UNITED STATES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
 (Mark One)

x

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

For the quarterly period ended December 31, 2003June 30, 2004

OR

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

For the transition period from ________to _________

Commission file number 1-12696

Plantronics, Inc.

 (Exact name of registrant as specified in its charter)


Commission file number 1-12696

Plantronics, Inc.
(Exact name of registrant as specified in its charter)

Delaware
77-0207692
(State  (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
345 Encinal Street
Santa Cruz, California   95060
(Address of principal executive offices) 

(Zip Code)

345 Encinal Street
Santa Cruz, California 95060
(Address of principal executive offices)
(Zip Code)
(831) 426-5858
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
(831) 426-5858
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YesxNoo¨

The number of shares outstanding of Plantronics’ common stock as of January 23,July 30, 2004 was 45,933,780.
47,934,018.
 
 1 
 
 
 
Plantronics, Inc.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Page No.
    
Item 1. Financial Statements (unaudited):
 
Balance Sheets as of March 31, 20032004 and December 31, 2003June 30, 2004
33
Statements of Operations for the Three and Nine Months Ended December 31, 2002June 30, 2003 and 20032004
44
Statements of Cash Flows for the NineThree Months Ended December 31, 2002June 30, 2003 and 20032004
55
Notes to Financial Statements
66
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
30
27
Item 4. Controls and Procedures
29
PART II. OTHER INFORMATION
 
Item 4. Disclosure Controls and ProceduresSubmission of Matters to a Vote of Security Holders
31
PART II. OTHER INFORMATION29
Item 6. Exhibits and Reports on Form 8-K
32
30
Signatures
33
32
  




 
2 
 

Part I-- FINANCIAL INFORMATION

Item 1. Financial Statements

PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)

 
March 31,
June 30,
 
2004
2004
ASSETS
 
 
Current assets:      
Cash and cash equivalents$180,616 $210,959 
Marketable securities -  - 
Accounts receivable, net 64,999  68,521 
Inventories 40,762  47,418 
Deferred income taxes 13,967  13,964 
Other current assets 10,283  3,237 
 
 
 
Total current assets 310,627  344,099 
Property, plant and equipment, net 42,124  48,610 
Intangibles, net 3,440  3,241 
Goodwill 9,386  9,386 
Other assets 2,675  2,683 
 
 
 
Total assets$368,252 $408,019 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
      
Current liabilities:      
Accounts payable$19,075 $26,208 
Accrued liabilities 36,469  33,434 
Income taxes payable 5,686  11,844 
 
 
 
Total current liabilities 61,230  71,486 
Deferred tax liability 7,719  7,719 
 
 
 
Total liabilities 68,949  79,205 
 
 
 
Stockholders' equity:      
Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding
 -  - 
Common stock, $0.01 par value per share; 100,000 shares authorized, 63,635 shares and 63,890 shares issued at March 31, 2004 and June 30, 2004, respectively
 636  639 
Additional paid-in capital 248,495  255,240 
Accumulated other comprehensive income 681  1,023 
Retained earnings 347,629  369,976 
 
 
 
  597,441  626,878 
Less: Treasury stock (common: 16,029 and 16,017 shares at March 31, 2004 and June 30, 2004, respectively) at cost
 (298,138) (298,064)
 
 
 
Total stockholders' equity 299,303  328,814 
 
 
 
Total liabilities and stockholders' equity$368,252 $408,019 
 
 		 
  		 

   

March 31,

  
December 31,
 
   
2003
  
2003
 
 
 
 
ASSETS
       
Current assets:       
  Cash, cash equivalents and marketable securities
 $59,725 $107,329 
  Accounts receivable, net
  50,503  64,425 
  Inventory, net
  33,758  39,178 
  Deferred income taxes
  6,357  5,974 
  Other current assets
  2,674  2,230 
  
 
 
    Total current assets
  153,017  219,136 
  Property, plant and equipment, net
  36,957  41,109 
  Intangibles, net
  3,682  3,191 
  Goodwill, net
  9,386  9,386 
  Other assets, net
  2,167  2,642 
  
 
 
    Total assets
 $205,209 $275,464 
  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
       
Current liabilities:       
  Accounts payable
 $13,596 $16,985 
  Accrued liabilities
  27,235  38,686 
  Income taxes payable
  8,581  4,947 
  
 
 
    Total current liabilities
  49,412  60,618 
Deferred tax liability  8,867  8,076 
  
 
 
    Total liabilities
  58,279  68,694 
  
 
 
Stockholders' equity:       
  Preferred stock, $0.01 par value per share; 1,000 shares authorized, no shares outstanding
  -  - 
                   
  Common stock, $0.01 par value per share; 100,000 shares authorized, 59,728 and 61,022 shares outstandingat March 31, 2003 and December 31, 2003, respectively
  597  610 
  Additional paid-in capital
  158,160  179,411 
  Accumulated other comprehensive income (loss)
  209  (1,433)
  Retained earnings
  285,350  326,683 
  
 
 
   444,316  505,271 
        
Less: Treasury stock (common: 16,090 and 16,091 shares at March 31, 2003 and December 31, 2003,respectively) at cost
  
(297,386
) 
(298,501
)
  
 
 
        
        
Total stockholders' equity  146,930  206,770 
  
 
 
Total liabilities and stockholders' equity $205,209 $275,464 
  
 
 
        
        

See Notes to Unaudited Condensed Consolidated Financial Statements
 
3 
 
 
PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS
(In thousands, except per share data)

    
  
Three Months Ended
  
June 30,
  
  
2003
2004
  
Net sales $92,786 $131,370 
Cost of sales  47,319  61,703 
  
 
 
Gross profit  45,467  69,667 
  
 
 
        
Operating expenses:       
Research, development and engineering  8,605  10,044 
Selling, general and administrative  21,153  28,920 
  
 
 
Total operating expenses  29,758  38,964 
  
 
 
Operating income  15,709  30,703 
Interest and other income, net  492  335 
  
 
 
Income before income taxes  16,201  31,038 
Income tax expense  4,860  8,691 
  
 
 
Net income $11,341 $22,347 
  
 
 
Basic earnings per common share (Note 5) $0.26 $0.47 
Shares used in basic per share calculations  43,669  47,725 
        
Diluted earnings per common share (Note 5) $0.25 $0.44 
Shares used in diluted per share calculations  45,077  50,428 
        

 
 Three Months EndedNine Months Ended
  December 31,December 31,
  
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net sales $86,811 $107,622 $249,449 $295,525 
Cost of sales  44,290  51,381  123,835  145,051 
  
 
 
 
 
Gross profit
  42,521  56,241  125,614  150,474 
  
 
 
 
 
              
Operating expenses:             
Research, development and engineering
  9,004  8,834  25,418  25,686 
Selling, general and administrative
  20,939  23,649  60,308  67,786 
  
 
 
 
 
Total operating expenses
  29,943  32,483  85,726  93,472 
  
 
 
 
 
Operating income  12,578  23,758  39,888  57,002 
Interest and other income, net  566  1,412  1,771  2,045 
  
 
 
 
 
Income before income taxes  13,144  25,170  41,659  59,047 
Income tax expense  3,943  7,551  10,754  17,714 
  
 
 
 
 
Net income $9,201 $17,619 $30,905 $41,333 
  
 
 
 
 
              
Basic earnings per common share (Note 5) $0.20 $0.39 $0.68 $0.94 
  
 
 
 
 
              
Shares used in basic per share calculations  44,939  44,628  45,531  44,116 
  
 
 
 
 
              
Diluted earnings per common share (Note 5) $0.20 $0.37 $0.66 $0.89 
  
 
 
 
 
              
Shares used in diluted per share calculations  46,197 $47,501 $47,096  46,305 
  
 
 
 
 


See Notes to Unaudited Condensed Consolidated Financial Statements







 
4 
 

PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS
(In thousands)

  Nine Months Ended
  December 31,
  
 
   2002  2003 
  
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:       
Net income $30,905 $41,333 
  Adjustments to reconcile net income to net cash provided by operating activities:
       
    Depreciation and amortization
  8,425  9,519 
    Deferred income taxes
  (55) (408)
    Income tax benefit associated with stock options
  1,296  5,232 
    Loss on disposal of fixed assets
  17  148 
  Changes in assets and liabilities:
       
    Accounts receivable, net
  (8,089) (13,922)
    Inventory, net
  1,219  (5,420)
    Other current assets
  (22) 444 
    Other assets
  551  (138)
    Accounts payable
  (1,614) 3,389 
    Accrued liabilities
  3,036  11,451 
    Income taxes payable
  (1,589) (3,634)
  
 
 
Cash provided by operating activities  34,080  47,994 
  
 
 
        
CASH FLOWS FROM INVESTING ACTIVITIES:       
  Proceeds from maturities of marketable securities
  22,500  5,020 
  Purchase of marketable securities
  (13,020) - 
  Purchase of equity investment
  -  (450)
  Capital expenditures
  (9,513) (13,217)
  
 
 
Cash used in investing activities  (33) (8,647)
  
 
 
        
CASH FLOWS FROM FINANCING ACTIVITIES:       
  Purchase of treasury stock
  (25,306) (1,833)
  Proceeds from sale of treasury stock
  1,102  1,889 
  Proceeds from exercise of stock options
  1,647  14,864 
  
 
 
Cash (used in) provided by financing activities  (22,557) 14,920 
  
 
 
        
Effect of exchange rate changes on cash and cash equivalents  1,492  (1,642)
  
 
 
        
Net increase in cash and cash equivalents  12,982  52,625 
Cash and cash equivalents at beginning of period  43,048  54,704 
  
 
 
Cash and cash equivalents at end of period $56,030 $107,329 
  
 
 
        
Supplemental disclosures of cash flow information:       
Cash paid for:       
  Interest
 $100 $93 
  Income taxes
 $11,339 $16,679 
        

  

 Three Months Ended

 
  

 June 30,

 
  
 
 
   
2003
  
2004
 
  
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
       
Net income $11,341 $22,347 
Adjustments to reconcile net income to net cash provided by operating activities:       
Depreciation and amortization  3,619  2,759 
Deferred income taxes  -  3 
Income tax benefit associated with stock options  1,342  870 
Loss on disposal of fixed assets  8  262 
Changes in assets and liabilities       
Accounts receivable, net  651  (3,522)
Inventories  (3,752) (6,656)
Other current assets  851  7,046 
Other assets  53  (31)
Accounts payable  1,475  7,133 
Accrued liabilities  2,084  (3,035)
Income taxes payable  57  6,158 
  
 
 
Cash provided by operating activities  17,729  33,334 
  
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
       
Proceeds from maturities of marketable securities  5,021  - 
Capital expenditures and other assets  (2,720) (9,285)
  
 
 
Cash provided by (used for) investing activities  2,301  (9,285)
  
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
       
Purchase of treasury stock  (1,833) - 
Proceeds from sale of treasury stock  469  407 
Proceeds from exercise of stock options  802  5,545 
  
 
 
Cash (used for) provided by financing activities  (562) 5,952 
  
 
 
Effect of exchange rate changes on cash and cash equivalents  (558) 342 
  
 
 
Net increase in cash and cash equivalents  18,910  30,343 
Cash and cash equivalents at beginning of the period  54,704  180,616 
  
 
 
Cash and cash equivalents at end of the period $73,614 $210,959 
  
 
 
SUPPLEMENTAL DISCLOSURES
       
Cash paid for:       
Interest $33 $37 
Income taxes $5,822 $1,901 
 
See Notes to Unaudited Condensed Consolidated Financial Statements

 
5 
 
 
PLANTRONICS, INC.

NOTESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Plantronics, Inc. ("Plantronics," "we," or "our") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.2004. The interim financial information is unaudited, but reflects all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepa redprepared in accordance with generally accepted accounting principles have been condensed or omittedomi tted pursuant to the rules and regulations of the Securities and Exchange Commission. Certain prior period balances have been reclassified to conform to the current period presentation. The interim financial statements should be read in connection with the financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.2004.

2. PERIODS PRESENTED

Our fiscal year-end is the Saturday closest to March 31was April 3, 2004 and the thirdfirst fiscal quarter-end is the last Saturday in December.was July 3, 2004. For purposes of presentation, we have indicated our accounting year as ending on March 31, and our interim quarterly periods as ending on the applicable month-end. Our fiscal quarters ended December 31, 2002,June 30, 2003 and December 31, 2003,June 30, 2004 each consisted of thirteen weeks.

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)


  

March 31,

 

December 31,

 
  

2003

 

2003

 
  
 
 
Cash, cash equivalents and marketable securities:       
Cash and cash equivalents
 $54,704 $107,329 
Marketable securities
  5,021  - 
  
 
 
  $59,725 $107,329 
  
 
 
        
Accounts receivable, net:       
Accounts receivable from customers
 $65,931 $83,148 
Less: sales returns, promotions and rebates
  (12,067) (14,996)
Less: allowance for doubtful accounts
  (3,361) (3,727)
  
 
 
  $50,503 $64,425 
  
 
 
        
Inventory, net:       
Finished goods
 $14,712 $17,397 
Work in process
  1,229  1,271 
Purchased parts
  17,817  20,510 
        
  
 
 
  $33,758 $39,178 
  
 
 

 
6 
 

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)



  

March 31,

 

December 31,

 
  

2003

 

2003

 
 
 
 
Property, plant and equipment, net:     
Land
 $4,693 $6,031 
Buildings and improvements (useful lives: 7-30 years)
  19,189  25,575 
Machinery and equipment (useful lives: 2-10 years)
  61,496  62,671 
  
 
 
   85,378  94,277 
Less: accumulated depreciation
  (48,421) (53,168)
  
 
 
  $36,957 $41,109 
  
 
 
        
Accrued liabilities:       
Employee benefits
 $12,283 $14,767 
Accrued advertising and sales and marketing
  2,150  3,476 
Warranty accrual
  5,905  6,560 
Accrued losses on hedging instruments
  -  5,230 
Accrued other
  6,897  8,653 
  
 
 
  $27,235 $38,686 
  
 
 

   
March 31, 
  
June 30,
 
   
2004
  
2004
 
  
 
 
Accounts receivable, net:  
 
  
 
 
Accounts receivable $82,562 $88,640 
Less: sales returns, promotions and rebates  (14,027) (15,499)
Less: allowance for doubtful accounts  (3,536) (4,620)
  
 
 
  $64,999 $68,521 
  
 
 
Inventories  
 
  
 
 
Finished goods $23,543 $28,838 
Work in process  1,349  1,434 
Purchased parts  15,870  17,146 
  
 
 
  $40,762 $47,418 
  
 
 
Property, plant and equipment, net:  
 
  
 
 
Land $6,039 $6,027 
Buildings and improvements (useful life 7-30 years)  25,952  31,001 
Machinery and equipment (useful life 2-10 years)  61,462  64,847 
  
 
 
   93,453  101,875 
Less: accumulated depreciation  (51,329) (53,265)
  
 
 
  $42,124 $48,610 
  
 
 
Accrued liabilities:  
 
  
 
 
Employee benefits $16,373 $13,040 
Accrued advertising and sales and marketing  3,101  3,755 
Warranty accrual  6,795  6,988 
Accrued losses on hedging instruments  1,937  1,656 
Accrued other  8,263  7,995 
  
 
 
  $36,469 $33,434 
  
 
 
4. FOREIGN CURRENCY TRANSACTIONS

The functional currency of our Mexican manufacturing operations and European sales and logistics headquarters is the U.S. dollar. Accordingly, all revenues and cost of sales related to these foreign operations are recorded using the U.S. dollar as functional currency.
The functional currency of our foreign sales and marketing offices, and our foreign research and development facilities is the local currency of the respective operations. TheFor these foreign operations, we translate assets and liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S.United States dollars at the currentusing period-end exchange raterates in effect atas of the balance sheet date. Incomedate and expense items are translatedtranslate revenues and expenses using the average monthly exchange rate for the period. Cumulativerates. The resulting cumulative translation adjustments are included in accumulated other comprehensive i ncome (loss), which is reflected"Accumulated Other Comprehensive Income" and as a separate component of stockholders' equity. Foreignequity in the Consolidated Balance Sheets (see Note 8).

The functional currency of our Mexican manufacturing operations and design center, and our European sales and logistics headquarters is the United States dollar. For these foreign operations, assets and liabilities are remeasured at the period-end or historical rates as appropriate. Revenues and expenses are remeasured at average monthly rates. Currency transaction gains and losses are includedrecognized in the results ofcurrent operations.

7
Plantronics has entered into foreign currency forward contracts, which typically mature in one month, to hedge a portion of our exposure to foreign currency fluctuations in forecastedexpected foreign currency-denominated receivables, payables and cash balances. We record on the balance sheet at each reporting period the fair value of our forward contracts and record any fair value adjustments in results of operations. Gains and losses associated with currency rate changes on the contracts are recorded in results of operations, as other income (expense), offsetting transaction gains and losses on the related assets and liabilities. Plantronics does not enter into foreign currency forward contracts for trading purposes.

As of December 31, 2003,June 30, 2004, we had foreign currency forward contracts of approximately $6.3 and $1.3approximately€6.2 and£1.8 million denominated in Euros and Great British Pounds, respectively. These forward contracts hedge against a portion of our forecastedexpected foreign currency-denominated receivables, payables and cash balances. The following table summarizes our net currency position, and approximate U.S. dollar equivalent, at December 31, 2003 (currencyJune 30, 2004 (local currency and dollar amounts in thousands):
       
  Local U.S. Dollar  
  Currency EquivalentPositionMaturity
Euro€ 5,057 $6,300Sell1 month
Great British Pound£733 $1,300Sell1 month

   
Local Currency
  
USD Equivalent
  
Position
  
Maturity
 
  
 
 
 
 
EUR  6,178 $7,500  Sell  1 month 
GBP  1,767 $3,200  Sell  1 month 

Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in a net gainloss of approximately $1.2$0.1 million for the fiscal quarter ended December 31, 2003,June 30, 2004, compared to a net gain of approximately $0.3 million in the fiscal quarter ended December 31, 2002,June 30, 2003, which is included in interest and other income, net in the results of operationsoperations.

7

Plantronics periodically hedges foreign currency forecasted transactions related to sales with currency options. These transactions are designated as cash flow hedges. The effective portion of the hedge gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. Any ineffective portions of related gains or losses are recorded in the statements of operations immediately. On a monthly basis, Plantronics enters into monthly option contracts with a one-year term. Plantronics does not purchase options for trading purposes. As of December 31, 2003,June 30, 2004, we had foreign currency put and call option contracts of approximately€21.6approximately€31.3 million and£8.4million denominated in Euros and Great British Pounds, respectively. As of December 31, 2003, we also had foreign currency put option contracts of approximately€21.6 million and£8.4 million denominated in Euros and Great British Pounds, respectively . Collectively ourand£10.9 million. Our option contracts hedge a portionp ortion of our forecasted foreign denominated sales. The following table summarizes option positions at December 31, 2003June 30, 2004 (in thousands):


   

Balance Sheet

  Income Statement 
  
 
 
      December 31, 2003 
   

As of December 31, 2003

  Three Months  Nine Months 
   

Accumulated Other

  Ended  Ended 
   

Comprehensive Income/(Loss)

  Net Sales  Net Sales 
           
        
Realized loss on closed transactions $-$
(1,255
)$
(1,764
)
          
Recognized but unrealized loss on open transactions 
(3,693
) - 
-
          
  
 
 
 
  $(3,693)$(1,255)$(1,764)
  
 
 
 
  

Balance Sheet

   

Income Statement

 
  

Accumulated Other

   

Net Sales

 
  

Comprehensive Income/(loss)

   
Three Months Ended June 30,
 
  
 
   
 
 
   
March 31, 2004 
  
June 30, 2004
    
2003
  
2004
 
  
 
   
 
 
Realized loss on closed transactions
 $- $-   $(184)$(488)
   
 
  
 
    
 
  
 
 
Recognized but unrealized loss on open transactions
  (1,937) (1,438)   -  - 
  
 
   
 
 
  $(1,937)$(1,438)  $(184)$(488)
  
 
  
 
 
 
Foreign currency transactions related to hedging activitiescash flow hedges on option contracts resulted in a net reduction to revenue of $1.3$0.5 million and $1.8$0.2 million for the three and nine months ended December 31,June 30, 2004 and June 30, 2003, respectively. There were no such option contracts in place for the three and nine months ended December 31, 2002.

8
5. COMPUTATION OF EARNINGS PER COMMON SHARE

Basic Earnings Per Share ("EPS"(“EPS”) is computed by dividing net income available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Basic EPS excludes the dilutive effect of stock options. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased using the proceeds from the assumed exercise of stock options. The increase in the value of Plantronics' common stock during the fiscal quarter ended December 31, 2003 contributed to the increased number of dilutive potential common shares included in the diluted earnings per share calculation.

8
 
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended December 31, 2002June 30, 2003 and 20032004 (in thousands, except earnings per share):

   

Three Months Ended

 

Nine Months Ended

 
   December 31, 

December 31,

 
  
 
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net income $9,201 $17,619 $30,905 $41,333 
              
Weighted average shares outstanding:             
Weighted average shares - basic  44,939  44,628  45,531  44,116 
Effect of dilutive securities - employee stock options  1,258  2,873  1,565  2,189 
  
 
 
 
 
Weighted average shares - diluted  46,197  47,501  47,096  46,305 
  
 
 
 
 
              
Earnings per common share-basic $0.20 $0.39 $0.68 $0.94 
Earnings per common share-diluted $0.20 $0.37 $0.66 $0.89 
 
 
Three Months Ended  
  
June 30, 
  
 		 
   
2003
  
2004
 
  
 
 
   
 
  
 
 
Net income $11,341 $22,347 
   
 
  
 
 
Weighted average shares-basic  43,669  47,725 
Effect of potential dilutive employee stock options  1,408  2,703 
  
 
 
Weighted average shares-diluted  45,077  50,428 
  
 
 
   
 
  
 
 
Net income per share-basic $0.26 $0.47 
   
 
  
 
 
Net income per share-diluted $0.25 $0.44 

Dilutive potential common shares consist of outstanding employee stock options. Outstanding stock options to purchase approximately 8.55.3 million and 1.50.4 million shares of Plantronics' common stock at December 31, 2002June 30, 2003 and December 31, 2003,June 30, 2004, respectively, were excluded from the computation of diluted earnings per share because they were out of the money and therefore anti-dilutive. Dilution fromThe increase in the market value of Plantronics' common stock options is highly sensitive to our stock price. Duringduring the fiscal quarter ended December 31, 2003, the effect of the increase in our stock price comparedJune 30, 2004 contributed to the prior quarter ended September 30, 2003 on weighted averageincreased number of dilutive potential common shares was approximately 0.8 million shares.included in the diluted earnings per share calculation.

6. PRO FORMA EFFECTS OF STOCK – BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and to provide additional disclosures with respect to the pro forma effects of adoption had we recorded compensation expense as provided in SFAS 123 and Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure as it Relates to Interim Disclos ures.Disclosures."

9
All options in the three and nine months ended December 31, 2002June 30, 2003 and 2003,2004, respectively, were granted at an exercise price equal to the market value of Plantronics’ common stock on the date of grant. The following table sets forth net income and earnings per share amounts that would have been reported if Plantronics had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the three and nine months ended December 31, 2002June 30, 2003 and 20032004 (in thousands, except earnings per share):

  

 Three Months Ended

 
  

 June 30,

 
   
2003
  
2004
 
  
 
 
Net income:  
 
  
 
 
Net income - as reported $11,341 $22,347 
Less stock based compensation expense determined underfair value based method, net of taxes
  (3,440) (4,133)
  
 
 
Net income - pro forma $7,901 $18,214 
  
 
 
Basic net income per share - as reported $0.26 $0.47 
Basic net income per share - pro forma $0.18 $0.38 
Diluted net income per share - as reported $0.25 $0.44 
Diluted net income per share - pro forma $0.18 $0.36 

  

Three Months Ended

 Nine Months Ended 
  

December 31,

December 31, 
  
 
 
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net income - as reported $9,201 $17,619 $30,905 $41,333 
Less stock based employee compensation determined under fair value based method, net of tax  (3,699) (3,919) (10,419) (10,573)
              
  
 
 
 
 
Net income - pro forma $5,502 $13,700 $20,486 $30,760 
  
 
 
 
 
              
Earnings per common share:             
Basic net income per share - as reported $0.20 $0.39 $0.68 $0.94 
Basic net income per share - pro forma $0.12 $0.31 $0.45 $0.70 
Diluted net income per share - as reported $0.20 $0.37 $0.66 $0.89 
Diluted net income per share - proforma $0.12 $0.29 $0.43 $0.66 

9
The fair value of options at the date of grant was estimated using the Black-Scholes model. The following assumptions were used and the following weighted-average fair values resulted:

  

Stock Option

   
Employee
 
  

Plans

  
Stock Purchase Plan
 
  

Three Months Ended

  
Three Months Ended
 
  

June 30,

  

June 30,

 
  
 
  
 
 
   
2003
  
2004
   
2003
  
2004
 
  
 
  
 
 
Expected dividend yield  0.0% 0.0%  0.0% 0.0%
Expected life (in years)  6.0  6.0   0.5  0.5 
Expected volatility  59.5% 59.5%  46.2% 38.5%
Risk-free interest rate  2.7% 3.7%  1.2% 1.0%
   
 
         
 
 
Weighted-average fair value $10.28 $22.10  $3.02 $4.61 
   Stock Option Plans  Stock Option Plans  Employee Stock
Purchase Plan		  Employee Stock
Purchase Plan		 
   Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
   
December 31,
  December 31,  December 31,  December 31, 
  
 
 
 
 
   2002  2003  2002  2003  2002  2003  2002  2003 
 
 
 
 
                       
Expected dividend yield  0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expected life (in years)  6.0  6.0  6.0  6.0  0.5  0.5  0.5  0.5 
Expected volatility  59.4% 55.5% 59.4% 55.7% 46.2% 31.7% 46.2% 31.7%
Risk-free interest rate  2.8% 3.3% 3.5% 3.2% 1.2% 1.0% 1.2% 1.0%
                          
Weighted-average fair value $9.85 $16.55 $9.97 
$
14.31 $3.02 $2.58 $3.02 $2.58 

7. PRODUCT WARRANTY OBLIGATIONS

Plantronics provides for the estimated costs of product warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the product sold. In the case of products manufactured by us, our warranties generally start from the delivery date and continue for up to two years depending on the product purchased. Factors that affect our warranty obligation include product failure rates, material usage, and service delivery costs incurred in correcting product failures. We assess the adequacy of our recorded warranty liabilities quarterly and make adjustments to the liability if necessary.

Changes in our warranty obligations,obligation, which is included as a component of "Accrued liabilities" on the condensed consolidated balance sheets, during the three and nine months ended December 31, 2003,June 30, 2004, are as follows (in thousands):


For the Three Months Ended December 31, 2003
    
Warranty liability at September 30, 2003
 $6,590 
Warranty provision relating to product shipped during the quarter  2,053 
Deductions for warranty claims processed  (2,083)
Adjustments  - 
  
 
Warranty liability at December 31, 2003 $6,560 
  
 
For the Nine Months Ended December 31, 2003
    
Warranty liability at March 31, 2003 $5,905 
Warranty provision relating to products shipped during the nine month period  7,262 
Deductions for warranty claims processed  (6,276)
Adjustments  (331)
  
 
Warranty liability at December 31, 2003 $6,560 
  
 
     
Warranty liability at March 31, 2004 $6,795 
Warranty provision relating to product shipped during the quarter  2,606 
Deductions for warranty claims processed  (2,413)
  
 
Warranty liability at June 30, 2004 $6,988 
  
 
 
10 
 
8. COMPREHENSIVE INCOME

Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive income, net of tax, are as follows (in thousands):

 

Three Months Ended

 

Nine Months Ended

  

 Three Months Ended

 
 

December 31,

 

December 31,

  

 June 30,

 
 
 
 
 
  
 
 
  2002  2003  2002  2003  

 2003

 

 2004

 
 
 
 
 
  
 
 
Net income $9,201 $17,619 $30,905 $41,333  $11,341 $22,347 
               
 
  
 
 
Unrealized (loss) on hedges, for the three and nine months ended December 31, 2002 and 2003, net of tax of $0 and ($623), $0 and ($1,108), respectively
  -  (1,453) -  (2,585)
Foreign currency translation, for the three and nine months ended December 31, 2002 and 2003, net of tax of $138 and $359, $448 and $616 , respectively
  321  837  1,044  1,436 
Unrealized (loss) on hedges, for the threemonths ended June 30, 2003 and 2004, net of taxof ($390) and ($431), respectively
  (910) (1,007)
  
 
  
 
 
Foreign currency translation, for the threemonths ended June 30, 2003 and 2004, net of taxof $222 and $534, respectively
  520  1,246 
 
 
 
 
  
 
 
Other comprehensive income $9,522 $17,003 $31,949 $40,184  $10,951 $22,586 
 
 
 
 
  
 
 
The net decrease in other comprehensive income in the quarter ended December 31, 2003 was primarily due to unfavorable fair value adjustments related to cash flow hedges of $2.1 million offset by favorable increases in exchange rates of $1.2 million. The increase in the year ago quarter was due solely to favorable exchange rates. From the end of the September 2003March 2004 quarter compared to the end of the December 2003June 2004 quarter, the exchange rate for the Euro relative to the U.S. dollar increased 0.4% and the Great British Pound relative to the U.S. dollar increased 8.4% and 7.8%, respectively. From the prior fiscal year end to the end of the December 2003 quarter, the exchange rate for the Euro and Great British Pound relative to the U.S. dollar increased 15.7% and 12.8%, respectively. Also, the strengthening of foreign currencies in countrie s where the local currency is the functional currency of the entity, further accounted for the increase.decreased 0.9%.

9. SEGMENTS AND ENTERPRISE-WIDE DISCLOSURES

SEGMENTS. We are engaged in the design, manufacture, marketing and sales of telecommunications equipment including headsets, telephone headset systems, and other specialty telecommunications products. Plantronics considers itself to operate in one business segment.

PRODUCTS AND SERVICES. We focus on headsets for business and consumer applications, and other specialty products for the hearing impaired. With respect to headsets, we make products for office and contact center use, for use with mobile and cordless phones and for use with computers.computers and gaming consoles. The following table presents net revenuerevenues by product group (in thousands):


  

Three Months Ended

 

Nine Months Ended

 
  

December 31,

 

December 31,

 
  
 
 
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net revenues from unaffiliated customers:         
Office and contact center
 $58,644 $66,776 $179,954 $193,048 
Mobile
  16,145  29,528  38,049  66,416 
Computer audio
  5,679  5,807  12,713  16,949 
Other specialty products
  6,343  5,511  18,733  19,112 
  
 
 
 
 
  $86,811 $107,622 $249,449 $295,525 
  
 
 
 
 
  

 Three Months Ended

 
 

 June 30,

 
  
 
 
   
2003
  
2004
 
  
 
 
Net revenues from unaffiliated customers:  
 
  
 
 
Office and contact center $62,080 $82,815 
Mobile  18,518  34,458 
Computer audio  5,463  6,992 
Other specialty products  6,725  7,105 
  
 
 
  $92,786 $131,370 
  
 
 

MAJOR CUSTOMERS. No customer accounted for 10% or more of total revenuerevenues for the three and nine months ended December 31, 2002June 30, 2003 and 2003,2004, nor did any customer account for 10% or more of accounts receivable from consolidated sales at the end of such periods.

 
11 
 
GEOGRAPHIC INFORMATION. In geographical reporting, revenues are attributed to the geographical location of the sales and service organizations. The following table presents net revenues and long-lived assets by geographic area (in thousands) but may not actually reflect end-user markets (in thousands):markets:

  

 Three Months Ended

 
  

 June 30,

 
  
 
 
   
2003
  
2004
 
  
 
 
Net revenues from unaffiliated customers:  
 
  
 
 
   
 
  
 
 
United States $64,924 $89,088 
   
 
  
 
 
Europe, Middle East and Africa  19,183  31,184 
Asia Pacific and Latin America  5,395  7,495 
Other International  3,284  3,603 
  
 
 
Total International  27,862  42,282 
  
 
 
  $92,786 $131,370 
  
 
 
   
 
  
 
 
  

 March 31,

 

 June 30,

 

 

 

 2004

 

 2004

 
  
 
 
Long-lived assets:  
 
  
 
 
United States $24,129 $29,624 
International  17,995  18,986 
  
 
 
  $42,124 $48,610 
  
 
 

  
Three Months Ended
 Nine Months Ended 
  
December 31,
 December 31, 
  
 
 
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net revenues from unaffiliated customers:             
              
  United States
 $57,013 $66,484 $170,053 $196,337 
              
  Europe, Middle East and Africa
  21,852  31,688  56,287  72,697 
  Asia Pacific and Latin America
  4,927  5,679  14,514  17,084 
  Canada and Other International
  3,019  3,771  8,595  9,407 
  
 
 
 
 
Total International  29,798  41,138  79,396  99,188 
  
 
 
 
 
  $86,811 $107,622 $249,449 $295,525 
  
 
 
 
 
              
              
  
March 31,
 December 31,
  2003 2003
  
 
Long-lived assets:      
  United States
 $23,907 $23,540
  International
  13,050  17,569
  
 
  $36,957 $41,109
  
 
       

10. INTANGIBLES

Aggregate amortization expense on intangiblesrelating to intangible assets for each of the three and nine months ended December 31, 2002June 30, 2003 and 2004 was $0.2 million and $0.7 million, respectively. For the three and nine months ended December 31, 2003, amortization expense was $0.2 million and $0.5 million, respectively.million. The following table presents information on acquired intangible assets (in thousands):

  

March 31, 2003

 

December 31, 2003

 
  
 
 
  

Gross Carrying

 

Accumulated

 

Gross Carrying

 

Accumulated

 
Intangible assets
 

Amount

 

Amortization

 

Amount

 

Amortization

 
 
 
 
 
 
Technology $2,460 $(817)$2,460 $(1,032)
State contracts  1,300  (232) 1,300  (371)
Patents  700  (125) 700  (200)
Trademarks  300  (54) 300  (86)
Non-compete agreements  200  (50) 200  (80)
  
 
 
 
 
Total $4,960 $(1,278)$4,960 $(1,769)
  
 
 
 
 
  

 March 31, 2004

 

 June 30, 2004

 
  
 
 
 
 
  

 Gross Carrying 

 

 Accumulated

 

 Gross Carrying

 

 Accumulated

 
Intangible assets
 

 Amount

 

 Amortization

 

 Amount

 

 Amortization

 
  
 
 
 
 
   
 
  
 
  
 
  
 
 
Technology $2,460 $(1,103)$2,460 $(1,175)
State contracts  1,300  (418) 1,300  (464)
Patents  1,170  (283) 1,170  (344)
Trademarks  300  (96) 300  (106)
Non-compete agreements  200  (90) 200  (100)
  
 
 
 
 
Total $5,430 $(1,990)$5,430 $(2,189)
  
 
 
 
 
 
12 
 
11. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003,March 2004, the FASB issued StatementFinancial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 150 ("SFAS No. 150"03-01, “The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments”(“EITF 03-01”), "Accounting. EITF 03-01 provides new disclosure requirements for Certain Financial Instrumentsother-than-temporary impairments on debt and equity investments. Investors are required to disclose quantitative information about: (i) the aggregate amount of unrealized losses, and (ii) the aggregate related fair values of investments with Characteristicsunrealized losses, segregated into time periods during which the investment has been in an unrealized loss position of both Liabilitiesless than 12 months and Equity." SFAS No. 150 establishes standards for classification and measurementgreater than 12 months. In addition, investors are requir ed to disclose the qualitative information that supports their conclusion that the impairments noted in the qualitative disclosure are not other-than-temporary. The disclosure requirements of certain financial instruments with characteristics of both liabilities and equity. It requires financial instruments within its scope be classified as a liability (or an asset in some circumstances). Many of those financial instrumentsEITF 03-01 were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after MayDecember 31, 2003 and2003. EITF 03-01 is effective for the Company in thefirst fiscal year or interim period ending March 31,beginning after June 15, 2004. The adoption of this standardEITF 03-01 is not expected to have a material impact on the Company’sour financial position orcondition, results of operations.operations or cash flows.
 
In January 2003, the FASB issued FASB Interpretation No. 46 ("(“FIN 46"46”), "Consolidation“Consolidation of Variable Interest Entities,"” an Interpretation of ARB No. 51.  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003 and in the quarter ending March 31, 2004 for arrangements entered into prior to February 1, 2003.  The CompanyPlantronics has not entered into any arrangements with entities it consi dersconsiders to be variable interest entities and as such believes that the adoptionadop tion of FIN 46 (as revised December 2003) willdid not have a material impact on the Company's financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. This Statement is generally effective for contracts entered into or modified after September 30, 2003 and is not expected to have a material impacteffect on our financial statements.position, results of operations or cash flows.

12. SUBSEQUENT EVENTS

On July 20, 2004, we announced that our Board of Directors had initiated a dividend program and declared a quarterly cash dividend of $0.05 per share of our common stock, payable on September 10, 2004 tostockholders of record on August 13, 2004.  The target annual dividend is $0.20 per common share.

Item 2.2. Management’s Discussion Andand Analysis Ofof Financial Condition Andand Results Of Operationsof Operations.

EXECUTIVE SUMMARY:

We are a leading worldwide designer, manufacturer and marketer of lightweight communications headsets, telephone headset systems and accessories for the business and consumer markets. In addition, we manufacture and market specialty telephone products, such as telephones for the hearing-impaired and other related products for people with special communications needs.

We are a global company and sell our broad range of communications products into more than 70 countries through a worldwide network of distributors, original equipment manufacturers ("OEM's"OEM’s"), wireless carriers, retailers and telephony service providers. We have well-developed distribution channels in North America and Europe, where headset use is fairly widespread. Our distribution channels in other regions of the world are less mature and primarily serve the contact center marketmarkets in those regions.

During the first ninethree months of fiscal year 2004, governmental2005 as compared to the year ago period, our revenues were primarily driven by the ongoing worldwide adoption of headsets. This growth was assisted by an improved economy, new products, increased promotional activities, passage of legislation and the increased adoption of our new products increased our net sales. A portionBluetooth technologies. Sales of that growth was attributable to our mobile products, which we believe may not be sustainable.*

13
Our revenues have grown duringheadsets related to promotional offers that bundle our headsets with cell phones sold into the nine month period ended December 31, 2003, primarily on the strength ofU.S. wireless carrier market contributed to this growth. Legislation activities include new products in general, and the mobile products in particular. The mobile market has experienced strong growth due to a number of factors including "hands-free"hands-free legislation in the U.K. and Italy, wireless number portabilitycertain states in the U.S., U.K., Italy and increased enforcement of existing laws in Germany. Bluetooth adoption rates have increased as mobile carriers increase offerings of cell phones with Bluetooth capabilities. Revenues for first firscal quarter were stronger than we had anticipated in our April 27 , 2004 press r elease primarily as a strong assortmentresult of newour continued high market share in certain parts of the U.S. carrier market for mobile phones on the market.headsets. In addition,particular, we have enjoyed what we believe is an unsustainably high share of bundles using corded headsets. We believer our market share for headsets for mobile phone applications has increased and thatis correcting to a more normal level in the level of market share we experienced recently is likely to be unsustainable.*  WeSeptember quarter.We have several large customers whose order patterns are difficult to predict. Offers and promotions by these customers may result in significant fluctuations of their purchasing activities over time. If w ewe are unable to anticipate the purchase requirements of these customers, our quarterly revenues may be adversely affected and/or we may be exposed to large volumes of inventory that cannot be immediately resold to other customers.
13

In comparison to the first quarter a year ago, sales of wireless headsets for use by business professionals in office settings were the primary driver of year over year growth in our office and contact center product line. Growth in that product line was also driven by the successful launch of the SupraPlus™, an innovative and stylish new headset family designed for contact center agents.
We have been workingcontinue to improve our productivity and cost effectiveness and have made progress towardsas a result, our operating margin goals.margins have increased. During theour fiscal quarter and the nine month period ended December 31, 2003,June 30, 2004, our overhead costs in absolute dollars remained fairly constant due to productivity improvements, which resulted in an increase indeclined as a percentage of sales. As a percentage of revenue, our gross margin percentagemargins increased principally as compared to the third quartera result of component cost reductions and the first nine monthsbenefits of the previous fiscal year. increased volumes on largely fixed overhead.
Increases in our operating expenses as compared to the year ago quarter and the first nine month period of the previous fiscal year were primarily driven by variableincreased marketing programs, many of which were designed to assist in increasing sales of mobile headsets especially in places where new hands-free legislation had been enacted or was being increasingly enforced. In comparison to a year ago, we increased expenditures to support the expansion of our worldwide sales team and the resumption in the quarter of worldwide sales expenses commensurateand distributor meetings, which we had not held in the prior year. We have also expanded our research and development efforts with our overall increase in sales.the goal of bringing more new productsto market. As a percentage of sales, our operating expenses decreased inas compared to the comparable quarter and ninethree month period of the previous fiscal year, which contributed to our overall increase in operating income. For the nineth e three months ended December 31, 2003,June 30, 2004, our operating marginsmargin improved to 19.3%23.4% from 16.0%16.9% in the comparable period a year ago. We have established a target of 21% for operating margin for our fiscal year 2005 as whole.*ago, driven by the significant revenue growth.

In addition, during the ninethree month period ended December 31, 2003,June 30, 2004, we generated $48.0$33.3 million in operating cash flows, which in part contributed to the increase in our liquidity and cash balances at December 31, 2003.June 30, 2004.

We intend for the following discussion of our financial condition, and results of operations and cash flows to provide information that will assist in understanding our financial statements.*

RESULTS OF OPERATIONS:

The following table sets forth items from the Unaudited Condensed Consolidated Statements of Operations as a percentage of net sales:

  

 Three Months Ended

 
  

 June 30,

 
  
 
 
  

 2003

 

 2004

 
  
 
 
Net sales  100.0% 100.0%
Cost of sales  51.0  47.0 
  
 
 
Gross profit  49.0  53.0 
  
 
 
Operating expenses:  
 
  
 
 
Research, development and engineering  9.3  7.6 
Selling, general and administrative  22.8  22.0 
  
 
 
Total operating expenses  32.1  29.6 
  
 
 
Operating income  16.9  23.4 
Interest and other income, net  0.5  0.2 
  
 
 
Income before income taxes  17.4  23.6 
Income tax expense  5.2  6.6 
  
 
 
Net income  12.2% 17.0%
  
 
 

  

Three Months Ended

 

Nine Months Ended

 
  

December 31,

 

December 31,

 
  
 
 
 
 
   2002  2003  2002  2003 
  
 
 
 
 
Net sales  100.0% 100.0% 100.0% 100.0%
Cost of sales  51.0  47.7  49.6  49.1 
  
 
 
 
 
Gross profit
  49.0  52.3  50.4  50.9 
  
 
 
 
 
          
Operating expenses:             
Research, development and engineering
  10.4  8.2  10.2  8.7 
Selling, general and administrative
  24.1  22.0  24.2  22.9 
  
 
 
 
 
Total operating expenses
  34.5  30.2  34.4  31.6 
  
 
 
 
 
Operating income  14.5  22.1  16.0  19.3 
Interest and other income, net  0.6  1.2  0.7  0.7 
  
 
 
 
 
Income before income taxes  15.1  23.3  16.7  20.0 
Income tax expense  4.5  6.9  4.3  6.0 
  
 
 
 
 
Net income  10.6% 16.4% 12.4% 14.0%
  
 
 
 
 

14
NET SALES. Net sales for the quarter ended December 31, 2003,June 30, 2004, increased by 24.0%41.6% to $107.6$131.4 million, compared to $86.8$92.8 million for the quarter ended December 31, 2002. Net sales for the nine months ended December 31, 2003 were $295.5 million compared to $249.4 million for the nine months ended December 31, 2002, an increase of 18.5%.June 30, 2003.

In comparison to the fiscal quarter ended December 31, 2002,June 30, 2003, revenues for the fiscal quarter ended December 31, 2003June 30, 2004 were stronger for all product lines with the exception of our specialty products.lines. Domestic and international revenuerevenues growth was led by increased demand for headsets for mobile phones and for wireless headsets for the office. For mobile, products, this included both corded headsets sold to U.S. wireless carriers and Bluetooth basedBluetooth™-based headsets sold primarily for use in Europe, with quarterly net sales up 83%86% over the same quarter in the prior year. Our worldwide office and contact center products business grew 14%33% over the same quarter in the prior year. This growth was primarilystronger in Europe and other international revenue, which was primarily driven byregions, although we also had good performance domestically. Contributing substantially to this growth were the continued ramp of our CS60 product in Europe, a wi relesswireless headset for DECT-based office phones. Inphones; the CS50 product in the U.S., a wireless hea dset for office phones; and the new SupraPlus contact center product sales were favorably affected by the launch of our CS50 product, a wireless headset for 900MHz-based office phones.line. Computer audio product net sales were relatively flat, increasing 2%increased 28% over the same quarter in the prior year.year, primarily due to headset sales for various gaming applications and increased international sales of our headsets. Sales of our specialty products, were downwhich include products for the hearing-impaired, increased by 13%6% compared to the same quarter in the prior year, primarily due to timing of orders.

14
increased international sales.
 
For the nine month period ended December 31, 2003, in comparison with the nine month period for the prior year, net sales were up in all product lines, both domestically by 15% and internationally by 25%, primarily driven by favorable exchange rates and by demand for mobile products including our wireless Bluetooth headsets and the continued demand for the MX150 mobile corded headset. Our office and contact center sales rose by 7% over the same period for the prior year on higher product sales due to favorable exchange rates and the launch of the CS60 and CS50 wireless headsets.

Our fourthfirst quarter of fiscal year 2004 is2005 was comprised of 1413 weeks compared to 13 weeks in the same quarter last year. The extra weekyear but down from 14 weeks in the fourth quarter of fiscal year 2004 will affect the comparability with the third quarter of fiscal year 2004, the fourth quarter of fiscal year 2003 and the comparability of the full fiscal year to both the prior and upcoming fiscal years. We believe the extra week in the fourth quarter can be expected to negatively affect the comparison between the fourth quarter of fiscal year 2004 and the first quarter of fiscal year 2005.*2004.

GROSS PROFIT. Gross profit for the quarter ended December 31, 2003June 30, 2004 increased by 32.3%53.2% to $56.2$69.7 million (52.3%(53.0% of net sales), compared to $42.5$45.5 million (49.0% of net sales) for the quarter ended December 31, 2002. Gross profit for the nine months ended December 31, 2003 increased to $150.5 million (50.9% of net sales) from $125.6 million (50.4% of net sales) for the comparable period of fiscal yearJune 30, 2003.

As a percentpercentage of revenue,revenues, gross margin for the quarter ended December 31, 2003June 30, 2004 increased by 3.34.0 percentage points compared to the year ago quarter, primarily due to cost reductions and improved economies of scale achieved ondue to increased volume. Our productivity improvements have enabled us to hold manufacturing overhead costs fairly constant compared to a year ago despite significant increases in unit volume. In addition, a weaker U.S. dollar compared to the Euro and Great British Pound favorably affected revenues and thus the margin, along with lower discounts that net against revenue.gross margin. Partially offsetting these favorable factors was a change in product mix, with a higher percentage of revenues coming from lower margin mobile products as compared to the year ago period.

Gross profit for the first nine months of fiscal year 2004 increased as a percent of revenue by 0.5 percentage points compared to the first nine months of fiscal year 2003 as better manufacturing efficiencies on higher volumes, component cost reductions, and favorable foreign exchange rates offset a less favorable product mix with higher sales of lower margin mobile and computer products.

RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering expenses for the quarter ended December 31, 2003,June 30, 2004 were $8.8$10.0 million (8.2%(7.6% of net sales), compared to $9.0$8.6 million (10.4%(9.3% of net sales) for the quarter ended December 31, 2002, reflecting continuing process improvements. During the quarter we identified some incremental new product opportunities that looked promising and initiated work on those new products. In the fourth quarter of fiscal year 2004, we expect significant progress on those programs and we also expect spending and the ratio of expense to revenues to increase somewhat.* Research, development and engineering expenses for the first nine months of fiscal year 2004 increased by 1.1% to $25.7 million (8.7% of net sales) compared to $25.4 million (10.2% of net sales) in the first nine months of fiscal yearJune 30, 2003. The increase in absolute dollars spent was anticipated, as well as the reduction as a percent of revenues, as we continueprimarily due to invest in a broad portfolio of products to address customer needs in all the markets we serve, while improving our development process with the goal of making it more cost effective.*incremental spending on new product development. A portion of our research and development is conducted in Europe,the United Kingdom, where the decline of the U.S. dollar relative to the Great British Pound has increased the dollar reported cost of that portion of our research and development spending.spending, adding to the increase.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the quarter ended December 31, 2003,June 30, 2004 increased 12.9%36.7% to $23.6$28.9 million (22.0% of net sales), compared to $20.9$21.2 million (24.1%(22.8% of net sales) for the quarter ended December 31, 2002.June 30, 2003. Compared to the year ago quarter, costs were higher as a result of increased sales and marketing programs. Key marketing programs included various hands-free campaigns, both domestically and internationally and due to unfavorable foreign exchange rates driving costs higher.internationally. We also had higher commission costs on higher revenues. In general, we have increased our overall level of marketing programs related to new product launchesrevenues and intendit was also necessary to increase those further throughout the remainder of fiscal year 2004.*

Selling, general and administrative expensesour provision for the first nine months of fiscal year 2004 increased 12.4% to $67.8doubtful accounts by $1.1 million compared to $60.3 million in the first nine months of fiscal year 2003, which was driven primarily byfor probable losses within our accounts receivable portfolio. Additionally, we had unfavorable foreign exchange rates and the increased level of spending to support new product launches and ongoing programs.

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driving costs higher.
 
OPERATING INCOME. Operating income for the quarter ended December 31, 2003,June 30, 2004 increased by 88.9%95.4% to $23.8$30.7 million (22.1%(23.4% of net sales), compared to $12.6$15.7 million (14.5%(16.9% of net sales) for the quarter ended December 31, 2002. The increase in absolute dollars was driven primarily by the increase in revenues and gross margins.June 30, 2003.

Operating income for the first nine months of fiscal year 2004 increased by 42.9% to $57.0 million compared to $39.9 million in the first nine month of fiscal year 2003 which increase was driven primarily by higher revenues and lower operating expenses as a percent of revenues.

INTEREST AND OTHER INCOME, NET. Interest and other income, net for the quarter ended December 31, 2003,June 30, 2004, was $1.4$0.3 million compared to $0.6$0.5 million for the quarter ended December 31, 2002.June 30, 2003. The increasedecrease from the quarter ended December 31, 2002,June 30, 2003 was driven primarily by favorableunfavorable foreign exchange gains.

Interest and other income for the first nine months of fiscal year 2004 was $2.0 million compared to $1.8 million for the first nine months of fiscal year 2003. Compared to the prior year, the increase was primarily due to balance sheet based foreign exchange translation gains,rates, offset in part by lower interest income with lower prevailing rates.earned on higher cash balances.

INCOME TAX EXPENSE. Income tax expense for the quarter ended December 31, 2003June 30, 2004 was $7.6$8.7 million compared to $3.9$4.9 million for the quarter ended December 31, 2002June 30, 2003 and represented tax rates of 28.0% and 30.0% in each period., respectively.

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Income tax expense for the first nine months of fiscal year 2004 was $17.7 million or 30.0% of net income before taxes compared to $10.8 million or 25.8% of net income before taxes for the first nine months of fiscal year 2003 reflecting the release of tax reserves for expiration of a statute of limitations in that period.

FINANCIAL CONDITION:CONDITION AND CASH FLOWS:

OPERATING ACTIVITIES. During the ninethree months ended December 31, 2003,June 30, 2004, we generated $48.0$33.3 million in cash from operating activities, primarily from $41.3$22.3 million in net income, increasesan increase in accounts payable and accrued liabilities of $14.8$7.1 million, a decrease in the aggregate,other current assets, primarily from cash receipts from tax refunds, of $7.0 million, an increase in income taxes payable of $6.2 million, depreciation and amortization of $9.5$2.8 million, and an income tax benefit from stock option exercises of $5.2$0.9 million, offset by an increase in accounts receivableinventories of $13.9$6.7 million, an increase in inventoryaccounts receivable of $5.4$3.5 million and a decrease in taxes payableaccrued liabilities of $3.6$3.0 million. In comparison, during the ninethree months ended December 31, 2002,June 30, 2003, we generated $34.1$17.7 million in cash from operating activities, primarily from $30.9$11.3 million in net income, depreciation and amortization of $8.4$3.6 million, an increase in accrued liabil ities of $2.1 million and an increase in accrued liabilitiesaccounts payable of $3$1.5 million, offset by an increase in accounts receivableinventories of $8.1$3.8 million.

INVESTING ACTIVITIES. During the ninethree months ended December 31,June 30, 2004, we incurred capital expenditures of $9.3 million principally for leasehold improvements at our corporate headquarters, machinery and equipment, tooling, computers and software. In comparison, during the three months ended June 30, 2003, we received $5.0 million from maturities of marketable securities. We incurred capital expenditures of $13.2 million principally for purchase of facilities that we previously leased in the United Kingdom, leasehold improvements, machinery and equipment, tooling and computers. In comparison, during the nine months ended December 31, 2002, we received $22.5 million in proceeds from the sale of marketable securities and purchased $13.0 million in marketable securities. We incurred capital expenditures of $9.5$2.7 million principally for building and leasehold improvements, tooling, andcomputers, machinery and equipment.

FINANCING ACTIVITIES. During the ninethree months ended December 31,June 30, 2004, we did not repurchase any shares of our common stock under our stock repurchase plan. We reissued through employee benefit plans 12,542 shares of our treasury stock for $0.4 million. As of June 30, 2004, 142,600 shares remained available for repurchase under our stock repurchase plan. We received $5.5 million in proceeds from the exercise of stock options during the three months ended June 30, 2004, compared to $0.8 million in the three months ended June 30, 2003. During the three months ended June 30, 2003, we repurchased 122,800 shares of our common stock under our stock repurchase plan for $1.8 million and reissued through employee benefit plans 121,72929,705 shares of our treasury stock for $1.9$0.5 million. As of December 31, 2003, 142,600 shares remained available for repurchase under our stock repurchase plan. We received $14.9 million in proceeds from the exercise of stock options during the nine months ended December 31, 2003. In comparison, during the nine months ended December 31, 2002, we repurchased 1,522,400 shares of our common stock under our stock repurchase plan for $25.3 million and reissued through employee benefit plans 62,320 shares of our treasury stock for $1.1 million. We received $1.6 million in pr oceeds from the exercise of stock options during the nine months ended December 31, 2002.

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LIQUIDITY AND CAPITAL RESOURCES. As of December 31, 2003,June 30, 2004, we had working capital of $158.5$272.6 million, including $107.3$211.0 million of cash and cash equivalents, compared to working capital of $103.6$249.4 million, including $59.7$180.6 million of cash and cash equivalents and marketable securities at March 31, 2003. During the quarter ended December 31, 2003, we purchased land and facilities that we previously leased in Swindon, U.K. The purchase price was approximately $5.6 million and we believe the purchase will yield an attractive return on investment as well as lower our annual operating costs in comparison to continuing to lease.*2004. During the next 12 to 18 months, we are planning or considering certain otherwill continue to incur capital expenditures related to facilities, including, among other things, an upgrade o fof our corporate offices in Santa Cruz the purchase of certain of our manufacturing facilities in Mexico which are currently leased and the purchase of land and construction of a factory and development center in China.* The potential purchasefactory construction in MexicoChina is currently highly uncertain and the planning for China in the very early stages and thus the total capital cost of thesethis initiative is uncertain and could range from $10 to $20 million.*

We have a revolving credit facility with a major bank for $75 million, including a letter of credit subfacility. The facility and subfacility both expire on July 31, 2005. As of January 23,July 30, 2004, we had no cash borrowings under the revolving credit facility and $1.3$2.3 million outstanding under the letter of credit subfacility. The amounts outstanding under the letter-of-credit subfacility were principally associated with purchases of inventory. The terms of the credit facility contain covenants that materially limit our ability to incur debt and pay dividends, among other matters. These covenants may adversely affect usUnder our current credit facility agreement, we have the ability to declare dividends so long as the extent we cannot complyaggregate amount of all such dividends declared or paid and common stock repurchased or redeemed in any four consecutive fiscal quarter periods shall not exceed 50% of the amount of cumulative consolidated net i ncome in the eight consecutive fiscal quarter period ending with them.the fiscal quarter immediately preceding the date as of which the applicable distributions occurred. We are currently in compliance with the covenants and the dividend provision under this agreement.

On July 20, 2004, we announced that our Board of Directors had initiated a dividend program and declared a quarterly cash dividend of $0.05 per share of our common stock, payable on September 10, 2004 toshareholders of record on August 13, 2004.The plan approved by the Board anticipates a total annual dividend of $0.20 per common share. The actual declaration of future dividends, and the establishment of record and payment dates, is subject to final determination by the Audit Committee of the Board of Directors of Plantronics each quarter after its review of our financial performance.
We believe that our current cash and cash equivalents balance and cash provided by operations, will be sufficient to fund operations for at least the next twelve months.* However, any projections of future financial needs and sources of working capital are subject to uncertainty. See "Certain“Certain Forward-Looking Information"Information” and "Risk“Risk Factors Affecting Future Operating Results"Results” in this Quarterly Report for factors that could affect our estimates for future financial needs and sources of working capital.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon Plantronics’ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases estimates and judgments on historical experience and on various other factors that are believedPlantronics’ management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets an dand liabilities. Actual results may differ from these estimates underund er different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

REVENUE RECOGNITION. We recognize revenue net of estimated product returns and expected payments to resellers for customer programs including cooperative advertising, marketing development funds, volume rebates, and special pricing programs. Estimated product returns are deducted from revenues upon shipment, based on historical return rates, the product stage relative to its expected life cycle, and assumptions regarding the rate of sell-through to end users from our various channels based on historical sell-through rates. Should product lives vary significantly from our estimates, or should a particular selling channel experience a higher than estimated return rate, or a slower sell-through rate causing inventory build-up, then our estimated returns, which net against revenue, may need to be r evised.revised. Reductions to revenue for expected and actual payments to resellers for volume rebatesreb ates and pricing protection are based on actual expenses incurred during the period, on estimates for what is due to resellers for estimated credits earned during the period and any adjustments for credits based on actual activity. If market conditions warrant, Plantronics may take action to stimulate demand, which could include increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in incremental reductions to revenue and margins at the time such incentives are offered. To the extent that we reduce pricing, we may incur reductions to revenue for price protection based on our estimate of inventory in the channel that is subject to such pricing actions.

ACCOUNTS RECEIVABLE. We perform ongoing credit evaluations of our customers' financial condition and generally require no collateral from our customers. Plantronics maintains allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is reviewed monthly and adjusted if deemed necessary. If the financial condition of our customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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INVENTORY. We write-downwrite down the cost basis of our inventory for estimated excess and obsolete inventory based on projected future shipments using historical selling rates, and taking into account market conditions, inventory on-hand, purchase commitments, product development plans and life expectancy, and competitive factors. If markets for Plantronics’ products and corresponding demand in such markets decline, then additional write-downs may be necessary.

WARRANTY. We provide for the estimated cost of warranties at the time revenue is recognized. Our warranty obligation is affected by product failure rates and our costs to repair or replace the products. Should actual failure rates and costs differ from our estimates, revisions to theour warranty obligation may be required.

GOODWILL AND INTANGIBLES. As a result of acquisitions we have made, we have goodwill and intangible assets on our balance sheet. These assets affect the amount of future amortization expense and possible impairment charges that we may incur. The determination of the value of goodwill and intangible assets, as well as the useful lives of amortizable intangible assets, requires management to make estimates and assumptions that affect our financial statements. We perform at least an annual impairment reviewreviews of goodwill.goodwill and intangible assets. If actual or expected revenue significantly declines, we may be required to record an impairment charge.

DEFERRED TAXES. We record deferred tax assets at the amounts estimated to be realizable. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the value of the corresponding assets, if we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, then an adjustment would be required.

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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 (the "Securities Act"“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”), and we may from time to time make oral forward-looking statements. These forward-looking statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will,"“expect,” “anticipate,” “believe,” “intend,” “plan,” “will,” or "shall,"“shall,” and include, among others, all of the statements marked in this Quarterly Report on Form 10-Q with an asterisk ("(“*"”). These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a resul tresult of risks and uncertainties and other factors, including those set forth below under "Risk Factors Affecting Future Operating Results." When reading the sections titled "Results“Results of Operations"Operations” and "Financial“Financial Condition,"” you should also read our unaudited condensed consolidated financial statements and related notes included elsewhere herein, our Annual Report on Form 10-K, and the section below entitled "Risk Factors Affecting Future Operating Results." We undertake no obligation to update any forward-looking statements to reflect any developments or events occurring after the date of this Quarterly Report.

RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:

Investors or potential investors in our stock should carefully consider the risks described below. Our stock price will reflect the performance of our business relative to, among other things, our competition, expectations of securities analysts or investors, general economic and market conditions and industry conditions. You should carefully consider the following factors in connection with any investment in our stock. Our business, financial condition and results of operations could be materially adversely affected if any of the risks occur. Should any or all of the following risks materialize, the trading price of our stock could decline and investors could lose all or part of their investment.

We may face reductions in overall demand for our products if there is a strong decline in national or international economic growth.

Our markets have exhibited cyclical behavior since the fourth quarter of fiscal 2001. Our business is affected by general economic conditions in the U.S. and globally, which have led to reduced demand for a variety of goods and services, including many technology products. While certain economic indicators have improved, the overall economic and geopolitical environment continues to be challenging and unpredictable. We remain uncertain about the overall level of demand for our products and, consequently, our level of future profitability. In particular, we believe our business is heavily influenced by employment levels. If employment levels do not improve, we may not achieve the level of sales required to achieve our projected financial results, which could in turn materially adversely affect t he market price of our stock.

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A significant portion of our sales come from the contact center market and a further decline in demand in that market could materially adversely affect our results.

We have historically derived, and continue to derive a significant portion of our net sales from the contact center market. While we believe that this market may grow in future periods, this growth could be slow or revenues from this market could be flat or decline in response to various factors. For example, legislation enabling consumers to block telemarketing calls may adversely affect growth in the contact center market. A deterioration in general economic conditions could result in a reduction in the establishment of new contact centers and in capital investments to expand or upgrade existing centers, and we believe this is in fact currently negatively affecting our business. Because of our reliance on the contact center market, we will be affected more by changes in the rate of contact ce nter establishment and expansion and the communications products that contact center agents use than would a company serving a broader market. Any decrease in the demand for contact centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.

New product development is risky, and weour business will be materially adversely affected if we do not respond to changing customer requirements and new technologies.

Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on a number of factors, including the proper selection of new technologies, product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. Although we attempt to determine the specific needs of headset users in our target markets, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products, specifically, our range of Bluetoothproducts, may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or achieve broad customer acceptance among end-users, which could materially adversely affect our business, financial condition and results of operations. Demand for new wireless headsets may not develop as we anticipate. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenue growth rates and operating margins from new products may not be sufficient to recover the associated development costs.

Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. The technology used in hands-free communications devices, including our products, is evolving more rapidly now than it has historically and we anticipate that this trend may accelerate.* We believe this is particularly true for our newer emerging technology products especially in the mobile, computer, residential and certain parts of the office markets. We believe products designed to serve these markets generally exhibit shorter lifecycles and are increasingly based on open standards and protocols. As we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase accordingly. The end markets served are much larger than the traditional contact center market. Th is combinationdisposition of factorsinventories of obsolete products may leadresu lt in reductions to increased commoditization, as a greater numberour operating margins and materially adversely affect our earnings and results of competitors attempt to introduce products, or reverse engineer our products and offer similar but lower quality products at lower price points.operations.

Our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. Although we strive to be a leader in developing new technologies, productsdevelopments and solutions, theend-user requirements. The technologies, products and solutions that we choose to pursue may not become as commercially successful as we planned. We may experience difficulties in realizing the expected benefits from our investments in new technologies. If we are unable to develop and introduce enhanced or new products in a timely manner in response to changing market conditions or customer requirements, including changing fashion trends and styles, it will materially adversely affect our business, financial condition and results of operations.

With the historically slow evolutionA significant portion of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. As we develop new generations of products more quickly, we expectsales come from the contact center market and a decline in demand in that the pace of product obsolescence will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins andmarket could materially adversely affect our earningsresults.
We have historically derived a material amount of our net sales from the contact center market, and we expect that this market will continue to account for a significant portion of our net sales. Because of our reliance on the contact center market, we will be affected more by changes in the rate of contact center establishment and expansion and the communications products that contact center agents use than would a company serving a broader market. While we believe that this market may grow in future periods, this growth could be slow or revenues from this market could be flat or decline in response to various factors. Any decrease in the demand for contact centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.

 
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Increased adoption of speech-activated and voice interactive software products by businesses could limit our ability to grow in the contact center market.

WeIn addition, we are seeing a proliferation of speech-activated and voice interactive software in the market place. We have been re-assessing long-term growth prospects for the contact center market given the growth rate and the advancement of these new voice recognition-based technologies. Businesses that first embraced them to resolve labor shortages at the peak of the last economic up cycle are now increasing spending on these technologies in hopes of reducing total costs. We may experience a decline in our sales to the contact center market if businesses increase their adoption of speech-activated and voice interactive software as an alternative to customer service agents. Should this trend continue, it could cause a net reduction in contact center agents and our revenues to this market segment could dec linedecline rather than grow in future years.

We are countingdepend on the development of the office, mobile, computer and residential markets, to develop, and we could be materially adversely affected if they do not develop as we expect.

While the contact center market is still a substantial portion of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential markets.* These communications headset markets are relatively new and continue to be developed.* Moreover, we do not have extensive experience in selling headset products to customers in these markets. If the demand for headsets in these markets fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these markets, it would have a material adverse effect on the potential demand for our products and on our business, financial condition results of operations and cash flows.

These headset markets are also subject to general economic conditions and if there is a slowing of national or international economic growth, these markets may not materialize to the levels we require to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. In particular, we are under obligation to absorb from our retailers products which have failed to sell as expected, and in some instances, such products may be returned to our inventory. Should product returns vary significantly from our estimate, then our estimated returns which net against revenue, may need to be revised.

Our quarterly operating results may fluctuate significantly from a number of causes outside our control.

Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following:
·general economic conditions, compounded by the events on and following September 11, 2001;
·changes in demand for our products, including order cancellation by customers;
·impact of acquired businesses and technologies;
·insolvency of purchasers of our products or failure of purchasers of our products to pay amounts due to us;
·timing and size of orders from customers;
·price erosion;
·inability to ramp production or delays in deliveries of components and subassemblies by our suppliers;
·inability to compete with the pricing pressures in the mobile headset category;
·penalties for cancellation or inability to cancel custom components;
·changes in the mix of products sold by us;
·variances in the timing and amount of engineering and operating expenses;
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·distribution channel mix variations;
·changes in the levels of cooperative advertising or market development funding required by retail resellers of our products;
·delays in shipments of our products;
·material product returns and customer credits;
·new product introductions by us or our competitors;
·entrance of new competitors;
·changes in actual or target inventory levels of our channel partners;
·changes in the costs of our raw materials, components and subassemblies;
·seasonal fluctuations in demand and linearity of sales within the quarter; and
·the impact on the U.S. economy due to the continued presence of U.S. troops in Iraq and geopolitical risk factors in Africa, the Middle East and North Korea.
Each of the above factors is difficult to forecast and thus could have a material adverse effect on our business, financial condition and results of operations.

We generally ship most orders during the quarter in which they are received. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected.

We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our common stock might fall.

If we are not able to collect on our accounts receivable due to the general economic conditions, we may be materially adversely affected.

If the overall economy slows, it could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts that they owe to us. We generally offer our customers certain credit terms, allowing them to pay for products purchased from us between 30 and 60 days or more after we ship the products. Receipt of payment for our products depends on the financial liquidity of those customers. If significant customers, or a significant number of customers, experience liquidity problems, this could affect our ability to collect our accounts receivable, which could materially adversely affect our business, financial condition or results of operations. While we have implemented certain programs to assist us in monitoring and mitigating thes e risks, there can be no assurance that such programs will be effective in reducing our credit risks. We have experienced losses due to defaults by our customers on their accounts payable. Although these losses have not been significant, future payment defaults by customers could harm our business and have a material adverse effect on our operating results, financial condition and cash flows.

We have strong competitors and will likelyexpect to face additional competition in the future.

The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Currently, our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate.

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company. Internationally, Sennheiser Communications is a significant competitor in the computer, office and contact center market.
 
GN Netcom has made a number of acquisitions over the years. We believe the acquisitions of Unex, ACS Wireless, Nortel Liberation, AB Transistor, Jabra, Hello Direct, Sensortech, QuBit and Claria have provided GN Netcom with a broader product line and greater marketing presence than it had prior to these acquisitions. We believe it is reasonable to anticipate that GN Netcom may continue to make additional acquisitions.

We currently operate principally in a multilevel distribution model -- we sell— selling most of our products to distributors who, in turn, resell to dealers or end-customers. GN Netcom'sNetcom’s acquisitions indicate it may be moving towards a direct sales model, since six of thetheir nine acquisitions were of companies employing direct sales and marketing models. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices, placing pricing pressure on our products, which could materially adversely affect our business and results of operations.

Labtec, Inc. was acquired by Logitech International S.A. in March 2001 and is a significant competitor in the computer headset market. Logitech is a manufacturer and seller of computer accessory products. Following this acquisition, Labtec gained greater resources with which to compete with us than it had prior to the acquisition. In addition, it has expanded its product offerings to include mobile headsets to address the changing regulatory environment regarding driver safety and mobile phone usage.

We anticipate that we willalso expect to face additional competition from companies that currently do not offer communications headsets. We believe that this is particularly true in the office, mobile, computer and residential markets. In addition,For example, the Sony-Ericsson joint venture has also announced the launch ofcompetes formidably with several Bluetooth hands freehands-free solutions.

On October 25, 2002, Danish manufacturer of audiology products, William Demant Holdings A/S, and Germany’s maker of professional electro acoustic products, Sennheiser Electronics Gmbh & Co. KG, announced the establishment of a joint venture in the telecommunication headset industry, Sennheiser Communications A/S.We expect the combination of William Demant Holdings’ technology expertise with Sennheiser’s established distribution channels will create additional competition.

We anticipate other competition from consumer electronics companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do.

We anticipate that we will also expect to face additional competition from companies, principally located in the Far East, which offer very low cost headset products, including products which are modeled on, or are direct copies of our products.* These new competitors are likely to offer very low cost products which may result in price pressure in the market.* If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition orand results of operations could be materially adversely affected.

We believe that the market for lightweight communications headsets is showing some signs of commoditization. In particular, we believe that our competitors, especially GN Netcom, have chosen to compete more on price than they have historically. While this has long been true of competitors from the Far East, and has been true of GN for the last two years or so, we think the trend remains and that customers are also more receptive to lower cost products, even when the quality, service or total value of the offer may be notably lower as well. In April 2003, GN announced the closing of Hello Direct’s headquarters in San Jose, California and the consolidation of that subsidiary into GN’s North American headquarters in Nashua, New Hampshire, while moving substantially all of Hello Direct 46;s manufacturing operations to Asia. This move may enable GN to drive their prices down even further.

Historically, our expertise in acoustics and design has allowed us to design, develop and manufacture products with the levels of sound quality enabling us to meet the needs of our customers. Due to technological advances such as better digital signal processing, our current and future competitors may be able to develop products with the same or better audio quality at lower costs. These competitors could then be able to compete more effectively in terms of product quality or price that could materially adversely affect our business and results of operations.
 
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We believe that important competitive factors for us are:

·price;
·product reliability;
·product features;
·product mix;
·customer service and support;
·marketing;
·reputation;
·distribution;
·ability to meet delivery schedules; and
·warranty terms and product life.
If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. Further, if we do not successfully develop and market products that compete successfully with those of our competitors, it would materially adversely affect our business, financial condition and results of operations.

If we do not match production to demand, we will be at risk of losing business or our gross margins could be materially adversely affected.

Historically, we have generally been able to increase production to meet increasing demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. We have experienced sharp fluctuations in demand, especially for headsets for wireless and cellular phones. Significant unanticipated fluctuations in demand and the global trend towards consignment of products could cause the following operating problems, among others:
  • If forecasted demand does not develop, we would have excess inventories of finished products, components and subassemblies and excess manufacturing capacity. In particular, given the trend of shorter cycles to product obsolescence it is likely we would be unable to sell these inventories and would have to write off some or all of our inventories of excess products and unusable components and subassemblies. In addition, excess manufacturing capacity could lead to higher production costs and lower margins.
  • ·If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of excess products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins.
    ·Significant reduction in production levels to address decreases in demand may leave us unprepared to meet a rapid increase in demand for our products.
    ·If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and are experiencing greater dependencies on single source suppliers. Therefore, we might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues.
    ·Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins.
    Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins. Therefore, we might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues.
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    ·The introduction of Bluetooth and other wireless headsets presents many significant manufacturing, marketing and other operational risks and uncertainties, including: developing and marketing these wireless headset products; unforeseen delays or difficulties in introducing and achieving volume production of such products; our dependence on third parties to supply key components, many of which have long lead times; and our ability to forecast demand and customer return rates accurately for this new product category for which relevant data is incomplete or not available. We have longer lead times with certain suppliers than commitments from some of our customers. In particular, a major customer only provides us with a 45 day commitment while we commit to inventory purchases beyond this time period. As this inventory is unique to this customer and we have no alternative means of selling any finished products, this could potentially result in significant write-downs of excess inve ntories.
    AnyDue to the lead times required to obtain certain raw materials, subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the foregoing problemsraw materials, subassemblies, components and products. Lead times are particularly long on silicon-based components incorporating radio frequency and digital signal processing technologies and such components are an increasingly important part of our product costs. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand could increase our inventories and/or decrease our revenues, consequently materially adversely affectaffecting our business, financial condition and results of operations.

We expect to make future acquisitions and acquisitions involve material risks.

On January 2, 2002, we acquired Ameriphone, a manufacturer of specialty products for the hearing impaired community. We may in the future acquire other companies. There are inherent risks in the acquisition of another company that could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with acquisitions and integration include, among others:
·cultural differences in the conduct of business;
·difficulties in integration of the operations, technologies, and products of the acquired company;
·the risk that the consolidation of the specialty product group in Chattanooga, Tennessee may not produce the enhanced efficiencies or be as successful as we expect;
·the risk of diverting management's attention from normal daily operations of the business;
·potential difficulties in completing projects associated with purchased in-process research and development;
·risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
·the abilities of representatives, distributors, OEM customers and other resellers which are retained by the acquired company or customers of the acquired company;
·differences in the business information systems of the companies;
·difficulties in integrating the transactions and business information systems of the acquired company; and
·the potential loss of key employees of the acquired company.
Mergers and acquisitions, particularly those of high-technology companies, are inherently risky, and no assurance can be given that the Ameriphone acquisition, or future acquisitions, will be successful and will not materially adversely affect our business, operating results or financial condition. We must also manage any acquisition related growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results.

We depend on our suppliers and failure of our suppliers to provide quality components or services in a timely manner could adversely affect our results.

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Our growth and ability to meet customer demandsdemand depend in part on our capability to obtain timely deliveries of raw materials, components, subassemblies and products from our suppliers. We buy raw materials, components and subassemblies from a variety of suppliers and assemble them into finished products. We also have certain of our products manufactured for us by third party suppliers. The cost, quality, and availability of such goods are essential to the successful production and sale of our products. Obtaining raw materials, components, subassemblies and finished products entails various risks, including the following:
  • · We obtain certain raw materials, subassemblies, components and products from single suppliers and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these raw materials, subassemblies, components and products, none of which has significantly affected our results of operations. Current adverse economic conditions could lead to a higher risk of failure of our suppliers to remain in business or to be able to purchase the raw materials, subcomponents and parts required by them to produce and provide to us the parts we need. An interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations.
  • Most of our suppliers are not obligated to continue to provide us with raw materials, components and subassemblies. Rather, we buy most raw materials, components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect the availability or cost of needed inventories. In turn, this would affect our ability to manufacture and sell products that are dependent on those raw materials, components and subassemblies. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations.
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    ·Prices of raw materials, components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations.
    ·Due to the lead times required to obtain certain raw materials, subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the raw materials, subassemblies, components and products. Lead times are particularly long on silicon-based components incorporating radio frequency and digital signal processing technologies and such components are an increasingly important part of our product costs. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand could increase our inventories and/or decrease our revenues, consequently materially adversely affecting our business, financial condition and results of operations.
    ·Most of our suppliers are not obligated to continue to provide us with raw materials, components and subassemblies. Rather, we buy most raw materials, components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those raw materials, components and subassemblies. This would materially adversely affect our business, financial condition and results of operations.
    ·Although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permits us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet time to market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, and/or the inability to meet our customer demand for these new products. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these factors.
     
    • Although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permits us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet time to market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, and/or the inability to meet our customer demand for these new products. Our business, operating results, financial condition or cash flows could therefore be materially adversely affected as a result of these factors.
    • The introduction of Bluetooth and other wireless headsets presents many significant manufacturing, marketing and other operational risks and uncertainties, including: developing and marketing these wireless headset products; unforeseen delays or difficulties in introducing and achieving volume production of such products; our dependence on third parties to supply key components, many of which have long lead times; and our ability to forecast demand and customer return rates accurately for this new product category for which relevant data is incomplete or not available. We have longer lead times with certain suppliers than commitments from some of our customers.
    We sell our products through various channels of distribution and certain of these channels are becomingthat can be volatile.

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

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

    Our distribution channels generally hold inventoriesIn particular, we are obligated to absorb from our retailers products which have failed to sell as expected, and in some instances, such products may be returned to our inventory. Should product returns vary significantly from our estimate, then our allowance for estimated returns, which we record as a reduction of our products, determined in their own business judgmentrevenue, may need to be sufficient to meet their customer's delivery requirements. Such inventory levels are subject to market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by our distributors, OEM's, retailers and other customers in the levels of inventories held in our products could materially adversely affect our business, financial condition or results of operations. We are also exposed to long lead time commitments with certain suppliers for a key component while such exposure is not similarly passed through to our customers. We may be at risk for these components if our customers reject or cancel orders unexpectedly or with inade quate notice.revised.

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

    The market price for our common stock may continue to be affected by a number of factors, including:
    • the announcement of new products or product enhancements by us or our competitors;
    • ·uncertain economic conditions and the decline in investor confidence in the market place;
      ·the announcement of new products or product enhancements by us or our competitors;
      ·the loss of services of one or more of our executive officers or other key employees;
      ·quarterly variations in our or our competitors' results of operations;
      ·changes in our published forecasts of future results of operations;
      ·changes in earnings estimates or recommendations by securities analysts;
      ·developments in our industry;
      ·sales of substantial numbers of shares of our common stock in the public market;
      ·general market conditions; and
      ·other factors unrelated to our operating performance or the operating performance of our competitors.
      In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of these companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, could materially adversely affect the market price of our common stock.executive officers or other key employees;

    • The majority of our revenues come from products currently producedquarterly variations in our facilities in Tijuana, Mexico.

      The majorityor our competitors’ results of our revenues come from products that are producedoperations;
    • changes in our facilities in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facilities could have a material adverse effect on our business, financial condition andpublished forecasts of future results of operations. The prospect of such unscheduled interruptions may continue for the foreseeable futureoperations;
    • changes in earnings estimates or recommendations by securities analysts;
    • developments in our industry; and we are unable to predict their occurrence, duration or cessation. While we have developed a disaster recovery plan and believe we are adequately insured with respect to these facilities, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies.

    • general market conditions.
     
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    Our quarterly operating results may fluctuate significantly and are not a good indicator of future performance.
    Our quarterly operating results have fluctuated significantly in the past and may vary significantly in the future as a result of a number of factors, many of which are out of our control. These factors include:
    • market acceptance and transition of new product introductions, other new products launched in 2004, new products launched in the future, and product enhancements by us or our existing or potential new competitors;
    • difficult general economic conditions, as has been the case with the recent global economic uncertainty and downturn in technology spending, and specific economic conditions prevailing in the communications industry and other technology industries;
    • the prices and performance of our products and those of our existing or potential new competitors;
    • changes in our sales management and sales organization which could result in disruptions among our channel partners;
    • the timing and size of the orders for our products, in particular OEM demand is very volatile and difficult to forecast;
    • our distribution channels reducing their inventory levels;
    • the level and mix of inventory that we hold to meet future demand;
    • slowing sales by our channel partners to their customers which places further pressure on our channel partners to minimize inventory levels and reduce purchases of our products;
    • the near and long-term impact of terrorist attacks and incidents and any military response or uncertainty regarding any military response to those attacks;
    • the shift in sales mix of products we sell to lower margin products;
    • fluctuations in the level of international sales and our exposure to international currency fluctuations in both revenues and expenses;
    • the cost and availability of component devices used in many of our products;
    • manufacturing costs;
    • the level and cost of warranty claims;
    • future changes in existing financial accounting standards or practices or taxation rules or practices;
    • the impact of disruptions in our operations, for any reason, including the recurrence of SARS or other similar event;
    • the impact of seasonality on our various product lines and geographic regions; and
    • adverse outcomes to litigation.
    As a result of these and other factors, we believe that period-to-period comparisons of our historical results of operations are not a good predictor of our future performance. If our future operating results are below the expectations of stock market securities analysts or investors, our stock price will likely decline.
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    Changes in stock option accounting rules may adversely impact our operating results prepared in accordance with generally accepted accounting principles, our stock price and our competitiveness in the employee marketplace.
    Technology companies like ours have a history of using broad based employee stock option programs to hire, incentivize and retain our workforce in a competitive marketplace. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), allows companies the choice of either using a fair value method of accounting for options, which would result in expense recognition for all options granted, or using an intrinsic value method, as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), with pro forma disclosure of the impact on net income (loss) of using the fair value option expense recognition method. We have elected to apply APB 25 and accordingly we generally do not recognize any expense with respect to employee stock option s as long as such options are granted at exercise prices equal to the fair value of our common stock on the date of grant.
    During March 2004 the FASB issued a proposed Statement, “Share-Based Payment, an amendment of FASB Statements No. 123 and 95.” The proposed statement eliminates the treatment for share-based transactions using APB 25 and generally would require share-based payments to employees be accounted for using a fair-value-based method and recognized as expenses in our statements of operations. The proposed standard would require the modified prospective method be used, which would require that the fair value of new awards granted from the beginning of the year of adoption plus unvested awards at the date of adoption be expensed over the vesting term. In addition, the proposed statement encourages companies to use the “binomial” approach to value stock options, as opposed to the Black-Scholes option pricing model that we currently use to estimate the fair value of our options under SFAS 123 disclosure provisions.
    The effective date the proposed standard is recommending is for fiscal years beginning after December 15, 2004. Should this proposed statement be finalized, it will have a significant impact on our consolidated statement of operations as we will be required to expense the fair value of our stock options rather than disclosing the impact on our consolidated results of operations within our footnotes in accordance with the disclosure provisions of SFAS 123 (see Note 2 of the Notes to the consolidated financial statements). This will result in lower reported earnings per share which could negatively impact our future stock price. In addition, should the proposal be finalized, this could impact our ability to utilize broad based employee stock plans to reward employees and could result in a competitive disadvantage to us in the employee marketplace. We believe that the expected exp ense related to the fair value of our stock options under the Binomial Model as proposed by the FASB will be slightly less than the Black-Scholes valuation approach.*
    In addition, if stock options are expensed, it is our expectation that our use of restricted stock, restricted stock units and capped stock appreciation rights for employee awards will increase and our use of stock options will decrease. Although it is anticipated that such a change in the types of employee awards that are issued will create less dilution due to fewer aggregate shares issued, it is also expected that the amount of cash received by us from the exercise of stock options will decline.
    We have significant foreign operations and there are inherent risks in operating abroad.

    During our thirdthe first quarter of fiscal year 2004,2005, approximately 38%32% of our net sales were derived from customers outside the United States. In addition, we conduct the majority of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers.
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    A fire, flood or earthquake, political unrest or other disaster or condition affecting our facilities could have a material adverse effect on our business, financial condition and results of operations. We also purchase a growing number of turn-key products directly from Asia. The inherent risks of international operations, either in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include, among others:
    • ·cultural differences in the conduct of business;
      ·greater difficulty in accounts receivable collection;
      ·unexpected changes in regulatory requirements;
      ·tariffs and other trade barriers;
      ·economic and political conditions in each country;
      ·management and operation of an enterprise spread over various countries; and
      ·the burden of complying with a wide variety of foreign laws.
      Our foreign operations put us at risk of loss if there are materialbusiness;
    • greater difficulty in accounts receivable collection;
    • unexpected changes in currency values as compared to regulatory requirements;
    • tariffs and other trade barriers;
    • economic and political conditions in each country;
    • management and operation of an enterprise spread over various countries; and
    • the U.S. dollar.

      Approximately 26%burden of our business is conducted in currencies other than the U.S. dollar. Substantially allcomplying with a wide variety of our sales outside of North America are transacted in the Euro or local currencies. We are therefore exposed to risks associated with fluctuations in exchange rates that can affect our revenue and gross margins and can also generate currency transaction gains and losses.

      We administer programs designed to reduce our foreign currency net asset exposure and our economic exposure. However, there can be no assurance that our hedging policy will be effective in reducing transaction and/or economic gains and losses. There can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations.laws.

    Changes in regulatory requirements may adversely impact our gross margins as we comply with such changes or reduce our ability to generate revenues if we are unable to comply.

    Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. As regulations and local laws change, we must , if possible, modify our products to address those changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting in a decrease in our margins or a decrease in demand for our products if the costs are passed along. Compliance with regulatory restrictions may impactaffect the technical quality and capabilities of our products, reducing their marketability.  New legislation prohibiting the use of phones while operating a motor vehicle may reduce demand for our products.

    Our success depends on our ability to assimilate new technologies in our products and to properly train our channel partners in the use of those products.
    The terrorist attacksmarkets for video and voice communications and network systems products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The success of our new products depends on New York City on September 11, 2001, markedseveral factors, including proper new product definition, product cost, timely completion and introduction of new products, proper positioning of new products in relation to our total product portfolio and their relative pricing, differentiation of new products from those of our competitors and market acceptance of these products. Additionally, properly addressing the complexities associated with compatibility issues, channel partner training, technical and sales support as well as field support are also factors that may affect our success in this market. When we take any significant actions regarding our product offerings, or acquire new product off erings, it is important to educate and train our channel partners to avoid any confusion as to the desirability of the new product offering compared to our existing product offerings. We may not identify successful new product opportunities and develop and bring products to market in a turning pointtimely manner or be successful in current U.S. political, militarydeveloping a service provider strategy. Additionally, we cannot assure you that competing technologies developed by others will not render our products or technologies obsolete or noncompetitive. Further, as we introduce new products that can or will render existing products obsolete, these product transition cycles may not go smoothly, causing an increased risk of inventory obsolescence and security strategiesrelationship issues with our channel partners. The failure of our new product development efforts, any inability to service or maintain the necessary third-party interoperability licenses, our inability to properly manage product transition and our inability to enter new markets, such as the service provid er market, would harm our business and results of operations.

    Product obsolescence, excess inventory and other asset impairment can negatively affect our results of operations.
    We operate in a high technology industry which we believe have,is subject to rapid and mayfrequent technology and market demand changes. These changes can often render existing or developing technologies obsolete. In addition, the introduction of new products and any related actions to discontinue existing products can cause existing inventory to become obsolete. These obsolescence issues can require write-downs in inventory value when it is determined that the recorded value of existing inventory is greater than its fair market value. Also, the pace of change in technology development and in the release of new products has increased and is expected to continue to adversely impactincrease. If sales of one of these products have a negative effect on sales of another of our business, both directly and indirectly.

    The events of September 11, 2001 and its aftermath contributed to a slowing inproducts, it could significantly increase the economy. We believe that one direct impactinventory levels of the attacks isnegatively impacted product. For each of our products, the reductionpotential exists f or new products to render existing products obsolete, cause inventories of contact center agents inexisting products to increase, cause us to discontinue a product or reduce the travel and leisure industries. We are indirectly affected by the continuing concern of future terrorist attacks on U.S. soil. We are unable to estimate the impact these threats and their consequences have on our business, however, we expect that as these events adversely affect the global economy in general, our financial condition, our operations and our prospects will be similarly adversely affected.
    demand for existing products. 
     
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    We face and might in the future face intellectual property infringement claims that might be costly to resolve.
    We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products. In addition, our industry is characterized by uncertain and conflicting intellectual property claims and vigorous protection and pursuit of intellectual property rights or positions which have resulted in significant and protracted and expensive litigation. We cannot assure you that we will prevail in any such litigation, that intellectual property claims will not be made against us in the future or that we will not be prohibited from using the technologies subject to any such claims or be required to obtain licenses and make corresponding royalty payments. In addition, the necessary management attention to, and legal costs associated with, litigation can have a significant adverse effect on our operating r esults and financial condition.

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

    Our success will depend in part on our ability to protect our copyrights, patents, trademarks, trade dress, trade secrets, and other intellectual property, including our rights to certain domain names. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. Effective trademark, patent, copyright, and trade secret protection may not be available in every country in which our products and media properties are distributed to customers worldwide.customers. We currently hold 8085 United States patents and additional foreign patents and will continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issuedissue d may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management'smanagement’s attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations.

    We are exposed to potential lawsuits alleging defects in our products and/or hearing loss caused by our products.

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

    Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete.* We have tested our headsets through independent laboratories and have found that use of our headsets reduces radio frequency emissions at the user'suser’s head to virtually zero. However, if research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for mobile phones, which reduces demands for headset products.

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

    We are exposed to potential litigation from third parties which is costly to defend and consumes management’s time and could possibly divert focus away from our business.

    From time to time, third parties, including our competitors, may assert intellectual property rights or other commercial claims against us. These claims, if they are asserted, could result in costly litigation and diversion of management's attention regardless of the merit of a claim. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations.

    28
    While we believe we comply with environmental laws and regulations, we are still exposed to potential risks from environmental matters.

    We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be a ssertedasserted in the future and any liability that might result could exceed the amount of the reserve.

    GivenWe are actively working to gain an understanding of the low trading volumecomplete requirements concerning the removal of certain potentially environmentally sensitive materials from our products to comply with the European Union Directives on Restrictions on certain Hazardous Substances on electrical and electronic equipment (“ROHS”) and on Waste Electrical and Electronic Equipment (“WEEE”). Some of our stock,customers are requesting that we implement these new compliance standards sooner than the legislation would require. While we believe that we will have the resources and ability to fully meet our customers’ requests, and spirit of the ROHS and WEEE directives, if unusual occurrences arise or if we are wrong in our significant shareholders sell their shares inassessment of what it will take to fully comply, there is a short period of time there couldrisk that we will not be an adverseable to meet the aggressive schedule set by our customers or comply with the le gislation as passed by the EU member states. If that were to happen, a material negative effect on our financial results may occur.
    While we believe that we currently have adequate control structures in place, we are still exposed to potential risks from recent legislation requiring companies to evaluate controls under Section 404 of the market priceSarbanes Oxley Act of 2002.
    We are working diligently toward evaluating our stock.

    As of January 23, 2004, we had 45,933,780 shares of common stock outstanding. These sharesinternal controls systems in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls, as required by this legislation. We are freely tradable except for approximately 1,018,202 shares held by affiliates of Plantronics. These approximately 1,018,202 shares may be soldperforming the system and process evaluation and testing (and any necessary remediation) required in accordance with Rule 144 under the Securities Act (to the extent permitted by the provisions of Rule 144), or pursuantan effort to an effective registration statement filedcomply with the Securitiesmanagement certification and Exchange Commission.

    Approximately 9,542,862 additional shares are subject to outstanding stock options asindependent registered public accounting firm attestation requirements of January 23, 2004. The shares that would be issued upon exerciseSection 404 of stock options have been registered. Accordingly, to the extent that these options vest and shares of our common stock are issued in the future, they may be freely resold by stockholders who are not our affiliates. Our affiliates may resell these shares to the extent permitted by Rule 144 under the SecuritiesSarbanes Oxley Act.

    Our stock is not heavily traded. The average daily trading volume of our stock in the third quarter of fiscal 2004 was approximately 296,542 shares per day with a median volume in that period of 273,200 shares per day. Our directors, officers and employees are subject to trading black-out periods which prohibit them from trading in our stock. As a result, we have incurred and expect to incur additional expenses and consumption of this, during open trading periods,management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and particularly when our stock is trading at appreciated values,all other aspects of Section 404 in a timely fashion, we may see an unusual amountcannot be certain as to the timing of tradingcompletion of our stockevaluation, testing and remediation ac tions or the impact of the same on our operations since there is no precedent available by our directors, officers and employees. Saleswhich to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a substantial number of shares of our common stock intimely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the public market by any of our officers, directorsSecurities Exchange Commission or other stockholdersthe New York Stock Exchange. Any such action could adversely affect the prevailing market price ofeffect our common stock and impair our ability to raise capital t hrough the sale of equity securities.financial results.

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

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

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

     
    2926 
     
    Future acquisitions involve material risks.
    We may in the future acquire other companies. There are inherent risks in acquiring other companies or businesses that could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with acquisitions include, among others:
    • cultural differences in the conduct of business;
    • difficulties in integration of the operations, technologies, and products of the acquired company;
    • the risk that the consolidation of the acquired company may not produce the enhanced efficiencies or be as successful as we may have anticipated;
    • the risk of diverting management’s attention from normal daily operations of the business;
    • difficulties in integrating the transactions and business information systems of the acquired company; and
    • the potential loss of key employees of the acquired company.
    Mergers and acquisitions, particularly those of high-technology companies, are inherently risky, and no assurance can be given that future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition. We must also manage any acquisition related growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results.
    Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent a third party from acquiring us, which could decreaseaffect the value of ourprice at which you can sell your stock.

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

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

    Item 3.3. Quantitative Andand Qualitative Disclosures About Market Risk

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

    INTEREST RATE RISK

    At December 31, 2003,June 30, 2004, we had cash and cash equivalents totaling $107.3$211.0 million, compared to $54.7$180.6 million at March 31, 2003.2004. At DecemberJune 30, 2004 and at March 31, 2003,2004, we had no marketable securities compared to $5.0 million at March 31, 2003.securities. Cash equivalents have an original or remaining maturity when purchased of ninety days or less; marketable securities have an original or remaining maturity when purchased of greater than ninety days, but less than one year. We believe we are not currently exposed to significant interest rate risk as our cash was invested in securities or interest bearing accounts with maturities of less than ninety days. The average maturity period for our investments at December 31, 2003,June 30, 2004, was less than three months. The taxable equivalent interest rates locked in on those investments average saverages approximately 1.8%1.7%. Our investment policy requires that we only invest in deposit accounts, certificates of deposit or commercialc ommercial paper with minimum ratings of A1/P1 and money market mutual funds with minimum ratings of AAA.

    Our $75 million revolving credit facility and letter of credit subfacility both expire on July 31, 2005. As of January 23,July 30, 2004, we had no cash borrowings under the revolving credit facility and $1.3$2.3 million outstanding under the letter of credit subfacility. If we choose to borrow under this facility in the future and market interest rates rise, then our interest payments would increase accordingly.

     27
    FOREIGN CURRENCY EXCHANGE RATE RISK

    In the thirdfirst quarter of fiscal 2004, 38.2%2005, approximately 32% of our net sales were derived from customers outside the United States, with 25.7%20.5% of total revenues denominated in foreign currencies, predominately the Euro and the Great British Pound. In fiscal year 2002, we implemented a hedging strategy to minimize the effect of these currency fluctuations. Specifically, we began to hedge our European transactionnet monetary asset exposure, hedging both our Euro and Great British Pound positions. However, we can provide no assurance that exchange rate fluctuations will not materially adversely affect our business in the future.

    As of December 31, 2003,June 30, 2004, we had foreign currency forward contracts of approximately $6.3€6.2 and $1.3£1.8 million denominated in Euros and Great British Pounds, respectively. These forward contracts hedge against a portion of our forecasted foreign currency-denominated receivables, payables and cash balances. The table below provides information about our financial instruments and underlying transactions that are sensitive to foreign currency exchange rates, including foreign currency forward-exchange contracts and nonfunctional currency-denominated receivables and payables. For example, ifIf these net exposed currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. dollar we could incur a loss of $1.8$0.9 million or a gain of $1.5$0.8 million.

    30
     
    The table below presents the impacteffect on our foreign currency transaction exposure of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated currencies.


    December 31, 2003
    		            
    		  
    June 30, 2004
    		  
    Net
    		 
    (in millions)    Net         
    Underlying
    Net
    FX
        
    Underlying
    		 Net FX FX 
        
    Foreign
    		 Exposed Gain (Loss) Gain (Loss)   
    Foreign
    Exposed
    Gain (Loss)
     USD Value Currency 
    Long (Short)
    		 From 10% From 10%  
    USD Value
    Currency
    Long (Short)
    From 10%
     of Net FX Transaction Currency Appreciation Depreciation  
    of Net FX
    Transaction
    Currency
    Appreciation
    Depreciation
    Currency - forward contracts Contracts Exposures Position of USD of USD  
    Contracts
    Exposures
    Position
    of USD
    		 
    		 
    		 
    		 
    		 
    		  
    Euro $6.3 $13.5 $7.2 $(0.8)$0.7  $7.5 $12.7 $(5.2) $(0.6) $0.5 
    Great British Pound  1.3 10.1 8.8 (1.0) 0.8   3.2 6.1 (2.9) (0.3)  0.3 
     
    		 
    		 
    		 
    		 
    		  
    		 
    		 
    		 
    		 
    		 
                
    Net position $7.6 $23.6 $16.0 $(1.8)$1.5  $10.7 $18.8 $(8.1)$(0.9) $0.8 
     
    		 
    		 
    		 
    		 
    		  
    		 
    		 
    		 
    		 
    		 

    As of December 31, 2003,June 30, 2004, we had foreign currency put and call option contracts of approximately€21.6 €31.3 million and£8.4 million denominated in Euros and Great British Pounds, respectively. As of December 31, 2003, we also had foreign currency put option contracts of approximately €21.6 million and£8.4 £10.9 million denominated in Euros and Great British Pounds, respectively. Collectively our option contracts hedge against a portion of our forecasted foreign denominated sales. The table below provides information about our financial instruments and underlying transactionsforeign currency option contracts that are sensitive to foreign currency exchange rates, including foreign currency option contracts.rates. If these net exposed currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. dollar we could incur a gain of $3.7$5.1 million or a loss of $4.0$5.3 million.

    The table below presents the impact on our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated option contract type for cash flow hedges:
     
    		    
    June 30, 2004
    		    
    (in millions)
    		  
    FX
    FX
     
    		  
    Gain (Loss)
    Gain (Loss)
     
    		 
    USD Value
    From 10%
    From 10%
      
    of Net FX
    Appreciation
    Depreciation
    Currency - option contracts
    		 
    Contracts
    of USD
    of USD
    		 
    Call options $(57.6)$2.2 $(4.4)
    Put options  54.8  2.9  (0.9)
      
    		 
    		 
    		 
               
    Net position $(2.8)$5.1 $(5.3)


    28
    December 31, 2003    
    (in millions)    
         

    FX

    		 

    FX

    		 
         

    Gain (Loss)

    		 

    Gain (Loss)

    		 
      

    USD Value

    		 

    From 10%

    		 

    From 10%

    		 
      

    of Net FX

    		 

    Appreciation

    		 

    Depreciation

    		 
    Currency - option contracts 

    Contracts

    		 

    of USD

    		 

    of USD

    		 
    		 
    		 
    		 
    		 
    Call options $(38.5)$2.9 $(3.9)
    Put options  37.0  0.8  (0.1)
      
    		 
    		 
    		 
               
    Net position $(1.5)$3.7 $(4.0)
      
    		 
    		 
    		 

    Item 4. Disclosure Controls And Procedures

    (a) Evaluation of disclosure controls and procedures.Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in ensuring that information required to be disclosed in reports that we file or submit under th ethe Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

    (b) Changes in internal control over financial reporting.There was no change in our internal control over financial reporting (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934)that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
    PART II. -- OTHER INFORMATION
    Item 4. Submission of Matters to a Vote of Security Holders
    2. At the Annual Meeting, the following six individuals were elected to the Company's Board of Directors.

    NomineeVotes Cast ForWithheld or Against
    Patti Hart44,764,0241,134,005
    Ken Kannappan43,786,3172,111,712
    Trude C. Taylor36,318,6879,579,342
    Marvin Tseu37,430,9238,467,106
    David A. Wegmann43,666,4432,231,586
    Roger Wery28,963,80416,934,225

    c.    The following additional proposals were considered at the Annual Meeting and were approved by the vote of the stockholders, in accordance with the tabulation shown below.

    (1) Proposal to approve an increase of 1,000,000 shares of Common Stock of Plantronics, Inc. issuable under the 2003 Stock Plan.

    Votes ForVotes Against/WithheldAbstainBroker Non-Vote
    35,421,80510,426,03050,194-0-

    (2) Proposal to approve amendments to the 2003 Stock Plan to allow a portion of the shares reserved under the 2003 Stock Plan to be issued as restricted stock, restricted stock units and stock appreciation rights.

    Votes ForVotes Against/WithheldAbstainBroker Non-Vote
    38,662,3037,183,56652,160-0-

    (3) Proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of Plantronics for fiscal 2005.

    Votes ForVotes Against/WithheldAbstainBroker Non-Vote
    43,375,0552,509,39813,576-0-

    3129  
     
    PART II. -- OTHER INFORMATION




    (a)Exhibits. The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

    EXHIBITS INDEX
    Exhibit Number
    Description of Document
    3.1Amended and Restated By-Laws of the Registrant (incorporated herein by reference from Exhibit (3.1) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    3.2.1Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference from Exhibit (3.1) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12696), filed on March 4, 1994).
    3.2.2Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference from Exhibit (3.3) of the Registrant’s Annual Report on Form 10-K (File No. 001-12696), filed on June 27, 1996).
    3.2.3Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference from Exhibit (3.1) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12696), filed on August 8, 1997).
    3.2.4Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on May 23, 2000 (incorporated herein by reference from Exhibit (4.2) to the Registrant’s Registration Statement on Form S-8 (File No. 001-12696), filed on July 31, 2000).
    3.3Registrant’s Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock filed with the Secretary of State of the State of Delaware on April 1, 2002 (incorporated herein by reference from Exhibit (3.6) to the Registrant’s Form 8-A (File No. 001-12696), filed on March 29, 2002).
    4.1Preferred Stock Rights Agreement, dated as of March 13, 2002 between the Registrant and Equiserve Trust Company, N.A., including the Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively (incorporated herein by reference from Exhibit (4.1) to the Registrant’s Form 8-A (File No. 001-12696), filed on March 29, 2002).
    10.1*Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan (incorporated herein by reference from Exhibit (10.1) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.2*Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference from Exhibit (10.1) to PI Holdings Inc.’s Quarterly Report on Form 10-Q (File No. 33-26770), filed February 9, 1993).
    10.3*Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference from Exhibit (10.2) to PI Holdings Inc.’s Quarterly Report on Form 10-Q (File No. 33-26770), filed February 9, 1993).
    10.4.1*Regular and Supplemental Bonus Plan (incorporated herein by reference from Exhibit (10.4(a)) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.4.2*Overachievement Bonus Plan (incorporated herein by reference from Exhibit (10.4(b)) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.5.1Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)..
    10.5.2Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original).
    10.5.3Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)
    10.5.4Lease Agreement dated July 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)
    10.6Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, The United Kingdom (incorporated herein by reference from Exhibit (10.32) to the Registrant’s Registration Statement on Form S-1 (as amended) (File No.33-70744), filed on October 20, 1993).
    10.7*Amended and Restated 2003 Stock Plan (incorporated herein by reference from the Registrant's Definitive Proxy Statement on Form 14-A (File No. 001-12696), filed on May 26, 2004).
    10.8*1993 Stock Option Plan (incorporated herein by reference from Exhibit (10.8) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    10.9 1*1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended) (File No. 33-70744), filed on October 20, 1993).
    10.9.2*Amendment to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (File No. 333-14833), filed on October 25, 1996).
    10.9.3*Amendment No. 2 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9(a)) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    ExhibitNumberDescription of Document
    		30 
     
    10.9.4 *Amendment No. 3 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9(b)) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.9.5*Amendment No. 4 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9.5) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    10.10.1*2002 Employee Stock Purchase Plan (incorporated herein by reference from Exhibit (10.10.2) to the Registrant's Annual Report on Form 10-K (File Number 001-12696), filed on June 21, 2002).
    10.11.1Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference from Exhibit (4.3) to the Registrant's Registration Statement on Form S-8 (File No. 333-19351), filed on January 7, 1997).
    10.11.2*Plantronics, Inc. 401(k) Plan, effective as of April 2, 2000 (incorporated herein by reference from Exhibit (10.11) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.12*Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference from Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.1*Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference from Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.2Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference from Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.3Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference from Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.14.1*Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan (incorporated herein by reference from Exhibit (10.15) to the Registrant's Annual Report on Form 10-K405 (File No. 001-12696), filed on June 1, 2000).
    10.14.2*Employment Agreement dated as of November 1996 between Registrant and Don Houston (incorporated herein by reference from Exhibit (10.14.2) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.3*Employment Agreement dated as of March 1997 between Registrant and Barbara Scherer (incorporated herein by reference from Exhibit (10.14.4) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.4*Employment Agreement dated as of May 1998 between Registrant and Craig May (incorporated herein by reference from Exhibit (10.14.3) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.5*Employment Agreement dated as of May 2001 between Registrant and Joyce Shimizu (incorporated herein by reference from Exhibit (10.14.5) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.15.1Credit Agreement dated as of July 31, 2003 between Registrant and Wells Fargo Bank N.A (incorporated herein by reference from Exhibit (10.1) of the Registrant's Annual Report on Form 10-Q (File No. 001-12696), filed on November 7, 2003).
    31.1
    CEO’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
    31.2
    CFO’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
    3232.1
    Certification Pursuant to 18 U.S.C. Section 1350, Certifications.
    as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the CEO and CFO
    99.1*
    Audit Committee Charter, as amended on January 9, 2004
    Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.


    (b)Reports on Form 8-K

    On October 15, 2003,April 27, 2004, the Company furnished a Current Report on Form 8-K reporting under Item 12 of the Company's issuance of a press release announcing its financial results for the quarteryear ended SeptemberMarch 31, 20032004 and including such press release as an exhibit.

     
     3231  
     
     
    SIGNATURE

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

    PLANTRONICS, INC.
     
    (Registrant)
       
    Date: FebruaryAugust 6, 2004By:/s/ Barbara V. Scherer
    Barbara V. Scherer
    Senior Vice President - Finance and Administration and Chief Financial Officer

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


     
    3332  
     
    EXHIBITS



    The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
     
    ExhibitNumber
    EXHIBITS INDEX
    Exhibit Number
    Description of Document
    3.1    		Amended and Restated By-Laws of the Registrant (incorporated herein by reference from Exhibit (3.1) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    3.2.1Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference from Exhibit (3.1) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12696), filed on March 4, 1994).
    3.2.2Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference from Exhibit (3.3) of the Registrant’s Annual Report on Form 10-K (File No. 001-12696), filed on June 27, 1996).
    3.2.3Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference from Exhibit (3.1) to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-12696), filed on August 8, 1997).
    3.2.4Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on May 23, 2000 (incorporated herein by reference from Exhibit (4.2) to the Registrant’s Registration Statement on Form S-8 (File No. 001-12696), filed on July 31, 2000).
    3.3Registrant’s Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock filed with the Secretary of State of the State of Delaware on April 1, 2002 (incorporated herein by reference from Exhibit (3.6) to the Registrant’s Form 8-A (File No. 001-12696), filed on March 29, 2002).
    4.1Preferred Stock Rights Agreement, dated as of March 13, 2002 between the Registrant and Equiserve Trust Company, N.A., including the Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively (incorporated herein by reference from Exhibit (4.1) to the Registrant’s Form 8-A (File No. 001-12696), filed on March 29, 2002).
    10.1*Plantronics, Inc. Non-EMEA Quarterly Profit Sharing Plan (incorporated herein by reference from Exhibit (10.1) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.2*Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference from Exhibit (10.1) to PI Holdings Inc.’s Quarterly Report on Form 10-Q (File No. 33-26770), filed February 9, 1993).
    10.3*Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference from Exhibit (10.2) to PI Holdings Inc.’s Quarterly Report on Form 10-Q (File No. 33-26770), filed February 9, 1993).
    10.4.1*Regular and Supplemental Bonus Plan (incorporated herein by reference from Exhibit (10.4(a)) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.4.2*Overachievement Bonus Plan (incorporated herein by reference from Exhibit (10.4(b)) to the Registrant’s Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.5.1Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)..
    10.5.2Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original).
    10.5.3Lease Agreement dated May 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)
    10.5.4Lease Agreement dated July 2004 between Finsa Portafolios, S.A. DE C.V.and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original)
    10.6Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, The United Kingdom (incorporated herein by reference from Exhibit (10.32) to the Registrant’s Registration Statement on Form S-1 (as amended) (File No.33-70744), filed on October 20, 1993).
    10.7*Amended and Restated 2003 Stock Plan (incorporated herein by reference from the Registrant's Definitive Proxy Statement on Form 14-A (File No. 001-12696), filed on May 26, 2004).
    10.8*1993 Stock Option Plan (incorporated herein by reference from Exhibit (10.8) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    10.9 1*1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended) (File No. 33-70744), filed on October 20, 1993).
    10.9.2*Amendment to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (File No. 333-14833), filed on October 25, 1996).
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    10.9.3*Amendment No. 2 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9(a)) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.9.4 *Amendment No. 3 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9(b)) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.9.5*Amendment No. 4 to the 1993 Director Stock Option Plan (incorporated herein by reference from Exhibit (10.9.5) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 21, 2002).
    10.10.1*2002 Employee Stock Purchase Plan (incorporated herein by reference from Exhibit (10.10.2) to the Registrant's Annual Report on Form 10-K (File Number 001-12696), filed on June 21, 2002).
    10.11.1Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference from Exhibit (4.3) to the Registrant's Registration Statement on Form S-8 (File No. 333-19351), filed on January 7, 1997).
    10.11.2*Plantronics, Inc. 401(k) Plan, effective as of April 2, 2000 (incorporated herein by reference from Exhibit (10.11) to the Registrant's Report on Form 10-K (File No. 001-12696), filed on June 1, 2001).
    10.12*Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference from Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.1*Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference from Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.2Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference from Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.13.3Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference from Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended) (File No. 333-19351), filed on March 25, 1997).
    10.14.1*Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan (incorporated herein by reference from Exhibit (10.15) to the Registrant's Annual Report on Form 10-K405 (File No. 001-12696), filed on June 1, 2000).
    10.14.2*Employment Agreement dated as of November 1996 between Registrant and Don Houston (incorporated herein by reference from Exhibit (10.14.2) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.3*Employment Agreement dated as of March 1997 between Registrant and Barbara Scherer (incorporated herein by reference from Exhibit (10.14.4) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.4*Employment Agreement dated as of May 1998 between Registrant and Craig May (incorporated herein by reference from Exhibit (10.14.3) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.14.5*Employment Agreement dated as of May 2001 between Registrant and Joyce Shimizu (incorporated herein by reference from Exhibit (10.14.5) to the Registrant's Annual Report on Form 10-K (File No. 001-12696), filed on June 2, 2003).
    10.15.1Credit Agreement dated as of July 31, 2003 between Registrant and Wells Fargo Bank N.A (incorporated herein by reference from Exhibit (10.1) of the Registrant's Annual Report on Form 10-Q (File No. 001-12696), filed on November 7, 2003).
    31.1CEO’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
    31.2CFO’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
    3232.1Certification Pursuant to 18 U.S.C. Section 1350, Certifications.as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the CEO and CFO
    99.1*Audit Committee Charter, as amended on January 9, 2004
    Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.

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