-----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, GNFNT8LqsS3xy15GV2YkLuqiJkwDqluUkPWpb/WqolYgfYDzSvMNVxj7NxSzENjq xXIK2lFucaaPPigyQraDfg== 0000891618-99-004990.txt : 19991110 0000891618-99-004990.hdr.sgml : 19991110 ACCESSION NUMBER: 0000891618-99-004990 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990925 FILED AS OF DATE: 19991109 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: 99744588 BUSINESS ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 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 FORM 10-Q 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 25, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________________ to ______________________ Commission File Number 1-12696 PLANTRONICS, INC. (Exact name of registrant as specified in its charter) 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 September 25, 1999 ---------------------------- --------------------------------- Common Stock, $.01 par value 16,559,541
1 2 PLANTRONICS, INC. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, September 30, 1999 1999 --------- ------------- ASSETS Current assets: Cash and cash equivalents $ 42,999 $ 38,259 Marketable securities -- 8,854 --------- --------- Total cash and marketable securities 42,999 47,113 Accounts receivable, net 46,807 45,550 Inventory 18,889 25,731 Deferred income taxes 3,159 3,330 Other current assets 7,880 1,359 --------- --------- Total current assets 119,734 123,083 Property, plant and equipment, net 20,323 21,938 Other assets 2,811 2,551 --------- --------- $ 142,868 $ 147,572 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,453 $ 7,924 Accrued liabilities 33,475 32,523 Income taxes payable 510 1,671 --------- --------- Total current liabilities 43,438 42,118 Deferred tax liability 10,025 7,485 --------- --------- Total liabilities 53,463 49,603 --------- --------- Stockholders' equity: Common stock, $0.01 par value per share; 100,000 shares authorized, 16,798 shares and 16,560 shares issued and outstanding 185 188 Additional paid-in capital 91,423 101,588 Accumulated other comprehensive income (891) (891) Retained Earnings 69,559 99,880 --------- --------- 160,276 200,765 Less: Treasury stock (common: 1,669 shares in fiscal year 1999 and 2,244 shares as of September 25, 1999) at cost (70,871) (102,796) --------- --------- Total stockholders' equity 89,405 97,969 --------- --------- $ 142,868 $ 147,572 ========= =========
2 3 PLANTRONICS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)
Quarter Ended Six Months Ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, 1998 1999 1998 1999 ------------- ------------- ------------- ------------- Net sales $ 71,150 $ 72,038 $ 141,210 $ 146,753 Cost of sales 32,192 29,532 64,089 60,324 --------- --------- --------- --------- Gross profit 38,958 42,506 77,121 86,429 --------- --------- --------- --------- Operating expense: Research, development and engineering 4,535 5,089 9,005 10,588 Selling, general and administrative 13,760 15,976 27,862 31,914 --------- --------- --------- --------- Total operating expenses 18,295 21,065 36,867 42,502 --------- --------- --------- --------- Operating income 20,663 21,441 40,254 43,927 Interest expense, including amortization of debt issuance costs 1,852 3,588 8 18 Interest income and other income, net (1,208) (505) (1,693) (679) --------- --------- --------- --------- Income before income taxes 20,019 21,938 38,359 44,588 Income tax expense 6,406 7,022 12,275 14,268 --------- --------- --------- --------- Net income $ 13,613 $ 14,916 $ 26,084 $ 30,320 ========= ========= ========= ========= Basic earnings per common share $ 0.82 $ 0.90 $ 1.58 $ 1.82 ========= ========= ========= ========= Shares used in basic per share calculations 16,513 16,657 16,494 16,702 ========= ========= ========= ========= Diluted earnings per common share $ 0.74 $ 0.84 $ 1.43 $ 1.69 ========= ========= ========= ========= Shares used in diluted per share calculations 18,341 17,836 18,291 17,951 ========= ========= ========= =========
3 4 PLANTRONICS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
SIX MONTHS ENDED ---------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1999 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 26,084 $ 30,321 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 2,272 1,620 Deferred income taxes (2,711) Provision for doubtful accounts 651 124 Income tax benefit associated with stock options 4,929 6,818 Changes in assets and liabilities: Accounts receivable (4,164) 1,133 Inventory 7,810 (6,842) Other current assets 286 6,521 Other assets 770 260 Accounts payable (3,156) (1,529) Accrued liabilities 1,722 (952) Income taxes payable 2,815 1,161 -------- -------- Cash provided by operating activities 40,019 35,924 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,548) (3,235) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (10,568) (32,312) Proceeds from sale of treasury stock 769 1,119 Proceeds from exercise of stock options 1,527 2,618 -------- -------- Cash provided by (used for) financing activities (8,272) (28,575) -------- -------- Net increase in cash and cash equivalents 30,199 4,114 Cash and cash equivalents at beginning of period 64,901 42,999 ======== ======== Cash and cash equivalents at end of period $ 95,100 $ 47,113 ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 3,262 $ 14 Income taxes $ 5,764 $ 10,650
4 5 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION. The accompanying interim condensed consolidated financial statements of Plantronics, Inc. ("Plantronics," the "Company" or the "Registrant") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the year ended March 31, 1999. The interim financial information is unaudited, but reflects all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim financial statements should be read in connection with the financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. NOTE 2. PERIODS PRESENTED. The Company's fiscal year-end is the Saturday closest to March 31 and the 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, 1998 and September 30, 1999 consisted of thirteen weeks each. NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 31, September 30, 1999 1999 --------- ------------- Inventories: Finished goods $ 9,425 $ 13,373 Work in process 1,461 1,767 Purchased parts 8,003 10,591 -------- -------- $ 18,889 $ 25,731 ======== ======== Property, plant and equipment: Land $ 4,693 $ 4,693 Buildings and improvements (useful lives: 10-30 years) 9,923 10,251 Machinery and equipment (useful lives: 2-10 years) 32,853 36,585 -------- -------- 47,469 51,529 Less accumulated depreciation (27,146) (29,591) -------- -------- $ 20,323 $ 21,938 ======== ========
NOTE 4. FOREIGN CURRENCY TRANSACTIONS. The Company's functional currency for all operations is the U.S. dollar. Accordingly, gains and losses resulting from the remeasurement of the financial statements of foreign subsidiaries into U.S. dollars are included in other income in the consolidated statements of operations. Gains and losses resulting from foreign currency transactions are also included in other income. Aggregate exchange losses in the fiscal quarter ended September 30, 1999 were approximately $0.2 million. There were approximately $0.2 million aggregate exchange gains in the comparable period ended September 30, 1998. NOTE 5. COMPREHENSIVE INCOME. Comprehensive income was the same as net income for all periods presented. Accumulated other comprehensive income presented in the accompanying condensed consolidated balance sheets consists of cumulative translation adjustments from local currencies to the functional currency in prior years. NOTE 6. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company has one reportable segment under the criteria of Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". 5 6 NOTE 7. START-UP ACTIVITIES. Effective March 28, 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). The statement is effective for the Company's fiscal year ending April 1, 2000. SOP 98-5 broadly defines costs of start-up and requires that such costs be charged to expense as incurred and that any previously capitalized start-up costs be charged to expense in the fiscal year in which the statement becomes effective. The Company had previously deferred $0.2 million of start-up costs which were charged to expense for the quarter ended September 30, 1999. 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; various statements in the section captioned "Year 2000", including the statement that we do not expect there will be any material impact upon our revenues due to customer readiness for the Year 2000 and our belief that there will be no material impact of Year 2000 problems due to failures of our systems or those of third parties with whom we do business; and the statement of belief under Part I, Item 3 that the Company has minimal exposure to financial market and foreign currency exchange risks. In addition, the Company may from time to time make oral forward-looking statements. These forward-looking statements are based on current expectations and entail various risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth below under "Risk Factors Affecting Future Operating Results." The following discussions titled "Results of Operations" and "Financial Condition" should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere herein, the Company's annual report on Form 10-K, as well as the section below entitled "Risk Factors Affecting Future Operating Results." Results of Operations: The following table sets forth items from the Unaudited Condensed Consolidated Statements of Operations as a percentage of net sales.
---------------------------- ---------------------------- Quarter Ended Six Months Ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, 1998 1999 1998 1999 ------------- ------------- ------------- ------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 45.2 41.0 45.4 41.1 ----- ----- ----- ----- Gross profit 54.8 59.0 54.6 58.9 ----- ----- ----- ----- Research, development and engineering 6.4 7.1 6.4 7.2 Selling, general and administrative 19.3 22.2 19.7 21.8 ----- ----- ----- ----- Total operating expenses 25.7 29.3 26.1 29.0 ----- ----- ----- ----- Operating income 29.0 29.7 28.5 29.9 Other (income) expense 0.9 (0.7) 1.3 (0.5) ----- ----- ----- ----- Income before income taxes 28.1 30.4 27.2 30.4 Income tax expense 9.0 9.7 8.7 9.7 ----- ----- ----- ----- Net income 19.1% 20.7% 18.5% 20.7% ===== ===== ===== =====
6 7 Net Sales. Net sales for the quarter ended September 30, 1999 increased by 1% to $72.0 million, compared to $71.2 million for the quarter ended September 30, 1998. Net sales for the six months ended September 30, 1999 were $146.8 million compared to $141.2 million for the six months ended September 30, 1998, an increase of 4%. While revenues were lower to our largest OEM customer and to our US distributors, strong growth was achieved in our international channels and US retail channel, and our mobile and computer audio systems divisions. Gross Profit. Gross profit for the quarter ended September 30, 1999 increased 9% to $42.5 million (59.0% of net sales), compared to $39.0 million (54.8% of net sales) for the quarter ended September 30, 1998. Gross profit for the first two quarters of fiscal 2000 was $86.4 million, an increase of 12% over the comparable period of fiscal 1999. The increases in gross profit were generated mainly by reduced production costs, design and manufacturing efficiencies and lower costs from our suppliers. Research, Development and Engineering. Research, development and engineering expenses for the quarter ended September 30, 1999 increased 12% to $5.1 million (7.1% of net sales), compared to $4.5 million (6.4% of net sales) for the quarter ended September 30, 1998. Expenses for the first half of fiscal 2000 were $10.6 million compared to $9.0 million for the first half of fiscal 1999. The increase in these expenses reflects increased investment in new product development and technologies. Selling, General and Administrative. Selling, general and administrative expenses for the quarter ended September 30, 1999 increased 16% to $16.0 million (22.2% of net sales), compared to $13.8 million (19.3% of net sales) for the quarter ended September 30, 1998. For the first half of fiscal 2000, expenses were $31.9 million, an increase of $4.1 million over the first half of fiscal 1999. The overall increase in expenses is related to the expansion of marketing programs. Operating Income. Operating income for the quarter ended September 30, 1999 increased 4% to $21.4 million (29.7% of net sales), compared to $20.7 million (29.0% of net sales) for the quarter ended September 30, 1998. For the first half of fiscal 2000, operating income was $43.9 million compared to $40.3 million for the first half of fiscal 1999. The increase was primarily gained through gross margin improvement. Interest Expense. Interest expense for fiscal 2000 is expected to be minimal as the Company paid down its long-term outstanding debt. Interest expense for the six month period ended September 30, 1998 was $3.3 million and principally represented interest payable on the 10% Senior Notes. Interest and Other Income. Interest and other income for the quarter ended September 30, 1999 decreased to $0.5 million compared to $1.2 million for the quarter ended September 30, 1998. Interest income and other income for the second quarter of fiscal 2000 was $0.7 million compared to $1.7 million for the second quarter of fiscal 1999. The decrease in interest income was primarily attributable to lower cash and cash equivalents balances after the January 15, 1999 redemption of the Senior Notes. FINANCIAL CONDITION: Liquidity. As of September 30, 1999, we had working capital of $81.0 million, including $47.1 million of cash and cash equivalents and marketable securities, compared with working capital of $76.3 million, including $43.0 million of cash and cash equivalents, at March 31, 1999. During the six months ended September 30, 1999, we generated $35.9 million of cash from operating activities, due primarily to $30.3 million in net income and a tax refund of approximately $6.8 million. Increases in inventory were offset by changes in other current assets and liabilities. In comparison, we generated $40.0 million in cash from operating activities for the six months ended September 30, 1998, due mainly to $26.1 million in net income, a decrease of $7.8 million in inventory and an increase in income taxes payable of $2.8 million. We have a $30.0 million revolving credit facility, including a $10.0 million letter-of-credit subfacility, with a major bank, both of which expire in November 1999. As of September 30, 1999, we had no borrowings under the revolving credit facility and $2.0 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 7 8 facility contain covenants that materially limit our ability to incur debt, make capital expenditures and pay dividends, among other matters. These covenants may adversely affect 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 $3.2 million in the six months ended September 30, 1999 were incurred principally in tooling, leasehold improvements and investments in computer and software upgrades. Financing Activities. In the six months ended September 30, 1999, we reissued through employee benefit plans 21,388 shares of our treasury stock for approximately $1.1 million and repurchased 596,400 shares of our common stock for approximately $32.3 million. As of September 30, 1999, approximately 356,007 shares remained under the repurchase plan authorized on August 31, 1999. On November 4, 1999 Plantronics' Board of Directors authorized the Company to increase its existing stock repurchase program by an additional 500,000 shares. As of November 4, 1999 there remained 45,607 shares to be repurchased under the existing program, resulting in a total of 545,607 shares of the Company's common stock that may be repurchased under the new authorization. We received approximately $2.6 million in proceeds from the exercise of stock options during the six months ended September 30, 1999. The maximum aggregate number of shares that may be issued under the 1993 Stock Plan is 5,459,242 shares. YEAR 2000: Year 2000 Readiness Statement. The following discussion contains both "Year 2000 Statements" and "Year 2000 Readiness Disclosures" as defined in the Year 2000 Information and Readiness Disclosure Act, United States Public Law No. 105-271 (1998). State of Readiness. Many existing electronic systems, including computer systems, use only the last two digits to refer to a year. Therefore, these systems may recognize a date using "00" as 1900 rather than the year 2000. If not corrected, many computer and other electronic applications and systems could fail or create erroneous results when addressing dates on and after January 1, 2000. Our products do not address or utilize dates in their operation, and, accordingly, our products should not fail due to the year 2000 problem. However, we use and depend on information technology systems (including business information computer systems and design and manufacturing computer systems) and other machinery and equipment that include embedded date sensitive technology. We also depend on the proper functioning of date sensitive electronic systems of third parties, such as customers and suppliers. The failure of any of these systems to appropriately interpret the year 2000 could have a material adverse effect on our business, financial condition and results of operations. We are undertaking efforts to ensure that our business systems and those of our suppliers and customers are compliant with the requirements of the year 2000. We have established a worldwide year 2000 task force, led by an Executive Steering Committee of our senior management, including representatives of each of our business segments and corporate functions, to oversee and regularly review the status of our year 2000 compliance plan. Through our year 2000 task force, we are proceeding with implementation of a formal year 2000 compliance program. The compliance program addresses three key elements: (i) internal infrastructure, addressing internal hardware and software and non-information technology systems; (ii) supplier readiness, addressing the preparedness of our suppliers of goods and services; and (iii) customer readiness, addressing the preparedness of our customer support and the preparedness of our customers to transact business with us. In each of those compliance areas, we are systematically performing a global risk assessment, conducting testing, implementing upgrades, communicating with and assisting suppliers and customers in raising awareness of the year 2000 issues and developing contingency plans to mitigate known and unknown year 2000 risks. The status of our compliance efforts in those three areas is set forth below: 8 9 Internal Infrastructure. We have assessed all internal applications and computer software and hardware. Our key business information systems and other critical applications, such as product testing and product design hardware and software, have been made year 2000 compliant. Supplier Readiness. This program focuses on minimizing the risks associated with supplier year 2000 issues in two areas: (i) the suppliers' business capability to continue providing products and services in and after the year 2000 and (ii) the year 2000 readiness of products supplied to us for our use. Requests for information and certification of compliance have been and are being sent to our principal and critical suppliers. As of November 5, 1999, we have obtained certification of compliance by our principal and critical suppliers. We have completed compliance audits of the most critical of those. Customer Readiness. This program focuses on ensuring that customers are aware of the year 2000 issues and that customers are capable of placing orders for our products, receiving products ordered and paying our invoices for products sold and delivered. Requests for information and certification of year 2000 compliance have been sent to our major customers. As of November 5, 1999, we have obtained certification of compliance from most, but not all, of our principal customers worldwide and most of the responding customers have certified compliance. We continue to follow-up with the non-responding and non-compliant customers. We do not expect any material impact upon our revenues due to customer readiness for the Year 2000. Costs to Address Year 2000 Issues. We currently estimate that the aggregate cost of our year 2000 compliance efforts will be approximately $1.2 million, of which approximately $0.8 million has been incurred to date. The costs consist principally of (i) fees paid to outside consultants and software programmers, (ii) purchase of telephone PBX systems which require upgrades to be year 2000 compliant and (iii) purchase of software and software upgrades to meet the year 2000 issue. The funds expended and to be expended are being funded through operating cash flows. Approximately $0.5 million of the total cost, related to the purchase of fixed assets, will be capitalized, with the balance expensed as incurred. Contingency Plans. In July 1999, we completed development of contingency plans to mitigate the potential disruptions that may result from the year 2000 issue. The contingency plan identifies the risks to our business from various potential Y2K related failures and establishes readiness and contingency remediation efforts that will be put into place to mitigate the risks from such potential failures. We have commenced implementation of some elements of the contingency plan, including increases in inventories of component parts to insure against disruptions in supply caused by Year 2000 events. While we believe that our contingency plan adequately addresses the risks to our business from potential Y2K failures, the plan will be continually refined as additional information becomes available. Risks of the Year 2000 Issues. We currently believe that our internal year 2000 compliance efforts will be successful and there will be no material impact to us by reason of the failure or malfunction of any systems owned or operated by us or third parties with whom we do business. However, our year 2000 program may not be effective and we may not be able to implement all elements of our contingency plan in a timely and cost-effective manner. Our year 2000 efforts may not, therefore, ensure against disruptions caused by the approach or advent of the year 2000. The year 2000 problem is potentially very widespread, and it is not possible to determine all the potential risks that we may face. Our inability to remedy our own year 2000 problems or the failure of third parties to do so may cause business interruptions or shutdowns, financial loss, regulatory actions, harm to our reputation and exposure to liability. RISK FACTORS AFFECTING FUTURE OPERATING RESULTS Investors or potential investors in the stock of Plantronics should carefully consider the risks described below. The business, financial condition and results of operations of Plantronics could be materially adversely affected if any of the risks occur. If the risks occur, the trading price of Plantronics stock could decline and an investor could lose all or part of his or her investment. 9 10 DEPENDENCE ON CALL CENTER MARKET SEGMENT We have historically derived, and continue to derive, a substantial majority of our net sales from the call center market segment. This market segment has grown significantly in recent years as new call centers have proliferated and existing call centers have expanded. While we believe this market segment is continuing to grow, in the future this growth could slow or revenues from this market segment could decline due to various factors. For example, technological advances such as automated interactive voice response systems could reduce or eliminate the need for call center agents in certain applications. In addition, consumer resistance to telemarketing could adversely affect growth in the call center market segment. Due to our reliance on the call center market segment, we will be affected more by changes in the rate of call center establishment and expansion and the communications products that call center agents use than would a company serving a broader market. We believe that there may be a slowing in the establishment of new call centers in the fourth calendar quarter of 1999 due to concerns by call center operators over Year 2000 issues. We believe that the decrease in establishment of new call centers may continue through the first calendar quarter of 2000. Any decrease in the demand for call centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations. FAILURE OF THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKET SEGMENTS TO DEVELOP While the call center market segment is still the most significant part of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential market segments. These communications headset market segments are relatively new and undeveloped. Moreover, we do not have extensive experience in selling headset products to customers in these market segments. If the demand for headsets in these market segments fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these market segments, it would have a material adverse effect on the potential demand for our products and on our business, financial condition and results of operations. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following: o changes in demand for our products; o changes in the levels of inventories held by our resellers; o timing and size of orders from customers; o distribution channel volume variations; 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 delays in shipments of our products; o product returns and customer credits; o new product introductions by us or our competitors; o entrance of new competitors; 10 11 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 could have a material adverse effect on our business, financial condition and results of operations. We generally ship most orders during the quarter in which they are received, and, consequently, we do not have a significant backlog of orders. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected. Our operating results can also vary substantially in any period depending on the mix of products sold and the distribution channels through which they are sold. In the event that sales of lower margin products or sales through lower margin distribution channels in any period represent a disproportionate share of total sales during such period, our operating results would be materially adversely affected. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our common stock might fall. WE MUST MATCH PRODUCTION TO DEMAND Historically, we have seen steady increases in customer demand for our products and have generally been able to increase production to meet that demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. Significant unanticipated fluctuations in demand could cause the following operating problems, among others: o If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and, therefore, might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues. o Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins. o If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of obsolete products 11 12 and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins. Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations. WE DEPEND ON OUR SUPPLIERS We buy components and subassemblies from a variety of suppliers and assemble them into finished products. The cost, quality, and availability of such components are essential to the successful production and sale of our products. Obtaining components and subassemblies entails various risks, including the following: o Prices of components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations. o We obtain certain subassemblies and components from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these components and subassemblies, none of which has significantly affected our results of operations. However, an interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations. o Most of our suppliers are not obligated to continue to provide us with components and subassemblies. Rather, we buy most components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those components and subassemblies. This would materially adversely affect our business, financial condition and results of operations. THE HEADSET MARKET IS HIGHLY COMPETITIVE The market for our products is highly competitive. We compete with a variety of companies in various segments of the communications headset market. We also anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile, computer and residential market segments. As these market segments mature, we will face increased competition from consumer electronics companies and other companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do. We believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. If we do not successfully develop and market products that compete successfully with those of our competitors it would materially adversely affect our business, financial condition and results of operations. NEW PRODUCT DEVELOPMENT IS RISKY; WE MUST RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGIES Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on several factors, including the proper selection of new product features, timely completion and 12 13 introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. Although we attempt to determine the specific needs of headset users in our target market segments, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or accepted, which could materially adversely affect our business, financial condition and results of operations. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenues from new products may not be sufficient to recover the associated development costs. Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. We anticipate that the technology used in hands-free communications devices, including our products, will begin to evolve more rapidly in the future. We believe that this is particularly true of the office, mobile and residential market segments, which may require us to develop new headset technologies to support cordless and wireless operation and to interface with new communications and computing devices. As a result, our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. If we are unable to develop and introduce enhanced products or new products in a timely manner in response to changing market conditions or customer requirements, it will materially and adversely affect our business, financial condition and results of operations. WE DEPEND ON OUR DISTRIBUTION CHANNELS We sell substantially all of our products through distributors, OEMs, retailers and telephony service providers. Our existing relationships with these parties are nonexclusive and can be terminated by either party without cause. The relationships with our distributors, OEMs, retailers and other resellers of our products do not require that they purchase any minimum quantities of our products or carry minimum inventory levels of our products. Therefore, changes in their ordering patterns or reduction in their inventory levels can result in lower orders to us. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend, or continue to recommend, our products. The inability to establish or maintain successful relationships with distributors, OEMs, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations. WE DEPEND ON S. KENNETH KANNAPPAN AND OTHER KEY PERSONNEL Our success depends to a significant extent upon the services of a limited number of executive officers and other key employees, including S. Kenneth Kannappan, our President and Chief Executive Officer. The unanticipated loss of the services of Mr. Kannappan or one or more of our other executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations. We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. We may not be successful in attracting and retaining such personnel, and, our failure to do so could have a material adverse effect on our business, operating results or financial condition. 13 14 CITICORP VENTURE CAPITAL RETAINS SIGNIFICANT CONTROL Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially owns 4,509,168 shares of our common stock (excluding any shares that may be owned by employees of CVC or its affiliates), which represents approximately 27% of our outstanding common stock as of October 29, 1999. We also have an agreement with CVC under which it is entitled to have up to three of its designees serve on our Board of Directors, depending on the level of CVC's continuing stock ownership. Messrs. Robert F. B. Logan, M. Saleem Muqaddam and John Mowbray O'Mara are currently serving as CVC's designees under that agreement. Accordingly, CVC has the ability to exert substantial influence on the full Board of Directors, which currently consists of seven members. In addition, our bylaws contain provisions that require a two-thirds (66 2/3 %) supermajority vote of the Board of Directors to approve certain transactions, including amendments of our Certificate of Incorporation, certain provisions of our bylaws, mergers and sales of substantial assets, acquisitions of other companies and sales of capital stock. These provisions may have the effect of giving a small number of directors the ability to block such transactions. FUTURE SALES OF OUR COMMON STOCK As of October 29, 1999, we had 18,815,268 shares of common stock outstanding, including 2,570,496 shares we have repurchased and hold in our treasury account. All of these shares are freely tradable except for approximately 5,100,000 shares held by affiliates of Plantronics. These approximately 5,100,000 shares may only be sold in reliance on Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration statement filed with the Securities and Exchange Commission. Some of our current stockholders, including CVC, Citigroup Foundation and certain of our officers, directors and key employees, also have certain contractual rights to require Plantronics to register their shares for public sale. An additional approximately 2,500,000 shares are subject to outstanding stock options as of October 29, 1999. As of October 29, 1999, Mrs. Louise Cecil holds vested options on 422,196 shares of our common stock (assigned to her by her husband Robert S. Cecil) and has in place an effective registration statement filed with the Securities Exchange Commission, meaning she may sell any or all of them at any time without reliance upon Rule 144. Sales of a substantial number of shares of common stock in the public market by CVC, Mrs. Cecil, or any of our officers, directors or other stockholders could adversely affect the prevailing market price of the common stock and impair our ability to raise capital through the sale of equity securities. RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS Approximately 30.5% of our net sales in both fiscal 1998 and fiscal 1999 were derived from customers outside the United States. In addition, we conduct substantially all of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. The inherent risks of international operations, particularly in Mexico, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include: o cultural difference in the conduct of business; o the abilities of local distributors and other resellers; o greater difficulty in accounts receivable collection; o unexpected changes in regulatory requirements; o tariffs and other trade barriers; 14 15 o economic and political conditions in each country; o management and operation of an enterprise spread over various countries; and o burden of complying with a wide variety of foreign laws. A significant portion of our business is conducted in currencies other than the U.S. dollar. As a result, fluctuations in exchange rates creates risk to us in both the sale of our products and our purchase of supplies. Fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar have caused and will continue to cause currency transaction gains and losses. Although we do not currently engage in any hedging activities to mitigate exchange rate risks, we continually evaluate programs to reduce our foreign currency exposure. However, there can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations. In addition, we cannot predict the potential consequences to our business of the adoption of the Euro as a common currency in Europe. WE DEPEND ON OUR PRINCIPAL MANUFACTURING FACILITY Substantially all of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies. FAILURE OF ELECTRONIC SYSTEMS TO RECOGNIZE THE YEAR 2000 Many existing electronic systems, including computer systems, use only the last two digits to refer to a year. Therefore, these systems may recognize a date using "00" as 1900 rather than the year 2000. If not corrected, many computer and other electronic applications and systems could fail or create erroneous results when addressing dates on and after January 1, 2000. Our products do not address or utilize dates in their operation, and, accordingly, our products should not fail due to the year 2000 problem. However, we use and depend on information technology systems (including business information computer systems and design and manufacturing computer systems) and other machinery and equipment that includes embedded date sensitive technology. We also depend on the proper functioning of date sensitive electronic systems of third parties, such as customers and suppliers. The failure of any of these systems to appropriately interpret the year 2000 could have a material adverse effect on our business, financial condition and results of operations. We are undertaking efforts to ensure that our business systems and those of our suppliers and customers are compliant with the requirements of the year 2000. You should refer to the Section above titled "Year 2000" and the Section titled "Year 2000"in the 1999 Annual Report to Stockholders for a more complete discussion of our Year 2000 compliance efforts. However, our year 2000 program may not be effective or we may not be able to implement it in a timely and cost-effective manner. Our year 2000 efforts may not, therefore, ensure against disruptions caused by the approach or advent of the year 2000. The year 2000 problem is potentially very widespread, and it is not possible to determine all the potential risks that we may face. Our inability to remedy our own year 2000 problems or the failure of third parties to do so may cause business interruptions or shutdowns, financial loss, regulatory actions, harm to our reputation and exposure to liability. RISKS OF INADEQUATE PROTECTION OF INTELLECTUAL PROPERTY AND INFRINGEMENT OF RIGHTS OF OTHERS Our success will depend in part on our ability to protect our proprietary technology. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. We currently hold thirty-four (34) United States patents and additional foreign patents and intend to continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in 15 16 response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations. From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such claims, if they are asserted, could result in costly litigation and diversion of management's attention. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations. PRODUCT LIABILITY EXPOSURE The use of our products exposes us to the risk of product liability claims. Product liability claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect. Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations. OUR STOCK PRICE MAY BE VOLATILE The market price for our common stock may be affected by a number of factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors' results of operations, changes in earnings estimates or recommendation by securities analysts, developments in our industry, sales of substantial numbers of shares of our common stock in the public market, general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. In addition, stock prices for many companies in the technology sector have experienced wide fluctuations that have often been unrelated to the operating performances of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, may materially adversely affect the market price of our common stock. ENVIRONMENTAL MATTERS We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be asserted in the future and any liability that might result could exceed the amount of the reserve. EFFECTS OF ANTITAKEOVER PROVISIONS Our Board of Directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a 16 17 third party to acquire us. In addition, we are subject to the antitakeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our common stock. 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 25, 1999. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) The 1999 Annual Meeting of Stockholders of Plantronics, Inc. (the "Company") was held at The Museum of Art History at the McPherson Center, 705 Front Street, Santa Cruz, California on July 20, 1999 (the "Annual Meeting"). (b) At the Annual Meeting, the following seven individuals were elected to the Company's Board of Directors, constituting all members of the Board of Directors:
Nominee Votes Cast For Withheld or Against ------- -------------- ------------------- S. Kenneth Kannappan 14,289,050 97,138 Robert F.B. Logan 14,288,860 97,328 M. Saleem Muqaddam 14,288,825 97,363 John Mowbray O'Mara 14,288,710 97,478 Trude C. Taylor 14,282,976 103,212 Marvin Tseu 14,241,577 144,611 David A. Wegmann 14,283,321 102,867
(c) The following additional proposals were considered at the Annual Meeting and were approved by the vote of the Stockholders, in accordance with the tabulation shown below. (1) Proposal to increase the authorized number of shares of Common Stock of the Company from 40,000,000 to 100,000,000 shares.
Votes For Votes Against Abstain --------- ------------- ------- 9,856,267 4,522,099 7,822
(2) Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent public accountants of the Company for the fiscal year ending April 1, 2000.
Votes For Votes Against Abstain --------- ------------- ------- 14,380,545 2,568 3,075
17 18 ITEM 5. OTHER INFORMATION On November 4, 1999 Plantronics' Board of Directors authorized the Company to increase its existing stock repurchase program by an additional 500,000 shares. As of November 4, 1999 there remained 45,607 shares to be repurchased under the existing program, resulting in a total of 545,607 shares of the Company's common stock that may be repurchased under the new authorization. The maximum of 545,607 shares represents approximately 3% of the 16,244,772 shares of common stock outstanding as of October 29, 1999. ITEM 6. EXHIBITS & REPORTS ON FORM 8-K (a) Exhibits. The following exhibit is filed as part of this Quarterly Report on Form 10-Q.
Exhibit Number Description ------- ----------- 27 Financial Data Schedule
(b) Reports on Form 8-K. 1) On September 14, 1999 Plantronics filed a report on Form 8-K announcing lower than previously forecasted earnings per share for the fiscal year ending April 1, 2000. 2) On September 21, 1999 Plantronics filed a report on Form 8-K announcing Board authorization of an additional 500,000 shares for its stock repurchase program. Items 1, 2 and 3 are not applicable and have been omitted. 18 19 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 9, 1999 By: /s/ Brad Guenther - ---------------- ---------------------------------- (Date) (Signature) Brad Guenther Vice President-Finance and Corporate Controller and Chief Accounting Officer NOVEMBER 9, 1999 By: /s/ Kevin Goodwin - ---------------- ---------------------------------- (Date) (Signature) Kevin Goodwin Vice President-Legal, General Counsel and Secretary EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS APR-01-2000 MAR-28-1999 SEP-25-1999 38,259 8,854 48,001 2,451 25,731 123,083 51,529 29,591 147,572 42,118 0 0 0 188 97,781 147,572 146,753 146,753 60,324 60,324 42,502 0 18 44,588 14,268 30,320 0 0 0 30,320 1.82 1.69
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