-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ChMwH6akMoAmXiZe8xCGLL2o5+5armr/DIhSWNAXg7sKTguDbq10ED0Rl8oH5wOw jB3Nzd1mEFQba7EHVUULWg== 0000891618-01-000145.txt : 20010223 0000891618-01-000145.hdr.sgml : 20010223 ACCESSION NUMBER: 0000891618-01-000145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANTRONICS INC /CA/ CENTRAL INDEX KEY: 0000914025 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 770207692 STATE OF INCORPORATION: DE FISCAL YEAR END: 0327 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12696 FILM NUMBER: 1538623 BUSINESS ADDRESS: STREET 1: 337 ENCINAL ST CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 BUSINESS PHONE: 8314265858 MAIL ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 FORMER COMPANY: FORMER CONFORMED NAME: PI PARENT CORP DATE OF NAME CHANGE: 19931025 10-Q 1 f69531e10-q.txt FORM 10-Q PERIOD ENDED DECEMBER 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 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 --------------------------------------- ----------------------------------- (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 30, 2000 -------------------------------- -------------------------------- Common Stock, $.01 par value 49,169,304 1 2 PLANTRONICS, INC. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 40,271 $ 53,637 Marketable securities 5,038 7,856 Accounts receivable, net 48,481 68,203 Inventory, net 33,752 50,372 Deferred income taxes 6,721 6,772 Other current assets 1,603 1,275 --------- --------- Total current assets 135,866 188,115 Property, plant and equipment, net 23,577 30,341 Other assets 10,587 9,957 --------- --------- Total assets $ 170,030 $ 228,413 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,447 $ 8,970 Accrued liabilities 34,330 32,374 Income taxes payable 11,783 18,118 --------- --------- Total current liabilities 57,560 59,462 Deferred tax liability 7,094 6,540 --------- --------- Total liabilities 64,654 66,002 --------- --------- Stockholders' equity: Common stock, $0.01 par value per share; 100,000 shares authorized, 57,582 shares and 58,508 shares issued and outstanding 576 585 Additional paid-in capital 114,355 134,230 Accumulated other comprehensive income (891) (891) Retained Earnings 134,076 196,228 --------- --------- 248,116 330,152 Less: Treasury stock (common: 8,686 and 9,339) at cost (142,740) (167,741) --------- --------- Total stockholders' equity 105,376 162,411 --------- --------- Total liabilities and stockholders' equity $ 170,030 $ 228,413 ========= =========
2 3 PLANTRONICS, INC. PART I, ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED NINE MONTHS ENDED ---------------------------- ---------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 2000 1999 2000 ------------ ------------ ------------ ------------ Net sales $ 76,059 $ 106,718 $ 222,812 $ 311,010 Cost of sales 30,946 47,277 91,270 136,250 --------- --------- --------- --------- Gross profit 45,113 59,441 131,542 174,760 --------- --------- --------- --------- Operating expense: Research, development and engineering 5,080 7,097 15,668 19,544 Selling, general and administrative 17,949 22,729 49,863 66,787 --------- --------- --------- --------- Total operating expenses 23,029 29,826 65,531 86,331 --------- --------- --------- --------- Operating income 22,084 29,615 66,011 88,429 Interest and other expense (income), net (575) (825) (1,236) (360) --------- --------- --------- --------- Income before income taxes 22,659 30,440 67,247 88,789 Income tax expense 7,250 9,132 21,518 26,637 --------- --------- --------- --------- Net income $ 15,409 $ 21,308 $ 45,729 $ 62,152 ========= ========= ========= ========= Basic earnings per common share $ 0.31 $ 0.43 $ 0.92 $ 1.27 ========= ========= ========= ========= Shares used in basic per share calculations 48,999 49,233 49,737 49,098 ========= ========= ========= ========= Diluted earnings per common share $ 0.30 $ 0.40 $ 0.86 $ 1.17 ========= ========= ========= ========= Shares used in diluted per share calculations 52,056 53,357 53,238 53,272 ========= ========= ========= =========
3 4 PLANTRONICS, INC. PART I, ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED --------------------------- DECEMBER 31, DECEMBER 31, 1999 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 45,729 $ 62,152 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,921 4,877 Deferred income taxes (2,594) (605) Provision for doubtful accounts (47) 149 Income tax benefit associated with stock options 6,830 10,129 Changes in assets and liabilities: Accounts receivable 2,788 (19,871) Inventory (11,831) (16,620) Other current assets 6,496 309 Other assets 284 (266) Accounts payable (419) (2,477) Accrued liabilities (1,558) (1,956) Income taxes payable 7,524 6,335 -------- -------- Cash provided by operating activities 56,123 42,156 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of marketable securities -- 12,750 Purchase of marketable securities (8,800) (15,550) Capital expenditures (5,094) (10,745) -------- -------- Cash used for investing activities (13,894) (13,545) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (54,040) (25,549) Proceeds from sale of treasury stock 1,257 2,260 Proceeds from exercise of stock options 3,130 8,044 -------- -------- Cash used for financing activities (49,653) (15,245) -------- -------- Net increase (decrease) in cash and cash equivalents (7,424) 13,366 Cash and cash equivalents at beginning of period 42,999 40,271 -------- -------- Cash and cash equivalents at end of period $ 35,575 $ 53,637 ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 21 $ 68 Income taxes $ 11,695 $ 12,716
4 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. The interim financial statements should be read in conjunction 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 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, 1999 and December 31, 2000 consisted of thirteen weeks each. NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 31, December 31, 2000 2000 --------- ------------ Accounts receivable, net: Accounts receivable from customers $ 50,625 $ 70,496 Allowance for doubtful accounts (2,144) (2,293) -------- -------- $ 48,481 $ 68,203 ======== ======== Inventory, net: Finished goods $ 17,887 $ 28,729 Work in process 1,540 1,620 Purchased parts 14,325 20,023 -------- -------- $ 33,752 $ 50,372 ======== ======== Property, plant and equipment, net: Land $ 4,693 $ 4,693 Buildings and improvements (useful lives: 7-30 years) 11,296 14,180 Machinery and equipment (useful lives: 2-10 years) 38,341 46,201 -------- -------- 54,330 65,074 Less accumulated depreciation (30,753) (34,733) -------- -------- $ 23,577 $ 30,341 ======== ========
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 statement of operations. Gains and losses resulting from foreign currency transactions are also included in other expense (income). Aggregate exchange gains in the fiscal quarter ended December 31, 2000 were approximately $0.1 million. Aggregate exchange losses in the comparable period ended December 31, 1999 were immaterial. For the nine months ended December 31, 2000, aggregate exchange losses were $1.2 million, compared to losses of $0.6 million for the nine months ended December 31, 1999. 5 6 PLANTRONICS, INC. PART I, ITEM 1. FINANCIAL STATEMENTS NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. 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:
QUARTER ENDED NINE MONTHS ENDED --------------------------- --------------------------- (in thousands, except earnings per share) DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 2000 1999 2000 ------------ ------------ ------------ ------------ Net income $15,409 $21,308 $45,729 $62,152 ======= ======= ======= ======= Weighted average shares - basic 48,999 49,233 49,737 49,098 Effect of dilutive securities - employee stock options 3,057 4,124 3,501 4,174 ------- ------- ------- ------- Weighted average shares - diluted 52,056 53,357 53,238 53,272 ======= ======= ======= ======= Net earnings per common share - basic $ 0.31 $ 0.43 $ 0.92 $ 1.27 ======= ======= ======= ======= Net earnings per common share - diluted $ 0.30 $ 0.40 $ 0.86 $ 1.17 ======= ======= ======= =======
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 $ 7.3 million and $ 9.1 million for the three months ended December 31, 1999 and December 31, 2000, respectively, and $ 21.5 million and $ 26.6 million for the nine months ended December 31, 1999 and December 31, 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 December 31, 1999 and 2000. 6 7 PLANTRONICS, INC. PART I, ITEM 1. FINANCIAL STATEMENTS NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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.
---------------------------- ---------------------------- QUARTER ENDED NINE MONTHS ENDED ---------------------------- ---------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 2000 1999 2000 ------------ ------------ ------------ ------------ Net revenues from unaffiliated customers: United States $ 51,360 $ 75,801 $148,807 $214,768 International 24,699 30,917 74,005 96,242 -------- -------- -------- -------- $ 76,059 $106,718 $222,812 $311,010 ======== ======== ======== ======== -------- -------- -------- -------- Intersegment revenues $ 24,696 $ 38,496 $ 69,645 $108,112 ======== ======== ======== ======== Operating profit: United States $ 14,691 $ 21,432 $ 43,564 $ 61,071 International 7,393 8,183 22,447 27,358 -------- -------- -------- -------- $ 22,084 $ 29,615 $ 66,011 $ 88,429 ======== ======== ======== ========
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ Property, plant and equipment, net: United States $ 15,371 $ 18,762 International 8,206 11,579 -------- -------- $ 23,577 $ 30,341 ======== ========
7 8 PLANTRONICS, INC. PART I, 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 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 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 in this Quarterly Report, 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.
------------------------------ ------------------------------ Quarter Ended Nine Months Ended ------------------------------ ------------------------------ December 31, December 31, December 31, December 31, 1999 2000 1999 2000 ------------ ------------ ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 40.7 44.3 41.0 43.8 ------------ ------------ ------------ ------------ Gross profit 59.3 55.7 59.0 56.2 ------------ ------------ ------------ ------------ Research, development and engineering 6.7 6.7 7.0 6.3 Selling, general and administrative 23.6 21.2 22.4 21.5 ------------ ------------ ------------ ------------ Total operating expenses 30.3 27.9 29.4 27.8 ------------ ------------ ------------ ------------ Operating income 29.0 27.8 29.6 28.4 Other (income) expense (0.8) (0.7) (0.6) (0.1) ------------ ------------ ------------ ------------ Income before income taxes 29.8 28.5 30.2 28.5 Income tax expense 9.5 8.5 9.7 8.5 ------------ ------------ ------------ ------------ Net income 20.3% 20.0% 20.5% 20.0% ============ ============ ============ ============
Net Sales. Net sales for the quarter ended December 31, 2000 increased by 40.3% to $106.7 million, compared to $76.1 million for the quarter ended December 31, 1999. Net sales for the nine months ended December 31, 2000 were $311.0 million compared to $222.8 million for the nine months ended December 31, 1999, an increase of 39.6%. In comparison to the year ago periods, all of our channels, markets and major geographic territories experienced increases in demand, with the most significant growth in sales of our mobile and computer products. Due to a slowdown in business in our call center and office markets, which we believe is tied to general economic conditions, revenues for the fourth fiscal quarter of 2001 are anticipated to be down slightly from the third fiscal quarter of 2001.* Gross Profit. Gross profit for the quarter ended December 31, 2000 increased 31.8% to $59.4 million, compared to $45.1 million for the quarter ended December 31, 1999. Gross profit for the nine months ended December 31, 2000 was $174.8 million, an increase of 32.9% over the comparable period of fiscal 2000. For the quarter ended December 31, 2000, gross profit was 55.7% of net sales, a decrease of 3.6 percentage points compared to the gross 8 9 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS profit of 59.3% of net sales for the quarter ended December 31, 1999. While cost reduction efforts continued to be successful, they were offset by the unfavorable impact of European foreign exchange rates during the quarter as well as by the strong growth of new product offerings with lower margins for computer, mobile and certain small office and residential applications. The Company expects these items may continue to unfavorably impact our gross margin percentage in the fourth quarter of fiscal 2001.* Research, Development and Engineering. Research, development and engineering expenses for the quarter ended December 31, 2000 increased 39.7% to $7.1 million (6.7% of net sales), compared to $5.1 million (6.7% of net sales) for the quarter ended December 31, 1999. Expenses for the nine months ended December 31, 2000 were $19.5 million compared to $15.7 million for the nine months ended December 31, 1999. The increase in these expenses is due to increased investments in our office, mobile and computer product lines and for new technology initiatives such as Bluetooth and wireless products. Selling, General and Administrative. Selling, general and administrative expenses for the quarter ended December 31, 2000 increased 26.8% to $22.7 million (21.2% of net sales), compared to $17.9 million (23.6% of net sales) for the quarter ended December 31, 1999. For the nine months ended December 31, 2000, expenses were $66.8 million, an increase of $16.9 million over the nine months ended December 31, 1999. Sales and marketing expense increased substantially due to increased sales and marketing programs for our mobile products, international sales and marketing programs, and sales and promotion expense in the retail channel. General and administrative expenses decreased as a percentage of net sales from the year ago quarter and nine months. Operating Income. Operating income for the quarter ended December 31, 2000 increased 34.1% to $29.6 million, compared to $22.1 million for the quarter ended December 31, 1999. However as a percent of net sales, operating income decreased 1.2 percentage points to 27.8% of net sales for the quarter ended December 31, 2000 compared to 29.0% of net sales for the quarter ended December 31, 1999. For the nine months ended December 31, 2000, operating income was $88.4 million compared to $66.0 million for the nine months ended December 31, 1999. The decrease relative to net sales was due to the decline in gross margin coupled with substantial increases in sales and marketing expenditures. Interest and Other Expense (Income), Net. Interest expense for the first nine months of fiscal 2001 has been minimal. In November 2000, the Company renewed its credit agreement with a major bank under which we have the right to borrow up to $100 million. There are currently no borrowings under this agreement. Interest income and other expense (income) for the quarter ended December 31, 2000 increased to ($0.8) million compared to ($0.6) million for the quarter ended December 31, 1999. Interest income and other expense (income) for the nine months ended December 31, 2000 was ($0.4) million compared to ($1.3) million for the nine months ended December 31, 1999. The increase over the year ago quarter was primarily due to foreign exchange gains as described in Note 4. For the nine months ended December 31, 2000, the decrease in income over the comparable period of fiscal 2000 was attributable to foreign exchange losses as described in Note 4. Income Tax Expense. Income tax expense for the quarter ended December 31, 2000 was $9.1 million compared to $7.3 million for the quarter ended December 31, 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. FINANCIAL CONDITION: Liquidity. As of December 31, 2000, the Company had working capital of $128.7 million, including $61.5 million of cash and cash equivalents and marketable securities, compared with working capital of $78.3 million, including $45.3 million of cash and cash equivalents and marketable securities, at March 31, 2000. During the nine months ended December 31, 2000, we generated $42.2 million of cash from operating activities, due primarily to $62.2 million in net income, a tax benefit on stock options exercised of approximately $10.1 million and an increase in income taxes payable of $6.3 million, offset by increases of $19.9 and $16.6 million in accounts receivable and inventory, respectively. In comparison, we generated $56.2 million in cash from operating activities for the nine months ended December 31, 1999, due mainly to $45.7 million in net income, a tax benefit on stock options 9 10 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS exercised of $6.8 million, and an increase in income taxes payable of $7.5 million. Increases in inventory were offset by favorable changes in other current assets and accounts receivable and liabilities. The Company has a $100.0 million revolving credit facility, including a $10.0 million letter-of-credit subfacility, with a major bank. During the quarter we renewed the line of credit and both the revolving credit facility and the letter of credit subfacility mature on November 25, 2001. As of December 31, 2000, we had no 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 our financial position 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 $10.7 million in the nine months ended December 31, 2000 were incurred principally in tooling, improvements related to facilities expansion and investments in computer and software upgrades. Financing Activities. In the nine months ended December 31, 2000, we reissued through employee benefit plans 84,347 shares of our treasury stock for approximately $2.3 million and repurchased 737,100 shares of our common stock for approximately $25.5 million. As of December 31, 2000, 317,621 shares remained under the repurchase plan authorized on November 15, 2000. We received approximately $8.0 million in proceeds from the exercise of stock options during the nine months ended December 31, 2000. The maximum aggregate number of shares that may be issued under the 1993 Stock Plan is 18,927,726 shares. RISK FACTORS AFFECTING FUTURE OPERATING RESULTS Investors or potential investors in the stock of Plantronics should carefully consider the risks described below. The performance of Plantronics 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 GENERAL ECONOMIC SLOWDOWN COULD RESULT IN REDUCTION IN OVERALL DEMAND FOR OUR PRODUCTS WHICH WOULD MATERIALLY AFFECT OUR RESULTS While our markets are generally not cyclical, our sales are affected by overall economic activity. If there is a slowing in national or international economic growth or a recession, there could be a reduction in the overall level of demand for our products. This could cause us not to achieve the levels of sales required to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. Also, if the overall economy slows or there is a recession, this could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts due to us. 10 11 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. A deterioration in general economic conditions could result in a reduction in the establishment of new call centers and in capital investments in expanding or upgrading existing centers. 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: - 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; - insolvency of purchasers of our products or failure of purchasers of our products to pay amounts due to us; - new product introductions by us or our competitors; - entrance of new competitors; 11 12 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - 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. 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: - 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, 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. 12 13 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - 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: - 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, 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. - 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 resulting from purchases of finished products from our suppliers in excess of demand. Those inventory levels remained high in the third quarter of fiscal 2001. 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. - 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. 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 13 14 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 generally offer our customers certain credit terms, allowing them to pay for products purchased from us between thirty and sixty days or more after we ship the products. Our receipt of payment for our products depends on the financial liquidity of those customers. If significant customers or a significant number of customers experience liquidity problems, with could affect our ability to collect our accounts receivables, which 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. In 2000, GN Netcom acquired Jabra Corporation, a supplier of headsets in the mobile phone market, resulting in an entity with 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 October 25, 2000, we announced that we terminated our contract for the supply of products to Hello Direct due to the impending acquisition of Hello Direct, Inc. by GN Netcom. 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. 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. On February 7, 2001, Logitech International S.A., a manufacturer and seller of computer accessory products, announced that it had agreed to purchase Labtec Inc., a Vancouver, Washington-based provider of, among other products, headsets for use with computers. If this acquisition is completed, Labtec will have greater resources with which to compete with us than it did prior to its 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. 14 15 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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. 15 16 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING ABROAD. In the first nine months of fiscal 2001, approximately 30.9% of our net sales were derived from customers outside the United States. 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 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 differences in the conduct of business; - greater difficulty in accounts receivable collection; - unexpected changes in regulatory requirements; - 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. In calendar 2000, the value of major European currencies 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 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 HAVE EXPERIENCED IN CALENDAR 2000 A NON-SUSTAINABLE INCREASE IN SALES AS A RESULT OF PENT-UP DEMAND FROM Y2K CONCERNS. Our results for the first half of calendar year 2000 may not be indicative of longer-term market conditions. Our results of operations for that period, including the first and second quarters of fiscal 2001, may reflect a non-sustainable increase in sales as a result of 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. 16 17 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS OPERATIONS AND CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OPERATIONS AT OUR HEADQUARTERS FACILITY. California is in the midst of an energy crisis that could disrupt the conduct of sales, marketing, research and development, finance and other operations at our headquarters facilities. In the event of an acute power shortage, California has, on some occasions, implemented, and may in the future continue to implement, rolling blackouts throughout California. We have emergency back-up generators which keep our business systems in operation but we do not have sufficient back-up generating capacity or alternate sources of power to keep our headquarters in full operation in the event of a blackout. If blackouts interrupt our power supply, we would be temporarily unable to continue full operations at our headquarters. Any such interruption could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. 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 17 18 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 vehicle accident. We maintain product liability insurance and general liability insurance that 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. 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. 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 our published forecasts of future 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 18 19 PLANTRONICS, INC. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 8,604,179 shares of our common stock (excluding any shares that may be owned by employees of CVC or its affiliates), which represents approximately 17.5% of our outstanding common stock as of December 31, 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 December 31, 2000, we had 49,169,304 shares of common stock outstanding and in the public market. All of these shares are freely tradable except for approximately 9,800,000 shares held by affiliates of Plantronics (including CVC and the directors and officers of Plantronics). These approximately 9,800,000 shares may be sold in reliance on Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration statement filed with the Securities and Exchange Commission. Some of our current stockholders, including CVC 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 December 31, 2000. As of December 31, 2000, Ms. Louise Cecil, the widow of our former CEO and Chairman, Robert S. Cecil, held options on approximately 450,000 shares of our common stock, 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 periods prior to December 31, 2000 was 196,621 shares per day with a median volume in that period of 117,850 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. 19 20 PART I, 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 December 31, 2000. Plantronics believes it has minimal exposure to financial market risks and risks associated with changes in foreign currency exchange rates at this time.* PART II - OTHER INFORMATION ITEM 6. EXHIBITS & REPORTS ON FORM 8-K (a) Exhibits. No exhibits are filed as part of this Quarterly Report on Form 10-Q. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant during the fiscal quarter ended December 31, 2000. Items 1, 2, 3, 4 and 5 are not applicable and have been omitted. 20 21 SIGNATURE 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 13, 2000 By: /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) 21 -----END PRIVACY-ENHANCED MESSAGE-----