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

In July 2015, the Financial Accounting Standards Board ("FASB") issued additional guidance regarding the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. This guidance is effective for fiscal years and interim periods beginning after December 15, 2016. Reporting entities may choose to early adopt the standard. The Company is required to adopt the standard in the first quarter of its fiscal year ending March 31, 2018.2018, but may elect to adopt earlier as permitted under the standard. The adoption is not expected to have a material impact on the Company's results of operations, financial position, or cash flows.

In May 2014, the FASB issued additional guidance regarding revenue from contracts with customers. While the standard supersedes existing revenue recognition guidance, it closely aligns with current GAAP. Under the new standard, revenue will be recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. On July 9, the FASB decided to delay the effective date of the new revenue standard by one year. Reporting entities may choose to adopt the standard as of the original effective date of December 15, 2016. As a result, theThe Company is required to adopt the standard, as amended, in the first quarter of its fiscal year ending March 31, 2018. Presently,2018 although, under the Company is not yet in a position to assessstandard, it may adopt as early as the application date.first quarter of its fiscal year ending March 31, 2017. The Company is currently evaluating what impact, if any, the adoption of this standard will have on its results of operations, financial position, orand cash flows.

In April 2015, the FASB issued additional guidance regarding fees paid in cloud computing arrangements. The guidance requires registrants to account for fees paid in a cloud computing arrangement that includes a software license element consistent with the acquisition of other software licenses. Cloud computing arrangements without software licenses are to be accounted for as a service contract. The Company is required to adopt the standard in the first quarter of its fiscal year ending March 31, 2017. The Company is currently evaluating what impact, if any, the adoption of this standard will have on its results of operations, financial position, and cash flows.

The following tables summarize the Company’s cash and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category recorded as cash and cash equivalents, short-term, or long-term investments as of JuneSeptember 30, 2015 and March 31, 2015 (in thousands):

There were no transfers between fair value measurement levels during the three and six months ended JuneSeptember 30, 2015 and 2014.

All financial assets and liabilities are recognized or disclosed at fair value in the financial statements or the accompanying notes thereto. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

The Company's Level 1 financial assets consist of Mutual Funds and Money Market Funds. The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.

As of JuneSeptember 30, 2015, the Company held investments in mutual funds totaling $8.0$8.1 million, all of which related to debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans. The total related deferred compensation liability was $8.0$8.1 million at JuneSeptember 30, 2015. The fair value of debt and equity securities held in the rabbi trust at March 31, 2015 was $5.5 million. The total related deferred compensation liability at March 31, 2015 was $5.5 million.

The securities are classified as trading securities and are recorded on the Consolidated Balance Sheets under "Short-term investments". The liability is recorded on the Consolidated Balance Sheets under “Other long-term liabilities”.

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, purchasers of assets or subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company's breach of agreements or representations and warranties made by the Company, services to be provided by the Company, intellectual property infringement claims made by third parties or, with respect to the sale of assets of a subsidiary, matters related to the Company's conduct of business and tax matters prior to the sale. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various triggering events relating to the sale and use of its products and services.  In addition, the Company also provides protection to customers against claims related to undiscovered liabilities, additional product liability, or environmental obligations.  In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers of the Company. The Company maintains director and officer liability insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and officers in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these agreements due to the limited history of prior claims and the unique facts and circumstances involved in each particular claim. Such indemnification obligations might not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any liabilities related to such indemnification obligations in the condensed consolidated financial statements.

Claims and Litigation

On October 12, 2012, GN Netcom, Inc. ("GN") sued Plantronics, Inc. in the United States ("U.S.") District Court for the District of Delaware, alleging violations of the Sherman Act, the Clayton Act, and Delaware common law. In its complaint, GN specifically alleges four causes of action: monopolization, attempted monopolization, concerted action in restraint of trade, and tortious interference with business relations. GN claims that the Company dominates the market for headsets sold into contact centers in the U.S. and that a critical channel for sales of headsets to contact centers is through a limited network of specialized independent distributors (“SIDs”). GN asserts that the Company attracts SIDs through exclusive distributor agreements and alleges that the use of these agreements is illegal. The Company denies each of the allegations in the complaint and is vigorously defending itself. Given the preliminary nature of the case, the Company is unable to estimate an amount or range of any reasonably possible losses resulting from these allegations.

In addition to the specific matters discussed above, the Company is involved in various legal proceedings arising in the normal course of conducting business. For such legal proceedings, where applicable, the Company has accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to the Company's financial condition, results of operations, or cash flows. With respect to proceedings for which no accrual has been made, the Company is not able to estimate an amount or range of any reasonably possible additional losses because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the variable treatment of claims made in many of these proceedings, and the difficulty of predicting the settlement value of many of these proceedings. However, based upon the Company's historical experience, the resolution of these proceedings is not expected to have a material effect on the Company's financial condition, results of operations or cash flows. The Company may incur substantial legal fees, which are expensed as incurred, in defending against these legal proceedings.

In May 2015, Plantronics issued $500.0 million aggregate principal amount of 5.50% senior notes (the “5.50% Senior Notes”). The 5.50% Senior Notes mature on May 31, 2023, and bear interest at a rate of 5.50% per annum, payable semi-annually on May 15 and November 15 of each year, commencing on November 15, 2015. The Company received net proceeds of $488.5$488.4 million from issuance of the 5.50% Senior Notes, net of issuance costs of $11.5$11.6 million which are being amortized to interest expense over the term of the 5.50% Senior Notes using the effective interest method.

The fair value of the 5.50% Senior Notes was determined based on inputs that were observable in the market , including the trading price of the notes5.50% Senior Notes when available (Level 2). The estimated fair value and carrying value of the 5.50% Senior Notes were as follows:

The Company may redeem all or a part of the 5.50% Senior Notes, upon not less than 30 or more than a 60 day notice; however, the applicable redemption price will be determined as follows:

In addition, upon the occurrence of certain change of control triggering events, the Company may be required to repurchase the 5.50% Senior Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The 5.50% Senior Notes contain restrictive covenants that, among other things, limit Plantronics' ability to create certain liens and enter into sale and leaseback transactions; create, assume, incur, or guarantee additional indebtedness of Plantronics’ subsidiaries without such subsidiary guaranteeing the 5.50% Senior Notes on an unsecured unsubordinated basis; and consolidate or merge with, or convey, transfer or lease all or substantially all of the assets of Plantronics and its subsidiaries to another person. As of JuneSeptember 30, 2015, the Company was in compliance with all covenants.

On May 15, 2015, Plantronics, Inc. (the “Company”)the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Bank”). The Credit Agreement amendsamended and restatesrestated the Company’s existing Credit Agreement, dated as of May 9, 2011, (as amended, the “Existing Credit Agreement”), by and between the Company and Bank to provide for a $100.0 million unsecured revolving credit facility. The proceeds of loans under the Credit Agreement may be used to refinance outstanding indebtedness under the Existing Credit Agreement, to finance stock repurchases, and for general corporate purposes.

Revolving loans under the Credit Agreement will bear interest, at the Company’s election, at (i) the Bank’s announced prime rate less 1.20% per annum or (ii) a daily one-month LIBOR rate plus 1.40% per annum. Interest is payable quarterly in arrears on the first day of each April, July, October and January, commencing July 1, 2015. Principal, together with all accrued and unpaid interest, on the revolving loans is due and payable on May 9, 2018. The Company is also obligated to pay a commitment fee of 0.37% per annum on the average daily unused amount of the revolving line of credit, which fee shall be payable quarterly in arrears on the first day of each April, July, October and January, commencing July 1, 2015. The Company may prepay the loans and terminate the commitments under the Credit Agreement at any time, without premium or penalty, subject to the reimbursement of certain costs. As of JuneSeptember 30, 2015 the Company had no outstanding borrowings under the line of credit. As of March 31, 2015 the Company had $34.5 million in outstanding borrowings under the line of credit.

The Credit Agreement contains customary affirmative and negative covenants, including, among other things, covenants limiting the ability of the Company to incur debt, make capital expenditures, grant liens, merge or consolidate, and make investments. The Credit Agreement also requires the Company to comply with certain financial covenants, including (i) a maximum ratio of funded debt to EBITDA and (ii) a minimum EBITDA coverage ratio, in each case, tested as of each fiscal quarter and determined on a rolling four-quarter basis. In addition, the Company and its subsidiaries are required to maintain unrestricted cash, cash equivalents and marketable securities plus availability under the Credit Agreement at the end of each fiscal quarter of at least $300.0 million. The Credit Agreement contains customary events of default that include, among other things, payment defaults, covenant defaults, cross-defaults with certain other indebtedness, bankruptcy and insolvency defaults, and judgment defaults. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. As of JuneSeptember 30, 2015, the Company was in compliance with all ratios and covenants.

The Company recognizes the grant-date fair value of stock-based compensation as compensation expense using the straight-line attribution approach over the service period for which the stock-based compensation is expected to vest. The following table summarizes the amount of stock-based compensation included in the condensed consolidated statements of operations:

The Company estimates the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) shares using a Black-Scholes option valuation model.  At the date of grant, the Company estimated the fair value of each stock option grant and purchase right granted under the ESPP using the following weighted average assumptions:

The gross fair value of our outstanding derivative contracts at the end of each period was as follows:

Non-Designated Hedges

The effect of non-designated derivative contracts recognized in interest and other income, net in the condensed consolidated statements of operations was as follows:

Cash Flow Hedges

The Company hedges a portion of the forecasted EUR and GBP denominated revenues with costless collars. On a monthly basis, the Company enters into option contracts with a ninesix to eleven month term.  Collar contracts are scheduled to mature at the beginning of each fiscal quarter, at which time the instruments convert to forward contracts. The Company also enters into cash flow forwards with a three month term. Once the hedged revenues are recognized, the forward contracts become non-designated hedges to protect the resulting foreign monetary asset position for the Company. 

The Company does not purchase options for trading purposes.  As of JuneSeptember 30, 2015, the Company had foreign currency option contracts of approximately €60.6€57.9 million and £24.4£21.1 million. As of March 31, 2015, the Company had foreign currency option contracts of approximately €67.9 million and £28.6 million. As of September 30, 2015, the Company had foreign currency forward contracts of approximately €7.0 million and £0.3 million.  As of March 31, 2015, the Company had no such instruments. The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next twelve months.

The Company hedges a portion of the forecasted Mexican Peso (“MXN”) denominated expenditures with a cross-currency swap. A loss of $2.9$3.6 million, net of tax, in AOCI as of March 31,September 30, 2015 is expected to be reclassified to cost of revenues during the next 12 months due to the recognition of the hedged forecasted expenditures. As of JuneSeptember 30, 2015 and March 31, 2015, the Company had foreign currency swap contracts of approximately MXN 449.1501.3 million and MXN 431.9 million, respectively.

The increase in the effective tax rate for the three months ended September 30, 2015 is due primarily to a shift of income away from the lower tax rate jurisdictions partially offset by the U.S. interest expense due to the 5.50% Senior Notes during the current period. The decrease in the effective tax rate for the six months ended September 30, 2015 is due primarily to lower domestic earnings resulting from the interest expense on the bond issuance.5.50% Senior Notes and the favorable closure of a tax audit in the current year. The effective tax rates differ from the statutory rate due primarily to the impact of foreign operations taxed at different statutory rates, tax credits, state taxes, and other factors.

The Company 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 and contact centers, with mobile and cordless phones, and with computers and gaming consoles. 

One customer, Ingram Micro Group, accounted for 10.9% of net revenues for the three months ended September 30, 2015. No customer accounted for more than 10% of net revenues for the threesix months ended JuneSeptember 30, 2015, or three and six months ended September 30, 2014.

No customer accounted for more than 10% of net accounts receivable at JuneSeptember 30, 2015. One customer, D&H Distributing, accounted for 11.1% of total net accounts receivable at March 31, 2015.

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 ("Securities Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). Forward-looking statements may generally be identified by the use of such words as "anticipate," "believe," “could,” "expect," "intend," “may,” "plan," "potential," "shall," "will," “would,” or variations of such words and similar expressions, or the negative of these terms. Specific forward-looking statements contained within this Form 10-Q include, but are not limited to, statements regarding (i) our expectations for new product launches, new Consumer product market share positioning in fiscal year 2016 and beyond, (ii) the Unified Communications ("UC") markets, including adoption of UC products, and our position and growth expectations in these markets, (iii) our expectations regarding the impact of our Simply Smarter Communications® technology solutions in the UC market, (iv) our intentions regarding investments in long-term growth opportunities and our core research and development effort, (v) our intentions regarding the focus of our sales, marketing and customer services and support teams on UC, (vi) the future of UC technologies, including the transition of businesses to UC-supported systems, the effect on headset adoption and use, the effects on enterprises that adopt UC and our expectations concerning our revenue opportunity and profit growth, (vii) our expectations for the expansion of key strategic alliances, (viii) our position in the Enterprise and Consumer markets, (ix) our belief that our revenues may be materially affected by fluctuations in exchange rates, the global economy and consumer spending, (ix) our long-term strategy to invest in UC and the relationship of added functionality to successful product launches, (x) our expectations regarding the worldwide economy, as well as our investment strategies and focus, (xi) the maintenance of our reputation in the industry, (xii) our expenses, including research, development and engineering expenses and selling, general and administrative expenses, (xiii) fluctuations in our cash provided by operating activities as a result of various factors including fluctuations in revenues and operating expenses, timing of product shipments, accounts receivable collections, inventory and supply chain management, and the timing and amount of taxes and other payments, (xiv) our future tax rate and payments related to unrecognized tax benefits, (xv) our anticipated capital expenditures for the remainder of fiscal year 2016 and the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements, (xvi) our planned investment of and need for our foreign cash and our ability to repatriate that cash, (xvii) our ability to draw funds on our credit facility as needed, (xviii) future fluctuations in our cash provided by operating activities, (xix) the sufficiency of our capital resources to fund operations, and (xx) the outcome and effect of legal proceedings, as well as other statements regarding our future operations, financial condition and prospects and business strategies.  Such 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 this Quarterly Report on Form 10-Q; in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on May 15, 2015; and other documents filed with the SEC.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

We are a leading designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, other communication endpoints, and accessories for the worldwide business and consumer markets under the Plantronics brand.  In addition, we manufacture and market specialty telephone products under our Clarity brand, such as telephones for the hearing impaired, and other related products for people with special communication needs. Our major product categories are Enterprise, which includes headsets optimized for Unified Communications (“UC”), other corded and cordless communication headsets, audio processors, and telephone systems; and Consumer, which includes Bluetooth® and corded products for mobile phone applications, personal computer ("PC") and gaming headsets, and specialty products marketed for hearing impaired individuals.

We ship our products to approximately 80 countries through a network of distributors, retailers, wireless carriers, original equipment manufacturers (“OEMs”), and telephony service providers.  We have well-developed distribution channels in North America, Europe, and in some parts of the Asia Pacific region where use of our products is widespread.  Our distribution channels in other geographic regions are less mature, and while we primarily serve contact centers in those regions, we continue to expand into the office, mobile, and gaming and computer audio markets in those regions and other international locations.  

Compared to the prior year quarter, net revenues decreased 4.8%0.4% to $206.4 million, while operating$215.0 million. Operating profit decreased 22.2%9.9% to $29.4 million. $34.1 million, due primarily to the adverse impact of fluctuations in foreign currency exchange rates on net revenues, compounded by the effect of a non-recurring, favorable litigation settlement in the year ago quarter, and an unfavorable adjustment to our customer discount reserve for channel inventory recorded in the current quarter. The fluctuations in foreign currency exchange rates that negatively impacted our net revenues favorably impacted our operating expenses, although to a lesser degree.

We delivered $21.2$17.9 million in net income, representing approximately 10.3%8.3% of our net revenues. The decrease in revenues was driven largely by lower revenues within our Consumer product category, which declined 15%7.7% from the year ago period. Revenues from our Enterprise product category remained almost flatwere up slightly compared to the year ago quarter.

Enterprise products represent our largest source of both revenues and unit volumes.  Net revenues may vary due to seasonality, the timing of new product introductions and discontinuation of existing products, discounts and other incentives, and channel mix. Net revenues derived from sales into the Consumer products retail channel typically account for a seasonal increase in net revenues in the third quarter of our fiscal year.

Net revenues decreased in the first quarter of our fiscal year 2016three and six months ended September 30, 2015 over the same periodperiods a year ago due primarily to lower revenues within our Consumer product category, driven by reductions in sales volumes in our mono Bluetooth category as the category continues to decline driven in part by smaller shelf space allocated to the category in favor of the faster growing Stereo Bluetooth category. While we have been building our stereo portfolio over the last several years, it is not yet as robust as our mono Bluetooth category. Revenuesportfolio of products. As a result of these market changes, we have reduce the amount we expect to invest in non-premium mono Bluetooth portfolio while shifting that investment toward additional Stereo Bluetooth products.

Geographic Information