Plantronics 1999 Annual Report Download - page 28

Research, Development and Engineering Research, development and engineering expenses in fiscal 1999
increased 11.3% to $19.5 million (6.8% of net sales), compared to $17.5 million (7.4% of net sales) in
fiscal 1998. Research, development and engineering expenses in fiscal 1998 increased 21.0% compared
to $14.5 million (7.4% of net sales) in fiscal 1997. The increase in these expenses reflects continued invest-
ment in new product development and technologies.
Selling, General and Administrative Selling, general and administrative expenses in fiscal 1999 increased 20.6%
to $57.5 million (20.1% of net sales), compared to $47.7 million (20.2% of net sales) in fiscal 1998. Selling,
general and administrative expenses in fiscal 1998 increased 19.5% compared to $39.9 million (20.4% of
net sales) in fiscal 1997. Increases in expenses in fiscal 1999 were primarily from costs associated with the
expansion of sales programs and higher worldwide sales and related variable expenses, such as sales commissions
and employee profit sharing. General and administrative expenses also increased due to the addition of
two senior corporate executive positions.
Operating Income Operating income in fiscal 1999 increased 33.9% to $83.5 million (29.2% of net sales),
compared to $62.4 million (26.4% of net sales) in fiscal 1998. Operating income in fiscal 1998 increased
23.9% compared to $50.3 million (25.8% of net sales) in fiscal 1997. The increase in operating income
over the past two fiscal years was primarily due to: (i) higher net sales, (ii) the increase in gross margin and
(iii) a concerted effort to limit the growth of operating expenses relative to sales growth.
Interest Expense Interest expense in fiscal 1999 decreased 17.2% to $5.8 million, compared to $7.0 million
in fiscal 1998, which in turn decreased 1.7% from $7.1 million in fiscal 1997. Interest expense for all periods
reported principally represents interest payable on our 10% Senior Notes Due 2001 (Senior Notes) which
were redeemed on January 15, 1999.The early redemption of these Senior Notes was the reason for the
decrease in interest expense in fiscal 1999, and we expect interest expense to be minimal in fiscal 2000.
Interest and Other Income Interest and other income in fiscal 1999 increased 57.2% to $3.5 million compared
to $2.2 million in fiscal 1998, which in turn increased 30.3% compared to $1.7 million in fiscal 1997.The
increases were primarily attributable to interest income derived from increases in cash and cash equivalents.
Income Tax Expense In fiscal 1999, fiscal 1998 and fiscal 1997, income tax expense was $26.0 million,
$18.4 million and $15.3 million, respectively, representing effective tax rates of 32% in fiscal 1999 and
fiscal 1998 with a 34% effective tax rate in fiscal 1997. The decrease in the overall rate from fiscal 1997
was due to the faster relative increase in income in countries with tax rates lower than the United States.
FINANCIAL CONDITION
Liquidity As of March 31, 1999, we had working capital of $76.3 million, including $43.0 million of cash
and cash equivalents, compared with working capital of $98.8 million, including $64.9 million of cash
and cash equivalents, as of March 31, 1998. During the fiscal year ended March 31, 1999, we generated
$86.9 million of cash from operating activities, due primarily to $54.2 million in net income, decreases of
$10.9 million in inventory, $6.8 million in accrued liabilities and the income tax benefit associated with the
exercise of options of $21.7 million. In comparison, we generated $39.2 million in cash from operating
activities for the fiscal year ended March 31, 1998, due mainly to $39.2 million in net income and increases
of $6.2 million in accrued liabilities, partially offset by increases of $9.7 million in inventory and $5.0 million
in accounts receivable.
page 26 PLANTRONICS ANNUAL REPORT 1999
Management’s discussion and analysis of
financial condition and results of operations