<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 27, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________________ to ______________________
Commission File Number 1-12696
PLANTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0207692
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
337 Encinal Street, P.O. Box 1802
Santa Cruz, California 95061-1802
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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.
<TABLE>
<S> <C>
Class Outstanding at June 27, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 16,497,436
</TABLE>
1
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 28, JUNE 27,
1998 1998
========= =========
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,901 $ 82,340
Accounts receivable, net 41,550 43,515
Inventory 29,741 27,914
Deferred income taxes 2,130 2,130
Other current assets 1,774 958
-------- --------
Total current assets 140,096 156,857
Property, plant and equipment, net 21,255 20,614
Other assets 4,124 3,706
======== ========
Total Assets $165,475 $181,177
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,327 $ 6,111
Accrued liabilities 26,629 26,348
Income taxes payable 6,381 10,835
-------- --------
Total current liabilities 41,337 43,294
Deferred tax liability 5,652 5,652
Long-term debt 65,050 65,050
-------- --------
Total liabilities 112,039 113,996
-------- --------
Stockholders' equity:
Common stock, $0.01 par value per share;
40,000 shares authorized, 16,449
shares and 16,497 shares issued and outstanding 174 174
Additional paid-in capital 63,816 64,833
Accumulated other comprehensive income:
Foreign currency translation adjustment (891) (891)
Retained Earnings 15,355 27,826
-------- --------
78,454 91,942
Less: Treasury stock
(common: 963 shares in fiscal year 1998
and 949 shares as of June 27, 1998) at cost 25,018 24,761
-------- --------
Total stockholders' equity 53,436 67,181
-------- --------
Total liabilities and stockholders' equity $165,475 $181,177
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
2
<PAGE> 3
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------
JUNE 28, JUNE 27,
1997 1998
========== =========
<S> <C> <C>
Net sales $ 54,023 $ 70,060
Cost of sales 24,956 31,897
-------- --------
Gross profit 29,067 38,163
-------- --------
Operating expense:
Research, development and engineering 3,989 4,470
Selling, general and administrative 11,467 14,102
-------- --------
Total operating expenses 15,456 18,572
-------- --------
Operating income 13,611 19,591
Interest expense, including amortization
of debt issuance costs 1,754 1,736
Interest income and other income, net (356) (485)
-------- --------
Income before income taxes 12,213 18,340
Income tax expense 3,908 5,869
-------- --------
Net income 8,305 12,471
Other comprehensive income -- --
-------- --------
Comprehensive income $ 8,305 $ 12,471
======== ========
Basic earnings per common share $ 0.51 $ 0.76
======== ========
Shares used in basic per share calculations 16,399 16,474
======== ========
Diluted earnings per common share $ 0.47 $ 0.68
======== ========
Shares used in diluted per share calculations 17,820 18,213
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
3
<PAGE> 4
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
JUNE 28, JUNE 27,
1997 1998
========= =========
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 8,305 $ 12,471
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of
property and equipment 776 1,575
Changes in assets and liabilities:
Accounts receivable (2,164) (2,163)
Provision for doubtful accounts 12 198
Inventory (2,445) 1,827
Other current assets (20) 816
Other assets 460 418
Accounts payable 1,289 (2,216)
Accrued liabilities 1,209 (281)
Income taxes payable 2,897 4,905
--------- --------
Cash provided by operating activities 10,319 17,550
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,389) (934)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (116) --
Proceeds from sale of treasury stock 403 536
Proceeds from exercise of stock options 126 287
--------- --------
Cash provided by financing activities 413 823
--------- --------
Net increase in cash and cash equivalents 8,343 17,439
Cash and cash equivalents at beginning of period 42,262 64,901
========= ========
Cash and cash equivalents at end of period $ 50,605 $ 82,340
========= ========
Supplemental disclosures:
Cash paid for:
Interest -- --
Income taxes $ 1,012 $ 2,229
Noncash operating and financing activities:
Income tax benefit associated with stock options $ 259 451
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE> 5
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION. The accompanying interim condensed consolidated
financial statements of Plantronics, Inc. ("Plantronics," the "Company" or the
"Registrant") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements have been
prepared, without audit, in conformity with generally accepted accounting
principles, consistent in all material respects with those applied in the
Company's Annual Report on Form 10-K for the year ended March 28, 1998. The
interim financial information is unaudited, but reflects all normal recurring
adjustments which are, in the opinion of management, necessary to provide a fair
statement of results for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The interim financial statements should be read in connection with
the financial statements in the Company's Annual Report on Form 10-K for the
fiscal year ended March 28, 1998.
NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31 (i.e. March 27, 1999) and the first fiscal quarter-end is the
Saturday closest to June 30 (i.e. June 28, 1997 or June 27, 1998, as
applicable). Plantronics' fiscal quarters ended June 28, 1997 and June 27, 1998
consisted of thirteen weeks each.
NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
March 28, June 27,
1998 1998
========= =========
<S> <C> <C>
Inventories:
Finished goods $13,224 $13,152
Work in process 4,431 3,778
Purchased parts 12,086 10,984
------- -------
$29,741 $27,914
======= =======
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements
(useful lives: 10-40 years) 9,486 9,891
Machinery and equipment
(useful lives: 4-8 years) 31,484 32,013
-------- --------
45,663 46,597
Less accumulated depreciation (24,408) (25,983)
======== ========
$21,255 $20,614
======== ========
</TABLE>
NOTE 4. FOREIGN CURRENCY TRANSACTIONS. The Company's functional currency for all
operations is the U.S. dollar. Accordingly, gains and losses resulting from the
remeasurement of the financial statements of foreign subsidiaries into U.S.
dollars are included in other income (expense) in the consolidated statements of
operations. Gains and losses resulting from foreign currency transactions are
also included in other income (expense). Aggregate exchange losses in the fiscal
quarter ended June 27, 1998 were approximately $0.3 million. There were
approximately $0.1 million in exchange losses in the comparable period ended
June 28, 1997.
NOTE 5. COMPREHENSIVE INCOME
Effective March 29, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
is effective for the Company's fiscal year ending March 27, 1999. The statement
establishes presentation and disclosure requirements for reporting comprehensive
income. Comprehensive income includes charges or credits to equity that are not
the result of transactions with owners. The
5
<PAGE> 6
Company does not have other comprehensive income transactions with the quarter
ended June 27,1998 and June 28, 1997. Cumulative balances in stockholders'
equity and the financial statement format have been presented in compliance with
SFAS 130.
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises the required
information regarding the reporting of operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt SFAS 131 in connection with its
fiscal 1999 closing in compliance with SFAS 131 and does not expect such
adoption to have a material effect on the consolidated financial statements.
6
<PAGE> 7
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include the statement relating
to the ability to make required interest payments in the first sentence in the
last paragraph under "Financial Condition" and the statements below under "Risk
Factors Affecting Future Operating Results." In addition, the Company may from
time to time make oral forward looking statements. These forward-looking
statements are based on current expectations and entail various risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward looking statements as a result of a number of
factors, including those set forth below under "Risk Factors Affecting Future
Operating Results." The following discussions titled "Results of Operations" and
"Financial Condition" should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes included elsewhere herein,
the Company's annual report on Form 10-K, as well as the section below entitled
"Risk Factors Affecting Future Operating Results."
RESULTS OF OPERATIONS:
The following table sets forth items from the Unaudited Condensed Consolidated
Statements of Operations as a percentage of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
June 28, June 27,
1997 1998
======== =========
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 46.2 45.5
--------- ---------
Gross profit 53.8 54.5
--------- ---------
Research and development 7.4 6.4
Selling, general and admin. 21.2 20.1
--------- ---------
Total operating expenses 28.6 26.5
--------- ---------
Operating income 25.2 28.0
Other (income) expense 2.6 1.8
--------- ---------
Income before income taxes 22.6 26.2
Income tax expense 7.2 8.4
--------- ---------
Net Income 15.4% 17.8%
Other comprehensive income -- --
--------- ---------
Comprehensive income 15.4% 17.8%
========= =========
</TABLE>
Net sales for the quarter ended June 27, 1998 were $70.1 million, an increase of
29.8% over net sales of $54.0 million for the quarter ended June 28, 1997.
Domestic revenues grew by 22.3% while international revenues grew by 49.1% over
the comparable period in fiscal 1997.
Gross profit of $38.2 million for the quarter ended June 27, 1998 increased by
$9.1 million over the quarter ended June 28, 1997, a 31.3% increase. The overall
increases in gross profits principally reflect the overall increase in
7
<PAGE> 8
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
revenues, with benefits from shifts in product mix and efficiencies due to
increased volumes. Changes in material and labor costs and changes in
distribution channels may have an adverse effect on gross profit percentage in
the future. For a description of additional risks which may impact gross profit
see the section entitled "Risk Factors Affecting Future Operating Results."
Research, development and engineering expenses for the quarter ended June 27,
1998 were $4.5 million compared to $4.0 million for the quarter ended June 28,
1997. Increases were associated with higher levels of research and development
spending on product technology. The Company recognizes the necessity to balance
the cost of research and development with expense control.
Selling, general and administrative expenses for the quarter ended June 27, 1998
were $14.1 million compared to $11.5 million for the quarter ended June 28,
1997. The overall increases in selling, general and administrative expenses in
the first quarter of fiscal 1999 were from costs associated with higher sales
volume worldwide and related variable expenses, such as sales commissions and
employee profit sharing.
Interest expense of $1.7 million was the same in the first quarter of fiscal
1999 and the first quarter of fiscal 1998. Interest income and other income of
$0.5 million for the first quarter of fiscal 1999 resulted in a net interest
expense of $1.3 million, slightly down from the net interest expense of $1.4
million for the same period in fiscal 1998. The reduction in interest expense,
net of interest income and other income, is primarily attributable to interest
income derived from increases in cash and cash equivalents.
The Company's cash flows are substantially US dollar denominated. However, the
Company is exposed to certain foreign currency fluctuations, primarily in Europe
and Mexico. The source of currency risk in Europe is due to receivables
denominated in local currency, although this has been largely offset by payables
denominated in local currency. This natural hedging approach has historically
limited the Company's net exposure to the effect of currency fluctuations and
management believes additional hedging has not been merited. As the Company's
sales in Europe grow, this strategy will require review and the Company may
experience greater exposure to currency fluctuations as a result of its
increasing international activities. In the fourth quarter of fiscal 1996, the
company formed Plantronics B.V., a wholly owned subsidiary incorporated in the
Netherlands. Administrative functions, particularly with respect to the
Company's international sales, were transferred to Plantronics B.V. The Company
now incurs local expenses in its Plantronics B.V. subsidiary in Dutch guilders
while recording no revenue in Dutch guilders.
The Company's peso transaction exposure at its manufacturing subsidiary in
Tijuana, Mexico is limited mostly to payroll. The favorable effects to the
Company on the devaluation of the peso in the years reported was somewhat offset
by local currency pay raises to its employees in Mexico. Because of these
factors, management does not believe the devaluation has had a material effect
on the Company.
Losses due to foreign currency fluctuations approximated $0.3 million for the
first quarter of fiscal 1999 compared to a $0.1 million loss in same period of
fiscal 1998, due primarily to weakening of the pound sterling against the US
dollar.
The Company's effective tax rate was 32% in the quarters ended June 27, 1998 and
June 28, 1997.
FINANCIAL CONDITION:
The Company's principal source of liquidity in the three-month period ended June
27, 1998 was $17.6 million of cash generated from operating activities, due
primarily to $12.5 million in net income, compared to $10.3 million in cash
generated from operating activities for the same period ended June 28, 1997, of
which $8.3 million was from net income. In the current period, increases in
depreciation and amortization and in income taxes payable with decreases in
inventory represented the majority of the balance of cash provided by operating
activities.
8
<PAGE> 9
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The Company has a $20.0 million revolving credit facility, including a $10.0
million letter of credit subfacility, with a major bank. As of June 27, 1998,
the Company had no cash borrowings under the revolving credit facility and $2.2
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 facility contain covenants
which materially limit the Company's ability to incur debt, make capital
expenditures and pay dividends, among other matters. These covenants may
adversely affect the Company to the extent it cannot comply with them or it must
limit its ordinary course of activities.
Capital expenditures of $0.9 million in the three-month period ended June 27,
1998 were incurred principally in manufacturing tooling and investments in
computer and telephone equipment.
In the three-month period ended June 27, 1998, the Company sold 14,168 shares of
its Treasury Stock for $0.5 million and received $0.3 million in proceeds from
the exercise of stock options.
The Senior Notes that were issued during fiscal 1994, in the remaining principal
amount of $65.1 million, bear interest, payable semiannually, at a rate of 10%
per annum and mature on January 15, 2001. The Senior Notes are redeemable, at
the Company's option, in whole or in part, any time after January 15, 1999. The
Senior Note Indenture contains certain covenants that, among other things, limit
the ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, issue preferred stock of subsidiaries, engage in transactions with
affiliates, create liens, engage in mergers and consolidations, make certain
asset sales or make certain investments. The Senior Note Indenture also provides
that holders of the Senior Notes have the right to require the Company to
repurchase their Senior Notes in the event of a "change in control" and certain
various customary events of default.
The Company believes that its current cash balance and cash to be provided by
operations, together with available borrowing capacity under the revolving
credit facility, will be sufficient to make required interest payments under the
Senior Notes and to fund operations at least through the next 12 months. Subject
to the terms and conditions of the 10% Senior Note Indenture and the Company's
revolving credit facility, the Company may use cash for such purposes as
repurchasing Senior Notes, repurchasing the Company's Common Stock or acquiring
complementary businesses, products or technologies.
9
<PAGE> 10
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FACTORS AFFECTING FUTURE OPERATING RESULTS
Plantronics participates in an increasingly volatile industry that is
characterized by industry-wide competition for business. Industry participants
confront aggressive pricing practices, continually changing customer demand
patterns, growing competition from new market entrants, and increasingly rapid
technological development. In accordance with the provisions of the Private
Securities Litigation Reform Act of 1995, the cautionary statements set forth
below discuss important factors that could cause actual results to differ
materially from the projected results contained in any forward-looking
statements in this report or otherwise made orally or in writing by the Company.
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 adapter
amplifier bases ("bottoms"). Historically, a substantial amount of the company's
sales have been made through distributors to call center users such as
telemarketing personnel, reservation agents, telephone operators and air traffic
controllers. The Company has expanded its marketing efforts to sell lightweight
communications headsets to the business, mobile and home office user market
segments. The Company's product development efforts historically have been
directed toward incremental enhancement of its existing products and development
of new products that capitalize on its core technologies and thus expand the
Company's product offerings to new user market segments. The success of new
product introductions is dependent on a number of factors, including proper new
product selection, timely completion and introduction of new product designs,
cost-effective manufacture of such products, quality of new products and market
acceptance. To be successful in the future, the Company must be able to develop
new products, qualify these new products with its customers, successfully
introduce these products to the market on a timely basis, and commence and
sustain volume production to meet customer demands. Although the Company has
attempted to determine the specific needs of new market segments, there is no
assurance that the Company's present and future products designed for such new
market segments will gain substantial market acceptance. As discussed below,
even if the market segments develop and the Company's products meet the needs of
the potential segment, there is no assurance that the Company can cost
effectively manufacture such products.
COMPETITION
The Company encounters aggressive competition in all areas of its business
activity. The Company competes primarily on the basis of technology,
performance, price, quality, reliability, distribution, and customer service and
support. As the Company develops new generations of products and enters new
market segments, including the developing business, computer, mobile and home
office user segments of the market, the Company anticipates that it may face
additional competition from companies which currently do not offer
communications headsets. Such companies may be larger, offer broader product
lines and have substantially greater financial and other resources than the
Company. Such competition could negatively affect pricing and gross margins.
Although the Company has historically competed very successfully in the call
center segment of the market, there can be no assurance that it will be able to
continue its leadership position in that segment of the market or that the
Company will be able to compete successfully in the previously defined new
market segments.
The Company's two largest competitors in the call center market segment, GN
Netcom and ACS Wireless, Inc., announced an agreement under which they merged to
form a single company. The effects of such a merger cannot yet be determined.
However, such effects could include increased price competition in various
market segments and impact the Company's gross margins.
DEMAND OF CHANGING TECHNOLOGIES
The technology of telephone headsets, both "tops" and "bottoms," has
traditionally evolved slowly. Products have historically exhibited life cycles
of three to five years before introduction of the next generation of products.
10
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Next generation products usually included stylistic changes and quality
improvements but were based on similar technology. The Company believes that
future changes in technology may come at a faster pace, particularly in the
telephone, wireless telephone and computer uses in the business and home office
market segments. In addition, in order to avoid product obsolescence, the
Company will have to monitor technological changes in telephone and computer
technologies, as well as the demands of users for new technologies. In the
start-up phase of new products or new manufacturing processes, the Company may
experience fluctuations in manufacturing yields that can materially affect the
Company's operations.. The Company's future success will be dependent in part on
its ability to develop products that utilize new technologies and to introduce
them successfully to the marketplace. Failure by the Company to keep pace with
future technological changes could materially adversely affect the Company's
revenues and operating results.
RISKS RELATED TO GROSS PROFIT
The Company's gross profit percentage is a function of the product mix sold in
any period. Therefore, the gross profit percentage may fluctuate, affecting the
Company's operating results. Factors such as unit volumes, obsolescence/surplus
of inventory, heightened price competition, changes in channels of distribution,
shortages and cost increases in supplies of component parts from vendors, and
the availability and cost of labor, also may cause fluctuations in gross profit
percentages.
NEED TO MATCH PRODUCTION TO DEMAND
Historically, the Company has seen steady increases in customer demand for its
products and has generally been able to increase production to meet that demand.
Demand for the Company's products is dependent on many factors and such demand
is inherently difficult to forecast. Rapid increases in production levels could
require expenditures that may negatively affect gross margins and may result in
decreased manufacturing yields. Failure to balance demand and production could
result in excesses or shortages of components and parts and excesses or
shortages of manufacturing capacity. Failure to meet demand could result in the
inability to meet customer expectations and adversely affect the Company's
operations and operating results.
RELIANCE UPON SUPPLIERS
The Company's manufacturing operations primarily consist of assembly of
components and subassemblies that Plantronics manufactures or purchases from a
variety of sources. The cost, quality, and availability of such components are
essential to the successful production of the Company's communications products.
Most components and subassemblies used in the Company's manufacturing operations
are obtained, or are reasonably available, from numerous sources. However,
certain of its subassemblies and components are currently obtained only from
single suppliers. The Company currently purchases those goods on a purchase
order basis. The Company periodically experiences constrained supply of certain
component parts and such constraints, if persistent, may adversely affect
operating results until alternate sourcing can be developed. To date, the
Company has experienced only minor interruptions in the supply of 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.
There also can be no assurance that the Company's existing patents or any new
patents issued will be of sufficient scope or strength or provide meaningful
protection or any commercial advantage to the Company. The Company may be
subjected to, or may initiate, litigation or patent office interference
proceedings, which may
11
<PAGE> 12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
require significant financial and management resources. The failure to obtain
necessary licenses or other rights or the advent of litigation arising out of
any such claims could have a material adverse effect on the Company's
operations.
RISK ASSOCIATED WITH FOREIGN OPERATIONS AND SALES
Approximately 30.7% of the Company's net sales in fiscal 1998 were derived from
customers outside the United States. In addition, the Company conducts
substantially all of its headset assembly operations in its Mexican
manufacturing facility and obtains most of the components of its products from
various foreign suppliers. Offshore operations are subject to certain inherent
risks, including delays in transportation, changes in governmental policies,
taxes, tariffs and import/export regulations, political unrest, fluctuations in
currency exchange rates and geographic limitations on management controls and
reporting. There can be no assurance that the inherent risks of offshore
operations, particularly in Mexico, will not adversely affect the Company's
business, operating results and financial condition in the future.
Although the Company generally transacts business internationally in United
States currency, declines in the values of local currencies relative to the
United States dollar in countries in which the Company sells its products could
adversely affect the Company by resulting in less competitive pricing for the
Company's products. Substantial increases in the values of local currencies
relative to the United States dollar in countries in which the Company purchases
components or assembles products could adversely affect the Company by
increasing the cost of its products, decreasing margins or possibly requiring
less competitive pricing because of resulting price increases. The Company does
not currently engage in any hedging activities to mitigate exchange rate risks
and to date has not been adversely affected by fluctuating currencies. To the
extent that the Company is successful in increasing its sales to foreign
customers, or to the extent that the Company increases its transactions in
foreign currencies, the Company's results of operations could be adversely
affected by exchange rate fluctuations.
DEPENDENCE UPON SENIOR MANAGEMENT
The Company believes that it has benefited substantially from the leadership of
Robert S. Cecil, the Chairman of the Board and Chief Executive Officer of the
Company, and the other current members of senior management, and that the loss
of their services could have a material adverse effect on the Company's business
and future operations. Although the Company has an employment agreement with Mr.
Cecil, such agreement permits him to voluntarily terminate his employment at any
time. In addition, although Mr. Cecil's agreement contains a five-year
non-compete covenant which takes effect upon termination of his employment, such
covenants are generally not enforceable under California law.
CONCLUSION
Because of the foregoing factors, as well as other variables affecting or which
could affect the Company's operating results, past financial performance should
not be considered a reliable indicator of future performance. Investors should
not rely upon historical trends to anticipate results or trends in future
periods
12
<PAGE> 13
PLANTRONICS, INC.
PART II. OTHER INFORMATION
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.
<TABLE>
<CAPTION>
Exhibit Description
Number -----------
-------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant
during the fiscal quarter ended June 27, 1998.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
13
<PAGE> 14
PLANTRONICS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLANTRONICS, INC.
----------------------------
(Registrant)
AUGUST 6, 1998 s\ Barbara V. Scherer
- -------------- ----------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President
AUGUST 6, 1998 s\ Barbara V. Scherer
- -------------- -----------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President -
Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 15
PLANTRONICS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number
- --------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> JUN-27-1998
<CASH> 82,340
<SECURITIES> 0
<RECEIVABLES> 45,465
<ALLOWANCES> 1,950
<INVENTORY> 27,914
<CURRENT-ASSETS> 156,857
<PP&E> 37,542
<DEPRECIATION> 16,928
<TOTAL-ASSETS> 181,177
<CURRENT-LIABILITIES> 43,294
<BONDS> 65,050
0
0
<COMMON> 174
<OTHER-SE> 72,659
<TOTAL-LIABILITY-AND-EQUITY> 181,177
<SALES> 70,060
<TOTAL-REVENUES> 70,060
<CGS> 31,897
<TOTAL-COSTS> 31,897
<OTHER-EXPENSES> 18,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,736
<INCOME-PRETAX> 18,340
<INCOME-TAX> 5,869
<INCOME-CONTINUING> 12,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,471
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.68
</TABLE>
