1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 28, 1996 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.
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(Exact name of registrant as specified in its charter)
Delaware 77-0207692
- ------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
337 Encinal Street, P.O. Box 1802
Santa Cruz, California 95061-1802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 426-6060
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 28, 1996
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Common Stock, $.01 par value 8,127,919
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1996 1996
========= =========
ASSETS
Current assets:
Cash and cash equivalents $ 35,732 $ 26,787
Accounts receivable 37,080 38,555
Inventory 20,401 18,007
Deferred income taxes 5,094 5,094
Other current assets 1,012 1,227
--------- ---------
Total current assets 99,319 89,670
Property, plant and equipment, net 18,002 13,710
Other assets 5,074 5,281
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$ 122,395 $ 108,661
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,776 $ 8,384
Accrued liabilities 22,538 20,692
Income taxes payable 13,876 12,040
--------- ---------
Total current liabilities 45,190 41,116
Deferred income taxes 1,081 1,081
Long-term debt 65,050 65,050
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Total liabilities 111,321 107,247
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Stockholders' equity:
Common stock; $0.01 par value, 25,000,000 shares authorized,
8,127,919 and 8,388,956 shares issued and outstanding 85 84
Additional paid-in capital 56,640 55,726
Cumulative translation adjustment (891) (891)
Accumulated deficit (31,887) (53,505)
--------- ---------
23,947 1,414
Less: Treasury stock
(common: 350,613 shares in fiscal year 1997) at cost (12,873) --
--------- ---------
Total stockholders' equity 11,074 1,414
--------- ---------
$ 122,395 $ 108,661
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
========= ========= ========= =========
Net sales $ 50,309 $ 46,565 $ 143,014 $ 135,849
Cost of sales 23,548 21,978 66,420 64,896
--------- --------- --------- ---------
Gross profit 26,761 24,587 76,594 70,953
--------- --------- --------- ---------
Operating expense:
Research, development and engineering 3,637 3,274 10,370 10,467
Selling, general and administrative 10,020 9,026 29,373 25,655
--------- --------- --------- ---------
Total operating expenses 13,657 12,300 39,743 36,122
--------- --------- --------- ---------
Operating income 13,104 12,287 36,851 34,831
Interest expense, including amortization
of debt issuance costs of $132, $132, $396 1,763 1,784 5,314 5,377
and $396
Interest and other income, net (542) (491) (1,218) (1,082)
--------- --------- --------- ---------
Income before income taxes 11,883 10,994 32,755 30,536
Income tax expense 4,040 4,287 11,137 11,909
--------- --------- --------- ---------
Net income $ 7,843 $ 6,707 $ 21,618 $ 18,627
========= ========= ========= =========
Net income per share $ 0.89 $ 0.74 $ 2.43 $ 2.08
========= ========= ========= =========
Shares used in net income per share calculation 8,820 9,037 8,905 8,963
========= ========= ========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,618 $ 18,627
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,129 1,706
Gain on sale of property and equipment (10) -
Other non-cash charges, net 507 569
Changes in assets and liabilities:
Accounts receivable 1,309 (8,372)
Provision for doubtful accounts 166 651
Inventory (2,394) 1,219
Other current assets 215 (287)
Other assets (189) 564
Accounts payable 392 3,087
Accrued liabilities 1,846 2,795
Income taxes payable 1,836 601
-------- --------
Cash provided by operating activities 27,425 21,160
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,426) (2,387)
Proceeds from sale of property
and equipment 15 -
-------- --------
Cash used for investing activities (6,411) (2,387)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 804 585
Purchase of treasury stock (12,873) -
-------- --------
Cash (used for) provided by financing
activities (12,069) 585
-------- --------
Net increase in cash and
cash equivalents 8,945 19,358
Cash and cash equivalents at
beginning of period 26,787 3,360
-------- --------
Cash and cash equivalents at end of period $ 35,732 $ 22,718
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 3,304 $ 3,329
Income taxes $ 9,332 $ 11,169
See Notes to Unaudited Condensed Consolidated Financial Statements.
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PLANTRONICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
The unaudited consolidated condensed financial statements included herein have
been prepared by Plantronics, Inc. ("Plantronics") pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations as of and for the periods indicated. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
Plantronics believes the disclosures which are made, when read in conjunction
with the audited fiscal 1996 financial statements, are adequate to make the
information presented not misleading. As used herein, references to the
"Company" mean Plantronics and its consolidated subsidiaries.
PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest to
March 31st. For purposes of presentation, the Company has indicated its
accounting year-end as March 31 and its third quarter-end as December 31.
Plantronics' fiscal quarters ended December 31, 1996 and 1995 each consisted of
thirteen weeks each.
1. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS: (in thousands)
December 31, March 31,
1996 1996
-------- --------
Inventories:
Finished goods $ 11,399 $ 6,890
Work in process 1,926 4,631
Purchased parts 7,076 6,486
-------- --------
$ 20,401 $ 18,007
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 10-40 years) 10,008 8,869
Machinery and equipment (useful lives: 4-8 years) 23,800 19,850
-------- --------
38,501 33,412
Less accumulated depreciation (20,499) (19,702)
-------- --------
$ 18,002 $ 13,710
======== ========
2. 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
foreign subsidiaries' financial statements into U.S. dollars are
included in other income (expense) in the consolidated statements of
operations. Gains and losses resulting from foreign currency
transactions are also included in other income (expense). Aggregate
exchange gains in the three months ended December 31, 1996 and December
31, 1995 were $0.2 million in each period. Aggregate exchange gains for
the nine months ended December 31, 1996 and December 31, 1995 were $0.2
million and $0.3 million, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth items from the Condensed Consolidated Statements
of Income as a percentage of net revenue.
Three Months Ended
December 31, December 31,
--------------------------
1996 1995
----- -----
Net sales 100.0% 100.0%
Cost of sales 46.8 47.2
----- -----
Gross profit 53.2 52.8
Research and development 7.2 7.0
Selling, general and 19.9 19.4
administrative
----- -----
Operating income 26.0 26.4
Other (income) expense 2.4 2.8
----- -----
Income before income taxes 23.6 23.6
Income tax expense 8.0 9.2
----- -----
Net income 15.6% 14.4%
===== =====
NET SALES. Net sales for the quarter ended December 31, 1996 were $50.3 million,
an increase of $3.7 million or 8.0% over net sales of $46.6 million for the
quarter ended December 31, 1995. For the nine months ended December 31, 1996 net
sales were $143.0 million, an increase of $7.2 million or 5.3% over the
comparable period in fiscal 1996. Net international revenues for the first nine
months of fiscal 1997 continued to grow, up $8.6 million or 25.0% over the
comparable period in fiscal 1996. Domestic revenues were down $0.6 million for
the first nine months of fiscal 1997 primarily as a result of the anticipated
decline of $2.3 million in headset shipments to Lucent Technologies (formerly
AT&T), principally due to the closing of their phone stores, offset partially by
$1.7 million in increased sales through other domestic channels.
GROSS PROFIT. Gross profit for the quarter ended December 31, 1996 was $26.8
million (53.2% of net sales), compared to $24.6 million (52.8% of net sales) for
the same period in fiscal 1996. Gross profit for the nine-month period ended
December 31, 1996 was $76.6 million (53.6% of net sales), compared to $71.0
million (52.2% of net sales) for the same period in fiscal 1996. The favorable
increases in gross margin percentage were due to increased manufacturing
efficiencies resulting from improved processes and continued consolidation of
manufacturing operations to the Mexican plant. In the future, margins may
decrease somewhat as a result of a shift in product mix toward new, lower margin
products.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering
expenses for the quarter ended December 31, 1996 were $3.6 million compared to
$3.3 million for the quarter ended December 31, 1995. This increase was
primarily due to increased staffing, project materials and other costs related
to new product development. Research, development and engineering expenses were
relatively unchanged at $10.4 million for the nine-month period ended December
31, 1996 compared to $10.5 million for the nine-month period ended December 31,
1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the quarter ended December 31, 1996 were $10.0 million compared to
$9.0 million for the quarter ended December 31, 1995. Selling, general and
administrative expenses for the nine-month period ended December 31, 1996 were
$29.4 million compared to
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$25.7 million for the nine-month period ended December 31, 1995. The
increases were the result of additional staffing in sales and marketing
worldwide and increased spending on international marketing programs.
INCOME TAX EXPENSE. The Company has been providing for income taxes at an
effective tax rate of 34% during fiscal 1997, representing a decrease from the
effective tax rate of 39% provided in fiscal 1996. This decrease is due
primarily to international restructuring begun in the fourth quarter of fiscal
1996.
FOREIGN CURRENCY. Through fiscal 1996, intercompany transactions between the
Company and its United Kingdom subsidiary posed the greatest foreign currency
risk. The Company managed this risk by timely payments of intercompany
liabilities and receivables. Remaining currency risk, in the opinion of
management, was not material and, accordingly, the Company did not engage in
hedging transactions. Beginning in fiscal 1997, the intercompany transaction
risk described above has been eliminated as a result of the restructuring of the
Company's international operations. However, the Company is subject to greater
remeasurement exposure to its operating income as a result of the United Kingdom
subsidiary's adoption of the U.S. dollar as its functional currency. The
Company's Mexican peso transaction exposure at its manufacturing subsidiary in
Tijuana, Mexico is limited principally to payroll expenditures. In the opinion
of management, favorable and unfavorable effects to the Company from currency
fluctuations in the periods reported were not material.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity in the nine-month period ended
December 31, 1996 was $27.4 million of cash generated from operating activities.
In the nine-month period ended December 31, 1995, liquidity was principally
provided by $21.2 million of cash generated from operating activities. Cash and
cash equivalents increased to $35.7 million at December 31, 1996 from $22.7
million at December 31, 1995, primarily due to cash provided by operating
activities. The Company also has a $20.0 million facility which includes a $4.0
million letter of credit facility. As of December 31, 1996, the Company had no
cash borrowings under the revolving credit facility and $3.0 million outstanding
under the letter of credit facility. According to borrowing base limitations,
available borrowings under the revolving credit facility at December 3, 1996
were $15.8 million, after reductions for letter of credit obligations. The
revolving credit facility is secured by accounts receivable and related assets.
The terms of the credit facility contain covenants which materially limit the
Company's ability to incur debt, make capital expenditures and pay dividends,
among other matters. These covenants may have a materially adverse effect on the
Company to the extent it cannot comply with them or it must limit its ordinary
course activities. The revolving credit facility expires by its terms on
February 19, 1997. The Company is currently negotiating the terms of a new
credit facility and expects that such facility will be in place prior to
expiration of the existing facility.
OPERATING ACTIVITIES. In the nine-month period ended December 31, 1996 the
Company generated $27.4 million in net cash from operating activities, primarily
as a result of $21.6 million in net income after depreciation of $2.1 million
and an increase in accrued liabilities and taxes payable of $1.8 million each,
partially offset by an increase in inventory of $2.4 million. Inventory
increased to better service European customer demand and due to new products.
INVESTING ACTIVITIES. Capital expenditures were $6.4 million in the nine-month
period ended December 31, 1996, compared to $2.4 million in the nine-month
period ended December 31, 1995. The increase in capital expenditures was
primarily due to investment in a significant upgrade to the Company's business
information system in the first three quarters of fiscal 1997. The Company
expects to invest an additional $2.0 to $3.0 million in the systems upgrade by
the middle of fiscal 1998.
FINANCING ACTIVITIES. In the nine-month period ended December 31, 1996, the
Company repurchased 350,613 shares of its Common Stock for $12.9 million and
received $0.8 million in proceeds from the exercise of stock options. The
Company's financing activities during the nine-month period ended December 31,
1995 were limited to the receipt of $0.6 million in stock option exercise
proceeds.
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The Company has Senior Notes in a principal amount of $65.1 million outstanding
that bear interest, payable semiannually, at a rate of 10% per annum and mature
on January 15, 2001. The Senior Notes are redeemable, at the Company's option,
in whole or in part, any time after January 15, 1999. The Senior Note Indenture
contains certain covenants that, among other things, materially limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, issue preferred stock of subsidiaries, engage in transactions with
affiliates, create liens, engage in mergers and consolidations, make certain
asset sales or make certain investments. The Senior Note Indenture also provides
that holders of the Senior Notes have the right to require the Company to
repurchase the Senior Notes in the event of a "change in control" and certain
various defined events of default.
The Company believes that current balances and cash provided by operations,
together with available borrowing capacity under the revolving credit facility,
will be sufficient to make required interest payments under the Senior Notes and
to fund operations at least through fiscal 1997. 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 paying down the line of
credit, repurchasing Senior Notes or acquiring complementary businesses,
products or technologies.
FORWARD LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE OPERATING RESULTS
The statements in the last sentences of the paragraphs captioned "Gross Profit"
and "Investing Activities" and the first sentence in the paragraph above are
forward looking statements which involve risks and uncertainties. In addition,
the Company may from time to time make oral forward looking statements. The
Company's actual results could differ materially from those anticipated in these
forward looking statements as a result of the following factors:
NEED TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND MARKETS. The Company's net sales
to date have been derived principally from the sale of lightweight
communications headsets ("tops") and associated telephone adaptor bases
("bottoms"). Historically, a substantial amount of the Company's sales have been
made through distributors to call center users and its product development
efforts have primarily been directed toward incremental enhancements of existing
products. In the future, the Company intends to both continue enhancement of its
existing products and develop new products that capitalize on its core
technology and thus expand the Company's product offerings to new user market
segments. The success of new product introductions is dependent on several
factors, including proper new product selection, timely completion and
introduction of new product designs, quality of new products and market
acceptance. The Company has recently expanded its marketing efforts to sell
lightweight headsets to the business, computer, mobile and home office user
market segments. Although the Company has attempted to determine the specific
needs of these new market segments, there can be no assurance that the market
niches identified will in fact materialize or that the Company's future products
designed for these market segments will gain substantial market acceptance.
COMPETITION. As the Company develops new generations of products and enters new
market segments, including the developing business, computer, mobile and home
office user segments of the market, the Company anticipates that it may face
additional competition from companies which currently do not offer communication
headsets. Such companies may be larger, offer broader product lines and have
substantially greater financial and other resources than the Company. Such
competition could negatively affect pricing and gross margins. Although the
Company has historically competed very successfully in the call center segment
of the market, there can be no assurance that it will be able to continue its
leadership position in that segment of the market or that the Company will be
able to compete successfully in the previously defined new market segments.
DEMAND OF CHANGING TECHNOLOGIES. The technology of telephone headsets, both
"tops" and "bottoms," has traditionally evolved slowly. Products have
traditionally exhibited life cycles of three to five years before introduction
of the next generation of products. Next generation products usually included
stylistic changes and quality improvements but were based on similar technology.
The Company believes that future changes in technology may come at a faster
pace, particularly in the telephone, cellular telephone and computer uses in the
business and home office user segments of the market. In addition, in order to
avoid product obsolescence, the Company will have to monitor technological
changes in telephony and computer technologies, as well as users' demands for
new technologies. The Company's future success will be dependent in part on its
ability to successfully develop products that utilize new technologies and
introduce them to the marketplace. Failure by the Company to
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keep pace with future technological changes could materially adversely affect
the Company's revenues and operating results.
UTILIZATION OF SINGLE SOURCE SUPPLIERS. The Company's manufacturing operations
primarily consist of assembly of components and subassemblies that Plantronics
manufactures or purchases from a variety of sources. Although most components
and subassemblies used in the Company's manufacturing operations are obtained,
or are reasonably available, from numerous sources, certain of its products and
components (including semicustom integrated circuits that are key components of
the Company's products) are currently obtained only from single suppliers. The
Company currently purchases such components on a purchase order basis and does
not intend to enter into master purchase agreements with any of its single
source suppliers. The Company has to date experienced only minor interruptions
in the supply of these components, none of which has adversely affected its
operations. However, an interruption in supply from any of the Company's single
source suppliers in the future could temporarily result in the Company's
inability to deliver products on a timely basis, which in turn could adversely
affect its operations.
IMPORTANCE OF PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS. The Company's
success will depend in part on its ability to obtain patents and preserve other
intellectual property rights covering the design and operation of its products.
The Company currently holds certain patents and intends to continue to seek
patents on its inventions when appropriate. The process of seeking patent
protection can be lengthy and expensive, and there can be no assurance that
patents will issue from currently pending or future applications or that the
Company's existing patents or any new patents issued will be of sufficient scope
or strength or provide meaningful protection or any commercial advantage to the
Company. The Company may be subjected to, or may initiate, litigation or patent
office interference proceedings, which may require significant financial and
management resources. The failure to obtain necessary licenses or other rights
or the advent of litigation arising out of any such claims could have a material
adverse effect on the Company's operations.
RISK ASSOCIATED WITH FOREIGN OPERATIONS AND SALES. Approximately 30.0% of the
Company's net sales in the first nine months of fiscal 1997 and 26.8% of the
Company's net sales in fiscal 1996 were derived from sales to foreign customers.
In addition, the Company conducts substantially all of its headset assembly
operations outside the United States and obtains components from various foreign
suppliers. Manufacturing and sales of the Company's products could be adversely
affected by political or economic conditions in the United States or abroad,
particularly in Mexico. Sales to foreign customers and purchases of materials
and components from foreign suppliers are also generally subject to such risks
as increased tariffs and the imposition of other trade barriers.
Although the Company generally transacts business internationally in United
States currency, declines in the values of local currencies relative to the
United States dollar in countries in which the Company does business could
adversely affect the Company by resulting in less competitive pricing for the
Company's products. The Company does not currently engage in any hedging
activities to mitigate exchange rate risks and to date has not been adversely
affected by fluctuating currencies. To the extent that the Company is successful
in increasing its sales to foreign customers, or to the extent that the Company
increases its transactions in foreign currencies, the Company's results of
operations could be adversely affected by exchange rate fluctuations.
DEPENDENCE UPON SENIOR MANAGEMENT. The Company believes that it has benefited
substantially from the leadership of Robert S. Cecil, the Chairman of the Board,
President and Chief Executive Officer of the Company, and the other current
members of senior management, and that the loss of their services could have a
material adverse effect on the Company's business and future operations.
Although the Company has an employment agreement with Mr. Cecil, such agreement
permits him to voluntarily terminate his employment at any time. In addition,
although Mr. Cecil's agreement contains a five-year non-compete covenant which
takes effect upon termination of his employment, such covenants are generally
not enforceable under California law.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed as part of this Quarterly
Report on Form 10-Q.
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant
during the fiscal quarter ended December 28, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLANTRONICS, INC.
--------------------------------------------
(Registrant)
January 31, 1997 /s/ DANIEL A. GAUDREAU
- ---------------------------- --------------------------------------------
(Date) (Signature)
Daniel A. Gaudreau
Vice President
January 31, 1997 /s/ DANIEL A. GAUDREAU
- ---------------------------- --------------------------------------------
(Date) (Signature)
Daniel A. Gaudreau
Vice President - Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
PAGE IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER SYSTEM
- ---------- ----------
27 Financial Data Schedule......................................... 13
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