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 beliefs regarding the Enterprise market, market dynamics and customer behavior as well as our position in the market, (ii) our beliefs regarding the Consumer market, our new product introductions and the expected effect of such introductions, (iii) our belief that our "as-a-service" offerings will benefit our growth long-term but their contribution 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 & Collaboration ("UC"UC&C") market, including adoption of UC&C products, our position, and timing and growth expectations in this market, (vi) our plans regarding our "as a service" offerings including sales and marketing efforts, (vii) our intentions regarding investments in long-term growth opportunities and our core research and development efforts, in particular in the UC&C market, (viii) our intentions regarding the focus of our sales, marketing and customer services and support teams on UC&C, (ix) the future of UC&C technologies, including the transition of businesses to UC-supportedUC&C-supported systems and the effects on headset adoption and use, enterprises that adopt UC&C 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 2018 and the sufficiency of our cash, cash equivalents, and cash from operations to sustain future operations and discretionary cash requirements, (xiv) our ability to pay future stockholder dividends, (xv) our ability to draw funds on our credit facility as needed, (xvi) the sufficiency of our capital resources to fund operations, and other statements regarding our future operations, financial condition and prospects, and business strategies.strategies, (xvii) our expectations and beliefs regarding the impact of the Polycom acquisition on our business including, without limitation, our ability to: (a) timely and efficiently integrate the businesses without impacting revenue and operations, (b) timely achieve expected synergies and operating efficiencies; (c) successfully manage relationships with customers, resellers, end-users, suppliers and strategic partners; (d) accurately estimate potential markets and market shares for the combined company's products, achieve market growth rates and successfully advocate the benefits of the combined company and the nature and extent of competitive responses to the combined company; (e) estimate the impact resulting from outcomes or rulings in known or yet undiscovered regulatory, litigation or other similar matters; (f) timely and effectively implement appropriate controls and processes for the reporting of financial and operational information and data according to governmental, contractual and other obligations; (g) tax implications of the acquisition; (h) integrate supply chains; and (i) react quickly and efficiently to mitigate risks related to the failure of our due diligence to uncover potential liabilities of Polycom.  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, 2017,2018, filed with the Securities and Exchange Commission (“SEC”) on May 10, 2017;9, 2018; 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.  Our major product categories are Enterprise, which includes headsets optimized for Unified Communications & Collaboration (“UC”UC&C”), 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 ("PC"), and gaming headsets. Until July 1, 2017, we also offered specialty products marketed for hearing impaired individuals under our Clarity brand, which was included in our Consumer product category.

We ship our products to approximately 80 countries through a network of distributors, retailers, resellers, wireless carriers, original equipment manufacturers (“OEMs”), and telephony and other 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 thirdfirst quarter of Fiscal Year 2017,2018, net revenues decreased 2.7%increased 8.5% to $226.5$221.3 million. The decreaseincrease in net revenues was driven by lowerhigher revenues withinacross our Consumer and Enterprise product categories. When compared to the same prior year period, our Enterprise category which declined 22.1%grew by 8.4%, or $16.7$13.0 million due to continued growth in UC&C product sales and our Consumer category grew by 8.8%, or $4.3 million driven by revenues from the year ago period. Of the declines in Consumer, approximately $8.0 million related to the divestiture of Clarity inour gaming products.

Operating income for the first quarter of Fiscal Year 2018. These declines were partially offset by higher revenues within our Enterprise product category, which grew 6.5%, or $10.3 million from the year ago period.

Our primary focus for long-term growth opportunities, strategic initiatives, and the majority of our revenue and profits areremained in our Enterprise business. As we integrate Polycom, we will focus on accelerating our strategic vision of becoming a global leader in communications and collaboration experiences. Polycom is a leading provider of open, standards-based UC&C solutions for voice, video and content sharing and a comprehensive line of support and service solutions. Polycom solutions are sold globally through a high-touch sales model that leverages a broad network of channel partners. Therefore, we believe this Acquisition will position us to capture additional opportunities through data analytics and insight services across a broad portfolio of communications endpoints.

Within the market for Plantronics Enterprise product category,headset products, we anticipate the key driver of long-term revenue growth and profit opportunityover the next few years will continue to be UC&C audio solutions.  We believe enterprises are increasing adoption of UC&C systems to reduce costs, improve collaboration, and migrate technology from obsolete legacy systems.  We expect growth of UC&C will increase overall headset adoption in

enterprise environments, and we believe most of the growth in our Enterprise product category over the next three years will come from headsets designed for UC.UC&C. As such, UC&C remains the central focus of our sales, marketing, and support functions, and we will continue investing in key strategic alliances and integrations with major UC&C vendors.

Revenues from ourPlantronics Consumer headset products channel 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 product life-cycleslife cycles (including the introduction and pace of adoption of new technology), the market acceptance of new product introductions, consumer preferences and the competitive retail environment, changes in consumer confidence and other macroeconomic factors, and fluctuationsfactors. While sales in foreign currency rates relativethe mobile headset market continues to decline, we believe future growth opportunities exist in gaming headsets primarily due to growth trends in the U.S. Dollar ("USD").console gaming market. In addition, the timing or non-recurrence of retailer placements can cause volatility in quarter-to-quarter results.

The following graphs display net revenues by product category for the three and nine months ended December 31, 2016June 30, 2017 and 2017:2018:

Net revenues decreasedincreased in the three and nine months ended December 31, 2017June 30, 2018 compared to the prior year periods due primarily to lowerdriven by higher revenues within both our Enterprise and Consumer product category, partially offset by increasescategories. The growth in our Enterprise product revenuescategory was driven by UC&C product revenues while the growth in our Consumer category was driven by Gaming product revenues.

Compared to the same prior year periods,period, U.S. net revenues decreasedincreased in the three and nine months ended December 31, 2017June 30, 2018 due primarily to a decline in Consumer product sales volumes, driven by a declinegrowth in sales of our stereo BluetoothGaming products andwithin the divestiture of our Clarity business. These declinesConsumer product category. Enterprise product revenues were partiallyup slightly with growth in UC&C revenues offset by increasescontinued declines in Enterprise, resulting from continued growth in UC within both the Voyager and Blackwireour non-UC&C product families.revenues.

 

InternationalCompared to the same prior year period, changes in foreign exchange rates favorably impacted revenues by approximately $6 million, net of immaterial benefits from our hedging program, as a result of the decline in the value of the Euro ("EUR") and British Pound Sterling ("GBP"). In addition to these currency impacts, international net revenues for the three and nine months ended December 31, 2017June 30, 2018 increased from the same prior year ago periodsperiod, due to growth in our Enterprise category, driven primarily by UC&C product sales. Changes in foreign exchange rates increased net revenues by $4.1 million, net of the effects of hedging, for the three months ended December 31, 2017, compared to an immaterial impact in the prior year period. During the nine months ended December 31, 2017, changes in foreign exchange rates positively impacted net revenues by $1.3 million, net of the effects of hedging, compared to an immaterial amount in the prior year period.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues consists primarily of direct and contract manufacturing costs, warranty, freight, depreciation, duties, charges for excess and obsolete inventory, royalties, and overhead expenses. 

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 gross profit as a percentage of net revenues. Gross profit percentages 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 overhead expenses.

During the three and nine months ended December 31, 2017,June 30, 2018, research, development, and engineering expenses declinedincreased when compared to the same prior year periodsperiod due primarily to lowerhigher compensation expenses driven primarily by reducedincreased funding of our variable compensation plans and cost reductions from our restructuring actions initiated in prior periods.plans.

SELLING, GENERAL, AND ADMINISTRATIVE

Selling, general, and administrative expenses consist primarily of professional service fees, compensation costs, marketing costs, travel expenses, litigation and professional service fees, and overhead expenses.

We recognized immaterial gains from litigation in the three months ended December 31, 2016June 30, 2017 and 2017. In the nine months ended December 31, 2017, we recognized immaterial gains compared to the prior year period when we recognized a $4.9 million charge related to discovery sanctions in the GN Netcom litigation.

Compared to the prior year period, restructuring and other related charges (credits) increaseddecreased in the ninethree months ended December 31, 2017,June 30, 2018, due to larger restructuring actions initiated during the first quarter of Fiscal Year 2018. In the prior year period we recorded a net reduction2018 in comparison to expenses resulting from changes to the estimates related to our restructuring actions recorded in Fiscal Year 2016.2019. The restructuring action taken during the first quarter of Fiscal Year 2019 was aimed at realigning our sales organization structure as part of a broader strategic objective to improve sales management and ensure proper investment across our geographic regions.

INTEREST EXPENSE

Interest expense for the three month periods ended June 30, 2017 and nine months ended December 31, 2016 and 20172018 was $7.3 million and $21.9 million, respectively and relates primarily to our 5.50% Senior Notes.

Other non-operating income and (expense), net for the three months ended December 31, 2017 increased primarily due to favorable changes in the Mexican Peso exchange rate and an increase in interest income from higher average yields on our investment portfolio.

INCOME TAX EXPENSE

Our primary source of liquidity isWe use cash provided by operating activities and, on occasion, financing obtained from capital markets and other financing sources, such as our revolving credit line. We believe that internally generated cash flows are generally sufficient to support our business operations, capital expenditures, restructuring activities, principal and interest paymentprimary source of debt, income tax payments and the payment of stockholder dividends, in addition to investments and share repurchases.liquidity. 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 income, the timing of compensation-related payments such as our annual bonus/variable compensation plan and Employee Stock Purchase Plan ("ESPP") plan, 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 prior year ago period, net cash provided by operating activities during the ninethree months ended December 31, 2017 decreasedJune 30, 2018 increased primarily as a result of higherincreased sales, lower variable compensation plan payouts, and a lower tax payments which were partially offset by acquisition- related costs.

Net cash provided by for investing activities during the three months ended June 30, 2018 was due to an increase in proceeds from the sales of short term investments to fund the completion of the Acquisition. This increase was partially offset by the prepayment of $33.6 million during the first quarter of Fiscal Year 2018 related to Fiscal Year 2017 variable compensation than payouts during the prior year period for Fiscal Year 2016 variable compensation, due to better achievements against Corporate targets in Fiscal Year 2017.

Net cash used for financing activities during the ninethree months ended December 31, 2017 increasedJune 30, 2018 decreased from the prior year period resulting primarily from an increasea decrease in cash used for common stock repurchases due to a lower average stock price, partially offset by higher net proceeds from stock-based compensation plans.repurchases.

On January 30,August 6, 2018, 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 9,September 10, 2018 to stockholders of record at the close of business on FebruaryAugust 20, 2018.  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. On July 2, 2018, the Company issued 6.4 million shares of the Company's common stock as consideration for the Acquisition. Therefore, we expect the recently announced dividend payment to be significantly higher than our historical dividend payments.

Our primary discretionary cash requirements have historically been for repurchases of our common stock and to fund stockholder dividends.  At December 31, 2017,June 30, 2018, we had working capital of $619.4$804.5 million, including $499.1$645.2 million of cash, cash equivalents, and short-term investments, compared with working capital of $581.8$774.2 million, including $480.1$660.0 million of cash, cash equivalents, and short-term investments at March 31, 2017. 2018. The increase in working capital at June 30, 2018 compared to March 31, 2018 resulted from the net increase in cash provided by operations and accounts receivable driven by increased sales in the current period.