Delaware
|
77-0207692
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
Large
accelerated filer S
|
Accelerated
filer £
|
Non
accelerated filer £
|
PART
I-
FINANCIAL
INFORMATION
|
Page
No.
|
Item
1.Financial
Statements (Unaudited):
|
|
|
|
3
|
|
4
|
|
5
|
|
6
|
|
18
|
|
34
|
|
|
|
36
|
|
PART
II-
OTHER
INFORMATION
|
|
|
|
37
|
|
37
|
|
51
|
|
51
|
|
52
|
|
March
31,
|
December
31,
|
||||||
|
2007
|
2007
|
||||||
|
|
|
||||||
ASSETS
|
|
|||||||
Current
assets:
|
|
|||||||
Cash
and cash
equivalents
|
$ | 94,131 | $ | 115,479 | ||||
Short-term
investments
|
9,234 | 54,085 | ||||||
Total
cash, cash equivalents, and
short-term investments
|
103,365 | 169,564 | ||||||
Accounts
receivable,
net
|
113,758 | 136,550 | ||||||
Inventory
|
126,605 | 131,320 | ||||||
Deferred
income
taxes
|
12,659 | 12,754 | ||||||
Other
current
assets
|
18,474 | 12,947 | ||||||
Total
current
assets
|
374,861 | 463,135 | ||||||
Property,
plant and equipment,
net
|
97,259 | 98,321 | ||||||
Intangibles,
net
|
100,120 | 93,517 | ||||||
Goodwill
|
72,825 | 72,825 | ||||||
Other
assets
|
6,239 | 6,047 | ||||||
Total
assets
|
$ | 651,304 | $ | 733,845 | ||||
|
||||||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS'
EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 49,956 | $ | 57,049 | ||||
Accrued
liabilities
|
54,025 | 63,863 | ||||||
Income
taxes
payable
|
12,476 | - | ||||||
Total
current
liabilities
|
116,457 | 120,912 | ||||||
Deferred
tax
liability
|
37,344 | 32,135 | ||||||
Long-term
income taxes
payable
|
- | 16,132 | ||||||
Other
long-term
liabilities
|
696 | 960 | ||||||
Total
liabilities
|
154,497 | 170,139 | ||||||
|
||||||||
Stockholders'
equity:
|
||||||||
Common
stock
|
666 | 673 | ||||||
Additional
paid-in
capital
|
340,661 | 363,920 | ||||||
Accumulated
other comprehensive
income
|
2,666 | 1,972 | ||||||
Retained
earnings
|
550,165 | 593,507 | ||||||
|
894,158 | 960,072 | ||||||
Less: treasury
stock,
at cost
|
(397,351 | ) | (396,366 | ) | ||||
Total
stockholders'
equity
|
496,807 | 563,706 | ||||||
Total
liabilities and
stockholders' equity
|
$ | 651,304 | $ | 733,845 |
|
Three
Months
Ended
|
Nine
Months
Ended
|
||||||||||||||
|
December
31,
|
December
31,
|
||||||||||||||
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
Net
revenues
|
$ | 215,435 | $ | 232,824 | $ | 605,438 | $ | 647,543 | ||||||||
Cost
of
revenues
|
134,584 | 139,067 | 372,093 | 385,784 | ||||||||||||
Gross
profit
|
80,851 | 93,757 | 233,345 | 261,759 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research,
development and
engineering
|
17,837 | 19,308 | 53,434 | 58,004 | ||||||||||||
Selling,
general and
administrative
|
46,196 | 48,424 | 134,583 | 140,476 | ||||||||||||
Restructuring
and other related
charges
|
- | 2,882 | - | 2,882 | ||||||||||||
Gain
on sale of
land
|
- | - | (2,637 | ) | - | |||||||||||
Total
operating
expenses
|
64,033 | 70,614 | 185,380 | 201,362 | ||||||||||||
Operating
income
|
16,818 | 23,143 | 47,965 | 60,397 | ||||||||||||
Interest
and other income,
net
|
1,493 | 2,184 | 2,745 | 5,311 | ||||||||||||
Income
before income
taxes
|
18,311 | 25,327 | 50,710 | 65,708 | ||||||||||||
Income
tax
expense
|
3,121 | 6,219 | 10,704 | 15,103 | ||||||||||||
Net
income
|
$ | 15,190 | $ | 19,108 | $ | 40,006 | $ | 50,605 | ||||||||
|
||||||||||||||||
Net
income per share -
basic
|
$ | 0.32 | $ | 0.39 | $ | 0.85 | $ | 1.05 | ||||||||
|
||||||||||||||||
Shares
used in basic per share
calculations
|
47,409 | 48,379 | 47,256 | 48,110 | ||||||||||||
|
||||||||||||||||
Net
income per share -
diluted
|
$ | 0.32 | $ | 0.39 | $ | 0.83 | $ | 1.03 | ||||||||
|
||||||||||||||||
Shares
used in diluted per share
calculations
|
47,922 | 49,533 | 47,940 | 49,148 | ||||||||||||
|
||||||||||||||||
Cash
dividends declared per common
share
|
$ | 0.05 | $ | 0.05 | $ | 0.15 | $ | 0.15 |
|
Nine
Months
Ended
|
|||||||
|
December
31,
|
|||||||
|
2006
|
2007
|
||||||
CASH
FLOWS FROM OPERATING
ACTIVITIES
|
|
|
||||||
Net
income
|
$ | 40,006 | $ | 50,605 | ||||
Adjustments
to reconcile net
income to net cash provided by operating
activities:
|
||||||||
Depreciation
and
amortization
|
21,824 | 21,012 | ||||||
Stock-based
compensation
|
12,617 | 11,946 | ||||||
Provision
for doubtful
accounts
|
549 | 13 | ||||||
Provision
for excess and obsolete
inventories
|
11,149 | 8,449 | ||||||
Deferred
income
taxes
|
(5,939 | ) | (7,801 | ) | ||||
Income
tax benefit associated with
stock option exercises
|
519 | 1,010 | ||||||
Excess
tax benefit from
stock-based compensation
|
(637 | ) | (1,905 | ) | ||||
(Gain)
loss on disposal of
property, plant, and equipment, net
|
(2,571 | ) | 21 | |||||
Impairment
of intangible
asset
|
- | 517 | ||||||
Non-cash
restructuring
charges
|
- | 1,064 | ||||||
|
||||||||
Changes
in assets and
liabilities:
|
||||||||
Accounts
receivable
|
(14,276 | ) | (23,583 | ) | ||||
Inventory
|
(39,396 | ) | (13,178 | ) | ||||
Other
assets
|
(417 | ) | (122 | ) | ||||
Accounts
payable
|
(2,599 | ) | 7,093 | |||||
Accrued
liabilities
|
13,301 | 8,286 | ||||||
Income
taxes
payable
|
(5,966 | ) | 11,011 | |||||
Cash
provided by operating
activities
|
28,164 | 74,438 | ||||||
|
||||||||
CASH
FLOWS FROM INVESTING
ACTIVITIES
|
||||||||
Proceeds
from sales of short-term
investments
|
222,424 | 254,590 | ||||||
Purchase
of short-term
investments
|
(214,395 | ) | (299,040 | ) | ||||
Proceeds
from the sale of
land
|
2,667 | - | ||||||
Capital
expenditures and other
assets
|
(18,739 | ) | (16,918 | ) | ||||
Cash
used for investing
activities
|
(8,043 | ) | (61,368 | ) | ||||
|
||||||||
CASH
FLOWS FROM FINANCING
ACTIVITIES
|
||||||||
Purchase
of treasury
stock
|
(4,021 | ) | - | |||||
Proceeds
from sale of treasury
stock
|
2,723 | 2,895 | ||||||
Proceeds
from issuance of common
stock
|
2,676 | 9,117 | ||||||
Repayment
of line of
credit
|
(16,032 | ) | - | |||||
Payment
of cash
dividends
|
(7,140 | ) | (7,263 | ) | ||||
Excess
tax benefit from
stock-based compensation
|
637 | 1,905 | ||||||
Cash
(used for) provided by
financing activities
|
(21,157 | ) | 6,654 | |||||
Effect
of exchange rate changes on
cash and cash equivalents
|
1,076 | 1,624 | ||||||
Net
increase in cash and cash
equivalents
|
40 | 21,348 | ||||||
Cash
and cash equivalents at
beginning of period
|
68,703 | 94,131 | ||||||
Cash
and cash equivalents at end
of period
|
$ | 68,743 | $ | 115,479 |
|
March
31,
|
December
31,
|
||||||
(in
thousands)
|
2007
|
2007
|
||||||
|
|
|||||||
Inventory,
net:
|
|
|
||||||
Raw
materials
|
$ | 57,406 | $ | 39,211 | ||||
Work
in
process
|
6,268 | 4,006 | ||||||
Finished
goods
|
62,931 | 88,103 | ||||||
|
$ | 126,605 | $ | 131,320 | ||||
|
||||||||
Accrued
liabilities:
|
||||||||
Employee
compensation and
benefits
|
$ | 20,574 | $ | 24,877 | ||||
Warranty
accrual
|
7,240 | 11,344 | ||||||
Accrued
advertising and sales and
marketing
|
5,104 | 6,350 | ||||||
Accrued
derivatives
|
2,454 | 3,778 | ||||||
Accrued
other
|
18,653 | 17,514 | ||||||
|
$ | 54,025 | $ | 63,863 | ||||
|
||||||||
Changes
in the warranty accrual, which are included as a component of accrued
liabilities on the condensed consolidated balance sheets, are as
follows
(in thousands):
|
||||||||
|
||||||||
|
||||||||
Warranty
accrual at March 31,
2007
|
$ | 7,240 | ||||||
Warranty
provision relating to
products shipped during the year
|
17,616 | |||||||
Deductions
for warranty claims
processed
|
(13,512 | ) | ||||||
Warranty
accrual at December 31,
2007
|
$ | 11,344 |
March
31,
2007
|
December
31,
2007
|
||||||||||||||||||||||||
|
Gross
|
Accumulated
|
Net
|
Gross
|
Accumulated
|
Net
|
Useful
|
||||||||||||||||||
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
Life
|
||||||||||||||||||
|
|
|
|||||||||||||||||||||||
Technology
|
$ | 30,960 | $ | (9,431 | ) | $ | 21,529 | $ | 30,160 | $ | (12,716 | ) | $ | 17,444 |
6-10
years
|
||||||||||
In-process
technology
|
996 | (996 | ) | - | 996 | (996 | ) | - |
Immediate
|
||||||||||||||||
State
contracts
|
1,300 | (975 | ) | 325 | 1,300 | (1,114 | ) | 186 |
7
years
|
||||||||||||||||
Patents
|
1,420 | (876 | ) | 544 | 1,420 | (1,029 | ) | 391 |
7
years
|
||||||||||||||||
Customer
relationships
|
18,133 | (4,108 | ) | 14,025 | 18,133 | (5,758 | ) | 12,375 |
3-8
years
|
||||||||||||||||
Trademarks
|
300 | (225 | ) | 75 | 300 | (257 | ) | 43 |
7
years
|
||||||||||||||||
Trade
name -
inMotion
|
5,000 | (1,016 | ) | 3,984 | 5,000 | (1,484 | ) | 3,516 |
8
years
|
||||||||||||||||
Trade
name - Altec
Lansing
|
59,100 | - | 59,100 | 59,100 | - | 59,100 |
Indefinite
|
||||||||||||||||||
OEM
relationships
|
700 | (162 | ) | 538 | 700 | (238 | ) | 462 |
7
years
|
||||||||||||||||
Non-compete
agreements
|
200 | (200 | ) | - | 200 | (200 | ) | - |
5
years
|
||||||||||||||||
Total
|
$ | 118,109 | $ | (17,989 | ) | $ | 100,120 | $ | 117,309 | $ | (23,792 | ) | $ | 93,517 |
|
Fiscal
Year Ending March
31,
|
||||
Remainder
of
2008
|
$ | 2,007 | ||
2009
|
7,872 | |||
2010
|
7,411 | |||
2011
|
7,368 | |||
2012
|
4,787 | |||
Thereafter
|
4,972 | |||
Total
estimated amortization
expense
|
$ | 34,417 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
(in
thousands)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
Cost
of
revenues
|
$ | 729 | $ | 609 | $ | 2,200 | $ | 1,862 | ||||||||
|
||||||||||||||||
Research,
development and
engineering
|
934 | 858 | 2,843 | 2,641 | ||||||||||||
Selling,
general and
administrative
|
2,578 | 2,617 | 7,563 | 7,443 | ||||||||||||
Stock-based
compensation expense
included in operating expenses
|
3,512 | 3,475 | 10,406 | 10,084 | ||||||||||||
|
||||||||||||||||
Total
stock-based
compensation
|
4,241 | 4,084 | 12,606 | 11,946 | ||||||||||||
Income
tax
benefit
|
(1,358 | ) | (1,191 | ) | (4,087 | ) | (3,813 | ) | ||||||||
Total
stock-based compensation,
net of tax
|
$ | 2,883 | $ | 2,893 | $ | 8,519 | $ | 8,133 |
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,
2007
|
9,033 | $ | 26.17 | |||||||||||||
Options
granted
|
723 | $ | 27.25 | |||||||||||||
Options
exercised
|
(531 | ) | $ | 17.16 | ||||||||||||
Options
forfeited or
expired
|
(568 | ) | $ | 34.01 | ||||||||||||
Outstanding
at December 31,
2007
|
8,657 | $ | 26.30 | 4.41 | $ | 28,401 | ||||||||||
Vested
and expected to vest at
December 31, 2007
|
8,315 | $ | 26.37 | 4.35 | $ | 27,374 | ||||||||||
Exercisable
at December 31,
2007
|
6,355 | $ | 26.82 | 3.87 | $ | 22,105 |
Weighted
|
||||||||
Number
of
|
Average
|
|||||||
Shares
|
Grant
Date
|
|||||||
|
(in
thousands)
|
Fair
Value
|
||||||
Non-vested
at March 31,
2007
|
287 | $ | 27.09 | |||||
Granted
|
113 | $ | 27.17 | |||||
Vested
|
(65 | ) | $ | 27.38 | ||||
Forfeited
|
(19 | ) | $ | 28.19 | ||||
Non-vested
at December 31,
2007
|
316 | $ | 26.99 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
Employee
Stock Options
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
Expected
volatility
|
42.5 | % | 39.7 | % | 42.5 | % | 39.1 | % | ||||||||
Risk-free
interest
rate
|
4.7 | % | 3.9 | % | 4.7 | % | 4.1 | % | ||||||||
Expected
dividends
|
1.0 | % | 0.7 | % | 1.0 | % | 0.7 | % | ||||||||
Expected
life (in
years)
|
4.2 | 4.1 | 4.2 | 4.2 | ||||||||||||
Weighted-average
grant date fair
value
|
$ | 7.58 | $ | 9.62 | $ | 7.64 | $ | 9.46 | ||||||||
Nine
Months Ended
|
||||||||
December
31,
|
||||||||
ESPP
|
2006
|
2007
|
||||||
Expected
volatility
|
52.8 | % | 32.1 | % | ||||
Risk-free
interest
rate
|
5.2 | % | 5.1 | % | ||||
Expected
dividends
|
1.3 | % | 0.7 | % | ||||
Expected
life (in
years)
|
0.5 | 0.5 | ||||||
Weighted-average
grant date fair
value
|
$ | 4.60 | $ | 6.72 |
|
Severance
and
Benefits
|
Facilities
and
Equipment
|
Other
|
Total
|
||||||||||||
|
|
|
||||||||||||||
Restructuring
and other related
charges
|
$ | 1,158 | $ | 1,021 | $ | 703 | $ | 2,882 | ||||||||
Cash
|
(588 | ) | - | (168 | ) | (756 | ) | |||||||||
Non-cash
|
- | (1,021 | ) | (43 | ) | (1,064 | ) | |||||||||
Restructuring
accrual at December
31, 2007
|
$ | 570 | $ | - | $ | 492 | $ | 1,062 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
(in
thousands)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
Net
income
|
$ | 15,190 | $ | 19,108 | $ | 40,006 | $ | 50,605 | ||||||||
Unrealized
gain (loss) on cash
flow hedges, net of tax
|
(1,579 | ) | 607 | (3,823 | ) | (1,671 | ) | |||||||||
Foreign
currency translation gain
(loss)
|
614 | (11 | ) | 1,930 | 977 | |||||||||||
Comprehensive
income
|
$ | 14,225 | $ | 19,704 | $ | 38,113 | $ | 49,911 |
|
Local
Currency
|
USD
Equivalent
|
Position
|
Maturity
|
||||||||||
EUR
|
19,800 | $ | 29,136 |
Sell
Euro
|
1
month
|
|||||||||
GBP
|
5,300 | $ | 10,550 |
Sell
GBP
|
1
month
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
(in
thousands, except per share
data)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
|
|
|
|
|
||||||||||||
Net
income
|
$ | 15,190 | $ | 19,108 | $ | 40,006 | $ | 50,605 | ||||||||
|
||||||||||||||||
Weighted
average
shares-basic
|
47,409 | 48,379 | 47,256 | 48,110 | ||||||||||||
Dilutive
effect of employee equity
incentive plans
|
513 | 1,154 | 684 | 1,038 | ||||||||||||
Weighted
average
shares-diluted
|
47,922 | 49,533 | 47,940 | 49,148 | ||||||||||||
|
||||||||||||||||
Earnings
per
share-basic
|
$ | 0.32 | $ | 0.39 | $ | 0.85 | $ | 1.05 | ||||||||
|
||||||||||||||||
Earnings
per
share-diluted
|
$ | 0.32 | $ | 0.39 | $ | 0.83 | $ | 1.03 | ||||||||
Potentially
dilutive securities
excluded from earnings per diluted share because their effect is
anti-dilutive
|
6,925 | 3,388 | 5,793 | 3,731 |
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
||||||||||||||
(in
thousands)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
|
|
|
|
|
||||||||||||
Net
revenues
|
||||||||||||||||
Audio
Communications
Group
|
$ | 176,511 | $ | 195,955 | $ | 503,281 | $ | 562,574 | ||||||||
Audio
Entertainment
Group
|
38,924 | 36,869 | 102,157 | 84,969 | ||||||||||||
Consolidated
net
revenues
|
$ | 215,435 | $ | 232,824 | $ | 605,438 | $ | 647,543 | ||||||||
Gross
profit
|
||||||||||||||||
Audio
Communications
Group
|
$ | 77,257 | $ | 89,698 | $ | 218,836 | $ | 260,358 | ||||||||
Audio
Entertainment
Group
|
3,594 | 4,059 | 14,509 | 1,401 | ||||||||||||
Consolidated
gross
profit
|
$ | 80,851 | $ | 93,757 | $ | 233,345 | $ | 261,759 | ||||||||
Operating
income
(loss)
|
||||||||||||||||
Audio
Communications
Group
|
$ | 22,855 | $ | 31,051 | $ | 64,436 | $ | 89,707 | ||||||||
Audio
Entertainment
Group
|
(6,037 | ) | (7,908 | ) | (16,471 | ) | (29,310 | ) | ||||||||
Consolidated
operating
income
|
$ | 16,818 | $ | 23,143 | $ | 47,965 | $ | 60,397 |
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||
(in
thousands)
|
December
31,
2007
|
|||||||
|
|
|
||||||
Net
revenues
|
||||||||
Audio
Communications
Group
|
$ | 193,795 | $ | 558,692 | ||||
Audio
Entertainment
Group
|
39,029 | 88,851 | ||||||
Consolidated
net revenues
|
$ | 232,824 | $ | 647,543 | ||||
Gross
profit
|
||||||||
|
||||||||
Audio
Communications
Group
|
$ | 88,852 | $ | 258,907 | ||||
Audio
Entertainment
Group
|
4,905 | 2,852 | ||||||
Consolidated
gross profit
|
$ | 93,757 | $ | 261,759 |
|
Three
Months
Ended
|
Nine
Months
Ended
|
||||||||||||||
|
December
31,
|
December
31,
|
||||||||||||||
(in
thousands)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
|
|
|
|
|
||||||||||||
Net
revenues from unaffiliated
customers:
|
|
|
|
|
||||||||||||
Office
and Contact Center
|
$ | 118,280 | $ | 131,017 | $ | 348,360 | $ | 394,579 | ||||||||
Mobile
|
43,080 | 48,788 | 112,085 | 125,885 | ||||||||||||
Gaming
and Computer
Audio
|
8,364 | 10,449 | 23,380 | 25,211 | ||||||||||||
Other
Specialty
Products
|
6,787 | 5,701 | 19,456 | 16,899 | ||||||||||||
Total
segment net
revenues
|
$ | 176,511 | $ | 195,955 | $ | 503,281 | $ | 562,574 |
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
(in
thousands)
|
2006
|
2007
|
2006
|
2007
|
||||||||||||
Net
revenues from unaffiliated
customers:
|
||||||||||||||||
Docking
Audio
|
$ | 20,822 | $ | 20,682 | $ | 53,814 | $ | 44,588 | ||||||||
PC
Audio
|
15,202 | 14,101 | 40,920 | 35,176 | ||||||||||||
Other
|
2,900 | 2,086 | 7,423 | 5,205 | ||||||||||||
Total
segment net
revenues
|
$ | 38,924 | $ | 36,869 | $ | 102,157 | $ | 84,969 |
|
·
|
Increase
penetration in the office markets.
Growing the
office
markets will continue
to be our top priority. We intend to accomplish this
through the
introduction of compelling, easy to use, wireless products and demand
generation
campaigns. For example, home office workers are a growing
category, and in ACG, we began shipping the Calisto Pro hands-free
home
phone system in fiscal 2008 which includes a multi-function Bluetooth
headset.
|
|
·
|
Upgrade
existing customers with compelling new products. While
increasing penetration in the office market is our top priority,
a closely
related priority is to convert corded headset users to wireless headsets,
as well as to upgrade existing wireless headset users to our new
CS70N
which we began shipping in fiscal 2008. The CS70N features
premium audio performance, sleek and comfortable styling, and a
noise-cancelling microphone.
|
|
·
|
Grow
our Bluetooth market share while improving profitability.
We
believe the
convergence of music and communications in the cell phone industry
has
created a significant opportunity to increase our Bluetooth market
share. Our Bluetooth product portfolio is competitive and we
believe our existing and next generation products are innovative
and being
well received. We will
continue to implement our supply chain optimization and re-engineering
initiatives that are designed to increase inventory turns, improve
forecast accuracy and reduce excess and obsolete inventory. We have
plans to increase the utilization of our Suzhou,
China facility,
improve direct labor
productivity and reduce logistics costs. We will continue to increase
the
use of common design platforms from which we can produce multiple
generations of products.
|
|
·
|
Focus
on the turnaround plan for AEG.
Development
of a competitive
portfolio of
next generation
products with lower manufacturing costs and higher margins is the
key
priority for AEG over
the next 12 months.
We
also plan to take
advantage of the industrial design capabilities that exist within
the ACG
segment to make these next generation products more appealing to
buyers. We are working to control costs in AEG and exploring
ways to make this business more efficient.
|
|
·
|
Improve
the overall profitability of the Company. In
order to achieve our long-term
targets for profitability, we will need to successfully implement
our key
initiatives, described above, as well as many other strategic and
tactical
initiatives which are designed to increase revenue growth, reduce
costs,
and operate more
effectively.
|
Consolidated
|
||||||||||||||||||||||||||||||||
(in
thousands)
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||||||||||||||||||||||||
2006
|
2007
|
2006
|
2007
|
|||||||||||||||||||||||||||||
Net
revenues
|
$ | 215,435 | 100.0 | % | $ | 232,824 | 100.0 | % | $ | 605,438 | 100.0 | % | $ | 647,543 | 100.0 | % | ||||||||||||||||
Cost
of revenues
|
134,584 | 62.5 | % | 139,067 | 59.7 | % | 372,093 | 61.5 | % | 385,784 | 59.6 | % | ||||||||||||||||||||
Gross
profit
|
80,851 | 37.5 | % | 93,757 | 40.3 | % | 233,345 | 38.5 | % | 261,759 | 40.4 | % | ||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
17,837 | 8.3 | % | 19,308 | 8.3 | % | 53,434 | 8.8 | % | 58,004 | 9.0 | % | ||||||||||||||||||||
Selling,
general and
administrative
|
46,196 | 21.4 | % | 48,424 | 20.8 | % | 134,583 | 22.2 | % | 140,476 | 21.7 | % | ||||||||||||||||||||
Restructuring
and other related
charges
|
- | 0.0 | % | 2,882 | 1.3 | % | - | 0.0 | % | 2,882 | 0.4 | % | ||||||||||||||||||||
Gain
on sale of
land
|
- | 0.0 | % | - | 0.0 | % | (2,637 | ) | (0.4 | )% | - | 0.0 | % | |||||||||||||||||||
Total
operating
expenses
|
64,033 | 29.7 | % | 70,614 | 30.4 | % | 185,380 | 30.6 | % | 201,362 | 31.1 | % | ||||||||||||||||||||
Operating
income
|
16,818 | 7.8 | % | 23,143 | 9.9 | % | 47,965 | 7.9 | % | 60,397 | 9.3 | % | ||||||||||||||||||||
Interest
and other income,
net
|
1,493 | 0.7 | % | 2,184 | 1.0 | % | 2,745 | 0.5 | % | 5,311 | 0.8 | % | ||||||||||||||||||||
Income
before income
taxes
|
18,311 | 8.5 | % | 25,327 | 10.9 | % | 50,710 | 8.4 | % | 65,708 | 10.1 | % | ||||||||||||||||||||
Income
tax
expense
|
3,121 | 1.4 | % | 6,219 | 2.7 | % | 10,704 | 1.8 | % | 15,103 | 2.3 | % | ||||||||||||||||||||
Net
income
|
$ | 15,190 | 7.1 | % | $ | 19,108 | 8.2 | % | $ | 40,006 | 6.6 | % | $ | 50,605 | 7.8 | % |
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
(in
thousands)
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||||||||||||||||||||||||
2006
|
2007
|
2006
|
2007
|
|||||||||||||||||||||||||||||
Net
revenues
|
$ | 176,511 | 100.0 | % | $ | 195,955 | 100.0 | % | $ | 503,281 | 100.0 | % | $ | 562,574 | 100.0 | % | ||||||||||||||||
Cost
of revenues
|
99,254 | 56.2 | % | 106,257 | 54.2 | % | 284,445 | 56.5 | % | 302,216 | 53.7 | % | ||||||||||||||||||||
Gross
profit
|
77,257 | 43.8 | % | 89,698 | 45.8 | % | 218,836 | 43.5 | % | 260,358 | 46.3 | % | ||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
15,137 | 8.6 | % | 16,544 | 8.5 | % | 45,697 | 9.1 | % | 49,522 | 8.8 | % | ||||||||||||||||||||
Selling,
general and
administrative
|
39,265 | 22.3 | % | 42,103 | 21.5 | % | 111,340 | 22.1 | % | 121,129 | 21.6 | % | ||||||||||||||||||||
Gain
on sale of
land
|
- | 0.0 | % | - | 0.0 | % | (2,637 | ) | (0.5 | )% | - | 0.0 | % | |||||||||||||||||||
Total
operating
expenses
|
54,402 | 30.9 | % | 58,647 | 30.0 | % | 154,400 | 30.7 | % | 170,651 | 30.4 | % | ||||||||||||||||||||
Operating
income
|
$ | 22,855 | 12.9 | % | $ | 31,051 | 15.8 | % | $ | 64,436 | 12.8 | % | $ | 89,707 | 15.9 | % |
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
(in
thousands)
|
Three
Months Ended December 31,
|
Nine
Months Ended December 31,
|
||||||||||||||||||||||||||||||
2006
|
2007
|
2006
|
2007
|
|||||||||||||||||||||||||||||
Net
revenues
|
$ | 38,924 | 100.0 | % | $ | 36,869 | 100.0 | % | $ | 102,157 | 100.0 | % | $ | 84,969 | 100.0 | % | ||||||||||||||||
Cost
of
revenues
|
35,330 | 90.8 | % | 32,810 | 89.0 | % | 87,648 | 85.8 | % | 83,568 | 98.4 | % | ||||||||||||||||||||
Gross
profit
|
3,594 | 9.2 | % | 4,059 | 11.0 | % | 14,509 | 14.2 | % | 1,401 | 1.6 | % | ||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
2,700 | 6.9 | % | 2,764 | 7.5 | % | 7,737 | 7.6 | % | 8,482 | 10.0 | % | ||||||||||||||||||||
Selling,
general and
administrative
|
6,931 | 17.8 | % | 6,321 | 17.1 | % | 23,243 | 22.7 | % | 19,347 | 22.7 | % | ||||||||||||||||||||
Restructuring
and other related
costs
|
- | 0.0 | % | 2,882 | 7.8 | % | - | 0.0 | % | 2,882 | 3.4 | % | ||||||||||||||||||||
Total
operating
expenses
|
9,631 | 24.7 | % | 11,967 | 32.4 | % | 30,980 | 30.3 | % | 30,711 | 36.1 | % | ||||||||||||||||||||
Operating
loss
|
$ | (6,037 | ) | (15.5 | )% | $ | (7,908 | ) | (21.4 | )% | $ | (16,471 | ) | (16.1 | )% | $ | (29,310 | ) | (34.5 | )% |
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Net
revenues from unaffiliated
customers:
|
||||||||||||||||||||||||||||||||
Office
and Contact Center
|
$ | 118,280 | $ | 131,017 | $ | 12,737 | 10.8 | % | $ | 348,360 | $ | 394,579 | $ | 46,219 | 13.3 | % | ||||||||||||||||
Mobile
|
43,080 | 48,788 | 5,708 | 13.2 | % | 112,085 | 125,885 | 13,800 | 12.3 | % | ||||||||||||||||||||||
Gaming
and Computer
Audio
|
8,364 | 10,449 | 2,085 | 24.9 | % | 23,380 | 25,211 | 1,831 | 7.8 | % | ||||||||||||||||||||||
Other
Specialty
Products
|
6,787 | 5,701 | (1,086 | ) | (16.0 | )% | 19,456 | 16,899 | (2,557 | ) | (13.1 | )% | ||||||||||||||||||||
Total
segment net
revenues
|
$ | 176,511 | $ | 195,955 | $ | 19,444 | 11.0 | % | $ | 503,281 | $ | 562,574 | $ | 59,293 | 11.8 | % |
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Net
revenues from unaffiliated
customers:
|
||||||||||||||||||||||||||||||||
Docking
Audio
|
$ | 20,822 | $ | 20,682 | $ | (140 | ) | (0.7 | )% | $ | 53,814 | $ | 44,588 | $ | (9,226 | ) | (17.1 | )% | ||||||||||||||
PC
Audio
|
15,202 | 14,101 | (1,101 | ) | (7.2 | )% | 40,920 | 35,176 | (5,744 | ) | (14.0 | )% | ||||||||||||||||||||
Other
|
2,900 | 2,086 | (814 | ) | (28.1 | )% | 7,423 | 5,205 | (2,218 | ) | (29.9 | )% | ||||||||||||||||||||
Total
segment net
revenues
|
$ | 38,924 | $ | 36,869 | $ | (2,055 | ) | (5.3 | )% | $ | 102,157 | $ | 84,969 | $ | (17,188 | ) | (16.8 | )% |
|
·
|
increased
net revenues in our OCC product category with cordless products,
which
primarily consists of wireless office systems, comprising $8.4 million
of
the increase and corded products representing an increase of $4.4
million. The increases are primarily due to the addition of the
CS70N to our product line in fiscal 2008, corded revenue growth
internationally, and some benefit from foreign exchange rates;
|
|
·
|
increased
net revenues in our Mobile product category due to an increase in
net
revenues from Bluetooth headsets of $5.6 million as a result of market
growth and greater acceptance of our product portfolio.
|
|
·
|
increased
net revenues in our OCC product category with cordless products comprising
$34.0 million of the increase and corded products representing an
increase
of $12.2 million. The increases are primarily due to the addition
of the
CS70N to our product line in fiscal 2008, corded revenue growth
internationally, mostly in Europe and Asia Pacific, and some benefit
from
foreign exchange rates;
|
|
·
|
increased
net revenues in our Mobile product category with an increase in net
revenues from Bluetooth headsets of $17.9 million as a result of
market
growth and greater acceptance of our product portfolio, offset in
part by
a decline in net revenues from corded mobile headsets of $4.1 million.
|
|
·
|
decreased
PC Audio net revenues of $1.1 million primarily in Asia and the U.S.
due
to increased competition and price reductions;
|
|
·
|
decreased
Other net revenues of $0.8 million primarily due to the transition
of the
Altec Lansing-branded headsets from the AEG segment to the ACG segment
resulting in a decrease of $2.3 million, partially offset by increased
headphone and other revenue of $1.5 million.
|
|
·
|
decreased
Docking Audio net revenues of $9.2 million, primarily as a result
of
intense competition in the MP3 accessories market, particularly in
the
U.S., and our reduced share of the MP3 accessories market;
|
|
·
|
decreased
PC Audio net revenues of $5.7 million, most significantly in the
U.S., due
to increased competition and price reductions;
|
|
·
|
decreased
Other net revenues of $2.2 million primarily due to the transition
of the
Altec Lansing-branded headsets from the AEG segment to the ACG segment
resulting in a decrease of $4.3 million, partially offset by an increase
in headphone and other net revenues of $2.1 million.
|
Three
Months
Ended
|
Nine
Months
Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Net
revenues from unaffiliated
customers:
|
||||||||||||||||||||||||||||||||
United
States
|
$ | 125,824 | 139,106 | $ | 13,282 | 10.6 | % | $ | 375,114 | 396,613 | $ | 21,499 | 5.7 | % | ||||||||||||||||||
Europe,
Middle East and
Africa
|
56,337 | 59,535 | 3,198 | 5.7 | % | 142,164 | 158,902 | 16,738 | 11.8 | % | ||||||||||||||||||||||
Asia
Pacific
|
15,537 | 15,804 | 267 | 1.7 | % | 45,402 | 48,540 | 3,138 | 6.9 | % | ||||||||||||||||||||||
Americas,
excluding United
States
|
17,737 | 18,379 | 642 | 3.6 | % | 42,758 | 43,488 | 730 | 1.7 | % | ||||||||||||||||||||||
Total
international
|
89,611 | 93,718 | 4,107 | 4.6 | % | 230,324 | 250,930 | 20,606 | 8.9 | % | ||||||||||||||||||||||
$ | 215,435 | $ | 232,824 | $ | 17,389 | 8.1 | % | $ | 605,438 | $ | 647,543 | $ | 42,105 | 7.0 | % |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Net
revenues
|
$ | 215,435 | $ | 232,824 | $ | 17,389 | 8.1 | % | $ | 605,438 | $ | 647,543 | $ | 42,105 | 7.0 | % | ||||||||||||||||
Cost
of
revenues
|
134,584 | 139,067 | 4,483 | 3.3 | % | 372,093 | 385,784 | 13,691 | 3.7 | % | ||||||||||||||||||||||
Consolidated
gross
profit
|
$ | 80,851 | $ | 93,757 | $ | 12,906 | 16.0 | % | $ | 233,345 | $ | 261,759 | $ | 28,414 | 12.2 | % | ||||||||||||||||
Consolidated
gross profit
%
|
37.5 | % | 40.3 | % | 2.8 |
ppt.
|
38.5 | % | 40.4 | % | 1.9 |
ppt.
|
||||||||||||||||||||
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
Net
revenues
|
$ | 176,511 | $ | 195,955 | $ | 19,444 | 11.0 | % | $ | 503,281 | $ | 562,574 | $ | 59,293 | 11.8 | % | ||||||||||||||||
Cost
of
revenues
|
99,254 | 106,257 | 7,003 | 7.1 | % | 284,445 | 302,216 | 17,771 | 6.2 | % | ||||||||||||||||||||||
Segment
gross
profit
|
$ | 77,257 | $ | 89,698 | $ | 12,441 | 16.1 | % | $ | 218,836 | $ | 260,358 | $ | 41,522 | 19.0 | % | ||||||||||||||||
Segment
gross profit
%
|
43.8 | % | 45.8 | % | 2.0 |
ppt.
|
43.5 | % | 46.4 | % | 2.9 |
ppt.
|
||||||||||||||||||||
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
Net
revenues
|
$ | 38,924 | $ | 36,869 | $ | (2,055 | ) | (5.3 | )% | $ | 102,157 | $ | 84,969 | $ | (17,188 | ) | (16.8 | )% | ||||||||||||||
Cost
of
revenues
|
35,330 | 32,810 | (2,520 | ) | (7.1 | )% | 87,648 | 83,568 | (4,080 | ) | (4.7 | )% | ||||||||||||||||||||
Segment
gross
profit
|
$ | 3,594 | $ | 4,059 | $ | 465 | 12.9 | % | $ | 14,509 | $ | 1,401 | $ | (13,108 | ) | (90.3 | )% | |||||||||||||||
Segment
gross profit
%
|
9.2 | % | 11.0 | % | 1.8 |
ppt.
|
14.2 | % | 1.6 | % | (12.6 | ) |
ppt.
|
|
·
|
a
2.3 percentage point benefit from cost reductions on office wireless
and
Bluetooth products;
|
|
·
|
a
0.9 percentage point benefit from a reduction in excess and obsolete
inventory costs as we had more specialty telephone and Bluetooth
inventory
which reached end of life in the third quarter of fiscal year 2007
than in
the third quarter of fiscal year 2008;
|
|
·
|
a
0.8 percentage point improvement resulting from better absorption
of fixed
costs and improved productivity in our manufacturing processes;
|
|
·
|
a
0.7 percentage point benefit from foreign exchange.
|
|
·
|
A
decrease in claims from suppliers and decreased excess and obsolete
inventory costs as we were able to sell slow moving product to
liquidators, resulting in a benefit of 12.7 percentage points.
|
|
·
|
a
2.5 percentage point benefit from cost reductions on wireless office
and
Bluetooth products;
|
|
·
|
a
0.7 percentage point benefit from foreign exchange;
|
|
·
|
a
0.7 percentage point benefit from a reduction in excess and obsolete
inventory costs as we had more corded mobile headsets and specialty
telephone inventory which reached end of life in the nine months
ended
December 31, 2006 than in the nine months ended December 31, 2007;
|
|
·
|
a
0.5 percentage point improvement resulting from better absorption
of fixed
costs and improved productivity in our manufacturing processes.
|
|
·
|
a
decrease in the standard margin of 7.7 percentage points due to a
5%
decline in the overall sales volume, the change in the product mix,
and
reduced selling prices of surplus inventory;
|
|
·
|
increased
air freight, tooling depreciation, royalties and warehousing which
resulted in a 4.9 percentage point decline;
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
$ | 17,837 | $ | 19,308 | $ | 1,471 | 8.2 | % | $ | 53,434 | $ | 58,004 | $ | 4,570 | 8.6 | % | ||||||||||||||||
%
of total consolidated net
revenues
|
8.3 | % | 8.3 | % | - |
ppt.
|
8.8 | % | 9.0 | % | 0.2 |
ppt.
|
||||||||||||||||||||
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
$ | 15,137 | $ | 16,544 | $ | 1,407 | 9.3 | % | $ | 45,697 | $ | 49,522 | $ | 3,825 | 8.4 | % | ||||||||||||||||
%
of total segment net
revenues
|
8.6 | % | 8.5 | % | (0.1 | ) |
ppt.
|
9.1 | % | 8.8 | % | (0.3 | ) |
ppt.
|
||||||||||||||||||
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
Research,
development and
engineering
|
$ | 2,700 | $ | 2,764 | $ | 64 | 2.4 | % | $ | 7,737 | $ | 8,482 | $ | 745 | 9.6 | % | ||||||||||||||||
%
of total segment net
revenues
|
6.9 | % | 7.5 | % | 0.6 |
ppt.
|
7.6 | % | 10.0 | % | 2.4 |
ppt.
|
|
·
|
the
design and development of wireless office system products;
|
|
·
|
Bluetooth
products and technology;
|
|
·
|
product
line platforming;
|
|
·
|
refresh
of product lines for AEG.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Selling,
general and
administrative
|
$ | 46,196 | $ | 48,424 | $ | 2,228 | 4.8 | % | $ | 134,583 | $ | 140,476 | $ | 5,893 | 4.4 | % | ||||||||||||||||
%
of total consolidated net
revenues
|
21.4 | % | 20.8 | % | (0.6 | ) |
ppt.
|
22.2 | % | 21.7 | % | (0.5 | ) |
ppt.
|
||||||||||||||||||
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
Selling,
general and
administrative
|
$ | 39,265 | $ | 42,103 | $ | 2,838 | 7.2 | % | $ | 111,340 | $ | 121,129 | $ | 9,789 | 8.8 | % | ||||||||||||||||
%
of total segment net
revenues
|
22.3 | % | 21.5 | % | (0.8 | ) |
ppt.
|
22.1 | % | 21.6 | % | (0.5 | ) |
ppt.
|
||||||||||||||||||
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
Selling,
general and
administrative
|
$ | 6,931 | $ | 6,321 | $ | (610 | ) | (8.8 | )% | $ | 23,243 | $ | 19,347 | $ | (3,896 | ) | (16.8 | )% | ||||||||||||||
%
of total segment net
revenues
|
17.8 | % | 17.1 | % | (0.7 | ) |
ppt.
|
22.7 | % | 22.7 | % | - |
ppt.
|
|
·
|
increased
compensation expense of $3.2 million as a result of merit increases
and
higher bonus and commission costs associated with higher net revenues
and
profits;
|
|
·
|
increased
professional service fees of $1.2 million;
|
|
·
|
decreased
marketing and sales promotions of $1.3 million.
|
|
·
|
increased
compensation expense of $8.7 million as a result of merit increases
and
higher bonus and commission costs associated with higher net revenues
and
profits;
|
|
·
|
increased
professional service fees of $2.2 million;
|
|
·
|
increased
travel expenses of $1.0 million;
|
|
·
|
increased
equipment expenses of $1.0 million;
|
|
·
|
decreased
marketing and sales promotions of $1.0 million;
|
|
·
|
decrease
of $1.2 million in legal expenses, bad debt expense and several other
expense categories.
|
|
·
|
decreased
spending on integration and retention of employees of $2.1 million
as we
have completed significant portions of our planned systems integration;
|
|
·
|
increased
allocation of support services to cost of revenues and research and
development resulting in decreased expenses of $1.0 million.
|
|
·
|
$1.2
million for severance and benefits;
|
|
·
|
$1.0
million related to facilities and equipment including $0.5 million
related
to the write-off of production equipment and $0.5 million in accelerated
depreciation for property and equipment to be abandoned;
|
|
·
|
$0.7
million in other related charges primarily related to professional
and
other administrative fees.
|
|
·
|
$1.6
million for the write-off of facilities and equipment and accelerated
depreciation;
|
|
·
|
$1.4
million for severance and benefits;
|
|
·
|
$1.0
to $1.5 million in professional and administrative fees.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Operating
income
|
$ | 16,818 | $ | 23,143 | $ | 6,325 | 37.6 | % | $ | 47,965 | $ | 60,397 | $ | 12,432 | 25.9 | % | ||||||||||||||||
%
of total consolidated net
revenues
|
7.8 | % | 9.9 | % | 2.1 |
ppt.
|
7.9 | % | 9.3 | % | 1.4 |
ppt.
|
||||||||||||||||||||
Audio
Communications Group
|
||||||||||||||||||||||||||||||||
Operating
income
|
$ | 22,855 | $ | 31,051 | $ | 8,196 | 35.9 | % | $ | 64,436 | $ | 89,707 | $ | 25,271 | 39.2 | % | ||||||||||||||||
%
of total segment net
revenues
|
12.9 | % | 15.8 | % | 2.9 |
ppt.
|
12.8 | % | 15.9 | % | 3.1 |
ppt.
|
||||||||||||||||||||
Audio
Entertainment Group
|
||||||||||||||||||||||||||||||||
Operating
loss
|
$ | (6,037 | ) | $ | (7,908 | ) | $ | 1,871 | 31.0 | % | $ | (16,471 | ) | $ | (29,310 | ) | $ | 12,839 | 77.9 | % | ||||||||||||
%
of total segment net
revenues
|
(15.5 | )% | (21.4 | )% | 5.9 |
ppt.
|
(16.1 | )% | (34.5 | )% | 18.4 |
ppt.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Interest
and other income,
net
|
$ | 1,493 | $ | 2,184 | $ | 691 | 46.3 | % | $ | 2,745 | $ | 5,311 | $ | 2,566 | 93.5 | % | ||||||||||||||||
%
of total consolidated net
revenues
|
0.7 | % | 1.0 | % | 0.3 |
ppt.
|
0.5 | % | 0.8 | % | 0.3 |
ppt.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
December
31,
|
Increase
|
December
31,
|
Increase
|
|||||||||||||||||||||||||||||
(in
thousands)
|
2006
|
2007
|
(Decrease)
|
2006
|
2007
|
(Decrease)
|
||||||||||||||||||||||||||
Consolidated
|
||||||||||||||||||||||||||||||||
Income
before income
taxes
|
$ | 18,311 | $ | 25,327 | $ | 7,016 | 38.3 | % | $ | 50,710 | $ | 65,708 | $ | 14,998 | 29.6 | % | ||||||||||||||||
Income
tax
expense
|
3,121 | 6,219 | 3,098 | 99.3 | % | 10,704 | 15,103 | 4,399 | 41.1 | % | ||||||||||||||||||||||
Net
income
|
$ | 15,190 | $ | 19,108 | $ | 3,918 | 25.8 | % | $ | 40,006 | $ | 50,605 | $ | 10,599 | 26.5 | % | ||||||||||||||||
Effective
tax
rate
|
17.0 | % | 24.6 | % | 7.6 |
ppt.
|
21.1 | % | 23.0 | % | 1.9 |
ppt.
|
Nine
Months Ended
|
||||||||
December
31,
|
||||||||
(in
thousands)
|
2006
|
2007
|
||||||
Cash
provided by operating
activities
|
$ | 28,164 | $ | 74,438 | ||||
Cash
used for capital expenditures
and other assets
|
(18,739 | ) | (16,918 | ) | ||||
Cash
provided by (used for) other
investing activities
|
10,696 | (44,450 | ) | |||||
Cash
used for investing
activities
|
(8,043 | ) | (61,368 | ) | ||||
Cash
(used for) provided by
financing activities
|
$ | (21,157 | ) | $ | 6,654 |
FX
|
FX
|
||||||||||||
Gain
(Loss)
|
Gain
(Loss)
|
||||||||||||
USD
Value
|
From
10%
|
From
10%
|
|||||||||||
of
Net FX
|
Appreciation
|
Depreciation
|
|||||||||||
Currency
- forward contracts
|
Position
|
Contracts
|
of
USD
|
of
USD
|
|||||||||
Euro
|
Sell
Euro
|
$ | 29.1 | $ | 2.9 | $ | (2.9 | ) | |||||
Great
British Pound
|
Sell
GBP
|
10.6 | 1.1 | (1.1 | ) | ||||||||
Net
position
|
$ | 39.7 | $ | 4.0 | $ | (4.0 | ) |
FX
|
FX
|
|||||||||||
Gain
(Loss)
|
Gain
(Loss)
|
|||||||||||
USD
Value
|
From
10%
|
From
10%
|
||||||||||
of
Net FX
|
Appreciation
|
Depreciation
|
||||||||||
Currency
- option contracts
|
Contracts
|
of
USD
|
of
USD
|
|||||||||
Call
options
|
$ | (103.4 | ) | $ | 4.4 | $ | (9.0 | ) | ||||
Put
options
|
97.7 | 4.9 | (1.3 | ) | ||||||||
Net
position
|
$ | (5.7 | ) | $ | 9.3 | $ | (10.3 | ) |
(a)
|
Evaluation
of disclosure controls and procedures.
|
(b)
|
Changes
in internal control over financial reporting
|
|
·
|
our
operating
results are highly dependent on the volume and timing of orders received
during the quarter, which are difficult to forecast. Customers generally
order on an as-needed basis, and we typically do not obtain firm,
long-term purchase commitments from our customers. As a result, our
revenues in any quarter depend primarily on orders booked and shipped
in
that quarter;
|
|
·
|
we
incur a large
portion of our costs in advance of sales orders because we must plan
research and production, order components and enter into development,
sales and marketing, and other operating commitments prior to obtaining
firm commitments from our customers. In the event we acquire too
much
inventory for certain products, the risk of future inventory write-downs
increases. In the event we have inadequate inventory to meet the
demand
for particular products, we may miss significant revenue opportunities
or
incur significant expenses such as air freight, expediting shipments,
and
other negative variances in our manufacturing processes as we attempt
to
make up for the shortfall. When a significant portion of our
revenue is derived from new products, forecasting the appropriate
volumes
of production is even more
difficult;
|
|
·
|
in
the ACG segment, our prices and
gross margins are generally lower for sales to Business-to-Consumer
(“B2C”) customers compared to sales to our Business-to-Business (“B2B”)
customers. In addition, our prices and gross margins can vary
significantly by product line as well as within product lines.
Therefore, our profitability depends, in part, on the mix of our
B2B
to B2C customers as well as our product mix. In the AEG
segment, our prices and gross margins are generally lower for our
PC Audio
products than our Docking Audio products. Therefore, our
profitability depends, in part, on our mix of PC Audio to Docking
Audio
products. The size and timing of opportunities in these markets
are difficult to predict;
|
|
·
|
we
are working to refresh
virtually the entire AEG product line; however, market adoption of
new
products is difficult to
predict;
|
|
·
|
a
significant
portion of our annual retail sales for AEG generally occur in the
third
fiscal quarter, thereby increasing the difficulty of predicting revenues
and profitability from quarter to quarter and in managing inventory
levels;
|
|
·
|
fluctuations
in
currency exchange rates impact our revenues and profitability because
we
report our financial statements in U.S. dollars, whereas a significant
portion of our sales to customers are transacted in other currencies,
particularly the Euro and Great British Pound (“GBP”). Furthermore,
fluctuations in foreign currencies impact our global pricing strategy
resulting in our lowering or raising selling prices in a currency
in order
to avoid disparity with U.S. dollar prices and to respond to
currency-driven competitive pricing actions. We
have
experienced a significant favorable impact on our gross profit in
fiscal
2008 as a result of the strength of the Euro and GBP. Currency
exchange rates are difficult to predict, and we may not be able to
either
predict changes in exchange rates in the future and our gross profit
and
profitability could be negatively impacted in the future by currency
exchange rates;
|
|
·
|
because
we
have significant manufacturing operations in Mexico and China,
fluctuations in currency exchange rates in those two countries can
impact
our gross profit and
profitability.
|
●
|
although
we
generally use standard raw materials, parts and components for our
products, the high development costs associated with emerging wireless
technologies permit us to work with only a single source of silicon
chip-sets on any particular new product. We, or our chosen supplier
of
chip-sets, may experience challenges in designing, developing and
manufacturing components in these new technologies which could affect
our
ability to meet market schedules. Due to our dependence on single
suppliers for certain chip sets, we could experience higher prices,
a
delay in development of the chip-set, and/or the inability to meet
our
customer demand for these new products. Additionally,
these supplier or other suppliers may discontinue production of the
parts
we depend on. If this occurs, we
may have
difficulty obtaining sufficient product to meet our needs. This
could cause us to fail to meet customer expectations. If customers
turn to our competitors to meet their needs, there could be a long-term
impact on our revenues and profitability. Our
business,
operating results and financial condition could therefore be materially
adversely affected as a result of these factors;
|
|
·
|
we
have been put on notice by a
single source supplier that chipsets used in headsets accounting
for
approximately 27% of ACG revenues are subject to an end-of-life
notice. We believe that we will be able to obtain sufficient
quantities of these chipsets to last us for approximately one year,
and we
have reached an agreement with that supplier to obtain greater supplies
of
the chipset in the future. However, the fulfillment of this
agreement by the supplier is subject to the transfer of the supplier’s
current chip fabrication facility to a new facility and our qualification
of the new facility. Thus, the timing of the delivery of
additional quantities of the chips in the future may be
uncertain. We also have new products in development that can
replace the products that use these chipsets. These products
are currently scheduled for release to volume production before we
expect
to exhaust supplies of the chipset currently in use. However,
there can be no assurance that we will complete the new products
on
schedule, that the cost of those products will be similar to the
current
products and/or that our channels will accept the new products as
rapidly
as will be necessary to maintain revenue continuity. If we are
unable to obtain sufficient supplies of the current chipsets or commence
volume production of the new products in a timely manner or otherwise
remedy the situation before the current chipsets become unavailable
our
business, financial condition and results of operations will be materially
and adversely affected;
|
|
·
|
if
the chipsets
from the aforementioned single source supplier become available,
we may be
unable to predict the last time buy quantities accurately, and we
may
experience excess or insufficient inventories of the
chipsets. This could cause us to either fail to produce
sufficient quantities of our products to fill our customers’ orders or to
have larger inventories that could lead to our writing off unusable
product as excess and obsolete. This may have an adverse effect
on our financial results;
|
|
·
|
rapid
increases in
production levels to meet unanticipated demand could result in higher
costs for components and sub-assemblies, increased expenditures for
freight to expedite delivery of required materials, and higher overtime
costs and other expenses. These higher expenditures could lower our
profit
margins. Further, if production is increased rapidly, there may be
decreased manufacturing yields, which may also lower our
margins;
|
|
·
|
we
obtain certain
raw materials, sub-assemblies, components and products from single
suppliers and alternate sources for these items are not readily available.
To date, we have not experienced any significant interruptions in
the
supply of these raw materials, sub-assemblies, components and products.
Adverse economic conditions could lead to a higher risk of failure
of our
suppliers to remain in business or to be able to purchase the raw
materials, subcomponents and parts required by them to produce and
provide
to us the parts we need. An interruption in supply from any of our
single
source suppliers in the future would materially adversely affect
our
business, financial condition and results of operations;
|
|
·
|
prices
of
certain
components of raw
materials,
components and sub-assemblies may rise or
fall depending
upon global market conditions.
In
general, we
are experiencing a net increase in the costs of these
components. If we are unable to pass
these
increases on to our customers or to achieve operating efficiencies
that
offset these
increases,
our
business, financial
condition and results of operations may
be materially
and adversely affected;
|
|
·
|
because
of the lead times
required to obtain
certain raw materials, sub-assemblies, components and products from
certain foreign suppliers, we may not be able to react quickly to
changes
in demand, potentially resulting in either excess inventories of
such
goods or shortages of the raw materials, sub-assemblies, components
and
products. Lead times are particularly long on silicon-based components
incorporating radio frequency and digital signal processing technologies
and such components are an increasingly important part of our product
costs. In particular, many B2C customer orders have shorter
lead times than the component lead times, making it increasingly
necessary
to carry more inventory in anticipation of those orders, which may
not
materialize. Failure in the future to match the timing of
purchases of raw materials, sub-assemblies, components and products
to
demand could increase our inventories and/or decrease our revenues,
consequently materially adversely affecting our business, financial
condition and results of operations;
|
|
·
|
most
of our
suppliers are not obligated to continue to provide us with raw materials,
components and sub-assemblies. Rather, we buy most raw materials,
components and subassemblies on a purchase order basis. If our suppliers
experience increased demand or shortages, it could affect deliveries
to
us. In turn, this would affect our ability to manufacture and sell
products that are dependent on those raw materials, components and
subassemblies. Any such shortages would materially adversely
affect our business, financial condition and results of
operations.
|
|
·
|
we
believe that
the turnaround for AEG is largely dependent on a significant product
refresh of the Altec Lansing product portfolio, We are
currently working on a product refresh which we are anticipating
will take
us until December of fiscal 2009 to complete. The development
of these new products may not evolve as anticipated. There can
be no assurance that these new products will be successful, and the
length
of time required for this refresh may cause our customers to buy
from our
competitors;
|
|
·
|
controlling
costs
in the AEG business and making business operations more efficient
in order
to increase profitability. We are in the process of
restructuring AEG’s China
operations. We
have shut down manufacturing in our Dongguan, China
plant,
and are
consolidating operations in Shenzhen,
China,
and are now
outsourcing manufacturing. There are significant costs and
risks associated with this restructuring. While we believe that
we can achieve cost savings with this strategy in the near term,
there can
be no assurance that we can achieve our planned cost savings or that
this
strategy will be successful. If we cannot successfully execute
our restructuring plans, we could incur incremental losses and production
could be negatively
impacted;
|
|
·
|
the
potential
loss of key employees of Altec Lansing and Plantronics. As a
result of our restructuring, we are relocating many of our research
and
development engineers and procurement staff from Dongguan,
China
and
Hong Kong into a Shenzhen, China
facility. As
a result of this change, we may lose key personnel which could negatively
impact our new AEG product portfolio
refresh;
|
|
·
|
competition
may
continue to increase in Altec Lansing’s markets more than
expected;
|
|
·
|
meeting
the
market windows for Altec Lansing’s
products;
|
|
·
|
difficulties
retaining or obtaining shelf space for these products in our sales
channel;
|
|
·
|
difficulties
retaining or improving the brand recognition associated with the
Altec
Lansing brand during the
turnaround;
|
|
·
|
difficulties
in
integration of the operations, technologies, and products of Altec
Lansing. We have transitioned a significant portion of Altec
Lansing’s operations onto our ERP system; however, we have not
completed our integration effort. There has been a significant cost
to
implement new systems and business processes. We anticipate that
there will continue to be significant business processes and internal
controls which will change as a result of the
integration;
|
|
·
|
diversion
of
management's attention from normal daily operations of the core
business;
|
|
·
|
cultural
differences in the conduct of the
business.
|
|
·
|
if
forecasted
demand does not develop, we could have excess inventory and excess
capacity. Over-forecast of demand could result in higher
inventories of finished products, components and sub-assemblies.
In
addition, because our retail customers have pronounced seasonality,
we
must build inventory well in advance of the December quarter in order
to
stock up for the anticipated future demand. If we were unable
to sell these inventories, we would have to write off some or all
of our
inventories of excess products and unusable components and sub-assemblies.
Excess manufacturing capacity could lead to higher production costs
and
lower margins;
|
|
·
|
if
demand
increases beyond that forecasted, we would have to rapidly increase
production. We currently depend on suppliers to provide additional
volumes
of components and sub-assemblies, and we are experiencing greater
dependence on single source suppliers; therefore, we might not be
able to
increase production rapidly enough to meet unexpected demand. There
could be short-term losses of sales while we are trying to increase
production;
|
|
·
|
the
introduction
of Bluetooth
and
other wireless headsets presents many significant manufacturing,
marketing
and other operational risks and
uncertainties:
|
|
·
|
our
dependence on
third parties to supply key components, many of which have long lead
times;
|
|
·
|
our
ability to
forecast demand for the variety of products within this new product
category for which relevant data is incomplete or unavailable;
|
|
·
|
longer
lead times
with suppliers than commitments from some of our
customers.
|
|
·
|
we
are increasing
the use of design and manufacturing of Bluetooth headset products
at our
new facilities in China. Development
of new wireless products and ramping of production can be
complex. Unexpected difficulties may arise. Failure
to meet our planned design deadlines or production quantities for
new or
existing products can adversely affect our financial
results;
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|
·
|
increasing
production beyond
planned capacity involves increased tooling, test equipment and hiring
and
training additional staff. Lead times to increase tooling and test
equipment are typically several months, or more. Once such additional
capacity is in place, we incur increased depreciation and the resulting
overhead. Should we fail to ramp production once capacity is in place,
we
would not be able to absorb this incremental overhead, and this could
lead
to lower gross margins;
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|
·
|
we
are working on
a new initiative to re-engineer our supply chain by implementing
new
product forecasting systems, increasing automation within supply
chain
activities, improving the integrity of our supply chain data, and
creating
dashboards in order to improve our ability to match production to
demand. If we are not able to successfully implement this
initiative, we may not be able to meet demand or compete effectively
with
other companies who have successfully implemented similar
initiatives.
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|
·
|
anticipate
technology and market
trends;
|
|
·
|
develop
innovative new products and enhancements on a timely
basis;
|
|
·
|
distinguish
our
products from those of our
competitors;
|
|
·
|
manufacture
and
deliver high-quality products in sufficient
volumes;
|
|
·
|
price
our
products competitively.
|
|
·
|
if
supply or
demand for iPod products decreases, demand for certain of our Docking
Audio products could be negatively
affected;
|
|
·
|
if
Apple does not
renew or cancels our licensing agreement, our products may not be
compatible with iPods, resulting in loss of revenues and excess
inventories which would negatively impact our financial
results;
|
|
·
|
if
Apple changes
its iPod product design more frequently than we update certain of
our
Docking Audio products, certain of our products may not be compatible
with
the changed design. Moreover, if Apple makes style changes to
its products more frequently than we update certain of our Docking
Audio
products, consumers may not like the look of our products with the
iPod. Both of these factors could result in decreased demand
for our products and excess inventories could result which would
negatively impact our financial
results;
|
|
·
|
Apple
has
introduced its own line of iPod speaker products, which compete with
certain of our Altec Lansing-branded speaker products. As the
manufacturer of the iPod, Apple has unique advantages with regard
to
product changes or introductions that we do not possess, which could
negatively impact our ability to compete effectively against Apple’s
speaker products. Moreover, certain consumers may prefer to buy
Apple’s iPod speakers rather than other vendors’ speakers because Apple is
the manufacturer. As a result, this could lead to decreased
demand for our products and excess inventories could result which
would
negatively impact our financial
results.
|
|
·
|
New
Product
Launch: With the
growth of our product portfolio, we experience increased complexity
in
coordinating product development, manufacturing, and shipping. As
this
complexity increases, it places a strain on our ability to accurately
coordinate the commercial launch of our products with adequate supply
to
meet anticipated customer demand and effective marketing to stimulate
demand and market acceptance. If we are unable to scale and improve
our
product launch coordination, we could frustrate our customers and
lose
retail shelf space and product
sales.
|
|
·
|
Forecasting,
Planning and Supply Chain Logistics:
With the growth
of our product portfolio, we also experience increased complexity
in
forecasting customer demand and in planning for production, and
transportation and logistics management. We are in the process of
upgrading our demand forecasting software; however, if we are unable
to
scale and improve our forecasting, planning and logistics management,
we
could frustrate our customers, lose product sales or accumulate excess
inventory.
|
|
·
|
Support
Processes: To
manage the growth of our operations, we will need to continue to
improve
our transaction processing, operational and financial systems, and
procedures and controls to effectively manage the increased complexity.
If
we are unable to scale and improve these areas, the consequences
could
include: delays in shipment of product, degradation in levels of
customer
support, lost sales, decreased cash flows, and increased inventory.
These
difficulties could harm or limit our ability to
expand.
|
|
·
|
uncertain
economic conditions and the decline in investor confidence in the
market
place;
|
|
·
|
changes
in our
published forecasts of future results of
operations;
|
|
·
|
quarterly
variations in our or our competitors' results of operations and changes
in
market share;
|
|
·
|
the
announcement
of new products or product enhancements by us or our
competitors;
|
|
·
|
the
loss of
services of one or more of our executive officers or other key
employees;
|
|
·
|
developments
in
our industry;
|
|
·
|
sales
of
substantial numbers of shares of our common stock in the public
market;
|
|
·
|
integration
of
the Altec Lansing business or market reaction to future
acquisitions;
|
|
·
|
our
ability to
successfully complete the product refresh for the Altec Lansing products
and turnaround the AEG
business;
|
|
·
|
general
economic,
political, and market conditions, including market
volatility;
|
|
·
|
other
factors
unrelated to our operating performance or the operating performance
of our
competitors.
|
|
·
|
cultural
differences in the conduct of
business;
|
|
·
|
fluctuations
in
foreign exchange rates;
|
|
·
|
greater
difficulty in accounts receivable collection and longer collection
periods;
|
|
·
|
impact
of
recessions in economies outside of the United
States;
|
|
·
|
reduced
protection for intellectual property rights in some
countries;
|
|
·
|
unexpected
changes in regulatory
requirements;
|
|
·
|
tariffs
and other trade
barriers;
|
|
·
|
political
conditions in each country;
|
|
·
|
management
and
operation of an enterprise spread over various
countries;
|
|
·
|
the
burden and
administrative costs of complying with a wide variety of foreign
laws;
|
|
·
|
currency
restrictions.
|
31.1
|
Certification
of the President and CEO Pursuant to Rule
13a-14(a)/15d-14(a).
|
|
31.2
|
Certification
of Senior VP, Finance and Administration, and CFO (Principal Executive
Officer) Pursuant to Rule 13a-14(a)/15d-14(a).
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer (Principal
Financial Officer) Pursuant to 18 U.S.C. Section
1350.
|
|
PLANTRONICS,
INC.
|
|
Date:
February 6, 2007
|
By:
|
/s/
Barbara V. Scherer
|
|
Barbara
V. Scherer
|
|
|
Senior
Vice President - Finance and Administration and Chief Financial
Officer
|
|
(Principal
Financial Officer and Duly Authorized Officer of the
Registrant)
|