-----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, WXhcKEBiX0Z/4cknspx3SaBR+dX48orDVLG6ylQIusLcMTEAw7VHmbUcJZPq6T5X FxUD/Tyko+lf/Rh8zFXxOw== 0000891618-00-000601.txt : 20000209 0000891618-00-000601.hdr.sgml : 20000209 ACCESSION NUMBER: 0000891618-00-000601 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000208 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: 527284 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 December 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 December 25, 1999 ---------------------------- -------------------------------- Common Stock, $.01 par value 16,178,334 1 2 PLANTRONICS, INC. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1999 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 42,999 $ 35,575 Marketable securities -- 8,899 Accounts receivable, net 46,807 44,066 Inventory 18,889 30,720 Deferred income taxes 3,159 6,847 Other current assets 7,880 1,285 --------- --------- Total current assets 119,734 127,392 Property, plant and equipment, net 20,323 22,496 Other assets 2,811 2,527 --------- --------- Total assets $ 142,868 $ 152,415 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,453 $ 9,034 Accrued liabilities 33,475 31,917 Income taxes payable 510 8,034 --------- --------- Total current liabilities 43,438 48,985 Deferred tax liability 10,025 11,119 --------- --------- Total liabilities 53,463 60,104 --------- --------- Stockholders' equity: Common stock, $0.01 par value per share; 100,000 shares authorized, 16,798 shares and 16,178 shares issued and outstanding 185 188 Additional paid-in capital 91,423 102,200 Accumulated other comprehensive income (891) (891) Retained Earnings 69,559 115,288 --------- --------- 160,276 216,785 Less: Treasury stock (common: 1,669 shares in fiscal year 1999 and 2,649 shares as of December 25, 1999) at cost (70,871) (124,474) --------- --------- Total stockholders' equity 89,405 92,311 --------- --------- Total liabilities and stockholders' equity $ 142,868 $ 152,415 ========= =========
2 3 PLANTRONICS, INC. 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, 1998 1999 1998 1999 ------------ ------------ ------------ ------------ Net sales $ 72,038 $ 76,059 $ 213,248 $ 222,812 Cost of sales 31,002 30,946 95,091 91,270 --------- --------- --------- --------- Gross profit 41,036 45,113 118,157 131,542 --------- --------- --------- --------- Operating expense: Research, development and engineering 5,177 5,080 14,182 15,668 Selling, general and administrative 14,563 17,949 42,425 49,863 --------- --------- --------- --------- Total operating expenses 19,740 23,029 56,607 65,531 --------- --------- --------- --------- Operating income 21,296 22,084 61,550 66,011 Interest expense, including amortization of debt issuance costs 1,888 8 5,476 26 Interest income and other income, net (1,801) (583) (3,494) (1,262) --------- --------- --------- --------- Income before income taxes 21,209 22,659 59,568 67,247 Income tax expense 6,786 7,250 19,061 21,518 --------- --------- --------- --------- Net income $ 14,423 $ 15,409 $ 40,507 $ 45,729 ========= ========= ========= ========= Basic earnings per common share $ 0.87 $ 0.94 $ 2.45 $ 2.76 ========= ========= ========= ========= Shares used in basic per share calculations 16,562 16,333 16,516 16,579 ========= ========= ========= ========= Diluted earnings per common share $ 0.79 $ 0.89 $ 2.22 $ 2.58 ========= ========= ========= ========= Shares used in diluted per share calculations 18,246 17,352 18,268 17,746 ========= ========= ========= =========
3 4 PLANTRONICS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED ---------------------------- DECEMBER 31, DECEMBER 31, 1998 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 40,507 $ 45,729 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 4,133 2,921 Deferred income taxes 1,300 (2,594) Provision for doubtful accounts 481 (47) Income tax benefit associated with stock options 10,586 6,830 Changes in assets and liabilities: Accounts receivable (3,248) 2,788 Inventory 10,407 (11,831) Other current assets 384 6,595 Other assets 898 284 Accounts payable (907) (419) Accrued liabilities 7,133 (1,558) Income taxes payable (378) 7,524 --------- --------- Cash provided by operating activities 71,296 56,222 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (8,899) Capital expenditures (2,455) (5,094) --------- --------- Cash (used for) provided by investing activities (2,455) (13,993) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (18,716) (54,040) Proceeds from sale of treasury stock 915 1,257 Proceeds from exercise of stock options 3,290 3,130 --------- --------- Cash (used for) provided by financing activities (14,511) (49,653) --------- --------- Net increase in cash and cash equivalents 54,330 (7,424) Cash and cash equivalents at beginning of period 64,901 42,999 --------- --------- Cash and cash equivalents at end of period $ 119,231 $ 35,575 ========= ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 3,262 $ 21 Income taxes $ 7,823 $ 11,695
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 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, 1998 and December 31, 1999 consisted of thirteen weeks each. NOTE 3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 31, December 31, 1999 1999 --------- ------------ Inventories: Finished goods $ 9,425 $ 16,129 Work in process 1,461 1,630 Purchased parts 8,003 12,961 -------- -------- $ 18,889 $ 30,720 ======== ======== Property, plant and equipment: Land $ 4,693 $ 4,693 Buildings and improvements (useful lives: 10-30 years) 9,923 11,034 Machinery and equipment (useful lives: 2-10 years) 32,853 36,836 -------- -------- 47,469 52,563 Less accumulated depreciation (27,146) (30,067) -------- -------- $ 20,323 $ 22,496 ======== ========
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 December 31, 1999 were immaterial. There were approximately $0.2 million aggregate exchange gains in the comparable period ended December 31, 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 31, 1999. There were no start-up costs charged to expense in the quarter ended December 31, 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 which 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 Nine Months Ended ---------------------------- ---------------------------- December 31, December 31, December 31, December 31, 1998 1999 1998 1999 ------------ ------------ ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 43.0 40.7 44.6 41.0 ------ ------ ------ ------ Gross profit 57.0 59.3 55.4 59.0 ------ ------ ------ ------ Research, development and engineering 7.2 6.7 6.6 7.0 Selling, general and administrative 20.2 23.6 19.9 22.4 ------ ------ ------ ------ Total operating expenses 27.4 30.3 26.5 29.4 ------ ------ ------ ------ Operating income 29.6 29.0 28.9 29.6 Other (income) expense 0.2 (0.8) 1.0 (0.6) ------ ------ ------ ------ Income before income taxes 29.4 29.8 27.9 30.2 Income tax expense 9.4 9.5 8.9 9.7 ------ ------ ------ ------ Net income 20.0% 20.3% 19.0% 20.5% ====== ====== ====== ======
6 7 Net Sales. Net sales for the quarter ended December 31, 1999 increased by 5.6% to $76.1 million, compared to $72.0 million for the quarter ended December 31, 1998. Net sales for the nine months ended December 31, 1999 were $222.8 million compared to $213.2 million for the nine months ended December 31, 1998, an increase of 4.5%. This steady rate of growth reflects strong sales in our retail channel and mobile communications division as well as good growth internationally, offset by flat sales in our U.S. distributor channel and lower sales in U.S. OEM. Gross Profit. Gross profit for the quarter ended December 31, 1999 increased 10% to $45.1 million (59.3% of net sales), compared to $41.0 million (57.0% of net sales) for the quarter ended December 31, 1998. Gross profit for the first three quarters of fiscal 2000 was $131.5 million, an increase of 11% over the comparable period of fiscal 1999. The increase in gross profit reflects our cost reduction efforts, particularly on component costs, and relatively flat manufacturing overhead costs on higher volumes leading to lower product costs. The increase in gross margin was somewhat offset by strong sales of products into our emerging markets which have lower margins but are growing at a faster rate than the traditional call center business. Research, Development and Engineering. Research, development and engineering expenses for the quarter ended December 31, 1999 decreased 2% to $5.1 million (6.7% of net sales), compared to $5.2 million (7.2% of net sales) for the quarter ended December 31, 1998. Expenses for the first three quarters of fiscal 2000 were $15.7 million compared to $14.2 million for the first three quarters of fiscal 1999. The year over year growth in these expenses is funding our new office, mobile and computer product development activities. Selling, General and Administrative. Selling, general and administrative expenses for the quarter ended December 31, 1999 increased 23% to $18.0 million (23.6% of net sales), compared to $14.6 million (20.2% of net sales) for the quarter ended December 31, 1998. For the nine months ended December 31, 1999, expenses were $49.9 million, an increase of $7.4 million over the nine months ended December 31, 1998. The majority of the increase in sales expense was due to sales programs to support our international operations as well as funded initiatives in our computer division. Retail variable selling expenses have increased related to the incremental retail revenue. Marketing expenses increased substantially due to increased activities including test advertising campaigns, new product launches, international marketing and programs for our mobile and computer divisions. Operating Income. Operating income for the quarter ended December 31, 1999 increased 4% to $22.1 million (29.0% of net sales), compared to $21.3 million (29.6% of net sales) for the quarter ended December 31, 1998. For the first three quarters of fiscal 2000, operating income was $66.0 million compared to $61.6 million for the first three quarters of fiscal 1999. The increase was primarily gained through increased revenue and gross margin improvement. Interest Expense. Interest expense for both the quarter and for the nine months ended December 31, 1999 was minimal as the Company paid down $65 million principal for its outstanding long-term debt in January 1999. Interest expense for the nine month period ended December 31, 1998 was $5.5 million and principally represented interest payable on the 10% Senior Notes. In November 1999 the Company entered into a Revolving Line of Credit Agreement to borrow up to $100 million with a major bank. The Company currently has no borrowings under this agreement. Interest and Other Income. Interest and other income for the quarter ended December 31, 1999 decreased to $0.6 million compared to $1.8 million for the quarter ended December 31, 1998. Interest income and other income for the first three quarters of fiscal 2000 was $1.3 million compared to $3.5 million for the first three quarters of fiscal 1999. The decrease in interest income was primarily attributable to lower cash and cash equivalents balances as a result of the January 15, 1999 redemption of $65 million in Senior Notes. FINANCIAL CONDITION: Liquidity. As of December 31, 1999, we had working capital of $78.4 million, including $44.5 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 nine months ended December 31, 1999, we generated $56.2 million of cash from operating activities, due primarily to $45.7 million in net income, a tax benefit on stock options exercised of approximately $6.8 million and an increase in income taxes payable of $7.5 million. Increases in inventory were offset by changes in other current assets and liabilities. In comparison, we 7 8 generated $71.3 million in cash from operating activities for the nine months ended December 31, 1998, due mainly to $40.5 million in net income, a tax benefit on stock options exercised of $10.6 million, a decrease of $10.4 million in inventory and an increase in accrued liabilities of $7.1 million. We have a $100.0 million revolving credit facility, including a $10.0 million letter-of-credit subfacility, with a major bank, both of which mature in November 2000. As of December 31, 1999, we had no borrowings under the revolving credit facility and $1.2 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 $5.1 million in the nine months ended December 31, 1999 were incurred principally in tooling, leasehold improvements and investments in computer and software upgrades. Financing Activities. In the nine months ended December 31, 1999, we reissued through employee benefit plans 24,159 shares of our treasury stock for approximately $1.3 million and repurchased 1,004,400 shares of our common stock for approximately $54.0 million. As of December 31, 1999, 448,007 shares remained under the repurchase plan authorized on November 4, 1999. As of January 24, 2000 there remained 328,907 shares to be repurchased under the existing program. We received approximately $3.1 million in proceeds from the exercise of stock options during the nine months ended December 31, 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 have undertaken efforts to ensure that our business systems and those of our suppliers and customers are compliant with the requirements of the year 2000. We established a worldwide year 2000 task force, led by an Executive Steering Committee of our senior management, including representatives of each of our business and corporate functions, to oversee and regularly review the status of our year 2000 compliance plan. Through our year 2000 task force, we implemented a formal year 2000 compliance program. The compliance program addressed 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 performed a global risk assessment, conducted testing, implemented upgrades, communicated with and assisted suppliers and customers in raising awareness of the year 2000 issues and developed 8 9 contingency plans to mitigate known and unknown year 2000 risks. The status of our compliance efforts in those three areas is set forth below: Internal Infrastructure. We 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. As of the date of this report, we have experienced no adverse internal infrastructure problems as a result of the Year 2000. Supplier Readiness. This program focused 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 were sent to our principal and critical suppliers. We completed compliance audits of the most critical of those and, as of the date of this report, have experienced no adverse effects related to supplier readiness as a result of the Year 2000. Customer Readiness. This program focused on ensuring that customers were aware of the year 2000 issues and that customers were 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 were sent to our major customers. We did not experience any impact upon our revenues due to customer readiness for the Year 2000 in the quarter ended December 31, 1999 and do not expect any material impact on revenues for the Year 2000. Costs to Address Year 2000 Issues. We estimate that the aggregate cost of our year 2000 compliance efforts will be less than $1.25 million. 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, (iii) purchase of software and software upgrades to meet the year 2000 issue and (iv) purchase of other equipment. The funds expended were funded through operating cash flows. Approximately $0.5 million of the total cost, related to the purchase of fixed assets, was 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 identified the risks to our business from various potential Y2K related failures and established readiness and contingency remediation efforts that were successfully put into place to mitigate the risks from such potential failures. To date, our advance planning and the relatively modest impact worldwide of the Year 2000 issues has made the recovery elements of our contingency plan moot. The plan remains in effect in the event that any Year 2000 related failures occur and we believe that our contingency plan adequately addresses the risks to our business from potential Y2K failures. Risks of the Year 2000 Issues. We currently believe that our internal year 2000 compliance efforts were successful. As of the date of this report, we experienced no material impact to us by reason of the failure or malfunction of any systems owned or operated by us or third parties with which we do business. However, there may be adverse implications that have not yet surfaced related to year 2000 that could materially affect our business. RISK FACTORS AFFECTING FUTURE OPERATING RESULTS Investors or potential investors in the stock of Plantronics should carefully consider the risks described below. The business, financial condition and results of operations of Plantronics could be materially adversely affected if any of the risks occur. If the risks occur, the trading price of Plantronics stock could decline and an investor could lose all or part of his or her investment. DEPENDENCE ON CALL CENTER MARKET We have historically derived, and continue to derive, a substantial majority 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 9 10 applications. In addition, consumer resistance to telemarketing could adversely affect growth in the call center market. Due to our reliance on the call center market, we will be affected more by changes in the rate of call center establishment and expansion and the communications products that call center agents use than would a company serving a broader market. We believe that there may be some slowness in the establishment of new call centers in the first calendar quarter of 2000 due to prior concerns by call center operators over Year 2000 issues. We also believe that some call centers and organizations which supply them have inventoried additional headsets due to Year 2000 concerns and intend to reduce those inventories during 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 MARKETS TO DEVELOP While the call center market 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 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 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; - changes in the levels of inventories held by our resellers; - timing and size of orders from customers; - distribution channel volume variations; - cancellations or delays of deliveries of components and subassemblies by our suppliers; - variances in the timing and amount of engineering and operating expenses; - delays in shipments of our products; - product returns and customer credits; - new product introductions by us or our competitors; - entrance of new competitors; - increases in the costs of our components and subassemblies; - price erosion; - changes in the mix of products sold by us; - seasonal fluctuations in demand; and - general economic conditions. 10 11 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. And more recently, certain product lines have experienced rapid increases and fluctuations in demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. Significant unanticipated fluctuations in demand could cause the following operating problems, among others: - - If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and, therefore, might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues. - - Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins. - - If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of obsolete products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins. Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations. WE DEPEND ON OUR SUPPLIERS We buy components and subassemblies from a variety of suppliers and assemble them into finished products. The cost, quality, and availability of such components are essential to the successful production and sale of our products. Obtaining components and subassemblies entails various risks, including the following: 11 12 - - Prices of components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations. - - We obtain certain subassemblies and components from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these components and subassemblies, none of which has significantly affected our results of operations. However, an interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations. - - Most of our suppliers are not obligated to continue to provide us with components and subassemblies. Rather, we buy most components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those components and subassemblies. This would materially adversely affect our business, financial condition and results of operations. THE HEADSET MARKET IS HIGHLY COMPETITIVE The market for our products is highly competitive. We compete with a variety of companies in various segments of the communications headset market. 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 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 believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. If we do not successfully develop and market products that compete successfully with those of our competitors it would materially adversely affect our business, financial condition and results of operations. NEW PRODUCT DEVELOPMENT IS RISKY; WE MUST RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGIES Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on several factors, including the proper selection of new product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. Although we attempt to determine the specific needs of headset users in our target 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 12 13 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. 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. 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 28% of our outstanding common stock as of December 24, 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 December 24, 1999, we had 18,827,537 shares of common stock outstanding, including 2,649,203 shares we have repurchased and hold in our treasury account. With the exception of 5,100,000 shares held by affiliates of Plantronics, these shares are freely tradable. These approximately 5,100,000 shares may only be sold in reliance on 13 14 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 directors also have certain contractual rights to require Plantronics to register their shares for public sale. An additional approximately 2,800,000 shares are subject to outstanding stock options as of December 24, 1999. As of January 21, 2000, Mrs. Louise Cecil holds vested options on 227,896 shares of our common stock (assigned to her by her late 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: - cultural difference in the conduct of business; - the abilities of local distributors and other resellers; - 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. 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 sales 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. 14 15 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. It was widely anticipated that, if not corrected, many computer and other electronic applications and systems could fail or create erroneous results when addressing dates 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. 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 discussion of our Year 2000 compliance efforts. As of the date of this report, we have experienced no adverse effects on our business due to the failure or malfunction of any systems owned or operated by us or third parties with which we do business. Our year 2000 efforts may not ensure against disruptions caused in the future by the year 2000. Any significant, even if sporadic, disruption due to the change to the year 2000 may cause business interruptions or shutdowns, financial loss, regulatory actions, and exposure to liability. RISKS OF INADEQUATE PROTECTION OF INTELLECTUAL PROPERTY AND INFRINGEMENT OF RIGHTS OF OTHERS Our success will depend in part on our ability to protect our proprietary technology. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. We currently hold thirty-four (34) United States patents and additional foreign patents and intend to continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations. From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such claims, if they are asserted, could result in costly litigation and diversion of management's attention. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations. PRODUCT LIABILITY EXPOSURE The use of our products exposes us to the risk of product liability claims. Product liability claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect. Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations. OUR STOCK PRICE MAY BE VOLATILE The market price for our common stock may be affected by a number of factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors' results of operations, changes in earnings estimates or recommendation by securities analysts, developments in our industry, sales of substantial numbers of shares of our common stock in the public market, general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. In addition, stock prices for many companies in the technology sector have experienced wide fluctuations that have 15 16 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 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. WE HAVE ACQUIRED A COMPANY AND EXPECT TO MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE MATERIAL RISKS On December 30, 1999, we purchased ClearVox Communications, Inc., a California corporation. We may in the future, in order to address the need to develop new products and enter new markets, acquire other companies. There are inherent risks in the acquisition of another company that could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with acquisitions include: - cultural difference in the conduct of business; - difficulties in integration of the operations, technologies, and products of the acquired company; - the risk of diverting management's attention from normal daily operations of the business; - potential difficulties in completing projects associated with purchased in-process research and development; - risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; - the abilities of representatives, distributors, OEM customers and other resellers which are retained or customers of the acquired company; - differences in the business information systems of the companies; - difficulties in integrating the transactions and business information systems of the company; and - the potential loss of key employees of the acquired company. Mergers and acquisitions, particularly those of high-technology companies, are inherently risky, and no assurance can be given that the ClearVox or future acquisitions will be successful and will not materially adversely affect our 16 17 business, operating results or financial condition. We must also manage any such growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results. 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, 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 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. During the quarter we repurchased 408,000 shares of our common stock. As of January 24, 2000 there remained 328,907 shares to be repurchased under the existing program, which represents approximately 2% of the 16,178,334 shares of common stock outstanding as December 24, 1999. On December 30, 1999, Plantronics closed the acquisition of ClearVox Communications, Inc., a privately held California corporation. The purchase price was not material to Plantronics. We expect the transaction to have a minimal effect on our reported earning per share (EPS) during the fourth fiscal quarter of the current fiscal year, and expect the acquisition to be nominally accretive to EPS beginning in the first fiscal quarter of the Company's fiscal 2001 which commences on April 2, 2000. 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. No reports on Form 8-K were filed by Registrant during the fiscal quarter ended December 31, 1999. Items 1, 2, 3 and 4 are not applicable and have been omitted. 17 18 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 8, 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) 18 19 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 27 Financial Data Schedule
EX-27 2 EX-27
5 1,000 9-MOS APR-01-2000 MAR-28-1999 DEC-25-1999 35,575 8,899 46,345 2,279 30,720 127,392 52,563 30,067 152,415 48,985 0 0 0 188 92,123 152,415 222,812 222,812 91,270 91,270 65,531 0 26 67,247 21,518 45,729 0 0 0 45,729 2.76 2.58
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