<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
(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 26, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________ to ______________________
Commission File Number 1-12696
PLANTRONICS, INC.
(Exact name of registrant as specified in its charter)
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: (831) 426-5858
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 26, 1998
----- --------------------------------
Common Stock, $.01 par value 16,714,906
<PAGE> 2
EXPLANATORY INFORMATION
This Quarterly Report on Form 10-Q/A (Amendment No. 1) amends and supersedes in
its entirety the Registrant's Quarterly Report on Form 10-Q for the period ended
December 31, 1998, previously filed on February 1, 1999. The Company has (i)
amended Note 7 to the Unaudited Condensed Consolidated Financial Statements,
(ii) modified some of the language identifying Certain Forward Looking
Information, (iii) modified some language in Management's Discussion and
Analysis of Financial Condition and Results of Operations, (iv) modified and
added certain statements concerning Risk Factors Affecting Future Operating
Results and (v) added an item of Other Information concerning the upcoming
meeting of stockholders of the Company.
1
<PAGE> 3
PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
========= =========
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,901 $ 119,231
Accounts receivable, net 41,550 44,317
Inventory 29,741 19,334
Deferred income taxes 2,130 4,243
Other current assets 1,774 1,390
--------- ---------
Total current assets 140,096 188,515
Property, plant and equipment, net 21,255 19,577
Other assets 4,124 3,226
========= =========
Total assets $ 165,475 $ 211,318
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,327 $ 7,420
Accrued liabilities 26,629 33,762
Income taxes payable 6,381 6,003
--------- ---------
Total current liabilities 41,337 47,185
Deferred tax liability 5,652 9,065
Long-term debt 65,050 65,050
--------- ---------
Total liabilities 112,039 121,300
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 40,000 shares
authorized,
16,449 shares and 16,715 shares issued and outstanding 174 180
Additional paid-in capital 63,816 78,191
Cumulative translation adjustment (891) (891)
Retained Earnings 15,355 55,862
--------- ---------
78,454 133,342
Less: Treasury stock
(common: 963 shares in fiscal year 1998 and 1,265
shares as of December 31, 1998) at cost (25,018) (43,324)
--------- ---------
Total stockholders' equity 53,436 90,018
--------- ---------
Total liabilities and stockholders' equity $ 165,475 $ 211,318
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
2
<PAGE> 4
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
============================= =============================
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
========= ========= ========= =========
<S> <C> <C> <C> <C>
Net sales $ 62,017 $ 72,038 $ 172,579 $ 213,248
Cost of sales 28,464 31,002 79,423 95,091
--------- --------- --------- ---------
Gross profit 33,553 41,036 93,156 118,157
--------- --------- --------- ---------
Operating expense:
Research, development and engineering 4,591 5,177 12,975 14,182
Selling, general and administrative 12,330 14,563 35,172 42,425
--------- --------- --------- ---------
Total operating expenses 16,921 19,740 48,147 56,607
--------- --------- --------- ---------
Operating income 16,632 21,296 45,009 61,550
Interest expense, including
amortization of debt issuance costs 1,755 1,888 5,248 5,476
Interest income and other income, net (447) (1,801) (1,549) (3,494)
--------- --------- --------- ---------
Income before income taxes 15,324 21,209 41,310 59,568
Income tax expense 4,903 6,786 13,218 19,061
--------- --------- --------- ---------
Net income $ 10,421 $ 14,423 $ 28,092 $ 40,507
========= ========= ========= =========
Basic earnings per common share $ 0.63 $ 0.87 $ 1.70 $ 2.45
========= ========= ========= =========
Shares used in basic per share
calculations 16,547 16,562 16,482 16,516
========= ========= ========= =========
Diluted earnings per common share $ 0.57 $ 0.79 $ 1.54 $ 2.22
========= ========= ========= =========
Shares used in diluted per share
calculations 18,383 18,246 18,200 18,268
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
3
<PAGE> 5
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
========= =========
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 28,092 $ 40,507
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and 2,896 4,133
equipment
Deferred income taxes -- 1,300
Changes in assets and liabilities:
Accounts receivable (6,969) (3,248)
Provision for doubtful accounts 379 481
Inventory (10,532) 10,407
Other current assets (616) 384
Other assets 854 898
Accounts payable 3,161 (907)
Accrued liabilities 5,530 7,133
Income taxes payable (984) 10,208
--------- ---------
Cash provided by operating activities 21,811 71,296
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,756) (2,455)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (116) (18,716)
Proceeds from sale of treasury stock 781 915
Proceeds from exercise of stock options 2,101 3,290
--------- ---------
Cash provided by (used for) financing activities 2,766 (14,511)
--------- ---------
Net increase in cash and cash equivalents 19,821 54,330
Cash and cash equivalents at beginning of period 42,262 64,901
========= =========
Cash and cash equivalents at end of period $ 62,083 $ 119,231
========= =========
Supplemental disclosures:
Cash paid for:
Interest $ 3,291 $ 3,262
Income taxes $ 12,464 $ 7,823
Noncash operating and financing activities:
Income tax benefit associated with stock options $ 1,415 $ 10,586
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE> 6
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 31, 1998. The
interim financial information is unaudited, but reflects all normal recurring
adjustments which are, in the opinion of management, necessary to provide a fair
statement of results for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The interim financial statements should be read in connection with
the financial statements in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31 and the third fiscal quarter-end is the last Saturday in December.
For purposes of presentation, the Company has indicated its accounting year
ending on March 31 or the month-end for interim quarterly periods. Plantronics'
fiscal quarters ended December 31, 1997 and December 31, 1998 consisted of
thirteen weeks each.
NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
======== ========
<S> <C> <C>
Inventories:
Finished goods $ 13,224 $ 10,596
Work in process 4,431 1,828
Purchased parts 12,086 6,910
======== ========
$ 29,741 $ 19,334
======== ========
Property, plant and equipment:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 10-30 years) 9,486 9,979
Machinery and equipment (useful lives: 2-10 years) 31,484 33,445
-------- --------
45,663 48,117
Less accumulated depreciation (24,408) (28,540)
======== ========
$ 21,255 $ 19,577
======== ========
</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 gains in the fiscal quarter
ended December 31, 1998 were approximately $0.2 million. Exchange gains equaled
exchange losses in the fiscal quarter ended December 31, 1997.
NOTE 5. DEBT. The Company redeemed all of its 10% Senior Notes Due 2001 on
January 15, 1999. The aggregate redemption price, including accrued interest,
was approximately $69.6 million plus expenses and was paid out of available
cash. This transaction will be reported as an extraordinary item in the fourth
quarter of the Company's fiscal year financial statements.
NOTE 6. UNSECURED CREDIT FACILITY. Effective November 30, 1998, the Company
increased its revolving unsecured credit facility with Bank of America from
$20.0 million to $30.0 million. The facility expires on November 29, 1999. The
facility includes a $10.0 million letter of credit subfacility. Combined
borrowings and commitments under both facilities cannot exceed $30.0 million.
All other terms and conditions of the facility remain unchanged.
5
<PAGE> 7
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. COMMON STOCK. On January 8, 1999, the Company filed with the Securities
Exchange Commission a Registration Statement on Form S-3 for the sale by certain
stockholders in an underwritten offering of up to 1,782,500 shares of common
stock, including 232,500 shares subject to an over-allotment option granted to
the underwriters by one of the stockholders. Plantronics will not receive any
proceeds from this offering, other than approximately $0.9 million to be
received upon the exercise of options to purchase 550,000 shares of common stock
to be sold by two of the stockholders ($1.2 million if the over-allotment option
is exercised in full).
NOTE 8. COMPREHENSIVE INCOME. Effective April 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement is effective for the Company's fiscal year
ending March 31, 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. Total comprehensive income was the same as net income for all periods
presented.
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). The statement requires the Company to report certain information about
operating segments in its annual financial statements. 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 statement disclosures.
6
<PAGE> 8
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 relating
to the expected increase in diluted earnings per share due to the redemption of
the 10% Senior Notes discussed in the last sentence of the paragraph below
titled "Interest Expense" under Results of Operations and in the last sentence
of the paragraph below titled "Financing Activities" under Financial Condition;
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 the expected Year 2000 compliance of our
information systems and applications by June 1999, the expected Year 2000
certifications from our principal suppliers and customers by July 1999 and
August 1999, respectively, 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, and the expectation that we will substantially complete our
contingency planning by July 1999. 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 Nine Months Ended
============================== ==============================
December 31, December 31, December 31, December 31,
1997 1998 1997 1998
============= ============= ============= =============
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 45.9 43.0 46.0 44.6
------ ------ ------ ------
Gross profit 54.1 57.0 54.0 55.4
------ ------ ------ ------
Research and development 7.4 7.2 7.5 6.6
Selling, general and admin 19.9 20.2 20.4 19.9
------ ------ ------ ------
Total operating expenses 27.3 27.4 27.9 26.5
------ ------ ------ ------
Operating income 26.8 29.6 26.1 28.9
Other (income) expense 2.1 0.2 2.2 1.0
------ ------ ------ ------
Income before income taxes 24.7 29.4 23.9 27.9
Income tax expense 7.9 9.4 7.6 8.9
------ ------ ------ ------
Net Income 16.8% 20.0% 16.3% 19.0%
====== ====== ====== ======
</TABLE>
7
<PAGE> 9
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales. Net sales for the quarter ended December 31, 1998 increased by 16.2%
to $72.0 million, compared to $62.0 million for the quarter ended December 31,
1997. Domestic sales for the quarter ended December 31, 1998 increased by 16.2%
to $49.9 million, compared to $43.0 million for the quarter ended December 31,
1997. The highest percentage growth in domestic sales occurred in the OEM and
retail distribution channels. International sales for the quarter ended December
31, 1998 increased by 16.1% to $22.1 million, compared to $19.0 million for the
quarter ended December 31, 1997. All of the growth in international sales
occurred in Europe; sales in the Asia Pacific and Latin America regions declined
slightly, reflecting the uncertain economic situation in those areas.
Net sales for the nine months ended December 31, 1998 increased by 23.6% to
$213.2 million, compared to $172.6 million for the nine months ended December
31, 1997. Domestic sales for the nine months ended December 31, 1998 increased
by 22.8% to $148.5 million, compared to $121.0 million for the nine months ended
December 31, 1997. Domestic sales increased in all distribution channels, with
the highest percentage increase occurring in the OEM and retail channels.
International sales increased by 25.5% to $64.7 million for the nine months
ended December 31, 1998, compared to $51.6 million for the nine months ended
December 31, 1997. All international regions recorded sales growth, with Europe
and Canada showing the highest percentage increases. We believe that our sales
growth to date in fiscal 1999 may have been favorably affected by call centers
upgrading their automatic call distribution 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.
Gross Profit. Gross profit for the quarter ended December 31, 1998 increased by
22.3% to $41.0 million (57.0% of net sales), compared to $33.6 million (54.1% of
net sales) for the quarter ended December 31, 1997. Gross profit for the nine
months ended December 31, 1998 increased by 26.8% to $118.2 million (55.4% of
net sales), compared to $93.2 million (54.0% of net sales) for the nine months
ended December 31, 1997. The increases in gross profit for both the quarter and
nine months mainly reflect the overall increases in net sales. In addition, we
have been able to reduce product costs over time through 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 December 31, 1998 increased 12.8% to $5.2 million
(7.2% of net sales), compared to $4.6 million (7.4% of net sales) for the
quarter ended December 31, 1997. Research, development and engineering expenses
for the nine months ended December 31, 1998 increased 9.3% to $14.2 million
(6.6% of net sales), compared to $13.0 million (7.5% of net sales) for the nine
months ended December 31, 1997. 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 December 31, 1998 increased 18.1% to $14.6
million (20.2% of net sales), compared to $12.3 million (19.9% of net sales) for
the quarter ended December 31, 1997. Selling, general and administrative
expenses for the nine months ended December 31, 1998 increased by 20.6% to $42.4
million (19.9% of net sales), compared to $35.2 million (20.4% of net sales) for
the nine months ended December 31, 1997. The overall increase in expenses in the
nine months ended December 31, 1998 was primarily from costs associated with
higher worldwide sales and related variable expenses, such as sales commissions
and employee profit sharing, as well as the expansion of sales and marketing
programs. General and administrative expenses also increased due to the addition
of two senior corporate executive positions. In addition, we increased our
provision for doubtful accounts in light of general economic conditions,
particularly international conditions.
Operating Income. Operating income for the quarter ended December 31, 1998
increased 28.0% to $21.3 million (29.6% of net sales), compared to $16.6 million
(26.8% of net sales) for the quarter ended December 31, 1997. Operating income
for the nine months ended December 31, 1998 increased by 36.8% to $61.6 million
(28.9% of net sales), compared to $45.0 million (26.1% of net sales) for the
nine months ended December 31, 1997. The increase in operating income as a
percentage of net sales was primarily due to: (i) higher net sales,
8
<PAGE> 10
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ii) the increase in gross margin and (iii) a focused effort to limit the
growth of operating expenses relative to sales growth.
Interest Expense. Interest expense for the quarter ended December 31, 1998
increased 7.6% to $1.9 million, compared to $1.8 million for the quarter ended
December 31, 1997. Interest expense for the nine months ended December 31, 1998
increased by 4.3% to $5.5 million, compared to $5.2 million for the nine months
ended December 31, 1997. Interest expense for all periods reported principally
represents interest payable on our 10% Senior Notes Due 2001 (Senior Notes). Due
to the redemption of the Senior Notes effective January 15, 1999, this expense
will be reduced to approximately $0.4 million for our next quarter ending March
31, 1999, and will be minimal thereafter. We will take a net extraordinary
charge of approximately $1.2 million, or approximately $0.07 per diluted share,
in our fourth fiscal quarter in connection with this transaction. This charge
represents an early repayment fee of approximately $1.3 million and estimated
expenses, net of taxes. Based on current interest rates and the alternative of
investing the cash, we expect the transaction to increase diluted earnings per
share by approximately $0.10 on an annual pro forma basis.
Interest and Other Income. Interest and other income for the quarter ended
December 31, 1998 increased 302.9% to $1.8 million compared to $0.4 million for
the quarter ended December 31, 1997. Interest and other income for the nine
months ended December 31, 1998 increased by 125.6% to $3.5 million, compared to
$1.5 million for the nine months ended December 31, 1997. The increases were
primarily attributable to interest income derived from increases in cash and
cash equivalents.
FINANCIAL CONDITION:
Liquidity. As of December 31, 1998, we had working capital of $141.3 million,
including $119.2 million of cash and cash equivalents, compared with working
capital of $98.8 million, including $64.9 million of cash and cash equivalents,
as of March 31, 1998. During the nine months ended December 31, 1998, we
generated $71.3 million of cash from operating activities, due primarily to
$40.5 million in net income, decreases of $10.4 million in inventory and
increases of $10.2 million in income taxes payable and $7.1 million in accrued
liabilities. In comparison, we generated $21.8 million in cash from operating
activities for the nine months ended December 31, 1997, due mainly to $28.1
million in net income and increases of $8.7 million in accounts payable and
accrued liabilities, partially offset by increases of $10.5 million in inventory
and $7.0 million in accounts receivable.
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 December 31, 1998, 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.
After giving effect to the redemption of the Senior Notes, we believe that our
current cash balance and cash to be 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 $2.5 million in the nine months
ended December 31, 1998 were incurred principally in tooling to expand
manufacturing capacity and investments in computer and telephone equipment.
Financing Activities. In the nine months ended December 31, 1998, we sold 22,601
shares of our treasury stock for approximately $0.9 million and repurchased
325,391 shares of our common stock for approximately $18.7 million. As of
December 31, 1998, we remained authorized to repurchase approximately 363,000
shares under the repurchase plan authorized in the second quarter of fiscal
1999.
9
<PAGE> 11
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We received $3.3 million in proceeds from the exercise of stock options during
the nine months ended December 31, 1998. In July 1998, our stockholders approved
an increase of 1,300,000 shares of common stock issuable under our 1993 Stock
Plan (the "1993 Stock Plan"). This increased the maximum aggregate number of
shares which may be optioned and sold under the 1993 Stock Plan to 5,459,242
shares.
Effective January 15, 1999, we repurchased all of our Senior Notes. We will take
a net extraordinary charge of approximately $1.2 million, or approximately $0.07
per diluted share, in the fourth quarter of fiscal 1999 in connection with this
transaction. This charge represents an early repayment fee of approximately $1.3
million and estimated expenses, net of taxes. Based on current interest rates
and the alternative of investing the cash, we expect the transaction to increase
diluted earnings per share by approximately $0.10 on an annual pro forma basis.
YEAR 2000:
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 are assessing all internal applications and computer
software and hardware. Our key business information systems have been made year
2000 compliant. Resources have been assigned to address other applications, such
as product testing and product design hardware and software, based upon our
determination of how critical each of those systems is to our business
operations and the time required to bring them into full year 2000 compliance.
We currently expect that all our critical business information systems and other
critical applications will be fully year 2000 compliant by June 1999.
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 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. The year 2000 task force is monitoring
responses from suppliers and following up where necessary and appropriate. We
expect that we will have certification from our principal and critical suppliers
of goods and services by July 1999.
10
<PAGE> 12
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. The year 2000 task force will
follow up with customers where necessary and appropriate. We expect that we will
have certification from our principal customers by August 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 $0.5 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. We are developing contingency plans to mitigate the potential
disruptions that may result from the year 2000 issue. We expect to substantially
complete our contingency planning by July 1999. These plans may include
identifying and securing alternate suppliers of ingredients, containers,
packaging materials and utilities, adjusting manufacturing facility production,
shutdown and start-up schedules, stockpiling of finished product inventories and
other measures considered appropriate by management. Once developed and
approved, contingency plans, and the related cost estimates, will be continually
refined as additional information becomes available.
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. 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. We believe that our sales growth to date in
fiscal 1999 may have been favorably affected by call centers upgrading their
automatic call
11
<PAGE> 13
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
distribution 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.
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:
- changes in demand for our products;
- timing and size of orders from customers;
- cancellations or delays of deliveries of components and
subassemblies by our suppliers;
- variances in the timing and amount of engineering and
operating expenses;
- distribution channel volume variations;
- delays in shipments of our products;
- product returns and customer credits;
- new product introductions by us or our competitors;
- entrance of new competitors;
- increases in the costs of our components and subassemblies;
- price erosion;
- changes in the mix of products sold by us;
- seasonal fluctuations in demand; and
- 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.
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<PAGE> 14
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 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:
- - If demand increases beyond that forecasted, we would have to rapidly
increase production. We depend on suppliers to provide additional
volumes of components and subassemblies, and, therefore, might not be
able to increase production rapidly enough to meet unexpected demand.
This could cause us to fail to meet customer expectations. There could
be short-term losses of sales while we are trying to increase
production. If customers turn to competitive sources of supply to meet
their needs, there could be a long-term impact on our revenues.
- - 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.
- - 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:
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<PAGE> 15
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - 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.
- - 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.
- - 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., recently 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 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
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<PAGE> 16
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, original
equipment manufacturers ("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.
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. Mr. Kannappan has been assuming increasing responsibilities
for our day-to-day operations since his March 1998 appointment as 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.
Mr. Cecil continues to serve as Chairman of the Board of Directors and to be
employed by Plantronics on less than a full-time basis, providing guidance
principally in the areas of long-term strategy, management goals, recruitment of
key executives and budgetary matters. Mr. Cecil has advised us that he is
suffering from a serious illness, but that he believes it is currently stable.
Although we and Mr. Cecil believe he is presently able to perform effectively in
his continuing role as Chairman with us, his illness is unpredictable. Should
his condition deteriorate, he may have to reduce or possibly terminate his
relationship with us.
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.
15
<PAGE> 17
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CITICORP VENTURE CAPITAL RETAINS SIGNIFICANT CONTROL
After the offering referred to in Note 7 to the Unaudited Condensed Consolidated
Financial Statements, our largest stockholder, Citicorp Venture Capital, Ltd.
("CVC"), will beneficially own 4,509,168 shares of our common stock (excluding
any shares that may be owned by employees of CVC or its affiliates), which will
represent approximately 26.1% of the outstanding common stock. 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 eight members. In
addition, our bylaws contain provisions that require a supermajority vote of the
Board of Directors to approve certain transactions, including amendments of our
Certificate of Incorporation and 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 BY CITICORP VENTURE CAPITAL, MR. AND MRS. CECIL
OR MANAGEMENT MAY DEPRESS OUR STOCK PRICE
Upon completion of the offering referred to in Note 7 to the Unaudited Condensed
Consolidated Financial Statements, we will have outstanding 17,265,906 shares of
common stock (based upon shares outstanding as of December 31, 1998), assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options after December 31, 1998 other than exercises by Mr. and Mrs.
Cecil in connection with the offering. All of these shares will be freely
tradable except for 4,509,168 shares held by CVC and 433,254 shares held by our
executive officers and directors. These 4,942,422 shares, as well as an
additional 1,906,666 shares subject to outstanding stock options at December 31,
1998 held by executive officers, directors and Mrs. Cecil, are subject to lockup
agreements with the underwriters and cannot be sold for a period of 90 days
after the offering without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. In addition, the holders of these shares or options
may only sell their shares 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.
Certain of our current stockholders, including CVC and certain of our officers,
directors and key employees, also have contractual rights to require Plantronics
to register their shares for public sale. Sales of a substantial number of
shares of common stock in the public market following the offering, as well as
sales of shares issued upon exercise of stock options, by any of the officers,
directors or other stockholders mentioned above 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 30.7% and 30.4% of our net sales in fiscal 1998 and the nine
months ended December 31, 1998, respectively, were derived from customers
outside the United States. In addition, we conduct substantially all of our
headset assembly operations in our manufacturing facility located in Mexico, and
we obtain most of the components and subassemblies used in our products from
various foreign suppliers. The inherent risks of international operations,
particularly in Mexico, could materially adversely affect our business,
financial condition and results of operations. The types of risks faced in
connection with international operations and sales include:
- cultural difference in the conduct of business;
- greater difficulty in accounts receivable collection;
- unexpected changes in regulatory requirements;
16
<PAGE> 18
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- tariffs and other trade barriers;
- economic and political conditions in each country;
- management and operation of an enterprise spread over various
countries; and
- 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. 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.
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
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
secret, and copyright laws to protect our proprietary rights. We currently hold
33 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.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, local and foreign environmental laws
and regulation, 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.
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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PLANTRONICS, INC.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Stockholders who wish to present proposals for consideration at the 1999 Annual
Meeting of Stockholders which will not be submitted in accordance with the
processes of Rule 14a-8 of the Securities Exchange Commission under the
Securities Exchange Act of 1934 must provide the Company with notice of such
proposals (Attention: Corporate Secretary) no later than May 12, 1999.
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>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
Plantronics filed a report on Form 8-K, dated January 12, 1999,
relating to financial information for Plantronics, Inc. for the quarter
ended December 31, 1998, as presented in a press release of January 12,
1999.
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<PAGE> 22
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 3, 1999 s\ Barbara V. Scherer
- ---------------------------------- -------------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President
FEBRUARY 3, 1999 s\ Barbara V. Scherer
- ---------------------------------- -------------------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President - Finance and
Administration and Chief Financial
Officer
(Principal Financial Officer)
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PLANTRONICS, INC.
EXHIBIT INDEX
Exhibit Number
27.1 Financial Data Schedule
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 119,231
<SECURITIES> 0
<RECEIVABLES> 46,550
<ALLOWANCES> 2,233
<INVENTORY> 19,334
<CURRENT-ASSETS> 188,515
<PP&E> 48,117
<DEPRECIATION> 28,540
<TOTAL-ASSETS> 211,318
<CURRENT-LIABILITIES> 47,185
<BONDS> 65,050
0
0
<COMMON> 180
<OTHER-SE> 89,838
<TOTAL-LIABILITY-AND-EQUITY> 211,318
<SALES> 213,248
<TOTAL-REVENUES> 213,248
<CGS> 95,091
<TOTAL-COSTS> 95,091
<OTHER-EXPENSES> 56,607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,476
<INCOME-PRETAX> 59,568
<INCOME-TAX> 19,061
<INCOME-CONTINUING> 40,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,507
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.22
</TABLE>
