UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
----------------
FORM 10Q
(MARK ONE)
[X]10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Periodquarterly period ended JuneSeptember 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition Periodperiod from ___________ to ___________
________to _________
Commission File Numberfile number 1-12696
PLANTRONICS, INC.
(Exact
Plantronics, Inc.
(Exact name of Registrant as specifiedSpecified in its charter)
DELAWARE 77-0207692
(State or other jurisdictionCharter)
345 Encinal Street
Santa Cruz, California 95060
(Address of (I.R.S. Employer
incorporation or organization) Identification No.)
345 ENCINAL STREET
SANTA CRUZ, CALIFORNIA 95060
(Address of principal executive offices) (ZipPrincipal Executive Offices including Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(831) 426-5858
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of registrant's common stock as of August 10,November 2, 2001 was 47,922,157.
================================================================================
2
PLANTRONICS, INC.
46,902,912.
Plantronics, Inc.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | Page No. |
| Item 1. Financial Statements | |
| Balance Sheets as of March 31, 2001 and | |
| Statements of Operations for the Three and Six Months Ended | |
| Statements of Cash Flows Months Ended | |
| Notes to Financial Statements | |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| PART II. OTHER INFORMATION | |
| Item 1: Legal Proceedings | |
| Item 2. Changes in Securities and Use of Proceeds | |
| Item 3. Defaults Upon Senior Securities | |
| Item 4. Submission of Matters to a Vote of | |
| Item 5. Other Information | |
| Item 6. Exhibits and Reports on Form 8-K | |
| Signature |
Part I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, JUNE 30,
2001 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 60,544 $ 54,349
Marketable securities .................................................... 13,385 23,135
Accounts receivable, net ................................................. 60,203 50,292
Inventory, net ........................................................... 48,235 45,852
Deferred income taxes .................................................... 7,110 6,159
Other current assets ..................................................... 1,449 1,560
--------- ---------
Total current assets ................................................. 190,926 181,347
Property, plant and equipment, net ............................................ 32,683 32,913
Goodwill, net ................................................................. 6,292 6,292
Intangibles, net .............................................................. 579 534
Other assets, net ............................................................. 2,792 2,764
--------- ---------
Total assets ......................................................... $ 233,272 $ 223,850
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 10,836 $ 12,924
Accrued liabilities ...................................................... 30,793 28,752
Income taxes payable ..................................................... 12,519 13,306
--------- ---------
Total current liabilities ............................................ 54,148 54,982
Deferred tax liability ........................................................ 6,077 6,648
--------- ---------
Total liabilities .................................................. 60,225 61,630
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000 shares authorized,
59,098 and 59,104 shares issued and outstanding at March 31, 2001 and .... 591 591
June 30, 2001, respectively
Additional paid-in capital ............................................... 148,188 148,780
Accumulated other comprehensive income: .................................. (1,172) (1,235)
Retained Earnings ........................................................ 207,626 215,733
--------- ---------
355,233 363,869
Less: Treasury stock (common: 9,919 and 10,935 shares outstanding at March
31, 2001 and June 30, 2001, respectively) at cost ........................ (182,186) (201,649)
--------- ---------
Total stockholders' equity ........................................... 173,047 162,220
--------- ---------
Total liabilities and stockholders' equity ........................... $ 233,272 $ 223,850
========= =========
(In thousands)
March 31, September 30,
2001 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 60,544 $ 52,561
Marketable securities ............................. 13,385 14,135
Accounts receivable, net .......................... 60,203 47,213
Inventory, net .................................... 48,235 40,483
Deferred income taxes ............................. 7,110 5,572
Other current assets .............................. 1,449 6,747
------------ ------------
Total current assets .......................... 190,926 166,711
Property, plant and equipment, net ..................... 32,683 33,776
Goodwill, net .......................................... 6,292 6,292
Intangibles, net ....................................... 579 426
Other assets, net ...................................... 2,792 2,772
------------ ------------
Total assets .................................. $ 233,272 $ 209,977
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 10,836 $ 14,512
Accrued liabilities ............................... 30,793 29,106
Income taxes payable .............................. 12,519 16,956
------------ ------------
Total current liabilities ..................... 54,148 60,574
Deferred tax liability ................................. 6,077 5,117
------------ ------------
Total liabilities ........................... 60,225 65,691
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000
shares authorized, 59,098 and 59,125 shares
issued and outstanding at March 31, 2001 and
September 30, 2001, respectively................. 591 591
Additional paid-in capital ........................ 148,188 149,101
Accumulated other comprehensive income ............ (1,172) (881)
Retained Earnings ................................. 207,626 222,572
------------ ------------
355,233 371,383
Less: Treasury stock (common: 9,919 and 12,210
shares outstanding at March 31, 2001 and
September 30, 2001, respectively) at cost ....... (182,186) (227,097)
------------ ------------
Total stockholders' equity .................... 173,047 144,286
------------ ------------
Total liabilities and stockholders' equity .... $ 233,272 $ 209,977
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements
3
4
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
-----------------------
JUNE 30, JUNE 30,
2000 2001
-------- --------
Net sales ......................................... $100,352 $ 80,114
Cost of sales ..................................... 43,095 41,046
-------- --------
Gross profit ................................ 57,257 39,068
Operating expenses:
Research, development and engineering ....... 5,635 7,657
Selling, general and administrative ......... 22,541 20,650
-------- --------
Total operating expenses ............... 28,176 28,307
-------- --------
Operating income .................................. 29,081 10,761
Interest and other expense (income), net .......... 362 (500)
-------- --------
Income before income taxes ........................ 28,719 11,261
Income tax expense ................................ 8,615 3,153
-------- --------
Net income ........................................ $ 20,104 $ 8,108
======== ========
Basic earnings per common share (Note 5) .......... $ 0.41 $ 0.17
======== ========
Shares used in basic per share calculations 48,951 48,266
======== ========
Diluted earnings per common share (Note 5) ........ $ 0.38 $ 0.16
======== ========
Shares used in diluted per share calculations 52,616 50,029
======== ========
(In thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2000 2001 2000 2001
--------- --------- --------- ---------
Net sales ...................................... $ 103,940 $ 77,515 $ 204,292 $ 157,629
Cost of sales .................................. 45,879 39,648 88,974 80,694
--------- --------- --------- ---------
Gross profit ............................... 58,061 37,867 115,318 76,935
--------- --------- --------- ---------
Operating expenses:
Research, development and engineering ...... 6,813 8,287 12,448 15,944
Selling, general and administrative ........ 21,515 20,725 44,056 41,375
--------- --------- --------- ---------
Total operating expenses ............ 28,328 29,012 56,504 57,319
--------- --------- --------- ---------
Operating income ............................... 29,733 8,855 58,814 19,616
Interest and other expense (income), net ....... 104 (642) 466 (1,142)
--------- --------- --------- ---------
Income before income taxes ..................... 29,629 9,497 58,348 20,758
Income tax expense ............................. 8,889 2,659 17,504 5,812
--------- --------- --------- ---------
Net income ..................................... $ 20,740 $ 6,838 $ 40,844 $ 14,946
========= ========= ========= =========
Basic earnings per common share (Note 5) ....... $ 0.42 $ 0.14 $ 0.83 $ 0.31
========= ========= ========= =========
Shares used in basic per share calculations..... 49,110 47,675 49,031 47,471
========= ========= ========= =========
Diluted earnings per common share (Note 5) ..... $ 0.39 $ 0.14 $ 0.77 $ 0.30
========= ========= ========= =========
Shares used in diluted per share calculations... 53,683 49,478 53,226 49,258
========= ========= ========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements
4
5
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
QUARTER ENDED
------------------------
JUNE 30, JUNE 30,
2000 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................................... $ 20,104 $ 8,108
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................ 1,226 1,897
Deferred income taxes ................................ (716) 1,522
Income tax benefit associated with stock options ..... 3,068 101
Changes in assets and liabilities:
Accounts receivable, net ............................. (8,333) 9,911
Inventory, net ....................................... (6,307) 2,383
Other current assets ................................. 76 139
Other assets ......................................... 41 2
Accounts payable ..................................... 1,256 2,088
Accrued liabilities .................................. (4,524) (2,041)
Income taxes payable ................................. 5,844 787
------- --------
Cash provided by operating activities ........................... 11,735 24,897
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities ......... 5,000 --
Purchase of marketable securities ......................... (2,750) (10,000)
Capital expenditures ...................................... (1,667) (2,056)
-------- -------
Cash provided by (used for) investing activities ................ 583 (12,056)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock ................................ (10,001) (19,649)
Proceeds from sale of treasury stock ...................... 983 588
Proceeds from exercise of stock options ................... 2,576 88
Other ..................................................... -- (63)
-------- --------
Cash used for financing activities .............................. (6,442) (19,036)
-------- --------
Net increase in cash and cash equivalents ....................... 5,876 (6,195)
Cash and cash equivalents at beginning of period ................ 40,271 60,544
-------- --------
Cash and cash equivalents at end of period ...................... $ 46,147 $ 54,349
-------- --------
Supplemental disclosures of cash flow information: Cash paid for:
Interest ............................................. $ 15 $ 26
Income taxes ......................................... $ 769 $ 761
(In thousands)
Six Months Ended
September 30,
----------------------
2000 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 40,844 $ 14,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 3,005 3,887
Deferred income taxes .............................. (349) 577
Income tax benefit associated with stock options ... 8,905 111
Changes in assets and liabilities:
Accounts receivable, net ........................... (15,093) 12,990
Inventory, net ..................................... (14,709) 7,752
Other current assets ............................... (554) (5,048)
Other assets ....................................... 96 (34)
Accounts payable ................................... (1,195) 3,677
Accrued liabilities ................................ (5,527) (1,687)
Income taxes payable ............................... 2,873 4,437
---------- ----------
Cash provided by operating activities ......................... 18,296 41,608
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities ....... 7,750 9,000
Purchase of marketable securities ....................... (12,750) (10,000)
Capital expenditures .................................... (5,870) (4,772)
---------- ----------
Cash provided by (used for) investing activities .............. (10,870) (5,772)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock .............................. (10,982) (45,212)
Proceeds from sale of treasury stock .................... 1,902 960
Proceeds from exercise of stock options ................. 5,698 142
Other ................................................... -- 291
---------- ----------
Cash used for financing activities ............................ (3,382) (43,819)
---------- ----------
Net increase in cash and cash equivalents ..................... 4,044 (7,983)
Cash and cash equivalents at beginning of period .............. 40,271 60,544
---------- ----------
Cash and cash equivalents at end of period .................... $ 44,315 $ 52,561
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest ........................................... $ 40 $ 51
Income taxes ....................................... $ 8,293 $ 4,911
See Notes to Unaudited Condensed Consolidated Financial Statements
5
6
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements of Plantronics, Inc. ("Plantronics," the "Company" or the "Registrant") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the year ended March 31, 2001. The interim financial information is unaudited, but reflects all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Certain prior period balances have been reclassified to conform to the current period presentation. The interim financial statements should be read in connection with the financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001.
2. PERIODS PRESENTED
The Company's fiscal year-end is the Saturday closest to March 31 and the firstsecond fiscal quarter-end is the last Saturday in June.September. For purposes of presentation, the Company has indicated its accounting year ending on March 31 or the month-end for interim quarterly periods. Plantronics' fiscal quarters ended JuneSeptember 30, 2000 and JuneSeptember 30, 2001 consisted of thirteen weeks each.
3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)
March 31, June 30,
2001 2001
-------- --------
Accounts receivable, net:
Accounts receivable from customers .................. $ 62,876 $ 53,098
Less: allowance for doubtful accounts ............... (2,673) (2,806)
-------- --------
$ 60,203 $ 50,292
======== ========
Inventory, net:
Finished goods ...................................... $ 27,040 $ 25,346
Work in process ..................................... 1,280 738
Purchased parts ..................................... 19,915 19,768
-------- --------
$ 48,235 $ 45,852
======== ========
Property, plant and equipment, net:
Land ................................................ $ 4,693 $ 4,693
Buildings and improvements (useful lives: 7-30 years) 14,692 15,175
Machinery and equipment (useful lives: 2-10 years) .. 49,891 51,463
-------- --------
69,276 71,331
Less accumulated depreciation ....................... (36,593) (38,418)
-------- --------
$ 32,683 $ 32,913
======== ========
Accruals:
Employee benefits ................................... $ 9,730 $ 9,496
Accrued advertising and sales and marketing ......... 5,836 5,653
Warranty accrual .................................... 6,619 6,178
Accrued other ....................................... 8,608 7,425
-------- --------
$ 30,793 $ 28,752
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
6
7
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, September 30,
2001 2001
------------ ------------
Accounts receivable, net:
Accounts receivable from customers .................. $ 62,876 $ 50,022
Less: allowance for doubtful accounts ............... (2,673) (2,809)
------------ ------------
$ 60,203 $ 47,213
============ ============
Inventory, net:
Finished goods ...................................... $ 27,040 $ 21,830
Work in process ..................................... 1,280 895
Purchased parts ..................................... 19,915 17,758
------------ ------------
$ 48,235 $ 40,483
============ ============
Property, plant and equipment, net:
Land ................................................ $ 4,693 $ 4,693
Buildings and improvements (useful lives: 7-30 years) 14,692 15,654
Machinery and equipment (useful lives: 2-10 years) .. 49,891 53,701
------------ ------------
69,276 74,048
Less accumulated depreciation ....................... (36,593) (40,272)
------------ ------------
$ 32,683 $ 33,776
============ ============
Accruals:
Employee benefits ................................... $ 9,730 $ 9,112
Accrued advertising and sales and marketing ......... 5,836 5,142
Warranty accrual .................................... 6,619 6,314
Accrued other ....................................... 8,608 8,538
------------ ------------
$ 30,793 $ 29,106
============ ============
4. FOREIGN CURRENCY TRANSACTIONS
The functional currency of the Company's foreign sales and marketing and research and development operations is the local currency of the respective operations. The functional currency of the Mexican manufacturing operations and European sales and logistics headquarters is the U.S. dollar. Accordingly all revenues and cost of sales related to foreign operations are recorded using the U.S. dollar as functional currency. The assets and liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollardollars at the current exchange rate in effect at the balance sheet date. Income and expense items are translated using the average exchange rate for the period. Cumulative translation adjustments are included in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations.
Beginning in the first quarter of fiscal year 2002, the Company entered into foreign currency forward-exchange contracts, which typically mature in one month, to hedge the exposure to foreign currency fluctuations of expected foreign currency-denominated receivables, payables and cash balances. The Company records on the balance sheet at each reporting period the fair value of its forward-exchange contracts and records any fair value adjustments in results of operations. Gains and losses associated with currency rate changes on the contracts are recorded in results of operations, as other income (expenses)(expense), offsetting transaction gains and losses on the related assets and liabilities.
During the first quarter of fiscal year 2002, the Company adopted SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities), as amended by SFAS No. 138 (Accounting for Certain Derivative Instruments and Certain Hedging Activities), which did not have a material impact on the Company's financial position.
As of JuneSeptember 30, 2001, the Company had approximately $14.7$3.7 million of foreign currency forward-exchange contracts outstanding, denominated in the Euro and Great British Pound, as a hedge against its forecasted foreign-currency
denominatedforeign currency-denominated receivables, payables and cash balances. The forward-exchange
contracts generally have maturities of one month. The following table summarizes the Company's net currency positions and approximate U.S. dollar equivalents (in thousands) at JuneSeptember 30, 2001 :
Local Currency Equivalent Position
---------------- ------------ -----------
GBP............ 680 $ 1,000 Sell
EUR............ 2,964 $ 2,700 Sell
Foreign currency transactions, net of the effect of hedging activity, resulted in a net gain of $0.2$0.02 million resulting from forward-exchange contracts wasfor the fiscal quarter ended September 30, 2001, included in other income (expense) in the results of operations, forcompared to net losses of approximately $0.8 million in the quarter ended JuneSeptember 30, 2001, offsetting transaction losses of $0.5M. Aggregate net
exchange losses in the fiscal quarter ended June 30, 2001 were approximately
$0.3 million, compared to approximately $0.6 million in the period ended June
30, 2000.
5. COMPUTATION OF EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist only of stock options.
In computing diluted earnings per common share, the average stock price for the period is used in determining the number of shares assumed to be purchased from exercise of stock options.
See Notes to Unaudited Condensed Consolidated Financial Statements
7
8
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a reconciliation of the numerators and denominators of the basic and diluted EPS:
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
(in thousands, except earnings per share) 2000 2001 2000 2001
--------- --------- --------- ---------
Net income...................................... $ 20,740 $ 6,838 $ 40,844 $ 14,946
========= ========= ========= =========
Weighted average shares - basic................. 49,110 47,675 49,031 47,471
Effect of dilutive securities - employee
stock options................................ 4,573 1,803 4,195 1,787
--------- --------- --------- ---------
Weighted average shares - diluted............... 53,683 49,478 53,226 49,258
========= ========= ========= =========
Net earnings per common share - basic........... $ 0.42 $ 0.14 $ 0.83 $ 0.31
========= ========= ========= =========
Net earnings per common share - diluted......... $ 0.39 $ 0.14 $ 0.77 $ 0.30
========= ========= ========= =========
6. COMPREHENSIVE INCOME
Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive income, net of tax, are as follows (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2000 2001 2000 2001
--------- --------- --------- ---------
Net income...................................... $ 20,740 $ 6,838 $ 40,844 $ 14,946
Other comprehensive income (loss):
Change in accumulated translation adjustments. -- 354 -- 291
--------- --------- --------- ---------
Total........................................... $ 20,740 $ 7,192 $ 40,844 $ 15,237
========= ========= ========= =========
7. SEGMENTS AND ENTERPRISE-WIDE DISCLOSURES
SEGMENTS. We are engaged in the design, manufacture, marketing and sales of telecommunications equipment including headsets, telephone headset systems, and other specialty telecommunications products. Plantronics considers itself to operate in one business segment. We organized our operations to focus on three principal markets: call center and office products, mobile and computer products, and other specialty products (Walker Equipment Division). The following table presents net revenue by market (in thousands).
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2000 2001 2000 2001
--------- --------- --------- ---------
Net revenues from unaffiliated customers:
Call center and office....................... $ 83,976 $ 59,933 $ 167,276 $ 124,000
Mobile and computer.......................... 15,960 16,003 28,877 29,518
Other specialty products..................... 4,004 1,579 8,139 4,111
--------- --------- --------- ---------
$ 103,940 $ 77,515 $ 204,292 $ 157,629
========= ========= ========= =========
MAJOR CUSTOMERS. No one customer accounted for 10% or more of total revenue from consolidated sales for the quarters ended JuneSeptember 30, 20012000 and 2000.
2001.
GEOGRAPHIC INFORMATION. In geographical reporting, revenues are attributed to the geographical location of the sales and service organizations. The following table presents net revenues and long lived assets by geographic area (in thousands).
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ -----------------------
2000 2001 2000 2001
----------- ----------- ---------- -----------
Net revenues from unaffiliated
customers:
United States.................. $ 71,500 $ 55,038 $ 138,967 $ 107,353
International.................. 32,440 22,477 65,325 50,276
----------- ----------- ---------- -----------
$ 103,940 $ 77,515 $ 204,292 $ 157,629
=========== =========== ========== ===========
March 31, September 30,
2001 2001
----------- -----------
Long lived assets:
United States.................. $ 19,980 $ 21,829
International.................. 12,703 11,947
----------- -----------
$ 32,683 $ 33,776
=========== ===========
8. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. We
believe that theThe adoption of SFAS 141 willhas not havehad a significant impact on our financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the testing for impairment of goodwill at least annually. The Company adopted SFAS 142 in the first quarter of the year ending March 30, 2002. The impact of SFAS 142 on the Company's financial position and results of operations was immaterial.
immaterial, as shown in Note 9 below.
In April 2001, the FASB's Emerging Issues Task Force released Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" ("EITF 00-25"). EITF 00-25 requires that consideration from a vendor to a retailerreseller should be classified in the vendor's income statement as a reduction of revenue except whenunless there is sufficient evidence of the fair value of the separate benefits received from the retailer.reseller. EITF 00-25 will be effective for annual or interim financial statements for periods beginning after December 15, 2001. Upon application of the provisions of EITF 00-25, financial statements for prior periods presented for comparative purposes shouldwill be reclassified to comply with these provisions. The Company typically gives to its distributors and retailers various forms of consideration including cooperative advertising, slotting fees and marketing development funds, all of which are currently classified as sales and marketing expenses. The Company is currently assessing but has not yet determined the impact of EITF 00-25 on its financial
position and results of operations.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 144 to have a significant impact on its financial statements.
9. GOODWILL AND INTANGIBLES
See Notes to Unaudited Condensed Consolidated Financial Statements
9
10
PLANTRONICS, INC.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the first quarter of fiscal year 2002, the Company early-adopted Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". In accordance with SFAS 142, the Company discontinued goodwill amortization and tested goodwill for impairment as of April 1, 2001. No impairment loss appeared necessary. The Company will continue to test goodwill for impairment at least annually. Other intangible assets continue to be amortized over their expected useful life of three to five years.
The following table presents net income on a comparable basis, after adjustment for goodwill amortization (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ -----------------------
2000 2001 2000 2001
----------- ----------- ---------- -----------
Reported net income............... $ 20,740 $ 6,838 $ 40,844 $ 14,946
Add back : goodwill amortization. 174 -- 347 --
----------- ----------- ---------- -----------
Adjusted net income.............. $ 20,914 $ 6,838 $ 41,191 $ 14,946
=========== =========== ========== ===========
Basic earnings per share:
As reported...................... $ 0.42 $ 0.14 $ 0.83 $ 0.31
As adjusted...................... $ 0.43 $ 0.14 $ 0.84 $ 0.31
Diluted earnings per share:
As reported...................... $ 0.39 $ 0.14 $ 0.77 $ 0.30
As adjusted...................... $ 0.39 $ 0.14 $ 0.77 $ 0.30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," and include, but are not necessarily limited to, all of the statements marked below with an asterisk ("*"). In addition, we may from time to time make oral forward-looking statements. These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth below under "Risk Factors Affecting Future Operating Results." The following discussions titled "Results of Operations" and "Financial Condition" should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere herein, our annual report on Form 10-K, as well as the section below entitled "Risk Factors Affecting Future Operating Results." We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this Quarterly Report.
RESULTS OF OPERATIONS:
The following table sets forth items from the Unaudited Condensed Consolidated Statements of Operations as a percentage of net sales.
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2000 2001 2000 2001
--------- --------- --------- ---------
Net sales ...................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales .................................. 44.1 51.1 43.6 51.2
--------- --------- --------- ---------
Gross profit ............................... 55.9 48.9 56.4 48.8
--------- --------- --------- ---------
Operating expenses:
Research, development and engineering ...... 6.6 10.7 6.1 10.1
Selling, general and administrative ........ 20.7 26.8 21.5 26.2
--------- --------- --------- ---------
Total operating expenses ............ 27.3 37.5 27.6 36.3
--------- --------- --------- ---------
Operating income ............................... 28.6 11.4 28.8 12.5
Interest and other expense (income), net ....... 0.1 -0.8 0.2 -0.7
--------- --------- --------- ---------
Income before income taxes ..................... 28.5 12.2 28.6 13.2
Income tax expense ............................. 8.5 3.4 8.6 3.7
--------- --------- --------- ---------
Net income ..................................... 20.0 % 8.8 % 20.0 % 9.5 %
========= ========= ========= =========
Net Sales. Net sales for the quarter ended JuneSeptember 30, 2001 decreased by 20%25% to $80.1$77.5 million, compared to $100.4$103.9 million for the quarter ended JuneSeptember 30, 2000. Net sales for the six months ended September 30, 2001 were $157.6 million compared to $204.3 million for the six months ended September 30, 2000, a decrease of 23%. Revenues declined in all major geographies and channels due tochannels; we believe this has primarily been the result of the severe downturn in telecom and IT spending, the economy.
Ourgeneral slowdown of the U.S. economy and the impact of that slowdown on the economies of countries in which we do business.
As mentioned above, our business continues to be impacted by a slowdown in global telecom and IT spending, resultingspending. We are also concerned that the far-reaching economic effects of the events of September 11, 2001, coupled with a weakening economy that predated those events, may cause or already has begun to cause a recession in the U.S.* The September 2001 sales level reported by our distributors is the lowest single month in the last several years. However, we also believe they reduced inventories of our products and decreased the number of weeks on hand they were holding, indicating that we have already experienced some impact from this slowdown in our results for the lagging economy. We do not believesecond quarter of fiscal 2002. Nevertheless, based on business activity to date, including the positive impact that a rebound
will occur soonmobile phone legislation and pending legislation appears to have on our order rate, we believe that our revenues and earnings in the secondthird fiscal quarter of 2002 could be weaker thanshould approximately equal or improve somewhat from our firstsecond fiscal quarter. We are
hopeful this may represent a bottoming with some rebound in the second half of
our fiscal year. However, we believe it is unlikely that secular factors will
outweigh cyclical factors in our upcoming fiscal year and we thus believe it is
likely that revenue for fiscal 2002 may be lower than that achieved in fiscal
2001.
*
Gross Profit. Gross profit for the quarter ended JuneSeptember 30, 2001 decreased 32%35% to $39.1$37.9 million (48.8%(48.9% of net sales), compared to $57.3$58.1 million (57.1%(55.9% of net sales) for the quarter ended JuneSeptember 30, 2000. Gross profit for the first two quarters of fiscal 2002 was $76.9 million, a decrease of 33% over the comparable period of fiscal 2001. The decline from the prior year was due to a combination of factors. Sales decreased between years; therefore fixed overhead spending as a percent of revenue increased. Our product mix continues to unfavorably affect our gross margin, with the largest dollar drop coming out of channels that serve the U.S. call center and high end of the corporate office market - business that is more profitable than the relatively less affected emerging markets. We are still experiencing stronger growth in our mobile computer, and small office and residential markets.market versus the year ago quarter. Products that cater to these
marketsthis market have lower gross margins than the corporate average. In addition, gross margin was negatively impacted by the decline in the Euro and the Great British Pound from the prior year's quarter, the average exchange rates for both the Great British Pound and the Euro decreased by 6%; this accounted for a decrease4%. We are also feeling some effects from the growth of almost a point offour retail channel which tends to have higher warranty costs due to the margin.typically higher returns in consumer channels than more traditional channels. We anticipate that gross margins will continue to be negatively affected by most of these factors in the slowdown in revenues expected over the nextthird quarter.
Research, Development and Engineering. Research, development and engineering expenses for the quarter ended JuneSeptember 30, 2001 increased 36%22% to $7.7$8.3 million (9.6%(10.7% of net sales), compared to $5.6$6.8 million (5.6%(6.6% of net sales) for the quarter ended JuneSeptember 30, 2000. Expenses for the first half of fiscal 2002 were $15.9 million compared to $12.4 million for the first half of fiscal 2001. We have focused on broadening our product lines and strengthening our wireless product offerings as well as continuing our investment in BluetoothBluetooth™ technology. Despite the economic slowdown, we have not
cut R&D spending and do not intend to do so in the coming fiscal year.
Selling, General and Administrative. Selling, general and administrative expenses for the quarter ended JuneSeptember 30, 2001 decreased 8%4% to $20.7 million (25.8%(26.8% of net sales), compared to $22.5$21.5 million (22.5%(20.7% of net sales) for the quarter ended JuneSeptember 30, 2000. For the first half of fiscal 2002, expenses were $41.4 million, a decrease of $2.7 million over the first half of fiscal 2001. The overall dollar decrease fromin the prior yearlevel of spending between years was primarily due to reducing travel, training andcutting back on certain reward programs, as well as reducing
funds allocatedtypes of expenses that we felt were unlikely to short cycle demand generation programs we believed would not
be productivehave a good return on investment in the current environment. Operating expenses were also lowereconomic climate. We reduced distribution channel promotional programs in responseaddition to lower sales in the retail channel which led to lowerincurring less variable selling expenses.expenses associated with retail sales. General and administrative expenses increased as a percentage of net sales from the year ago quarter, mainly driven by the decline in revenues.
Operating Income. Operating income for the quarter ended JuneSeptember 30, 2001 decreased 63%70% to $10.8$8.9 million (13.4%(11.4% of net sales), compared to $29.1$29.7 million (29.0%(28.6% of net sales) for the quarter ended JuneSeptember 30, 2000. For the first half of fiscal 2002, operating income was $19.6 million compared to $58.8 million for the first half of fiscal 2001. The decrease relative to net sales was due to the decline in gross margin coupled with increased investmentsubstantial increases in research and development expenditures.
Interest and Other Expense (Income), Net. Interest and other expense (income) for the quarter ended JuneSeptember 30, 2001 was ($0.5)0.6) million in income compared to $0.4$0.1 million in expense for the quarter ended JuneSeptember 30, 2000. The net $0.9$0.7 million increase in income was primarily due to a $0.3$0.9 million reduction of foreign exchange loss due to the implementation of a hedging program in the first quarter of fiscal 2002, combined with more favorable foreign exchange rates. Interest and other expense (income) for the first half of fiscal 2002 was ($1.1) million in income compared to $0.5 million in expense for the first half of fiscal 2001. The net $1.6 million increase in income was primarily due to a $1.1 million reduction of foreign exchange loss due to implementation of a hedging program in fiscal 2002 and more favorable foreign exchange rates and a $0.4 million expense in the prior year's quarter in connection with a secondary offering of stock by one of our stockholders.
Interest expense for fiscal 2002 is expected to be minimal.* In November 1999, we entered into a credit agreement to borrow up to $100$100.0 million with a major bank. ThisWe are in the process of negotiating the renewal of this agreement has been renewed annually and expires in November 2001.to borrow up to $75.0 million with a new expiration date of January 15, 2003. We currently have no borrowings under this agreement.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Income Tax ExpenseExpense. Income tax expense for the quarter ended JuneSeptember 30, 2001 was $3.2$2.7 million compared to $8.6$8.9 million for the quarter ended JuneSeptember 30, 2000 and represented tax rates of 28% and 30%, respectively. The decrease in the overall tax rate was due to increased sales anddeclining profits in lowerhigher tax jurisdictions.
FINANCIAL CONDITION:
Operating Activities. During the threesix months ended JuneSeptember 30, 2001, we generated $24.9$41.6 million of cash from operating activities, due primarily to $8.1$14.9 million in net income and decreases of $9.9$13.0 and $2.4$7.8 million in accounts receivable and inventory, respectively, and increasesan increase of $0.8 and $1.5$4.4 million in income taxes payable and deferred income taxes, respectively.payable. In comparison, we generated $11.7$18.3 million in cash from operating activities for the threesix months ended JuneSeptember 30, 2000, due mainlyprimarily to $20.1$40.8 million in net income and an increasea tax benefit on stock options exercised of $5.8$8.9 million, in income taxes payable, offset by increases of $8.3$15.1 and $6.3$14.7 million in accounts receivable and inventory, respectively.
Liquidity. As of JuneSeptember 30, 2001, we had working capital of $126.4$106.1 million, including $77.5$66.7 million of cash and cash equivalents and marketable securities, compared with working capital of $136.8 million, including $73.9 million of cash and cash equivalents and marketable securities, at March 31, 2001.
We have a
In fiscal 2001, we renewed our $100.0 million revolving credit facility, including a $10.0 million letter-of-creditletter of credit subfacility with a major bank,bank. The revolving credit facility and letter of credit subfacility both of which expire in November 2001. We are in the process of negotiating the renewal of the revolving credit facility for a lower credit limit of $75.0 million, including the $10.0 million letter of credit subfacility. The renewed facility will be available for an additional period to expire on January 15, 2003.* As of June 30,November 2, 2001, we hadhave no cash borrowings under the revolving credit facility and $0.7 million outstanding under the letter-of-creditletter of credit subfacility. The amounts outstanding under the letter-of-creditletter of credit subfacility were principally associated with purchases of inventory. The terms of the credit facility contain covenants that materially limit our ability to incur debt and pay dividends, among other matters. These covenants may adversely affect us to the extent we cannot comply with them. We are currently in compliance with the covenants under this agreement.
We believe that our current cash balance and cash provided by operations, together with available borrowing capacity under our revolving credit facility and letter-of-creditletter of credit subfacility, will be sufficient to fund operations for at least the next twelve months.*
Investing Activities. During the quartersix months ended JuneSeptember 30, 2001, we purchased marketable securities of $10.0 million and received proceeds from maturities of marketable securities of $9.0 million. Capital expenditures of $2.1$4.8 million in the threesix months ended JuneSeptember 30, 2001 were incurred principally in tooling and equipment for new products, furniture and fixtures and leasehold improvements for facilities expansion.
Financing Activities. In the threesix months ended JuneSeptember 30, 2001, we repurchased 1,047,0212,340,621 shares of our common stock for $19.6$45.2 million and reissued through employee benefit plans 30,80149,731 shares of our treasury stock for $0.6$1.0 million. As of JuneSeptember 30, 2001, 674,600381,000 shares remained under the repurchase plan authorized during the quarter.
We received $0.1 million in proceeds from the exercise of stock options during the threesix months ended JuneSeptember 30, 2001. The maximum aggregate number of shares
that may be issued under the 1993 Stock Plan is 20,927,726 shares.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Investors or potential investors in our stock should carefully consider the risks described below. The performance of our stock will reflect the performance of our business relative to, among other things, our competition, general economic and market conditions, and industry conditions. You should carefully consider the following factors in connection with any investment in our stock. Our business, financial condition and results of operations could be materially adversely affected if any of the risks occur. IfShould any or all of the following risks occur,materialize, the trading price of Plantronics stock could decline and an investor could lose all or part of his or her investment.
THE GENERAL ECONOMIC SLOWDOWN COULD CONTINUE, DEEPEN, AND/OR SPREAD RESULTING IN A FURTHER REDUCTION IN OVERALL DEMAND FOR OUR PRODUCTS WHICH WOULD MATERIALLY ADVERSELY AFFECT OUR RESULTS AND WE BELIEVE THIS IS CURRENTLY TAKING PLACE.
While our markets have not exhibited highly cyclical behavior inprior to the past,current fiscal year, our sales are affected by overall economic activity. In the fourth quarter of fiscal 2001 we saw a drop in the overall level of demand for our products which we attributeattributed principally to a slowing in national and international economic growth. We believe there has been a continued decline in the economy and that a recession may yet occur. In the firstsecond quarter of fiscal 2002, we have
seensaw a further reduction in the overall level of demand for our products and we
are expecting this may continue into the second quarter.products. If these trends are worse or longer than presently anticipated, this could cause us not to achieve the levels of sales required to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. Also, if the overall economy continues to slow further, or there is a recession, this could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts due to us.
A SUBSTANTIAL PORTION OF OUR SALES COME FROM THE CALL CENTER MARKET AND A DECREASE OF DEMAND IN THAT MARKET COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS.
We have historically derived, and continue to derive, a substantial portion of our net sales from the call center market. This market has grown significantly in recent years as new call centers have proliferated and existing call centers have expanded. We also may have benefited from a short term bubble in call center demand in the first half of fiscal 2001 due to post-year 2000 activities and due to a possibly aberrational growth of internet related businesses.businesses that required back-end customer support infrastructure. In the firstsecond quarter of fiscal 2002 and in the portion of fiscal 2002 that has passed before the filing of this report, our sales in the call center market have been below the level of sales in that market in recentcomparable prior year periods. We do not believe that our decreasing sales are a result of market share gains by our competitors but, instead, believe that the sales slowdown is due to reduction in the level of overall market demand. While we believe that the call center market will grow in future periods, this growth could slow or revenues from this market could continue to decline due to various factors. For example, technological advances such as automated interactive voice response
systems could reduce or eliminate the need for call center agents in certain
applications. In addition, consumer resistance to telemarketing could materially adversely affect growth in the call center market. A continued deterioration in general economic conditions could result in a reduction in the establishment of new call centers and in capital investments to expand or upgrade existing centers, and we believe this is in fact negatively affecting our business. Due to our reliance on the call center market, we will be affected more by changes in the rate of call center establishment and expansion and the communications products that call center agents use than would a company serving a broader market. Any decrease in the demand for call centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.
WE ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO DEVELOP AND WE COULD BE MATERIALLY ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS WE EXPECT.
While the call center market is still a substantial portion of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential markets. These communications headset markets are relatively new and undeveloped. Moreover, we do not have extensive
See Notes to Unaudited Condensed Consolidated Financial Statements
14
15 experience in selling headset products to customers in these markets. If the demand for headsets in these markets fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these markets, it would have a material adverse effect on the potential demand for our products and on our business, financial condition and results of operations. These headset markets are also subject to general economic conditions and if there is a continued slowing of national or international economic growth or a recession, these markets may not materialize to the levels we require to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF CAUSES OUTSIDE OUR CONTROL.
Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following:
-
- general economic
conditions; -conditions, compounded by the recent events on and following September 11th; - changes in demand for our products;
- - insolvency of purchasers of our products or failure of purchasers of our products to pay amounts due to us;
- - timing and size of orders from customers;
- - price erosion;
- - cancellations or delays of deliveries of components and subassemblies by our suppliers;
- - variances in the timing and amount of engineering and operating expenses;
- - distribution channel mix variations;
- - changes in the levels of cooperative advertising or market development funding required by retail resellers of our products;
- - delays in shipments of our products;
- - material product returns and customer credits;
- - new product introductions by us or our competitors;
- - entrance of new competitors;
- - changes in actual or target inventory levels of our channel partners;
- - increases in the costs of our components and subassemblies;
- - changes in the mix of products sold by us; and
- - seasonal fluctuations in demand.
Each of the above factors is difficult to forecast and thus could have a material adverse effect on our business, financial condition and results of operations.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
We generally ship most orders during the quarter in which they are received, and, consequently, we do not have a significant backlog of orders. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected.
Our operating results can also vary substantially in any period depending on the mix of products sold and the distribution channels through which they are sold. In the event that sales of lower margin products or sales through lower margin distribution channels in any period represent a disproportionate share of total sales during such period, our operating results would be materially adversely affected.
We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our Common Stock might fall.
IF WE DO NOT MATCH PRODUCTION TO DEMAND WE WILL BE AT RISK OF LOSING BUSINESS OR OUR GROSS MARGINS COULD BE MATERIALLY ADVERSELY AFFECTED.
We saw good increases in customer demand for our products through most of fiscal 2001. Historically, we have generally been able to increase production to meet increasing demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast.forecast and we have experienced sharp fluctuations in demand, especially for headsets for wireless and cellular phones. In addition, the current global events, such as the war on Afghanistan, the terrorist scare in the U.S., and the Anthrax concerns may cause the economy to be more volatile, making it more difficult to match supply and demand in the marketplace. Significant unanticipated fluctuations in demand could cause the following operating problems, among others:
-
- If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of obsolete products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins.
- - Significant reduction in production levels to address current decreases in demand may leave us unprepared to meet a rapid increase in demand for our products.
- - If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and, therefore, might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues.
- - Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins.
Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
WE DEPEND ON OUR SUPPLIERS AND FAILURE OF OUR SUPPLIERS TO PROVIDE QUALITY COMPONENTS OR SERVICES IN A TIMELY MANNER COULD ADVERSELY AFFECT OUR RESULTS.
We buy components and subassemblies from a variety of suppliers and assemble them into finished products. We also have certain of our products manufactured for us by third party suppliers. The cost, quality, and availability of such goods are essential to the successful production and sale of our products. Obtaining components, subassemblies and finished products entails various risks, including the following:
-
- We obtain certain subassemblies, components and products from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these subassemblies, components and products, none of which has significantly affected our results of operations. Current adverse economic conditions could lead to a higher risk of failure of our suppliers to remain in business or to be able to purchase the subcomponents and parts required by them to produce and provide to us the parts we need. An interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations.
- - Prices of components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations.
- - Due to the lead times required in order to obtain certain subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the subassemblies, components and products.
In the second quarter of fiscal 2001, we experienced a substantial rise in finished goods inventories in part resulting from purchases of finished products from our suppliers in excess of forecasted demand.Relative to sales, inventory levels remained high through the first quarter of fiscal2002.2002, but declined in the second fiscal quarter. Failure in the future to match the timing of purchases of subassemblies, components and products to demand would materially adversely affect our business, financial condition and results of operations.- - Most of our suppliers are not obligated to continue to provide us with components and subassemblies. Rather, we buy most components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those components and subassemblies. This would materially adversely affect our business, financial condition and results of operations.
WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES.
We sell substantially all of our products through distributors, retailers, OEMs and telephony service providers. Our existing relationships with these parties are nonexclusivenot exclusive and can be terminated by either party without cause. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend, or continue to recommend, our products. In the future, our OEM customers or potential OEM customers may elect to manufacture their own products, similar to those we currently sell to them. The inability to establish or maintain successful relationships with distributors, OEMs, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations.
Our distribution channels generally hold inventories of our products, determined in their own business judgment to be sufficient to meet their customer's delivery requirements. Such inventory levels are subject to market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
our distributors, OEMs, retailers and other customers in the levels of inventories held in our products could materially adversely affect our business, financial condition or results of operations.
We generally offer our customers certain credit terms, allowing them to pay for products purchased from us between thirty and sixty days or more after we ship the products. Our receipt of payment for our products depends on the financial liquidity of those customers. If significant customers or a significant number of customers experience liquidity problems, this could affect our ability to collect our accounts receivables,receivable, which could materially adversely affect our business, financial condition or results of operations.
WE HAVE STRONG COMPETITORS AND WILL LIKELY FACE ADDITIONAL COMPETITION IN THE FUTURE.
The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. GN Great Nordic reported revenues of 7.01.94 billion Danish Krone (approximately $884$236 million) in calendar 2000.
In calendar year 2000,their second quarter of fiscal 2001. GN Netcom continued its practicehas made several acquisitions over the years. We believe the acquisitions of acquiring
other companies in the headset business. In 2000,Hello Direct and Jabra have provided GN Netcom acquired Jabra
Corporation, a supplier of headsets in the mobile phone market, resulting in an
entity with a broader mobile product offeringline and greater marketing presence than either of the two entitiesthey had separately. On October 4, 2000, GN Netcom
announced that it had signed an agreementprior to acquire Hello Direct, Inc., a
retail channel seller of communications products and our former customer. On
October 25, 2000, we announced that we terminated our contract for the supply of
products to Hello Direct due to the impending acquisition of Hello Direct, Inc.
by GN Netcom. It is not clear how this acquisition will affect us other than the
termination of the product purchase contract, which we do not believe will have
a material adverse effect.* However, the acquisition by GN Netcom of Hello
Direct does give it a directly owned retail channel presence it did not have
before the acquisition.
these acquisitions.
We currently operate principally in a multilevel distribution model --- we sell most of our products to distributors who, in turn, resell to dealers or end-customers. GN Netcom's acquisition of Hello Direct and its recent acquisition of one or more European distributors indicatesacquisitions indicate it may be moving to a direct sales model. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices which could materially adversely affect our business and results of operations. In the face of current economic downturn, we are seeing lower prices from our competitors, particularly GN Netcom.
On February 7, 2001, Logitech International S.A., a manufacturer and seller of computer accessory products, announced that it had agreed to purchase Labtec Inc., a Vancouver, Washington-based provider of, among other products, headsets for use with computers. The acquisition was completed in March 2001. Due to this acquisition, Labtec will have greater resources with which to compete with us than it did prior to its acquisition.
We anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile computer and residential markets. As these markets
mature, we will face increased* In fact, on September 11, 2001, Sony Corporation and Telefonaktiebolaget LM Ericsson announced that their respective boards approved the merger of their mobile business worldwide including telephone accessories such as telephone headsets and adapters. Recently, this Joint Venture announced the launch of its first product, a Bluetooth™ communications device which is scheduled for first shipment in November 2001. We anticipate other competition from consumer electronics companies
and other companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do.*
We anticipate that we will also face additional competition from companies, principally located in the Far East, which offer very low cost headset products, including products which are modeled on or direct copies of our products. These new competitors are likely to offer very low cost products which may result in price pressure in the market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition or results of operations could be materially adversely affected.
See Notes*
We believe that the market for lightweight communication headsets is showing some signs of commoditization. In particular, we believe that our competitors, especially GN Netcom, are increasingly choosing to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
compete on price. While this has long been true of competitors from the Far East, we think the trend is accelerating and that customers are also more receptive to lower cost products, even when the quality, service or total value of the offer may be notably lower as well.*
Historically, our expertise in acoustics and design has allowed us to design, develop and manufacture products with the levels of sound quality enabling us to meet the needs of our customers. Due to technological advances, including but not limited to better digital signal processing, our current and future competitors may be able to develop products with the same or better audio quality at lower costs. These technological advances may allow current and future competitors to compete more effectively in terms of product quality or price that could materially adversely affect our business and results of operations.*
We believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. Further, if we do not successfully develop and market products that compete successfully with those of our competitors, it would materially adversely affect our business, financial condition and results of operations.
NEW PRODUCT DEVELOPMENT IS RISKY AND WE WILL BE MATERIALLY ADVERSELY AFFECTED IF WE DO NOT RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND NEW TECHNOLOGIES.
Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on a number of factors, including the proper selection of new product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. Although we attempt to determine the specific needs of headset users in our target markets, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or accepted, which could materially adversely affect our business, financial condition and results of operations. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenues from new products may not be sufficient to recover the associated development costs.
Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. We anticipate
that theThe technology used in hands free communications devices, including our products, will begin to evolveis evolving more rapidly in the future.now than it has historically and we anticipate that this trend may accelerate. We believe that this is particularly true for our newer emerging technology products especially in the mobile, computer markets, residential and certain parts of the office mobilemarket. We believe products designed to serve these markets generally exhibit shorter lifecycles and residentialare increasingly based on open standards and protocols. The end markets whichserved are much larger than the traditional call center market. This combination of factors may require uslead to develop new headset technologiesincreased commoditization, as a greater number of competitors attempt to support cordlessintroduce products, or reverse engineer our products and wireless
operation and to interface with new communications and computing devices. As a
result, ouroffer similar but lower quality products at lower price points.
Our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. If we are unable to develop and introduce enhanced products or new products in a timely manner in response to changing market conditions or customer requirements, it will materially adversely affect our business, financial condition and results of operations.
Due to the historically slow evolvement of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. However, as we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of operations.*
CHANGES IN REGULATORY REQUIREMENTS MAY ADVERSELY IMPACT OUR GROSS MARGINS AS WE COMPLY WITH SUCH CHANGES OR REDUCE OUR ABILITY TO GENERATE REVENUES IF WE ARE UNABLE TO COMPLY.
Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. As regulations and local laws change, we must modify our products to address those changes. Regulatory
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS restrictions may increase the costs to design and manufacture our products, resulting in a decrease in demand for our products if the costs are passed along or a decrease in our margins. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their marketability. We are currently facing a substantial change in the regulations applicable to our products in the European Union and there is no certainty that we can meet those regulatory requirements in a timely and cost-effective manner. Failure to conform our products to these new European regulatory requirements would result in our inability to sell such products in Europe, resulting in a material adverse impact to our financial condition and results of operations.
WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING ABROAD.
In the first threesix months of fiscal 2002, approximately 34.7%31.9% of our net sales were derived from customers outside the United States. Approximately 31.2% of our net sales in fiscal 2001 were derived from customers outside the United States, compared with approximately 33.5% of our net sales in fiscal 2000. In addition, we conduct substantially allthe majority of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. We also purchase a growing number of turn-key products directly from Asia. The inherent risks of international operations, particularlyeither in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include:
-
- cultural differences in the conduct of business;
- - greater difficulty in accounts receivable collection;
- - unexpected changes in regulatory requirements;
- - tariffs and other trade barriers;
- - economic and political conditions in each country;
- - management and operation of an enterprise spread over various countries; and
- - the burden of complying with a wide variety of foreign laws.
In fiscal 2001, the value of major European currencies dropped against the U.S. dollar. To date, we have partially but not fully reflected that change in currency value in our selling prices. In order to maintain a competitive price for our products in Europe, we may haveexpect to effectively reduce our current prices further, resulting in a lower margin on products sold in Europe. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a material adverse effect on our business, financial condition and results of operations.
OUR FOREIGN OPERATIONS PUT US AT RISK OF LOSS IF THERE ARE MATERIAL CHANGES IN CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR.
A significant portion of our business is conducted in currencies other than the U.S. dollar. Substantially all of our sales throughout Europe are transacted in local currencies. We are therefore exposed to risks associated with fluctuations in exchange rates that can affect our revenue and gross margins and can also generate currency transaction gains and losses. In fiscal 2001, the value of major European currencies dropped against the U.S. dollar, which adversely impacted our revenue and gross margin and also resulted in currency transaction losses. Although we did not engage in any hedging
activities in fiscal 2001 to mitigate exchange rate risks, inIn fiscal 2002 we have introduced programs designed to reduce our foreign currency net asset exposure and thus have a goal to reduce transaction gains and losses that are accounted for in other income/expense. However, there can be no assurance that our hedging policy will be effective in reducing transaction gains and losses. Moreover, our economic exposure to foreign currency fluctuations has not changed and revenues and margins can be adversely impacted by such See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
fluctuations. There can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations.
THE TERRORIST ATTACKS ON NEW YORK CITY ON SEPTEMBER 11, 2001 MARK A TURNING POINT IN CURRENT U.S. POLITICAL, MILITARY AND SECURITY STRATEGIES WHICH WE MAY HAVE EXPERIENCED IN CALENDAR 2000 A NON-SUSTAINABLE INCREASE IN SALES AS
A RESULT OF PENT-UP DEMAND FROM Y2K CONCERNSBELIEVE HAS AND THE RAPID GROWTH OF INTERNET
RELATED BUSINESSES.
Our results forWILL ADVERSELY IMPACT OUR BUSINESS, BOTH DIRECTLY AND INDIRECTLY.
We believe that one direct impact of the first halfattacks is the reduction of calendar year 2000 may not be
indicative of longer-term market conditions. Our results of operations for that
period, including the first three quarters of fiscal 2001, may reflect a
non-sustainable increase in sales as a result of purchases by call center and
office customers who delayed investment in new call centers or information
technologies due to concerns over the effects of Y2K. Further, there may have
been an unsustainable increase in calendar 2000agents in the leveltravel and leisure industries. To the extent that the attacks contributed to a further slowing in the economy with additional layoffs in other industries, we believe we will be negatively affected by that as well. We are indirectly affected by the impact of spendingthe events of the terrorist attacks in New York City on information technology infrastructure, including telecommunications devices
which use headsets, dueSeptember 11, 2001 and the continuing concern on future terrorist attacks on U.S. soil, as well as concerns of the Anthrax infection on the American and international public. We are unable to customers addressingestimate the rapid growthimpact these events and their consequences have on our business, however, given the magnitude of Internet
related businesses.
these unprecedented events and the possible subsequent effects, we expect that there has been and is likely to be an adverse impact to our financial condition, our operations and our prospects as these events adversely affect the global economy in general.*
IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR OPERATIONS.
The majority of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies.
WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS OPERATIONS AND CALIFORNIA'S CURRENTANOTHER ENERGY CRISIS IN CALIFORNIA COULD DISRUPT OR MAKE SUBSTANTIALLY MORE EXPENSIVE THE OPERATIONS AT OUR HEADQUARTERS FACILITY.
California is in the midst of an energy crisis that could disrupt the
conduct of sales, marketing, research and development, finance and other
operations at our headquarters facilities.
In the event of an acute power shortage, California has, on some occasions, implemented, and may in the future continue to implement, rolling blackouts throughout California.the state. We have emergency back-up generators which keep our business information systems in operation but we do not have sufficient back-up generating capacity or alternate sources of power to keep our headquarters in full operation in the event of a blackout. If blackouts interrupt our power supply, we would be temporarily unable to continue full operations at our headquarters. Any such interruption could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. Further, it is likely
that the cost of electrical power at our California facilities is going to
increase substantially. We do not currently believe that the increased expense
for electrical power will be a material impact on our financial condition* but
if prices increase beyond that currently expected, we could be materially
adversely affected.
WE HAVE INTELLECTUAL PROPERTY RIGHTS THAT COULD BE INFRINGED BY OTHERS AND WE ARE POTENTIALLY AT RISK OF INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our success will depend in part on our ability to protect our proprietary technology. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. We currently hold thirty-six United States patents and additional foreign patents and intend to continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations.
From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such claims, if they are asserted, could result in costly litigation and diversion of management's attention. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations.
WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS.
The use of our products exposes us to the risk of product liability claims. Product liability claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect.* Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.
Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete. We have tested our headsets through independent laboratories and have found that use of our headsets reduces radio frequency emissions at the user's head to virtually zero. However, if research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for our mobile headsets.
There is also continuing and increasing public controversy over the use of mobile telephones by operators of motor vehicles. While we believe that our products enhance driver safety by permitting a motor vehicle operator to generally be able to keep both hands free to operate the vehicle, there is no certainty that this is the case and we may be subject to claims arising from allegations that use of a mobile telephone and headset contributed to a motor vehicle accident. We maintain product liability insurance and general liability insurance that we believe would cover any such claims. However, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.
WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM ENVIRONMENTAL MATTERS.
We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be asserted in the future and any liability that might result could exceed the amount of the reserve.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF THE SERVICES OF KEN KANNAPPAN OR OTHER KEY PERSONNEL.
Our success depends to a significant extent upon the services of a limited number of executive officers and other key employees. The unanticipated loss of the services of our president and chief executive officer, Mr. Kannappan, or one or more of our other executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations.
We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. We may not be successful in attracting and retaining such personnel, and our failure to do so could have a material adverse effect on our business, operating results or financial condition.
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD BE LOST.
The market price for our Common Stock may continue to be affected by a number of factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors' results of operations, changes in our published forecasts of future results of operations, changes in earnings estimates or recommendations by securities analysts, developments in our industry, sales of substantial numbers of shares of our Common Stock in the public market, general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. Stock prices for many companies, particularly in the technology sector, have experienced wide fluctuations that have often been unrelated to the operating performances of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, could materially adversely affect the market price of our Common Stock.
ANTI-TAKEOVER PROVISIONS IN OUR CURRENT BY-LAWS OR WHICH COULD BE PUT INTO PLACE BY OUR BOARD OF DIRECTORS COULD AFFECT MARKET PRICES OF OUR STOCK.
Our board of directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire us. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our Common Stock.
CITICORP VENTURE CAPITAL HAS SIGNIFICANT CONTROL OVER OUR BUSINESS.
Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially owns 8,995,8246,246,917 shares of our Common Stock (excluding any shares that may be owned by employees of CVC or its affiliates), which represents approximately 18.3%13.3% of our outstanding Common Stock as of February 15,October 31, 2001. We also have an agreement with CVC under which it is entitled to have up to three of its designees serve on our Board of Directors, depending on the level of CVC's continuing stock ownership. Based on its current ownership of our outstanding Common Stock, CVC is entitled to designate two nominees. Messrs. M. Saleem Muqaddam and John M. O'Mara are currently serving as CVC's designees pursuant to that agreement (having been nominated for election in a period in which the agreement with CVC required us to nominate and support the election of three designees of CVC). In addition, our bylaws contain provisions that require a two-thirds (66 2/3%) supermajority vote of the Board of Directors to approve certain transactions, including amendments of our Certificate of Incorporation, certain provisions of our bylaws, mergers and sales of substantial assets, acquisitions of other companies and sales of capital stock. These provisions may have the effect of giving a small number of directors the ability to block such transactions.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS AND, GIVEN THE LOW TRADING VOLUME OF OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME, WE COULD SEE AN ADVERSE EFFECT ON THE MARKET PRICES OF OUR STOCK.
As of August 10,November 2, 2001, we had 47,922,15746,902,912 shares of Common Stock outstanding and in the public market. All of these shares are freely tradable except for approximately 10,176,0009,798,327 shares held by affiliates of Plantronics (including CVC and the directors and officers of Plantronics). These approximately 10,176,0009,798,327 shares may be sold in reliance on Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration statement filed with the Securities and Exchange Commission.
Some of our current stockholders, including CVC and certain of our directors, also have certain contractual rights to require Plantronics to register their shares for public sale. Approximately 9,027,2609,152,175 additional shares are subject to outstanding stock options as of August 10,November 2, 2001. As of August 10,November 2, 2001, Ms. Louise Cecil, the widow of our former CEO and Chairman, Robert S. Cecil, held options on approximately 433,000 shares of our Common Stock, transferred to her by Mr. Cecil during his life. She has registered those shares for resale and can sell any or all of those shares at any time.
Plantronics stock is not heavily traded. The average daily trading volume of our stock in the firstsecond quarter of fiscal 2002 was approximately 350,563280,358 shares per day with a median volume in that period of 297,700251,000 shares per day. Sales of a substantial number of shares of our Common Stock in the public market by CVC or any of our officers, directors or other stockholders could adversely affect the prevailing market price of our Common Stock and impair our ability to raise capital through the sale of equity securities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in "Risk Factors Affecting Future Operating Results".
INTEREST RATE RISK
At JuneSeptember 30, 2001, we had cash and cash equivalents totaling $54.3$52.6 million, compared to $60.5 million at March 31, 2001. At JuneSeptember 30, 2001, we had marketable securities totaling $23.1$14.1 million compared to $13.4 million at March 31, 2001. Cash equivalents have an original maturity of ninety days or less; marketable securities have an original maturity of greater than ninety days, but less than one year. We believe we are not currently exposed to significant interest rate risk as the majority of our combined cash and marketable securities balances were invested in securities or interest bearing accounts with maturities of less than ninety days. The average maturity period for our marketable securitiesinvestments at JuneSeptember 30, 2001 was tenless than three months. The interest rates locked in on those investments ranged from 4.0%2.95% to 6.4%4.8%. Our investment policy requires that we only invest in deposit accounts, certificates of deposit or commercial paper with minimum ratings of A1/P1 and money market mutual funds with minimum ratings of AAA.
In fiscal 2001, we renewed our $100.0 million revolving credit facility, including a $10.0 million letter of credit subfacility with a major bank. The revolving credit facility and letter of credit subfacility both expire in November 2001. We are in the process of negotiating the renewal of the revolving credit facility for a lower credit limit of $75.0 million, including the $10.0 million letter of credit subfacility. The renewed facility will be available for an additional period to expire on January 15, 2003.* As of June 30,November 2, 2001, we have no cash borrowings under the current revolving credit facility. If we choose to borrow under this facility in the future, and market interest rates rise, then our interest payments would increase accordingly.
FOREIGN CURRENCY EXCHANGE RATE RISK
In the first threesix months of fiscal 2002, approximately 34.7%31.9% of our net sales were derived from customers outside the United States, with approximately 21%20% of total revenues denominated in foreign currencies, predominately the Great British Pound and the Euro. Beginning in the first quarter of fiscal 2002, we entered into foreign currency forward exchange contracts to hedge the foreign exchange exposure of certain forecasted receivables, payables and
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK cash balances denominated in Great British Pounds and Euros. Gains and losses associated with currency rate changes on the contracts are recorded in results of operations, as other income (expenses), offsetting gains and losses on the related assets and liabilities. The success of the hedging program depends on forecasts of transaction activity in the various currencies. We have no assurance that exchange rate fluctuations will not materially adversely affect our business in the future.
At JuneSeptember 30, 2001, we had $14.7$3.7 million of forward-exchange contracts outstanding, denominated in Euro and Great British Pound, as a hedge against forecasted foreign currency-denominated receivables, payables and cash balances.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
PART II. -- OTHER INFORMATION
ITEM 1. NONE.
ITEM 2. NONE.
ITEM 3. NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The 2001 Annual Meeting of Stockholders of Plantronics, Inc. (the
"Company") was held at The Museum of Art History at the McPherson
Center, 705 Front Street, Santa Cruz, California on June 27, 2001 (the
"Annual Meeting").
(b) At the Annual Meeting, the following nine individuals were elected to
the Company's Board of Directors, constituting all members of the Board
of Directors.
ITEM 5. OTHER INFORMATION
On June 27, 2001, our Board of Directors approved an increase in the membership
of the Board of Directors increased by one to nine members and elected Roger
Wery to fill the newly created vacancy. Mr. Wery is a partner of Pittiglio Rabin
Todd & McGrath ("PRTM"), a consulting firm. He is currently working with a broad
range of wireline and wireless telecommunications, networking, and computer
companies, and has assisted the senior management teams of these organizations
in formulating and implementing differentiating strategies. Mr. Wery joined PRTM
early in 2000. Prior to joining PRTM, Mr. Wery was an Executive Vice President
of Adventis (previously Renaissance Worldwide, Inc.), an international
consultancy. Mr. Wery joined Adventis in 1994 as a director in the Telecom
Services and Equipment Industry Group.
NONE.
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits. NoThe following exhibits are filed as part of this Quarterly Report on Form 10-Q.
10-Q:
| Exhibit Number | Description |
| 10.1 | 1993 Stock Option Plan |
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant during the fiscal quarter ended SIGNATURESJuneSeptember 30, 2001.
ITEMS 1, 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
See Notes to Unaudited Condensed Consolidated Financial Statements
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PLANTRONICS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereuntothereunto duly authorized.
PLANTRONICS, INC.
(Registrant)
AUGUST 14,
| PLANTRONICS, INC. |
| (Registrant) |
| By: | /s/ Barbara V. Scherer |
| Barbara V. Scherer | |
| Senior Vice President - Finance and Administration and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer of the Registrant) |