Plantronics 1998 Annual Report Download - page 25

Management’s DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. These statements include the statement relating to
the ability to make required interest payments in the first sentence in the last paragraph under “Financing Activities”
and the statements below under “Factors Affecting Future Operating Results.” In addition, the Company may from
time to time make oral forward-looking statements. These forward-looking statements are based on current expectations
and entail various risks and uncertainties. The Company’s 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 “Factors
Affecting Future Operating Results.” The following discussions titled “Annual Results of Operations” and “Liquidity
and Capital Resources” should be read in conjunction with the condensed consolidated financial statements and related
notes included elsewhere herein, the Company’s annual report on Form 10-K, as well as the section below entitled
“Factors Affecting Future Operating Results.”
ANNUAL RESULTS OF OPERATIONS
NET SALES Net sales in fiscal 1997 increased 6.7% to $195.3 million from $183.0 million earned in fiscal 1996 and
increased an additional 20.9% to $236.1 million in fiscal 1998. Revenue grew consistently both domestically, and
internationally. Domestic sales increased 20.7% from 1997 to 1998 while international sales increased 21.4% in the
same period. Growth came across all the Company’s market segments and is attributed to growth in the distribution chan-
nels, substantial growth in small and large call centers, increased acceptance of headsets into the small office/home office
market segments and new products. Domestic US sales were lead by a 50% increase in sales through retail channels,
principally due to increased penetration of headsets into the office and home office market segments.
The Company’s net sales to customers outside the United States, predominately in Europe, were $49.0, $59.6 and
$72.4 million in fiscal 1996, 1997 and 1998, respectively, and accounted for 26.8%, 30.5% and 30.7%, respectively,
of net sales in those periods. International sales grew more strongly in Europe, with sales increasing 24.6% year over
year. Sales to customers in Asia, the Pacific Rim and South America grew by 8.5%, reflecting, in part, the impact of
the Asian economic slowdown.
GROSS PROFIT The Company’s gross profit increased 9.0% from $96.1 million earned in fiscal 1996 to $104.7 million in
fiscal 1997 and increased an additional 21.9% to $127.6 million in fiscal 1998. Gross profit as a percent of net
sales was 52.5% in fiscal 1996, 53.6% in fiscal 1997 and 54.0% in fiscal 1998. The $31.5 million improvement in
gross profit over the three year period primarily reflects the impact of additional revenues with the balance coming
from improved manufacturing efficiencies and the impact of material and logistics cost reduction programs.
OPERATING EXPENSES Operating expenses for the Company were $48.6 million or 26.5% of net sales in fiscal 1996,
$54.4 million or 27.9% in fiscal 1997 and $65.2 million or 27.6% of net sales in fiscal 1998. Research and development
increased by approximately $3 million in fiscal 1998 compared to fiscal 1997 due to the growth of the engineering develop-
ment team in Europe and costs associated with new product development teams. Selling, general and administrative
expenses increased by $7.8 million as compared to fiscal 1997 due principally to costs associated with higher sales volume
worldwide, increases in market research and planned increases in general and administrative costs, including the Company’s
investment in a new business information system that was implemented in the first quarter of fiscal 1998.
INTEREST EXPENSE Interest expense was $7.1 million in fiscal 1996, $7.1 million in fiscal 1997 and $7.0 million in
fiscal 1998. Included in interest expense in fiscal 1996, fiscal 1997 and fiscal 1998 was $0.5 million, $0.5 million and
$0.4 million, respectively, in non-cash deferred debt issuance costs related to the Senior Notes and revolving credit
facility. Unamortized deferred debt costs related to the revolving credit facility and Senior Notes at March 31, 1998
were $1.0 million, which are being amortized over the remaining terms of the debt.
FOREIGN CURRENCY The Company’s cash holdings are substantially US dollar denominated. However, the Company
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PLANTRONICS
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