1
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 DecemberJune 28, 19961997 or
------------------------------------------
[ ] 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
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PLANTRONICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0207692
- ------------------------------------- ------------------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
337 Encinal Street, P.O. Box 1802
Santa Cruz, California 95061-1802
- --------------------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 426-6060
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at DecemberJune 28, 1996
- --------------------------------------- --------------------------------------1997
-------------------------- ------------------------------
Common Stock, $.01 par value 8,127,91916,435,648
Page 1
of 13
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)(in thousands, except share data)
DECEMBERJune 30, March 31,
MARCH 31,
1996 1996
========= =========1997(1) 1997(1)
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 35,73250,605 $ 26,78742,262
Accounts receivable 37,080 38,55539,133 36,981
Inventory 20,401 18,00722,487 20,042
Deferred income taxes 5,094 5,0942,840 2,840
Other current assets 1,012 1,227929 909
--------- ---------
Total current assets 99,319 89,670115,994 103,034
Property, plant and equipment, net 18,002 13,71020,583 18,970
Other assets 5,074 5,2814,777 5,237
--------- ---------
$ 122,395141,354 $ 108,661127,241
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,77610,867 $ 8,3849,578
Accrued liabilities 22,538 20,69221,650 20,441
Income taxes payable 13,876 12,04012,571 9,674
--------- ---------
Total current liabilities 45,190 41,11645,088 39,693
Deferred income taxes 1,081 1,0811,616 1,616
Long-term debt 65,050 65,050
--------- ---------
Total liabilities 111,321 107,247111,754 106,359
--------- ---------
Stockholders' equity:
Common stock; $0.01 par value, 25,000,00040,000,000 shares authorized,
8,127,91916,366,212 shares as of March 31, 1997 and 8,388,95616,435,648 shares
as of June 30, 1997 issued and outstanding 85 84164 164
Additional paid-in capital 56,640 55,72658,350 58,224
Cumulative translation adjustment (891) (891)
Accumulated deficit (31,887) (53,505)(15,528) (23,834)
--------- ---------
23,947 1,41442,096 33,663
Less: Treasury stock
(common: 350,613Common stock, 696,142 shares in fiscal year 1997)as of March 31, 1997, and
674,946 shares as of June 30, 1997, at cost (12,873) --(12,495) (12,781)
--------- ---------
Total stockholders' equity 11,074 1,41429,600 20,882
--------- ---------
$ 122,395141,354 $ 108,661127,241
========= =========
- --------
(1) See Notes to Unaudited Condensed Consolidated Financial Statements.Statements, paragraph captioned "Periods Presented".
Page 2 of 13
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(in thousands, except per share data)
THREE MONTHS ENDED
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,------------------------
JUNE 30, JUNE 30,
1997 1996
1995 1996 1995
========= ========= ========= ================= ========
Net sales $ 50,30954,023 $ 46,565 $ 143,014 $ 135,84945,584
Cost of sales 23,548 21,978 66,420 64,896
--------- --------- --------- ---------24,956 21,084
-------- --------
Gross profit 26,761 24,587 76,594 70,953
--------- --------- --------- ---------29,067 24,500
-------- --------
Operating expense:
Research, development and engineering 3,637 3,274 10,370 10,4673,989 3,463
Selling, general and administrative 10,020 9,026 29,373 25,655
--------- --------- --------- ---------11,467 9,520
-------- --------
Total operating expenses 13,657 12,300 39,743 36,122
--------- --------- --------- ---------15,456 12,983
-------- --------
Operating income 13,104 12,287 36,851 34,83113,611 11,517
Interest expense, including amortization
of debt issuance costs of $132, $132, $396 1,763 1,784 5,314 5,377
and $396$108 1,754 1,790
Interest income and other income, net (542) (491) (1,218) (1,082)
--------- --------- --------- ---------(356) (308)
-------- --------
Income before income taxes 11,883 10,994 32,755 30,53612,213 10,035
Income tax expense 4,040 4,287 11,137 11,909
--------- --------- --------- ---------3,908 3,412
-------- --------
Net income $ 7,8438,305 $ 6,707 $ 21,618 $ 18,627
========= ========= ========= =========6,625
======== ========
Net income per sharecommon share(2) $ 0.890.47 $ 0.74 $ 2.43 $ 2.08
========= ========= ========= =========0.37
======== ========
Shares used in net income per share calculation 8,820 9,037 8,905 8,963
========= ========= ========= =========calculations 17,820 18,072
======== ========
See Notes(2) Represents post split earnings per share calculation as described further in
Footnote 3 to Unaudited Condensed Consolidatedthe Financial Statements. Pre-split earnings per share, as
disclosed in the Company's press release dated July 15, 1997, were $0.93 and
$0.73 for the periods ended June 30, 1997 and June 30, 1996, respectively.
Page 3 of 13
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)(in thousands)
NINETHREE MONTHS NINETHREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,JUNE 30, JUNE 30,
1997 1996
1995
------------ ------------======== ========
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,6188,305 $ 18,6276,625
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,129 1,706of
property and intangible assets 776 665
Other non-cash charges, net -- 174
Changes in assets and liabilities:
Accounts receivable (2,164) (357)
Provision for doubtful accounts 12 15
Inventory (2,445) (378)
Other current assets (20) (1,558)
Other assets 460 (89)
Accounts payable 1,289 (354)
Accrued liabilities 1,209 1,971
Income taxes payable 2,897 1,017
Gain on sale of property and equipment (10) -
Other non-cash charges, net 507 569
Changes in assets and liabilities:
Accounts receivable 1,309 (8,372)
Provision for doubtful accounts 166 651
Inventory (2,394) 1,219
Other current assets 215 (287)
Other assets (189) 564
Accounts payable 392 3,087
Accrued liabilities 1,846 2,795
Income taxes payable 1,836 601-- --
-------- --------
Cash provided by operating activities 27,425 21,16010,319 7,729
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,426) (2,387)(2,389) (2,993)
Proceeds from sale of property and equipment 15 --- --
-------- --------
Cash used forby investing activities (6,411) (2,387)(2,389) (2,993)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 804 585
Purchase126 199
Sale (purchase) of treasury stock, (12,873) -net 287 (7,834)
-------- --------
Cash (used for) provided byused for financing activities (12,069) 585413 (7,635)
-------- --------
Net increase (decrease) in cash and cash equivalents 8,945 19,3588,343 (2,899)
Cash and cash equivalents at beginning of period 42,262 26,787 3,360
-------- --------
Cash and cash equivalents at end of period $ 35,73250,605 $ 22,71823,888
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 3,304-- $ 3,329--
Income taxes $ 9,3321,012 $ 11,1692,383
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated condensed financial statements included herein have
been prepared by Plantronics, Inc. ("Plantronics") pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations as of and for the periods indicated. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
Plantronics believes the disclosures which are made, when read in conjunction
with the audited fiscal 19961997 financial statements, are adequate to make the
information presented not misleading. As used herein, references to the
"Company" mean Plantronics and its consolidated subsidiaries.
PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest to
March 31st.31st (i.e. March 29, 1997) and the first fiscal quarter-end is the
Saturday closest to June 30th (i.e. June 28, 1997 or June 29, 1996, as
applicable). For purposes of presentation, the Company has indicated its
accounting year-end as March 31 and its thirdfirst quarter-end as December 31.June 30.
Plantronics' fiscal quarters ended December 31,June 30, 1997 and June 30, 1996 and 1995 each consisted of
thirteen weeks each.
1. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS: (in thousands)
December 31,June 30, March 31,
1996 19961997 1997
-------- --------
Inventories:
Finished goods $ 11,39910,502 $ 6,89011,056
Work in process 1,926 4,6312,294 1,647
Purchased parts 7,076 6,4869,691 7,339
-------- --------
$ 20,40122,487 $ 18,00720,042
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements
(useful lives: 10-40 years) 10,008 8,8699,109 9,104
Machinery and equipment
(useful lives: 4-8 years) 23,800 19,85028,332 25,949
-------- --------
38,501 33,41242,134 39,746
Less accumulated depreciation (20,499) (19,702)(21,551) (20,776)
-------- --------
$ 18,00220,583 $ 13,71018,970
======== ========
2. FOREIGN CURRENCY TRANSACTIONS:
The Company's functional currency for all operations is the U.SUS dollar.
Accordingly, gains and losses resulting from the remeasurement of foreign
subsidiaries' financial statements into U.S. dollars are included in other
income (expense) in the consolidated statements of operations. Gains and losses
resulting from foreign currency transactions are also included in other income
(expense). Aggregate exchange losses in the three months ended June 30, 1997
were $0.1 million. Aggregate exchange gains in the three months ended December 31,June 30,
1996 were $0.1 million.
3. SUBSEQUENT EVENTS:
On August 4, 1997 the Board of Directors approved a two-for-one split of the
Company's common stock to be effected as a stock dividend. All stockholders of
record on August 18, 1997 (the "Record Date") will receive one additional share
for each share owned on the Record Date. The additional shares will be
distributed to stockholders on September 2, 1997. All shares and December
31, 1995per share
amounts presented in this Form 10-Q have been retroactively restated to reflect
the stock split. The earnings per share of $0.93 and $0.73 reported in the press
release on July 15, 1997, for periods ending June 30, 1997 and June 30, 1996,
respectively, were $0.2 million in each period. Aggregate exchange gains for
the nine months ended December 31, 1996 and December 31, 1995 were $0.2
million and $0.3 million, respectively.calculated on a pre-stock split basis.
Page 5
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS.
The following table sets forth items from the Condensed Consolidated Statements
of Income as a percentage of net revenue.
Three Months Ended
December 31, December 31,
--------------------------------------------
June 30, June 30,
1997 1996 1995
----- -----
Net sales 100.0% 100.0%
Cost of sales 46.8 47.246.2 46.3
----- -----
Gross profit 53.2 52.853.8 53.7
Research and development 7.2 7.07.4 7.6
Selling, general and 19.9 19.4
administrative 21.2 20.1
----- -----
Operating income 26.0 26.425.2 25.2
Other (income) expense 2.4 2.82.6 3.3
----- -----
Income before income taxes 23.6 23.622.6 22.0
Income tax expense 8.0 9.27.2 7.5
----- -----
Net income 15.6% 14.4%15.4% 14.5%
===== =====
NET SALES. Net sales for the quarter ended December 31, 1996June 30, 1997 (the first quarter of
fiscal 1998) were $50.3$54.0 million, an increase of $3.7 million or 8.0%18.5% over the net sales of
$46.6$45.6 million for the quarter ended December 31, 1995. ForJune 30, 1996 (the first quarter of fiscal
1997). International revenues for the ninefirst three months ended December 31, 1996 net
sales were $143.0 million, an increase of $7.2 million or 5.3%fiscal 1998 grew
8.9% over the comparable period in fiscal 1996. Net international revenues for the first nine
months of fiscal 1997 continued to grow, up $8.6 million or 25.0% over the
comparable period in fiscal 1996.1997. Domestic revenues were down $0.6increased $7.3
million for the first ninethree months of fiscal 1998 over the first quarter of
fiscal 1997, primarily as a resultwhich had been unfavorably impacted by the closing of the anticipated
decline of $2.3 million in headset shipments to Lucent
Technologies (formerly AT&T), principally due to the closing of their phone stores, offset partially by
$1.7 million in increased sales through other domestic channels.stores.
GROSS PROFIT. Gross profit for the quarter ended December 31, 1996June 30, 1997 was $26.8$29.1 million
(53.2%(53.8% of net sales), compared to $24.6$24.5 million (52.8%(53.7% of net sales) for the
same period in fiscal 1996. Gross profit for the nine-month period ended
December 31, 1996 was $76.6 million (53.6% of net sales), compared to $71.0
million (52.2% of net sales) for the same period in fiscal 1996. The favorable
increases in gross margin percentage were due to increased1997, reflecting continuing benefit from manufacturing
efficiencies resulting from improved processes and continued consolidation of
manufacturing operations to the Mexican plant.cost reduction programs. In the future, margins maycould decrease
somewhat as a result of a shift in productincreased volume and mix towardof new, lower margin products.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering
expenses for the quarter ended December 31, 1996June 30, 1997 were $3.6$4.0 million compared to $3.3$3.5
million for the quarter ended December 31, 1995. ThisJune 30, 1996. The increase was primarily due to
increased staffing, project materials and other costs related to new product development. Research, development and engineering expenses were
relatively unchanged at $10.4 million for the nine-month period ended December
31, 1996 compared to $10.5 million for the nine-month period ended December 31,
1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the quarter ended December 31, 1996June 30, 1997 were $10.0$11.5 million compared to $9.0$9.5
million for the quarter ended December 31, 1995. Selling, general and
administrative expenses for the nine-month period ended December 31, 1996 were
$29.4 million compared to
Page 6 of 13
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$25.7 million for the nine-month period ended December 31, 1995.June 30, 1996. The increases were the result of
additional staffing in sales and marketing worldwide, and increased spending on international marketing programs.in
market research programs, new product development and associated costs due to
higher volume in sales worldwide.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCOME TAX EXPENSE. The Company has been providing for income taxes at anCompany's effective tax rate ofdeclined to 32% in the
quarter ended June 30, 1997 from 34% during fiscal 1997, representingin the quarter ended June 30, 1996,
primarily as a decrease from the
effective tax rateresult of 39% provided in fiscal 1996. This decrease is due
primarily to international restructuring begun in the fourth quarter
of fiscal 1996.
FOREIGN CURRENCY. Through fiscal 1996, intercompany transactions betweenThe Company's cash flows are substantially US dollar
denominated. However, the Company and its United Kingdom subsidiary posed the greatestis exposed to certain foreign currency
risk.fluctuations, primarily in Europe and Mexico. The Company managed this risk by timely paymentssource of intercompany
liabilities and receivables. Remaining currency risk in
Europe is due to receivables denominated in local currency, although this has
been largely offset by payables denominated in local currency. This natural
hedging approach has substantially limited the opinionCompany's net exposure to the
effect of currency fluctuations and management wasbelieves additional hedging has
not materialbeen merited. As the Company's sales in Europe grow, this strategy will
require review and accordingly, the Company did not engage in
hedging transactions. Beginning in fiscal 1997, the intercompany transaction
risk described above has been eliminatedmay experience greater exposure to currency
fluctuations as a result of its increasing international activities. In the
restructuringfourth quarter of fiscal 1996, the Company's international operations. However,company formed a wholly owned subsidiary
incorporated in the Company is subject to greater
remeasurement exposure to its operating income asNetherlands. The establishment of Plantronics B.V. entailed,
among other things, a resulttransfer of a substantial number of functions and the
associated positions and expenses from the United Kingdom subsidiary's adoptionto the Netherlands.
The Company now incurs local expenses in Dutch guilders and a small proportion
of the U.S. dollar as its functional currency.expenses in pound sterling, while recording no revenue in Dutch guilders.
The Company's Mexican peso transaction exposure at its manufacturing subsidiary in
Tijuana, Mexico is limited principallymostly to payroll expenditures. In the opinion
of management,payroll. The favorable and unfavorable effects to the
Company from currency
fluctuationson the devaluation of the peso in the periodsyears reported werewas somewhat offset
by local currency pay raises to its employees in Mexico. Because of these
factors, management does not material.believe the devaluation has had a material effect
on the Company.
LIQUIDITY AND CAPITAL RESOURCESRESOURCES. The Company's principal source of liquidity in
the nine-monththree-month period ended December 31, 1996June 30, 1997 was $27.4$10.3 million of cash generated
from operating activities. In the nine-monththree-month period ended December 31, 1995,June 30, 1996,
liquidity was principally provided by $21.2$7,729 million of cash generated from
operating activities. Cash and cash equivalents increased to $35.7$50.6 million at
December 31, 1996June 30, 1997 from $22.7$23.9 million at December 31, 1995,June 30, 1996, primarily due to cash
provided by operating activities. The Company also has a $20.0 million revolving
credit facility, which includesincluding a $4.0$10.0 million letter of credit facility.subfacility, with a
major bank. In the quarter ended March 31, 1997, the Company renegotiated the
terms of its credit facility so that borrowings are no longer secured and
ongoing fees and costs are substantially reduced. As of December 31, 1996,June 30, 1997, the
Company had no cash borrowings under the revolving credit facility and $3.0$1.9
million outstanding under the letter of credit facility. According to borrowing base limitations,
available borrowings under the revolving credit facility at December 3, 1996
were $15.8 million, after reductions for letter of credit obligations. The
revolving credit facility is secured by accounts receivable and related assets.subfacility. The terms of the
credit facility contain covenants which materially limit the Company's ability
to incur debt, make capital expenditures and pay dividends, among other matters.
These covenants may have a materially adverse effect on the Company to the
extent it cannot comply with them or it must limit its ordinary course
activities.
The revolving credit facility expires by its terms on
February 19, 1997. The Company is currently negotiating the terms of a new
credit facility and expects that such facility will be in place prior to
expiration of the existing facility.
OPERATING ACTIVITIES. In the nine-monththree-month period ended December 31, 1996June 30, 1997 the Company
generated $27.4$10.4 million in net cash from operating activities, primarily as a
result of $21.6$8.3 million in net income after depreciation of $2.1$.8 million,
and an
increase in accrued liabilities and accounts payable of $1.2 million each and an
increase in taxes payable of $1.8 million each,$2.9 million. This was partially offset by an
increase in inventory and accounts receivable of $2.4 million.million and $2.1 million
respectively. Inventory was increased to better service European customer demand and due to new products.reduce order-to-ship cycles.
INVESTING ACTIVITIES. Capital expenditures were $6.4 million in the nine-month
period ended December 31, 1996, compared to $2.4 million in the nine-monththree-month
period ended December 31, 1995. The increase in capital expenditures was
primarily due to investment in a significant upgrade to the Company's business
information system in the first three quarters of fiscal 1997. The Company
expects to invest an additional $2.0June 30, 1997, compared to $3.0 million in the systemsthree-month period
ended June 30, 1996. The capital expenditure was primarily due to continuing
investment in the upgrade byof the middle of fiscal 1998.Company's business information systems.
FINANCING ACTIVITIES. In the nine-monththree-month period ended December 31, 1996,June 30, 1997, the Company
repurchased 350,6132,800 shares of its Common Stockstock for $12.9$0.1 million and sold 13,398 shares of
its stock held in treasury for $0.4 million and received $0.8$0.1 million in
proceeds from the exercise of stock options. The Company's financing activitiesCompany repurchased 216,700
shares for $7.8 million during the nine-monththree-month period ended December 31,
1995 were limited to the receipt of $0.6June 30, 1996 and
received $.2 million in stock option exercise proceeds.
Page 7 of 13
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The Company has Senior Notes in a principal amount of $65.1 million outstanding
that bear interest, payable semiannually, at a rate of 10% per annum and mature
on January 15, 2001. The Senior Notes are redeemable, at the Company's option,
in whole or in part, any time after January 15, 1999. The Senior Note Indenture
contains certain covenants that, among other things, materially limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, issue preferred stock of subsidiaries, engage in transactions with
affiliates, create liens, engage in mergers and consolidations, make certain
asset sales or make certain investments. The Senior Note Indenture also provides
that holders of the Senior Notes have the right to require the Company to
repurchase the Senior Notes in the event of a "change in control" and certain
various defined events of default.
The Company believes that current balances and cash provided by operations,
together with available borrowing capacity under the revolving credit facility,
will be sufficient to make required interest payments under the Senior Notes
Page 7
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and to fund operations at least through fiscal 1997.1998. Subject to the terms and
conditions of the 10% Senior Note Indenture and the Company's revolving credit
facility, under certain circumstances the Company may use cash for such purposes
as paying down the line of credit, repurchasing Senior Notes or acquiring
complementary businesses, products or technologies.
FORWARD LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE OPERATING RESULTS
The statementsstatement in the last sentencessentence of the paragraphsparagraph above captioned "Gross
Profit"
and "Investing Activities" and the first sentence in the paragraph immediately above are forward
looking statements which involve risks and uncertainties. In addition, the
Company may from time to time make oral forward looking statements. The
Company's actual results could differ materially from those anticipated in these
forward looking statements as a result of a number of factors, including the
following factors:following:
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS. The Company's net sales
to date have been derived principally from the sale of lightweight
communications headsets ("tops") and associated telephone adaptor bases
("bottoms"). Historically, a substantial amount of the Company's sales have been
made through distributors to call center users and its product development
efforts have primarily been directed toward incremental enhancements of existing
products. In the future, the Company intends to both continue enhancement of its
existing products and develop new products that capitalize on its core
technology and thus expand the Company's product offerings to new user market
segments. The success of new product introductions is dependent on several
factors, including proper new product selection, timely completion and
introduction of new product designs, quality of new products and market
acceptance. The Company has recently expanded its marketing efforts to sell
lightweight headsets to the business, computer, mobile and home office user
market segments. Although the Company has attempted to determine the specific
needs of these new market segments, there can be no assurance that the market
niches identified will in fact materialize or that the Company's future products
designed for these market segments will gain substantial market acceptance.
COMPETITION. As the Company develops new generations of products and enters new
market segments, including the developing business, computer, mobile and home
office user segments of the market, the Company anticipates that it may face
additional competition from companies which currently do not offer
communicationcommunications headsets. Such companies may be larger, offer broader product
lines and have substantially greater financial and other resources than the
Company. Such competition could negatively affect pricing and gross margins.
Although the Company has historically competed very successfully in the call
center segment of the market, there can be no assurance that it will be able to
continue its leadership position in that segment of the market or that the
Company will be able to compete successfully in the previously defined new
market segments.
DEMAND OF CHANGING TECHNOLOGIES. The technology of telephone headsets, both
"tops" and "bottoms," has traditionally evolved slowly. Products have
traditionally exhibited life cycles of three to five years before introduction
of the next generation of products. Next generation products usually included
stylistic changes and quality improvements but were based on similar technology.
The Company believes that future changes in technology may come at a faster
pace, particularly in the telephone, cellular telephone and computer uses in the
business and home office user segments of the market. In addition, in order to
avoid product obsolescence, the Company will have to monitor technological
changes in telephony and computer technologies, as well as users' demands for
new technologies. The Company's future success will be dependent in part on its
ability to successfully develop products that utilize new technologies and
introduce them to the marketplace. Failure by the Company to Page 8 of 13
9
keep pace with
future technological changes could materially adversely affect the Company's
revenues and operating results.
UTILIZATION OF SINGLE SOURCE SUPPLIERS. The Company's manufacturing operations
primarily consist of assembly of components and subassemblies that Plantronics
manufactures or purchases from a variety of sources. Although most components
and subassemblies used in the Company's manufacturing operations are obtained,
or are reasonably
Page 8
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
available, from numerous sources, certain of its products and components
(including semicustom integrated circuits that are key components of the
Company's products) are currently obtained only from single suppliers. The
Company currently purchases almost all such components on a purchase order basis
and does not intend to enter into any new master purchase agreements with any of
its single source suppliers. The Company has to date experienced only minor
interruptions in the supply of these components, none of which hashave adversely
affected its operations. However, an interruption in supply from any of the
Company's single source suppliers in the future could temporarily result in the
Company's inability to deliver products on a timely basis which, in turn, could
adversely affect its operations.
IMPORTANCE OF PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS. The Company's
success will depend in part on its ability to obtain patents and preserve other
intellectual property rights covering the design and operation of its products.
The Company currently holds certain patents and intends to continue to seek
patents on its inventions when appropriate. The process of seeking patent
protection can be lengthy and expensive, and there can be no assurance that
patents will issue from currently pending or future applications or that the
Company's existing patents or any new patents issued will be of sufficient scope
or strength or provide meaningful protection or any commercial advantage to the
Company. The Company may be subjected to, or may initiate, litigation or patent
office interference proceedings, which may require significant financial and
management resources. The failure to obtain necessary licenses or other rights
or the advent of litigation arising out of any such claims could have a material
adverse effect on the Company's operations.
RISK ASSOCIATED WITH FOREIGN OPERATIONS AND SALES. Approximately 30.0%27.1% of the
Company's net sales in the first nine monthsquarter of fiscal 1997 and 26.8% of the
Company's net sales in fiscal 19961998 were derived from sales
to foreign customers. In addition, the Company conducts substantially allapproximately 94% of its
headset assembly operations outside the United States and obtains components
from various foreign suppliers. Manufacturing and sales of the Company's
products could be adversely affected by political or economic conditions in the
United States or abroad, particularly in Mexico. Sales to foreign customers and
purchases of materials and components from foreign suppliers are also generally
subject to such risks as increased tariffs and the imposition of other trade
barriers.
Although the Company generally transacts business internationally in United
States currency, declines in the values of local currencies relative to the
United States dollar in countries in which the Company doestransacts business could
adversely affect the Company by resulting in less competitive pricing for the
Company's products. The Company does not currently engage in any hedging
activities to mitigate exchange rate risks and to date has not been adversely
affected by fluctuating currencies. To the extent that the Company is successful
in increasing its sales to foreign customers, or to the extent that the Company
increases its transactions in foreign currencies, the Company's results of
operations could be adversely affected by exchange rate fluctuations.
DEPENDENCE UPON SENIOR MANAGEMENT. The Company believes that it has benefited
substantially from the leadership of Robert S. Cecil, the Chairman of the Board,
President and Chief Executive Officer of the Company, and the other current
members of senior management, and that the loss of their services could have a
material adverse effect on the Company's business and future operations.
Although the Company has an employment agreement with Mr. Cecil, such agreement
permits him to voluntarily terminate his employment at any time. In addition,
although Mr. Cecil's agreement contains a five-year non-compete covenant which
takes effect upon termination of his employment, such covenants are generally
not enforceable under California law.
Page 9
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10
PLANTRONICS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND& REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed as part of this Quarterly
Report on Form 10-Q.
Exhibit
Number Description
- ------- -----------
27Exhibit
Number Description
3.1 Certificate of Amendment of Restated Certificate of
Incorporation of Plantronics, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant
during the fiscal quarter ended DecemberJune 28, 1996.1997.
Page 10 of 13
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLANTRONICS, INC.
---------------------------------------------------------------------------
(Registrant)
January 31,August 12, 1997 By: /s/ BARBARA V. SCHERER
- ------------------------- -------------------------------
(Date) (Signature)
Barbara V. Scherer
Vice President
August 12, 1997 /s/ DANIEL A. GAUDREAUBARBARA V. SCHERER
- ---------------------------- --------------------------------------------------------------------- -------------------------------
(Date) (Signature)
Daniel A. GaudreauBarbara V. Scherer
Vice President January 31, 1997 /s/ DANIEL A. GAUDREAU
- ---------------------------- --------------------------------------------
(Date) (Signature)
Daniel A. Gaudreau
Vice President --- Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
Page 11
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12
EXHIBIT INDEX
PAGE IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER SYSTEM
- ---------- ----------
27Exhibit
Number Description
------ -----------
3.1 Certificate of Amendment of Restated Certificate of
Incorporation of Plantronics, Inc.
27.1 Financial Data Schedule......................................... 13
Page 12 of 13Schedule