Plantronics 2003 Annual Report Download - page 14

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In fiscal 2002, the overall decrease in the level of spending compared with fiscal 2001 was
consistent with the decline in revenues. The reduction in expenses in fiscal 2002 was
attributable to Plantronics focusing on certain limited sales and marketing programs that we
believed gave us a positive return on investment.
General and administrative expenses increased as a percentage of net sales in fiscal 2003
compared to fiscal 2002, mainly driven by higher legal expenses, a larger provision for doubtful
accounts, and the inclusion of a full year of expenses relating to Ameriphone. General and
administrative expenses in fiscal 2002 increased as a percentage of net sales from fiscal 2001,
mainly driven by higher legal expenses, the addition of Ameriphone’s general and
administrative expenses from the date of acquisition during the fourth quarter of fiscal 2002,
and the decline in revenues.
Operating Income. Operating income in fiscal 2003 increased 32.0% to $54.5 million (16.1%
of net sales), compared to $41.3 million (13.3% of net sales) in fiscal 2002. Operating income
in fiscal 2002 decreased 59.5% compared to $102.0 million (26.1% of net sales) in fiscal 2001.
In fiscal 2003, the increase in operating income over fiscal 2002 was primarily driven by
improved gross margin on higher net sales. In fiscal 2002, the decrease in operating income
over fiscal 2001 was primarily driven by lower net sales and the corresponding decrease in
gross profit.
Interest and Other Income, Net. Interest and other income in fiscal 2003 increased $0.4
million to $2.3 million compared to $1.9 million in fiscal 2002, which in turn increased $1.8
million compared to $0.1 million in fiscal 2001. The increase in interest and other income in
fiscal 2003 was primarily attributable to foreign exchange gains due to more favorable
European exchange rates. The increase in interest and other income in fiscal 2002 was also
due to foreign exchange gains as the Euro and Great British Pound values strengthened
against the dollar. Foreign currency transaction losses, net of the effect of hedging activity, for
fiscal 2001 and 2002 were $2.2 million, and $0.4 million, respectively. Foreign currency
transaction gains, net of the effect of hedging activity for fiscal 2003 were $0.9 million.
Income Tax Expense. In fiscal 2003, 2002, and 2001, income tax expense was $15.3 million,
$7.0 million, and $28.6 million, respectively. Our effective tax rates for these years were 27%,
16%, and 28%, and included tax benefits of $1.7 million and $5.1 million, in 2003 and 2002,
respectively, arising from expiration of statutes of limitations and a favorable tax assessment.
In fiscal 2004, we expect the effective tax rate to be approximately 30%.*
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
We recognize that although certain economic indicators have improved, the overall economic
environment remains uncertain, and we thus remain cautiously optimistic concerning the
overall demand for our products in the current economic environment and the upcoming
fiscal year. *
Gross Profit. Gross profit in fiscal 2003 increased 14.3% to $168.9 million (50.1% of net
sales), compared to $147.8 million (47.5% of net sales) in fiscal 2002. Gross profit in fiscal 2002
decreased 29.5% compared to gross profit of $209.8 million (53.7% of net sales) in fiscal 2001.
In fiscal 2003, the increase in gross profit as a percentage of net sales was favorably affected by
foreign exchange rates and the achievement of cost reduction goals during the year. In
addition, we were successful at better inventory management which led to lower requirements
for provisions relating to excess and obsolete material. We also experienced lower
requirements for warranty and improved factory utilization due to higher volumes on
relatively fixed manufacturing overhead.
In fiscal 2002, the decrease in gross profit as a percentage of net sales compared to fiscal 2001
mainly reflected the decline in revenues of our higher margin office and contact center
products and a resulting mix shift to lower margin products, particularly our mobile products.
Lower sales volume resulted in fixed overhead costs being spread over a smaller number of
units, causing gross margin to decline. We also increased our warranty provision and our
provision for excess and obsolete inventory during fiscal 2002, reflecting our emphasis on more
consumer-oriented products with higher return rates and more volatile demand.
Research, Development and Engineering. Research, development and engineering
expenses in fiscal 2003 increased 11.8% to $33.9 million (10.0% of net sales), compared to
$30.3 million (9.7% of net sales) in fiscal 2002. Research, development and engineering
expenses in fiscal 2002 increased 12.2% compared to $27.0 million (6.9% of net sales) in fiscal
2001. The increases in these expenses in fiscal 2003 and fiscal 2002 reflected a marked
increase in the number of products in the pipeline at a particularly active stage of
development, our continued investment in new product development including Bluetooth™
and other wireless technologies, and a general broadening of our product line in each of our
markets. As a result of the number of products in the development pipeline and key process
improvements in development, we expect a modest decline in our product development
expense as a percentage of net sales in fiscal 2004.*
Selling, General and Administrative. Selling, general and administrative expenses in
fiscal 2003 increased 5.7% to $80.6 million (23.9% of net sales), compared to $76.3 million
(24.5% of net sales) in fiscal 2002. Selling, general and administrative expenses in fiscal 2002
decreased 5.6% compared to $80.8 million (20.7% of net sales) in fiscal 2001. The overall
increase in the level of spending in fiscal 2003 was to support increased revenues and also
reflected the strengthening of the Euro and the Great British Pound against the dollar during
the year, which increased the cost of marketing programs in Europe.