The accompanying unaudited Condensed consolidated financial statements (“financial statements”) of Plantronics, Inc. (“Plantronics” or “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, 2009 audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to fairly state the information set forth herein.  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, 2009, which was filed with the SEC on May 26, 2009.  The results of operations for the interim period ended JuneSeptember 30, 2009 are not indicative of the results to be expected for the entire fiscal year and 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, operating income (loss) and certain product line information.  As noted in Note 13, the Company entered into an Asset Purchase Agreement on October 2, 2009 to sell the AEG segment.  The transaction is expected to close by the beginning of December 2009.

The Company’s fiscal year ends on the Saturday closest to the last day of March.  The Company’s current fiscal year ends on April 3, 2010 and consists of 53 weeks and the prior fiscal year ended on March 28, 2009 and consisted of 52 weeks.  The Company’s interim periodsresults of operations for the first quarters of fiscal 2010three months ended September, 30, 2009 and 20092008 contain 13 weeks and ended on June 27,September 26, 2009 and June 28,September 27, 2008, respectivelyrespectively.  The Company’s results of operations for the six months ended September 30, 2009 and each consisted of 13 weeks.2008 contain 26 weeks and ended on September 26, 2009 and September 27, 2008, 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.

The Condensed consolidated statement of operations for the threesix months ended JuneSeptember 30, 2009 includes a correcting adjustment of approximately $1.3 million in Cost of revenues related to an overstatement of duty expense for ACG in prior periods, beginning in the third quarter of fiscal 2005 through the fourth quarter of fiscal 2009.  The Company assessed the materiality of the error utilizing SEC Staffas required by the Accounting Bulletin No. 99, “Materiality”Changes and Error Corrections Topic of the Financial Accounting Standards Board (“SAB No. 99”FASB”) and SEC Staff Accounting Bulletin No. 108, “Effects of Prior Year Misstatements on Current Year Financial Statements”Standards Codification (“SAB No. 108”ASC”), and determined that the impact of the correcting adjustment will not be material to its projected full year results for fiscal 2010.  In addition, the Company does not believe the error is material to the amounts reported in prior periods.

In JuneOn July 1, 2009, the FASB approvedlaunched the “FASB Accounting Standards Codification” (the “Codification”“FASB ASC”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009.GAAP.  The Codification doesFASB ASC did not change current U.S. GAAP, but is intended to simplifysimplified user access to all authoritative U.S. GAAP by organizing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents will bewere superseded and all other accounting literature not included in the Codification will beFASB ASC is now considered nonauthoritative.  The Codification isFASB ASC was effective for the Company’s financial statements issued beginning infor the quarter endingended September 30, 2009.  The Company does not expect the adoption of the Codification toFASB ASC did not have an impact on itsthe Company’s consolidated financial statements.

If forecasted revenue and gross margin rates of either the ACG or AEG segment are not achieved, it is reasonably possible that the Company may have increased requirements for inventory provisions.

Changes during the six months ended September 30, 2009 in the warranty obligation accrual, which areis included as a component of accruedAccrued liabilities onin the Condensed consolidated balance sheets, during the three months ended June 30, 2009 are as follows:

The following table represents the Company’s investments at March 31, 2009 and JuneSeptember 30, 2009:

At JuneSeptember 30, 2009 and March 31, 2009, all of the Company’s short-term investments consisted of U.S. Treasury Bills and were classified as available-for-sale.  At JuneSeptember 30, 2009 and March 31, 2009, all of the Company’s long-term investments consisted of auction rate securities (“ARS”) and were classified as trading securities.  The Company did not incur any realized gains or losses in the three or six months ended JuneSeptember 30, 2009 or 2008.  In the quarterthree and six months ended JuneSeptember 30, 2009, the Company incurred an unrealized gain of $2.4 million and an unrealized loss of $1.0 million, respectively, on the ARS of $3.3 million which was recorded to Interest and other income (expense), net in the Condensed consolidated statement of operations.  There were no unrealized losses recorded in the Condensed consolidated statement of operations for the quarterthree or six months ended JuneSeptember 30, 2008.

In accordance with SFAS No. 157,”Fair Value Measurements”, theThe following tables represent the Company’s fair value hierarchy for its financial assets and liabilities:

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 identical 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 the Company’s 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 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 the Company’s 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-termLong-term investments on its Condensed consolidated balance sheets as of JuneSeptember 30, 2009 and March 31, 2009 because of the Company’s inability to determine when its investments in ARS will settle.

As of JuneSeptember 30, 2009 and March 31, 2009, the Company has used a discounted cash flow model to determine an estimated fair value of the Company’s investment in ARS.  The key assumptions used in preparing the discounted cash flow model include current estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums and expected holding periods of the ARS.

In November 2008, the Company accepted an agreement (the “Agreement”) fromwith UBS AG (“UBS”), the investment provider for its $28.0$27.3 million par value ARS portfolio, providing the Company with certain rights related to its ARS (the “Rights”).  The Rights permit the Company to require UBS to purchase the Company’s ARS at par value, which is defined as the price equal to the liquidation preference of the ARS plus accrued but unpaid dividends or interest, at any time during the period from June 30, 2010 through July 2, 2012.  Conversely, UBS has the right, in its discretion, to purchase or sell the Company’s ARS at any time until July 2, 2012, as long as the Company receives payment at par value upon any sale or liquidation.  The Company expects to sell its ARS under the Rights; however, if the Rights are not exercised before July 2, 2012, they will expire and UBS will have no further rights or obligation to buy the Company’s ARS.  As long as the Company holds the Rights, it will continue to accrue interest as determined by the auction process or the terms of the ARS if the auction process fails.  UBS’s obligations under the Rights are not secured and do not require UBS to obtain any financing to support its performance obligations under the Rights.  UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Rights.

The Rights represent a firm agreement in accordance with SFAS No. 133, “Accounting for Derivative Instrumentsthe Derivatives and Hedging Activities” (“SFAS No. 133”).Topic of the FASB ASC.  The enforceability of the Rights results in a put option and is recognized as a free standing asset separate from the ARS.  Upon acceptance of the offer from UBS in November 2008, the Company recorded the put option at fair value of $3.9 million using the Black-Scholes options pricing model.  As of JuneFor the three and six months ended September 30, 2009, the fair valueCompany recorded an unrealized loss of the put option was $7.5$2.3 million compared to the $4.2 million fair value as of March 31, 2009, resulting inand an unrealized gain of $3.3$1.0 million, forrespectively, on the quarter ended June 30, 2009.put option.  The fair value of the put option is recorded within Other assets in the Condensed consolidated balance sheets with the corresponding unrealized gain or loss included in Interest and other income (expense), net in the Condensed consolidated statement of operations.  The put option does not meet the definition of a derivative instrument under SFAS No. 133;the Derivatives and Hedging Topic of the FASB ASC; therefore, the Company has elected to measure the put option at fair value under SFAS No. 159, “The Fair Value Option forthe Financial Assets and Financial Liabilities” (“SFAS No. 159”)Instruments Topic of the FASB ASC in order to match the changes in the fair value of the ARS.  As a result, unrealized gains and losses on the Rights are, and will be, included in earnings in future periods.

As a result of the Company’s ability to hold its ARS investments to either maturity or until it exercisesand the uncertainty as to when the Company will be able liquidate its put option toARS with UBS, the Company has classified the entire ARS investment balance as Long-term investments on its Condensed consolidated balance sheets as of JuneSeptember 30, 2009 and March 31, 2009.  Prior to accepting the UBS offer, the Company recorded its ARS investments as available-for-sale and any unrealized gains or losses were recorded to Accumulated other comprehensive income within Stockholders’ Equity.  In connection with the acceptance of the UBS offer in November 2008, resulting in the right to require UBS to purchase the ARS at par value beginning on June 30, 2010, the Company transferred its ARS from long-term investments available-for-sale to long-term trading securities.  The transfer to trading securities in November 2008 reflects management’s intent to exercise its put option during the period from June 30, 2010 to July 3, 2012.  Prior to the Agreement with UBS, the intent was to hold the ARS until the market recovered.  At the time of transfer in November 2008, the Company recognized a loss on the ARS of approximately $4.0 million in Interest and other income net.   In(expense), net in the firstthird quarter of fiscal 2010,2009.   In the three and six months ended September 30, 2009, an additionalunrealized gain of $2.4 million and an unrealized loss of $3.3$1.0 million, respectively, was recorded to Interest and other income net which(expense), net.  This was offset by the $3.3a $2.3 million unrealized loss and $1.0 million unrealized gain recorded on the Rights.Rights in the three and six months ended September 30, 2009, respectively.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets during the three and six months ended JuneSeptember 30, 2009:

The following tables present the carrying value of acquired intangible assets with remaining net book values as of each period:

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 2009, the Company completed the annual impairment test of goodwill and the Altec Lansing trade name, which indicated that there was no impairment.  Accounting principles generally accepted in the U.S. require goodwill be tested at least annually using a two-step process that begins with identifying potential impairment.  Potential impairment is identified if the fair value of the reporting unit to which goodwill applies is less than the recognized or book value of the related reporting unit, including such goodwill.  Where the book value of the reporting unit, including related goodwill, is greater than the reporting unit’s fair value, the second step of the goodwill impairment is performed to measure the amount of impairment loss, if any.  For the threesix months ended JuneSeptember 30, 2009 and JuneSeptember 30, 2008, the Company did not identify any potential impairment related to its goodwill.

The Company evaluates the recoverability of its property and equipment and other assets, including purchased intangible assets, whenever events or changes in circumstances indicate an impairment has occurred.  An impairment loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the assets or the business to which the assets relate.  Impairment losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets.  For

The Company considered the three months ended June 30, 2009 and June 30, 2008, no potential impairment related to the Company’s long-lived assets was identified.

As a result of the proposed purchase price of the net assets of the AEG segment, the Company also evaluated the long-lived assets within the reporting unit.  The fair value of the long-lived assets, which include intangibles and property, plant and equipment, was determined for each individual asset and compared to the asset’s relative carrying value.  This resulted in a full impairment of the AEG intangibles and a partial impairment of its property, plant and equipment; therefore, in the second quarter of fiscal 2010, or priorthe Company recognized a non-cash intangible asset impairment charge of $6.6 million, of which $2.0 million related to customer relationships, $0.4 million related to technology and $0.4 million related to the inMotion trade name, and a non-cash impairment charge of $3.8 million related to property, plant and equipment.  The Company recognized a deferred tax benefit of $2.5 million associated with these impairment charges.

The intangible assets that if indicators of impairment exist.  It is also reasonably possible that an interim impairment review may be triggeredwere impaired during the quarter ended September 30, 2009 were measured at their fair value using unobservable input and, therefore, are level 3 fair value measures.

The aggregate amortization expense relating to purchased intangible assets for the remaining intangible assets associated with Altec Lansing as a result of various alternatives being considered.three and six months ended September 30, 2008 was $2.0 million and $4.0 million, respectively and $0.5 million and $1.1 million for the three and six months ended September 30, 2009 respectively.  The net book value of thesethe intangibles as of September 30, 2009 relates entirely to the ACG business segment.

The estimated future amortization expense of purchased intangible assets as of JuneSeptember 30, 2009 was $21.6 million.  It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.as follows:

The Company recorded the restructuring activities discussed below in accordance with SFAS No. 146, “Accounting for Costs Associated withapplying the guidance of either the Exit or Disposal Activities” (“SFAS No. 146”)Cost Obligations Topic and SFAS No. 112, “Employees’ Accounting for Post-employment Benefits” (“SFAS No. 112”).the Compensation – Nonretirement Postemployment Benefits Topic of the FASB ASC.

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, all of whom were terminated as of December 31, 2008.  The Company recognized $0.2 million of restructuring charges related to this activity in the first quarter of fiscal 2009,six months ended September 2008, consisting solely of severance, and all costs were recorded and paid as of March 31, 2009.

In the third quarter of fiscal 2009, the Company had a reduction in force at AEG’s operations in Luxemburg and Shenzhen, China and ACG’s operations in China as part of the strategic initiative designed to reduce costs.  A total of 624 employees were notified of their termination, all of whom were terminated as of December 31, 2008.  On January 14, 2009, the Company announced additional reductions in force related to this restructuring plan which included termination of an additional 199 employees located in ACG’s Tijuana, Mexico, U.S., and other global locations.  An additional three employees were notified of their termination in the first quarter of fiscal 2010.  A total of 826 employees, primarily in operations positions but also including other functions, were notified of their termination under this restructuring action, all except four employeesof which had been terminated as of JuneSeptember 30, 2009.  To date, the Company recorded $8.8 million of restructuring charges related to these activities, of which $0.8 million related to the AEG segment and $8.0 million related to the ACG segment.  These costs consisted of $8.1 million in severance and benefits, $0.6 million for the write-off of leasehold improvements due to consolidation of facilities, and $0.1 million in other associated costs.  No additional charges were incurred for the threesix months ended JuneSeptember 30, 2009.  The Company believes that substantially all of theAll costs have been incurred as of June 30, 2009, $0.2 million of which relates to ACG had not beenand paid as of JuneSeptember 30, 2009 and is expected to be paid in the second quarter of fiscal 2010.2009.

In fiscal 2009, the Company recorded $3.0 million of restructuring charges in the ACG business segment, primarily consisting of severance and benefits.  During the threesix months ended JuneSeptember 30, 2009, the Company recorded an additional $0.6$1.5 million of Restructuring and other related charges in the ACG segment consisting of $0.3$0.8 million of severance and benefits and $0.3$0.7 million non-cash charges related to the acceleration of depreciation on building and equipment associated with research and development and administrative functions due to the change in the assets’ useful lives as a result of this restructuring action.  In addition, in the threesix months ended JuneSeptember 30, 2009, the Company recorded non-cash charges of $3.5$5.2 million for accelerated depreciation related to the building and equipment associated with manufacturing operations which is included in Cost of revenues in the Condensed consolidated statement of operations.  To date, the Company has recorded a total of $7.1$9.7 million of costs related to this action: $3.6$4.5 million in Restructuring and related charges which includes $3.3include $3.8 million of severance and benefits, and $0.3$0.7 million of accelerated depreciation charges and $3.5$5.2 million in Cost of revenues for accelerated depreciation.  As of June 30, 2009, $2.0 million was accrued and not paid and is expected to be paid inSubstantially all the second quarter of fiscal 2010.  

The following is a summary of the Company’s restricted stock activity during the threesix months ended JuneSeptember 30, 2009:

The components of comprehensive income (loss) for the three and six months ended JuneSeptember 30, 2008 and 2009 are as follows:

The Company uses derivative instruments primarily to manage exposures to foreign currency risks.  The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency.  The program is not designed for trading or speculative purposes.  The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements.  The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across several major financial institutions.  In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

In accordance with Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), Accounting for Derivative Instrumentsthe Derivatives and Hedging Activities,Topic of the FASB ASC, the Company recognizes derivative instruments as either assets or liabilities on the balance sheet at fair value.  Changes in fair value (i.e., gains or losses) of the derivatives are recorded as Net revenues or Interest and other income, net in the Condensed consolidated statement of operations or as Accumulated other comprehensive income in the Condensed consolidated balance sheet.

The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and liabilities denominated in currencies other than the functional currency of the reporting entity.  These foreign exchange forward contracts are not subject to the hedge accounting provisions of SFAS No. 133,the Derivatives and Hedging Topic of the FASB ASC, but are carried at fair value with changes in the fair value recorded within Interest and other income, net on the Condensed consolidated statement of operations in accordance with SFAS No. 52, "Foreignthe Foreign Currency Translation".Matters Topic of the FASB ASC.  Gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated assets and liabilities, and therefore, do not subject the Company to material balance sheet risk.  The Company does not enter into foreign currency forward contracts for trading purposes.

As of JuneSeptember 30, 2009, the Company had foreign currency forward contracts of €18.6€20.0 million and ₤6.2₤4.7 million denominated in Euros and Great Britain Pounds, respectively.  These forward contracts hedge against a portion of the Company’s foreign currency-denominated receivables, payables and cash balances.

Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in a net loss of $4.0 million and $3.5 million in the three and six months ended September 30, 2008, respectively, and a net gain of $0.5 million and $1.0$1.5 million in the three and six months ended JuneSeptember 30, 2008 and 2009, respectively, andwhich are included in Interest and other income (expense), net in the Condensed consolidated statement of operations.

The Company’s hedging activities include a hedging program to hedge the economic exposure from anticipated Euro and Great Britain Pound denominated sales from ACG.  The Company hedges a portion of these forecasted foreign denominated sales with currency options.  These transactions are designated as cash flow hedges and are accounted for under the hedge accounting provisions of SFAS No. 133.the Derivatives and Hedging Topic of the FASB ASC.  The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Net revenues when the hedged exposure affects earnings.  Any ineffective portion of related gains or losses areis recorded in the Condensed consolidated statements of operations immediately.  On a monthly basis, the Company enters into option contracts with a one-year term.  It does not purchase options for trading purposes.  As of JuneSeptember 30, 2009, the Company had foreign currency put and call option contracts of approximately €46.3€43.9 million and £12.1£11.1 million.  As of March 31, 2009, it had foreign currency put and call option contracts of approximately €48.4 million and £14.4 million.

In the three and six months ended JuneSeptember 30, 2008 and 2009, realized losses of $2.1 million and realized gains of $3.5$0.9 million and $4.4 million, respectively, on cash flow hedges were recognized in Net revenues in the Condensed consolidated statements of operations.operations compared to $0.6 million and $2.7 million in realized losses for the same periods in the prior year.  The Company expects to reclassify the entire amount of $2.3$4.3 million of losses, accumulatednet of tax, in Accumulated other comprehensive income (loss) to Net revenues during the next twelve months due to the recognition of the hedged forecasted sales.

The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.

Fair value of derivative contracts under SFAS No. 133the Derivatives and Hedging Topic of the FASB ASC were as follows:

The following table represents only the balance of designated derivative contracts under SFAS No. 133the Derivatives and Hedging Topic of the FASB ASC as of March 31, 2009 and JuneSeptember 30, 2009, and the impact of designated derivative contracts on Accumulated other comprehensive income for the threesix months ended JuneSeptember 30, 2009: