This Amendment No. 1 on Form 10-Q/A (the “Amendment”) of Plantronics, Inc. (the “Company”) amends the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, originally filed with the Securities and Exchange Commission on August 6, 2019 (the “Original Report”). The Original Report inadvertently excluded certain XBRL information in portions of the financial statements and accompanying notes to the condensed consolidated financial statements. This Amendment No. 1 includes the XBRL information and does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Original Report. No other changes have been made to the Original Report. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A
(Amendment No. 1)

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
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: 001-12696

Plantronics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
77-0207692
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

345 Encinal Street
Santa Cruz, California 95060
(Address of principal executive offices)
(Zip Code)

(831) 426-5858
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
PLT
New York Stock Exchange

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 No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No


1


As of July 31, 2019, 39,575,910 shares of the registrant's common stock were outstanding.


EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) of Plantronics, Inc. (the “Company”) amends the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, originally filed with the Securities and Exchange Commission on August 6, 2019 (the “Original Report”). The Original Report inadvertently excluded certain XBRL information in portions of the financial statements and accompanying notes to the condensed consolidated financial statements.

This Amendment No. 1 includes the XBRL information and does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Original Report. No other changes have been made to the Original Report.

As required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Amendment contains new certifications by the Company’s principal executive officer and principal financial officer, which are being filed as exhibits to the Amendment.


2


pltlogoprb25.jpg

Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3


Plantronics®, Poly®, Simply Smarter Communications® , and the propeller design are trademarks or registered trademarks of Plantronics, Inc. All other trademarks are the property of their respective owners.

DECT™ is a trademark of ETSI registered for the benefit of its members in France and other jurisdictions.
The Bluetooth name and the Bluetooth® trademarks are owned by Bluetooth SIG, Inc. and are used by Plantronics, Inc. under license. All other trademarks are the property of their respective owners.

4

Table of Contents

Part I -- FINANCIAL INFORMATION

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 ("Securities Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). Forward-looking statements may generally be identified by the use of such words as "anticipate," "believe," “could,” "expect," "intend," “may,” "plan," "potential," "shall," "will," “would,” or variations of such words and similar expressions, or the negative of these terms. Specific forward-looking statements contained within this Form 10-Q include, but are not limited to, statements regarding (i) our beliefs regarding the UC&C market, market dynamics and opportunities, and customer and partner behavior as well as our position in the market, (ii) our expectations for the impact of the Acquisition as it relates to our strategic vision and additional market opportunities for our combined hardware and services offerings, as well as our plans and expectation for the integration of the operations of Polycom, (iii) our beliefs regarding future enterprise growth drivers, (iv) our expectations regarding the impact of UC&C on headset adoption and how it may impact our investment and partnering activities, (v) our expectations for new and next generation product and services offerings, (vi) our intentions regarding the focus of our sales, marketing and customer services and support teams, (vii) our expenses, including research, development and engineering expenses and selling, general and administrative expenses, (xi) fluctuations in our cash provided by operating activities as a result of various factors, including fluctuations in revenues and operating expenses, the timing of compensation-related payments including stock based compensation, timing of product shipments, accounts receivable collections, inventory and supply chain management, and the timing and amount of taxes and other payments, (xii) our future tax rate and payments related to unrecognized tax benefits, (xiii) our anticipated range of capital expenditures for the remainder of Fiscal Year 2020 and the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements, (xiv) our ability to pay future stockholder dividends, (xv) our ability to draw funds on our credit facility as needed, (xvi) the sufficiency of our capital resources to fund operations, and other statements regarding our future operations, financial condition and prospects, and business strategies.  Such forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Factors that could cause actual results and events to differ materially from such forward-looking statements are included, but not limited to, those discussed in this Quarterly Report on Form 10-Q; in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on May 17, 2019; and other documents we have filed with the SEC.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.


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OVERVIEW

We are a leading global designer, manufacturer, and marketer of integrated communications and collaboration solutions that span headsets, open SIP desktop phones, audio and video conferencing, cloud management and analytics software solutions, and services. Our major product categories are Enterprise Headsets, which includes corded and cordless communication headsets; Consumer Headsets, which includes Bluetooth and corded products for mobile device applications, personal computer and gaming; Voice, Video, and Content Sharing Solutions, which includes open SIP desktop phones, conference room phones, and video endpoints, including cameras, speakers and microphones. All of our solutions are designed to work in a wide range of Unified Communications & Collaboration ("UC&C"), Unified Communication as a Service ("UCaaS"), and Video as a Service ("VaaS") environments. Our RealPresence collaboration solutions range from infrastructure to endpoints and allow people to connect and collaborate globally and naturally. In addition, we offer comprehensive support services including support for our solutions and hardware devices, as well as professional, hosted, and managed services. We continue to operate under a single operating segment.

We sell our Enterprise products through a high-touch sales team and a well-developed global network of distributors and channel partners including value-added resellers, integrators, direct marketing resellers, service providers, and resellers. We sell our Consumer products through both traditional and online consumer electronics retailers, consumer product retailers, office supply distributors, wireless carriers, catalog and mail order companies, and mass merchants.  We have well-established distribution channels in the Americas, Europe, Middle East, Africa, and Asia Pacific where use of our products is widespread.

Total Net Revenues (in millions)
chart-90ee71d6737454ada9ca02.jpg

Compared to the first quarter of Fiscal Year 2019 total net revenues increased 102% to $447.8 million; the increase in total net revenues is primarily related to our acquisition of Polycom, Inc. ("the Acquisition") which was completed on July 2, 2018. As a result of purchase accounting, a total of $12.2 million of deferred revenue that otherwise would have been recognized in the first quarter of Fiscal Year 2020 was excluded from first quarter revenue of $447.8 million.


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The table below summarizes net revenues for the three months ended June 30, 2019 and 2018 by product categories:
 
(in thousands, except percentages)
 
Three Months Ended
 
 
 
 
 
June 30,
 
Increase
 
2019
 
2018
 
(Decrease)
Enterprise Headsets
 
$
175,084

 
$
167,642

 
$
7,442

 
4.4
 %
Consumer Headsets
 
43,566

 
53,667

 
(10,101
)
 
(18.8
)%
Voice 1
 
103,847

 

 
103,847

 
100.0
 %
Video 1
 
60,248

 

 
60,248

 
100.0
 %
Services 2
 
65,022

 

 
65,022

 
100.0
 %
Total
 
$
447,767

 
$
221,309

 
$
226,458

 
102.3
 %
1 Voice and Video product net revenues presented net of fair value adjustments to deferred revenue of $0.6 million.
2 Services net revenues presented net of fair value adjustments to deferred revenue of $11.6 million.
 

Operating Income (Loss) (in millions)
chart-731a2512ef3755e4b68.jpg

We reported a net loss of $44.9 million and an operating loss of $28.8 million for the first quarter of Fiscal Year 2020. We reported a net income of $14.5 million and an operating income of $20.6 million for the first quarter of Fiscal Year 2019. The decrease in our results from operations is primarily due to $45.3 million of amortization of purchased intangibles and $20.4 million of post-Acquisition integration related expenses incurred during the first quarter of Fiscal Year 2020. We will continue to work on integrating Polycom into our business in order to streamline our operations and realize synergies from the combined companies.

Our strategic initiatives are primarily focused on driving long-term growth through our end-to-end portfolio of audio and video endpoints, including headsets, desktop phones, conference room phones, and video collaboration solutions. The Acquisition positions us as a global leader in communications and collaboration endpoints, target the faster-growing market categories, such as the Huddle Room for video collaboration, allows us to capture additional opportunities through data analytics and insight services across a broad range of communications endpoints, and better positions us with our channel partners, customers and strategic alliance partners to pursue comprehensive solutions to communications challenges in the marketplace, each of which we believe will drive long-term revenue growth.

During the quarter we focused on integration activities which included various systems integrations for the combined company. We also rationalized our sales channel and introduced a new consolidated distribution agreement with our partners globally.  These efforts are expected to decrease redundancies and leverage our competitive advantages for the benefit of our partners and end customers. We believe the changes have resulted in short-term disruptions in our operations which will be resolved as sales and supply partners adjust to the changes.


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Within the market for our Enterprise Headsets, we anticipate the key driver of growth over the next few years will be the continued adoption of UC&C solutions. We believe enterprises are increasing their adoption of UC&C systems to reduce costs, improve collaboration, and migrate to more capable and flexible technology. We expect the growth of UC&C solutions will increase overall headset adoption in enterprise environments, and we believe most of the growth in our Enterprise Headsets product category over the next three years will come from headsets designed for UC&C.

Revenues from our Consumer Headsets are seasonal and typically strongest in our third fiscal quarter, which includes the holiday shopping season. Other factors that directly impact performance in the product category include product life cycles (including the introduction and pace of adoption of new technology), market acceptance of new product introductions, consumer preferences and the competitive retail environment, changes in consumer confidence and other macroeconomic factors. In addition, the timing or non-recurrence of retailer product placements can cause volatility in quarter-to-quarter results.

In an effort to align our strategy and focus on our core enterprise markets, we announced on May 7, 2019 that we intend to evaluate strategic alternatives for our Consumer Headset products. We have not yet determined the timing, structure, or financial impact of any potential transaction.

We remain cautious about the macroeconomic environment, based on uncertainty around trade and fiscal policy in the U.S. and internationally and broader economic uncertainty in many parts of Europe and Asia Pacific, which makes it difficult for us to gauge the economic impacts on our future business. We continue to monitor our expenditures and prioritize expenditures that further our strategic long-term growth opportunities.


RESULTS OF OPERATIONS

The following graphs display net revenues by product category for the three months ended June 30, 2019 and 2018:

Net Revenues (in millions)                 
chart-dcb60d2f600e56e1b32.jpg
Revenue by Product Category (percent)


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chart-8d6224dd94655250b77.jpgchart-0b07abdda28c534985da02.jpg


* These product categories were created as a result of the Acquisition, See Note 3, Acquisition, of the accompanying notes to condensed consolidated financial statements.

Total net revenues increased in the three months ended June 30, 2019 compared to the prior year periods due primarily to the Acquisition as well as higher revenues within our Enterprise Headset product category partially offset by declines in our Consumer Headset product category. The growth in our Enterprise Headset category was driven by UC&C product revenues and the decline in our Consumer Headset category was driven by Gaming and Mono product revenues.

Geographic Information (in millions) Revenue by Region (percent)
chart-ead9739a492e5a6684fa02.jpgchart-01571cd3765f599fbcca02.jpgchart-bcf2f19458285ad596ea02.jpg
Compared to the same prior year period, U.S. net revenues for the three months ended June 30, 2019 increased due primarily to the Acquisition, as well as higher revenues within our Enterprise Headsets product category driven by growth in UC&C revenues partially offset by continued declines in our non-UC&C product revenues. Consumer Headsets product revenues were down, driven by declines in sales of our Gaming products.

International net revenues for the three months ended June 30, 2019 increased from the same prior year period due primarily to the Acquisition as well as growth in our Enterprise Headsets category driven by UC&C product sales. This growth was partially offset by declines in our Consumer Headset product revenues as a result of declines in sales of our Gaming and Mono products.

During the three months ended June 30, 2019, changes in foreign exchange rates negatively impacted net revenues by $3.9 million, net of the effects of hedging, compared to a $6 million favorable impact on net revenues in the prior year period.


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COST OF REVENUES AND GROSS PROFIT

Cost of revenues consists primarily of direct and contract manufacturing costs, warranty, freight, depreciation, duties, charges for excess and obsolete inventory, royalties, and overhead expenses. 
 
 
Three Months Ended
 
 
 
 
June 30,
 
Increase
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
Total net revenues
 
$
447,767

 
$
221,309

 
$
226,458

 
102.3
%
Cost of revenues
 
235,121

 
111,466

 
123,655

 
110.9
%
Gross profit
 
$
212,646

 
$
109,843

 
$
102,803

 
93.6
%
Gross profit %
 
47.5
%
 
49.6
%
 


 
 

Compared to the same prior year period, gross profit as a percentage of net revenues decreased in the three months ended June 30, 2019, due primarily to $30.0 million of amortization of purchased intangibles and $12.2 million of deferred revenue fair value adjustment, respectively. See Note 3Acquisition, accompanying notes to condensed consolidated financial statements. These increased costs were partially offset by material cost reductions.

There are significant variances in gross profit percentages between our higher and lower margin products including Polycom products acquired through the Acquisition; therefore, small variations in product mix, which can be difficult to predict, can have a significant impact on gross profit as a percentage of net revenues. Gross profit percentages may also vary based on distribution channels, return rates, and other factors.

OPERATING EXPENSES

Operating expenses consists primarily of research, development and engineering; selling, general and administrative; gain, net of litigation settlements and restructuring and other related charges (credits) expenses which are summarized in the table below for the three months ended June 30, 2019 and 2018:
 
 
Three Months Ended
 
 
 
 
 
June 30,
 
Increase
 
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
 
Research, development, and engineering
 
$
59,524

 
$
23,701

 
$
35,823

 
151
%
 
Selling, general and administrative
 
163,608

 
64,203

 
99,405

 
155
%
 
Gain, net of litigation settlements
 
(1,162
)
 
(30
)
 
(1,132
)
 
3,773
%
 
Restructuring and other related charges
 
19,525

 
1,320

 
18,205

 
1,379
%
 
Total Operating Expenses
 
$
241,495

 
$
89,194

 
$
152,301

 
171
%
 
% of net revenues
 
53.9
%
 
40.3
%
 

 
 
 

Our Research, development, and engineering expenses and selling, general and administrative expenses increased during the three months ended June 30, 2019, primarily due to the inclusion of Polycom operating expenses after the Acquisition, as well as $19.5 million of Acquisition-related integration costs and $15.3 million of amortization of purchased intangibles incurred during the period.

Compared to the prior year period, restructuring and other related charges increased in the three months ended June 30, 2019, due primarily to restructuring actions initiated during the period to streamline the global workforce and achieve planned synergies. For more information regarding restructuring activities. See Note 10, Restructuring and Other Related Charges, of the accompanying notes to condensed consolidated financial statements.


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INTEREST EXPENSE
 
 
Three Months Ended
 
 
 
 
 
June 30,
 
Increase
 
(in thousands, except percentages)
 
2019

2018
 
(Decrease)
 
Interest expense
 
$
(23,932
)
 
$
(7,327
)
 
$
16,605

 
226.6
%
 
% of net revenues
 
(5.3
)%
 
(1.6
)%
 
 
 
 
 

Interest expense increased for the three months ended June 30, 2019 primarily due to interest incurred on our Credit Facility Agreement entered into in connection with the Acquisition. See Note 9, Debt, of the accompanying notes to condensed consolidated financial statements.

OTHER NON-OPERATING INCOME, NET
 
 
Three Months Ended
 
 
 
 
 
June 30,
 
Increase
 
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
 
Other non-operating income, net
 
$
333

 
$
1,996

 
$
(1,663
)
 
(83.3
)%
 
% of net revenues
 
0.1
%
 
0.9
%
 
 
 
 
 

Other non-operating income, net for the three months ended June 30, 2019 decreased primarily due to lower interest income as our investment portfolios were liquidated during the First Quarter of Fiscal Year 2019 to facilitate the Acquisition.


INCOME TAX EXPENSE (BENEFIT)
 
 
Three Months Ended
 
 
 
 
 
 
 
June 30,
 
Increase
 
(in thousands except percentages)
 
2019

2018
 
(Decrease)
 
Income (loss) before income taxes
 
$
(52,448
)
 
$
15,318

 
$
(67,766
)
 
(442.4
)%
 
Income tax expense (benefit)
 
(7,577
)
 
847

 
(8,424
)
 
(994.6
)%
 
Net income (loss)
 
$
(44,871
)
 
$
14,471

 
$
(59,342
)
 
(410.1
)%
 
Effective tax rate
 
14.4
%
 
5.5
%
 


 

 

The Company and its subsidiaries are subject to taxation in the U.S. and in various foreign and state jurisdictions. Our tax provision or benefit is determined using an estimate of our annual effective tax rate and adjusted for discrete items that are taken into account in the relevant period. The effective tax rates for the three months ended June 30, 2019 and 2018 were 14.4% and 5.5%, respectively.

The annual effective tax rates as of June 30, 2019 and 2018 varied from the statutory tax rate of 21% primarily due to our jurisdictional mix of income, state taxes, U.S. taxation of foreign earnings, and R&D credits.

During the quarter ended June 30, 2019, we recognized a discrete $11.6 million tax benefit related to an intra-entity transfer of an intangible asset that will have a deferred future benefit, for which we established a deferred tax asset.

On June 7, 2019, a Ninth Circuit panel reversed the United States Tax Court’s holding in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. At this time, the taxpayer is still eligible to protest the decision. We have considered the issue and have recorded a $8.6 million discrete tax charge resulting from the cost sharing of prior stock-based compensation, partially offset by a reduction to the 2017 Tax Cuts and Jobs Act toll charge accrued in prior periods. We will continue to monitor developments related to the case and the potential impact on its consolidated financial statements.

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FINANCIAL CONDITION
Operating Cash Flow (in millions)
Investing Cash Flow (in millions)
Financing Cash Flow (in millions)
opcfa02.jpg
investcfa02.jpg
fincfa02.jpg
  
We use cash provided by operating activities as our primary source of liquidity. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenues, the timing of compensation-related payments such as our annual bonus/variable compensation plan and Employee Stock Purchase Plan ("ESPP"), integration costs related to the Acquisition, product shipments during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax and other payments.

Operating Activities

Compared to the same year ago period, net cash provided by operating activities during the three months ended June 30, 2019 decreased primarily due to cash paid for interest payments on long-term debt, integration related expenses, and restructuring activities that did not occur in the comparative period. The decrease was partially offset by higher cash collections from customers as a result of increased revenue.

Investing Activities

Net cash used for investing activities during the three months ended June 30, 2019 was primarily used for the purchase of personal property, plant and equipment.

We estimate total capital expenditures for Fiscal Year 2020 will be approximately $40 million to $50 million. We expect capital expenditures for the remainder of Fiscal Year 2020 to consist primarily of new information technology investments, capital investment in our manufacturing capabilities, including tooling for new products, and facilities upgrades.

Financing Activities

Net cash used for financing activities during the three months ended June 30, 2019, consisted primarily of taxes paid on behalf of employees related to net share settlements of vested employee equity awards and payment of the quarterly dividend on our common stock.

Liquidity and Capital Resources

Our primary sources of liquidity as of June 30, 2019, consisted of cash, cash equivalents, and short-term investments, cash we expect to generate from operations, and a $100 million revolving credit facility. At June 30, 2019, we had working capital of $214.2 million, including $206.1 million of cash, cash equivalents, and short-term investments, compared with working capital of $252.9 million, including $215.8 million of cash, cash equivalents, and short-term investments at March 31, 2019. The decrease in working capital at June 30, 2019 compared to March 31, 2019 resulted from the net decrease in cash and cash equivalents and a net increase in accounts payable due to payment timing.


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Our cash and cash equivalents as of June 30, 2019 consisted of bank deposits with third party financial institutions. We monitor bank balances in our operating accounts and adjust the balances as appropriate. Cash balances are held throughout the world, including substantial amounts held outside of the U.S.  As of June 30, 2019, of our $206.1 million of cash, cash equivalents, and short-term investments, $60.6 million was held domestically while $145.5 million was held by foreign subsidiaries, and approximately 61% was based in USD-denominated instruments. During the quarter ended June 30, 2018, we sold most of our short-term investments to generate cash to fund the Acquisition on July 2, 2018. As of June 30, 2019, our remaining investments were composed of Mutual Funds.

During Fiscal Year 2019, in connection with the Acquisition, we entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the “Credit Agreement”). The Credit Agreement replaced our prior revolving credit facility in its entirety. The Credit Agreement provides for (i) a revolving credit facility with an initial maximum aggregate amount available of $100 million that matures in July 2023 and (ii) a $1.275 billion term loan facility that matures in July 2025. On July 2, 2018, the Company borrowed the full amount available under the term loan facility of $1.245 billion, net of approximately $30 million of discounts and issuance costs. Borrowings under the Credit Agreement bear interest due on a monthly basis at a variable rate equal to (i) LIBOR plus a specified margin, or (ii) the base rate (which is the highest of (a) the prime rate publicly announced from time to time by Wells Fargo Bank, National Association, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin. See Note 9, Debt, in the accompanying notes to the condensed consolidated financial statements.

On July 30, 2018, we entered into a 4-year amortizing interest rate swap agreement with Bank of America, NA. The swap has an initial notional amount of $831 million and matures on July 31, 2022. The purpose of this swap is to hedge against changes in cash flows (interest payments) attributable to fluctuations in the contractually specified LIBOR interest rate associated with our credit facility agreement. The swap involves the receipt of floating-rate amounts for fixed interest rate payments over the life of the agreement. We have designated this interest rate swap as a cash flow hedge. The derivative is valued based on prevailing LIBOR rate curves on the date of measurement. We also evaluate counterparty credit risk when we calculate the fair value of the swap. For additional details, see Note 14, Derivatives, of the accompanying notes to condensed consolidated financial statements.

During Fiscal Year 2016, we obtained $488.4 million from debt financing, net of issuance costs. The debt matures on May 31, 2023 and bears interest at a rate of 5.50% per annum, payable semi-annually on May 15 and November 15 of each year. See Note 9, Debt, in the accompanying notes to the condensed consolidated financial statements.

From time to time, our Board of Directors ("the Board") authorizes programs under which we may repurchase shares of our common stock in the open market or through privately negotiated transactions, including accelerated stock repurchase agreements. On November 28, 2018, the Board approved a 1 million share repurchase program expanding our capacity to repurchase shares to approximately 1.7 million shares. During the first quarter of Fiscal Year 2020, we did not repurchase any shares of our common stock. As of June 30, 2019, there remained 1,369,014 shares authorized for repurchase under the existing stock repurchase program. See Note 12, Common Stock Repurchases, in the accompanying notes to the condensed consolidated financial statements.

Our liquidity, capital resources, and results of operations in any period could be affected by repurchases of our common stock, the payment of cash dividends, the exercise of outstanding stock options, restricted stock grants under stock plans, and the issuance of common stock under our Employee Stock Purchase Plan ("ESPP"). The Acquisition has negatively affected our liquidity and leverage ratios. To reduce our debt leverage ratios, we expect to prioritize the repayment of the debt under the Credit Agreement.

Additionally, the Acquisition impacted our cash conversion cycle due to Polycom's use of third-party partner financing and early payment discounts to drive down cash collection cycles.

We also receive cash from the exercise of outstanding stock options under our stock plan and the issuance of shares under our ESPP. However, the resulting increase in the number of outstanding shares from these equity grants and issuances could affect our earnings per share. We cannot predict the timing or amount of proceeds from the sale or exercise of these securities or whether they will be exercised, forfeited, canceled, or expire.

On August 6, 2019, we announced that the Audit Committee of our Board declared a cash dividend of $0.15 per share, payable on September 10, 2019 to stockholders of record at the close of business on August 20, 2019


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We believe that our current cash and cash equivalents, cash provided by operations, and the availability of additional funds under the Credit Agreement will be sufficient to fund operations for at least the next 12 months; however, any projections of future financial needs and sources of working capital are subject to uncertainty. Readers are cautioned to review the risks, uncertainties, and assumptions set forth in this Quarterly Report on Form 10-Q, including the section entitled "Certain Forward-Looking Information" and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC on May 17, 2019, and other periodic filings with the SEC, any of which could affect our estimates for future financial needs and sources of working capital.

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides us with financing and liquidity support, market risk, or credit risk support.

A substantial portion of the raw materials, components, and subassemblies used in our products are provided by our suppliers on a consignment basis. These consigned inventories are not recorded on our consolidated balance sheet until we take title to the raw materials, components, and subassemblies, which occurs when they are consumed in the production process. Prior to consumption in the production process, our suppliers bear the risk of loss and retain title to the consigned inventory. The terms of the agreements allow us to return parts in excess of maximum order quantities to the suppliers at the supplier’s expense. Returns for other reasons are negotiated with the suppliers on a case-by-case basis and to date have been immaterial. If our suppliers were to discontinue financing consigned inventory, it would require us to make cash outlays and we could incur expenses which, if material, could negatively affect our business and financial results. As of June 30, 2019, and March 31, 2019, we had off-balance sheet consigned inventories of $48.2 million and $47.1 million, respectively.

Unconditional Purchase Obligations

We use several contract manufacturers to manufacture raw materials, components, and subassemblies for our products. We provide these contract manufacturers with demand information that typically covers periods up to 13 weeks, and they use this information to acquire components and build products. We also obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of June 30, 2019, we had outstanding off-balance sheet third-party manufacturing, component purchase, and other general and administrative commitments of $406.4 million, including the off-balance sheet consigned inventories of $48.2 million discussed above, of which we expect to consume in the normal course of business.

Except as described above, there have been no material changes in our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

CRITICAL ACCOUNTING ESTIMATES

For a complete description of what we believe to be the critical accounting estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC on May 17, 2019.

Except as described above, there have been no changes to our critical accounting estimates during the three months ended June 30, 2019.

Recent Accounting Pronouncements

For more information regarding the Recent Accounting Pronouncements that may impact us, see Note 2, Recent Accounting Pronouncements, of the accompanying notes to the condensed consolidated financial statements.


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Financial Statements (Unaudited)
PLANTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
June 30,
2019
 
March 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
191,904

 
$
202,509

Short-term investments
14,169

 
13,332

Accounts receivable, net
318,235

 
337,671

Inventory, net
217,424

 
177,146

Other current assets
47,430

 
50,488

Total current assets
789,162

 
781,146

Property, plant, and equipment, net
196,376

 
204,826

Goodwill
1,279,897

 
1,278,380

Purchased intangibles, net
780,348

 
825,675

Deferred tax assets
3,182

 
5,567

Other assets
73,066

 
20,941

Total assets
$
3,122,031

 
$
3,116,535

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
166,618

 
$
129,514

Accrued liabilities
408,306

 
398,715

Total current liabilities
574,924

 
528,229

Long term debt, net of issuance costs
1,642,163

 
1,640,801

Long-term income taxes payable
95,573

 
83,121

Other long-term liabilities
139,873

 
142,697

Total liabilities
2,452,533

 
2,394,848

Commitments and contingencies (Note 8)


 


Stockholders' equity:
 

 
 

Common stock
887

 
884

Additional paid-in capital
1,445,097

 
1,431,607

Accumulated other comprehensive loss
(6,628
)
 
(475
)
Retained earnings
92,437

 
143,344

Total stockholders' equity before treasury stock
1,531,793

 
1,575,360

Less:  Treasury stock, at cost
(862,295
)
 
(853,673
)
Total stockholders' equity
669,498

 
721,687

Total liabilities and stockholders' equity
$
3,122,031

 
$
3,116,535


The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

 
Three Months Ended June 30,
 
2019
 
2018
Net revenues
 
 
 
Net product revenues
$
382,745

 
$
221,309

Net service revenues
65,022

 

Total net revenues
447,767

 
221,309

Cost of revenues
 
 
 
Cost of product revenues
208,616

 
111,466

Cost of service revenues
26,505

 

Total cost of revenues
235,121

 
111,466

Gross profit
212,646

 
109,843

Operating expenses:
 
 
 
Research, development, and engineering
59,524

 
23,701

Selling, general, and administrative
163,608

 
64,203

Gain, net from litigation settlements
(1,162
)
 
(30
)
Restructuring and other related charges
19,525

 
1,320

Total operating expenses
241,495

 
89,194

Operating income (loss)
(28,849
)
 
20,649

Interest expense
(23,932
)
 
(7,327
)
Other non-operating income, net
333

 
1,996

Income (loss) before income taxes
(52,448
)
 
15,318

Income tax expense (benefit)
(7,577
)
 
847

Net income (loss)
$
(44,871
)
 
$
14,471

 
 
 
 
Income (loss) per common share:
 
 
 
Basic
$
(1.14
)
 
$
0.43

Diluted
$
(1.14
)
 
$
0.42

 
 
 
 
Shares used in computing loss per common share:
 
 
 
Basic
39,239

 
32,594

Diluted
39,239

 
33,534

 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.





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PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
 
Three Months Ended June 30,
 
2019
 
2018
Net income (loss)
$
(44,871
)
 
$
14,471

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
(219
)
 

Unrealized gains (losses) on cash flow hedges:
 
 
 
Unrealized cash flow hedge gains (losses) arising during the period
(6,704
)
 
3,956

Net (gains) losses reclassified into income for revenue hedges
(1,359
)
 
(249
)
Net (gains) losses reclassified into income for cost of revenue hedges
(104
)
 
(79
)
Net (gains) losses reclassified into income for interest rate swaps
652

 

Net unrealized gains (losses) on cash flow hedges
(7,515
)
 
3,628

Unrealized gains (losses) on investments:
 
 
 
Unrealized holding gains (losses) during the period

 
198

 
 
 
 
Aggregate income tax benefit (expense) of the above items
1,581

 
(110
)
Other comprehensive income (loss)
(6,153
)
 
3,716

Comprehensive income (loss)
$
(51,024
)
 
$
18,187


The accompanying notes are an integral part of these condensed consolidated financial statements.





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Table of Contents

PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended
 
June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
(44,871
)
 
$
14,471

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
57,698

 
5,248

Amortization of debt issuance costs
1,361

 
362

Stock-based compensation
12,904

 
8,150

Deferred income taxes
(33,145
)
 
4,632

Provision for excess and obsolete inventories
1,760

 
612

Restructuring and related charges (credits)
19,525

 
1,320

Cash payments for restructuring charges
(17,658
)
 
(835
)
Other operating activities
1,965

 
(274
)
Changes in assets and liabilities, net of acquisition:
 
 
 

Accounts receivable, net
21,445

 
5,302

Inventory, net
(42,309
)
 
(400
)
Current and other assets
15,498

 
2,981

Accounts payable
36,392

 
5,688

Accrued liabilities
(43,784
)
 
(7,300
)
Income taxes
21,568

 
(7,875
)
Cash provided by operating activities
8,349

 
32,082

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 

Proceeds from sales of investments
170

 
124,640

Proceeds from maturities of investments

 
131,017

Purchase of investments
(651
)
 
(394
)
Cash paid for acquisition, net of cash acquired

 
(33,550
)
Capital expenditures
(4,507
)
 
(3,868
)
Cash (used for) provided by investing activities
(4,988
)
 
217,845

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 

Employees' tax withheld and paid for restricted stock and restricted stock units
(8,621
)
 
(13,035
)
Proceeds from issuances under stock-based compensation plans
589

 
10,558

Payment of cash dividends
(5,940
)
 
(5,014
)
Cash (used for) by financing activities
(13,972
)
 
(7,491
)
Effect of exchange rate changes on cash and cash equivalents
6

 
(2,055
)
Net increase (decrease) in cash and cash equivalents
(10,605
)
 
240,381

Cash and cash equivalents at beginning of period
202,509

 
390,661

Cash and cash equivalents at end of period
$
191,904

 
$
631,042

SUPPLEMENTAL DISCLOSURES
 
 
 
Cash paid for income taxes
$
2,755

 
$
30,902

Cash paid for interest
$
29,203

 
$
54,386


The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)

 
Common Stock
 
Additional Paid-In
 
Accumulated Other Comprehensive
 
Retained
 
Treasury
 
Total Stockholders'
 
Shares
 
Amount
 
Capital
 
Income
 
Earnings
 
Stock
 
Equity
Balances at March 31, 2018
33,251

 
816

 
876,645

 
2,870

 
299,066

 
(826,427
)
 
352,970

Net income

 

 

 

 
14,471

 

 
14,471

Net unrealized gains (losses) on cash flow hedges, net of tax

 

 

 
3,839

 

 

 
3,839

Proceeds from issuances under stock-based compensation plans
361

 
3

 
10,555

 

 

 

 
10,558

Repurchase of restricted common stock
(53
)
 
 
 
 
 

 

 

 

Cash dividends

 

 
 
 

 
(5,014
)
 

 
(5,014
)
Stock-based compensation

 

 
8,150

 
 
 

 

 
8,150

Employees' tax withheld and paid for restricted stock and restricted stock units
(187
)
 

 

 

 

 
(13,035
)
 
(13,035
)
Impact of new accounting standards adoption

 

 

 
(124
)
 
2,718

 

 
2,594

Balances at June 30, 2018
33,372

 
$
819

 
$
895,350

 
$
6,585

 
$
311,241

 
$
(839,462
)
 
374,533


 
Common Stock
 
Additional Paid-In
 
Accumulated Other Comprehensive
 
Retained
 
Treasury
 
Total Stockholders'
 
Shares
 
Amount
 
Capital
 
Income
 
Earnings
 
Stock
 
Equity
Balances at March 31, 2019
39,518

 
884

 
1,431,608

 
(475
)
 
143,344

 
(853,674
)
 
721,687

Net loss

 

 

 

 
(44,871
)
 

 
(44,871
)
Foreign currency translation adjustments

 

 

 
(219
)
 

 

 
(219
)
Net unrealized gains (losses) on cash flow hedges, net of tax

 

 

 
(5,934
)
 

 

 
(5,934
)
Proceeds from issuances under stock-based compensation plans
271

 
3

 
586

 

 

 

 
589

Repurchase of restricted common stock
(20
)
 

 

 

 

 

 

Cash dividends

 

 

 

 
(5,940
)
 

 
(5,940
)
Stock-based compensation

 

 
12,904

 

 

 

 
12,904

Employees' tax withheld and paid for restricted stock and restricted stock units
(191
)
 

 

 

 

 
(8,622
)
 
(8,622
)
Impact of new accounting standards adoption

 

 

 

 
(89
)
 

 
(89
)
Other equity changes

 

 

 

 
(7
)
 

 
(7
)
Balances at June 30, 2019
39,578

 
$
887

 
$
1,445,098

 
$
(6,628
)
 
$
92,437

 
$
(862,296
)
 
669,498


The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLANTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

In the opinion of management, with the exception of the adoption of ASC 842, Leases as discussed below, the accompanying unaudited condensed consolidated financial statements ("financial statements") of Plantronics, Inc. ("the Company") have been prepared on a basis materially consistent with the Company's March 31, 2019 audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth herein. Certain information and footnote disclosures normally included in financial statements prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial information and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2019, which was filed with the SEC on May 17, 2019. The results of operations for the interim period ended June 30, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

The financial results of Polycom have been included in the Company's consolidated financial statements from the date of acquisition on July 2, 2018, see Note 3, Acquisition for details.

The financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The Company’s fiscal year ends on the Saturday closest to the last day of March. The Company’s current and prior fiscal years end on March 28, 2020 and March 30, 2019, respectively, and both consist of 52 weeks. The Company’s results of operations for the three months ended June 29, 2019 and June 30, 2018 both contain 13 weeks. For purposes of presentation, the Company has indicated its accounting year as ending on March 31 and its interim quarterly periods as ending on the applicable calendar month end.

See Note 2, Recent Accounting Pronouncements, for details regarding recognition of a lease liability and corresponding right-of-use ("ROU") asset on the balance sheet of the Company's condensed consolidated financial statements pursuant to the adoption of Topic 842, Leases accounting guidance in the first quarter of Fiscal Year 2020.

Foreign Operations and Currency Translation

During the quarter ended June 30, 2019, as a result of a change to the Company's operating structure, the Company determined the functional currency of its China subsidiary is now the U.S. Dollar (“USD"). Assets and liabilities denominated in currencies other than USD, are re-measured at the period-end rates for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities. Revenues and expenses are re-measured at average monthly rates, which approximate actual rates. Currency transaction gains and losses are recognized in other non-operating income and (expense), net.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance regarding the measurement of credit losses on financial instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. The guidance is effective for the Company's fiscal year ending March 31, 2021 with early adoption permitted beginning in the first quarter of Fiscal Year 2020. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.

Recently Adopted Pronouncement


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In February 2016, the FASB issued guidance on the recognition and measurement of leases (“ASC 842”). Under the new guidance lessees are required to recognize a lease liability and a corresponding right-of-use (“ROU”) asset on the balance sheet for virtually all leases, essentially eliminating off-balance sheet financing. On March 31, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized $57.3 million in ROU assets within Other assets and $68.5 million in lease liabilities, of which $25.7 million and $42.8 million were included within Accrued liabilities and Other long-term liabilities, respectively, on its condensed consolidated balance sheet. The initial ROU assets recognized were adjusted for accrued rent and facility-related restructuring liabilities as of the adoption date. The adoption of ASC 842 did not have a material impact on the Company's condensed consolidated statement of operations.

Under the modified retrospective approach, prior comparative financial information was not retrospectively adjusted. The Company elected the package of practical expedients which allows it to carry forward its historical lease evaluation and classification. In addition, the Company elected to exclude leases with terms of one year or less from its balance sheet and separately account for lease and non-lease components.

The Company’s lease portfolio consists primarily of real estate facilities under operating leases. The Company determines if an arrangement is or contains a lease at inception. ROU assets and lease liabilities are recognized at commencement based on the present value of the future minimum lease payments over the lease term. The Company applies its incremental borrowing rate in determining the present value of the future minimum lease payments, as most of its leases do not provide an implicit rate. Certain of the Company’s lease agreements include options to extend or renew the lease terms. Such options are excluded from the minimum lease obligation unless they are reasonably certain to be exercised. Operating lease expense is recognized on a straight-line basis over the lease term.
 
3. ACQUISITION

Polycom Acquisition

On July 2, 2018, the Company completed the acquisition of Polycom, Inc. ("Polycom") based upon the terms and conditions contained in the Purchase Agreement dated March 28, 2018 ("the Acquisition"). The Company believes the Acquisition will better position Plantronics with its channel partners, customers, and strategic alliance partners by allowing the Company to pursue additional opportunities across the UC&C category in both hardware end points and services.

At the closing of the Acquisition, Plantronics acquired Polycom for approximately $2.2 billion with the total consideration consisting of (1) 6.4 million shares of the Company's common stock (the "Stock Consideration") valued at approximately $0.5 billion and (2) approximately $1.7 billion in cash net of cash acquired (the "Cash Consideration"), resulting in Triangle Private Holdings II, LLC ("Triangle"), Polycom’s sole shareholder, owning approximately 16.0% of the Company's issued and outstanding common stock immediately following the Acquisition. The consideration paid at closing is subject to a working capital, tax and other adjustments. The Acquisition was accounted for as a business combination and the Company has included the financial results of Polycom in its condensed consolidated financial statements since the date of Acquisition.

During the quarter ended June 30, 2019, the Company finalized its allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed. Since the Acquisition, the Company has recorded measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments included deferred tax and tax liabilities of $45.2 million, a working capital adjustment of $8.0 million, and various other immaterial adjustments of $1.4 million, resulting in a decrease to goodwill of approximately $54.6 million.

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The allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the Acquisition date is as follows:
(in thousands)
 
July 2, 2018
ASSETS
 
 
Cash and cash equivalents
 
$
80,139

Trade receivables, net
 
165,798

Inventories
 
109,074

Prepaid expenses and other current assets
 
68,558

Property and equipment, net
 
79,497

Intangible assets
 
985,400

Other assets
 
27,237

Total assets acquired
 
$
1,515,703

 
 
 
LIABILITIES
 
 
Accounts payable
 
$
80,653

Accrued payroll and related liabilities
 
44,538

Accrued expenses
 
147,167

Income tax payable
 
27,044

Deferred revenue
 
115,061

Deferred income taxes
 
94,618

Other liabilities
 
54,394

Total liabilities assumed
 
$
563,475

 
 
 
Total identifiable net assets acquired
 
952,228

Goodwill
 
1,264,417

Total Purchase Price
 
$
2,216,645



The estimate of fair value and purchase price allocation were based on information available at the time of closing the Acquisition. The Acquisition has resulted in $1,264 million of goodwill, which represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed.

The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
(in thousands, except for remaining life)
 
Fair Value
 
Weighted Remaining Life of Intangibles
Existing technology
 
$
538,600

 
4.95
Customer relationships
 
245,100

 
5.46
Trade name/Trademarks
 
115,600

 
9.00
Backlog
 
28,100

 
0.25
   Total amortizable intangible assets acquired
 
$
927,400

 
5.45
In-process technology
 
58,000

 
 
   Total acquired intangible assets
 
$
985,400

 
 


Existing technology relates to products for voice, video and platform products. The Company valued the developed technology using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

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Table of Contents

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to customers of Polycom existing prior to the Acquisition. Customer relationships were valued using the discounted cash flow method as described above and the distributor method under the income approach. Under the distributor method, the economic profits generated by a distributor are deemed to be attributable to the customer relationships. The economic useful life was determined based on historical customer turnover rates.
Order backlog was valued separately from customer relationships using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by order backlog less costs to fulfill. The economic useful life was determined based on the period over which the order backlog is expected to be fulfilled.
Trade name/trademarks relate to the “Polycom” trade name and related trademarks. The fair value was determined by applying the profit allocation method under the income approach. This valuation method estimates the value of an asset by the profit saved because the company owns the asset. The economic useful life was determined based on the expected life of the trade name and trademarks and the cash flows anticipated over the forecasted periods.
The fair value of in-process technology was determined using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by in-process technology, less charges representing the contribution of other assets to those cash flows.
The Company believes the amounts of purchased intangible assets recorded above represent the fair values of and approximate the amounts a market participant would pay for, these intangible assets as of the date of the Acquisition.
For the three months ended June 30, 2019, the Company recognized $45.3 million in amortization of acquired intangibles related to the Acquisition. The remaining weighted-average useful life of intangible assets acquired is 4.67 years.

Goodwill is primarily attributable to the assembled workforce, market expansion, and anticipated synergies and economies of scale expected from the integration of the Polycom business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved. Goodwill is not expected to be deductible for tax purposes.
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Polycom had been acquired as of the beginning of fiscal year 2018. The unaudited pro forma information includes adjustments to amortization for intangible assets acquired, the purchase accounting effect on deferred revenue assumed and inventory acquired, restructuring charges related to the acquisition, and transaction and integration costs. For the quarter ended June 30, 2018, non-recurring pro forma adjustments directly attributable to the Polycom Acquisition included (i) the purchase accounting effect of deferred revenue assumed of $36.6 million, (ii) the purchase accounting effect of inventory acquired of $30.4 million, and (iii) Acquisition and Integration costs of $19.6 million.

The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the Company's consolidated results of operations of the combined business had the Acquisition actually occurred at the beginning of fiscal year 2019 or of the results of its future operations of the combined business.
 
 
Pro Forma (unaudited)
 
 
Three Months Ended June 30,
(in thousands)
 
2018
Total net revenues
 
$
463,837

Operating loss
 
(118,148
)
Net loss
 
$
(107,385
)



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Table of Contents

4. CASH, CASH EQUIVALENTS, AND INVESTMENTS

The following tables summarize the Company’s cash and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category recorded as cash and cash equivalents, short-term, or long-term investments as of June 30, 2019 and March 31, 2019 (in thousands):
June 30, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash & Cash Equivalents
 
Short-term investments
 (due in 1 year or less)
Cash
 
$
191,904

 
$

 
$

 
$
191,904

 
$
191,904

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
13,950

 
337

 
(118
)
 
14,169

 

 
14,169

 
 
 
 
 
 
 
 
 
 
 
 
 
Total cash, cash equivalents
and investments measured at fair value
 
$
205,854

 
$
337

 
$
(118
)
 
$
206,073

 
$
191,904

 
$
14,169

March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash & Cash Equivalents
 
Short-term investments (due in 1 year or less)
Cash
 
$
202,509

 
$

 
$

 
$
202,509

 
$
202,509

 
$

Level 1:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds
 
13,420

 
197

 
(285
)
 
13,332

 

 
13,332

 
 
 
 
 
 
 
 
 
 
 
 
 
Total cash, cash equivalents
and investments measured at fair value
 
$
215,929

 
$
197

 
$
(285
)
 
$
215,841

 
$
202,509

 
$
13,332



As of June 30, 2019, and March 31, 2019, all of the Company's investments are classified as trading securities and are reported at fair value, with unrealized gains and losses included in current period earnings. For more information regarding the Company's deferred compensation plan, see Note 5, Deferred Compensation.

The Company did not incur any material realized or unrealized gains or losses in the three months ended June 30, 2019, and 2018.

There were no transfers between fair value measurement levels during the three months ended June 30, 2019, and 2018.

All financial assets and liabilities are recognized or disclosed at fair value in the financial statements or the accompanying notes thereto. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1
The Company's Level 1 financial assets consist of Mutual Funds. The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.

Level 2
The Company's Level 2 financial assets and liabilities consist of derivative foreign currency contracts, interest rate swap and 5.50% Senior Notes. The fair value of Level 2 derivative foreign currency contracts and interest rate swap is determined using pricing models that use observable market inputs. For more information regarding the Company's derivative assets and liabilities, see Note 14, Derivatives. The fair value of Level 2 long-term debt and term loan facility are determined based on inputs that were observable in the market, including the trading price of the notes when available. For more information regarding the Company's 5.50% Senior Notes and term loan facility, see Note 9, Debt.

Level 3
The Company's revolving credit facility falls under the Level 3 hierarchy. The fair value of Level 3 revolving credit facility is determined based on inputs that were unobservable in the market. For more information regarding the Company's debt, refer to Note 9, Debt.

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Table of Contents


5.  DEFERRED COMPENSATION

As of June 30, 2019, the Company held investments in mutual funds totaling $14.2 million, all of which related to debt and equity securities that are held in rabbi trusts under non-qualified deferred compensation plans. The total related deferred compensation liability was $14.7 million at June 30, 2019. As of March 31, 2019, the Company held investments in mutual funds totaling $13.3 million. The total related deferred compensation liability at March 31, 2019 was $13.5 million.

The securities are classified as trading securities and are recorded on the condensed consolidated balance sheets under "short-term investments". The liability is recorded on the condensed consolidated balance sheets under "other long-term liabilities" and "accrued liabilities".

6. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts receivable, net:
 
 
June 30,
 
March 31,
(in thousands)
 
2019
 
2019
Accounts receivable
 
$
383,337

 
$
393,415

Provisions for promotions, rebates, and other
 
(61,857
)
 
(50,789
)
Provisions for doubtful accounts and sales allowances
 
(3,245
)
 
(4,956
)
Accounts receivable, net
 
$
318,235

 
$
337,671



As a result of the Acquisition, the Company assumed a financing agreement with an unrelated third-party financing company (the "Financing Agreement") whereby the Company offers distributors and resellers direct or indirect financing on their purchases of Polycom's products and services. In return, the Company agrees to pay the financing company a fee based on a pre-defined percentage of the transaction amount financed. In certain instances, these financing arrangements result in a transfer of the Company's receivables, without recourse, to the financing company. If the transaction meets the applicable criteria under Topic 860 and is accounted for as a sale of financial assets, the related accounts receivable is excluded from the balance sheet upon receipt of the third-party financing company's payment remittance. In certain legal jurisdictions, the arrangements that involve maintenance services or products bundled with maintenance at one price do not qualify as sale of financial assets in accordance with the authoritative guidance. Accordingly, accounts receivable related to these arrangements are accounted for as a secured borrowing in accordance with Topic 860, and the Company records a liability for any cash received, while maintaining the associated accounts receivable balance until the distributor or reseller remits payment to the third-party financing company.

During the quarter ended June 30, 2019, total transactions entered pursuant to the terms of the Financing Agreement were approximately $59.1 million, of which $27.3 million was related to the transfer of the financial asset. The financing of these receivables accelerated the collection of cash and reduced the Company's credit exposure. Included in "Accounts receivables, net" in the Company's condensed consolidated balance sheet as of June 30, 2019 was approximately $42.7 million due from the financing company, of which $22.3 million was related to accounts receivable transferred. Total fees incurred pursuant to the Financing Agreement were immaterial for the quarter ended June 30, 2019. These fees are recorded as a reduction to revenue on the Company's condensed consolidated statement of operations.

Inventory, net:
 
 
June 30,

March 31,
(in thousands)
 
2019

2019
Raw materials
 
$
82,575

 
$
34,054

Work in process
 
18,077

 
274

Finished goods
 
116,772

 
142,818

Inventory, net
 
$
217,424

 
$
177,146



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Accrued Liabilities:
 
 
June 30,
 
March 31,
(in thousands)
 
2019
 
2019
Short term deferred revenue
 
$
140,186

 
$
133,200

Employee compensation and benefits
 
61,795

 
68,882

Operating lease liabilities, current
 
22,101

 

Income tax payable
 
11,145

 
5,692

Provision for returns
 
28,238

 
24,632

Marketing incentives liabilities
 
23,093

 
25,369

Discounts reserve
 
36,712

 
46,894

Accrued interest
 
3,531

 
10,425

Warranty obligation
 
14,044

 
15,736

VAT/Sales tax payable
 
7,483

 
11,804

Derivative liabilities
 
7,152

 
3,275

Accrued other
 
52,826

 
52,806

Accrued liabilities
 
$
408,306

 
$
398,715



The Company's warranty obligation is included as a component of accrued liabilities on the condensed consolidated balance sheets. Changes in the warranty obligation during the three months ended June 30, 2019 and 2018 were as follows:
 
 
Three Months Ended
June 30,
(in thousands)
 
2019
 
2018
Warranty obligation at beginning of period
 
$
17,984

 
$
9,604

Warranty provision related to products shipped
 
4,837

 
2,562

Deductions for warranty claims processed
 
(5,001
)
 
(2,634
)
Adjustments related to preexisting warranties
 
(1,036
)
 
200

Warranty obligation at end of period(1)
 
$
16,784

 
$
9,732


(1) Includes both short-term and long-term portion of warranty obligation; the prior table shows only the short-term portion included in accrued liabilities on the Company's condensed consolidated balance sheet. The long-term portion is included in other long-term liabilities.

Operating Leases:
 
 
Balance Sheet
 
June 30,
 
March 31,
(in thousands)
 
Classification
 
2019
 
2019
ASSETS
 
 
 
 
 
 
Operating right-of-use assets(1)
 
Other assets
 
$
51,447

 
$

LIABILITIES
 
 
 
 
 
 
Operating lease liabilities, current(2)
 
Accrued liabilities
 
22,101

 
$

Operating lease liabilities, long-term
 
Other liabilities
 
$
41,609

 
$

(1) During the three months ended June 30, 2019, the Company made $5.9 million in payments for operating leases included within cash provided by operating activities in its condensed consolidated statements of cash flows.
(2) During the three months ended June 30, 2019, the Company recognized $5.7 million in operating lease expense, net of $1.4 million in sublease income, within its condensed consolidated statement of operations.

7.
GOODWILL AND PURCHASED INTANGIBLE ASSETS

The carrying value of goodwill and other intangibles, excluding fully amortized intangible assets as of June 30, 2019, is set forth in the following table:

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Table of Contents

As of
 
June 30, 2019
 
March 31, 2019
 
 
(in thousands)