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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 SeptemberDecember 25, 1999 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.)
345 Encinal Street
Santa Cruz, California 95060
- ---------------------------------------- ------------------------------------Delaware 77-0207692
- ------------------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Encinal Street
Santa Cruz, California 95060
- ------------------------------------------ -----------------------------
(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 September 25, 1999
---------------------------- ---------------------------------
Common Stock, $.01 par value 16,559,541
Class Outstanding at December 25, 1999
---------------------------- --------------------------------
Common Stock, $.01 par value 16,178,334
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)(IN THOUSANDS)
MarchMARCH 31, September 30,DECEMBER 31,
1999 1999
--------- -------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,999 $ 38,25935,575
Marketable securities -- 8,854
--------- ---------
Total cash and marketable securities 42,999 47,1138,899
Accounts receivable, net 46,807 45,55044,066
Inventory 18,889 25,73130,720
Deferred income taxes 3,159 3,3306,847
Other current assets 7,880 1,3591,285
--------- ---------
Total current assets 119,734 123,083127,392
Property, plant and equipment, net 20,323 21,93822,496
Other assets 2,811 2,5512,527
--------- ---------
Total assets $ 142,868 $ 147,572152,415
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,453 $ 7,9249,034
Accrued liabilities 33,475 32,52331,917
Income taxes payable 510 1,6718,034
--------- ---------
Total current liabilities 43,438 42,11848,985
Deferred tax liability 10,025 7,48511,119
--------- ---------
Total liabilities 53,463 49,60360,104
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000 shares authorized,
16,798 shares and 16,56016,178 shares issued and outstanding 185 188
Additional paid-in capital 91,423 101,588102,200
Accumulated other comprehensive income (891) (891)
Retained Earnings 69,559 99,880115,288
--------- ---------
160,276 200,765216,785
Less: Treasury stock
(common: 1,669 shares in fiscal year 1999 and 2,2442,649
shares as of SeptemberDecember 25, 1999) at cost (70,871) (102,796)(124,474)
--------- ---------
Total stockholders' equity 89,405 97,96992,311
--------- ---------
Total liabilities and stockholders' equity $ 142,868 $ 147,572152,415
========= =========
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PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months EndedQUARTER ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
Net sales $ 71,150 $ 72,038 $ 141,21076,059 $ 146,753213,248 $ 222,812
Cost of sales 32,192 29,532 64,089 60,32431,002 30,946 95,091 91,270
--------- --------- --------- ---------
Gross profit 38,958 42,506 77,121 86,42941,036 45,113 118,157 131,542
--------- --------- --------- ---------
Operating expense:
Research, development and engineering 4,535 5,089 9,005 10,5885,177 5,080 14,182 15,668
Selling, general and administrative 13,760 15,976 27,862 31,91414,563 17,949 42,425 49,863
--------- --------- --------- ---------
Total operating expenses 18,295 21,065 36,867 42,50219,740 23,029 56,607 65,531
--------- --------- --------- ---------
Operating income 20,663 21,441 40,254 43,92721,296 22,084 61,550 66,011
Interest expense, including amortization of debt
issuance costs 1,852 3,5881,888 8 185,476 26
Interest income and other income, net (1,208) (505) (1,693) (679)(1,801) (583) (3,494) (1,262)
--------- --------- --------- ---------
Income before income taxes 20,019 21,938 38,359 44,58821,209 22,659 59,568 67,247
Income tax expense 6,406 7,022 12,275 14,2686,786 7,250 19,061 21,518
--------- --------- --------- ---------
Net income $ 13,61314,423 $ 14,91615,409 $ 26,08440,507 $ 30,32045,729
========= ========= ========= =========
Basic earnings per common share $ 0.820.87 $ 0.900.94 $ 1.582.45 $ 1.822.76
========= ========= ========= =========
Shares used in basic per share calculations 16,513 16,657 16,494 16,70216,562 16,333 16,516 16,579
========= ========= ========= =========
Diluted earnings per common share $ 0.740.79 $ 0.840.89 $ 1.432.22 $ 1.692.58
========= ========= ========= =========
Shares used in diluted per share calculations 18,341 17,836 18,291 17,95118,246 17,352 18,268 17,746
========= ========= ========= =========
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PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(IN THOUSANDS)
SIXNINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,DECEMBER 31, DECEMBER 31,
1998 1999
------------- ------------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 26,08440,507 $ 30,32145,729
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 2,272 1,6204,133 2,921
Deferred income taxes (2,711)1,300 (2,594)
Provision for doubtful accounts 651 124481 (47)
Income tax benefit associated with stock options 4,929 6,81810,586 6,830
Changes in assets and liabilities:
Accounts receivable (4,164) 1,133(3,248) 2,788
Inventory 7,810 (6,842)10,407 (11,831)
Other current assets 286 6,521384 6,595
Other assets 770 260898 284
Accounts payable (3,156) (1,529)(907) (419)
Accrued liabilities 1,722 (952)7,133 (1,558)
Income taxes payable 2,815 1,161
-------- --------(378) 7,524
--------- ---------
Cash provided by operating activities 40,019 35,924
-------- --------71,296 56,222
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (8,899)
Capital expenditures (1,548) (3,235)
-------- --------(2,455) (5,094)
--------- ---------
Cash (used for) provided by investing activities (2,455) (13,993)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (10,568) (32,312)(18,716) (54,040)
Proceeds from sale of treasury stock 769 1,119915 1,257
Proceeds from exercise of stock options 1,527 2,618
-------- --------3,290 3,130
--------- ---------
Cash (used for) provided by (used for) financing activities (8,272) (28,575)
-------- --------(14,511) (49,653)
--------- ---------
Net increase in cash and cash equivalents 30,199 4,11454,330 (7,424)
Cash and cash equivalents at beginning of period 64,901 42,999
======== ========--------- ---------
Cash and cash equivalents at end of period $ 95,100119,231 $ 47,113
======== ========35,575
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 3,262 $ 1421
Income taxes $ 5,7647,823 $ 10,65011,695
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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 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 31, 1999. 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 31, 1999.
NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31 and the secondthird fiscal quarter-end is the last Saturday in September.December.
For purposes of presentation, the Company has indicated its accounting year
ending on March 31 or the month-end for interim quarterly periods. Plantronics'
fiscal quarters ended September 30,December 31, 1998 and September 30,December 31, 1999 consisted of
thirteen weeks each.
NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 31, September 30,December 31,
1999 1999
--------- -------------------------
Inventories:
Finished goods $ 9,425 $ 13,37316,129
Work in process 1,461 1,7671,630
Purchased parts 8,003 10,59112,961
-------- --------
$ 18,889 $ 25,73130,720
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 10-30 years) 9,923 10,25111,034
Machinery and equipment (useful lives: 2-10 years) 32,853 36,58536,836
-------- --------
47,469 51,52952,563
Less accumulated depreciation (27,146) (29,591)(30,067)
-------- --------
$ 20,323 $ 21,93822,496
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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 in the consolidated statements of
operations. Gains and losses resulting from foreign currency transactions are
also included in other income. Aggregate exchange losses in the fiscal quarter
ended September 30,December 31, 1999 were approximately $0.2 million.immaterial. There were approximately $0.2 million
aggregate exchange gains in the comparable period ended September 30,December 31, 1998.
NOTE 5. COMPREHENSIVE INCOME. Comprehensive income was the same as net income
for all periods presented. Accumulated other comprehensive income presented in
the accompanying condensed consolidated balance sheets consists of cumulative
translation adjustments from local currencies to the functional currency in
prior years.
NOTE 6. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company has one
reportable segment under the criteria of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information".
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NOTE 7. START-UP ACTIVITIES. Effective March 28, 1999, the Company adopted
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). The statement is effective for the Company's fiscal year ending
April 1, 2000. SOP 98-5 broadly defines costs of start-up and requires that such
costs be charged to expense as incurred and that any previously capitalized
start-up costs be charged to expense in the fiscal year in which the statement
becomes effective. The Company had previously deferred $0.2 million of start-up
costs which were charged to expense for the quarter ended September 30,31, 1999.
There were no start-up costs charged to expense in the quarter ended December
31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 related
to the sufficiency of cash to fund operations for at least the next 12 months
set out in the last paragraph in the subsection headed "Liquidity" under
Financial Condition; various statements in the section captioned "Year 2000",
including the statement that we do not expect there will be any material impact
upon our revenues due to customer readiness for the Year 2000 and our belief
that there will be no material impact of Year 2000 problems due to failures of
our systems or those of third parties with whomwhich we do business; and the
statement of belief under Part I, Item 3 that the Company has minimal exposure
to financial market and foreign currency exchange risks. 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: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 SixNine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,December 31, December 31, December 31, December 31,
1998 1999 1998 1999
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 45.243.0 40.7 44.6 41.0
45.4 41.1
----- ----- ----- ----------- ------ ------ ------
Gross profit 54.857.0 59.3 55.4 59.0
54.6 58.9
----- ----- ----- ----------- ------ ------ ------
Research, development and
engineering 6.4 7.1 6.4 7.2 6.7 6.6 7.0
Selling, general and administrative 19.3 22.2 19.7 21.8
----- ----- ----- -----20.2 23.6 19.9 22.4
------ ------ ------ ------
Total operating expenses 25.7 29.3 26.1 29.0
----- ----- ----- -----27.4 30.3 26.5 29.4
------ ------ ------ ------
Operating income 29.6 29.0 29.7 28.5 29.928.9 29.6
Other (income) expense 0.9 (0.7) 1.3 (0.5)
----- ----- ----- -----0.2 (0.8) 1.0 (0.6)
------ ------ ------ ------
Income before income taxes 28.1 30.4 27.2 30.429.4 29.8 27.9 30.2
Income tax expense 9.09.4 9.5 8.9 9.7
8.7 9.7
----- ----- ----- ----------- ------ ------ ------
Net income 19.1% 20.7% 18.5% 20.7%
===== ===== ===== =====20.0% 20.3% 19.0% 20.5%
====== ====== ====== ======
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Net Sales. Net sales for the quarter ended September 30,December 31, 1999 increased by 1%5.6%
to $72.0$76.1 million, compared to $71.2$72.0 million for the quarter ended September 30,December 31,
1998. Net sales for the sixnine months ended September 30,December 31, 1999 were $146.8$222.8 million
compared to $141.2$213.2 million for the sixnine months ended September 30,December 31, 1998, an
increase of 4%4.5%. While revenues were lower to our largest OEM customer and to our
US distributors,This steady rate of growth reflects strong growth was achievedsales in our international channels and US retail
channel and mobile communications division as well as good growth
internationally, offset by flat sales in our mobileU.S. distributor channel and computer audio systems divisions.lower
sales in U.S. OEM.
Gross Profit. Gross profit for the quarter ended September 30,December 31, 1999 increased 9%10%
to $42.5$45.1 million (59.0%(59.3% of net sales), compared to $39.0$41.0 million (54.8%(57.0% of net
sales) for the quarter ended September 30,December 31, 1998. Gross profit for the first twothree
quarters of fiscal 2000 was $86.4$131.5 million, an increase of 12%11% over the
comparable period of fiscal 1999. The increasesincrease in gross profit were generated
mainlyreflects our cost
reduction efforts, particularly on component costs, and relatively flat
manufacturing overhead costs on higher volumes leading to lower product costs.
The increase in gross margin was somewhat offset by reduced production costs, design and manufacturing efficiencies andstrong sales of products
into our emerging markets which have lower costs from our suppliers.margins but are growing at a faster
rate than the traditional call center business.
Research, Development and Engineering. Research, development and engineering
expenses for the quarter ended September 30,December 31, 1999 increased 12%decreased 2% to $5.1 million
(7.1%(6.7% of net sales), compared to $4.5$5.2 million (6.4%(7.2% of net sales) for the
quarter ended September 30,December 31, 1998. Expenses for the first halfthree quarters of fiscal
2000 were $10.6$15.7 million compared to $9.0$14.2 million for the first halfthree quarters
of fiscal 1999. The increaseyear over year growth in these expenses reflects increased investment inis funding our new
office, mobile and computer product development and technologies.activities.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended September 30,December 31, 1999 increased 16%23% to $16.0$18.0 million
(22.2%(23.6% of net sales), compared to $13.8$14.6 million (19.3%(20.2% of net sales) for the
quarter ended September 30,December 31, 1998. For the first half of fiscal 2000,nine months ended December 31, 1999,
expenses were $31.9$49.9 million, an increase of $4.1$7.4 million over the first halfnine months
ended December 31, 1998. The majority of fiscal
1999. The overallthe increase in sales expense was due
to sales programs to support our international operations as well as funded
initiatives in our computer division. Retail variable selling expenses ishave
increased related to the expansion ofincremental retail revenue. Marketing expenses
increased substantially due to increased activities including test advertising
campaigns, new product launches, international marketing programs.and programs for our
mobile and computer divisions.
Operating Income. Operating income for the quarter ended September 30,December 31, 1999
increased 4% to $21.4$22.1 million (29.7%(29.0% of net sales), compared to $20.7$21.3 million
(29.0%(29.6% of net sales) for the quarter ended September 30,December 31, 1998. For the first
halfthree quarters of fiscal 2000, operating income was $43.9$66.0 million compared to
$40.3$61.6 million for the first halfthree quarters of fiscal 1999. The increase was
primarily gained through increased revenue and gross margin improvement.
Interest Expense. Interest expense for fiscal 2000 is expected to beboth the quarter and for the nine months
ended December 31, 1999 was minimal as the Company paid down $65 million
principal for its outstanding long-term outstanding debt.debt in January 1999. Interest expense
for the sixnine month period ended September 30,December 31, 1998 was $3.3$5.5 million and
principally represented interest payable on the 10% Senior Notes. In November
1999 the Company entered into a Revolving Line of Credit Agreement to borrow up
to $100 million with a major bank. The Company currently has no borrowings under
this agreement.
Interest and Other Income. Interest and other income for the quarter ended
September 30,December 31, 1999 decreased to $0.5$0.6 million compared to $1.2$1.8 million for the
quarter ended September 30,December 31, 1998. Interest income and other income for the second quarterfirst
three quarters of fiscal 2000 was $0.7$1.3 million compared to $1.7$3.5 million for the
second quarterfirst three quarters of fiscal 1999. The decrease in interest income was
primarily attributable to lower cash and cash equivalents balances afteras a result
of the January 15, 1999 redemption of the$65 million in Senior Notes.
FINANCIAL CONDITION:
Liquidity. As of September 30,December 31, 1999, we had working capital of $81.0$78.4 million,
including $47.1$44.5 million of cash and cash equivalents and marketable securities,
compared with working capital of $76.3 million, including $43.0 million of cash
and cash equivalents, at March 31, 1999. During the sixnine months ended September
30,December
31, 1999, we generated $35.9$56.2 million of cash from operating activities, due
primarily to $30.3$45.7 million in net income, and a tax refundbenefit on stock options
exercised of approximately $6.8 million and an increase in income taxes payable
of $7.5 million. Increases in inventory were offset by changes in other current
assets and liabilities. In comparison, we
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generated $40.0$71.3 million in cash from operating activities for the sixnine months
ended September 30,December 31, 1998, due mainly to $26.1$40.5 million in net income, a tax
benefit on stock options exercised of $10.6 million, a decrease of $7.8$10.4 million
in inventory and an increase in income taxes payableaccrued liabilities of $2.8$7.1 million.
We have a $30.0$100.0 million revolving credit facility, including a $10.0 million
letter-of-credit subfacility, with a major bank, both of which expiremature in
November 1999.2000. As of September 30,December 31, 1999, we had no borrowings under the revolving
credit facility and $2.0$1.2 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
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facility contain covenants that materially limit our ability to incur debt make
capital expenditures and
pay dividends, among other matters. These covenants may adversely affect our
financial position to the extent we cannot comply with them. We are currently in
compliance with the covenants under this agreement.
We believe that our current cash balance and cash provided by operations,
together with available borrowing capacity under our revolving credit facility
and letter-of-credit subfacility, will be sufficient to fund operations for at
least the next 12 months.
Investing Activities. Capital expenditures of $3.2$5.1 million in the sixnine months
ended September 30,December 31, 1999 were incurred principally in tooling, leasehold
improvements and investments in computer and software upgrades.
Financing Activities. In the sixnine months ended September 30,December 31, 1999, we reissued
through employee benefit plans 21,38824,159 shares of our treasury stock for
approximately $1.1$1.3 million and repurchased 596,4001,004,400 shares of our common stock
for approximately $32.3$54.0 million. As of September 30,December 31, 1999, approximately 356,007448,007 shares
remained under the repurchase plan authorized on August 31, 1999. On
November 4, 1999 Plantronics' Board of Directors authorized the Company to
increase its existing stock repurchase program by an additional 500,000 shares.1999. As of November 4, 1999January
24, 2000 there remained 45,607328,907 shares to be repurchased under the existing
program, resulting in a total of 545,607 shares of the Company's common
stock that may be repurchased under the new authorization.program.
We received approximately $2.6$3.1 million in proceeds from the exercise of stock
options during the sixnine months ended September 30,December 31, 1999. The maximum aggregate
number of shares that may be issued under the 1993 Stock Plan is 5,459,242
shares.
YEAR 2000:
Year 2000 Readiness Statement. The following discussion contains both "Year 2000
Statements" and "Year 2000 Readiness Disclosures" as defined in the Year 2000
Information and Readiness Disclosure Act, United States Public Law No. 105-271
(1998).
State of Readiness. Many existing electronic systems, including 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. Our products do not address or utilize dates in their operation, and,
accordingly, our products should not fail due to the year 2000 problem. However,
we use and depend on information technology systems (including business
information computer systems and design and manufacturing computer systems) and
other machinery and equipment that include embedded date sensitive technology.
We also depend on the proper functioning of date sensitive electronic systems of
third parties, such as customers and suppliers. The failure of any of these
systems to appropriately interpret the year 2000 could have a material adverse
effect on our business, financial condition and results of operations. We are
undertakinghave
undertaken efforts to ensure that our business systems and those of our
suppliers and customers are compliant with the requirements of the year 2000.
We have established a worldwide year 2000 task force, led by an Executive Steering
Committee of our senior management, including representatives of each of our
business segments and corporate functions, to oversee and regularly review the status of
our year 2000 compliance plan. Through our year 2000 task force, we are proceeding with implementation ofimplemented
a formal year 2000 compliance program. The compliance program addressesaddressed three
key elements: (i) internal infrastructure, addressing internal hardware and
software and non-information technology systems; (ii) supplier readiness,
addressing the preparedness of our suppliers of goods and services; and (iii)
customer readiness, addressing the preparedness of our customer support and the
preparedness of our customers to transact business with us. In each of those
compliance areas, we are
systematically performingperformed a global risk assessment, conductingconducted testing,
implementingimplemented upgrades, communicatingcommunicated with and assistingassisted suppliers and customers in
raising awareness of the year 2000 issues and developingdeveloped
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contingency plans to mitigate known and unknown year 2000 risks. The status of
our compliance efforts in those three areas is set forth below:
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Internal Infrastructure. We have assessed all internal applications and computer
software and hardware. Our key business information systems and other critical
applications, such as product testing and product design hardware and software,
have been made year 2000 compliant. As of the date of this report, we have
experienced no adverse internal infrastructure problems as a result of the Year
2000.
Supplier Readiness. This program focusesfocused on minimizing the risks associated with
supplier year 2000 issues in two areas: (i) the suppliers' business capability
to continue providing products and services in and after the year 2000 and (ii)
the year 2000 readiness of products supplied to us for our use. Requests for
information and certification of compliance have been and are beingwere sent to our principal and
critical suppliers. As of November 5, 1999, we have obtained
certification of compliance by our principal and critical suppliers. We have completed compliance audits of the most critical of those.those
and, as of the date of this report, have experienced no adverse effects related
to supplier readiness as a result of the Year 2000.
Customer Readiness. This program focusesfocused on ensuring that customers arewere aware
of the year 2000 issues and that customers arewere capable of placing orders for
our products, receiving products ordered and paying our invoices for products
sold and delivered. Requests for information and certification of year 2000
compliance have beenwere sent to our major customers. As of November 5, 1999, we
have obtained certification of compliance from most, butWe did not all, of our
principal customers worldwide and most of the responding customers have
certified compliance. We continue to follow-up with the non-responding and
non-compliant customers. We do not expectexperience any material impact
upon our revenues due to customer readiness for the Year 2000 in the quarter
ended December 31, 1999 and do not expect any material impact on revenues for
the Year 2000.
Costs to Address Year 2000 Issues. We currently estimate that the aggregate cost of our
year 2000 compliance efforts will be approximately $1.2 million, of which
approximately $0.8 million has been incurred to date.less than $1.25 million. The costs consist
principally of (i) fees paid to outside consultants and software programmers,
(ii) purchase of telephone PBX systems which require upgrades to be year 2000
compliant, and (iii) purchase of software and software upgrades to meet the year
2000 issue.issue and (iv) purchase of other equipment. The funds expended and to be expended are beingwere funded
through operating cash flows. Approximately $0.5 million of the total cost,
related to the purchase of fixed assets, will bewas capitalized, with the balance
expensed as incurred.
Contingency Plans. In July 1999, we completed development of contingency plans
to mitigate the potential disruptions that may result from the year 2000 issue.
The contingency plan identifiesidentified the risks to our business from various potential
Y2K related failures and establishesestablished readiness and contingency remediation
efforts that will bewere successfully put into place to mitigate the risks from such
potential failures. We have commenced implementationTo date, our advance planning and the relatively modest
impact worldwide of somethe Year 2000 issues has made the recovery elements of theour
contingency plan including increasesmoot. The plan remains in inventories of component parts to insure against
disruptionseffect in supply caused bythe event that any Year
2000 events. Whilerelated failures occur and we believe that our contingency plan adequately
addresses the risks to our business from potential Y2K failures, the plan will be continually refined as additional information
becomes available.failures.
Risks of the Year 2000 Issues. We currently believe that our internal year 2000
compliance efforts will be successful and there will bewere successful. As of the date of this report, we
experienced no material impact to us by reason of the failure or malfunction of
any systems owned or operated by us or third parties with whomwhich we do business.
However, ourthere may be adverse implications that have not yet surfaced related to
year 2000 program may
not be effective and we may not be able to implement all elements ofthat could materially affect our contingency plan in a timely and cost-effective manner. Our year 2000 efforts
may not, therefore, ensure against disruptions caused by the approach or advent
of the year 2000. The year 2000 problem is potentially very widespread, and it
is not possible to determine all the potential risks that we may face. Our
inability to remedy our own year 2000 problems or the failure of third parties
to do so may cause business interruptions or shutdowns, financial loss,
regulatory actions, harm to our reputation and exposure to liability.business.
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in the stock of Plantronics should carefully
consider the risks described below. The business, financial condition and
results of operations of Plantronics could be materially adversely affected if
any of the risks occur. If the risks occur, the trading price of Plantronics
stock could decline and an investor could lose all or part of his or her
investment.
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DEPENDENCE ON CALL CENTER MARKET SEGMENT
We have historically derived, and continue to derive, a substantial majority of
our net sales from the call center market segment.market. This market segment has grown significantly
in recent years as new call centers have proliferated and existing call centers
have expanded. While we believe this market segment is continuing to grow, in the future
this growth could slow or revenues from this market
segment could decline due to various
factors. For example, technological advances such as automated interactive voice
response systems could reduce or eliminate the need for call center agents in
certain
9
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applications. In addition, consumer resistance to telemarketing could adversely
affect growth in the call center market segment.market. Due to our reliance on the call center
market, segment, we will be affected more by changes in the rate of call center
establishment and expansion and the communications products that call center
agents use than would a company serving a broader market. We believe that there
may be a slowingsome slowness in the establishment of new call centers in the fourthfirst
calendar quarter of 19992000 due to prior concerns by call center operators over
Year 2000 issues. We also believe that the
decrease in establishment of newsome call centers may continue throughand organizations which
supply them have inventoried additional headsets due to Year 2000 concerns and
intend to reduce those inventories during the first calendar quarter of 2000.
Any decrease in the demand for call centers and related headset products could
cause a decrease in the demand for our products, which would materially
adversely affect our business, financial condition and results of operations.
FAILURE OF THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKET SEGMENTSMARKETS TO DEVELOP
While the call center market segment is still the most significant part of our business,
we believe that our future prospects will depend in large part on the growth in
demand for headsets in the office, mobile, computer and residential market segments.markets.
These communications headset market segmentsmarkets are relatively new and undeveloped.
Moreover, we do not have extensive experience in selling headset products to
customers in these market segments.markets. If the demand for headsets in these market segmentsmarkets fails to
develop, or develops more slowly than we currently anticipate, or if we are
unable to effectively market our products to customers in these market segments,markets, it
would have a material adverse effect on the potential demand for our products
and on our business, financial condition and results of operations.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our quarterly results of operations may vary significantly in the future for a
variety of reasons, including the following:
o- changes in demand for our products;
o- changes in the levels of inventories held by our resellers;
o- timing and size of orders from customers;
o- distribution channel volume variations;
o- cancellations or delays of deliveries of components and
subassemblies by our suppliers;
o- variances in the timing and amount of engineering and operating
expenses;
o- delays in shipments of our products;
o- product returns and customer credits;
o- new product introductions by us or our competitors;
o- entrance of new competitors;
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o- increases in the costs of our components and subassemblies;
o- price erosion;
o- changes in the mix of products sold by us;
o- seasonal fluctuations in demand; and
o- general economic conditions.
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Each of the above factors is difficult to forecast and could have a material
adverse effect on our business, financial condition and results of operations.
We generally ship most orders during the quarter in which they are received,
and, consequently, we do not have a significant backlog of orders. As a result,
quarterly net sales and operating results depend primarily on the volume and
timing of orders received during the quarter. It is difficult to forecast orders
for a given quarter. Since a large portion of our operating expenses, including
rent, salaries and certain manufacturing expenses, are fixed and difficult to
reduce or modify, if net sales do not meet our expectations, our business,
financial condition and results of operations could be materially adversely
affected.
Our operating results can also vary substantially in any period depending on the
mix of products sold and the distribution channels through which they are sold.
In the event that sales of lower margin products or sales through lower margin
distribution channels in any period represent a disproportionate share of total
sales during such period, our operating results would be materially adversely
affected.
We believe that period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied upon as indicative of future
operating results. In addition, our operating results in a future quarter or
quarters may fall below the expectations of securities analysts or investors,
and, as a result, the price of our common stock might fall.
WE MUST MATCH PRODUCTION TO DEMAND
Historically, we have seen steady increases in customer demand for our products
and have generally been able to increase production to meet that demand. And
more recently, certain product lines have experienced rapid increases and
fluctuations in demand. However, the demand for our products is dependent on
many factors and such demand is inherently difficult to forecast. Significant
unanticipated fluctuations in demand could cause the following operating
problems, among others:
o- - If demand increases beyond that forecasted, we would have to rapidly
increase production. We depend on suppliers to provide additional volumes
of components and subassemblies, and, therefore, might not be able to
increase production rapidly enough to meet unexpected demand. This could
cause us to fail to meet customer expectations. There could be short-term
losses of sales while we are trying to increase production. If customers
turn to competitive sources of supply to meet their needs, there could be a
long-term impact on our revenues.
o- - Rapid increases in production levels to meet unanticipated demand could
result in higher costs for components and subassemblies and higher overtime
costs and other expenses. These higher expenditures could lower our profit
margins. Further, if production is increased rapidly, there may be
decreased manufacturing yields, which may also lower our margins.
o- - If forecasted demand does not develop, we could have excess production or
excess capacity. Excess production could result in higher inventories of
finished products, components and subassemblies. If we were unable to sell
these inventories, we would have to write off some or all of our
inventories of obsolete products
11
12 and unusable components and subassemblies.
Excess manufacturing capacity could lead to higher production costs and
lower margins.
Any of the foregoing problems could materially adversely affect our business,
financial condition and results of operations.
WE DEPEND ON OUR SUPPLIERS
We buy components and subassemblies from a variety of suppliers and assemble
them into finished products. The cost, quality, and availability of such
components are essential to the successful production and sale of our products.
Obtaining components and subassemblies entails various risks, including the
following:
o11
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- - Prices of components and subassemblies may rise. If this occurs and we are
not able to pass these increases on to our customers or to achieve
operating efficiencies that would offset the increases, it would have a
material adverse effect on our business, financial condition and results of
operations.
o- - We obtain certain subassemblies and components from single suppliers, and
alternate sources for these items are not readily available. To date, we
have experienced only minor interruptions in the supply of these components
and subassemblies, none of which has significantly affected our results of
operations. However, an interruption in supply from any of our single
source suppliers in the future would materially adversely affect our
business, financial condition and results of operations.
o- - Most of our suppliers are not obligated to continue to provide us with
components and subassemblies. Rather, we buy most components and
subassemblies on a purchase order basis. If our suppliers experience
increased demand or shortages, it could affect deliveries to us. In turn,
this would affect our ability to manufacture and sell products that are
dependent on those components and subassemblies. This would materially
adversely affect our business, financial condition and results of
operations.
THE HEADSET MARKET IS HIGHLY COMPETITIVE
The market for our products is highly competitive. We compete with a variety of
companies in various segments of the communications headset market. We also
anticipate that we will face additional competition from companies that
currently do not offer communications headsets. This is particularly true in the
office, mobile, computer and residential market segments.markets. As these market
segmentsmarkets mature, we
will face increased competition from consumer electronics companies and other
companies that currently manufacture and sell mobile phones or computer
peripheral equipment. These new competitors are likely to be larger, offer
broader product lines, bundle or integrate with other products communications
headset tops and bases manufactured by them or others, offer products containing
bases that are incompatible with our headset tops and have substantially greater
financial, marketing and other resources than we do.
We believe that important competitive factors for us are product reliability,
product features, customer service and support, reputation, distribution,
ability to meet delivery schedules, warranty terms, product life and price. If
we do not compete successfully with respect to any of these or other factors it
could materially adversely affect our business, financial condition and results
of operations. If we do not successfully develop and market products that
compete successfully with those of our competitors it would materially adversely
affect our business, financial condition and results of operations.
NEW PRODUCT DEVELOPMENT IS RISKY; WE MUST RESPOND TO CHANGING CUSTOMER
REQUIREMENTS AND TECHNOLOGIES
Our product development efforts historically have been directed toward
enhancement of existing products and development of new products that capitalize
on our core capabilities. The success of new product introductions is dependent
on several factors, including the proper selection of new product features,
timely completion and 12
13
introduction of new product designs, cost-effective
manufacture of such products, quality of new products and market acceptance. To
be successful in the future, we must develop new products, qualify these new
products, successfully introduce these products to the market on a timely basis,
and commence and sustain low-cost, volume production to meet customers' demands.
Although we attempt to determine the specific needs of headset users in our
target market
segments,markets, because almost all of our sales are indirect, we may not always
be able to timely and accurately predict end-user requirements. As a result, our
products may not be timely developed, designed to address current or future
end-user requirements, offered at competitive prices or accepted, which could
materially adversely affect our business, financial condition and results of
operations. Moreover, we generally incur substantial research and development
costs before the technical feasibility and commercial viability of a new product
can be ascertained. Accordingly, revenues from new products may not be
sufficient to recover the associated development costs.
Historically, the technology used in lightweight communications headsets has
evolved slowly. New products have primarily offered stylistic changes and
quality improvements, rather than significant new technologies. We anticipate
that the technology used in hands-free communications devices, including our
products, will begin to evolve more rapidly in the future. We believe that this
is particularly true of the office, mobile and residential
market segments,12
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markets, which may require us to develop new headset technologies to support
cordless and wireless operation and to interface with new communications and
computing devices. As a result, our success depends upon our ability to enhance
existing products, to respond to changing market requirements, and to develop
and introduce in a timely manner new products that keep pace with technological
developments. If we are unable to develop and introduce enhanced products or new
products in a timely manner in response to changing market conditions or
customer requirements, it will materially and adversely affect our business,
financial condition and results of operations.
WE DEPEND ON OUR DISTRIBUTION CHANNELS
We sell substantially all of our products through distributors, OEMs, retailers
and telephony service providers. Our existing relationships with these parties
are nonexclusive and can be terminated by either party without cause. The
relationships with our distributors, OEMs, retailers and other resellers of our
products do not require that they purchase any minimum quantities of our
products or carry minimum inventory levels of our products. Therefore, changes
in their ordering patterns or reduction in their inventory levels can result in
lower orders to us.
Our channel partners also sell or can potentially sell products offered by our
competitors. To the extent that our competitors offer our channel partners more
favorable terms, such partners may decline to carry, de-emphasize or discontinue
carrying our products. In the future, we may not be able to retain or attract a
sufficient number of qualified channel partners. Further, such partners may not
recommend, or continue to recommend, our products. The inability to establish or
maintain successful relationships with distributors, OEMs, retailers and
telephony service providers or to expand our distribution channels could
materially adversely affect our business, financial condition or results of
operations.
WE DEPEND ON S. KENNETH KANNAPPAN AND OTHER KEY PERSONNEL
Our success depends to a significant extent upon the services of a limited
number of executive officers and other key employees, including S. Kenneth
Kannappan, our President and Chief Executive Officer. The unanticipated loss of
the services of Mr. Kannappan or one or more of our other executive officers or
key employees could have a material adverse effect upon our business, financial
condition and results of operations.
We also believe that our future success will depend in large part upon our
ability to attract and retain additional highly skilled technical, management,
sales and marketing personnel. Competition for such personnel is intense. We may
not be successful in attracting and retaining such personnel, and, our failure
to do so could have a material adverse effect on our business, operating results
or financial condition.
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CITICORP VENTURE CAPITAL RETAINS SIGNIFICANT CONTROL
Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially
owns 4,509,168 shares of our common stock (excluding any shares that may be
owned by employees of CVC or its affiliates), which represents approximately 27%28%
of our outstanding common stock as of October 29,December 24, 1999. We also have an
agreement with CVC under which it is entitled to have up to three of its
designees serve on our Board of Directors, depending on the level of CVC's
continuing stock ownership. Messrs. Robert F. B. Logan, M. Saleem Muqaddam and
John Mowbray O'Mara are currently serving as CVC's designees under that
agreement. Accordingly, CVC has the ability to exert substantial influence on
the full Board of Directors, which currently consists of seven members. In
addition, our bylaws contain provisions that require a two-thirds (66 2/3 %)
supermajority vote of the Board of Directors to approve certain transactions,
including amendments of our Certificate of Incorporation, certain provisions of
our bylaws, mergers and sales of substantial assets, acquisitions of other
companies and sales of capital stock. These provisions may have the effect of
giving a small number of directors the ability to block such transactions.
FUTURE SALES OF OUR COMMON STOCK
As of October 29,December 24, 1999, we had 18,815,26818,827,537 shares of common stock outstanding,
including 2,570,4962,649,203 shares we have repurchased and hold in our treasury account.
AllWith the exception of these shares are freely tradable except for approximately 5,100,000 shares held by affiliates of Plantronics.Plantronics, these
shares are freely tradable. These approximately 5,100,000 shares may only be
sold in reliance on
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Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to an effective registration statement filed with the Securities and
Exchange Commission. Some of our current stockholders, including CVC, Citigroup
Foundation and certain of our officers,
directors and key employees, also have certain contractual rights to
require Plantronics to register their shares for public sale. An additional
approximately 2,500,0002,800,000 shares are subject to outstanding stock options as of
October 29,December 24, 1999. As of October 29, 1999,January 21, 2000, Mrs. Louise Cecil holds vested
options on 422,196227,896 shares of our common stock (assigned to her by her late
husband Robert S. Cecil) and has in place an effective registration statement
filed with the Securities Exchange Commission, meaning she may sell any or all
of them at any time without reliance upon Rule 144.
Sales of a substantial number of shares of common stock in the public market by
CVC, Mrs. Cecil, or any of our officers, directors or other stockholders could
adversely affect the prevailing market price of the common stock and impair our
ability to raise capital through the sale of equity securities.
RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
Approximately 30.5% of our net sales in both fiscal 1998 and fiscal 1999 were
derived from customers outside the United States. In addition, we conduct
substantially all of our headset assembly operations in our manufacturing
facility located in Mexico, and we obtain most of the components and
subassemblies used in our products from various foreign suppliers. The inherent
risks of international operations, particularly in Mexico, could materially
adversely affect our business, financial condition and results of operations.
The types of risks faced in connection with international operations and sales
include:
o- cultural difference in the conduct of business;
o- the abilities of local distributors and other resellers;
o- greater difficulty in accounts receivable collection;
o- unexpected changes in regulatory requirements;
o- tariffs and other trade barriers;
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o- economic and political conditions in each country;
o- management and operation of an enterprise spread over various
countries; and
o- burden of complying with a wide variety of foreign laws.
A significant portion of our business is conducted in currencies other than the
U.S. dollar. As a result, fluctuations in exchange rates createscreate risk to us in
both the salesales of our products and our purchase of supplies. Fluctuations in the
value of the currencies in which we conduct our business relative to the U.S.
dollar have caused and will continue to cause currency transaction gains and
losses. Although we do not currently engage in any hedging activities to
mitigate exchange rate risks, we continually evaluate programs to reduce our
foreign currency exposure. However, there can be no assurance that we will not
continue to experience currency losses in the future, nor can we predict the
effects of future exchange rate fluctuations on future operating results. To the
extent that sales to our foreign customers increase or transactions in foreign
currencies increase, our business, financial condition and results of operations
could be materially adversely affected by exchange rate fluctuations. In
addition, we cannot predict the potential consequences to our business of the
adoption of the Euro as a common currency in Europe.
WE DEPEND ON OUR PRINCIPAL MANUFACTURING FACILITY
Substantially all of our manufacturing operations are currently performed in a
single facility in Tijuana, Mexico. A fire, flood or earthquake, political
unrest or other disaster or condition affecting our facility could have a
material adverse effect on our business, financial condition and results of
operations. While we have developed a disaster recovery plan and believe we are
adequately insured with respect to this facility, we may not be able to
implement the plan effectively or on a timely basis or recover under applicable
insurance policies.
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FAILURE OF ELECTRONIC SYSTEMS TO RECOGNIZE THE YEAR 2000
Many existing electronic systems, including 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. IfIt was widely anticipated that, 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.
Our products do not address or utilize dates in their operation, and,
accordingly, our products should not fail due to the year 2000 problem. However, we use and depend on
information technology systems (including business information computer systems
and design and manufacturing computer systems) and other machinery and equipment
that includes embedded date sensitive technology. We also depend on the proper
functioning of date sensitive electronic systems of third parties, such as
customers and suppliers. The failure of any of these systems to appropriately
interpret the year 2000 could have a material adverse effect on our business,
financial condition and results of operations. We are undertaking efforts to
ensure that our business systems and those of our suppliers and customers are
compliant with the requirements of the year 2000. You
should refer to the Section above titled "Year 2000" and the Section titled
"Year 2000"in the 1999 Annual Report to Stockholders for a more complete discussion of our
Year 2000 compliance efforts. However,As of the date of this report, we have experienced
no adverse effects on our year 2000 program may not be effectivebusiness due to the failure or malfunction of any
systems owned or operated by us or third parties with which we may not be able to implement it in a timely and cost-effective manner.do business. Our
year 2000 efforts may not therefore, ensure against disruptions caused byin the approach or advent offuture by the
year 2000. TheAny significant, even if sporadic, disruption due to the change to
the year 2000 problem is potentially very
widespread, and it is not possible to determine all the potential risks that we
may face. Our inability to remedy our own year 2000 problems or the failure of
third parties to do so may cause business interruptions or shutdowns, financial loss,
regulatory actions, harm to our reputation and exposure to liability.
RISKS OF INADEQUATE PROTECTION OF INTELLECTUAL PROPERTY AND INFRINGEMENT OF
RIGHTS OF OTHERS
Our success will depend in part on our ability to protect our proprietary
technology. We rely primarily on a combination of nondisclosure agreements and
other contractual provisions as well as patent, trademark, trade secret, and
copyright laws to protect our proprietary rights. We currently hold thirty-four
(34) United States patents and additional foreign patents and intend to continue
to seek patents on our inventions when we believe it to be appropriate. The
process of seeking patent protection can be lengthy and expensive. Patents may
not be issued in
15
16 response to our applications, and patents that are issued may
be invalidated, circumvented or challenged by others. If we are required to
enforce our patents or other proprietary rights through litigation, the costs
and diversion of management's attention could be substantial. In addition, the
rights granted under any patents may not provide us competitive advantages or be
adequate to safeguard and maintain our proprietary rights. Moreover, the laws of
certain countries do not protect our proprietary rights to the same extent as do
the laws of the United States. If we do not enforce and protect our intellectual
property rights, it could materially adversely affect our business, financial
condition and results of operations.
From time to time, third parties, including our competitors, may assert patent,
copyright and other intellectual property rights against us. Such claims, if
they are asserted, could result in costly litigation and diversion of
management's attention. In addition, we may not ultimately prevail in any such
litigation or be able to license any valid and infringed patents from such third
parties on commercially reasonable terms, if at all. Any infringement claim or
other litigation against us could materially adversely affect our business,
financial condition and results of operations.
PRODUCT LIABILITY EXPOSURE
The use of our products exposes us to the risk of product liability claims.
Product liability claims have in the past been, and are currently being,
asserted against us. None of the previously resolved claims have materially
affected our business, financial condition or results of operations, nor do we
believe that any of the pending claims will have such an effect. Although we
maintain product liability insurance, the coverage provided under our policies
could be unavailable or insufficient to cover the full amount of any such claim.
Therefore, successful product liability claims brought against us could have a
material adverse effect upon our business, financial condition and results of
operations.
OUR STOCK PRICE MAY BE VOLATILE
The market price for our common stock may be affected by a number of factors,
including the announcement of new products or product enhancements by us or our
competitors, the loss of services of one or more of our executive officers or
other key employees, quarterly variations in our or our competitors' results of
operations, changes in earnings estimates or recommendation by securities
analysts, developments in our industry, sales of substantial numbers of shares
of our common stock in the public market, general market conditions and other
factors, including factors unrelated to our operating performance or the
operating performance of our competitors. In addition, stock prices for many
companies in the technology sector have experienced wide fluctuations that have
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often been unrelated to the operating performances of such companies. Such
factors and fluctuations, as well as general economic, political and market
conditions, such as recessions, may materially adversely affect the market price
of our common stock.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, local and foreign environmental laws
and regulations, including those governing the use, discharge and disposal of
hazardous substances in the ordinary course of our manufacturing process.
Although we believe that our current manufacturing operations comply in all
material respects with applicable environmental laws and regulations,
environmental legislation has been enacted and may in the future be enacted or
interpreted to create environmental liability with respect to our facilities or
operations. We have included in our financial statements a reserve of $1.5
million for possible environmental remediation of the site of one of our
previous businesses. While no claims have been asserted against us in connection
with this matter, such claims could be asserted in the future and any liability
that might result could exceed the amount of the reserve.
EFFECTS OF ANTITAKEOVER PROVISIONS
Our Board of Directors has the authority to issue preferred stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting and conversion rights, of those shares without any further vote or action
by the stockholders. The issuance of our preferred stock could have the effect
of making it more difficult for a 16
17
third party to acquire us. In addition, we are
subject to the antitakeover provisions of Section 203 of the Delaware General
Corporation Law, which could also have the effect of delaying or preventing our
acquisition by a third party. Further, certain provisions of our Certificate of
Incorporation and bylaws could delay or make more difficult a merger, tender
offer or proxy contest, which could adversely affect the market price of our
common stock.
WE HAVE ACQUIRED A COMPANY AND EXPECT TO MAKE FUTURE ACQUISITIONS AND
ACQUISITIONS INVOLVE MATERIAL RISKS
On December 30, 1999, we purchased ClearVox Communications, Inc., a California
corporation. We may in the future, in order to address the need to develop new
products and enter new markets, acquire other companies. There are inherent
risks in the acquisition of another company that could materially adversely
affect our business, financial condition and results of operations. The types of
risks faced in connection with acquisitions include:
- cultural difference in the conduct of business;
- difficulties in integration of the operations, technologies, and
products of the acquired company;
- the risk of diverting management's attention from normal daily
operations of the business;
- potential difficulties in completing projects associated with
purchased in-process research and development;
- risks of entering markets in which we have no or limited direct
prior experience and where competitors in such markets have stronger
market positions;
- the abilities of representatives, distributors, OEM customers and
other resellers which are retained or customers of the acquired
company;
- differences in the business information systems of the companies;
- difficulties in integrating the transactions and business
information systems of the company; and
- the potential loss of key employees of the acquired company.
Mergers and acquisitions, particularly those of high-technology companies, are
inherently risky, and no assurance can be given that the ClearVox or future
acquisitions will be successful and will not materially adversely affect our
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business, operating results or financial condition. We must also manage any such
growth effectively. Failure to manage growth effectively and successfully
integrate acquisitions made by us could materially harm our business and
operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Plantronics considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." Plantronics
had no holdings of derivative financial or commodity instruments at September
25,December 31,
1999. Plantronics believes it has minimal exposure to financial market risks and
risks associated with changes in foreign currency exchange rates at this time.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The 1999 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 20, 1999 (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
------- -------------- -------------------
S. Kenneth Kannappan 14,289,050 97,138
Robert F.B. Logan 14,288,860 97,328
M. Saleem Muqaddam 14,288,825 97,363
John Mowbray O'Mara 14,288,710 97,478
Trude C. Taylor 14,282,976 103,212
Marvin Tseu 14,241,577 144,611
David A. Wegmann 14,283,321 102,867
(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 the authorized number of shares of Common
Stock of the Company from 40,000,000 to 100,000,000 shares.
Votes For Votes Against Abstain
--------- ------------- -------
9,856,267 4,522,099 7,822
(2) Proposal to ratify the appointment of PricewaterhouseCoopers LLP
as the independent public accountants of the Company for the
fiscal year ending April 1, 2000.
Votes For Votes Against Abstain
--------- ------------- -------
14,380,545 2,568 3,075
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ITEM 5. OTHER INFORMATION
On November 4, 1999 Plantronics' Board of Directors authorized the Company to
increase its existing stock repurchase program by an additional 500,000 shares.
During the quarter we repurchased 408,000 shares of our common stock. As of
November 4, 1999January 24, 2000 there remained 45,607328,907 shares to be repurchased under the
existing program, resulting in a total of 545,607 shareswhich represents approximately 2% of the Company's common stock that may be repurchased under the new authorization. The
maximum of 545,607 shares represents approximately 3% of the 16,244,77216,178,334 shares of
common stock outstanding as December 24, 1999.
On December 30, 1999, Plantronics closed the acquisition of October 29, 1999.ClearVox
Communications, Inc., a privately held California corporation. The purchase
price was not material to Plantronics. We expect the transaction to have a
minimal effect on our reported earning per share (EPS) during the fourth fiscal
quarter of the current fiscal year, and expect the acquisition to be nominally
accretive to EPS beginning in the first fiscal quarter of the Company's fiscal
2001 which commences on April 2, 2000.
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed as part of this Quarterly
Report on Form 10-Q.
Exhibit
Number Description
------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K. 1) On September 14, 1999 Plantronics filed a reportNo reports on Form 8-K announcing lower than previously forecasted earnings per share
forwere filed by Registrant
during the fiscal year ending April 1, 2000.
2) On September 21, 1999 Plantronics filed a report on Form 8-K
announcing Board authorization of an additional 500,000 shares
for its stock repurchase program.quarter ended December 31, 1999.
Items 1, 2, 3 and 34 are not applicable and have been omitted.
17
18
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SIGNATURESSIGNATURE
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)
NOVEMBER 9, 1999FEBRUARY 8, 2000 By: /s/ Brad GuentherBarbara V. Scherer
- ---------------- -------------------------------------------------------------------------
(Date) (Signature)
Brad GuentherBarbara V. Scherer
Senior Vice President-FinancePresident - Finance and
Corporate
ControllerAdministration and Chief AccountingFinancial Officer
NOVEMBER 9, 1999 By: /s/ Kevin Goodwin
- ---------------- ----------------------------------
(Date) (Signature)
Kevin Goodwin
Vice President-Legal, General Counsel(Principal Financial Officer and SecretaryDuly
Authorized Officer of the Registrant)
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19
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule