The accompanying unaudited condensed consolidated financial statements of Plantronics, Inc. ("(“Plantronics”, "the Company"”the Company”, "we"“we”, or "our"“our”) and its wholly owned subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"(“SEC”). All inter-company balances and transactions have been eliminated.

Plantronics has prepared these financial statements in conformity with generally accepted accounting principles in the United States of America, consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended April 2, 2005.1, 2006, except for the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), discussed in Note 3, “Stock-based Compensation”. The interim financial information is unaudited, but reflects all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim financial statements should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended April 2, 2005.1, 2006. Interim results are not necessarily indicative of the results to be expected for the full year, and no representation is made thereto.

WeCertain financial statement reclassifications have been made to prior period amounts to conform to the current period presentation. These changes had no impact on stockholders' equity, previously reported net income, or the net change in cash and cash equivalents.

The Company has two reportable segments as a result of ourthe Company’s acquisition of Altec Lansing Technologies, Inc. (”Altec Lansing”) in the second quarter of fiscal 2006. The Audio Communications Group (“ACG”) represents the original Plantronics business as operated prior to the acquisition, excluding certain research, development and engineering activities, which relate to the audio entertainment business and have been included within the Audio Entertainment Group.acquisition. The Audio Entertainment Group represents(“AEG”) includes the Altec Lansing business, and certain research, development, and engineering expenses. The results from the acquisition date of August 18, 2005 to December 31, 2005 are included in the Audio Entertainment Group segment, except for the certain research, development and engineering activities for which an entire nine months of expenses are included. Furthermore, no comparable periods are provided for the Audio Entertainment Group (See Note 16.)business.

Plantronics’The Company’s fiscal year ends on the Saturday closest to March 31. The current fiscal year ends on April 1, 2006March 31, 2007 and our prior fiscal year ended on April 2, 2005.1, 2006. The Company’s current and prior fiscal years consist of 52 weeks. The thirdfirst quarter end of fiscal 20062007 was on December 31, 2005,July 1, 2006, and the corresponding quarter end forin fiscal 20052006 was on January 1,July 2, 2005. Both the current and corresponding fiscal quarter a year ago consist of 13 weeks.

For purposes of presentation, we have indicated our accounting year as ending on March 31 and our interim quarterly periods as ending on the applicable month end.

In May 2005,July 2006, the Financial Accounting Standards Board (the "FASB"(“FASB”) issued Statement of Financial Accounting Standards ("SFAS")FASB Interpretation No. 154, "Accounting Changes48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in tax positions. This interpretation prescribes a recognition threshold and Error Corrections -measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a replacement of APB No. 20 and SFAS No. 3 ("SFAS 154"). SFAS 154tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for and reportinguncertain tax positions. The provisions of accounting changes and error corrections. It establishes retrospective applicationFIN 48 are effective as of the required method for reporting a change in accounting principle. SFAS 154 provides guidance for determining whether retrospective applicationbeginning of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reportingour 2008 fiscal year. We are currently evaluating the impact of a correction of an error by restating previously issuedadopting FIN 48 on our financial statements is also addressed by SFAS 154. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt this pronouncement beginning in fiscal year 2007. The Company’s results of operations and financial condition will only be impacted following the adoption of SFAS 154 if it implements changes in accounting principles that are addressed by the standard or corrects accounting errors in future periods.statements.      

In December 2004,Effective April 2, 2006, the FASB issuedfirst day of fiscal year 2007, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on estimated fair values. SFAS 123(R) replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation”, and supersedes the Company’s previous accounting under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under the intrinsic value method, with the exception of the Company’s restricted stock awards, the Company generally recorded no stock-based compensation expense associated with its stock option and ESPP awards.

Prior to the adoption of SFAS No. 123R "Share Based Payment," ("123(R), the Company used the intrinsic value method as prescribed in APB 25, to account for all stock-based employee compensation plans and had adopted the disclosure-only alternative of SFAS 123R"123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.”

The Company estimates the fair value of stock options and ESPP shares using a Black-Scholes option valuation model, consistent with the provisions of SFAS 123(R), SEC Staff Accounting Bulletin No. 107 (“SAB 107”) whichand the Company’s prior period pro forma disclosures of net income under SFAS 123. The fair value of each option grant is requiredestimated on the date of grant using the straight-line attribution approach with the following assumptions:

Compensation expense recognized for stock options usingduring the three months ended June 30, 2006 was $3.8 million. As of June 30, 2006, total unrecognized compensation cost related to unvested stock options was $25.4 million which is expected to be recognized over a weighted average period of 2.5 years.

As of June 30, 2006, total unrecognized compensation cost related to non-vested restricted stock awards was $7.0 million, which is expected to be recognized over a weighted average period of 4.2 years. The total fair value method. On March 29, 2005,of restricted stock awards vested during the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107"), which providesthree months ended June 30, 2006 was $0.3 million.

Under the Staff's views regarding interactions between SFAS 123R and certain SEC rules and regulations and provides interpretationsEmployee Stock Purchase Plan, eligible employees may contribute a portion of their compensation to purchase shares of the valuation of share-based payments for public companies. We are in the process of assessing the impactCompany’s common stock at a purchase price per share equal to 85% of the adoption of SFAS 123R and SAB 107 and expect the impactlesser of the adoptionfair market value of SFAS 123RPlantronics’ common stock on the first or last day of each six month offering period.  At June 30, 2006, there were 171,000 shares reserved for future issuance under the ESPP.

Compensation expense recognized for the ESPP for the three months ended June 30, 2006 was $0.2 million. As of June 30, 2006, there was $0.1 million of unrecognized compensation cost related to result in higher compensation expense. The effectthe ESPP that is expected to be fully recognized during the next fiscal quarter.

Changes in our warranty obligation, which are included as a component of accrued liabilities on the American Jobs Creation Act of 2004" ("FSP No. 109-2"). This staff position provides guidance on how companies should account for the effectscondensed consolidated balance sheets, are as follows:

At March 31, 2006 all of the American Jobs Creation Act of 2004 ("AJCA") that was signed into law on October 22, 2004. AtCompany’s short-term investments were classified as available-for-sale and were carried at fair value based upon quoted market prices at the end of the third quarter, management determined that no cash would be repatriated from off-shore subsidiaries under the provisions in the American Jobs Creation Act of 2004.reporting period.

On August 18,April 4, 2005, wePlantronics completed the acquisition of 100% of the outstanding shares of Altec Lansing Technologies,Octiv, Inc., (“Octiv”), a privately-held Pennsylvania corporation ("Altec Lansing"privately held company, for up to $7.8 million in cash pursuant to the terms of an Agreement and Plan of Merger dated March 28, 2005. Octiv’s name was changed to Volume Logic™, Inc. (“Volume Logic”) for a cash purchase price including acquisition costs of approximately $165.2 million, of which $45.0 million was paid by drawing on our credit facility.and merged into the Company subsequent to the acquisition.

Altec Lansing isOctiv was founded in 1999 by a leading consumer electronics company that designs, manufacturesgroup of audio professionals who developed a core audio technology to solve the problem of inconsistent volume levels and distributes a wide rangesound quality common to many forms of poweredaudio delivery. A variety of markets currently use Octiv’s Volume Logic technology, including home entertainment, digital music libraries, professional broadcast and portable multimedia speakers, headphones and headsets. These advancedthe hearing impaired. The Octiv acquisition provides core technology to improve audio solutions are used by the consumer for a broad range of applications including personal computer, audio, gaming, personal audio, home theater and professional sound systems. Altec sells its products through major electronic and mass retailers around the world and directly to certain PC original equipment manufacturers ("OEM"). Altec Lansing, headquartered in Milford, PA, has a manufacturing plant in Dongguan, China, and sales officesintelligibility in the U.S., Europe, and Asia. Altec Lansing has approximately 1,300 employees.Company’s products.

The results of operations of Altec LansingVolume Logic have been included in ourPlantronics’ consolidated results of operations subsequentsince April 4, 2005. Pro forma results of operations have not been presented because the effect of the acquisition was not material to the acquisition on August 18, 2005.results of prior periods presented.

During the third quarter of fiscal 2006, we made certain adjustments to estimated acquisition costs. The accompanying condensed consolidated financial statements reflect the updated purchase price of $165.1$7.8 million, consisting of cash, and other costs directly related to the acquisition as follows:

The fair values of the intangible assets acquired were estimated with the assistance of an independent valuation.valuation firm. The following table presents an allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Goodwill was recorded based on the residual purchase price after allocating the purchase price to the fair market value of tangible and intangible assets acquired less liabilities assumed. Goodwill arises as a result of, among other factors, future unidentified new products, new technologies and new customers as well as the implicit value of future cost savings as a result of the combining of entities. In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), goodwill will not be amortized but will be tested at least annually for impairment at the reporting unit level. The goodwill arising from this acquisition is not deductible for tax purposes under Internal Revenue Code Section 197.

The fair value and remainingestimated useful lives of identifiable intangible assets acquired were estimated with the assistance of an independent appraiser and in accordance with SFAS No. 141 "Business Combinations, SFAS No. 142, and FASB Interpretation No. 4: Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method.

Existing technology represents audio products that had been introduced into the market, were generating revenue and/or had reached technological feasibility as of the close of the transaction. The value was calculated based on the present value of the future estimated cash flows derived from this technology applying a 10% discount rate. Existing technology is estimated to have a useful life of six years and is being amortized on a straight-line basis to cost of revenues.

The fair value of customer relationships with OEMs and non-OEMs, which includes major retailers and distributors, was calculated based on the present value of the future estimated cash flows that can be attributed to the existing OEM and non-OEM customer relationships applying a 19% discount rate. Based on historical attrition rates and technological obsolescence, the useful life of the customer relationships was estimated to be seven years for OEM customer relationships and eight years for non-OEM customer relationships and is being amortized on a straight-line basis to selling, general and administrative expense.

The value of the trade name "inMotion,"“inMotion,” was calculated based on the present value of the capitalized royalties saved on the use of the inMotion trade name applying a 12% discount rate. The inMotion trade name is relatively new and relates to specific niches of the Portable Audioportable audio market. Based on product life cycles, history relating to the category of products for which the inMotion brand is utilized, and similar product trademarks within the retail industry, the estimated remaining useful life was determined to be eight years and is being amortized on a straight-line basis to selling, general, and administrative expense.

The value of the trade name, "Altec“Altec Lansing,"” was also calculated based on the present value of the capitalized royalties saved on the use of the Altec Lansing trade name applying a 12% discount rate. Considering the recognition of the brand, its long history, and management’s intent to use the brand indefinitely, the remaining useful life of the Altec Lansing name was determined to be indefinite and is being treated as an indefinite-lived asset in accordance with SFAS 142.

In-process technology involves products which fall under the definitions of research and development as defined by SFAS No. 2, Accounting“Accounting for Research and Development Costs.” Altec Lansing’s in-process technology products arewere at a stage of development that requirerequired further research and development to reach technological feasibility and commercial viability. The fair value was calculated based on the present value of the future estimated cash flows applying a 15% discount rate, and adjusted for the estimated cost to complete and the risk of not achieving technological feasibility.complete. Because the in-process technology, which has been valued at $0.9 million, was not yet complete, there was risk that the developments would not be completed; therefore, this amount was immediately expensed at acquisition to research, development and engineering expense.

The unaudited pro forma information set forth below representschanges in the revenues, net income and earnings per sharecarrying value of goodwill during the three months ended June 30, 2006 by segment were as follows:

During the three months ended June 30, 2006, the Company including Altec Lansing as if the acquisition were effective as of the beginning of the periods presented and includes certain pro forma adjustments, including the adjustment of amortization expense to reflect purchase price allocations, interest income to reflect net cash used for the purchase, and the related income tax effects of these adjustments. We have excluded non-recurring items relating to the amortization of the capitalized manufacturing profit and the immediate write-off of the in-process technology asset. The acquisition is included in the Company’s financial statements from the date of acquisition.

The functional currency of our manufacturing operations and design center in Tijuana, Mexico, our foreign research and development facilities, and our foreign sales and marketing offices, except for our Netherlands entity, is the local currency of the respective operations. For these foreign operations, we translateaggregate amortization expense relating to intangible assets and liabilities into U.S. dollars using period-end exchange rates in effect as of the balance sheet date and translate revenues and expenses using average monthly exchange rates. The resulting cumulative translation adjustments are included in accumulated other comprehensive income as a separate component of stockholders' equity in the condensed consolidated balance sheets.

The following table sets forth the assumptions used in determining the estimated fair valuefuture amortization expense of stock based awards and the resulting estimated fair valuepurchased intangible assets as of the awards:June 30, 2006 is as follows (in thousands):

DuringPlantronics has a $100 million revolving line of credit and a letter of credit sub-facility. Borrowings under the three months ended December 31, 2005, Plantronics issued restricted stock awards representing an aggregateline of 284,050 shares, for which the exercise price payable is $0.01 per share.  Compensation cost for restricted stock awards is recognized in an amount equal to the fair value of the awardcredit are unsecured and bear interest at the dateLondon inter-bank offered rate (“LIBOR”) plus 0.75%. The line of grant, which totaled $7.7 million.  Such expense is recordedcredit expires on a straight-line basis over the vesting period of the award, unless forfeited in the event of termination of employment, with the offsetting entry to additional paid-in capital.  Compensation expense relating to these restricted stock awards was $0.4 million and $0.7 million for the three and nine months ended December 31, 2005, respectively, and $0.1 million for both the three and nine months ended December 31, 2004.August 1, 2010.

Our Board of Directors declared a $0.05 per share cash dividend on November 1, 2005,May 2, 2006, which was paid in the aggregate amount of $2.4 million on DecemberJune 9, 2005. On January 24, 2006, we announced that our Board of Directors had declared a quarterly cash dividend of $0.05 per share of our common stock, payable on March 10, 2006 to shareholders of record on February 10, 2006.

The actual declaration of future dividends, and the establishment of record and payment dates, is subject to final determination by the Audit Committee of the Board of Directors of Plantronics each quarter after its review of our financial performance.