<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 September 30, 2000 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.)
345 Encinal Street
Santa Cruz, California 95060
(Zip Code)
(Address of principal executive offices)
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 November 10,
2000
Common Stock, $.01 par value 49,248,584
1
<PAGE> 2
PLANTRONICS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 2000
========= =============
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,271 $ 44,315
Marketable securities 5,038 10,095
Accounts receivable, net 48,481 63,574
Inventory, net 33,752 48,461
Deferred income taxes 6,721 6,553
Other current assets 1,603 2,100
--------- ---------
135,866 175,098
Property, plant and equipment, net 23,577 27,040
Other assets 10,587 9,895
--------- ---------
Total assets $ 170,030 $ 212,033
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,447 $ 10,252
Accrued liabilities 34,330 28,803
Income taxes payable 11,783 14,655
--------- ---------
Total current liabilities 57,560 53,710
Deferred tax liability 7,094 6,577
--------- ---------
Total liabilities 64,654 60,287
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000 shares
authorized, 57,582 shares and 58,347 shares issued
and outstanding 576 583
Additional paid-in capital 114,355 130,376
Accumulated other comprehensive income (891) (891)
Retained Earnings 134,076 174,920
--------- ---------
248,116 304,988
Less: Treasury stock (common: 8,685 and 8,971) at cost (142,740) (153,242)
--------- ---------
Total stockholders' equity 105,376 151,746
--------- ---------
Total liabilities and stockholders' equity $ 170,030 $ 212,033
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
2
<PAGE> 3
PLANTRONICS, INC.
PART I, ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
============= ============= ============= =============
<S> <C> <C> <C> <C>
Net sales $ 72,038 $ 103,940 $ 146,753 $ 204,292
Cost of sales 29,532 45,879 60,324 88,974
--------- --------- --------- ---------
Gross profit 42,506 58,061 86,429 115,318
--------- --------- --------- ---------
Operating expense:
Research, development and
engineering 5,089 6,813 10,588 12,448
Selling, general and
administrative 15,976 21,515 31,914 44,056
--------- --------- --------- ---------
Total operating expenses 21,065 28,328 42,502 56,504
--------- --------- --------- ---------
Operating income 21,441 29,733 43,927 58,814
Interest and other expense (income), net (497) 104 (661) 466
--------- --------- --------- ---------
Income before income taxes 21,938 29,629 44,588 58,348
Income tax expense 7,022 8,889 14,268 17,504
--------- --------- --------- ---------
Net income $ 14,916 $ 20,740 $ 30,320 $ 40,844
========= ========= ========= =========
Basic earnings per common share $ 0.30 $ 0.42 $ 0.61 $ 0.83
========= ========= ========= =========
Shares used in basic per share
calculations 49,971 49,110 50,106 49,031
========= ========= ========= =========
Diluted earnings per common share $ 0.28 $ 0.39 $ 0.56 $ 0.77
========= ========= ========= =========
Shares used in diluted per share
calculations 53,508 53,683 53,853 53,226
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statement
3
<PAGE> 4
PLANTRONICS, INC.
PART I, ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
============== ==============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 30,320 $ 40,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,620 3,005
Deferred income taxes (2,711) (349)
Provision for doubtful accounts 124 130
Income tax benefit associated with stock options 6,818 8,905
Changes in assets and liabilities:
Accounts receivable 1,133 (15,223)
Inventory (6,842) (14,709)
Other current assets 6,467 (554)
Other assets 260 96
Accounts payable (1,528) (1,195)
Accrued liabilities (952) (5,527)
Income taxes payable 1,161 2,873
---------- ----------
Cash provided by operating activities 35,870 18,296
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities -- 7,750
Purchase of marketable securities (8,800) (12,750)
Capital expenditures (3,235) (5,870)
---------- ----------
Cash used for investing activities (12,035) (10,870)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (32,312) (10,982)
Proceeds from sale of treasury stock 1,119 1,902
Proceeds from exercise of stock options 2,618 5,698
---------- ----------
Cash used for financing activities (28,575) (3,382)
---------- ----------
Net increase in cash and cash equivalents (4,740) 4,044
Cash and cash equivalents at beginning of period 42,999 40,271
---------- ----------
Cash and cash equivalents at end of period $ 38,259 $ 44,315
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 14 $ 40
Income taxes $ 10,650 $ 8,293
</TABLE>
4
<PAGE> 5
PLANTRONICS, INC.
PART I, 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, 2000. 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, 2000 and the Company's Amended Registration Statement on Form S-3
filed on June 13, 2000.
NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest
to March 31 and the second fiscal quarter-end is the last Saturday in September.
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 September 30, 1999 and September 30, 2000 consisted of
thirteen weeks each.
NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 2000
========== =============
<S> <C> <C>
Accounts receivable, net:
Accounts receivable from customers $ 50,625 $ 65,848
Allowance for doubtful accounts (2,144) (2,274)
-------- --------
$ 48,481 $ 63,574
======== ========
Inventory, net:
Finished goods $ 17,887 $ 29,036
Work in process 1,540 1,388
Purchased parts 14,325 18,037
-------- --------
$ 33,752 $ 48,461
======== ========
Property, plant and equipment, net:
Land $ 4,693 $ 4,693
Buildings and improvements (useful lives: 7-30 years) 11,296 12,008
Machinery and equipment (useful lives: 2-8 years) 38,341 43,499
-------- --------
54,330 60,200
Less accumulated depreciation (30,753) (33,160)
-------- --------
$ 23,577 $ 27,040
======== ========
</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 expense (income) in the consolidated statements of
operations. Gains and losses resulting from foreign currency transactions are
also included in other expense (income). Aggregate exchange losses in the fiscal
quarter ended September 30, 2000 were approximately $0.8 million, compared to
approximately $0.2 million in the period ended September 30, 1999.
NOTE 5. COMPUTATION OF EARNINGS PER COMMON SHARE. Basic earnings per common
share is computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted earnings per common share
is computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist only of stock options.
See Notes to Unaudited Condensed Consolidated Financial Statements
5
<PAGE> 6
PLANTRONICS, INC.
PART I, ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In computing diluted earnings per common share, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
exercise of stock options.
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
(in thousands, except earnings per share) SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $14,916 $20,740 $30,320 $40,844
======= ======= ======= =======
Weighted average shares - basic 49,971 49,110 50,106 49,031
Effect of dilutive securities - employee stock options 3,537 4,573 3,747 4,195
------- ------- ------- -------
Weighted average shares - diluted 53,508 53,683 53,853 53,226
======= ======= ======= =======
Net earnings per common share - basic $ 0.30 $ 0.42 $ 0.61 $ 0.83
======= ======= ======= =======
Net earnings per common share - diluted $ 0.28 $ 0.39 $ 0.56 $ 0.77
======= ======= ======= =======
</TABLE>
NOTE 6. STOCKHOLDERS' EQUITY AND STOCK SPLIT. On June 29, 2000, our Board of
Directors approved a three-for-one split of the Company's common stock, effected
as a stock dividend. All stockholders of record on July 18, 2000 (the "Record
Date") received two additional shares for each share owned on the Record Date.
Shares resulting from the split were distributed by the transfer agent on August
8, 2000. All share and per-share numbers contained herein for all periods
presented reflect this stock split, unless otherwise noted.
NOTE 7. INCOME TAXES. Income tax provisions for interim periods are based on the
Company's estimated annual income tax rate. The Company recorded income tax
expenses of $ 7.0 million and $ 8.9 million for the three months ended September
30, 1999 and September, 2000, respectively, and $ 14.3 million and $ 17.5
million for the six months ended September 30, 1999 and September 30, 2000,
respectively. The effective income tax rate varies from the U.S. federal
statutory income tax rate primarily because of variations in the tax rates on
foreign income.
NOTE 8. 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 9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
OPERATING SEGMENT
We organize the reporting segments based on geographic areas. The nature of our
products (telecommunications equipment), development, manufacturing, marketing
and servicing are similar in each geographic area. We evaluate segment
performance based on profit or loss from operations before interest expense,
foreign exchange gains and losses and income taxes. No one customer accounted
for 10% or more of total revenue from consolidated sales for the quarters ended
September 30, 2000 and 1999.
GEOGRAPHIC SEGMENTS
In geographical reporting, revenues are attributed to the geographical location
of the sales and service organizations. Costs directly and indirectly incurred
in generating revenues are similarly assigned.
See Notes to Unaudited Condensed Consolidated Financial Statements
6
<PAGE> 7
PLANTRONICS, INC.
PART I, ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
============= ============= ============= =============
<S> <C> <C> <C> <C>
Net revenues from unaffiliated customers:
United States $ 46,721 $ 71,500 $ 97,446 $ 138,967
International 25,317 32,440 49,307 65,325
-------- --------- --------- ---------
$ 72,038 $ 103,940 $ 146,753 $ 204,292
======== ========= ========= =========
Intersegment revenues $ 21,909 $ 31,585 $ 44,950 $ 69,616
======== ========= ========= =========
Operating profit:
United States $ 13,433 $ 19,918 $ 28,873 $ 39,639
International 8,008 9,815 15,054 19,175
-------- --------- --------- ---------
$ 21,441 $ 29,733 $ 43,927 $ 58,814
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 2000
========= =============
<S> <C> <C>
Property, plant and equipment, net:
United States $ 15,370 $ 16,200
International 8,207 10,840
-------- --------
$ 23,577 $ 27,040
======== ========
</TABLE>
The geographical reporting classification reflects the international
restructuring completed in fiscal 1997. The establishment of Plantronics B.V., a
wholly-owned subsidiary of Plantronics based in The Netherlands, changed the
ownership of inventory and the methodology of intersegment revenues.
Intersegment revenues are from Plantronics B.V. to the U.S., and are at
arms-length prices sufficient to recover a reasonable profit.
See Notes to Unaudited Condensed Consolidated Financial Statements
7
<PAGE> 8
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
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 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, the guidance concerning future revenues and earnings set
out in the section headed "Business Outlook," and certain statements marked with
an asterisk ("*") in the section titled "Risk Factors Affecting Future Operating
Results." In addition, the Company may from time to time make oral
forward-looking statements. These forward-looking statements are based on
current expectations and entail various risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth below under "Risk Factors Affecting Future Operating Results." The
following discussions titled "Results of Operations" and "Financial Condition"
should be read in conjunction with the unaudited condensed consolidated
financial statements and related notes included elsewhere herein, the Company's
annual report on Form 10-K, as well as the section below entitled "Risk Factors
Affecting Future Operating Results." We disclaim any obligation to update any
forward-looking statements as a result of developments occurring after the date
of this Quarterly Report.
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 SIX MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
============= ============= ============= =============
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 41.0 44.1 41.1 43.6
----- ----- ----- -----
Gross profit 59.0 55.9 58.9 56.4
----- ----- ----- -----
Research and development 7.1 6.6 7.2 6.1
Selling, general and admin 22.2 20.7 21.8 21.6
----- ----- ----- -----
Total operating expenses 29.3 27.3 29.0 27.7
----- ----- ----- -----
Operating income 29.7 28.6 29.9 28.7
Other (income) expense -0.7 0.1 -0.5 0.2
----- ----- ----- -----
ncome before income taxes 30.4 28.5 30.4 28.5
Income tax expense 9.7 8.5 9.7 8.5
----- ----- ----- -----
Net income 20.7% 20.0% 20.7% 20.0%
===== ===== ===== =====
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
8
<PAGE> 9
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
Net Sales. Net sales for the quarter ended September 30, 2000 increased by 44.3%
to $103.9 million, compared to $72.0 million for the quarter ended September 30,
1999. Net sales for the six months ended September 30, 2000 were $204.3 million
compared to $146.8 million for the six months ended September 30, 1999, an
increase of 39.2%. Revenues increased in almost every channel or business unit
with particular strength in US OEM, Retail, and International. Contributing to
the growth in these channels were significant increases in sales of our mobile
and computer products.
Gross Profit. Gross profit for the quarter ended September 30, 2000 increased
36.6% to $58.1 million, compared to $42.5 million for the quarter ended
September 30, 1999. Gross profit for the first two quarters of fiscal 2000 was
$115.3 million, an increase of 33.4% over the comparable period of fiscal 1999.
For the quarter ended September 30, 2000, gross profit was 55.9% of net sales, a
decrease of 3.1% compared to the gross profit of 59.0% of net sales for the
quarter ended September 30, 1999. While cost reduction efforts continued to be
successful, they were more than offset by the unfavorable impact of European
foreign exchange rates during the quarter as well as by the strong growth of new
product offerings for computer, mobile and certain small office and residential
applications with lower margins.
Research, Development and Engineering. Research, development and engineering
expenses for the quarter ended September 30, 2000 increased 33.9% to $6.8
million (6.6% of net sales), compared to $5.1 million (7.1% of net sales) for
the quarter ended September 30, 1999. Expenses for the first half of fiscal 2000
were $12.4 million compared to $10.6 million for the first half of fiscal 1999.
The increase in these expenses is due to increased investments in our office,
computer and mobile product lines and for new technology initiatives.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended September 30, 2000 increased 34.7% to $21.5
million (20.7% of net sales), compared to $16.0 million (22.2% of net sales) for
the quarter ended September 30, 1999. For the first half of fiscal 2000,
expenses were $44.1 million, an increase of $12.1 million over the first half of
fiscal 1999. Marketing expenses increased substantially due to increased
activities including advertising campaigns, new product launches, international
marketing and programs for our mobile and computer divisions. Variable selling
expense and sales commissions increased in relation to incremental revenue.
General and administrative expenses decreased as a percentage of net sales from
the year ago quarter.
Operating Income. Operating income for the quarter ended September 30, 2000
increased 38.7% to $29.7 million, compared to $21.4 million for the quarter
ended September 30, 1999. However as a percent of net sales, operating income
decreased 1.1 percentage points to 28.6% of net sales for the quarter ended
September 30, 2000 compared to 29.7% of net sales for the quarter ended
September 30, 1999. For the first half of fiscal 2000, operating income was
$58.8 million compared to $43.9 million for the first half of fiscal 1999. The
decrease relative to net sales was due to the decline in gross margin coupled
with substantial increases in marketing expenditures.
Interest Expense. Interest expense for fiscal 2001 is expected to be minimal.*
In November 1999, we entered into a credit agreement with a major bank under
which we have the right to borrow up to $100 million. We currently have no
borrowings under this agreement.
Interest (Income) and Other Expense (Income). Interest (income) and other
expense (income) for the quarter ended September 30, 2000 was $0.1 million in
expense compared to $0.5 million in income for the quarter ended September 30,
1999. Interest (income) and other expense (income) for the second quarter of
fiscal 2000 was $0.4 million in expense compared to $0.7 million in income for
the second quarter of fiscal 1999. The increase in expense was primarily due to
foreign exchange losses as described in Note 4.
Income Tax Expense Income tax expense for the quarter ended September 30, 2000
was $8.9 million compared to $7.0 million for the quarter ended September 30,
1999 and represented tax rates of 30% and 32%, respectively. The decrease in the
overall tax rate was due to increased sales and profits in lower tax
jurisdictions, including intersegment revenues on which lower tax jurisdictions
earn a profit.
FINANCIAL CONDITION:
See Notes to Unaudited Condensed Consolidated Financial Statements
9
<PAGE> 10
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
Liquidity. As of September 30, 2000, we had working capital of $121.4 million,
including $44.3 million of cash and cash equivalents, compared with working
capital of $78.3 million, including $40.3 million of cash and cash equivalents,
at March 31, 2000. During the six months ended September 30, 2000, we generated
$18.3 million of cash from operating activities, due primarily to $40.8 million
in net income and a tax benefit on stock options exercised of $8.9 million,
offset by increases of $15.2 and $14.7 million in accounts receivable and
inventory, respectively. In comparison, we generated $35.9 million in cash from
operating activities for the six months ended September 30, 1999, due mainly to
$30.3 million in net income and an income tax refund of $6.8 million.
We have a $100.0 million revolving credit facility, including a $10.0 million
letter-of-credit subfacility, with a major bank, both of which expire in
November 2000. This revolving credit facility has recently been renegotiated
with a new expiration date of November 25, 2001. As of September 30, 2000, we
had no cash borrowings under the revolving credit facility and $0.7 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 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.
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 $5.9 million in the six months
ended September 30, 2000 were incurred principally in tooling, leasehold
improvements related to facilities expansion and investments in computer and
software upgrades.
Financing Activities. In the six months ended September 30, 2000, we reissued
through employee benefit plans 74,272 shares of our treasury stock for
approximately $1.9 million and repurchased 358,900 shares of our common stock
for approximately $11.0 million. As of September 30, 2000, approximately 195,821
shares remained under the repurchase plan authorized in the fourth quarter of
fiscal 1999.
We received approximately $5.7 million in proceeds from the exercise of stock
options during the six months ended September 30, 2000. The maximum aggregate
number of shares that may be issued under the 1993 Stock Plan is 18,927,726
shares.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are
forward-looking, and actual results may differ materially.
o The Company expects revenues for the third quarter of fiscal 2001 to
be up sequentially from the second quarter.
o The Company expects that earnings per share in the third quarter of
fiscal 2001, ending December 30, 2000, to be approximately $0.40 per
share.
o The target earnings per share for the fourth quarter of fiscal 2001,
ending March 31, 2001, are $0.41 per share and full fiscal year 2001
target earnings per share are $1.58.
o The Company has a target of approximately $1.88 earnings per share
for fiscal 2002, ending March 30, 2002.
We do not intend to update these targets during the quarter or to report on our
progress toward these targets. We will not comment on these targets to analysts
or investors except by our next press release announcing its third quarter
results or by other public disclosure. Any statements by persons outside
Plantronics speculating on the
See Notes to Unaudited Condensed Consolidated Financial Statements
10
<PAGE> 11
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
progress of the quarter will not be based on our internal information and should
be assessed accordingly by investors. The statements do not reflect the
potential impact of any mergers or acquisitions that may be completed after the
date of this release.
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in the stock of Plantronics should carefully
consider the risks described below. Our stockholders may be subject to the risks
inherent in our business. The performance of Plantronics shares of stock will
reflect the performance of our business relative to, among other things, our
competition, general economic and market conditions and industry conditions. You
should carefully consider the following factors in connection with any
investment in Plantronics stock. Our business, financial condition and results
of operations 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.
A SUBSTANTIAL PORTION OF OUR SALES COME FROM THE CALL CENTER MARKET AND A
DECREASE OF DEMAND IN THAT MARKET COULD MATERIALLY AFFECT OUR RESULTS.
We have historically derived, and continue to derive, a substantial portion of
our net sales from the call center market. This market has grown significantly
in recent years as new call centers have proliferated and existing call centers
have expanded. While we believe this market is continuing to grow,* in the
future this growth could slow or revenues from this market 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. Due to
our reliance on the call center market, 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 ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO
DEVELOP AND WE COULD BE ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS WE EXPECT.
While the call center market is still a substantial portion 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 markets.*
These communications headset markets are relatively new and undeveloped.
Moreover, we do not have extensive experience in selling headset products to
customers in these markets. If the demand for headsets in these markets 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 markets, 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 DUE TO A NUMBER OF
CAUSES OUTSIDE OUR CONTROL.
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;
o distribution channel volume variations;
See Notes to Unaudited Condensed Consolidated Financial Statements
11
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PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
o delays in shipments of our products;
o product returns and customer credits;
o insolvency of purchasers of our products or failure of purchasers of
our products to pay amounts due to us;
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.
IF WE DO NOT MATCH PRODUCTION TO DEMAND WE WILL BE AT RISK OF LOSING BUSINESS OR
OUR GROSS MARGINS COULD BE ADVERSELY AFFECTED.
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.
See Notes to Unaudited Condensed Consolidated Financial Statements
12
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
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,
increased expenditures for freight to expedite delivery of required
materials, 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 AND FAILURE OF OUR SUPPLIERS TO PROVIDE QUALITY
COMPONENTS OR SERVICES IN A TIMELY MANNER COULD ADVERSELY AFFECT OUR RESULTS.
We buy components and subassemblies from a variety of suppliers and assemble
them into finished products. We also have certain of our products manufactured
for us by third party suppliers. The cost, quality, and availability of such
goods are essential to the successful production and sale of our products.
Obtaining components, subassemblies and finished products 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, components and products 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 subassemblies, components and products, 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 Due to the lead times required in order to obtain certain
subassemblies, components and products from certain foreign
suppliers, we may not be able to react quickly to changes in demand,
potentially resulting in either excess inventories of such goods or
shortages of the subassemblies, components and products. In the
second quarter of fiscal 2001, we experienced a substantial rise in
finished good inventories in part
o resulting from purchases of finished products from our suppliers in
excess of demand. Failure in the future to match the timing of
purchases of subassemblies, components and products to demand 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.
See Notes to Unaudited Condensed Consolidated Financial Statements
13
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF
THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES.
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.
Our distribution channels generally hold inventories of our products, determined
in their own business judgment to be sufficient to meet their customer's
delivery requirements. Such inventory levels are subject to market conditions,
business judgment by the reseller and our ability to meet their time-to-ship
needs. Rapid reductions by our distributors, OEMs, retailers and other customers
in the levels of inventories held in our products could materially adversely
affect our business, financial condition or results of operations.
WE HAVE STRONG COMPETITORS AND WILL LIKELY FACE ADDITIONAL COMPETITION IN THE
FUTURE.
The markets for our products are highly competitive. We compete with a variety
of companies in the various markets for communications headsets. Our single
largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish
telecommunications conglomerate with revenues of 5.4 billion Danish Krone
(approximately $700 million) in calendar 1999. On May 21, 2000, GN Netcom
announced that it had signed an agreement to acquire Jabra Corporation, a
supplier of headsets in the mobile phone market. It is not clear how this merger
will affect us but the merged entity will have a broader product offering and
greater marketing presence than either of the two entities had separately.
On October 4, 2000, GN Netcom announced that it had signed an agreement to
acquire Hello Direct, Inc., a retail channel seller of communications products
and a customer of Plantronics. On November 8, 2000, GN Netcom announced that it
had completed its tender for the shares of Hello Direct stock and that it
planned to proceed promptly to complete that acquisition. On October 25, 2000,
we announced that we have terminated our contract for the supply of products to
Hello Direct due to the impending acquisition of Hello Direct, Inc. by GN
Netcom. It is not clear how this merger will affect us other than the
termination of the product purchase contract, which we do not believe will have
a material adverse affect.* However, the acquisition by GN Netcom of Hello
Direct does give it a directly owned retail channel presence it did not have
before the acquisition.
We 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 markets. As these markets 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 anticipate that we will also face additional competition from companies,
principally located in the Far East, which offer very low cost headset products,
including products, which are modeled on or direct copies of our products. These
new competitors are likely to offer very low cost products which may result in
price pressure in the market. If market prices are substantially reduced by such
new entrants into the headset market, our business, financial condition or
results of operations could be materially adversely affected.
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
See Notes to Unaudited Condensed Consolidated Financial Statements
14
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
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 AND WE WILL BE ADVERSELY AFFECTED IF WE DO NOT
RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND NEW 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 a number of 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 markets, 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 markets, 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.
Due to the historically slow evolvement of our products, we have generally been
able to phase out obsolete products without significant impact to our operating
margins. However, as we develop new generations of products more quickly, we
expect that the pace of product obsolescence will increase concurrently. The
disposition of inventories of obsolete products may result in reductions to our
operating margins and affect our earnings and results of operations.
CHANGES IN REGULATORY REQUIREMENTS MAY ADVERSELY IMPACT OUR GROSS MARGINS AS WE
COMPLY WITH SUCH CHANGES OR REDUCE OUR ABILITY TO GENERATE REVENUES IF WE ARE
UNABLE TO COMPLY.
Our products must meet the requirements set by regulatory authorities in the
numerous jurisdictions in which we sell them. As regulations and local laws
change, we must modify our products to address those changes. Regulatory
restrictions may increase the costs to design and manufacture our products,
resulting in a decrease in demand for our products if the costs are passed along
or a decrease in our margins. Compliance with regulatory restrictions may impact
the technical quality and capabilities of our products, reducing their
marketability. We are currently facing a substantial change in the regulations
applicable to our products in the European Union and there is no certainty that
we can meet those regulatory requirements in a timely and cost-effective manner.
Failure to conform our products to these new European regulatory requirements
would result in our inability to sell such products in Europe, resulting in a
material adverse impact to our financial condition and results of operations.
See Notes to Unaudited Condensed Consolidated Financial Statements
15
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING
ABROAD.
Approximately 33.5% of our net sales in fiscal 2000 were derived from customers
outside the United States, compared with approximately 30.5% of our net sales in
fiscal 1999. In the second quarter of fiscal 2001, approximately 31.2% of our
net sales 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:
o cultural differences 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.
In calendar 2000, the value of major European currencies has dropped against the
U.S. dollar. To date, we have partially but not fully reflected that change in
currency value in our selling prices. In order to maintain a competitive price
for our products in Europe, we may have to effectively reduce our current prices
further, resulting in a lower margin on products sold in Europe. Continued
change in the values of European currencies or changes in the values of other
foreign currencies could have a material adverse effect on our business,
financial condition and results of operations.
OUR FOREIGN OPERATIONS PUT US AT RISK OF LOSS IF THERE ARE MATERIAL CHANGES IN
CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR.
A significant portion of our business is conducted in currencies other than the
U.S. dollar. As a result, fluctuations in exchange rates create 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. In calendar 2000, the value of major European currencies has dropped
against the U.S. dollar, resulting in currency transaction 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.
WE MAY BE EXPERIENCING A NON-SUSTAINABLE INCREASE IN SALES AS A RESULT OF
PENT-UP DEMAND FROM Y2K CONCERNS.
Our results for the first part of calendar year 2000 may not be indicative of
longer-term market conditions. Our results of operations for the first and
second quarters of fiscal 2001 may reflect a non-sustainable rebound from
purchases by call center and office customers who delayed investment in new call
centers or information technologies due to concerns over the effects of Y2K.
See Notes to Unaudited Condensed Consolidated Financial Statements
16
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN
MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR
OPERATIONS.
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.
WE HAVE INTELLECTUAL PROPERTY RIGHTS THAT COULD BE INFRINGED BY OTHERS AND WE
ARE POTENTIALLY AT RISK OF INFRINGEMENT OF THE INTELLECTUAL PROPERTY 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 36 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.
WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS.
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 mobile headsets are used with mobile telephones. There has been continuing
public controversy over whether the radio frequency emissions from mobile
telephones are harmful to users of mobile phones. We believe that there is no
conclusive proof of any health hazard from the use of mobile telephones but that
research in this area is incomplete. If research was to establish a health
hazard from the use of mobile telephones or public controversy grows even in the
absence of conclusive research findings, there could be an adverse impact on the
demand for our mobile headsets.
There is also continuing and increasing public controversy over the use of
mobile telephones by operators of motor vehicles. While we believe that our
products enhance driver safety by permitting a motor vehicle operator to
generally be able to keep both hands free to operate the vehicle, there is no
certainty that this is the case and we may be subject to claims arising from
allegations that use of a mobile telephone and headset contributed to a motor
See Notes to Unaudited Condensed Consolidated Financial Statements
17
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
vehicle accident. We maintain product liability insurance and general liability
insurance which we believe would cover any such claims. However, 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.
WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL
EXPOSED TO POTENTIAL RISKS FROM 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.
THE SEC MAY DETERMINE THAT OUR ACCOUNTANTS ARE NOT INDEPENDENT.
Until June 4, 2000, our independent public accountants, PricewaterhouseCoopers
LLP, performed payroll and bookkeeping services for our Hong Kong sales office,
an immaterial operation with one employee, no assets or equity, and no authority
to conclude any sales on behalf of Plantronics. The selling, general and
administrative expenses incurred by our Hong Kong office accounted for 0.38,
0.53 and 0.64 percent of our total selling, general and administrative expenses
for fiscal years 2000, 1999 and 1998, respectively. PricewaterhouseCoopers
received fees for these services of approximately $10,000, or approximately 7%
of total audit fees, in each of fiscal years 2000, 1999 and 1998. Due to the
immaterial nature of our Hong Kong office's operations, PricewaterhouseCoopers
performed no audit work on that office's financial statements for fiscal years
2000, 1999 or 1998. However, this level of compensation for bookkeeping services
compared to the compensation for audit services exceeds certain guidance from
the Securities and Exchange Commission for the determination of accountant
independence. PricewaterhouseCoopers has represented to the SEC and to us that
all affected audits were conducted with an objective state of mind and the
requisite degree of professional skepticism. Payroll and bookkeeping services
for our Hong Kong office are now being performed by KPMG LLP. KPMG also
conducted an audit of the prior bookkeeping work done by PricewaterhouseCoopers
and determined that the records had been kept in a manner consistent with
applicable accounting principles. However, the SEC might not concur with
PricewaterhouseCoopers's view that it was independent under the applicable SEC
rules. If the SEC determines that PricewaterhouseCoopers is or was not
independent, we might be required to engage a different outside auditing firm on
a prospective basis and we might be required to have that firm re-audit our
previous years' financial statements. We cannot predict whether the SEC will
require a re-audit or what effect a re-audit might have on Plantronics.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF THE SERVICES
OF KEN KANNAPPAN OR OTHER KEY PERSONNEL.
Our success depends to a significant extent upon the services of a limited
number of executive officers and other key employees. The unanticipated loss of
the services of our president and chief executive officer, 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.
See Notes to Unaudited Condensed Consolidated Financial Statements
18
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD
BE LOST.
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 recommendations 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.
ANTI-TAKEOVER PROVISIONS IN OUR CURRENT BY-LAWS OR WHICH COULD BE PUT INTO PLACE
BY OUR BOARD OF DIRECTORS COULD AFFECT MARKET PRICES OF OUR STOCK.
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 anti-takeover 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.
CITICORP VENTURE CAPITAL HAS SIGNIFICANT CONTROL OVER OUR BUSINESS.
Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially
owns 10,077,504 shares of our common stock (excluding any shares that may be
owned by employees of CVC or its affiliates), which represents approximately
20.6% of our outstanding common stock as of August 8, 2000. We also have an
agreement with CVC under which it is entitled to have up to two 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 M.
O'Mara are currently serving as CVC's designees under that agreement (having
been nominated for election in a period in which the agreement with CVC required
us to nominate and support the election of three designees of CVC). 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.
WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS AND, GIVEN THE LOW TRADING VOLUME OF
OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME, WE COULD SEE AN
ADVERSE AFFECT ON THE MARKET PRICES OF OUR STOCK.
As of November 10, 2000, we had 49,248,584 shares of common stock outstanding
and in the public market. All of these shares are freely tradable except for
approximately 11,100,000 shares held by affiliates of Plantronics (including CVC
and the directors and officers of Plantronics). These approximately 11,100,000
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. On
October 30, 2000, CVC filed with the SEC a statement under Rule 144 of the
Securities Act, stating its intent to sell 1,309,225 shares of our common stock.
Some of our current stockholders, including CVC and certain of our directors,
also have certain contractual rights to require Plantronics to register their
shares for public sale. Approximately 7,900,000 additional shares are subject to
outstanding stock options as of November 10, 2000. As of November 10, 2000, Ms.
Louise Cecil, the widow of our former CEO and Chairman, Robert S. Cecil, holds
options on approximately 450,000 shares of our common stock,
See Notes to Unaudited Condensed Consolidated Financial Statements
19
<PAGE> 20
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS
transferred to her by Mr. Cecil during his life. She has registered those shares
for resale and can sell any or all of those shares at any time.
Plantronics stock is not heavily traded. Our average daily trading volume in
twelve calendar month period prior to August 8, 2000 was approximately 282,000
shares per day with a median volume in that period of 198,000 shares per day.
Sales of a substantial number of shares of common stock in the public market by
CVC 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.
PART 1, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Plantronics considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." Plantronics
had no holdings of derivative financial or commodity instruments at September
30, 2000. Plantronics believes it has minimal exposure to financial market risks
and risks associated with changes in foreign currency exchange rates at this
time.
See Notes to Unaudited Condensed Consolidated Financial Statements
20
<PAGE> 21
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. Registrant filed no reports on Form 8-K during the
fiscal quarter ended September 30, 2000.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
See Notes to Unaudited Condensed Consolidated Financial Statements
21
<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)
NOVEMBER 14, 2000 /s/ Barbara V. Scherer
---------------------- ----------------------------
(Date) (Signature)
Barbara V. Scherer
Senior Vice President - Finance
and Administration
and Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer of
the Registrant)
See Notes to Unaudited Condensed Consolidated Financial Statements
22
<PAGE> 23
PLANTRONICS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
