Plantronics 2015 Annual Report Download - page 22

Adverse or uncertain economic conditions may materially adversely affect us.
Our operations and financial performance are dependent on the global economy. Uncertainty regarding future economic conditions
makes it challenging to forecast operating results, make business decisions, and identify risks that may affect our business, sources
and uses of cash, financial condition, and results of operations. Economic concerns, such as uncertain or inconsistent global or
regional economic growth, stagnation or contraction, including the pace of economic growth in the United States in comparison
to other geographic and economic regions, pressure on economic growth in Europe, uncertain growth prospects in the Asia Pacific
region, as well as anxiety regarding geopolitical conflicts and their short and long-term economic impact, increase the uncertainty
and unpredictability for our business as consumers and businesses postpone or forego spending. A global economic downturn or
continued erratic or declining business or governmental spending or hiring may reduce sales of our products, increase sales cycles,
slow adoption of new technologies, increase price competition, and cause customers and suppliers to default on their financial
obligations.
Replacement cycles of our Enterprise products are adversely impacted by lower voluntary employee turnover as new headset
demand is typically created when employees feel confident enough to change employers or transition to new positions. While
domestic voluntary turnover has improved in recent quarters, slow and inconsistent international business hiring has perpetuated
employee reluctance to change jobs, limits opportunities for unemployed workers to reenter the workforce and, consequently,
impedes sales of our headsets.
Austerity measures previously implemented by governments in various countries, including the U.S. and Europe, have curtailed,
and may further reduce, demand for our products by affected governmental agencies and by our customers who derive all or a
portion of their revenues from these agencies. Similarly, to the extent uncertainty regarding public debt limits or budget negotiations,
particularly in the U.S and Europe, hinder spending by retail consumers, businesses or governmental agencies, sales of our products
may decrease or be delayed. We cannot predict the impact that governmental spending reductions or budget or debt negotiations
will have on us or our customers or whether and to what extent our business and results of operations may be adversely harmed.
Additionally, our customers suffer from their own financial and economic challenges. If global or regional economic conditions
deteriorate, one or more customers may demand pricing accommodations, delay payments or become insolvent. It is impossible
to reliably determine if and to what extent customers may suffer, whether we will be required to adjust our prices or face collection
issues with customers or if customer bankruptcies will occur.
We are exposed to fluctuations in foreign currency exchange rates, which may adversely affect our revenues, gross profit, and
profitability.
Fluctuations in foreign currency exchange rates impact our revenues and profitability because we report our financial statements
in USD, whereas a significant portion of our sales are transacted in other currencies, particularly the Euro and the British Pound
Sterling ("GBP"). Furthermore, fluctuations in foreign currency rates impact our global pricing strategy, resulting in our lowering
or raising selling prices in one or more currencies in order to avoid disparity with USD prices and to respond to currency-driven
competitive pricing actions. For example, the strengthening of the USD against numerous worldwide currencies that accelerated
in the final months of the third quarter of fiscal year 2015 and throughout the fourth fiscal quarter has negatively impacted our
sales, pricing, margins, market share and operations overall. Should the dollar remain strong against foreign currencies, principally
the Euro and the GBP, we may be compelled to raise prices for our customers in the affected regions. Price increases may be
unacceptable to our customers who could seek to replace our products with lesser priced alternatives in which case our sales and
market share may be adversely impacted. Otherwise, if we reduce prices to stay competitive in the affected regions our profitability
may be harmed. We experienced $5.4 million in net foreign currency losses in fiscal year 2015.
Large or frequent fluctuations in foreign currency rates, coupled with the ease of identifying global price differences for our
products via the Internet, increases pricing pressure as well as the likelihood of unauthorized third party “grey market” sales in
varying countries taking advantage of price disparities, thereby undermining our established sales channels and operations. We
also have significant manufacturing operations in Mexico and fluctuations in the Mexican Peso exchange rate can impact our
gross profit and profitability. Additionally, the majority of our suppliers are located internationally, principally in Asia. Accordingly,
volatile or sustained increases or decreases in exchange rates of Asian currencies may result in increased costs or reductions in
the number of suppliers qualified to meet our standards.
Although we hedge currency exchange rates exposures we deem material, changes in exchange rates may nonetheless still have
a negative impact on our financial results. Among the factors that may affect currency values are trade balances, the level of short-
term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment
and capital appreciation, decisions and actions of central banks and political developments.
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