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 belief thatbeliefs regarding the Enterprise market, market dynamics and customer behavior as well as our revenues may be materially affected by fluctuationsposition in exchange rates, the global economy and consumer spending,market, (ii) howour beliefs regarding the Consumer market, our new cloud-based service offerings complement our existingproduct introductions and future hardware offerings,the expected effect of such introductions, (iii) our belief that our "as-a-service" offerings will expand the reach of our solutions portfolio and grow our business but that revenues will not be material in the near term, (iv) our intention to provide customer data insight through software and service solutions, (v) the Unified Communications ("UC") market, including adoption of UC products, our position, and timing and growth expectations in this market, (vi) our expectations regarding the impact of our "as a service" offerings on the UC market, (vii) our intentions regarding investments in long-term growth opportunities and our core research and development efforts, (viii) our intentions regarding the focus of our sales, marketing and customer services and support teams on UC, (ix) the future of UC technologies, including the transition of businesses to UC-supported systems and the effects on headset adoption and use, enterprises that adopt UC and our revenue opportunity and profit growth, (x) our expenses, including research, development and engineering expenses and selling, general and administrative expenses, (xi) 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, (xii) our future tax rate and payments related to unrecognized tax benefits, (xiii) our anticipated range of capital expenditures for the remainder of fiscal year 2017Fiscal Year 2018 and the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements, (xiv) our commitment to return 60% of free cash flow, defined as cash flow provided by operating activities less capital expenditures, to our stockholders, (xv) our ability to pay future stockholder dividends, (xv)(xvi) our planned investment of and need for our foreign cash and our ability to repatriate that cash, (xvi)(xvii) our ability to draw funds on our credit facility as needed, (xvii)(xviii) future fluctuations in our cash provided by operating activities, (xviii)(xix) the sufficiency of our capital resources to fund operations, and (xiv)(xx) the outcome and effect of legal proceedings, in particular our litigation with GN Netcom, Inc. (“GN”), 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, 2016,2017, filed with the Securities and Exchange Commission (“SEC”) on May 16, 2016;10, 2017; and other documents we have 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 device applications and personal computer and gaming headsets, andheadsets. Until July 1, 2017, we also offered specialty products marketed for hearing impaired individuals.individuals under our Clarity brand.

We ship our products to approximately 80 countries through a network of distributors, retailers, resellers, wireless carriers, original equipment manufacturers, 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.

Compared to the first three quartersquarter of fiscal year 2016,Fiscal Year 2017, net revenues increased 3.9%decreased 8.6% to $672.2$203.9 million. The increasedecrease in net revenues was driven primarily by higherlower revenues within our Consumer product category, which grew 15.7%declined 26.6% or $27.8$17.9 million from the year ago period, partially offset byas well as a decreaseslight decline within our Enterprise product category which declined 0.6%0.8% or $2.7$1.3 million from the year ago period.

 

Operating income for the first three quartersquarter of fiscal year 2017Fiscal Year 2018 was $95.1$23.4 million and 14.1%11.5% of net revenue, compared to $90.1$31.3 million and 13.9%14.0% of net revenue in the prior year period.

Net income for the first three quartersquarter of fiscal year 2017 increased 13.8%Fiscal Year 2018 decreased 7.6% to $63.1$18.8 million, representing 9.4%9.2% of our net revenues, compared to $55.4$20.4 million and 8.6%9.1% in the year ago period.

 

Revenues from our Consumer products are seasonal and typically strongest in our third fiscal quarter, which includes the majority of the holiday shopping season. Additionally, other factors directly impact our Consumer product category performance, such as the market acceptance of new product introductions, product life-cycles (including the introduction and pace of adoption of new technology), consumer preferences and the competitive retail environment, changes in consumer confidence and other macroeconomic factors, and fluctuations in foreign currency rates relative to the USD.U.S. Dollar ("USD"). In addition, the timing or non-recurrence of retailer placements can cause volatility in quarter to quarterquarter-to-quarter results.

Our EnterpriseEffective July 1, 2017, we sold our Clarity division and do not expect any future revenues were down slightly in the first three quarters of fiscal year 2017 when compared to the same prior year period, resulting from healthy growth in our UC product sales offset by a decline inthis business line. Product sales from our Core Enterprise (non-UC products) category. Our competitiveClarity division represented less than 2% of net revenues for both the full Fiscal Year 2017 and strategic positionfirst quarter of Fiscal Year 2018.

We continue to invest in Core Enterprise remains strongnew ideas and technology to create additional growth opportunities, such as our software-as-a-service ("SaaS") data insights offering introduced in Fiscal Year 2017, and our Habitat Soundscaping intelligent acoustic management solution launched in July 2017. While we expect shipments to return to normal levels, but overanticipate these investments will benefit our growth in the long term, we believe this market is flattheir contribution will not be material in the near term.

We remain cautious about the macroeconomic environment, based on uncertainty around trade and fiscal policy in the U.S. and broader economic uncertainty in many parts of Europe and Asia Pacific, which makes it difficult for us to slightly up.gauge the economic impacts on our future business. We believe the continuedwill continue to monitor our expenditures and prioritize those that further our strategic long-term growth of UC will increase overall headset adoption in enterprise environments, and we expect most of the growthopportunities such as innovative product development in our Enterprise product category over the next five years to come from headsets designed for UC. As such,core research and development efforts. UC remainsand SaaS are the central focus of our sales force, marketing group, and other customer service and support functions andteams as we will continue investing in key strategic alliances and integrations with major UC vendors.

Net revenues increaseddecreased in the three and nine months ended December 31, 2016June 30, 2017 compared to the same periods aprior year agoperiod due primarily to higherlower revenues within our Consumer product category, driven bywhich declined 26.6% or $17.9 million from the launch of new and updated products. Net revenuesyear ago period, as well as a slight decline within our Enterprise product category decreased slightly, driven by a decline in our Core Enterprise product category, partially offset by solid growth in our UC product category. The impact to net revenues resulting from changes in foreign exchange rates was not material for the three and nine months ended December 31, 2016.

 

We typically generate approximately 40% to 45% of our revenues from international sales; therefore, the impact of currency movements on our net revenues can be significant. In addition, in some international locations where sales are denominated in United States Dollar ("USD"),USD, we also face additional pricing pressure, discounting, and lost business as a stronger USD negatively impacts buying decisions. WhileCompared to the overall impact ofprior year quarter, changes in foreign exchange fluctuations onrates negatively impacted revenues by approximately $3 million, net of immaterial benefits from our net revenues was not material, unfavorablehedging program, as a result of the decline in the value of the British Pound Sterling ("GBP") and Euro ("EUR"). Despite these currency impacts, from the global economy and consumer spending, together with exchange rate fluctuations, could negatively impact our net revenues in future periods.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues consists primarily of direct manufacturing and contract manufacturer costs, warranty, freight, depreciation, and duties expense, charges for excess and obsolete inventory, royalties, and an allocation of overhead expenses, including facilities, IT, and human resources.expenses. 

Compared to the same prior year periods, gross profit as a percentage of net revenues decreased in the three and nine months ended December 31, 2016June 30, 2017 due primarily to the loss on the sale of our Clarity division, and the write off of an indirect tax asset in our Brazilian entity, almost entirely offset by a product mix shift away from Enterprise to Consumer and a product mix shift within Enterprise away from Core Enterprise sales, which carry higher margins than our UC products. These decreases were partially offset by reductions in material costs.cost reductions.

There are significant variances in gross profit percentages between our higher and lower margin products; therefore, small variations in product mix, which can be difficult to predict, can have a significant impact on our gross profit.  Gross profit may also vary based on distribution channel, return rates, 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, travel expenses, depreciation, and an allocation of overhead expenses, including facilities, IT, and human resources.expenses.

During the three and nine months ended December 31, 2016,June 30, 2017, research, development, and engineering expenses remained relatively flatdeclined when compared to the same prior year periods. Funding for our annual incentive bonus plans increased in both the three and nine months ended December 31, 2016, resulting from better achievement against corporate goals than in the prior year comparative periods. This increase is offset in the nine months ended December 31, 2016 byperiod due to cost reductions from our restructuring action initiated atin the endfourth quarter of 2017 to reduce the year ago quarter.cost of certain design and manufacturing processes. Additionally, funding of our variable compensation plans decreased in the three months ended June 30, 2017, resulting from lower profitability.

SELLING, GENERAL, AND ADMINISTRATIVE

Selling, general, and administrative expenses consist primarily of compensation costs, marketing costs, travel expenses, litigation and professional service fees, and allocations of overhead expenses, including facilities, IT, and human resources.expenses.

Compared to the same periodsperiod a year ago, selling, general, and administrative expenses increased in the three and nine months ended December 31, 2016June 30, 2017 due to increased stock-based compensation and employee-related expenses, primarily related to an increaseexecutive transition, and increased legal fees related to our litigation with GN Netcom. Partially offsetting these increases was a decrease in funding forof our annual incentive bonusvariable compensation plans resulting from better achievement against corporate targets, partially offset by cost reductions achieved throughin the prior year restructuring action. In addition, the ninethree months ended December 31, 2016 included executive transition costs that were not incurred in the comparable prior year period.June 30, 2017, and a favorable impact due to foreign currency fluctuations, primarily GBP and EUR.

INTEREST EXPENSE

Interest expense for both the three months ended December 31, 2015June 30, 2016 and 20162017 was $7.2 million and $7.3 million. Interest expense for the nine months ended December 31, 2015 and 2016 was $17.3 million and $21.9 million, respectively. SuchThese costs are primarily related to the 5.50% Senior Notes and include an immaterial amount in amortization of debt issuance costs.

Other non-operating income and (expense), net for the three months ended December 31, 2016 was flatJune 30, 2017 decreased compared to the prior year period due primarily to immaterial increases in interest income offset by immaterial net losses from fluctuations in foreign currency exchange rates. In the nine months ended December 31, 2016, other non-operating income and (expense), net increased primarily due to an immaterial net foreign currency gainlosses compared to a $3.0$1.4 million in net foreign currency lossgains in the year ago period on more volatile foreign currency exchange rate fluctuations. In addition, interest income increased due to slightly higher interest rates on a higher average investment portfolio when compared to the nine months ended December 31, 2015.prior year.

INCOME TAX EXPENSE (BENEFIT)

The Company adopted the new stock-based compensation accounting guidance during the three months ended December 31, 2015June 30, 2017, which resulted in proportionately moreexcess tax benefits associated with employee equity plans of $1.9 million being recognized in the income tax provision during that quarter. Excess tax benefits associated with employee equity plans were previously recorded in additional paid-in capital and the adoption of this guidance resulted in a reduction to the Company's effective tax rate by 11.4 percentage points for the three months ended June 30, 2017. The amount of excess tax benefits or deficiencies will fluctuate from period-to-period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP.

We recorded a correction to the geographic mix of income during the three months ended June 30, 2017 related to Fiscal Year 2017 to reduce income in highera high tax jurisdictionsjurisdiction and increase income in thata low tax jurisdiction. This correcting adjustment resulted in a reduction to the Company’s effective tax rate by 16.2 percentage points for the three months ended June 30, 2017 as compared to the prior year period.

WeThe Company and ourits subsidiaries are subject to taxation in the U.S. as well as various foreign and state jurisdictions.jurisdictions, including the U.S. All U.S. federal tax matters have been concluded for tax years prior to fiscal year 2013. TheFiscal Year 2014. During the three months ended June 30, 2017, we settled our protest to the California Franchise Tax Board completed its examination offor our 2007 and 2008 tax years. We have received a Notice of Proposed Assessment and responded by filing a protest letter. The amount of the proposed assessment is not material.years resulting in an immaterial refund. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to fiscal year 2011, except for the United Kingdom, which has been concluded for tax years prior to fiscal year 2015.Fiscal Year 2012.

Our primary source of liquidity is cash provided by operating activities and, on occasion, financing obtained from capital markets and other debt sources, such as our revolving credit line. We believe that internally generated cash flows are generally sufficient to support our businessesbusiness operations, capital expenditures, restructuring activities, principal and interest payment of debt, income tax payments and the payment of stockholder dividends, in addition to investments and share repurchases. We expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors, including fluctuations in our revenues and operating expenses, the timing of product shipments during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax, interest, annual bonus, and other payments. 

Compared to the same year ago period, wecash used less cash for investing activities increased during the ninethree months ended December 31, 2016,June 30, 2017, due to a net increase in cashinvestment purchases, net of proceeds from the sale and maturity of investment sales and maturities andsecurities, partially offset by a lower level of cash paid for capital expenditures.

Net cash used for financing activities during the ninethree months ended December 31, 2016 increasedJune 30, 2017 decreased from the prior year period.  In the prior year period we receivedresulting primarily from a decrease in cash used for common stock repurchases due to a higher average stock price and higher net proceeds from the issuance of our $500.0 million aggregate principal amount of 5.50% senior notes (the “5.50% Senior Notes”), which was substantially offset by common stock repurchases, and made net repayments of $34.5 million against our revolving credit facility. In the current year period we repurchased $34.2 million of common stock and had no debt financing transactions.based compensation plans.

On January 31,July 27, 2017, we announced that the Audit Committee of our Board ("the Audit Committee") had declared a cash dividend of $0.15 per share, payable on March 10,September 8, 2017 to stockholders of record at the close of business on February 21,August 18, 2017.  We expect to continue paying a quarterly dividend of $0.15 per share; however, the actual declaration of dividends and the establishment of record and payment dates are subject to final determination by the Audit Committee each quarter after its review of our financial performance and financial position.

Our primary discretionary cash requirements have historically been for repurchases of our common stock and to fund stockholder dividends.  As a result of the issuance of the 5.50% Senior Notes, we are required to make interest payments of approximately $13.8 million each November and May through the life of the notes. These payments require use of our domestic cash.

From time to time, depending on market conditions, our Board has authorized plans under which we may repurchase shares of our common stock in the open market or through privately negotiated transactions. During the ninethree months ended December 31, 2016,June 30, 2017, we repurchased 764,176252,707 shares of our common stock in the open market as part of these publicly announced repurchase programs. The total cost of these repurchases was $34.2$13.5 million, with an average price of $44.80$53.39 per share. In addition, we withheld 212,763196,010 shares with a total value of $9.4$10.5 million in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans.

In May 2011, we entered into a credit agreement with Wells Fargo Bank, National Association ("the Bank"), which was most recently amended in May 2016April 2017 (as amended, the "Amended"Credit Agreement"). The most recent amendment to the Credit Agreement")Agreement redefined the term, "EBITDA", to extendexclude costs related to restructuring, which is consistent with the original definition of EBITDA in the credit agreement prior to a waiver last year, extended the term of the Credit Agreement by one year to May 9, 2019,2020, and to waive a default under the Credit Agreement in effect as of March 31, 2016 in which our debt to EBITDA ratio minimally exceeded the previously agreed upon ratio of 3:1. The breachamended certain of the covenant was primarily a result of the restructuring expenses recorded in the third and fourth quarters of fiscal year 2016.covenants, discussed below.

The Amended Credit Agreement provides for a $100.0 million unsecured revolving credit facility. Revolving loans under the Credit Agreement will bear interest, at our 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. Principal, together with all accrued and unpaid interest, on the revolving loans is due and payable on May 9, 2019.2020. We are 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. We 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 December 31, 2016,June 30, 2017, we had no outstanding borrowings under the line of credit. The line of credit requires us to comply with the following two financial covenant ratios, in each case at each fiscal quarter end and determined on a rolling four-quarter basis:

In addition, we and our 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.

During Fiscal Year 2016, we obtained $488.4 million in aggregate principal amount, net of issuance costs, from the issuance of our 5.50% Senior Notes. The Notes mature on May 31, 2023, and bear interest at a substantial margin.rate of 5.50% per annum, payable semi-annually on May 15 and November 15. A portion of the proceeds was used to repay all then-outstanding amounts under our revolving line of credit agreement with Wells Fargo Bank and the remaining proceeds were used primarily for share repurchases. This increase in financial leverage supports our long-term commitment to enhance stockholder value of returning approximately 60% of free cash flow, defined as operating cash flows less capital expenditures, on an ongoing basis.

Our liquidity, capital resources, and results of operations in any period could be affected by repurchases of our common stock, the payment of cash dividends, the exercise of outstanding stock options, restricted stock grants under stock plans, and the issuance of common stock under our Employee Stock Purchase Plan (“ESPP”).  We receive cash from the exercise of outstanding stock options under our stock plan and the issuance of shares under our ESPP. However, the resulting increase in the number of outstanding shares from these equity grants and issuances could affect our earnings per share. We cannot predict the timing or amount of proceeds from the sale or exercise of these securities or whether they will be exercised, forfeited, canceled, or will expire. 

We believe that our current cash and cash equivalents, short-term investments, cash provided by operations, and the availability of additional funds under the Credit Agreement will be sufficient to fund operations for at least the next 12 months; however, any projections of future financial needs and sources of working capital are subject to uncertainty.  Readers are cautioned to review the risks, uncertainties, and assumptions set forth in this Quarterly Report on Form 10-Q, including the section entitled “Certain Forward-Looking Information” and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016,2017, filed with the SEC on May 16, 2016,10, 2017, and other periodic filings with the SEC, any of which could affect our estimates for future financial needs and sources of working capital.

We have not entered into any transactions with unconsolidated entities giving rise to 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 us with financing and liquidity support, market risk, or credit risk support.

We utilize several contract manufacturers to procure raw materials, components, and subassemblies for our products. We provide these contract manufacturers with demand information that typically covers periods up to 13 weeks, and they use this information to acquire components and build products. We also obtain individual components for our products from a wide variety of individual suppliers. Consistent with industry practice, we acquire components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. As of December 31, 2016,June 30, 2017, we had outstanding off-balance sheet third-party manufacturing, component purchase, and other general and administrative commitments of $164.8$178.6 million, including off-balance sheet consigned inventories of $58.7$48.7 million as discussed above.

Except as described above, there have been no material changes in our contractual obligations as described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.2017.

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

In JuneMay 2014, the Financial Accounting Standards Board ("FASB") issued guidance regarding revenue from contracts with customers. While the standard supersedes existing revenue recognition guidance, it closely aligns with current U.S. GAAP. Under the new standard, revenue will be recognized at the time control of a good or service is transferred to a customer for the amount of consideration received or to be 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. In March 2016, the FASB issued additional guidance regardingconcerning "Principal versus Agent" considerations (reporting revenue gross versus net); in April 2016, the measurementFASB issued additional guidance on identifying performance obligations and licensing; and in May 2016, the FASB issued additional guidance on collectability, non-cash consideration, presentation of credit losses on financial instruments, which changessales tax, and transition. These updates are intended to improve the impairment model for most financial assets.operability and understandability of the implementation guidance and have the same effective date and transition requirements as the greater "contracts with customers" standard. The new model uses a forward-looking expected loss method, whichCompany will generally resultadopt the standard, as amended, in earlier recognitionthe first quarter of allowances for losses.  The guidance is effective for the Company'sits fiscal year ending March 31, 2021 with early adoption permitted beginning2019, utilizing the modified retrospective method of adoption.  The Company has completed its initial review of the impact of this guidance, and does not anticipate a material impact on its revenue recognition practices. The Company will continue to assess all potential impacts of the standard, and currently believes the most significantly impacted areas are the following:

In January 2016, the FASB issued guidance regarding the recognition and measurement of financial assets and liabilities. Changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The Company is required to adopt the standard in the first quarter of its fiscal year ending March 31, 2019, but may elect to adopt earlier as permitted under the standard. The Company is currently evaluating thewhat impact, if any, the adoption of this standard will have on its results of operations, financial position, and cash flows.

In February 2016, the FASB issued additional guidance regarding both operating and financing leases, requiring lessees to recognize on their balance sheets “right-of-use assets” and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a “short-term lease.”  For expense recognition, the dual model requiring leases to be classified as either operating or finance leases has been retained from the prior standard. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will use criteria very similar to those applied in current lease accounting, but without explicit bright lines. Extensive additional quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expense recognized and expected to be recognized. The new lease guidance will essentially eliminate off-balance sheet financing. The guidance is effective for the Company's fiscal year ending March 31, 2020. The new standard must be adopted using a modified retrospective transition that provides for certain practical expedients and requires the new guidance to be applied at the beginning of the earliest comparative period presented. While we are not yet in a position to assess the full impact of the application of the new standard, theThe Company expects thatadoption of this guidance will materially increase the impact of recordingassets and liabilities recorded on its Consolidated Balance Sheets, but is still evaluating the lease liabilities and the corresponding right-to-use assets may have a significant impact on its total assetsconsolidated results of operations and liabilities with a minimal impact on its equity.

In JanuaryJune 2016, the FASB issued additional guidance regarding the recognition and measurement of financial assets and liabilities. Changes to the current GAAP model primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealizedcredit losses on available-for-sale debt securities.financial instruments, which changes the impairment model for most financial assets. The Companynew model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses.  The guidance is required to adopteffective for the standardCompany's fiscal year ending March 31, 2021 with early adoption permitted beginning in the first quarter of its fiscal year ending March 31, 2019, but may elect to adopt earlier as permitted under the standard.Fiscal Year 2020. The Company is currently evaluating whatthe impact if any, the adoption of this standard will have on its consolidated financial position, results of operations, financial position, and cash flows.

In July 2015,January 2017, the FASB issued additional guidance regardingthat revises the subsequent measurementdefinition of inventory by requiring inventory to be measured ata business, providing a more robust framework for determining when a set of assets and activities is deemed a business. The guidance is effective for the lower of cost and net realizable value. The Company is required to adopt the standard in the first quarter of itsCompany's fiscal year ending March 31, 2018, but may elect to adopt earlier as permitted under the standard. The adoption2019, including interim periods within that year, and is not expected to have a materialsignificant impact on the Company's consolidated financial position, results of operations, financial position, or cash flows.

In May 2014,January 2017, the FASB issued additional guidance regarding revenue from contracts with customers. Whilethat simplifies the standard supersedes existing revenue recognitionprocess required to test goodwill for impairment. The guidance it closely aligns with current GAAP. Under the new standard, revenue will be recognized at the time control of a good or service is transferred to a customereffective for the amount of consideration received or to be 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. In March 2016, the FASB issued additional guidance concerning "Principal versus Agent" considerations (reporting revenue gross versus net); in April 2016, the FASB issued additional guidance on identifying performance obligations and licensing; and in May 2016, the FASB issued additional guidance on collectability, noncash consideration, presentation of sales tax, and transition. These updates are intended to improve the operability and understandability of the implementation guidance and have the same effective date and transition requirements as the greater "contracts with customers" standard. The Company will adopt the standard, as amended, in the first quarter of itsCompany's fiscal year ending March 31, 2019.2021, and is not expected to have a significant impact on the Company's consolidated financial position, results of operations, or cash flows.

In March 2017, the FASB issued guidance related to the amortization of premiums on purchased callable debt securities. This guidance shortens the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date instead of the maturity date. This guidance is effective for the Company's fiscal year ending March 31, 2020, including interim periods within that year. The Company has not yet completed its final review ofis currently evaluating the impact the adoption of this guidance, although it currently does not anticipate a material impact on its revenue recognition practices. The Company continues to review variable consideration, potential disclosures, and its method of adoption to complete its evaluation of the impactstandard will have on its consolidated financial statements.position, results of operations, and cash flows, but expects the impact to be immaterial.

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 December 31, 2016June 30, 2017 and March 31, 20162017 (in thousands):

The Company did not incur any material realized or unrealized gains or losses in the three and nine months ended December 31, 2015June 30, 2016 and 2016.2017.

There were no transfers between fair value measurement levels during the three and nine months ended December 31, 2015June 30, 2016 and 2016.2017.

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 US Treasury Notes. The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.

The Company's unsecured revolving credit facility falls under the Level 3 hierarchy. The fair value of the Company’s line of credit approximates its carrying value because the interest rate is variable and approximates rates currently available to the Company. 

As of December 31, 2016,June 30, 2017, the Company held bank deposits of $0.8 million and investments in mutual funds totaling $12.1$13.6 million, all of which related to debt and equity securities that are held in rabbi trusts under non-qualified deferred compensation plans. The total related deferred compensation liability was $13.4$14.9 million at December 31, 2016. The fair valueJune 30, 2017. As of debt and equity securities held in the rabbi trusts at March 31, 2016 was $9.52017, the Company held bank deposits of $0.8 million and investments in mutual funds totaling $12.4 million. The total related deferred compensation liability at March 31, 20162017 was $10.7$13.7 million.

The bank deposits are recorded on the condensed consolidated balance sheets under "Cash"cash and cash equivalents". The securities are classified as trading securities and are recorded on the condensed consolidated balance sheets under "Short-term"short-term investments". The liability is recorded on the condensed consolidated balance sheets under “Other“other long-term liabilities” and "Accrued"accrued liabilities".

 

The Company's warranty obligation is included as a component of accrued liabilities on the condensed consolidated balance sheets. Changes in the warranty obligation during the ninethree months ended December 31, 2015June 30, 2016 and 20162017 were as follows:

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 protectionindemnification to customers against claims related to undiscovered liabilities, additional product liability, or environmental obligations.  The Company has also entered into indemnification agreements with its directors, officers and certain other personnel 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 or certain of its affiliated entities. The Company maintains director and officer liability insurance, which may cover certain liabilities arising from its obligation to indemnify its directors, officers and certain other personnel 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.

On October 12, 2012, GN Netcom, Inc. ("GN") sued the Company 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 parties conducted fact and expert discovery through December 2016.  In February 2017, the court granted the Company’s request to file a summary judgment motion, which the Company subsequently filed in April 2017.  That motion will be heard in August 2017. GN also filed a motion for sanctions, which the court denied in July 2017.  Both sides also filed Daubert motions to exclude certain expert testimony; those motions will be heard in August. A trial date has been set for October 10, 2017.

The Company believes that the underlying antitrust action is without merit and is vigorously defending itself. However, following the court order described above, there exists an increased risk of the jury finding in favor of the plaintiff. The claims at issue also provide for treble damages in the event of an adverse judgment and/or potential injunctive relief.  The Company is unable to provide an estimate of the possible loss or range of possible loss resulting from these allegations and has not accrued any financial damages relating to the antitrust case. The trial for the underlying antitrust case is currently scheduled to commence in October 2017.

In addition to the specific matter 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, the Company 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 $488.4 million from the issuance of the 5.50% Senior Notes, net of issuance costs of $11.6 million which are being amortized to interest expense over the term of the 5.50% Senior Notes using the effective interest method. A portion of the proceeds was used to repay all then-outstanding amounts under our revolving line of credit agreement with Wells Fargo Bank and the remaining proceeds were used primarily for share repurchases. This increase in financial leverage supports the Company's long-term commitment to enhance stockholder value of returning approximately 60% of free cash flow, defined as operating cash flows less capital expenditures, on an ongoing basis.

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 5.50% 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 the Company's ability to create certain liens and enter into sale and leaseback transactions; create, assume, incur, or guarantee additional indebtedness of its 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 the Company and its subsidiaries to another person. As of December 31, 2016,June 30, 2017, the Company was in compliance with all covenants.

On May 9, 2011, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("the Bank"), which was most recently amended on May 2, 2016April 28, 2017 (as amended, the "Amended Credit Agreement") to extend the term of the Credit Agreement by one year to May 9, 2019,2020, and to waive a default under the Credit Agreement in effect as of March 31, 2016 in which the Company's debt to EBITDA ratio minimally exceeded the previously agreed upon ratio of 3:1. The breachamend certain of the covenant was primarily a result of the restructuring expenses recorded in the third and fourth quarters of fiscal year 2016.covenants, which are defined below.

The Amended Credit Agreement provides for a $100.0 million unsecured revolving credit facility. 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 of April, July, October and January, commencing July 1, 2016.January. Principal, together with all accrued and unpaid interest, on the revolving loans is due and payable on May 9, 2019.2020. 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 of April, July, October and January, commencing July 1, 2016.January.

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 March 31, 20162017 and December 31, 2016,June 30, 2017, the Company had no outstanding borrowings under the line of credit.

The Amended 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 Amended Credit Agreement also requires the Company to comply with certain financial covenants, including (i) a maximum ratio of funded debt to EBITDA of 3.25:1 (previously 3:1) 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 Amended Credit Agreement at the end of each fiscal quarter of at least $300.0 million. The Amended 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 Amended Credit Agreement.

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:

In the ninethree months ended December 31, 2015June 30, 2016 and 2016,2017, the Company repurchased 8,673,366441,738 shares and 764,176252,707 shares, respectively, of its common stock in the open market for a total cost of $482.8$18.6 million and $34.2$13.5 million, respectively, and at an average price per share of $55.66$42.19 and $44.80,$53.39, respectively. In addition, the Company withheld shares valued at $10.8$8.8 million and $9.4$10.5 million in the ninethree months ended December 31, 2015June 30, 2016 and 2016,2017, respectively, in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under the Company's stock plans. The amounts withheld were equivalent to the employees' minimum statutory tax withholding requirements and are reflected as a financing activity within the Company's condensed consolidated statements of cash flows. These share withholdings have the same effect as share repurchases by the Company as they reduce the number of shares that would have otherwise been issued in connection with the vesting of shares subject to the restricted stock grants.