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 June 27,September 26, 1998 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
- ---------------------------------------- --------------------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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 June 27,September 26, 1998
---------------------------- ----------------------------- ----------------------------- ---------------------------------
Common Stock, $.01 par value 16,497,43616,550,563
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
MARCH 28, JUNE 27,SEPTEMBER 26,
1998 1998
========= ====================== =============
ASSETS
Current assets:
Cash and cash equivalents $ 64,901 $ 82,34095,100
Accounts receivable, net 41,550 43,51545,063
Inventory 29,741 27,91421,931
Deferred income taxes 2,130 2,130
Other current assets 1,774 958
-------- --------1,488
------------- -------------
Total current assets 140,096 156,857165,712
Property, plant and equipment, net 21,255 20,61420,531
Other assets 4,124 3,706
======== ========3,354
============= =============
Total Assets $165,475 $181,177
======== ========assets $ 165,475 $ 189,597
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,327 $ 6,1115,171
Accrued liabilities 26,629 26,34828,351
Income taxes payable 6,381 10,835
-------- --------9,196
------------- -------------
Total current liabilities 41,337 43,29442,718
Deferred tax liability 5,652 5,652
Long-term debt 65,050 65,050
-------- --------------------- -------------
Total liabilities 112,039 113,996
-------- --------113,420
------------- -------------
Stockholders' equity:
Common stock, $0.01 par value per share; 40,000 shares authorized,
16,449 shares and 16,49716,551 shares issued and outstanding 174 174177
Additional paid-in capital 63,816 64,833
Accumulated other comprehensive income:
Foreign currency70,684
Cumulative translation adjustment (891) (891)
Retained Earnings 15,355 27,826
-------- --------41,439
------------- -------------
78,454 91,942111,409
Less: Treasury stock
(common: 963 shares in fiscal year 1998 and 9491,121
shares as of June 27,September 26, 1998) at cost 25,018 24,761
-------- --------(25,018) (35,232)
------------- -------------
Total stockholders' equity 53,436 67,181
-------- --------76,177
------------- -------------
Total liabilities and stockholders' equity $165,475 $181,177
======== ========$ 165,475 $ 189,597
============= =============
See Notes to Unaudited Condensed Consolidated FinancialFiancial 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)
QUARTER ENDED -----------------------------
JUNE 28, JUNESIX MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26,
1997 1998 ========== =========1997 1998
================== =============== =============== ===============
Net sales $ 54,02356,539 $ 70,06071,150 $ 110,562 $ 141,210
Cost of sales 24,956 31,897
-------- --------26,003 32,192 50,959 64,089
------------------ --------------- --------------- ---------------
Gross profit 29,067 38,163
-------- --------30,536 38,958 59,603 77,121
------------------ --------------- --------------- ---------------
Operating expense:
Research, development and engineering 3,989 4,4704,395 4,535 8,384 9,005
Selling, general and administrative 11,467 14,102
-------- --------11,375 13,760 22,842 27,862
------------------ --------------- --------------- ---------------
Total operating expenses 15,456 18,572
-------- --------15,770 18,295 31,226 36,867
------------------ --------------- --------------- ---------------
Operating income 13,611 19,59114,766 20,663 28,377 40,254
Interest expense, including amortization of debt
issuance costs 1,754 1,7361,737 1,852 3,493
3,588
Interest income and other income, net (356) (485)
-------- --------(744) (1,208) (1,102) (1,693)
------------------ --------------- --------------- ---------------
Income before income taxes 12,213 18,34013,773 20,019 25,986 38,359
Income tax expense 3,908 5,869
-------- --------4,407 6,406 8,315 12,275
------------------ --------------- --------------- ---------------
Net income 8,305 12,4719,366 13,613 17,671 26,084
Other comprehensive income -- -- -------- ---------- --
Comprehensive income $ 8,3059,366 $ 12,471
======== ========13,613 $ 17,671 $ 26,084
================== =============== =============== ===============
Basic earnings per common share $ 0.57 $ 0.82 $ 1.07 $ 1.58
================== =============== =============== ===============
Shares used in basic per share calculations 16,500 16,513 16,450 16,494
================== =============== =============== ===============
Diluted earnings per common share $ 0.51 $ 0.76
======== ========
Shares used in basic per share calculations 16,399 16,474
======== ========
Diluted earnings per common share0.74 $ 0.470.98 $ 0.68
======== ========1.43
================== =============== =============== ===============
Shares used in diluted per share calculations 17,820 18,213
======== ========18,356 18,341 18,086 18,291
================== =============== =============== ===============
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)
QUARTERSIX MONTHS ENDED
---------------------------
JUNE 28, JUNE--------------------------------------------
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
========= ============================= ======================
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 8,30517,671 $ 12,47126,084
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment
776 1,575
Changes in assets and liabilities: 1,772 2,272
Accounts receivable (2,164) (2,163)(3,633) (4,164)
Provision for doubtful accounts 12 198110 651
Inventory (2,445) 1,827(3,465) 7,810
Other current assets (20) 816301 286
Other assets 460 418499 770
Accounts payable 1,289 (2,216)1,300 (3,156)
Accrued liabilities 1,209 (281)1,705 1,722
Income taxes payable 2,897 4,905
--------- --------565 7,744
-------------------- ----------------------
Cash provided by operating activities 10,319 17,550
--------- --------16,825 40,019
-------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,389) (934)
--------- --------(3,946) (1,548)
-------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (116) --(10,568)
Proceeds from sale of treasury stock 403 536567 769
Proceeds from exercise of stock options 126 287
--------- --------625 1,527
-------------------- ----------------------
Cash provided by (used for) financing activities 413 823
--------- --------1,076 (8,272)
-------------------- ----------------------
Net increase (decrease) in cash and cash equivalents 8,343 17,43913,955 30,199
Cash and cash equivalents at beginning of period 42,262 64,901
========= ============================ ======================
Cash and cash equivalents at end of period $ 50,60556,217 $ 82,340
========= ========95,100
==================== ======================
Supplemental disclosures:
Cash paid for:
Interest -- --$ 3,267 $ 3,262
Income taxes $ 1,0128,850 $ 2,2295,764
Noncash operating and financing activities:
Income tax benefit associated with stock options -- $ 259 4514,929
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 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 28, 1998.
NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31 (i.e. March 27, 1999) and the firstsecond fiscal quarter-end is the last
Saturday closest to June 30in September (i.e. June 28,September 27, 1997 or June 27,September 26, 1998, as
applicable). Plantronics' fiscal quarters ended June 28,September 27, 1997 and June 27,September
26, 1998 consisted of thirteen weeks each.
NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 28, June 27,September 26,
1998 1998
========= ====================== =============
Inventories:
Finished goods $13,224 $13,152$ 13,224 $ 12,010
Work in process 4,431 3,7782,152
Purchased parts 12,086 10,984
------- -------
$29,741 $27,914
======= =======7,769
------------- -------------
$ 29,741 $ 21,931
============= =============
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 10-4010-30 years) 9,486 9,8919,901
Machinery and equipment (useful lives: 4-82-10 years) 31,484 32,013
-------- --------32,617
------------- -------------
45,663 46,59747,211
Less accumulated depreciation (24,408) (25,983)
======== ========
$21,255 $20,614
======== ========(26,680)
============= =============
$ 21,255 $ 20,531
============= =============
NOTE 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).income. Aggregate exchange lossesgains in the fiscal quarter
ended June 27,September 26, 1998 were approximately $0.3$0.2 million. There were
approximately $0.1 million in exchange losses in the comparable period ended
June 28,September 27, 1997.
NOTE 5. COMMON AND TREASURY STOCK. As of September 26, 1998, approximately
10,000 shares remained available under the repurchase plan authorized in the
third quarter of fiscal 1998. During the second quarter of fiscal 1999 the
Company's Board of Directors approved a plan to repurchase up to 500,000 shares
of its common stock. The total shares available for repurchase under the two
plans as of September 26, 1998 was approximately 510,000 shares. From September
27, 1998 through November 4, 1998, the Company repurchased 105,800 shares for
approximately $5.4 million. As of November 4, 1998, the total shares available
for repurchase was approximately 404,200 shares.
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. STOCK OPTION PLAN. By vote at the Annual Meeting held July 30, 1998, the
Company's stockholders approved an increase of 1,300,000 shares of common stock
issuable under the Company's 1993 Stock Plan (the "1993 Stock Plan"). This
brings the maximum aggregate number of shares which may be optioned and sold
under the 1993 Stock Plan to 5,459,242 shares.
NOTE 7. COMPREHENSIVE INCOMEINCOME. Effective March 29, 1998, the Company adopted
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.stockholders of the Company. The 5
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Company doesdid not have other comprehensive income
transactions within the quarterquarters ended June 27,1998September 26, 1998 and June 28,September 27, 1997.
Cumulative balances in stockholders'
equity and the financial statement format have been presented in compliance with
SFAS 130.
NOTE 6.8. RECENT ACCOUNTING PRONOUNCEMENTSPRONOUNCEMENTS. 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 in connection with its fiscal 1999 closing in compliance with SFAS 131financial statements and does
not expect such adoption to have a material effect on the consolidated financial
statements.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONSCONDITION 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 lookingforward-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 lookingforward-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.
QUARTER ENDED
---------------------------
June 28, June----------------------------------- ------------------------------------
Quarter Ended Six Months Ended
----------------------------------- ------------------------------------
September 27, September 26, September 27, September 26,
1997 1998 ======== =========1997 1998
================ ================ ================ ================
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 46.2 45.5
--------- ---------46.0 45.2 46.1 45.4
---------------- ---------------- ---------------- ----------------
Gross profit 53.8 54.5
--------- ---------54.0 54.8 53.9 54.6
---------------- ---------------- ---------------- ----------------
Research and development 7.47.8 6.4 7.6 6.4
Selling, general and admin. 21.2 20.1 --------- ---------19.4 20.6 19.7
---------------- ---------------- ---------------- ----------------
Total operating expenses 28.6 26.5
--------- ---------27.9 25.8 28.2 26.1
---------------- ---------------- ---------------- ----------------
Operating income 25.2 28.026.1 29.0 25.7 28.5
Other (income) expense 2.6 1.8 --------- ---------0.9 2.2 1.3
---------------- ---------------- ---------------- ----------------
Income before income taxes 22.6 26.224.4 28.1 23.5 27.2
Income tax expense 7.2 8.4
--------- ---------7.8 9.0 7.5 8.7
---------------- ---------------- ---------------- ----------------
Net Income 15.4% 17.8%16.6 19.1 16.0 18.5
Other comprehensive income -- -- --------- ----------- --
---------------- ---------------- ---------------- ----------------
Comprehensive income 15.4% 17.8%
========= =========16.6% 19.1% 16.0% 18.5%
================ ================ ================ ================
Net sales for the quarter ended June 27,September 26, 1998 were $70.1$71.2 million, an
increase of 29.8%25.8% over net sales of $54.0$56.5 million for the quarter ended
June 28,September 27, 1997. Domestic revenues grew by 22.3%30.5% to $50.6 million while
international revenues grew by 49.1%15.7% to $20.6 million, compared to the same
period of fiscal 1998. Net sales for the six months ended September 26, 1998
were $141.2 million compared to $110.6 million for the six months ended
September 27, 1997, an increase of 27.7%. Domestic sales in the first half of
fiscal 1999 were $98.6 million, an increase of 26.4% over the first half of
fiscal 1998. International sales were $42.6 million in the first half of fiscal
1999, an increase of 30.9% over the comparable period inof fiscal 1997.
Gross profit of $38.2 million for the quarter ended June 27, 1998 increased by
$9.1 million over the quarter ended June 28, 1997, a 31.3% increase. The overall
increases in gross profits principally reflect the overall increase in1998.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS
Gross profit of $39.0 million for the quarter ended September 26, 1998 increased
by $8.4 million over the quarter ended September 27, 1997, a 27.6% increase.
Gross profit for the first two quarters of fiscal 1999 was $77.1 million, an
increase of 29.4% over the comparable period of fiscal 1998. The increase in
gross profit mainly reflects the overall increase in revenues, with continuing
benefits from shifts in product mixmanufacturing efficiencies and efficiencies due to
increased volumes.cost reduction programs. Changes in
material and labor costs, and changes in distribution channels and reductions in
prices 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 June 27,September
26, 1998 were $4.5 million compared to $4.0$4.4 million for the quarter ended
June 28,September 27, 1997. Expenses for the first half of fiscal 1999 were $9.0 million
compared to $8.4 million for the first half of fiscal 1998. Increases in
expenses were associated withthe result of higher levels of research and development spending
on new product technology. The Company recognizes the necessity to balance
the cost of researchdevelopment and development with expense control.new product technologies.
Selling, general and administrative expenses for the quarter ended June 27,September 26,
1998 were $14.1$13.8 million compared to $11.5$11.4 million for the quarter ended
June 28,September 27, 1997. For the first half of fiscal 1999, expenses were $27.9
million, an increase of $5.0 million over the first half of fiscal 1998. The
overall increases in selling, general and administrative expenses in the second
quarter and first quarterhalf of fiscal 1999 were from costs associated with higher
sales volume worldwide and related variable expenses, such as sales commissions
and employee profit sharing.sharing, as well as the expansion of sales and marketing
programs. General and administrative expenses also increased due to the addition
of an office of the President and a Vice President of Corporate Development. In
addition, the Company increased its provision for doubtful accounts in light of
general economic conditions, particularly internationally.
Interest expense offor the quarter ended September 26, 1998 was $1.9 million
compared to $1.7 million wasfor the same inquarter ended September 27, 1997. For the first
half of fiscal 1999, interest expense was $3.6 million compared to $3.5 million
for the corresponding period in fiscal 1998. The increase in interest expense is
due to an increase in amortization of deferred debt costs. Interest income and
other income for the second quarter of fiscal 1999 andwas $1.2 million compared to
$0.7 million for the firstsecond quarter of fiscal 1998. Interest income and other
income of
$0.5was $1.7 million for the first quarter of fiscal 1999 resulted in a net interest
expense of $1.3 million, slightly down from the net interest expense of $1.4six months ended September 26, 1998 compared to
$1.1 million for the same periodsix months ended September 27, 1997. The increase in fiscal 1998. The reduction in interest expense,
net of
interest income and other income for both the quarter and half year is primarily
attributable to interest income derived from increases in cash and cash
equivalents.
The Company's cash flows are substantially 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 largelypartially offset by
payables denominated in local currency. This natural hedging approach has
historically 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 companyCompany 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
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.
LossesGains due to foreign currency fluctuations approximated $0.3$0.2 million for the
firstsecond quarter of fiscal 1999 compared to a $0.1 million loss in same period of
fiscal 1998, due primarily to weakeningstrengthening of the pound sterling against the US
dollar.
The Company's effective tax rate was 32% in the quarters ended June 27, 1998 and
June 28, 1997.
FINANCIAL CONDITION:
The Company's principal source of liquidity in the three-month period ended June
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, 1997, of
which $8.3 million was from net income. In the current period, increases in
depreciation and amortization and in income taxes payable with decreases in
inventory represented the majority of the balance of cash provided by operating
activities.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS
The Company's effective tax rate was 32% in the quarters ended September 26,
1998 and September 27, 1997.
FINANCIAL CONDITION:
The Company's principal source of liquidity in the six months ended September
26, 1998 was $40.0 million of cash generated from operating activities, due
primarily to $26.1 million in net income, compared to $16.8 million in cash
generated from operating activities for the same period ended September 27,
1997, of which $17.7 million was from net income. In the current period,
decreases in inventory and increases in income taxes payable, together with
depreciation and amortization expense, represented the majority of the balance
of cash provided by operating activities.
The Company has a $20.0 million revolving credit facility, including a $10.0
million letter of credit subfacility, with a major bank. As of June 27,September 26,
1998, the Company had no cash borrowings under the revolving credit facility and
$2.2$1.3 million outstanding under the letter 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.
Capital expenditures of $0.9$1.5 million in the three-monthsix-month period ended June 27,September 26,
1998 were incurred principally in tooling to expand manufacturing toolingcapacity and
investments in computer and telephone equipment.
In the three-monthsix-month period ended June 27,September 26, 1998, the Company sold 14,16819,510 shares
of its Treasury Stock for $0.5approximately $0.8 million and repurchased 178,000
shares of its Common Stock for approximately $10.6 million. As of September 26,
1998, approximately 10,000 shares remained available under the repurchase plan
authorized in the third quarter of fiscal 1998. During the second quarter of
fiscal 1999 the Company's Board of Directors approved a plan to repurchase up to
500,000 shares of its common stock. The total shares available for repurchase
under the two plans as of September 26, 1998 was approximately 510,000 shares.
From September 27, 1998 through November 4, 1998, the Company repurchased
105,800 shares for approximately $5.4 million. As of November 4, 1998, the total
shares available for repurchase was approximately 404,200 shares.
The Company received $0.3$1.5 million in proceeds from the exercise of stock options.options
during the six months ended September 26, 1998. The Company's stockholders
approved an increase of 1,300,000 shares of common stock issuable under the
Company's 1993 Stock Plan (the "1993 Stock Plan"). This brings the maximum
aggregate number of shares which may be optioned and sold under the 1993 Stock
Plan to 5,459,242 shares.
The Senior Notes that were issued during fiscal 1994, in the remaining principal
amount of $65.1 million, 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, 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 their Senior Notes in the event of a "change in control" and certain
various customary events of default.
The Company believes that its current cash 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 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 cash for such purposes as
repurchasing Senior Notes, repurchasing the Company's Common Stock or acquiring
complementary businesses, products or technologies.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS
YEAR 2000:
STATE OF READINESS:
Many existing electronic systems, principally including but not limited to
computer systems, use only the last two digits to refer to a year. Therefore,
these systems may recognize a date using "00" as 1900 rather than the year 2000.
If not corrected, many computer and other electronic applications and systems
could fail or create erroneous results when addressing dates on and after
January 1, 2000. The products manufactured and sold by the Company do not
address or utilize dates in their operation and there is no risk that the
Company's products will fail based upon the Year 2000 problem. However, the
Company has information technology systems (including business information
computer systems and design and manufacturing computer systems upon which the
Company is dependent) and other machinery and equipment that includes embedded
date sensitive technology (including manufacturing test equipment and other
similar equipment). There is risk that the Company's internal information
systems, its suppliers, or its customers may have Year 2000 compliance problems
which, if not remedied, could have a material adverse impact on the operations
of the Company. The Year 2000 problems can arise at any point in the Company's
supply, manufacturing, processing, distribution and financial chains. Incomplete
or untimely resolution of the issue by the Company, key suppliers, customers and
other parties could have a material adverse effect on the Company's results of
operations, financial condition and cash flows. The Company is addressing those
concerns. The Company has established a worldwide Year 2000 task force, led by
an Executive Steering Committee of the Company's senior management, including
representatives of each of the Company's business segments and corporate
functions, to oversee and regularly review the status of the Company's Year 2000
compliance plan.
The Company, through its Year 2000 task force, is proceeding with implementation
of a formal Year 2000 compliance program. The compliance program addresses three
key elements: (1) Internal Infrastructure, addressing internal hardware and
software and non-information technology systems; (2) Supplier Readiness,
addressing the preparedness of the Company's suppliers of goods and services;
and (3) Customer Readiness, addressing the preparedness of the Company's
customer support and the preparedness of the customers of the Company to
transact business with the Company. In each of those compliance areas, the
Company is systematically performing a global risk assessment, conducting
testing and upgrade, communicating with and assisting suppliers and customers in
raising awareness of the Year 2000 issues and developing contingency plans to
mitigate known and unknown Year 2000 risks. The status of the compliance efforts
in those three areas is set forth below:
INTERNAL INFRASTRUCTURE: The Company is assessing all internal applications and
computer software and hardware. The Company's key business information systems
have been made Year 2000 compliant. Resources have been assigned to address
other applications, such as product testing and product design hardware and
software, based upon their criticality and the time required to bring them into
full Year 2000 compliance. The Company expects that all its critical business
information systems and other critical applications will be fully Year 2000
compliant by June, 1999.
SUPPLIER READINESS: This program focuses on minimizing the risks associated with
supplier Year 2000 issues in two areas: (1) the suppliers' business capability
to continue providing products and services in and after the year 2000 and (2)
the Year 2000 readiness of products supplied to the Company for its use.
Requests for information and certification of compliance have been and are being
sent to principal and critical suppliers of the Company. The Year 2000 task
force is monitoring responses from suppliers and following up where necessary
and appropriate. The Company expects that it will have certification from its
principal and critical suppliers of goods and services by July, 1999.
CUSTOMER READINESS: This program focuses on ensuring that customers are aware of
the Year 2000 issues and that customers are capable of placing orders for the
Company's products, receiving products ordered and paying the invoices of the
Company for products sold and delivered. Requests for information and
certification of Year 2000 compliance will be sent to the Company's significant
customers prior to January 1, 1999. Thereafter, the
10
11
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year 2000 task force will follow up with customers where necessary and
appropriate. The Company expects that it will have certification from its
principal customers by August, 1999.
COSTS TO ADDRESS YEAR 2000 ISSUES:
The Company currently estimates that the aggregate cost of its Year 2000 efforts
will be approximately $1.2 million, of which approximately $0.4 million has been
incurred to date. The costs consist principally of (1) fees paid to outside
consultants and software programmers, (2) purchase of telephone PBX systems
which require upgrade to be Year 2000 compliant and (3) purchase of software and
software upgrades to meet the Year 2000 issue. The funds expended and to be
expended are being funded through operating cash flows. Approximately $0.5
million of the total cost will be capitalized, with the balance expensed as
incurred.
RISKS OF THE YEAR 2000 ISSUES:
The Company believes that its internal Year 2000 compliance efforts will be
successful and there will be no material impact to the Company by reason of the
failure or malfunction of any Company owned or operated systems. However,
because the Company's Year 2000 compliance is dependent upon key third parties
also being Year 2000 compliant on a timely basis, there can be no guarantee that
the Company's efforts will prevent a material adverse impact on its results of
operations, financial condition and cash flows. The possible consequences to the
Company by reason of it or its business partners not being fully Year 2000
compliant could include temporary closing of some portion or all of the
Company's manufacturing plant, delays in the delivery of finished products,
delays in the receipt of key ingredients, containers and packaging supplies,
invoice and collection errors, and inventory and supply obsolescence. These
consequences could have a material adverse impact on the Company's results of
operations, financial condition and cash flows if the Company is unable to
conduct its business in the ordinary course. The Company believes that its
readiness program, including the contingency plans discussed below, should
significantly reduce the adverse effect any such disruptions may have.
CONTINGENCY PLANS:
The Company is developing contingency plans to mitigate the potential
disruptions that may result from the Year 2000 issue. The Company expects to
substantially complete its contingency planning by July, 1999. These plans may
include identifying and securing alternate suppliers of ingredients, containers,
packaging materials and utilities, adjusting manufacturing facility production,
shutdown and start-up schedules, stockpiling of finished product inventories and
other measures considered appropriate by management. Once developed and
approved, contingency plans, and the related cost estimates, will be continually
refined as additional information becomes available.
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in the stock or notes of 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,should
carefully consider the risks described below. The business, financial condition
and increasingly rapid
technological development. In accordance with the provisionsresults of operations of Plantronics could be materially adversely affected
if any of the Private
Securities Litigation Reform Actrisks occur. If the risks occur, the trading price of 1995, the cautionaryPlantronics
stock could decline and an investor could lose all or part of his or her
investment.
This report also contains certain forward-looking statements. From time to time,
Plantronics may also make oral or other written forward-looking statements. Such
forward-looking statements set forth
below discuss important factors thatnecessarily involve risks and uncertainties. Actual
results could cause actual results to differ materially from the projected results containedthose anticipated in anythose forward-looking
statements as a result of many factors, including the risks faced by Plantronics
described below and elsewhere in this report or otherwise made orally or in writing byreport.
11
12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE BUSINESS:
HEADSETS:
The primary business of Plantronics is the Company.
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS
The Company's net sales to date have been derived principally from themanufacture and sale of lightweight
communications headsets ("tops")headsets. Headsets generally consist of a headset "top" worn on
the head or ear and associatedan amplifier "bottom" that connects to the telephone,
adapter
amplifier bases ("bottoms"). Historically, a substantial amount ofcomputer or call distribution system. Many telephones and call distribution
systems are now being equipped with headset ports, into which the company's
sales have been madeheadset top
can be directly plugged. Headsets used with computers may also plug directly
into the computer sound card or other audio input.
HANDSETS:
Plantronics, through distributors toits Walker Equipment Division, also manufactures and sells
communications handsets. The Walker handsets are principally used as original
and replacement handsets for pay telephones, elevator phones, and other non-home
telephones. Noise-canceling handsets are manufactured and sold for use with
telephones, computers and other products in high-noise environments. Specialized
handsets for use in testing telephone lines and equipment are also manufactured
and sold under the Walker label. The Walker Equipment Division also sells
specialty telephones for use by the hearing-impaired.
THE MARKET SEGMENTS:
Plantronics' headset products are employed worldwide by users in large and small
call centercenters. The users such asinclude telemarketing personnel, reservation agents,
customer support personnel and telephone operatorsoperators. Call centers range in size
from very small technical support groups to very large organizations with
literally thousands of users. Call center personnel are on the telephone
constantly and air traffic
controllers. The Company has expanded its marketing efforts to sell lightweight
communicationsa headset is generally thought of as a required piece of
equipment. Plantronics estimates that the call center segments account for the
majority of Plantronics sales today.
Plantronics also sells headsets tofor users in the business mobile and home office user
market segments.segment. Telephone headset users in this segment consist of people whose
occupations may require intensive (but not constant) use of a telephone.
Headsets are also used with mobile and cellular telephones, for both business
and home use. Finally, also in the business and home office segment, headsets
can be connected to computers for such applications as multimedia programs,
voice recognition programs, computer games and computer telephony.
The Company's product development efforts historically have been
directed toward incremental enhancementhandset products offered by the Walker Equipment division are used in many
different public telephone settings and as specialty replacement handsets for
home and business telephones. The Walker Equipment telephones for the hearing-
impaired are sold both for home and business users who benefit from the special
assistance that the Walker Equipment products provide.
DISTRIBUTION:
Plantronics sells its products principally through a worldwide network of
its existingindependent distributors. Those distributors resell the headsets and handsets to
dealers, to government purchasers, or to end-users. Products are also sold to
retailers such as office supply and consumer electronics stores, mail order
catalogs, warehouse clubs and office supply distributors. In addition,
Plantronics manufactures products under private labels for other companies, who
then sell the products under their own names. Finally, Plantronics sells
directly to certain large users, such as telephone operating companies and development
of new productsother
companies 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 onemploy a large 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 successfulpeople in telephone-intensive jobs.
COMPETITION:
COMPETITIVE PRESSURE:
Plantronics has strong competitors. Plantronics' two largest competitors in the
future, the Company 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 specific needs of newcall center market segments, there is no
assuranceGN Netcom and ACS Wireless, Inc., recently merged
to form a single company. The effects of that the Company's present and future products designed formerger cannot yet be determined.
However, such new
market segments will gain substantial market acceptance. As discussed below,
even if the market segments develop and the Company's products meet the needs of
the potential segment, there is no assurance that the Company can cost
effectively manufacture such products.
COMPETITION
The Company encounters aggressiveeffects could include increased price competition, in all areas of its business
activity. The Companywhich could
adversely impact Plantronics' gross margins.
12
13
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plantronics competes primarily on the basis of technology, performance, price,
quality, reliability, distribution, and customer service and support. AsTo meet
competition and make or increase sales, Plantronics may have to invest more
heavily in new technologies, reduce its prices or increase the Company develops new generationsservices and
support it provides. Reductions in prices or increases in the costs of making
and supporting its products could reduce the margins that Plantronics makes.
This reduction in margins could, in turn, cause a reduction in net earnings and
enters new
market segments, including the developing business, computer, mobile and home
office user segments ofa resulting decline in the market the Companyprice of Plantronics stock.
POTENTIAL NEW COMPETITORS:
Plantronics anticipates that it maywill face additional competition from companies
whichthat currently do not offer communications headsets. Such companiesThis is particularly true
in the business, home office, wireless telephone and computer market segments.
These new competitors may be larger, offer broader product lines and have
substantially greater financial and other resources than the
Company. SuchPlantronics. To compete
successfully with such new competitors, Plantronics could have to reduce prices
and offer new technologies and increased support. Those efforts to meet
competition could negatively affect pricingmargins and gross margins.
Although the Company has historically competed very successfullyearnings and result in
reductions in the market price of Plantronics stock.
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS:
MEETING CONSUMER NEEDS:
Historically, most sales have been made through independent distributors to call
center segment of the market, there can be no assurance that it will be able to
continue its leadership position inusers. While that segment of the market oris still the most significant
part of its business, Plantronics believes that the Company willbusiness, mobile and home
office user market segments offer substantial growth potential. To be successful
in those segments, Plantronics must be able to compete successfullydevelop new products that meet
the needs of consumers. Although Plantronics has attempted to determine the
specific needs of consumers in these new market segments, there is no assurance
that Plantronics' present and future products will be accepted. If the products
are not accepted by consumers, Plantronics may not achieve the revenue growth
needed to cover the costs of developing, manufacturing and selling the products.
Plantronics could also be left with inventories of obsolete and excess products.
Earnings would be reduced and there could be a loss 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 effectsvalue 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.Plantronics
stock.
DEMAND OF CHANGING TECHNOLOGIESTECHNOLOGIES:
The technology of telephone headsets, both "tops" and "bottoms," has
traditionally evolved slowly. Products have historically exhibitedgenerally had 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 Companytechnologies. Plantronics believes that future changes
in technology maywill come at a faster pace,pace. This is particularly true in the
telephone, wireless telephone and computer usesheadsets
for use 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 telephone and computer
technologies, as well as the demands of users for new technologies. In the
start-up phaseThe development of new
products or new manufacturing processes,technologies requires increased spending for research and development. Those
increased expenses may reduce the Company may
experience fluctuations in manufacturing yields that can materially affect the
Company's operations.. The Company's future success will be dependent in part on
its abilityprofit to develop products that utilize new technologiesPlantronics 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
revenuesimpact
earnings and operating results.stock price.
RISKS RELATED TO GROSS PROFITPROFIT:
RELIANCE UPON SUPPLIERS:
Plantronics buys components and subassemblies from a variety of suppliers. Those
components and subassemblies are then assembled by Plantronics into the finished
products it sells. The Company'scost, quality, and availability of such components are
essential to the successful production of Plantronics communications products.
o There is always the risk that prices of components and subassemblies
will rise and that those cost increases cannot be reflected in sales
price increases in the finished products of Plantronics. If costs rise
faster than sales prices, gross profit percentagemargins would fall and operating
results would be affected.
13
14
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
o Most components and subassemblies are obtained, or are reasonably
available, from numerous sources. However, certain subassemblies and
components are currently obtained only from single suppliers and
alternate sources are not readily available. If those components and
subassemblies were not available to Plantronics when needed,
Plantronics would not be able to manufacture its products to meet
demand. That inability to meet demand would have a negative impact on
revenue and earnings. Alternate sources for those components and
subassemblies could charge more for the materials, decreasing gross
margins and net earnings. To date, Plantronics has experienced only
minor interruptions in the supply of these components and
subassemblies, none of which has adversely affected its operations.
However, an interruption in supply from any of Plantronics' single
source suppliers in the future could temporarily result in
Plantronics' inability to deliver products on a timely basis. The
inability to deliver products would impact revenues. If the inability
to deliver continued over an extended period, there could be a
long-term impact to the competitive position of Plantronics.
o Plantronics does not have supply contracts with most of its suppliers.
Plantronics buys most components and subassemblies on a purchase order
basis. Therefore, there is a functionno contractual requirement that obligates
those suppliers to continue to provide components and subassemblies.
Deliveries to Plantronics could be affected if those suppliers were to
experience increased demand or shortages in their supply. Until
alternate sources of the product mix sold in
any period. Therefore,components and subassemblies are developed,
Plantronics would be unable to manufacture and sell the products
dependent on those components and subassemblies. This would reduce
revenues and earnings. Also, the alternate sources of supply could
charge higher prices, having an impact on 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,
shortagesmargins 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.earnings.
NEED TO MATCH PRODUCTION TO DEMANDDEMAND:
Historically, the CompanyPlantronics has seen steady increases in customer demand for its
products and has generally been able to increase production to meet that demand.
DemandHowever, the demand for the Company'sPlantronics' products is dependent on many factors and
such demand is inherently difficult to forecast.
Rapido If demand increases inbeyond that forecasted, Plantronics would have to
work to rapidly increase its 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 shortagesof the products. Because
Plantronics is dependent upon suppliers providing additional volumes
of components and parts and excesses or
shortages of manufacturing capacity.subassemblies, there is no certainty that
Plantronics could increase production rapidly enough to meet
unforecasted demand. Failure to meet demand could result in the
inability to meet customer expectations and adversely affect
the Company'sPlantronics' operations and operating results. RELIANCE UPON SUPPLIERS
The Company's manufacturing operations primarily consist of assembly ofHowever, rapid
increases in production levels could require higher costs to obtain
the necessary components and subassemblies that Plantronics manufactures or purchases from a
varietyand higher costs 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'sform of overtime and other expenses. Those high
expenditures would negatively affect gross margins. Further, if
production is increased rapidly, there may be decreased manufacturing
operations
are obtained,yields, again affecting gross margins.
o If forecasted demand does not develop, Plantronics would have excess
production. Excess production would result in the holding of higher
inventories of finished goods or are reasonably available, from numerous sources. However,
certaincomponents. While held on the books,
those high inventories would negatively affect earnings. If it were
unable to sell these inventories, Plantronics would have to write off
some or all of its subassemblies and components are currently obtained only from
single suppliers. The Company currently purchases those goodsinventories of obsolete products. Such write-offs
would have a negative impact on a purchase
order basis. The Company periodically experiences constrained supplyearnings.
DIFFERENCES IN PRODUCT MIX:
Different products sold by Plantronics have different gross profit margins.
Therefore, the gross profit percentage in any period depends on the mix of
certain
component parts and such constraints, if persistent, may adversely affect
operating results until alternate sourcing can be developed. To date,products sold in that period. Meeting the Company has experienced only minor interruptions in the supplyneeds of these
components, none of which has adversely affected its operations. However, an
interruption in supply from any of the Company's single source supplierspurchasers in the future may
cause the product mix to change and the gross profit percentage to fluctuate.
This could temporarily resultaffect Plantronics' operating results.
VOLUME SALES:
Plantronics may charge a lower price on certain products to high volume
purchasers to reflect the economies of scale in such large sales and to meet
competition for those accounts. The lower price on the Company's inabilityhigh volume sales results
in a lower gross profit to deliver products
on a timely basis,Plantronics, which in turn could adversely affect its operations.impact earnings.
14
15
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPORTANCE OF PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company'sRIGHTS:
Plantronics' 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 CompanyPlantronics 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 thereexpensive. The costs of these
patents, which Plantronics believes are important to its business, negatively
impact earnings.
There can be no assurance that patents will issue from currently pending or
future applications. There also can be no assurance that the Company'sPlantronics' 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 Companyadvantage.
Plantronics 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'sPlantronics' operations.
RISK ASSOCIATED WITH FOREIGN OPERATIONS AND SALESSALES:
Approximately 30.7% of the Company'sPlantronics' net sales in fiscal 1998 were derived from
customers outside the United States. In addition, the CompanyPlantronics conducts
substantially all of its headset assembly operations in 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.risks. There can be no assurance that the inherent risks of offshore operations,
particularly in Mexico, will not adversely affect the Company'sPlantronics' business,
operating results and financial condition in the future.
AlthoughGEOGRAPHIC RISK:
Given the distances, there may be geographic limitations on management controls
and reporting and potential delays in transportation of components and
subassemblies and finished products.
o It is inherently more difficult to manage foreign operations due to
the distances and time differences. Those problems could adversely
impact the conduct of business and decrease earnings.
o There may be delays in obtaining necessary components and
subassemblies due to the time required to transport the materials and
the increased potential for problems in transportation. Such delays
could impact the manufacture of Plantronics products, causing losses
in revenues from lost sales or increased costs from having to source
the components and materials from alternate sources. Similar delays in
transportation of finished products may prevent the timely supply of
Plantronics products to foreign customers, reducing revenues.
POLITICAL RISK:
There may be changes in governmental policies, import/export regulations, taxes
and tariffs.
o Changes in governmental policies may affect the ability to obtain
critical components and subassemblies or to ship finished products
into the foreign markets. Foreign governments could restrict the
export of components and/or subassemblies critical to the
manufacturing of Plantronics products. This would have an adverse
impact on revenues if there was a resulting inability to manufacture.
There would be adverse effects upon gross margins if Plantronics had
to qualify and use alternate sources for the components and
subassemblies. Foreign governments may also place restrictions on the
import of Plantronics products or require technical modifications as a
condition of sale within the foreign country. Revenues would be
adversely impacted if Plantronics cannot sell products into the
foreign country. If Plantronics must modify its products to make sales
in the country, its costs of manufacturing will increase. If the price
cannot be increased to reflect those costs, margins would be impacted.
If prices are increased to reflect the added costs of compliance,
revenues could be impacted if the higher prices discourage demand.
15
16
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
o Increased taxes could increase the cost of components and
subassemblies, reducing margins and earnings. Similarly, increased
taxes charged to purchasers could reduce demand for Plantronics
products. This reduced demand could reduce revenue.
o Higher tariffs in the import of products into foreign countries could
adversely affect revenues. Higher tariffs raise the cost of
Plantronics products to purchasers in those countries. Those increased
costs to purchasers could reduce demand for Plantronics products and,
in certain cases, make Plantronics products non-competitive to other
similar products.
o Changes in import/export regulations could result in delays in
obtaining components and subassemblies. This could prevent Plantronics
from timely manufacture of its products, decreasing revenues. Delays
in obtaining components and subassemblies could require Plantronics to
turn to alternate sources, which may increase the costs of
manufacture. Similarly, delays in the importation of Plantronics
products into the foreign country can impact revenues. Purchasers may
turn to other sources if they cannot obtain Plantronics products in a
timely manner. If there are significant delays due to changed
import/export regulations, Plantronics may have to provide cost
reductions or extend payment terms to its distributors to reflect the
increased costs to the distributors. Those cost reductions or extended
payment terms would adversely impact earnings.
CURRENCY RISK:
There may be fluctuations in currency exchange rates and Plantronics could be at
risk in both its product sales and purchase of supplies. To date Plantronics has
not been adversely affected by fluctuating currencies. Plantronics does not
currently engage in any hedging activities to mitigate exchange rate risks. This
strategy will require review and the Company generally transacts businessmay experience greater exposure to
currency fluctuations as a result of its increasing international activities. To
the extent that Plantronics is successful in increasing its sales to foreign
customers, or to the extent that Plantronics increases its transactions in
foreign currencies, Plantronics' results of operations could be adversely
affected by exchange rate fluctuations.
Plantronics sells its products internationally in United
States currency,both US dollars and local
foreign currencies. Transactions conducted in US dollars are subject to foreign
exchange risk when declines in the valuesvalue of local currencies relative to the United StatesUS
dollar in countries in which the Company sells its products could
adversely affect the Company by resultingresult in less competitive pricing for Plantronics product. In
transactions conducted in local foreign currencies, a decline in the Company's products.value of
the foreign currency can result in less revenue if Plantronics is unable to
increase prices.
Transactions with Plantronics' suppliers are conducted primarily in US dollars.
Declines in the value of local currencies in countries from which Plantronics
purchases components and subassemblies generally result in lower prices for such
materials. However, to the extent that the currency exchange rates reflect the
underlying economic health of such foreign economies, there is the risk over the
longer term that such foreign suppliers may not continue in business.
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 CompanyPlantronics by increasingcausing suppliers to
increase the cost of their products. In this event, Plantronics would have to
either pass these cost increases on through higher prices to its customers,
possibly making its products decreasing margins or possibly requiring
less competitive, pricing becauseor accept lower margins.
RISKS ASSOCIATED WITH THE YEAR 2000:
While Plantronics is undertaking efforts to ensure that its systems and those of
resulting price increases.its suppliers and customers are compliant with the requirements of the Year
2000, there is no assurance that such efforts will successfully ensure against
disruptions caused by the arrival of the new millennium. The Company doespossible
consequences to Plantronics by reason of it or its business partners not currently engagebeing
fully Year 2000 compliant could include temporary closing of some portion or all
of Plantronics' manufacturing plant, delays in any hedging activities to mitigate exchange rate risksthe delivery of finished
products, delays in the receipt of key ingredients, containers 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'spackaging
supplies, invoice and collection errors, and inventory and supply obsolescence.
These consequences could have a material adverse impact on Plantronics' results
of operations, could be adversely
affected by exchange rate fluctuations.financial condition and cash flows.
16
17
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEPENDENCE UPON SENIOR MANAGEMENT
The CompanyMANAGEMENT:
Plantronics believes that it has benefited substantially from the leadership of
Robert S. Cecil, the Chairman of the Board and Chief Executive Officer of
the
Company,Plantronics, and the other current members of senior management, and that the
loss of their services could have a material adverse effect on the Company'sPlantronics'
business and future operations. Although the CompanyPlantronics 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
Because of the foregoing factors, as well as other variables affecting or which
could affect the Company'sPlantronics' 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
12periods.
17
1318
PLANTRONICS, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The 1998 Annual Meeting of Stockholders of Plantronics, Inc. (the
"Company") was held at The Museum of Art History at the Mcpherson Center,
705 Front Street, Santa Cruz, California on July 30, 1998 (the "Annual
Meeting").
(b) At the Annual Meeting, the following seven individuals were elected to the
Company's Board of Directors, constituting all members of the Board of
Directors:
Nominee Votes Cast For Withheld or Against
------- -------------- -------------------
Robert S. Cecil 15,279,749 55,519
Robert F.B. Logan 15,279,935 55,332
M. Saleem Muqaddam 15,279,835 55,432
John Mowbray O'Mara 15,279,935 55,332
Trude C. Taylor 15,277,935 57,332
J. Sidney Webb 15,277,935 57,332
David A. Wegmann 15,279,935 55,332
(c) The following additional proposals were considered at the Annual Meeting
and were approved by the vote of the Stockholders, in accordance with the
tabulation shown below.
(1) Proposal to increase by 1,300,000 shares the number of shares of
common stock issuable under the Company's 1993 Stock Plan
Votes For Votes Against Abstain Broker Non-Vote
--------- ------------- ------- ---------------
8,253,087 5,676,981 35,442 1,369,757
(2) Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
the independent public accountants of the Company for the fiscal year
ending March 27, 1999.
Votes For Votes Against Abstain
--------- ------------- -------
15,297,074 35,936 2,257
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
Number Description
Number------- -----------
-------
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 June 27,September 26, 1998.
ITEMS 1, 2, 3 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
1318
1419
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)
AUGUST 6,NOVEMBER 10, 1998 s\ Barbara V. Scherer
- -------------- --------------------------------------------- ------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President
AUGUST 6,NOVEMBER 10, 1998 s\ Barbara V. Scherer
- -------------- ---------------------------------------------- ------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President - Finance and
Administration and Chief Financial Officer
(Principal Financial Officer)
1419
1520
PLANTRONICS, INC.
EXHIBIT INDEX
Exhibit Number
- --------------
27.1 Financial Data Schedule
1520