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| PLT > SEC Filings for PLT > Form 10-Q on 28-Oct-2009 | All Recent SEC Filings |
28-Oct-2009
Quarterly Report
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"). Forward-looking statements may generally be identified by the use of
such words as "expect," "anticipate," "believe," "intend," "plan," "will," or
"shall" and similar expressions, or the negative of these terms. Specific
forward-looking statements contained within this Form 10-Q include statements
containing our expectations regarding (i) the United States ("U.S.") and world
economy, (ii) our restructuring programs and estimated savings, (iii) our
objective to maintain our profitability, be cash flow positive, increase our
return on invested capital, and improve our competitive position, (iv) our
ability to continue to focus on certain strategic initiatives, (v) the future of
Unified Communications ("UC") technologies, including their implementation,
growth in deployments, the effect on headset adoption, and our expectation
concerning our revenue opportunity from UC, (vi) our position in the UC market,
(vii) our expenses, including research and development expenses and sales,
general and administrative expenses, and (viii) maintaining revenue growth, in
addition to other statements regarding out future operations, results of
operations, financial condition and prospects and business strategies, (ix) our
auction rate securities portfolio, including our agreement with UBS AG, (x) the
sale of the Altec Lansing business including the planned closing date and the
effect of the transaction on our business and operating results, (xi) the level
of cash flow and the timing of the receipt of any such cash flow resulting from
the sale in addition to other statements regarding our future operations,
financial condition and prospects and business strategies and (xii) our
anticipated capital expenditures for the remainder of fiscal 2010. 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. 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 are also a leading manufacturer and marketer of high quality docking audio products, computer and home entertainment sound systems, and a line of headphones for personal digital media under our Altec Lansing brand. However, during the second quarter of fiscal 2010, we entered into a non-binding letter of intent to sell certain assets along with the assumption of certain liabilities of Altec Lansing, our Audio Entertainment Group ("AEG") segment. On October 2, 2009, we entered into an Asset Purchase Agreement with an affiliate of Prophet Equity, L.P. for a purchase price of approximately $18.0 million in cash subject to certain post closing adjustments. On October 23, 2009, we entered in a letter agreement to extend the closing date to December 1, 2009. The sale transaction in expected to close by the beginning of December 2009.
We ship a broad range of products to over 65 countries through a worldwide network of distributors, original equipment manufacturers ("OEMs"), wireless carriers, retailers, and telephony service providers. We have well-developed distribution channels in North America, Europe, Australia and New Zealand, where use of our products is widespread. Our distribution channels in other regions of the world are less mature, and, while we primarily serve the contact center markets in those regions, we are expanding into the office, mobile and entertainment, digital audio, and specialty telephone markets in additional international locations.
Our consolidated net revenues decreased from $216.9 million in the second quarter of fiscal 2009 to $167.4 million in the second quarter of fiscal 2010. The second quarter of fiscal 2009 included a benefit in Bluetooth headsets revenues from demand attributable to hands-free driving legislation being enforced in the states of California and Washington beginning on July 1, 2008. In addition, there were revenue declines in all of our major geographies and most of our product groups due to the continued impact from the global recession. Our consolidated net income decreased from $17.6 million in the second quarter of fiscal 2009 to a net loss of $0.7 million in the second quarter of fiscal 2010 primarily due to the lower net revenues, $25.2 million in charges related to the impairment of long-lived assets in the AEG segment and $2.6 million of restructuring charges including $1.7 million of accelerated depreciation recorded in Cost of revenues related to the closure of our manufacturing operations in Suzhou, China which was announced in the fourth quarter of fiscal 2009. These decreases to consolidated net income were offset in part by reduced operating expenses as a result of our reduced cost structure.
In our Audio Communications Group ("ACG") segment, net revenues decreased from $195.3 million in the second quarter of fiscal 2009 to $144.4 million in the second quarter of fiscal 2010, primarily driven by a decrease in sales of our Bluetooth headsets for the mobile market which decreased 42% or $24.1 million from the same quarter a year ago. The higher net revenues in these products in the prior year quarter was the result of strong demand in the first six months of fiscal 2009, particularly in the U.S., due in part to the hands-free driving laws that became enforceable on July 1, 2008 in California and Washington. In the Mobile market, particularly for consumer applications, margins are typically lower than for our enterprise applications due to the level of competition and pricing pressures. Our strategy for improving the profitability of mobile consumer products is to differentiate our products from our competitors and to provide compelling solutions under our brand with regard to features, design, ease of use, and performance. Also, to further improve Bluetooth profitability, we completed the closure of ACG's manufacturing operations in Suzhou, China in July 2009 and outsourced manufacturing of our Bluetooth products to an existing supplier in China.
In our AEG segment, net revenues increased from $21.5 million in the second quarter of fiscal 2009 to $23.0 million in the second quarter of fiscal 2010 primarily due to an increase in Docking Audio sales throughout all regions as a result of an improved product portfolio including a benefit from liquidation sales of older products. Operating losses increased to $26.6 million in the second quarter of fiscal 2010 compared to $6.2 million in the corresponding period in the prior year primarily due to an impairment charge on long-lived assets of $25.2 million offset in part by higher gross margins and reduced operating costs resulting from our cost reduction efforts. Our higher gross margins are attributable to lower amortization of intangible assets as a result of the impairment of certain long-lived assets in the third quarter of fiscal 2009 and in the second quarter of fiscal 2010. On October 2, 2009, we entered into an Asset Purchase Agreement to sale of certain assets along with the assumption of certain liabilities of the AEG segment for a purchase price of $18.0 million in cash, subject to certain post-closing adjustments. The transaction is expected to close by the beginning of December 2009. In addition, we will enter into a Transaction Service Agreement whereby, among other things, we will provide certain services to the purchaser for a limited period following the closing. As a result, all future and historical AEG segment results will be reported as discontinued operations beginning in the third quarter of fiscal 2010.
In fiscal 2010, we are focused on the following key corporate goals to maximize long-term shareholder value:
- Be profitable and cash flow positive. We announced and implemented several restructuring plans in fiscal 2009 along with other cost cutting measures, to significantly decrease our operating expenses and overall cost structure. In addition, we have entered into an Asset Purchase Agreement to sell our Altec Lansing division which has historically generated losses. We believe our cost structure is aligned with current market conditions and supports our plans to remain profitable and cash flow positive; however, we will monitor and realign our cost structure as needed to match actual economic conditions while continuing to invest in new products and sales and support for Unified Communications ("UC") and other key market opportunities.
- Establish strong UC market position for future growth. We will continue to focus on UC technologies as we believe the implementation of UC by the business market will be a significant long-term driver of office headset adoption, and, as a result, a key long-term driver of revenue and profit growth.
- Improve return on invested capital. We are focused on increasing our profits and reducing our net assets with the goal of improving our return on invested capital. Initiatives designed to reduce invested capital include: the transition to an outsourced original design manufacturing model for Bluetooth which is helping to reduce inventory and positions us to sell our plant in China; a tightening of capital expenditures which we believe will yield more than a 50% reduction in capital expenditures globally in fiscal 2010 compared to fiscal 2009; and leveraging the investments we have made in supply chain management systems to reduce inventory and improve inventory turns. In addition, capital freed up upon completion of the sale of the AEG segment will be redeployed to its highest and best use.
Our results for the six months ended September 30, 2009 demonstrated progress on these key corporate initiatives. In the first six months of fiscal 2010, we had consolidated net income of $9.9 million despite the $25.2 million impairment charge on long-lived assets of the AEG segment and $6.7 million in restructuring charges from our Q4 Fiscal 2009 Restructuring Action, and we generated $52.4 million in cash flows from operations. We had our second quarter of shipments of UC products which consists of the Savi(TM) product family. We also decreased net inventory by $19.3 million and, in July 2009, completed the transition of the manufacturing of our Bluetooth products to an outsourced supplier. In addition, capital expenditures were $3.0 million for the six months ended September 30, 2009, a decrease of 79% from $14.6 million in the comparable year ago period.
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