,383  
Americas, excluding U.S.
    14,281       12,699       37,143       29,767  
Total international net revenues
    77,286       66,778       206,134       170,239  
                                 
Total net revenues
  $ 181,585     $ 165,935     $ 510,525     $ 451,555  

No customer accounted for 10% or more of total net revenues for the three or nine months ended December 31, 2010 and 2009, nor did any one customer account for 10% or more of accounts receivable, net, at December 31, 2010 and March 31, 2010.

16. SUBSEQUENT EVENTS

On January 20, 2011, the Company entered into a binding settlement agreement to dismiss litigation involving the alleged theft of its trade secrets by a competitor in mobile headsets in exchange for a full release and settlement of the claims.  The Company expects to receive a payment of $5.1 million in the fourth quarter of fiscal 2011 pursuant to this settlement agreement.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CERTAIN FORWARD-LOOKING INFORMATION:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  Forward-looking statements may generally be identified by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,” “will,” or “shall” and similar expressions, or the negative of these terms.  Specific forward-looking statements contained within this Form 10-Q include statements containing our expectations regarding (i) the launch of additional UC products and new Mobile products, (ii) our top corporate goal to invest for Unified Communications (“UC”) leadership and a high return on our investments, (iii) the future of UC technologies, including the effect on headset adoption and use, the effects on enterprises that adopt UC and our expectation concerning our revenue opportunity from UC, (iv) our expenses, including research and development expenses and sales, general and administrative expenses, (v) our future tax rate, (vi) our anticipated capital expenditures for the remainder of fiscal 2011, (vii) the sufficiency of our cash, cash equivalents and cash from operations, and (viii) the outcome and effect of legal proceedings, as well as other statements regarding our future operations, financial condition and prospects and business strategies.  Such forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.  Factors that could cause actual results and events to differ materially from such forward-looking statements are included, but not limited to, those discussed in the section entitled “Risk Factors” herein and other documents filed with the Securities and Exchange Commission (“SEC”) including our annual Report on Form 10-K for the fiscal year ended March 31, 2010.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

OVERVIEW

We are a leading worldwide designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand.  In addition, we manufacture and market, under our Clarity brand, specialty telephone products, such as telephones for the hearing impaired, and other related products for people with special communication needs.

We ship a broad range of products to approximately 60 countries through a worldwide network of distributors, retailers, wireless carriers, original equipment manufacturers (“OEMs”), and telephony service providers.  We have well-developed distribution channels in North America, Europe, Australia and New Zealand, where use of our products is widespread.  Our distribution channels in other regions of the world are less mature, and, while we primarily serve the contact center markets in those regions, we are expanding into the office, mobile and entertainment, and specialty telephone markets in additional international locations.

As a result of the sale of Altec Lansing, our Audio Entertainment Group (“AEG”) business segment on December 1, 2009, AEG operating results have been classified as discontinued operations for all periods presented.

Consolidated net revenues increased to $181.6 million in the third quarter of fiscal 2011 from $165.9 million in the third quarter of fiscal 2010 driven by higher sales of our Office and Contact Center (“OCC”) products which increased $19.9 million or 19.3% from the same quarter a year ago.  The increase in net revenues from these products in the current quarter was primarily from higher sales volumes as a result of a stronger overall economic environment together with increased demand for headsets designed for UC applications.  This increase was offset in part by lower Mobile revenues, which decreased by $3.7 million or 8.0% over the same quarter a year ago due to declines in the U.S. as a result of overall weakness in the product category, some market share loss in the U.S. offset in part by market share gains in Europe and Asia, and a benefit from hands-free driving legislation in Canada and Europe realized in the prior fiscal year which did not recur in the third quarter of fiscal 2011.

We expect UC to increase the adoption and use of headsets in enterprise applications.  Headsets enable voice to be delivered naturally in UC systems.  As UC is adopted by enterprises to reduce costs and improve collaboration, headsets are expected to be an important part of the UC system.  We continue to invest in creating new products that are more appealing in functionality and design.  Our top corporate goal for fiscal 2011 has been and continues to be to invest for UC leadership and a high return on investment in UC.  During the nine months ended December 31, 2010, we made progress on this goal.  Our Savi™ Office, Blackwire, Voyager PRO UC, and Calisto product families contributed $13.5 million and $36.6 million to our net revenues in the three and nine months ended December 31, 2010, respectively, and we expect to launch additional UC products in the last quarter of fiscal 2011; however, there can be no assurance that significant growth in UC will occur or that we will be able to capitalize on that growth (See Item 1A Risk Factors).


Consolidated net revenues increased to $510.5 million for the nine months ended December 31, 2010 from $451.6 million for the same period a year ago.  This increase was driven by higher sales volume of our OCC products which increased $66.0 million or 22.5% from the same period a year ago as a result of a stronger overall economic environment together with increased demand for headsets designed for UC applications.

Our gross profit as a percentage of net revenue increased to 52.8% in the third quarter of fiscal 2011 from 48.4% in the third quarter of fiscal 2010 due to a shift in revenue mix to our higher margin OCC products.  Our OCC products represented 68% of our net revenues in the third quarter of fiscal 2011 compared to 62% in the same quarter a year ago, and Mobile net revenues decreased from 28% in the third quarter of the prior year to 24% in the current quarter.  Our gross profit also improved from lower overall manufacturing costs as a result of the closure of manufacturing operations in Suzhou, China in July 2009 and outsourcing our Bluetooth product manufacturing to an existing supplier in China, together with other cost reductions.

We reported Income from continuing operations of $82.9 million in the nine months ended December 31, 2010 compared to $52.0 million for the nine months ended December 31, 2009.  This increase of $30.9 million was due primarily to higher net revenues and improved product margins as a result of a larger mix of our higher margin OCC products and lower manufacturing costs.  The improvement in gross profit was offset in part by an increase in expenses mostly related to our focus on the UC opportunity.  Our investment in UC includes product development, increased sales staff, and greater marketing and other support costs.


RESULTS OF OPERATIONS

The following tables set forth, for the periods indicated, the Condensed consolidated statements of operations data, which is derived from the accompanying unaudited Condensed consolidated financial statements.  The financial information and ensuing discussion should be read in conjunction with the accompanying unaudited Condensed consolidated financial statements and notes thereto.  Except as noted, financial results are for continuing operations.  We have classified the AEG operating results as discontinued operations in the Condensed consolidated statement of operations for all periods presented.

   
Three Months Ended December 31,
   
Nine Months Ended December 31,
 
(in thousands except percentages)
 
2010
   
2009
   
2010
   
2009
 
                                                 
Net revenues
  $ 181,585       100.0 %   $ 165,935       100.0 %   $ 510,525       100.0 %   $ 451,555       100.0 %
Cost of revenues
    85,777       47.2 %     85,566       51.6 %     239,310       46.9 %     238,251       52.8 %
Gross profit
    95,808       52.8 %     80,369       48.4 %     271,215       53.1 %     213,304       47.2 %
                                                                 
Operating expense:
                                                               
Research, development and engineering
    16,373       9.0 %     14,780       8.9 %     46,480       9.1 %     41,991       9.3 %
Selling, general and administrative
    43,319       23.9 %     37,502       22.6 %     118,747       23.3 %     103,599       22.9 %
Restructuring and other related charges
    (428 )     (0.2 %)