1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)10Q
(MARK ONE)
[X] Quarterly report pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act ofOR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly periodQuarterly Period ended DecemberJune 30, 2000 or2001
OR
[ ] Transition report pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act ofOR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition periodPeriod from _____________________________ to ____________________________
Commission File Number 1-12696
PLANTRONICS, INC.
(Exact name of registrantRegistrant as specified in its charter)
--------------------------------------- -----------------------------------
DelawareDELAWARE 77-0207692
--------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
--------------------------------------- -----------------------------------
345 Encinal Street
--------------------------------------- -----------------------------------
Santa Cruz, CaliforniaENCINAL STREET
SANTA CRUZ, CALIFORNIA 95060
--------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area 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 theThe number of shares outstanding of each of the issuer's classes ofregistrant's common stock as of the latest practicable date.
Class Outstanding at DecemberAugust 10,
2001 was 47,922,157.
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2
PLANTRONICS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
-------------------------------- --------------------------------
Common Stock, $.01 par value 49,169,304
12001
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Balance Sheets
as of March 31, 2001 and June 30, 2001 ........................... 3
b) Statement of Operations
for the Three Months Ended June 30, 2000 and 2001 ................. 4
c) Statement of Cash Flows
For the Three Months Ended June 20, 2000 and 2001 ................. 5
d) Notes to Financial Statements ..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............ 24
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders ................... 26
Item 5. Other Information ..................................................... 26
Item 6. Exhibits and Reports on Form 8-K ...................................... 26
SIGNATURE ............................................................................... 27
2
23
PLANTRONICS, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 2000JUNE 30,
2001 2001
--------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 40,27160,544 $ 53,63754,349
Marketable securities 5,038 7,856.................................................... 13,385 23,135
Accounts receivable, net 48,481 68,203................................................. 60,203 50,292
Inventory, net 33,752 50,372........................................................... 48,235 45,852
Deferred income taxes 6,721 6,772.................................................... 7,110 6,159
Other current assets 1,603 1,275..................................................... 1,449 1,560
--------- ---------
Total current assets 135,866 188,115................................................. 190,926 181,347
Property, plant and equipment, net 23,577 30,341............................................ 32,683 32,913
Goodwill, net ................................................................. 6,292 6,292
Intangibles, net .............................................................. 579 534
Other assets, 10,587 9,957net ............................................................. 2,792 2,764
--------- ---------
Total assets ......................................................... $ 170,030233,272 $ 228,413223,850
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 11,44710,836 $ 8,97012,924
Accrued liabilities 34,330 32,374...................................................... 30,793 28,752
Income taxes payable 11,783 18,118..................................................... 12,519 13,306
--------- ---------
Total current liabilities 57,560 59,462............................................ 54,148 54,982
Deferred tax liability 7,094 6,540........................................................ 6,077 6,648
--------- ---------
Total liabilities 64,654 66,002.................................................. 60,225 61,630
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000 shares authorized,
57,582 shares59,098 and 58,50859,104 shares issued and outstanding 576 585at March 31, 2001 and .... 591 591
June 30, 2001, respectively
Additional paid-in capital 114,355 134,230............................................... 148,188 148,780
Accumulated other comprehensive income (891) (891)income: .................................. (1,172) (1,235)
Retained Earnings 134,076 196,228........................................................ 207,626 215,733
--------- ---------
248,116 330,152355,233 363,869
Less: Treasury stock (common: 8,6869,919 and 9,339)10,935 shares outstanding at March
31, 2001 and June 30, 2001, respectively) at cost (142,740) (167,741)........................ (182,186) (201,649)
--------- ---------
Total stockholders' equity 105,376 162,411........................................... 173,047 162,220
--------- ---------
Total liabilities and stockholders' equity ........................... $ 170,030233,272 $ 228,413223,850
========= =========
2See Notes to Unaudited Condensed Consolidated Financial Statements
3
34
PLANTRONICS, INC.
PART I,
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999-----------------------
JUNE 30, JUNE 30,
2000 1999 2000
------------ ------------ ------------ ------------2001
-------- --------
Net sales ......................................... $100,352 $ 76,059 $ 106,718 $ 222,812 $ 311,01080,114
Cost of sales 30,946 47,277 91,270 136,250
--------- --------- --------- ---------..................................... 43,095 41,046
-------- --------
Gross profit 45,113 59,441 131,542 174,760
--------- --------- --------- ---------................................ 57,257 39,068
Operating expense:expenses:
Research, development and engineering 5,080 7,097 15,668 19,544....... 5,635 7,657
Selling, general and administrative 17,949 22,729 49,863 66,787
--------- --------- --------- ---------......... 22,541 20,650
-------- --------
Total operating expenses 23,029 29,826 65,531 86,331
--------- --------- --------- ---------............... 28,176 28,307
-------- --------
Operating income 22,084 29,615 66,011 88,429.................................. 29,081 10,761
Interest and other expense (income), net (575) (825) (1,236) (360)
--------- --------- --------- ---------.......... 362 (500)
-------- --------
Income before income taxes 22,659 30,440 67,247 88,789........................ 28,719 11,261
Income tax expense 7,250 9,132 21,518 26,637
--------- --------- --------- ---------................................ 8,615 3,153
-------- --------
Net income ........................................ $ 15,40920,104 $ 21,308 $ 45,729 $ 62,152
========= ========= ========= =========8,108
======== ========
Basic earnings per common share (Note 5) .......... $ 0.310.41 $ 0.43 $ 0.92 $ 1.27
========= ========= ========= =========0.17
======== ========
Shares used in basic per share calculations 48,999 49,233 49,737 49,098
========= ========= ========= =========48,951 48,266
======== ========
Diluted earnings per common share (Note 5) ........ $ 0.300.38 $ 0.40 $ 0.86 $ 1.17
========= ========= ========= =========0.16
======== ========
Shares used in diluted per share calculations 52,056 53,357 53,238 53,272
========= ========= ========= =========52,616 50,029
======== ========
3See Notes to Unaudited Condensed Consolidated Financial Statements
4
45
PLANTRONICS, INC.
PART I,
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHSQUARTER ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999------------------------
JUNE 30, JUNE 30,
2000 ------------ ------------2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................................... $ 45,72920,104 $ 62,1528,108
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,921 4,877........................ 1,226 1,897
Deferred income taxes (2,594) (605)
Provision for doubtful accounts (47) 149................................ (716) 1,522
Income tax benefit associated with stock options 6,830 10,129..... 3,068 101
Changes in assets and liabilities:
Accounts receivable, 2,788 (19,871)net ............................. (8,333) 9,911
Inventory, (11,831) (16,620)net ....................................... (6,307) 2,383
Other current assets 6,496 309................................. 76 139
Other assets 284 (266)......................................... 41 2
Accounts payable (419) (2,477)..................................... 1,256 2,088
Accrued liabilities (1,558) (1,956).................................. (4,524) (2,041)
Income taxes payable 7,524 6,335
--------................................. 5,844 787
------- --------
Cash provided by operating activities 56,123 42,156
--------........................... 11,735 24,897
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities ......... 5,000 -- 12,750
Purchase of marketable securities (8,800) (15,550)......................... (2,750) (10,000)
Capital expenditures (5,094) (10,745)...................................... (1,667) (2,056)
-------- ---------------
Cash used forprovided by (used for) investing activities (13,894) (13,545)................ 583 (12,056)
-------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (54,040) (25,549)................................ (10,001) (19,649)
Proceeds from sale of treasury stock 1,257 2,260...................... 983 588
Proceeds from exercise of stock options 3,130 8,044................... 2,576 88
Other ..................................................... -- (63)
-------- --------
Cash used for financing activities (49,653) (15,245).............................. (6,442) (19,036)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,424) 13,366....................... 5,876 (6,195)
Cash and cash equivalents at beginning of period 42,999................ 40,271 60,544
-------- --------
Cash and cash equivalents at end of period ...................... $ 35,57546,147 $ 53,637
======== ========54,349
-------- --------
Supplemental disclosures of cash flow information: Cash paid for:
Interest ............................................. $ 2115 $ 6826
Income taxes ......................................... $ 11,695769 $ 12,716761
4See Notes to Unaudited Condensed Consolidated Financial Statements
5
56
PLANTRONICS, INC.
PART I,
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION.PRESENTATION
The accompanying interim condensed consolidated financial statements of
Plantronics, Inc. ("Plantronics," the "Company" or the "Registrant") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements have been prepared in conformity with
generally accepted accounting principles, consistent in all material respects
with those applied in the Company's Annual Report on Form 10-K for the year
ended March 31, 2000.2001. The interim financial information is unaudited, but
reflects all normal recurring adjustments which are, in the opinion of
management, necessary to provide a fair statement of results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain prior period
balances have been reclassified to conform to the current period presentation.
The interim financial statements should be read in conjunctionconnection with the financial
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000
and the Company's Amended Registration Statement on Form S-3 filed on June 13,
2000.
NOTE2001.
2. PERIODS PRESENTED.PRESENTED
The Company's fiscal year-end is the Saturday closest to March 31 and the thirdfirst
fiscal quarter-end is the last Saturday in December.June. 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, 1999June
30, 2000 and December 31, 2000June 30, 2001 consisted of thirteen weeks each.
NOTE
3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):
March 31, December 31,
2000 2000
--------- ------------June 30,
2001 2001
-------- --------
Accounts receivable, net:
Accounts receivable from customers .................. $ 50,62562,876 $ 70,496
Allowance53,098
Less: allowance for doubtful accounts (2,144) (2,293)............... (2,673) (2,806)
-------- --------
$ 48,48160,203 $ 68,20350,292
======== ========
Inventory, net:
Finished goods ...................................... $ 17,88727,040 $ 28,72925,346
Work in process 1,540 1,620..................................... 1,280 738
Purchased parts 14,325 20,023..................................... 19,915 19,768
-------- --------
$ 33,75248,235 $ 50,37245,852
======== ========
Property, plant and equipment, net:
Land ................................................ $ 4,693 $ 4,693
Buildings and improvements (useful lives: 7-30 years) 11,296 14,18014,692 15,175
Machinery and equipment (useful lives: 2-10 years) 38,341 46,201.. 49,891 51,463
-------- --------
54,330 65,07469,276 71,331
Less accumulated depreciation (30,753) (34,733)....................... (36,593) (38,418)
-------- --------
$ 23,57732,683 $ 30,34132,913
======== ========
Accruals:
Employee benefits ................................... $ 9,730 $ 9,496
Accrued advertising and sales and marketing ......... 5,836 5,653
Warranty accrual .................................... 6,619 6,178
Accrued other ....................................... 8,608 7,425
-------- --------
$ 30,793 $ 28,752
======== ========
NOTE 4. FOREIGN CURRENCY TRANSACTIONS. The Company's functional currency for all
operations is the U.S. dollar. Accordingly, gains and losses resulting from the
remeasurement of the financial statements of foreign subsidiaries into U.S.
dollars are included in other expense (income) in the consolidated statement of
operations. Gains and losses resulting from foreign currency transactions are
also included in other expense (income). Aggregate exchange gains in the fiscal
quarter ended December 31, 2000 were approximately $0.1 million. Aggregate
exchange losses in the comparable period ended December 31, 1999 were
immaterial. For the nine months ended December 31, 2000, aggregate exchange
losses were $1.2 million, comparedSee Notes to losses of $0.6 million for the nine months
ended December 31, 1999.
5Unaudited Condensed Consolidated Financial Statements
6
67
PLANTRONICS, INC.
PART I,
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE4. FOREIGN CURRENCY TRANSACTIONS
The functional currency of the Company's foreign sales and marketing and
research and development operations is the local currency of the respective
operations. The functional currency of the Mexican manufacturing operations and
European sales and logistics headquarters is the U.S. dollar. Accordingly all
revenues and cost of sales related to foreign operations are recorded using the
U.S. dollar as functional currency. The assets and liabilities of the
subsidiaries whose functional currencies are other than the U.S. dollar are
translated into U.S. dollar at the current exchange rate in effect at the
balance sheet date. Income and expense items are translated using the average
exchange rate for the period. Cumulative translation adjustments are included in
accumulated other comprehensive income (loss), which is reflected as a separate
component of stockholders' equity. Foreign currency transaction gains and losses
are included in results of operations.
Beginning in the first quarter of fiscal year 2002, the Company entered into
foreign currency forward-exchange contracts, which typically mature in one
month, to hedge the exposure to foreign currency fluctuations of expected
foreign currency-denominated receivables, payables and cash balances. The
Company records on the balance sheet at each reporting period the fair value of
its forward-exchange contracts and records any fair value adjustments in results
of operations. Gains and losses associated with currency rate changes on the
contracts are recorded in results of operations, as other income (expenses),
offsetting transaction gains and losses on the related assets and liabilities.
During the first quarter of fiscal year 2002, the Company adopted SFAS No. 133
(Accounting for Derivative Instruments and Hedging Activities), as amended by
SFAS No. 138 (Accounting for Certain Derivative Instruments and Certain Hedging
Activities), which did not have a material impact on the Company's financial
position.
As of June 30, 2001, the Company had approximately $14.7 million of foreign
currency forward-exchange contracts outstanding, denominated in the Euro and
Great British Pound, as a hedge against its forecasted foreign-currency
denominated receivables, payables and cash balances. The forward-exchange
contracts generally have maturities of one month. The following table summarizes
the Company's net currency positions and approximate U.S. dollar equivalents (in
thousands) at June 30, 2001 :
dollar
Local currency equivalent position
------ ------ ---------
GBP 3,898 $5,500 sell
EUR 10,868 $9,200 sell
A net gain of $0.2 million resulting from forward-exchange contracts was
included in other income (expense) in the results of operations for the quarter
ended June 30, 2001, offsetting transaction losses of $0.5M. Aggregate net
exchange losses in the fiscal quarter ended June 30, 2001 were approximately
$0.3 million, compared to approximately $0.6 million in the period ended June
30, 2000.
5. COMPUTATION OF EARNINGS PER COMMON SHARE.SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist only of stock options.
In computing diluted earnings per common share, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
exercise of stock options.
See Notes to Unaudited Condensed Consolidated Financial Statements
7
8
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS:
QUARTER ENDED
NINE MONTHS ENDED
--------------------------- -----------------------------------------------
(in thousands, except earnings per share) DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999JUNE 30, JUNE 30,
2000 1999 2000
------------ ------------ ------------ ------------2001
------- -------
Net income $15,409 $21,308 $45,729 $62,152
======= =======$20,104 $ 8,108
======= =======
Weighted average shares - basic 48,999 49,233 49,737 49,09848,951 48,266
Effect of dilutive securities - employee stock options 3,057 4,124 3,501 4,174
------- -------3,665 1,763
------- -------
Weighted average shares - diluted 52,056 53,357 53,238 53,272
======= =======52,616 50,029
======= =======
Net earnings per common share - basic $ 0.310.41 $ 0.43 $ 0.92 $ 1.27
======= =======0.17
======= =======
Net earnings per common share - diluted $ 0.300.38 $ 0.40 $ 0.86 $ 1.17
======= =======0.16
======= =======
NOTE 6. STOCKHOLDERS' EQUITYCOMPREHENSIVE INCOME
Comprehensive income includes charges or credits to equity that are not the
result of transactions with owners. The components of comprehensive income, net
of tax, are as follows (in thousands):
Quarter Ended
-----------------------
June 30, June 30,
2000 2001
---------- -------
Net income $ 20,104 $ 8,108
Other comprehensive income (loss):
Change in accumulated translation adjustments -- (63)
---------- -------
Total $ 20,104 $ 8,045
========== =======
7. SEGMENTS AND STOCK SPLIT. On June 29, 2000, our Board of
Directors approved a three-for-one split of the Company's common stock, effected
as a stock dividend. All stockholders of record on July 18, 2000 (the "Record
Date") received two additional shares for each share owned on the Record Date.
Shares resulting from the split were distributed by the transfer agent on August
8, 2000. All share and per-share numbers contained herein for all periods
presented reflect this stock split, unless otherwise noted.
NOTE 7. INCOME TAXES. Income tax provisions for interim periodsENTERPRISE-WIDE DISCLOSURES
SEGMENTS. We are based on the
Company's estimated annual income tax rate. The Company recorded income tax
expenses of $ 7.3 million and $ 9.1 million for the three months ended December
31, 1999 and December 31, 2000, respectively, and $ 21.5 million and $ 26.6
million for the nine months ended December 31, 1999 and December 31, 2000,
respectively. The effective income tax rate varies from the U.S. federal
statutory income tax rate primarily because of variationsengaged in the tax rates on
foreign income.
NOTE 8. COMPREHENSIVE INCOME. Comprehensive income was the same as net income
for all periods presented. Accumulated other comprehensive income presented in
the accompanying condensed consolidated balance sheets consists of cumulative
translation adjustments from local currencies to the functional currency in
prior years.
NOTE 9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
OPERATING SEGMENT
We organize the reporting segments based on geographic areas. The nature of our
products (telecommunications equipment), development, manufacturing,design, manufacture, marketing and servicing are similarsales of
telecommunications equipment including headsets, telephone headset systems, and
other specialty telecommunications products. Plantronics considers itself to
operate in each geographic area.one business segment. We evaluate segment
performance basedorganized our operations to focus on profit or loss from operations before interest expense,
foreign exchange gainsthree
principal markets: call center and lossesoffice products, mobile and income taxes.computer
products, and other specialty products (Walker Equipment Division). The
following table presents net revenue by market (in thousands).
Quarter Ended
----------------------
June 30, June 30,
2000 2001
-------- --------
Net revenues from unaffiliated customers:
Call center and office $ 83,300 $ 64,067
Mobile and computer 12,917 13,515
Other specialty products 4,135 2,532
-------- --------
$100,352 $ 80,114
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
8
9
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAJOR CUSTOMERS. No one customer accounted for 10% or more of total revenue from
consolidated sales for the quarters ended December 31, 1999June 30, 2001 and 2000.
6
7
PLANTRONICS, INC.
PART I, ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GEOGRAPHIC SEGMENTSINFORMATION. In geographical reporting, revenues are attributed to
the geographical location of the sales and service organizations. Costs directlyThe following
table presents net revenues and indirectly incurred
in generating revenues are similarly assigned.long lived assets by geographic area (in
thousands).
---------------------------- ----------------------------
QUARTER ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999Quarter Ended
----------------------
June 30, June 30,
2000 1999 2000
------------ ------------ ------------ ------------2001
-------- --------
Net revenues from unaffiliated customers:
United States $ 51,36067,467 $ 75,801 $148,807 $214,76852,314
International 24,699 30,917 74,005 96,24232,885 27,800
-------- --------
-------- --------$100,352 $ 76,059 $106,718 $222,812 $311,010
======== ======== ======== ========
-------- -------- -------- --------
Intersegment revenues $ 24,696 $ 38,496 $ 69,645 $108,112
======== ======== ======== ========
Operating profit:
United States $ 14,691 $ 21,432 $ 43,564 $ 61,071
International 7,393 8,183 22,447 27,358
-------- -------- -------- --------
$ 22,084 $ 29,615 $ 66,011 $ 88,429
======== ========80,114
======== ========
MARCHMarch 31, DECEMBER 31,
2000 2000
--------- ------------June 30,
2001 2001
------- -------
Property, plant and equipment, net:Long lived assets:
United States $ 15,371 $ 18,762$19,980 $20,839
International 8,206 11,579
-------- --------
$ 23,577 $ 30,341
======== ========12,703 12,074
------- -------
$32,683 $32,913
======= =======
78. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method. We
believe that the adoption of SFAS 141 will not have a significant impact on our
financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 142 requires,
among other things, the discontinuance of goodwill amortization and the testing
for impairment of goodwill at least annually. The Company adopted SFAS 142 in
the first quarter of the year ending March 30, 2002. The impact of SFAS 142 on
the Company's financial position and results of operations was immaterial.
In April 2001, the FASB's Emerging Issues Task Force released Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products" ("EITF 00-25"). EITF 00-25 requires that consideration
from a vendor to a retailer should be classified in the vendor's income
statement as a reduction of revenue except when there is sufficient evidence of
the fair value of the separate benefits received from the retailer. EITF 00-25
will be effective for annual or interim financial statements for periods
beginning after December 15, 2001. Upon application of the provisions of EITF
00-25, financial statements for prior periods presented for comparative purposes
should be reclassified to comply with these provisions. The Company is currently
assessing but has not yet determined the impact of EITF 00-25 on its financial
position and results of operations.
9. GOODWILL AND INTANGIBLES
See Notes to Unaudited Condensed Consolidated Financial Statements
9
810
PLANTRONICS, INC.
PART I,ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the first quarter of fiscal year 2002, the Company early-adopted
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets". In accordance with SFAS 142, the Company discontinued
goodwill amortization and tested goodwill for impairment as of April 1, 2001. No
impairment loss appeared necessary. The Company will continue to test goodwill
for impairment at least annually. Other intangible assets continue to be
amortized over their expected useful life of three to five years.
The following table presents net income on a comparable basis, after adjustment
for goodwill amortization (in thousands):
Quarter ended
June 30, 2000 June 30, 2001
---------- ----------
Reported net income $ 20,104 $ 8,108
Add back : goodwill amortization 174 --
Adjusted net income $ 20,278 $ 8,108
Basic earnings per share:
As reported $ 0.41 $ 0.17
As adjusted $ 0.41 $ 0.17
Diluted earnings per share:
As reported $ 0.38 $ 0.16
As adjusted $ 0.37 $ 0.16
See Notes to Unaudited Condensed Consolidated Financial Statements
10
11
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
CERTAIN FORWARD LOOKINGFORWARD-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 may generally be identified by
the use of such words as "expect," "anticipate," "believe," "intend," "plan,"
"will," or "shall," and include, the statement relatedbut are not necessarily limited to, the sufficiencyall of cash to fund operations for at least the next 12 months
set out in the last paragraph in the subsection headed "Liquidity" under
Financial Condition and certain
statements marked below with an asterisk ("*") in the
section titled "Risk Factors Affecting Future Operating Results.". In addition, the Companywe 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'sOur
actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth below under "Risk Factors Affecting Future Operating Results." The
following discussions titled "Results of Operations" and "Financial Condition"
should be read in conjunction with the unaudited condensed consolidated
financial statements and related notes included elsewhere in this Quarterly Report, the Company'sherein, our annual
report on Form 10-K, as well as the section below entitled "Risk Factors
Affecting Future Operating Results." We disclaim any obligation to update any
forward-looking statements as a result of developments occurring after the date
of this Quarterly Report.
RESULTS OF OPERATIONS:
The following table sets forth items from the Unaudited Condensed Consolidated
Statements of Operations as a percentage of net sales.
------------------------------ ------------------------------
Quarter Ended
Nine Months Ended
------------------------------ ------------------------------
December 31, December 31, December 31, December 31,
1999------------------
June 30, June 30,
2000 1999 2000
------------ ------------ ------------ ------------2001
----- -----
Net sales 100.0% 100.0%
100.0% 100.0%
Cost of sales 40.7 44.3 41.0 43.8
------------ ------------ ------------ ------------42.9 51.2
----- -----
Gross profit 59.3 55.7 59.0 56.2
------------ ------------ ------------ ------------57.1 48.8
----- -----
Research and development and engineering 6.7 6.7 7.0 6.35.6 9.6
Selling, general and administrative 23.6 21.2 22.4 21.5
------------ ------------ ------------ ------------admin 22.5 25.8
----- -----
Total operating expenses 30.3 27.9 29.4 27.8
------------ ------------ ------------ ------------28.1 35.4
----- -----
Operating income 29.0 27.8 29.6 28.4
Other13.4
Interest and other (income) expense, (0.8) (0.7)net 0.4 (0.6)
(0.1)
------------ ------------ ------------ ----------------- -----
Income before income taxes 29.8 28.5 30.2 28.528.6 14.0
Income tax expense 9.5 8.5 9.7 8.5
------------ ------------ ------------ ------------8.6 3.9
----- -----
Net income 20.3% 20.0% 20.5% 20.0%
============ ============ ============ ============10.1%
===== =====
Net Sales. Net sales for the quarter ended December 31, 2000 increased by 40.3%See Notes to $106.7 million, compared to $76.1 million for the quarter ended December 31,
1999. Net sales for the nine months ended December 31, 2000 were $311.0 million
compared to $222.8 million for the nine months ended December 31, 1999, an
increase of 39.6%. In comparison to the year ago periods, all of our channels,
markets and major geographic territories experienced increases in demand, with
the most significant growth in sales of our mobile and computer products. Due to
a slowdown in business in our call center and office markets, which we believe
is tied to general economic conditions, revenues for the fourth fiscal quarter
of 2001 are anticipated to be down slightly from the third fiscal quarter of
2001.*
Gross Profit. Gross profit for the quarter ended December 31, 2000 increased
31.8% to $59.4 million, compared to $45.1 million for the quarter ended December
31, 1999. Gross profit for the nine months ended December 31, 2000 was $174.8
million, an increase of 32.9% over the comparable period of fiscal 2000. For the
quarter ended December 31, 2000, gross profit was 55.7% of net sales, a decrease
of 3.6 percentage points compared to the gross
8Unaudited Condensed Consolidated Financial Statements
11
912
PLANTRONICS, INC.
PART I,
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
profit of 59.3% of netNet Sales. Net sales for the quarter ended December 31, 1999. While cost
reduction efforts continuedJune 30, 2001 decreased by 20% to
$80.1 million, compared to $100.4 million for the quarter ended June 30, 2000.
Revenues declined in all major geographies and channels due to the downturn in
the economy.
Our business continues to be successful, they were offsetimpacted by a slowdown in global telecom and IT
spending, resulting from the unfavorable impactlagging economy. We do not believe that a rebound
will occur soon and we believe that our revenues and earnings in the second
fiscal quarter of European foreign exchange rates during2002 could be weaker than our first fiscal quarter. We are
hopeful this may represent a bottoming with some rebound in the second half of
our fiscal year. However, we believe it is unlikely that secular factors will
outweigh cyclical factors in our upcoming fiscal year and we thus believe it is
likely that revenue for fiscal 2002 may be lower than that achieved in fiscal
2001.
Gross Profit. Gross profit for the quarter ended June 30, 2001 decreased 32% to
$39.1 million (48.8% of net sales), compared to $57.3 million (57.1% of net
sales) for the quarter ended June 30, 2000. The decline from the prior year was
due to a combination of factors. Sales decreased between years; therefore
overhead spending as well
as bya percent of revenue increased. Our product mix continues
to unfavorably affect our gross margin, with the stronglargest dollar drop coming out
of channels that serve the U.S. call center and high end of the corporate office
market - business that is more profitable than the relatively less affected
emerging markets. We are still experiencing stronger growth of new product offerings with lower margins forin our mobile,
computer, mobile and certain small office and residential applications. The
Company expectsmarkets. Products that cater to these
items maymarkets have lower gross margins than the corporate average. In addition, gross
margin was negatively impacted by the decline in the Euro and the Pound from the
prior year's quarter, the average exchange rates for both the Pound and the Euro
decreased by 6%; this accounted for a decrease of almost a point off the margin.
We anticipate that gross margins will continue to unfavorably impact our gross margin
percentagebe negatively affected by the
slowdown in revenues expected over the fourth quarter of fiscal 2001.*next quarter.
Research, Development and Engineering. Research, development and engineering
expenses for the quarter ended December 31, 2000June 30, 2001 increased 39.7%36% to $7.1$7.7 million (6.7%(9.6%
of net sales), compared to $5.1$5.6 million (6.7%(5.6% of net sales) for the quarter
ended December 31, 1999. Expenses for the nine months ended December 31,
2000 were $19.5 million compared to $15.7 million for the nine months ended
December 31, 1999. The increase in these expenses is due to increased
investments inJune 30, 2000. We have focused on broadening our office, mobile and computer product lines and
for new
technology initiatives suchstrengthening our wireless product offerings as well as continuing our
investment in Bluetooth technology. Despite the economic slowdown, we have not
cut R&D spending and wireless products.do not intend to do so in the coming fiscal year.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter ended December 31, 2000 increased 26.8%June 30, 2001 decreased 8% to $22.7$20.7 million
(21.2%(25.8% of net sales), compared to $17.9$22.5 million (23.6%(22.5% of net sales) for the
quarter ended December 31, 1999. ForJune 30, 2000. The decrease from the nine months ended December 31,
2000,prior year was primarily due
to reducing travel, training and certain reward programs, as well as reducing
funds allocated to short cycle demand generation programs we believed would not
be productive in the current environment. Operating expenses were $66.8 million, an increase of $16.9 million over the nine
months ended December 31, 1999. Sales and marketing expense increased
substantially duealso lower in
response to increasedlower sales and marketing programs for our mobile
products, international sales and marketing programs, and sales and promotion
expense in the retail channel.channel which led to lower variable
selling expenses. General and administrative expenses decreasedincreased as a percentage
of net sales from the year ago quarter, and nine months.mainly driven by the decline in
revenues.
Operating Income. Operating income for the quarter ended December 31, 2000
increased 34.1%June 30, 2001 decreased
63% to $29.6$10.8 million (13.4% of net sales), compared to $22.1$29.1 million (29.0% of
net sales) for the quarter ended December 31, 1999. However as a percent of net sales, operating income
decreased 1.2 percentage points to 27.8% of net sales for the quarter ended
December 31, 2000 compared to 29.0% of net sales for the quarter ended December
31, 1999. For the nine months ended December 31, 2000, operating income was
$88.4 million compared to $66.0 million for the nine months ended December 31,
1999.June 30, 2000. The decrease relative to net
sales was due to the decline in gross margin coupled with substantial increasesincreased investment
in salesresearch and marketingdevelopment expenditures.
Interest and Other Expense (Income), Net. Interest expense for the first nine
months of fiscal 2001 has been minimal. In November 2000, the Company renewed
its credit agreement with a major bank under which we have the right to borrow
up to $100 million. There are currently no borrowings under this agreement.
Interest income and other expense (income)
for the quarter ended December 31,
2000 increased toJune 30, 2001 was ($0.8)0.5) million in income compared to
($0.6)$0.4 million in expense for the quarter ended December 31, 1999. InterestJune 30, 2000. The net $0.9
million increase in income and other expense (income) for the nine
months ended December 31, 2000 was ($0.4) million compared to ($1.3) million for
the nine months ended December 31, 1999. The increase over the year ago quarter was primarily due to a $0.3 million reduction of
foreign exchange gains as describedloss due to implementation of a hedging program in Note 4. Forfiscal 2002
and $0.4 million expense in the nine
months ended December 31, 2000, the decreaseprior year's quarter in income over the comparable
periodconnection with a
secondary offering of stock by one of our stockholders. Interest expense for
fiscal 2000 was attributable2002 is expected to foreign exchange losses as describedbe minimal. In November 1999, we entered into a
credit agreement to borrow up to $100 million with a major bank. This agreement
has been renewed annually and expires in Note 4.November 2001. We currently have no
borrowings under this agreement.
See Notes to Unaudited Condensed Consolidated Financial Statements
12
13
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Income Tax Expense.Expense Income tax expense for the quarter ended December 31, 2000June 30, 2001 was
$9.1$3.2 million compared to $7.3$8.6 million for the quarter ended December 31,
1999June 30, 2000 and
represented tax rates of 30%28% and 32%30%, respectively. The decrease in the overall
tax rate was due to increased sales and profits in lower tax jurisdictions.
FINANCIAL CONDITION:
Operating Activities. During the three months ended June 30, 2001, we generated
$24.9 million of cash from operating activities, due primarily to $8.1 million
in net income and decreases of $9.9 and $2.4 million in accounts receivable and
inventory, respectively, and increases of $0.8 and $1.5 million in income taxes
payable and deferred income taxes, respectively. In comparison, we generated
$11.7 million in cash from operating activities for the three months ended June
30, 2000, due mainly to $20.1 million in net income and an increase of $5.8
million in income taxes payable, offset by increases of $8.3 and $6.3 million in
accounts receivable and inventory, respectively.
Liquidity. As of December 31, 2000, the CompanyJune 30, 2001, we had working capital of $128.7$126.4 million,
including $61.5$77.5 million of cash and cash equivalents and marketable securities,
compared with working capital of $78.3$136.8 million, including $45.3$73.9 million of cash
and cash equivalents and marketable securities, at March 31, 2000. During the nine months ended December 31, 2000, we generated $42.2 million
of cash from operating activities, due primarily to $62.2 million in net income,
a tax benefit on stock options exercised of approximately $10.1 million and an
increase in income taxes payable of $6.3 million, offset by increases of $19.9
and $16.6 million in accounts receivable and inventory, respectively. In
comparison, we generated $56.2 million in cash from operating activities for the
nine months ended December 31, 1999, due mainly to $45.7 million in net income,
a tax benefit on stock options
9
10
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
exercised of $6.8 million, and an increase in income taxes payable of $7.5
million. Increases in inventory were offset by favorable changes in other
current assets and accounts receivable and liabilities.
The Company has2001.
We have a $100.0 million revolving credit facility, including a $10.0 million
letter-of-credit subfacility, with a major bank. During the quarter we
renewed the linebank, both of credit and both the revolving credit facility and the letter
of credit subfacility mature onwhich expire in
November 25, 2001. As of December 31, 2000,June 30, 2001, we had no cash borrowings under the
revolving credit facility and $0.7 million outstanding under the
letter-of-credit subfacility. The amounts outstanding under the letter-of-credit
subfacility were principally associated with purchases of inventory. The terms
of the credit facility contain covenants that materially limit our ability to
incur debt and pay dividends, among other matters. These covenants may adversely
affect our financial positionus 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 12twelve months.*
Investing Activities. During the quarter ended June 30, 2001, we purchased
marketable securities of $10.0 million. Capital expenditures of $10.7$2.1 million in
the ninethree months ended December 31, 2000June 30, 2001 were incurred principally in tooling and
equipment for new products, furniture and fixtures and leasehold improvements
related tofor facilities expansion and investments in computer and software
upgrades.expansion.
Financing Activities. In the ninethree months ended December 31, 2000,June 30, 2001, we repurchased
1,047,021 shares of our common stock for $19.6 million and reissued through
employee benefit plans 84,34730,801 shares of our treasury stock for approximately $2.3 million and repurchased 737,100 shares of our common stock
for approximately $25.5$0.6 million. As
of December 31, 2000, 317,621June 30, 2001, 674,600 shares remained under the repurchase plan authorized
on November 15, 2000.during the quarter.
We received approximately $8.0$0.1 million in proceeds from the exercise of stock options during
the ninethree months ended December 31, 2000.June 30, 2001. The maximum aggregate number of shares
that may be issued under the 1993 Stock Plan is 18,927,72620,927,726 shares.
See Notes to Unaudited Condensed Consolidated Financial Statements
13
14
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in theour stock of Plantronics should carefully consider
the risks described below. The performance of Plantronicsour stock will reflect the
performance of our business relative to, among other things, our competition,
general economic and market conditions, and industry conditions. You should
carefully consider the following factors in connection with any investment in
Plantronicsour stock. Our business, financial condition and results of operations could be
materially adversely affected if any of the risks occur. If the risks occur, the
trading price of Plantronics stock could decline and an investor could lose all
or part of his or her investment.
ATHE GENERAL ECONOMIC SLOWDOWN COULD RESULTCONTINUE, DEEPEN, AND/OR SPREAD RESULTING IN
A FURTHER REDUCTION IN OVERALL DEMAND FOR OUR PRODUCTS WHICH WOULD MATERIALLY
ADVERSELY AFFECT OUR RESULTS AND WE BELIEVE THIS IS CURRENTLY TAKING PLACE.
While our markets are generallyhave not exhibited highly cyclical behavior in the
past, our sales are affected by overall economic activity. If there isIn the fourth quarter
of fiscal 2001 we saw a drop in the overall level of demand for our products
which we attribute principally to a slowing in national orand international
economic growth orgrowth. We believe there has been a continued decline in the economy
and that a recession there could bemay yet occur. In the first quarter of fiscal 2002, we have
seen a further reduction in the overall level of demand for our products. Thisproducts and we
are expecting this may continue into the second quarter. If these trends are
worse or longer than presently anticipated, this could cause us not to achieve
the levels of sales required to achieve our anticipated financial results, which
could in turn materially adversely affect the market price of our stock. Also,
if the overall economy slowscontinues to slow further, or there is a recession, this
could affect the financial health of certain purchasers of our products,
potentially resulting in the failure of such purchasers to pay amounts due to
us.
10
11
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
A SUBSTANTIAL PORTION OF OUR SALES COME FROM THE CALL CENTER MARKET AND A
DECREASE OF DEMAND IN THAT MARKET COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS.
We have historically derived, and continue to derive, a substantial
portion of our net sales from the call center market. This market has grown
significantly in recent years as new call centers have proliferated and existing
call centers have expanded. We also may have benefited from a short term bubble
in call center demand in the first half of fiscal 2001 due to post-year 2000
activities and due to a possibly aberrational growth of internet related
businesses. In the first quarter of fiscal 2002 and in the portion of fiscal
2002 that has passed before the filing of this report, our sales in the call
center market have been below the level of sales in that market in recent prior
periods. We do not believe that our decreasing sales are a result of market
share gains by our competitors but, instead, believe that the sales slowdown is
due to reduction in the level of overall market demand. While we believe thisthat
the call center market is continuing towill grow* in the
future periods, this growth could slow or
revenues from this market could continue to decline due to various factors. For
example, technological advances such as automated interactive voice response
systems could reduce or eliminate the need for call center agents in certain
applications. In addition, consumer resistance to telemarketing could materially
adversely affect growth in the call center market. A continued deterioration in
general economic conditions could result in a reduction in the establishment of
new call centers and in capital investments to expand or upgrade existing
centers, and we believe this is in expanding or
upgrading existing centers.fact negatively affecting our business. Due
to our reliance on the call center market, we will be affected more by changes
in the rate of call center establishment and expansion and the communications
products that call center agents use than would a company serving a broader
market. Any decrease in the demand for call centers and related headset products
could cause a decrease in the demand for our products, which would materially
adversely affect our business, financial condition and results of operations.
WE ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO
DEVELOP AND WE COULD BE MATERIALLY ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS
WE EXPECT.
While the call center market is still a substantial portion of our
business, we believe that our future prospects will depend in large part on the
growth in demand for headsets in the office, mobile, computer and residential
markets.* These communications headset markets are relatively new and
undeveloped. Moreover, we do not have extensive
See Notes to Unaudited Condensed Consolidated Financial Statements
14
15
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. These headset markets are also subject to
general economic conditions and if there is a continued slowing of national or
international economic growth or a recession, these markets may not materialize
to the levels we require to achieve our anticipated financial results, which
could in turn materially adversely affect the market price of our stock.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF
CAUSES OUTSIDE OUR CONTROL.
Our quarterly results of operations may vary significantly in the future
for a variety of reasons, including the following:
- general economic conditions;
- changes in demand for our products;
- insolvency of purchasers of our products or failure of
purchasers of our products to pay amounts due to us;
- timing and size of orders from customers;
- price erosion;
- cancellations or delays of deliveries of components and
subassemblies by our suppliers;
- variances in the timing and amount of engineering and operating
expenses;
- distribution channel volumemix variations;
- changes in the levels of cooperative advertising or market
development funding required by retail resellers of our
products;
- delays in shipments of our products;
- material product returns and customer credits;
- insolvency of purchasers of our products or failure of purchasers of
our products to pay amounts due to us;
- new product introductions by us or our competitors;
- entrance of new competitors;
11
12
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS- changes in actual or target inventory levels of our channel
partners;
- increases in the costs of our components and subassemblies;
- price erosion;
- changes in the mix of products sold by us; and
- seasonal fluctuations in demand; and
- general economic conditions.demand.
Each of the above factors is difficult to forecast and thus could have a
material adverse effect on our business, financial condition and results of
operations.
See Notes to Unaudited Condensed Consolidated Financial Statements
15
16
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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 stockCommon Stock might fall.
IF WE DO NOT MATCH PRODUCTION TO DEMAND WE WILL BE AT RISK OF LOSING BUSINESS OR
OUR GROSS MARGINS COULD BE MATERIALLY ADVERSELY AFFECTED.
Historically, we have seen steadyWe saw good increases in customer demand for our products andthrough most
of fiscal 2001. Historically, we have generally been able to increase production
to meet thatincreasing 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 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.
- Significant reduction in production levels to address current
decreases in demand may leave us unprepared to meet a rapid
increase in demand for our products.
- If demand increases beyond that forecasted, we would have to
rapidly increase production. We depend on suppliers to provide
additional volumes of components and subassemblies, and,
therefore, might not be able to increase production rapidly
enough to meet unexpected demand. This could cause us to fail to
meet customer expectations. There could be short-term losses of
sales while we are trying to increase production. If customers
turn to competitive sources of supply to meet their needs, there
could be a long-term impact on our revenues.
- Rapid increases in production levels to meet unanticipated
demand could result in higher costs for components and
subassemblies, increased expenditures for freight to expedite
delivery of required materials, and higher overtime costs and
other expenses. These higher expenditures could lower our profit
margins. Further, if production is increased rapidly, there may
be decreased manufacturing yields, which may also lower our
margins.
12
13
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- If forecasted demand does not develop, we could have excess production
or excess capacity. Excess production could result in higher
inventories of finished products, components and subassemblies. If we
were unable to sell these inventories, we would have to write off some
or all of our inventories of obsolete products and unusable components
and subassemblies. Excess manufacturing capacity could lead to higher
production costs and lower margins.
Any of the foregoing problems could materially adversely affect our
business, financial condition and results of operations.
See Notes to Unaudited Condensed Consolidated Financial Statements
16
17
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
WE DEPEND ON OUR SUPPLIERS AND FAILURE OF OUR SUPPLIERS TO PROVIDE QUALITY
COMPONENTS OR SERVICES IN A TIMELY MANNER COULD ADVERSELY AFFECT OUR RESULTS.
We buy components and subassemblies from a variety of suppliers and
assemble them into finished products. We also have certain of our products
manufactured for us by third party suppliers. The cost, quality, and
availability of such goods are essential to the successful production and sale
of our products. Obtaining components, subassemblies and finished products
entails various risks, including the following:
- Prices of components and subassemblies may rise. If this occurs and we
are not able to pass these increases on to our customers or to achieve
operating efficiencies that would offset the increases, it would have a
material adverse effect on our business, financial condition and
results of operations.
- We obtain certain subassemblies, components and products from
single suppliers, and alternate sources for these items are not
readily available. To date, we have experienced only minor
interruptions in the supply of these subassemblies, components
and products, none of which has significantly affected our
results of operations. However, anCurrent adverse economic conditions could
lead to a higher risk of failure of our suppliers to remain in
business or to be able to purchase the subcomponents and parts
required by them to produce and provide to us the parts we need.
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.
- 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.
- Due to the lead times required in order to obtain certain
subassemblies, components and products from certain foreign
suppliers, we may not be able to react quickly to changes in
demand, potentially resulting in either excess inventories of
such goods or shortages of the subassemblies, components and
products. In the second quarter of fiscal 2001, we experienced a
substantial rise in finished goodgoods inventories in part resulting
from purchases of finished products from our suppliers in excess
of forecasted demand. ThoseRelative to sales, inventory levels
remained high inthrough the thirdfirst quarter of fiscal 2001.2002. Failure
in the future to match the timing of purchases of subassemblies,
components and products to demand would materially adversely
affect our business, financial condition and results of
operations.
- Most of our suppliers are not obligated to continue to provide
us with components and subassemblies. Rather, we buy most
components and subassemblies on a purchase order basis. If our
suppliers experience increased demand or shortages, it could
affect deliveries to us. In turn, this would affect our ability
to manufacture and sell products that are dependent on those
components and subassemblies. This would materially adversely
affect our business, financial condition and results of
operations.
WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF
THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES.
We sell substantially all of our products through distributors,
retailers, OEMs retailers and telephony service providers. Our existing relationships with
these parties are nonexclusive and can be terminated by either party without
cause. Our channel partners also sell or can potentially sell products offered
by our competitors. To the extent that our competitors offer our channel
partners more favorable terms, such partners may decline to carry, de-emphasize
or discontinue carrying our products. In the future, we may not be able to
retain or attract a sufficient number of qualified channel partners. Further,
such partners may not recommend, or continue to recommend, our products. In the
future, our OEM customers or potential OEM customers may elect to manufacture
their own products, similar to those we currently sell to them. The inability to
establish or maintain successful relationships with distributors, OEMs,
retailers and telephony
13
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PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS service providers or to expand our distribution channels
could materially adversely affect our business, financial condition or results
of operations.
Our distribution channels generally hold inventories of our products,
determined in their own business judgment to be sufficient to meet their
customer's delivery requirements. Such inventory levels are subject to market
conditions, business judgment by the reseller and our ability to meet their
time-to-ship needs. Rapid reductions by
See Notes to Unaudited Condensed Consolidated Financial Statements
17
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
our distributors, OEMs, retailers and other customers in the levels of
inventories held in our products could materially adversely affect our business,
financial condition or results of operations.
We generally offer our customers certain credit terms, allowing them to
pay for products purchased from us between thirty and sixty days or more after
we ship the products. Our receipt of payment for our products depends on the
financial liquidity of those customers. If significant customers or a
significant number of customers experience liquidity problems, withthis could affect
our ability to collect our accounts receivables, which could materially
adversely affect our business, financial condition or results of operations.
WE HAVE STRONG COMPETITORS AND WILL LIKELY FACE ADDITIONAL COMPETITION IN THE
FUTURE.
The markets for our products are highly competitive. We compete with a
variety of companies in the various markets for communications headsets. Our
single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a
Danish telecommunications conglomerate withconglomerate. GN Great Nordic reported revenues of 5.47.0
billion Danish Krone (approximately $700$884 million) in calendar 1999.2000.
In calendar year 2000, GN Netcom continued its practice of acquiring
other companies in the headset business. In 2000, GN Netcom acquired Jabra
Corporation, a supplier of headsets in the mobile phone market, resulting in an
entity with a broader mobile product offering and greater marketing presence
than either of the two entities had separately. On October 4, 2000, GN Netcom
announced that it had signed an agreement to acquire Hello Direct, Inc., a
retail channel seller of communications products and a customer of Plantronics.our former customer. On
October 25, 2000, we announced that we terminated our contract for the supply of
products to Hello Direct due to the impending acquisition of Hello Direct, Inc.
by GN Netcom. On November 8, 2000,
GN Netcom announced that it had completed its tender for the shares of Hello
Direct stock and that it planned to proceed promptly to complete that
acquisition. It is not clear how this mergeracquisition will affect us other than the
termination of the product purchase contract, which we do not believe will have
a material adverse affect.effect.* However, the acquisition by GN Netcom of Hello
Direct does give it a directly owned retail channel presence it did not have
before the acquisition.
We currently operate principally in a multilevel distribution model --
we sell most of our products to distributors who, in turn, resell to dealers or
end-customers. GN Netcom's acquisition of Hello Direct and its recent
acquisition of one or more European distributors indicates it may be moving to a
direct sales model. While we believe that our business and our customers benefit
from our current distribution structure, if GN Netcom or other competitors sell
directly, they may offer lower prices which could materially adversely affect
our business and results of operations.
On February 7, 2001, Logitech International S.A., a manufacturer and
seller of computer accessory products, announced that it had agreed to purchase
Labtec Inc., a Vancouver, Washington-based provider of, among other products,
headsets for use with computers. IfThe acquisition was completed in March 2001.
Due to this acquisition, is completed, Labtec will have greater resources with which to
compete with us than it did prior to its acquisition.
We anticipate that we will face additional competition from companies
that currently do not offer communications headsets. This is particularly true
in the office, mobile, computer and residential markets. As these markets
mature, we will face increased competition from consumer electronics companies
and other companies that currently manufacture and sell mobile phones or
computer peripheral equipment. These new competitors are likely to be larger,
offer broader product lines, bundle or integrate with other products
communications headset tops and bases manufactured by them or others, offer
products containing bases that are incompatible with our headset tops and have
substantially greater financial, marketing and other resources than we do.
We anticipate that we will also face additional competition from
companies, principally located in the Far East, which offer very low cost
headset products, including products which are modeled on or direct copies of
our products. These new competitors are likely to offer very low cost products
which may result in price pressure in the market. If market prices are
substantially reduced by such new entrants into the headset market, our
business, financial condition or results of operations could be materially
adversely affected.
14See Notes to Unaudited Condensed Consolidated Financial Statements
18
1519
PLANTRONICS, INC.
PART I,
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONSHistorically, our expertise in acoustics and design has allowed us to
design, develop and manufacture products with the levels of sound quality
enabling us to meet the needs of our customers. Due to technological advances,
including but not limited to better digital signal processing, our current and
future competitors may be able to develop products with the same or better audio
quality at lower costs. These technological advances may allow current and
future competitors to compete more effectively in terms of product quality or
price that could materially adversely affect our business and results of
operations.
We believe that important competitive factors for us are product
reliability, product features, customer service and support, reputation,
distribution, ability to meet delivery schedules, warranty terms, product life
and price. If we do not compete successfully with respect to any of these or
other factors it could materially adversely affect our business, financial
condition and results of operations. IfFurther, if we do not successfully develop
and market products that compete successfully with those of our competitors, it
would materially adversely affect our business, financial condition and results
of operations.
NEW PRODUCT DEVELOPMENT IS RISKY AND WE WILL BE MATERIALLY ADVERSELY AFFECTED IF
WE DO NOT RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND NEW TECHNOLOGIES.
Our product development efforts historically have been directed toward
enhancement of existing products and development of new products that capitalize
on our core capabilities. The success of new product introductions is dependent
on a number of factors, including the proper selection of new product features,
timely completion and introduction of new product designs, cost-effective
manufacture of such products, quality of new products and market acceptance. To
be successful in the future, we must develop new products, qualify these new
products, successfully introduce these products to the market on a timely basis,
and commence and sustain low-cost, volume production to meet customers' demands.
Although we attempt to determine the specific needs of headset users in our
target markets, because almost all of our sales are indirect, we may not always
be able to timely and accurately predict end-user requirements. As a result, our
products may not be timely developed, designed to address current or future
end-user requirements, offered at competitive prices or accepted, which could
materially adversely affect our business, financial condition and results of
operations. Moreover, we generally incur substantial research and development
costs before the technical feasibility and commercial viability of a new product
can be ascertained. Accordingly, revenues from new products may not be
sufficient to recover the associated development costs.
Historically, the technology used in lightweight communications headsets
has evolved slowly. New products have primarily offered stylistic changes and
quality improvements, rather than significant new technologies. We anticipate
that the technology used in hands-freehands free communications devices, including our
products, will begin to evolve more rapidly in the future. We believe that this
is particularly true of the office, mobile and residential markets, which may
require us to develop new headset technologies to support cordless and wireless
operation and to interface with new communications and computing devices. As a
result, our success depends upon our ability to enhance existing products, to
respond to changing market requirements, and to develop and introduce in a
timely manner new products that keep pace with technological developments. If we
are unable to develop and introduce enhanced products or new products in a
timely manner in response to changing market conditions or customer
requirements, it will materially and adversely affect our business, financial
condition and results of operations.
Due to the historically slow evolvement of our products, we have
generally been able to phase out obsolete products without significant impact to
our operating margins. However, as we develop new generations of products more
quickly, we expect that the pace of product obsolescence will increase
concurrently. The disposition of inventories of obsolete products may result in
reductions to our operating margins and materially adversely affect our earnings
and results of operations.
CHANGES IN REGULATORY REQUIREMENTS MAY ADVERSELY IMPACT OUR GROSS MARGINS AS WE
COMPLY WITH SUCH CHANGES OR REDUCE OUR ABILITY TO GENERATE REVENUES IF WE ARE
UNABLE TO COMPLY.
Our products must meet the requirements set by regulatory authorities in
the numerous jurisdictions in which we sell them. As regulations and local laws
change, we must modify our products to address those changes. Regulatory
See Notes to Unaudited Condensed Consolidated Financial Statements
19
20
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
restrictions may increase the costs to design and manufacture our products,
resulting in a decrease in demand for our products if the costs are passed along
or a decrease in our margins. Compliance with regulatory restrictions may impact
the technical quality and capabilities of our products, reducing their
marketability. We are currently facing a substantial change in the regulations
applicable to our products in the European Union and there is no certainty that
we can meet those regulatory requirements in a timely and cost-effective manner.
Failure to conform our products to these new European regulatory requirements
would result in our inability to sell such products in Europe, resulting in a
material adverse impact to our financial condition and results of operations.
15
16
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING
ABROAD.
In the first ninethree months of fiscal 2001,2002, approximately 30.9%34.7% of our net
sales were derived from customers outside the United States. Approximately 33.5%31.2%
of our net sales in fiscal 20002001 were derived from customers outside the United
States, compared with approximately 30.5%33.5% of our net sales in fiscal 1999.2000. In
addition, we conduct substantially all of our headset assembly operations in our
manufacturing facility located in Mexico, and we obtain most of the components
and subassemblies used in our products from various foreign suppliers. The
inherent risks of international operations, particularly in Mexico, could
materially adversely affect our business, financial condition and results of
operations. The types of risks faced in connection with international operations
and sales include:
- cultural differences in the conduct of business;
- greater difficulty in accounts receivable collection;
- unexpected changes in regulatory requirements;
- tariffs and other trade barriers;
- economic and political conditions in each country;
- management and operation of an enterprise spread over various
countries; and
- the burden of complying with a wide variety of foreign laws.
In calendar 2000,fiscal 2001, the value of major European currencies dropped against
the U.S. dollar. To date, we have partially but not fully reflected that change
in currency value in our selling prices. In order to maintain a competitive
price for our products in Europe, we may have to effectively reduce our current
prices further, resulting in a lower margin on products sold in Europe.
Continued change in the values of European currencies or changes in the values
of other foreign currencies could have a material adverse effect on our
business, financial condition and results of operations.
OUR FOREIGN OPERATIONS PUT US AT RISK OF LOSS IF THERE ARE MATERIAL CHANGES IN
CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR.
A significant portion of our business is conducted in currencies other
than the U.S. dollar. As a result,Substantially all of our sales throughout Europe are
transacted in local currencies. We are therefore exposed to risks associated
with fluctuations in exchange rates create risk to us in
both the sale ofthat can affect our productsrevenue 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 causedgross
margins and will continue to causecan also generate currency transaction gains and losses. In calendar 2000,fiscal
2001, the value of major European currencies dropped against the U.S. dollar,
resultingwhich adversely impacted our revenue and gross margin and also resulted in
currency transaction losses. Although we dodid not
currently engage in any hedging
activities in fiscal 2001 to mitigate exchange rate risks, in fiscal 2002 we
continually evaluatehave introduced programs designed to reduce our foreign currency exposure.net asset
exposure and thus have a goal to reduce transaction gains and losses that are
accounted for in other income/expense. However, there can be no assurance that
our hedging policy will be effective in reducing transaction gains and losses.
Moreover, our economic exposure to foreign currency fluctuations has not changed
and revenues and margins can be adversely impacted by such
See Notes to Unaudited Condensed Consolidated Financial Statements
20
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
fluctuations. There can be no assurance that we will not continue to experience
currency losses in the future, nor can we predict the effects of future exchange
rate fluctuations on future operating results. To the extent that sales to our
foreign customers increase or transactions in foreign currencies increase, our
business, financial condition and results of operations could be materially
adversely affected by exchange rate fluctuations.
WE MAY HAVE EXPERIENCED IN CALENDAR 2000 A NON-SUSTAINABLE INCREASE IN SALES AS
A RESULT OF PENT-UP DEMAND FROM Y2K CONCERNS.CONCERNS AND THE RAPID GROWTH OF INTERNET
RELATED BUSINESSES.
Our results for the first half of calendar year 2000 may not be
indicative of longer-term market conditions. Our results of operations for that
period, including the first and secondthree quarters of fiscal 2001, may reflect a
non-sustainable increase in sales as a result of purchases by call center and
office customers who delayed investment in new call centers or information
technologies due to concerns over the effects of Y2K. 16
17
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSFurther, there may have
been an unsustainable increase in calendar 2000 in the level of spending on
information technology infrastructure, including telecommunications devices
which use headsets, due to customers addressing the rapid growth of Internet
related businesses.
IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN
MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR
OPERATIONS.
Substantially allThe majority of our manufacturing operations are currently performed in
a single facility in Tijuana, Mexico. A fire, flood or earthquake, political
unrest or other disaster or condition affecting our facility could have a
material adverse effect on our business, financial condition and results of
operations. While we have developed a disaster recovery plan and believe we are
adequately insured with respect to this facility, we may not be able to
implement the plan effectively or on a timely basis or recover under applicable
insurance policies.
WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS OPERATIONS AND
CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OR MAKE SUBSTANTIALLY MORE
EXPENSIVE THE OPERATIONS AT OUR HEADQUARTERS FACILITY.
California is in the midst of an energy crisis that could disrupt the
conduct of sales, marketing, research and development, finance and other
operations at our headquarters facilities. In the event of an acute power
shortage, California has, on some occasions, implemented, and may in the future
continue to implement, rolling blackouts throughout California. We have
emergency back-up generators which keep our business information systems in
operation but we do not have sufficient back-up generating capacity or alternate
sources of power to keep our headquarters in full operation in the event of a
blackout. If blackouts interrupt our power supply, we would be temporarily
unable to continue full operations at our headquarters. Any such interruption
could damage our reputation, harm our ability to retain existing customers and
to obtain new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations. Further, it is likely
that the cost of electrical power at our California facilities is going to
increase substantially. We do not currently believe that the increased expense
for electrical power will be a material impact on our financial condition* but
if prices increase beyond that currently expected, we could be materially
adversely affected.
WE HAVE INTELLECTUAL PROPERTY RIGHTS THAT COULD BE INFRINGED BY OTHERS AND WE
ARE POTENTIALLY AT RISK OF INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS.
Our success will depend in part on our ability to protect our
proprietary technology. We rely primarily on a combination of nondisclosure
agreements and other contractual provisions as well as patent, trademark, trade
secret, and copyright laws to protect our proprietary rights. We currently hold
36thirty-six 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
See Notes to Unaudited Condensed Consolidated Financial Statements
21
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
management's attention could be substantial. In addition, the rights granted
under any patents may not provide us competitive advantages or be adequate to
safeguard and maintain our proprietary rights. Moreover, the laws of certain
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. If we do not enforce and protect our intellectual
property rights, it could materially adversely affect our business, financial
condition and results of operations.
From time to time, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights against us. Such
claims, if they are asserted, could result in costly litigation and diversion of
management's attention. In addition, we may not ultimately prevail in any such
litigation or be able to license any valid and infringed patents from such third
parties on commercially reasonable terms, if at all. Any infringement claim or
other litigation against us could materially adversely affect our business,
financial condition and results of operations.
WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS.
The use of our products exposes us to the risk of product liability
claims. Product liability claims have in the past been, and are currently being,
asserted against us. None of the previously resolved claims have materially
affected our business, financial condition or results of operations, nor do we
believe that any of the pending claims will have such an effect.* Although we
maintain product liability insurance, the coverage provided under our policies
could be unavailable or insufficient to cover the full amount of any such claim.
Therefore, successful product liability claims
17
18
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS brought against us could have a
material adverse effect upon our business, financial condition and results of
operations.
Our mobile headsets are used with mobile telephones. There has been
continuing public controversy over whether the radio frequency emissions from
mobile telephones are harmful to users of mobile phones. We believe that there
is no conclusive proof of any health hazard from the use of mobile telephones
but that research in this area is incomplete. IfWe have tested our headsets
through independent laboratories and have found that use of our headsets reduces
radio frequency emissions at the user's head to virtually zero. However, if
research was to establish a health hazard from the use of mobile telephones or
public controversy grows even in the absence of conclusive research findings,
there could be an adverse impact on the demand for our mobile headsets.
There is also continuing and increasing public controversy over the use
of mobile telephones by operators of motor vehicles. While we believe that our
products enhance driver safety by permitting a motor vehicle operator to
generally be able to keep both hands free to operate the vehicle, there is no
certainty that this is the case and we may be subject to claims arising from
allegations that use of a mobile telephone and headset contributed to a motor
vehicle accident. We maintain product liability insurance and general liability
insurance that we believe would cover any such claims. However, the coverage
provided under our policies could be unavailable or insufficient to cover the
full amount of any such claim. Therefore, successful product liability claims
brought against us could have a material adverse effect upon our business,
financial condition and results of operations.
WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL
EXPOSED TO POTENTIAL RISKS FROM ENVIRONMENTAL MATTERS.
We are subject to various federal, state, local and foreign
environmental laws and regulations, including those governing the use, discharge
and disposal of hazardous substances in the ordinary course of our manufacturing
process. Although we believe that our current manufacturing operations comply in
all material respects with applicable environmental laws and regulations,
environmental legislation has been enacted and may in the future be enacted or
interpreted to create environmental liability with respect to our facilities or
operations. We have included in our financial statements a reserve of $1.5
million for possible environmental remediation of the site of one of our
previous businesses. While no claims have been asserted against us in connection
with this matter, such claims could be asserted in the future and any liability
that might result could exceed the amount of the reserve.
See Notes to Unaudited Condensed Consolidated Financial Statements
22
23
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF
THE SERVICES OF KEN KANNAPPAN OR OTHER KEY PERSONNEL.
Our success depends to a significant extent upon the services of a
limited number of executive officers and other key employees. The unanticipated
loss of the services of our president and chief executive officer, Mr.
Kannappan, or one or more of our other executive officers or key employees could
have a material adverse effect upon our business, financial condition and
results of operations. We also believe that our future success will depend in
large part upon our ability to attract and retain additional highly skilled
technical, management, sales and marketing personnel. Competition for such
personnel is intense. We may not be successful in attracting and retaining such
personnel, and our failure to do so could have a material adverse effect on our
business, operating results or financial condition.
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD
BE LOST.
The market price for our common stockCommon Stock may continue to be affected by a
number of factors, including the announcement of new products or product
enhancements by us or our competitors, the loss of services of one or more of
our executive officers or other key employees, quarterly variations in our or
our competitors' results of operations, changes in our published forecasts of
future results of operations, changes in earnings estimates or recommendations
by securities analysts, developments in our industry, sales of substantial
numbers of shares of our common stockCommon 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, stockStock prices for
many companies, particularly in the technology sector,
18
19
PLANTRONICS, INC.
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS have experienced wide
fluctuations that have often been unrelated to the operating performances of
such companies. Such factors and fluctuations, as well as general economic,
political and market conditions, such as recessions, maycould materially adversely
affect the market price of our common stock.Common Stock.
ANTI-TAKEOVER PROVISIONS IN OUR CURRENT BY-LAWS OR WHICH COULD BE PUT INTO PLACE
BY OUR BOARD OF DIRECTORS COULD AFFECT MARKET PRICES OF OUR STOCK.
Our board of directors has the authority to issue preferred stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting and conversion rights, of those shares without any further vote or action
by the stockholders. The issuance of our preferred stock could have the effect
of making it more difficult for a third party to acquire us. In addition, we are
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which could also have the effect of delaying or preventing our
acquisition by a third party. Further, certain provisions of our Certificate of
Incorporation and bylaws could delay or make more difficult a merger, tender
offer or proxy contest, which could adversely affect the market price of our
common stock.Common Stock.
CITICORP VENTURE CAPITAL HAS SIGNIFICANT CONTROL OVER OUR BUSINESS.
Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"),
beneficially owns 8,604,1798,995,824 shares of our common stockCommon Stock (excluding any shares
that may be owned by employees of CVC or its affiliates), which represents
approximately 17.5%18.3% of our outstanding common stockCommon Stock as of December 31, 2000.February 15, 2001. We
also have an agreement with CVC under which it is entitled to have up to twothree
of its designees serve on our Board of Directors, depending on the level of
CVC's continuing stock ownership. Based on its current ownership of our
outstanding Common Stock, CVC is entitled to designate two nominees. Messrs. Robert F. B. Logan, M.
Saleem Muqaddam and John M. O'Mara are currently serving as CVC's designees
underpursuant to that agreement (having been nominated for election in a period in
which the agreement with CVC required us to nominate and support the election of
three designees of CVC). In addition, our bylaws contain provisions that require
a two-thirds (66 2/3%) supermajority vote of the Board of Directors to approve
certain transactions, including amendments of our Certificate of Incorporation,
certain provisions of our bylaws, mergers and sales of substantial assets,
acquisitions of other companies and sales of capital stock. These provisions may
have the effect of giving a small number of directors the ability to block such
transactions.
See Notes to Unaudited Condensed Consolidated Financial Statements
23
24
PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS AND, GIVEN THE LOW TRADING VOLUME OF
OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME, WE COULD SEE AN
ADVERSE AFFECTEFFECT ON THE MARKET PRICES OF OUR STOCK.
As of December 31, 2000,August 10, 2001, we had 49,169,30447,922,157 shares of common stockCommon Stock
outstanding and in the public market. All of these shares are freely tradable
except for approximately 9,800,00010,176,000 shares held by affiliates of Plantronics
(including CVC and the directors and officers of Plantronics). These
approximately 9,800,00010,176,000 shares may be sold in reliance on Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
effective registration statement filed with the Securities and Exchange
Commission.
Some of our current stockholders, including CVC and certain of our
directors, also have certain contractual rights to require Plantronics to
register their shares for public sale. Approximately 7,900,0009,027,260 additional shares
are subject to outstanding stock options as of December 31, 2000.August 10, 2001. As of December 31, 2000,August 10,
2001, Ms. Louise Cecil, the widow of our former CEO and Chairman, Robert S.
Cecil, held options on approximately 450,000433,000 shares of our common stock,Common Stock,
transferred to her by Mr. Cecil during his life. She has registered those shares
for resale and can sell any or all of those shares at any time.
Plantronics stock is not heavily traded. OurThe average daily trading
volume of our stock in twelve calendar month periods prior to December 31, 2000the first quarter of fiscal 2002 was 196,621approximately
350,563 shares per day with a median volume in that period of 117,850297,700 shares per
day. Sales of a substantial number of shares of common stockour Common Stock in the public
market by CVC or any of our officers, directors or other stockholders could
adversely affect the prevailing market price of the common stockour Common Stock and impair our
ability to raise capital through the sale of equity securities.
19
20
PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Plantronics considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." Plantronics
had no holdings of derivative financial or commodity instruments at December 31,
2000. Plantronics believes it has minimalThe following discusses our exposure to financial market risks and
risks associated withrisk related to changes
in interest rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors including those
set forth in "Risk Factors Affecting Future Operating Results".
INTEREST RATE RISK
At June 30, 2001, we had cash and cash equivalents totaling $54.3
million, compared to $60.5 million at March 31, 2001. At June 30, 2001, we had
marketable securities totaling $23.1 million compared to $13.4 million at March
31, 2001. Cash equivalents have an original maturity of ninety days or less;
marketable securities have an original maturity of greater than ninety days, but
less than one year. We believe we are not currently exposed to significant
interest rate risk as the majority of our combined cash and marketable
securities balances were invested in securities or interest bearing accounts
with maturities of less than ninety days. The average maturity period for our
marketable securities at June 30, 2001 was ten months. The interest rates atlocked
in on those investments ranged from 4.0% to 6.4%. Our investment policy requires
that we only invest in deposit accounts, certificates of deposit or commercial
paper with minimum ratings of A1/P1 and money market mutual funds with minimum
ratings of AAA.
In fiscal 2001, we renewed our $100.0 million revolving credit facility,
including a $10.0 million letter of credit subfacility with a major bank. The
revolving credit facility and letter of credit subfacility both expire in
November 2001. As of June 30, 2001, we have no cash borrowings under the
revolving credit facility. If we choose to borrow under this time.*facility in the
future, and market interest rates rise, then our interest payments would
increase accordingly.
FOREIGN CURRENCY EXCHANGE RATE RISK
In the first three months of fiscal 2002, approximately 34.7% of our net
sales were derived from customers outside the United States, with approximately
21% of total revenues denominated in foreign currencies, predominately the Great
British Pound and the Euro. Beginning in the first quarter of fiscal 2002, we
entered into foreign currency forward exchange contracts to hedge the foreign
exchange exposure of certain forecasted receivables, payables and
See Notes to Unaudited Condensed Consolidated Financial Statements
24
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PLANTRONICS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
cash balances denominated in Great British Pounds and Euros. Gains and losses
associated with currency rate changes on the contracts are recorded in results
of operations, as other income (expenses), offsetting gains and losses on the
related assets and liabilities. The success of the hedging program depends on
forecasts of transaction activity in the various currencies. We have no
assurance that exchange rate fluctuations will not materially adversely affect
our business in the future.
At June 30, 2001, we had $14.7 million of forward-exchange contracts
outstanding, denominated in Euro and Great British Pound, as a hedge against
forecasted foreign currency-denominated receivables, payables and cash balances.
See Notes to Unaudited Condensed Consolidated Financial Statements
25
26
PLANTRONICS, INC.
PART II -II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The 2001 Annual Meeting of Stockholders of Plantronics, Inc. (the
"Company") was held at The Museum of Art History at the McPherson
Center, 705 Front Street, Santa Cruz, California on June 27, 2001 (the
"Annual Meeting").
(b) At the Annual Meeting, the following nine individuals were elected to
the Company's Board of Directors, constituting all members of the Board
of Directors.
Nominee Votes Cast For Withheld or Against
-------------------- -------------- -------------------
Patti Hart 44,304,185 156,062
S. Kenneth Kannappan 39,973,297 4,486,950
Robert F.B. Logan 44,299,926 160,321
M. Saleem Muqaddam 44,299,219 161,028
John M. O'Mara 44,291,142 169,105
Trude C. Taylor 43,698,334 761,913
Marvin Tseu 43,869,321 590,926
David A. Wegmann 44,303,125 157,122
Roger Wery 44,297,666 162,581
(c) The following additional proposals were considered at the Annual Meeting
and were approved by the vote of the Stockholders, in accordance with
the tabulation shown below.
(1) Proposal to amend the 1993 Stock Plan to increase by 2,000,000
shares the number of shares of common stock authorized for
issuance under the plan.
Votes For Votes Against/Withheld Abstain Broker Non-Vote
31,787,217 12,059,519 613,511 -0-
(2) Proposal to ratify the appointment of PricewaterhouseCoopers LLP
as the independent public accountants of the Company for the
fiscal year ending March 31, 2002.
Votes For Votes Against/Withheld Abstain Broker Non-Vote
44,352,908 89,945 17,394 -0-
ITEM 5. OTHER INFORMATION
On June 27, 2001, our Board of Directors approved an increase in the membership
of the Board of Directors increased by one to nine members and elected Roger
Wery to fill the newly created vacancy. Mr. Wery is a partner of Pittiglio Rabin
Todd & McGrath ("PRTM"), a consulting firm. He is currently working with a broad
range of wireline and wireless telecommunications, networking, and computer
companies, and has assisted the senior management teams of these organizations
in formulating and implementing differentiating strategies. Mr. Wery joined PRTM
early in 2000. Prior to joining PRTM, Mr. Wery was an Executive Vice President
of Adventis (previously Renaissance Worldwide, Inc.), an international
consultancy. Mr. Wery joined Adventis in 1994 as a director in the Telecom
Services and Equipment Industry Group.
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits. No exhibits are filed as part of this Quarterly Report on Form
10-Q.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant
during the fiscal quarter ended December 31, 2000.
ItemsJune 30, 2001.
ITEMS 1, 2 AND 3 4 and 5 are not applicable and have been omitted.
20ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
See Notes to Unaudited Condensed Consolidated Financial Statements
26
2127
PLANTRONICS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLANTRONICS, INC.
----------------------------------------------
(Registrant)
FEBRUARY 13, 2000 By:AUGUST 14, 2001 /s/ BARBARABarbara V. SCHERERScherer
- ------------------------- ---------------------------------------------------------- -----------------------------------------
(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)
21See Notes to Unaudited Condensed Consolidated Financial Statements
27