10-Q 1 form10qq3fy2012.htm FORM 10Q Q3 FY2012 form10Q.Q3FY2012
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 December 31, 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 No.)

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 (§232.405 of this chapter) 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 28, 2012, 42,979,338 shares of the registrant's common stock were outstanding.


1



Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 

Plantronics, the logo design, Clarity, and Simply Smarter Communications are trademarks or registered trademarks of Plantronics, Inc.

DECT™ is a trademark of ETSI registered for the benefit of its members in France and other jurisdictions.

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.



2


Part I -- FINANCIAL INFORMATION

Item 1. Financial Statements.

PLANTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
December 31,
2011
 
March 31,
2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
178,063

 
$
277,373

Short-term investments
119,459

 
152,583

Accounts receivable, net
109,677

 
103,289

Inventory, net
57,799

 
56,473

Deferred tax asset
11,805

 
11,349

Other current assets
16,941

 
16,653

Total current assets
493,744

 
617,720

Long-term investments
61,961

 
39,332

Property, plant and equipment, net
75,537

 
70,622

Goodwill and purchased intangibles, net
14,461

 
14,861

Other assets
2,137

 
2,112

Total assets
$
647,840

 
$
744,647

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
21,650

 
$
33,995

Accrued liabilities
50,794

 
59,607

Total current liabilities
72,444

 
93,602

Deferred tax liability
6,136

 
3,526

Long-term income taxes payable
12,453

 
11,524

Revolving line of credit
39,500

 

Other long-term liabilities
1,039

 
1,143

Total liabilities
131,572

 
109,795

Commitments and contingencies (Note 10)


 


Stockholders' equity:
 

 
 

Common stock
736

 
720

Additional paid-in capital
526,022

 
499,027

Accumulated other comprehensive income
6,531

 
1,473

Retained earnings
93,628

 
192,468

Total stockholders' equity before treasury stock
626,917

 
693,688

Less:  Treasury stock, at cost
(110,649
)
 
(58,836
)
Total stockholders' equity
516,268

 
634,852

Total liabilities and stockholders' equity
$
647,840

 
$
744,647


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


3


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

 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2011
 
2010
 
2011
 
2010
Net revenues
$
183,236

 
$
181,585

 
$
535,784

 
$
510,525

Cost of revenues
87,024

 
85,777

 
246,548

 
239,310

Gross profit
96,212

 
95,808

 
289,236

 
271,215

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
16,829

 
16,373

 
51,386

 
46,480

Selling, general and administrative
41,976

 
43,319

 
128,510

 
118,747

Restructuring and other related charges

 
(428
)
 

 
(428
)
Total operating expenses
58,805

 
59,264

 
179,896

 
164,799

Operating income
37,407

 
36,544

 
109,340

 
106,416

Interest and other income (expense), net
406

 
(20
)
 
989

 
615

Income before income taxes
37,813

 
36,524

 
110,329

 
107,031

Income tax expense
6,915

 
4,972

 
25,179

 
24,104

Net income
$
30,898

 
$
31,552

 
$
85,150

 
$
82,927

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 
 
 
Basic
$
0.73

 
$
0.66

 
$
1.91

 
$
1.74

Diluted
$
0.71

 
$
0.64

 
$
1.86

 
$
1.68

 
 
 
 
 
 
 
 
Shares used in computing earnings per common share:
 

 
 
 
 
 
 
Basic
42,541

 
47,649

 
44,623

 
47,621

Diluted
43,640

 
49,431

 
45,857

 
49,271

 
 
 
 
 
 
 
 
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.


4


PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Nine Months Ended
 
December 31,
 
2011
 
2010
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
85,150

 
$
82,927

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
10,328

 
11,329

Stock-based compensation
13,267

 
11,965

Provision for excess and obsolete inventories
2,337

 
664

Benefit from deferred income taxes
(7,924
)
 
(4,348
)
Income tax benefit associated with stock option exercises
4,169

 
5,329

Excess tax benefit from stock-based compensation
(5,147
)
 
(4,900
)
Amortization of premium on investments, net
1,228

 
328

Other operating activities
627

 
(31
)
Changes in assets and liabilities:
 

 
 
Accounts receivable, net
(6,378
)
 
(22,720
)
Inventory, net
(3,599
)
 
5,780

Current and other assets
1,093

 
(184
)
Accounts payable
(12,345
)
 
(1,563
)
Accrued liabilities
(7,235
)
 
4,310

Income taxes
11,900

 
(2,417
)
Cash provided by operating activities
87,471

 
86,469

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 
Proceeds from sales of short-term investments
68,539

 
23,250

Proceeds from maturities of short-term investments
126,231

 
7,495

Purchase of short-term investments
(122,480
)
 
(159,882
)
Proceeds from sales of long-term investments
4,936

 

Purchase of long-term investments
(68,313
)
 
(22,077
)
Capital expenditures and other assets
(15,042
)
 
(12,100
)
Proceeds from sales of property, plant and equipment and assets held for sale

 
9,024

Proceeds from sale of Audio Entertainment Group ("AEG") segment

 
1,625

Cash used for investing activities
(6,129
)
 
(152,665
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 
Repurchase of common stock
(229,121
)
 
(70,270
)
Equity forward contract related to accelerated share repurchase program
(15,000
)
 

Proceeds from sale of treasury stock
2,519

 
2,033

Proceeds from issuance of common stock
27,072

 
44,703

Proceeds from revolving line of credit
53,500

 

Repayments of revolving line of credit
(14,000
)
 

Payment of cash dividends
(6,884
)
 
(7,263
)
Employees' tax withheld and paid for restricted stock and restricted stock units
(2,457
)
 
(74
)
Excess tax benefit from stock-based compensation
5,147

 
4,900

Cash used for financing activities
(179,224
)
 
(25,971
)
Effect of exchange rate changes on cash and cash equivalents
(1,428
)
 
93

Net decrease in cash and cash equivalents
(99,310
)
 
(92,074
)
Cash and cash equivalents at beginning of period
277,373

 
349,961

Cash and cash equivalents at end of period
$
178,063

 
$
257,887

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

5


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 financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 Company's March 31, 2011 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, 2011, which was filed with the SEC on May 31, 2011.  The results of operations for the interim period ended December 31, 2011 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 March 31, 2012 and consists of 52 weeks. The Company's prior fiscal year ended on April 2, 2011 and also consisted of 52 weeks.  The Company’s results of operations for the three and nine months ended December 31, 2011 and January 1, 2011 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 calendar month end.

Certain financial statement reclassifications have been made to previously reported amounts to conform to the current year presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

There are no recently adopted accounting pronouncements other than as described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Recently Issued Pronouncements

In December 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 the Company's first quarter of fiscal 2014. The Company does not currently have any offsetting assets and liabilities.

In September 2011, the FASB issued 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 impairments and to measure the amount of goodwill impairment losses, if any, to be recognized. The Company expects to early adopt ASU 2011-8 in its fourth quarter of fiscal 2012 and does not expect it to have a material impact on the Company's financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, as amended, which requires companies 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.


6



In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which amends ASC 820, Fair Value Measurement. ASU 2011-04 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRSs. ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB's intent about the application of existing fair value measurements. This new guidance is effective for the Company's fourth quarter of fiscal 2012. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its financial statements.

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts receivable, net:
 
 
December 31,
 
March 31,
(in thousands)
 
2011
 
2011
Accounts receivable
 
$
131,249

 
$
125,137

Provisions for returns
 
(8,050
)
 
(10,437
)
Provisions for promotions, rebates and other
 
(13,011
)
 
(10,460
)
Provisions for doubtful accounts and sales allowances
 
(511
)
 
(951
)
Accounts receivable, net
 
$
109,677

 
$
103,289


Inventory, net:
 
 
December 31,
 
March 31,
(in thousands)
 
2011
 
2011
Raw materials
 
$
15,374

 
$
15,315

Work in process
 
2,815

 
2,558

Finished goods
 
39,610

 
38,600

Inventory, net
 
$
57,799

 
$
56,473


Accrued Liabilities:
 
 
December 31,
 
March 31,
(in thousands)
 
2011
 
2011
Employee compensation and benefits
 
$
22,969

 
$
27,478

Warranty obligation accrual
 
13,509

 
11,016

Accrued advertising and sales and marketing
 
1,810

 
2,873

Accrued other
 
12,506

 
18,240

Accrued liabilities
 
$
50,794

 
$
59,607


Changes during the nine months ended December 31, 2011 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, 2011
 
 
Warranty obligation accrual at March 31, 2011
$
11,016

Warranty provision relating to products shipped
13,261

Deductions for warranty claims processed
(10,768
)
Warranty obligation accrual at December 31, 2011
$
13,509




7



4. CASH, CASH EQUIVALENTS AND INVESTMENTS

The following table represents the Company’s cash, cash equivalents and investments as of December 31, 2011 and March 31, 2011:

(in thousands)
 
December 31, 2011
 
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
 
$
161,069

 
$

 
$

 
$
161,069

 
$
136,804

 
$

 
$

 
$
136,804

Cash equivalents
 
16,992

 
2

 

 
16,994

 
140,569

 
1

 
(1
)
 
140,569

Total Cash and cash equivalents
 
$
178,061

 
$
2

 
$

 
$
178,063

 
$
277,373

 
$
1

 
$
(1
)
 
$
277,373

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury Bills and Government Agency Securities
 
$
76,530

 
$
22

 
$
(10
)
 
$
76,542

 
$
105,849

 
$
17

 
$
(3
)
 
$
105,863

Commercial Paper
 
15,679

 
4

 
(3
)
 
15,680

 
30,071

 
5

 
(1
)
 
30,075

Corporate Bonds
 
24,372

 
22

 
(41
)
 
24,353

 
11,212

 
4

 

 
11,216

Certificates of Deposit ("CDs")
 
2,880

 
4

 

 
2,884

 
5,420

 
9

 

 
5,429

Total Short-term investments
 
$
119,461

 
$
52

 
$
(54
)
 
$
119,459

 
$
152,552

 
$
35

 
$
(4
)
 
$
152,583

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury Bills and Government Agency Securities
 
$
39,176

 
$
26

 
$
(10
)
 
$
39,192

 
$
17,387

 
$
4

 
$

 
$
17,391

Corporate Bonds
 
20,924

 
13

 
(170
)
 
20,767

 
19,086

 
8

 
(35
)
 
19,059

CDs
 
2,003

 

 
(1
)
 
2,002

 
2,879

 
3

 

 
2,882

Total Long-term investments
 
$
62,103

 
$
39

 
$
(181
)
 
$
61,961

 
$
39,352

 
$
15

 
$
(35
)
 
$
39,332

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total cash, cash equivalents and investments
 
$
359,625

 
$
93

 
$
(235
)
 
$
359,483

 
$
469,277

 
$
51

 
$
(40
)
 
$
469,288


As of December 31, 2011 and March 31, 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 December 31, 2011 and March 31, 2011:
(in thousands)
 
December 31, 2011
 
March 31, 2011
 
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
Due in 1 year or less
 
$
136,453

 
$
136,453

 
$
293,121

 
$
293,152

Due in 1 to 3 years
 
62,103

 
61,961

 
39,352

 
39,332

Total
 
$
198,556

 
$
198,414

 
$
332,473

 
$
332,484


The Company did not incur any material realized or unrealized net gains or losses in the three or nine months ended December 31, 2011 or 2010.



8



5. 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, 2011:
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents:
 
 
 
 
 
 
 
 
Cash
 
$
161,069

 
$

 
$

 
$
161,069

Commercial Paper
 

 
12,494

 

 
12,494

Money Market Accounts
 
4,500

 

 

 
4,500

Short-term investments:
 
 
 
 
 
 
 
 
U.S. Treasury Bills and Government Agency Securities
 
32,026

 
44,516

 

 
76,542

Commercial Paper
 

 
15,680

 

 
15,680

Corporate Bonds
 

 
24,353

 

 
24,353

CDs
 

 
2,884

 

 
2,884

Long-term investments:
 
 
 
 
 
 
 
 
Government Agency Securities
 

 
39,192

 

 
39,192

Corporate Bonds
 

 
20,767

 

 
20,767

CDs
 

 
2,002

 

 
2,002

Other current assets:
 
 
 
 
 
 
 
 
Derivative assets
 

 
4,876

 

 
4,876

Total assets measured at fair value
 
$
197,595

 
$
166,764

 
$

 
$
364,359

 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
Derivative liabilities
 
$
11

 
$
2,428

 
$

 
$
2,439


Fair Values as of March 31, 2011:
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents:
 
 
 
 
 
 
 
 
Cash
 
$
136,804

 
$

 
$

 
$
136,804

U.S. Treasury Bills and Government Agency Securities
 
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



9


Level 1 financial assets consist of cash, money market accounts and United States ("U.S.") Treasury Bills.  Level 1 financial liabilities consist of foreign exchange forward contracts not designated as hedges.  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, Corporate Bonds, CDs and derivative foreign currency call and put option contracts.  Fair value for 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. Derivative foreign currency call and put option contracts are valued using pricing models that use observable market inputs. During the nine months ended December 31, 2011, 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, 2011 or March 31, 2011.

6. GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill as of December 31, 2011 and March 31, 2011 was $14.0 million.

The following table presents the carrying value of acquired intangible assets with remaining net book values as of December 31, 2011 and March 31, 2011:
 
 
December 31, 2011
 
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

 
(1,252
)
 
453

 
1,705

 
(1,044
)
 
661

 
8

years
OEM relationships
 
27

 
(24
)
 
3

 
27

 
(20
)
 
7

 
7

years
Total
 
$
4,732

 
$
(4,276
)
 
$
456

 
$
4,732

 
$
(3,876
)
 
$
856

 
 
 

The aggregate amortization expense relating to purchased intangible assets was immaterial for the three and nine months ended December 31, 2011 and 2010.

7. STOCK-BASED COMPENSATION

The following table summarizes the amount of stock-based compensation expense included in the Condensed consolidated statements of operations:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Cost of revenues
 
$
559

 
$
574

 
$
1,664

 
$
1,672

 
 


 


 


 


Research, development and engineering
 
953

 
958

 
2,928

 
2,862

Selling, general and administrative
 
3,067

 
2,644

 
8,675

 
7,431

Stock-based compensation expense included in operating expenses
 
4,020

 
3,602

 
11,603

 
10,293

 
 


 


 


 


Total stock-based compensation expense
 
4,579

 
4,176

 
13,267

 
11,965

Income tax benefit
 
(1,448
)
 
(1,298
)
 
(4,172
)
 
(3,644
)
Total stock-based compensation expense, net of tax
 
$
3,131

 
$
2,878

 
$
9,095

 
$
8,321



10


Stock Options

The following is a summary of the Company’s stock option activity during the nine months ended December 31, 2011:
 
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
613

 
$
34.75

 
 
 
 
Options exercised
(1,301
)
 
$
20.82

 
 
 
 
Options forfeited or expired
(796
)
 
$
39.03

 
 
 
 
Outstanding at December 31, 2011
3,876

 
$
25.86

 
3.6

 
$
38,710

Vested and expected to vest at December 31, 2011
3,780

 
$
25.68

 
3.6

 
$
38,443

Exercisable at December 31, 2011
2,775

 
$
23.60

 
2.7

 
$
33,850


The total intrinsic value of options exercised during the nine months ended December 31, 2011 and 2010 was $18.6 million and $22.8 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. The total cash received as a result of stock option exercises during the nine months ended December 31, 2011 was $27.1 million.

As of December 31, 2011, total unrecognized compensation cost related to unvested stock options was $10.0 million which is expected to be recognized over a weighted average period of 2.0 years.

Restricted Stock

The following is a summary of the Company’s restricted stock activity during the nine months ended December 31, 2011:
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
(in thousands)
 
 
Unvested at March 31, 2011
688

 
$
29.52

Restricted stock granted
390

 
$
36.36

Restricted stock vested
(192
)
 
$
27.46

Restricted stock forfeited
(50
)
 
$
30.02

Unvested at December 31, 2011
836

 
$
33.29


The weighted average grant-date fair value of awards of restricted stock and restricted stock units (collectively "restricted stock") is based on the quoted market price of the Company's common stock on the date of grant. The weighted average grant-date fair value of restricted stock granted during the nine months ended December 31, 2011 and 2010 was $36.36 and $33.54, respectively. The total fair value of restricted stock that vested during the nine months ended December 31, 2011 and 2010 was $5.3 million and $2.8 million, respectively.

As of December 31, 2011, total unrecognized compensation cost related to unvested restricted stock was $18.9 million which is expected to be recognized over a weighted average period of 2.8 years.  


11


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 options 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
 
2011
 
2010
 
2011
 
2010
Expected volatility
 
48.1
%
 
45.3
%
 
45.6
%
 
45.9
%
Risk-free interest rate
 
0.6
%
 
0.9
%
 
1.1
%
 
1.4
%
Expected dividends
 
0.6
%
 
0.6
%
 
0.6
%
 
0.6
%
Expected life (in years)
 
4.0

 
4.2

 
4.0

 
4.2

Weighted-average grant date fair value
 
$
11.86

 
$
12.88

 
$
12.08

 
$
11.86

ESPP
 
 
 
 
 
 
 
 
Expected volatility
 
 
 
 
 
38.7
%
 
41.8
%
Risk-free interest rate
 
 
 
 
 
0.1
%
 
0.2
%
Expected dividends
 
 
 
 
 
0.6
%
 
0.7
%
Expected life (in years)
 
 
 
 
 
0.5

 
0.5

Weighted-average grant date fair value
 
 
 
 
 
$
8.00

 
$
8.02


The Company recognizes the grant-date fair value of stock-based compensation as compensation expense 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, 2011 and 2010.

8. COMMON STOCK REPURCHASES

From time to time, the Company's Board of Directors ("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. Repurchases by the Company pursuant to the Board authorized programs during the nine months ended December 31, 2011 and 2010 are discussed below. As of December 31, 2011, there were 785,081 remaining shares authorized for repurchase.

Open Market Repurchases

Under the Board authorized programs, in the nine months ended December 31, 2011 and 2010, respectively, the Company repurchased 2,907,936 and 2,317,900 shares of its common stock in the open market for a total cost of $94.1 million and $70.2 million and an average price per share of $32.37 and $30.29. 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 $2.5 million in the nine months ended December 31, 2011, compared to an immaterial amount in the nine months ended December 31, 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 Condensed 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.

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.


12


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, and, during the nine months ended December 31, 2011, Goldman delivered 2,831,519 shares of the Company's common stock.

During the nine months ended December 31, 2011, the Collared ASR Agreement was settled and 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.

During the nine months ended December 31, 2011, the Uncollared ASR Agreement was settled and 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 has and is expected to continue to repurchase shares of its common stock for an aggregate purchase price of $50.0 million. The $50.0 million was paid in August 2011, and during the nine months ended December 31, 2011, the Company received an initial delivery of 1,136,364 shares. Goldman borrowed the shares that were delivered to the Company and is obligated to purchase sufficient shares of the Company's common stock in the open market to return to lenders over the term of the agreement. The initial delivery to the Company represented approximately 70% of the shares expected to be repurchased based on the closing price of the Company's common stock of $30.80 on August 19, 2011, which was the date the major terms of the agreement to purchase the shares were known. The August 2011 Uncollared ASR Agreement is expected to conclude no later than March 27, 2012, although in certain circumstances the termination date may be accelerated at Goldman's option. The actual number of shares repurchased will be determined at the completion of the August 2011 ASR Agreement.

Under the August 2011 Uncollared ASR Agreement, the number of shares to be repurchased by the Company is based generally on the VWAP of the Company's common stock during the contractual term. At the conclusion of the August 2011 Uncollared ASR Agreement, the Company, at its election, may receive additional shares or may be required to pay additional cash or shares based generally on the VWAP of the Company's common stock during the term of the agreement. Based on the initial number of shares delivered and the Company's stock price on the date at which the major terms of the agreement to purchase the shares were known, the total consideration allocated to stock repurchases under the August 2011 Uncollared ASR Agreement was $35.0 million. The remaining $15.0 million was recorded as an equity forward contract and was included in Additional paid-in capital in the Condensed consolidated balance sheet as of December 31, 2011.

Treasury Stock Retirement

During the nine months ended December 31, 2011 and 2010, the Company retired 5,000,000 shares and 4,000,000 shares of treasury stock, respectively, at a total value of $177.1 million and $102.4 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.



13


9. CREDIT AGREEMENT

In 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 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 million, for a total facility size of up to $200 million. As of December 31, 2011, the Company had outstanding borrowings of $39.5 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 Company's obligations under the Credit Agreement are guaranteed by the Company's domestic subsidiaries, subject to certain exceptions.

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 million.

The line of credit contains affirmative covenants, including covenants regarding the payment of taxes and other liabilities, 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 ability 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 December 31, 2011.

10. 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 December 31, 2011 are as follows:

Fiscal Year Ending March 31,
 
(in thousands)
2012 (remaining 3 months)
 
$
943

2013
 
4,400

2014
 
3,763

2015
 
1,270

2016
 
514

Thereafter
 
44

Total minimum future rental payments
 
$
10,934

Total consolidated rent expense for operating leases for the three and nine months ended December 31, 2011 was approximately $1.7 million and $4.5 million, respectively, compared to $1.3 million and $4.0 million, respectively, for the three and nine months ended December 31, 2010.


14


Unconditional Purchase Obligations

The Company purchases components from a variety of suppliers and manufacturers. During the normal course of business and to manage manufacturing lead times and ensure adequate component supply, the Company may enter into firm, non-cancelable and unconditional purchase obligations for which the terms exceed one year and for which amounts are not recorded in the Condensed consolidated balance sheets. As of December 31, 2011 and March 31, 2011, there were no such unconditional purchase obligations with remaining terms exceeding one year.

Indemnifications

Under the terms of an Asset Purchase Agreement, dated October 2, 2009, by and between the Company, certain of the Company's subsidiaries and Audio Technologies Acquisition, LLC. ("Asset Purchase Agreement"), 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 Audio Entertainment Group ("AEG") segment, the Company made representations and warranties to the purchaser about the condition of AEG, including matters relating to intellectual property, employees, taxes and environmental laws.  No indemnification costs have been incurred as of December 31, 2011 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 the liability is not material.

Claims and Litigation

From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse impact on the Company's financial condition, results of operations or cash flows. Because most contingencies are resolved over long periods of time, potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse impact on the Company's financial condition, results of operations or cash flows in the periods recognized or paid.

11. COMPREHENSIVE INCOME

The components of comprehensive income for the three and nine months ended December 31, 2011 and 2010 are as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Net income
 
$
30,898

 
$
31,552

 
$
85,150

 
$
82,927

Unrealized gain (loss) on cash flow hedges, net of tax
 
2,078

 
1,124

 
6,112

 
(2,890
)
Foreign currency translation gain (loss), net of tax
 
(535
)
 
(227
)
 
(942
)
 
495

Unrealized gain (loss) on investments, net of tax
 
56

 
(10
)
 
(112
)
 
32

Comprehensive income
 
$
32,497

 
$
32,439

 
$
90,208

 
$
80,564





15


12. 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 statements 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, 2011, the Company had foreign currency forward contracts denominated in Euros ("EUR"), Great Britain Pounds ("GBP"), and Australian Dollars ("AUD").  These forward contracts hedge against a portion of the Company’s foreign currency-denominated cash balances, receivables and payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. dollar equivalent (“USD Equivalent”) at December 31, 2011:
 
Local Currency
 
USD Equivalent
 
Position
 
Maturity
 
(in thousands)
 
(in thousands)
 
 
 
 
EUR
18,800

 
$
24,385

 
Sell EUR
 
1 month
GBP
3,900

 
$
6,057

 
Sell GBP
 
1 month
AUD
4,100

 
$
4,188

 
Sell AUD
 
1 month

Foreign currency transactions, net of the effect of forward contract hedging activity, resulted in immaterial net losses in the three and nine months ended December 31, 2011 and 2010, which are included in Interest and other income (expense), net, in the Condensed consolidated statements of operations.

Cash Flow Hedges

The Company’s hedging activities include a hedging program to hedge the economic exposure from anticipated EUR and GBP denominated sales.  The Company hedges a portion of these forecasted foreign denominated sales with put and call currency option contracts used as collars.  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 in the Condensed consolidated balance sheets and subsequently reclassified into Net revenues in the Condensed consolidated statements of operations 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.  The Company does not purchase options for trading purposes.  As of December 31, 2011, the Company had foreign currency put and call option contracts of approximately €64.8 million and £19.8 million.  As of March 31, 2011, the Company had foreign currency put and call option contracts of approximately €52.7 million and £14.5 million.

In the three months ended December 31, 2011, there were no realized gains or losses on cash flow hedges recognized in Net revenues, compared to immaterial gains recognized for the same period in the prior year. In the nine months ended December 31, 2011, realized losses on cash flow hedges of $2.6 million were recognized in Net revenues, compared to realized gains of $2.6 million for the same period in the prior year. The Company expects to reclassify the entire gain of $4.7 million, net of tax, in Accumulated other comprehensive income to Net revenues during the next twelve 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 in the Condensed consolidated balance sheets 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, 2011 and March 31, 2011, the Company had foreign currency swap contracts of approximately MX$398.2 million and MX$343.9 million, respectively.

16



In the three and nine months ended December 31, 2011 and 2010, there were no material realized gains or losses on MX$ cash flow hedges recognized in Cost of revenues.  Of the entire loss of $2.3 million, net of tax, recorded in Accumulated other comprehensive income, the Company expects to reclassify $2.1 million to Cost of revenues during the next twelve months due to the recognition of the hedged forecasted expenditures.

The following table summarizes the notional value of the Company’s outstanding MX$ currency swaps and approximate USD Equivalent at December 31, 2011:
 
Local Currency
 
USD Equivalent
 
Position
 
Maturity
 
(in thousands)
 
(in thousands)
 
 
 
 
MX$
398,150

 
$
30,068

 
Buy MX$
 
Monthly over 15 months

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

Fair Value of Derivative Contracts

Fair value of derivative contracts under the Derivatives and Hedging Topic of the FASB ASC were as follows:
 
 
Derivative Assets
Reported in Other Current Assets
 
Derivative Liabilities
Reported in Accrued Liabilities
 
 
December 31,
 
March 31,
 
December 31,
 
March 31,
(in thousands)
 
2011
 
2011
 
2011
 
2011
Foreign exchange contracts designated as cash flow hedges
 
$
4,876

 
$
360

 
$
2,439

 
$
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 December 31, 2011 and March 31, 2011, and the impact of designated derivative contracts before tax on AOCI for the nine months ended December 31, 2011:
(in thousands)
 
Gain (loss) included in AOCI as of March 31, 2011
 
Amount of gain (loss)
recognized in AOCI
(effective portion)
 
Amount of gain (loss)
reclassified from AOCI
to income (loss)
(effective portion)
 
Gain (loss) included in AOCI as of December 31, 2011
Foreign exchange contracts designated as cash flow hedges
 
$
(3,841
)
 
$
3,706

 
$
(2,572
)
 
$
2,437


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)
 
2011
 
2010
 
2011
 
2010
Gain (loss) on foreign exchange contracts designated as cash flow hedges
 
$
(555
)
 
$
817

 
$
(2,572
)
 
$
2,756



17


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

The effect of non-designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in Interest and other income (expense), net in the Condensed consolidated statements of operations was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Gain on foreign exchange contracts
 
$
675

 
$
814

 
$
1,975

 
$
285


13. INCOME TAXES

The effective tax rate for the three and nine months ended December 31, 2011 was 18.3% and 22.8%, respectively, compared to 13.6% and 22.5%, respectively, in the same periods in the prior year.  The higher effective tax rate for the three and nine months ended December 31, 2011 is due primarily to both the release of larger tax reserves and the December 2010 retroactive reinstatement of the federal tax research credit resulting in a 15 month benefit in the prior year periods compared to the nine month benefit in the current year due to the December 2011 expiration of the credit. The impact of the tax reserve release and the federal research tax credit reinstatement had a proportionally larger impact in the three month comparison relative to the nine month comparison. The effective tax rates differ 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'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 the Company 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 the Company 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.
 
As of December 31, 2011, the Company had $10.9 million of unrecognized tax benefits compared to $10.5 million at March 31, 2011 recorded in Long-term income taxes payable in the Condensed consolidated balance sheets, 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 in the Condensed consolidated statements of operations.  The accrued interest related to unrecognized tax benefits is $1.6 million as of December 31, 2011 as compared to $1.7 million as of March 31, 2011.  No penalties have been accrued.

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 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 2006, except for the United Kingdom which has been concluded for tax years prior to fiscal 2009.

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.




18


14. COMPUTATION OF EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended December 31, 2011 and 2010:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands, except per share data)
 
2011
 
2010
 
2011
 
2010
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
30,898

 
$
31,552

 
$
85,150

 
$
82,927

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 

 
 
 
 

Weighted average common shares-basic
 
42,541

 
47,649

 
44,623

 
47,621

Dilutive effect of employee equity incentive plans
 
1,099

 
1,782

 
1,234

 
1,650

Weighted average common shares-diluted
 
43,640

 
49,431

 
45,857

 
49,271

 
 
 
 
 
 
 
 
 
Earnings per common share-basic
 
$
0.73

 
$
0.66

 
$
1.91

 
$
1.74

 
 
 
 
 
 
 
 
 
Earnings per common share-diluted
 
$
0.71

 
$
0.64

 
$
1.86

 
$
1.68

 
 
 
 
 
 
 
 
 
Potentially dilutive securities excluded from earnings per common share-diluted because their effect is anti-dilutive
 
1,092

 
1,321

 
1,458

 
1,607


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 for the three and nine months ended December 31, 2011 and 2010:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Net revenues from unaffiliated customers:
 
 
 
 
 
 
 
 
Office and Contact Center
 
$
133,335

 
$
122,949

 
$
400,729

 
$
358,480

Mobile
 
36,024

 
43,208

 
96,529

 
109,446

Gaming and Computer Audio
 
9,209

 
10,544

 
24,985

 
28,048

Clarity
 
4,668

 
4,884

 
13,541

 
14,551

Total net revenues
 
$
183,236

 
$
181,585

 
$
535,784

 
$
510,525



19


The following table presents net revenues by geography for the three and nine months ended December 31, 2011 and 2010:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
(in thousands)
 
2011
 
2010
 
2011
 
2010
Net revenues from unaffiliated customers:
 
 
 
 
 
 
 
 
U.S.
 
$
99,070

 
$
104,299

 
$
300,557

 
$
304,391

 
 
 
 
 
 
 
 
 
Europe, Middle East and Africa
 
50,831

 
46,506

 
137,589

 
121,587

Asia Pacific
 
19,393

 
16,499

 
58,623

 
47,404

Americas, excluding U.S.
 
13,942

 
14,281

 
39,015

 
37,143

Total international net revenues
 
84,166

 
77,286

 
235,227

 
206,134

Total net revenues
 
$
183,236

 
$
181,585

 
$
535,784

 
$
510,525


No customer accounted for 10% or more of Net revenues for the three or nine months ended December 31, 2011 and 2010, nor did any one customer account for 10% or more of Accounts receivable, net in the Condensed consolidated balance sheets at December 31, 2011 and March 31, 2011.

16. SUBSEQUENT EVENTS

On January 31, 2012, the Board declared a cash dividend of $0.05 per share of the Company's common stock, payable on March 9, 2012 to stockholders of record at the close of business on February 17, 2012.


20


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 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“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 Unified Communications ("UC") products and new Mobile products, (ii) our long-term strategy to invest for UC, (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, development and engineering expenses and selling, general and administrative expenses, (v) our future tax rate, (vi) our anticipated capital expenditures for the remainder of fiscal 2012, (vii) the sufficiency of our cash, cash equivalents and cash from operations, (viii) our ability to draw funds on our credit facility as needed, and (ix) 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, 2011.  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 continued to expand into the office, mobile and entertainment, digital audio and specialty telephone markets in those regions and additional international locations.

We expect UC to increase the adoption and use of headsets in enterprise applications.  Headsets help to enable voice communications to be delivered naturally in the UC environment.  As UC is adopted by enterprises to reduce costs and improve collaboration, headsets are expected to be an important part of the UC environment.  In fiscal 2012, we have been focused on our long-term strategy to invest in UC as a key long-term driver of revenue and profit growth. We continue to focus on innovative product development, including the use of software and services as part of our products.

In the third quarter of fiscal 2012, our consolidated net revenues were $183.2 million, an increase of approximately $1.7 million or 1% from $181.6 million in the third quarter of fiscal 2011 driven by higher sales of our Office and Contact Center (“OCC”) products. OCC revenues increased $10.4 million or 8% from the same quarter a year ago due to increased demand for headsets designed for UC and our participation in the UC market.  

Our gross profit as a percentage of net revenues decreased slightly to 52.5% in the third quarter of fiscal 2012 from 52.8% in the third quarter of fiscal 2011 due to higher cost of revenues primarily as a result of higher provisions for excess and obsolete inventory.

Operating income was $37.4 million in the third quarter of fiscal 2012, an increase of $0.9 million or 2% from $36.5 million in the third quarter of fiscal 2011 due to the increase in gross profit on slightly higher net revenues along with lower selling, general and administrative expenses.

21


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.  
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
(in thousands except percentages)
 
2011
 
2010
 
2011
 
2010
Net revenues
 
$
183,236

 
100.0
%
 
$
181,585

 
100.0
 %
 
$
535,784

 
100.0
%
 
$
510,525

 
100.0
 %
Cost of revenues
 
87,024

 
47.5
%
 
85,777

 
47.2
 %
 
246,548

 
46.0
%
 
239,310

 
46.9
 %
Gross profit
 
96,212

 
52.5
%
 
95,808

 
52.8
 %
 
289,236

 
54.0
%
 
271,215

 
53.1
 %
Operating expenses:
 
 
 
 

 
 
 
 

 
 
 
 

 
 

 
 

Research, development and engineering
 
16,829

 
9.2
%
 
16,373

 
9.0
 %
 
51,386

 
9.6
%
 
46,480

 
9.1
 %
Selling, general and administrative
 
41,976

 
22.9
%
 
43,319

 
23.9
 %
 
128,510

 
24.0
%
 
118,747

 
23.3
 %
Restructuring and other related charges
 

 
%
 
(428
)
 
(0.2
)%
 

 
%
 
(428
)
 
(0.1
)%
Total operating expenses
 
58,805

 
32.1
%
 
59,264

 
32.6
 %
 
179,896

 
33.6
%
 
164,799

 
32.3
 %
Operating income
 
37,407

 
20.4
%
 
36,544

 
20.1
 %
 
109,340

 
20.4
%
 
106,416

 
20.8
 %
Interest and other income (expense), net
 
406

 
0.2
%
 
(20
)
 
 %
 
989

 
0.2
%
 
615

 
0.1
 %
Income before income taxes
 
37,813

 
20.6
%
 
36,524

 
20.1
 %
 
110,329

 
20.6
%
 
107,031

 
21.0
 %
Income tax expense
 
6,915

 
3.8
%
 
4,972

 
2.7
 %
 
25,179

 
4.7
%
 
24,104

 
4.7
 %
Net income
 
$
30,898

 
16.9
%
 
$
31,552

 
17.4
 %
 
$
85,150

 
15.9
%
 
$
82,927

 
16.2
 %

NET REVENUES
 
 
Three Months Ended