<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 December 27, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission File Number 1-12696
PLANTRONICS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0207692
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
337 Encinal Street, P.O. Box 1802
Santa Cruz, California 95061-1802
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 426-6060
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 27, 1997
---------------------------- --------------------------------
Common Stock, $.01 par value 16,550,899
<PAGE> 2
PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, MARCH 29,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,083 $ 42,262
Accounts receivable, net 43,571 36,981
Inventory 30,574 20,042
Deferred income taxes 2,840 2,840
Other current assets 1,525 909
--------- ---------
Total current assets 140,593 103,034
Property, plant and equipment, net 21,064 18,970
Other assets 4,149 5,237
========= =========
Total assets $ 165,806 $ 127,241
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,739 $ 9,578
Accrued liabilities 25,971 20,441
Income taxes payable 8,690 9,674
--------- ---------
Total current liabilities 47,400 39,693
Deferred income taxes 1,616 1,616
Long-term debt 65,050 65,050
--------- ---------
Total liabilities 114,066 106,359
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 40,000,000 shares authorized,
16,550,899 shares as of December 27, 1997 and 16,366,212 shares 172 164
as of March 29, 1997 issued and outstanding
Additional paid-in capital 60,317 58,224
Cumulative translation adjustment (891) (891)
Retained Earnings 4,258 (23,834)
--------- ---------
63,856 33,663
Less: Treasury stock
(common: 660,397 shares as of December 27,1997 and 696,142
shares as of March 29, 1997) at cost (12,116) (12,781)
--------- ---------
Total stockholders' equity 51,740 20,882
--------- ---------
Total liabilities and stockholders' equity $ 165,806 $ 127,241
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
2
<PAGE> 3
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 62,017 $ 50,309 $ 172,579 $ 143,014
Cost of sales 28,464 23,548 79,423 66,420
--------- --------- --------- ---------
Gross profit 33,553 26,761 93,156 76,594
--------- --------- --------- ---------
Operating expense:
Research, development and engineering 4,591 3,637 12,975 10,370
Selling, general and administrative 12,330 10,020 35,172 29,373
--------- --------- --------- ---------
Total operating expenses 16,921 13,657 48,147 39,743
--------- --------- --------- ---------
Operating income 16,632 13,104 45,009 36,851
Interest expense, including amortization
of debt issuance costs 1,755 1,763 5,248 5,314
Interest income and other income, net (447) (542) (1,549) (1,218)
--------- --------- --------- ---------
Income before income taxes 15,324 11,883 41,310 32,755
Income tax expense 4,903 4,040 13,218 11,137
--------- --------- --------- ---------
Net income attributable to holders
of common stock $ 10,421 $ 7,843 $ 28,092 $ 21,618
========= ========= ========= =========
Basic earnings per common share $ 0.63 $ 0.48 $ 1.70 $ 1.32
========= ========= ========= =========
Shares used in basic per share calculations 16,547 16,256 16,482 16,333
========= ========= ========= =========
Diluted earnings per common share $ 0.57 $ 0.44 $ 1.54 $ 1.21
========= ========= ========= =========
Shares used in diluted per share calculations 18,383 17,640 18,200 17,810
========= ========= ========= =========
</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>
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 27, DECEMBER 28,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,092 $ 21,618
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and intangible assets 2,896 2,129
Gain on sale of property & equipment -- (10)
Other non-cash charges, net -- 507
Changes in assets and liabilities:
Accounts receivable (6,969) 1,309
Provision for doubtful accounts 379 166
Inventory (10,532) (2,394)
Other current assets (616) 215
Other assets 854 (189)
Accounts payable 3,161 392
Accrued liabilities 5,530 1,846
Income taxes payable (984) 1,836
-------- --------
Cash provided by operating activities 21,811 27,425
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,756) (6,426)
Proceeds from sale of property and equipment -- 15
-------- --------
Cash used by investing activities (4,756) (6,411)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,101 804
Purchase of treasury stock (116) (12,873)
Sale of Treasury Stock 781 --
-------- --------
Cash provided by (used for) financing activities 2,766 (12,069)
-------- --------
Net increase (decrease) in cash and
cash equivalents 19,821 8,945
Cash and cash equivalents at beginning
of period 42,262 26,787
======== ========
Cash and cash equivalents at end of period $ 62,083 $ 35,732
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 3,291 $ 3,304
Income taxes $ 12,464 $ 9,332
======== ========
</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 29, 1997. The
interim financial information is unaudited, but reflects all normal recurring
adjustments which are, in the opinion of management, necessary to provide a fair
statement of results for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The interim financial statements should be read in connection with
the financial statements in the Company's Annual Report on Form 10-K for the
fiscal year ended March 29, 1997.
NOTE 2. EFFECT OF INCREASE IN STOCK AND STOCK SPLIT. In July 1997, the Company's
stockholders approved an increase in the authorized shares of Common Stock of
Plantronics, Inc., to 40,000,000. On September 2, 1997, the Company effected a
two-for-one stock split in the form of a stock dividend to stockholders of
record as of August 18, 1997. All share, per share, Common Stock, and capital in
excess of par value amounts herein have been restated to reflect the effect of
this split.
NOTE 3. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31st (i.e. March 29, 1997) and the third fiscal quarter-end is the
Saturday closest to December 31 (i.e. December 27, 1997 or December 28, 1996, as
applicable). Plantronics' fiscal quarters ended December 27, 1997 and December
28, 1996 consisted of thirteen weeks each.
NOTE 4. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
December 27, March 29,
1997 1997
-------- --------
<S> <C> <C>
Inventories:
Finished goods $ 10,906 $ 11,056
Work in process 4,481 1,647
Purchased parts 15,187 7,339
-------- --------
$ 30,574 $ 20,042
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 10-40 years) 9,463 9,104
Machinery and equipment (useful lives: 4-8 years) 30,346 25,949
-------- --------
44,502 39,746
Less accumulated depreciation (23,438) (20,776)
-------- --------
$ 21,064 $ 18,970
======== ========
</TABLE>
NOTE 5. FOREIGN CURRENCY TRANSACTIONS. The Company's functional currency for all
operations is the U.S. dollar. Accordingly, gains and losses resulting from the
remeasurement of the financial statements of foreign subsidiaries into U.S.
dollars are included in other income (expense) in the consolidated statements of
operations. Gains and losses resulting from foreign currency transactions are
also included in other income (expense). Exchange gains equaled exchange losses
in the fiscal quarter ended December 27, 1997. There was a $0.2 million exchange
gain in the comparable period ended December 28, 1996. Through the three fiscal
quarters ended
5
<PAGE> 6
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997 aggregate exchange losses equaled $0.3 million and for the
comparable period ended December 28, 1996 exchange gains equaled $0.2 million.
NOTE 6. NET INCOME PER SHARE. Effective December 27, 1997 the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The new standard requires presentation of basic earnings per share, from
which the dilutive effect of stock options is excluded, and diluted earnings per
share. The dilutive effect of stock options is calculated using the treasury
stock method. FAS 128 requires that the average stock price for the period be
used in determining the number of treasury shares assumed purchased rather than
the higher of the average or ending stock price as prescribed by Accounting
Principles Board Opinion 15. Net income per share is based on the weighted
average common shares outstanding and weighted dilutive common equivalent
shares. Common equivalent shares include stock options.
RECONCILIATION OF NUMERATORS AND DENOMINATORS FOR BASIC AND DILUTED EPS
COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (numerator) $10,421 $ 7,843 $28,092 $21,618
Weighted Average Outstanding Shares
(denominator) 16,547 16,256 16,482 16,333
Weighted Average Stock Options 1,836 1,384 1,718 1,477
------- ------- ------- -------
Weighted Average Diluted Outstanding
Shares (denominator) 18,383 17,460 18,200 17,810
======= ======= ======= =======
Basic earnings per common share $ 0.63 $ .48 $ 1.70 $ 1.32
Diluted earnings per common share $ 0.57 $ .44 $ 1.54 $ 1.21
</TABLE>
A restatement of the prior quarter's results is included to reflect basic and
diluted earnings per share under the new standard.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended
------------------- ------------------- -------------------
June 28, June 29, Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net Income 8,305 6,625 9,366 7,152 17,671 13,775
Weighted Shares 16,399 16,686 16,500 16,380 16,450 16,533
Basic EPS $ 0.51 $ 0.40 $ 0.57 $ 0.44 $ 1.08 $ 0.83
====== ====== ====== ====== ====== ======
Weighted shares assuming 17,820 18,072 18,356 17,720 18,086 17,898
dilution
Diluted EPS $ 0.47 $ 0.37 $ 0.51 $ 0.40 $ 0.98 $ 0.77
====== ====== ====== ====== ====== ======
</TABLE>
6
<PAGE> 7
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This statement is effective for the Company's fiscal year ending March
27, 1999. The statement establishes presentation and disclosure requirements for
reporting comprehensive income. Comprehensive income includes charges or credits
to equity that are not the result of transactions with owners. The Company plans
to adopt the disclosure requirements and report comprehensive income as part of
the Consolidated Statements of Shareholders' Equity as required under SFAS 130,
and expects there to be no material impact on the Company's financial position
and results of operations as a result of the adoption of this new accounting
standard.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises the required
information regarding the reporting of operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt SFAS 131 beginning in fiscal 1999
and does not expect such adoption to have a material effect on the consolidated
financial statements.
7
<PAGE> 8
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 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 Condensed Consolidated Statements
of Operations as a percentage of net sales. The Company's fiscal year 1998 runs
from March 30, 1997 through March 28, 1998. The Company's fiscal year 1997 ran
from March 31, 1996 through March 29, 1997. The third quarter of the Company's
fiscal 1998 commenced September 28, 1997 and ended December 27, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 45.9 46.8 46.0 46.4
----- ----- ----- -----
Gross profit 54.1 53.2 54.0 53.6
Research and development 7.4 7.2 7.5 7.3
Selling, general and administrative 19.9 19.9 20.4 20.5
Operating income 26.8 26.0 26.1 25.8
Other (income) expense 2.1 2.4 2.1 2.9
Income before income taxes 24.7 23.6 23.9 22.9
Income tax expense 7.9 8.0 7.7 7.8
Net Income 16.8 15.6 16.3 15.1
----- ----- ----- -----
</TABLE>
Net sales for the quarter ended December 27, 1997 were $62.0 million, an
increase of 23.3% over net sales of $50.3 million for the quarter ended December
28, 1996. During this period domestic sales were $43.1 million, an increase of
20.7%, while international revenues were $18.9 million, an increase of 29.5%
over the comparable period in fiscal 1997. Consolidated net sales for the first
three quarters of fiscal 1998, commencing March 30, 1997 and ended December 27,
1997, were $172.6 million, an increase of 20.7% over net sales of $143.0 million
in the same period fiscal 1997. Domestic sales in the first three quarters of
fiscal 1998 were $121.0 million, an increase of 20.3% over the comparable period
of fiscal 1997. International net sales in the first three quarters of fiscal
1998 totaled $51.6 million, up 21.7% over the same period in fiscal 1997.
8
<PAGE> 9
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Gross profit of $33.6 million for the quarter ended December 27, 1997 increased
by $6.8 million over the quarter ended December 28, 1996, a 25.4% increase.
Gross profit of $93.2 million for the first three quarters of fiscal 1998 grew
by $16.6 million, an increase of 21.6% over the comparable period of fiscal
1997. The increases in gross profits principally reflect the increase in
revenues, with benefits from cost improvements on existing products. 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 December
27, 1997 were $4.6 million compared to $3.6 million for the quarter ended
December 28, 1996, an increase of $1.0 million. Expenses for the first half of
fiscal year 1998 grew $2.6 million over the first half of fiscal 1997. Increases
were from costs associated with new product development and improvements to
existing products.
Selling, general and administrative expenses for the quarter ended December 27,
1997 were $12.3 million compared to $10.0 million for the fiscal 1997 quarter
ended December 28, 1996. SG&A expenses in the first three quarters of fiscal
1998 were $8.4 million higher than the expenses in the first three quarters of
fiscal 1997. The overall increases in selling, general and administrative
expenses in the third quarter and first three quarters of fiscal 1998 are from
costs associated with higher sales volume worldwide, increases in market
research and planned increases in general and administrative costs. The expenses
reflect the planned decrease of SG&A costs as a percentage of net sales.
Interest expense, interest income and other income for the third quarter of
fiscal 1998 resulted in a net expense of $1.3 million, slightly up from the net
expense of $1.2 million for the same period in fiscal 1997. The increase in net
expense in the third quarter fiscal 1998 was primarily due to other income
losses as compared to favorable exchange gains and other income gains in the
third quarter of fiscal 1997 . The total of other income/expense for the first
three quarters of fiscal 1998 was a net expense of $3.7 million, down from the
net expense of $4.1 million for the comparable period in fiscal 1997. The
reduction in interest expense, net of interest income and other income, is
primarily attributable to interest income derived from increases in cash and
cash equivalents.
The Company's cash flows are substantially U.S. 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 substantially
limited the Company's net exposure to the effect of currency fluctuations and
management believes additional hedging has not been merited. As the Company's
sales in Europe grow, this strategy will require review and the Company may
experience greater exposure to currency fluctuations as a result of its
increasing international activities. In the fourth quarter of fiscal 1996, the
company formed Plantronics B.V., a wholly owned subsidiary incorporated in the
Netherlands. Administrative functions, particularly with respect to the
Company's international sales, were transferred to Plantronics B.V. The Company
now incurs local expenses in its Plantronics B.V. subsidiary in Dutch guilders
and a small proportion of expenses in pounds sterling, while recording no
revenue in Dutch guilders.
The Company's peso transaction exposure at its manufacturing subsidiary in
Tijuana, Mexico is limited mostly to payroll. The favorable effects to the
Company on the devaluation of the peso in the years reported was somewhat offset
by local currency pay raises to its employees in Mexico. Because of these
factors, management does not believe the devaluation has had a material effect
on the Company.
The Company's effective tax rate is 32% in the quarter ended December 27, 1997,
down from 34% in the quarter ended December 28, 1996, due to the increased
recognition of revenues in countries with tax rates lower than the United
States.
9
<PAGE> 10
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
The Company's principal source of liquidity in the nine-month period ended
December 27, 1997 was $21.8 million of cash generated from operating activities.
In the nine-month period ended December 28, 1996, liquidity was principally
provided by $27.4 million of cash generated from operating activities. Cash and
cash equivalents increased to $62.1 million at December 27, 1997, from $35.7
million at December 28, 1996, primarily due to cash provided by operating
activities. The Company has a $20.0 million credit facility, including a $10.0
million letter-of-credit subfacility, with a major bank. As of December 27,
1997, the Company had no cash borrowings under the revolving credit facility and
$1.9 million outstanding under the letter-of-credit subfacility. The terms of
the credit facility contain covenants which materially limit the Company's
ability to incur debt, make capital expenditures and pay dividends, among other
matters. These covenants may adversely affect the Company to the extent it
cannot comply with them or it must limit its ordinary course of activities.
In the nine-month period ended December 27, 1997, the $21.8 million in net cash
generated from operating activities was due primarily to $28.1 million in net
income. Depreciation and amortization grew to $2.9 million, primarily as the
result of the implementation of a new business information system. The increases
in inventory of $10.5 million and accounts receivable of $7.0 million, due to
the increased volume of sales, was partially offset by accrued liabilities and
accounts payable of $3.2 million and $5.5 million. Work in process increased
$2.8 million in the first nine months of fiscal 1998 and raw materials increased
$7.8 million as production rose to meet higher sales demand.
Capital expenditures were $4.8 million in the nine-month period ended December
27, 1997. Capital expenditures were incurred principally in the upgrade of the
Company's business information systems and acquisition of tooling to expand
manufacturing capacity.
In the nine-month period ended December 27, 1997, the Company sold 42,245 shares
of its Treasury Stock for $0.8 million, repurchased 6,500 shares of its Common
Stock for $0.1 million and received $2.1 million in proceeds from the exercise
of stock options. The Company's Board of Directors voted for a stock repurchase
plan effective beginning the fourth quarter of fiscal 1998. The Company is
authorized to repurchase up to an aggregate of 500,000 shares of its common
stock, depending upon market conditions, in open market transactions occurring
from time to time. The maximum of 500,000 shares represents approximately 3% of
the 16,550,899 shares outstanding as of December 27, 1997.
The Company has Senior Notes in a principal amount of $65.1 million outstanding
that bear interest, payable semi-annually, 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 1998. Subject to the terms and
conditions of the 10% Senior Note Indenture and the Company's revolving credit
facility, the Company may use available cash for such purposes as paying down
the line of credit, repurchasing Senior Notes or acquiring complementary
businesses, products or technologies.
10
<PAGE> 11
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RISK 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 the forward-looking
statements in this report.
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 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 recently expanded its marketing efforts to sell lightweight headsets to the
business, computer, mobile and home office user market segments. The Company's
product development efforts historically have been directed toward incremental
enhancements of existing products. The Company intends to both continue
enhancement of its existing products and develop 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
several 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's must be able to develop new products, qualify these new
products with its customers, successfully introduce these products to the market
on a timely basis, and commence and sustain volume production to meet customer
demands. Although the Company has attempted to determine the potential market
segments where its present and potential future products can be sold, there can
be no assurance that the market segments identified will in fact materialize
with significant sales volumes. Although the Company has attempted to determine
the specific needs of these new market segments, there is no assurance that the
Company's present and future products designed for these market segments will
gain substantial market acceptance. As set forth below, there is no assurance
that new products can be manufactured cost-effectively to meet the potential
demand if the market segments develop and the Company's products meet the needs
of users within those potential market segments.
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.
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, 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
telephony and computer technologies, as well as users' demands for new
technologies. The Company may experience fluctuations in manufacturing yields
that can materially affect the Company's operations, particularly in the
start-up phase of new products or new manufacturing processes. The Company's
future success will be dependent in part on its ability to successfully develop
and manufacture products
11
<PAGE> 12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
that utilize new technologies and introduce them 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. However, there is no assurance that the
Company will continue to be able to balance production with demand. Demand for
the Company's products is dependent on many factors and such demand is
inherently difficult to forecast. Rapid increases in production levels could
require expenditures that may negatively affect gross margins and may result in
decreased manufacturing yields. Failure to balance demand and production could
result in excesses or shortages of components and parts and excesses or
shortages of manufacturing capacity. Failure to meet demand could result in the
inability to meet customer expectations and adversely affect the Company's
operations and operating results.
RELIANCE UPON SUPPLIERS. 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 necessary 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. The Company's net sales were
derived from United States and foreign customers. In addition, the Company
conducts the majority of its headset assembly operations outside the United
States and obtains components from various foreign suppliers. Offshore
operations are subject to certain inherent risks, including delays in
transportation, changes in governmental policies, taxes, tariffs and
import/export regulations, political unrest, fluctuations in currency exchange
rates and geographic limitations on management controls and reporting. There can
be no assurance that the inherent risks of offshore operations, particularly in
Mexico, will not adversely affect the Company's business, operating results and
financial condition in the future.
Although the Company generally transacts business internationally in United
States currency, declines in the values of local currencies relative to the
United States dollar in countries in which the Company sells its products
12
<PAGE> 13
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
could adversely affect the Company by resulting in less competitive pricing for
the Company's products. 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.
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.
13
<PAGE> 14
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.
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant
during the fiscal quarter ended December 27, 1997.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
14
<PAGE> 15
PLANTRONICS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLANTRONICS, INC.
(Registrant)
FEBRUARY 10, 1997 /s/ John Knutson
- ------------------------------- -------------------------------
(Date) (Signature)
John Knutson
Vice President -Legal, Senior
General Counsel and Secretary
FEBRUARY 10, 1997 /s/ Mark Nelson
- ------------------------------- -------------------------------
(Date) (Signature)
Mark Nelson
Controller
(Chief Accounting Officer)
15
<PAGE> 16
PLANTRONICS, INC.
EXHIBIT INDEX
Exhibit Number
27.1 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> DEC-27-1997
<CASH> 62,083
<SECURITIES> 0
<RECEIVABLES> 45,247
<ALLOWANCES> 1,676
<INVENTORY> 30,574
<CURRENT-ASSETS> 140,593
<PP&E> 35,446
<DEPRECIATION> 14,382
<TOTAL-ASSETS> 165,806
<CURRENT-LIABILITIES> 47,400
<BONDS> 65,050
0
0
<COMMON> 172
<OTHER-SE> 53,184
<TOTAL-LIABILITY-AND-EQUITY> 165,805
<SALES> 172,579
<TOTAL-REVENUES> 172,579
<CGS> 79,423
<TOTAL-COSTS> 79,423
<OTHER-EXPENSES> 48,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,248
<INCOME-PRETAX> 41,310
<INCOME-TAX> 13,218
<INCOME-CONTINUING> 28,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,092
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.54
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