1
UNITED STATES
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 27, 19971998 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
PLANTRONICS, INC.
------------------------------------------------------
(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
- ---------------------------------------- ----------
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
----------------------------------------------------(831) 426-5858
(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 December 27, 1997
---------------------------- --------------------------------
Common Stock, $.01 par value 16,550,899
Class Outstanding at June 27, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 16,497,436
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)THOUSANDS)
DECEMBERMARCH 28, JUNE 27,
MARCH 29,
1997 1997
--------- ---------1998 1998
========= =========
ASSETS
Current assets:
Cash and cash equivalents $ 62,08364,901 $ 42,26282,340
Accounts receivable, net 43,571 36,98141,550 43,515
Inventory 30,574 20,04229,741 27,914
Deferred income taxes 2,840 2,8402,130 2,130
Other current assets 1,525 909
--------- ---------1,774 958
-------- --------
Total current assets 140,593 103,034140,096 156,857
Property, plant and equipment, net 21,064 18,97021,255 20,614
Other assets 4,149 5,237
========= =========4,124 3,706
======== ========
Total assets $ 165,806 $ 127,241
========= =========Assets $165,475 $181,177
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,7398,327 $ 9,5786,111
Accrued liabilities 25,971 20,44126,629 26,348
Income taxes payable 8,690 9,674
--------- ---------6,381 10,835
-------- --------
Total current liabilities 47,400 39,69341,337 43,294
Deferred income taxes 1,616 1,616tax liability 5,652 5,652
Long-term debt 65,050 65,050
--------- ----------------- --------
Total liabilities 114,066 106,359
--------- ---------112,039 113,996
-------- --------
Stockholders' equity:
Common stock, $0.01 par value per share;
40,000,00040,000 shares authorized, 16,550,89916,449
shares as of December 27, 1997 and 16,366,21216,497 shares 172 164
as of March 29, 1997 issued and outstanding 174 174
Additional paid-in capital 60,317 58,224
Cumulative63,816 64,833
Accumulated other comprehensive income:
Foreign currency translation adjustment (891) (891)
Retained Earnings 4,258 (23,834)
--------- ---------
63,856 33,66315,355 27,826
-------- --------
78,454 91,942
Less: Treasury stock
(common: 660,397963 shares in fiscal year 1998
and 949 shares as of December 27,1997 and 696,142
shares as of March 29, 1997)June 27, 1998) at cost (12,116) (12,781)
--------- ---------25,018 24,761
-------- --------
Total stockholders' equity 51,740 20,882
--------- ---------53,436 67,181
-------- --------
Total liabilities and stockholders' equity $ 165,806 $ 127,241
========= =========$165,475 $181,177
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHSQUARTER ENDED
NINE MONTHS ENDED
-------------------------- --------------------------
DECEMBER-----------------------------
JUNE 28, JUNE 27,
DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
--------- --------- --------- ---------1998
========== =========
Net sales $ 62,01754,023 $ 50,309 $ 172,579 $ 143,01470,060
Cost of sales 28,464 23,548 79,423 66,420
--------- --------- --------- ---------24,956 31,897
-------- --------
Gross profit 33,553 26,761 93,156 76,594
--------- --------- --------- ---------29,067 38,163
-------- --------
Operating expense:
Research, development and engineering 4,591 3,637 12,975 10,3703,989 4,470
Selling, general and administrative 12,330 10,020 35,172 29,373
--------- --------- --------- ---------11,467 14,102
-------- --------
Total operating expenses 16,921 13,657 48,147 39,743
--------- --------- --------- ---------15,456 18,572
-------- --------
Operating income 16,632 13,104 45,009 36,85113,611 19,591
Interest expense, including amortization
of debt issuance costs 1,755 1,763 5,248 5,3141,754 1,736
Interest income and other income, net (447) (542) (1,549) (1,218)
--------- --------- --------- ---------(356) (485)
-------- --------
Income before income taxes 15,324 11,883 41,310 32,75512,213 18,340
Income tax expense 4,903 4,040 13,218 11,137
--------- --------- --------- ---------3,908 5,869
-------- --------
Net income attributable to holders
of common stock8,305 12,471
Other comprehensive income -- --
-------- --------
Comprehensive income $ 10,4218,305 $ 7,843 $ 28,092 $ 21,618
========= ========= ========= =========12,471
======== ========
Basic earnings per common share $ 0.630.51 $ 0.48 $ 1.70 $ 1.32
========= ========= ========= =========0.76
======== ========
Shares used in basic per share calculations 16,547 16,256 16,482 16,333
========= ========= ========= =========16,399 16,474
======== ========
Diluted earnings per common share $ 0.570.47 $ 0.44 $ 1.54 $ 1.21
========= ========= ========= =========0.68
======== ========
Shares used in diluted per share calculations 18,383 17,640 18,200 17,810
========= ========= ========= =========17,820 18,213
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS NINE MONTHSQUARTER ENDED
ENDED
DECEMBER---------------------------
JUNE 28, JUNE 27,
DECEMBER 28,
1997 1996
-------- --------1998
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES:
Net incomeIncome from operations $ 28,0928,305 $ 21,61812,471
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of
property and intangible assets 2,896 2,129
Gain on sale of property & equipment -- (10)
Other non-cash charges, net -- 507776 1,575
Changes in assets and liabilities:
Accounts receivable (6,969) 1,309(2,164) (2,163)
Provision for doubtful accounts 379 16612 198
Inventory (10,532) (2,394)(2,445) 1,827
Other current assets (616) 215(20) 816
Other assets 854 (189)460 418
Accounts payable 3,161 3921,289 (2,216)
Accrued liabilities 5,530 1,8461,209 (281)
Income taxes payable (984) 1,836
--------2,897 4,905
--------- --------
Cash provided by operating activities 21,811 27,425
--------10,319 17,550
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,756) (6,426)
Proceeds from sale of property and equipment -- 15
-------- --------
Cash used by investing activities (4,756) (6,411)
--------(2,389) (934)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (116) --
Proceeds from sale of treasury stock 403 536
Proceeds from exercise of stock options 2,101 804
Purchase of treasury stock (116) (12,873)
Sale of Treasury Stock 781 --
--------126 287
--------- --------
Cash provided by (used for) financing activities 2,766 (12,069)
--------413 823
--------- --------
Net increase (decrease) in cash and cash equivalents 19,821 8,9458,343 17,439
Cash and cash equivalents at beginning of period 42,262 26,787
========64,901
========= ========
Cash and cash equivalents at end of period $ 62,08350,605 $ 35,732
========82,340
========= ========
Supplemental disclosures:
Cash paid for:
Interest $ 3,291 $ 3,304-- --
Income taxes $ 12,4641,012 $ 9,332
======== ========2,229
Noncash operating and financing activities:
Income tax benefit associated with stock options $ 259 451
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION. The accompanying interim condensed consolidated
financial statements of Plantronics, Inc. ("Plantronics," the "Company" or the
"Registrant") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements have been
prepared, without audit, in conformity with generally accepted accounting
principles, consistent in all material respects with those applied in the
Company's Annual Report on Form 10-K for the year ended March 29, 1997.28, 1998. The
interim financial information is unaudited, but reflects all normal recurring
adjustments which are, in the opinion of management, necessary to provide a fair
statement of results for the interim periods presented. 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 the rules and regulations of the Securities and Exchange
Commission. The interim financial statements should be read in connection with
the financial statements in the Company's Annual Report on Form 10-K for the
fiscal year ended March 29, 1997.28, 1998.
NOTE 2. EFFECT OF INCREASE IN STOCK AND STOCK SPLIT. In July 1997, the Company's
stockholders approved an increase in the authorized shares of Common Stock of
Plantronics, Inc., to 40,000,000. On September 2, 1997, the Company effected a
two-for-one stock split in the form of a stock dividend to stockholders of
record as of August 18, 1997. All share, per share, Common Stock, and capital in
excess of par value amounts herein have been restated to reflect the effect of
this split.
NOTE 3. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31st31 (i.e. March 29, 1997)27, 1999) and the thirdfirst fiscal quarter-end is the
Saturday closest to December 31June 30 (i.e. December 27,June 28, 1997 or December 28, 1996,June 27, 1998, as
applicable). Plantronics' fiscal quarters ended December 27,June 28, 1997 and December
28, 1996June 27, 1998
consisted of thirteen weeks each.
NOTE 4.3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
DecemberMarch 28, June 27,
March 29,
1997 1997
-------- --------1998 1998
========= =========
Inventories:
Finished goods $ 10,906 $ 11,056$13,224 $13,152
Work in process 4,481 1,6474,431 3,778
Purchased parts 15,187 7,339
-------- --------
$ 30,574 $ 20,042
======== ========12,086 10,984
------- -------
$29,741 $27,914
======= =======
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements
(useful lives: 10-40 years) 9,463 9,1049,486 9,891
Machinery and equipment
(useful lives: 4-8 years) 30,346 25,94931,484 32,013
-------- --------
44,502 39,74645,663 46,597
Less accumulated depreciation (23,438) (20,776)
-------- --------
$ 21,064 $ 18,970(24,408) (25,983)
======== ========
$21,255 $20,614
======== ========
NOTE 5.4. FOREIGN CURRENCY TRANSACTIONS. The Company's functional currency for all
operations is the U.S. dollar. Accordingly, gains and losses resulting from the
remeasurement of the financial statements of foreign subsidiaries 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). Exchange gains equaledAggregate exchange losses in the fiscal
quarter ended DecemberJune 27, 1997.1998 were approximately $0.3 million. There was a $0.2were
approximately $0.1 million in exchange gainlosses in the comparable period ended
DecemberJune 28, 1996. Through the three fiscal
quarters ended
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997 aggregate exchange losses equaled $0.3 million and for the
comparable period ended December 28, 1996 exchange gains equaled $0.2 million.1997.
NOTE 6. NET5. COMPREHENSIVE INCOME
PER SHARE. Effective December 27, 1997March 29, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The new standard requires presentation of basic earnings per share, from
which the dilutive effect of stock options is excluded, and diluted earnings per
share. The dilutive effect of stock options is calculated using the treasury
stock method. FAS 128 requires that the average stock price for the period be
used in determining the number of treasury shares assumed purchased rather than
the higher of the average or ending stock price as prescribed by Accounting
Principles Board Opinion 15. Net income per share is based on the weighted
average common shares outstanding and weighted dilutive common equivalent
shares. Common equivalent shares include stock options.
RECONCILIATION OF NUMERATORS AND DENOMINATORS FOR BASIC AND DILUTED EPS
COMPUTATIONS
Three Months Ended Nine Months Ended
--------------------- ---------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
Net income (numerator) $10,421 $ 7,843 $28,092 $21,618
Weighted Average Outstanding Shares
(denominator) 16,547 16,256 16,482 16,333
Weighted Average Stock Options 1,836 1,384 1,718 1,477
------- ------- ------- -------
Weighted Average Diluted Outstanding
Shares (denominator) 18,383 17,460 18,200 17,810
======= ======= ======= =======
Basic earnings per common share $ 0.63 $ .48 $ 1.70 $ 1.32
Diluted earnings per common share $ 0.57 $ .44 $ 1.54 $ 1.21
A restatement of the prior quarter's results is included to reflect basic and
diluted earnings per share under the new standard.
Three Months Ended Three Months Ended Six Months Ended
------------------- ------------------- -------------------
June 28, June 29, Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------
(in thousands, except per share data)
Net Income 8,305 6,625 9,366 7,152 17,671 13,775
Weighted Shares 16,399 16,686 16,500 16,380 16,450 16,533
Basic EPS $ 0.51 $ 0.40 $ 0.57 $ 0.44 $ 1.08 $ 0.83
====== ====== ====== ====== ====== ======
Weighted shares assuming 17,820 18,072 18,356 17,720 18,086 17,898
dilution
Diluted EPS $ 0.47 $ 0.37 $ 0.51 $ 0.40 $ 0.98 $ 0.77
====== ====== ====== ====== ====== ======
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
is effective for the Company's fiscal year ending March 27, 1999. The statement
establishes presentation and disclosure requirements for reporting comprehensive
income. Comprehensive income includes charges or credits to equity that are not
the result of transactions with owners. The
5
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Company plans
to adopt the disclosure requirements and reportdoes not have other comprehensive income as part oftransactions with the Consolidated Statements of Shareholders' Equity as required underquarter
ended June 27,1998 and June 28, 1997. Cumulative balances in stockholders'
equity and the financial statement format have been presented in compliance with
SFAS 130,
and expects there to be no material impact on the Company's financial position
and results of operations as a result of the adoption of this new accounting
standard.130.
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises the required
information regarding the reporting of operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt SFAS 131 beginning in connection with its
fiscal 1999 closing in compliance with SFAS 131 and does not expect such
adoption to have a material effect on the consolidated financial statements.
76
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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 and Section 21E of the
Securities Exchange Act of 1934. These statements include the statement relating
to the ability to make required interest payments in the first sentence in the
last paragraph under "Financial Condition" and the statements below under "Risk
Factors Affecting Future Operating Results." In addition, the Company may from
time to time make oral forward looking statements. These forward-looking
statements are based on current expectations and entail various risks and
uncertainties. 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 those set forth below under "Risk Factors Affecting Future
Operating Results." The following discussions titled "Results of Operations" and
"Financial Condition" should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes included elsewhere herein,
the Company's annual report on Form 10-K, as well as the section below entitled
"Risk Factors Affecting Future Operating Results."
RESULTS OF OPERATIONS:
The following table sets forth items from the Unaudited Condensed Consolidated
Statements of Operations as a percentage of net sales.
The Company's fiscal year 1998 runs
from March 30, 1997 through March 28, 1998. The Company's fiscal year 1997 ran
from March 31, 1996 through March 29, 1997. The third quarter of the Company's
fiscal 1998 commenced September 28, 1997 and ended December 27, 1997.
Three Months Ended Nine Months Ended
--------------------- ---------------------
DecemberQUARTER ENDED
---------------------------
June 28, June 27,
December 28, December 27, December 28,
1997 1996 1997 1996
----- ----- ----- -----1998
======== =========
Net sales 100.0% 100.0%
100.0% 100.0%
Cost of sales 45.9 46.8 46.0 46.4
----- ----- ----- -----46.2 45.5
--------- ---------
Gross profit 54.1 53.2 54.0 53.653.8 54.5
--------- ---------
Research and development 7.4 7.2 7.5 7.36.4
Selling, general and administrative 19.9 19.9 20.4 20.5admin. 21.2 20.1
--------- ---------
Total operating expenses 28.6 26.5
--------- ---------
Operating income 26.8 26.0 26.1 25.825.2 28.0
Other (income) expense 2.1 2.4 2.1 2.92.6 1.8
--------- ---------
Income before income taxes 24.7 23.6 23.9 22.922.6 26.2
Income tax expense 7.9 8.0 7.7 7.87.2 8.4
--------- ---------
Net Income 16.8 15.6 16.3 15.1
----- ----- ----- -----15.4% 17.8%
Other comprehensive income -- --
--------- ---------
Comprehensive income 15.4% 17.8%
========= =========
Net sales for the quarter ended DecemberJune 27, 19971998 were $62.0$70.1 million, an increase of
23.3%29.8% over net sales of $50.3$54.0 million for the quarter ended DecemberJune 28, 1996. During this period domestic sales were $43.1 million, an increase of
20.7%,1997.
Domestic revenues grew by 22.3% while international revenues were $18.9 million, an increase of 29.5%grew by 49.1% over
the comparable period in fiscal 1997.
Consolidated net salesGross profit of $38.2 million for the first
three quarters of fiscalquarter ended June 27, 1998 commencing March 30, 1997 and ended December 27,
1997, were $172.6increased by
$9.1 million an increase of 20.7% over net sales of $143.0 million
in the same period fiscal 1997. Domestic sales in the first three quarters of
fiscal 1998 were $121.0 million, an increase of 20.3% over the comparable period
of fiscal 1997. International net salesquarter ended June 28, 1997, a 31.3% increase. The overall
increases in gross profits principally reflect the first three quarters of fiscal
1998 totaled $51.6 million, up 21.7% over the same periodoverall increase in
fiscal 1997.7
8 9
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Gross profit of $33.6 million for the quarter ended December 27, 1997 increased
by $6.8 million over the quarter ended December 28, 1996, a 25.4% increase.
Gross profit of $93.2 million for the first three quarters of fiscal 1998 grew
by $16.6 million, an increase of 21.6% over the comparable period of fiscal
1997. The increases in gross profits principally reflect the increase in
revenues, with benefits from cost improvements on existing products.shifts in product mix and efficiencies due to
increased volumes. Changes in material and labor costs and changes in
distribution channels may have an adverse effect on gross profit percentage in
the future. For a description of additional risks which may impact gross profit
see the section entitled "Risk Factors Affecting Future Operating Results."
Research, development and engineering expenses for the quarter ended DecemberJune 27,
19971998 were $4.6$4.5 million compared to $3.6$4.0 million for the quarter ended DecemberJune 28, 1996, an increase of $1.0 million. Expenses for the first half of
fiscal year 1998 grew $2.6 million over the first half of fiscal
1997. Increases were from costs associated with newhigher levels of research and development
spending on product technology. The Company recognizes the necessity to balance
the cost of research and development and improvements to
existing products.with expense control.
Selling, general and administrative expenses for the quarter ended DecemberJune 27, 19971998
were $12.3$14.1 million compared to $10.0$11.5 million for the fiscal 1997 quarter ended DecemberJune 28, 1996. SG&A expenses in the first three quarters of fiscal
1998 were $8.4 million higher than the expenses in the first three quarters of
fiscal
1997. The overall increases in selling, general and administrative expenses in
the thirdfirst quarter and first three quarters of fiscal 1998 are1999 were from costs associated with higher sales
volume worldwide increases in market
research and planned increases in generalrelated variable expenses, such as sales commissions and
administrative costs. The expenses
reflect the planned decrease of SG&A costs as a percentage of net sales.employee profit sharing.
Interest expense interestof $1.7 million was the same in the first quarter of fiscal
1999 and the first quarter of fiscal 1998. Interest income and other income of
$0.5 million for the thirdfirst quarter of fiscal 19981999 resulted in a net interest
expense of $1.3 million, slightly updown from the net interest expense of $1.2$1.4
million for the same period in fiscal 1997. The increase in net
expense in the third quarter fiscal 1998 was primarily due to other income
losses as compared to favorable exchange gains and other income gains in the
third quarter of fiscal 1997 . The total of other income/expense for the first
three quarters of fiscal 1998 was a net expense of $3.7 million, down from the
net expense of $4.1 million for the comparable period in fiscal 1997.1998. The reduction in interest expense,
net of interest income and other income, is primarily attributable to interest
income derived from increases in cash and cash equivalents.
The Company's cash flows are substantially U.S.US dollar denominated. However, the
Company is exposed to certain foreign currency fluctuations, primarily in Europe
and Mexico. The source of 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 substantiallyhistorically
limited the Company's net exposure to the effect of currency fluctuations and
management believes additional hedging has not been merited. As the Company's
sales in Europe grow, this strategy will require review and the Company may
experience greater exposure to currency fluctuations as a result of its
increasing international activities. In the fourth quarter of fiscal 1996, the
company formed Plantronics B.V., a wholly owned subsidiary incorporated in the
Netherlands. Administrative functions, particularly with respect to the
Company's international sales, were transferred to Plantronics B.V. The Company
now incurs local expenses in its Plantronics B.V. subsidiary in Dutch guilders
and a small proportion of expenses in pounds sterling, while recording no revenue in Dutch guilders.
The Company's peso transaction exposure at its manufacturing subsidiary in
Tijuana, Mexico is limited mostly to payroll. The favorable effects to the
Company on the devaluation of the peso in the years reported was somewhat offset
by local currency pay raises to its employees in Mexico. Because of these
factors, management does not believe the devaluation has had a material effect
on the Company.
Losses due to foreign currency fluctuations approximated $0.3 million for the
first quarter of fiscal 1999 compared to a $0.1 million loss in same period of
fiscal 1998, due primarily to weakening of the pound sterling against the US
dollar.
The Company's effective tax rate iswas 32% in the quarterquarters ended DecemberJune 27, 1997,
down from 34%1998 and
June 28, 1997.
FINANCIAL CONDITION:
The Company's principal source of liquidity in the quarterthree-month period ended DecemberJune
27, 1998 was $17.6 million of cash generated from operating activities, due
primarily to $12.5 million in net income, compared to $10.3 million in cash
generated from operating activities for the same period ended June 28, 1996, due to1997, of
which $8.3 million was from net income. In the increased
recognitioncurrent period, increases in
depreciation and amortization and in income taxes payable with decreases in
inventory represented the majority of revenues in countries with tax rates lower than the United
States.balance of cash provided by operating
activities.
8
9 10
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
The Company's principal source of liquidity in the nine-month period ended
December 27, 1997 was $21.8 million of cash generated from operating activities.
In the nine-month period ended December 28, 1996, liquidity was principally
provided by $27.4 million of cash generated from operating activities. Cash and
cash equivalents increased to $62.1 million at December 27, 1997, from $35.7
million at December 28, 1996, primarily due to cash provided by operating
activities. The Company has a $20.0 million revolving credit facility, including a $10.0
million letter-of-creditletter of credit subfacility, with a major bank. As of DecemberJune 27, 1997,1998,
the Company had no cash borrowings under the revolving credit facility and $1.9$2.2
million outstanding under the letter-of-creditletter of credit subfacility. The amounts
outstanding under the letter of credit subfacility were principally associated
with purchases of inventory. 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
adversely affect the Company to the extent it cannot comply with them or it must
limit its ordinary course of activities.
In the nine-month period ended December 27, 1997, the $21.8 million in net cash
generated from operating activities was due primarily to $28.1 million in net
income. Depreciation and amortization grew to $2.9 million, primarily as the
resultCapital expenditures of the implementation of a new business information system. The increases
in inventory of $10.5 million and accounts receivable of $7.0 million, due to
the increased volume of sales, was partially offset by accrued liabilities and
accounts payable of $3.2 million and $5.5 million. Work in process increased
$2.8$0.9 million in the first nine months of fiscal 1998 and raw materials increased
$7.8 million as production rose to meet higher sales demand.
Capital expenditures were $4.8 million in the nine-monththree-month period ended DecemberJune 27,
1997. Capital expenditures1998 were incurred principally in the upgrade of the
Company's business information systemsmanufacturing tooling and acquisition of tooling to expand
manufacturing capacity.investments in
computer and telephone equipment.
In the nine-monththree-month period ended DecemberJune 27, 1997,1998, the Company sold 42,24514,168 shares of
its Treasury Stock for $0.8 million, repurchased 6,500 shares of its Common
Stock for $0.1$0.5 million and received $2.1$0.3 million in proceeds from
the exercise of stock options.
The Company's Board of Directors voted for a stock repurchase
plan effective beginning the fourth quarter of fiscal 1998. The Company is
authorized to repurchase up to an aggregate of 500,000 shares of its common
stock, depending upon market conditions, in open market transactions occurring
from time to time. The maximum of 500,000 shares represents approximately 3% of
the 16,550,899 shares outstanding as of December 27, 1997.
The Company has Senior Notes that were issued during fiscal 1994, in athe remaining principal
amount of $65.1 million, outstanding
that bear interest, payable semi-annually,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 thetheir Senior Notes in the event of a "change in control" and certain
various definedcustomary events of default.
The Company believes that its current balancescash balance and cash to be 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 and to fund operations at least through fiscal 1998.the next 12 months. Subject
to the terms and conditions of the 10% Senior Note Indenture and the Company's
revolving credit facility, the Company may use available cash for such purposes as
paying down
the line of credit, repurchasing Senior Notes, repurchasing the Company's Common Stock or acquiring
complementary businesses, products or technologies.
109
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:RESULTS
Plantronics participates in an increasingly volatile industry that is
characterized by industry-wide competition for business. Industry participants
confront aggressive pricing practices, continually changing customer demand
patterns, growing competition from new market entrants, and increasingly rapid
technological development. In accordance with the provisions of the Private
Securities Litigation Reform Act of 1995, the cautionary statements set forth
below discuss important factors that could cause actual results to differ
materially from the projected results contained in theany forward-looking
statements in this report.report or otherwise made orally or in writing by the Company.
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS.MARKETS
The Company's net sales to date have been derived principally from the sale of
lightweight communications headsets ("tops") and associated telephone adapter
amplifier bases ("bottoms"). Historically, a substantial amount of the Company'scompany's
sales have been made through distributors to call center users such as
telemarketing personnel, reservation agents, telephone operators and air traffic
controllers. The Company has recently expanded its marketing efforts to sell lightweight
communications headsets to the business, computer, mobile and home office user market
segments. The Company's product development efforts historically have been
directed toward incremental enhancements of existing products. The Company intends to both continue
enhancement of its existing products and developdevelopment
of new products that capitalize on its core technologies and thus expand the
Company's product offerings to new user market segments. The success of new
product introductions is dependent on severala number of factors, including proper new
product selection, timely completion and introduction of new product designs,
cost-effective manufacture of such products, quality of new products and market
acceptance. To be successful in the future, the Company'sCompany must be able to develop
new products, qualify these new products with its customers, successfully
introduce these products to the market on a timely basis, and commence and
sustain volume production to meet customer demands. Although the Company has
attempted to determine the potential market
segments where its present and potential future products can be sold, there can
be no assurance that the market segments identified will in fact materialize
with significant sales volumes. Although the Company has attempted to determine
the specific needs of these new market segments, there is no
assurance that the Company's present and future products designed for thesesuch new
market segments will gain substantial market acceptance. As set forthdiscussed below,
there is no assurance
that new products can be manufactured cost-effectively to meet the potential
demandeven if the market segments develop and the Company's products meet the needs of
users within thosethe potential market segments.
COMPETITION.segment, there is no assurance that the Company can cost
effectively manufacture such products.
COMPETITION
The Company encounters aggressive competition in all areas of its business
activity. The Company competes primarily on the basis of technology,
performance, price, quality, reliability, distribution, and customer service and
support. 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
communications 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.
The Company's two largest competitors in the call center market segment, GN
Netcom and ACS Wireless, Inc., announced an agreement under which they merged to
form a single company. The effects of such a merger cannot yet be determined.
However, such effects could include increased price competition in various
market segments and impact the Company's gross margins.
DEMAND OF CHANGING TECHNOLOGIES.TECHNOLOGIES
The technology of telephone headsets, both "tops" and "bottoms," has
traditionally evolved slowly. Products have traditionallyhistorically exhibited life cycles
of three to five years before introduction of the next generation of products.
10
11
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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, wireless telephone and computer uses in the business and home office
market segments. In addition, in order to avoid product obsolescence, the
Company will have to monitor technological changes in telephonytelephone and computer
technologies, as well as users'the demands of users for new technologies. TheIn the
start-up phase of new products or new manufacturing processes, the Company may
experience fluctuations in manufacturing yields that can materially affect the
Company's operations, particularly in the
start-up phase of new products or new manufacturing processes.operations.. The Company's future success will be dependent in part on
its ability to successfully develop and manufacture products
11
12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS that utilize new technologies and to introduce
them successfully to the marketplace. Failure by the Company to keep pace with
future technological changes could materially adversely affect the Company's
revenues and operating results.
RISKS RELATED TO GROSS PROFIT.PROFIT
The Company's gross profit percentage is a function of the product mix sold in
any period. Therefore, the gross profit percentage may fluctuate, affecting the
Company's operating results. Factors such as unit volumes, obsolescence/surplus
of inventory, heightened price competition, changes in channels of distribution,
shortages and cost increases in supplies of component parts from vendors, and
the availability and cost of labor, also may cause fluctuations in gross profit
percentages.
NEED TO MATCH PRODUCTION TO DEMAND.DEMAND
Historically, the Company has seen steady increases in customer demand for its
products and has generally been able to increase production to meet that demand. However, there is no assurance that the
Company will continue to be able to balance production with demand.
Demand for the Company's products is dependent on many factors and such demand
is inherently difficult to forecast. Rapid increases in production levels could
require expenditures that may negatively affect gross margins and may result in
decreased manufacturing yields. Failure to balance demand and production could
result in excesses or shortages of components and parts and excesses or
shortages of manufacturing capacity. Failure to meet demand could result in the
inability to meet customer expectations and adversely affect the Company's
operations and operating results.
RELIANCE UPON SUPPLIERS.SUPPLIERS
The Company's manufacturing operations primarily consist of assembly of
components and subassemblies that Plantronics manufactures or purchases from a
variety of sources. The cost, quality, and availability of such components are
essential to the successful production of the Company's communications products.
Most components and subassemblies used in the Company's manufacturing operations
are obtained, or are reasonably available, from numerous sources. However,
certain of its subassemblies and components are currently obtained only from
single suppliers. The Company currently purchases those goods on a purchase
order basis. The Company periodically experiences constrained supply of certain
component parts and such constraints, if persistent, may adversely affect
operating results until alternate sourcing can be developed. To date, the
Company has experienced only minor interruptions in the supply of necessarythese
components, none of which has 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.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 orapplications.
There also can be no assurance 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
11
12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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. TheSALES
Approximately 30.7% of the Company's net sales in fiscal 1998 were derived from
customers outside the United States and foreign customers.States. In addition, the Company conducts
the majoritysubstantially all of its headset assembly operations outside the United
Statesin its Mexican
manufacturing facility and obtains most of the components of its products from
various foreign suppliers. Offshore operations are subject to certain inherent
risks, including delays in transportation, changes in governmental policies,
taxes, tariffs and import/export regulations, political unrest, fluctuations in
currency exchange rates and geographic limitations on management controls and
reporting. There can be no assurance that the inherent risks of offshore
operations, particularly in Mexico, will not adversely affect the Company's
business, operating results and financial condition in the future.
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 sells its products 12
13
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
could
adversely affect the Company by resulting in less competitive pricing for the
Company's products. Substantial increases in the values of local currencies
relative to the United States dollar in countries in which the Company purchases
components or assembles products could adversely affect the Company by
increasing the cost of its products, decreasing margins or possibly requiring
less competitive pricing because of resulting price increases. 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.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.
CONCLUSION.CONCLUSION
Because of the foregoing factors, as well as other variables affecting or which
could affect the Company's operating results, past financial performance should
not be considered a reliable indicator of future performance. Investors should
not rely upon historical trends to anticipate results or trends in future
periods.periods
12
13 14
PLANTRONICS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a)(a ) Exhibits. The following exhibit is filed as part of this Quarterly
Report on Form 10-Q.
Exhibit Description
Number Description
------ -----------
-------
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 27, 1997.1998.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
1413
1514
PLANTRONICS, INC.
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)
FEBRUARY 10, 1997 /s/ John KnutsonAUGUST 6, 1998 s\ Barbara V. Scherer
- ------------------------------- --------------------------------------------- ----------------------------
(Date) (Signature)
John KnutsonBarbara V. Scherer
Senior Vice President
-Legal, Senior
General Counsel and Secretary
FEBRUARY 10, 1997 /s/ Mark NelsonAUGUST 6, 1998 s\ Barbara V. Scherer
- ------------------------------- --------------------------------------------- -----------------------------
(Date) (Signature)
Mark Nelson
Controller
(Chief AccountingBarbara V. Scherer
Senior Vice President -
Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
1514
1615
PLANTRONICS, INC.
EXHIBIT INDEX
Exhibit Number
- --------------
27.1 Financial Data Schedule
15