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Section 1: 10-Q (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission File Number: 001-12696

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

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

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

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

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

As of January 29, 2020, 39,927,953 shares of the registrant's common stock were outstanding.

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


2


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

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

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Part I -- FINANCIAL INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

CERTAIN FORWARD-LOOKING INFORMATION:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may generally be identified by the use of such words as "anticipate," "believe," “could,” "expect," "intend," “may,” "plan," "potential," "shall," "will," “would,” or variations of such words and similar expressions, or the negative of these terms. Specific forward-looking statements contained within this Form 10-Q include, but are not limited to, statements regarding: (i) our efforts to execute to drive sales and sustainable profitable revenue growth; (ii) our expectations for new product launches, the timing of their releases and their expected impact on future growth and on our existing products; (iii) our expectations to avoid business disruption due to potential global health issues (iv) our expectations for synergies in the quarter and additional anticipated cost savings; (v) our expectations related to the sale of our gaming product line and further optimization of our Consumer product line; (vi) beliefs regarding the strategic and financial benefits of focusing on our Enterprise business, simplifying business processes and reducing working capital; (vii) our expectations for operating cash flow and debt; (viii) expectations relating to our Q-4 and full Fiscal Year 2020 earnings guidance; (ix) estimates of GAAP and non-GAAP financial results for the fourth quarter and full Fiscal Year 2020, including net revenues, purchase accounting adjustments, adjusted EBITDA, tax rates, intangibles amortization, and diluted weighted average shares outstanding and diluted EPS; (x) expectations related to our customers’ purchasing decisions and our ability to match product production to demand; (xi) our expectations of the impact of the acquisition of Polycom as it relates to our strategic vision and additional market and strategic partnership opportunities for our combined hardware and services offerings; (xii) our beliefs regarding the UC&C market, market dynamics and opportunities, and customer and partner behavior as well as our position in the market; (xiii) our belief that the increased adoption of certain technologies and our open architecture approach has and will continue to increase demand for our solutions; (xiv) expectations related to the micro and macro-economic conditions in our domestic and international markets and their impact on our future business; (xv) our forecasts and expectations regarding liquidity, capital resources and results of operations along with our intentions concerning the repayment of our debt obligations and our ability to draw funds on our credit facility as needed; (xvi) our forecasts and estimates with respect to tax matters, including expectations with respect to utilizing our deferred tax assets; (xvii) our expectations regarding pending and potential future litigation, in addition to other matters discussed in this Quarterly Report on Form 10-Q that are not purely historical data. Such forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.  Among the factors that could cause actual results to differ materially from those contemplated are:
Regarding the Polycom acquisition: (i) we may be unable to integrate Polycom's business within our own in a timely and cost-efficient manner or do so without adversely impacting operations, including new product launches; (ii) expected synergies or operating efficiencies may fail to materialize in whole or part or may not occur within expected time-frames; (iii) the acquisition and our subsequent integration efforts may adversely impact relationships with customers, suppliers and strategic partners and their operating results and businesses generally (including the diversion of management time on transaction-related issues); (iv) we may be unable to retain and hire key personnel; (v) our increased leverage as a result of the transaction is substantially greater than prior to the acquisition which may pose risks, including reduced flexibility in how we use our cash and to make changes in our operations in response to business or economic conditions, increased borrowing costs, as well as penalties or costs should we fail to comply with terms of the financial agreements such as debt ratios and financial and operation performance targets; (vi) negative effects on the market price of our common stock as a result of the transaction, particularly in light of the issuance of our stock in the transaction; (vii) our financial reporting including those resulting from the adoption of new accounting pronouncements and associated system implementations in the context of the transaction, our ability to forecast financial results of the combined company and that we may be unable to successfully integrate our reporting system causing an adverse impact to our ability to make timely and accurate filings with the SEC and other domestic and foreign governmental agencies; (viii) the potential impact of the transaction on our future tax rate and payments based on our global entity consolidation efforts and our ability to quickly and cost effectively integrate foreign operations; (ix) the challenges of integrating the supply chains of the two companies; (x) the challenges of sales execution across different product lines; (xi) our expectations regarding the potential that our due diligence did not uncover risks and potential liabilities of Polycom;
the nature and extent of competition we face, particularly subsequent to the acquisition of Polycom as it relates to our ability to adapt to new competitors and changing markets;
the impact of product transitions underway which are replacing or upgrading nearly every major product in our product portfolio;
the impact of customer brand preferences on Consumer and Enterprise market demands;
the impact of our adoption of a new corporate branding identity, including any confusion or harm to our reputation resulting therefrom;

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the impact of ongoing integration, restructuring and disaggregation activities on our operations, including on employees, distributors, VAR's, suppliers and customers from the Polycom acquisition;
our ability to realize and achieve positive financial results projected to arise in the our key markets from UC&C adoption could be adversely affected by a variety of factors including the following: (i) as UC&C becomes more widely adopted, the risk that competitors will offer solutions that will effectively commoditize our products which, in turn, will reduce the sales prices for those products; (ii) our plans are dependent upon adoption of our UC&C solution by major platform providers and any proprietary solutions of competitors, and our influence over such providers and the marketing in general with respect to the functionality of their platforms or their product offerings, their rate of deployment, and their willingness to integrate their platforms and product offerings with our solutions is limited; (iii) delays or limitations on our ability to timely introduce solutions that are cost effective, feature-rich, stable, and attractive to our customers within forecasted development budgets; (iv) our successful implementation and execution of new and different processes involving the design, development, and manufacturing of complex electronic systems composed of hardware, firmware, and software that works seamlessly and continuously in a wide variety of environments and with multiple devices; (v) failure of UC&C solutions generally, or our solutions in particular, to be adopted with the breadth and speed we anticipate; (vi) our sales model and expertise must successfully evolve to support complex integration of hardware, software, and services with UC&C infrastructure consistent with changing customer purchasing expectations; (vii) as UC&C becomes more widely adopted we anticipate that competition for market share will increase, particularly given that some competitors may have superior technical and economic resources; (viii) sales cycles for UC&C deployments are longer and becoming more complex; (ix) our inability to timely and cost-effectively adapt to changing business requirements may impact our profitability in this market and our overall margins; and (x) our failure to expand our technical support capabilities to support the complex and proprietary platforms in which our UC&C products are and will be integrated;
risks associated with our channel partners’ sales reporting, product inventories and product sell through since we sell a significant amount of products to channel partners who maintain their own inventory of our products;
failure to match production to demand given long lead times and the difficulty of forecasting unit volumes and acquiring the component parts and materials to meet demand without having excess inventory or incurring cancellation charges;
risks associated with forecasting sales and procurement demands, which are inherently difficult, particularly with continuing uncertainty in regional and global economic conditions as well as currency fluctuations, and there can be no assurance that expectations of incoming orders over the balance of the current quarter will materialize;
volatility in prices and availability of components from our suppliers, including our manufacturers located in APAC, have in the past and could in the future negatively affect our profitability and/or market share;
fluctuations in foreign exchange rates;
new or greater tariffs on our products;
the bankruptcy or financial weakness of distributors or key customers, or the bankruptcy of or reduction in capacity of our key suppliers;
additional risk factors including: interruption in the supply of sole-sourced critical components, continuity of component supply at costs consistent with our plans, and the inherent risks of our substantial foreign operations;
seasonality in one or more of our product categories;
the potential impact to our results of operations from tax rulings and interpretations;
risks related to our forecasts and expectations regarding liquidity, capital resources and results of operations along with our intentions concerning the repayment of our debt obligations and our ability to draw funds on our credit facility as needed;
potential fluctuations in our cash provided by operating activities;
risks associated with our anticipated range of capital expenditures for the remainder of Fiscal Year 2020;
the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements;
our expenses and expenditures, including research, development and engineering as well selling, general and administrative;
changes in tax laws that could increase our future tax rate and payments related to unrecognized tax benefits and/or reduce our deferred tax assets;
risks related to our forecasts and estimates with respect to tax matters, including expectations with respect to utilizing our deferred tax assets;
if we are unable to generate sufficient amount of income, a substantial valuation allowance to reduce the deferred tax assets may be required;
our ability to pay future stockholder dividends or repurchase stock;
our beliefs concerning interest rates and foreign currency exchange rates, our exposure to changes in each, and the benefits and risks of our hedging activities;
the risks of global health issues impacting supply chain, distribution, product availability, sales execution and/or other business disruption to our business;
risks related to adverse results in pending litigation or other regulatory proceedings; and

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those risks and uncertainties discussed in this Quarterly Report on Form 10-Q; in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on May 17, 2019; and other documents we have filed with the SEC.  

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.


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OVERVIEW

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

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

Our consolidated financial results as of December 31, 2019, include the nine-month financial results of Polycom, Inc. ("Polycom"), whereas our consolidated financial results as of December 31, 2018, include the financial results of Polycom from July 2, 2018, the date we acquired Polycom (the "Acquisition").

Total Net Revenues (in millions)                            Operating Income (Loss) (in millions)
402672873_chart-12bdad6871c85aa6ae0.jpg 402672873_chart-5e36be4a8fea5d019e1.jpg

Compared to the third quarter of Fiscal Year 2019, total net revenues decreased (23.4)% to $384.5 million; the decrease in total net revenues primarily was driven by a decline in Enterprise Headset, Voice, and Video product revenues reflecting sales integration and channel consolidation issues, Microsoft Skype to Teams transition, and trade issues in China that led to our reducing channel inventories by reducing sales into our distributors. Additionally, our Consumer Headset product revenues also declined driven by portfolio optimization and a decrease in our gaming products due to an unusually high comparison resulting from the launch of Battle Royale genre games in fiscal year 2019.

As a result of purchase accounting, a total of $7.1 million of deferred revenue that otherwise would have been recognized in the third quarter of Fiscal Year 2020 was excluded from third quarter revenue of $384.5 million; the amount of deferred revenue excluded from the third quarter of Fiscal Year 2019 was $28.9 million.


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We reported an operating loss of $76.6 million for the third quarter of Fiscal Year 2020 and an operating loss of $24.7 million for the third quarter of Fiscal Year 2019. The decline in our results from operations primarily is due to declining revenues discussed above, lower gross margins due to lower production levels and restructuring and other related charges associated with our consumer business.

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

Within the enterprise market, we anticipate that the key driver of growth over the next few years will be the continued adoption of UC&C solutions. We believe enterprises are increasing their adoption of UC&C systems to reduce costs, improve collaboration, and migrate to more capable and flexible technology. We expect that the growth of UC&C solutions will increase overall headset, video endpoint and voice product adoption in enterprise environments.

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

In addition to enabling us to provide comprehensive solutions to drive growth over the long-term, the Acquisition also is allowing us to reevaluate our business, focus resources and efforts on our enterprise strategic initiatives, and to continue to drive operational efficiencies. One of the outcomes of this process led to our announcement in the first quarter of Fiscal Year 2020 that we had begun considering strategic alternatives for our consumer headset products. As we continued to explore strategic initiatives, we concurrently worked to optimized our Consumer Product portfolio. As a result, in the third quarter of Fiscal Year 2020, this optimization work resulted in charges of $10.4 million related to inventory reserves and supplier liabilities for excess and obsolete inventory. In addition, we recognized $5.4 million of restructuring and other charges related to our consumer product portfolio optimization efforts.

Additionally, our consolidation efforts have led to material integration-related cost and expense savings. The majority of these savings are being realized in our operations group where efficiencies in our manufacturing operations and supply chain have helped to reduce our time to market. Simultaneously, we have begun to announce and release a number of new and refreshed product offerings in support of our end-to-end strategic initiatives.  We executed on our channel inventory reduction program announced in the second quarter of Fiscal Year 2020, and reduced our channel inventories by approximately $60 million during the third quarter of Fiscal Year 2020.

We remain cautious about the macroeconomic environment, based on uncertainty around trade and fiscal policy in the U.S. and internationally and broader economic uncertainty in many parts of Europe and Asia Pacific, which makes it difficult for us to gauge the economic impacts on our future business. We furthermore intend to continue monitoring our expenditures, including opportunities to streamline our workforce, tools and processes, and continue to prioritize expenditures that further our strategic long-term growth opportunities, and go to market initiatives under a unified Poly brand.


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RESULTS OF OPERATIONS

The following graphs display net revenues by product category for the three and nine months ended December 31, 2019 and 2018:

Net Revenues (in millions)                 
402672873_chart-432b4312e63756fe845.jpg
Revenue by Product Category (percent)

402672873_chart-99d397fea78552dd905.jpg402672873_chart-6187892bacf75c8eba1.jpg

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Net Revenues* (in millions)                 
402672873_chart-09718a3deaca549fba3.jpg
Revenue by Product Category* (percent)

402672873_chart-0d9f2431b53f54e0b00.jpg402672873_chart-8737adedc00f5e24863.jpg
* Year to date net revenues for Voice, Video, and Services in FY19 include only six months activity as the Acquisition closed on July 2, 2018.

Total net revenues decreased in the three months ended December 31, 2019 compared to the prior year period, primarily due to declines in Enterprise Headset, Voice, and Video product revenues reflecting sales integration and channel consolidation issues, Microsoft Skype to Teams transition, and trade issues in China that led to our reducing channel inventories by reducing sales into our distributors. Additionally, our Consumer Headset product revenues also declined driven by portfolio optimization and a decrease in our gaming products due to an unusually high comparison resulting from the launch of Battle Royale genre games in fiscal year 2019. These decreases were partially offset by an increase in Service revenue attributable to a decline in deferred revenue excluded due to purchase accounting.

Total net revenues increased in the nine months ended December 31, 2019 compared to the prior year period, primarily due to the Acquisition. This increase was partially offset by declines in our Consumer headset product revenues, largely driven by our Gaming and Mono product lines; as well as declines in our Enterprise headset product revenues driven by declines in our non-UC&C Enterprise headset product revenues, which were partially offset by growth in our UC&C Enterprise headset product revenues.


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Geographic Information (in millions)                Revenue by Region (percent)
402672873_chart-b2ca6133d0e352b7809.jpg402672873_chart-53c1fb3e034454a389e.jpg402672873_chart-78188a265fa25e4d9a1.jpg


Geographic Information (in millions)                Revenue by Region (percent)
402672873_chart-546c24e11cb0541d854.jpg402672873_chart-26841f860c475b0c964.jpg402672873_chart-9435d5f79b9a5d859a6.jpg

Compared to the same prior year period, U.S. net revenues for the three months ended December 31, 2019 decreased primarily due to declines in our Enterprise headset and Voice product revenues reflecting sales integration and channel consolidation issues, Microsoft Skype to Teams transition, and trade issues in China that led to our reducing channel inventories by reducing sales into our distributors. Additionally, our Consumer Headset product revenues also declined driven by portfolio optimization and a decrease in our gaming products due to an unusually high comparison resulting from the launch of Battle Royale genre games in fiscal year 2019. These decreases were partially offset by an increase in Service revenue attributable to a decline in the amount of deferred revenue excluded due to purchase accounting. Video product revenues increased compared to the prior year period.

Compared to the same prior year period, U.S. net revenues for the nine months ended December 31, 2019 increased primarily due to Voice, Video, and Service product categories introduced as a result of the Acquisition. This increase was partially offset by continued declines in our non-UC&C Enterprise headset product revenues as well as declines in our Consumer headset product revenues which largely were driven by our Gaming and Stereo product lines. These declines were partially offset by growth in UC&C Enterprise headset product revenues.

International net revenues for the three months ended December 31, 2019 decreased from the same prior year period primarily due to declines in Enterprise, Voice, and Video product revenues, as well as declines in our Consumer headset product revenues driven by our Gaming and Stereo product lines. These declines were partially offset by an increase in Service revenue attributable to a decline in the amount of deferred revenue excluded due to purchase accounting.

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International net revenues for the nine months ended December 31, 2019 increased from the same prior year period primarily due to the Acquisition as well as growth in our UC&C Enterprise headset product revenues. These increases were partially offset by declines in our non-UC&C Enterprise headset product revenues as well as declines in Consumer headset product revenues, which largely were driven by our Gaming and Mono product lines.

During the three months ended December 31, 2019, changes in foreign exchange rates negatively impacted net revenues by $3.6 million, net of the effects of hedging, compared to a $2.2 million unfavorable impact on revenue in the prior year period.

During the nine months ended December 31, 2019, changes in foreign exchange rates negatively impacted net revenues by $11.2 million, net of the effects of hedging, compared to a $3.4 million favorable impact on revenue in the prior year period.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues consists primarily of direct and contract manufacturing costs, warranty, freight, depreciation, duties, charges for excess and obsolete inventory, royalties, and overhead expenses. 
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
December 31,
 
Increase
 
December 31,
 
Increase
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
 
2019
 
2018
 
(Decrease)
Total net revenues
 
$
384,471

 
$
501,669

 
$
(117,198
)
 
(23.4
)%
 
$
1,293,947

 
$
1,206,047

 
$
87,900

 
7.3
%
Cost of revenues
 
240,625

 
286,532

 
(45,907
)
 
(16.0
)%
 
731,384

 
728,438

 
2,946

 
0.4
%
Gross profit
 
$
143,846

 
$
215,137

 
$
(71,291
)
 
(33.1
)%
 
$
562,563

 
$
477,609

 
$
84,954

 
17.8
%
Gross profit %
 
37.4
%
 
42.9
%
 


 
 
 
43.5
%
 
39.6
%
 
 
 
 

Compared to the same prior year period, gross profit as a percentage of net revenues decreased in the three months ended December 31, 2019, primarily due to fixed cost items spread over lower net revenues and inventory-related reserves taken during the current quarter in connection with the optimization of our Consumer product portfolio. Partially offsetting these unfavorable items was a decrease in the deferred revenue fair value adjustment resulting from the Acquisition and material cost reductions as a result of in-sourcing of certain products.

Compared to the same prior year period, gross profit as a percentage of net revenues increased in the nine months ended December 31, 2019, primarily due to a decrease in deferred revenue fair value adjustment when compared to prior year and a non-recurring inventory fair value adjustment in the prior year, both of which resulted from the Acquisition. In addition, we had material cost reductions as a result of our in-sourcing of certain products. Partially offsetting these favorable items were inventory-related reserves taken during the current quarter in connection with the optimization of our Consumer product portfolio.

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


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OPERATING EXPENSES

Operating expenses consist primarily of research, development and engineering; selling, general and administrative; gain, net of litigation settlements, and restructuring and other related charges, all of which are summarized in the table below for the three and nine months ended December 31, 2019 and 2018, respectively:
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
 
December 31,
 
Increase
 
December 31,
 
Increase
 
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
 
2019
 
2018
 
(Decrease)
 
Research, development, and engineering
 
$
53,769

 
$
59,661

 
$
(5,892
)
 
(10
)%
 
$
170,708

 
$
140,409

 
$
30,299

 
22
 %
 
Selling, general and administrative
 
144,978

 
168,053

 
(23,075
)
 
(14
)%
 
457,004

 
406,553

 
50,451

 
12
 %
 
Gain, net of litigation settlements
 

 

 

 
 %
 
(1,162
)
 
(30
)
 
(1,132
)
 
(3,773
)%
 
Restructuring and other related charges
 
21,724

 
12,130

 
9,594

 
79
 %
 
47,096

 
20,711

 
26,385

 
127
 %
 
Total Operating Expenses
 
$
220,471

 
$
239,844

 
$
(19,373
)
 
(8
)%
 
$
673,646

 
$
567,643

 
$
106,003

 
19
 %
 
% of net revenues
 
57.3
%
 
47.8
%
 

 
 
 
52.1
%
 
47.1
%
 
 
 
 
 

Our Research, development, and engineering expenses decreased during the three months ended December 31, 2019 when compared to the prior year period primarily due to lower compensation expense driven by reduced variable compensation and cost reductions from our restructuring actions initiated in prior periods. Research, development, and engineering expenses increased in the nine months ended December 31, 2019 primarily due to the inclusion of Polycom operating expenses after the Acquisition.

Our Selling, general and administrative expenses decreased during the three months ended December 31, 2019 when compared to the prior year period primarily due to lower compensation expense, driven by reduced variable compensation, cost reductions from our restructuring actions initiated in prior periods, and Acquisition-related costs that did not recur in the current period. Selling, general and administrative expenses increased in the nine months ended December 31, 2019, primarily due to the inclusion of Polycom operating expenses after the Acquisition.

Compared to the prior year period, restructuring and other related charges increased in the three and nine months ended December 31, 2019, primarily due to restructuring actions initiated during the period to streamline our global workforce and achieve planned synergies. For more information regarding restructuring activities, see Note 10, Restructuring and Other Related Charges, of the accompanying notes to condensed consolidated financial statements.

INTEREST EXPENSE
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
 
 
December 31,
 
(Increase)
 
December 31,
 
(Increase)
(in thousands, except percentages)
 
2019

2018
 
Decrease
 
2019
 
2018
 
Decrease
Interest expense
 
$
(22,533
)
 
$
(25,032
)
 
$
2,499

 
10.0
%
 
$
(70,262
)
 
$
(56,252
)
 
$
(14,010
)
 
(24.9
)%
% of net revenues
 
(5.9
)%
 
(5.0
)%
 
 
 
 
 
(5.4
)%
 
(4.7
)%
 
 
 
 

Interest expense decreased for the three months ended December 31, 2019 primarily due to lower outstanding balance on the term loan facility and lower interest rates. Interest expense increased for the nine months ended December 31, 2019 primarily due to interest incurred on our Credit Facility Agreement entered into in connection with the Acquisition. See Note 9, Debt, of the accompanying notes to condensed consolidated financial statements.


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OTHER NON-OPERATING INCOME, NET
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
December 31,
 
Increase
 
December 31,
 
Increase
 
(in thousands, except percentages)
 
2019
 
2018
 
(Decrease)
 
2019
 
2018
 
(Decrease)
 
Other non-operating income, net
 
$
967

 
$
125

 
$
842

 
673.6
%
 
$
675

 
$
3,731

 
$
(3,056
)
 
(81.9
)%
 
% of net revenues
 
0.3
%
 
%
 
 
 
 
 
0.1
%
 
0.3
%
 
 
 
 
 

Other non-operating income, net for the three months ended December 31, 2019 increased primarily due to immaterial unrealized gains on the deferred compensation portfolio compared to immaterial unrealized losses on the deferred compensation portfolio in the prior period.

Other non-operating income, net for the nine months ended December 31, 2019 decreased primarily due to lower interest income as our investment portfolios were liquidated during the First Quarter of Fiscal Year 2019 to facilitate the Acquisition and lower net foreign currency gains compared to the prior period.

INCOME TAX EXPENSE (BENEFIT)
 
 
Three Months Ended
 
 
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
December 31,
 
(Increase)
 
December 31,
 
(Increase)
 
(in thousands except percentages)
 
2019

2018
 
Decrease
 
2019
 
2018
 
Decrease
 
Loss before income taxes
 
$
(98,191
)
 
$
(49,614
)
 
$
(48,577
)
 
(97.9
)%
 
$
(180,670
)
 
$
(142,555
)
 
$
(38,115
)
 
(26.7
)%
 
Income tax benefit
 
(19,708
)
 
(7,880
)
 
(11,828
)
 
(150.1
)%
 
(31,406
)
 
(28,584
)
 
(2,822
)
 
(9.9
)%
 
Net loss
 
$
(78,483
)
 
$
(41,734
)
 
$
(36,749
)
 
(88.1
)%
 
$
(149,264
)
 
$
(113,971
)
 
$
(35,293
)
 
(31.0
)%
 
Effective tax rate
 
(20.1
)%
 
(15.9
)%
 


 

 
(17.4
)%
 
(20.1
)%
 
 
 
 
 

The Company and its subsidiaries are subject to taxation in the U.S. and in various foreign and state jurisdictions. Our income tax expense or benefit is determined using an estimate of our annual effective tax rate and adjusted for discrete items that are taken into account in the relevant period. The effective tax rates for the three months ended December 31, 2019 and 2018 were (20.1)% and (15.9)%, respectively. The effective tax rates for the nine months ended December 31, 2019 and 2018 were (17.4)% and (20.1)%, respectively.

The annual effective tax rates for the period ended December 31, 2019 and 2018 varied from the statutory tax rate of 21% primarily due to our jurisdictional mix of income, state taxes, U.S. taxation of foreign earnings, and R&D credits. The increase in our annual effective tax rate for the three months ended December 31, 2019 relative to prior year primarily is due to a favorable shift in jurisdictional losses, lower state taxes as a proportion of losses and incremental benefit for R&D credits. The decrease in our annual effective tax rate for the nine months ended December 31, 2019 relative to prior year primarily is due to a favorable shift in jurisdictional losses, lower state taxes as a proportion of losses and incremental benefit for R&D credits.

During the nine months ended December 31, 2019, we recognized a discrete $11.6 million tax benefit related to an intra-entity transfer of an intangible asset that will have a deferred future benefit, for which we established a deferred tax asset ("DTA").

On June 7, 2019, a Ninth Circuit panel reversed the United States Tax Court’s holding in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. The US Court of Appeals Ninth Circuit has denied the taxpayer’s request for an en banc rehearing, and the taxpayer now has until February 10, 2020 to file a petition of certiorari with the US Supreme Court. We have considered the issue and have recorded a $8.6 million discrete tax charge resulting from the cost sharing of prior stock-based compensation, partially offset by a reduction to the 2017 Tax Cuts and Jobs Act toll charge accrued in prior periods. We will continue to monitor developments related to the case and the potential impact on its consolidated financial statements.


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As of December 31, 2019, we had approximately $29.5 million in DTAs. A significant portion of our DTAs relate to interest expense in the US that is subject to a limitation on deductibility based on income. At this time, based on evidence currently available, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize our DTAs; however, failure to generate sufficient future taxable income could result in some or all DTAs not being utilized in the future. If we are unable to generate sufficient future taxable income, a substantial valuation allowance to reduce our DTAs may be required.

FINANCIAL CONDITION
Operating Cash Flow (in millions)
Investing Cash Flow (in millions)
Financing Cash Flow (in millions)
402672873_cfchartoperating1.jpg
402672873_investcfa05.jpg
402672873_cfchartfina01.jpg
  
We use cash provided by operating activities as our primary source of liquidity. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenues, the timing of compensation-related payments, such as our annual bonus/variable compensation plan, integration costs related to the Acquisition, interest payments on our long-term debt, product shipments during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax and other payments.

Operating Activities

Compared to the same period last year, net cash provided by operating activities during the nine months ended December 31, 2019 decreased primarily due to increased inventory resulting from new product introductions and in-sourcing of manufacturing, cash paid for interest payments on long-term debt, and cash paid for restructuring and integration activities. The decrease was partially offset by higher cash collections from customers as a result of increased revenue when compared to the nine months ended December 31, 2018.

Investing Activities

Net cash used for investing activities during the nine months ended December 31, 2019 primarily was used for the purchase of property, plant and equipment and was partially offset by proceeds from the sale of real property.

We estimate total capital expenditures for Fiscal Year 2020 will be approximately $25 million to $35 million. We expect capital expenditures for the remainder of Fiscal Year 2020 to consist primarily of new information technology investments, capital investment in our manufacturing capabilities, including tooling for new products, and facilities upgrades.

Financing Activities

Net cash used for financing activities during the nine months ended December 31, 2019, primarily was used for early repayment of long-term debt, dividend payments on our common stock, and taxes paid on behalf of employees related to net share settlements of vested employee equity awards. The uses of cash were partially offset by proceeds from issuance of common stock from our Employee Stock Purchase Plan ("ESPP").


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Liquidity and Capital Resources

Our primary sources of liquidity as of December 31, 2019, consisted of cash, cash equivalents, and short-term investments, cash we expect to generate from operations, and a $100 million revolving credit facility. At December 31, 2019, we had working capital of $202.3 million, including $172.1 million of cash, cash equivalents, and short-term investments, compared with working capital of $252.9 million, including $215.8 million of cash, cash equivalents, and short-term investments at March 31, 2019. The decrease in working capital at December 31, 2019 compared to March 31, 2019 resulted from the net decrease in cash and cash equivalents, which were reduced by integration-related payments, decreased revenues and cash collections, and the early repayment of long-term debt in the second quarter of Fiscal Year 2020.

Our cash and cash equivalents as of December 31, 2019 consisted of bank deposits with third party financial institutions. We monitor bank balances in our operating accounts and adjust the balances as appropriate. Cash balances are held throughout the world, including substantial amounts held outside of the U.S. As of December 31, 2019, of our $172.1 million of cash, cash equivalents, and short-term investments, $37.4 million was held domestically while $134.7 million was held by foreign subsidiaries, and approximately 53% was based in USD-denominated instruments. Our remaining investments were composed of Mutual Funds.

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

The Credit Agreement contains various restrictions and covenants, some of which become more stringent over time, including requirements that we maintain certain financial ratios at prescribed levels and restrictions on the ability of us and certain of our subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, consummate acquisitions, make investments and pay dividends and other distributions. We believe that through the results of our cost reduction actions and debt paydowns that we will be able to continue to meet our debt covenants. If our cost reduction actions are not sufficient to generate adequate cash to pay down our debt, we may not be able to meet the required covenants which could lead to the Company being in default of the Credit Agreement. During the third quarter of fiscal year 2020, the maximum secured net leverage ratio allowed in our covenants is 3:25 to 1.00. The covenant calculation provides for a number of allowable adjustments to EBITDA, including synergy cost savings and integration costs. As of December 31, 2019, our secured net leverage ratio was 2.72 to 1.00. See Note 9, Debt, in the accompanying notes to the condensed consolidated financial statements.

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

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

From time to time, our Board of Directors ("Board") authorizes programs under which we may repurchase shares of our common stock in the open market or through privately negotiated transactions, including accelerated stock repurchase agreements. On November 28, 2018, the Board approved a 1 million share repurchase program expanding our capacity to repurchase shares to approximately 1.7 million shares. During the first three quarters of Fiscal Year 2020, we did not repurchase any shares of our common stock. As of December 31, 2019, there remained 1,369,014 shares authorized for repurchase under the existing stock repurchase program. See Note 12, Common Stock Repurchases, in the accompanying notes to the condensed consolidated financial statements.


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Table of Contents

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

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

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

On February 4, 2020, we announced that the Audit Committee of our Board declared a cash dividend of $0.15 per share, payable on March 10, 2020 to stockholders of record at the close of business on February 20, 2020

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

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

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

A substantial portion of the raw materials, components, and subassemblies used in our products are provided by our suppliers on a consignment basis. These consigned inventories are not recorded on our consolidated balance sheet until we take title to the raw materials, components, and subassemblies, which occurs when they are consumed in the production process. Prior to consumption in the production process, our suppliers bear the risk of loss and retain title to the consigned inventory. The terms of the agreements allow us to return parts in excess of maximum order quantities to the suppliers at the supplier’s expense. Returns for other reasons are negotiated with the suppliers on a case-by-case basis and to date have been immaterial. If our suppliers were to discontinue financing consigned inventory, it would require us to make cash outlays and we could incur expenses which, if material, could negatively affect our business and financial results. As of December 31, 2019, and March 31, 2019, we had off-balance sheet consigned inventories of $40.1 million and $47.1 million, respectively.

Unconditional Purchase Obligations

We use several contract manufacturers to manufacture raw materials, components, and subassemblies for our products. We provide these contract manufacturers with demand information that typically covers periods up to 13 weeks, and they use this information to acquire components and build products. We also obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of December 31, 2019, we had outstanding off-balance sheet third-party manufacturing, component purchase, and other general and administrative commitments of $308.5 million, including the off-balance sheet consigned inventories of $40.1 million discussed above, which we expect to consume in the normal course of business.

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


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Table of Contents

CRITICAL ACCOUNTING ESTIMATES

For a complete description of what we believe to be the critical accounting estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the SEC on May 17, 2019. There have been no changes to our critical accounting estimates during the nine months ended December 31, 2019.

Recent Accounting Pronouncements

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

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Table of Contents

Financial Statements (Unaudited)
PLANTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
December 31,
2019
 
March 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
156,821

 
$
202,509

Short-term investments
15,317

 
13,332

Accounts receivable, net
246,318

 
337,671

Inventory, net
215,038

 
177,146

Other current assets
54,533

 
50,488

Total current assets
688,027

 
781,146

Property, plant, and equipment, net
177,482

 
204,826

Goodwill
1,279,897

 
1,278,380

Purchased intangibles, net
688,258

 
825,675

Deferred tax assets
34,647

 
5,567

Other assets
62,556

 
20,941

Total assets
$
2,930,867

 
$
3,116,535

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
122,314

 
$
129,514

Accrued liabilities
363,394

 
398,715

Total current liabilities
485,708

 
528,229

Long term debt, net of issuance costs
1,620,354

 
1,640,801

Long-term income taxes payable
98,386

 
83,121

Other long-term liabilities
138,342

 
142,697

Total liabilities
2,342,790

 
2,394,848

Commitments and contingencies (Note 8)


 


Stockholders' equity:
 

 
 

Common stock
891

 
884

Additional paid-in capital
1,479,880

 
1,431,607

Accumulated other comprehensive loss
(5,425
)
 
(475
)
Retained earnings
(23,926
)
 
143,344

Total stockholders' equity before treasury stock
1,451,420

 
1,575,360

Less:  Treasury stock, at cost
(863,343
)
 
(853,673
)
Total stockholders' equity
588,077

 
721,687

Total liabilities and stockholders' equity
$
2,930,867

 
$
3,116,535


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

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Table of Contents

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

 
Three Months Ended December 31,
 
Nine Months Ended
December 31,
 
2019
 
2018
 
2019
 
2018
Net revenues
 
 
 
 
 
 
 
Net product revenues
$
316,633

 
$
445,441

 
$
1,094,515

 
$
1,102,012

Net service revenues
67,838

 
56,228

 
199,432

 
104,035

Total net revenues
384,471

 
501,669

 
1,293,947

 
1,206,047

Cost of revenues
 
 
 
 
 
 
 
Cost of product revenues
220,469

 
259,673

 
658,408

 
676,616

Cost of service revenues
20,156

 
26,859

 
72,976

 
51,822

Total cost of revenues
240,625

 
286,532

 
731,384

 
728,438

Gross profit
143,846

 
215,137

 
562,563

 
477,609

Operating expenses:
 
 
 
 
 
 
 
Research, development, and engineering
53,769

 
59,661

 
170,708

 
140,409

Selling, general, and administrative
144,978

 
168,053

 
457,004

 
406,553

Gain, net from litigation settlements

 

 
(1,162
)
 
(30
)
Restructuring and other related charges
21,724

 
12,130

 
47,096

 
20,711

Total operating expenses
220,471

 
239,844

 
673,646

 
567,643

Operating loss
(76,625
)
 
(24,707
)
 
(111,083
)
 
(90,034
)
Interest expense
(22,533
)
 
(25,032
)
 
(70,262
)
 
(56,252
)
Other non-operating income, net
967

 
125

 
675

 
3,731

Loss before income taxes
(98,191
)
 
(49,614
)
 
(180,670
)
 
(142,555
)
Income tax benefit
(19,708
)
 
(7,880
)
 
(31,406
)
 
(28,584
)
Net loss
$
(78,483
)
 
$
(41,734
)
 
$
(149,264
)
 
$
(113,971
)
 
 
 
 
 
 
 
 
Loss per common share:
 
 
 
 
 
 
 
Basic
$
(1.97
)
 
$
(1.06
)
 
$
(3.78
)
 
$
(3.08
)
Diluted
$
(1.97
)
 
$
(1.06
)
 
$
(3.78
)
 
$
(3.08
)
 
 
 
 
 
 
 
 
Shares used in computing loss per common share:
 
 
 
 
 
 
 
Basic
39,784

 
39,314

 
39,535

 
37,063

Diluted
39,784

 
39,314

 
39,535

 
37,063

 
 
 
 
 
 
 
 

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





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Table of Contents

PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
 
Three Months Ended December 31,
 
Nine Months Ended
December 31,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(78,483
)
 
$
(41,734
)
 
$
(149,264
)
 
$
(113,971
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments

 
115

 
(219
)
 
(1,700
)
Unrealized gains (losses) on cash flow hedges:
 
 
 
 
 
 
 
Unrealized cash flow hedge gains (losses) arising during the period
(1,420
)
 
(5,622
)
 
(5,755
)
 
(853
)
Net (gains) losses reclassified into income for revenue hedges
(225
)
 
(1,488
)
 
(3,152
)
 
(2,637
)
Net (gains) losses reclassified into income for cost of revenue hedges
(46
)
 
6

 
(212
)
 
(73
)
Net (gains) losses reclassified into income for interest rate swaps
1,565

 
1,029

 
3,162

 
2,006

Net unrealized gains (losses) on cash flow hedges
(126
)
 
(6,075
)
 
(5,957
)
 
(1,557
)
Unrealized gains (losses) on investments:
 
 
 
 
 
 
 
Unrealized holding gains (losses) during the period

 

 

 
198

 
 
 
 
 
 
 
 
Aggregate income tax benefit of the above items
81

 
1,324

 
1,228

 
1,222

Other comprehensive loss
(45
)
 
(4,636
)
 
(4,948
)
 
(1,837
)
Comprehensive loss
$
(78,528
)
 
$
(46,370
)
 
$
(154,212
)
 
$
(115,808
)

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





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Table of Contents

PLANTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Nine Months Ended
 
December 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(149,264
)
 
$
(113,971
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
172,630

 
142,763

Amortization of debt issuance costs
4,062

 
3,188

Stock-based compensation
41,499

 
30,709

Deferred income taxes
(66,171
)
 
(39,987
)
Provision for excess and obsolete inventories
19,076

 
4,881

Restructuring and related charges
47,096

 
20,711

Cash payments for restructuring charges
(29,885
)
 
(11,222
)
Other operating activities
3,201

 
9,070

Changes in assets and liabilities, net of acquisition:
 
 
 

Accounts receivable, net
34,634

 
(35,938
)
Inventory, net
(49,320
)
 
11,018

Current and other assets
24,142

 
30,456

Accounts payable
(10,690
)
 
16,519

Accrued liabilities
(46,906
)
 
72,677

Income taxes
22,251

 
(21,631
)
Cash provided by operating activities
16,355

 
119,243

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 

Proceeds from sales of investments
177

 
125,799

Proceeds from maturities of investments

 
131,017

Purchase of investments
(972
)
 
(698
)
Cash paid for acquisition, net of cash acquired

 
(1,642,241
)
Capital expenditures
(16,984
)
 
(16,148
)
Proceeds from sale of property and equipment
2,142

 

Cash used for investing activities
(15,637
)
 
(1,402,271
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 

Repurchase of common stock

 
(4,780
)
Employees' tax withheld and paid for restricted stock and restricted stock units
(9,669
)
 
(13,863
)
Proceeds from issuances under stock-based compensation plans
6,617

 
14,925

Proceeds from debt issuance, net

 
1,244,713

Payment of cash dividends
(17,910
)
 
(16,953
)
Repayments of long-term debt
(25,000
)
 

Cash (used for) by financing activities
(45,962
)
 
1,224,042

Effect of exchange rate changes on cash and cash equivalents
(444
)
 
(3,519
)
Net decrease in cash and cash equivalents
(45,688
)
 
(62,505
)
Cash and cash equivalents at beginning of period
202,509

 
390,661

Cash and cash equivalents at end of period
$
156,821

 
$
328,156

SUPPLEMENTAL DISCLOSURES
 
 
 
Cash paid for income taxes
$
9,853

 
$
30,902

Cash paid for interest
$
68,039

 
$
54,386


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

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Table of Contents


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

 
Three Months Ended December 31, 2019
 
Common Stock
 
Additional Paid-In
 
Accumulated Other Comprehensive
 
Retained
 
Treasury
 
Total Stockholders'
 
Shares
 
Amount
 
Capital
 
Loss
 
Earnings
 
Stock
 
Equity
Balances at September 30, 2019
39,917

 
$
890

 
$
1,465,978

 
$
(5,351
)
 
$
60,545

 
$
(862,955
)
 
$
659,107

Net loss

 

 

 

 
(78,483
)
 

 
(78,483
)
Net unrealized gains (losses) on cash flow hedges, net of tax

 

 

 
(74
)
 

 

 
(74
)
Proceeds from issuances under stock-based compensation plans
28

 
1

 

 

 

 

 
1

Repurchase of restricted common stock
(3
)
 

 

 

 

 

 

Cash dividends

 

 

 

 
(5,988
)
 

 
(5,988
)
Stock-based compensation

 

 
13,902

 

 

 

 
13,902

Employees' tax withheld and paid for restricted stock and restricted stock units
(13
)
 

 

 

 

 
(388
)
 
(388
)
Balances at December 31, 2019
39,929

 
$
891

 
$
1,479,880

 
$
(5,425
)
 
$
(23,926
)
 
$
(863,343
)
 
$
588,077

 
Three Months Ended December 31, 2018
 
Common Stock
 
Additional Paid-In
 
Accumulated Other Comprehensive
 
Retained
 
Treasury
 
Total Stockholders'
 
Shares
 
Amount
 
Capital
 
Income
 
Earnings
 
Stock
 
Equity
Balances at September 30, 2018
39,807

 
$
884

 
$
1,404,713

 
$
5,668

 
$
218,564

 
$
(839,769
)
 
$
790,060

Net loss

 

 

 

 
(41,734
)
 

 
(41,734
)
Foreign currency translation adjustments

 

 

 
113

 

 

 
113

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

 

 

 
(4,750
)
 

 

 
(4,750
)
Proceeds from issuances under stock-based compensation plans
17

 

 
52

 

 

 

 
52

Repurchase of restricted common stock
(8
)
 

 

 

 

 

 

Cash dividends

 

 

 

 
(5,969
)
 

 
(5,969
)
Stock-based compensation

 

 
11,718

 

 

 

 
11,718

Repurchase of common stock
(128
)
 

 

 

 

 
(4,780
)
 
(4,780
)
Employees' tax withheld and paid for restricted stock and restricted stock units
(11
)
 

 

 

 

 
(522
)
 
(522
)
Deferred tax adjustment

 

 
30

 

 

 

 
30

Balances at December 31, 2018
39,677

 
$
884

 
$
1,416,513

 
$
1,031

 
$
170,861

 
$
(845,071
)
 
$
744,218




23

Table of Contents

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

 
$
884

 
$
1,431,607

 
$
(475
)
 
$
143,344

 
$
(853,673
)
 
$
721,687

Net loss

 

 

 

 
(149,264
)
 

 
(149,264
)
Foreign currency translation adjustments

 

 

 
(219
)
 

 

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

 

 

 
(4,731
)
 

 

 
(4,731
)
Proceeds from issuances under stock-based compensation plans
400

 
5

 
751

 

 

 

 
756

Repurchase of restricted common stock
(32
)
 

 

 

 

 

 

Cash dividends

 

 

 

 
(17,910
)
 

 
(17,910
)
Stock-based compensation

 

 
41,499

 

 

 

 
41,499

Employees' tax withheld and paid for restricted stock and restricted stock units
(225
)
 

 

 

 

 
(9,670
)
 
(9,670
)
Proceeds from ESPP
268

 
2

 
6,023

 

 

 

 
6,025

Impact of new accounting standards adoption

 

 

 

 
(89
)