Plantronics 1998 Annual Report Download - page 26

P.18
ANNUAL REPORT . 199 8
PLANTRONICS
Management’s DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
is exposed to certain foreign currency fluctuations. Historically, that risk has been primarily evident in Europe and
Mexico. The source of currency risk in Europe is due to receivables denominated in local currency. This has been
largely offset by payables denominated in local currency. This natural hedging approach has substantially limited the
Company’s net exposure to the effect of currency fluctuations and management believes additional hedging has not
been merited. This strategy will require review and the Company may experience greater exposure to currency fluctuations
as a result of its increasing international activities. In the fourth quarter of fiscal 1996, the Company formed
Plantronics B.V., a wholly-owned subsidiary incorporated in the Netherlands. Administrative functions, particularly
with respect to the Company’s international sales, were transferred to Plantronics B.V. The Company now incurs
local expenses in its Plantronics B.V. subsidiary in Dutch guilders and a smaller proportion of expenses in pound sterling,
while recording no revenue in Dutch guilders.
The Company’s peso transaction exposure at its manufacturing subsidiary in Tijuana, Mexico is limited mostly to
payroll. The favorable effects to the Company on the devaluation of the peso in the years reported was somewhat
offset by local currency pay raises to its employees in Mexico. Because of these factors, management does not believe
the devaluation has had a material effect on the Company.
In fiscal 1998, the impact of foreign currency on operations was an unfavorable ($0.2) million compared to a favorable
$0.4 in fiscal 1997.
INCOME TAX EXPENSE In fiscal 1996, fiscal 1997 and fiscal 1998 income tax expense was $16.3 million, $15.3 million
and $18.4 million, respectively, representing an effective tax rate of 39%, 34% and 32% respectively. The overall
company-wide effective tax rate has been falling due to the faster relative increase of income in countries with tax
rates lower than the United States.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996 and 1997, liquidity was provided by $26.9 million and $34.6 million, respectively, from operating activities.
The Company’s principal source of liquidity in fiscal 1998 was $39.2 million of cash generated from operating activities.
Cash and cash equivalents increased from $42.3 million at March 31, 1997 to $64.9 million at March 31, 1998.
The Company has a $20.0 million credit facility, including a $10.0 million letter of credit subfacility, with a major
bank. In the quarter ended March 31, 1997, the Company renegotiated the terms of its credit facility so that borrowings
are no longer secured and ongoing fees and costs are substantially reduced. As of March 31, 1997, the Company had no
cash borrowings under the revolving credit facility and had $2.3 million outstanding under the letter of credit subfacility.
OPERATING ACTIVITIES In fiscal 1998, the $39.2 million in net cash generated from operating activities primarily
resulted from $39.2 in net income.
INVESTING ACTIVITIES Capital expenditures were $3.9 million in fiscal 1996, $8.2 million in fiscal 1997 and $5.9 million
in fiscal 1998. The decrease in fiscal 1998 from fiscal 1997 was caused by the completion of a significant upgrade to
the Company’s business information systems which occurred primarily in fiscal 1997 and was completed in the first
quarter of fiscal 1998.
FINANCING ACTIVITIES During fiscal 1996, financing activities consisted of receipt of $0.8 million in stock option exercise
proceeds. During fiscal 1997, the Company repurchased 701,226 shares of its Common Stock for $12.9 million and
realized $1.8 million in proceeds from the exercise of stock options and $0.1 million from the sale of 5,084 shares of
Treasury Stock. In fiscal 1998, the Company repurchased 317,600 shares of its Common Stock for $13.2 million,
received $1.2 million in proceeds from the exercise of stock options and realized $1.3 million from the sale of 51,072
shares of Treasury Stock. For fiscal 1996, 1997 and 1998, aggregate interest expense (including current interest payable
in cash, deferred interest payable in cash and amortization of debt issuance costs) was $7.1 million, $7.1 million and
$7.0 million, respectively.