UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 1-12696
Plantronics, Inc.
(Exact name of Registrant as Specified in its Charter)
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345 Encinal Street
Santa Cruz, California 95060
(Address of Principal Executive Offices including Zip Code)
(831) 426-5858
(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) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file 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 January 24 2003 was 44,401,726.
Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | Page No. |
| Item 1. Financial Statements (unaudited): |
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| Balance Sheets as of March 31, 2002 and September 30, 2002 |
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| Statements of Operations for the Three and Nine Months Ended December 31, 2001 and 2002 |
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| Statements of Cash Flows for the Nine Months Ended December 31, 2001 and 2002 |
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| Notes to Financial Statements |
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| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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| Item 4. Disclosure Controls and Procedures |
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| PART II. OTHER INFORMATION |
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| Item 1: Legal Proceedings |
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| Item 2. Changes in Securities and Use of Proceeds |
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| Item 3. Defaults Upon Senior Securities |
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| Item 4. Submission of Matters to a Vote of Security Holders |
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| Item 5. Other Information |
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| Item 6. Exhibits and Reports on Form 8-K |
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| Signature |
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| Certification under Section 302(a) of the Sarbanes-Oxley Act of 2002 |
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Part I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2002 2002
------------ ------------
ASSETS
Current assets:
Cash, cash equivalents and marketable securities .. $ 60,310 $ 63,813
Accounts receivable, net .......................... 43,838 51,927
Inventory, net .................................... 36,103 34,884
Deferred income taxes ............................. 5,866 6,653
Other current assets .............................. 2,452 2,474
------------ ------------
Total current assets .......................... 148,569 159,751
Property, plant and equipment, net ..................... 35,700 37,589
Intangibles, net ....................................... 4,584 3,846
Goodwill, net .......................................... 9,542 9,386
Other assets, net ...................................... 2,663 2,188
------------ ------------
Total assets ................................... $ 201,058 $ 212,760
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 14,071 $ 12,457
Accrued liabilities ............................... 25,868 28,904
Income taxes payable .............................. 11,961 10,372
------------ ------------
Total current liabilities ..................... 51,900 51,733
Deferred tax liability ................................. 7,165 7,897
------------ ------------
Total liabilities .............................. 59,065 59,630
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value per share; 100,000
shares authorized, 59,226 and 59,491 shares
issued and outstanding at March 31, 2002 and
December 31, 2002, respectively.................. 592 595
Additional paid-in capital ........................ 152,194 155,868
Accumulated other comprehensive loss .............. (1,203) 289
Retained earnings ................................. 243,874 274,779
------------ ------------
395,457 431,531
Less: Treasury stock (common: 13,368 and 14,828
shares outstanding at March 31, 2002 and
December 31, 2002, respectively) at cost ........ (253,464) (278,401)
------------ ------------
Total stockholders' equity .................... 141,993 153,130
------------ ------------
Total liabilities and stockholders' equity .... $ 201,058 $ 212,760
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Net sales ...................................... $ 79,867 $ 86,811 $ 232,954 $ 249,449
Cost of sales .................................. 42,610 44,290 123,304 123,835
--------- --------- --------- ---------
Gross profit ............................... 37,257 42,521 109,650 125,614
--------- --------- --------- ---------
Operating expenses:
Research, development and engineering ...... 6,895 9,004 22,839 25,418
Selling, general and administrative ........ 19,708 20,939 56,541 60,308
--------- --------- --------- ---------
Total operating expenses .............. 26,603 29,943 79,380 85,726
--------- --------- --------- ---------
Operating income ............................... 10,654 12,578 30,270 39,888
Interest and other income, net ................. 354 566 1,496 1,771
--------- --------- --------- ---------
Income before income taxes ..................... 11,008 13,144 31,766 41,659
Income tax expense ............................. 501 3,943 6,313 10,754
--------- --------- --------- ---------
Net income ..................................... $ 10,507 $ 9,201 $ 25,453 $ 30,905
========= ========= ========= =========
Basic earnings per common share (Note 5) ....... $ 0.22 $ 0.20 $ 0.53 $ 0.68
========= ========= ========= =========
Shares used in basic per share calculations..... 46,897 44,939 47,650 45,531
========= ========= ========= =========
Diluted earnings per common share (Note 5) ..... $ 0.21 $ 0.20 $ 0.51 $ 0.66
========= ========= ========= =========
Shares used in diluted per share calculations... 49,120 46,197 49,554 47,096
========= ========= ========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements
PLANTRONICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
December 31,
----------------------
2001 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 25,453 $ 30,905
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 6,505 8,425
Deferred income taxes .............................. 277 (55)
Income tax benefit associated with stock options ... 422 1,296
Loss on disposal of fixed assets ..................... 135 17
Changes in assets and liabilities:
Accounts receivable, net ........................... 15,479 (8,089)
Inventory, net ..................................... 10,240 1,219
Other current assets ............................... (2,197) (22)
Other assets ....................................... (28) 551
Accounts payable ................................... 2,817 (1,614)
Accrued liabilities ................................ 2,485 3,036
Income taxes payable ............................... 1,987 (1,589)
---------- ----------
Cash provided by operating activities ......................... 63,575 34,080
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities ....... 19,053 22,500
Purchase of marketable securities ....................... (14,500) (13,020)
Capital expenditures .................................... (8,442) (9,513)
---------- ----------
Cash used for investing activities ............................ (3,889) (33)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock .............................. (48,412) (25,306)
Proceeds from sale of treasury stock .................... 1,303 1,102
Proceeds from exercise of stock options ................. 887 1,647
---------- ----------
Cash used for financing activities ............................ (46,222) (22,557)
Foreign currency translation................................... 101 1,492
---------- ----------
Net increase in cash and cash equivalents ..................... 13,565 12,982
Cash and cash equivalents at beginning of period .............. 60,544 43,048
---------- ----------
Cash and cash equivalents at end of period .................... $ 74,109 $ 56,030
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest ........................................... $ 79 $ 100
Income taxes ....................................... $ 10,172 $ 11,339
See Notes to Unaudited Condensed Consolidated Financial Statements
PLANTRONICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements of Plantronics, Inc. ("Plantronics," "we," or "our") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended March 31, 2002. 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2002.
2. PERIODS PRESENTED
Our fiscal year-end is the Saturday closest to March 31 and the third fiscal quarter-end is the last Saturday in December. For purposes of presentation, we have indicated our accounting year ending on March 31, and our interim quarterly periods ending on the applicable month-end. Our fiscal quarters ended December 31, 2001, and December 31, 2002, consisted of thirteen weeks each.
3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)
March 31, December 31,
2002 2002
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Cash, cash equivalents and marketable securities:
Cash and cash equivalents ........................... $ 43,048 $ 56,030
Marketable securities ............................... 17,262 7,783
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$ 60,310 $ 63,813
========== ==========
Accounts receivable, net:
Accounts receivable from customers .................. $ 58,195 $ 69,877
Less: sales returns, promotions and rebates ......... (11,347) (14,266)
Less: allowance for doubtful accounts ............... (3,010) (3,684)
---------- ----------
$ 43,838 $ 51,927
========== ==========
Inventory, net:
Finished goods ...................................... $ 23,576 $ 21,136
Work in process ..................................... 831 1,091
Purchased parts ..................................... 18,068 19,775
Less: provision for excess and obsolete inventory ... (6,372) (7,118)
---------- ----------
$ 36,103 $ 34,884
========== ==========
March 31,December 31,
2002 2002
---------- ----------
Property, plant and equipment, net:
Land ................................................ $ 4,693 $ 4,693
Buildings and improvements (useful lives: 7-30 years) 16,350 19,976
Machinery and equipment (useful lives: 2-10 years) .. 52,747 58,494
---------- ----------
73,790 83,163
Less: accumulated depreciation ...................... (38,090) (45,574)
---------- ----------
$ 35,700 $ 37,589
========== ==========
Accrued liabilities:
Employee benefits ................................... $ 11,008 $ 13,154
Accrued advertising and sales and marketing ......... 1,938 2,144
Warranty accrual .................................... 6,420 6,444
Accrued other ....................................... 6,502 7,162
---------- ----------
$ 25,868 $ 28,904
========== ==========
4. FOREIGN CURRENCY TRANSACTIONS
The functional currency of our 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 functional currency of our foreign sales and marketing offices and research and development facilities is the local currency of the respective operations. The assets and liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars 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, we entered into foreign currency forward-exchange contracts, which typically mature in one month, to hedge a portion of our exposure to foreign currency fluctuations of expected foreign currency-denominated receivables, payables and cash balances. We record on the balance sheet at each reporting period the fair value of our forward-exchange contracts and record 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 (expense), offsetting transaction gains and losses on the related assets and liabilities.
As of December 31, 2002, we had foreign currency exchange contracts of approximately $4.4 million denominated in the Euro as a hedge against a portion of our forecasted foreign currency-denominated receivables, payables and cash balances. The following table summarizes our net currency position, and approximate U.S. dollar equivalent (in thousands), at December 31, 2002:
Local USD
Currency Equivalent Position Maturity
------------ ------------ ----------- -----------
EUR € 4,238 $ 4,400 Sell 1 month
Foreign currency transactions, net of the effect of hedging activity, resulted in a net gain of $0.3 million for the fiscal quarter ended December 31, 2002, which is included in interest and other income in the results of operations, compared to a net loss of approximately $0.2 million in the quarter ended December 31, 2001.
5. COMPUTATION OF EARNINGS PER COMMON SHARE
Basic Earnings Per Share ("EPS") is
computed by dividing net income available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Basic EPS excludes the dilutive effect of stock options. Diluted
EPS gives effect to all dilutive potential common shares outstanding during a
period. In computing diluted EPS, the average stock price for the period is
used in determining the number of shares assumed to be purchased using the
proceeds from the exercise of stock options.
Following is a reconciliation of the denominators of the basic
and diluted EPS: 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): The increase in the foreign currency translation adjustment
in the current quarter was primarily due to the increase in the Euro. During
the three months ended December 31, 2002, the exchange rate for the Euro
relative to the U.S. dollar increased 6.4%. Both for the quarter and on a
year-to-date basis, there was a strengthening of foreign currencies in countries
where the local currency is the functional currency of the entity, further
accounting for the increase. 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. PRODUCTS AND SERVICES. We organize our operations to focus
on three principal markets: call center and office products, mobile and computer
products, and other specialty products. The following table presents net revenue
by market (in thousands): MAJOR CUSTOMERS. No one customer accounted for 10% or more of
total revenue from consolidated sales for the quarters ended December 31, 2001
and 2002, or for the nine month periods ended December 21, 2001 and 2002. 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) but may not actually reflect end-user
markets: 8. RECENT ACCOUNTING PRONOUNCEMENTS In June 2002, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 146
("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. SFAS 146
eliminates the definition and requirement for recognition of exit costs in
Emerging Issues Task Force No. 94-3 pursuant to which a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002. We believe that the adoption of this statement will not have a
material impact on our financial position and results of operations. In November 2002, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 45 ("FIN45"), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires that a liability be recorded in the
guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has issued, including a
reconciliation of changes in the entity's product warranty liabilities.
The initial recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN 45 are effective for Plantronics for financial
statements issued after December 15, 2002. The table below shows the
activity in Plantronics' warranty liability account for the quarter ended
December 31, 2002: In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 are effective for Plantronics
beginning in the second quarter of fiscal 2004. We believe that the
adoption of this standard will have no material impact on our financial
statements. 9. GOODWILL AND INTANGIBLES During the first quarter of fiscal year 2002, we adopted
Statement of Financial Accounting Standards No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets." In accordance with SFAS 142,
we discontinued goodwill amortization in April 2001. Aggregate amortization expense on intangibles for the quarter
and nine months ended December 31, 2001 was $0.1 million and $0.2 million,
respectively. For the quarter and nine months ended December 31, 2002,
amortization expense was $0.2 million and $0.7 million, respectively. The
following table presents information on acquired intangible assets (in
thousands): ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN FORWARD-LOOKING INFORMATION: This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities Act") and Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). In addition, we may from time to time make
oral forward-looking statements. 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 ("*"). 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." When reading the sections titled "Results of
Operations" and "Financial Condition," you should also read our
unaudited condensed consolidated financial statements and related notes included
elsewhere herein, our annual report on Form 10-K; and 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial
Condition and Results of Operations are based upon Plantronics' consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances; the results of which form the
basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies,
among others, require a greater level of judgment and estimation in the
preparation of its consolidated financial statements. REVENUE RECOGNITION. We recognize revenue net of product
returns and expected payments to resellers for customer programs, including
cooperative advertising and marketing development funds, volume rebates, and
special pricing programs. Product returns are processed against revenues upon
receipt and any adjustment to the provision deemed necessary is booked monthly,
based on historical return rates, the product stage relative to its expected
life cycle, assumptions regarding the rate of sell-through to end users from our
various channels based on historical sell-through rates. Should product lives
vary significantly from our estimates, or should a particular selling channel
experience a higher than estimated return rate, or a slower sell-through rate
causing inventory build-up, then our estimated returns, which net against
revenue, may need to be revised. Reductions to revenue for expected and actual
payments to resellers for volume rebates and pricing protection are based on
actual expenses incurred during the period, on estimates for what is due to
resellers for estimated credits earned during the period and any adjustments for
credits based on actual activity. If market conditions were to warrant,
Plantronics may take action to stimulate demand which could include increasing
promotional programs, decreasing prices, or increasing discounts. Such actions
could result in incremental reductions in revenue and margin at the time
incentives are offered. To the extent that we reduce pricing, we may incur
additional reductions to revenue for price protection based on our estimate of
inventory in the channel that is subject to such pricing actions. ACCOUNTS RECEIVABLE. We monitor our customers' financial
condition and generally require no collateral from our customers. We maintain
allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial
condition of our customers should deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. INVENTORY. We maintain reserves for estimated excess and
obsolete inventory based on projected future shipments using historical selling
rates, market conditions, inventory on-hand, purchase commitments, product
development plans and life expectancy, and competitive factors. If markets for
our products and corresponding demand were to decline, then additional reserves
may be necessary. WARRANTY. We provide for the estimated cost of warranties at
the time revenue is recognized. Our warranty obligation is affected by product
failure rates and our cost to repair or replace the products. Should actual
failure rates and costs differ from our estimates, revisions to the warranty
obligation may be required. GOODWILL AND INTANGIBLES. As a result of two acquisitions we
have made, we have goodwill and intangible assets on our balance sheet. These
assets affect the amount of future amortization expense and possible impairment
charges that we may incur. The determination of the value of goodwill and
intangible assets as well as the useful life of amortizable intangible assets
requires management to make estimates and assumptions that may affect our
financial statements. For example, we perform an annual impairment review of
goodwill based on the fair value of the reporting unit to which it relates. If
the actual or expected revenue of a reporting unit significantly declines, we
may be required to record an impairment charge. DEFERRED TAXES. We record our deferred tax assets at the
amounts estimated to be realizable. While we have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
value of the corresponding assets, if we were to determine that we cannot
realize all or part of our net deferred tax assets in the future, then an
adjustment would be required. The following table sets forth items from the Unaudited
Condensed Consolidated Statements of Operations as a percentage of net
sales: RESULTS OF OPERATIONS: NET SALES. Net sales for the quarter ended December 31,
2002, increased by 8.7% to $86.8 million, compared to $79.9 million for the
quarter ended December 31, 2001. Net sales for the nine months ended December
31, 2002 were $249.4 million compared to $233.0 million for the nine months
ended December 31, 2001, an increase of 7.1%. Compared to the year ago quarter,
sales to our commercial distribution channel increased, as well as sales of our
Walker and specialty products sold through a variety of channels, driven by the
acquisition of Ameriphone in January 2002. These increases were partially
offset by a decrease in retail sales, and a decrease in sales to our OEM
customers as many of the major telephony companies and wireless carriers
continue to face a challenging business climate. On a product line basis, the
increase in sales compared to the year ago quarter reflected increases in demand
for our call center and office products, a strong increase in sales of our
computer audio systems products with strong sales from our .Audio product line
and strong European sales of Bluetooth product, offset in part by a domestic
decline in sales of mobile products. We recognize that although certain economic indicators have
improved, the overall economic environment remains challenging, and as such we
remain uncertain concerning the overall demand for our products. Related to this
point, our U.S. commercial distributors of call center and office products
reported a 7.7% increase in sell-through compared to the year ago quarter.
However, they showed a 7.0% decrease sequentially in comparison to the September
quarter. A sequential decline in sell-through is typical in the December quarter
and sell-through rates typically increase sequentially in our fourth
quarter.* GROSS PROFIT. Gross profit for the quarter ended December
31, 2002, increased 14.1% to $42.5 million (49.0% of net sales), compared to
$37.3 million (46.6% of net sales) for the quarter ended December 31, 2001.
Gross profit for the nine months ended December 31, 2002 increased to $125.6
million (50.4% of net sales) from $109.7 million (47.1% of net sales) for the
comparable period of fiscal 2002. Compared to the year ago quarter, there were
several factors contributing to this level of improvement including favorable
exchange rates on the Euro and Pound, somewhat lower requirements for warranty
provisions, which is a function of lower return rates compared to a year ago,
lower component costs as a result of our cost reduction efforts, and lower
requirements for excess or obsolete inventory. These factors were offset by a
$1.2 million increase in discounts to resellers versus the year ago quarter. We
expect a reduction in discounts in our fourth fiscal quarter compared to the
level offered in the quarter just ended.* RESEARCH, DEVELOPMENT AND ENGINEERING. Research,
development and engineering expenses for the quarter ended December 31, 2002,
increased by 30.6% to $9.0 million (10.4% of net sales), compared to $6.9
million (8.6% of net sales) for the quarter ended December 31, 2001. For the
first nine months ended December 31, 2002, R&D increased 11.3% to $25.4
million (10.2% of net sales) from $22.8 million (9.8% of net sales) for the same
period last year. While this year's quarter reflected the inclusion of
Ameriphone R&D spending, the primary reason for the increase in R&D
spending compared to the year ago quarter was a marked increase in the number of
products in the pipeline at a particularly active stage of development. While
we are continuing to invest in new product development, particularly cordless
products, we expect the level of R&D expenses in our fourth quarter to be
approximately the same as our third quarter and to level off or perhaps decline
modestly in fiscal 2004.* SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended December 31, 2002, increased 6.2%
to $20.9 million (24.1% of net sales), compared to $19.7 million (24.7% of net
sales) for the quarter ended December 31, 2001. For the first nine months of
fiscal 2003, selling, general and administrative expenses were $60.3 million
(24.2% of net sales) compared to $56.5 million (24.3% of net sales) for the same
period in the prior year. Compared to the year ago quarter, costs were higher
as a result of including costs to support Ameriphone and due to certain
marketing programs we ran during the quarter. To a lesser extent, expenses were
also affected by increased commissions on higher revenues and by a higher
provision for allowance to doubtful accounts necessary this quarter. OPERATING INCOME. Operating income for the quarter ended
December 31, 2002, increased by 18.1% to $12.6 million (14.5% of net sales),
compared to $10.7 million (13.3% of net sales) for the quarter ended December
31, 2001. For the first nine months of fiscal 2003, operating income grew by
31.8% to $39.9 million from $30.3 million for the same period last year.
Compared to the year ago quarter, the increase was largely due to the improved
gross margin on higher revenues. INTEREST AND OTHER INCOME, NET. Interest and other income
for the quarter ended December 31, 2002, was $0.6 million compared to $0.4
million for the quarter ended December 31, 2001, representing an increase of
59.9%. For the nine months ended December 31, 2002, interest and other income
was $1.8 million which represents an increase of 18.4% over the same period in
the previous year. Compared to the year ago quarter, the single largest factor
contributing to the increase was the favorable effect of foreign exchange rates
relative to the U.S. dollar. Both the Euro and the Pound have shown strong
increases, favorably affecting the remeasurement of our European balance sheets.
Interest income declined compared to the year ago quarter, reflecting lower
interest rates as well as lower cash balances with which to invest. Interest
expense for fiscal 2003 is expected to be minimal.* INCOME TAX EXPENSE. Income tax expense for the quarter ended
December 31, 2002 was $3.9 million compared to $.5 million for the quarter ended
December 31, 2001 and represented tax rates of 30.0% and 4.6%, respectively.
In the prior year's quarter we released tax reserves that were no longer
required as a result of completed tax audits with no findings. There was no
such release of reserves this quarter, which accounted for the higher effective
tax rate. For fiscal year 2003 as a whole, we expect our tax expense as a
percentage of pre-tax income not to be greater than 28%.* In our fourth fiscal
quarter, we expect our income tax expense as a percentage of pre-tax income to
be approximately 30%.* Financial Condition: OPERATING ACTIVITIES. During the nine
months ended December 31, 2002, we generated $34.1 million of cash from
operating activities, primarily from $30.9 million in net income, a benefit from
non-cash expenses for depreciation and amortization of $8.4 million, $3.0
million from an increase in accrued liabilities, $1.3 million from the tax
benefit associated with the exercise of stock options, and $1.2 million from a
decrease in inventory. These items were offset by an increase of $8.1 million
in accounts receivable, a decrease of $1.6 million in accounts payable, and a
decrease of $1.6 million in taxes payable. In comparison, in the nine months
ended December 31, 2001, we generated $63.6 million of cash from operating
activities, due primarily to $25.5 million in net income, a decrease of $15.5
million in accounts receivable, a decrease of $10.2 million in inventory, a
benefit from non-cash expenses for depreciation and amortization of $6.5
million, an increase of $5.3 million in accounts payable and accrued
liabilities, and an increase of $2.0 million in income taxes payable. INVESTING ACTIVITIES. During the nine months ended December
31, 2002 we received $22.5 million from maturities of marketable securities. In
turn, we purchased $13.0 million in marketable securities during the same
period. We incurred capital expenditures of $9.5 million in the nine months
ended December 31, 2002 principally for machinery and equipment which includes
tooling, building and leasehold improvements, and furniture and fixtures. FINANCING ACTIVITIES. In the nine months ended December 31,
2002, we repurchased 1,522,400 shares of our common stock for $25.3 million and
reissued through employee benefit plans 62,320 shares of our treasury stock for
$1.1 million. As of December 31, 2002, 617,800 shares remained available for
repurchase under the plan authorized during the quarter. We received $1.6
million in proceeds from the exercise of stock options during the nine months
ended December 31, 2002. During this period, we also recorded $1.5 million in
foreign currency translation gains due to strengthening Euro and British Pound
Sterling values relative to the U.S. dollar. LIQUIDITY AND CAPITAL RESOURCES. As of December 31, 2002, we
had working capital of $108 million, including $63.8 million of cash, cash
equivalents and marketable securities, compared with working capital of $96.7
million, including $60.3 million of cash, cash equivalents and marketable
securities at March 31, 2002. As of December 31, 2002, we had material
commitments for capital expenditures of approximately $2 million for purchase of
tooling, machinery and equipment, furniture and fixtures and building and
leasehold improvements. We expect that these commitments will be funded by cash
from operations.* In July 2002, we renewed our revolving credit facility with a
major bank at $75 million, including a letter of credit subfacility. The renewed
facility and subfacility both expire on July 31, 2003. As of January 24, 2003,
we had no cash borrowings under the revolving credit facility and $1 million
outstanding under the letter of credit subfacility. The amounts outstanding
under the letter of credit subfacility were principally associated with
purchases of inventory. The terms of the credit facility contain covenants that
materially limit our ability to incur debt and pay dividends, among other
matters. These covenants may adversely affect 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, cash equivalents and
marketable securities balances and cash provided by operations, together with
available borrowing capacity under our revolving credit facility and letter of
credit subfacility, will be sufficient to fund operations for at least the next
twelve months.* However, any projections of future financial needs and sources
of working capital are subject to uncertainty. See "Certain Forward-Looking
Information" and "Risk Factors Affecting Future Operating
Results" in this Quarterly Report for factors that could affect our
estimates for future financial needs and sources of working capital.
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
(In thousands, except earnings per share) 2001 2002 2001 2002
--------- --------- --------- ---------
Net income...................................... $ 10,507 $ 9,201 $ 25,453 $ 30,905
========= ========= ========= =========
Weighted average shares - basic................. 46,897 44,939 47,650 45,531
Effect of dilutive securities - employee
stock options................................ 2,223 1,258 1,904 1,565
--------- --------- --------- ---------
Weighted average shares - diluted............... 49,120 46,197 49,554 47,096
========= ========= ========= =========
Net earnings per common share - basic........... $ 0.22 $ 0.20 $ 0.53 $ 0.68
========= ========= ========= =========
Net earnings per common share - diluted......... $ 0.21 $ 0.20 $ 0.51 $ 0.66
========= ========= ========= =========
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Net income...................................... $ 10,507 $ 9,201 $ 25,453 $ 30,905
Foreign currency translation.................. (191) 459 100 1,492
--------- --------- --------- ---------
Total........................................... $ 10,316 $ 9,660 $ 25,553 $ 32,397
========= ========= ========= =========
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Net revenues from unaffiliated customers:
Call center and office....................... $ 54,575 $ 58,644 $ 175,952 $ 179,954
Mobile and computer.......................... 22,156 21,824 49,761 50,762
Other specialty products..................... 3,136 6,343 7,241 18,733
--------- --------- --------- ---------
$ 79,867 $ 86,811 $ 232,954 $ 249,449
========= ========= ========= =========
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ -----------------------
2001 2002 2001 2002
----------- ----------- ---------- -----------
Net revenues from unaffiliated
customers:
United States.................. $ 56,235 $ 57,013 $ 159,228 $ 170,053
International.................. 23,632 29,798 73,726 79,396
----------- ----------- ---------- -----------
$ 79,867 $ 86,811 $ 232,954 $ 249,449
=========== =========== ========== ===========
March 31, December 31,
2002 2002
----------- -----------
Long-lived assets:
United States.................. $ 23,267 $ 23,515
International.................. 12,433 14,074
----------- -----------
$ 35,700 $ 37,589
=========== ===========
(in thousands)
Warranty liability at September 30, 2002............. $ 6,611
Warranty provision charged to the income statement... 1,788
Deductions for warranty expense incurred............. (1,955)
---------
Warranty liability at December 31, 2002.............. $ 6,444
=========
In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the pro forma effect in
interim financial statements. The transition and annual disclosure requirements
of SFAS No. 148 are effective for Plantronics commencing the first quarter of
fiscal 2004. The interim disclosure requirements are effective for
Plantronics beginning the fourth quarter of fiscal 2003. We believe that
the adoption of this standard will have no material impact on our financial
statements.
March 31, 2002 December 31, 2002
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------------- ----------- ------------- -----------
Intangible assets
Technology........................ $ 2,460 $ (417) $ 2,460 $ (746)
State contracts................... 1,300 (46) 1,300 (185)
Patents........................... 700 (25) 700 (100)
Customer lists.................... 533 (400) 533 (533)
Trademarks........................ 300 (11) 300 (43)
Non-compete agreements............ 200 (10) 200 (40)
------------- ----------- ------------- -----------
Total............................. $ 5,493 $ (909) $ 5,493 $ (1,647)
============= =========== ============= ===========
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Net sales ...................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales .................................. 53.4 51.0 52.9 49.6
--------- --------- --------- ---------
Gross profit ............................... 46.6 49.0 47.1 50.4
--------- --------- --------- ---------
Operating expenses:
Research, development and engineering ...... 8.6 10.4 9.8 10.2
Selling, general and administrative ........ 24.7 24.1 24.3 24.2
--------- --------- --------- ---------
Total operating expenses .............. 33.3 34.5 34.1 34.4
--------- --------- --------- ---------
Operating income ............................... 13.3 14.5 13.0 16.0
Interest and other income, net ................. 0.5 0.7 0.6 0.7
--------- --------- --------- ---------
Income before income taxes ..................... 13.8 15.2 13.6 16.7
Income tax expense ............................. 0.6 4.6 2.7 4.3
--------- --------- --------- ---------
Net income ..................................... 13.2 % 10.6 % 10.9 % 12.4 %
========= ========= ========= =========
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:
Investors or potential investors in our stock should carefully consider the risks described below. Our stock price will reflect the performance of our business relative to, among other things, our competition, general economic and market conditions, industry conditions, and the continuing lack of investor confidence in the current accounting and reporting practices of corporations in the United States. 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. Should any or all of the following risks materialize, the trading price of our stock could decline and investors could lose all or part of their investment.
We may face further reduction in overall demand for our products if the national or international economic growth declines or experiences a "double-dip" recession.
Our markets have exhibited cyclical behavior especially notable since the fourth quarter of fiscal 2001. Our business is affected by general economic conditions in the U.S. and globally, which have led to reduced demand for a variety of goods and services, including many technology products. If these trends are worse or last longer than presently anticipated, we may not achieve the level of sales required to achieve our projected financial results, which could in turn materially adversely affect the market price of our stock.
A substantial portion of our sales come from the call center market and a decline in 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. Although we saw a slight increase in sales in this market in the third quarter of fiscal year 2003, this market has shown signs of saturation in the past year. We believe that there is a general reduction in the level of overall market demand for call center products. While we believe that this market may grow in future periods, this growth could be slow or revenues from this market could continue to decline in response to various factors. For example, 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 currently negatively affecting our business. Because of 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.
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 technologies, product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. 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, specifically, our range of Bluetooth products, may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or achieve broad customer acceptance among end-users, which could materially adversely affect our business, financial condition and results of operations. Demand for new wireless headsets may not develop as we anticipate. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenue growth rates and operating margins 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. The technology used in hands-free communications devices, including our products, is evolving more rapidly now than it has historically and we anticipate that this trend may accelerate. We believe this is particularly true for our newer emerging technology products especially in the mobile, computer markets, residential and certain parts of the office market. We believe products designed to serve these markets generally exhibit shorter lifecycles and are increasingly based on open standards and protocols. The end markets served are much larger than the traditional call center market. This combination of factors may lead to increased commoditization, as a greater number of competitors attempt to introduce products, or reverse engineer our products and offer 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. Although we strive to be a leader in developing new technologies, products and solutions, the technologies, products and solutions that we choose to pursue may not become as commercially successful as we planned. We may experience difficulties in realizing the expected benefits from our investments in new technologies. If we are unable to develop and introduce enhanced 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 evolution 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.
Increased adoption of speech-activated and voice interactive software products by businesses could limit our ability to grow in the call center market.
We are seeing a proliferation of speech-activated and voice interactive software in the market place. We have been re-assessing long term growth prospects for the call center market given the growth rate and the advancement of these new voice recognition based technologies. Businesses that first embraced them due to a labor shortage at the peak of the last economic up cycle are now increasing spending on these technologies in hopes of reducing total costs. We may experience a decline in our sales to the call center market if businesses increase their adoption of speech-activated and voice interactive software as an alternative to customer service agents. Should this trend continue, it could cause a net reduction in call center agents and our revenues to this market segment could decline rather than grow in future years.
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 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 "double-dip" 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:
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.
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 are not able to collect on our accounts receivable due to the general economic decline, we may be materially adversely affected.
If the overall economy continues to slow further, or experiences a double-dip recession, it could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts that they owe to us. Due to the decline in the economy, the credit risks relating to these resellers/customers have increased. 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. 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 receivable, which could materially adversely affect our business, financial condition or results of operations. We recently have experienced a deterioration in our aging with amounts greater than thirty days past due increasing. We are in the process of implementing programs to assist us in monitoring and mitigating these risks, but there can be no assurance that such programs will be effective in reducing our credit risks. We also continue to monitor credit exposures from weakened financial conditions in certain geographic regions and the impact that such conditions may have on the worldwide economy. We have experienced losses due to defaults by our customers on their accounts payable. Although these losses have not been significant, future payment defaults by customers could harm our business and have a material adverse effect on our operating results and financial condition.
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 Netcom has made a number of acquisitions over the years, most recently, Claria Headsets, an Australian based manufacturer of office, call center and mobile headsets. We believe the acquisitions of ACS, Unex, Claria, Hello Direct and Jabra have provided GN Netcom with a broader product line and greater marketing presence than they had prior to these acquisitions. We believe it is reasonable to anticipate that they may continue to make additional 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 acquisitions including the recent acquisitions of Hello Direct and the Australian distributor Claria, indicate it may be moving towards 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 the current economic downturn, we have been seeing lower prices from our competitors, particularly GN Netcom.
Labtec, Inc. has become a significant competitor in the computer headset market since it was acquired by Logitech International S.A. in March 2001. Logitech is a manufacturer and seller of computer accessory products. Following this acquisition, Labtec gained greater resources with which to compete with us than it had prior to the acquisition. In addition, it has expanded its product offerings to include mobile headsets to address the changing regulatory environment regarding driver safety and mobile phone usage.
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. Since the merger of the mobile businesses of Sony Corporation and Telefonaktiebolaget LM Ericsson in 2001, they have announced the launch of two commercially available Bluetooth wireless headsets.
On October 25, 2002, Danish manufacturer of audiology products, William Demant Holdings A/S, and Germany's maker of professional electroacoustic products, Sennheiser electronics Gmbh & Co. KG, announced the establishment of a joint venture in the telecommunication headset industry, Sennheiser Communications A/S. This new company will design, manufacturer and market communications headsets and aims to be a preferred headset manufacturer. If this joint venture is successful, we expect the combination of William Demant Holdings' technology expertise with Sennheiser's established distribution channels will present formidable competition to our business. Sennheiser Communications A/S plans to present their product range in the first quarter of 2004 at CeBit.
We anticipate other competition from consumer electronics 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.
We believe that the market for lightweight communications headsets is showing some signs of commoditization. In particular, we believe that our competitors, especially GN Netcom, are choosing to 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 such as 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 competitors will be able 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:
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.
If we do not match production to demand, we will be at risk of losing business or our gross margins could be materially adversely affected.
Historically, we have 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. We have experienced sharp fluctuations in demand, especially for headsets for wireless and cellular phones. 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 excess products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins.
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 are experiencing greater dependencies on single source suppliers. Therefore, we 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.
The introduction of the new Bluetooth headsets presents many significant manufacturing, marketing and other operational risks and uncertainties, including: developing and marketing these wireless headset products; unforeseen delays or difficulties in introducing and achieving volume production of such products; our dependence on third parties to supply key components, many of which have long lead times; and our ability to forecast demand and customer return rates accurately for this new product category for which relevant data is incomplete or not available.
Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations.
We expect to make future acquisitions and acquisitions involve material risks.
On January 2, 2002, we acquired Ameriphone, Inc., a California corporation, in a cash transaction. We may in the future, in order to address the need to develop new products and technologies, and enter new markets, acquire other companies. There are inherent risks in the acquisition of another company that could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with acquisitions include:
Mergers and acquisitions, particularly those of high-technology companies, are inherently risky, and no assurance can be given that the Ameriphone or future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition. We must also manage any such growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results.
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.
Our growth and ability to meet customer demands depend in part on our capability to obtain timely deliveries of raw materials, components, subassemblies and products from our suppliers. We buy raw materials, 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 raw materials, components, subassemblies and finished products entails various risks, including the following:
We obtain certain raw materials, 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 raw materials, 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 raw materials, 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 raw materials, 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 to obtain certain raw materials, 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 raw materials, subassemblies, components and products. Lead times are particularly long on silicon-based components incorporating RF and DSP technologies and such components are an increasingly important part of our product costs. Since the second quarter of fiscal 2002, we have been able to keep inventories at an acceptable level, relative to sales. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand could increase our inventories and/or decrease our revenues, consequently materially adversely affect our business, financial condition and results of operations.
Most of our suppliers are not obligated to continue to provide us with raw materials, components and subassemblies. Rather, we buy most raw materials, 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 raw materials, components and subassemblies. This would materially adversely affect our business, financial condition and results of operations.
Although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permits us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet time to market schedules. Due to our dependence on a single silicon chip-set manufacturer, we could experience a delay in development and/or the ability to meet our customer demand for these new products. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these factors.
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 not 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 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.
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:
In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of these 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.
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 have significant foreign operations and there are inherent risks in operating abroad.
During the third quarter of fiscal year 2003, approximately 34% of our net sales were derived from customers outside the United States, equal to net sales in the year ago quarter. In addition, we conduct the 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, either 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:
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 outside of North America are transacted in the Euro or 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 prior quarters, the value of the Euro and other foreign currencies dropped against the U.S. dollar, which adversely impacted our revenue and gross margin, and also resulted in currency transaction losses. 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, we may reduce our current prices further, resulting in a lower margin on products sold abroad. Continued change in the values of foreign currencies could have a material adverse effect on our business, financial condition and results of operations.
In fiscal year 2002, we introduced programs designed to reduce our foreign currency net asset exposure and were successful in reducing 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 continuing to reduce 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 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.
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 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.
The terrorist attacks on New York City on September 11, 2001, marked a turning point in current U.S. political, military and security strategies which we believe have, and may continue to, adversely impact our business, both directly and indirectly.
The events of September 11th, 2001 and its aftermath have contributed to a further slowing in the economy with additional layoffs in other industries resulting in a negative effect on our business. We believe that one direct impact of the attacks is the reduction of call center agents in the travel and leisure industries. We are indirectly affected by the continuing concern on future terrorist attacks on U.S. soil. We are unable to estimate the impact these threats and their consequences have on our business, however, we expect that as these events adversely affect the global economy in general, our financial condition, our operations and our prospects will be similarly 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 copyrights, patents, trademarks, trade dress, trade secrets, and similar intellectual property, including our rights to certain domain names. 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. Effective trademark, patent, copyright, and trade secret protection may not be available in every country in which our products and media properties are distributed to customers worldwide. We currently hold 68 United States patents and additional foreign patents and will continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations.
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.
We are exposed to potential litigation from third parties which is costly to defend and consumes management's time and could possibly divert focus away from our business.
From time to time, third parties, including our competitors, may assert intellectual property rights or other commercial claims against us. These claims, if they are asserted, could result in costly litigation and diversion of management's attention regardless of the merit of a claim. 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.
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.
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 January 24, 2003, we had 44,401,726 shares of common stock outstanding. These shares are freely tradable except for approximately 6,976,170 shares held by affiliates of Plantronics (including Citicorp Venture Capital ("CVC") and the directors and officers of Plantronics). These approximately 6,976,170 shares may be sold in reliance on Rule 144 under the Securities Act, or pursuant to an effective registration statement filed with the Securities and Exchange Commission.
Approximately 11,027,167 additional shares are subject to outstanding stock options as of January 24, 2003. The issuance of these shares upon exercise of stock options has been registered. Accordingly, to the extent that these shares vest and are issued in the future, they may be freely resold by stockholders who are not our affiliates. Our affiliates may resell these shares to the extent permitted by Rule 144 under the Securities Act.
Our stock is not heavily traded. The average daily trading volume of our stock in the third quarter of fiscal 2003 was 318,763 shares per day with a median volume in that period of 257,100 shares per day. Sales of a substantial number of shares of our common stock in the public market by 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.
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.
Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent a third party from acquiring us, which could decrease the value 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.
In the first quarter of calendar year 2002, our board of directors adopted a stockholders right plan, pursuant to which we distributed one right for each outstanding share of common stock held by stockholders of record as of April 12, 2002. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our board of directors, the plan could make it more difficult for a third party to acquire us, or a significant percentage of our outstanding capital stock, without first negotiating with our board of directors regarding such acquisition.
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 December 31, 2002, we had cash and cash equivalents totaling $56.0 million, compared to $43.0 million at March 31, 2002. At December 31, 2002, we had marketable securities totaling $7.8 million compared to $17.3 million at March 31, 2002. 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 cash and marketable securities were invested in securities or interest bearing accounts with maturities of less than ninety days. The average maturity period for our investments at December 31, 2002, was less than three months. The taxable equivalent interest rates locked in on those investments ranged from 1.9% to 2.6%. 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 July 2002, we renewed our revolving credit facility, including a letter of credit subfacility, with a major bank at $75 million. The renewed facility and subfacility both expire on July 31, 2003. As of January 24, 2003, we had no cash borrowings under the revolving credit facility and $1 million under the letter of credit subfacility. 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 nine months of fiscal 2003, approximately 32% of our net sales were derived from customers outside the United States, with approximately 23% of total revenues denominated in foreign currencies, predominately the Euro and the British Pound Sterling. In fiscal 2002, we implemented a hedging strategy to minimize the effect of these currency fluctuations. Specifically, we began to hedge our European transaction exposure, hedging both our Euro and British Pound Sterling positions. However, we have no assurance that exchange rate fluctuations will not materially adversely affect our business in the future.
As of December 31, 2002, we had foreign currency exchange contracts of approximately $4.4 million denominated in the Euro as a hedge against a portion of our forecasted foreign currency-denominated receivables, payables and cash balances. The table below provides information about our financial instruments and underlying transactions that are sensitive to foreign currency exchange rates, including foreign currency forward-exchange contracts and nonfunctional currency-denominated receivables and payables. If these net exposed currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. dollar we could incur a loss of $0.7 million or a gain of $0.7 million.
The table below presents the impact on our foreign transactions of a 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated currencies:
December 31, 2002
(in millions) Net
Underlying Net FX FX
Foreign Exposed Gain (Loss) Gain (Loss)
USD Value Currency Long (Short) From 10% From 10%
of Net FX Transaction Currency Appreciation Depreciation
Currency Contracts Exposures Position of USD of USD
- ----------------------- ----------- ----------- ----------- ----------- -----------
Euro................... $ 4.4 $ 11.2 $ 6.8 $ (0.7) $ 0.7
British pound sterling. -- (0.2) (0.2) -- --
----------- ----------- ----------- ----------- -----------
Net position $ 4.4 $ 11.0 $ 6.6 $ (0.7) $ 0.7
=========== =========== =========== =========== ===========
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our chief executive officer and our chief financial officer, after evaluating our "disclosure controls and procedures" (as defined in the Exchange Act) Rules 13a- 14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this Quarterly Report on Form 10-Q, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Plantronics' management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. Because of inherent limitations in any system of disclosure controls and procedures, no evaluation of controls can provide absolute assurance that all instances of error or fraud, if any, within the company may be detected.
(b) Changes in Internal Controls. Subsequent to the Evaluation Date, there were no significant changes in our internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II. -- OTHER INFORMATION
We are presently engaged in a lawsuit filed in the Superior Court in Santa Clara County, California by GN Hello Direct, Inc., a former Plantronics retail catalog distributor that was acquired by our single largest competitor, GN Netcom. GN Hello Direct makes various claims associated with the termination of the distribution relationship between Plantronics and Hello Direct, including that Hello Direct has suffered approximately $11 million in damages as a result of that termination.
This case was tried in October 2002. We were granted summary adjudication on GN Hello Direct's breach of contract claims against us prior to trial. At trial, GN Hello Direct's claims against us for Interference with Prospective Economic Advantage were found by the jury to be without merit and a defense verdict was returned on our behalf. We were awarded approximately $0.8 million with 10% simple interest from March 15, 2001 for product sold by us to GN Hello Direct and for which GN Hello Direct had not paid us. On post trial motions both parties asked for a Judgment Not on the Verdict on the issue of the product sold by us to GN Hello Direct that was not paid for by GN Hello Direct. The court granted a new trial on this issue alone. In further post trial motions, we received awards of attorney's fees and costs of $1.67 million. GN Hello Direct has the right to appeal. We intend to defend any such appeal vigorously and to aggressively prosecute its claim for damages for product sold by us to Hello Direct but not paid for by them.*
We are also involved in various other legal actions arising in the normal course of our business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating results.* However, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition or results of operations
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by our external auditors. Non-audit services are defined in the law as services other than those provided in connection with an audit or a review of our financial statements and include such services as tax research and provision review, audits of benefit plans, and review of registration statements. On October 11, 2002, our Audit Committee approved the following non-audit services to be performed by our external auditors during the current fiscal year: (1) tax research, (2) review of tax provisions and returns, (3) foreign statutory audits, and (4) review of registration statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8- K
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Exhibit Number |
Description of Document |
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99.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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99.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
None
SIGNATURE
Pursuant to the requirements of the Exchange Act, Plantronics has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PLANTRONICS, INC. |
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(Registrant) |
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By: |
/s/ Barbara V. Scherer |
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Barbara V. Scherer |
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Senior Vice President - Finance and Administration and Chief
Financial Officer |
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Date: February 11, 2003
Certification under Section 302(a) of the Sarbanes-Oxley Act of 2002
I, S. Kenneth Kannappan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plantronics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/ S. Kenneth Kannappan
S. Kenneth Kannappan
President and Chief Executive Officer
I, Barbara V. Scherer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plantronics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/ Barbara V. Scherer
Barbara V. Scherer
Senior Vice President - Finance and
Administration and Chief Financial Officer
EXHIBITS INDEX
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Exhibit Number |
Description of Document |
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99.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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99.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |