UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

(Mark One)

ST QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 29, 2007~~June 28, 2008

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 1-12696

Plantronics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	~~Delaware~~		77-0207692
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

345 Encinal Street

Santa Cruz, California 95060

(Address of principal executive offices)

(Zip Code)

(831) 426-5858

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ST No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See definition of “large accelerated filer,” “accelerated ~~filer~~filer” and ~~large accelerated filer”~~“smaller reporting company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer ST

Accelerated filer £

~~Non accelerated~~Non-accelerated filer£

(Do not check if a smaller reporting company)

Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No ST.

As of ~~January~~July 25, 2008, ~~48,852,799~~48,925,009 shares of common stock were outstanding.

~~Plantronic~~Plans,tronics, Inc.

FORM 10-Q

TABLE OF CONTENTS

PART I-I. FINANCIAL INFORMATION	Page No.

Item ~~1.Financial~~1. Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of March 31, ~~2007~~2008 and ~~December 31, 2007~~June 30, 2008	3

Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~December 31, 2006~~June 30, 2007 and ~~2007~~2008	4

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~December 31, 2006~~June 30, 2007 and ~~2007~~2008	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1819

Item 3. Quantitative and Qualitative Disclosures About Market Risk	34

~~Item 4. Controls and Procedures~~	3635

~~PART II- OTHER INFORMATION~~

Item ~~1. Legal Proceedings~~4. Controls and Procedures	37

~~Item 1A. Risk Factors~~ PART II. OTHER INFORMATION	37

Item 1. Legal Proceedings	38

Item 1A. Risk Factors	38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5153

Item 6. Exhibits	5153

Signature	5254

Table of Contents

Part I -- FINANCIAL INFORMATION

Item 1. Financial Statements.

~~PLANTRONIC~~PLANTRS,ONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

	March 31,			December 31,			March 31,			June 30,
	2007			2007			2008			2008

ASSETS
Current assets:
Cash and cash equivalents	$	94,131		$	115,479		$	163,091		$	190,188
Short-term investments		9,234			54,085
Total cash, cash equivalents, and short-term investments		103,365			169,564
Accounts receivable, net		113,758			136,550			131,493			130,530
Inventory		126,605			131,320			127,088			136,974
Deferred income taxes		12,659			12,754			13,760			13,763
Other current assets		18,474			12,947			14,771			13,623
Total current assets		374,861			463,135			450,203			485,078
Long-term investments								25,136			24,205
Property, plant and equipment, net		97,259			98,321			98,530			98,231
Intangibles, net		100,120			93,517			91,511			89,505
Goodwill		72,825			72,825			69,171			69,171
Other assets		6,239			6,047			6,842			6,429
Total assets	$	651,304		$	733,845		$	741,393		$	772,619


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	49,956		$	57,049		$	47,896		$	63,032
Accrued liabilities		54,025			63,863			67,318			60,352
Income taxes payable		12,476			-			-			2,416
Total current liabilities		116,457			120,912			115,214			125,800
Deferred tax liability		37,344			32,135			32,570			31,494
Long-term income taxes payable		-			16,132			14,137			12,982
Other long-term liabilities		696			960			852			824
Total liabilities		154,497			170,139			162,773			171,100

Stockholders' equity:
Common stock		666			673			673			674
Additional paid-in capital		340,661			363,920			369,655			375,958
Accumulated other comprehensive income		2,666			1,972
Accumulated other comprehensive loss								(3,581	)		(2,770	)
Retained earnings		550,165			593,507			608,849			626,893
		894,158			960,072			975,596			1,000,755
Less: treasury stock, at cost		(397,351	)		(396,366	)
Less: Treasury stock, at cost								(396,976	)		(399,236	)
Total stockholders' equity		496,807			563,706			578,620			601,519
Total liabilities and stockholders' equity	$	651,304		$	733,845		$	741,393		$	772,619

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

P~~LANTRO~~PLAN~~NICS,~~TRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended
	June 30,
	2007		2008
Net revenues	$	206,495	$	219,164
Cost of revenues		122,949		128,285
Gross profit		83,546		90,879
Operating expenses:
Research, development and engineering		19,488		19,695
Selling, general and administrative		46,111		48,398
Restructuring and other related charges		-		375
Total operating expenses		65,599		68,468
Operating income		17,947		22,411
Interest and other income, net		1,334		1,540
Income before income taxes		19,281		23,951
Income tax expense		4,306		3,457
Net income	$	14,975	$	20,494

Net income per share - basic	$	0.31	$	0.42

Shares used in basic per share calculations		47,835		48,679

Net income per share - diluted	$	0.31	$	0.42

Shares used in diluted per share calculations		48,681		49,245

Cash dividends declared per common share	$	0.05	$	0.05

Three Months Ended Nine Months Ended
December 31, December 31,
2006 2007 2006 2007
Net revenues $ 215,435 $ 232,824 $ 605,438 $ 647,543
Cost of revenues 134,584 139,067 372,093 385,784
Gross profit 80,851 93,757 233,345 261,759
Operating expenses:
Research, development and engineering 17,837 19,308 53,434 58,004
Selling, general and administrative 46,196 48,424 134,583 140,476
Restructuring and other related charges - 2,882 - 2,882
Gain on sale of land - - (2,637 ) -
Total operating expenses 64,033 70,614 185,380 201,362
Operating income 16,818 23,143 47,965 60,397
Interest and other income, net 1,493 2,184 2,745 5,311
Income before income taxes 18,311 25,327 50,710 65,708
Income tax expense 3,121 6,219 10,704 15,103
Net income $ 15,190 $ 19,108 $ 40,006 $ 50,605

Net income per share - basic $ 0.32 $ 0.39 $ 0.85 $ 1.05

Shares used in basic per share calculations 47,409 48,379 47,256 48,110

Net income per share - diluted $ 0.32 $ 0.39 $ 0.83 $ 1.03

Shares used in diluted per share calculations 47,922 49,533 47,940 49,148

Cash dividends declared per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

~~PLANTRONIC~~PLAS,NTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended						Three Months Ended
	December 31,						June 30,
	2006			2007			2007			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	40,006		$	50,605		$	14,975		$	20,494
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,824			21,012			7,102			7,123
Stock-based compensation		12,617			11,946			4,113			4,268
Provision for doubtful accounts		549			13			36			-
Provision for excess and obsolete inventories		11,149			8,449			5,388			1,327
Deferred income taxes		(5,939	)		(7,801	)
Benefit from deferred income taxes								(3,472	)		(2,004	)
Income tax benefit associated with stock option exercises		519			1,010			120			272
Excess tax benefit from stock-based compensation		(637	)		(1,905	)		(380	)		(212	)
(Gain) loss on disposal of property, plant, and equipment, net		(2,571	)		21
Impairment of intangible asset		-			517
Non-cash restructuring charges		-			1,064
Loss on disposal of property, plant, and equipment								7			-

Changes in assets and liabilities:
Accounts receivable		(14,276	)		(23,583	)
Accounts receivable, net								(7,983	)		993
Inventory		(39,396	)		(13,178	)		(15,037	)		(11,213	)
Other assets		(417	)		(122	)		213			117
Accounts payable		(2,599	)		7,093			(3,034	)		15,136
Accrued liabilities		13,301			8,286			4,675			(5,375	)
Income taxes payable		(5,966	)		11,011			6,128			3,083
Cash provided by operating activities		28,164			74,438			12,851			34,009

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of short-term investments		222,424			254,590			66,185			-
Purchase of short-term investments		(214,395	)		(299,040	)		(70,260	)		-
Proceeds from the sale of land		2,667			-
Capital expenditures and other assets		(18,739	)		(16,918	)		(6,322	)		(4,790	)
Cash used for investing activities		(8,043	)		(61,368	)		(10,397	)		(4,790	)

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock		(4,021	)		-			-			(2,369	)
Proceeds from sale of treasury stock		2,723			2,895			375			371
Proceeds from issuance of common stock		2,676			9,117			1,889			2,036
Repayment of line of credit		(16,032	)		-
Payment of cash dividends		(7,140	)		(7,263	)		(2,407	)		(2,450	)
Excess tax benefit from stock-based compensation		637			1,905			380			212
Cash (used for) provided by financing activities		(21,157	)		6,654
Cash provided by (used for) financing activities								237			(2,200	)
Effect of exchange rate changes on cash and cash equivalents		1,076			1,624			271			78
Net increase in cash and cash equivalents		40			21,348			2,962			27,097
Cash and cash equivalents at beginning of period		68,703			94,131			94,131			163,091
Cash and cash equivalents at end of period	$	68,743		$	115,479		$	97,093		$	190,188

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

~~PLANTRO~~PLAN~~NICS,~~TRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements (“financial statements”) of Plantronics, Inc. (“Plantronics” or ~~the “Company”~~“the Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements have been prepared on a basis consistent with the March 31, ~~2007~~2008 audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth herein. ~~These~~The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2007,~~2008, which was filed with the SEC on May ~~29, 2007.~~27, 2008. The results of operations for the interim period ended ~~December 31, 2007~~June 30, 2008 are not indicative of the results to be expected for the entire fiscal year orand any future period.

The financial statements include the accounts of Plantronics and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The Company has two reportable segments, ~~the~~ Audio Communications Group (“ACG”) and ~~the~~ Audio Entertainment Group (“AEG”). Management allocates resources to and assesses the performance of each operating segment using several metrics including information about segment revenues, gross profit (loss), operating income (loss) ~~before interest and other income, net and income tax expense,~~ and certain product line information.

The Company’s fiscal year ends on the Saturday closest to the last day of March. The Company’s current and prior fiscal years consist of 52 weeks and each fiscal quarter consists of 13 weeks. The current fiscal year ends on March ~~29, 2008~~28, 2009, and the prior fiscal year ended on March ~~31, 2007.~~29, 2008. The Company’s interim periods for the ~~third~~first quarters of fiscal 2008 and 2009 ended on June 30, 2007 and June 28, 2008, ~~ended on December 30, 2006 and December 29, 2007,~~ respectively. For purposes of presentation, the Company has indicated its accounting year as ending on March 31 and its interim quarterly periods as ending on the applicable month end.

Certain financial statement reclassifications have been made to the prior period amounts to conform to the current year presentation. The Company reclassified certain expenses in the AEG segment within cost of revenues which had previously been classified as selling, general and administrative expenses, to conform to the ACG presentation. As a result of this change, the Company’s previously reported amount of gross profit for the three and nine months ended December 31, 2006 was reduced by $485,000 and $1.4 million, respectively.

2. RECENT ACCOUNTING PRONOUNCEMENTS

~~In September 2006,~~Effective April 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) ~~issued~~ Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), ~~which~~only with respect to financial assets and liabilities recognized at fair value on a recurring basis. SFAS No. 157 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”, which amends SFAS No. 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13, “Accounting for Leases”. In February 2008, the FASB also issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS No. 157 until the first quarter of fiscal 2010 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. ~~SFAS No. 157 is effective for the Company beginning on April 1, 2008.~~ The ~~Company is currently evaluating the impact of adopting the provisions~~partial adoption of SFAS No. 157 has not had a material impact on ~~its~~the Company’s consolidated financial statements.

~~In February 2007,~~

Table of Contents

Under SFAS No. 157, fair value is defined as the ~~FASB issued~~ exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:

Level 1 – Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date;

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 4 for information and related disclosures regarding the Company’s fair value measurements.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). became effective April 1, 2008. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 also amends certain provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). The Company does not have any instruments for which it has elected the fair value option. Therefore, SFAS No. 159 ~~is effective for~~has not impacted the ~~Company beginning on April 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on its~~Company’s consolidated financial statements.

~~Table of Contents~~

~~In June 2007,~~Effective April 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) ~~reached a consensus on~~ Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should recognize a realized tax benefit associated with dividends on non-vested equity shares, non-vested equity share units and outstanding equity share options charged to retained earnings as an increase in additional paid in capital. The amount recognized in additional paid in capital should be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. ~~EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007.~~ The adoption of EITF Issue No. 06-11 isdid not ~~expected to~~ have a significant impact on the Company’s consolidated financial statements.

~~In June 2007,~~Effective April 1, 2008, the ~~FASB ratified the~~Company adopted EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”. EITF Issue No. 07-3 requires non-refundable advance payments for goods and services to be used in future research and development activities to be recorded as an asset and ~~expensing~~expense the payments when the research and development activities are performed. ~~EITF Issue No. 07-3 applies prospectively for new contractual arrangements entered into in fiscal years beginning after December 15, 2007.~~ The adoption of EITF Issue No. 07-3 isdid not ~~expected to~~ have a significant impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business ~~Combinations~~”Combinations” ("SFAS No. ~~141R"~~141(R)"), which replaces SFAS No. 141. SFAS No. ~~141R~~141(R) retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. ~~141R~~141(R) is effective for the Company beginning April 1, 2009 and will apply prospectively to any business combinations completed on or after that ~~date.~~

~~3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS~~

~~At March 31, 2007~~date, except that resolution of certain tax contingencies and ~~December 31, 2007, the Company had short-term investments of $9.2 million and $54.1 million, respectively. All~~adjustments to valuation allowances related to business combinations, which previously were adjusted to goodwill, will be adjusted to income tax expense for all such adjustments after April 1, 2009, regardless of the ~~short-term investments were classified as available-for-sale~~date of the original business combination.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and ~~had contractual maturities~~Hedging Activities - an amendment of ~~greater than one year; however,~~FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and their effect on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 will be effective in the ~~Company has the ability and intent, if necessary, to liquidate any~~first quarter of these investments in order to meet the Company's liquidity needs within the next 12 months. Accordingly, all investments are classified as current assets on the accompanying consolidated balance sheets.fiscal year 2010. The Company ~~had no unrealized gains or losses at March 31, 2007 and December 31, 2007, and, did not incur~~is evaluating the impact that this statement will have, if any, ~~realized gains or losses in the three and nine months ended December 31, 2006 and 2007. All of the short-term investments are held in the Company’s name at a limited number of major~~on its consolidated financial institutions and consist of auction rate securities, concentrated primarily in student loans. As of December 31, 2007, none of the auctions for the securities in which we have investments have failed.statements.

Table of Contents

March 31, December 31,
(in thousands) 2007 2007

Inventory, net:
Raw materials $ 57,406 $ 39,211
Work in process 6,268 4,006
Finished goods 62,931 88,103
$ 126,605 $ 131,320

Accrued liabilities:
Employee compensation and benefits $ 20,574 $ 24,877
Warranty accrual 7,240 11,344
Accrued advertising and sales and marketing 5,104 6,350
Accrued derivatives 2,454 3,778
Accrued other 18,653 17,514
$ 54,025 $ 63,863

Changes in the warranty accrual, which are included as a component of accrued liabilities on the condensed consolidated balance sheets, are as follows (in thousands):

Warranty accrual at March 31, 2007 $ 7,240
Warranty provision relating to products shipped during the year 17,616
Deductions for warranty claims processed (13,512 )
Warranty accrual at December 31, 2007 $ 11,344

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company is evaluating the impact, if any, that FSP 142-3 will have, if any, on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”) which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in earnings allocation in computing earnings per share under the two-class method as described in SFAS No. 128, “Earnings Per Share.” Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two class method. FSP EITF 03-6-1 is effective for the Company beginning April 1, 2009. All prior-period earnings per share data presented shall be adjusted retrospectively. Early application is not permitted. The Company is evaluating the impact of the adoption of FSP EITF 03-6-1, if any, to its consolidated financial statements.

Table of Contents

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS

	March 31,		June 30,
(in thousands)	2008		2008

Inventory, net:
Raw materials	$	36,081	$	39,631
Work in process		3,611		4,075
Finished goods		87,396		93,268
	$	127,088	$	136,974

Accrued liabilities:
Employee compensation and benefits	$	25,089	$	22,911
Warranty accrual		10,441		11,419
Accrued advertising and sales and marketing		5,762		4,632
Accrued other		26,026		21,390
	$	67,318	$	60,352

Changes in the warranty obligation, which are included as a component of accrued liabilities on the condensed consolidated balance sheets, are as follows (in thousands):

Warranty obligation at March 31, 2008	$	10,441
Warranty provision relating to products shipped during the period		5,896
Deductions for warranty claims processed during the period		(4,918	)
Warranty obligation at June 30, 2008	$	11,419

4. INVESTMENTS AND FAIR VALUE MEASUREMENTS

The following table represents the Company’s investments at March 31, 2008 and June 30, 2008:

(in thousands)	Balances at March 31, 2008									Balances at June 30, 2008
	Cost Basis		Unrealized Gain(Loss)			Accrued Interest		Fair Value		Cost Basis		Unrealized Gain(Loss)			Accrued Interest		Fair Value
Long-term investments:
Auction rate securities	$	28,000	$	(2,864	)	$	-	$	25,136	$	28,000	$	(3,795	)	$	-	$	24,205
Total long-term investments	$	28,000	$	(2,864	)	$	-	$	25,136	$	28,000	$	(3,795	)	$	-	$	24,205

At June 30, 2008 and March 31, 2008, all of the Company’s investments were classified as available-for-sale and consisted of Auction Rate Securities (“ARS”). The Company did not incur any realized gains or losses in the three months ended June 30, 2008 or 2007.

Table of Contents

In accordance with SFAS No. 157, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities as of June 30, 2008 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds	$	145,512		-		-	$	145,512
Derivative assets		-		144		-		144
Auction rate securities		-		-		24,205		24,205
Total assets measured at fair value	$	145,512	$	144	$	24,205	$	169,861

Derivative liabilities	$	49	$	4,775	$	-	$	4,824

Level 1 assets and liabilities consist of money market funds and derivative foreign currency forward contracts that are traded in an active market with sufficient volume and frequency of transactions. Fair value is measured based on the quoted market price of these securities.

Level 2 assets and liabilities consist of derivative foreign currency call and put option contracts. Fair value is determined using a Black-Scholes valuation model using inputs that are observable in the market.

Level 3 assets consist of auction rate securities (“ARS”), primarily comprised of interest bearing state sponsored student loan revenue bonds guaranteed by the Department of Education. Historically, these ARS investments have provided liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, typically every 7 or 35 days. The recent uncertainties in the credit markets have affected all of our holdings, and, as a consequence, these investments are not currently liquid. As a result, the Company will not be able to access these funds until either a future auction of these investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2029 to 2039. All of the ARS investments were investment grade quality and were in compliance with our investment policy at the time of acquisition. The Company currently has the ability to hold these ARS investments until a recovery of the auction process or until maturity. The Company has classified the entire ARS investment balance as long-term investments on its consolidated balance sheet as of June 30, 2008 and March 31, 2008 because of the Company’s inability to determine when its investments in ARS will settle.

Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. While the Company continues to earn interest on its ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value.

The Company has used a discounted cash flow model to determine the estimated fair value of its investment in ARS as of June 30, 2008, consistent with March 31, 2008. The key assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the ARS.

Based on this assessment of fair value, as of June 30, 2008 the Company determined there was a further decline in the fair value of its ARS investments of $0.9 million, which was deemed temporary. The differentiating factors between temporary and other-than-temporary impairment are primarily the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of Plantronics to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. The Company has recorded a full valuation allowance against the associated deferred tax asset due to the potential inability to utilize capital losses for tax purposes.

Table of Contents

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the quarter ended June 30, 2008 (in thousands):

Changes in Fair Value of Level 3 Financial Assets:

Balance at March 31, 2008	$	25,136
Unrealized loss included in other comprehensive loss		(931	)
Balance at June 30, 2008	$	24,205

5. GOODWILL AND PURCHASED INTANGIBLE ASSETS

The following table presents changes in the carrying value of acquired intangible ~~assets (in thousands):~~

March 31, 2007 December 31, 2007
Gross Accumulated Net Gross Accumulated Net Useful
Amount Amortization Amount Amount Amortization Amount Life

Technology $ 30,960 $ (9,431 ) $ 21,529 $ 30,160 $ (12,716 ) $ 17,444 6-10 years
In-process technology 996 (996 ) - 996 (996 ) - Immediate
State contracts 1,300 (975 ) 325 1,300 (1,114 ) 186 7 years
Patents 1,420 (876 ) 544 1,420 (1,029 ) 391 7 years
Customer relationships 18,133 (4,108 ) 14,025 18,133 (5,758 ) 12,375 3-8 years
Trademarks 300 (225 ) 75 300 (257 ) 43 7 years
Trade name - inMotion 5,000 (1,016 ) 3,984 5,000 (1,484 ) 3,516 8 years
Trade name - Altec Lansing 59,100 - 59,100 59,100 - 59,100 Indefinite
OEM relationships 700 (162 ) 538 700 (238 ) 462 7 years
Non-compete agreements 200 (200 ) - 200 (200 ) - 5 years
Total $ 118,109 $ (17,989 ) $ 100,120 $ 117,309 $ (23,792 ) $ 93,517
assets:

	March 31, 2008							June 30, 2008
	Gross		Accumulated			Net		Gross		Accumulated			Net
(in thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount		Useful Life

Technology	$	30,160	$	(13,883	)	$	16,277	$	30,160	$	(15,050	)	$	15,110	6 - 10 years
In-process technology		996		(996	)		-		996		(996	)		-	Immediate
State contracts		1,300		(1,161	)		139		1,300		(1,207	)		93	7 years
Patents		1,420		(1,079	)		341		1,420		(1,130	)		290	7 years
Customer relationships		18,133		(6,308	)		11,825		18,133		(6,858	)		11,275	3 - 8 years
Trademarks		300		(268	)		32		300		(279	)		21	7 years
Trade name - inMotion		5,000		(1,641	)		3,359		5,000		(1,797	)		3,203	8 years
Trade name - Altec Lansing		59,100		-			59,100		59,100		-			59,100	Indefinite
OEM relationships		700		(262	)		438		700		(287	)		413	7 years
Non-compete agreements		200		(200	)		-		200		(200	)		-	5 years
Total	$	117,309	$	(25,798	)	$	91,511	$	117,309	$	(27,804	)	$	89,505

The aggregate amortization expense relating to purchased intangible assets ~~for the three and nine months ended December 31, 2006~~ was ~~$2.1 million and $6.2 million, respectively and~~ $2.0 ~~million and $6.1~~ million for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2007 ~~respectively.~~and 2008. The estimated future amortization expense of purchased intangible assets as of ~~December 31, 2007~~June 30, 2008 is as ~~follows (in thousands):~~follows:

Fiscal Year Ending March 31,	Fiscal Year Ending March 31,			(in thousands)
Remainder of 2008		$	2,007
2009			7,872
Remainder of 2009				$	5,866
2010			7,411		7,411
2011			7,368		7,368
2012			4,787		4,787
2013					3,213
Thereafter			4,972		1,760
Total estimated amortization expense		$	34,417	$	30,405

Table of Contents

Goodwill as of March 31, ~~2007~~2008 and ~~December 31, 2007~~June 30, 2008 was ~~$72.8~~$69.2 million.

During the three months ended September 30, 2007, the Company made a decision to terminate the Professional Audio product line in order to focus on its core product categories. As a result of this triggering event, the Company reviewed the recoverability of the Professional Audio asset grouping including the related technology intangible asset. Other than disposing of the remaining inventory, the Company expects no further cash flows from the Professional Audio product line. The Company determined that the intangible asset had no remaining value and wrote off the remaining carrying value of $0.5 million.

The Company reviews goodwill and purchased intangible assets with indefinite lives for impairment annually during the fourth quarter of the fiscal year or more frequently if events or circumstances indicate that an impairment loss may have occurred. In the fourth quarter of fiscal ~~2007,~~2008, the Company completed the annual impairment test of goodwill and the Altec Lansing trade name, which indicated that there was no impairment. ~~Except for the decision to discontinue the Professional Audio product line, there~~There were also no ~~other~~ events or changes in circumstances during the ~~nine~~three months ended ~~December 31, 2007,~~June 30, 2008, which triggered an impairment review. ~~The Company will perform its annual~~If forecasted revenue and margin growth rates of the AEG segment are not achieved, it is reasonably possible that an impairment ~~test~~review may be triggered for goodwill and purchased intangible assets with indefinite lives ~~in the fourth quarter of fiscal 2008. Further, to the extent the annual impairment test does not result in impairment, it is possible that an impairment review may be triggered~~ prior to the next annual review in the fourth quarter of fiscal 2009. AnIt is also reasonably possible that an impairment review may ~~also~~ be triggered for the remaining intangible assets. ~~However,~~If a triggering event causes an impairment review to be required before the next annual review, it is not possible to determine ~~whether,~~ if ~~an impairment review is required,~~ an impairment charge would result or if such charge would be material.

6. RESTRUCTURING AND OTHER RELATED CHARGES

The Company recorded the restructuring activities discussed below in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”) and SFAS No. 112, “Employees’ Accounting for Post-employment Benefits” (“SFAS No. 112”).

In November 2007, the Company announced plans to close AEG’s manufacturing facility in Dongguan, China, shut down a related Hong Kong research and development, sales and procurement office and consolidate procurement, research and development activities for AEG in the Shenzhen, China site. The selling, general and administrative functions of AEG in China are in the process of being consolidated with those of ACG throughout the Asia-Pacific region. These actions will result in the elimination of all manufacturing operation positions in Dongguan, China and certain related support functions. In the third quarter of fiscal 2008, the production line at the Dongguan, China facility was shut down. This restructuring plan is part of a strategic initiative designed to reduce fixed costs by outsourcing the majority of AEG manufacturing to a network of qualified contract manufacturers already in place. The plan will proceed in phases and is expected to be complete in the third quarter of fiscal 2009.

Restructuring and other related charges of approximately $3.8 million related to this restructuring plan have been recorded to date including $0.2 million recorded in the first quarter of fiscal 2009. The total restructuring charges of $3.8 million consists of $1.4 million for the write-off of facilities and equipment and accelerated depreciation, $1.4 million for severance and benefits, and $1.0 million in professional and administrative fees. We believe that substantially all restructuring and other related charges have been recorded as of June 30, 2008. As of June 30, 2008, approximately $0.5 million was unpaid and is expected to be paid during fiscal 2009.

In November 2007, 730 employees were notified of their termination, 708 in manufacturing, 20 in research and development and 2 in selling, general and administrative. As of June 30, 2008, 718 employees have been terminated, 6 employees have left voluntarily and 6 employees will terminate over the next two quarters.

In June 2008, the Company announced a reduction in force at AEG’s operations in Milford, Pennsylvania as part of the strategic initiative designed to reduce costs. A total of 31 employees were notified of their termination, of which 25 had been terminated as of June 30, 2008. In the first quarter of 2009, we recorded $0.2 million of restructuring charges, consisting solely of severance, related to this activity of which $0.1 million was unpaid as of June 30, 2008 and is expected to be paid in the second quarter of fiscal 2009. We believe that substantially all restructuring and other related charges have been recorded as of June 30, 2008.

912

Table of Contents

The following table summarizes the Company’s restructuring activities (in thousands):

	Severance and Benefits			Facilities and Equipment			Other			Total

Restructuring and other related charges	$	1,272		$	1,519		$	793		$	3,584
Cash		(980	)		-			(241	)		(1,221	)
Non-cash		-			(1,519	)		(38	)		(1,557	)
Restructuring accrual at March 31, 2008	$	292		$	-		$	514		$	806

Restructuring and other related charges	$	285			(153	)		243		$	375
Cash		(305	)		110			(470	)		(665	)
Non-cash		-			46			-			46
Restructuring accrual at June 30, 2008	$	272		$	3		$	287		$	562

The restructuring accrual is included in accrued liabilities in the Company’s consolidated balance sheet.

7. STOCK-BASED COMPENSATION

The following table summarizes the amount of stock-based compensation expense recorded under SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), included in the condensed consolidated statements of operations:

	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
(in thousands)	2006			2007			2006			2007			2007			2008

Cost of revenues	$	729		$	609		$	2,200		$	1,862		$	641		$	654

Research, development and engineering		934			858			2,843			2,641			928			984
Selling, general and administrative		2,578			2,617			7,563			7,443			2,544			2,630
Stock-based compensation expense included in operating expenses		3,512			3,475			10,406			10,084			3,472			3,614

Total stock-based compensation		4,241			4,084			12,606			11,946			4,113			4,268
Income tax benefit		(1,358	)		(1,191	)		(4,087	)		(3,813	)		(1,309	)		(1,301	)
Total stock-based compensation, net of tax	$	2,883		$	2,893		$	8,519		$	8,133		$	2,804		$	2,967

Table of Contents

Stock Options

The following is a summary of the Company’s stock option activity during the ~~nine months ended December 31, 2007:~~first quarter of fiscal 2009:

Options Outstanding
Weighted Weighted
Average Average Aggregate
Number of Exercise Remaining Intrinsic
Shares Price Contractual Life Value
(in thousands) (in years) (in thousands)
Outstanding at March 31, 2007 9,033 $ 26.17
Options granted 723 $ 27.25
Options exercised (531 ) $ 17.16
Options forfeited or expired (568 ) $ 34.01
Outstanding at December 31, 2007 8,657 $ 26.30 4.41 $ 28,401
Vested and expected to vest at December 31, 2007 8,315 $ 26.37 4.35 $ 27,374
Exercisable at December 31, 2007 6,355 $ 26.82 3.87 $ 22,105

	Options Outstanding
				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Remaining		Intrinsic
	Shares			Price		Contractual Life		Value
	(in thousands)					(in years)		(in thousands)
Outstanding at March 31, 2008		8,561		$	26.32
Options granted		724		$	24.02
Options exercised		(117	)	$	17.40
Options forfeited or expired		(168	)	$	30.57
Outstanding at June 30, 2008		9,000		$	26.17		4.15	$	12,017
Vested and expected to vest at June 30, 2008		8,779		$	26.23		4.10	$	11,849
Exercisable at June 30, 2008		6,521		$	26.80		3.49	$	10,190

The total intrinsic value of options exercised during the ~~nine~~three months ended ~~December 31, 2006~~June 30, 2007 and ~~2007~~2008 was ~~$3.0~~$1.1 million and ~~$5.3~~$0.8 million, respectively.

As of ~~December 31, 2007,~~June 30, 2008, total unrecognized compensation cost related to unvested stock options was ~~$21.0~~$20.4 million which is expected to be recognized over a weighted average period of ~~2.5~~2.3 years.

~~Table of Contents~~

Restricted Stock

The following is a summary of the Company’s restricted stock activity during the ~~nine months ended December 31, 2007:~~first quarter of fiscal 2009:

Weighted
Number of Average

Shares

Grant Date

(in thousands)
Fair Value

Non-vested at March 31, 2007 287 $ 27.09
Granted 113 $ 27.17
Vested (65 ) $ 27.38
Forfeited (19 ) $ 28.19
Non-vested at December 31, 2007 316 $ 26.99

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	(in thousands)
Non-vested at March 31, 2008		288		$	26.77
Granted		20		$	23.45
Vested		(12	)	$	28.09
Forfeited		-		$	-
Non-vested at June 30, 2008		296		$	26.49

As of ~~December 31, 2007,~~June 30, 2008, total unrecognized compensation cost related to non-vested restricted stock awards was ~~$7.6~~$6.4 million, which is expected to be recognized over a weighted average period of ~~3.3~~2.9 years. The total fair value of restricted stock awards vested during the ~~nine~~three months ended ~~December 31, 2007~~June 30, 2008 was ~~$1.8~~$0.3 million.

Employee Stock Purchase Plan (“ESPP”)

As of ~~December 31, 2007,~~June 30, 2008, there was $0.1 million of unrecognized compensation cost related to the ESPP that is expected to be fully recognized during the next fiscal quarter.

Table of Contents

Valuation Assumptions

The Company estimates the fair value of stock options and ESPP shares using a Black-Scholes option valuation model. The fair value of each option grant is estimated on the date of grant using the straight-line attribution approach with the following weighted average assumptions:

Three Months Ended Nine Months Ended
December 31, December 31,
Employee Stock Options 2006 2007 2006 2007
Expected volatility 42.5 % 39.7 % 42.5 % 39.1 %
Risk-free interest rate 4.7 % 3.9 % 4.7 % 4.1 %
Expected dividends 1.0 % 0.7 % 1.0 % 0.7 %
Expected life (in years) 4.2 4.1 4.2 4.2
Weighted-average grant date fair value $ 7.58 $ 9.62 $ 7.64 $ 9.46

	Nine Months Ended						Three Months Ended
	December 31,						June 30,
ESPP	2006			2007
Employee Stock Options							2007			2008
Expected volatility		52.8	%		32.1	%		36.5	%		47.0	%
Risk-free interest rate		5.2	%		5.1	%		4.6	%		3.1	%
Expected dividends		1.3	%		0.7	%		0.8	%		0.8	%
Expected life (in years)		0.5			0.5			4.4			4.4
Weighted-average grant date fair value	$	4.60		$	6.72		$	8.40		$	9.51

There were no new ESPP offering periods during the three months ended ~~December 31, 2006~~June 30, 2007 and ~~2007.~~

~~Table of Contents~~

~~6. RESTRUCTURING AND OTHER RELATED CHARGES~~

In November 2007, the Company announced plans to close AEG’s manufacturing facility in Dongguan, China, to shut down a related Hong Kong research and development, sales and procurement office and to consolidate procurement, research and development activities for AEG in the Shenzhen, China site. The selling, general and administrative functions of AEG in China will also be consolidated with those of ACG through-out the Asia-Pacific region. These actions will result in the elimination of all manufacturing operation positions in Dongguan, China and certain related support functions. As of December 31, 2007, the production line at the Dongguan, China facility was shut down. This restructuring plan is part of a strategic initiative designed to reduce fixed costs by outsourcing all of AEG manufacturing to the network of qualified contract manufacturers already in place. The plan will proceed in phases and is expected to be complete by March 2008.

The Company recorded the restructuring activities in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”) and SFAS No. 112, “Employees’ Accounting for Post-employment Benefits” (“SFAS No. 112”). During the third quarter of fiscal 2008, the Company recorded $2.9 million in restructuring and other related charges.

~~The following table summarizes the Company’s restructuring activities (in thousands):~~

Severance and Benefits Facilities and Equipment Other Total

Restructuring and other related charges $ 1,158 $ 1,021 $ 703 $ 2,882
Cash (588 ) - (168 ) (756 )
Non-cash - (1,021 ) (43 ) (1,064 )
Restructuring accrual at December 31, 2007 $ 570 $ - $ 492 $ 1,062

~~The restructuring accrual is included in accrued liabilities in the Company’s condensed consolidated balance sheet.~~

In November 2007, 730 employees were notified for termination, 708 in manufacturing, 20 in research and development and 2 in selling, general and administrative. As of December 31, 2007, 672 employees have been terminated.

Including the $2.9 million recognized in third quarter of fiscal 2008, the Company expects to record total restructuring charges of approximately $4.0 to $4.5 million, consisting of $1.6 million for the write-off of facilities and equipment and accelerated depreciation, $1.4 million for severance and benefits, and $1.0 to $1.5 million in professional and administrative fees. We expect to incur restructuring and other related charges of $1.0 million during the fourth quarter of fiscal 2008 and the remaining $0.1 to $0.6 million is expected to be incurred in fiscal 2009.

7.8. COMPREHENSIVE INCOME

The components of comprehensive income for the three ~~and nine~~ months ended ~~December 31, 2006~~June 30, 2007 and ~~2007~~2008 are as ~~follows (in thousands):~~follows:

	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
(in thousands)	2006			2007			2006			2007			2007			2008
Net income	$	15,190		$	19,108		$	40,006		$	50,605		$	14,975		$	20,494
Unrealized gain (loss) on cash flow hedges, net of tax		(1,579	)		607			(3,823	)		(1,671	)
Foreign currency translation gain (loss)		614			(11	)		1,930			977
Unrealized loss on cash flow hedges, net of tax														(158	)		1,491
Foreign currency translation gain														398			252
Unrealized loss on long-term investments, net of tax														-			(931	)
Comprehensive income	$	14,225		$	19,704		$	38,113		$	49,911		$	15,215		$	21,306

~~Table of Contents~~

8.9. FOREIGN CURRENCY TRANSACTIONS

Non-Designated Hedges

As of ~~December 31, 2007,~~June 30, 2008, the Company had foreign currency forward contracts of ~~€19.8~~€11.4 million and ~~₤5.3~~₤6.3 million denominated in Euros and Great British Pounds, respectively. These forward contracts hedge against a portion of the Company’s foreign currency-denominated receivables, payables and cash balances.

The following table summarizes the Company’s outstanding foreign exchange currency contracts, and approximate U.S. dollar ~~equivalents,~~equivalent, at ~~December 31, 2007~~June 30, 2008 (local currency and dollar amounts in thousands):

	Local Currency		USD Equivalent		Position	Maturity	Local Currency		USD Equivalent		Position	Maturity
EUR		19,800	$	29,136	Sell Euro	1 month		11,400	$	17,960	Sell Euro	1 month
GBP		5,300	$	10,550	Sell GBP	1 month		6,300	$	12,536	Sell GBP	1 month

Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in a net ~~gains~~gain of ~~approximately $1.0~~$0.4 million and ~~$1.8~~$0.5 million in the three ~~and nine~~ months ended ~~December 31, 2006, respectively,~~June 30, 2007 and ~~$0.5 million and $1.7 million~~2008, respectively.

Table of ~~net gains in the three and nine months ended December 31, 2007, respectively.~~Contents

Cash Flow Hedges

As of ~~December 31, 2007,~~June 30, 2008, the Company had foreign currency put and call option contracts of ~~€47.8~~ €47.5 million and ~~£17.3~~£18.8 million. As of March 31, ~~2007,~~2008, the Company had foreign currency put and call option contracts of ~~€57.0~~ €48.4 million and ~~£16.3~~£18.7 million. Collectively, the Company’s option contracts are collars to hedge against a portion of its forecasted foreign currency denominated sales.

In the three ~~and nine~~ months ended ~~December 31,~~June 30, 2007 and 2008, realized losses of ~~$1.4 million~~$322,000 and ~~$2.5~~$2.1 million on cash flow hedges were recognized in net revenues in the condensed consolidated statements of ~~operations compared to $1.3 million and $1.7 million in realized losses for the same periods a year ago.~~operations. The Company expects to ~~recognize~~reclassify the entire amount of ~~$3.1~~$4.4 million of ~~net~~ losses accumulated in other comprehensive income into net revenues during the next 12 months ~~if spot exchange rates remain reasonably consistent with current rates.~~due to the recognition of the hedged forecasted sales.

9.10. INCOME TAXES

The effective tax rate for the three ~~and nine~~ months ended ~~December 31, 2007~~June 30, 2008 was ~~24.6% and 23.0%~~14.4% compared to ~~17.0% and 21.1%~~22.3% for the same ~~periods~~period a year ago. The lower effective tax rate is ~~higher than the previous year~~ primarily due to ~~Congress reinstating~~ the ~~Research and Development Credit retroactively to January 1, 2006~~release of tax reserves resulting from the lapse of the statute of limitations in certain jurisdictions during the ~~third~~first quarter of fiscal ~~2007 and the cost of restructuring in China incurred in the current quarter for which the Company has not currently recognized any tax benefit.~~2009. The effective tax rate differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates, income tax credits, state taxes, and other factors. The future tax rate could be impacted by a shift in the mix of domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax laws in the United States or internationally; or a change in estimates of future taxable income which ~~results~~could result in a valuation allowance being required.

~~On April 1, 2007, the Company adopted~~In accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income ~~Taxes – an Interpretation of FASB Statement No. 109”~~Taxes” (“FIN 48”)~~. Under FIN 48,~~, in the ~~impact~~quarter ended June 30, 2008, the Company recognized a tax benefit of ~~an uncertain income~~$1.7 million, consisting of $1.4 million in tax ~~position on income tax expense must be recognized at~~reserves and $0.3 million of related interest due to the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. There were no material adjustments as a resultlapse of the ~~adoption~~statute of ~~FIN 48. At the adoption date,~~limitations in certain jurisdictions. As of June 30, 2008, the Company had ~~$13.5~~$11.5 million of unrecognized tax benefits ~~$10.9~~compared to $12.4 million ~~of which would affect our income tax expense if recognized. The remaining balance~~at March 31, 2008. All of the total unrecognized tax benefits ~~of $2.6 million~~ would ~~be an adjustment to goodwill~~favorably impact the effective tax rate in future periods if recognized before April 1, 2009 prior to the adoption of SFAS No. 141R. As of December 31, 2007, the Company had $16.1 million of unrecognized tax benefits. The Company expects resolution of some uncertain tax positions within the next 12 months. Favorable resolution of these uncertainties would result in a significant benefit to income tax expense.

recognized.

~~Table of Contents~~

The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of ~~December 31, 2007,~~June 30, 2008, the Company had approximately ~~$1.6~~$1.5 million of accrued interest related to uncertain tax positions, ~~including $0.2~~compared to $1.7 million as of March 31, 2008. No penalties have been accrued.

Although the timing and ~~$0.6 million recorded~~outcome of income tax audits is highly uncertain, it is possible that certain unrecognized tax benefits may be reduced as a result of the lapse of the applicable statutes of limitations in federal, state and foreign jurisdictions within the next twelve months. Currently, the Company cannot reasonably estimate the amount of reductions during the ~~three and nine months ended December 31, 2007.~~ next twelve months. Any such reduction could be impacted by other changes in unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. ~~The Company is~~We are no longer subject to either U.S. federal ~~and~~or state income tax examinations by tax authorities for ~~fiscal~~ years prior to ~~2003.~~2005 and 2004, respectively. Foreign income tax matters for ~~most foreign~~material tax jurisdictions have been concluded through tax years before 2003, except for the United Kingdom, which has been concluded through fiscal ~~years~~2005, and Germany and France which have been concluded through ~~2001.~~fiscal 2006.

~~10.~~

Table of Contents

11. COMPUTATION OF EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended				Nine Months Ended				Three Months Ended
	December 31,				December 31,				June 30,
(in thousands, except per share data)	2006		2007		2006		2007		2007		2008

Net income	$	15,190	$	19,108	$	40,006	$	50,605	$	14,975	$	20,494

Weighted average shares-basic		47,409		48,379		47,256		48,110		47,835		48,680
Dilutive effect of employee equity incentive plans		513		1,154		684		1,038		846		565
Weighted average shares-diluted		47,922		49,533		47,940		49,148		48,681		49,245

Earnings per share-basic	$	0.32	$	0.39	$	0.85	$	1.05	$	0.31	$	0.42

Earnings per share-diluted	$	0.32	$	0.39	$	0.83	$	1.03	$	0.31	$	0.42

Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive		6,925		3,388		5,793		3,731	6,021		6,536

~~Table of Contents~~

~~11.~~12. SEGMENT INFORMATION

Financial data for each segment for the three ~~and nine~~ months ended ~~December 31, 2006~~June 30, 2007 and ~~2007~~2008 is as follows:

	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
(in thousands)	2006			2007			2006			2007			2007			2008

Net revenues
Audio Communications Group	$	176,511		$	195,955		$	503,281		$	562,574		$	185,572		$	198,527
Audio Entertainment Group		38,924			36,869			102,157			84,969			20,923			20,637
Consolidated net revenues	$	215,435		$	232,824		$	605,438		$	647,543		$	206,495		$	219,164

Gross profit
Gross profit (loss)
Audio Communications Group	$	77,257		$	89,698		$	218,836		$	260,358		$	85,776		$	89,170
Audio Entertainment Group		3,594			4,059			14,509			1,401			(2,230	)		1,709
Consolidated gross profit	$	80,851		$	93,757		$	233,345		$	261,759		$	83,546		$	90,879

Operating income (loss)
Audio Communications Group	$	22,855		$	31,051		$	64,436		$	89,707		$	28,986		$	29,023
Audio Entertainment Group		(6,037	)		(7,908	)		(16,471	)		(29,310	)		(11,039	)		(6,612	)
Consolidated operating income	$	16,818		$	23,143		$	47,965		$	60,397		$	17,947		$	22,411

In the second quarter of fiscal 2008, the Company transitioned the responsibility and management of the Altec-branded headsets from the AEG segment to the ACG segment, and as a result, effective July 1, 2007, the revenue and resulting gross profit from the Altec-branded headsets are now included in the ACG reporting segmentwithin the Gaming and Computer Audio category. Because AEG has not historically tracked costs and expenses by product line below material cost, prior period segment financial data has not been restated as it is impracticable to determine product line information down to the gross margin or operating income level for periods prior to the second quarter of fiscal 2008. Because AEG does not track product line information below gross profit, it is impracticable to determine product line information down to the operating income level. Net revenues and gross profit for ACG and AEG for the three and nine months ended December 31, 2007 under the old basis of segment reporting would have been:

Three Months Ended Nine Months Ended
(in thousands) December 31, 2007

Net revenues

Audio Communications Group $ 193,795 $ 558,692
Audio Entertainment Group 39,029 88,851
Consolidated net revenues $ 232,824 $ 647,543

Gross profit

Audio Communications Group $ 88,852 $ 258,907
Audio Entertainment Group 4,905 2,852
Consolidated gross profit $ 93,757 $ 261,759

~~Table of Contents~~

Audio Communications Group

ACG designs, manufactures, markets and sells headsets for business and consumer applications, and other specialty products for the hearing impaired. With respect to headsets, it makes products for use in ~~offices~~office and contact centers, with mobile and cordless phones, and with computers and gaming consoles. Major product categories include “Office and Contact Center”, which is defined as corded and cordless communication headsets, ~~amplifiers~~audio processors and telephone systems; “Mobile”, which ~~is defined as~~includes Bluetooth and corded ~~and Bluetooth~~ products for mobile phone applications; “Gaming and Computer Audio”, which ~~is defined as~~includes PC and gaming ~~and PC~~ headsets; and “Other”, which includes specialty products such as Clarity products marketed for hearing impaired individuals. The following table presents net revenues by product group within ACG:

Three Months Ended Nine Months Ended
December 31, December 31,
(in thousands) 2006 2007 2006 2007

Net revenues from unaffiliated customers:
Office and Contact Center $ 118,280 $ 131,017 $ 348,360 $ 394,579
Mobile 43,080 48,788 112,085 125,885
Gaming and Computer Audio 8,364 10,449 23,380 25,211
Other Specialty Products 6,787 5,701 19,456 16,899
Total segment net revenues $ 176,511 $ 195,955 $ 503,281 $ 562,574

Table of Contents

	Three Months Ended
	June 30,
(in thousands)	2007		2008

Net revenues from unaffiliated customers:
Office and Contact Center	$	132,205	$	122,803
Mobile		41,238		59,882
Gaming and Computer Audio		6,485		9,621
Other		5,644		6,221
Total segment net revenues	$	185,572	$	198,527

Audio Entertainment Group

AEG is engaged in the design, manufacture, sales and marketing of audio solutions and related technologies. Major product categories include “Docking Audio”, which ~~is defined as~~includes all speakers, whether AC or battery-powered, that work with portable digital players such as iPod and other MP3 players and “PC Audio”, which ~~is defined as~~includes self-powered speaker systems used for computers and other multi-media application systems. “Other” includes headphones and home audio systems. Currently, all the revenues in AEG are derived from sales of Altec Lansing products. The following table presents net revenues by product group within AEG:

	Three Months Ended				Nine Months Ended				Three Months Ended
	December 31,				December 31,				June 30,
(in thousands)	2006		2007		2006		2007		2007		2008

Net revenues from unaffiliated customers:
Docking Audio	$	20,822	$	20,682	$	53,814	$	44,588	$	10,291	$	9,772
PC Audio		15,202		14,101		40,920		35,176		8,448		9,178
Other		2,900		2,086		7,423		5,205		2,184		1,687
Total segment net revenues	$	38,924	$	36,869	$	102,157	$	84,969	$	20,923	$	20,637

In the second quarter of fiscal 2008, the Company transitioned the responsibility and management of the Altec Lansing branded headsets from the AEG segment to the ACG segment, and, as a result, effective July 1, 2007, the revenue and resulting profit from the Altec Lansing headsets are now included in the ACG reporting segment within the Gaming and Computer Audio category. In the three months ended June 30, 2007, AEG net revenue included $1.7 million related to these headsets.

Major Customers

~~Table of Contents~~

No customer accounted for 10% or more of total net revenues for the three ~~and nine~~ months ended ~~December 31, 2006 or~~June 30, 2007 and 2008, nor did any one customer account for 10% or more of accounts receivable at March 31, ~~2007 or December 31, 2007.~~2008, and June 30, 2008.

~~12. SUBSEQUENT EVENT~~

On January 25, 2008, we issued a press release announcing a 1,000,000 share repurchase program. Pursuant to the share repurchase program, the Company will, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions.

1718

Table of Contents

~~Item~~Item 2. Management’s ~~Discussion~~Discussion and Analysis of Financial Condition and Results of Operations.

CERTAIN FORWARD-LOOKING INFORMATION:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ~~as amended~~ (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 ~~as amended~~ (the “Exchange Act”). Forward-looking statements may generally be identified by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,” “will,” or “shall” and similar expressions, or the negative of these terms. Specific forward-looking statements contained within this Form 10-Q include, statements containing our expectations regarding (i) increasing penetration of our products into the office markets, (ii) upgrading our customers ~~with~~and developing compelling new products, (iii) growing our Bluetooth market share while improving profitability, (iv) executing our turnaround plans for Altec Lansing, including potential savings from the restructuring of Altec Lansing’s China and United States operations, and (v) improving the overall profitability of the Company, in addition to other statements regarding our future operations, financial condition and prospects and business strategies. These forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Factors that could cause actual results and events to differ materially from such forward-looking statements are included, but not limited to, those discussed in the section entitled “Risk Factors” herein and other documents filed with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such ~~forward looking~~forward-looking statements.

OVERVIEW

We are a leading worldwide designer, manufacturer, ~~marketer~~ and ~~seller~~marketer of lightweight communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand. We are also a leading manufacturer and ~~seller~~marketer of high quality docking audio products, computer and home entertainment sound systems, ~~docking audio products,~~ and a line of headphones for personal digital media under our Altec Lansing brand. In addition, we manufacture and ~~sell,~~market, under our Clarity brand, specialty telephone products, such as telephones for the hearing impaired, and other related products for people with special communication needs.

We ship a broad range of products to over 7065 countries through a worldwide network of distributors, ~~retailers, wireless carriers, telephony service providers, and~~ original equipment manufacturers (“OEMs”)., wireless carriers, retailers, and telephony service providers. We have well-developed distribution channels in North America, Europe, Australia and New Zealand, where use of our products is widespread. Our distribution channels in other regions of the world are less mature, and, while we primarily serve the contact center markets in those regions, we are expanding into the office, mobile and entertainment, digital audio, and specialty telephone markets in additional international locations.

Our ~~third quarter~~consolidated net revenues ~~which are generally seasonally strong,~~ increased from ~~$215.4~~$206.5 million in the first quarter of fiscal ~~2007~~2008 to ~~$232.8~~$219.2 in the first quarter of fiscal 2009, which was primarily attributable to increased sales of Bluetooth headsets for mobile phone applications. Our net income increased from $15.0 million in the first quarter of fiscal 2008 ~~as a~~to $20.5 million in the first quarter of fiscal 2009 primarily due to improved gross margin on our consumer products in both our segments. The increase in gross margin was also the result of our continued effort to decrease product and transformation costs. In addition, in the first quarter of fiscal 2009, our results of operations were favorably impacted by a $1.7 million tax benefit related to the lapse of the statute of limitations in certain jurisdictions.

In our ACG segment, net revenues increased from $185.6 million in the first quarter of fiscal 2008 to $198.5 million in the first quarter of fiscal 2009, primarily driven by an increase in sales of our Bluetooth headsets for the mobile market which increased 52% from the same quarter a year ago. Growth in these products was the result of strong demand ~~for wireless~~in the first quarter, particularly in the United States, due in part to the hands-free driving laws that went into effect July 1, 2008 in California and Washington and to our improved market position relative to the same quarter last year. Growth in these products ~~with~~was partially offset by a decline in net revenues from office wireless and OCC corded and mobile ~~Bluetooth products both up by 15% from a year ago. Our third quarter net income, which increased from $15.2 m~~illion in fiscal 2007 to $19.1 million in fiscal 2008, was favorably affected by cost reductions with respect to our office wireless and Bluetooth mobile products, the benefit of a weaker dollar, improved manufacturing effectiveness, and the increased international demand.corded products.

In the third quarter of fiscal 2008, we announced plans to improve the profitability of the Audio Entertainment Group (“AEG”) business. Our plans include closing AEG’s manufacturing facility and research and development activities in Dongguan, China; outsourcing all of AEG manufacturing to a network of qualified contract manufacturers already in place; initiating plans to shut down AEG’s sales and procurement office in Hong Kong; consolidating the sales, procurement and research and development activities in a new Shenzhen, China site which we expect to begin using in the fourth quarter of fiscal 2008; and consolidating selling, general and administrative functions for most of our Asia Pacific operations into our Suzhou, China facility. In addition to these cost cutting activities, we believe a return to profitability for AEG is dependent on developing significant new products to refresh the product line. We are continuing to make progress on this objective. Our goal remains to achieve profitability by the December quarter of next fiscal year and to move towards our target operating model in fiscal year 2010. Failure to continue to meet our internal milestones could result in a delay of our turnaround plans and the potential impairment of AEG goodwill and intangible assets.

~~Table of Contents~~

~~Our key initiatives, explained below, are designed to create long-term, sustainable shareholder value.~~

~~Increase penetration in the office markets.~~ Growing the office markets will continue to be our top priority. We intend to accomplish this through the introduction of compelling, easy to use, wireless products and demand generation campaigns. For example, home office workers are a growing category, and in ACG, we began shipping the Calisto Pro hands-free home phone system in fiscal 2008 which includes a multi-function Bluetooth headset.

~~Upgrade existing customers with compelling new products~~. While increasing penetration in the office market is our top priority, a closely related priority is to convert corded headset users to wireless headsets, as well as to upgrade existing wireless headset users to our new CS70N which we began shipping in fiscal 2008. The CS70N features premium audio performance, sleek and comfortable styling, and a noise-cancelling microphone.

~~Grow our Bluetooth market share while improving profitability.~~ We believe the convergence of music and communications in the cell phone industry has created a significant opportunity to increase our Bluetooth market share. Our Bluetooth product portfolio is competitive and we believe our existing and next generation products are innovative and being well received. We will continue to implement our supply chain optimization and re-engineering initiatives that are designed to increase inventory turns, improve forecast accuracy and reduce excess and obsolete inventory. We have plans to increase the utilization of our Suzhou, China facility, improve direct labor productivity and reduce logistics costs. We will continue to increase the use of common design platforms from which we can produce multiple generations of products.

~~Focus on the turnaround plan for AEG.~~ Development of a competitive portfolio of next generation products with lower manufacturing costs and higher margins is the key priority for AEG over the next 12 months. We also plan to take advantage of the industrial design capabilities that exist within the ACG segment to make these next generation products more appealing to buyers. We are working to control costs in AEG and exploring ways to make this business more efficient.

~~Improve the overall profitability of the Company.~~ In order to achieve our long-term targets for profitability, we will need to successfully implement our key initiatives, described above, as well as many other strategic and tactical initiatives which are designed to increase revenue growth, reduce costs, and operate more effectively.

Table of Contents

In our AEG segment, net revenues decreased slightly from $20.9 million in the first quarter of fiscal 2008 to $20.6 million in the first quarter of fiscal 2009 primarily due to the fact that the year ago figures include revenue from PC and Gaming headsets which were sold under the Altec Lansing brand and managed by AEG at the time. Effective at the beginning of the second quarter of fiscal 2008, we consolidated responsibility for PC and Gaming headsets, regardless of brand, under ACG. Operating losses decreased to $6.6 million in the first quarter of fiscal 2009 compared to $11.0 million in the corresponding period primarily due to lower requirements for excess and obsolete inventory, reduced operating costs and expenses as a result of our restructuring activities and tighter management promotions and discounts.

In fiscal 2009, our key corporate initiatives, explained below, are designed to increase long-term sustainable shareholder value:

Strengthen brand value of sound, style and simplicity. We are investing in a number of initiatives to further improve the sound quality and ease of use of our products. Our brand promise is sound, style, and simplicity, and we intend to continue investing resources to ensure we deliver on this pledge to our customers.

Maintain revenue growth. We plan to continue to invest in research and development to improve the overall sound quality and the appearance and functionality of our products. We will seek to grow the office market through the introduction of compelling, easy-to-use, wireless products and demand generation activities.

Improve profitability. We are continuing development of the cost effective high-end Bluetooth portfolio, and, within the AEG business, we are developing new product lines that we believe will help us to gain share and improve profit margins.

Table of Contents

RESULTS OF OPERATIONS

The following tables set forth, for the period indicated, the condensed consolidated statements of operations data and data by segment. The financial information and the ensuing discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto.

Consolidated

(in thousands) Three Months Ended December 31, Nine Months Ended December 31,
2006 2007 2006 2007

Net revenues $ 215,435 100.0 % $ 232,824 100.0 % $ 605,438 100.0 % $ 647,543 100.0 %
Cost of revenues 134,584 62.5 % 139,067 59.7 % 372,093 61.5 % 385,784 59.6 %
Gross profit 80,851 37.5 % 93,757 40.3 % 233,345 38.5 % 261,759 40.4 %

Operating expenses:
Research, development and engineering 17,837 8.3 % 19,308 8.3 % 53,434 8.8 % 58,004 9.0 %
Selling, general and administrative 46,196 21.4 % 48,424 20.8 % 134,583 22.2 % 140,476 21.7 %
Restructuring and other related charges - 0.0 % 2,882 1.3 % - 0.0 % 2,882 0.4 %
Gain on sale of land - 0.0 % - 0.0 % (2,637 ) (0.4 )% - 0.0 %
Total operating expenses 64,033 29.7 % 70,614 30.4 % 185,380 30.6 % 201,362 31.1 %
Operating income 16,818 7.8 % 23,143 9.9 % 47,965 7.9 % 60,397 9.3 %
Interest and other income, net 1,493 0.7 % 2,184 1.0 % 2,745 0.5 % 5,311 0.8 %
Income before income taxes 18,311 8.5 % 25,327 10.9 % 50,710 8.4 % 65,708 10.1 %
Income tax expense 3,121 1.4 % 6,219 2.7 % 10,704 1.8 % 15,103 2.3 %
Net income $ 15,190 7.1 % $ 19,108 8.2 % $ 40,006 6.6 % $ 50,605 7.8 %

Consolidated

Audio Communications Group

(in thousands)	Three Months Ended December 31,								Nine Months Ended December 31,									Three Months Ended June 30,
	2006				2007				2006					2007				2007				2008

Net revenues	$	176,511	100.0	%	$	195,955	100.0	%	$	503,281		100.0	%	$	562,574	100.0	%	$	206,495	100.0	%	$	219,164	100.0	%
Cost of revenues		99,254	56.2	%		106,257	54.2	%		284,445		56.5	%		302,216	53.7	%		122,949	59.5	%		128,285	58.5	%
Gross profit		77,257	43.8	%		89,698	45.8	%		218,836		43.5	%		260,358	46.3	%		83,546	40.5	%		90,879	41.5	%

Operating expenses:
Operating expense:
Research, development and engineering		15,137	8.6	%		16,544	8.5	%		45,697		9.1	%		49,522	8.8	%		19,488	9.5	%		19,695	9.0	%
Selling, general and administrative		39,265	22.3	%		42,103	21.5	%		111,340		22.1	%		121,129	21.6	%		46,111	22.3	%		48,398	22.1	%
Gain on sale of land		-	0.0	%		-	0.0	%		(2,637	)	(0.5	)%		-	0.0	%
Restructuring and other related charges																			-	0.0	%		375	0.2	%
Total operating expenses		54,402	30.9	%		58,647	30.0	%		154,400		30.7	%		170,651	30.4	%		65,599	31.8	%		68,468	31.3	%
Operating income	$	22,855	12.9	%	$	31,051	15.8	%	$	64,436		12.8	%	$	89,707	15.9	%		17,947	8.7	%		22,411	10.2	%
Interest and other income, net																			1,334	0.7	%		1,540	0.8	%
Income before income taxes																			19,281	9.4	%		23,951	11.0	%
Income tax expense																			4,306	2.1	%		3,457	1.6	%
Net income																		$	14,975	7.3	%	$	20,494	9.4	%

Audio Communications Group

(in thousands)	Three Months Ended June 30,
	2007				2008

Net revenues	$	185,572	100.0	%	$	198,527	100.0	%
Cost of revenues		99,796	53.8	%		109,357	55.1	%
Gross profit		85,776	46.2	%		89,170	44.9	%

Operating expense:
Research, development and engineering		16,784	9.0	%		17,197	8.7	%
Selling, general and administrative		40,006	21.6	%		42,950	21.6	%
Total operating expenses		56,790	30.6	%		60,147	30.3	%
Operating income	$	28,986	15.6	%	$	29,023	14.6	%

2021

Table of Contents

Audio Entertainment Group

(in thousands) Three Months Ended December 31, Nine Months Ended December 31,
2006 2007 2006 2007

Net revenues $ 38,924 100.0 % $ 36,869 100.0 % $ 102,157 100.0 % $ 84,969 100.0 %
Cost of revenues 35,330 90.8 % 32,810 89.0 % 87,648 85.8 % 83,568 98.4 %
Gross profit 3,594 9.2 % 4,059 11.0 % 14,509 14.2 % 1,401 1.6 %

Operating expenses:
Research, development and engineering 2,700 6.9 % 2,764 7.5 % 7,737 7.6 % 8,482 10.0 %
Selling, general and administrative 6,931 17.8 % 6,321 17.1 % 23,243 22.7 % 19,347 22.7 %
Restructuring and other related costs - 0.0 % 2,882 7.8 % - 0.0 % 2,882 3.4 %
Total operating expenses 9,631 24.7 % 11,967 32.4 % 30,980 30.3 % 30,711 36.1 %
Operating loss $ (6,037 ) (15.5 )% $ (7,908 ) (21.4 )% $ (16,471 ) (16.1 )% $ (29,310 ) (34.5 )%

Audio Entertainment Group

(in thousands)	Three Months Ended June 30,
	2007					2008

Net revenues	$	20,923		100.0	%	$	20,637		100.0	%
Cost of revenues		23,153		110.7	%		18,928		91.7	%
Gross profit (loss)		(2,230	)	(10.7	%)		1,709		8.3	%

Operating expense:
Research, development and engineering		2,704		12.9	%		2,498		12.1	%
Selling, general and administrative		6,105		29.2	%		5,448		26.4	%
Restructuring and other related charges		-		0.0	%		375		1.8	%
Total operating expenses		8,809		42.1	%		8,321		40.3	%
Operating loss	$	(11,039	)	(52.8	%)	$	(6,612	)	(32.0	%)

NET REVENUES

Audio Communications Group

	Three Months Ended
	June 30,				Increase
(in thousands)	2007		2008		(Decrease)

Net revenues from unaffiliated customers:
Office and Contact Center	$	132,205	$	122,803	$	(9,402	)	(7.1	%)
Mobile		41,238		59,882		18,644		45.2	%
Gaming and Computer Audio		6,485		9,621		3,136		48.4	%
Other		5,644		6,221		577		10.2	%
Total segment net revenues	$	185,572	$	198,527	$	12,955		7.0	%

Three Months Ended Nine Months Ended
December 31, Increase December 31, Increase
(in thousands) 2006 2007 (Decrease) 2006 2007 (Decrease)

Net revenues from unaffiliated customers:
Office and Contact Center $ 118,280 $ 131,017 $ 12,737 10.8 % $ 348,360 $ 394,579 $ 46,219 13.3 %
Mobile 43,080 48,788 5,708 13.2 % 112,085 125,885 13,800 12.3 %
Gaming and Computer Audio 8,364 10,449 2,085 24.9 % 23,380 25,211 1,831 7.8 %
Other Specialty Products 6,787 5,701 (1,086 ) (16.0 )% 19,456 16,899 (2,557 ) (13.1 )%
Total segment net revenues $ 176,511 $ 195,955 $ 19,444 11.0 % $ 503,281 $ 562,574 $ 59,293 11.8 %

Audio Entertainment Group

	Three Months Ended									Nine Months Ended									Three Months Ended
	December 31,				Increase					December 31,				Increase					June 30,				Increase
(in thousands)	2006		2007		(Decrease)					2006		2007		(Decrease)					2007		2008		(Decrease)

Net revenues from unaffiliated customers:
Docking Audio	$	20,822	$	20,682	$	(140	)	(0.7	)%	$	53,814	$	44,588	$	(9,226	)	(17.1	)%	$	10,291	$	9,772	$	(519	)	(5.0	%)
PC Audio		15,202		14,101		(1,101	)	(7.2	)%		40,920		35,176		(5,744	)	(14.0	)%		8,448		9,178		730		8.6	%
Other		2,900		2,086		(814	)	(28.1	)%		7,423		5,205		(2,218	)	(29.9	)%		2,184		1,687		(497	)	(22.8	%)
Total segment net revenues	$	38,924	$	36,869	$	(2,055	)	(5.3	)%	$	102,157	$	84,969	$	(17,188	)	(16.8	)%	$	20,923	$	20,637	$	(286	)	(1.4	%)

TheCompared to the same quarter a year ago, consolidated net revenues increased 6%, from $206.5 million in the first quarter of fiscal 2008 to $219.2 million in the first quarter of fiscal 2009. All of the increase in net revenues ~~in both the three and nine month periods ended December 31, 2007 is~~was attributable to the ACG segment, whose revenues accounted for approximately ~~84%~~91% of consolidated net ~~revenues in the third quarter of fiscal 2008 and 87% for the nine months ended December 31, 2007.~~revenues. The increase in ACG ~~net~~ revenues ~~is primarily~~was driven by the ~~result~~strength of Bluetooth and other consumer products. We believe the increase was due to the strength of our ~~ability~~current product portfolio as well as an increase in domestic demand attributable to ~~increase our revenues for office wireless headset systems. We also benefited from~~hands-free legislation in the ~~weaker dollar primarily from sales denominated in Euros~~states of California and ~~Great British Pounds.~~Washington. AEG net revenues decreased compared to the same ~~periods~~quarter a year ago and accounted for approximately ~~16%~~9% of net ~~revenues in~~revenues; however, these results are not fully comparable as the ~~third quarter~~year ago figures included $1.7 million of ~~fiscal 2008~~PC and ~~13%~~Gaming headset revenue that, at the time, was managed by AEG and sold under the Altec Lansing brand. Responsibility for ~~the nine months ended December 31,~~all PC and Gaming headsets, regardless of brand, was transferred to ACG effective July 1, 2007. We are currently working on the next generation of products for AEG with the goal of creating a sufficiently competitive portfolio ~~thereby increasing~~to increase revenues and ~~improving~~improve profitability and market share.

2122

Table of Contents

ACG

ACG ~~designs, manufactures, markets~~is engaged in the design, manufacture, marketing and ~~sells~~sales of headsets for business and consumer applications, and other specialty ~~products for select markets.~~products. We make ~~products~~headsets for use in ~~offices~~office and contact centers, with mobile and cordless phones, and with computers and gaming consoles. Major product categories include ~~Office~~“Office and Contact ~~Center~~Center”, which is defined as corded and cordless communication headsets, amplifiers and telephone systems; “Mobile~~Mobile~~”,, which is defined as ~~corded~~Bluetooth and ~~Bluetooth~~corded products for mobile phone applications; ~~Gaming~~“Gaming and Computer ~~Audio~~Audio”, which is defined as gaming and PC headsets; and ~~Other~~“Other”, which includes specialty products such as Clarity products marketed for hearing impaired individuals.

Office and Contact Center (“OCC”) products represent our largest source of revenues, while Mobile products represent our largest unit volumes. Revenues may vary due to seasonality, the timing of the introduction of new products, ~~seasonality,~~ discounts and other incentives and channel mix. There has been a growing trend toward wireless products and a corresponding shift away from our corded products. Wireless products represented ~~55%~~60% of net revenues in the ~~third~~first quarter of fiscal ~~2008~~2009 compared to ~~53%~~54% in the ~~third~~first quarter of fiscal ~~2007.~~2008.

We have a “book and ship” business model, whereby we ship most orders to our customers within 48 hours of receipt of those orders. Thus, we cannot rely on the level of backlog to provide visibility into potential future revenues.

Fluctuations in the net revenues of ACG ~~for the three months ended December 31, 2007~~ compared to the same quarter a year ago ~~were as follows:~~are described below:

~~increased~~

Mobile net revenues ~~in our OCC product category with cordless products, which primarily consists of wireless office systems, comprising $8.4~~increased $18.6 million entirely due to increased demand for Bluetooth headsets. Most of the ~~increase and corded products representing an increase of $4.4 million. The increases are primarily due to the addition of the CS70N to our product line in fiscal 2008, corded~~ revenue growth ~~internationally,~~was in the United States and ~~some benefit~~was driven by growth from ~~foreign exchange rates;~~increased retail placements as a result of an improved product portfolio as well as demand attributable to hands-free driving legislation in the states of California and Washington.

~~increased~~OCC net revenues ~~in our Mobile product category~~decreased $9.4 million mostly due to ~~an increase~~weaker economic conditions in the United States and Europe. Corded products net revenues ~~from Bluetooth headsets of $5.6~~decreased $8.7 million ~~as a result of market growth and greater acceptance of our product portfolio.~~

~~Fluctuations in the net revenues of ACG for the nine months ended December 31, 2007 compared to the same period a year ago were as follows:~~

~~increased~~while cordless net revenues ~~in our OCC product category with cordless products comprising $34.0 million of the increase and corded products representing an increase of $12.2~~decreased $0.7 million. The increases are primarily due to the addition of the CS70N to our product line in fiscal 2008, corded revenue growth internationally, mostly in Europe and Asia Pacific, and some benefit from foreign exchange rates;

~~increased~~Gaming and Computer Audio product net revenues ~~in our Mobile product category with an increase in net~~increased $3.1 million of which $1.7 million is due to the transfer of responsibility of headset revenues from ~~Bluetooth headsets~~AEG to ACG effective July 1, 2007. The remaining increase is due to continued strength of ~~$17.9 million as a result~~the refreshed product line that was launched in the fall of ~~market growth and greater acceptance of our product portfolio, offset in part by a decline in net revenues from corded mobile headsets of $4.1 million.~~2008.

AEG

AEG ~~is engaged~~operates predominantly in the consumer electronics market and focuses on the design, manufacture ~~sales, marketing~~ and ~~support~~distribution of ~~audio solutions and related technologies.~~a wide range of products. Our product offerings include computer and digital audio systems, digital radio frequency audio systems, and portable audio products as well as headphones for personal digital media. Major product categories include Docking Audio, which is defined as all speakers whether AC or battery-powered that work with portable digital players, such as iPod and other MP3 players; PC Audio, which is defined as self-powered speaker systems used for computers and other multi-media application systems; and Other, which includes personal audio (headphones) and home audio systems. Currently, all of the revenues in AEG are derived from our Altec Lansing-branded products.

~~Altec Lansing~~

Table of Contents

Due to the fact that our AEG products are primarily consumer goods sold in the retail channel, ~~and~~the holiday sales ~~are highly seasonal. The strongest revenues typically occur~~ in the December quarter ~~due to the holiday period.~~

typically account for a seasonal spike in net revenues.

~~Table of Contents~~

~~Fluctuations in the net~~Net revenues of AEG ~~for the three months ended December 31, 2007~~ compared to the same quarter a year ago ~~were~~decreased $1.7 million as ~~follows:~~

~~decreased PC Audio net revenues of $1.1 million primarily in Asia and the U.S. due~~a result of the transfer of responsibility for headset products to ~~increased competition and price reductions;~~

~~decreased Other net revenues of $0.8 million primarily due to the transition of the Altec Lansing-branded headsets from the AEG segment to the~~ ACG ~~segment resulting in a decrease of $2.3 million, partially~~ offset by increased headphone ~~and other revenue of $1.5 million.~~

~~Fluctuations in the~~ net revenues of ~~AEG for the nine months ended December 31, 2007 compared~~$1.2 million, which experienced growth across all geographic regions due to ~~the same period a year ago were as follows:~~

decreased Docking Audio net revenues of $9.2 million, primarily as a result of intense competition in the MP3 accessories market, particularly in the U.S., and our reduced share of the MP3 accessories market;

~~decreased PC Audio net revenues of $5.7 million, most significantly in the U.S., due to increased competition and price reductions;~~

decreased Other net revenues of $2.2 million primarily due to the transition of the Altec Lansing-branded headsets from the AEG segment to the ACG segment resulting in a decrease of $4.3 million, partially offset by an increase in headphone and other net revenues of $2.1 million.

new product introductions.

Geographical Information

	Three Months Ended
	June 30,				Increase
(in thousands)	2007		2008		(Decrease)

Net revenues from unaffiliated customers:
United States	$	131,108	$	134,402	$	3,294	2.5	%

Europe, Middle East and Africa		49,430		51,358		1,928	3.9	%
Asia Pacific		14,420		16,687		2,267	15.7	%
Americas, excluding United States		11,537		16,717		5,180	44.9	%
Total International		75,387		84,762		9,375	12.4	%
Total Consolidated	$	206,495	$	219,164	$	12,669	6.1	%

Three Months Ended Nine Months Ended
December 31, Increase December 31, Increase
(in thousands) 2006 2007 (Decrease) 2006 2007 (Decrease)

Net revenues from unaffiliated customers:
United States $ 125,824 139,106 $ 13,282 10.6 % $ 375,114 396,613 $ 21,499 5.7 %

Europe, Middle East and Africa 56,337 59,535 3,198 5.7 % 142,164 158,902 16,738 11.8 %
Asia Pacific 15,537 15,804 267 1.7 % 45,402 48,540 3,138 6.9 %
Americas, excluding United States 17,737 18,379 642 3.6 % 42,758 43,488 730 1.7 %
Total international 89,611 93,718 4,107 4.6 % 230,324 250,930 20,606 8.9 %
$ 215,435 $ 232,824 $ 17,389 8.1 % $ 605,438 $ 647,543 $ 42,105 7.0 %

For the three months ended December 31, 2007 compared to the same period a year ago, international net revenues as a percentage of total net revenues decreased from 42% to 40%, primarily due to a decline of international net revenues in AEG. For ACG, domestic and international net revenues as a percentage of total net revenues remained consistent at 60% and 40%, respectively, for the three months ended December 31, 2006 and 2007. For the nine months ended December 31, 2007June 30, 2008 compared to the same period a year ago, international net revenues as a percentage of total net revenues increased from ~~38%~~37% to 39%, primarily due to ~~the strength of our Europe, Middle East and Africa (“EMEA”) business~~an increase in ACG ~~offset in part by~~from 36% to 38%. For the three months ended June 30, 2008 compared to the same period a year ago, AEG domestic net revenues decreased from 61% to 52% and international net ~~revenue in AEG.~~revenues increased from 39% to 48% as a percentage of total net revenues.

2324

Table of Contents

COST OF REVENUES AND GROSS PROFIT (LOSS)

Cost of revenues consists primarily of direct manufacturing and contract manufacturer costs, including material and direct labor, our operations management team and indirect labor such as supervisors and warehouse workers, freight expense, warranty expense, ~~reserves~~depreciation, royalties, provision for excess and obsolete inventory ~~depreciation, royalties,~~ and an allocation of overhead ~~expenses,~~costs, including facilities and IT costs.

	Three Months Ended												Nine Months Ended												Three Months Ended
	December 31,						Increase						December 31,						Increase						June 30,						Increase
(in thousands)	2006			2007			(Decrease)						2006			2007			(Decrease)						2007			2008			(Decrease)

Consolidated
Net revenues	$	215,435		$	232,824		$	17,389			8.1	%	$	605,438		$	647,543		$	42,105			7.0	%	$	206,495		$	219,164		$	12,669			6.1	%
Cost of revenues		134,584			139,067			4,483			3.3	%		372,093			385,784			13,691			3.7	%		122,949			128,285			5,336			4.3	%
Consolidated gross profit	$	80,851		$	93,757		$	12,906			16.0	%	$	233,345		$	261,759		$	28,414			12.2	%	$	83,546		$	90,879		$	7,333			8.8	%
Consolidated gross profit %		37.5	%		40.3	%		2.8		ppt.				38.5	%		40.4	%		1.9		ppt.				40.5	%		41.5	%		1.0		ppt.

Audio Communications Group
Net revenues	$	176,511		$	195,955		$	19,444			11.0	%	$	503,281		$	562,574		$	59,293			11.8	%	$	185,572		$	198,527		$	12,955			7.0	%
Cost of revenues		99,254			106,257			7,003			7.1	%		284,445			302,216			17,771			6.2	%		99,796			109,357			9,561			9.6	%
Segment gross profit	$	77,257		$	89,698		$	12,441			16.1	%	$	218,836		$	260,358		$	41,522			19.0	%	$	85,776		$	89,170		$	3,394			4.0	%
Segment gross profit %		43.8	%		45.8	%		2.0		ppt.				43.5	%		46.4	%		2.9		ppt.				46.2	%		44.9	%		(1.3	)	ppt.

Audio Entertainment Group
Net revenues	$	38,924		$	36,869		$	(2,055	)		(5.3	)%	$	102,157		$	84,969		$	(17,188	)		(16.8	)%	$	20,923		$	20,637		$	(286	)		(1.4	%)
Cost of revenues		35,330			32,810			(2,520	)		(7.1	)%		87,648			83,568			(4,080	)		(4.7	)%		23,153			18,928			(4,225	)		(18.2	%)
Segment gross profit	$	3,594		$	4,059		$	465			12.9	%	$	14,509		$	1,401		$	(13,108	)		(90.3	)%
Segment gross profit %		9.2	%		11.0	%		1.8		ppt.				14.2	%		1.6	%		(12.6	)	ppt.
Segment gross profit (loss)																									$	(2,230	)	$	1,709		$	3,939			(176.6	%)
Segment gross profit (loss) %																										(10.7	%)		8.3	%		19.0		ppt.

In the first quarter of fiscal 2009, compared to the same quarter a year ago, consolidated gross profit increased 9%, from $83.5 million in the first quarter of fiscal 2008 to $90.9 million in the first quarter of fiscal 2009. The increase in consolidated gross profit ~~in both the three and nine month periods ended December 31, 2007 is~~was attributable to the ACG ~~for which~~segment, whose gross profit accounted for approximately ~~96%~~98% of consolidated gross profit and an increase in AEG gross profit which accounted for ~~the three months ended December 31, 2007 and 99% for the nine months ended December 31, 2007.~~approximately 2%.

Fluctuations in the gross profit of ACG and AEG ~~for the three months ended December 31, 2007,~~ compared to the same ~~period~~quarter a year ago were as follows:

ACG

The increase in gross profit was primarily due to higher net revenues. As a percentage of net revenues, the decrease in gross profit ~~increased 2.0~~of 1.3 percentage points is primarily due to the following:

a ~~2.3~~4.3 percentage point decrement from a less favorable product mix with a large increase in Mobile products which generally have a lower gross margin than Office products;

a 0.5 percentage point decrement from higher freight expenses due to a longer supply chain and higher rates;

a 0.4 percentage point benefit from ~~cost reductions on office wireless and Bluetooth products;~~favorable foreign exchange rates;

a 0.9 percentage point benefit from a reduction in excess and obsolete inventory costs as we had more specialty telephone and Bluetooth inventory which reached end of life in the third quarter of fiscal year 2007 than in the third quarter of fiscal year 2008;

~~a 0.8 percentage point improvement resulting from better absorption of fixed costs and improved productivity in our manufacturing processes;~~

a 0.7 percentage point benefit from ~~foreign exchange.~~lower warranty and excess and obsolete inventory provisions; and

a 2.4 percentage point benefit from material cost reductions and improvements in manufacturing efficiency.

These improvements in gross profit were partially offset by increased freight, warranty, and other costs. There was a 1.1 percentage point decrease from higher freight expenses due to higher rates, a longer supply chain, higher material receipts, and increased use of air freight. There was a 0.9 percentage point decrease from higher warranty costs primarily due to increased sales of mobile and entertainment products through retail channels where the open box warranty returns often occur more frequently than through other sales channels. In addition, there were other costs that were individually insignificant but collectively resulted in a 0.8 percentage point decrease in gross profit.

~~Table of Contents~~

~~AEG~~

~~As a percentage of net revenues, gross profit increased 1.8 percentage points primarily due to the following:~~

~~A decrease in claims from suppliers and decreased excess and obsolete inventory costs as we were able to sell slow moving product to liquidators, resulting in a benefit of 12.7 percentage points.~~

This increase was partially offset by a decrease in the standard margin of 7.2 percentage points, due to overall decreased sales, the change in the product mix and pricing erosion on the existing product lines and increased air freight, royalties, and warehousing which resulted in a 4.8 percentage point decline.

~~Fluctuations in the gross profit of ACG and AEG for the nine months ended December 31, 2007, compared to the same period a year ago were as follows:~~

~~ACG~~

~~The increase in gross profit was primarily due to higher net revenues. As a percentage of net revenues, gross profit increased 2.9 percentage points primarily due to the following:~~

~~a 2.5 percentage point benefit from cost reductions on wireless office and Bluetooth products;~~

~~a 0.7 percentage point benefit from foreign exchange;~~

a 0.7 percentage point benefit from a reduction in excess and obsolete inventory costs as we had more corded mobile headsets and specialty telephone inventory which reached end of life in the nine months ended December 31, 2006 than in the nine months ended December 31, 2007;

~~a 0.5 percentage point improvement resulting from better absorption of fixed costs and improved productivity in our manufacturing processes.~~

These improvements in gross profit were partially offset by higher warranty costs and increased freight expenses. There was a 1.0 percentage point decrease from higher warranty costs primarily due to increased sales of mobile and entertainment products through retail channels where the open box warranty returns often occur more frequently than through other sales channels. There was also a 0.5 percentage point decreased from higher freight expenses due to higher rates, a longer supply chain, higher material receipts, and increased use of air freight.

~~AEG~~

~~As a percentage of net revenues, gross profit decreased 12.6 percentage points primarily due to the following:~~

~~a decrease in the standard margin of 7.7 percentage points due to a 5% decline in the overall sales volume, the change in the product mix, and reduced selling prices of surplus inventory;~~

~~increased air freight, tooling depreciation, royalties and warehousing which resulted in a 4.9 percentage point decline;~~

~~These decreases were partially offset by decreased freight, which yielded a 2.4 percentage point increase.~~

Table of Contents

AEG

The increase in gross profit of approximately $4 million primarily reflected a lower provision for excess and obsolete inventory costs in the 3 months ended June 30, 2008 due to better supply chain management of inventory levels along with the sale of previously reserved inventory during the period.

For both of our segments, product mix has a significant impact on gross profit as there can be significant variances between our higher and ~~our~~ lower margin products. Therefore, small variations in product mix, which can be difficult to predict, can have a significant impact on gross profit. In addition, if we do not properly anticipate changes in demand, we have, in the past, and may, in the future, incur significant costs associated with writing off excess and obsolete inventory or incur charges for adverse purchase commitments. While we are focused on actions to improve our gross profit through supply chain management, improvements in product launches, increasing the utilization of manufacturing capacity, ~~particularly in our new facility in Suzhou, China,~~ restructuring AEG’s China manufacturing and procurement functions, including the shut down of our manufacturing plant in Dongguan, China, and improving the effectiveness of our marketing programs, there can be no assurance that these actions will be successful. Gross profit may also vary based on return rates, the amount of product sold for which royalties are required to be paid, the rate at which royalties are calculated, and other factors.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, development and engineering costs are expensed as incurred and consist primarily of compensation costs, outside services, including legal fees associated with protecting our intellectual property, expensed materials, depreciation and an allocation of overhead ~~expenses,~~costs, including facilities, human resources, and IT costs.

	Three Months Ended												Nine Months Ended												Three Months Ended
	December 31,						Increase						December 31,						Increase						June 30,						Increase
(in thousands)	2006			2007			(Decrease)						2006			2007			(Decrease)						2007			2008			(Decrease)

Consolidated
Research, development and engineering	$	17,837		$	19,308		$	1,471			8.2	%	$	53,434		$	58,004		$	4,570			8.6	%	$	19,488		$	19,695		$	207			1.1	%
% of total consolidated net revenues		8.3	%		8.3	%		-		ppt.				8.8	%		9.0	%		0.2		ppt.				9.5	%		9.0	%		(0.5	)	ppt.

Audio Communications Group
Research, development and engineering	$	15,137		$	16,544		$	1,407			9.3	%	$	45,697		$	49,522		$	3,825			8.4	%	$	16,784		$	17,197		$	413			2.5	%
% of total segment net revenues		8.6	%		8.5	%		(0.1	)	ppt.				9.1	%		8.8	%		(0.3	)	ppt.				9.0	%		8.7	%		(0.3	)	ppt.

Audio Entertainment Group
Research, development and engineering	$	2,700		$	2,764		$	64			2.4	%	$	7,737		$	8,482		$	745			9.6	%	$	2,704		$	2,498		$	(206	)		(7.6	%)
% of total segment net revenues		6.9	%		7.5	%		0.6		ppt.				7.6	%		10.0	%		2.4		ppt.				12.9	%		12.1	%		(0.8	)	ppt.

In the ~~three and nine months ended December 31, 2007,~~first quarter of fiscal 2009, compared to the same ~~periods~~quarter a year ago, consolidated research, development and engineering expenses increased ~~primarily~~ due to ~~increased~~higher compensation ~~costs. The majority of the increase in research, development and engineering expenses~~ ~~is attributable to the ACG segment.~~

~~The $1.4 million and $3.8 million increase in ACG expenses in the three and nine months periods ended December 31, 2007, compared to the same periods a year ago is~~costs primarily related to ~~higher compensation and project expenses~~ACG headcount growth at our design ~~centers~~center in ~~the U.S.,~~ Suzhou, China ~~and Mexico. These increases are~~ partially offset by reductions in program and compensation expenses for Volume Logic technology development. AEG expenses for the three month period ended December 31, 2007 were relatively flat compared to the same period a year ago. The $0.7 million increase in AEG expenses in the nine months ended December 31, 2007, compared to the same period a year ago is primarily related to increasedlower outside services and design costs in AEG due to our continued efforts to reduce costs.

Table of ~~$1.1 million offset in part by decreased bonuses associated with lower net revenues.~~Contents

Projects that the research, development and engineering departments focused on were:

the design and development of wireless office system products;

Bluetooth products and technology;

product line platforming; and

the refresh of AEG product ~~lines for AEG.~~ lines.

~~Table of Contents~~

We anticipate that our consolidated research, development and engineering expenses will ~~continue to increase for~~be fairly consistent with the current quarter throughout the remainder of fiscal ~~2008 due to continued expenditures for wireless office and wireless mobile products as well as increased expenditures related to revitalizing our AEG products.~~2009.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expense consists primarily of compensation costs, marketing costs, professional service fees, travel expenses, litigation costs ~~bad debt expense~~ and an allocation of overhead ~~expenses,~~costs, including facilities, human resources and IT costs.

	Three Months Ended												Nine Months Ended												Three Months Ended
	December 31,						Increase						December 31,						Increase						June 30,						Increase
(in thousands)	2006			2007			(Decrease)						2006			2007			(Decrease)						2007			2008			(Decrease)

Consolidated
Selling, general and administrative	$	46,196		$	48,424		$	2,228			4.8	%	$	134,583		$	140,476		$	5,893			4.4	%	$	46,111		$	48,398		$	2,287			5.0	%
% of total consolidated net revenues		21.4	%		20.8	%		(0.6	)	ppt.				22.2	%		21.7	%		(0.5	)	ppt.				22.3	%		22.1	%		(0.2	)	ppt.

Audio Communications Group
Selling, general and administrative	$	39,265		$	42,103		$	2,838			7.2	%	$	111,340		$	121,129		$	9,789			8.8	%	$	40,006		$	42,950		$	2,944			7.4	%
% of total segment net revenues		22.3	%		21.5	%		(0.8	)	ppt.				22.1	%		21.6	%		(0.5	)	ppt.				21.6	%		21.6	%		-		ppt.

Audio Entertainment Group
Selling, general and administrative	$	6,931		$	6,321		$	(610	)		(8.8	)%	$	23,243		$	19,347		$	(3,896	)		(16.8	)%	$	6,105		$	5,448		$	(657	)		(10.8	%)
% of total segment net revenues		17.8	%		17.1	%		(0.7	)	ppt.				22.7	%		22.7	%		-		ppt.				29.2	%		26.4	%		(2.8	)	ppt.

In the ~~three and nine months ended December 31, 2007,~~first quarter of fiscal 2009, compared to the same ~~periods~~quarter a year ago, ~~consolidated~~ selling, general and administrative expenses increased in ACG due to ~~increased~~higher compensation costs of $2.4 million as a result of merit increases and higher ~~bonus and commission~~marketing travel costs ~~associated with higher net revenues and profits in ACG,~~ partially offset by ~~a decrease~~expense decreases in ~~expenses in AEG.~~AEG related to decreased spending on integration and lower retail representative commissions due to lower revenues.

~~AEG expenses for the three month period ended December 31, 2007 were relatively flat compared to the same period a year ago. Fluctuations in the~~

We anticipate our consolidated selling, general and administrative expenses will be fairly consistent with the current quarter throughout the remainder of ~~ACG for the three months ended December 31, 2007, compared to the same quarter a year ago were as follows:~~fiscal 2009.

~~Selling, general and administrative expenses increased due to the following:~~

~~increased compensation expense of $3.2 million as a result of merit increases and higher bonus and commission costs associated with higher net revenues and profits;~~

~~increased professional service fees of $1.2 million;~~

~~decreased marketing and sales promotions of $1.3 million.~~

~~Fluctuations in the selling, general and administrative expenses of ACG and AEG for the nine months ended December 31, 2007, compared to the same period a year ago were as follows:~~

~~ACG~~

~~Selling, general and administrative expenses increased due to the following:~~

~~increased compensation expense of $8.7 million as a result of merit increases and higher bonus and commission costs associated with higher net revenues and profits;~~

~~increased professional service fees of $2.2 million;~~

~~increased travel expenses of $1.0 million;~~

~~increased equipment expenses of $1.0 million;~~

~~decreased marketing and sales promotions of $1.0 million;~~

~~decrease of $1.2 million in legal expenses, bad debt expense and several other expense categories.~~

Table of Contents

~~AEG~~

~~Selling, general and administrative expenses decreased due to the following:~~

~~decreased spending on integration and retention of employees of $2.1 million as we have completed significant portions of our planned systems integration;~~

~~increased allocation of support services to cost of revenues and research and development resulting in decreased expenses of $1.0 million.~~

We anticipate that our consolidated selling, general and administrative expenses will continue to increase for the remainder of fiscal 2008 due to the introduction of certain sales and marketing programs.

RESTRUCTURING AND OTHER RELATED CHARGES

In November 2007, the Company announced plans to close AEG’s manufacturing facility in Dongguan, China, to shut down a related Hong Kong research and development, sales and procurement office and to consolidate procurement, research and development activities for AEG in the Shenzhen, China site. The selling, general and administrative functions of AEG in China ~~will also be~~are in the process of being consolidated with those of ACG ~~through-out~~throughout the Asia-Pacific region. ~~These actions will result in~~In the ~~elimination~~third quarter of ~~all manufacturing operation positions in Dongguan, China and certain related support functions. As of December 31, 2007,~~fiscal 2008, the production line at the Dongguan, China facility was shut down. ~~This restructuring~~The plan is ~~part of a strategic initiative designed to reduce fixed costs by outsourcing all of AEG manufacturing to the network of qualified contract manufacturers already in place. The plan will proceed~~proceeding in phases and is expected to be complete ~~by March 2008.~~

~~During~~in the third quarter of fiscal ~~2008, we~~2009.

Restructuring and other related charges of approximately $3.8 million related to this restructuring plan have been recorded ~~$2.9~~to date including $0.2 million recorded in the first quarter of fiscal 2009. The total restructuring charges of $3.8 million consists of $1.4 million for the write-off of facilities and equipment and accelerated depreciation, $1.4 million for severance and benefits, and $1.0 million in professional and administrative fees. We believe that substantially all restructuring and other related charges ~~which~~have been recorded as of June 30, 2008. As of June 30, 2008, approximately $0.5 million was ~~comprised~~unpaid and is expected to be paid during fiscal 2009. As a result of the ~~following:~~restructuring plan, we currently expect cost savings of approximately $3 million in fiscal 2009 and $4 million in fiscal 2010.

~~$1.2 million for severance and benefits;~~

$1.0 million related to facilities and equipment including $0.5 million related to the write-off of production equipment and $0.5 million in accelerated depreciation for property and equipment to be abandoned;

~~$0.7 million in other related charges primarily related to professional and other administrative fees.~~

In November 2007, 730 employees were notified ~~for~~of their termination, 708 in manufacturing, 20 in research and development and 2 in selling, general and administrative. As of ~~December 31, 2007, 672~~June 30, 2008, 718 employees ~~have~~had been ~~terminated.~~terminated, 6 employees had voluntarily terminated and 6 employees will terminate over the next two quarters.

~~Including~~In June 2008, the ~~$2.9 million recognized~~Company announced a reduction in force at AEG’s operations in Milford, Pennsylvania as part of the ~~third~~strategic initiative designed to reduce costs. A total of 31 employees were notified of their termination of which 25 had been terminated as of June 30, 2008. In the first quarter of fiscal ~~2008,~~2009, we ~~expect to record total~~recorded $0.2 million of restructuring charges, consisting solely of ~~approximately $4.0~~severance, related to ~~$4.5~~this activity of which $0.1 million ~~consisting~~was unpaid as of June 30, 2008 and is expected to be paid in the ~~following:~~

~~$1.6 million for the write-off of facilities and equipment and accelerated depreciation;~~

~~$1.4 million for severance and benefits;~~

~~$1.0 to $1.5 million in professional and administrative fees.~~

second quarter of fiscal 2009. We ~~expect to incur~~believe that substantially all restructuring and other related charges have been recorded as of $1.0 million during the fourth quarter of fiscal 2008 and the remaining $0.1 to $0.6 million is expected to be incurred in fiscal 2009. These charges include approximately $2.0 million of cash payments which we expect to fund from our operating cash.June 30, 2008. We currently expect cost savings as a result of the restructuring plan ofto be approximately $3 million in fiscal 2009.

OPERATING INCOME (LOSS)

	Three Months Ended
	June 30,						Increase
(in thousands)	2007			2008			(Decrease)

Consolidated
Operating income	$	17,947		$	22,411		$	4,464			24.9	%
% of total consolidated net revenues		8.7	%		10.2	%		1.5		ppt.

Audio Communications Group
Operating income	$	28,986		$	29,023		$	37			0.1	%
% of total segment net revenues		15.6	%		14.6	%		(1.0	)	ppt.

Audio Entertainment Group
Operating loss	$	(11,039	)	$	(6,612	)	$	(4,427	)		(40.1	%)
% of total segment net revenues		(52.8	%)		(32.0	%)		(20.8	)	ppt.

Consolidated operating income increased in the first quarter of fiscal 2009 mostly due to higher gross profit from higher revenues which was partially offset by an increase in operating expenses. ACG’s operating income was relatively unchanged although gross profit increased from higher revenue but was mostly offset by higher operating expenses. AEG’s operating loss was reduced primarily from higher gross profit as a result of cost reduction efforts and ~~$4 million in fiscal 2010.~~lower levels of discounts.

Table of Contents

~~GAIN ON SALE OF LAND~~

During the first quarter of fiscal 2007, we had a non-recurring transaction in which we sold a parcel of land in Frederick, Maryland, for net proceeds of $2.7 million and recorded a gain of $2.6 million from the sale of this property.

~~OPERATING INCOME (LOSS)~~

Three Months Ended Nine Months Ended
December 31, Increase December 31, Increase
(in thousands) 2006 2007 (Decrease) 2006 2007 (Decrease)

Consolidated
Operating income $ 16,818 $ 23,143 $ 6,325 37.6 % $ 47,965 $ 60,397 $ 12,432 25.9 %
% of total consolidated net revenues 7.8 % 9.9 % 2.1 ppt. 7.9 % 9.3 % 1.4 ppt.

Audio Communications Group
Operating income $ 22,855 $ 31,051 $ 8,196 35.9 % $ 64,436 $ 89,707 $ 25,271 39.2 %
% of total segment net revenues 12.9 % 15.8 % 2.9 ppt. 12.8 % 15.9 % 3.1 ppt.
��
Audio Entertainment Group
Operating loss $ (6,037 ) $ (7,908 ) $ 1,871 31.0 % $ (16,471 ) $ (29,310 ) $ 12,839 77.9 %
% of total segment net revenues (15.5 )% (21.4 )% 5.9 ppt. (16.1 )% (34.5 )% 18.4 ppt.

In the three and nine months ended December 31, 2007, compared to the same periods a year ago, consolidated operating income increased due to higher net revenues and improved gross profit in ACG, despite the absence of the $2.6 million gain on sale of land recognized in the first quarter of fiscal 2007 and restructuring and other related charges of $2.9 million recognized in the third quarter of fiscal 2008. The improved operating results in ACG were partially offset by increased operating losses in AEG, primarily due to lower net revenues and gross profit.

INTEREST AND OTHER INCOME, NET

	Three Months Ended											Nine Months Ended											Three Months Ended
	December 31,						Increase					December 31,						Increase						June 30,						Increase
(in thousands)	2006			2007			(Decrease)					2006			2007			(Decrease)						2007			2008			(Decrease)

Consolidated
Interest and other income, net	$	1,493		$	2,184		$	691		46.3	%	$	2,745		$	5,311		$	2,566		93.5	%		$	1,334		$	1,540		$	206		15.4	%
% of total consolidated net revenues		0.7	%		1.0	%		0.3	ppt.				0.5	%		0.8	%		0.3	ppt.					0.7	%		0.8	%		0.1	ppt.

In the ~~three and nine months ended December 31, 2007,~~first quarter of fiscal 2009, compared to the same ~~periods~~quarter a year ago, interest and other income, net increased slightly primarily due to higher interest income as a result of higher average cash balances offset in part by lower interest rates and higher ~~average yields,~~foreign currency gains.

At June 30, 2007 and ~~lower interest expense resulting from the repayment of our line of credit in the fourth quarter of fiscal 2007.~~ ~~At December 31, 2007,~~2008, there were no outstanding borrowings under the credit ~~facility compared to $6.0 million as of December 31, 2006.~~facility.

~~Table of Contents~~

INCOME TAX EXPENSE

	Three Months Ended											Nine Months Ended											Three Months Ended
	December 31,						Increase					December 31,						Increase					June 30,						Increase
(in thousands)	2006			2007			(Decrease)					2006			2007			(Decrease)					2007			2008			(Decrease)

Consolidated
Income before income taxes	$	18,311		$	25,327		$	7,016		38.3	%	$	50,710		$	65,708		$	14,998		29.6	%	$	19,281		$	23,951		$	4,670			24.2	%
Income tax expense		3,121			6,219			3,098		99.3	%		10,704			15,103			4,399		41.1	%		4,306			3,457			(849	)		(19.7	%)
Net income	$	15,190		$	19,108		$	3,918		25.8	%	$	40,006		$	50,605		$	10,599		26.5	%	$	14,975		$	20,494		$	5,519			36.9	%
Effective tax rate		17.0	%		24.6	%		7.6	ppt.				21.1	%		23.0	%		1.9	ppt.				22.3	%		14.4	%		(7.9	)	ppt.

The effective tax rate for the three ~~and nine~~ months ended ~~December 31, 2007~~June 30, 2008 was ~~24.6% and 23.0%, respectively,~~14.4% compared to ~~17.0% and 21.1%~~22.3% for the same ~~periods~~period a year ago. The lower effective tax rate ~~is higher than the previous year~~was primarily due to ~~Congress reinstating~~ the ~~Research and Development Credit retroactively to January 1, 2006~~release of tax reserves resulting from the lapse of the statute of limitations in certain jurisdictions during the ~~third~~first quarter of fiscal ~~2007 and the cost of restructuring in China incurred in the current quarter for which we have not currently recognized any tax benefit.~~2009. The effective tax rate differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates, income tax credits, state taxes, and other factors. The future tax rate could be impacted by a shift in the mix of domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax laws in the United States and/or internationally; or a change in ~~estimate~~estimates of future taxable income which could result in a valuation allowance being required.

~~On April 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). Under~~In accordance with FIN 48, for the ~~impact~~quarter ended June 30, 2008, we recognized a tax benefit of ~~an uncertain income~~$1.7 million, consisting of $1.4 million in tax ~~position on income tax expense must be recognized at~~reserves and $0.3 million of related interest due to the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. There were no material adjustments as a resultlapse of the ~~adoption~~statute of ~~FIN 48. At the adoption date,~~limitations in certain jurisdictions. As of June 30, 2008, we had ~~$13.5~~$11.5 million of unrecognized tax benefits ~~$10.9~~compared to $12.4 million as of ~~which would affect our income tax expense if recognized. The remaining balance~~March 31, 2008. All of the total unrecognized tax benefits ~~of $2.6 million~~ would ~~be an adjustment to goodwill~~favorably impact the effective tax rate in future periods if recognized before April 1, 2009 prior to the adoption of SFAS No. 141R. As of December 31, 2007, we had $16.1 million of unrecognized tax benefits. The Company expects the resolution of some uncertain tax positions within the next 12 months. Favorable resolution of these uncertainties would result in a significant benefit to income tax expense.recognized.

It is our continuing practice to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2008, we had approximately $1.5 million of accrued interest related to uncertain tax positions, compared to $1.7 million as of March 31, 2008. No penalties have been accrued.

Although the timing and outcome of income tax audits is highly uncertain, it is possible that certain unrecognized tax benefits may be reduced as a result of the lapse of the applicable statutes of limitations in federal, state and foreign jurisdictions within the next twelve months. Currently, we cannot reasonably estimate the amount of reductions during the next twelve months. Any such reduction could be impacted by other changes in unrecognized tax benefits.

Table of Contents

We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. We are no longer subject to either U.S. federal ~~and~~or state income tax examinations by tax authorities for ~~fiscal~~ years prior to ~~2003.~~2005 and 2004, respectively. Foreign income tax matters for ~~most foreign~~material tax jurisdictions have been concluded through tax years before 2003, except for the United Kingdom, which has been concluded through fiscal ~~years~~2005, and Germany and France which have been concluded through ~~2001.~~fiscal 2006.

~~Table of Contents~~

FINANCIAL CONDITION

The table below provides selected condensed consolidated cash flow information for the periods presented:

	Nine Months Ended						Three Months Ended
	December 31,						June 30,
(in thousands)	2006			2007			2007			2008

Cash provided by operating activities	$	28,164		$	74,438		$	12,851		$	34,009

Cash used for capital expenditures and other assets		(18,739	)		(16,918	)		(6,322	)		(4,790	)
Cash provided by (used for) other investing activities		10,696			(44,450	)
Cash used for other investing activities								(4,075	)		-
Cash used for investing activities		(8,043	)		(61,368	)		(10,397	)		(4,790	)

Cash (used for) provided by financing activities	$	(21,157	)	$	6,654
Cash provided by (used for) financing activities							$	237		$	(2,200	)

Cash Flows from Operating Activities

Cash flows from operating activities for the ~~nine~~three months ended ~~December 31,~~June 30, 2008 consisted of net income of $20.5 million, non-cash charges of $10.8 million and working capital sources of cash of $2.7 million. Non-cash charges related primarily to $7.1 million of depreciation and amortization, $4.3 million of stock-based compensation under SFAS No. 123(R) and a provision for excess and obsolete inventory of $1.3 million. Working capital sources of cash consisted primarily of increases in accounts payable and income taxes payable which fluctuate based on the timing of payments and accounts receivable which increased due to higher net revenues. The DSO as of June 30, 2008 increased to 54 days from 53 days as of June 30, 2007. Working capital uses of cash consisted primarily of increases in inventory as a result of revenue growth and anticipated demand and accrued liabilities which fluctuate with the timing of payments.

Cash flows from operating activities for the three months ended June 30, 2007 consisted of net income of ~~$50.6~~$15 million, non-cash charges of ~~$34.3~~$12.9 million and working capital uses of cash of ~~$10.5~~$15.0 million. Non-cash charges ~~consisted~~related primarily ~~of $21.5~~to $7.1 million of depreciation and amortization, a provision for excess and obsolete inventory of ~~$8.5~~$5.4 million and ~~$11.9~~$4.1 million of stock-based compensation under SFAS No. 123(R). Working capital uses of cash consisted primarily of increases in inventory and accounts ~~receivable. Inventory increased to support higher overall volumes~~receivable and the transition of manufacturing of consumer headsets to our manufacturing facility in Suzhou, China. As a result of our increased net sales, inventory turns increased from 3.8 as of March 31, 2007 to 4.2 as of December 31, 2007. Accounts receivable increased due to higher net revenues. Days Sales Outstanding as of March 31, 2007 and December 31, 2007 was 53 days. Workingworking capital sources of cash consisted primarily of increases in accounts payable and accrued liabilities ~~and income taxes payable~~ which fluctuate with the timing of payments.

Cash flows from operating activities for the nine months ended December 31, 2006 consisted of net income of $40.0 million, non-cash charges of $37.6 million and working capital uses of cash of $49.4 million. Non-cash charges consisted primarily of $21.8 million of depreciation and amortization, provision for excess and obsolete inventory of $11.1 million and $12.6 million of stock-based compensation under SFAS No. 123(R). Working capital uses of cash consisted primarily of increases in inventory, accounts receivable and income taxes payable and working capital sources of cash consisted primarily of an increase in accrued liabilities which fluctuates with the timing of payments.

In the nine months ended December 31, 2007, compared to the same period a year ago, operating cash flow increased by $46.5 million. The increase in cash provided by operations is primarily attributable to the increase in net income and decreased spending on inventory in the nine month period ended December 31, 2007 compared to the same period a year ago. The remaining increase is attributable to fluctuations in accounts payable, accrued liabilities and income taxes payable related to the timing of payments.

Cash Flows from Investing Activities

Net cash flows used for investing activities for the ~~nine~~three months ended ~~December 31, 2007~~June 30, 2008 primarily consisted of ~~net purchases of short-term investments of $44.5 million and~~ capital expenditures of ~~$16.9 million.~~$4.8 million For the ~~nine~~three months ended ~~December 31, 2006,~~June 30, 2007, net cash flows used for investing activities primarily consisted of net purchases of short-term investments of $4.1 million and capital expenditures of ~~$18.7 million which was partially offset by net proceeds from short-term investments~~$6.3 million.

Table of ~~$8.0 million and $2.7 million related to the sale of land in Frederick, Maryland in the first quarter of fiscal 2007.~~Contents

Cash Flows from Financing Activities

Net cash flows ~~provided~~used by financing activities for the ~~nine~~three months ended ~~December 31, 2007~~June 30, 2008 primarily consisted of ~~$9.1~~dividend payments of $2.5 million and $2.4 million related to the repurchase of common stock, which was partially offset by $2.0 million in proceeds from the exercise of employee stock options ~~$2.9~~and $0.4 million in proceeds from the sale of treasury stock. For the three months ended June 30, 2007, net cash flows provided for financing activities primarily consisted of $1.9 million in proceeds from the exercise of employee stock options, $0.4 million in proceeds from the sale of treasury stock and ~~$1.9~~$0.4 million of excess tax benefits from stock-based compensation, which was partially offset by dividend payments of ~~$7.3~~$2.4 million. For the nine months ended December 31, 2006, net cash flows used for financing activities primarily consisted of $16.0 million related to the repayment of the line of credit, $4.0 million related to the repurchase of common stock and dividend payments of $7.1 million. This was partially offset by $2.7 million in proceeds from the exercise of employee stock options and $2.7 million in proceeds from the sale of treasury stock.

~~Table of Contents~~

Liquidity and Capital Resources

Our primary discretionary cash requirements historically have been for capital expenditures, including tooling for new products and leasehold improvements for facilities expansion. For the remainder of fiscal ~~2008,~~2009, we expect to spend ~~$4.0~~$18 to ~~$7.0~~$22 million in capital expenditures, primarily for ~~completing~~various IT projects, tooling for new products, and completion of the ~~expansion of~~new data center at our facilities in Santa Cruz, ~~tooling, and IT systems.~~California.

At ~~December 31, 2007,~~June 30, 2008, we had working capital of ~~$342.2~~$359.3 million, including ~~$169.6~~$190.2 million of cash and cash equivalents, ~~and short-term investments,~~ compared with working capital of ~~$258.4~~$335.0 million, including ~~$103.4~~$163.1 million of cash and cash equivalents ~~and short-term investments~~ at March 31, ~~2007.~~2008.

We hold a variety of auction rate securities (“ARS”), primarily comprised of interest bearing state sponsored student loan revenue bonds guaranteed by the Department of Education. Historically, these ARS investments have provided liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, typically every 7 or 35 days. The recent uncertainties in the credit markets have affected all of our holdings, and, as a consequence, these investments are not currently liquid. As a result, we will not be able to access these funds until a future auction of these investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2029 to 2039. All of the ARS investments were investment grade quality and were in compliance with our investment policy at the time of acquisition. We currently have the ability to hold these ARS investments until a recovery of the auction process or until maturity. We classified the entire ARS investment balance as long-term investments on our consolidated balance sheet as of March 31, 2008 because of our inability to determine when our investments in ARS will settle.

Typically the fair value of ARS investments approximates par value due to the frequent resets throughout the auction process. While we continue to earn interest on our ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value.

We have used a discounted cash flow model to determine the estimated fair value of our investments in ARS as of June 30, 2008. The key assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the ARS.

Based on this assessment of fair value, as of June 30, 2008, we have experienced a cumulative decline in the fair value of our ARS investments of $3.8 million, including $0.9 million recorded in the first quarter of fiscal 2009, which is deemed temporary. The further decline in fair value in the current quarter was primarily due to the Single A Rated ARS which declined in value from 86.4% as of March 31, 2008 to 81.4% as of June 30, 2008.

Table of Contents

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and liquidity.

If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may incur further temporary impairment charges requiring us to record additional unrealized losses in accumulated other comprehensive loss. We could also incur other-than-temporary impairment charges resulting in realized losses in our statement of operations which would reduce net income. We continue to monitor the market for ARS transactions and consider its impact, if any, on the fair value of our investments.

Our investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relationship to our investment guidelines and market conditions. We have decided to modify our current investment strategy by limiting our investments in ARS to our current holdings and increasing our investments in more liquid investments.

We have a ~~$100.0~~$100 million revolving line of credit and a letter of credit sub-facility. Borrowings under the line of credit are unsecured and bear interest at the London inter-bank offered rate (“LIBOR”) plus 0.75%. The line of credit expires on August 1, 2010. The line of credit was fully repaid in the fourth quarter of fiscal 2007. At ~~December 31, 2007,~~June 30, 2008, there were no outstanding borrowings under the credit facility and our commitments under a letter of credit sub-facility were ~~$0.5~~$0.4 million. The amounts outstanding under the letter of credit sub-facility are principally associated with purchases of inventory. The terms of the credit facility contain covenants that materially limit our ability to incur additional debt and pay dividends, among other matters. ItThey also ~~requires~~require us to maintain ~~in addition to~~ a minimum annual net income, a maximum leverage ratio and a minimum quick ratio. These covenants may adversely affect us to the extent that we cannot comply with them. We are currently in compliance with the covenants under ~~the credit facility.~~our amended Credit Agreement.

We enter into foreign currency forward-exchange contracts, which typically mature in one month, to hedge ~~our~~the exposure to foreign currency fluctuations of foreign currency-denominated receivables, payables, and cash balances. We record on the balance sheet at each reporting period the fair value of our forward-exchange contracts and record any fair value adjustments in our results of operations. Gains and losses associated with currency rate changes on contracts are recorded within interest and other income, ~~(expense),~~ net, offsetting transaction gains and losses on the related assets and liabilities.

We also have a hedging program to hedge a portion of forecasted revenues denominated in the Euro and Great British Pound with put and call option contracts used as collars. At each reporting period, we record the net fair value of our unrealized option contracts on the balance sheet with related unrealized gains and losses as a component of accumulated other comprehensive ~~income,~~loss, a separate element of stockholders’ equity. Gains and losses associated with realized option contracts are recorded within revenue.

Our liquidity, capital resources, and results of operations in any period could be affected by the exercise of outstanding stock options, sale of restricted stock to employees, and the issuance of common stock under our employee stock purchase plan. Further, the resulting increase in the number of outstanding shares could affect our per share ~~earnings. However,~~earnings; however, we cannot predict the timing or amount of proceeds from the sale or exercise of these securities, or whether they will be exercised at all.

Our AEG segment has incurred operating losses, utilizing more cash than has been generated by that segment. AEG’s cash deficits have been funded by the cash surpluses generated by ACG. We anticipate that ACG’s cash surpluses will be sufficient to cover any cash deficits generated by AEG during the AEG turnaround.

Table of Contents

We believe that our current cash, cash equivalents and cash provided by operations, and our line of credit will be sufficient to fund operations for at least the next twelve ~~months. However,~~months; however, any projections of future financial needs and sources of working capital are subject to uncertainty. See “Certain Forward-Looking Information” and “Risk Factors” in this Quarterly Report on Form 10-Q for factors that could affect our estimates for future financial needs and sources of working capital.

~~Table of Contents~~

OFF BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing and liquidity support or market risk or credit risk support to the Company.

CONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations outside the normal course of business since the fiscal year ended March 31, ~~2007. However,~~2008; however, as discussed in Note 10 of the ~~"Notes~~Notes to the Condensed Consolidated Financial ~~Statements",~~Statements, we adopted the provisions of FIN 48 as of April 1, 2007. At ~~December 31, 2007, we had a liability~~June 30, 2008, the liabilities for ~~unrecognized~~uncertain tax benefits and ~~an accrual for the payment of~~ related interest ~~totaling $16.1~~were $11.5 million ~~which we~~and $1.5 million, respectively. We do not ~~expect~~anticipate any material cash payments associated with our uncertain tax positions to be ~~due~~made within the next 12 months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a complete description of what we believe to be the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial statements, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2007. We updated the following~~2008. There have been no changes to our critical accounting ~~policy~~policies during the first quarter of fiscal ~~2008.~~2009.

~~Income Taxes~~Recent Accounting Pronouncements

We are subject to income taxes both in the United States as well as in several foreign jurisdictions. Management must make certain estimates and judgments in determining income tax expense for the financial statements. These estimates occur in the calculation of tax benefits and deductions, tax credits, and tax assets and liabilities which are generated from differences in the timing of when items are recognized for book purposes and when they are recognized for tax purposes.

We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized.

OnEffective April 1, ~~2007,~~2008, the Company adopted ~~FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation~~Financial Accounting Standards Board (“FASB”) Statement of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. Under FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. There were no material adjustments as a result of the adoption of FIN 48. We continue to follow the practice of recognizing interest and penalties related to income tax matters as a part of the provision for income taxes.

~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In September 2006, the FASB issued SFAS~~Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), ~~which~~only with respect to financial assets and liabilities recognized at fair value on a recurring basis. SFAS No. 157 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”, which amends SFAS No. 157 to exclude accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13, “Accounting for Leases”. In February 2008, the FASB also issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS No. 157 until the first quarter of fiscal 2010 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. ~~SFAS No. 157 is effective for the Company beginning on April 1, 2008.~~ The ~~Company is currently evaluating the impact of adopting the provisions~~partial adoption of SFAS No. 157 has not had a material impact on ~~its~~the Company’s consolidated financial statements.

~~In February 2007,~~Under SFAS No. 157, fair value is defined as the ~~FASB issued~~ exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.

Table of Contents

Level 1 – Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date;

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 4 for information and related disclosures regarding the Company’s fair value measurements.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). became effective April 1, 2008. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 also amends certain provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). The Company does not have any instruments for which it has elected the fair value option; therefore, SFAS No. 159 ~~is effective for~~has not impacted the ~~Company beginning on April 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on its~~Company’s consolidated financial statements.

~~Table of Contents~~

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business ~~Combinations~~”Combinations” ("SFAS No. ~~141R"~~141(R)"), which replaces SFAS NoNo. 141. SFAS No. ~~141R~~141(R) retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. ~~141R~~141(R) is effective for the Company beginning April 1, 2009 and will apply prospectively to any business combinations completed on or after that ~~date.~~date, except that resolution of certain tax contingencies and adjustments to valuation allowances related to business combinations, which previously were adjusted to goodwill, will be adjusted to income tax expense for all such adjustments after April 1, 2009, regardless of the date of the original business combination.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and their effect on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 will be effective in the first quarter of fiscal year 2010. The Company is evaluating the impact that this statement will have, if any, on its consolidated financial statements.

Table of Contents

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company is evaluating the impact that FSP 142-3 will have, if any, on its consolidated financial statements.

Item 3. Q~~uantitative~~Quantitative and Qualitative Disclosures About Market Risk

The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in “Risk Factors.”

INTEREST RATE RISK

We had cash and cash equivalents totaling ~~$94.1~~$163.1 million at March 31, ~~2007~~2008 compared to ~~$115.5~~$190.2 million at ~~December 31, 2007.~~June 30, 2008. We had no short-term investments as of ~~$9.2 million at~~ March 31, ~~2007~~2008 and ~~$54.1 million at December 31, 2007.~~June 30, 2008. Cash equivalents have a maturity, when purchased, of three months or less. Short-term investments have a maturity of greater than three months and are classified as available-for-sale. Long-term investments have maturities greater than one year, or we do not have the ability to currently liquidate. All of our ~~short-term~~long-term investments are held in our name at a limited number of major financial institutions and consist of auction rate securities, concentrated primarily in student loans. ~~Our auction rate security portfolio has~~We have no exposure to sub-prime mortgage securities.

We applied the same modeling technique as we used at March 31, ~~2007~~2008 to measure the hypothetical changes in fair values in our ~~short-term~~long-term investments, excluding cash and cash equivalents, held at ~~December 31, 2007~~June 30, 2008 that are sensitive to changes in interest rates. ~~Based upon our analysis, the fair values did not change materially as our investments are~~

Table of ~~short duration.~~Contents

As of ~~January~~July 25, 2008, we had no borrowings under the revolving line of credit facility and ~~$0.6~~$0.4 million committed under the letter of credit sub-facility. If we choose to borrow amounts under this facility in the future and market interest rates rise then our interest payments would increase accordingly.

FOREIGN CURRENCY EXCHANGE RATE RISK

We are engaged in a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. We hedge our balance sheet exposure by hedging Euro and Great British Pound denominated receivables, payables, and cash balances, and our economic exposure by hedging a portion of anticipated Euro and Great British Pound denominated ~~sales; however, we can provide~~sales. We have no assurance ~~that~~ our strategy will be successfully implemented and that exchange rate fluctuations will not materially adversely affect our business in the future.

~~Table of Contents~~

Non-designated Hedges

We hedge our Euro and Great British Pound denominated receivables, payables and cash balances by entering into foreign exchange forward contracts.

The table below presents the impact of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the forward currency contracts as of ~~December 31, 2007~~June 30, 2008 (in millions):

				FX		FX						FX		FX
				Gain (Loss)		Gain (Loss)						Gain (Loss)		Gain (Loss)
		USD Value		From 10%		From 10%				USD Value		From 10%		From 10%
		of Net FX		Appreciation		Depreciation				of Net FX		Appreciation		Depreciation
Currency - forward contracts	Position	Contracts		of USD		of USD			Position	Contracts		of USD		of USD
Euro	Sell Euro	$	29.1	$	2.9	$	(2.9	)	Sell Euro	$	18.0	$	1.8	$	(1.8	)
Great British Pound	Sell GBP		10.6		1.1		(1.1	)	Sell GBP		12.5		1.3		(1.3	)
Net position		$	39.7	$	4.0	$	(4.0	)		$	30.5	$	3.1	$	(3.1	)

Cash Flow Hedges

~~For~~In the ~~nine months ended December 31, 2007,~~first quarter of fiscal 2009, approximately ~~40%~~39% of net revenues were derived from sales outside the United States, which were predominately denominated in the Euro and the Great British Pound.

As of ~~December 31, 2007,~~June 30, 2008, we had foreign currency call option contracts of approximately ~~€47.8~~ €47.5 million and ~~£17.3~~£18.8 million denominated in Euros and Great British Pounds, respectively. As of ~~December 31, 2007,~~June 30, 2008, we also had foreign currency put option contracts of approximately ~~€47.8~~ €47.5 million and ~~£17.3~~£18.8 million denominated in Euros and Great British Pounds, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign currency denominated sales.

The table below presents the impact on our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated option contract type for cash flow hedges as of ~~December 31, 2007~~June 30, 2008 (in millions):

				FX		FX						FX		FX
				Gain (Loss)		Gain (Loss)						Gain (Loss)		Gain (Loss)
	USD Value			From 10%		From 10%			USD Value			From 10%		From 10%
	of Net FX			Appreciation		Depreciation			of Net FX			Appreciation		Depreciation
Currency - option contracts	Contracts			of USD		of USD			Contracts			of USD		of USD
Call options	$	(103.4	)	$	4.4	$	(9.0	)	$	(109.7	)	$	5.1	$	(9.5	)
Put options		97.7			4.9		(1.3	)		104.5			5.0		(1.2	)
Net position	$	(5.7	)	$	9.3	$	(10.3	)	$	(5.2	)	$	10.1	$	(10.7	)

3536

Table of Contents

Item ~~4. Controls~~4. Controls and Procedures

(a)

Evaluation of disclosure controls and ~~procedures.~~procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information relating to Plantronics, Inc. required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissions rules and forms.

In connection with the filing of Form 10-Q for the quarter ended ~~December 31, 2007,~~June 30, 2008, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~December 31, 2007.~~June 30, 2008.

(b)

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3637

Table of Contents

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are presently engaged in various legal actions arising in the normal course of our business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating ~~results. However,~~results; however, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition, results of operations or cash flows. There were no material developments in the ~~first three quarters of fiscal year 2008 in the~~ litigation on which we reported in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2007.~~2008.

I~~TEM~~ITEM 1A. RISK FACTORS

Investors ~~or potential investors~~ in our stock should carefully consider the ~~risks described below.~~following risk factors in connection with any investment in our stock. Our stock price will reflect the performance of our business relative to, among other things, our competition, expectations of securities analysts or investors, and general economic market conditions and industry conditions. One should carefully consider the following factors in connection with any investment in our stock. We have added the second risk factor relating to economic conditions and the nineteenth risk factor relating to credit market and financial conditions, and materially amended the third and fourth risk factors relating to failure of suppliers to provide components and the acquisition of Altec Lansing, respectively, ~~from the corresponding risk factors~~ ~~published in our Form 10-K for the fiscal year ended March 31, 2007.~~ Our business, financial condition and results of operations could be materially adversely affected if any of the following risks occur. ~~Should any or all of the following risks materialize,~~Accordingly, the trading price of our stock could decline, and investors could lose all or part of their investment.

Economic conditions have been deteriorating, and there is a risk of a recession.

Our products and markets are subject to general economic conditions, and if there is a slowing of national or international economic growth or an increase in inflation, our forecasted demand may not materialize to the levels we require to achieve our anticipated financial results, which could in turn have a material adverse effect on the market price of our stock. In addition, we may receive returns from our retailers of products in excess of our historical experience rates. Should product returns vary significantly from our estimate, revenues may be negatively impacted since returns net against revenue. Failure to meet our anticipated demand projections could create excess levels of inventory, which could result in additional reserves for excess and obsolete inventory negatively impacting our financial results.

Our operating results are difficult to predict, and fluctuations may cause volatility in the trading price of our common stock.

Given the nature of the markets in which we compete, our revenues and profitability are difficult to predict for many reasons, including the following:

our operating results are highly dependent on the volume and timing of orders received during the quarter, which are difficult to forecast. Customers generally order on an as-needed basis, and we typically do not obtain firm, long-term purchase commitments from our customers. As a result, our revenues in any quarter depend primarily on orders booked and shipped in that quarter;

we incur a large portion of our costs in advance of sales orders because we must plan research and production, order components and enter into development, sales and marketing, and other operating commitments prior to obtaining firm commitments from our customers. In the event we acquire too much inventory for certain products, the risk of future inventory write-downs increases. In the event we have inadequate inventory to meet the demand for particular products, we may miss significant revenue opportunities or incur significant expenses such as air freight, expediting shipments, and other negative variances in our manufacturing processes as we attempt to make up for the shortfall. When a significant portion of our revenue is derived from new products, forecasting the appropriate volumes of production is even more difficult;

Table of Contents

in the ACG segment, our prices and gross margins are generally lower for sales to Business-to-Consumer (“B2C”) customers compared to sales to our Business-to-Business (“B2B”) customers. In addition, our prices and gross margins can vary significantly by product line as well as within product lines. Therefore, our profitability depends, in part, on the mix of our B2B to B2C customers as well as our product mix. In the AEG segment, our prices and gross margins are generally lower for our PC Audio products than for our Docking Audio ~~products. Therefore,~~products; therefore, our profitability depends, in part, on our mix of PC Audio to Docking Audio products. The size and timing of our product mix and opportunities in these markets are difficult to predict;

we are working to refresh virtually the entire AEG product line; however, market adoption of new products is difficult to predict;

~~Table of Contents~~

a significant portion of our annual retail sales for AEG generally occur in the third fiscal quarter, thereby increasing the difficulty of predicting revenues and profitability from quarter to quarter and in managing inventory levels;

fluctuations in currency exchange rates impact our revenues and profitability because we report our financial statements in U.S. dollars, whereas a significant portion of our sales to customers are transacted in other currencies, particularly the Euro and Great British Pound (“GBP”). Furthermore, fluctuations in foreign currencies impact our global pricing strategy resulting in our lowering or raising selling prices in ~~a currency~~one or more currencies in order to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions. WeOver the last fiscal year, we have experienced a ~~significant~~ favorable impact on our gross profit ~~in fiscal 2008~~ as a result of the strength of the Euro and GBP. Currency exchange rates are difficult to predict, and we may not be able to ~~either~~ predict changes in exchange rates in the ~~future and~~future. Consequently, our gross profit and profitability could be negatively impacted in the future by currency exchange rates; and

because we have significant manufacturing operations in Mexico and China, fluctuations in currency exchange rates in those two countries can impact our gross profit and profitability.

Fluctuations in our operating results may cause volatility in the trading price of our common stock.

~~Economic conditions, particularly~~

Prices of certain raw materials, components and sub-assemblies may rise or fall depending upon global market conditions.

We have experienced cost increases from our suppliers and in light of the cost of oil, food supplies and other products in the United States ~~have been declining~~ and ~~there is a risk~~around the world, we may continue to receive cost increases, which could negatively affect profitability and/or market share. If we are unable to pass these increases on to our customers or to achieve operating efficiencies that offset these increases, our business, financial condition and results of ~~a recession.~~operations may be materially and adversely affected.

Our ~~products~~AEG segment has had and ~~markets are subject~~may continue to ~~general economic conditions,~~have an adverse effect on our financial condition.

In fiscal years 2007 and 2008, and the first quarter of fiscal 2009, we incurred significant losses in our AEG segment. If the anticipated future results of this business do not materialize as expected, or if ~~there is a slowing of national or international economic growth as has been widely discussed~~we miss our internal milestones in the ~~United States, our forecasted demand may not materialize to~~turnaround, goodwill and other intangible assets which were recorded as a result of the ~~levels we require to achieve our anticipated financial results, which~~acquisition could in turn materially adversely affect the market price of our stock. In addition, we may receive returns from our retailers of products in excess of our historical experience rate. Should product returns vary significantly from our estimate, estimated revenues may be negatively impacted since returns net against revenue. Failure to meet our anticipated demand could also result in excess levels of inventory, whichbecome impaired and could result in ~~additional reserves for excess and obsolete inventory,~~write-offs which would negatively impact our ~~financial~~operating results. The risks faced in connection with this include the following:

we believe that the turnaround for AEG is largely dependent on the development of a new product portfolio. We are currently working on the new portfolio with anticipated product placement in Fall 2008 although ongoing product refreshes on a routine basis after that will also be required. The development of these new products may not evolve as anticipated. There can be no assurance that these new products will be successful and, during the time we are developing the new products, our competitors are selling products to our customers and increasing their market share;

Table of Contents

we are in the process of restructuring AEG’s China operations. Pursuant to a restructuring plan announced in November 2007, we have closed AEG’s manufacturing facility in Dongguan, China; are in the process of shutting down a related Hong Kong research and development, sales and procurement office; and have consolidated procurement, research and development activities for AEG in a new Shenzhen, China site which we began to use in the fourth quarter of fiscal 2008. The selling, general and administrative functions of AEG have been consolidated with those of ACG throughout the Asia-Pacific region. These steps are part of a strategic initiative designed to reduce fixed costs by outsourcing the majority of AEG manufacturing to a network of qualified contract manufacturers already in place. There is a risk that the consolidation of the AEG Asian operations may cost more than we currently expect. There is also a risk that the savings that we currently predict may not materialize and that the timing of costs and benefits may be different than what we currently expect. If the cost of consolidation is more than we currently anticipate or the savings that we currently anticipate from these activities do not materialize, our future financial results may be adversely affected;

as a result of our restructuring, we are relocating many of our research and development engineers and procurement staff from Dongguan, China and Hong Kong into a Shenzhen, China facility. As a result of this change, we may lose key personnel which could negatively impact our new AEG product portfolio refresh;

we announced further AEG cost reductions in the first quarter of fiscal 2009 with a reduction in force at the Milford, Pennsylvania operations. In addition, we continue to review AEG’s costs structure and may implement additional cost-cutting initiatives in the future;

competition may continue to increase in AEG’s markets more than we expect;

meeting the spring and fall market windows for AEG products;

difficulties retaining or obtaining shelf space for these products in our sales channel;

difficulties retaining or improving the brand recognition associated with the Altec Lansing brand during the turnaround; and

difficulties in integration of the operations, technologies, and products of Altec Lansing. We have transitioned a significant portion of Altec Lansing’s operations onto our ERP system; however, we have not completed our integration effort. There has been a significant cost to implement new systems and business processes. We anticipate that there will continue to be business processes and internal controls which will change as a result of the integration.

The failure of our suppliers to provide quality components or services in a timely manner could adversely affect our results.

Our growth and ability to meet customer ~~demands depend~~demand depends in part on our ability to obtain timely deliveries of raw materials, components, sub-assemblies and products from our suppliers. We buy raw materials, components and sub-assemblies from a variety of suppliers and assemble them into finished products. We also have certain of our products manufactured for us by third party suppliers. The cost, quality, and availability of such goods are essential to the successful production and sale of our products. Obtaining raw materials, components, sub-assemblies and finished products entails various risks, including the following:

●

although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permit us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, and/or the inability to meet our customer demand for these new products. Additionally, these supplier or other suppliers may discontinue production of the parts we depend on. If this occurs, we may have difficulty obtaining sufficient product to meet our needs. This could cause us to fail to meet customer expectations. If customers turn to our competitors to meet their needs, there could be a long-term impact on our revenues and profitability. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these factors;

we have been put on notice by a single source supplier that chipsets used in headsets accounting for approximately 27% of ACG revenues are subject to an end-of-life notice. We believe that we will be able to obtain sufficient quantities of these chipsets to last us for approximately one year, and we have reached an agreement with that supplier to obtain greater supplies of the chipset in the future. However, the fulfillment of this agreement by the supplier is subject to the transfer of the supplier’s current chip fabrication facility to a new facility and our qualification of the new facility. Thus, the timing of the delivery of additional quantities of the chips in the future may be uncertain. We also have new products in development that can replace the products that use these chipsets. These products are currently scheduled for release to volume production before we expect to exhaust supplies of the chipset currently in use. However, there can be no assurance that we will complete the new products on schedule, that the cost of those products will be similar to the current products and/or that our channels will accept the new products as rapidly as will be necessary to maintain revenue continuity. If we are unable to obtain sufficient supplies of the current chipsets or commence volume production of the new products in a timely manner or otherwise remedy the situation before the current chipsets become unavailable our business, financial condition and results of operations will be materially and adversely affected;

~~Table of Contents~~

if the chipsets from the aforementioned single source supplier become available, we may be unable to predict the last time buy quantities accurately, and we may experience excess or insufficient inventories of the chipsets. This could cause us to either fail to produce sufficient quantities of our products to fill our customers’ orders or to have larger inventories that could lead to our writing off unusable product as excess and obsolete. This may have an adverse effect on our financial results;

rapid increases in production levels to meet unanticipated demand for our products could result in higher costs for components and sub-assemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins;

Table of Contents

we obtain certain raw materials, sub-assemblies, components and products from single suppliers and alternate sources for these items are not readily available. ~~To date, we have not experienced any significant interruptions in the supply of these raw materials, sub-assemblies, components and products. Adverse economic conditions could lead to a higher risk of~~Any failure of our suppliers to remain in business or to be able to purchase the raw materials, subcomponents and parts required by them to produce and provide to us the parts we ~~need. An interruption in supply from any of our single source suppliers in the future would~~need could materially adversely affect our business, financial condition and results of operations;

~~prices of certain components of~~although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permit us to work with only a single source of silicon chip-sets on any particular new product. We, or our supplier(s) of chip-sets, may experience challenges in designing, developing and ~~sub-assemblies~~manufacturing components in these new technologies which could affect our ability to meet market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, or the inability to meet our customer demand for these new products. Additionally, these suppliers or other suppliers may ~~rise or fall depending upon global market conditions. In general,~~discontinue production of the parts we ~~are experiencing~~depend on. If this occurs, we may have difficulty obtaining sufficient product to meet our needs. This could cause us to fail to meet customer expectations. If customers turn to our competitors to meet their needs, there could be a ~~net increase in the costs~~long-term adverse impact on our revenues and profitability. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these components. If we are unable to pass these increases on to our customers or to achieve operating efficiencies that offset these increases, our business, financial condition and results of operations may be materially and adversely affected;factors;

because of the lead times required to obtain certain raw materials, sub-assemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the raw materials, sub-assemblies, components and products. Lead times are particularly long on silicon-based components incorporating radio frequency and digital signal processing technologies and such components are an increasingly important part of our product costs. In particular, many B2C customer orders have shorter lead times than the component lead times, making it increasingly necessary to carry more inventory in anticipation of those orders, which may not materialize. Failure in the future to match the timing of purchases of raw materials, sub-assemblies, components and products to demand could increase our inventories and/or decrease our revenues ~~consequently~~and could materially adversely ~~affecting~~affect our business, financial condition and results of operations; and

~~Table of Contents~~

most of our suppliers are not obligated to continue to provide us with raw materials, components and sub-assemblies. Rather, we buy most of our raw materials, components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those raw materials, components and subassemblies. Any such shortages would materially adversely affect our business, financial condition and results of operations.

Acquisition, integration, and restructuring of Altec Lansing Technologies, Inc., which is in our Audio Entertainment Group, has had and may continue to have an adverse effect on our financial condition.

There are inherent risks associated with our acquisition of Altec Lansing that could materially adversely affect our business, financial condition and results of operations. The risks faced in connection with this acquisition include among others:

we believe that the turnaround for AEG is largely dependent on a significant product refresh of the Altec Lansing product portfolio, We are currently working on a product refresh which we are anticipating will take us until December of fiscal 2009 to complete. The development of these new products may not evolve as anticipated. There can be no assurance that these new products will be successful, and the length of time required for this refresh may cause our customers to buy from our competitors;

controlling costs in the AEG business and making business operations more efficient in order to increase profitability. We are in the process of restructuring AEG’s China operations. We have shut down manufacturing in our Dongguan, China plant, and are consolidating operations in Shenzhen, China, and are now outsourcing manufacturing. There are significant costs and risks associated with this restructuring. While we believe that we can achieve cost savings with this strategy in the near term, there can be no assurance that we can achieve our planned cost savings or that this strategy will be successful. If we cannot successfully execute our restructuring plans, we could incur incremental losses and production could be negatively impacted;

the potential loss of key employees of Altec Lansing and Plantronics. As a result of our restructuring, we are relocating many of our research and development engineers and procurement staff from Dongguan, China and Hong Kong into a Shenzhen, China facility. As a result of this change, we may lose key personnel which could negatively impact our new AEG product portfolio refresh;

~~competition may continue to increase in Altec Lansing’s markets more than expected;~~

~~meeting the market windows for Altec Lansing’s products;~~

~~difficulties retaining or obtaining shelf space for these products in our sales channel;~~

~~difficulties retaining or improving the brand recognition associated with the Altec Lansing brand during the turnaround;~~

difficulties in integration of the operations, technologies, and products of Altec Lansing. We have transitioned a significant portion of Altec Lansing’s operations onto our ERP system; however, we have not completed our integration effort. There has been a significant cost to implement new systems and business processes. We anticipate that there will continue to be significant business processes and internal controls which will change as a result of the integration;

~~diversion of management's attention from normal daily operations of the core business;~~

~~cultural differences in the conduct of the business.~~

Mergers and acquisitions, particularly those of technology companies, are inherently risky, and no assurance can be given that this or any future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition. We must also manage any acquisition-related growth effectively. In fiscal 2007 and continuing into fiscal 2008, we incurred significant losses from the Altec Lansing business. If the anticipated future results of our AEG business do not materialize as expected or if we miss our internal milestones in the turnaround, goodwill and other intangible assets which were recorded as a result of the acquisition could become impaired and could result in write-offs which would negatively impact our operating results.

4041

Table of Contents

If we do not match production to demand, we may lose business or our gross margins could be materially adversely affected.

Our industry is characterized by rapid technological change, frequent new product introductions, short-term customer commitments and rapid changes in demand. We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future. Significant unanticipated fluctuations in supply or demand and the global trend towards consignment of products could cause the following operating problems, among others:

if forecasted demand does not develop, we could have excess inventory and excess capacity. Over-forecast of demand could result in higher inventories of finished products, components and sub-assemblies. In addition, because our retail customers have pronounced seasonality, we must build inventory well in advance of the December quarter in order to stock up for the anticipated future demand. If we were unable to sell these inventories, we would have to write off some or all of our inventories of excess products and unusable components and sub-assemblies. Excess manufacturing capacity could lead to higher production costs and lower margins;

if demand increases beyond that forecasted, we would have to rapidly increase production. We currently depend on suppliers to provide additional volumes of components and sub-assemblies, and we are experiencing greater dependence on single source suppliers; therefore, we might not be able to increase production rapidly enough to meet unexpected demand. There could be short-term losses of sales while we are trying to increase production;

the ~~introduction~~production and distribution of Bluetoothand other wireless headsets presents many significant manufacturing, marketing and other operational risks and uncertainties:

our dependence on third parties to supply key components, many of which have long lead times;

our ability to forecast demand for the variety of new products within this ~~new~~ product category for which relevant data is incomplete or unavailable; and

longer lead times with suppliers than commitments from some of our customers.

If we are unable to deliver products on time to meet the market window of our retail customers, we will lose opportunities to increase revenues and profits or we may incur penalties for late delivery. We may also be unable to sell these finished goods, which would result in excess or obsolete inventory.

if we are unable to deliver products on time to meet the market window of our retail customers, we will lose opportunities to increase revenues and profits, or we may incur penalties for late delivery. We may also be unable to sell these finished goods, which would result in excess or obsolete inventory;

we are increasing the use of design and manufacturing of Bluetooth headset products at our new facilities in China. Development of new wireless products and ramping of production can be complex. Unexpected difficulties may arise. Failure to meet our planned design deadlines or production quantities for new or existing products can adversely affect our financial results;

increasing production beyond planned capacity involves increased tooling, test equipment and hiring and training additional staff. Lead times to increase tooling and test equipment are typically several months or more. Once such additional capacity is in place, we incur increased depreciation and the resulting overhead. Should we fail to ramp production once capacity is in place, we would not be able to absorb this incremental overhead, and this could lead to lower gross margins; and

~~Table of Contents~~

we are working on a new initiative to re-engineer our supply chain by implementing new product forecasting systems, increasing automation within supply chain activities, improving the integrity of our supply chain data, and creating dashboards in order to improve our ability to match production to demand. If we are not able to successfully implement this initiative, we may not be able to meet demand or compete effectively with other companies who have successfully implemented similar initiatives.

Table of Contents

Any of the foregoing problems could materially and adversely affect our business, financial condition and results of operations.

We have significant goodwill and intangible assets recorded on our balance sheet. If the carrying value of our goodwill or intangible assets is not recoverable, an impairment loss must be recognized, which would adversely affect our financial results.

As a result of the acquisition of Altec Lansing and Volume Logic in fiscal 2006, we have significant goodwill and intangible assets recorded on our balance sheet. Certain events or changes in circumstances, such as ~~the~~our decision in fiscal 2008 to exit the Professional Audio business, would require us to assess the recoverability of the carrying amount of our goodwill and intangible assets. We wrote off approximately $0.5 million in intangible assets associated with the Professional Audio product line in the AEG segment in September 2007.

The results of operations for ~~our acquired Altec Lansing~~the AEG business have been negatively impacted by intense price competition, particularly in ~~the~~ Docking Audio products, and our new product introductions have not been as profitable as those in the prior ~~year.~~years. We have also had significant losses in fiscal 2007 and ~~the first nine months of fiscal~~ 2008 from excess and obsolete inventory and non-cancelable purchase commitments. If we are unable to successfully introduce new, profitable products and align the cost structure to the revenue base, our anticipated future cash flows from the ~~Altec Lansing~~AEG business could be negatively impacted.

We will continue to evaluate the recoverability of the carrying amount of our goodwill and intangible assets on an ongoing basis, and we may incur substantial impairment charges, which would adversely affect our financial results. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges.

The success of our business depends heavily on our ability to effectively market our products, and our business could be materially adversely affected if markets do not develop as we expect.

We compete in the business market for the sale of our ~~office~~Office and ~~contact center~~Contact Center products. We believe that our greatest long-term opportunity for profit growth in ACG is in the office market, and our foremost strategic objective for this segment is to increase headset adoption. To this end, we are investing in creating new products that are more appealing in functionality and design as well as targeting certain vertical segments to increase sales. If these investments do not generate incremental revenue, our business could be materially affected. We are also experiencing a more aggressive and competitive environment with respect to price in our business markets, leading to increased order volatility which puts pressure on profitability and could result in a loss of market share if we do not respond effectively.

We also compete in the consumer market for the sale of our mobile, computer audio, gaming, Altec Lansing and Clarity products. We believe that ~~consumer marketing~~effective product promotion is highly relevant in the consumer market, which is dominated by large brands that have significant consumer mindshare. We have invested in marketing initiatives to raise awareness and consideration of the ~~Plantronics brand.~~Plantronics’ products. We believe this will help increase preference for Plantronics and promote headset adoption overall. The consumer market is characterized by relatively rapid product obsolescence, and we are at risk if we do not have the right products at the right time to meet consumer needs. In addition, some of our competitors have significant brand recognition, and we are experiencing more competition in pricing actions, which can result in significant losses and excess inventory.

If we are unable to stimulate growth in our business, ~~and consumer markets,~~ if our costs to stimulate demand do not generate incremental profit, or if we experience significant price competition, our business, financial condition, results of operations and cash flows could suffer. In addition, failure to effectively market our products to customers ~~in these markets~~ could lead to lower and more volatile revenue and earnings, excess inventory and the inability to recover the associated development costs, any of which could also have a material adverse effect on our business, financial condition, results of operations and cash flows.

4243

Table of Contents

Our business will be materially adversely affected if we are not able to develop, manufacture and market new products in response to changing customer requirements and new technologies.

The market for our products is characterized by rapidly changing technology, evolving industry standards, short product life cycles and frequent new product introductions. As a result, we must continually introduce new products and technologies and enhance existing products in order to remain ~~competitive.~~competitive, particularly with respect to our AEG business.

The technology used in our products is evolving more rapidly now than it has historically, and we anticipate that this trend may accelerate. Historically, the technology used in lightweight communications headsets and speakers has evolved slowly. New products have primarily offered stylistic changes and quality improvements rather than significant new technologies. Our increasing reliance and focus on the consumer market has resulted in a growing portion of our products incorporating new technologies, experiencing shorter lifecycles and a need to offer deeper product lines. We believe this is particularly true for our newer emerging technology products especially in the speaker, mobile, computer, residential and certain parts of the office markets. In particular, we anticipate a trend towards more integrated solutions that combine audio, video, and software functionality, while currently our focus is limited to audio products.

We are also experiencing a trend away from corded headsets to cordless products. In general, our corded headsets have had higher gross margins than our cordless ~~products.~~products, but the margin on cordless headsets, particularly in mobile, is trending higher. In addition, we expect that office phones will begin to incorporate Bluetoothfunctionality, which would open the market to consumer Bluetoothheadsets and reduce the demand for our traditional office telephony headsets and adapters as well as impacting potential revenues from our own wireless headset systems, resulting in lost revenue and lower margins. Should we not be able to maintain the higher margins on our cordless products that we recently achieved, our revenue and profits will decrease.

In addition, innovative technologies such as unified communications have moved the platform for certain of our products from our customers’ closed proprietary systems to open platforms such as the personal computer. In turn, the personal computer has become more open as a result of such technologies as cloud computing and open source code development. As a result, we are exposed to the risk that current and potential competitors could enter our markets and commoditize our products by offering similar products.

The success of our products depends on several factors, including our ability to:

anticipate technology and market trends;

develop innovative new products and enhancements on a timely basis;

distinguish our products from those of our competitors;

create industrial design that appeals to our customers and end-users;

manufacture and deliver high-quality products in sufficient volumes; and

price our products competitively.

If we are unable to develop, manufacture, market and introduce enhanced or new products in a timely manner in response to changing market conditions or customer requirements, including changing fashion trends and styles, it will materially adversely affect our business, financial condition and results of operations. Furthermore, as we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of excess or obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of operations.

Table of Contents

We depend on original design manufacturers and contract manufacturers who may not have adequate capacity to fulfill our needs or may not meet our quality and delivery objectives.

Original design manufacturers and contract manufacturers produce key portions of our product lines for us. Beginning in the fourth quarter of fiscal 2008, ~~all~~most of our AEG products ~~will be~~were produced by contract manufacturers. Our reliance on these original design manufacturers and contract manufacturers involves significant risks, including reduced control over quality and logistics management, the potential lack of adequate capacity and loss of services. Financial instability of our manufacturers or contractors could result in our having to find new suppliers, which could increase our costs and delay our product deliveries. These manufacturers and contractors may also choose to discontinue building our products for a variety of reasons.

Consequently, we may experience delays in the timeliness, quality and adequacy of product deliveries, any of which could harm our business and operating results.

~~Table of Contents~~

~~Demand for iPod products, which are produced by Apple, Inc., affects demand for certain Docking Audio products.~~

Certain of our Docking Audio products under our Altec Lansing brand were developed for use with Apple, Inc.’s (“Apple”) iPod products. We have a non-exclusive right to use the Apple interface with certain of our Docking Audio products, and we are required to pay Apple a royalty for this right. The risks faced in conjunction with our Apple related products include, among others:

~~if supply or demand for iPod products decreases, demand for certain of our Docking Audio products could be negatively affected;~~

if Apple does not renew or cancels our licensing agreement, our products may not be compatible with iPods, resulting in loss of revenues and excess inventories which would negatively impact our financial results;

if Apple changes its iPod product design more frequently than we update certain of our Docking Audio products, certain of our products may not be compatible with the changed design. Moreover, if Apple makes style changes to its products more frequently than we update certain of our Docking Audio products, consumers may not like the look of our products with the iPod. Both of these factors could result in decreased demand for our products and excess inventories could result which would negatively impact our financial results;

Apple has introduced its own line of iPod speaker products, which compete with certain of our Altec Lansing-branded speaker products. As the manufacturer of the iPod, Apple has unique advantages with regard to product changes or introductions that we do not possess, which could negatively impact our ability to compete effectively against Apple’s speaker products. Moreover, certain consumers may prefer to buy Apple’s iPod speakers rather than other vendors’ speakers because Apple is the manufacturer. As a result, this could lead to decreased demand for our products and excess inventories could result which would negatively impact our financial results.

We sell our products through various channels of distribution that can be volatile, and failure to establish successful relationships with our channel partners could materially adversely affect our business, financial condition or results of operations.

We sell substantially all of our products through distributors, retailers, ~~OEM customers~~OEMs and telephony service providers. Our existing relationships with these parties are not exclusive and can be terminated by either party without cause. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms or more compelling products, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend or ~~continue to recommend,~~may stop recommending our products. In the future, our ~~OEM customers~~OEMs or potential ~~OEM customers~~OEMs may elect to manufacture their own products that are similar to those we currently sell to them. The inability to establish or maintain successful relationships with distributors, ~~OEM customers,~~OEMs, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations.

As a result of the growth of our B2C business, our customer mix is changing, and certain retailers, ~~OEM customers~~OEMs and wireless carriers are becoming more significant. This greater reliance on certain large ~~customers~~channel partners could increase the volatility of our revenues and earnings. In particular, we have several large customers whose order patterns are difficult to predict. Offers and promotions by these customers may result in significant fluctuations of their purchasing activities over time. If we are unable to anticipate the purchase requirements of these customers, our ~~quarterly~~ revenues may be adversely affected, ~~and/~~or we may be exposed to large volumes of inventory that cannot be immediately resold to other customers.

~~Our failure to effectively manage growth could harm our business.~~

We have rapidly and significantly expanded the number and types of products we sell, and we will endeavor to further expand our product portfolio. We must continually introduce new products and technologies, enhance existing products in order to remain competitive, and effectively stimulate customer demand for new products and upgraded versions of our existing products.

~~Table of Contents~~

~~This expansion of our products places a significant strain on our management, operations and engineering resources. Specifically, the areas that are strained most by our growth include the following:~~

~~New Product Launch~~: With the growth of our product portfolio, we experience increased complexity in coordinating product development, manufacturing, and shipping. As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effective marketing to stimulate demand and market acceptance. If we are unable to scale and improve our product launch coordination, we could frustrate our customers and lose retail shelf space and product sales.

~~Forecasting, Planning and Supply Chain Logistics~~: With the growth of our product portfolio, we also experience increased complexity in forecasting customer demand and in planning for production, and transportation and logistics management. We are in the process of upgrading our demand forecasting software; however, if we are unable to scale and improve our forecasting, planning and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.

~~Support Processes~~: To manage the growth of our operations, we will need to continue to improve our transaction processing, operational and financial systems, and procedures and controls to effectively manage the increased complexity. If we are unable to scale and improve these areas, the consequences could include: delays in shipment of product, degradation in levels of customer support, lost sales, decreased cash flows, and increased inventory. These difficulties could harm or limit our ability to expand.

We have strong competitors and expect to face additional competition in the future. If we are unable to compete effectively, our results of operations may be adversely affected.

Certain of our markets are intensely competitive. They ~~are characterized by~~could experience a ~~trend of declining~~decline in average selling prices, competition on sales terms and conditions or continual performance, technical and feature enhancements ~~and new features, as well as rapid adoption of technological and product advancements~~ by our competitors in ~~our~~the retail market. Also, aggressive industry pricing practices have resulted in downward pressure on margins from both our primary competitors as well as from less established brands.

Currently, our single largest competitor is GN Store Nord A/S (“GN”), a Danish telecommunications conglomerate. We are currently experiencing more price competition from GN in the business markets than in the past. Motorola is a significant competitor in the consumer headset market, primarily in the mobile Bluetoothmarket, and has a brand name that is very well known and supported with significant marketing investments. Motorola also benefits from the ability to bundle other offerings with ~~their~~its headsets. We are also experiencing ~~additional~~ competition from other consumer electronics companies that currently manufacture and sell mobile phones or computer peripheral equipment. These competitors generally are larger, offer broader product lines, bundle or integrate with other products’ communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do.

Table of Contents

Competitors in audio devices vary by product line. The most competitive product line is headsets for cell phones where we compete with Motorola, Nokia, ~~GN Netcom’s~~GN’s Jabra brand, Sony Ericsson, Samsung, Aliph’s Jawbone brand, and Belkin among many others. Many of these competitors have substantially greater resources than we have, and each of ~~whom~~them has established market positions in this business. In the PC and office and contact center markets, the largest competitor is GN, ~~Netcom as discussed above,~~ as well as Sennheiser Communications. For PC and gaming headset applications, our primary competitor is Logitech. In the Audio Entertainment business, competitors include Bose, Apple, Logitech, Creative Labs, iHome, and Harman International.

Our product markets are intensely competitive, and market leadership changes frequently as a result of new products, designs and pricing. We also expect to face additional competition from companies, principally located in Asia Pacific, which offer very low cost headset products, including products that are modeled on or are direct copies of our products. These new competitors are likely to offer very low cost products, which may result in pricing pressure in the market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition or results of operations could be materially adversely affected.

~~Table of Contents~~

If we do not continue to distinguish our products, particularly our retail products, through distinctive, technologically advanced features and design, as well as continue to build and strengthen our brand recognition, our business could be harmed. If we do not otherwise compete effectively, demand for our products could decline, our gross margins could decrease, we could lose market share, and our revenues and earnings could decline.

~~While~~

Reductions in demand for iPod products, which are produced by Apple, Inc., may reduce demand for certain of our Docking Audio products.

Certain of our Docking Audio products marketed under our Altec Lansing brand were developed for use with Apple, Inc.’s (“Apple”) iPod products. We have a non-exclusive right to use the Apple interface with certain of our Docking Audio products, and we ~~believe we comply~~are required to pay Apple a royalty for this right. The risks faced in conjunction with our Apple related products include, among others:

if supply or demand for iPod products decreases, demand for certain of our Docking Audio products could be negatively affected;

if Apple does not renew or cancels our licensing agreement, our products may not be compatible with iPods, resulting in loss of revenues and excess inventories, which would negatively impact our financial results;

if Apple changes its iPod product design more frequently than we update certain of our Docking Audio products, certain of our products may not be compatible with the changed design. Moreover, if Apple makes style changes to its products more frequently than we update certain of our Docking Audio products, consumers may not like the look of our products with the iPod. Both of these factors could result in decreased demand for our products, and excess inventories could result, which would negatively impact our financial results;

Apple has introduced its own line of iPod speaker products, which competes with certain of our Altec Lansing branded speaker products. As the manufacturer of the iPod, Apple has unique advantages with regard to product changes or introductions that we do not possess, which could negatively impact our ability to compete effectively against Apple’s speaker products. Moreover, certain consumers may prefer to buy Apple’s iPod speakers rather than other vendors’ speakers because Apple is the manufacturer. As a result, this could lead to decreased demand for our products, and excess inventories could result, which would negatively impact our financial results; and

similar risks exist for MP3 players manufactured by companies other than Apple.

Table of Contents

We are subject to environmental laws and regulations ~~we are still exposed~~that expose us to ~~potential~~a number of risks ~~associated with environmental regulations.~~and could result in significant liabilities and costs.

There are multiple initiatives in several jurisdictions regarding the removal of certain potential environmentally sensitive materials from our products to comply with the European Union (“EU”) and other Directives on the Restrictions ~~on certain~~of the use of Certain Hazardous Substances ~~on electrical~~in Electrical and ~~electronic equipment~~Electronic Equipment (“~~ROHS”~~RoHS”) and on Waste Electrical and Electronic Equipment (“WEEE”). In certain jurisdictions the ~~ROHS~~RoHS legislation ~~has already been~~was enacted as of July 1, 2006; however, other jurisdictions have delayed implementation. ~~Some of our customers are requesting that we implement these new compliance standards sooner than the legislation would require.~~ While we believe that we will have the resources and ability to fully meet ~~our customers' requests, and~~ the requirements of the ~~ROHS~~RoHS and WEEE directives universally, if unusual occurrences arise, or, if we are wrong in our assessment of what it will take to fully comply, there is a risk that we will not be able to ~~meet the aggressive schedule set by our customers or~~ comply with the legislation as passed by the EU member states or other global jurisdictions. If ~~that~~this were to happen, a material negative effect on our financial results may occur.

We are subject to various federal, state, local and foreign environmental laws and regulations on a global basis, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, it is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted in any given country to create environmental liability with respect to our facilities, operations, or products. To the extent that we incur claims for environmental matters exceeding reserves or insurance for environmental liability, our operating results could be negatively impacted.

Our products are subject to various regulatory requirements, and changes in such regulatory requirements may adversely impact our gross margins as we comply with such changes or reduce our ability to generate revenues if we are unable to comply.

Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. For example, certain of our Office and Contact Center products must meet certain standards to work with local phone systems. Certain of our wireless office and mobile products must work within existing frequency ranges permitted in various jurisdictions. As regulations and local laws change, we must modify our products to address those changes. Regulatory restrictions may increase the costs to design, manufacture and ~~manufacture~~sell our products, resulting in a decrease in our margins or a decrease in demand for our products if the costs are passed along. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products reducing their marketability.

We have significant foreign manufacturing operations that are inherently risky, and a significant amount of our revenues are generated internationally.

We completed construction of a manufacturing facility and design center in Suzhou, China in the fourth quarter of fiscal 2006, and we are transitioning new products and outsourced production to our new facility to increase production. If we are unable to effectively produce new products or to transition outsourced production into our Suzhou facility, we may be unable to meet demand for these products, and our margins on these products may decrease. There are risks in operating the Suzhou factory and expanding our competency in a rapidly evolving economy because, among other reasons, we may be unable to attract sufficient qualified personnel, intellectual property rights may not be enforced as we expect, electricity may not be available as contemplated or the like. Should any of these risks occur, we may be unable to maximize the output from the facility, and our financial results may decrease from our anticipated levels. We also purchase a number of turnkey products directly from vendors in Asia. Further, most of our AEG products are manufactured by foreign vendors, primarily in China. In addition, we assemble the majority of our ACG headsets in our manufacturing facility located in Tijuana, Mexico, and we obtain most of the components and sub-assemblies used in our products from various foreign suppliers. The inherent risks of international operations, either in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations.

Table of Contents

We also generate a significant amount of our revenues from foreign customers. The types of risks faced in connection with international operations and sales include, among others:

fluctuations in foreign exchange rates ;

cultural differences in the conduct of business;

greater difficulty in accounts receivable collection and longer collection periods;

the impact of recessions in economies outside of the United States;

reduced protection for intellectual property rights in some countries;

unexpected changes in regulatory requirements;

tariffs and other trade barriers;

political conditions in each country;

the management and operation of an enterprise spread over various countries;

the burden and administrative costs of complying with a wide variety of foreign laws; and

currency restrictions.

Our stock price may be volatile and the value of your investment in Plantronics stock could be diminished.

The market price for our common stock may continue to be affected by a number of factors, including:

uncertain economic conditions, including the possibility of a domestic and global recession, inflationary pressures, and the decline in investor confidence in the market place;

changes in our published forecasts of future results of operations;

quarterly variations in our or our competitors' results of operations and changes in market share;

the announcement of new products or product enhancements by us or our competitors;

the loss of services of one or more of our executive officers or other key employees;

changes in earnings estimates or recommendations by securities analysts;

~~Table of Contents~~

developments in our industry;

sales of substantial numbers of shares of our common stock in the public market;

the timing and success of the integration of the ~~Altec Lansing business or market reaction to future acquisitions;~~AEG business;

our ability to successfully complete the product refresh for the Altec Lansing products and ~~turnaround~~turn around the AEG ~~business;~~business in a timeline consistent with our internal financial models;

general economic, political, and market conditions, including market volatility; and

other factors unrelated to our operating performance or the operating performance of our competitors.

Table of Contents

Our corporate tax rate may increase, which could adversely impact our cash flow, financial condition and results of operations.

We have significant operations in various tax jurisdictions throughout the world, and a substantial portion of our taxable income historically has been generated in ~~these jurisdictions.~~jurisdictions outside of the U.S.. Currently, some of our operations are taxed at rates substantially lower than U.S. tax rates. If our income in these lower tax jurisdictions were no longer to qualify for these lower tax rates, if the applicable tax laws were rescinded or changed, or if the mix of our earnings shifts from lower rate jurisdictions to higher rate jurisdictions, our operating results could be materially adversely affected. While we are looking at opportunities to reduce our tax rate, there is no assurance that our tax planning strategies will be successful. In addition, many of these strategies will require a period of time to implement. Moreover, if U.S. or other foreign tax authorities ~~were to~~ change applicable foreign tax laws or successfully challenge the manner in which our profits are currently recognized, our overall taxes could increase, and our business, cash flow, financial condition and results of operations could be materially adversely affected. ~~FIN 48, which was adopted in~~

During the first quarter of fiscal 2008, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. This interpretation requires that we recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained which has the potential to add more variability to our future effective tax rates.

We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

We hold a variety of auction rate securities, or ARS, primarily comprised of interest bearing state sponsored student loan revenue bonds guaranteed by the Department of Education. Historically these ARS investments have ~~significant foreign manufacturing operations~~provided liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, typically every 7 or 35 days. The recent uncertainties in the credit markets have affected all of our holdings, and, as a consequence, these investments are not currently liquid. As a result, we will not be able to access these funds until a future auction of these investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2029 to 2039. During the fourth quarter of fiscal 2008, we determined that there was a decline in the fair value of our ARS investments of $2.9 million and a further decline of $0.9 million in the first quarter of fiscal 2009, both of which are ~~inherently risky.~~deemed temporary.

WeThe valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit rating, interest rate changes, and general liquidity in the Student Loan Market.

Although we currently have ~~completed construction~~the ability to hold these ARS investments until a recovery of a manufacturing facility and design center in Suzhou, China, and we are transitioning new products and outsourced production to our new facility to ramp production. If we are unable to effectively produce new productsthe auction process or ~~to transition outsourced production into our Suzhou facility, we may be unable to meet demand for these products, and our margins on these products may decrease. There are risks in operating~~until maturity, if the Suzhou factory and expanding our competency in a rapidly evolving economy because, among other reasons, we may be unable to attract sufficient qualified personnel, intellectual property rights may not be enforced as we expect, power may not be available as contemplatedcurrent market conditions deteriorate further, or the ~~like. Should any of these risks~~anticipated recovery in market values does not occur, we may ~~be unable~~incur further temporary impairment charges requiring us to ~~maximize the output from the facility and our financial results may decrease from our anticipated levels.~~record additional unrealized losses in accumulated other comprehensive loss. We could also ~~purchase a number of turnkey products directly from vendors~~incur other-than-temporary impairment charges resulting in ~~Asia. Further, all of our AEG products are manufactured by foreign vendors, primarily in China. In addition, we assemble the majority of our ACG headsets~~realized losses in our ~~manufacturing facility located in Tijuana, Mexico, and we obtain most~~statement of ~~the components and sub-assemblies used in our products from various foreign suppliers. The inherent risks of international~~ operations, either in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include, among others:which would reduce net income.

~~cultural differences in the conduct of business;~~

~~fluctuations in foreign exchange rates;~~

~~greater difficulty in accounts receivable collection and longer collection periods;~~

~~impact of recessions in economies outside of the United States;~~

~~reduced protection for intellectual property rights in some countries;~~

~~unexpected changes in regulatory requirements;~~

~~tariffs and other trade barriers;~~

4749

Table of Contents

~~political conditions in each country;~~

~~management and operation of an enterprise spread over various countries;~~

~~the burden and administrative costs of complying with a wide variety of foreign laws;~~

~~currency restrictions.~~

~~Current global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments.~~

Our cash and cash equivalents are all highly liquid investments with original or remaining maturities of three months or less at the date of purchase. Our short-term investments consist of auction rate securities, concentrated primarily in student loans with contractual maturities of greater than one year; however, we have the ability and intent, if necessary, to liquidate any of these investments in order to meet our liquidity needs within the next 12 months. While as of the date of this filing, we are not aware of any downgrades, losses, failed auctions or other significant deterioration in the fair value of our cash equivalents or short-term investments since December 31, 2007, there can be no assurance that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments.

War, terrorism, public health issues or other business interruptions could disrupt supply, delivery or demand of products, which could negatively affect our operations and performance.

War, terrorism, public health issues or other business interruptions whether in the United States or abroad, have caused or could cause damage or disruption to international commerce by creating economic and political uncertainties that may have a strong negative impact on the global economy, our company, and our suppliers or customers. Our major business operations are subject to interruption by earthquake, flood or other natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, public health issues, and other events beyond our control. Our corporate headquarters, information technology, manufacturing, certain research and development activities, and other critical business operations, are located near major seismic faults or flood zones. While we are partially insured for earthquake-related losses or floods, our operating results and financial condition could be materially affected in the event of a major earthquake or other natural or manmade disaster.

Although it is impossible to predict the occurrences or consequences orof any of the events ~~such as~~ described above, such events could significantly disrupt our operations. In addition, should major public health issues, including pandemics, arise, we could be negatively impacted by the need for more stringent employee travel restrictions, limitations in the availability of freight services, governmental actions limiting the movement of products between various regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers. Our operating results and financial condition could be adversely affected by these events.

We have intellectual property rights that could be infringed by others, and we are potentially at risk of infringement of the intellectual property rights of others.

Our success will depend in part on our ability to protect our copyrights, patents, trademarks, trade dress, trade secrets, and other intellectual property, including our rights to certain domain names. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. Effective trademark, patent, copyright, and trade secret protection may not be available in every country in which our products and media properties are distributed to customers. The process of seeking intellectual property protection can be lengthy and expensive. ~~Intellectual property~~Patents may not be issued in response to our applications, and ~~intellectual property~~any patents that ismay be issued may be invalidated, circumvented or challenged by others. If we are required to enforce our intellectual property or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any intellectual property may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations.

We are exposed to potential lawsuits alleging defects in our products and/or other claims related to the use of our products.

The use of our products exposes us to the risk of product liability and hearing loss claims. These claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect. Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability or hearing loss claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.

Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete. We have tested our headsets through independent laboratories and have found that use of our corded headsets reduces radio frequency emissions at the user's head to virtually zero. Our Bluetoothand other wireless headsets emit significantly less powerful radio frequency emissions than mobile phones. However, if research establishes a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for mobile phones, which reduces demand for headset products. Likewise, should research establish a link between radio frequency emissions and wireless headsets and public concern in this area grows, demand for our wireless headsets could be reduced creating a material adverse effect on our financial results.

4850

Table of Contents

There is also continuing and increasing public controversy over the use of mobile telephones by operators of motor vehicles. While we believe that our products enhance driver safety by permitting a motor vehicle operator to generally be able to keep both hands free to operate the vehicle, there is no certainty that this is the case, and we may be subject to claims arising from allegations that use of a mobile telephone and headset contributed to a motor vehicle accident. We maintain product liability insurance and general liability insurance that we believe would cover any such claims. However, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.

There were no material developments ~~in the first three quarters of fiscal year 2008~~ in the litigation on which we reported in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2007.~~2008.

Our business could be materially adversely affected if we lose the benefit of the services of key personnel.

Our success depends to a large extent upon the services of a limited number of executive officers and other key employees. The unanticipated loss of the services of one or more of our executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations.

We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. We may not be successful in attracting and retaining such personnel, and our failure to do so could have a material adverse effect on our business, operating results or financial condition.

The adoption of voice-activated software or the deterioration of general economic conditions may cause profits from our contact center products to decline.

We are seeing a proliferation of speech-activated and voice interactive software in the market place. We have been re-assessing long-term growth prospects for the contact center market given the growth rate and the advancement of these new voice recognition-based technologies. Businesses that first embraced these technologies to resolve labor shortages at the peak of the last economic up cycle are now increasing spending on these technologies in order to reduce costs. We may experience a decline in our sales to the contact center market if businesses increase their adoption of speech-activated and voice interactive software as an alternative to customer service agents. Such adoption could cause a net reduction in contact center agents, and our revenues in this market could decline.

A significant portion of our profits comes from the contact center market, and a decline in demand in that market could materially adversely affect our results. While we believe that this market may grow in future periods, this growth could be slow, or revenues from this market could be flat or decline. Deterioration in general economic conditions could result in a reduction in the establishment of new contact centers and in capital investments to expand or upgrade existing centers, which could negatively affect our business. Because of our reliance on the contact center market, we will be affected more by changes in the rate of contact center establishment and expansion and the communications products used by contact center agents than would a company serving a broader market. Any decrease in the demand for contact centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.

4951

Table of Contents

~~While we believe we currently have adequate internal control over financial reporting, we~~We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, ~~(Section 404)~~ our management is required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over ~~for~~ financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements.

We have and will continue to incur significant expenses and management resources for Section 404 compliance on an ongoing basis. In the event that our chief executive officer, chief financial officer or independent registered public accounting firm determine in the future that our internal control over financial reporting is not effective as defined under Section 404, investor perceptions may be adversely affected and could cause a decline in the market price of our stock.

Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent a third party from acquiring us, which could decrease the value of our stock.

Our Board of Directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire us. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our common stock.

In 2002, our Board of Directors adopted a stockholder rights plan, pursuant to which we distributed one right for each outstanding share of common stock held by stockholders of record as of April 12, 2002. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our Board of Directors, the plan could make it more difficult for a third party to acquire us, or a significant percentage of our outstanding capital stock, without first negotiating with our Board of Directors regarding such acquisition.

5052

Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have a credit agreement with a major bank containing covenants ~~which~~that limit our ability to pay cash dividends on shares of our common stock except under certain conditions. We believe that we will continue to meet the conditions that make the payment of cash dividends permissible pursuant to the credit agreement in the near future. 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.

ITEM 6. EX~~HIBI~~TSEXHIBITS

We have filed the following documents as Exhibits to this Form 10-Q:

31.1		Certification of the President and CEO Pursuant to Rule 13a-14(a)/15d-14(a).

31.2		Certification of Senior VP, Finance and Administration, and CFO ~~(Principal Executive Officer)~~ Pursuant to Rule 13a-14(a)/15d-14(a).

32.1

Certification of Chief Executive Officer and Chief Financial Officer ~~(Principal Financial Officer)~~ Pursuant to 18 U.S.C. Section 1350.

5153

Table of Contents

SI~~GNATUR~~SIGNEATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PLANTRONICS, INC.



Date: ~~February~~August 6, ~~2007~~2008	By:	/s/ Barbara V. Scherer

	Barbara V. Scherer

	Senior Vice President - Finance and Administration and Chief Financial Officer

	(Principal Financial Officer and Duly Authorized Officer of the Registrant)

	March 31, 2007							December 31, 2007
	Gross		Accumulated			Net		Gross		Accumulated			Net		Useful
	Amount		Amortization			Amount		Amount		Amortization			Amount		Life

Technology	$	30,960	$	(9,431	)	$	21,529	$	30,160	$	(12,716	)	$	17,444	6-10 years
In-process technology		996		(996	)		-		996		(996	)		-	Immediate
State contracts		1,300		(975	)		325		1,300		(1,114	)		186	7 years
Patents		1,420		(876	)		544		1,420		(1,029	)		391	7 years
Customer relationships		18,133		(4,108	)		14,025		18,133		(5,758	)		12,375	3-8 years
Trademarks		300		(225	)		75		300		(257	)		43	7 years
Trade name - inMotion		5,000		(1,016	)		3,984		5,000		(1,484	)		3,516	8 years
Trade name - Altec Lansing		59,100		-			59,100		59,100		-			59,100	Indefinite
OEM relationships		700		(162	)		538		700		(238	)		462	7 years
Non-compete agreements		200		(200	)		-		200		(200	)		-	5 years
Total	$	118,109	$	(17,989	)	$	100,120	$	117,309	$	(23,792	)	$	93,517