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Plantronics, Inc.

TABLE OF CONTENTS

Plantronics, the logo design, Plantronics and the logo design combined, Ameriphone, Clarity, Encore, FreeHand, Mirage, Practica,and SoundGuard StarSet, Supra and TriStar are registered United States trademarks of Plantronics, Inc., .Audio, ClearVox,..Audio, DuoPro, Quick Disconnect,Flex Grip, Firefly, SoundGuard Plus, the clear color and the gently curved shape of the Plantronics voice tube, and Walker are trademarks of Plantronics, Inc. Certain of the foregoing trademarks are registered trademarks in certain foreign countries. Alertmaster, Ameriphone, and JV-35 are registered trademarks of Ameriphone, Inc. The BLUETOOTH trademarks are owned by Bluetooth SIG, Inc., USA. This report also includes trademarks of companies other than Plantronics.

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This Annual Report on Form 10-K is filed with respect to our fiscal year 2002.2004. Each of our fiscal years ends on the Saturday closest to the last day of March. Our fiscal 2002year 2004 ended on March 30, 2002. April 3, 2004.For purposes of consistent presentation, we have indicated in this report that each fiscal year ended "March 31"“March 31” of the given year, even though the actual fiscal year end may have been on a different date.

CERTAIN FORWARD-LOOKING INFORMATION

ITEMItem 1. BUSINESSBusiness

OVERVIEW

We are a global company, and sell our broad range of communications products intoin more than seventy70 countries through a worldwide network of distributors, original equipment manufacturers (OEMs)(“OEMs”), retailers and telephony service providers. We have well-developed distribution channels in North America and Europe, whereEurope. Such factors as the growth of phone-based customer support, telemarketing activitiesemerging technologies such as VoIP and deregulation of the telephone companiesBluetooth, and impending or already existing legislation requiring mandatory hands-free devices for cell phone communications in cars have all led to more widespreadan increased use of telephone headsets. Our headsets continue

Headsets for office use continues to be widely usedan area of major focus for Plantronics and also represents our largest revenue market. We also sell headsets for use in call centers in the Middle East, Africa, Australia, Asiahome office and Latin America, with particular year over year growth in India, as many European companies are setting up call centers in that region.

Plantronics also sells headsets to business, home and office users.residential applications. These end user groups have been identified as having long-term growth potential. Users in these marketsthe office market consist primarily of business executives, mobile professionals, agents, brokers, lawyers, accountants, and others whose occupations and/or lifestyle may require extensive use of a telephoneincreased mobility or a high degree of multi-taskingthe ability to multi-task while on the telephone.

The use

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Plantronics sells more headsets to cell phone users than to any other market. Using one of our headsets for mobile and cordless applications has proved to be a growth area for Plantronics during this past fiscal year. These hands-free solutions enableenables our customers including mobile professionals in particular, to stay "connected," providing clear calls and lightweight convenience while on the road or in the office. When using our headsets, our customers can experience increased mobility, to have both hands freehands-free to drive, and when used with voice recognition equipment,dialing features, our headsets offer freedom from dial pads and keyboards.pads.

Our headsets are purchased by aA broad and diverse group of worldwide business customers worldwide, includingpurchase our headsets. These include OEM’s, telephone-operating companies operators of private telephone networks, and governmental agencies. We distribute our products through specialized distributors, large electronics wholesalers, original equipment manufacturers,OEMs and retail channels, such as wireless carriers, office supply stores, consumer electronics stores, mail order catalogs, warehouse clubs and office supplies distributors. We sell certainCertain products are sold directly to governmental agencies and also distributeagencies. Other products are distributed to the government market through OEMs, distributors OEMs and other sales channels. PlantronicsOur products may also be purchased from our website, www.plantronics.com.Web site,www.plantronics.com.

We provide access free of charge through a link on our Web site to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as amendments to those reports, as soon as reasonably practicable after the reports are electronically filed with, or furnished, to the Securities and Exchange Commission.

INDUSTRY BACKGROUND

GENERAL BACKGROUND

Over the past few years, we broadenedGeneral Background

Headsets enhance the communications experience through:

MARKETS

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	PROVIDING GREATER PRIVACY than speakerphones, and with wireless products, the ability to move from public to private space when required.

MARKETS

Office and Contact Center

Call center agents comprise the largest group of headset users. The call center market represents our most mature market in which we have achieved significant penetration. While the market declined in fiscal 2002, we believe this was a cyclical downturn related to the U.S. recession and the global economic slowdown. Thus, we believe that the long-term secular outlook for modest growth of call center agents expected by most industry analysts remains intact.* The number of call center agents are expected to gradually increase as companies endeavor to compete in the marketplace by (i) focusing on customer service to provide a competitive advantage, (ii) reducing costs through the use of real-time centralized information exchange and customer interaction, and (iii) making greater use of cost-effective direct distribution models. As the benefits of call centers have become more widely recognized and the system cost per agent has declined, the establishment of call centers has spread and continues to spread to smaller organizations and international firms.*

Although our revenues declined in the last twelve months, we believe that the decline is a result of the U.S. recession and global economic slowdown. Nevertheless, the office market, both corporate and small office/home office ("SOHO"(“SOHO”), has become increasingly important,comprises the largest overall revenue market for Plantronics products today, and the simultaneous useis one of our current and future strategic focuses. The merging of telephones and computers by office workers and a growing awareness of the benefits of headsets are factors we believe bode well forwill contribute to the developmentcontinued growth of this market. Professionalsmarket, which currently has low penetration and we believe presents an opportunity for significant expansion.*

According to a recent independent survey of the U.S. population over the age of 18, there are approximately 95 million U.S. workers outside of contact centers who spend significant time on theuse telephones for work. Of this 95 million, we believe that about 10%, or approximately 9.5 million of these workers, currently use a telephone have been early adopters of headset products. These professionals include securities brokers, insurance agents, sales executives, credit controllers and purchasing agents.for work. We believe that the level of headset use in the office is low, and that the number of office professionals worldwide who are on the phone two hours or more per day is approximately 200 million, providingthis presents a long-term opportunity to increase headset sales to office workers.* Plantronics' cordless headset solutions, when used in an office environment, allow users to enjoy excellent sound quality, comfort, hands-free convenience, and freedom to move around the work place.

Our latest offeringofferings for boththe office include the CS50 (North America) and CS60 (international) wireless office headset systems that let office professionals stay in touch as they move around their workplace. The CS50/60 has a range of up to 300 feet, a stylish design, and with the optional HL10 lifter, lets users answer and end calls when they are away from their desks. This not only provides extended mobility for office professionals, but also lets them answer a call before it goes into voice mail, which enhances productivity.

Additional new products for the office and SOHO markets include the CT12 Cordless Headset Telephone, which began shipping in early fiscal 2004 and includes our unique Firefly™ headset with a boom-mounted in-use indicator so others will know when users are talking on the phone. We also recently began shipping the new S12 telephone headset system that provides small-to-medium size office users with the convenience of the Firefly headset in a stylish desktop design.

The contact center, in which we have achieved significant market penetration, represents our second largest and most mature market. We believe that the long-term outlook for modest growth of contact center agents expected by most industry analysts remains intact. We expect contact centers will be increasingly adopting VoIP technology to help improve productivity and reduce costs. We develop headsets specifically tailored to VoIP applications, and as VoIP adoption increases, we believe that we will be able to leverage this increased opportunity.*

New products for contact centers include the DA60 digital USB-to-headset adapter, which we began shipping in fiscal 2004. The DA60 is designed specifically for contact centers using VoIP softphones. As PBX systems switch over to VoIP, we believe we are well positioned to sell headsets compatible with these new systems.* In late fiscal 2004 we announced the SupraPlus™ headset. The SupraPlus telephone headset family continues the tradition of durable, lightweight headsets for telephone professionals. Building on the strength of the original Supra, the design and improved sound quality of SupraPlus enhances headset style and performance for the contact center and office applications includes the DuoPro^TM headset family featuring leading edge microphone and speaker quality, and the new DA50 USB-to-headset adapter, which brings Plantronics quality to Voice-over Internet Protocol (VoIP) solutions.professional.

MOBILE AND COMPUTER

Mobile

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mobility of hands-free communications with the superior sound quality, stability and comfort that set Plantronics' headsets apart. Along with the convenience and ease of phone operation, using a hands-free device while in a motor vehicle is thought to be safer than holding a mobile telephone handset. In fiscal 2002, hands-free legislation was passed in the state of New York and other jurisdictions, requiring drivers to use hands- free devices when they are talking on a mobile phone while operating a motor vehicle. While some municipalities have passed similar laws, no other state in the U.S. has done so. Internationally, a number of countries prohibit using a mobile phone while driving without a headset or hands-free solution; laws similar to those passed in New York. Plantronics'comfort. Plantronics mobile, or M-series,M-Series headsets, come in a variety of styles, colors and types.models. Our headsets are designed to strict quality standards, including features that provide the very bestsuperior user experience. These headsets have a variety of features includedepending on the model, including noise-canceling microphones that effectively reduce background noise flexible earloopsand facilitate voice dialing, Plantronics’ unique Flex Grip™ design for customizablea stable, comfortable fit and advanced materialsinline call answer/end buttons. Our sleek designs incorporate discreet size and excellent sound quality, allowing the user to both hear and transmit his or her voice more clearly.

In fiscal 2004 we began shipping our second generation Bluetooth™ headset, the M3000. The M3000 was an all-new design, and the first Bluetooth headset on the market to offer eight hours of talk time, a key requirement for lightweight comfort. Some of our newest products includemobile professionals. At the M1000 wireless headset that deliversConsumer Electronics Show in late fiscal 2004 we announced the M3500 Bluetooth headset. The M3500 is built on the M3000 platform, and integrates a built-in digital signal processor (“DSP”) with Plantronics’ proprietary Audio IQ™ technology. This provides superior intelligibility on the receiving side, so conversations can be more easily understood, particularly in noisy environments. The M3500 is scheduled for delivery in fiscal 2005. We plan to develop additional Bluetooth-based headsets, providing wireless, hands-free communications with other Bluetooth™Bluetooth products such as mobilecell phones and PDAs. This product delivers

In late fiscal 2004, we announced the superior sound quality thatM2500 Bluetooth headset, which is the entry level model in our customersBluetooth line, targeting the broad-based mobile consumer market. The M2500 focuses on features such as style, comfort and stability at an attractive price point, which we believe will be key differentiators for the market have come to expect from Plantronics.broad-based mobile consumer market.

ManyFollowing the success of our models have inline call answer/end buttons sothe MX100 mobile headset, which we launched in fiscal 2003, we announced and began shipping the MX150 in fiscal 2004, which is based on the MX100 design. The MX150 headset uses the same award-winning proprietary Flex Grip™ design as the MX100, and adds a noise-canceling boom for clearer conversations in noisier environments.

In late fiscal 2004 we also launched and began shipping the M220 headset for both mobile and cordless phone users do not have to handle or look at their phone, and our noise canceling models facilitate voice enabled features.with a boom-style, noise-canceling microphone for clearer calls.

Computer

Clarity (formerly Walker/ Ameriphone)

With a growing number of people worldwide suffering from various degrees of hearing loss, the need for simple and accessible solutions is expected to contributecontinue to growth of this market include new digital media, (CD, MP3,grow, and DVD), broadband growth, speech recognition, new advanced games, and the addition of speech and voice capabilities to both Windows and Office XP. We believe these factors are important over the longer term, but may not contribute to market growth in fiscal 2003. However, in fiscal 2002, we substantially broadened our product line and thus believe we are well positioned to grow in fiscal 2003.*serve these needs. Clarity delivers a comprehensive range of special needs communications products from

WALKER AND OTHER SPECIALTY PRODUCTS

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a single manufacturer, and they serve the recent acquisition of Ameriphone in January 2002, we have expanded our product line for our hearing-impaired customers with mild, tomoderate and severe hearing loss markets as well as the deaf community. Product distribution also includes audiologists and other special communications needs. Many states are supplying these products to their residents, either free of charge or for a nominal fee. As the mean age of the population increases, demand for these types of products is expected to grow. Our premier product, the Clarity® telephone, features volume control circuitry, oversized buttons, a ringer volume controlhealth care professionals, government programs, specialized distributors and a light that flashes when the telephone rings. Our specialty products operation provides headsets and other equipment for special applications that are not served by our standard headset product lines.retail.

INDUSTRY SEGMENTS AND FOREIGN OPERATIONS

In fiscal 20002002 and 2001,2003, approximately 34.0%31.3% and 31.9%32.2% of our net sales were derived from sales to foreignnon-U.S. customers, respectively. In fiscal 2002,2004, non-U.S. sales accounted for approximately 31.3%33.5% of our total net sales. Sales to foreign customers are generally subject to such additional risks as fluctuations in exchange rates, increased tariffs and the imposition of other trade barriers. In fiscal 2002,2004, we engagedcontinued to engage in hedging activities to protect our transaction exposure and economic exposures and to mitigate our exchange rate risks. We hedged a portion of our positions in both the Euro and the Great British Pound, Sterling, which constitute the majority of our currency exposure. To the extent that we increase sales to foreignnon-U.S. customers, or increase our transactions in foreign currencies, or that we are unsuccessful in our hedging strategies, our results of operations could be materially adversely affected by exchange rate fluctuations.

PRODUCTS

PRODUCTS

SUMMARY

Summary

SOUND QUALITY. In designing our products, we have conducted headset sound quality (e.g. preference and intelligibility) research on substantially all telephone systems in both listening and speaking modes. We believe we have achieved the industry's best signal-to-noise ratios, the most powerful noise-canceling performance (to block out background sounds in unusually loud environments), and a voice tube design that does not require the microphone boom to be positioned precisely for proper functioning. The voice tube is ideal for most office and call center environments, with the additional benefits of an attractive appearance, easy hygienic replacement, and lighter weight. The clear color and gently curved shape of the Plantronics' voice tube are registered trademarks of Plantronics.

	SOUND QUALITY. In designing our products, we conduct headset sound quality (e.g. preference and intelligibility) research on many telephone systems in both listening (receiving) and speaking (transmission) modes. We believe we have achieved one of the industry’s best signal-to-noise ratios, creating powerful noise-canceling designs to substantially reduce background sounds in unusually loud environments. Our latest product offerings are taking audio quality to the next level, using our proprietary Audio IQ technology, enhancing intelligibility by allowing users to understand conversations even in noisy locations.
	COMFORT. We believe our focus on ergonomics is critical to our success. We maintain what we believe is the industry’s most extensive database for the design of comfortable headsets. Our database includes measurements from over 1,000 physical molds taken of different ear types. The measurements are digitized and stored in a CAD/ CAM database along with critical head contour measurements. In addition, we have researched optimal weight distribution on the ear.
	RELIABILITY. We have over forty years of experience understanding headset reliability and durability and have successfully incorporated this knowledge into our product designs that we believe enable our products to generally last longer than the best comparable competitive products.
	STYLE. Style and design are becoming increasingly important in our markets as headset adoption goes mainstream.* Our headsets come in a wide variety of wearing styles and designs. We also believe that Plantronics has a richer mix of selections and variety of headsets than any other vendor to meet the unique requirements and preferences of our customer base.*

DURABILITY. We have forty years of experience understanding headset durability and have successfully incorporated this knowledge into our product designs that we believe generally last longer than the best comparable competitive products.

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COMPATIBILITY. Our broad line of headsets is compatible with telephony systems throughout the world. Historically, telephony systems have been developed on a proprietary basis and thus can differ substantially from one another. We have developed compatibility over our four plus decades and design and test new products to achieve broad compatibility with the vast array of telephony systems in use today. In newer product areas, such as Bluetooth™-based headsets for use with cellular phones, we offer optimized compatibility. Overall, we believe our Bluetooth headsets provide better ease of pairing with other Bluetooth enabled devices, a highly reliable wireless link, more efficient power consumption and overall better telephony compatibility.

In addition to a complete line of industry-leading headsets, headset systems, headset telephones and amplifiers, we also provide headset accessories, which include Plantronics’ replacement Plantronics' voice tubes, ear cushions, eartipsear tips and wind noise suppressors. These replacement parts allow end users to revitalize their headset to maintain maximum performance and comfort. We also sell a full line of accessory products, including handset lifters and in-use indicators, which allow our customers increased mobility and ease of use. In addition, we provide ongoing customer service and support to our customer base.

We believe our customer support and service programs offer competitive advantages because our end users and customers have easy access to Plantronics' superior products and services. We consistently receive high customer satisfaction ratings for our products and services.

HEADSETS

Headsets

MOBILE APPLICATIONS: Many mobile telephones (both cellular and portable units)Most cell phones come with a dedicated standard 2.5mm headset port, permitting the headset to be plugged directly into the telephone handset.cell phone. On those cellularmobile devices that do not have a standard headset port, we generally have special versions that fit directly into a non-standard headset port. We also sell adapters that plug into non-standard headset ports to allow standard headsets to work with a phone. As the adoption of headsets increases, we expect that more cordless telephones, cellular telephones and other devices will be equipped with headset interfaces.*

COMPUTER, GAMING AND VoIP APPLICATIONS: ComputersHeadsets for computers and other electronic equipmentgaming generally do not require a separate adapter and our headsets are designed to plug directly tointo either the equipment (either to the computer'scomputer’s analog sound card or in the caseUSB port of our digital signal processing (DSP) line,the computer. For VoIP applications, we have developed a range of products from basic headsets that plug directly into the USB port of the computer).computer to higher end headsets, which include additional software productivity tools.

HEADSET TOP STYLES: There are four basic headset "top" styles:

As set forth above, we offer a broad line of headset styles that can be worn over the head, in the ear or over either ear. Many of our headsets offer either the proprietary Plantronics voice tube (our most popular solution, suitable for the majority of environments) or a noise-canceling microphone (appropriate for users in loud environments). All telephone-based headsets, in conjunction with their associated amplifiers, are designed for use with substantially all of the different telephone systems currently available.

Basic models include features such as user volume control, a mute switch and the Quick Disconnect™ connector, which allows users to leave the phone without removing their headsets or disconnecting their call. We sell a full range of amplifiers designed to work with substantially all telephone systems. We also sell telephone headset systems that plug directly to the phone line and adapters to allow headsets to connect to mobile telephones.

PLANTRONICS SERVICES AND REPAIR

Repair

We provide our customers a variety of ways that they can contact us for their support needs, including:

• 	•	Toll-free 800 support with multiple-language capabilities Web-based FAQ database Web-based question submission Live online chat Instant call-back support with multiple-language capabilities;
  	•	Web-based FAQ database;
  	•	Web-based question submission;
  	•	Live online chat; and
  	•	Instant call-back support.

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In addition, we offer online user'suser’s manuals, installation guides, software updates, warranty information and our Quick Web and Quick Fax services.

OTHER SPECIALTY PRODUCTS

Walker Equipment, one of our business groups, sells specialty telephonesOther Specialty Products

Plantronics'Plantronics’ Special Products group manufactures custom headsets and other equipment for special applications that are not served by our standard headset product lines. From its first products used forin the early days of the space efforts,program, Plantronics Special Products offering has grown to include over 800 different headset models. Customers such as NASA, commercial and private aviators, the Federal Government, and 911 Dispatch Centersdispatch centers rely on Plantronics quality headsets for their most unique communications needs, which may include custom headset configurations for specific applications.

PRODUCT DEVELOPMENT

In the past fiscal year, we have developeddelivered new technologies and launchedproducts to address market trends that include Bluetooth-enabled wireless headsets with the launch and shipment of the M3000 with up to eight hours of talk time. Plantronics recently announced its newest Bluetooth headset, the M3500. The M3500 addresses one of the most common issues experienced by mobile professionals — noisy environments that can compromise the ability to clearly communicate on a large numbercall. The new headset features Plantronics’ proprietary Audio IQ technology with digital signal processing that provides breakthrough sound quality. Audio IQ utilizes multi-band compression on the receiving side of products serving the callconversation to increase intelligibility for better comprehension and understanding, particularly in noisy environments.

In fiscal 2004, we announced the SupraPlus telephone headset, which began shipping in the first quarter of fiscal 2005. The SupraPlus telephone headset family continues the tradition of durable, lightweight headsets for telephone professionals. Building on the strength of the original Supra, the design and improved sound quality of SupraPlus sets new standards in headset style and performance for the contact center and office as wellprofessional.

We also announced and began shipping the CS50 and CS60 products for North America and International markets. The CS50 and CS60 are wireless office headset systems with a totally wireless headset that enhances productivity for office professionals by enabling them to communicate up to 300 feet way from their desk phone, for up to eight hours. These headset systems give users the mobility and comfort needed to multitask much more effectively and reduces the chance of missing a phone call. For wireless convenience in the small office or home office, we announced and shipped the CT12 Cordless Headset Telephone with our FireFly headset, which includes a U.S. patent protected boom-mounted in-use indicator so that others can see when users are talking on the phone.

We also recently began shipping the new S12 telephone headset system that provides small-to-medium size office users, additional features such as the mobile and computer markets. Such products include the DuoPro convertibleFirefly headset and the DECT-based CA-40 cordless headset system, for the call center and office; the M205 earbud style headset for the mobile market; and the .Audio (pronounced dot audio) comprehensive line of eight new analog PC headsets, andin a new analog PC microphone offering high performance at a low price point for the computer market. stylish desktop design.

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We have also invested substantial time and resources inextended our corded mobile headset line with the developmentshipment of Bluetooth headsets and systems. For example, we recently announced the M1000 wirelessour MX150 mobile headset, which delivers wireless, hands-free communications with other Bluetooth products, such ashas quickly become our best-selling mobile phones and PDA's.product. The recently announced M1500 Bluetooth headset system is designed to allowMX150 has the same patented Flex Grip design found in our MX100, for a stable, comfortable fit. The MX150 adds a noise-canceling boom microphone for those users to enjoy the benefits of a cordless Bluetooth headset with their existing mobile phone. The M1500 Bluetooth headset is expected to be commercially availablewho need clearer conversations in 2002.*noisier environments.

We believe that new technologies such as VoIP will be deployed at an ever-increasing rate.* To that end, in the fiscal year, we launched the DA-50 USB-to-headset adapter which allows users to connect Plantronics' professional H-top headsets to their computerscontinue development activities with OEM partners for VoIP soft phone applications.solutions, which include software development kits enabling faster time to market for our OEM partners. Plantronics has long provided leading-edge products for contact centers, and in mid-fiscal 2004 introduced the DA60 digital USB headset adapter, a powerful digital voice platform designed specifically for VoIP softphones. The product employs innovative DSP and Call Clarity™ technology to enhance audio quality and suppress echo. We will also continue to invest in product development for this and other emerging technologies as appropriate to our business.

We have a number of new product and core technology development programs currently underway as we plan to further broaden our product line with the goal of creating products that truly enhance personal communications.* We expect this trend to continue in our next fiscal year.*line. One benefit of thisour focus on technology has been the creationa number of a record number ofkey patent disclosures and filings by us over the past year. In addition, we have accelerated our time to market on a number of products through faster and more flexible product development processes that incorporate intelligent reuse of platform and product architecture hardware as well as software. These process improvements take advantage of economies of scale resulting from platform reuse.

Most of our research and development is carried out by our in-house engineering staff in the United States and England.the United Kingdom. We have implemented a distributed product development model with design centers in Mexico and Asia to supplement our in-house engineering capabilities through selected outside contracting arrangements.capabilities. Research, development and engineering expenditures were $21.9$30.3 million, $27.0$33.9 million and $30.3$35.5 million for fiscal years 2000, 2001,2002, 2003, and 2002,2004, respectively. WeWhile we believe that substantial investment in research and development is imperativenecessary to maintain and grow our position in the industry, due to our heavy investment in 2004 and therefore, intend to increasethe related pipeline of new products, as well as improvements in our development process, we expect our spending for research, development and engineering in fiscal 20032005 to increase compared to fiscal 2004. However, we believe that our research and subsequent fiscal years.development spending as a percentage of revenues will remain relatively flat.*

Our product development efforts are directed toward both enhancing our existing products and developing new products that capitalize on our core technology and expand our product offerings to new user markets. The success of new product introductions is dependent on a number of factors, including appropriate new product selection, timely completion and introduction of new product designs, cost-effective manufacturing of such products, quality of new products, the acceptance of new technologies such as Bluetooth, and general market acceptance of all new products. To beremain successful in the future, we must be able to develop new products, qualify these products with our customers, successfully introduce these products to the market on a timely basis, and commence and sustain volume production to meet customer demands. Although we have attempted to determine the specific needs of the telephony, mobile, computer, residential and home officehome-office user markets, there can be no assurance that the market niches that we have identified will, in fact, materialize or that our existing and future products designed for these markets will gain substantial market acceptance. Further, assuming the markets develop and our products meet customer needs, there is no assurance that such new products can be manufactured cost effectively and in sufficient volumes to meet the potential demand.

The technology of telephone headsets has traditionally evolved slowly. Historically, our product life cycles are three to five years prior to the introduction of the next generation of products, whichproducts. The next generation usually includeincludes stylistic changes and quality improvements, but such trends are based on similar technology. Our newer emerging technology products, particularly in the mobile and computer markets, are exhibiting shorter life cycles more in line with the consumer electronics market, and are

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consequently more sensitive to market trends and fashion. We believe that future changes in technology will come at a faster pace. Our future success will be dependent, in part, on our ability to develop products that utilize new technologies, and to adapt to changing market trends quickly. In addition, to successfully avoid product obsolescence, we will have to monitor technological changes in telephony, as well as users'users’ demands for new technologies. Failure to keep pace with future technological changes could materially adversely affect our revenues and operating results.

SALES AND DISTRIBUTION

Specialized headsetCommercial distributors represent our largest distributionsales channel. These distributors generally sell on aThis channel is comprised of headset specialists, national basis. Electronics wholesalers, represent our second largest channel. Theyand regional wholesalers. The wholesalers typically offer a wide variety of products from multiple vendors to both resellers and end users. TheseThis distribution channelschannel generally maintainmaintains inventory of our products, and our revenues may be affected by our distributors'distributors’ fluctuating inventory levels even when market demand is stable. In fiscal 2002, we continued to successfully reduce our order lead times as well as our inventory levels in the channel.

The retail channel is our second largest channel and consists of office supply and consumer electronics retailers, consumer products and office supply distributors, and catalog and mail order companies.companies, mass merchants and wireless carrier stores. Retailers primarily sell headsets to corporate customers, small businesses, small offices and home offices.to individuals who use them for a variety of purposes both personal and professional. The retail channel also maintains substantial inventory of Plantronics’ products.

CallContact center OEMs and manufacturers of automatic call distributor systems (ACDs)(“ACDs”) and other telecommunications and computer equipment also utilize Plantronics headsets. CallContact center equipment OEMs do not typically manufacture their own peripheral products, and therefore distribute our headsets under their own private label, or as a Plantronics branded product.

Mobile telephoneCell phone OEMs include both manufacturers of mobile telephone handsetscell phones and wireless carriers. Wireless carriers operating cellular, PCS, GSM and other mobile telephone networks. They do not manufacture headsets, but increasingly will distribute our headsets on a co-branded basis, as a Plantronics branded product or under their own private labels.label. Cell phone OEMs, on the other hand, generally require their own design and will sell products under their private label.

Computer OEMsOEM’s include both manufacturers of computer hardware (including personal computers and specialized components and accessories for personal computers) and software suppliers (such as suppliers of voice recognition systems for use with personal computers).software. Many companies do not typically manufacture headsets but look to us for bundling our headsets with their products. Currently most ofBundling configurations include product bundled with Plantronics-labeled headsets, product bundled with headsets privately labeled by the OEM, bundling is done on a Plantronics-labeled basis,or product co-branded with some ofPlantronics and the OEMs doing so on a privately labeled or co-branded basis.OEM.

The telephony service provider channel is comprised of former Regional Bell Operating Companies and other telephone service providers that purchase headsets from us for use by their own agents. Certain of these service providers also resell headsets to their customers.

We also make direct sales to certain government agencies, including NASA and the FAA. In addition, certain of our distributors are authorized resellers under a GSA schedule price list and sell our products to government customers pursuant to that agreement.

We maintain a direct sales force worldwide to provide ongoing customer support and service globally. We also retain commissioned manufacturers'manufacturers’ representatives to assist in selling through the retail channel.

BACKLOG

BACKLOG

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customers’ requested shipment dates. TheWe have a “book and ship” business model whereby we fulfill the majority of our orders are fulfilled within two to five business days.48 hours of our receipt. Our backlog is occasionally subject to cancellation or rescheduling by the customer on short notice with little or no penalty. WeBecause of our “book and ship” model, as well as the uncertainty of order cancellations or rescheduling, we do not believe our backlog as of any particular date is indicative of actual sales for any future period and therefore should not be used as a measure of future revenue.

COMPETITION

COMPETITION

The office market, including both traditional and extensive numberSOHO, and residential markets, involves the sale of product variations, together with our comprehensive experienceheadsets for connection to single-line or office telephone systems, wireless and cordless telephones and computers. There is indirect competition from speakerphones. Competitors in designing safe, comfortable and reliable products, and dealing with regulatory agencies, are key factors necessary in maintaining our position as a leading supplier of lightweight communications headsets.

In the callcontact center user market wealso sell headsets for use in the office market.

Internationally, Sennheiser Communications is also a significant competitor both in the computer, office and contact center markets. We face different competitors depending on the channel of distribution and the geographic location. We anticipate that we may face additional indirect competition in this market from technological advances such as wireless and Bluetooth systems.wireless.* Although we have historically competed very successfully in the callcontact center market, there can be no assurance that we will be able to continue our leadership position in that market.

The office market, including both traditional and small or home office, and residential markets, involves the sale of headsets for connection to single-line or office telephone systems, cellular and cordless telephones and computers. There is indirect competition from speakerphones. Certain competitors in the call center user market also sell headsets for use in the office market.

Competitors in the mobile market generally come from outside the callcontact center market. They include the mobilecell phone manufacturers who typically outsource phone accessories like headsets, and companies that focus primarily on the mobile and/or cordless phone accessories markets. There is indirect competition from hands-free car kits that also allow users to drive with both hands on the wheel. Important competitive factors on which we compete in the mobile market include product styling, product reliability, product features, competitive pricing, sound quality, comfort and fit, ability to meet delivery schedules, customer service and support, reputation, distribution, warranty terms, and product life.

In the computer market, we compete for business in both the retail channel and through OEMs. We face competition principally from established computer peripheral vendors. These vendors have established relationships with their distribution channels, enabling them to gain broad and deep global distribution. There is indirect competition from stand-alone microphones and loudspeakers for use with computers. Competition through the retail channel is based upon differentiated retail packaging, superior microphone and speaker performance, price and headset style and color. Competition for OEM business is based upon offering highly accurate microphones optimized to the OEM's software or system,meeting their unique requirements in their timeframes, unique styling, competitive pricing, and consistent quality with low defect rates.

The residential market involves the sale of headsets, telephones and other specialty products for use by the hearing impaired and other customers with special communications needs, and single and multi-line corded and cordless headset telephone solutions. This market is principally served by the retail channel and through certain OEMs. Our competition in the residential market comes principally from

11

competitors in the mobile and computer markets and, in the case of our Walker Clarity amplified telephones for the hearing impaired, from certain niche market manufacturers of similar products.

As we develop new generations of products and enter new markets, including the developing business and home officehome-office user markets, we anticipate facing additional competition from companies that currently do not offer communications headsets.* Such companies may be larger, offer broader product lines and have substantially greater financial resources. Such competition could negatively affect our pricing and gross margins. We believe that our experience in design and manufacture of comfortable and well-fitting headsets, and the excellent acoustics of our products, will assist us in our efforts to sell headset products in the face of this new competition.* However, there is no assurance that we will be able to compete successfully.

We believe that the following key factors better enable us to maintain our position as a leading supplier of lightweight communications headsets:

• brand name recognition;
• high quality reputation;
• large, diverse distribution networks;
• strong customer service;
• diverse product offerings;
• ability to design safe and reliable products; and
• an understanding of regulations.

	•	brand name recognition;
	•	high quality reputation;
	•	large, diverse distribution networks;
	•	strong customer service;
	•	diverse product offerings;
	•	ability to design safe and reliable products; and
	•	an understanding of regulations.

Although we believe we compete successfully with respect to these factors, if we do not compete successfully, it could materially adversely affect our business, financial condition and results of operations.

MANUFACTURING AND SOURCES OF MATERIALS

We purchase the components for our headset products, including proprietary semi-custom integrated circuits, amplifier boards and other electrical components, from suppliers in Asia, Mexico, the United States, Mexico, and Europe. Raw materials are procured to forecast. The majority of our components and subassemblies used in our manufacturing operations are obtained, or are reasonably available, from dual-source suppliers, although we do have a certain number of sole-source suppliers. Due to our dependence on single suppliers for certain chip sets, we could experience delays in development and/or the ability to meet our customer demand for new products.

We procure materials to meet forecasted customer requirements. Special products and large orders are quoted for delivery after receipt of orders at specific lead times. Since most manufacturing occurs prior to the receipt of purchase orders, weWe maintain minimum levels of finished goods based on market demand in addition to inventories of raw materials, work in process and subassemblies and components.

ENVIRONMENTAL MATTERS

12

respects with applicable environmental laws and regulations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation related to one of our discontinued businesses. While no claims have been asserted against us in connection with this matter, there can be no assurance that such claims will not be asserted in the future or that any resulting liability will not exceed the amount of the reserve. It is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create environmental liability with respect to our facilities or operations.

INTELLECTUAL PROPERTY

Our success will depend in part on our ability to obtain patents and preserve other intellectual property rights covering the design and operation of our products. We intend to continue to seek patents on our inventions when appropriate. The process of seeking patent protection can be lengthy and expensive, and there can be no assurance that patents will be issued for currently pending or future applications or that our existing patents or any new patents issued will be of sufficient scope or strength or provide meaningful protection or any commercial advantage to us. We may be subjected to, or may initiate, litigation or patent office interference proceedings, which may require significant financial and management resources. The failure to obtain necessary licenses or other rights or the advent of litigation arising out of any such intellectual property claims could have a material adverse effect on our operations.

We own registered trademarks with respect to the Plantronics and Ameriphone names the Plantronics logo design andas well as the names of many of our products and product features, including, but not limited to, our Alertmaster™ , Encore, FreeHand, JV-35, Mirage, Practica®, O90, SoundGuard®, StarSet®, Supra, and TriStar products and features. We currently have United States and foreign trademark applications pending in connection with certain new products and product features. We have such trademark registrations in place on some or all of those marks in the United States and a number of countries throughout the world. We claim common law trademark rights in many of our products and/or product features. We also attempt to protect our trade secrets and other proprietary information through comprehensive security measures, including agreements with customers and suppliers, and proprietary information agreements with employees and consultants. We also intend tomay seek copyright registrations in the future.protection where we believe it is applicable. We own a number of domain name registrations and intend to seek more. There can be no assurance that our existing or future copyright registrations, trademarks, trade secrets or domain names will be of sufficient scope or strength or provide meaningful protection or any commercial advantage to us.

EMPLOYEES

EMPLOYEES

13

MR. BROWN was appointedMr. Kannappan joined Plantronics in February 1995 as Vice President - Development— Sales, responsible for OEM Sales and the Asia Pacific/ Latin America markets for Plantronics, Inc. He was promoted to Vice President — Sales, responsible for the United States, Asian and Latin American markets in September 1995. He was promoted to Managing Director of our Plantronics Limited subsidiary in the United Kingdom in March 1996. In March 1997, Mr. Kannappan returned from the United Kingdom and was promoted to Senior Vice President responsible for Plantronics’ Worldwide Operations, our Mobile and Walker Equipment businesses and Plantronics Limited. In March 1998, Mr. Kannappan was promoted to President and Chief TechnologyOperating Officer. In January 1999, he was promoted to Chief Executive Officer in July 1999.and appointed to the Board of Directors. Prior to joining Plantronics, Mr. Brown worked for Omnipoint Technologies, Inc., as the Product Development Director from 1996 to 1998 and asKannappan was Senior Vice President Products and Technology at JRC International, Inc.,of Investment Banking for Kidder, Peabody & Co. Incorporated, where he was employed from 1994 to 1996. He received his Bachelor's degree in Engineering Physics at McMaster University of Canada and went on to receive his Masters degree in Electrical Engineering from the same institution.

MR. BRUSSELL joined Plantronics in March 1998 as Vice President - - Corporate Development and reports directly to the President and Chief Executive Officer. Prior to joining Plantronics,August 1985 through January 1995. Mr. Brussell was Vice President, Corporate Development at Storage Technology Corporation, a leading provider of enterprise and network information storage systems, from March 1992 to March 1998. From June 1990 until March 1992, Mr. Brussell acted as a consultant to Storage Technology Corporation and other technology and health care industry companies. From January 1985 to June 1990, Mr. Brussell held various positions with Solomon Brothers, the last of which was Vice President, Corporate Finance, Technology Group. Mr. BrussellKannappan has a Bachelor of Arts degree in Math/Economics from WesleyanYale University and a Masters degree in ManagementMBA from M.I.T. Sloan SchoolStanford University. Mr. Kannappan is also a Director of Management. Mr. Brussell isMattson Technology, Inc., a directorsupplier of Dot Hill Systems Corporation,advanced process equipment for the semiconductor industry, and Integrated Device Technology, Inc., a manufacturer of high performance data storage systems.communications integrated circuits.

MS. FRY joined Plantronics in August of 1998 and is the Vice President of Quality. Prior to joining Plantronics, Ms. Fry was with Siemens A.G. for fourteen years, most recently as the Head of Quality Assurance with the Siemens Wireless Terminals Division in Austin, Texas, from 1993 to 1998. Ms. Fry has over fifteen years of manufacturing, materials and quality experience. Ms. Fry received a Bachelor of Arts from the University of California, Irvine and an M.B.A. in International Business from the College of Notre Dame.

MR. GUENTHER joined Plantronics in May 1993 as Director of Finance. Mr. Guenther was promoted to Corporate Controller in March 1998 and then to Vice President of Finance, Corporate Controller in July 1999. Prior to joining Plantronics, Mr. Guenther spent eleven years with Hewlett Packard Corporation in various financial positions and two years with Chevron in their accounting/management training program and in internal audit. Mr. Guenther received a Bachelor of Science degree in Accounting from Santa Clara University and a Masters of Business Administration from the University of Arizona.

MR. HOUSTONHouston joined Plantronics in November 1996 as Vice President of Sales and was promoted to Senior Vice President -— Sales in March 1998. From February 1995 through November 1996, Mr. Houston served as Vice President -— Worldwide Sales for Proxima Corporation, a designer, developer, manufacturer and marketer of multimedia projection products. From 1985 until January of 1995, Mr. Houston held a number of positions at Calcomp, Inc., which is engaged in the business of manufacturing computer peripherals for the CAD and graphic market, including Regional Sales Manager and Vice President of Sales, Service and Marketing. Prior to 1985, Mr. Houston held various sales and marketing management positions with IBM Corporation. Mr. Houston is a graduate of the University of Arizona with a Bachelor of Science degree in Business/Marketing.

MR. KANNAPPAN joined Plantronics in February 1995 as Vice President - Sales, responsible for OEM Sales and the Asia Pacific/Latin America markets for Plantronics, Inc. He was promoted to Vice President - Sales, responsible for the United States, Asian and Latin American markets in September 1995. He was promoted to Managing Director of our Plantronics Limited subsidiary in England in March 1996. In March 1997, Mr. Kannappan returned from England and was promoted to Senior Vice President responsible for Plantronics' Worldwide Operations, our Mobile and Walker Equipment businesses and Plantronics Limited. In March 1998, Mr. Kannappan was promoted to President and Chief Operating Officer. In January 1999, he was promoted to Chief Executive Officer and appointed to the Board of Directors. Prior to joining Plantronics, Mr. Kannappan was Senior Vice President of Investment Banking for Kidder, Peabody & Co. Incorporated, where he was employed from August 1985 through January 1995. Mr. Kannappan has a Bachelor of Arts degree in Economics from Yale University and a Masters of Business Administration from Stanford University. Mr. Kannappan is also a Director of Mattson Technology, Inc., a supplier of advanced process equipment for the semiconductor industry, and Integrated Device Technology, Inc., a manufacturer of communications integrated circuits.

MR. KRUG joined Plantronics in December 1996 as President, Walker Equipment Corporation, then a wholly owned subsidiary of Plantronics. Walker Equipment Corporation was merged into, and became a division of Plantronics in 1997. Mr. Krug is responsible for all activities of this handset and specialty phone products division. Prior to joining Plantronics, Mr. Krug was Executive Vice President and General Manager of BEL-Tronics, Ltd., a consumer electronics firm, from 1994 to 1996. Mr. Krug also served as Chief Executive Officer and Director of Almor Corporation from 1993 to 1994. Prior to that, he held progressively responsible positions in general management and strategic marketing and technology with FLIR Systems, Inc. (an affiliate company of Hughes Aircraft Company - 1990 to 1993) and Hughes Aircraft Company (1978 to 1990). Mr. Krug received his Bachelor degrees in Management Science and Applied Mathematics from University of California, San Diego and has done non-degreed work at Stanford University, MIT and University of California, San Diego.

MR. MALRAISON joined Plantronics in July 1999 as the Managing Director - Europe, Middle East & Africa. Mr. Malraison is resident in the Swindon, England and Hoofddorp, the Netherlands offices of Plantronics and is responsible for our European, Middle East and African sales and operations. Mr. Malraison received his Engineering degree at the Institute Superior D'Electronic Du Nord in France. Prior to joining Plantronics, Mr. Malraison spent twenty-eight years with IBM in a number of roles, most recently as Vice President, Business Partners, EMEA.

MR. MAYMay joined Plantronics in May 1998 as Vice President -— Marketing. In July 1999, Mr. May was promoted to Senior Vice President -— Marketing and Development. In Fall 1999, Mr. May'sMay’s responsibilities expanded to include President of the CallOffice and Contact Center Division. In Fall 2003, Mr. May took on the position of Senior Vice President — Marketing, Product Development and Office Division.Technology, as a result of realignment of duties within our organization. Prior to joining Plantronics, Mr. May was most recently with Siemens Business Communications Systems, Inc., as Director of Product Management, Desktops and Mobility, from October 1993 to May 1998. Prior to that position, Mr. May served on special assignment to the President of Siemens Business Communications Systems, Inc., from July 1993 to October 1993. From June 1992 to July 1993, Mr. May was ROLM Executive Delegate for Siemens AG, Private Networks Group, Desktop Products, Munich, Germany. Mr. May held a number of positions with ROLM from July 1987 to June 1992, such as Director of Systems Planning, Manager of New Product Planning and Senior Product Manager. From 1981 to June 1987 Mr. May worked for ROLM, an IBM Company, and Shell Oil Company in various product manager and engineering

14

positions of increasing authority. Mr. May has a Bachelor of Science degree in Electrical Engineering from the University of Houston.

MR. PICKARD joined Plantronics in June 2001 as Vice President - Legal, General Counsel and Secretary. Prior to joining Plantronics, Mr. Pickard spent 14 years at ZiLOG, a semiconductor manufacturer in Campbell, CA, all as General Counsel and Secretary and culminating as Senior Vice President, General Counsel and Secretary. Before that, Mr. Pickard worked as Corporate Counsel at NEC Electronics, Inc., and in private practice at Crosby, Heafey, Roach & May and Graham & James. Mr. Pickard received his law degree from the College of William and Mary and his undergraduate degree from Williams College.

MS. SCHERERMs. Scherer joined Plantronics in March 1997, and in April 1997 was named Vice President -— Finance & Administration and Chief Financial Officer. In March 1998, Ms. Scherer was promoted to Senior Vice President -— Finance & Administration and Chief Financial Officer. Prior to joining us, Ms. Scherer held various executive management positions in the data storage industry at Micropolis Corporation and StreamLogic Corporation spanning a nine year period. She also worked in strategic planning with one of the leading consulting firms forBoston Consulting Group from 1985-1987. For two years prior to that.that, she was a member of the corporate finance staff at ARCO. Ms. Scherer ishas a graduate ofBachelor’s degree from the University of California, Santa Barbara and received her Mastersan MBA from the Yale School of Organization and Management.

MS. SHIMIZUMs. Shimizu joined Plantronics in July 1983, and was promotednamed Vice President, Strategic Portfolio and Product Management in Fall 2003. Prior to that, she was President of the Mobile Communications Division in 1999.Division. From 1995 to 1999, Ms. Shimizu was the Senior Marketing Director for the Computer and Mobile Systems Division, the predecessor to the Mobile Communications Division. Ms. Shimizu was named to that position in 1995. Prior to that, Ms. Shimizu held various positions in our marketing and sales organizations. Ms. Shimizu received an MBA from the Monterey Institute of International Studies and a Bachelor'sBachelor’s degree in Japanese from University of California, Los Angeles.

MR. SNYDERMr. Trads joined Clarity (formerly Walker-Ameriphone) in September 2003 as President. From 1994 until joining Plantronics, Mr. Trads held various positions within GN ReSound, a manufacturer of hearing aids and audiological measurement equipment. From 1998 to 2003, Mr. Trads served as President of GN ReSounds’ North American operation and from 1994 until 1998 he served as a Senior Vice President at its headquarters in Copenhagen, Denmark where he was a member of the executive management committee and the global management group and also led the sales and marketing organization. From 1991 to 1994 Mr. Trads was Vice President of Sales and Marketing for Dancall Radio, a manufacturer of cell phones and cordless phones. From 1985 to 1991, he held management positions in the distribution and marketing divisions of Bang and Olufsen, a global manufacturer of consumer electronics. He holds a degree in business administration and management from the Copenhagen Business School in Denmark.

Mr. Vanhoutte joined Plantronics in September 2003 as Managing Director, EMEA. From October 2001 until September 2003 he served as Corporate Vice President Marketing at Sony Ericsson Mobile Communications. From October 2000 to October 2001 Mr. Vanhoutte served as Vice President, Strategic Market Development at Ericsson’s Personal Communications Division. From December 1998 until September 2000, he served as Senior Vice President, Products, Marketing and Sales at MCI WorldCom’s International Division in London. From November 1994 until December 1998 Mr. Vanhoutte held various marketing and general management positions at Dell Computer Corporation including, as General Manager offor the Computer AudioBusiness Systems Division in November 1998. Mr. Snyderthe United States, as Managing Director for Dell Direct in the United Kingdom and Ireland and as Vice President Products, Marketing & Services for EMEA. Beginning in June, 1991 he worked for Nokia Data as Vice President Marketing which was promoted tomerged into Fujitsu-ICL’s Personal Systems and Client-Server Division where he continued as Vice President of the Computer Audio SystemsMarketing until November 1994. From 1985 until May 1991 Mr. Vanhoutte worked in various European marketing and division manager roles with Wang Laboratories. He started his career at Arthur Andersen’s Benelux Information Consulting Division in July 1999. Before joining Plantronics,1977 where he specialized in structured programming and office automation. Mr. Snyder wasVanhoutte studied Applied Economics and Engineering at the General ManagerUniversity of the Zip Aftermarket group at Iomega Corporation from 1997 to 1998. Prior to that Leuven, Belgium.

Mr. Snyder has held various executive positions at Colordesk, Ltd., Gold Disk Inc., and Borland International. Mr. Snyder attended the Rochester Institute of Technology and Michigan State University.

MR. WALTERSWalters has been the Vice President -— Operations since April 2000 and is responsible for the worldwide operations of Plantronics. Mr. Walters joined Plantronics in September 1997 as Vice

15

President New Product Introduction and more recently directed development of Plantronics e-commerce business before his current assignment. Prior to joining Plantronics, Mr. Walters spent twenty-four years in Silicon Valley firms developing and manufacturing computer systems. Mr. Walters holds both a Bachelor of Science degree and a Masters degree in Industrial Operations from Bradley University.

Executive officers serve at the discretion of the Board of Directors and senior management serves at the discretion of the President and Chief Executive Officer.Directors. There are no family relationships between any of the directors and executive officers of Plantronics.

16

ITEM

Item 2. PROPERTIESProperties

Our principal executive offices are located in Santa Cruz, California. Our facilities are located throughout the Americas, Europe, and Asia/ Pacific. As of May 31, 2002,April 30, 2004, we owned or leased a total of approximately 487,000512,200 square feet of manufacturing, administrative,assembly, sales, engineering, and officeadministrative facilities. The table below lists the major facilities including: (i) approximately 185,770 square feetowned or leased as of research and development, light assembly operations, and warehouse and administrative facilities in Santa Cruz, California, approximately 40,000 square feet of which are leased to third parties as office and warehouse space; (ii) 8,375 square feet of light assembly and administrative facilities in Chattanooga, Tennessee under a lease expiring in 2005; (iii) 15,720 square feet of light assembly and administrative facilities in Garden Grove, California; (iv) approximately 215,000 square feet for assembly and related operations in Tijuana, Mexico, under several leases expiring in 2002, 2004 and 2005, each with options to renew; (v) approximately 48,684 square feet for research and development, assembly operations, sales and administration in Wootton Bassett, England under leases expiring in 2015; (vi) approximately 13,924 square feet for administrative facilities in Hoofddorp, The Netherlands, under a lease expiring in 2005; and (vii) smaller leased or rented facilities in Australia, Brazil, France, China, Germany, Hong Kong, Italy, Japan, Spain and Taiwan. April 30, 2004.

We believe that our existing and planned properties are suitable and adequate for our current business. We also believe that our current premises haveand our planned manufacturing facility in China will provide sufficient capacity available for expansion over the next fewseveral years.* We are currently engaging in a long-term space planning process with respect to our Santa Cruz, California headquarters facilities and our Tijuana, Mexico manufacturing plant. We believe that these facilities are unlikely to support all of our requirements for capacity over a mid to longer term planning horizon and are, therefore, evaluating our alternatives.

ITEMItem 3. LEGAL PROCEEDINGSLegal Proceedings

We are presently engaged in a lawsuit filed on February 8, 2001 in the Superior Court in Santa Clara County, California by GN Hello Direct, Inc., a former Plantronics retail catalog distributor that was acquired by our single largest competitor, GN Netcom. GN Hello Direct makes various claims associated with the termination of the distribution relationship between Plantronics and Hello Direct, including that Hello Direct has suffered approximately $11 million in damages as a result of that termination.the breach of contract claim and $30 million in damages for conduct arising at or after termination of the contract.

17

This case was tried in October 2003. We considerwere granted summary judgment on GN Hello Direct'sDirect’s breach of contract claims prior to trial. At trial, GN Hello Direct’s claims against us for Interference with Prospective Economic Advantage were found by the jury to be without merit.merit, and a defense verdict was returned on our behalf. We will defend the claims vigorously and have filed counterclaims againstwere awarded approximately $0.8 million with 10% simple interest from March 15, 2001 for product sold by us to GN Hello Direct and for among otherwhich GN Hello Direct had not paid us. On post trial motions both parties asked for a judgment notwithstanding the verdict on the issue of the product sold by us to GN Hello Direct that was not paid for by GN Hello Direct. The court granted a new trial on this issue alone. In further post trial motions, we received awards of attorneys’ fees and costs of $1.67 million. GN Hello Direct appealed. After briefing on appeal was concluded, the Court of Appeal questioned whether the appeal was timely because the new trial order was not briefed by either side. Therefore, there was arguably not a final judgment from the trial court. The Court of Appeal asked the parties to show cause why the case should not be remanded to the Superior Court to conduct the new trial on the product sold/warranty return issues only. The parties conferred and agreed to settle the product sold/warranty return claims breachwith GN Hello Direct agreeing to pay Plantronics approximately $1.1 million plus 10% simple interest from the date of contractthe judgment. The briefing and material misrepresentations related to our entering intoremainder of the record on appeal was preserved with an amended judgment. The Appellate Court scheduled the oral argument on the record for June 17, 2004. As lead trial counsel is involved in another trial on that contract.date, oral argument may be rescheduled. We are defending the appeal vigorously.

We are also involved in various other legal actions arising in the normal course of our business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating results.* However, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition or results of operations.

ITEMItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSSubmission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the security holders of Plantronics during the fourth quarter of the fiscal year ended March 31, 2002.2004.

18

ITEM

Our Common Stock is publicly traded on the New York Stock Exchange. The following table sets forth the range of closinglow and high sales prices for each period indicated.

	Low	High
Fiscal 2001       First Quarter       Second Quarter       Third Quarter       Fourth Quarter Fiscal 2002       First Quarter       Second Quarter       Third Quarter       Fourth Quarter	$ 26.83 34.00 36.00 16.00 $ 16.72 16.45 16.30 19.01	$ 39.50 50.73 50.88 54.99 $ 25.09 23.36 26.04 27.35

We paid no cash dividends during fiscal 20012003 and 2002, and we have no current intention2004, however our Board of Directors is currently reviewing our position regarding dividends subject to pay cash dividends.various economic factors. Our Credit Agreement with a major bank restricts us from payingcontains covenants which limit our ability to pay cash dividends on shares of our Common Stock toStock.

There were no stock repurchases for the extent that the aggregate amount of all such dividends paid or declared and Common Stock repurchased in any four consecutive fiscalfourth quarter period (including the quarter in which any such cash dividends are declared or paid or any such Common Stock is repurchased) exceeds 50%ended March 31, 2004. See Note 5 of our cumulative consolidated net income reported in the eight consecutive fiscal quarter periods ending with the fiscal quarter immediately preceding the date of declaration of such dividend.

TheNotes to Condensed Consolidated Financial Statements for information regarding the shares of our Common Stock authorized for issuance under our equity compensation plans under the caption "Equitystock repurchase programs.

Certain Equity Compensation Plan Information"Information included in our 2002 Proxy StatementItem 12 of Part III hereof is hereby incorporated herein by reference.into this Item 5 of Part II.

As of May 31, 2002,April 30, 2004 there were 114104 holders of record of our Common Stock.

ITEMItem 6. Selected Financial Data

SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

                                                               Fiscal Year Ended March 31,
                                                   -------------------------------------------------------
                                                     1998        1999        2000       2001       2002
                                                   ---------  -----------  ---------  ---------  ---------
                                                            (in thousands, except earnings
19
Plantronics
2004 Annual Report
included in Item 8 of this Form 10-K in order to fully understand factors that may affect the comparability of the information presented below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal year ended March 31, in thousands, except income per share
2000
2001
2002
2003
2004
STATEMENT OF OPERATIONS DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
309,143
 
 
$
390,748
 
 
$
311,181
 
 
$
337,508
 
 
$
416,965
 
Net income
 
$
64,517
 
 
$
73,550
 
 
$
36,248
 
 
$
41,476
 
 
$
62,279
 
Diluted net income per common share
 
$
1.22
 
 
$
1.38
 
 
$
0.74
 
 
$
0.89
 
 
$
1.31
 
Shares used in diluted per share calculations
 
 
53,019
 
 
 
53,263
 
 
 
49,238
 
 
 
46,584
 
 
 
47,492
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2000
2001
2002
2003
2004
BALANCE SHEET DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents, and marketable securities
 
$
45,309
 
 
$
73,930
 
 
$
60,310
 
 
$
59,725
 
 
$
180,616
 
Total assets
 
 
168,307
 
 
 
227,877
 
 
 
201,058
 
 
 
205,209
 
 
 
368,252
 
Long-term debt
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total stockholders’ equity
 
$
105,376
 
 
$
173,047
 
 
$
141,993
 
 
$
146,930
 
 
$
299,303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
Sept. 30,
Dec. 31,
Mar. 31,
Quarter ended in thousands, except income per share
2002
2002
2002
2003
QUARTERLY DATA (UNAUDITED):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
80,268
 
 
$
82,370
 
 
$
86,811
 
 
$
88,059
 
Gross profit
 
 
41,458
 
 
 
41,635
 
 
 
42,521
 
 
 
43,329
 
Net income
 
$
10,174
 
 
$
11,530
 
 
$
9,201
 
 
$
10,571
 
Diluted net income per common share
 
$
0.21
 
 
$
0.24
 
 
$
0.20
 
 
$
0.23
 
 
June 30,
Sept. 30,
Dec. 31,
Mar. 31,
Quarter ended in thousands, except income per share
2003
2003
2003
2004
QUARTERLY DATA (UNAUDITED):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
92,786
 
 
$
95,117
 
 
$
107,622
 
 
$
121,440
 
Gross profit
 
 
45,467
 
 
 
48,766
 
 
 
56,241
 
 
 
65,496
 
Net income
 
$
11,341
 
 
$
12,373
 
 
$
17,619
 
 
$
20,946
 
Diluted net income per common share
 
$
0.25
 
 
$
0.27
 
 
$
0.37
 
 
$
0.42
 
Note: The second quarter of fiscal 2003 includes a favorable tax effect relating to an expiration of statutes of limitations and a favorable tax assessment that lowered our effective tax rate and increased diluted net income per share)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 233,220  $   282,546  $ 309,143  $ 390,748  $ 311,181
Income before extraordinary item.................    39,189       55,253     64,517     73,550     36,248
Extraordinary loss,common share by $0.03. For fiscal 2003 this favorable tax effect increased diluted net of taxes.................        --        1,049         --         --         --
                                                   ---------  -----------  ---------  ---------  ---------
Net income....................................... $  39,189  $    54,204  $  64,517  $  73,550  $  36,248
                                                   =========  ===========  =========  =========  =========income per common share by $0.04, due to the lower weighted average shares outstanding for the year as compared to the second quarter. Diluted net income per common share:
   Income before extraordinary item.............. $    0.72  $      1.01  $    1.22  $    1.38  $    0.74
   Extraordinary loss, netshare for the fourth quarter of taxes..............        --         0.02         --         --         --
                                                   ---------  -----------  ---------  ---------  ---------
   Net income.................................... $    0.72  $      0.99  $    1.22  $    1.38  $    0.74
                                                   =========  ===========  =========  =========  =========
   Shares usedfiscal 2004 included a favorable tax effect resulting from higher profit in diluted per share calculations.    54,669       54,846     53,019     53,263     49,238


                                                                           March 31,
                                                   -------------------------------------------------------
                                                     1998        1999        2000       2001       2002
                                                   ---------  -----------  ---------  ---------  ---------
                                                                          (in thousands)
BALANCE SHEET DATA:
Total assets..................................... $ 164,743  $   141,828  $ 168,307  $ 227,877  $ 201,058
Long-term debt...................................    65,050           --         --         --         --

                                                 Quarter Ended
                                      ------------------------------------------
                                      June 30,   Sept. 30,  Dec. 31,   Mar. 31,
                                        2000       2000       2000       2001
                                      ---------  ---------  ---------  ---------
                                       (in thousands, except earnings per share)
QUARTERLY DATA (UNAUDITED):
Net sales........................... $  98,135  $ 101,495  $ 102,901  $  88,217
Gross profit........................    55,040     55,616     55,624     43,522
Net income.......................... $  20,104  $  20,740  $  21,308  $  11,398
Diluted net income per common share. $    0.38  $    0.39  $    0.40  $    0.22



                                                 Quarter Ended
                                      ------------------------------------------
                                      June 30,   Sept. 30,   Dec 31,   Mar. 31,
                                        2001       2001       2001       2002
                                      ---------  ---------  ---------  ---------
                                       (in thousands, except earnings per share)
QUARTERLY DATA (UNAUDITED):
Net sales........................... $  77,790  $  75,297  $  79,867  $  78,227
Gross profit........................    36,744     35,649     37,257     38,195
Net income.......................... $   8,108  $   6,838  $  10,507  $  10,795
Diluted net income per common share. $    0.16  $    0.14  $    0.21  $    0.22

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ITEM

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations

CERTAIN FORWARD-LOOKING INFORMATION

OVERVIEW

We are a global company, and sell our broad range of communications products into more than 70 countries through a worldwide network of distributors, OEMs, 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 market in those regions.

Our revenues grew significantly during the fiscal year ended March 31, 2004, primarily on the strength of new products in general, and headsets for mobile phones, in particular. The mobile market has experienced strong growth due to a number of factors including hands-free legislation in the U.K. and Italy and a strong assortment of new phones on the market. In addition, we believe our market share for headsets for mobile phone applications has increased, but that the level of market share we experienced recently may be unsustainable.* Markets for wireless headsets are growing and the need for hands-free communication tools has led to greater acceptance of our wireless products.

We have been able to improve our production and cost effectiveness and exceeded our operating margin target of 20% in fiscal year 2004. During fiscal year 2004, our overhead costs remained fairly constant due to productivity improvements and manufacturing efficiencies which resulted in an increase in our gross margin percentage as compared to fiscal year 2003. Increases in our operating expenses as compared to fiscal year 2003 were primarily driven by variable sales and marketing expenses commensurate with our overall increase in sales and the foreign exchange effects of a weak dollar vs. the Euro and the Great British Pound on expenses in our international operations. However, as a percentage of sales, our operating expenses decreased in fiscal year 2004, which contributed to our overall increase in operating income. For the year ended March 31, 2004, our operating margin improved to 20.3% from 16.1% in the previous fiscal year. We have established a target of 21% for operating margin for fiscal year 2005.

21

In addition, during fiscal year 2004, we generated $72.4 million in operating cash flows, which significantly contributed to the increase in our liquidity and cash balances at March 31, 2004.

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

ANNUAL RESULTS OF OPERATIONS

In comparison to fiscal 2003, revenues for fiscal 2004 were stronger across all of our product lines, and were driven primarily by sales of new products. Both domestic and international revenues were up, resulting in part from recent hands-free legislation, increased demand for headsets for mobile phones and for wireless headsets for the office, the incremental sales from the additional 53rd week and the favorable effects of foreign exchange rates on international revenues. The incremental effect of the 53rd week contributed approximately $8.7 million or 2.1% of the increase year over year based on a linear calculation. Our headsets for mobile phones includes both corded headsets sold to U.S. wireless carriers and Bluetooth based headsets sold primarily for use in Europe with yearly sales up 84.3% over the prior fiscal year. Our office and contact center products business grew 12.1% from the prior year, primarily driven by the continued ramp of our CS60 product in Europe, a wireless headset for DECT-based office phones. In the U.S., office and contact center product sales were favorably affected by the launch of our CS50 product, a wireless headset for 900MHz-based office phones. Computer audio product sales grew 28% as compared to the prior year. Computer audio product growth was primarily a broadbased growth as a result of expanded retail distribution channels.

In fiscal 2003, our sales growth was primarily attributable to revenues from new products developed within the prior 24 months including office, mobile and computer products and to the addition of the acquired Ameriphone products for a full fiscal year, which contributed approximately $10.8 million of the total growth. Compared to fiscal 2002, on a worldwide basis, fiscal 2003 revenues increased in all major geographies and channels.

Domestic sales increased 21.1% to $277.2 million in fiscal 2004, compared to an increase of 7.2% to $228.9 million in fiscal 2003 from $213.7 million in fiscal 2002. Domestic sales in fiscal 2004 as compared to fiscal 2003 increased in all major U.S. channels, with the most significant increase in our OEM distribution channel. Domestic sales in fiscal 2003 as compared to fiscal 2002 increased in all major U.S. channels, with the exception of OEM, with the most significant increases in sales through our retail channel and sales of our Clarity (formerly Walker – Ameriphone) products for the hearing impaired.

International sales accounted for approximately 33.5% of total net sales in fiscal 2004, up from 32.2% of total net sales in fiscal 2003 and 31.3% in fiscal 2002. International sales in fiscal 2004 as compared to fiscal 2003 increased 28.7% to $139.7 million compared to $108.6 million in fiscal 2003, which in turn increased 11.3% compared to $97.5 million in fiscal 2002. The sales increase in fiscal 2004 reflected growth in each of the European, Asia Pacific/ Latin American and Canadian regions and was favorably affected by the continued strengthening of the Euro and the Great British Pound against the U.S. dollar and new product introductions during the year, as well as sales from the extra week in fiscal 2004.

International sales in fiscal 2003 increased as compared to fiscal 2002, in each of the European, Asia Pacific/ Latin American and Canadian regions reflecting the continued strengthening against the U.S. dollar of the Euro and the Great British Pound during the year.

Gross Profit. Gross profit in fiscal 2004 increased 27.8% to $216.0 million (51.8% of net sales), compared to $168.9 million (50.1% of net sales) in fiscal 2003. Gross profit in fiscal 2003 increased 14.3% compared

22

to gross profit of $147.8 million (47.5% of net sales) in fiscal 2002. In fiscal 2004, the increase in gross profit as a percentage of net sales was favorably affected by foreign exchange rates, manufacturing efficiencies from higher volume associated with increased sales and the continued cost reduction efforts during the year.

In fiscal 2003, the increase in gross profit as a percentage of net sales was favorably affected by foreign exchange rates and the achievement of cost reduction goals during the year. Sales of the acquired Ameriphone products, which had slightly better margins than the average of our other products during fiscal 2003, also contributed modestly to the gross margin improvement in fiscal 2003. In addition, we were successful at better inventory management, which led to lower requirements for provisions relating to excess and obsolete material. We also experienced lower requirements for warranty and improved factory utilization due to higher volumes on relatively fixed manufacturing overhead.

Research, Development and Engineering. Research, development and engineering expenses in fiscal 2004 increased 4.7% to $35.5 million (8.5% of net sales), compared to $33.9 million (10.0% of net sales) in fiscal 2003. Research, development and engineering expenses in fiscal 2003 increased 11.8% compared to $30.3 million (9.7% of net sales) in fiscal 2002. The increase in absolute dollars in these expenses in fiscal 2004 reflected our continued support of new product introductions, with particular emphasis on mobile and wireless headset development. We expect our research and development expenses to increase in fiscal 2005 as we continue our development efforts in the mobile and wireless areas.* The increases in these expenses in fiscal 2003 reflected a marked increase in the number of products in the pipeline at a particularly active stage of development, our continued investment in new product development including Bluetooth and other wireless technologies, and a general broadening of our product line in each of our markets.

Selling, General and Administrative. Selling, general and administrative expenses in fiscal 2004 increased 18.8% to $95.8 million (23.0% of net sales), compared to $80.6 million (23.9% of net sales) in fiscal 2003. Selling, general and administrative expenses in fiscal 2003 increased 5.7% compared to $76.3 million (24.5% of net sales) in fiscal 2002. The overall increase in the level of spending in fiscal 2004 and 2003 was to support increased revenues with sales and marketing programs capitalizing on legislation for hands-free devices and also reflected the strengthening of the Euro and the Great British Pound against the dollar during the year, which increased the cost of marketing programs in Europe. General and administrative expenses increased as a percentage of net sales in fiscal 2004 compared to fiscal 2003, mainly driven by unfavorable foreign exchange rates. General and administrative expenses in fiscal 2003 increased as a percentage of net sales from fiscal 2002, mainly driven by higher legal expenses, a larger provision for doubtful accounts, and the inclusion of a full year of expenses relating to Ameriphone.

Operating Income. Operating income in fiscal 2004 increased 55.6% to $84.8 million (20.3% of net sales), compared to $54.5 million (16.1% of net sales) in fiscal 2003. Operating income in fiscal 2003 increased 32.0% compared to $41.3 million (13.3% of net sales) in fiscal 2002. In fiscal 2004, the increase in operating income over fiscal 2003 was primarily driven by higher net sales and improved gross margins due to economies of scale, offset in part by higher operating expenses and unfavorable product mix. In fiscal 2003, the increase in operating income over fiscal 2002 was primarily driven by improved gross margin on higher net sales.

Interest and Other Income, Net. Interest and other income, net in fiscal 2004 decreased $0.6 million to $1.7 million compared to $2.3 million in fiscal 2003, which in turn increased $0.4 million compared to $1.9 million in fiscal 2002. The decrease in interest and other income, net in fiscal 2004 was primarily attributable to unfavorable foreign exchange rates on both the Euro and the Great British Pound. The increase in interest and other income, net in fiscal 2003 compared to fiscal 2002 was due to foreign exchange gains as the Euro and Great British Pound values strengthened against the dollar. Foreign currency transaction gains, net of the effect of hedging activity for each of fiscal 2004 and 2003 were

23

$0.9 million. Foreign currency transaction losses, net of the effect of hedging activity, for fiscal 2002 was $0.4 million.

Income Tax Expense. In fiscal 2004, 2003, and 2002, income tax expense was $24.2 million, $15.3 million, and $7.0 million, respectively. Our effective tax rates for these years were 28.0%, 26.9%, and 16.1%, respectively. In fiscal 2003 and fiscal 2002, our effective tax rates included benefits of $1.7 million and $5.1 million, respectively, due to the expiration of statutes of limitations and a favorable tax assessment. In fiscal 2005, we expect the effective tax rate to be approximately 28%.*

FINANCIAL CONDITION

Investing Activities. During fiscal 2004, we purchased capital assets of $16.9 million, which included the land and facilities purchase of our previously leased facilities in Swindon, U.K. for approximately $5.6 million. We believe that this purchase could yield an attractive return on investment as well as lower our annual operating costs in comparison to leasing.* The remainder of the capital purchases were incurred principally in tooling for new products, furniture and fixtures and leasehold improvements for facilities expansion. We also received $5.0 million in proceeds from maturities of marketable securities.

During fiscal 2003, we purchased marketable securities of $13.0 million and received proceeds from maturities of marketable securities of $25.3 million. Expenditures for capital assets of $11.8 million were incurred principally in tooling for new products, furniture and fixtures and leasehold improvements for facilities expansion.

Financing Activities. During the fiscal year ended March 31, 2004, we repurchased 122,800 shares of our Common Stock for $1.8 million at an average price of $14.93 per share, and reissued through employee benefit plans 183,174 shares of our treasury stock for $3.3 million. As of March 31, 2004, we remained authorized to repurchase 142,600 shares under all repurchase plans. We also received $63.9 million in proceeds from the exercise of stock options during the fiscal year ended March 31, 2004. In the fiscal year ended March 31, 2003, we repurchased 2.9 million shares of our Common Stock for $44.8 million at an average price of $15.56 per share, and reissued through employee benefit plans 152,700 shares of our treasury stock for $2.2 million. We also received $2.2 million in proceeds from the exercise of stock options during the fiscal year ended March 31, 2003.

Liquidity and Capital Resources. We generated positive cash flows from operations for fiscal 2004 and fiscal 2003 totaling $72.4 million and $50.1 million, respectively. Our primary cash requirements have been, and are expected to continue to be, for capital expenditures including investment in manufacturing operations in China and tooling for new products and leasehold improvements for facilities improvements and expansion.* We estimate that fiscal 2005 capital expenditures will be approximately $28 million.* As of the end of fiscal 2004, we had working capital of $249.4 million, including $180.6 million of cash and cash equivalents compared with working capital of $103.6 million, including

24

$59.7 million of cash, cash equivalents and marketable securities, as of the end of fiscal 2003. During the next 12 to 18 months, we are planning or considering certain other capital expenditures related to facilities, including, among other things, the continued upgrade of our corporate offices in Santa Cruz, California, and the development of a factory and development center in China.* Subsequent to year-end we leased land use rights for the factory development center in China. The total capital cost of these initiatives are 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 April 30, 2004 we had no cash borrowings under the revolving credit facility and $1.2 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 us to the extent we cannot comply with them. We are currently in compliance with the covenants under this agreement.

Throughout fiscal 2003 and 2004, we entered into foreign currency forward-exchange contracts, which typically mature in one month, to hedge the exposure to foreign currency fluctuations of expected foreign currency-denominated receivables, payables and cash balances. We record on the balance sheet at each reporting period the fair value of our forward-exchange contracts and record any fair value adjustments in results of operations. Gains and losses associated with currency rate changes on contracts are recorded as other income (expense), offsetting transaction gains and losses on the related assets and liabilities.

In April of 2003, Plantronics began an additional hedging program to hedge a portion of Euro and Great British Pound revenues with put and call option contracts. We record on the balance sheet at each reporting period the net fair value of our unrealized option contracts. Gains and losses associated with realized option contracts are recorded against revenue.

OFF BALANCE SHEET ARRANGEMENTS

The following table summarizes our contractual obligations that were reasonably likely to occur as of March 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

We believe that our current cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to fund operations for at least the next 12 months.* However, any projections of future financial needs and sources of working capital are subject to uncertainty. See

25

“Certain Forward-Looking Information” and “Risk Factors Affecting Future Operating Results” included herein, for factors that could affect our estimates of future financial needs and sources of working capital.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's

REVENUE RECOGNITION. Plantronics recognizesRevenue Recognition. We recognize revenue net of estimated product returns and expected payments to resellers for customer programs including cooperative advertising, and marketing development funds, volume rebates, and special pricing programs. Product returns are provided for at the time revenue is recognized,against revenues upon shipment, based on historical return rates, at what stage the product is instage relative to its expected life cycle, and assumptions regarding the rate of sell-through to end users from our various channels which again, is based on historical sell-through rates. Should these 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 revised. Reductions to revenue for expected and actual payments to resellers for volume rebates and pricing protection are based on actual expenses incurred during the period, and on estimates for what is due to resellers for estimated credits earned during the period.period and any adjustments for credits based on actual activity. If market conditions were to decline,warrant, Plantronics may take action to increasestimulate demand, which could include increasing promotional programs, resultingdecreasing prices or increasing discounts. Such actions could result in incremental reductions into revenue and margin at the time incentives are offered. To the incentive is offeredextent 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.Accounts Receivable. We perform ongoing credit evaluations of our customers'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 itsour 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.

INVENTORY. Plantronics maintains reservesInventory. We write down 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'Plantronics’ products and corresponding demand were to decline, then additional reserveswrite downs may be deemed necessary.

Plantronics providesWarranty. We provide for the estimated cost of warranties at the time revenue is recognized. While Plantronics engages in extensive product quality programs and processes, and is ISO 9000 certified, ourOur warranty obligation is affected by product failure rates and material usage levels.our costs to repair or replace the products. Should actual failure rates and material usagecosts differ from our estimates, revisions to the warranty obligation may be required.

GOODWILL AND INTANGIBLES. Our business

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Goodwill and Intangibles. As a result of acquisitions typically result inwe have made, we have goodwill and intangible assets whichon 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 life of amortizable intangible assets, requires management to make estimates and assumptions that affect our financial statements. For example, weWe perform an annual impairment review of goodwill based on the fair value of the reporting unit to which it relates. Should theand intangible assets. If actual or expected revenue of a reporting unit significantly decline,declines, we may be required to record an impairment charge.

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

ANNUAL RESULTS OF OPERATIONS

NET SALES. Net sales in fiscal 2002 decreased 20.4% to $311.2 million compared to $390.7 million in fiscal 2001, which in turn increased 26.4% compared to fiscal 2000 net sales of $309.1 million. Our fiscal years ended March 31, 2002 and 2001 both contained 52 weeks versus 53 weeks for fiscal year 2000.

Domestic sales decreased 19.8% to $213.7 million in fiscal 2002, compared to an increase of 30.6% to $266.3 million in fiscal 2001 from fiscal year 2000. Revenues decreased in all major U.S. channels, including U.S. distribution, OEM and retail. We believe the decline was due to the recession in the U.S. and the severe cutbacks in IT and telecom equipment spending.

International sales accounted for approximately 31.3% of total net sales in fiscal 2002, down from 31.9% of total net sales in fiscal 2001 and 34.0% in fiscal 2000. International sales in fiscal 2002 decreased 21.7% to $97.5 million compared to $124.5 million in fiscal 2001, which in turn increased 18.3% compared to the prior fiscal year. The decrease in fiscal 2002 was experienced in each of the European, Asia Pacific/Latin American and Canadian regions and reflects the lagging economy.

Fiscal year 2002 was a challenging year for Plantronics. Compared to the prior year, on a worldwide basis, revenues declined in all major geographies and channels. While our mobile business grew, revenues declined in all other product markets. The growth in our mobile business reflects modest overall market growth and, in our opinion, our improved market position. Our overall business continues to be impacted by a slowdown in global telecom and IT spending. We recognize that although certain economic indicators have improved, the overall economic environment remains uncertain and we remain uncertain concerning the overall demand for our products in the current economic environment.

Our net revenues for the year were affected by an accounting change mandated by the Emerging Issues Task Force of the Financial Accounting Standards Board, "EITF 00-25," since incorporated into "EITF 01- 9" (Note 2 to the audited financial statements), and our recent acquisition of Ameriphone in our fourth fiscal quarter (Note 11 to the audited financial statements). Revenues generated in our core call center and office market rebounded somewhat in the fourth quarter, but were down substantially when compared to the prior year. Based on the sequential rebound in our core business and other indicators, we are cautiously optimistic that order rates will begin to increase in the upcoming fiscal year.*

GROSS PROFIT. Gross profit in fiscal 2002 decreased 29.5% to $147.9 million (47.5% of net sales), compared to $209.8 million (53.7% of net sales) in fiscal 2001. Gross profit in fiscal 2001 increased 16.8% compared to gross profit of $179.6 million (58.1% of net sales) in fiscal 2000. The decrease in gross profit as a percent of net sales in fiscal 2002 mainly reflects a shift to lower margin products, particularly our mobile products. Lower sales volume resulted in fixed overhead costs being spread over a smaller number of units, causing gross margin to decline. We also increased our warranty provision and our provision for excess and obsolete inventory during the year, reflecting our emphasis on more consumer-oriented products with higher return rates and more volatile demand.

RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering expenses in fiscal 2002 increased 12.2% to $30.3 million (9.7% of net sales), compared to $27.0 million (6.9% of net sales) in fiscal 2001. Research, development and engineering expenses in fiscal 2001 increased 23.5% compared to $21.9 million (7.1% of net sales) in fiscal 2000. The increase in these expenses reflects our continued investment in new product development including Bluetooth and other wireless technologies, and a general broadening of our product line in each of our markets. While the development costs spent on Bluetooth products did not produce revenues in fiscal 2002, we expect to begin to see a contribution to revenues in fiscal 2003.*

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses in fiscal 2002 decreased 5.6% to $76.3 million (24.5% of net sales), compared to $80.8 million (20.7% of net sales) in fiscal 2001. Selling, general and administrative expenses in fiscal 2001 increased 25.3% compared to $64.5 million (20.9% of net sales) in fiscal 2000. The overall decrease in the level of spending during fiscal year 2002 was consistent with the decline in revenues. Overall, we were successful at reducing expenses and focusing on certain sales and marketing programs that we believe will give us a positive return on investment including programs capitalizing on the recent cell phone legislation and carrier safety campaigns.* General and administrative expenses increased as a percentage of net sales from the prior year mainly driven by higher legal expenses, the addition of Ameriphone's general and administrative expenses and the decline in revenues.

OPERATING INCOME. Operating income in fiscal 2002 decreased 59.5% to $41.3 million (13.3% of net sales), compared to $102.0 million (26.1% of net sales) in fiscal 2001. Operating income in fiscal 2001 increased 9.3% compared to $93.3 million (30.2% of net sales) in fiscal 2000. The decrease in operating income over the past fiscal year was primarily driven by lower net sales and the corresponding decrease in gross profit.

INTEREST AND OTHER INCOME, NET. Interest and other income in fiscal 2002 increased $1.8 million to $1.9 million compared to $0.1 million in fiscal 2001, which in turn decreased $1.5 million compared to $1.6 million in fiscal 2000. The increase in interest and other income in fiscal 2002 was primarily attributable to reductions of foreign exchange losses due to more favorable exchange rates and the implementation of a hedging program in fiscal 2002. The decrease in interest and other income in fiscal 2001 was primarily attributable to foreign exchange losses of $2.2 million from declining British Pound Sterling and Euro values.

INCOME TAX EXPENSE. In fiscal 2002, 2001, and 2000, income tax expense was $7.0 million, $28.6 million, and $30.4 million, respectively. During fiscal 2002, the successful completion of a routine tax audit and a reassessment of reserves related to R&D tax credits resulted in a favorable tax adjustment of $5.1 million accounting for $0.11 in earnings per share. Excluding this favorable tax adjustment, our overall effective tax rates were 28%, 28% and 32% for fiscal years 2002, 2001, and 2000, respectively.

CONTRACTUAL OBLIGATIONS                               Payments Due by Period
                                                 Less than    1 - 3      4 - 5     After 5
March 31, 2002                          Total     1 year      years      years      years
(in thousands)                        ---------  ---------  ---------  ---------  ---------

Operating leases.................... $  12,378  $   2,539  $   4,068  $   1,730  $   4,041
Unconditional purchase obligations..    19,833     19,833
Forward exchange contracts..........     4,100      4,100
                                      ---------  ---------  ---------  ---------  ---------
Total contractual cash obligations.. $  36,311  $  26,472  $   4,068  $   1,730  $   4,041
                                      =========  =========  =========  =========  =========

RESULTS:

We have historically derived, and continuederive approximately 25% to derive, a substantial portion35% of our net sales from the call center market. This market had been growing steadily as new call centers have proliferated and existing call centers have expanded. In fiscal 2002, our sales in the callcontact center market were below the leveland we expect that this market will continue to account for a significant portion of sales in that market compared to the prior year. We do not believe that our decreasing sales are a result of market share gains by our competitors but, instead, believe that the sales slowdown is due to reduction in the level of overall market demand.net sales. While we believe that the call centerthis market willmay grow in future periods, this growth could be slow or revenues from this market could continue tobe flat or decline in response to various factors. For example, consumer resistancelegislation enabling consumers to block telemarketing could materiallycalls may adversely affect growth in the callcontact center market. A continued deterioration in general economic conditions could result in a reduction in the establishment of new callcontact centers and in capital investments to expand or upgrade existing centers, and we believe this is in factwhich may continue to negatively affectingaffect our business. Because of our reliance on the callcontact center market, we will be affected more by changes in the rate of callcontact center establishment and expansion and the communications products that callcontact center agents use than would a company serving a broader market. Any decrease in the demand for callcontact 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.

WE ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO DEVELOP, AND WE COULD BE MATERIALLY ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS WE EXPECT.In 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 decline rather than grow in future years.

27

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 concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of 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 and end-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.

While the callcontact 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 undeveloped.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, and results of operations. operations and cash flows.

These headset markets are also subject to general economic conditions and if there is a continued slowing of national or international economic growth, and the recession continues longer than we anticipated, 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.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF CAUSES OUTSIDE OUR CONTROL.

Our quarterly results of operations 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 in the futurefrom our estimate, then our estimated returns, which net against revenue, may need to be revised.

The markets for our products are highly competitive. We compete with a variety of reasons, includingcompanies in the following:

• general economic conditions, compounded byvarious markets for communications headsets. Currently, our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. Internationally, Sennheiser Communications is a significant competitor in the events oncomputer, office and following September 11^th;
• changescontact center market.

  We currently operate principally in demand for our products;

• insolvency of purchasers of our products or failure of purchasersa multilevel distribution model — we sell most of our products to pay amounts duedistributors who, in turn, resell to us;
• timingdealers or end-customers. GN Netcom’s acquisitions indicate it may be

  ---

  28

  PART II
  Plantronics
  2004 Annual Report

  moving towards a direct sales model, since six of their nine acquisitions were of companies employing direct sales and size of orders from customers;

• price erosion;
• cancellations, inability to ramp production or delays in deliveries of components and subassemblies by our suppliers;
• changes in the mix of products sold by us;
• variances in the timing and amount of engineering and operating expenses;
• 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;
• increases in the costs of our raw materials, components and subassemblies; and
• seasonal fluctuations in demand and linearity of sales within the quarter.

Each of the above factors is difficult to forecast and thus could have a material adverse effect onmarketing models. While we believe that our business financial conditionand our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices which could materially adversely affect our business and results of operations.

We generally ship most orders during the quarter in which they are received, and, consequently, wealso 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. For example, the Sony-Ericsson joint venture has also announced the launch of several Bluetooth hands-free solutions.

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 a significant backlog of orders. As a result, quarterly net salessubstantially greater financial, marketing and operating results depend primarilyother resources than we do.

We 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, the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portionor are direct copies of our operating expenses, including rent, salaries and certain manufacturing expenses,products. These new competitors are fixed and difficultlikely to reduce or modify, if net sales do not meet our expectations,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 andor results of operations could be materially adversely affected.

Our operating results can also vary substantially in any period depending on the mix of products sold and the distribution channels through which they are sold. In the event that sales of lower margin products, or sales through lower margin distribution channels, in any period represent a disproportionate share of total sales during such period, our operating results would 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 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. In addition, current global events, such as the U.S. military efforts in Afghanistan, the continuing terrorist scare in the U.S., and ongoing anthrax concerns may cause the economy to be more volatile, making it more difficult to match supply and demand in the marketplace. 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 could have excess inventory and excess capacity. Over forecast of demand 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 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 obsolete products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins.
  	•	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.
  	•	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

• 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, therefore, 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.

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		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 inventories.

Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations.

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.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.

Our growth and ability to meet customer demands 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 adverseAdverse 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.

• 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. Relative to sales, inventory levels remained high through the first quarter of fiscal 2002, but have been on the decline since that time. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand would materially adversely affect our business, financial condition and results of operations.

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  PART II
  Plantronics
  2004 Annual Report

• 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 supplier of silicon chip-sets. 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 and could materially adversely affect our business, operating results and financial condition.

WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES.

	•	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.

We sell substantially all of our products through distributors, retailers, OEMsOEM’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 we currently sell to them. The inability to establish or maintain successful relationships with distributors, OEMs,OEM’s, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations.

Our distribution channels generally hold inventoriesAs a result of the growth of our products, determinedmobile headset business, our customer mix is changing and certain OEM’s 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 own business judgmentpurchasing 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.

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The market price for our common stock may continue to be sufficientaffected by a number of factors, including:

	•	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 meet their customer's delivery requirements.the operating performance of these companies. Such inventory levels are subject tofactors and fluctuations, as well as general economic, political and market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by our distributors, OEMs, retailers and other customers in the levels of inventories held in our productssuch as recessions, could materially adversely affect our business, financial condition or results of operations.

We generally offer our customers certain credit terms, allowing them to pay for products purchased from us between thirty and sixty days or more after we ship the products. Our 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.

WE HAVE STRONG COMPETITORS AND WILL LIKELY 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. Our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. GN Great Nordic reported revenues of 7.32 billion Danish Krone (approximately U.S. $868 million) for their fiscal year ending December 31, 2001, while GN Netcom's revenues for the same period were 1,930 million Danish Krone (approximately U.S. $232 million). GN Netcom has made several acquisitions over the years. We believe the acquisitions of Hello Direct and Jabra have provided GN Netcom with a broader mobile product line and greater marketing presence than they had prior to these acquisitions.

We currently operate principally in a multilevel distribution model - we sell mostmarket price of our common stock.

The majority of our revenues come from products to distributors who,that are produced in turn, resell to dealersour facilities in Tijuana, Mexico. A fire, flood or end-customers. GN Netcom's acquisitions indicate it may be moving towards a direct sales model. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcomearthquake, political unrest or other competitors sell directly, they may offer lower prices whichdisaster or condition affecting our facilities could materially adversely affect our business and results of operations. In the face of current economic downturn, we are seeing lower prices from our competitors, particularly GN Netcom.

Logitech International S.A.,have a manufacturer and seller of computer accessory products, acquired Labtec Inc., a Vancouver, Washington-based provider of, among other products, headsets for use with computers, in March 2001. Following this acquisition, Labtec gained greater resources with which to compete with us than it had prior to its being acquired by Logitech.

We anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile computer and residential markets. On September 11, 2001, Sony Corporation and Telefonaktiebolaget LM Ericsson announced a merger of their mobile business worldwide including telephone accessories such as telephone headsets and adapters. They subsequently announced the launch of the Joint Venture's first product, a Bluetooth communications device which shipped in November 2001. 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 face additional competition from companies, principally located in the Far East, which offer very low cost headset products, including products which are modeledmaterial adverse effect on or 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 or 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, are increasingly choosing to compete on price. While this has long been true of competitors from the Far East, we think the trend is accelerating 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.

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, including but not limited to 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 technological advances may allow current and future competitors to compete more effectively in terms of product quality or price that could materially adversely affect our business and results of operations.

We believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. 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.

NEW PRODUCT DEVELOPMENT IS RISKY AND WE 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 product features, timely completion and introduction of new product designs, cost-effective manufactureprospect of such products, quality of new productsunscheduled interruptions may continue for the foreseeable future and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. 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 Bluetooth products, may not be timely developed, designed to address current or future end user requirements, offered at competitive prices or accepted, which could materially adversely affect our business, financial condition and results of operations. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenues 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 markets, residential and certain parts of the office market. We believe products designed to serve these markets generally exhibit shorter lifecycles and are increasingly based on open standards and protocols. The end markets served are much larger than the traditional call center market. This combination of factors may lead to increased commoditization, as a greater number of competitors attempt to introduce products, or reverse engineer our products and offer similar but lower quality products at lower price points.

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. If we are unable to developpredict their occurrence, duration or cessation. While we have developed a disaster recovery plan and introduce enhancedbelieve we are adequately insured with respect to these facilities, we may be unable to implement the plan effectively or new productsto recover under applicable insurance policies.

Technology companies like ours have a history of using broad based employee stock option programs to hire, incentivize and retain our workforce in a timely mannercompetitive 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 responseexpense 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 changing market conditions or customer requirements,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 options 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

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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 materially adversely affecthave a significant impact on our business, financial condition andconsolidated 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.

Dueoperations within our footnotes in accordance with the disclosure provisions of SFAS 123 (see Note 2 of the Notes to the historically slow evolutionconsolidated 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 expense related to the fair value of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. However,stock options under the Binomial Model as we develop new generations of products more quickly, we expect thatproposed by the pace of product obsolescenceFASB will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of operations.

INCREASED ADOPTION OF SPEECH-ACTIVATED AND VOICE INTERACTIVE SOFTWARE PRODUCTS BY BUSINESSES COULD LIMIT OUR ABILITY TO GROW IN THE CALL CENTER MARKET.

We are seeing a proliferation of speech-activated and voice interactive software inbe slightly less than the market place. We may experience a decline in our sales to the call center market if businesses increase their adoption of the speech-activated and voice interactive software as an alternative to customer service agents. Should this trend continue, it could cause a net reduction in call center agents and our revenues to this market segment could decline rather than grow in future years.

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 modify our products to address those changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting in a decrease in demand for our products if the costs are passed along or a decrease in our margins. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their marketability.

WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING ABROAD.Black-Scholes valuation approach.*

During fiscal 2002,year 2004, approximately 31.3%33.5% of our net sales were derived from customers outside the United States. Approximately 31.9% of our net sales in fiscal 2001 were derived from customers outside the United States, compared with approximately 34.0% of our net sales in fiscal 2000. 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. 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: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.

  	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 conduct of business;

• greater difficultynumerous jurisdictions in accounts receivable collection;
• unexpected changeswhich we sell them. As regulations and local laws change, we must modify our products to address those changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting 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 MATERIAL CHANGES IN CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR.

A significant portion of our business is conducted in currencies other than the U.S. dollar. Substantially all of our sales throughout Europe are transacted in 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. In our prior fiscal year, the value of major European currencies dropped against the U.S. dollar, which adversely impacted our revenue and gross margin, and also resulted in currency transaction losses. To date, we have partially but not fully reflected that change in currency valuedecrease in our selling prices. In order to maintainmargins or a competitive pricedecrease in demand for our products in Europe, weif the costs are passed along. Compliance with regulatory restrictions may reduceimpact the technical quality and capabilities of our current prices further, resulting in a lower margin on products, sold in Europe. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a material adverse effect on our business, financial condition and results of operations.reducing their marketability.

In our current fiscal year we have introduced programs designed to reduce our foreign currency net asset exposure and have successfully reduced transaction gains and losses that are accounted for in other income/expense. However, there can be no assurance that our hedging policy will be effective in continuing to reduce transaction gains and losses. Moreover, our economic exposure to foreign currency fluctuations has not changed and revenues and margins can be adversely impacted by such fluctuations. 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.

THE TERRORIST ATTACKS ON NEW YORK CITY ON SEPTEMBER 11, 2001, MARKED A TURNING POINT IN CURRENT U.S. POLITICAL, MILITARY AND SECURITY STRATEGIES WHICH WE BELIEVE HAS, AND MAY CONTINUE TO, ADVERSELY IMPACT OUR BUSINESS, BOTH DIRECTLY AND INDIRECTLY.33

The events of September 11^th, and the U.S. military efforts in Afghanistan, have contributed to a further slowing in the economy with additional layoffs in other industries resulting in a negative effect on our business. We believe that one direct impact of the attacks is the reduction of call center agents in the travel and leisure industries. We are indirectly affected by the continuing concern on future terrorist attacks on U.S. soil, as well as concerns of the anthrax infection on the American and international public. We are unable to estimate the impact these events and their consequences have on our business, however, given the magnitude of these unprecedented events and the possible subsequent effects, we expect that there has been and may likely be an adverse impact to our financial condition, our operations and our prospects as these events adversely affect the global economy in general.

IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR OPERATIONS.

The majority of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies.

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 similarother 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.Wecustomers. We currently hold forty-one81 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 issued 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.

From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such 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.

WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS.

The use of our products exposes us to the risk of product liability and hearing loss claims. Product liabilityThese 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 or 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 our mobile headsets.phones, which reduces demands for headset products.

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 material adverse effect upon our business, financial condition and results of operations.

WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM ENVIRONMENTAL MATTERS.

34

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 asserted in the future and any liability that might result could exceed the amount of the reserve.

WE HAVE RECENTLY ACQUIRED A COMPANY AND EXPECT TO MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE MATERIAL RISKS

On January 2, 2002, we acquired Ameriphone, Inc., a California corporation, in a cash transaction. We may in the future, in orderare actively working to address the need to develop new products and technologies, and enter new markets, 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 include:

• cultural differences in the conduct of business;
• difficulties in integrationgain an understanding of the operations, technologies,complete 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 productselectronic equipment (“ROHS”) and on Waste Electrical and Electronic Equipment (“WEEE”). Some of our 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 acquired company;
• ROHS and WEEE directives, if unusual occurrences arise or if we are wrong in our assessment of what it will take to fully comply, there is a risk that we will not be able to meet the risk of diverting management's attention from normal daily operations ofaggressive schedule set by our customers or comply with 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 retainedlegislation as passed 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 givenEU member states. If that the Ameriphone or future acquisitions will be successful and will not materially adversely affectwere to happen, a material negative effect on our business, operatingfinancial results or financial condition. We must also manage any such growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results.

OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF THE SERVICES OF KEN KANNAPPAN OR OTHER KEY PERSONNEL.may occur.

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.

We are working diligently toward evaluating our internal controls systems in order to allow management to report on, and our independent auditors to attest to, our internal controls, as required by this legislation. We are performing the system and process evaluation and testing (and any necessary remediation) required in an effort to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes Oxley Act. As a result, we expect to incur additional expenses and diversion of management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory

OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD BE LOST.

The market price for our Common Stock may continue to be affected by a number of factors, including35

authorities, such as 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, including factors unrelated to our operating performanceSecurities Exchange Commission or the operating performance ofNew York Stock Exchange. Any such action could adversely effect our competitors. Stock prices for many companies, particularly in the technology sector, have experienced wide fluctuations that have often been unrelated to the operating performances of such 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.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW AND OUR ADOPTION OF A STOCKHOLDER RIGHTS PLAN MAY DELAY OR PREVENT ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF OUR STOCK.financial results.

Our board of directors 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.common stock.

OurIn the first quarter of calendar year 2002, our board of directors recently adopted a stockholders rightstockholder rights plan, pursuant to which we distributed one right for each outstanding share of Common Stockcommon 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 acquisition.

WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS, AND GIVEN THE LOW TRADING VOLUME OF OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME WE COULD SEE AN ADVERSE EFFECT ON THE MARKET PRICES OF OUR STOCK.

As of May 31, 2002, we had 45,925,008 shares of Common Stock outstanding. These shares are freely tradable except for approximately 14,039,795 shares held by affiliates of Plantronics (including Citicorp Venture Capital ("CVC") and the directors and officers of Plantronics). These approximately 14,039,795 shares may be sold in reliance on Rule 144 under the Securities Act, or pursuant to an effective registration statement filed with the Securities and Exchange Commission.

Some of our current stockholders, including CVC and certain of our directors, also have certain contractual rights to require us to register their shares for public sale. On June 11, 2002, CVC requested that we register up to 1,000,000 shares for resale by CVC. We expect to file a registration statement shortly to register the resale of such shares.

Approximately 9,822,013 additional shares are subject to outstanding stock options as of May 31, 2002. The issuance of these shares upon exercise of stock options has been registered. Accordingly, to the extent that these shares vest and 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 Securities Act.

Our stock is not heavily traded. The average daily trading volume of our stock in fiscal year 2002 was approximately 305,544 shares per day with a median volume in that period of 255,100 shares per day. Sales of a substantial number of shares of our Common Stock in the public market by any of our officers, directors or other stockholders could adversely affect the prevailing market price of our Common Stock and impair our ability to raise capital through the sale of equity securities.

ITEMItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and 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“Risk Factors Affecting Future Operating Results" beginning on page 24.Results.”

INTEREST RATE RISK

In fiscal 2002, we renewed ourWe have a revolving credit facility and letter of credit subfacility with a major bank atfor $75 million. The revolving credit facility andmillion, including a letter of credit subfacility. The facility and subfacility both expire in January 2003.on July 31, 2005. As of March 31, 2002,April 30, 2004 we havehad no cash borrowings under the revolving credit facility orand $1.2 million outstanding under the letter of credit subfacility. IfThe 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 us to the extent we choose to borrowcannot comply with them. We are currently in compliance with the covenants under this facility in the future, and market interest rates rise, then our interest payments would increase accordingly.agreement.

FOREIGN CURRENCY EXCHANGE RATE RISK

36

Euro. Approximately 32.2% of our fiscal 2003 revenue was derived from sales outside of the United States, with approximately 22.1% denominated predominately in the Great British Pound and the Euro. Approximately 31.3% of fiscal 2002 revenue was derived from sales outside the Unties States, with approximately 20.2% denominated in the Great British Pound and the Euro. During fiscal years 2000 and 20012002 we did not engage in any hedging activities. In fiscal 2002,2003, and 2004 we implementedengaged in a hedging strategy to minimize the effect of these currency fluctuations. Specifically, we began to hedgehedged our European transaction exposure, hedging both our Great British Pound Sterling and Euro positions. During fiscal 2004, we expanded our hedging activities to include a hedging program to hedge our economic exposure by hedging a portion of Euro and Great British Pound denominated sales. However, we have no assurance that exchange rate fluctuations will not materially adversely affect our business in the future.

The following table below provides information about our financial instruments and underlying transactions that are sensitive to FXforeign exchange rates, including foreign currency forward-exchange contracts and nonfunctional currency-denominated receivables and payables. The net amount that is exposed to changes in foreign currency rates is then subjected to a 10% change in the value of the foreign currency versus the U.S. dollar. We believe we have no material sensitivity to changes in foreign currency rates on our net exposed financial instrument position.*

TheAs stated above, the table below presents the impact on our earnings of a 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated currencies:

As of March 31, 2002
(in millions)                          Net
                                    Underlying     Net          FX           FX
                                     Foreign     Exposed    Gain (Loss)  Gain (Loss)
                         USD Value   Currency   Long (Short) From2004, we had foreign currency call option contracts of approximately€26.1 million and £9.6 million denominated in Euros and Great British Pounds, respectively. As of March 31, 2004, we also had foreign currency put option contracts of approximately€26.1 million and £9.6 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 transactions that are sensitive to foreign currency exchange rates, including foreign currency option contracts. If these net exposed currency positions are subjected to either a 10% Fromappreciation or 10% depreciation versus the U.S. dollar we could incur a gain of Net FX  Transaction  Currency   Appreciation Depreciation
Currency                 Contracts   Exposures   Position$4.1 million or a loss of USD$4.5 million.
37
Plantronics
2004 Annual Report
The table below presents the impact on our currency option contracts of USD
- -----------------------  ---------  ----------  ----------  -----------  -----------
Euro................... $     3.0  $      6.7  $      3.7  $      (0.4) $       0.3
British pound sterling.       1.1         1.1          --           --           --
                         ---------  ----------  ----------  -----------  -----------
Total.................. $     4.1  $      7.8  $      3.7  $      (0.4) $       0.3
                         =========  ==========  ==========  ===========  ===========

38

ITEM

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial Statements and Supplementary Data

Item 6, quarterly financial data, is incorporated herein by this reference.

PLANTRONICS, INC.

                                                                    March 31,
                                                               ----------------------
                                                                  2001        2002
                                                               ----------  ----------
ASSETS
Current assets:
   Cash and cash equivalents................................. $   60,544  $   43,048
   Marketable securities.....................................     13,385      17,262
   Accounts receivable, net..................................     54,808      43,838
   Inventory, net............................................     48,235      36,103
   Deferred income taxes.....................................      7,110       5,866
   Other current assets......................................      1,449       2,452
                                                               ----------  ----------
       Total current assets..................................    185,531     148,569
Property, plant and equipment, net...........................     32,683      35,700
Intangibles, net.............................................        787       4,584
Goodwill, net................................................      6,084       9,542
Other assets.................................................      2,792       2,663
                                                               ----------  ----------
       Total assets.......................................... $  227,877  $  201,058
                                                               ==========  ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable.......................................... $   10,836  $   14,071
   Accrued liabilities.......................................     25,398      25,868
   Income taxes payable......................................     12,519      11,961
                                                               ----------  ----------
       Total current liabilities.............................     48,753      51,900
Deferred tax liability.......................................      6,077       7,165
                                                               ----------  ----------
       Total liabilities.....................................     54,830      59,065
                                                               ----------  ----------
Commitments and contingencies (note 8)

Stockholders' equity:
   Common stock, $0.01 par value per share; 100,000 shares
     authorized, 59,098 shares and 59,226 shares issued
     at 2001 and 2002, respectively..........................        591         592
   Additional paid-in capital................................    148,188     152,194
   Accumulated other comprehensive loss......................     (1,172)     (1,203)
   Retained earnings.........................................    207,626     243,874
                                                               ----------  ----------
                                                                 355,233     395,457
   Less: Treasury stock (common: 9,919 and 13,368
   at 2001 and 2002, respectively) at cost...................   (182,186)   (253,464)
                                                               ----------  ----------
       Total stockholders' equity............................    173,047     141,993
                                                               ----------  ----------
       Total liabilities and stockholders' equity............ $  227,877  $  201,058
                                                               ==========  ==========

The accompanying notes are an integral part of these consolidated financial statements.

39

PLANTRONICS, INC.

                                                            Fiscal Year Ended March 31,
                                                        -----------------------------------
                                                           2000        2001         2002
                                                        ----------  -----------  ----------
Net sales............................................. $  309,143  $   390,748  $  311,181
Cost of sales.........................................    129,513      180,946     163,336
                                                        ----------  -----------  ----------
   Gross profit.......................................    179,630      209,802     147,845
                                                        ----------  -----------  ----------
Operating expenses:
   Research, development and engineering..............     21,868       26,999      30,303
   Selling, general and administrative................     64,457       80,789      76,273
                                                        ----------  -----------  ----------
     Total operating expenses.........................     86,325      107,788     106,576
                                                        ----------  -----------  ----------
Operating income......................................     93,305      102,014      41,269
Interest and other income, net........................      1,573          138       1,931
                                                        ----------  -----------  ----------
Income before income taxes............................     94,878      102,152      43,200
Income tax expense....................................     30,361       28,602       6,952
                                                        ----------  -----------  ----------
Net income............................................ $   64,517  $    73,550  $   36,248
                                                        ==========  ===========  ==========

Net income per share - basic.......................... $     1.30  $      1.49  $     0.77
                                                        ==========  ===========  ==========

Shares used in basic per share calculations...........     49,515       49,213      47,304
                                                        ==========  ===========  ==========

Net income per share - diluted........................ $     1.22  $      1.38  $     0.74
                                                        ==========  ===========  ==========

Shares used in diluted per share calculations.........     53,019       53,263      49,238
                                                        ==========  ===========  ==========

The accompanying notes are an integral part of these consolidated financial statements.

40

PLANTRONICS, INC.

                                                                    Fiscal Year Ended March 31,
                                                                -----------------------------------
                                                                   2000        2001         2002
                                                                ----------  -----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................... $   64,517  $    73,550  $   36,248
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization..........................      6,651        9,443       9,464
       Deferred income taxes..................................     (6,493)      (1,406)      1,028
       Income tax benefit associated with stock options.......     15,098       16,574       1,106
       Loss (gain) on disposal of fixed assets................        (12)          38         142
   Changes in assets and liabilities, excluding
       effects of acquisition:
     Accounts receivable, net.................................       (991)      (8,050)     12,559
     Inventory, net...........................................    (14,863)     (14,483)     14,532
     Other current assets.....................................      6,277          (58)        316
     Other assets.............................................       (119)        (270)        (27)
     Accounts payable.........................................      1,994         (611)      2,531
     Accrued liabilities......................................        172       (7,209)       (517)
     Income taxes payable.....................................     11,273          736        (558)
                                                                ----------  -----------  ----------
Cash provided by operating activities.........................     83,504       68,254      76,824
                                                                ----------  -----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities of marketable securities..........      3,800       17,750      23,143
   Purchase of marketable securities..........................     (8,800)     (25,885)    (27,271)
   Capital expenditures and other assets......................    (17,588)     (17,393)    (11,368)
   Acquisition of Ameriphone, net of cash acquired............         --           --     (10,416)
                                                                ----------  -----------  ----------
Cash used for investing activities............................    (22,588)     (25,528)    (25,912)
                                                                ----------  -----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Purchase of treasury stock.................................    (72,613)     (40,050)    (72,082)
   Proceeds from sale of treasury stock.......................      2,094        2,781       2,516
   Proceeds from exercise of stock options....................      6,875       15,097       1,189
   Other......................................................         --         (281)        (31)
                                                                ----------  -----------  ----------
Cash used for financing activities                                (63,644)     (22,453)    (68,408)
                                                                ----------  -----------  ----------
Net increase (decrease) in cash and cash equivalents..........     (2,728)      20,273     (17,496)
Cash and cash equivalents at beginning of year................     42,999       40,271      60,544
                                                                ----------  -----------  ----------
Cash and cash equivalents at end of year...................... $   40,271  $    60,544  $   43,048
                                                                ==========  ===========  ==========
SUPPLEMENTAL DISCLOSURES
 Cash paid for:
   Interest................................................... $       62  $        93  $      112
   Income taxes............................................... $   13,150  $    14,257  $   11,778

The accompanying notes are an integral part of these consolidated financial statements.

41

PLANTRONICS, INC.

                                                                  Accumulated
                                                                    Other                              Total
                                    Common Stock      Additional   Compre-                             Stock-
                                 -------------------   Paid-In     hensive    Retained    Treasury    holders'
                                   Shares     Amount   Capital       Loss     Earnings     Stock       Equity
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Balance at March 31, 1999....... 50,395,329  $  555  $   91,053  $     (891) $  69,559  $  (70,871) $   89,405
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Net income......................         --      --          --          --     64,517          --      64,517
Exercise of stock options.......  2,180,493      21       6,854          --         --          --       6,875
Income tax benefit associated
  with stock options............         --      --      15,098          --         --          --      15,098
Purchase of treasury stock...... (3,802,500)     --          --          --         --     (72,613)    (72,613)
Sale of treasury stock..........    123,291      --       1,350          --         --         744       2,094
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Balance at March 31, 2000....... 48,896,613     576     114,355        (891)   134,076    (142,740)    105,376
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Net income......................         --      --          --          --     73,550          --      73,550
Foreign currency
  translation adjustments.......         --      --          --        (281)        --          --        (281)
                                                                                                     ----------
Comprehensive income............                                                                        73,269
                                                                                                     ----------
Exercise of stock options.......  1,516,000      15      15,082          --         --          --      15,097
Income tax benefit associated
  with stock options............         --      --      16,574          --         --          --      16,574
Purchase of treasury stock...... (1,333,100)     --         --           --         --     (40,050)    (40,050)
Sale of treasury stock..........     99,925      --       2,177          --         --         604       2,781
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Balance at March 31, 2001....... 49,179,438     591     148,188      (1,172)   207,626    (182,186)    173,047
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Net income......................         --      --          --          --     36,248          --      36,248
Foreign currency
  translation adjustments.......         --      --          --         (31)        --          --         (31)
                                                                                                     ----------
Comprehensive income............                                                                        36,217
                                                                                                     ----------
Exercise of stock options.......    127,449       1       1,188          --         --          --       1,189
Income tax benefit associated
  with stock options............         --      --       1,106          --         --          --       1,106
Purchase of treasury stock...... (3,581,421)     --          --          --         --     (72,082)    (72,082)
Sale of treasury stock..........    133,110      --       1,712          --         --         804       2,516
                                 -----------  ------  ----------  ----------  ---------  ----------  ----------
Balance at March 31, 2002....... 45,858,576  $  592  $  152,194  $   (1,203) $ 243,874  $ (253,464) $  141,993
                                 ===========  ======  ==========  ==========  =========  ==========  ==========