Plantronics 2003 Annual Report Download - page 23

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NOTE 8. COMMITMENTS AND CONTINGENCIES
Minimum Future Rental Payments. We lease certain equipment and facilities under
operating leases expiring in various years through 2015. Minimum future rental payments
under non-cancelable operating leases having remaining terms in excess of one year as of
March 31, 2003 are as follows (in thousands):
Fiscal Year Ending M arch 31, Amount
2004 $2,556
2005 2,093
2006 1,201
2007 723
2008 720
Thereafter 3,757
Total minimum future rental payments $11,050
Total rent expense for operating leases was approximately $1.8 million in fiscal 2001, $2.5
million in fiscal 2002, and $2.7 million in fiscal 2003.
Existence of Renewal Options. Certain operating leases provide for renewal options for
periods from one to three years. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
Claims and Litigation. We are presently engaged in a lawsuit filed in the Superior Court
in Santa Clara County, California by GN Hello Direct, Inc., a former Plantronics retail catalog
distributor that was acquired by our single largest competitor, GN Netcom. GN Hello Direct
makes various claims associated with the termination of the distribution relationship between
Plantronics and Hello Direct, including that Hello Direct has suffered approximately $11
million in damages as a result of the breach of contract claim and $30 million in damages for
conduct arising at or after termination of the contract.
This case was tried in October 2002. We were granted summary judgment on GN Hello
Direct's breach of contract claims prior to trial. At trial, GN Hello Direct's claims against us for
Interference with Prospective Economic Advantage were found by the jury to be without
merit, and a defense verdict was returned on our behalf. We were awarded approximately $0.8
million with 10% simple interest from March 15, 2001 for product sold by us to GN Hello
Direct and for which GN Hello Direct had not paid us. On post trial motions both parties
asked for a judgment notwithstanding the verdict on the issue of the product sold by us to GN
Hello Direct that was not paid for by GN Hello Direct. The court granted a new trial on this
issue alone. In further post trial motions, we received awards of attorney's fees and costs of
$1.67 million. GN Hello Direct appealed. We are defending the appeal vigorously and are
aggressively prosecuting our claim for damages for product sold by us to Hello Direct but not
paid for by them.
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Notes to Consolidated Financial Statements
Deferred tax assets and liabilities represent the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and income tax purposes.
Significant components of our deferred tax assets and liabilities are as follows:
March 31,
(in thousands) 2002 2003
Current assets:
Accruals and other reserves $4,790 $5,629
Deferred state tax —231
Other deferred tax assets 1,076 497
$5,866 $6,357
Non-current (liabilities):
Deferred gains on sales of properties $(2,413) $(2,413)
Unremitted earnings of certain subsidiaries (3,064) (3,064)
Deferred state tax 730 —
Other deferred tax liabilities (2,418) (3,390)
$(7,165) $(8,867)
Total net deferred tax (liabilities) $(1,299) $(2,510)
NOTE 7. EMPLOYEE BENEFIT PLANS
Subject to eligibility requirements, substantially all Plantronics’ employees, with the
exception of direct labor in Mexico, participate in quarterly cash profit sharing plans. The
profit sharing benefits are based on Plantronics’ results of operations before interest and taxes,
adjusted for other items. The percentage of profit distributed to employees varies by location.
The profit sharing is paid in four quarterly installments. Profit sharing payments are
allocated to employees based on each participating employee’s base salary as a percent of all
participants’ base salaries. U.S. employees may defer a portion of their profit sharing under
the 401(k) plan.
In fiscal 2001, we restructured our compensation program for U.S. employees to reallocate
employees’ base salary, profit sharing and deferred compensation under the 401(k) plan. For
employees in the North American, Asia-Pacific and Latin American regions, the profit sharing
plan provides for the distribution of 5% of quarterly profits to qualified employees. Our profit
sharing program for our European employees remains unchanged. Total profit sharing
payments were $6.7 million, $2.8 million and $3.1 million for fiscal 2001, 2002 and 2003,
respectively. The 401(k) plan matches 50% of the first 6% of compensation and provides a
non-elective company contribution equal to 3% of base salary. Total 401(k) contributions were
$2.0 million, $2.1 million and $2.3 million for fiscal 2001, 2002, and 2003, respectively.