<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 26, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to _____________________
Commission File Number 1-12696
PLANTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0207692
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Encinal Street
Santa Cruz, California 95060
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
</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 26, 1999
- ---------------------------- ----------------------------
Common Stock, $.01 par value 16,693,146
</TABLE>
1
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PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,999 $ 53,402
Accounts receivable, net 46,807 48,379
Inventory 18,889 21,636
Deferred income taxes 3,159 3,035
Other current assets 7,880 1,220
--------- ---------
Total current assets 119,734 127,672
Property, plant and equipment, net 20,323 21,052
Other assets 2,811 2,759
--------- ---------
Total Assets $ 142,868 $ 151,483
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,453 $ 9,484
Accrued liabilities 33,475 29,422
Income taxes payable 510 8,226
--------- ---------
Total current liabilities 43,438 47,132
Deferred tax liability 10,025 7,693
--------- ---------
Total liabilities 53,463 54,825
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share;
40,000 shares authorized, 16,798 shares
and 16,693 shares issued and outstanding 185 185
Additional paid-in capital 91,423 93,746
Accumulated other comprehensive income: (891) (891)
Retained Earnings 69,559 84,963
--------- ---------
160,276 178,003
Less: Treasury stock
(common: 1,669 and 1,825) at cost (70,871) (81,345)
--------- ---------
Total stockholders' equity 89,405 96,658
--------- ---------
Total liabilities and stockholders' equity $ 142,868 $ 151,483
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
2
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
June 30, June 30,
1998 1999
--------- ---------
<S> <C> <C>
Net sales $ 70,060 $ 74,715
Cost of sales 31,897 30,792
--------- ---------
Gross profit 38,163 43,923
Operating expenses:
Research, development and engineering 4,470 5,499
Selling, general and administrative 14,102 15,938
--------- ---------
Total operating expenses 18,572 21,437
--------- ---------
Operating income 19,591 22,486
Interest expense, including amortization
of debt issuance costs 1,736 10
Interest income and other income, net (485) (174)
--------- ---------
Income before income taxes 18,340 22,650
Income tax expense 5,869 7,246
--------- ---------
Net income $ 12,471 $ 15,404
========= =========
Basic earnings per common share $ 0.76 $ 0.92
========= =========
Shares used in basic per share calculations 16,474 16,746
========= =========
Diluted earnings per common share $ 0.68 $ 0.85
========= =========
Shares used in diluted per share calculations 18,213 18,035
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
3
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
June 30, June 30,
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 12,471 $ 15,404
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 1,575 1,323
Deferred income taxes -- (2,208)
Provision for doubtful accounts 198 81
Income tax benefit associated with stock options 451 767
Changes in assets and liabilities:
Accounts receivable (2,163) (1,653)
Inventory 1,827 (2,747)
Other current assets 816 6,660
Other assets 418 52
Accounts payable (2,216) 31
Accrued liabilities (281) (4,053)
Income taxes payable 4,454 7,716
--------- ---------
Cash provided by operating activities 17,550 21,373
--------- ---------
Cash flows from investing activities:
Capital expenditures (934) (2,052)
--------- ---------
Cash flows from financing activities:
Purchase of treasury stock -- (10,749)
Proceeds from sale of treasury stock 536 815
Proceeds from exercise of stock options 287 1,016
--------- ---------
Cash provided by (used for) financing activities 823 (8,918)
--------- ---------
Net increase in cash and cash equivalents 17,439 10,403
Cash and cash equivalents at beginning of period 64,901 42,999
--------- ---------
Cash and cash equivalents at end of period $ 82,340 $ 53,402
========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest -- 7
Income taxes $ 2,229 $ 56
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
4
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PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation. The accompanying interim condensed consolidated
financial statements of Plantronics, Inc. ("Plantronics," the "Company" or the
"Registrant") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements have been
prepared in conformity with generally accepted accounting principles, consistent
in all material respects with those applied in the Company's Annual Report on
Form 10-K for the year ended March 31, 1999. The interim financial information
is unaudited, but reflects all normal recurring adjustments which are, in the
opinion of management, necessary to provide a fair statement of results for the
interim periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain prior period
balances have been reclassified to conform to the current period presentation.
The interim financial statements should be read in connection with the financial
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999.
Note 2. Periods Presented. The Company's fiscal year-end is the Saturday closest
to March 31 and the first fiscal quarter-end is the last Saturday in June. For
purposes of presentation, the Company has indicated its accounting year ending
on March 31 or the month-end for interim quarterly periods. Plantronics' fiscal
quarters ended June 30, 1998 and June 30, 1999 consisted of thirteen weeks each.
Note 3. Details of Certain Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
-------- --------
<S> <C> <C>
Inventories:
Finished goods $ 9,425 $ 10,781
Work in process 1,461 1,606
Purchased parts 8,003 9,249
-------- --------
$ 18,889 $ 21,636
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements
(useful lives: 10-30 years) 9,923 9,959
Machinery and equipment
(useful lives: 2-10 years) 32,853 34,869
-------- --------
47,469 49,521
Less accumulated depreciation (27,146) (28,469)
======== ========
$ 20,323 $ 21,052
======== ========
</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 in the consolidated statements of
operations. Gains and losses resulting from foreign currency transactions are
also included in other income. Aggregate exchange losses in the fiscal quarter
ended June 30, 1999 were approximately $0.4 million. There were approximately
$0.3 million aggregate exchange losses in the comparable period ended June 30,
1998.
Note 5. Comprehensive Income. Comprehensive income was the same as net income
for all periods presented. Accumulated other comprehensive income presented in
the accompanying condensed consolidated balance sheets consists of cumulative
translation adjustments from local currencies to the functional currency in
prior years.
Note 6. Segments of an Enterprise and Related Information. The Company has one
reportable segment under the criteria of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information".
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include the statement that we
expect interest expense to be minimal in fiscal 2000 in the subsection headed
"Interest Expense" under Results of Operations, the statement related to the
sufficiency of cash to fund operations for at least the next 12 months set out
in the last paragraph in the subsection headed "Liquidity" under Financial
Condition; and various statements in the section captioned "Year 2000",
including our belief that there will be no material impact of Year 2000 problems
due to failures of our systems or those of third parties with whom we do
business. 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 30, June 30,
1998 1999
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 45.5 41.2
----- -----
Gross profit 54.5 58.8
----- -----
Research and development 6.4 7.4
Selling, general and admin. 20.1 21.3
----- -----
Total operating expenses 26.5 28.7
----- -----
Operating income 28.0 30.1
Other (income) expense 1.8 (0.2)
----- -----
Income before income taxes 26.2 30.3
Income tax expense 8.4 9.7
----- -----
Net Income 17.8% 20.6%
</TABLE>
6
<PAGE> 7
Net Sales. Net sales for the quarter ended June 30, 1999 increased by 7% to
$74.7 million, compared to $70.1 million for the quarter ended June 30, 1998.
Domestic sales for the quarter ended June 30, 1999 increased by 7% to $51.2
million, compared to $47.9 million for the quarter ended June 30, 1998. The
majority of the growth occurred in the retail channel and the Mobile
Communications Division. International sales for the quarter ended June 30, 1999
increased by 6% to $23.5 million, compared to $22.1 million for the quarter
ended June 30, 1998. Virtually all of the growth in international sales occurred
in Europe.
Gross Profit. Gross profit for the quarter ended June 30, 1999 increased 15% to
$43.9 million (58.8% of net sales), compared to $38.2 million (54.5% of net
sales) for the quarter ended June 30, 1998. The increases in gross profit were
generated mainly by reduction in product costs, design and manufacturing
efficiencies and by obtaining lower costs from our suppliers.
Research, Development and Engineering. Research, development and engineering
expenses for the quarter ended June 30, 1999 increased 23% to $5.5 million (7.4%
of net sales), compared to $4.5 million (6.4% of net sales) for the quarter
ended June 30, 1998. The increase in these expenses reflects increased
investment in new product development and technologies.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended June 30, 1999 increased 13% to $15.9 million
(21.3% of net sales), compared to $14.1 million (20.1% of net sales) for the
quarter ended June 30, 1998. The overall increase in expenses is related to the
expansion of marketing programs. General and administrative expenses remained
relatively flat from the year ago quarter.
Operating Income. Operating income for the quarter ended June 30, 1999 increased
15% to $22.5 million (30.1% of net sales), compared to $19.6 million (28.0% of
net sales) for the quarter ended June 30, 1998. The increase was primarily
gained through the savings in product costs and continuing manufacturing
efficiencies.
Interest Expense. Interest expense for fiscal 2000 is expected to be minimal due
to the redemption of the 10% Senior Notes on January 15, 1999. Interest expense
for periods prior to the first quarter ended June 30, 1999 principally
represented interest payable on the 10% Senior Notes.
Interest and Other Income. Interest and other income for the quarter ended June
30, 1999 decreased to $0.2 million compared to $0.5 million for the quarter
ended June 30, 1998. The decrease in interest income was primarily attributable
to lower cash and cash equivalents balances after the January 15, 1999
redemption of the Senior Notes.
FINANCIAL CONDITION:
Liquidity. As of June 30, 1999, we had working capital of $80.5 million,
including $53.4 million of cash and cash equivalents, compared with working
capital of $76.3 million, including $43.0 million of cash and cash equivalents,
at March 31, 1999. During the three months ended June 30, 1999, we generated
$21.4 million of cash from operating activities, due primarily to $15.4 million
in net income and a tax refund of approximately $6.8 million. In comparison, we
generated $17.6 million in cash from operating activities for the three months
ended June 30, 1998, due mainly to $12.5 million in net income, a decrease of
$1.8 million in inventory and an increase in income taxes payable of $4.5
million.
We have a $30.0 million revolving credit facility, including a $10.0 million
letter-of-credit subfacility, with a major bank, both of which expire in
November 1999. As of June 30, 1999, we had no cash borrowings under the
revolving credit facility and $1.4 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 that materially limit our ability to
incur debt, make capital expenditures and pay dividends, among other matters.
These covenants may adversely affect us to the extent we cannot comply with
them. We are currently in compliance with the covenants under this agreement.
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<PAGE> 8
We believe that our current cash balance and cash provided by operations,
together with available borrowing capacity under our revolving credit facility
and letter-of-credit subfacility, will be sufficient to fund operations for at
least the next 12 months.
Investing Activities. Capital expenditures of $2.1 million in the three months
ended June 30, 1999 were incurred principally in tooling, leasehold improvements
and investments in computer and software upgrades.
Financing Activities. In the three months ended June 30, 1999, we reissued
through employee benefit plans 15,181 shares of our treasury stock for
approximately $0.8 million and repurchased 170,900 shares of our common stock
for approximately $10.7 million. As of June 30, 1999, 281,507 shares remained
under the repurchase plan authorized in the fourth quarter of fiscal 1999.
We received approximately $1.0 million in proceeds from the exercise of stock
options during the three months ended June 30, 1999. The maximum aggregate
number of shares that may be optioned and sold under the 1993 Stock Plan is
5,459,242 shares.
YEAR 2000:
Year 2000 Readiness Statement. The following discussion and the discussion in
the subsection headed "Failure of Electronic Systems to Recognize the Year 2000"
under Risk Factors Affecting Future Operating Results contain both "Year 2000
Statements" and "Year 2000 Readiness Disclosures" as defined in the Year 2000
Information and Readiness Disclosure Act, United States public law no. 105-271
(1998).
State of Readiness. Many existing electronic systems, including computer
systems, use only the last two digits to refer to a year. Therefore, these
systems may recognize a date using "00" as 1900 rather than the year 2000. If
not corrected, many computer and other electronic applications and systems could
fail or create erroneous results when addressing dates on and after January 1,
2000. Our products do not address or utilize dates in their operation, and,
accordingly, our products should not fail due to the year 2000 problem. However,
we use and depend on information technology systems (including business
information computer systems and design and manufacturing computer systems) and
other machinery and equipment that include embedded date sensitive technology.
We also depend on the proper functioning of date sensitive electronic systems of
third parties, such as customers and suppliers. The failure of any of these
systems to appropriately interpret the year 2000 could have a material adverse
effect on our business, financial condition and results of operations. We are
undertaking efforts to ensure that our business systems and those of our
suppliers and customers are compliant with the requirements of the year 2000.
We have established a worldwide year 2000 task force, led by an Executive
Steering Committee of our senior management, including representatives of each
of our business segments and corporate functions, to oversee and regularly
review the status of our year 2000 compliance plan. Through our year 2000 task
force, we are proceeding with implementation of a formal year 2000 compliance
program. The compliance program addresses three key elements: (i) internal
infrastructure, addressing internal hardware and software and non-information
technology systems; (ii) supplier readiness, addressing the preparedness of our
suppliers of goods and services; and (iii) customer readiness, addressing the
preparedness of our customer support and the preparedness of our customers to
transact business with us. In each of those compliance areas, we are
systematically performing a global risk assessment, conducting testing,
implementing upgrades, communicating with and assisting suppliers and customers
in raising awareness of the year 2000 issues and developing contingency plans to
mitigate known and unknown year 2000 risks. The status of our compliance efforts
in those three areas is set forth below:
Internal Infrastructure. We have assessed all internal applications and computer
software and hardware. Our key business information systems and other critical
applications, such as product testing and product design hardware and software,
have been made year 2000 compliant.
Supplier Readiness. This program focuses on minimizing the risks associated with
supplier year 2000 issues in two areas: (i) the suppliers' business capability
to continue providing products and services in and after the year
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<PAGE> 9
2000 and (ii) the year 2000 readiness of products supplied to us for our use.
Requests for information and certification of compliance have been and are being
sent to our principal and critical suppliers. As of July 1999, we have obtained
certification of compliance by our principal and critical suppliers and are in
the process of auditing compliance of the most critical of those.
Customer Readiness. This program focuses on ensuring that customers are aware of
the year 2000 issues and that customers are capable of placing orders for our
products, receiving products ordered and paying our invoices for products sold
and delivered. Requests for information and certification of year 2000
compliance have been sent to our major customers. We have received certification
from most, but not all, of our principal customers. We are in the process of
following up with the non-responding or non-compliant customers and expect to
have certification of compliance by all our principal customers by October 1999.
Costs to Address Year 2000 Issues. We currently estimate that the aggregate cost
of our year 2000 compliance efforts will be approximately $1.2 million, of which
approximately $0.75 million has been incurred to date. The costs consist
principally of (i) fees paid to outside consultants and software programmers,
(ii) purchase of telephone PBX systems which require upgrades to be year 2000
compliant and (iii) purchase of software and software upgrades to meet the year
2000 issue. The funds expended and to be expended are being funded through
operating cash flows. Approximately $0.5 million of the total cost, related to
the purchase of fixed assets, will be capitalized, with the balance expensed as
incurred.
Risks of the Year 2000 Issues. We currently believe that our internal year 2000
compliance efforts will be successful and there will be no material impact to us
by reason of the failure or malfunction of any systems owned or operated by us
or third parties with whom we do business. However, our year 2000 program may
not be effective or we may not be able to implement it in a timely and
cost-effective manner. Our year 2000 efforts may not, therefore, ensure against
disruptions caused by the approach or advent of the year 2000. The year 2000
problem is potentially very widespread, and it is not possible to determine all
the potential risks that we may face. Our inability to remedy our own year 2000
problems or the failure of third parties to do so may cause business
interruptions or shutdowns, financial loss, regulatory actions, harm to our
reputation and exposure to liability.
Contingency Plans. During July 1999, we completed development of our contingency
plans to mitigate the potential disruptions that may result from the year 2000
issue. The contingency plan was completed in July 1999. The contingency plan
identifies the risks to our business from various potential year 2000 related
failures and establishes readiness and contingency remediation efforts that will
be put into place to mitigate the risks from such potential failures. While we
believe that the contingency plan adequately addresses the risks to our business
from potential year 2000 related failures, the plan will be continually refined
as additional information becomes available.
9
<PAGE> 10
PLANTRONICS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in the stock of Plantronics should carefully
consider the risks described below. The business, financial condition and
results of operations of Plantronics could be materially adversely affected if
any of the risks occur. If the risks occur, the trading price of Plantronics
stock could decline and an investor could lose all or part of his or her
investment.
Dependence on Call Center Market Segment
We have historically derived, and continue to derive, a substantial majority of
our net sales from the call center market segment. This market segment has grown
significantly in recent years as new call centers have proliferated and existing
call centers have expanded. While we believe this market segment is continuing
to grow, in the future this growth could slow or revenues from this market
segment could decline due to various factors. For example, technological
advances such as automated interactive voice response systems could reduce or
eliminate the need for call center agents in certain applications. In addition,
consumer resistance to telemarketing could adversely affect growth in the call
center market segment. Due to our reliance on the call center market segment, we
will be affected more by changes in the rate of call center establishment and
expansion and the communications products that call center agents use than would
a company serving a broader market. We believe that our sales growth in fiscal
1999 may have been favorably affected by call centers upgrading their automatic
call distributions systems in order to be year 2000 compliant. Since our
products are sometimes bundled with new call distribution systems, this may have
accelerated some headset sales. If this has occurred, it could adversely affect
our net sales in future periods, once call centers have completed their system
upgrades. We also believe that there will be a slowing in the establishment of
new call centers in the fourth calendar quarter of 1999 as organizations seek to
maintain system stability and devote resources to year 2000 compliance and
contingency planning. Any decrease in the demand for call centers and related
headset products could cause a decrease in the demand for our products, which
would materially adversely affect our business, financial condition and results
of operations.
Failure of the Office, Mobile, Computer and Residential Market Segments to
Develop
While the call center market segment is still the most significant part of our
business, we believe that our future prospects will depend in large part on the
growth in demand for headsets in the office, mobile, computer and residential
market segments. These communications headset market segments are relatively new
and undeveloped. Moreover, we do not have extensive experience in selling
headset products to customers in these market segments. If the demand for
headsets in these market segments fails to develop, or develops more slowly than
we currently anticipate, or if we are unable to effectively market our products
to customers in these market segments, it would have a material adverse effect
on the potential demand for our products and on our business, financial
condition and results of operations.
Our Quarterly Operating Results May Fluctuate Significantly
Our quarterly results of operations may vary significantly in the future for a
variety of reasons, including the following:
o changes in demand for our products;
o timing and size of orders from customers;
o cancellations or delays of deliveries of components and subassemblies
by our suppliers;
o variances in the timing and amount of engineering and operating
expenses;
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<PAGE> 11
o distribution channel volume variations;
o delays in shipments of our products;
o product returns and customer credits;
o new product introductions by us or our competitors;
o entrance of new competitors;
o increases in the costs of our components and subassemblies;
o price erosion;
o changes in the mix of products sold by us;
o seasonal fluctuations in demand; and
o general economic conditions.
Each of the above factors is difficult to forecast and thus could have a
material adverse effect on our business, financial condition and results of
operations.
We generally ship most orders during the quarter in which they are received,
and, consequently, we do not have a significant backlog of orders. As a result,
quarterly net sales and operating results depend primarily on the volume and
timing of orders received during the quarter. It is difficult to forecast orders
for a given quarter. Since a large portion of our operating expenses, including
rent, salaries and certain manufacturing expenses, are fixed and difficult to
reduce or modify, if net sales do not meet our expectations, our business,
financial condition and results of operations could be materially adversely
affected.
Our operating results can also vary substantially in any period depending on the
mix of products sold and the distribution channels through which they are sold.
In the event that sales of lower margin products or sales through lower margin
distribution channels in any period represent a disproportionate share of total
sales during such period, our operating results would be materially adversely
affected.
We believe that period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied upon as indicative of future
operating results. In addition, our operating results in a future quarter or
quarters may fall below the expectations of securities analysts or investors,
and, as a result, the price of our common stock might fall.
We Must Match Production to Demand
Historically, we have seen steady increases in customer demand for our products
and have generally been able to increase production to meet that demand.
However, the demand for our products is dependent on many factors and such
demand is inherently difficult to forecast. Significant unanticipated
fluctuations in demand could cause the following operating problems, among
others:
o If demand increases beyond that forecasted, we would have to rapidly
increase production. We depend on suppliers to provide additional
volumes of components and subassemblies, and, therefore, might not be
able to increase production rapidly enough to meet unexpected demand.
This could cause us to fail to meet customer expectations. There could
be short-term losses of sales while we are trying to increase
production.
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<PAGE> 12
If customers turn to competitive sources of supply to meet their
needs, there could be a long-term impact on our revenues.
o Rapid increases in production levels to meet unanticipated demand
could result in higher costs for components and subassemblies and
higher overtime costs and other expenses. These higher expenditures
could lower our profit margins. Further, if production is increased
rapidly, there may be decreased manufacturing yields, which may also
lower our margins.
o If forecasted demand does not develop, we could have excess production
or excess capacity. Excess production could result in higher
inventories of finished products, components and subassemblies. If we
were unable to sell these inventories, we would have to write off some
or all of our inventories of obsolete products and unusable components
and subassemblies. Excess manufacturing capacity could lead to higher
production costs and lower margins.
Any of the foregoing problems could materially adversely affect our business,
financial condition and results of operations.
We Depend on Our Suppliers
We buy components and subassemblies from a variety of suppliers and assemble
them into finished products. The cost, quality, and availability of such
components are essential to the successful production and sale of our products.
Obtaining components and subassemblies entails various risks, including the
following:
o Prices of components and subassemblies may rise. If this occurs and we
are not able to pass these increases on to our customers or to achieve
operating efficiencies that would offset the increases, it would have
a material adverse effect on our business, financial condition and
results of operations.
o We obtain certain subassemblies and components from single suppliers,
and alternate sources for these items are not readily available. To
date, we have experienced only minor interruptions in the supply of
these components and subassemblies, none of which has significantly
affected our results of operations. However, an interruption in supply
from any of our single source suppliers in the future would materially
adversely affect our business, financial condition and results of
operations.
o Most of our suppliers are not obligated to continue to provide us with
components and subassemblies. Rather, we buy most components and
subassemblies on a purchase order basis. If our suppliers experience
increased demand or shortages, it could affect deliveries to us. In
turn, this would affect our ability to manufacture and sell products
that are dependent on those components and subassemblies. This would
materially adversely affect our business, financial condition and
results of operations.
The Headset Market is Highly Competitive
The market for our products is highly competitive. We compete with a variety of
companies in various segments of the communications headset market. In the call
center segment, the largest market segment in which we compete, our two largest
competitors, GN Netcom and ACS Wireless, Inc., merged to form a single company.
Although it is unclear how this merger will affect us, the merged entity will
have a broader product offering and greater marketing presence than either of
the two entities had separately. Moreover, the economies of scale that may
result from the merger could lead to increased pricing pressures in our market.
We also anticipate that we will face additional competition from companies that
currently do not offer communications headsets. This is particularly true in the
office, mobile, computer and residential market segments. As these market
segments mature, we will face increased competition from consumer electronics
companies and other companies that currently manufacture and sell mobile phones
or computer peripheral equipment. These new competitors are likely to be larger,
offer broader product lines, bundle or integrate with
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<PAGE> 13
other products communications headset tops and bases manufactured by them or
others, offer products containing bases that are incompatible with our headset
tops and have substantially greater financial, marketing and other resources
than we do.
We believe that important competitive factors for us are product reliability,
product features, customer service and support, reputation, distribution,
ability to meet delivery schedules, warranty terms, product life and price. If
we do not compete successfully with respect to any of these or other factors it
could materially adversely affect our business, financial condition and results
of operations. If we do not successfully develop and market products that
compete successfully with those of our competitors it would materially adversely
affect our business, financial condition and results of operations.
New Product Development is Risky; We Must Respond to Changing Customer
Requirements and Technologies
Our product development efforts historically have been directed toward
enhancement of existing products and development of new products that capitalize
on our core capabilities. The success of new product introductions is dependent
on several factors, including the proper selection of new product features,
timely completion and introduction of new product designs, cost-effective
manufacture of such products, quality of new products and market acceptance. To
be successful in the future, we must develop new products, qualify these new
products, successfully introduce these products to the market on a timely basis,
and commence and sustain low-cost, volume production to meet customers' demands.
Although we attempt to determine the specific needs of headset users in our
target market segments, because almost all of our sales are indirect, we may not
always be able to timely and accurately predict end-user requirements. As a
result, our products may not be timely developed, designed to address current or
future end-user requirements, offered at competitive prices or accepted, which
could materially adversely affect our business, financial condition and results
of operations. Moreover, we generally incur substantial research and development
costs before the technical feasibility and commercial viability of a new product
can be ascertained. Accordingly, revenues from new products may not be
sufficient to recover the associated development costs.
Historically, the technology used in lightweight communications headsets has
evolved slowly. New products have primarily offered stylistic changes and
quality improvements, rather than significant new technologies. We anticipate
that the technology used in hands-free communications devices, including our
products, will begin to evolve more rapidly in the future. We believe that this
is particularly true of the office, mobile and residential market segments,
which may require us to develop new headset technologies to support cordless and
wireless operation and to interface with new communications and computing
devices. As a result, our success depends upon our ability to enhance existing
products, to respond to changing market requirements, and to develop and
introduce in a timely manner new products that keep pace with technological
developments. If we are unable to develop and introduce enhanced products or new
products in a timely manner in response to changing market conditions or
customer requirements, it will materially and adversely affect our business,
financial condition and results of operations.
We Depend on our Distribution Channels
We sell substantially all of our products through distributors, OEMs, retailers
and telephony service providers. Our existing relationships with these parties
are nonexclusive and can be terminated by either party without cause. Our
channel partners also sell or can potentially sell products offered by our
competitors. To the extent that our competitors offer our channel partners more
favorable terms, such partners may decline to carry, de-emphasize or discontinue
carrying our products. In the future, we may not be able to retain or attract a
sufficient number of qualified channel partners. Further, such partners may not
recommend, or continue to recommend, our products. The inability to establish or
maintain successful relationships with distributors, OEMs, retailers and
telephony service providers or to expand our distribution channels could
materially adversely affect our business, financial condition or results of
operations.
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<PAGE> 14
We Depend on S. Kenneth Kannappan and Other Key Personnel
Our success depends to a significant extent upon the services of a limited
number of executive officers and other key employees. On January 4, 1999, S.
Kenneth Kannappan was promoted to Chief Executive Officer of our company,
succeeding Robert S. Cecil in that capacity, and was appointed to our Board of
Directors. Mr. Kannappan joined our company in February 1995 and has held a
number of executive management positions, including President and Chief
Operating Officer. The unanticipated loss of the services of Mr. Kannappan or
one or more of our other executive officers or key employees could have a
material adverse effect upon our business, financial condition and results of
operations.
We also believe that our future success will depend in large part upon our
ability to attract and retain additional highly skilled technical, management,
sales and marketing personnel. Competition for such personnel is intense. We may
not be successful in attracting and retaining such personnel, and, our failure
to do so could have a material adverse effect on our business, operating results
or financial condition.
Citicorp Venture Capital Retains Significant Control
Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially
owns 4,509,168 shares of our common stock (excluding any shares that may be
owned by employees of CVC or its affiliates), which represents approximately 27%
of our outstanding common stock as of August 3, 1999. We also have an agreement
with CVC under which it is entitled to have up to three of its designees serve
on our Board of Directors, depending on the level of CVC's continuing stock
ownership. Messrs. Robert F. B. Logan, M. Saleem Muqaddam and John Mowbray
O'Mara are currently serving as CVC's designees under that agreement.
Accordingly, CVC has the ability to exert substantial influence on the full
Board of Directors, which currently consists of seven members. In addition, our
bylaws contain provisions that require a two-thirds (66 2/3 %) supermajority
vote of the Board of Directors to approve certain transactions, including
amendments of our Certificate of Incorporation, certain provisions of our
bylaws, mergers and sales of substantial assets, acquisitions of other companies
and sales of capital stock. These provisions may have the effect of giving a
small number of directors the ability to block such transactions.
Future Sales of Our Common Stock
As of August 3, 1999, we had 16,700,617 shares of common stock outstanding, plus
1,826,286 shares we have repurchased and hold in our treasury account. All of
the shares of common stock outstanding are freely tradable except for
approximately 5,100,000 shares held by affiliates of Plantronics. These
approximately 5,100,000 shares may only be sold in reliance on Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
effective registration statement filed with the Securities and Exchange
Commission. Some of our current stockholders, including CVC, Citigroup
Foundation and certain of our officers, directors and key employees, also have
certain contractual rights to require Plantronics to register their shares for
public sale. An additional approximately 2,500,000 shares are subject to
outstanding stock options as of August 3, 1999. As of August 3, 1999, Mrs.
Louise Cecil holds vested options on 548,496 shares of our common stock
(assigned to her by her husband Robert S. Cecil) and has in place an effective
registration statement filed with the Securities Exchange Commission, meaning
she may sell any or all of them at any time without reliance upon Rule 144.
Sales of a substantial number of shares of common stock in the public market by
CVC, Mrs. Cecil, or any of our officers, directors or other stockholders could
adversely affect the prevailing market price of the common stock and impair our
ability to raise capital through the sale of equity securities.
Risks Associated with our Foreign Operations
Approximately 30.5% of our net sales in both fiscal 1998 and fiscal 1999 were
derived from customers outside the United States. In addition, we conduct
substantially all of our headset assembly operations in our manufacturing
facility located in Mexico, and we obtain most of the components and
subassemblies used in our products from various foreign suppliers. The inherent
risks of international operations, particularly in Mexico, could materially
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<PAGE> 15
adversely affect our business, financial condition and results of operations.
The types of risks faced in connection with international operations and sales
include:
o cultural difference in the conduct of business;
o greater difficulty in accounts receivable collection;
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o economic and political conditions in each country;
o management and operation of an enterprise spread over various
countries; and
o burden of complying with a wide variety of foreign laws.
A significant portion of our business is conducted in currencies other than the
U.S. dollar. As a result, fluctuations in exchange rates creates risk to us in
both the sale of our products and our purchase of supplies. Fluctuations in the
value of the currencies in which we conduct our business relative to the U.S.
dollar have caused and will continue to cause currency transaction gains and
losses. Although we do not currently engage in any hedging activities to
mitigate exchange rate risks, we continually evaluate programs to reduce our
foreign currency exposure. However, there can be no assurance that we will not
continue to experience currency losses in the future, nor can we predict the
effects of future exchange rate fluctuations on future operating results. To the
extent that sales to our foreign customers increase or transactions in foreign
currencies increase, our business, financial condition and results of operations
could be materially adversely affected by exchange rate fluctuations. In
addition, we cannot predict the potential consequences to our business of the
adoption of the Euro as a common currency in Europe.
We Depend on our Principal Manufacturing Facility
Substantially all of our manufacturing operations are currently performed in a
single facility in Tijuana, Mexico. A fire, flood or earthquake, political
unrest or other disaster or condition affecting our facility could have a
material adverse effect on our business, financial condition and results of
operations. While we have developed a disaster recovery plan and believe we are
adequately insured with respect to this facility, we may not be able to
implement the plan effectively or on a timely basis or recover under applicable
insurance policies.
Failure of Electronic Systems To Recognize the Year 2000
Many existing electronic systems, including computer systems, use only the last
two digits to refer to a year. Therefore, these systems may recognize a date
using "00" as 1900 rather than the year 2000. If not corrected, many computer
and other electronic applications and systems could fail or create erroneous
results when addressing dates on and after January 1, 2000. Our products do not
address or utilize dates in their operation, and, accordingly, our products
should not fail due to the year 2000 problem. However, we use and depend on
information technology systems (including business information computer systems
and design and manufacturing computer systems) and other machinery and equipment
that includes embedded date sensitive technology. We also depend on the proper
functioning of date sensitive electronic systems of third parties, such as
customers and suppliers. The failure of any of these systems to appropriately
interpret the year 2000 could have a material adverse effect on our business,
financial condition and results of operations. We are undertaking efforts to
ensure that our business systems and those of our suppliers and customers are
compliant with the requirements of the year 2000. You should refer to the
Section above titled "Year 2000" and the Section titled "Year 2000"in the 1999
Annual Report to Stockholders for a more complete discussion of our Year 2000
compliance efforts. However, our year 2000 program may not be effective or we
may not be able to implement it in a timely and cost-effective
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<PAGE> 16
manner. Our year 2000 efforts may not, therefore, ensure against disruptions
caused by the approach or advent of the year 2000. The year 2000 problem is
potentially very widespread, and it is not possible to determine all the
potential risks that we may face. Our inability to remedy our own year 2000
problems or the failure of third parties to do so may cause business
interruptions or shutdowns, financial loss, regulatory actions, harm to our
reputation and exposure to liability.
Risks of Inadequate Protection of Intellectual Property and Infringement of
Rights of Others
Our success will depend in part on our ability to protect our proprietary
technology. We rely primarily on a combination of nondisclosure agreements and
other contractual provisions as well as patent, trademark, trade secret, and
copyright laws to protect our proprietary rights. We currently hold thirty-four
(34) United States patents and additional foreign patents and intend to continue
to seek patents on our inventions when we believe it to be appropriate. The
process of seeking patent protection can be lengthy and expensive. Patents may
not be issued in response to our applications, and patents that are issued may
be invalidated, circumvented or challenged by others. If we are required to
enforce our patents or other proprietary rights through litigation, the costs
and diversion of management's attention could be substantial. In addition, the
rights granted under any patents may not provide us competitive advantages or be
adequate to safeguard and maintain our proprietary rights. Moreover, the laws of
certain countries do not protect our proprietary rights to the same extent as do
the laws of the United States. If we do not enforce and protect our intellectual
property rights, it could materially adversely affect our business, financial
condition and results of operations.
From time to time, third parties, including our competitors, may assert patent,
copyright and other intellectual property rights against us. Such claims, if
they are asserted, could result in costly litigation and diversion of
management's attention. In addition, we may not ultimately prevail in any such
litigation or be able to license any valid and infringed patents from such third
parties on commercially reasonable terms, if at all. Any infringement claim or
other litigation against us could materially adversely affect our business,
financial condition and results of operations.
Product Liability Exposure
The use of our products exposes us to the risk of product liability claims.
Product liability claims have in the past been, and are currently being,
asserted against us. None of the previously resolved claims have materially
affected our business, financial condition or results of operations, nor do we
believe that any of the pending claims will have such an effect. Although we
maintain product liability insurance, the coverage provided under our policies
could be unavailable or insufficient to cover the full amount of any such claim.
Therefore, successful product liability claims brought against us could have a
material adverse effect upon our business, financial condition and results of
operations.
Our Stock Price May Be Volatile
The market price for our common stock may be affected by a number of factors,
including the announcement of new products or product enhancements by us or our
competitors, the loss of services of one or more of our executive officers or
other key employees, quarterly variations in our or our competitors' results of
operations, changes in earnings estimates or recommendation by securities
analysts, developments in our industry, sales of substantial numbers of shares
of our common stock in the public market, general market conditions and other
factors, including factors unrelated to our operating performance or the
operating performance of our competitors. In addition, stock prices for many
companies in the technology sector have experienced wide fluctuations that have
often been unrelated to the operating performances of such companies. Such
factors and fluctuations, as well as general economic, political and market
conditions, such as recessions, may materially adversely affect the market price
of our common stock.
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<PAGE> 17
Environmental Matters
We are subject to various federal, state, local and foreign environmental laws
and regulations, including those governing the use, discharge and disposal of
hazardous substances in the ordinary course of our manufacturing process.
Although we believe that our current manufacturing operations comply in all
material respects with applicable environmental laws and regulations,
environmental legislation has been enacted and may in the future be enacted or
interpreted to create environmental liability with respect to our facilities or
operations. We have included in our financial statements a reserve of $1.5
million for possible environmental remediation of the site of one of our
previous businesses. While no claims have been asserted against us in connection
with this matter, such claims could be asserted in the future and any liability
that might result could exceed the amount of the reserve.
Effects of Antitakeover Provisions
Our Board of Directors has the authority to issue preferred stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting and conversion rights, of those shares without any further vote or action
by the stockholders. The issuance of our preferred stock could have the effect
of making it more difficult for a third party to acquire us. In addition, we are
subject to the antitakeover provisions of Section 203 of the Delaware General
Corporation Law, which could also have the effect of delaying or preventing our
acquisition by a third party. Further, certain provisions of our Certificate of
Incorporation and bylaws could delay or make more difficult a merger, tender
offer or proxy contest, which could adversely affect the market price of our
common stock.
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<PAGE> 18
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
Number Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
1) On May 17, 1999 Plantronics filed a report on Form 8-K relating to the
decision of Robert S. Cecil not to stand for re-election to
Plantronics' Board of Directors for personal reasons.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
<PAGE> 19
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 10, 1999 /s/ Barbara V. Scherer
- --------------- --------------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President
AUGUST 10, 1999 /s/ Barbara V. Scherer
- --------------- --------------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President - Finance and
Administration and Chief Financial
Officer (Principal Financial Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> MAR-28-1999
<PERIOD-END> JUN-26-1999
<CASH> 53,402
<SECURITIES> 0
<RECEIVABLES> 50,787
<ALLOWANCES> 2,408
<INVENTORY> 21,636
<CURRENT-ASSETS> 127,672
<PP&E> 49,521
<DEPRECIATION> 28,469
<TOTAL-ASSETS> 151,483
<CURRENT-LIABILITIES> 47,132
<BONDS> 0
0
0
<COMMON> 185
<OTHER-SE> 96,473
<TOTAL-LIABILITY-AND-EQUITY> 151,483
<SALES> 74,715
<TOTAL-REVENUES> 74,715
<CGS> 30,792
<TOTAL-COSTS> 30,792
<OTHER-EXPENSES> 21,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 22,650
<INCOME-TAX> 7,246
<INCOME-CONTINUING> 15,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,404
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.85
</TABLE>
