UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 30, 2017
June 29, 2019
or
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to _________
Commission File Number: 001-12696
Plantronics, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | 77-0207692 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
345 Encinal Street
Santa Cruz, California95060
(Address of principal executive offices)
(Zip Code)
(831) (831) 426-5858
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | PLT | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerx | ☒ | Accelerated filero | ☐ |
Non-accelerated filero | ☐ | Smaller reporting companyo | Emerging growth company o
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| | | (Do not check if a smaller reporting company)Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐No x☒
As of January 26, 2018, 33,075,564July 31, 2019, 39,575,910 shares of the registrant's common stock were outstanding.
Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION | Page No. |
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| PART II. OTHER INFORMATION | |
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Plantronics® and, Poly®, Simply Smarter Communications® , and the propeller design are trademarks or registered trademarks of Plantronics, Inc. All other trademarks are the property of their respective owners.
DECT™ is a trademark of ETSI registered for the benefit of its members in France and other jurisdictions.
The Bluetooth name and the Bluetooth® trademarks are owned by Bluetooth SIG, Inc. and are used by Plantronics, Inc. under license. All other trademarks are the property of their respective owners.
Part I -- FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ("Securities Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). Forward-looking statements may generally be identified by the use of such words as "anticipate," "believe," “could,” "expect," "intend," “may,” "plan," "potential," "shall," "will," “would,” or variations of such words and similar expressions, or the negative of these terms. Specific forward-looking statements contained within this Form 10-Q include, but are not limited to, statements regarding (i) our beliefs regarding the EnterpriseUC&C market, market dynamics and opportunities, and customer and partner behavior as well as our position in the market, (ii) our expectations for the impact of the Acquisition as it relates to our strategic vision and additional market opportunities for our combined hardware and services offerings, as well as our plans and expectation for the integration of the operations of Polycom, (iii) our beliefs regarding the Consumer market, our new product introductions and the expected effect of such introductions, (iii) our belief that our "as-a-service" offerings will benefit ourfuture enterprise growth long-term but their contribution will not be material in the near term,drivers, (iv) our intention to provide customer data insight through softwareexpectations regarding the impact of UC&C on headset adoption and service solutions,how it may impact our investment and partnering activities, (v) the Unified Communications ("UC") market, including adoption of UC products, our position,expectations for new and timingnext generation product and growth expectations in this market,services offerings, (vi) our plans regarding our "as a service" offerings including sales and marketing efforts, (vii) our intentions regarding investments in long-term growth opportunities and our core research and development efforts, in particular in the UC market, (viii) our intentions regarding the focus of our sales, marketing and customer services and support teams, on UC, (ix) the future of UC technologies, including the transition of businesses to UC-supported systems and the effects on headset adoption and use, enterprises that adopt UC and our revenue opportunity and profit growth, (x)(vii) our expenses, including research, development and engineering expenses and selling, general and administrative expenses, (xi) fluctuations in our cash provided by operating activities as a result of various factors, including fluctuations in revenues and operating expenses, the timing of compensation-related payments including stock based compensation, timing of product shipments, accounts receivable collections, inventory and supply chain management, and the timing and amount of taxes and other payments, (xii) our future tax rate and payments related to unrecognized tax benefits, (xiii) our anticipated range of capital expenditures for the remainder of Fiscal Year 20182020 and the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements, (xiv) our ability to pay future stockholder dividends, (xv) our ability to draw funds on our credit facility as needed, (xvi) the sufficiency of our capital resources to fund operations, and other statements regarding our future operations, financial condition and prospects, and business strategies. Such forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Factors that could cause actual results and events to differ materially from such forward-looking statements are included, but not limited to, those discussed in this Quarterly Report on Form 10-Q; in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2019, filed with the Securities and Exchange Commission (“SEC”) on May 10, 2017;17, 2019; and other documents we have filed with the SEC. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
We are a leading global designer, manufacturer, and marketer of lightweightintegrated communications and collaboration solutions that span headsets, telephone headset systems, other communication endpoints,open SIP desktop phones, audio and accessories for the worldwide businessvideo conferencing, cloud management and consumer markets under the Plantronics brand.analytics software solutions, and services. Our major product categories are Enterprise Headsets, which includes headsets optimized for Unified Communications (“UC”), other corded and cordless communication headsets, audio processors, and telephone systems; andheadsets; Consumer Headsets, which includes Bluetooth and corded products for mobile device applications, and personal computer gaming headsets. Until July 1, 2017,and gaming; Voice, Video, and Content Sharing Solutions, which includes open SIP desktop phones, conference room phones, and video endpoints, including cameras, speakers and microphones. All of our solutions are designed to work in a wide range of Unified Communications & Collaboration ("UC&C"), Unified Communication as a Service ("UCaaS"), and Video as a Service ("VaaS") environments. Our RealPresence collaboration solutions range from infrastructure to endpoints and allow people to connect and collaborate globally and naturally. In addition, we also offered specialty products marketedoffer comprehensive support services including support for hearing impaired individualsour solutions and hardware devices, as well as professional, hosted, and managed services. We continue to operate under our Clarity brand, which was included in our Consumer product category.a single operating segment.
We shipsell our Enterprise products to approximately 80 countries through a high-touch sales team and a well-developed global network of distributors and channel partners including value-added resellers, integrators, direct marketing resellers, service providers, and resellers. We sell our Consumer products through both traditional and online consumer electronics retailers, resellers,consumer product retailers, office supply distributors, wireless carriers, original equipment manufacturers,catalog and telephony service providers.mail order companies, and mass merchants. We have well-developedwell-established distribution channels in North America,the Americas, Europe, Middle East, Africa, and in some parts of the Asia Pacific region where use of our products is widespread.
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Net Revenues (in millions)
| Operating Income (in millions)
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Compared to the thirdfirst quarter of Fiscal Year 2017,2019 total net revenues decreased 2.7%increased 102% to $226.5 million. The decrease$447.8 million; the increase in total net revenues was driven by lower revenues within our Consumer product category, which declined 22.1%, or $16.7 million, from the year ago period. Of the declines in Consumer, approximately $8.0 millionis primarily related to our acquisition of Polycom, Inc. ("the divestitureAcquisition") which was completed on July 2, 2018. As a result of Claritypurchase accounting, a total of $12.2 million of deferred revenue that otherwise would have been recognized in the first quarter of Fiscal Year 2018. These declines were partially offset2020 was excluded from first quarter revenue of $447.8 million.
The table below summarizes net revenues for the three months ended June 30, 2019 and 2018 by higher revenues within our Enterprise product category, which grew 6.5%, or $10.3 million from the year ago period.categories:
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| (in thousands, except percentages) | | Three Months Ended | | | | |
| | June 30, | | Increase |
| | 2019 | | 2018 | | (Decrease) |
| Enterprise Headsets | | $ | 175,084 |
| | $ | 167,642 |
| | $ | 7,442 |
| | 4.4 | % |
| Consumer Headsets | | 43,566 |
| | 53,667 |
| | (10,101 | ) | | (18.8 | )% |
Voice 1 | | 103,847 |
| | — |
| | 103,847 |
| | 100.0 | % |
Video 1 | | 60,248 |
| | — |
| | 60,248 |
| | 100.0 | % |
Services 2 | | 65,022 |
| | — |
| | 65,022 |
| | 100.0 | % |
| Total | | $ | 447,767 |
| | $ | 221,309 |
| | $ | 226,458 |
| | 102.3 | % |
1 Voice and Video product net revenues presented net of fair value adjustments to deferred revenue of $0.6 million.
2 Services net revenues presented net of fair value adjustments to deferred revenue of $11.6 million.
Operating income for the third quarter of Fiscal Year 2018 was $36.8 million and 16.2% of net revenue, compared to $31.9 million and 13.7% of net revenue in the prior year period. The divestiture of Clarity had a negligible impact on operating income for the third quarter of Fiscal Year 2018, and we expect the impact to be negligible for the full Fiscal Year 2018.Income (Loss) (in millions)
We reported a net loss of $49.5$44.9 million and an operating loss of $28.8 million for the thirdfirst quarter of Fiscal Year 2018, representing2020. We reported a net income of $14.5 million and an operating income of $20.6 million for the first quarter of Fiscal Year 2019. The decrease in our results from operations is primarily due to $45.3 million of 322.8%amortization of purchased intangibles and $20.4 million of post-Acquisition integration related expenses incurred during the first quarter of Fiscal Year 2020. We will continue to work on integrating Polycom into our business in order to streamline our operations and realize synergies from the samecombined companies.
Our strategic initiatives are primarily focused on driving long-term growth through our end-to-end portfolio of audio and video endpoints, including headsets, desktop phones, conference room phones, and video collaboration solutions. The Acquisition positions us as a global leader in communications and collaboration endpoints, target the faster-growing market categories, such as the Huddle Room for video collaboration, allows us to capture additional opportunities through data analytics and insight services across a broad range of communications endpoints, and better positions us with our channel partners, customers and strategic alliance partners to pursue comprehensive solutions to communications challenges in the marketplace, each of which we believe will drive long-term revenue growth.
During the quarter last yearwe focused on integration activities which included various systems integrations for the combined company. We also rationalized our sales channel and driven byintroduced a new consolidated distribution agreement with our partners globally. These efforts are expected to decrease redundancies and leverage our competitive advantages for the impactbenefit of our partners and end customers. We believe the Tax Cuts and Jobs Act ("the Act") that was signed into law on December 22, 2017, whichchanges have resulted in a $76.4 million discrete charge for the quarter. For additional details regarding the impacts of the Act, refershort-term disruptions in our operations which will be resolved as sales and supply partners adjust to the income tax discussion in Results of Operations and Note 13, Income Taxes, in the accompanying footnotes to the condensed consolidated financial statements. In the year ago period net income was $22.2 million and 9.5% of revenues.changes.
Our primary focus, long-term growth opportunities, strategic initiatives, and majority of our revenue and profits are inWithin the market for our Enterprise business. Within the Enterprise product category,Headsets, we anticipate the key driver of long-term revenue growth and profit opportunityover the next few years will continue to be the continued adoption of UC audio&C solutions. We believe enterprises are increasing their adoption of UC&C systems to reduce costs, improve collaboration, and migrate technology from obsolete legacy systems.to more capable and flexible technology. We expect the growth of UC&C solutions will increase overall headset adoption in enterprise environments, and we believe most of the growth in our Enterprise Headsets product category over the next three years will come from headsets designed for UC. As such, UC remains the central focus of our sales, marketing, and support functions, and we will continue investing in key strategic alliances and integrations with major UC vendors.&C.
Our Enterprise revenues increased in the third quarter of Fiscal Year 2018 when compared to the same prior year period, resulting from continued growth in UC product sales, which grew at a rate above our long-term growth expectations, partially offset by declines in sales of non-UC corded and cordless products.
Revenues from our Consumer productsHeadsets are seasonal and typically strongest in our third fiscal quarter, which includes the majority of the holiday shopping season. Additionally, otherOther factors that directly impact our Consumerperformance in the product category performance, such asinclude product life-cycleslife cycles (including the introduction and pace of adoption of new technology), the market acceptance of new product introductions, consumer preferences and the competitive retail environment, changes in consumer confidence and other macroeconomic factors, and fluctuations in foreign currency rates relative to the U.S. Dollar ("USD").factors. In addition, the timing or non-recurrence of retailer product placements can cause volatility in quarter-to-quarter results.
When comparedIn an effort to the same prior year period, the decline inalign our strategy and focus on our core enterprise markets, we announced on May 7, 2019 that we intend to evaluate strategic alternatives for our Consumer revenues in the third quarter of Fiscal Year 2018 was primarily attributable to a decline in sales of our stereo Bluetooth products where new product introductionsHeadset products. We have not yet fully integrated intodetermined the market to replace revenues from certain older stereo products. Consumer product refreshes and launches typically take multiple quarters to fully integrate into the market, and it is difficult to predict at what point, if ever, these products will materially contribute to resultstiming, structure, or replace the salesfinancial impact of preceding models. We are currently refreshing our Consumer portfolio, having recently launched the BackBeat 300 and 500, refreshed BackBeat FIT Training and Boost editions, and RIG 800 series. Additionally, the divestiture of our Clarity line of business negatively impacted our Consumer results when compared to the same prior year period.any potential transaction.
We continue to invest in new ideas and technology to create additional growth opportunities, such as Plantronics Manager Pro, our software-as-a-service ("SaaS") data insights offering introduced in Fiscal Year 2017, and Habitat Soundscaping, our intelligent acoustic management solution launched in July 2017. While we anticipate these investments will benefit our growth in the long term, their contribution will not be material in the near term.
We remain cautious about the macroeconomic environment, based primarily on uncertainty around trade and fiscal policy in the U.S. and internationally and broader economic uncertainty in many parts of Europe and Asia Pacific.Pacific, which makes it difficult for us to gauge the economic impacts on our future business. We will continue to monitor our expenditures and prioritize thoseexpenditures that further our strategic long-term growth opportunities, such as innovative product development. UC and SaaS are the central focus of our sales force, marketing group, and other customer service and support teams as we continue investing in key strategic alliances and integrations with major UC vendors, and work to expand the market opportunity for our SaaS offering.opportunities.
RESULTS OF OPERATIONS
The following graphs display net revenues by product category for the three and nine months ended December 31, 2016June 30, 2019 and 2017:2018:
Net Revenues(in millions)
Revenue by Product Category (percent)
Net* These product categories were created as a result of the Acquisition, SeeNote 3, Acquisition, of the accompanying notes to condensed consolidated financial statements.
Total net revenues decreasedincreased in the three and nine months ended December 31, 2017June 30, 2019 compared to the prior year periods due primarily to lowerthe Acquisition as well as higher revenues within our ConsumerEnterprise Headset product category partially offset by increasesdeclines in our Consumer Headset product category. The growth in our Enterprise product revenuesHeadset category was driven by UC&C product revenues and the decline in our Consumer Headset category was driven by Gaming and Mono product revenues.
Geographic Information (in millions) Revenue by Region (percent)
Compared to the same prior year periods,period, U.S. net revenues decreased infor the three and nine months ended December 31, 2017June 30, 2019 increased due primarily to a decline in Consumerthe Acquisition, as well as higher revenues within our Enterprise Headsets product sales volumes,category driven by a declinegrowth in UC&C revenues partially offset by continued declines in our non-UC&C product revenues. Consumer Headsets product revenues were down, driven by declines in sales of our stereo Bluetooth products and the divestiture of our Clarity business. These declines were partially offset by increases in Enterprise, resulting from continued growth in UC within both the Voyager and Blackwire product families.Gaming products.
International net revenues for the three and nine months ended December 31, 2017June 30, 2019 increased from the same prior year ago periodsperiod due primarily to the Acquisition as well as growth in our Enterprise Headsets category driven primarily by UC&C product sales. ChangesThis growth was partially offset by declines in foreign exchange rates increased netour Consumer Headset product revenues by $4.1 million, netas a result of the effectsdeclines in sales of hedging, forour Gaming and Mono products.
During the three months ended December 31, 2017, compared to an immaterial impact in the prior year period. During the nine months ended December 31, 2017,June 30, 2019, changes in foreign exchange rates positivelynegatively impacted net revenues by $1.3$3.9 million, net of the effects of hedging, compared to an immaterial amounta $6 million favorable impact on net revenues in the prior year period.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues consists primarily of direct and contract manufacturing costs, warranty, freight, depreciation, duties, charges for excess and obsolete inventory, royalties, and overhead expenses.
| | | | | Three Months Ended | | | | Nine Months Ended | | | | Three Months Ended | | |
| | | December 31, | | Increase | | December 31, | | Increase | | June 30, | | Increase |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) | | 2019 | | 2018 | | (Decrease) |
| Net revenues | | $ | 232,933 |
| | $ | 226,534 |
| | $ | (6,399 | ) | | (2.7 | )% | | $ | 672,222 |
| | $ | 640,760 |
| | $ | (31,462 | ) | | (4.7 | )% | |
| Total net revenues | | | $ | 447,767 |
| | $ | 221,309 |
| | $ | 226,458 |
| | 102.3 | % |
| Cost of revenues | | 122,753 |
| | 112,409 |
| | (10,344 | ) | | (8.4 | )% | | 338,523 |
| | 315,720 |
| | (22,803 | ) | | (6.7 | )% | | 235,121 |
| | 111,466 |
| | 123,655 |
| | 110.9 | % |
| Gross profit | | $ | 110,180 |
| | $ | 114,125 |
| | $ | 3,945 |
| | 3.6 | % | | $ | 333,699 |
| | $ | 325,040 |
| | $ | (8,659 | ) | | (2.6 | )% | | $ | 212,646 |
| | $ | 109,843 |
| | $ | 102,803 |
| | 93.6 | % |
| Gross profit % | | 47.3 | % | | 50.4 | % | |
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| | | | 49.6 | % | | 50.7 | % | | | | | | 47.5 | % | | 49.6 | % | |
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Compared to the same prior year periods,period, gross profit as a percentage of net revenues increaseddecreased in the three and nine months ended December 31, 2017,June 30, 2019, due primarily to product cost reductions$30.0 million of amortization of purchased intangibles and a favorable product mix. Gross profit for the nine months ended December 31, 2017 was also negatively impacted by the loss recorded on the sale$12.2 million of our Clarity division and the write-off of an indirect tax asset in our Brazilian entity, both of which are discussed in detail indeferred revenue fair value adjustment, respectively. See Note 8, Restructuring and other related charges (credits), in the 3, Acquisition, accompanying footnotesnotes to the condensed consolidated financial statements.statements. These increased costs were partially offset by material cost reductions.
There are significant variances in gross profit percentages between our higher and lower margin products;products including Polycom products acquired through the Acquisition; therefore, small variations in product mix, which can be difficult to predict, can have a significant impact on gross profit as a percentage of net revenues. Gross profit percentages may also vary based on distribution channel,channels, return rates, and other factors.
RESEARCH, DEVELOPMENT, AND ENGINEERINGOPERATING EXPENSES
Operating expenses consists primarily of research, development and engineering; selling, general and administrative; gain, net of litigation settlements and restructuring and other related charges (credits) expenses which are summarized in the table below for the three months ended June 30, 2019 and 2018:
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| | | Three Months Ended | | | |
| | | June 30, | | Increase | |
| (in thousands, except percentages) | | 2019 | | 2018 | | (Decrease) | |
| Research, development, and engineering | | $ | 59,524 |
| | $ | 23,701 |
| | $ | 35,823 |
| | 151 | % | |
| Selling, general and administrative | | 163,608 |
| | 64,203 |
| | 99,405 |
| | 155 | % | |
| Gain, net of litigation settlements | | (1,162 | ) | | (30 | ) | | (1,132 | ) | | 3,773 | % | |
| Restructuring and other related charges | | 19,525 |
| | 1,320 |
| | 18,205 |
| | 1,379 | % | |
| Total Operating Expenses | | $ | 241,495 |
| | $ | 89,194 |
| | $ | 152,301 |
| | 171 | % | |
| % of net revenues | | 53.9 | % | | 40.3 | % | |
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Our Research, development, and engineering costs are expensed as incurredexpenses and consist primarily of compensation costs, outside services, including legal fees associated with protecting our intellectual property, expensed materials, travel expenses, depreciation, and overhead expenses.
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| | | Three Months Ended | | | | Nine Months Ended | | |
| | | December 31, | | Increase | | December 31, | | Increase |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) |
| Research, development, and engineering | | $ | 21,393 |
| | $ | 21,257 |
| | $ | (136 | ) | | (0.6 | )% | | $ | 66,116 |
| | $ | 62,402 |
| | $ | (3,714 | ) | | (5.6 | )% |
| % of net revenues | | 9.2 | % | | 9.4 | % | |
| | | | 9.8 | % | | 9.7 | % | | | | |
During the three and nine months ended December 31, 2017, research, development, and engineering expenses declined when compared to the prior year periods due primarily to lower compensation expenses, driven primarily by reduced funding of our variable compensation plans and cost reductions from our restructuring actions initiated in prior periods.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses consist primarily of compensation costs, marketing costs, travel expenses, litigation and professional service fees, and overhead expenses.
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| | | Three Months Ended | | | | Nine Months Ended | | |
| | | December 31, | | Increase | | December 31, | | Increase |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) |
| Selling, general, and administrative | | $ | 56,919 |
| | $ | 56,196 |
| | $ | (723 | ) | | (1.3 | )% | | $ | 169,581 |
| | $ | 170,125 |
| | $ | 544 |
| | 0.3 | % |
| % of net revenues | | 24.4 | % |
| 24.8 | % | |
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| | | | 25.2 | % |
| 26.6 | % | | | | |
Compared to the same year ago periods, selling, general and administrative expenses were flat in the three and nine months ended December 31, 2017, with increases in legal fees related to our litigation with GN Netcom being offset by lower compensation expenses, driven primarily by reduced funding of our variable compensation plans, lower executive transition costs, cost savings from cost control initiatives and prior period restructuring actions. The litigation with GN Netcom was resolved in October 2017 in favor of the Company on all counts, as discussed further in Note 6, Commitments and Contingencies, in the accompanying footnotes to the condensed consolidated financial statements. As such, we expect legal fees to decrease in future quarters given there are currently no material outstanding legal matters.
(GAIN) LOSS, NET FROM LITIGATION SETTLEMENTS
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| | | Three Months Ended | | | | Nine Months Ended | | |
| | | December 31, | | Increase | | December 31, | | Increase |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) |
| (Gain) loss, net from litigation settlements | | $ | (103 | ) | | $ | (15 | ) | | $ | 88 |
| | (85.4 | )% | | $ | 4,287 |
| | $ | (295 | ) | | $ | (4,582 | ) | | (106.9 | )% |
| % of net revenues | | — | % | | — | % | | | | | | 0.6 | % | | — | % | | | | |
We recognized immaterial gains from litigation inincreased during the three months ended December 31, 2016 and 2017. In the nine months ended December 31, 2017, we recognized immaterial gains comparedJune 30, 2019, primarily due to the prior year period when we recognized a $4.9inclusion of Polycom operating expenses after the Acquisition, as well as $19.5 million charge related to discovery sanctions inof Acquisition-related integration costs and $15.3 million of amortization of purchased intangibles incurred during the GN Netcom litigation.period.
RESTRUCTURING AND OTHER RELATED CHARGES (CREDITS)
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| | | Three Months Ended | | | | Nine Months Ended | | |
| | | December 31, | | Increase | | December 31, | | Increase |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) |
| Restructuring and other related charges (credits) | | $ | 113 |
| | $ | (84 | ) | | $ | (197 | ) | | (174.3 | )% | | $ | (1,350 | ) | | $ | 2,438 |
| | $ | 3,788 |
| | (280.6 | )% |
| % of net revenues | | — | % | | — | % | | | | | | (0.2 | )% | | 0.4 | % | | | | |
In the three months ended December 31, 2016 and 2017, we recognized immaterial adjustments resulting from changes to the estimates related to restructuring actions recorded in prior periods.
Compared to the prior year period, restructuring and other related charges (credits) increased in the ninethree months ended December 31, 2017,June 30, 2019, due primarily to restructuring actions initiated during the first quarter of Fiscal Year 2018. Inperiod to streamline the prior year period we recorded a net reduction to expenses resulting from changes to the estimates related to our restructuring actions recorded in Fiscal Year 2016.
global workforce and achieve planned synergies. For more information regarding restructuring activities, refer toactivities. See Note 8, 10, Restructuring and other related charges (credits)Other Related Charges, of the accompanying notes to condensed consolidated financial statements.
INTEREST EXPENSE
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| | | Three Months Ended | | | |
| | | June 30, | | Increase | |
| (in thousands, except percentages) | | 2019 |
| 2018 | | (Decrease) | |
| Interest expense | | $ | (23,932 | ) | | $ | (7,327 | ) | | $ | 16,605 |
| | 226.6 | % | |
| % of net revenues | | (5.3 | )% | | (1.6 | )% | | | | | |
Interest expense increased for the three and nine months ended December 31, 2016 and 2017 was $7.3 million and $21.9 million, respectively and relatesJune 30, 2019 primarily due to interest incurred on our 5.50% Senior Notes.Credit Facility Agreement entered into in connection with the Acquisition. See Note 9, Debt, of the accompanying notes to condensed consolidated financial statements.
OTHER NON-OPERATING INCOME, AND (EXPENSE), NET
| | | | | Three Months Ended | | | | Nine Months Ended | | | | Three Months Ended | | | |
| | | December 31, | | Increase | | December 31, | | Increase | | June 30, | | Increase | |
| (in thousands, except percentages) | | 2016 | | 2017 | | (Decrease) | | 2016 | | 2017 | | (Decrease) | | 2019 | | 2018 | | (Decrease) | |
Other non-operating income and (expense), net
| | $ | 427 |
| | $ | 2,490 |
| | $ | 2,063 |
| | 483.1 | % | | $ | 4,119 |
| | $ | 5,230 |
| | $ | 1,111 |
| | 27.0 | % | |
| Other non-operating income, net | | | $ | 333 |
| | $ | 1,996 |
| | $ | (1,663 | ) | | (83.3 | )% | |
| % of net revenues | | 0.2 | % | | 1.1 | % | | | | | | 0.6 | % | | 0.8 | % | | | | | | 0.1 | % | | 0.9 | % | | | | | |
Other non-operating income, and (expense), net for the three months ended December 31, 2017 increasedJune 30, 2019 decreased primarily due to favorable changeslower interest income as our investment portfolios were liquidated during the First Quarter of Fiscal Year 2019 to facilitate the Acquisition.
INCOME TAX EXPENSE (BENEFIT)
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | |
| | | June 30, | | Increase | |
| (in thousands except percentages) | | 2019 |
| 2018 | | (Decrease) | |
| Income (loss) before income taxes | | $ | (52,448 | ) | | $ | 15,318 |
| | $ | (67,766 | ) | | (442.4 | )% | |
| Income tax expense (benefit) | | (7,577 | ) | | 847 |
| | (8,424 | ) | | (994.6 | )% | |
| Net income (loss) | | $ | (44,871 | ) | | $ | 14,471 |
| | $ | (59,342 | ) | | (410.1 | )% | |
| Effective tax rate | | 14.4 | % | | 5.5 | % | |
|
| |
| |
The Company and its subsidiaries are subject to taxation in the Mexican Peso exchangeU.S. and in various foreign and state jurisdictions. Our tax provision or benefit is determined using an estimate of our annual effective tax rate and an increaseadjusted for discrete items that are taken into account in interest income from higher average yields on our investment portfolio.
Other non-operating income and (expense), netthe relevant period. The effective tax rates for the ninethree months ended December 31, 2017 increasedJune 30, 2019 and 2018 were 14.4% and 5.5%, respectively.
The annual effective tax rates as of June 30, 2019 and 2018 varied from the statutory tax rate of 21% primarily due to increases in interestour jurisdictional mix of income, from higher average yields on our investment portfolio.state taxes, U.S. taxation of foreign earnings, and R&D credits.
INCOME TAX EXPENSEDuring the quarter ended June 30, 2019, we recognized a discrete $11.6 million tax benefit related to an intra-entity transfer of an intangible asset that will have a deferred future benefit, for which we established a deferred tax asset.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | | Nine Months Ended | | | | |
| | | December 31, | | Increase | | December 31, | | Increase |
| (in thousands except percentages) | | 2016 |
| 2017 | | (Decrease) | | 2016 |
| 2017 | | (Decrease) |
| Income before income taxes | | $ | 24,963 |
| | $ | 31,920 |
| | $ | 6,957 |
| | 27.9 | % | | $ | 77,317 |
| | $ | 73,696 |
| | $ | (3,621 | ) | | (4.7 | )% |
| Income tax expense | | 2,742 |
| | 81,424 |
| | 78,682 |
| | 2,869.5 | % | | 14,235 |
| | 84,419 |
| | 70,184 |
| | 493.0 | % |
| Net income | | $ | 22,221 |
| | $ | (49,504 | ) | | $ | (71,725 | ) | | (322.8 | )% | | $ | 63,082 |
| | $ | (10,723 | ) | | $ | (73,805 | ) | | (117.0 | )% |
| Effective tax rate | | 11.0 | % | | 255.1 | % | |
|
| |
| | 18.4 | % | | 114.6 | % | | | | |
On December 22,June 7, 2019, a Ninth Circuit panel reversed the United States Tax Court’s holding in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. At this time, the taxpayer is still eligible to protest the decision. We have considered the issue and have recorded a $8.6 million discrete tax charge resulting from the cost sharing of prior stock-based compensation, partially offset by a reduction to the 2017 the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into lawtoll charge accrued in prior periods. We will continue to monitor developments related to the United States. The Act includes several changes to existing tax law, including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%case and the move from a worldwide to a territorial tax system.
The move to a territorial tax system was accompanied by federal taxation of a one-time deemed repatriation of accumulated unremitted earnings (hereafter, the "toll charge"), which we will elect to pay over an eight-year period as permitted under the Act. We recorded a $69.3 million toll charge as part of income tax expense in the quarter ended December 31, 2017, representing a provisional estimate that will be finalized when we complete our review of data spanning a 30-year period. The provisional toll charge increased our effective tax rate by 217.2% and 94.1% for the three and nine months ended December 31, 2017, respectively.
As part of the Act, we also completed our remeasurement of deferred tax assets as of December 31, 2017 to the new future federal tax rate of 21.0%, thereby reducing our deferred tax assets by $2.1 million. The rate change resulted in an overall increase to our effective tax rate by 6.6% and 2.9% for the three and nine months ended December 31, 2017, respectively. In addition, prior to our third quarter of Fiscal Year 2018, we did not recognize a deferred tax liability related to unremitted foreign earnings because our plans did not require us to repatriate earnings from foreign operations to fund U.S. operations. We expect to fund payment of the toll charge by repatriating a portion of our foreign earnings and as such, have recorded a deferred tax liability of $5.0 million related to state income taxes and foreign withholding taxes that will become due as we repatriate our foreign earnings. This increased our effective tax rate by 15.6% and 6.8% for the three and nine months ended December 31, 2017, respectively. Finally, due to our fiscal year-end we are required to pro-rate the new and old tax rates during Fiscal Year 2018. The blended, annualized tax rate applied to Fiscal Year 2018 income is 31.56%. This reduction in the federal tax rate reduced our global tax rate by 2.3% and 1.0% for the three and nine months ended December 31, 2017, respectively.
The provisional estimate for the toll charge will be finalized when we complete our substantive review of unremitted foreign earnings through examination of statutory filings and tax returns of our foreign subsidiaries and fiscal branches that span a 30-year period. We must also analyze the impact of foreign exchange rates and inflation on the historical information to support foreign tax credits available to offset the toll charge. In addition, our estimate of the toll charge obligation may change due to legislative technical corrections, the IRS' promulgation of regulations to interpret the Act, and changes in accounting standards for income taxes or related interpretations in response to the Act. This review and finalization of the toll charge provisional estimate will be completed within a twelve month measurement period from the date of enactment.
We adopted the new stock-based compensation accounting guidance effective the beginning of Fiscal Year 2018. Excess tax benefits associated with employee equity plans were previously recorded in additional paid-in capital and the adoption of this guidance had an immaterialpotential impact on our effective tax rate for the three months ended December 31, 2017, but resulted in a reduction to our effective tax rate by 2.6 percentage points for the nine months ended December 31, 2017. The amount of excess tax benefits or deficiencies will fluctuate from period-to-period based on the price of our stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP.
We recorded a correction to the geographic mix of income during the nine months ended December 31, 2017 related to Fiscal Year 2017, which reduced income in a high tax jurisdiction and increased income in a low tax jurisdiction. This correcting adjustment had no impact on the three months ended December 31, 2017, but resulted in a reduction to our effective tax rate by 3.5 percentage points for the nine months ended December 31, 2017 as compared to the prior year period. For additional details regarding this correction refer to Note 1, Basis of Presentation, in the accompanying footnotes to the condensedits consolidated financial statements.
We are subject to taxation in various foreign and state jurisdictions, including the U.S. Our Fiscal Year 2016 federal income tax return is currently under examination by the Internal Revenue Service. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to Fiscal Year 2012.
FINANCIAL CONDITION
|
| | |
Operating Cash Flow (in millions) | Investing Cash Flow(in millions) | Financing Cash Flow (in millions) |
| | |
Our primary source of liquidity isWe use cash provided by operating activities and, on occasion, financing obtained from capital markets and other financing sources, such as our revolving credit line. We believe that internally generated cash flows are generally sufficient to support our business operations, capital expenditures, restructuring activities, principal and interest paymentprimary source of debt, income tax payments and the payment of stockholder dividends, in addition to investments and share repurchases.liquidity. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenues, and operating income, the timing of compensation-related payments such as our annual bonus/variable compensation plan and Employee Stock Purchase Plan ("ESPP"), integration costs related to the Acquisition, product shipments during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax interest, annual bonus, and other payments.
Operating Activities
Compared to the same year ago period, net cash provided by operating activities during the ninethree months ended December 31, 2017June 30, 2019 decreased primarily due to cash paid for interest payments on long-term debt, integration related expenses, and restructuring activities that did not occur in the comparative period. The decrease was partially offset by higher cash collections from customers as a result of higher payouts in the first quarter of Fiscal Year 2018 related to Fiscal Year 2017 variable compensation than payouts during the prior year period for Fiscal Year 2016 variable compensation, due to better achievements against Corporate targets in Fiscal Year 2017.increased revenue.
Investing Activities
Compared to the same year ago period, weNet cash used more cash for investing activities during the ninethree months ended December 31, 2017June 30, 2019 was primarily used for increased investment purchases, netthe purchase of proceeds received from the salepersonal property, plant and maturity of securities in our portfolio. This increase was partially offset by lower capital expenditures.equipment.
We estimate total capital expenditures for Fiscal Year 20182020 will be approximately $14.0$40 million to $17.0$50 million. We expect capital expenditures for the remainder of Fiscal Year 20182020 to consist primarily of ITnew information technology investments, capital investment in our manufacturing capabilities, including tooling for new products, and facilities upgrades.
Financing Activities
Net cash used for financing activities during the ninethree months ended December 31, 2017 increased fromJune 30, 2019, consisted primarily of taxes paid on behalf of employees related to net share settlements of vested employee equity awards and payment of the prior year period resulting primarily from an increase in cash used for common stock repurchases due to a lower average stock price, partially offset by higher net proceeds from stock-based compensation plans.
On January 30, 2018, we announced that the Audit Committee of our Board ("the Audit Committee") had declared a cash dividend of $0.15 per share, payable on March 9, 2018 to stockholders of record at the close of business on February 20, 2018. We expect to continue paying a quarterly dividend of $0.15 per share; however, the actual declaration of dividends and the establishment of record and payment dates are subject to final determination by the Audit Committee each quarter after its review ofon our financial performance and financial position.common stock.
Liquidity and Capital Resources
Our primary sources of liquidity as of June 30, 2019, consisted of cash, cash equivalents, and short-term investments, cash we expect to generate from operations, and a $100 million revolving credit facility. At December 31, 2017,June 30, 2019, we had working capital of $619.4$214.2 million, including $499.1$206.1 million of cash, cash equivalents, and short-term investments, compared with working capital of $581.8$252.9 million, including $480.1$215.8 million of cash, cash equivalents, and short-term investments at March 31, 2017. 2019. The decrease in working capital at June 30, 2019 compared to March 31, 2019 resulted from the net decrease in cash and cash equivalents and a net increase in accounts payable due to payment timing.
Our cash and cash equivalents as of December 31, 2017June 30, 2019 consisted of bank deposits with third party financial institutions, US Treasury Bills, and Commercial Paper.institutions. We monitor bank balances in our operating accounts and adjust the balances as appropriate. Cash balances are held throughout the world, including substantial amounts held outside of the U.S. As of December 31, 2017,June 30, 2019, of our $499.1$206.1 million of cash, cash equivalents, and short-term investments, $17.8$60.6 million was held domestically while $481.2$145.5 million was held by foreign subsidiaries, and approximately 90% of which61% was based in USD-denominated investments.
Prior to our third quarter of Fiscal Year 2018, we did not recognize a deferred tax liability related to unremitted foreign earnings because our plans did not require us to repatriate earnings from foreign operations to fund our U.S. operations. The Tax Cuts and Jobs Act (H.R. 1) (the "Act") was signed into law in the U.S. on December 22, 2017, which, among other things, introduced the move from a worldwide to a territorial tax system and imposed a one-time tax on a deemed repatriation of accumulated foreign earnings (hereafter, the "toll charge"). We recorded a $69.3 million toll charge as part of income tax expense ininstruments. During the quarter ended December 31, 2017, representing a provisional estimateJune 30, 2018, we sold most of our obligationshort-term investments to generate cash to fund the Acquisition on July 2, 2018. As of June 30, 2019, our remaining investments were composed of Mutual Funds.
During Fiscal Year 2019, in connection with the Acquisition, we entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and which we will pay overthe lenders party thereto (the “Credit Agreement”). The Credit Agreement replaced our prior revolving credit facility in its entirety. The Credit Agreement provides for (i) a revolving credit facility with an eight-year period as permittedinitial maximum aggregate amount available of $100 million that matures in July 2023 and (ii) a $1.275 billion term loan facility that matures in July 2025. On July 2, 2018, the Company borrowed the full amount available under the Act. We expectterm loan facility of $1.245 billion, net of approximately $30 million of discounts and issuance costs. Borrowings under the Credit Agreement bear interest due on a monthly basis at a variable rate equal to fund payment(i) LIBOR plus a specified margin, or (ii) the base rate (which is the highest of (a) the toll chargeprime rate publicly announced from time to time by repatriatingWells Fargo Bank, National Association, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a portion of our foreign earnings and as such, we recorded a deferred tax liability of $5 million related to state income taxes and foreign withholding taxes that will become due as we repatriate foreign earnings. For additional details, refer tospecified margin. See Note 13, Income Taxes9, Debt, in the accompanying footnotesnotes to the condensed consolidated financial statements.
Our primary discretionaryOn July 30, 2018, we entered into a 4-year amortizing interest rate swap agreement with Bank of America, NA. The swap has an initial notional amount of $831 million and matures on July 31, 2022. The purpose of this swap is to hedge against changes in cash requirements have historically beenflows (interest payments) attributable to fluctuations in the contractually specified LIBOR interest rate associated with our credit facility agreement. The swap involves the receipt of floating-rate amounts for repurchases of our common stock and to fund stockholder dividends. As a result of the issuance of the 5.50% Senior Notes in May 2015, we are required to makefixed interest rate payments of approximately $13.8 million each November and May throughover the life of the notes. Both theagreement. We have designated this interest paymentsrate swap as a cash flow hedge. The derivative is valued based on prevailing LIBOR rate curves on the 5.50% Senior Notes anddate of measurement. We also evaluate counterparty credit risk when we calculate the payments forfair value of the toll charge described above will decrease our liquidity. We generate sufficient operating cash flow and have access to external funding under our revolving credit facility to provide for these payments.swap. For additional details, refersee Note 14, Derivatives, of the accompanying notes to condensed consolidated financial statements.
During Fiscal Year 2016, we obtained $488.4 million from debt financing, net of issuance costs. The debt matures on May 31, 2023 and bears interest at a rate of 5.50% per annum, payable semi-annually on May 15 and November 15 of each year. See Note 7, Debt9, and Note 13, Income TaxesDebt, in the accompanying footnotesnotes to the condensed consolidated financial statements.
Our short and long-term investments are intended to establish a high-quality portfolio that preserves principal and meets liquidity needs. As of December 31, 2017, our investments were composed of Mutual Funds, US Treasury Notes, Government Agency Securities, Commercial Paper, Corporate Bonds, and Certificates of Deposits ("CDs").
From time to time, depending on market conditions, our Board has authorized plansof Directors ("the Board") authorizes programs under which we may repurchase shares of our common stock in the open market or through privately negotiated transactions.transactions, including accelerated stock repurchase agreements. On November 28, 2018, the Board approved a 1 million share repurchase program expanding our capacity to repurchase shares to approximately 1.7 million shares. During the nine months ended December 31, 2017,first quarter of Fiscal Year 2020, we repurchased 1,138,903did not repurchase any shares of our common stock in the open market as part of these publicly announced repurchase programs. The total cost of these repurchases was $52.9 million, with an average price of $46.46 per share. In addition, we withheld 210,416 shares with a total value of $11.2 million in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans.
stock. As of December 31, 2017,June 30, 2019, there remained 730,9321,369,014 shares authorized for repurchase under the existing stock repurchase program approved by the Board on July 27, 2017. For more information regarding our stock repurchase programs, refer toprogram. See Note 10, 12, Common Stock Repurchases, in the accompanying notes to the condensed consolidated financial statements.
In May 2011, we entered into a credit agreement with Wells Fargo Bank, National Association ("the Bank"), which was most recently amended in April 2017 (as amended, the "Credit Agreement"). The Credit Agreement provides for a $100.0 million unsecured revolving credit facility. Revolving loans under the Credit Agreement will bear interest, at our election, at (i) the Bank’s announced prime rate less 1.20% per annum or (ii) a daily one-month LIBOR rate plus 1.40% per annum. Principal, together with all accrued and unpaid interest, on the revolving loans is due and payable on May 9, 2020. We are also obligated to pay a commitment fee of 0.37% per annum on the average daily unused amount of the revolving line of credit, which fee shall be payable quarterly in arrears. We may prepay the loans and terminate the commitments under the Credit Agreement at any time, without premium or penalty, subject to the reimbursement of certain costs. During the third quarter of Fiscal Year 2018 we borrowed and repaid $8 million from our line of credit and as of December 31, 2017, we had no outstanding borrowings. The line of credit requires us to comply with the following two financial covenant ratios, in each case at each fiscal quarter end and determined on a rolling four-quarter basis:
maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") of 3.25:1 (previously 3:1); and
minimum EBITDA coverage ratio, which is calculated as interest payments divided by EBITDA.
In addition, we and our subsidiaries are required to maintain unrestricted cash, cash equivalents, and marketable securities plus availability under the Credit Agreement at the end of each fiscal quarter of at least $300.0 million. The Credit Agreement contains customary events of default that include, among other things, payment defaults, covenant defaults, cross-defaults with certain other indebtedness, bankruptcy and insolvency defaults, and judgment defaults. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. As of December 31, 2017, we were in compliance with all ratios and covenants.
During Fiscal Year 2016, we obtained $488.4 million in aggregate principal amount, net of issuance costs, from the issuance of our 5.50% Senior Notes. The Notes mature on May 31, 2023, and bear interest at a rate of 5.50% per annum, payable semi-annually
on May 15 and November 15. A portion of the proceeds was used to repay all then-outstanding amounts under our revolving line of credit agreement with Wells Fargo Bank and the remaining proceeds were used primarily for share repurchases.
Our liquidity, capital resources, and results of operations in any period could be affected by repurchases of our common stock, the payment of cash dividends, the exercise of outstanding stock options, restricted stock grants under stock plans, and the issuance of common stock under our Employee Stock Purchase Plan ("ESPP"). The Acquisition has negatively affected our liquidity and leverage ratios. To reduce our debt leverage ratios, we expect to prioritize the repayment of the debt under the Credit Agreement.
Additionally, the Acquisition impacted our cash conversion cycle due to Polycom's use of third-party partner financing and early payment discounts to drive down cash collection cycles.
We also receive cash from the exercise of outstanding stock options under our stock plan and the issuance of shares under our ESPP. However, the resulting increase in the number of outstanding shares from these equity grants and issuances could affect our earnings per share. We cannot predict the timing or amount of proceeds from the sale or exercise of these securities or whether they will be exercised, forfeited, canceled, or will expire.
On August 6, 2019, we announced that the Audit Committee of our Board declared a cash dividend of $0.15 per share, payable on September 10, 2019 to stockholders of record at the close of business on August 20, 2019.
We believe that our current cash and cash equivalents, short-term investments, cash provided by operations, and the availability of additional funds under the Credit Agreement will be sufficient to fund operations for at least the next 12 months; however, any projections of future financial needs and sources of working capital are subject to uncertainty. Readers are cautioned to review the risks, uncertainties, and assumptions set forth in this Quarterly Report on Form 10-Q, including the section entitled "Certain"Certain Forward-Looking Information"Information" and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2019, filed with the SEC on May 10, 2017,17, 2019, and other periodic filings with the SEC, any of which could affect our estimates for future financial needs and sources of working capital.
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have not entered into any transactions with unconsolidated entities giving rise towhereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides us with financing and liquidity support, market risk, or credit risk support.
A substantial portion of the raw materials, components, and subassemblies used in our products are provided by our suppliers on a consignment basis. These consigned inventories are not recorded on our consolidated balance sheet until we take title to the raw materials, components, and subassemblies, which occurs when they are consumed in the production process. Prior to consumption in the production process, our suppliers bear the risk of loss and retain title to the consigned inventory. The terms of the agreements allow us to return parts in excess of maximum order quantities to the suppliers at the supplier’s expense. Returns for other reasons are negotiated with the suppliers on a case-by-case basis and to date have been immaterial. If our suppliers were to discontinue financing consigned inventory, it would require us to make cash outlays and we could incur expenses which, if material, could negatively affect our business and financial results. As of June 30, 2019, and March 31, 2017 and December 31, 2017,2019, we had off-balance sheet consigned inventories of $52.3$48.2 million and $56.1$47.1 million, respectively.
Unconditional Purchase Obligations
We utilizeuse several contract manufacturers to procuremanufacture raw materials, components, and subassemblies for our products. We provide these contract manufacturers with demand information that typically covers periods up to 13 weeks, and they use this information to acquire components and build products. We also obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of December 31, 2017,June 30, 2019, we had outstanding off-balance sheet third-party manufacturing, component purchase, and other general and administrative commitments of $192.3$406.4 million, including the off-balance sheet consigned inventories of $56.1$48.2 million as discussed above.
During the quarter ended December 31, 2017, our short and long-term tax obligations increased dueabove, of which we expect to introduction of the Tax Cuts and Jobs Act (H.R. 1) (the “Act”), signed into law on December 22, 2017 and requiring the payment of a one-time deemed repatriation of accumulated unremitted earnings (the "toll charge"). As permitted under the Act, we have elected to pay the toll charge obligation over an 8-year period, as follows:
|
| | | | | | | | | | | | | | | |
| (in millions) | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
| Toll charge | $ | 69.3 |
| $ | 5.5 |
| $ | 11.0 |
| $ | 11.2 |
| $ | 41.6 |
|
For additional details regarding the Act and the toll charge, refer to Note 13, Income Taxes,consume in the accompanying footnotes to the condensed consolidated financial statements.normal course of business.
Except as described above, there have been no material changes in our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2019.
CRITICAL ACCOUNTING ESTIMATES
For a complete description of what we believe to be the critical accounting estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2019, filed with the SEC on May 10, 2017. 17, 2019.
During the quarter ended December 31, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into law in the United States. The Act includes several changes to existing tax law, including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21% and the move from a worldwide to a territorial tax system. The move to a territorial tax system was accompanied by federal taxation of a one-time deemed repatriation of accumulated unremitted earnings (hereafter, the "toll charge"). The toll charge is a provisional estimate and is based on the application of certain tax rates to foreign unremitted cash and cash equivalents and permanently reinvested foreign assets. Our estimate of the toll charge obligation may change due to changes in interpretations of the Act, legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from foreign exchange rates of foreign subsidiaries and the effects of inflation. We will finalize the estimate within a twelve-month period from the date of enactment of December 22, 2017.
In addition, prior to our third quarter of Fiscal Year 2018, we did not recognize a deferred tax liability related to unremitted foreign earnings because our plans did not require the Company to repatriate earnings from foreign operations to fund U.S. operations. We expect to fund payment of the toll charge by repatriating a portion of our foreign earnings andExcept as such, have recorded a deferred tax liability related to state income taxes and foreign withholding taxes that will become due as the Company repatriates foreign earnings.
Refer to additional details surrounding impacts of the Act at Note 13, Income Taxes, in the accompanying footnotes to the condensed consolidated financial statements.
Other than thedescribed above, item, there have been no changes to our critical accounting estimates during the ninethree months ended December 31, 2017.June 30, 2019.
Recent Accounting Pronouncements
For more information regarding the Recent Accounting Pronouncements that may impact us, refer tosee Note 2, Recent Accounting Pronouncements, of the accompanying notes to the condensed consolidated financial statements.
Financial Statements (Unaudited)
PLANTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| | | | March 31,
2017 | | December 31,
2017 | June 30,
2019 | | March 31,
2019 |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 301,970 |
| | $ | 280,293 |
| $ | 191,904 |
| | $ | 202,509 |
|
| Short-term investments | 178,179 |
| | 218,773 |
| 14,169 |
| | 13,332 |
|
| Accounts receivable, net | 141,177 |
| | 143,919 |
| 318,235 |
| | 337,671 |
|
| Inventory, net | 55,456 |
| | 64,574 |
| 217,424 |
| | 177,146 |
|
| Other current assets | 22,195 |
| | 19,460 |
| 47,430 |
| | 50,488 |
|
| Total current assets | 698,977 |
| | 727,019 |
| 789,162 |
| | 781,146 |
|
| Long-term investments | 127,176 |
| | 118,870 |
| |
| Property, plant, and equipment, net | 150,307 |
| | 144,802 |
| 196,376 |
| | 204,826 |
|
| Goodwill and purchased intangibles, net | 15,577 |
| | 15,498 |
| |
| Goodwill | | 1,279,897 |
| | 1,278,380 |
|
| Purchased intangibles, net | | 780,348 |
| | 825,675 |
|
| Deferred tax assets | 23,242 |
| | 14,783 |
| 3,182 |
| | 5,567 |
|
| Other assets | 1,880 |
| | 1,681 |
| 73,066 |
| | 20,941 |
|
| Total assets | $ | 1,017,159 |
| | $ | 1,022,653 |
| $ | 3,122,031 |
| | $ | 3,116,535 |
|
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | |
| |
| | |
|
| Current liabilities: | |
| | |
| |
| | |
|
| Accounts payable | $ | 42,885 |
| | $ | 45,685 |
| $ | 166,618 |
| | $ | 129,514 |
|
| Accrued liabilities | 74,285 |
| | 61,906 |
| 408,306 |
| | 398,715 |
|
| Total current liabilities | 117,170 |
| | 107,591 |
| 574,924 |
| | 528,229 |
|
| Long term debt, net of issuance costs | 491,059 |
| | 492,146 |
| 1,642,163 |
| | 1,640,801 |
|
| Long-term income taxes payable | 11,729 |
| | 74,476 |
| 95,573 |
| | 83,121 |
|
| Other long-term liabilities | 15,045 |
| | 19,419 |
| 139,873 |
| | 142,697 |
|
| Total liabilities | $ | 635,003 |
| | $ | 693,632 |
| 2,452,533 |
| | 2,394,848 |
|
| Commitments and contingencies (Note 6) |
|
| |
|
| |
| Commitments and contingencies (Note 8) | |
|
| |
|
|
| Stockholders' equity: | |
| | |
| |
| | |
|
| Common stock | $ | 804 |
| | $ | 814 |
| 887 |
| | 884 |
|
| Additional paid-in capital | 818,777 |
| | 858,253 |
| 1,445,097 |
| | 1,431,607 |
|
| Accumulated other comprehensive income | 4,694 |
| | 1,905 |
| |
| Accumulated other comprehensive loss | | (6,628 | ) | | (475 | ) |
| Retained earnings | 319,931 |
| | 294,200 |
| 92,437 |
| | 143,344 |
|
| Total stockholders' equity before treasury stock | 1,144,206 |
| | 1,155,172 |
| 1,531,793 |
| | 1,575,360 |
|
| Less: Treasury stock, at cost | (762,050 | ) | | (826,151 | ) | (862,295 | ) | | (853,673 | ) |
| Total stockholders' equity | 382,156 |
| | 329,021 |
| 669,498 |
| | 721,687 |
|
| Total liabilities and stockholders' equity | $ | 1,017,159 |
| | $ | 1,022,653 |
| $ | 3,122,031 |
| | $ | 3,116,535 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| | | | Three Months Ended December 31, | | Nine Months Ended
December 31, | Three Months Ended June 30, |
| | 2016 | | 2017 | | 2016 | | 2017 | 2019 | | 2018 |
| Net revenues | $ | 232,933 |
| | $ | 226,534 |
| | $ | 672,222 |
| | $ | 640,760 |
| | | |
| Net product revenues | | $ | 382,745 |
| | $ | 221,309 |
|
| Net service revenues | | 65,022 |
| | — |
|
| Total net revenues | | 447,767 |
| | 221,309 |
|
| Cost of revenues | 122,753 |
| | 112,409 |
| | 338,523 |
| | 315,720 |
| | | |
| Cost of product revenues | | 208,616 |
| | 111,466 |
|
| Cost of service revenues | | 26,505 |
| | — |
|
| Total cost of revenues | | 235,121 |
| | 111,466 |
|
| Gross profit | 110,180 |
| | 114,125 |
| | 333,699 |
| | 325,040 |
| 212,646 |
| | 109,843 |
|
| Operating expenses: | | | | | | | | | | |
| Research, development, and engineering | 21,393 |
| | 21,257 |
| | 66,116 |
| | 62,402 |
| 59,524 |
| | 23,701 |
|
| Selling, general, and administrative | 56,919 |
| | 56,196 |
| | 169,581 |
| | 170,125 |
| 163,608 |
| | 64,203 |
|
| (Gain) loss, net from litigation settlements | (103 | ) | | (15 | ) | | 4,287 |
| | (295 | ) | |
| Restructuring and other related charges (credits) | 113 |
| | (84 | ) | | (1,350 | ) | | 2,438 |
| |
| Gain, net from litigation settlements | | (1,162 | ) | | (30 | ) |
| Restructuring and other related charges | | 19,525 |
| | 1,320 |
|
| Total operating expenses | 78,322 |
| | 77,354 |
| | 238,634 |
| | 234,670 |
| 241,495 |
| | 89,194 |
|
| Operating income | 31,858 |
| | 36,771 |
| | 95,065 |
| | 90,370 |
| |
| Operating income (loss) | | (28,849 | ) | | 20,649 |
|
| Interest expense | (7,322 | ) | | (7,341 | ) | | (21,867 | ) | | (21,904 | ) | (23,932 | ) | | (7,327 | ) |
| Other non-operating income and (expense), net | 427 |
| | 2,490 |
| | 4,119 |
| | 5,230 |
| |
| Income before income taxes | 24,963 |
| | 31,920 |
| | 77,317 |
| | 73,696 |
| |
| Income tax expense | 2,742 |
| | 81,424 |
| | 14,235 |
| | 84,419 |
| |
| Other non-operating income, net | | 333 |
| | 1,996 |
|
| Income (loss) before income taxes | | (52,448 | ) | | 15,318 |
|
| Income tax expense (benefit) | | (7,577 | ) | | 847 |
|
| Net income (loss) | $ | 22,221 |
| | $ | (49,504 | ) | | $ | 63,082 |
| | $ | (10,723 | ) | $ | (44,871 | ) | | $ | 14,471 |
|
| | | | | | | | | | | |
| Earnings (Loss) per common share: | | | | | | | | |
| Income (loss) per common share: | | | | |
| Basic | $ | 0.69 |
| | $ | (1.54 | ) | | $ | 1.96 |
| | $ | (0.33 | ) | $ | (1.14 | ) | | $ | 0.43 |
|
| Diluted | $ | 0.68 |
| | $ | (1.54 | ) | | $ | 1.92 |
| | $ | (0.33 | ) | $ | (1.14 | ) | | $ | 0.42 |
|
| | | | | | | | | | | |
| Shares used in computing earnings (loss) per common share: | | | | | | | | |
| Shares used in computing loss per common share: | | | | |
| Basic | 32,242 |
| | 32,075 |
| | 32,260 |
| | 32,384 |
| 39,239 |
| | 32,594 |
|
| Diluted | 32,826 |
| | 32,075 |
| | 32,895 |
| | 32,384 |
| 39,239 |
| | 33,534 |
|
| | | | | | | | | | | |
| Cash dividends declared per common share | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.45 |
| | $ | 0.45 |
| |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
| | | | Three Months Ended December 31, | | Nine Months Ended
December 31, | Three Months Ended June 30, |
| | 2016 | | 2017 | | 2016 | | 2017 | 2019 | | 2018 |
| Net income (loss) | $ | 22,221 |
| | $ | (49,504 | ) | | $ | 63,082 |
| | $ | (10,723 | ) | $ | (44,871 | ) | | $ | 14,471 |
|
| Other comprehensive income (loss): | | | | | | | | | | |
| Foreign currency translation adjustments | 82 |
| | — |
| | (168 | ) | | 257 |
| (219 | ) | | — |
|
| Unrealized gains (losses) on cash flow hedges: | | | | | | | | | | |
| Unrealized cash flow hedge gains (losses) arising during the period | 2,090 |
| | (446 | ) | | 2,394 |
| | (5,093 | ) | (6,704 | ) | | 3,956 |
|
| Net (gains) losses reclassified into income for revenue hedges | (2,178 | ) | | 1,357 |
| | (3,163 | ) | | 2,506 |
| (1,359 | ) | | (249 | ) |
| Net (gains) losses reclassified into income for cost of revenue hedges | 756 |
| | (61 | ) | | 2,072 |
| | (193 | ) | (104 | ) | | (79 | ) |
| Net (gains) losses reclassified into income for interest rate swaps | | 652 |
| | — |
|
| Net unrealized gains (losses) on cash flow hedges | 668 |
| | 850 |
| | 1,303 |
| | (2,780 | ) | (7,515 | ) | | 3,628 |
|
| Unrealized gains (losses) on investments: | | | | | | | | | | |
| Unrealized holding gains (losses) during the period | (628 | ) | | (658 | ) | | (586 | ) | | (449 | ) | — |
| | 198 |
|
| | | | | | | | | | | |
| Aggregate income tax benefit (expense) of the above items | 156 |
| | 181 |
| | 130 |
| | 182 |
| 1,581 |
| | (110 | ) |
| Other comprehensive income (loss) | 278 |
| | 373 |
| | 679 |
| | (2,790 | ) | (6,153 | ) | | 3,716 |
|
| Comprehensive income (loss) | $ | 22,499 |
| | $ | (49,131 | ) | | $ | 63,761 |
| | $ | (13,513 | ) | $ | (51,024 | ) | | $ | 18,187 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | |
| | Three Months Ended |
| | June 30, |
| | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income (loss) | $ | (44,871 | ) | | $ | 14,471 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization | 57,698 |
| | 5,248 |
|
| Amortization of debt issuance costs | 1,361 |
| | 362 |
|
| Stock-based compensation | 12,904 |
| | 8,150 |
|
| Deferred income taxes | (33,145 | ) | | 4,632 |
|
| Provision for excess and obsolete inventories | 1,760 |
| | 612 |
|
| Restructuring and related charges (credits) | 19,525 |
| | 1,320 |
|
| Cash payments for restructuring charges | (17,658 | ) | | (835 | ) |
| Other operating activities | 1,965 |
| | (274 | ) |
| Changes in assets and liabilities, net of acquisition: | | | |
|
| Accounts receivable, net | 21,445 |
| | 5,302 |
|
| Inventory, net | (42,309 | ) | | (400 | ) |
| Current and other assets | 15,498 |
| | 2,981 |
|
| Accounts payable | 36,392 |
| | 5,688 |
|
| Accrued liabilities | (43,784 | ) | | (7,300 | ) |
| Income taxes | 21,568 |
| | (7,875 | ) |
| Cash provided by operating activities | 8,349 |
| | 32,082 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
|
| Proceeds from sales of investments | 170 |
| | 124,640 |
|
| Proceeds from maturities of investments | — |
| | 131,017 |
|
| Purchase of investments | (651 | ) | | (394 | ) |
| Cash paid for acquisition, net of cash acquired | — |
| | (33,550 | ) |
| Capital expenditures | (4,507 | ) | | (3,868 | ) |
| Cash (used for) provided by investing activities | (4,988 | ) | | 217,845 |
|
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
|
| Employees' tax withheld and paid for restricted stock and restricted stock units | (8,621 | ) | | (13,035 | ) |
| Proceeds from issuances under stock-based compensation plans | 589 |
| | 10,558 |
|
| Payment of cash dividends | (5,940 | ) | | (5,014 | ) |
| Cash (used for) by financing activities | (13,972 | ) | | (7,491 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 6 |
| | (2,055 | ) |
| Net increase (decrease) in cash and cash equivalents | (10,605 | ) | | 240,381 |
|
| Cash and cash equivalents at beginning of period | 202,509 |
| | 390,661 |
|
| Cash and cash equivalents at end of period | $ | 191,904 |
| | $ | 631,042 |
|
| SUPPLEMENTAL DISCLOSURES | | | |
| Cash paid for income taxes | $ | 2,755 |
| | $ | 30,902 |
|
| Cash paid for interest | $ | 29,203 |
| | $ | 54,386 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
|
| | | | | | | |
| | Nine Months Ended |
| | December 31, |
| | 2016 | | 2017 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income (loss) | $ | 63,082 |
| | $ | (10,723 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization | 15,624 |
| | 15,894 |
|
| Amortization of debt issuance costs | 1,087 |
| | 1,087 |
|
| Stock-based compensation | 25,005 |
| | 26,047 |
|
| Deferred income taxes | (753 | ) | | 10,490 |
|
| Provision for excess and obsolete inventories | 1,292 |
| | 2,013 |
|
| Restructuring and related charges (credits) | (1,350 | ) | | 2,438 |
|
| Cash payments for restructuring charges | (3,793 | ) | | (2,911 | ) |
| Other operating activities | 633 |
| | (645 | ) |
| Changes in assets and liabilities: | | | |
|
| Accounts receivable, net | (13,448 | ) | | (3,153 | ) |
| Inventory, net | (5,990 | ) | | (9,577 | ) |
| Current and other assets | (2,346 | ) | | (3,066 | ) |
| Accounts payable | 3,626 |
| | 2,783 |
|
| Accrued liabilities | 6,191 |
| | (15,695 | ) |
| Income taxes | (1,141 | ) | | 66,387 |
|
| Cash provided by operating activities | 87,719 |
| | 81,369 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
|
| Proceeds from sales of investments | 143,631 |
| | 54,411 |
|
| Proceeds from maturities of investments | 97,253 |
| | 146,989 |
|
| Purchase of investments | (247,491 | ) | | (232,840 | ) |
| Capital expenditures | (19,603 | ) | | (9,403 | ) |
| Cash used for investing activities | (26,210 | ) | | (40,843 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
|
| Repurchase of common stock | (34,236 | ) | | (52,915 | ) |
| Employees' tax withheld and paid for restricted stock and restricted stock units | (9,444 | ) | | (11,186 | ) |
| Proceeds from issuances under stock-based compensation plans | 6,516 |
| | 13,446 |
|
| Proceeds from revolving line of credit | — |
| | 8,000 |
|
| Repayments of revolving line of credit | — |
| | (8,000 | ) |
| Payment of cash dividends | (14,947 | ) | | (15,008 | ) |
| Other financing activity | 761 |
| | — |
|
| Cash used for financing activities | (51,350 | ) | | (65,663 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (2,964 | ) | | 3,460 |
|
| Net increase (decrease) in cash and cash equivalents | 7,195 |
| | (21,677 | ) |
| Cash and cash equivalents at beginning of period | 235,266 |
| | 301,970 |
|
| Cash and cash equivalents at end of period | $ | 242,461 |
| | $ | 280,293 |
|
| SUPPLEMENTAL NON-CASH DISCLOSURES | | | |
| Accounts payable for purchases of property, plant, and equipment | $ | 1,052 |
| | $ | 3,895 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In | | Accumulated Other Comprehensive | | Retained | | Treasury | | Total Stockholders' |
| | Shares | | Amount | | Capital | | Income | | Earnings | | Stock | | Equity |
| Balances at March 31, 2018 | 33,251 |
| | 816 |
| | 876,645 |
| | 2,870 |
| | 299,066 |
| | (826,427 | ) | | 352,970 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 14,471 |
| | — |
| | 14,471 |
|
| Net unrealized gains (losses) on cash flow hedges, net of tax | — |
| | — |
| | — |
| | 3,839 |
| | — |
| | — |
| | 3,839 |
|
| Proceeds from issuances under stock-based compensation plans | 361 |
| | 3 |
| | 10,555 |
| | — |
| | — |
| | — |
| | 10,558 |
|
| Repurchase of restricted common stock | (53 | ) | | | | | | — |
| | — |
| | — |
| | — |
|
| Cash dividends | — |
| | — |
| | | | — |
| | (5,014 | ) | | — |
| | (5,014 | ) |
| Stock-based compensation | — |
| | — |
| | 8,150 |
| | | | — |
| | — |
| | 8,150 |
|
| Employees' tax withheld and paid for restricted stock and restricted stock units | (187 | ) | | — |
| | — |
| | — |
| | — |
| | (13,035 | ) | | (13,035 | ) |
| Impact of new accounting standards adoption | — |
| | — |
| | — |
| | (124 | ) | | 2,718 |
| | — |
| | 2,594 |
|
| Balances at June 30, 2018 | 33,372 |
| | $ | 819 |
| | $ | 895,350 |
| | $ | 6,585 |
| | $ | 311,241 |
| | $ | (839,462 | ) | | 374,533 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In | | Accumulated Other Comprehensive | | Retained | | Treasury | | Total Stockholders' |
| | Shares | | Amount | | Capital | | Income | | Earnings | | Stock | | Equity |
| Balances at March 31, 2019 | 39,518 |
| | 884 |
| | 1,431,608 |
| | (475 | ) | | 143,344 |
| | (853,674 | ) | | 721,687 |
|
| Net loss | — |
| | — |
| | — |
| | — |
| | (44,871 | ) | | — |
| | (44,871 | ) |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | (219 | ) | | — |
| | — |
| | (219 | ) |
| Net unrealized gains (losses) on cash flow hedges, net of tax | — |
| | — |
| | — |
| | (5,934 | ) | | — |
| | — |
| | (5,934 | ) |
| Proceeds from issuances under stock-based compensation plans | 271 |
| | 3 |
| | 586 |
| | — |
| | — |
| | — |
| | 589 |
|
| Repurchase of restricted common stock | (20 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Cash dividends | — |
| | — |
| | — |
| | — |
| | (5,940 | ) | | — |
| | (5,940 | ) |
| Stock-based compensation | — |
| | — |
| | 12,904 |
| | — |
| | — |
| | — |
| | 12,904 |
|
| Employees' tax withheld and paid for restricted stock and restricted stock units | (191 | ) | | — |
| | — |
| | — |
| | — |
| | (8,622 | ) | | (8,622 | ) |
| Impact of new accounting standards adoption | — |
| | — |
| | — |
| | — |
| | (89 | ) | | — |
| | (89 | ) |
| Other equity changes | — |
| | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Balances at June 30, 2019 | 39,578 |
| | $ | 887 |
| | $ | 1,445,098 |
| | $ | (6,628 | ) | | $ | 92,437 |
| | $ | (862,296 | ) | | 669,498 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLANTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, with the exception of the adoption of ASC 842, Leases as discussed below, the accompanying unaudited condensed consolidated financial statements ("financial statements") of Plantronics, Inc. ("Plantronics" or "thethe Company") have been prepared on a basis materially consistent with the Company's March 31, 20172019 audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth herein. Certain information and footnote disclosures normally included in financial statements prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial information and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2019, which was filed with the SEC on May 10, 2017.17, 2019. The results of operations for the interim period ended December 31, 2017June 30, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.
The financial results of Polycom have been included in the Company's consolidated financial statements from the date of acquisition on July 2, 2018, see Note 3, Acquisition for details.
The financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
The Company’s fiscal year ends on the Saturday closest to the last day of March. The Company’s current and prior fiscal years end on March 31, 201828, 2020 and April 1, 2017,March 30, 2019, respectively, and both consist of 52 weeks. The Company’s results of operations for the three and nine months ended DecemberJune 29, 2019 and June 30, 2017 and December 31, 20162018 both contain 13 weeks. For purposes of presentation, the Company has indicated its accounting year as ending on March 31 and its interim quarterly periods as ending on the applicable calendar month end.
Certain immaterial reclassifications to our previously reported financial information have been made to conform to the current period presentation. In addition, refer toSee Note 2, Recent Accounting Pronouncements, for details regarding reclassifications made in ourrecognition of a lease liability and corresponding right-of-use ("ROU") asset on the balance sheet of the Company's condensed consolidated financial statements of cash flows pursuant to the adoption of new share-based paymentTopic 842, Leases accounting guidance in the first quarter of Fiscal Year 2018.2020.
Earnings per common share:Foreign Operations and Currency Translation
The Company has a share-based compensation plan under which employees, non-employee directors, and consultants may be granted share-based payment awards, including shares of restricted stock on which non-forfeitable dividends are paid on unvested shares. As such, shares of restricted stock are considered participating securities under the two-class method of calculating earnings per share. Historically, the two-class method of calculating earnings per share did not have a material impact on the Company's earnings per share calculation under the treasury stock method. Beginning in the second quarter of Fiscal Year 2018, the Company applied the two-class method of calculating earnings per share because the ratio of participating securities to the weighted average number of common shares outstanding has increased as compared to the historical average, and this dilution will continue if the Company continues to repurchase its common stock at current levels. During periods of net loss, no effect is given to participating securities since they do not share in the losses of the Company; therefore, the treasury stock method was used to calculate earnings per common share for the three and nine months ended December 31, 2017. For further details refer to Note 14, Computation of Earnings Per Common Share.
Immaterial Out-of-Period Correction:
During the first quarter of Fiscal Year 2018, the Company recognized an out-of-period correction to its Fiscal Year 2017 geographic mix of taxable income, which resulted in an overstatement of Fiscal Year 2017 income tax expense by $2.8 million. The Company's correction, recognized in the quarter ended June 30, 2017, resulted in2019, as a $2.8 million benefit to income tax expense. The Company assessed the materialityresult of this error and concluded it was not material to Fiscal Year 2017 and is not expected to be materiala change to the full Fiscal Year 2018.Company's operating structure, the Company determined the functional currency of its China subsidiary is now the U.S. Dollar (“USD"). Assets and liabilities denominated in currencies other than USD, are re-measured at the period-end rates for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities. Revenues and expenses are re-measured at average monthly rates, which approximate actual rates. Currency transaction gains and losses are recognized in other non-operating income and (expense), net.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Pronouncements
In May 2014,June 2016, the Financial Accounting Standards Board ("FASB") issued guidance regarding revenue from contracts with customers. While the standard supersedes existing revenue recognition guidance, it closely aligns with current U.S. GAAP. Under the new standard, revenue will be recognized at the time control of a good or service is transferred to a customer for the amount of consideration received or to be received for that specific good or service. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. In March 2016, the FASB issued additional guidance concerning "Principal versus Agent" considerations (reporting revenue gross versus net); in April 2016, the FASB issued additional guidance on identifying performance obligations and licensing; and in May 2016, the FASB issued additional guidance on collectability, non-cash consideration, presentation of sales tax, and transition. These updates are intended to improve the operability and understandability of the implementation guidance and have the same effective date and transition requirements as the greater "contracts with customers" standard. The Company will adopt the standard, as amended, in the first quarter of its fiscal year ending March 31, 2019, utilizing the modified retrospective method of adoption. The Company has completed its initial review of the impact of this guidance, and does not anticipate a material impact on its revenue recognition policies. The Company will continue to assess all potential impacts of the standard, and currently believes the most significantly impacted areas are the following:
Software Revenue: The Company currently defers revenue for the value of software where vendor specific objective evidence ("VSOE") of fair value has not been established for undelivered items. Under Topic 606, revenue for such licenses will be recognized at the transfer of control, rather than ratably, as the VSOE requirement no longer applies and the value of the remaining services are not material in the context of the contract. At December 31, 2017, deferred revenue under Topic 605 for these licenses was $2.1 million. The Company expects the remaining balance of such deferred revenue will be eliminated as a cumulative effect adjustment of implementing Topic 606 in the first quarter of its fiscal year ending March 31, 2019.
Marketing Development Funds: The Company frequently provides marketing development funds to its channel partners. Under topic 605, our marketing development funds are recognized as a reduction of revenue at the later of when the related revenue is recognized or when the program is offered to the channel partner. Applying the criteria of Topic 606, these marketing development programs qualify as variable consideration, and are assigned as a reduction of the transaction price of the contract. This results in a timing difference such that all or some of the funds related to a program may be recognized in different periods than under Topic 605, depending on the circumstances. Based on analysis of prior periods, we anticipate that this timing difference impacts revenue by immaterial amounts in a given period. The full impact of the adjustment is still being analyzed by the Company.
Revenue Reserves: The Company establishes reserves for Discounts and Rebates and Sales Returns at the end of each fiscal period. These reserves are estimated based on current relevant and historical data, but there can be some variability associated with unforeseen changes in customer claim and return patterns. Under Topic 606, in cases where there is uncertainty around the variable consideration amount, a constraint, or an adjustment to ensure that a significant revenue reversal will not occur, on that consideration must be considered. Based on analysis of prior periods, we anticipate that impact of introducing this constraint will not materially impact revenue. The full impact of the adjustment is still being analyzed by the Company.
In addition,the standard also requires new, expanded disclosures regarding revenue recognition. The Company will continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact its current conclusions.
In January 2016, the FASB issued guidance regarding the recognition and measurement of financial assets and liabilities. Changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The Company is required to adopt the standard in the first quarter of its fiscal year ending March 31, 2019, but may elect to adopt earlier as permitted under the standard. The Company is currently evaluating what impact, if any, the adoption of this standard will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued guidance regarding both operating and financing leases, requiring lessees to recognize on their balance sheets "right-of-use assets" and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a "short-term lease". For expense recognition, the dual model requiring leases to be classified as either operating or finance leases has been retained from the prior standard. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will use criteria very similar to those applied in current lease accounting, but without explicit bright lines. Extensive additional quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expense recognized and expected to be recognized. The new lease guidance will essentially eliminate off-balance sheet financing. The guidance is effective for the Company's fiscal year ending March 31, 2020. The new standard must be adopted using a modified retrospective transition that provides for certain practical expedients and requires the new guidance to be applied at the beginning of the earliest comparative period presented. The Company expects adoption of this guidance will materially increase the assets and liabilities recorded on its condensed consolidated balance sheets, but is still evaluating the impact on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued guidance regarding the measurement of credit losses on financial instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. The guidance is effective for the Company's fiscal year ending March 31, 2021 with early adoption permitted beginning in the first quarter of Fiscal Year 2020. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued guidance that revises the definition of a business, providing a more robust framework for determining when a set of assets and activities is deemed a business. The guidance is effective for the Company's fiscal year ending March 31, 2019, including interim periods within that year, and is not expected to have a material impact on the Company's consolidated financial statements or related disclosures.
In January 2017, the FASB issued guidance that simplifies the process required to test goodwill for impairment. The guidance is effective for the Company's fiscal year ending March 31, 2021, and is not expected to have a material impact on the Company's consolidated financial statements or related disclosures.
In March 2017, the FASB issued guidance related to the amortization of premiums on purchased callable debt securities. This guidance shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date instead of the maturity date. This guidance is effective for the Company's fiscal year ending March 31, 2020, including interim periods within that year. The Company expects the impact to be immaterial.
In May 2017, the FASB issued guidance that clarifies the scope of modification accounting with respect to changes to the terms or conditions of a share-based payment award. This guidance is effective for the Company's fiscal year ending March 31, 2019, including interim periods within that year. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures, but expects the impact to be immaterial.
In August 2017, the FASB issued guidance that eliminates the requirement to separately measure and report hedge ineffectiveness and that generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements, and modifies certain disclosure requirements. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. This guidance is effective for the Company's fiscal year ending March 31, 2020, including interim periods within that year. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures, but expects the impact to be immaterial.
Recently Adopted Pronouncement
Beginning Fiscal Year 2018,In February 2016, the FASB issued guidance on the recognition and measurement of leases (“ASC 842”). Under the new guidance lessees are required to recognize a lease liability and a corresponding right-of-use (“ROU”) asset on the balance sheet for virtually all leases, essentially eliminating off-balance sheet financing. On March 31, 2019, the Company adopted ASC 842 using the FASB's new guidance, Improvements to Employee Share-Based Payment Accounting,modified retrospective approach and recognized $57.3 million in ROU assets within Other assets and $68.5 million in lease liabilities, of which changes among other things, how$25.7 million and $42.8 million were included within Accrued liabilities and Other long-term liabilities, respectively, on its condensed consolidated balance sheet. The initial ROU assets recognized were adjusted for accrued rent and facility-related restructuring liabilities as of the tax effectsadoption date. The adoption of share-based awards are recognized. This new guidance requires excess tax benefits and tax deficiencies to be recognized in the provision for income taxes as discrete items in the period when the awards vest or are settled, whereas previously such income tax effects were recorded as part of additional paid-in capital. The provision for income taxes for the three months ended December 31, 2017 included excess tax benefits thatASC 842 did not materially reducehave a material impact on the Company's effective tax rate. The provision for income taxes for the nine months ended December 31, 2017 included excess tax benefits of $1.9 million, which reduced the Company's effective tax rate by 2.6 percentage points. The recognized excess tax benefits resulted from share-based compensation awards that vested or settled in the first nine months of 2017. This guidance also eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The Company adopted this provision retrospectively by reclassifying $1.0 million of excess tax benefits from financing activities to operating activities in the condensed consolidated statement of cash flows foroperations.
Under the nine months ended December 31, 2016.modified retrospective approach, prior comparative financial information was not retrospectively adjusted. The Company also excludedelected the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis as required by this guidance.package of practical expedients which allows it to carry forward its historical lease evaluation and classification. In addition, the Company elected to continueexclude leases with terms of one year or less from its current practicebalance sheet and separately account for lease and non-lease components.
The Company’s lease portfolio consists primarily of estimating expected forfeitures.real estate facilities under operating leases. The Company made no changes to its presentation of withholding taxes on the settlement of share-based payment awards, which were already presented as financing activities. The amount of excess tax benefitsdetermines if an arrangement is or contains a lease at inception. ROU assets and deficiencieslease liabilities are recognized in the provision for income taxes will fluctuate from period-to-periodat commencement based on the pricepresent value of the future minimum lease payments over the lease term. The Company applies its incremental borrowing rate in determining the present value of the future minimum lease payments, as most of its leases do not provide an implicit rate. Certain of the Company’s stock,lease agreements include options to extend or renew the volume of share-based instruments settled or vested, andlease terms. Such options are excluded from the value assignedminimum lease obligation unless they are reasonably certain to share-based instruments under U.S. GAAP. Refer to additional discussion in Note 13, Income Taxes.be exercised. Operating lease expense is recognized on a straight-line basis over the lease term.
3. ACQUISITION
Polycom Acquisition
On July 2, 2018, the Company completed the acquisition of Polycom, Inc. ("Polycom") based upon the terms and conditions contained in the Purchase Agreement dated March 28, 2018 ("the Acquisition"). The Company believes the Acquisition will better position Plantronics with its channel partners, customers, and strategic alliance partners by allowing the Company to pursue additional opportunities across the UC&C category in both hardware end points and services.
At the closing of the Acquisition, Plantronics acquired Polycom for approximately $2.2 billion with the total consideration consisting of (1) 6.4 million shares of the Company's common stock (the "Stock Consideration") valued at approximately $0.5 billion and (2) approximately $1.7 billion in cash net of cash acquired (the "Cash Consideration"), resulting in Triangle Private Holdings II, LLC ("Triangle"), Polycom’s sole shareholder, owning approximately 16.0% of the Company's issued and outstanding common stock immediately following the Acquisition. The consideration paid at closing is subject to a working capital, tax and other adjustments. The Acquisition was accounted for as a business combination and the Company has included the financial results of Polycom in its condensed consolidated financial statements since the date of Acquisition.
During the quarter ended June 30, 2019, the Company finalized its allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed. Since the Acquisition, the Company has recorded measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments included deferred tax and tax liabilities of $45.2 million, a working capital adjustment of $8.0 million, and various other immaterial adjustments of $1.4 million, resulting in a decrease to goodwill of approximately $54.6 million.
3.The allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the Acquisition date is as follows:
|
| | | | |
| (in thousands) | | July 2, 2018 |
| ASSETS | | |
| Cash and cash equivalents | | $ | 80,139 |
|
| Trade receivables, net | | 165,798 |
|
| Inventories | | 109,074 |
|
| Prepaid expenses and other current assets | | 68,558 |
|
| Property and equipment, net | | 79,497 |
|
| Intangible assets | | 985,400 |
|
| Other assets | | 27,237 |
|
| Total assets acquired | | $ | 1,515,703 |
|
| | | |
| LIABILITIES | | |
| Accounts payable | | $ | 80,653 |
|
| Accrued payroll and related liabilities | | 44,538 |
|
| Accrued expenses | | 147,167 |
|
| Income tax payable | | 27,044 |
|
| Deferred revenue | | 115,061 |
|
| Deferred income taxes | | 94,618 |
|
| Other liabilities | | 54,394 |
|
| Total liabilities assumed | | $ | 563,475 |
|
| | | |
| Total identifiable net assets acquired | | 952,228 |
|
| Goodwill | | 1,264,417 |
|
| Total Purchase Price | | $ | 2,216,645 |
|
The estimate of fair value and purchase price allocation were based on information available at the time of closing the Acquisition. The Acquisition has resulted in $1,264 million of goodwill, which represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed.
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
|
| | | | | | |
| (in thousands, except for remaining life) | | Fair Value | | Weighted Remaining Life of Intangibles |
| Existing technology | | $ | 538,600 |
| | 4.95 |
| Customer relationships | | 245,100 |
| | 5.46 |
| Trade name/Trademarks | | 115,600 |
| | 9.00 |
| Backlog | | 28,100 |
| | 0.25 |
| Total amortizable intangible assets acquired | | $ | 927,400 |
| | 5.45 |
| In-process technology | | 58,000 |
| | |
| Total acquired intangible assets | | $ | 985,400 |
| | |
Existing technology relates to products for voice, video and platform products. The Company valued the developed technology using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.
Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to customers of Polycom existing prior to the Acquisition. Customer relationships were valued using the discounted cash flow method as described above and the distributor method under the income approach. Under the distributor method, the economic profits generated by a distributor are deemed to be attributable to the customer relationships. The economic useful life was determined based on historical customer turnover rates.
Order backlog was valued separately from customer relationships using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by order backlog less costs to fulfill. The economic useful life was determined based on the period over which the order backlog is expected to be fulfilled.
Trade name/trademarks relate to the “Polycom” trade name and related trademarks. The fair value was determined by applying the profit allocation method under the income approach. This valuation method estimates the value of an asset by the profit saved because the company owns the asset. The economic useful life was determined based on the expected life of the trade name and trademarks and the cash flows anticipated over the forecasted periods.
The fair value of in-process technology was determined using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by in-process technology, less charges representing the contribution of other assets to those cash flows.
The Company believes the amounts of purchased intangible assets recorded above represent the fair values of and approximate the amounts a market participant would pay for, these intangible assets as of the date of the Acquisition.
For the three months ended June 30, 2019, the Company recognized $45.3 million in amortization of acquired intangibles related to the Acquisition. The remaining weighted-average useful life of intangible assets acquired is 4.67 years.
Goodwill is primarily attributable to the assembled workforce, market expansion, and anticipated synergies and economies of scale expected from the integration of the Polycom business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved. Goodwill is not expected to be deductible for tax purposes.
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Polycom had been acquired as of the beginning of fiscal year 2018. The unaudited pro forma information includes adjustments to amortization for intangible assets acquired, the purchase accounting effect on deferred revenue assumed and inventory acquired, restructuring charges related to the acquisition, and transaction and integration costs. For the quarter ended June 30, 2018, non-recurring pro forma adjustments directly attributable to the Polycom Acquisition included (i) the purchase accounting effect of deferred revenue assumed of $36.6 million, (ii) the purchase accounting effect of inventory acquired of $30.4 million, and (iii) Acquisition and Integration costs of $19.6 million.
The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the Company's consolidated results of operations of the combined business had the Acquisition actually occurred at the beginning of fiscal year 2019 or of the results of its future operations of the combined business.
|
| | | | |
| | | Pro Forma (unaudited) |
| | | Three Months Ended June 30, |
| (in thousands) | | 2018 |
| Total net revenues | | $ | 463,837 |
|
| Operating loss | | (118,148 | ) |
| Net loss | | $ | (107,385 | ) |
4. CASH, CASH EQUIVALENTS, AND INVESTMENTS
The following tables summarize the Company’s cash and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category recorded as cash and cash equivalents, short-term, or long-term investments as of December 31, 2017June 30, 2019 and March 31, 20172019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash & Cash Equivalents | | Short-term investments (due in 1 year or less) | | Long-term investments (due in 1 to 3 years) |
| Cash | | $ | 272,063 |
| | $ | — |
| | $ | — |
| | $ | 272,063 |
| | $ | 272,063 |
| | $ | — |
| | $ | — |
|
| Level 1: | | | | | | | | | | | | | | |
| Mutual Funds | | 14,298 |
| | 399 |
| | (70 | ) | | 14,627 |
| | — |
| | 14,627 |
| | — |
|
| US Treasury Notes | | 71,684 |
| | — |
| | (210 | ) | | 71,474 |
| | 4,998 |
| | 42,348 |
| | 24,128 |
|
| Money Market Funds | | 239 |
| | — |
| | — |
| | 239 |
| | 239 |
| | — |
| | — |
|
| Subtotal | | 86,221 |
| | 399 |
| | (280 | ) | | 86,340 |
| | 5,237 |
| | 56,975 |
| | 24,128 |
|
| Level 2: | | | | | | | | | | | | | | |
| Government Agency Securities | | 56,667 |
| | — |
| | (276 | ) | | 56,391 |
| | — |
| | 31,300 |
| | 25,091 |
|
| Commercial Paper | | 32,944 |
| | — |
| | — |
| | 32,944 |
| | 2,993 |
| | 29,951 |
| | — |
|
| Corporate Bonds | | 142,148 |
| | 45 |
| | (375 | ) | | 141,818 |
| | — |
| | 77,175 |
| | 64,643 |
|
| Certificates of Deposits ("CDs") | | 28,383 |
| | — |
| | (3 | ) | | 28,380 |
| | — |
| | 23,372 |
| | 5,008 |
|
| Subtotal | | 260,142 |
| | 45 |
| | (654 | ) | | 259,533 |
| | 2,993 |
| | 161,798 |
| | 94,742 |
|
| | | | | | | | | | | | | | | |
Total cash, cash equivalents
and investments measured at fair value | | $ | 618,426 |
| | $ | 444 |
| | $ | (934 | ) | | $ | 617,936 |
| | $ | 280,293 |
| | $ | 218,773 |
| | $ | 118,870 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash & Cash Equivalents | | Short-term investments (due in 1 year or less) |
| Cash | | $ | 191,904 |
| | $ | — |
| | $ | — |
| | $ | 191,904 |
| | $ | 191,904 |
| | $ | — |
|
| Level 1: | | | | | | | | | | | | |
| Mutual Funds | | 13,950 |
| | 337 |
| | (118 | ) | | 14,169 |
| | — |
| | 14,169 |
|
| | | | | | | | | | | | | |
Total cash, cash equivalents
and investments measured at fair value | | $ | 205,854 |
| | $ | 337 |
| | $ | (118 | ) | | $ | 206,073 |
| | $ | 191,904 |
| | $ | 14,169 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash & Cash Equivalents | | Short-term investments (due in 1 year or less) |
| Cash | | $ | 202,509 |
| | $ | — |
| | $ | — |
| | $ | 202,509 |
| | $ | 202,509 |
| | $ | — |
|
| Level 1: | | | | | | | | | | | | |
| Mutual Funds | | 13,420 |
| | 197 |
| | (285 | ) | | 13,332 |
| | — |
| | 13,332 |
|
| | | | | | | | | | | | | |
Total cash, cash equivalents
and investments measured at fair value | | $ | 215,929 |
| | $ | 197 |
| | $ | (285 | ) | | $ | 215,841 |
| | $ | 202,509 |
| | $ | 13,332 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash & Cash Equivalents | | Short-term investments (due in 1 year or less) | | Long-term investments (due in 1 to 3 years) |
| Cash | | $ | 295,877 |
| | $ | — |
| | $ | — |
| | $ | 295,877 |
| | $ | 295,877 |
| | $ | — |
| | $ | — |
|
| Level 1: | | | | | | | | | | | | | | |
| Mutual Funds | | 12,079 |
| | 352 |
| | (32 | ) | | 12,399 |
| | — |
| | 12,399 |
| | — |
|
| US Treasury Notes | | 35,960 |
| | — |
| | (68 | ) | | 35,892 |
| | — |
| | 17,560 |
| | 18,332 |
|
| Money Market Funds | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Subtotal | | 48,039 |
| | 352 |
| | (100 | ) | | 48,291 |
| | — |
| | 29,959 |
| | 18,332 |
|
| Level 2: | | | | | | | | | | | | | | |
| Government Agency Securities | | 54,415 |
| | 20 |
| | (164 | ) | | 54,271 |
| | — |
| | 15,309 |
| | 38,962 |
|
| Commercial Paper | | 47,152 |
| | — |
| | — |
| | 47,152 |
| | 6,093 |
| | 41,059 |
| | — |
|
| Corporate Bonds | | 141,508 |
| | 64 |
| | (224 | ) | | 141,348 |
| | — |
| | 73,676 |
| | 67,672 |
|
| Certificates of Deposits ("CDs") | | 20,383 |
| | 3 |
| | — |
| | 20,386 |
| | — |
| | 18,176 |
| | 2,210 |
|
| Subtotal | | 263,458 |
| | 87 |
| | (388 | ) | | 263,157 |
| | 6,093 |
| | 148,220 |
| | 108,844 |
|
| | | | | | | | | | | | | | | |
Total cash, cash equivalents
and investments measured at fair value | | $ | 607,374 |
| | $ | 439 |
| | $ | (488 | ) | | $ | 607,325 |
| | $ | 301,970 |
| | $ | 178,179 |
| | $ | 127,176 |
|
As of December 31, 2017June 30, 2019, and March 31, 2017, with the exception of assets related to the Company's deferred compensation plan,2019, all of the Company's investments are classified as available-for-sale securities. The carryingtrading securities and are reported at fair value, of available-for-sale securitieswith unrealized gains and losses included in cash equivalents approximates fair value because of the short maturity of those instruments.current period earnings. For more information regarding the Company's deferred compensation plan, refer tosee Note 4, 5, Deferred Compensation.
The Company did not incur any material realized or unrealized gains or losses in the three and nine months ended December 31, 2016June 30, 2019, and 2017.2018.
There were no transfers between fair value measurement levels during the three and nine months ended December 31, 2016June 30, 2019, and 2017.2018.
All financial assets and liabilities are recognized or disclosed at fair value in the financial statements or the accompanying notes thereto. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1
The Company's Level 1 financial assets consist of Mutual Funds and US Treasury Notes.Funds. The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.
Level 2
The Company's Level 2 financial assets and liabilities consist of Government Agency Securities, Commercial Paper, Corporate Bonds, and Certificates of Deposits ("CDs"), derivative foreign currency contracts, interest rate swap and long-term debt. The fair value of Level 2 investment securities is determined based on other observable inputs, including multiple non-binding quotes from independent pricing services. Non-binding quotes are based on proprietary valuation models that are prepared by the independent pricing services and use algorithms based on inputs such as observable market data, quoted market prices for similar securities, issuer spreads, and internal assumptions of the broker. The Company corroborates the reasonableness of non-binding quotes received from the independent pricing services using a variety of techniques depending on the underlying instrument, including: (i) comparing them to actual experience gained from the purchases and maturities of investment securities, (ii) comparing them to internally developed cash flow models based on observable inputs, and (iii) monitoring changes in ratings of similar securities and the related impact on fair value.5.50% Senior Notes. The fair value of Level 2 derivative foreign currency contracts and interest rate swap is determined using pricing models that use observable market inputs. For more information regarding the Company's derivative assets and liabilities, refer tosee Note 12, Foreign Currency Derivatives.14, Derivatives. The fair value of Level 2 long-term debt isand term loan facility are determined based on inputs that were observable in the market, including the trading price of the notes when available. For more information regarding the Company's 5.50% Senior Notes refer toand term loan facility, see Note 7, Debt.9, Debt.
Level 3
The Company's unsecured revolving credit facility falls under the Level 3 hierarchy. The fair value of Level 3 revolving credit facility is determined based on inputs that were unobservable in the Company’s line of credit approximates its carrying value becausemarket. For more information regarding the interest rate is variable and approximates rates currently availableCompany's debt, refer to the Company. Note 9, Debt.
4.5. DEFERRED COMPENSATION
As of December 31, 2017,June 30, 2019, the Company held bank deposits of $0.8 million and investments in mutual funds totaling $14.6$14.2 million, all of which related to debt and equity securities that are held in rabbi trusts under non-qualified deferred compensation plans. The total related deferred compensation liability was $15.9$14.7 million at December 31, 2017.June 30, 2019. As of March 31, 2017,2019, the Company held bank deposits of $0.8 million and investments in mutual funds totaling $12.4$13.3 million. The total related deferred compensation liability at March 31, 20172019 was $13.7$13.5 million.
The bank deposits are recorded on the condensed consolidated balance sheets under "cash and cash equivalents". The securities are classified as trading securities and are recorded on the condensed consolidated balance sheets under "short-term investments". The liability is recorded on the condensed consolidated balance sheets under "other long-term liabilities" and "accrued liabilities".
5.6. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivable, net:
|
| | | | | | | | |
| | | June 30, | | March 31, |
| (in thousands) | | 2019 | | 2019 |
| Accounts receivable | | $ | 383,337 |
| | $ | 393,415 |
|
| Provisions for promotions, rebates, and other | | (61,857 | ) | | (50,789 | ) |
| Provisions for doubtful accounts and sales allowances | | (3,245 | ) | | (4,956 | ) |
| Accounts receivable, net | | $ | 318,235 |
| | $ | 337,671 |
|
|
| | | | | | | | |
| | | March 31, | | December 31, |
| (in thousands) | | 2017 | | 2017 |
| Accounts receivable | | $ | 184,759 |
| | $ | 196,175 |
|
| Provisions for returns | | (10,541 | ) | | (11,438 | ) |
| Provisions for promotions, rebates, and other | | (32,438 | ) | | (39,886 | ) |
| Provisions for doubtful accounts and sales allowances | | (603 | ) | | (932 | ) |
| Accounts receivable, net | | $ | 141,177 |
| | $ | 143,919 |
|
As a result of the Acquisition, the Company assumed a financing agreement with an unrelated third-party financing company (the "Financing Agreement") whereby the Company offers distributors and resellers direct or indirect financing on their purchases of Polycom's products and services. In return, the Company agrees to pay the financing company a fee based on a pre-defined percentage of the transaction amount financed. In certain instances, these financing arrangements result in a transfer of the Company's receivables, without recourse, to the financing company. If the transaction meets the applicable criteria under Topic 860 and is accounted for as a sale of financial assets, the related accounts receivable is excluded from the balance sheet upon receipt of the third-party financing company's payment remittance. In certain legal jurisdictions, the arrangements that involve maintenance services or products bundled with maintenance at one price do not qualify as sale of financial assets in accordance with the authoritative guidance. Accordingly, accounts receivable related to these arrangements are accounted for as a secured borrowing in accordance with Topic 860, and the Company records a liability for any cash received, while maintaining the associated accounts receivable balance until the distributor or reseller remits payment to the third-party financing company.
During the quarter ended June 30, 2019, total transactions entered pursuant to the terms of the Financing Agreement were approximately $59.1 million, of which $27.3 million was related to the transfer of the financial asset. The financing of these receivables accelerated the collection of cash and reduced the Company's credit exposure. Included in "Accounts receivables, net" in the Company's condensed consolidated balance sheet as of June 30, 2019 was approximately $42.7 million due from the financing company, of which $22.3 million was related to accounts receivable transferred. Total fees incurred pursuant to the Financing Agreement were immaterial for the quarter ended June 30, 2019. These fees are recorded as a reduction to revenue on the Company's condensed consolidated statement of operations.
Inventory, net:
|
| | | | | | | | |
| | | June 30, |
| March 31, |
| (in thousands) | | 2019 |
| 2019 |
| Raw materials | | $ | 82,575 |
| | $ | 34,054 |
|
| Work in process | | 18,077 |
| | 274 |
|
| Finished goods | | 116,772 |
| | 142,818 |
|
| Inventory, net | | $ | 217,424 |
| | $ | 177,146 |
|
|
| | | | | | | | |
| | | March 31, | | December 31, |
| (in thousands) | | 2017 | | 2017 |
| Raw materials | | $ | 20,260 |
| | $ | 23,485 |
|
| Work in process | | 215 |
| | 243 |
|
| Finished goods | | 34,981 |
| | 40,846 |
|
| Inventory, net | | $ | 55,456 |
| | $ | 64,574 |
|
Accrued Liabilities:
|
| | | | | | | | |
| | | June 30, | | March 31, |
| (in thousands) | | 2019 | | 2019 |
| Short term deferred revenue | | $ | 140,186 |
| | $ | 133,200 |
|
| Employee compensation and benefits | | 61,795 |
| | 68,882 |
|
| Operating lease liabilities, current | | 22,101 |
| | — |
|
| Income tax payable | | 11,145 |
| | 5,692 |
|
| Provision for returns | | 28,238 |
| | 24,632 |
|
| Marketing incentives liabilities | | 23,093 |
| | 25,369 |
|
| Discounts reserve | | 36,712 |
| | 46,894 |
|
| Accrued interest | | 3,531 |
| | 10,425 |
|
| Warranty obligation | | 14,044 |
| | 15,736 |
|
| VAT/Sales tax payable | | 7,483 |
| | 11,804 |
|
| Derivative liabilities | | 7,152 |
| | 3,275 |
|
| Accrued other | | 52,826 |
| | 52,806 |
|
| Accrued liabilities | | $ | 408,306 |
| | $ | 398,715 |
|
|
| | | | | | | | |
| | | March 31, | | December 31, |
| (in thousands) | | 2017 | | 2017 |
| Employee compensation and benefits | | $ | 36,415 |
| | $ | 23,719 |
|
| Accrued interest on 5.50% Senior Notes | | 10,407 |
| | 3,419 |
|
| Warranty obligation | | 6,863 |
| | 7,418 |
|
| VAT/Sales tax payable | | 5,433 |
| | 6,182 |
|
| Derivative liabilities | | 1,323 |
| | 4,425 |
|
| Accrued other | | 13,844 |
| | 16,743 |
|
| Accrued liabilities | | $ | 74,285 |
| | $ | 61,906 |
|
The Company's warranty obligation is included as a component of accrued liabilities on the condensed consolidated balance sheets. Changes in the warranty obligation during the ninethree months ended December 31, 2016June 30, 2019 and 20172018 were as follows:
|
| | | | | | | | |
| | | Three Months Ended
June 30, |
| (in thousands) | | 2019 | | 2018 |
| Warranty obligation at beginning of period | | $ | 17,984 |
| | $ | 9,604 |
|
| Warranty provision related to products shipped | | 4,837 |
| | 2,562 |
|
| Deductions for warranty claims processed | | (5,001 | ) | | (2,634 | ) |
| Adjustments related to preexisting warranties | | (1,036 | ) | | 200 |
|
Warranty obligation at end of period(1) | | $ | 16,784 |
| | $ | 9,732 |
|
|
| | | | | | | | |
| | | Nine Months Ended
December 31, |
| (in thousands) | | 2016 | | 2017 |
| Warranty obligation at beginning of period | | $ | 8,537 |
| | $ | 8,697 |
|
| Warranty provision related to products shipped | | 7,248 |
| | 7,367 |
|
| Deductions for warranty claims processed | | (7,246 | ) | | (7,711 | ) |
| Adjustments related to preexisting warranties | | 408 |
| | 1,086 |
|
Warranty obligation at end of period(1) | | $ | 8,947 |
| | $ | 9,439 |
|
(1)Includes both short-term and long-term portion of warranty obligation; the prior table shows only the short-term portion included in accrued liabilities on ourthe Company's condensed consolidated balance sheet. The long-term portion is included in other long-term liabilities.
Operating Leases:
|
| | | | | | | | | | |
| | | Balance Sheet | | June 30, | | March 31, |
| (in thousands) | | Classification | | 2019 | | 2019 |
| ASSETS | | | | | | |
Operating right-of-use assets(1) | | Other assets | | $ | 51,447 |
| | $ | — |
|
| LIABILITIES | | | | | | |
Operating lease liabilities, current(2) | | Accrued liabilities | | 22,101 |
| | $ | — |
|
| Operating lease liabilities, long-term | | Other liabilities | | $ | 41,609 |
| | $ | — |
|
(1) During the three months ended June 30, 2019, the Company made $5.9 million in payments for operating leases included within cash provided by operating activities in its condensed consolidated statements of cash flows.
(2) During the three months ended June 30, 2019, the Company recognized $5.7 million in operating lease expense, net of $1.4 million in sublease income, within its condensed consolidated statement of operations.
| |
| 7. | GOODWILL AND PURCHASED INTANGIBLE ASSETS |
The carrying value of goodwill and other intangibles, excluding fully amortized intangible assets as of June 30, 2019, is set forth in the following table:
|
| | | | | | | | | | | | | | | | | | |
| As of | | June 30, 2019 | | March 31, 2019 | | |
| (in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Remaining Useful Life |
| Amortizing Assets | | | | | | | | | | |
| Existing technology | | $ | 585,867 |
| | (116,295 | ) | | 566,881 |
| | (86,301 | ) | | 4.0 years |
| Customer relationships | | 245,437 |
| | (48,306 | ) | | 245,481 |
| | (36,245 | ) | | 4.6 years |
| Trade name | | 115,600 |
| | (12,845 | ) | | 115,600 |
| | (9,633 | ) | | 8.0 years |
| Non-amortizing assets | | �� | | | | | | | | |
| In-process R&D | | 10,890 |
| | — |
| | 29,892 |
| | — |
| | N/A |
| Total intangible assets | | $ | 957,794 |
| | $ | (177,446 | ) | | $ | 957,854 |
| | $ | (132,179 | ) | | 4.7 years |
| | | | | | | | | | | |
| Goodwill | | 1,279,897 |
| | $ | — |
| | 1,278,380 |
| | $ | — |
| | N/A |
In the three months ended June 30, 2019, the Company placed in service $19.0 million of in-process R&D which is being amortized on a straight-line basis.
As of June 30, 2019, expected amortization expense for other intangible assets for each of the next five years and thereafter is as follows:
|
| | | | |
| in thousands | | Amount |
| 2020 | | $ | 137,290 |
|
| 2021 | | 178,211 |
|
| 2022 | | 163,928 |
|
| 2023 | | 160,220 |
|
| 2024 | | 78,808 |
|
| Thereafter | | 61,891 |
|
| | | $ | 780,348 |
|
6.Note 8. COMMITMENTS AND CONTINGENCIES
Future Minimum Rental Payments
Future minimum lease payments under non-cancelable operating leases as of June 30, 2019 were as follows:
|
| | | |
| (in thousands) | | Operating Leases |
| 2020 (remaining nine months) | | 19,147 |
|
| 2021 | | 21,984 |
|
| 2022 | | 19,084 |
|
| 2023 | | 6,390 |
|
| 2024 | | 1,547 |
|
| Thereafter | | 619 |
|
| Total lease payments | | 68,771 |
|
Less: Imputed Interest(2) | | (5,061 | ) |
| Present value of lease liabilities | | 63,710 |
|
(1) The weighted average remaining lease term was 3.1 years as of June 30, 2019.
(2) The weighted average discount rate was 4.9% as of June 30, 2019.
Unconditional Purchase Obligations
The Company purchases materials and services from a variety of suppliers and manufacturers. During the normal course of business and to manage manufacturing operations and general and administrative activities, the Company may enter into firm, non-cancelable, and unconditional purchase obligations for which amounts are not recorded on the consolidated balance sheets. As of December 31, 2017,June 30, 2019, the Company had outstanding off-balance sheet third-party manufacturing, component purchase, and other general and administrative commitments of $192.3$406.4 million.
Other Guarantees and Obligations
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, purchasers of assets or subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company's breach of agreements or representations and warranties made by the Company, services to be provided by the Company, intellectual property infringement claims made by third parties or, with respect to the sale of assets of a subsidiary, matters related to the Company's conduct of business and tax matters prior to the sale. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various triggering events relating to the sale and use of its products and services.
In addition, the Company also provides indemnification to customers against claims related to undiscovered liabilities, additional product liability, or environmental obligations. The Company has also entered into indemnification agreements with its directors, officers and certain other personnel that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers of the Company or certain of its affiliated entities. The Company maintains director and officer liability insurance, which may cover certain liabilities arising from its obligation to indemnify its directors, officers and certain other personnel in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these agreements due to the limited history of prior claims and the unique facts and circumstances involved in each particular claim. Such indemnification obligations might not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any liabilities related to such indemnification obligations in the condensed consolidated financial statements.
Claims and Litigation
On October 12, 2012, GN Netcom, Inc. ("GN"(“GN”) suedfiled a complaint against the Company in the United States ("U.S.") District Court for the District of Delaware (“Court”), alleging violations of Sections 1 and 2 of the Sherman Act, Section 3 of the Clayton Act, and Delaware common law. In its complaint, GN specifically alleged four causes of action: monopolization, attempted monopolization, concerted action in restraint of trade, and tortioustortuous interference with business relations. GN claimed thatrelations in connection with the Company dominates the market for headsets sold into contact centers in the U.S.Company’s distribution of corded and that a critical channel for sales of headsetswireless headsets. The case was assigned to contact centers is through a limited network of specialized independent distributors (“SIDs”). GN asserted that the Company attracts SIDs through exclusive distributor agreements and alleged that the use of these agreements is illegal.Judge Leonard P. Stark. GN sought injunctive relief, total damages in an unspecified amount, plus attorneys’ fees and costs, as well as unspecified legal and equitable relief.
GN generally alleged that the Company’s alleged exclusive dealing arrangements with certain distributors stifled competition in the relevant market. In July 2016, the Court issued a sanctions order against Plantronics in the amount of approximately $4.9 million for allegations of spoliation of evidence. The case was tried to a jury in October 2017, resulting in a verdict in favor of the Company. GN filed a motion for new trial in November 2017, and that motion was denied by the Court in January 2018. The Company filed a motion for attorneys’ fees in November 2017, and that motion was denied by the Court in January 2018. The Company also filed a motion for certain recoverable costs, and the parties stipulated to an immaterial amount of approximately $0.2 million which GN will paypaid the Company. IfOn February 12, 2018, GN filed a notice of intent to appeal both the jury verdict weredenial of the new trial motion and the Court’s July 2016 spoliation order. The appellate court heard argument on the matter on December 11, 2018 and its decision was rendered on July 10, 2019. The Court denied GN’s request for default judgment, but granted a new trial to be overturnedinclude certain excluded testimony of one witness. The Company has filed a motion for rehearing en banc.
On September 13, 2018, Mr. Phil Shin filed on appeal,behalf of himself and others similarly situated, a purported Class Action Complaint in the United States District Court of the Northern District of California alleging violations of various federal and state consumer protection laws in addition to unfair competition and fraud claims in connection with the Company’s BackBeat FIT headphones. The Company woulddisputes the allegations and filed a motion to dismiss the Complaint in November 2018. Plaintiff filed a First Amended Complaint on December 14, 2018. The matter has now been resolved and the settlement is pending court approval. On May 24, 2019, Plaintiff filed an unopposed Motion for Preliminary Approval of Class Action Settlement. On June 17, 2019, the Court denied preliminary approval on the basis that the scope of the release was overly broad. An amended unopposed Motion for Preliminary Approval has been agreed on by Parties and is pending filing.
On January 23, 2018, FullView, Inc. ("FullView") filed a complaint in the United States District Court of the Northern District of California against Polycom, Inc. alleging infringement of two patents and thereafter filed a similar complaint in connection with the same patents in Canada. Polycom thereafter filed an inter partes reexamination of one of the patents, which was then appealed to the Federal Circuit Court. Oral argument occurred on March 6, 2019. Litigation in both matters in the United States and Canada, respectively, has been stayed pending the results of that appeal. Polycom also filed an inter partes review of the second patent on January 31, 2019, which is now pending institution. FullView had also initiated arbitration proceedings under a terminated license agreement with Polycom alleging that Polycom had failed to pay certain royalties due under that agreement. An arbitration hearing occurred on December 10, 2018, and the arbitration panel awarded $374,475 to FullView. On April 29, 2019 the Federal Circuit rendered its opinion affirming the Patent Trial and Appeal Board (“PTAB”) opinion regarding the inter partes reexamination. On May 8, 2019, Parties have filed a joint stipulated motion to repay that amountextend the Case Management Conference to GN. GN has not indicated whether itSeptember 26, 2019 to request a stay the US litigation pending the IPR. On July 10, 2019, the PTAB denied institution of the IPR of the second patent. The Company plans to file an appeal that ruling.
On June 21, 2018, directPacket Research Inc. ("directPacket") filed a complaint alleging patent infringement by Polycom in the United States District Court for the Eastern District of Virginia, Norfolk Division. The Company disputes the jury’s verdict.
Inallegations. Polycom filed a letter dated Maymotion to change venue which was denied in October 2018. Polycom filed its Answer to the Complaint on October 18, 2018. On February 15, 2019, Polycom filed a Motion to Transfer Venue Pursuant to a Valid and Enforceable Forum Selection Clause to change venue to the Northern District of California. directPacket filed is Opposition on March 1, 2017,2019 with Polycom filing its Reply on March 7, 2019. Discovery was ongoing. On April 29, 2019, the Company received a Notice of Proposed Debarment from the General Services Administration ("GSA") informing the Company that the GSA has proposed that the Company be debarred from participation in Federal procurement and non-procurement programs basedCourt ordered supplemental briefing on the above spoliation order issued inMotion to Transfer Venue, which was filed on May 20, 2019. On July 3, 2019 the GN litigation matter. The Company submittedCourt granted the Motion to Transfer Venue to Northern District of California. An initial case management conference has been scheduled for October 2019.
On March 21, 2019, Performance Design Products ("PDP") filed a response to the GSA demonstrating that it is a responsible contractor and that a suspension or debarment is neither necessary to protect the government nor warranted. The GSA found “no cause” for debarment of Plantronics and terminated the proceedingcomplaint against the Company alleging trademark infringement. The Company filed a motion to dismiss the complaint on April 12, 2019. PDP filed its opposition and a request for a preliminary injunction on May 10, 2019. The Company filed its Reply in Support of its Motion to Dismiss on July 9, 2019 and its Opposition for Preliminary Injunction on July 12, 2019 with hearing set for August 2017.2, 2019. The Court granted the Company's Motion to Dismiss on July 15, 2019 with leave to amend by July 19, 2019 and PDP filed an amended complaint.
On July 31, 2019, Valyrian IP LLC filed a patent infringement action against the Company.
In addition to the specific mattermatters discussed above, the Company is involved in various legal proceedings and investigations arising in the normal course of conducting business. For such legal proceedings, whereWhere applicable, in relation to the matters described above, the Company has accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to the Company's financial condition, results of operations, or cash flows. With respect to proceedings for which no accrual has been made, theThe Company is not able to estimate an amount or range of any reasonably possible additional lossesloss, including in excess of any amount accrued, because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the variable treatment of claims made in many of these proceedings, and the difficulty of predicting the settlement value of many of these proceedings. However, based upon the Company's historical experience, the resolution of these proceedings is not expected to have a material effect on the Company's financial condition, results of operations or cash flows. The Company may incur substantial legal fees, which are expensed as incurred, in defending against these legal proceedings.
7.9. DEBT
The estimated fair value and carrying value of the Company's outstanding debt as of June 30, 2019 and March 31, 2019 were as follows:
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 | | March 31, 2019 |
| (in thousands) | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| 5.50% Senior Notes | $ | 500,185 |
| | $ | 494,321 |
| | $ | 503,410 |
| | $ | 493,959 |
|
| Term loan facility | $ | 1,164,489 |
| | $ | 1,147,841 |
| | $ | 1,152,044 |
| | $ | 1,146,842 |
|
As of June 30, 2019, and March 31, 2019, the net unamortized discount, premium and debt issuance costs on the Company's outstanding debt were $29.7 million and $31.0 million respectively.
5.50% Senior Notes
In May 2015, the Company issued $500.0 million aggregate principal amount of 5.50% senior notes (the “5.50% Senior Notes”). The 5.50% Senior Notes mature on May 31, 2023, and bear interest at a rate of 5.50% per annum, payable semi-annually on May 15 and November 15, commencing on November 15, 2015. The Company received net proceeds of $488.4 million from from the issuance of the 5.50% Senior Notes, net of issuance costs of $11.6 million which are being amortized to interest expense over the term of the 5.50% Senior Notes using the effective interest method. A portion of the proceeds was used to repay all then-outstanding amounts under ourthe Company's revolving line of credit agreement with Wells Fargo Bank and the remaining proceeds were used primarily for share repurchases.
The fair value of the 5.50% Senior Notes was determined based on inputs that were observable in the market, including the trading price of the 5.50% Senior Notes when available (Level 2). The estimated fair value and carrying value of the 5.50% Senior Notes were as follows:
|
| | | | | | | | | | | | | | | |
| | March 31, 2017 | | December 31, 2017 |
| (in thousands) | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| 5.50% Senior Notes | $ | 505,150 |
| | $ | 491,059 |
| | $ | 520,425 |
| | $ | 492,146 |
|
The Company may redeem all or a part of the 5.50% Senior Notes, upon not less than 30 or more than a 60 day60-day notice; however, the applicable redemption price will be determined as follows:
|
| | | | | | | |
| | Redemption Period Requiring Payment of: | | Redemption Up To 35% Using Cash Proceeds From An Equity Offering(3):
|
| | Make-Whole(1) | | Premium(2) | | Date | | Specified Price |
| 5.50% Senior Notes | Prior to May 15, 2018 | | On or after May 15, 2018 | | Prior to May 15, 2018 | | 105.500% |
(1) If the Company redeems the notes prior to the applicable date, the redemption price is principal plus a make-whole premium equal to the present value of the remaining scheduled interest payments as described in the applicable indenture, together with accrued and unpaid interest.
(2) If the Company redeems the notes on or after the applicable date, the price is principal plus a premium which declines over time as specified in the applicable indenture, together with accrued and unpaid interest.
(3) If the Company redeems the notes prior to the applicable date with net cash proceeds of one or more equity offerings, the price is equal to the amount specified above, together with accrued and unpaid interest, subject to a maximum redemption of 35% of the aggregate principal amount of the respective note being redeemed.
In addition, upon the occurrence of certain change of control triggering events, the Company may be required to repurchase the 5.50% Senior Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The 5.50% Senior Notes contain restrictive covenants that, among other things, limit the Company's ability to create certain liens and enter into sale and leaseback transactions; create, assume, incur, or guarantee additional indebtedness of its subsidiaries without such subsidiary guaranteeing the 5.50% Senior Notes on an unsecured unsubordinated basis; and consolidate or merge with, or convey, transfer or lease all or substantially all of the assets of the Company and its subsidiaries to another person. As
Credit Facility Agreement
In connection with the acquisition of December 31, 2017, the Company was in compliance with all covenants.
Revolving Credit Agreement
On May 9, 2011,Polycom on July 2, 2018, the Company entered into a credit agreementCredit Agreement with Wells Fargo Bank, National Association, ("as administrative agent, and the Bank"lenders party thereto (the “Credit Agreement”),. The Credit Agreement replaced the Company’s prior revolving credit facility in its entirety. The Credit Agreement provides for (i) a revolving credit facility with an initial maximum aggregate amount of availability of $100 million that matures in July 2023 and (ii) a $1.275 billion term loan facility priced at LIBOR plus 250bps due in quarterly principal installments commencing on the last business day of March, June, September and December beginning with the first full fiscal quarter ending after the Closing Date for the aggregate principal amount funded on the Closing Date multiplied by 0.25% (subject to prepayments outlined in the Credit Agreement) and all remaining outstanding principal due at maturity in July 2025. The Company borrowed the full amount available under the term loan facility of $1.245 billion, net of approximately $30 million of discounts and issuance costs which was most recently amended on April 28, 2017 (as amended, the "Amended Credit Agreement")are being amortized to extendinterest expense over the term of the agreement using the straight-line method which approximates the effective interest method for this debt. The proceeds from the initial borrowing under the Credit Agreement by one yearwere used to May 9, 2020,finance the Acquisition, to refinance certain debt of Polycom, and to amendpay related fees, commissions and transaction costs. The Company has additional borrowing capacity under the Credit Agreement through the revolving credit facility which could be used to provide ongoing working capital and capital for other general corporate purposes of the Company and its subsidiaries. The Company’s obligations under the Credit Agreement are currently guaranteed by Polycom and will from time to time be guaranteed by, subject to certain exceptions, any domestic subsidiaries that may become material in the future. Subject to certain exceptions, the Credit Agreement is secured by first-priority perfected liens and security interests in substantially all of the personal property of the Company and each subsidiary guarantor and will from time to time also be secured by certain material real property that the Company or any subsidiary guarantor may acquire. Borrowings under the Credit Agreement bear interest due on a quarterly basis at a variable rate equal to (i) LIBOR plus a specified margin, or (ii) the base rate (which is the highest of (a) the prime rate publicly announced from time to time by Wells Fargo Bank, National Association, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin. The Company must also pay (i) an unused commitment fee ranging from 0.200% to 0.300% per annum of the average daily unused portion of the aggregate revolving credit commitments under the Credit Agreement, and (ii) a per annum fee equal to (a) for each performance standby letter of credit outstanding under the Credit Agreement with respect to non-financial contractual obligations, 50% of the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn under such letter of credit, and (b) for each other letter of credit outstanding under the Credit Agreement, the applicable margin over LIBOR under the revolving credit facility in effect from time to time multiplied by the daily amount available to be drawn for such letter of credit.
The Credit Agreement contains various restrictions and covenants, including requirements that the Company maintain certain financial ratios at prescribed levels and restrictions on the ability of the Company and certain of the covenants, which are defined below.
its subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, consummate acquisitions, make investments and pay dividends and other distributions. The Amended Credit Agreement provides for a $100.0 million unsecuredincludes the following financial covenants applicable to the revolving credit facility. Revolving loansfacility only: (i) a maximum consolidated secured net leverage ratio (defined as, with certain adjustments and exclusions, the ratio of the Company’s consolidated secured indebtedness as of the end of the relevant fiscal quarter to consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and certain other items (“EBITDA”) for the period of four fiscal quarters then ended) of 3.50 to 1.00 as of the last day of any fiscal quarter ending during the period from December 29, 2018 through June 29, 2019; 3.25 to 1.00 as of the last day of any fiscal quarter ending during the period from June 30, 2019 through March 28, 2020; 3.00 to 1.00 as of the last day of any fiscal quarter ending during the period from March 29, 2020 through April 3, 2021; and 2.75 to 1.00 as of the last day of any fiscal quarter ending on or after April 4, 2021; and (ii) a minimum interest coverage ratio (defined as, with certain adjustments, the ratio of the Company’s EBITDA to the Company’s consolidated interest expense to the extent paid or payable in cash) of 2.75 to 1.00 as of the last day of any fiscal quarter ending on or after December 29, 2018.The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the lenders may declare any outstanding obligations under the Credit Agreement to be immediately due and payable; provided, however, that the occurrence of an event of default as a result of a breach of a financial covenant under the Credit Agreement does not constitute a default or event of default with respect to any term facility under the Credit Agreement unless and until the required revolving lenders shall have terminated their revolving commitments and declared all amounts outstanding under the revolving credit facility to be due and payable. In addition, if the Company, any subsidiary guarantor or, with certain exceptions, any other subsidiary becomes the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable. Loans outstanding under the Credit Agreement will bear interest at the Company’s election, at (i) the Bank’s announced primea rate less 1.20%of 2.00% per annum in excess of the otherwise applicable rate (i) while a payment or bankruptcy event of default exists or (ii) a daily one-month LIBOR rate plus 1.40% per annum. Interest is payable quarterly in arrears onupon the first daylenders’ request, during the continuance of eachany other event of April, July, October and January. Principal, together with all accrued and unpaid interest, on the revolving loans is due and payable on May 9, 2020. The Company is also obligated to pay a commitment fee of 0.37% per annum on the average daily unused amount of the revolving line of credit, which fee shall be payable quarterly in arrears on the first day of each of April, July, October and January.default.
The Company may prepay the loans and terminate the commitments under the Credit Facility Agreement at any time without premium orbut will incur a 1% prepayment penalty subject to the reimbursementif it refinances within 6 months of certain costs. During the three months ended December 31, 2017entering into this credit agreement. As of June 30, 2019, the Company borrowed and repaid $8 million from our linehas four outstanding letters of credit and as of March 31, 2017 and December 31, 2017, the Company had no outstanding borrowings on the linerevolving credit facility for a total of credit.
$0.8 million. The Amended Credit Agreement contains customary affirmative and negative covenants, including, among other things, covenants limiting the abilityfair value of the Company to incur debt, make capital expenditures, grant liens, merge or consolidate, and make investments. The Amended Credit Agreement also requires the Company to comply with certain financial covenants, including (i) a maximum ratio of funded debt to EBITDA of 3.25:1 (previously 3:1) and (ii) a minimum EBITDA coverage ratio, in each case, tested as of each fiscal quarter andterm loan facility was determined based on a rolling four-quarter basis. In addition, the Company and its subsidiaries are required to maintain unrestricted cash, cash equivalents and marketable securities plus availability under the Amended Credit Agreement at the end of each fiscal quarter of at least $300.0 million. The Amended Credit Agreement contains customary events of defaultinputs that include, among other things, payment defaults, covenant defaults, cross-defaults with certain other indebtedness, bankruptcy and insolvency defaults, and judgment defaults. The occurrence of an event of default could resultwere observable in the acceleration of the obligations under the Amended Credit Agreement. As of March 31, 2017 and December 31, 2017, the Company was in compliance with all covenants.market (Level 2).
8.10. RESTRUCTURING AND OTHER RELATED CHARGES (CREDITS)
During the first nine monthsSummary of Fiscal Year 2018 and as part of its ongoing effort to reduce costs, improve profitability, and focus on its key strategic initiatives, the Company executed an asset sale agreement to dispose of substantially all assets of its Clarity division, primarily inventories and tooling fixed assets, for an immaterial sales price. The buyer in this arrangement was a former employee of the Company, who acted as Clarity's President but who was not an executive officer or director of the Company. As part of the buyer's separation from Plantronics, the Company accelerated vesting on his outstanding restricted stock, resulting in an immaterial stock-compensation modification charge.Restructuring Plans
In connection with the sale, the Company is leasing the facility it owns in Chattanooga, Tennessee, to the buyer for a period of twelve months. The Company also entered into a transition services agreement with the buyer to provide customer support services on a cost-recovery basis, which are not expected to be material, for a period of one year. The Company also recorded immaterial impairment charges on assets previously used in Clarity operations that have no further value to the Company.Q1 FY20 restructuring plan
In addition to the sale of the Clarity division and the related restructuring actions, the Company reduced headcount in certain divisions and terminated a lease in the Netherlands before the end of its contractual term, resulting in a charge equal to the present value of the remaining future minimum lease payments. In connection with this exit, the Company wrote off certain fixed assets that will no longer be used. Finally, the Company reorganized its Brazilian operations and as a result, wrote off an unrecoverable indirect tax asset.
As of December 31, 2017, the remaining obligation related to severance amounts due is immaterial and will be settled within 12 months.
During the quarter ended December 31, 2017, we recorded an immaterial adjustmentJune 30, 2019, the Company initiated a post-Acquisition restructuring plan to streamline the global workforce of the combined company. The costs incurred to date under this plan comprises of severance benefits from reduction in force actions initiated by management and legal entity rationalization.
Fiscal Year 2019 restructuring plans
During the Fiscal Year 2019, the Company initiated post-Acquisition restructuring plans to realign the Company's cost structure, including streamlining the global workforce, consolidation of certain distribution centers in North America, and otherreduction of redundant legal entities, in order to take advantage of operational efficiencies following the Acquisition. The costs incurred to date under these plans have primarily comprised of severance benefits from reduction in force actions, facilities related charges (credits) resulting from a changeactions initiated by management, and legal entity rationalization.
The Company's restructuring liabilities as of June 30, 2019 is as follows (amounts in estimate from amounts previously recorded.thousands):
|
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2019 | Adoption of ASC 842 (1) | Accruals | Cash Payments | Adjustments | As of June 30, 2019 |
| FY 2019 Plans | | | | | | |
| Severance | $ | 5,889 |
| $ | — |
| — |
| $ | (3,115 | ) | $ | (119 | ) | $ | 2,655 |
|
| Facility | 7,376 |
| (7,376 | ) | — |
| — |
| — |
| — |
|
| Other | 10 |
| $ | — |
| — |
| — |
| 117 |
| $ | 127 |
|
| Total FY2019 Plans | $ | 13,275 |
| $ | (7,376 | ) | $ | — |
| $ | (3,115 | ) | $ | (2 | ) | $ | 2,782 |
|
| FY 2020 Plan | | | | | | |
| Severance | — |
| — |
| 14,755 |
| (8,830 | ) | (941 | ) | $ | 4,984 |
|
| Other | — |
| — |
| 5,713 |
| (5,713 | ) | — |
| — |
|
| Total FY2020 Plan | — |
| — |
| 20,468 |
| (14,543 | ) | (941 | ) | 4,984 |
|
| Severance | $ | 5,889 |
| $ | — |
| $ | 14,755 |
| $ | (11,945 | ) | $ | (1,060 | ) | $ | 7,639 |
|
| Facility | 7,376 |
| (7,376 | ) | — |
| — |
| — |
| — |
|
| Other | 10 |
| — |
| 5,713 |
| (5,713 | ) | 117 |
| 127 |
|
| Grand Total | $ | 13,275 |
| $ | (7,376 | ) | $ | 20,468 |
| $ | (17,658 | ) | $ | (943 | ) | $ | 7,766 |
|
(1) Includes adjustments to facilities-related liabilities upon adoption of ASC 842.
The associated charges for the nine months ended December 31, 2017 are recorded in restructuring and other related charges (credits), cost of revenues, and selling, general, and administrative expense in the condensed consolidated statements of operations, as follows:
|
| | | | | | | | | | | | |
| | Nine months ended December 31, 2017 |
| (in millions) | Total Charges | Restructuring and Other Related Charges (Credits) | Cost of Revenues | Selling, General, and Administrative |
| Severance benefits from reduction-in-force | $ | 1.3 |
| $ | 1.3 |
| $ | — |
| $ | — |
|
| Lease exit charge and asset impairments in Netherlands | 0.7 |
| 0.7 |
| — |
| — |
|
| Write-off of unrecoverable indirect tax asset in Brazil | 0.7 |
| — |
| 0.7 |
| — |
|
| Asset impairments related to previous Clarity operations | 0.4 |
| 0.4 |
| — |
| — |
|
| Loss on Clarity asset sale | 0.9 |
| — |
| 0.9 |
| — |
|
| Accelerated vesting of restricted stock | 0.2 |
| — |
| — |
| 0.2 |
|
| Totals | $ | 4.2 |
| $ | 2.4 |
| $ | 1.6 |
| $ | 0.2 |
|
9. STOCK-BASED11. COMPENSATION
Stock-based Compensation
The Company recognizes the grant-date fair value of stock-based compensation as compensation expense using the straight-line attribution approach over the service period for which the stock-based compensation is expected to vest. The following table summarizes the amount of stock-based compensation included in the condensed consolidated statements of operations:
|
| | | | | | | | | |
| | | Three Months Ended June 30, | |
| (in thousands) | | 2019 | | 2018 | |
| Cost of revenues | | $ | 978 |
| | $ | 963 |
| |
| | | | | | |
| Research, development, and engineering | | 3,719 |
| | 2,222 |
| |
| Selling, general, and administrative | | 8,207 |
| | 4,965 |
| |
| Stock-based compensation included in operating expenses | | 11,926 |
| | 7,187 |
| |
| Total stock-based compensation | | 12,904 |
| | 8,150 |
| |
| Income tax benefit | | 4 |
| | (3,754 | ) | |
| Total stock-based compensation, net of tax | | $ | 12,908 |
| | $ | 4,396 |
| |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | Nine Months Ended
December 31, |
| (in thousands) | | 2016 | | 2017 | | 2016 | | 2017 |
| Cost of revenues | | $ | 794 |
| | $ | 917 |
| | $ | 2,414 |
| | $ | 2,709 |
|
| | | | | | | | | |
| Research, development, and engineering | | 1,771 |
| | 2,049 |
| | 6,663 |
| | 6,158 |
|
| Selling, general, and administrative | | 6,124 |
| | 5,063 |
| | 15,928 |
| | 17,180 |
|
| Stock-based compensation included in operating expenses | | 7,895 |
| | 7,112 |
| | 22,591 |
| | 23,338 |
|
| Total stock-based compensation | | 8,689 |
| | 8,029 |
| | 25,005 |
| | 26,047 |
|
| Income tax expense (benefit) | | (2,986 | ) | | 2,039 |
| | (8,635 | ) | | (5,650 | ) |
| Total stock-based compensation, net of tax | | $ | 5,703 |
| | $ | 10,068 |
| | $ | 16,370 |
| | $ | 20,397 |
|
Long Term Incentive Plan
Prior to the Acquisition of Polycom, certain Polycom employees were granted incentive rights under the Polycom, Inc. 2016 Long-Term Incentive Plan (“2016 LTIP”). As of the date of Acquisition, Plantronics assumed the role of payer to participants of the 2016 LTIP through its payroll but is indemnified by Triangle for obligations under the 2016 LTIP. The Acquisition accelerated vesting under the 2016 LTIP at 75% of awards held by participants in service as of that date and triggered an initial amount due to such participants. The cash purchase price of the Acquisition was reduced by this initial obligation. The remaining 25% of awards will vest upon one-year anniversary of the Acquisition. Any future payments above the initial obligation under the 2016 LTIP, provided that the vesting requirements are satisfied, require Triangle to fund the Company in order to pay participants for any amount in excess of the purchase price reduction.
At July 2, 2018, $7.9 million was recognized in Accrued liabilities assumed from Polycom and was paid in the second quarter of fiscal year 2019. The Company recognized an immaterial amount of compensation expense ratably through the first quarter of fiscal year 2020 in respect of the awards vesting on the one-year anniversary, which will be payable in the second quarter of fiscal year 2020. The amount due as of the date of the Acquisition is based on cash paid to Triangle that was distributed to its parents. Future distributions to its parents of cash made available to Triangle from the release of escrow accounts or the sale of shares issued in the transaction would trigger further compensation due to incentive rights holders under the plan. The Company is indemnified for any obligations in excess of the reduction to purchase price.
10.12. COMMON STOCK REPURCHASES
From time to time, the Company's Board of Directors (the "Board") has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Repurchased shares are held as treasury stock until they are retired or re-issued. Repurchases byOn November 28, 2018, the Company pursuantBoard approved a 1 million share repurchase program expanding its capacity to Board-authorized programs during the nine months ended December 31, 2016 and 2017 are discussed below.repurchase shares to approximately 1.7 million shares. As of December 31, 2017June 30, 2019, there remained 730,9321,369,014 shares authorized for repurchase under the repurchase program approved byexisting stock repurchase.
For the Board on July 27, 2017. There were no remaining shares authorized under previously approved programs.
In the nine monthsperiods ended December 31, 2016June 30, 2019, and 2017,2018, the Company repurchased 764,176did not repurchase any shares and 1,138,903 shares, respectively, of its common stock in the open market for astock.
The total costvalue of $34.2 million and $52.9 million, respectively, and at an average price per share of $44.80 and $46.46, respectively. In addition, the Companyshares withheld shares valued at $9.4 million and $11.2 million in the nine months ended December 31, 2016 and 2017, respectively, in satisfaction of employee tax withholding obligations uponon the vesting of restricted stock granted underequity awards for the Company's stock plans.three months ended June 30, 2019, and June 30, 2018 were $8.6 million and $13.0 million, respectively. The amounts withheld were equivalent to the employees' minimum statutory tax withholding requirements and are reflected as a financing activity within the Company's condensed consolidated statements of cash flows. These share withholdings have the same effect as share repurchases by the Company as they reduce the number of shares that would have otherwise been issued in connection with the vesting of shares subject to the restricted stock grants.
11.13. ACCUMULATED OTHER COMPREHENSIVE INCOMELOSS
The components of accumulated other comprehensive income ("AOCI"), net of immaterial tax effects, are as follows:
| | | (in thousands) | (in thousands) | | March 31, 2017 | | December 31, 2017 | (in thousands) | | June 30, 2019 | | March 31, 2019 |
Accumulated unrealized gain (loss) on cash flow hedges (1) | Accumulated unrealized gain (loss) on cash flow hedges (1) | | $ | 529 |
| | $ | (2,200 | ) | Accumulated unrealized gain (loss) on cash flow hedges (1) | | $ | (11,243 | ) | | $ | (5,310 | ) |
| Accumulated foreign currency translation adjustments | Accumulated foreign currency translation adjustments | | 4,428 |
| | 4,685 |
| Accumulated foreign currency translation adjustments | | 4,615 |
| | 4,835 |
|
| Accumulated unrealized gain (loss) on investments | | (263 | ) | | (580 | ) | |
| Accumulated other comprehensive income | | $ | 4,694 |
| | $ | 1,905 |
| |
| Accumulated unrealized loss on investments | | Accumulated unrealized loss on investments | | — |
| | — |
|
| Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | | $ | (6,628 | ) | | $ | (475 | ) |
(1)Refer to Note 12, Foreign Currency14, Derivatives, which discloses the nature of the Company's derivative assets and liabilities as of June 30, 2019and March 31, 2017and December 31, 2017.2019.
12. FOREIGN CURRENCY14. DERIVATIVES
Foreign Currency Derivatives
The Company's foreign currency derivatives consist primarily of foreign currency forward exchange contracts and option contracts, and cross-currency swaps.contracts. The Company does not purchase derivative financial instruments for speculative trading purposes. The derivatives expose the Company to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. The Company's maximum exposure to loss that it would incur due to credit risk if parties to derivative contracts failed completely to perform according to the terms of the contracts was equal to the carrying value of the Company's derivative assets as of December 31, 2017.June 30, 2019. The Company seeks to mitigate such risk by limiting its counterparties to large financial institutions. In addition, the Company monitors the potential risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis.
The Company enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between the Company and the counterparty as a result of multiple, separate derivative transactions. As of December 31, 2017June 30, 2019, the Company had International Swaps and Derivatives Association (ISDA)("ISDA") agreements with four applicable banks and financial institutions which contained netting provisions. Plantronics has elected to present the fair value of derivative assets and liabilities on the Company's condensed consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period. Derivatives not subject to master netting agreements are not eligible for net presentation. As of June 30, 2019, and March 31, 2017 and December 31, 2017,2019, no cash collateral had been received or pledged related to these derivative instruments.
The gross fair value of the Company's outstanding derivative contracts at the end of each period was as follows:
|
| | | | | | | | |
| (in thousands) | | June 30, 2019 | | March 31, 2019 |
Derivative Assets(1) | | | | |
| Non-designated hedges | | $ | 86 |
| | $ | 327 |
|
| Cash flow hedges | | 1,189 |
| | 2,856 |
|
| Total derivative assets | | $ | 1,275 |
| | $ | 3,183 |
|
| | | | | |
Derivative Liabilities(2) | | | | |
| Non-designated hedges | | $ | 731 |
| | $ | 39 |
|
| Cash flow hedges | | 970 |
| | 843 |
|
| Interest rate swap | | 15,004 |
| | 8,594 |
|
| Accrued interest | | 9 |
| | 7 |
|
| Total derivative liabilities | | $ | 16,714 |
| | $ | 9,483 |
|
|
| | | | | | | | |
| (in thousands) | | March 31, 2017 | | December 31, 2017 |
Derivative Assets(1) | | | | |
| Non-designated hedges | | $ | 86 |
| | $ | 19 |
|
| Cash flow hedges | | 2,034 |
| | 332 |
|
| Total Derivative Assets | | $ | 2,120 |
| | $ | 351 |
|
| | | | | |
Derivative Liabilities(2) | | | | |
| Non-designated hedges | | $ | 286 |
| | $ | 1,155 |
|
| Cash flow hedges | | 1,109 |
| | 3,345 |
|
| Total Derivative Liabilities | | $ | 1,395 |
| | $ | 4,500 |
|
(1) Short-term derivative assets are recorded in "other current assets" and long-term derivative assets are recorded in "deferred tax and other assets". As of December 31, 2017June 30, 2019, the portion of derivative assets classified as long-term was immaterial.
(2) Short-term derivative liabilities are recorded in "accrued liabilities" and long-term derivative liabilities are recorded in "other long-term liabilities". As of December 31, 2017June 30, 2019, the portion of derivative liabilities classified as long-term was immaterial.
Non-Designated Hedges
As of December 31, 2017,June 30, 2019, the Company had foreign currency forward contracts denominated in Euros ("EUR"), British Pound Sterling ("GBP"), and Australian Dollars ("AUD"), and Canadian Dollars ("CAD"). The Company does not elect to obtain hedge accounting for these forward contracts. These forward contracts hedge against a portion of the Company’s foreign currency-denominated cash balances, receivables, and payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. Dollar ("USD") equivalent at December 31, 2017June 30, 2019:
|
| | | | | | | | | | | |
| (in thousands) | Local Currency | | USD Equivalent | | Position | | Maturity |
| EUR | € | 34,000 |
| | $ | 38,786 |
| | Sell EUR | | 1 month |
| GBP | £ | 10,500 |
| | $ | 13,363 |
| | Sell GBP | | 1 month |
| AUD | A$ | 9,640 |
| | $ | 6,765 |
| | Sell AUD | | 1 month |
|
| | | | | | | | | | | |
| (in thousands) | Local Currency | | USD Equivalent | | Position | | Maturity |
| EUR | € | 38,700 |
| | $ | 46,560 |
| | Sell EUR | | 1 month |
| GBP | £ | 5,100 |
| | $ | 6,899 |
| | Sell GBP | | 1 month |
| AUD | A$ | 14,200 |
| | $ | 11,092 |
| | Sell AUD | | 1 month |
| CAD | C$ | 2,900 |
| | $ | 2,315 |
| | Sell CAD | | 1 month |
Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations
The effect of non-designated derivative contracts recognized in other non-operating income and (expense), net in the condensed consolidated statements of operations was as follows:
|
| | | | | | | | |
| | | Three Months Ended June 30, |
| (in thousands) | | 2019 | | 2018 |
| Gain (loss) on foreign exchange contracts | | $ | (289 | ) | | $ | 4,152 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | Nine Months Ended
December 31, |
| (in thousands) | | 2016 | | 2017 | | 2016 | | 2017 |
| Gain (loss) on foreign exchange contracts | | $ | 3,801 |
| | $ | 848 |
| | $ | 5,551 |
| | $ | 6,083 |
|
Cash Flow Hedges
Costless Collars
The Company hedges a portion of the forecasted EUR and GBP denominated revenues with costless collars. On a monthly basis, the Company enters into option contracts with a six to eleven montheleven-month term. Collar contracts are scheduled to mature at the beginning of each fiscal quarter, at which time the instruments convert to forward contracts. The Company also enters into cash flow forwards with a three monththree-month term. Once the hedged revenues are recognized, the forward contracts become non-designated hedges to protect the resulting foreign monetary asset position for the Company.
The notional value of the Company's outstanding EUR and GBP option and forward contracts at the end of each period was as follows:
|
| | | | | | | | |
| (in millions) | | June 30, 2019 | | March 31, 2017 | | December 31, 20172019 |
(in millions) | | EUR | | GBP | | EUR | | GBP |
| Option contracts | | €73.582.6 | | £23.927.4 | | €75.876.8 | | £22.925.8 |
| Forward contracts | | €11.257.9 | | £3.320.8 | | €13.055.4 | | £4.118.0 |
The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next twelve months.
Cross-currency Swaps
The Company hedges a portion of the forecasted Mexican Peso (“MXN”) denominated expenditures with a cross-currency swap. As of June 30, 2019, and March 31, 2017 and December 31, 2017,2019, the Company had foreign currency swap contracts of approximately MXN 287.293.2 million and MXN 76.3149.7 million, respectively.
The following table summarizes the notional value of the Company’sCompany's outstanding MXN cross-currencycurrency swaps and approximate USD Equivalent at DecemberJune 30, 2019:
|
| | | | | | | | |
| | Local Currency | USD Equivalent | Position | Maturity |
| | (in thousands) | (in thousands) | | |
| MX$ | $ | 93,170 |
| $ | 4,691 |
| Buy MXN | Monthly over 6 months |
Interest Rate Swap
On July 30, 2018, the Company entered into a 4-year amortizing interest rate swap agreement with Bank of America, NA. The swap has an initial notional amount of $831 million and matures on July 31, 2017:2022. The swap involves the receipt of floating-rate interest payments for fixed interest rate payments at a rate of 2.78% over the life of the agreement. The Company has designated this interest rate swap as a cash flow hedge. The purpose of this swap is to hedge against changes in cash flows (interest payments) attributable to fluctuations in the Company's variable rate debt. The derivative is valued based on prevailing LIBOR rate curves on the date of measurement. The Company also evaluates counterparty credit risk when it calculates the fair value of the swap. The effective portion of changes in the fair value of the derivative is recorded to other comprehensive income (loss) on the accompanying balance sheets and reclassified into interest expense over the life of the underlying debt as interest on the Company's floating rate debt is accrued. The Company reviews the effectiveness of this instrument on a quarterly basis, recognize current period hedge ineffectiveness immediately in earnings and will discontinue hedge accounting if the Company no longer considers hedging to be highly effective. This hedge was fully effective at inception on July 30, 2018 and as of the three months ended June 30, 2019. During the three months ended June 30, 2019, the Company recorded a loss of $0.7 million on its interest rate swap derivative designated as a cash flow hedge.
|
| | | | | | | | | | | | |
| (in thousands) | Local Currency | | USD Equivalent | | Position | | Maturity |
| MXN | $ | 76,340 |
| | $ | 3,935 |
| | Buy MXN | | Monthly over | 6 months |
Effect of Designated Derivative Contracts on AOCI and Condensed Consolidated Statements of Operations
The following table presents the pre-tax effects of derivative instruments designated as cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and nine months ended December 31, 2016June 30, 2019 and 2017:2018:
|
| | | | | | | | |
| | | Three Months Ended June 30, |
| (in thousands) | | 2019 | | 2018 |
| Gain (loss) included in AOCI as of beginning of period | | $ | (7,480 | ) | | $ | (1,693 | ) |
| | | | | |
| Amount of gain (loss) recognized in other comprehensive income (“OCI”) (effective portion) | | (6,704 | ) | | 3,956 |
|
| | | | | |
| Amount of (gain) loss reclassified from OCI into net revenues (effective portion) | | (1,359 | ) | | (249 | ) |
| Amount of (gain) loss reclassified from OCI into cost of revenues (effective portion) | | (104 | ) | | (79 | ) |
| Amount of (gain) loss reclassified from OCI into interest expense (effective portion) | | 652 |
| |
|
| Total amount of (gain) loss reclassified from AOCI to income (loss) (effective portion) | | (811 | ) | | (328 | ) |
| | | | | |
| Gain (loss) included in AOCI as of end of period | | $ | (14,995 | ) | | $ | 1,935 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | Nine Months Ended
December 31, |
| (in thousands) | | 2016 | | 2017 | | 2016 | | 2017 |
| Gain (loss) included in AOCI as of beginning of period | | $ | (471 | ) | | $ | (3,089 | ) | | $ | (1,106 | ) | | $ | 541 |
|
| | | | | | | | | |
Amount of gain (loss) recognized in other comprehensive income (“OCI”) (effective portion) | | 2,090 |
| | (446 | ) | | 2,394 |
| | (5,093 | ) |
| | | | | | | | | |
| Amount of gain (loss) reclassified from OCI into net revenues (effective portion) | | 2,178 |
| | 1,357 |
| | 3,163 |
| | 2,506 |
|
| Amount of gain (loss) reclassified from OCI into cost of revenues (effective portion) | | (756 | ) | | (61 | ) | | (2,072 | ) | | (193 | ) |
| Total amount of gain (loss) reclassified from AOCI to income (loss) (effective portion) | | 1,422 |
| | 1,296 |
| | 1,091 |
| | 2,313 |
|
| | | | | | | | | |
| Gain (loss) included in AOCI as of end of period | | $ | 197 |
| | $ | (2,239 | ) | | $ | 197 |
| | $ | (2,239 | ) |
For the period presented prior to the first quarter of fiscal year 2020, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the first quarter of fiscal year 2020, the excluded portion of such amounts is included in the same line item in which the underlying transactions affect earnings and the ineffective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income. During the three and nine months ended December 31, 2016 and 2017June 30, 2019, the Company did not have an ineffective portion of its cash flow hedges. During the three months ended June 30, 2018, the Company recognized an immaterial gain and immaterial loss on the ineffective portion of its cash flow hedges, respectively, which is reported in other non-operating income and (expense), net in the condensed consolidated statements of operations.hedges.
13.15. INCOME TAXES
The Company and its subsidiaries are subject to taxation in the U.S. and in various foreign and state jurisdictions. The Company's tax provision or benefit is determined using an estimate of its annual effective tax rate and adjusted for discrete items that are taken into account in the relevant period. The effective tax rates for the three months ended December 31, 2016June 30, 2019 and 20172018 were 11.0%14.4% and 255.1%5.5%, respectively. The effective tax rates for
For the ninethree months ended December 31, 2016 and 2017 were 18.4% and 114.6%, respectively.
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into law in the United States. The Act includes several changes to existing tax law, including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21% and the move from a worldwide to a territorial tax system.
The move to a territorial tax system was accompanied by federal taxation of a one-time deemed repatriation of accumulated unremitted earnings (hereafter, the "toll charge"), whichJune 30, 2019, the Company recognized a discrete $11.6 million net tax benefit related to an intra-entity transfer of an intangible asset that will elect to pay over an eight-year period as permitted
under the Act. The Company recordedhave a $69.3 million toll charge as part of income tax expense in the quarter ended December 31, 2017, representing a provisional estimate based on a 15.5% tax applied to foreign unremitted cash and cash equivalents and an 8% tax applied to permanently reinvested foreign assets. The provisional toll chargedeferred future benefit, which increased our effective tax rate by 217.2%22.2%.
On June 7, 2019, a Ninth Circuit panel reversed the United States Tax Court’s holding in Altera Corp. v. Commissioner, and 94.1% forupheld the three and nine months ended December 30, 2017, respectively. As partportion of the Act,Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. As a result, the Company also completed its remeasurementrecorded a $8.6 million discrete tax charge resulting from the cost sharing of deferred tax assets as of December 31, 2017prior stock-based compensation, partially offset by a reduction to the new future federal tax rate of 21%, thereby reducing the Company’s deferred tax assets by $2.1 million. The rate change resulted2017 Tax Cuts and Jobs Act toll charge accrued in an overall increase to the Company’sprior periods, which reduced our effective tax rate by 6.6% and 2.9% for the three and nine months ended December 31, 2017, respectively. In addition, prior to its third quarter of Fiscal Year 2018, the Company did not recognize a deferred tax liability related to unremitted foreign earnings because its plans did not require the Company to repatriate earnings from foreign operations to fund U.S. operations. The Company expects to fund payment of the toll charge by repatriating a portion of its foreign earnings and as such, has recorded a deferred tax liability of $5.0 million related to state income taxes and foreign withholding taxes that will become due as the Company repatriates foreign earnings. This increased the Company’s effective tax rate by 15.6% and 6.8% for the three and nine months ended December 31, 2017, respectively. Finally, the Company files its federal tax return on a fiscal year-end and is therefore required to pro-rate the new and old tax rates during Fiscal Year 2018. The blended, annualized tax rate applied to Fiscal Year 2018 income is 31.56%16.5%. This reduction in the federal tax rate reduced the Company’s global tax rate by 2.3% and 1.0% for the three and nine months ended December 31, 2017, respectively.
The provisional estimate for the toll charge will be finalized when the Company completes its substantive review of unremitted foreign earnings through examination of statutory filings and tax returns of the Company's foreign subsidiaries and fiscal branches that span a 30-year period. The Company must also analyze the impact of foreign exchange rates and inflation on the historical information to support foreign tax credits available to offset the toll charge. In addition, the Company's estimate of the toll charge obligation may change due to legislative technical corrections, the IRS' promulgation of regulations to interpret the Act, and changes in accounting standardsprovision for income taxes or related interpretations in response to the Act. This review and finalization of the toll charge provisional estimate will be completed within a twelve month measurement period from the date of enactment.
The Company recorded a correction to the geographic mix of income during the three months ended June 30, 2017 related to Fiscal Year 2017, which reduced income in a high tax jurisdiction and increased income in a low tax jurisdiction. This correction resulted in a reduction to the Company’s effective tax rate by 3.5 percentage points for the nine months ended December 31, 2017 as compared to the prior year period and had no impact on the three months ended December 31, 2017. For additional details regarding this correction refer to Note 1, Basis of Presentation.
The Company adopted new stock-based compensation accounting guidance effective the beginning of Fiscal Year 2018. Excessalso included excess tax benefits associated with employee equity plans were previously recorded in additional paid-in capitalof ($2.5) million and the adoption of this guidance had an immaterial impact on the Company's$2.8 million, which reduced our effective tax rate by 4.7 percentage points and 18.0 percentage points, for the three months ended December 31, 2017, but resulted in a reductionJune 30, 2019, and 2018, respectively.
The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. Significant judgment is required in evaluating our uncertain tax positions and determining the Company's effective tax rate by 2.6 percentage pointsprovision for income taxes. As of June 30, 2019, the nine months ended December 31, 2017. The amount of excess tax benefits or deficiencies will fluctuate from period-to-period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP.
Included in long-term income taxes payable in the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2017 wereCompany had a total gross unrecognized tax benefits of $12.9$36.9 million and $12.3compared with $12.8 million respectively, whichas of June 30, 2018. The increase is predominantly due to acquired uncertain tax benefits of Polycom, as well as a $9.2 million increase in the current quarter from the cost sharing of prior stock-based compensation. If recognized, the gross unrecognized tax benefits would favorably impactreduce the effective tax rate in future periods if recognized. The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense in the condensed consolidated statements of operations. The accrued interest related to unrecognized tax benefits was $1.7 million and $1.4 million as of March 31, 2017 and December 31, 2017, respectively. No penalties have been accrued.
The Company and its subsidiaries are subject to taxation in the U.S. federal and various foreign and state jurisdictions. The Company’s Fiscal Year 2016 federal income tax return is currently under examination by the Internal Revenue Service. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to Fiscal Year 2012.
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of such examinations cannot be predicted with certainty. If any issues addressed in the tax examinations are resolved in a manner inconsistent with the Company's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. The timing of any resolution and/or closure of tax examinations is not certain.recognition.
14.16. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share is calculated by dividing net income (loss) associated with common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding stock options and vesting of restricted stock, if the effect is dilutive, in accordance with the treasury stock method or two-class method (whichever is more dilutive). Refer to Note 1, Basis of Presentation, for additional information regarding the Company's computation of earnings (loss) per common share.
The following table sets forth the computation of basic and diluted earnings (loss) per common share for the three and nine months ended December 31, 2016June 30, 2019, and 2017:2018:
|
| | | | | | | | |
| | | Three Months Ended June 30, |
| (in thousands, except per share data) | | 2019 | | 2018 |
| Basic earnings (loss) per common share: | | | | |
| Numerator: | | | | |
| Net income (loss) | | $ | (44,871 | ) | | $ | 14,471 |
|
| | | | | |
| Denominator: | | | | |
| Weighted average common shares, basic | | 39,239 |
| | 32,594 |
|
| Dilutive effect of employee equity incentive plans | | — |
| | 940 |
|
| Weighted average common shares-diluted | | 39,239 |
| | 33,534 |
|
| | | | | |
| Basic earnings (loss) per common share | | $ | (1.14 | ) | | $ | 0.43 |
|
| Diluted earnings (loss) per common share | | $ | (1.14 | ) | | $ | 0.42 |
|
| | | | | |
| Potentially dilutive securities excluded from diluted earnings (loss) per common share because their effect is anti-dilutive | | 706 |
| | 202 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | Nine Months Ended
December 31, |
| (in thousands, except per share data) | | 2016 | | 2017 | | 2016 | | 2017 |
| Basic earnings (loss) per common share: | | | | | | | | |
| Numerator: | | | | | | | | |
| Net income (loss) | | $ | 22,221 |
| | $ | (49,504 | ) | | $ | 63,082 |
| | $ | (10,723 | ) |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted average common shares, basic | | 32,242 |
| | 32,075 |
| | 32,260 |
| | 32,384 |
|
| Dilutive effect of employee equity incentive plans | | 584 |
| | — |
| | 635 |
| | — |
|
| Weighted average common shares-diluted | | 32,826 |
| | 32,075 |
| | 32,895 |
| | 32,384 |
|
| | | | | | | | | |
| Basic earnings (loss) per common share | | $ | 0.69 |
| | $ | (1.54 | ) | | $ | 1.96 |
| | $ | (0.33 | ) |
| Diluted earnings (loss) per common share | | $ | 0.68 |
| | $ | (1.54 | ) | | $ | 1.92 |
| | $ | (0.33 | ) |
| | | | | | | | | |
| Potentially dilutive securities excluded from diluted earnings (loss) per common share because their effect is anti-dilutive | | 473 |
| | 968 |
| | 573 |
| | 1,107 |
|
15.17. REVENUE AND MAJOR CUSTOMERS
The Company designs, manufactures, markets, and sells headsets for business and consumer applications. After the Acquisition, it also markets and sells voice, video, and content sharing UC&C solutions.
With respect to headsets, the Company makes products for use in offices and contact centers, and, with mobile devices, cordless phones, and with computers and gaming consoles. Major headset product categories include Enterprise Headsets, which includes corded and cordless communication headsets, audio processors, and telephone systems; and Consumer Headsets, which includes Bluetooth and corded products for mobile device applications, personal computer, and gaming headsets. The Voice, Video, and Content Sharing Solutions include products like group series video and immersive telepresence systems, desktop voice and video devices, and universal collaboration servers.
Product revenue is largely comprised of sales of hardware devices, peripherals, and platform software licenses used in communication and collaboration in offices and contact centers, with mobile devices, cordless phones, and with computers and gaming consoles. Services revenue primarily includes support on hardware devices, professional, hosted and managed services, and solutions to the Company's customers.
The following table presents netdisaggregates revenues by major product groupcategory for the three and nine months ended December 31, 2016June 30, 2019 and 2017:2018:
| | | | | Three Months Ended December 31, | | Nine Months Ended
December 31, | | Three Months Ended June 30, |
| (in thousands) | | 2016 | | 2017 | | 2016 | | 2017 | | 2019 | | 2018 |
| Net revenues from unaffiliated customers: | | | | | | | | | | | | |
| Enterprise | | $ | 157,345 |
| | $ | 167,640 |
| | $ | 467,784 |
| | $ | 485,152 |
| |
| Consumer | | 75,588 |
| | 58,894 |
| | 204,438 |
| | 155,608 |
| |
| Enterprise Headsets | | | $ | 175,084 |
| | $ | 167,642 |
|
| Consumer Headsets | | | 43,566 |
| | 53,667 |
|
| Voice* | | | 103,847 |
| | — |
|
| Video* | | | 60,248 |
| | — |
|
| Services* | | | 65,022 |
| | — |
|
| Total net revenues | | $ | 232,933 |
| | $ | 226,534 |
| | $ | 672,222 |
| | $ | 640,760 |
| | $ | 447,767 |
|
| $ | 221,309 |
|
*Categories were introduced with the acquisition of Polycom on July 2, 2018, and amounts are presented net of purchase accounting adjustments. Refer to Note 3, Acquisition, of the Condensed Consolidated Financial Statements for additional information regarding this acquisition.
For reporting purposes, revenue is attributed to each geographic region based on the location of the customer. Other than the U.S., no country accounted for 10% or more of the Company's net revenues for the three and nine months ended December 31, 2016June 30, 2019 and 2017.2018. The following table presents net revenues by geography:
|
| | | | | | | | |
| | | Three Months Ended June 30, |
| (in thousands) | | 2019 | | 2018 |
| Net revenues from unaffiliated customers: | | | | |
| U.S. | | $ | 224,827 |
| | $ | 113,986 |
|
| | | | | |
| Europe and Africa | | 116,979 |
| | 63,590 |
|
| Asia Pacific | | 74,848 |
| | 26,871 |
|
| Americas, excluding U.S. | | 31,113 |
| | 16,862 |
|
| Total international net revenues | | 222,940 |
| | 107,323 |
|
| Total net revenues | | $ | 447,767 |
| | $ | 221,309 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | Nine Months Ended
December 31, |
| (in thousands) | | 2016 | | 2017 | | 2016 | | 2017 |
| Net revenues from unaffiliated customers: | | | | | | | | |
| U.S. | | $ | 123,719 |
| | $ | 106,455 |
| | $ | 371,019 |
| | $ | 326,360 |
|
| | | | | | | | | |
| Europe and Africa | | 63,233 |
| | 73,620 |
| | 168,722 |
| | 184,761 |
|
| Asia Pacific | | 27,164 |
| | 27,553 |
| | 81,979 |
| | 75,664 |
|
| Americas, excluding U.S. | | 18,817 |
| | 18,906 |
| | 50,502 |
| | 53,975 |
|
| Total international net revenues | | 109,214 |
| | 120,079 |
| | 301,203 |
| | 314,400 |
|
| Total net revenues | | $ | 232,933 |
| | $ | 226,534 |
| | $ | 672,222 |
| | $ | 640,760 |
|
One customer,Two customers, ScanSource and Ingram Micro Group, accounted for 10.5%17.4% and 10.6%16.9%, respectively, of net revenues for the three and nine months ended December 31, 2016. OneJune 30, 2019. No customer Ingram Micro Group, accounted for 10.7% and 11.6%more than 10% of net revenues for the three and nine months ended December 31, 2017, respectively.June 30, 2018.
One customer,Two customers, Ingram Micro Group and ScanSource accounted for 17.6%29.1% and 17.5% respectively, of total net accounts receivable at June 30, 2019. Three customers, Ingram Micro Group, ScanSource, and D&H Distributors, accounted for 21.3%, 19.2%, and 10.9% respectively, of total net accounts receivable at March 31, 2017. Two2019.
Revenue is recognized when obligations under the terms of a contract with the Company's customer are satisfied; generally, this occurs with the transfer of control of its products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The majority of the Company's business relates to physical product shipments, for which revenue is generally recognized once title and risk of loss of the product are transferred to the customer. The Company believes that transfer of title and risk of loss best represent the moment at which the customer’s ability to direct the use of and obtain substantially all the benefits of an asset have been achieved. The Company has elected to recognize the cost for freight and shipping when control over products have transferred to the customer as an expense in Cost of Revenues when freight costs are included as part of the selling price. For products where freight is charged separately, it is recognized as revenue since the service is provided after title has transferred to the customer.
The Company's service revenue is recognized either over-time or at a point-in-time depending on the nature of the offering. Revenues associated with non-cancelable maintenance and support contracts comprise approximately 90% of the Company's overall service revenue and are recognized ratably over the contract term which typically ranges between one and three years. The Company believes this recognition period faithfully depicts the pattern of transfer of control for maintenance and support as the services are a series of distinct services available and delivered daily over the term. For certain products, support is provided free of charge without the purchase of a separate maintenance contract. If the support is determined to rise to the level of a performance obligation, the Company allocates a portion of the transaction price to the implied support obligation and recognize service revenue over the estimated implied support period which can range between one month to several years, depending on the circumstances. Revenues associated with Professional Services are recognized when the Company has objectively determined that the obligation has been satisfied, which is usually upon customer acceptance.
The Company's contracts with customers Ingram Micro Groupoften include promises to transfer multiple products and D&H Distributors,services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for 13.5%separately versus together may require significant judgment. The Company allocates the transaction price of a contract, to each identified performance obligation based on stand-alone selling price (“SSP”). A fixed discount is always subject to allocation in this manner. If the transaction price is considered variable, the Company determines if the consideration is associated with one or many, but not all of the performance obligations and 13.8%, respectively,allocates accordingly. Judgment is also required to determine the stand-alone selling price (“SSP") for each distinct performance obligation. The Company derives SSP for its performance obligations through a stratification methodology and consider a few characteristics including consideration related to different service types, customer and geography characteristics. The Company uses a single amount to estimate SSP for items that are not sold separately, such as maintenance on term-based licenses. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.
On occasion, the Company will fulfill only part of totala purchase order due to lack of current availability for one or more items requested on an order. Its practice is to ship what is on hand, with the remaining goods shipped once the product is in stock which is generally less than one year from the date of the order. Depending on the terms of the contract or operationally, undelivered or backordered items may be canceled by either party at their discretion.
As of June 30, 2019, the Company's deferred revenue balance was $196.0 million. As of March 31, 2019, the Company's deferred revenue balance was $193.9 million. During the three months ended June 30, 2019, the Company recognized $51.2 million in revenues that were reflected in deferred revenue at the beginning of the period.
The table below represents aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2019:
|
| | | | | | | | | | | | |
| | | June 30, 2019 |
| (in millions) | | Current | | Noncurrent | | Total |
| Performance obligations | | $ | 143.7 |
| | $ | 56.6 |
| | $ | 200.3 |
|
Upon establishment of creditworthiness, the Company may extend credit terms to its customers which typically ranges between 30 and 90 days from the date of invoice depending on geographic region and type of customer. The Company typically bills upon product hardware shipment, at time of software activation or upon completion of services. Revenue may be recognized in advance of billings due to upfront payments for multiple year time-based software purchases, revenue allocations related to partial shipments, and the reassessment of contracts previously treated as leases under ASC 840. The balance of contract assets as of March 31, 2019 was $2.4 million. None of the Company's contracts are deemed to have significant financing components.
Sales, value add, and other taxes collected concurrent with revenue producing activities are excluded from revenue.
Commercial distributors and retailers represent the Company's largest sources of net accounts receivablerevenues. Sales through its distribution and retail channels are made primarily under agreements allowing for rights of return and include various sales incentive programs, such as back end rebates, discounts, marketing development funds, price protection, and other sales incentives. The Company has an established sales history for these arrangements and the Company records the estimated reserves at December 31, 2017.the inception of the contract as a reflection of the reduced transaction price. Customer sales returns are estimated based on historical data, relevant current data, and the monitoring of inventory build-up in the distribution channel. Revenue reserves represent a reasonable estimation made by management and are subject to significant judgment. Estimated reserves may differ from actual returns or incentives provided, due to unforeseen customer return or claim patterns or changes in circumstances. For certain customer contracts which have historically demonstrated variability, the Company has considered the likelihood of being under-reserved and have considered a constraint accordingly. Provisions for Sales Returns are presented within Accrued Liabilities in the Company's Consolidated Balance Sheets. Provisions for promotions, rebates, and other sales incentives are presented as a reduction of Accounts Receivable unless there is no identifiable right offset, in which case they are presented within Accrued Liabilities on its Consolidated Balance Sheets. See Note 6, Details of Certain Balance Sheet Accounts above for additional details.
For certain arrangements, the Company pays commissions, bonuses and taxes associated with obtaining the contracts. The Company capitalizes such costs if they are deemed to be incremental and recoverable. The Company has elected to use the practical expedient to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Determining the amortization period of costs related to obtaining a contract involves judgment. Capitalized commissions and related expenses, on hardware sales and services recognized at a point in time generally have an amortization period of less than one year. Maintenance-related performance obligations generally have an amortization period greater than one year when considering renewals. Capitalized commissions are amortized to Sales and Marketing Expense on a straight-line basis. The capitalized amount of incremental and recoverable costs of obtaining contracts with an amortization period of greater than one year are $3.1 million as of June 30, 2019. Amortization of capitalized contract costs for the three months ended June 30, 2019 was immaterial.
16.18. SUBSEQUENT EVENTS
Dividends
On January 30, 2018,August 6, 2019, the Company announced that itsthe Audit Committee had declared and approved the payment of a dividend of $0.15$0.15 per share on March 9, 2018September 10, 2019 to holders of record on FebruaryAugust 20, 2018.
2019.
Quantitative and Qualitative Disclosures About Market Risk
The discussion of our exposure to market risk related to changes in interest rates and foreign currency exchange rates 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 discussed in Part I, "Item 1A. Risk Factors"Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 20172019, filed with the SEC on May 10, 2017.17, 2019, which could materially affect our business, financial position, or future results of operations.
Except as described below, there have been no material changes in our market risk as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.
INTEREST RATE RISK
We reported the following balances in cash and cash equivalents, short-term investments, and long-term investments as follows:
|
| | | | | | | | |
| (in millions) | | March 31, 2017 | | December 31, 2017 |
| Cash and cash equivalents | | $ | 302.0 |
| | $ | 280.3 |
|
| Short-term investments | | $ | 178.2 |
| | $ | 218.8 |
|
| Long-term investments | | $ | 127.2 |
| | $ | 118.9 |
|
As of December 31, 2017, our investments were composed of Mutual Funds, US Treasury Notes, Government Agency Securities, Commercial Paper, Corporate Bonds, and Certificates of Deposits ("CDs").
Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. Our investment policy generally limitsfloating-rate interest payments under our $1.275 billion term loan facility. In connection with the amountAcquisition, we entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the “Credit Agreement”). Borrowings under the Credit Agreement bear interest at a variable rate equal to (i) LIBOR plus a specified margin, or (ii) the base rate (which is the highest of credit(a) the prime rate publicly announced from time to time by Wells Fargo Bank, National Association, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR plus a specified margin.
On July 30, 2018, we entered into a 4-year amortizing interest rate swap agreement with Bank of America, NA as part of our overall strategy to manage our exposure to any one issuermarket risks associated with fluctuations in interest rates on the $1.275 billion term loan facility. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and requires investments to be high credit quality, primarily rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All highly liquid investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents. We classify our investments as either short-term or long-term based on each instrument's underlying effective maturity date. All short-term investments have effective maturities of less than 12 months, while all long-term investments have effective maturities greater than 12 months or we do not currentlyuse derivatives for trading or speculative purposes. Our objective is to mitigate the impact of interest expense fluctuations on our profitability related to interest rate changes by minimizing movements in future debt payments with this interest rate swap.
The swap has an initial notional amount of $831 million and matures on July 31, 2022. The swap involves the receipt of floating-rate interest payments for fixed interest rate payments over the life of the agreement. We have designated this interest rate swap as a cash flow hedge, the abilityeffective portion of changes in the fair value of the derivative is recorded to liquidateother comprehensive income (loss) on the investment.accompanying balance sheets and reclassified into interest expense over the life of the agreement. We may sell our investments priorwill review the effectiveness of this instrument on a quarterly basis, recognize current period hedge ineffectiveness immediately in earnings and will discontinue hedge accounting if we no longer consider hedging to their stated maturities for strategic purposes, in anticipationbe highly effective. For additional details, refer to Note 14, Derivatives, of credit deterioration, or for duration management. No material realized or unrealized gains or losses were recognized duringthe accompanying notes to condensed consolidated financial statements. During the three and nine months ended December 31, 2016June 30, 2019, we made payments of approximately $0.7 million on our interest rate swap and 2017.recognized $0.7 million within interest expense on the condensed consolidated statement of operations. As of June 30, 2019, we had an immaterial amount of interest accrued within accrued liabilities on the condensed consolidated balance sheet. We had an unrealized pre-tax loss of approximately $15.0 million recorded within accumulated other comprehensive income (loss) as of June 30, 2019. A hypothetical 10% increase or decrease on market interest rates related to our outstanding term loan facility could result in a corresponding increase or decrease in annual interest expense of approximately $0.8 million.
Interest rates were relatively unchanged in the three and nine months ended December 31, 2017June 30, 2019 compared to the same period in the prior year. In the three and nine months ended December 31, 2016June 30, 2019 and 20172018 we generated interest income of $0.9$0.3 million and $2.6$1.5 million, and $1.4 million and $3.4 million, respectively.. We incurred no significant interest expense from our revolving line of credit in the three and nine months ended December 31, 2017. The 5.50% Senior Notes are at a fixed interest rate and we have not elected the fair value option for these instruments; accordingly we are not exposed to any economic interest rate risk related to this indebtedness; however, the fair value of this instrument fluctuates as market interest rates change. The increase in interest expense caused by a 10 basis point increase in the interest rates of our variable-rate revolving line of credit indebtedness would not be significant. A hypothetical 10 basis points increase or decrease on market interest rates related to our investment portfolio would have an immaterial impact on our results of operations.respectively.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are a net receiver of currencies other than the USD. Accordingly, changes in exchange rates, and in particular a strengthening of the USD, could negatively affect our net revenues and gross margins as expressed in USD. There is a risk that we will have to adjust local currency product pricing due to competitive pressures if there is significant volatility in foreign currency exchange rates.
The primary currency fluctuations to which we are exposed are the Euro ("EUR"), British Pound Sterling ("GBP"), Australian Dollar ("AUD"), Canadian Dollar ("CAD"), Mexican Peso ("MXN"), and the Chinese Renminbi ("RMB"). We use a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. All of our hedging activities are entered into with large financial institutions, which we periodically evaluate for credit risks. We hedge our balance sheet exposure by hedging EUR, GBP, AUD, and CADAUD denominated cash, accounts receivable, and accounts payable balances, and our economic exposure by hedging a portion of anticipated EUR and GBP denominated sales and our MXN denominated expenditures. We can provide no assurance that our strategy will be successful in the future or that exchange rate fluctuations will not materially adversely affect our business. We do not hold or issue derivative financial instruments for speculative trading purposes.
The impact of changes in foreign currency rates recognized in other income and (expense), net was immaterial in both the three and nine months ended December 31, 2016June 30, 2019 and 2017.2018. Although we hedge a portion of our foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the EUR and GBP in comparison to the USD, could result in material foreign exchange losses in future periods.
Non-designated Hedges
We hedge our EUR, GBP, AUD, and CADAUD denominated cash, accounts receivable, and accounts payable balances by entering into foreign exchange forward contracts. The table below presents the impact on the foreign exchange gain (loss) of a hypothetical 10% appreciation and a 10% depreciation of the USD against the forward currency contracts as of December 31, 2017June 30, 2019 (in millions):
| | | Currency - forward contracts | Position | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange Loss From 10% Depreciation of USD | Position | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange Loss From 10% Depreciation of USD |
| EUR | Sell EUR | | $ | 46.6 |
| | $ | 4.7 |
| | $ | (4.7 | ) | Sell EUR | | $ | 38.8 |
| | $ | 3.9 |
| | $ | (3.9 | ) |
| GBP | Sell GBP | | $ | 6.9 |
| | $ | 0.7 |
| | $ | (0.7 | ) | Sell GBP | | $ | 13.4 |
| | $ | 1.3 |
| | $ | (1.3 | ) |
| AUD | Sell AUD | | $ | 11.1 |
| | $ | 1.1 |
| | $ | (1.1 | ) | Sell AUD | | $ | 6.8 |
| | $ | 0.7 |
| | $ | (0.7 | ) |
| CAD | Sell CAD | | $ | 2.3 |
| | $ | 0.2 |
| | $ | (0.2 | ) | |
Cash Flow Hedges
In the ninethree months ended December 31, 2017, 49%June 30, 2019, approximately 50% of our net revenues were derived from sales outside of the U.S. and denominated primarily in EUR and GBP.
As of December 31, 2017June 30, 2019, we had foreign currency put and call option contracts with notional amounts of approximately €75.8€82.6 million and £22.9£27.4 million denominated in EUR and GBP, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign currency denominated sales. If the USD is subjected to either a 10% appreciation or 10% depreciation versus these net exposed currency positions, we could realize a gain of $7.78.3 million or incur a loss of $9.57.8 million, respectively.
The table below presents the impact on the Black-Scholes valuation of our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD against the indicated open option contract type for cash flow hedges as of December 31, 2017June 30, 2019 (in millions):
| | | Currency - option contracts | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange Loss From 10% Depreciation of USD | | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Gain From 10% Appreciation of USD | | Foreign Exchange Loss From 10% Depreciation of USD |
| Call options | $ | 122.0 |
| | $ | 4.9 |
| | $ | (9.2 | ) | | $ | 135.9 |
| | $ | 0.7 |
| | $ | (7.2 | ) |
| Put options | $ | 112.6 |
| | $ | 2.8 |
| | $ | (0.3 | ) | | $ | 126.1 |
| | $ | 7.6 |
| | $ | (0.6 | ) |
| Forwards | $ | 21.0 |
| | $ | 2.1 |
| | $ | (2.1 | ) | | $ | 92.8 |
| | $ | 9.2 |
| | $ | (9.1 | ) |
Collectively, our swap contracts hedge against a portion of our forecasted MXN denominated expenditures. As of December 31, 2017June 30, 2019, we had cross-currency swap contracts with notional amounts of approximately MXN 76.3 million.$93.2 million.
The table below presents the impact on the valuation of our cross-currency swap contracts of a hypothetical 10% appreciation and a 10% depreciation of the USD as of December 31, 2017June 30, 2019 (in millions):
| | | Currency - cross-currency swap contracts | Position | USD Value of Net Foreign Exchange Contracts | | Foreign Exchange Loss From 10% Appreciation of USD | | Foreign Exchange Gain From 10% Depreciation of USD | USD Value of Cross-Currency Swap Contracts | Foreign Exchange (Loss) From 10% Appreciation of USD | Foreign Exchange Gain From 10% Depreciation of USD |
| MXN | Buy MXN | $ | 3.9 |
| | $ | (0.3 | ) | | $ | 0.4 |
| |
| Position: Buy MXN | | $ | 4.7 |
| $ | (0.4 | ) | $ | 0.5 |
|
Controls and Procedures
| |
| (a) | Evaluation of disclosure controls and procedures |
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
| |
| (b) | Changes in internal control over financial reporting |
On July 2, 2018, the Company completed its acquisition of Polycom. The Company is in the process of integrating the historical control over financial reporting of Polycom with the consolidated Company. In addition, the Company implemented controls related to the adoption of ASU 2016-05, Leases (Topic 842) and the related financial statement reporting. There have not been anyno other changes in the Company’s internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II -- OTHER INFORMATION
LEGAL PROCEEDINGS
We are presently engaged in various legal actions arising in the normal course of business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating results; however, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition, results of operations or cash flows. For additional information about our material legal proceedings, please see Note 6, 8, Commitments and Contingencies, of the accompanying notes to the condensed consolidated financial statements.
RISK FACTORS
You should carefully consider the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2019, filed with the SEC on May 10, 201717, 2019 (the "Form 10-K"), each of which could materially affect our business, financial position, or future results of operations. Except as described below, there have been no material changes to the risk factors included in the Form 10-K.
Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.
The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The changes included in the Tax Act are broad and complex. As rule making bodies and new legislation is enacted to interpret the Tax Act, these changes may adjust the estimates provided in this report. The changes may possibly be material, due to, among other things, the Treasury Department’s promulgation of regulations and guidance that interpret the Tax Act, corrective technical legislative amendments that may change the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries.
In addition, it is uncertain how each country where we do business may react to the Tax Act. Moreover, the evolving global tax landscape accompanying the adoption and guidance associated with the Base Erosion and Profit Shifting reporting requirements (“BEPS") recommended by the G8, G20 and Organization for Economic Cooperation and Development ("OECD") may require us to make adjustments to our financial results. As these and other tax laws and related regulations change, our financial results could be materially impacted. Given the unpredictability of these possible changes, it is difficult to assess whether the overall effect of these potential tax changes would be positive or negative for our earnings and cash flow, but such changes could adversely impact our financial results.
We are also subject to examination by the Internal Revenue Service ("IRS") and other tax authorities, including state revenue agencies and foreign governments. While we regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine the adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations will not materially adversely affect our financial condition and results of operations.
The risks described here and onin the Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchase Programs
The following table presents a month-to-month summary of the stock purchase activity in the thirdfirst quarter of fiscal year 2018:2020:
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| | | | | | | | | | | | |
| | Total Number of Shares Purchased 1 | | Average Price Paid per Share 2 | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 1 | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 6 |
| October 1, 2017 to October 28, 2017 | 212,580 |
| 3 | $ | 45.06 |
| | 210,370 |
| | 818,216 |
|
| October 29, 2017 to November 25, 2017 | 74,371 |
| 4 | $ | 47.82 |
| | 72,678 |
| | 745,538 |
|
| November 26, 2017 to December 30, 2017 | 18,821 |
| 5 | $ | 50.48 |
| | 14,606 |
| | 730,932 |
|
|
| | | | | | | | | | | |
| | Total Number of Shares Purchased 1 | | Average Price Paid per Share 2 | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 1 | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 3 |
| April 1, 2019 to April 27, 2019 | 1,798 |
| 4 | N/A | | — |
| | 1,369,014 |
|
| April 28, 2019 to May 25, 2019 | 141,727 |
| 4 | N/A | | — |
| | 1,369,014 |
|
| May 26, 2019 to June 29, 2019 | 47,647 |
| 4 |
| N/A | | — |
| | 1,369,014 |
|
|
| | |
| 1 |
| On July 27, 2017 theNovember 28, 2018, our Board of Directors authorizedapproved a 1 million shares repurchase program expanding our capacity to repurchase 1,000,000 shares of our common stockto approximately 1.7 million shares. We may repurchase shares from time to time in theopen market transactions or inthrough privately negotiated repurchases as determined by management.transactions. There is no expiration date associated with the repurchase activity. |
| | |
| 2 |
| "Average Price Paid per Share" reflects open market repurchases of common stock only. |
| | |
| 3 |
| Includes 2,210 sharesThese shares reflect the available shares authorized for repurchase under the expanded program approved by the Board on November 28, 2018.
|
| |
| 4 |
| Represents only shares that were tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans.stock. |
| | |
4 |
| Includes 1,693 shares that were tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans.
|
| |
5 |
| Includes 4,215 shares that were tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans.
|
| |
6 |
| These shares reflect the available shares authorized for repurchase under the program approved by the Board on July 27, 2017. |
OTHER INFORMATION
None.
EXHIBITS
We have filed the following documents as Exhibits to this Form 10-Q:
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Exhibit Number | | | | Incorporation by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
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| | | | | | | | | | | | X |
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101.INS | | XBRL Instance Document | | | | | | | | | | X |
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101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
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101.DEF | | XBRL Taxonomy Definition Linkbase Document | | | | | | | | | | X |
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| Exhibit Number | | | | Incorporation by Reference | | Filed Herewith |
| | Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
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| 10.1 | | | | 8-K | | 001-12696 | | 10.1 | | 6/28/2019 | | |
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| 10.2 | | | | 8-K | | 001-12696 | | 10.2 | | 6/28/2019 | | |
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| 31.1 | | | | | | | | | | | | X |
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| 31.2 | | | | | | | | | | | | X |
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| 32.1 | | | | | | | | | | | | X |
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| 101.INS | | XBRL Instance Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | X |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
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| 101.DEF | | Inline XBRL Taxonomy Definition Linkbase Document | | | | | | | | | | X |
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| 104 | | Cover Page Interactive Data File, (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X |
Plantronics, Inc.
FORM 10-Q
CROSS REFERENCE TABLE
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| PART I. FINANCIAL INFORMATION | | |
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| PART II. OTHER INFORMATION | | |
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| Signatures | | | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | PLANTRONICS, INC. |
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| Date: | January 30, 2018August 6, 2019 | By: | /s/ Pamela StrayerCharles D. Boynton |
| | | Name: | Pamela StrayerCharles D. Boynton |
| | | Title: | SeniorExecutive Vice President and Chief Financial Officer |
