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Washington, D.C. 20549

FORM 10-K

	(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

Commission File Number: 1-12696

(831) 426-5858

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ].

The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing price of $23.83 for shares of the Registrant’s Common Stock on September 26, 2003, the last business day of the registrant’s most recently completed second fiscal quarter as reported by the New York Stock Exchange, was approximately $1,029,066,356. In calculating such aggregate market value, shares of Common Stock owned of record or beneficially by officers, directors, and persons known to the Registrant to own more than five percent of the Registrant’s voting securities (other than such persons of whom the Registrant became aware only through the filing of a Schedule 13G filed with the Securities and Exchange Commission) were excluded because such persons may be deemed to be affiliates. The Registrant disclaims the existence of control or any admission thereof for any other purpose.

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Number of shares of Common Stock outstanding as of April 30, 2004 was 47,611,158.

DOCUMENTS INCORPORATED BY REFERENCE

Plantronics, Inc.

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Plantronics, the logo design, Plantronics and the logo design combined, Ameriphone, Clarity, and SoundGuard are registered United States trademarks of Plantronics, Inc., ..Audio, DuoPro, 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. 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 2004. Each of our fiscal years ends on the Saturday closest to the last day of March. Our fiscal year 2004 ended on April 3, 2004. For purposes of consistent presentation, we have indicated in this report that each fiscal year ended “March 31” of the given year, even though the actual fiscal year end may have been on a different date.

CERTAIN FORWARD-LOOKING INFORMATION

Item 1. Business

OVERVIEW

We are a global company, and sell our broad range of communications products in more than 70 countries through a worldwide network of distributors, original equipment manufacturers (“OEMs”), retailers and telephony service providers. We have well-developed distribution channels in North America and Europe. Such factors as the growth of phone-based customer support, emerging technologies such as VoIP and Bluetooth, and impending or already existing legislation requiring mandatory hands-free devices for cell phone communications in cars have all led to an increased use of telephone headsets.

Headsets for office use continues to be an area of major focus for Plantronics and also represents our largest revenue market. We also sell headsets for use in home office and residential applications. These end user groups have been identified as having long-term growth potential. Users in the office market consist primarily of business executives, mobile professionals, brokers, lawyers, accountants, and others whose occupations and/or lifestyle may require increased mobility or the ability to multi-task while on the telephone.

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Plantronics sells more headsets to cell phone users than to any other market. Using one of our headsets enables our customers to experience increased mobility, to have both hands-free to drive, and when used with voice dialing features, our headsets offer freedom from dial pads.

A broad and diverse group of worldwide business customers purchase our headsets. These include OEM’s, telephone-operating companies and governmental agencies. We distribute our products through specialized distributors, large electronics wholesalers, OEMs and retail channels, such as wireless carriers, office supply stores, consumer electronics stores, mail order catalogs, warehouse clubs and office supplies distributors. Certain products are sold directly to governmental agencies. Other products are distributed to the government market through OEMs, distributors and other sales channels. Our products may also be purchased from our 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

Headsets enhance communications with:

	BETTER SOUND QUALITY that provides clearer conversations on both ends of a call through a variety of features and technologies, including noise-canceling microphones, digital signal processing and more;
	MULTI-TASKING BENEFITS that allow people to use a computer, a Personal Digital Assistant (“PDA”) or other devices, take notes and organize files while talking hands-free;
	IMPROVED MOBILITY, that permits talking more easily on a cellular or cordless phone while on the go;
	WIRELESS FREEDOM, allowing people to take and make calls as they move freely around their home or office without cords or cables;
	CONTRIBUTING TO GREATER DRIVING SAFETY by enabling a person to have both hands free to drive while talking on a cell phone;
	VOICE COMMAND AND CONTROL that lets people take advantage of voice dialing and/or other voice-based features to make communications and the human/electronic interface more natural and convenient;
	PROVIDING ERGONOMIC RELIEF from repetitive stress injuries and discomfort associated with placing a telephone handset between the shoulder and neck;
	ENABLING EMERGING PC AND VoIP APPLICATIONS, including speech recognition, Internet telephony and gaming; and

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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

The office market, both corporate and small office/home office (“SOHO”), comprises the largest overall revenue market for Plantronics products today, and is 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 will contribute to the continued growth of this market, 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 use telephones for work. Of this 95 million, we believe that about 10%, or approximately 9.5 million of these workers, currently use a telephone headset for work. We believe that this presents a long-term opportunity to increase headset sales to workers.*

Our latest offerings for the 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 professional.

Mobile

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mobility of hands-free communications with superior sound quality, stability and comfort. Plantronics mobile, or M-Series headsets, come in a variety of styles, colors and models. Our headsets are designed to strict quality standards, including features that provide superior user experience. These headsets have a variety of features depending on the model, including noise-canceling microphones that effectively reduce background noise and facilitate voice dialing, Plantronics’ unique Flex Grip™ design for a stable, comfortable fit and inline 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 mobile professionals. At the Consumer 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 products such as cell phones and PDAs.

In late fiscal 2004, we announced the M2500 Bluetooth headset, which is the entry level model in our Bluetooth 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 broad-based mobile consumer market.

Following the success of the 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 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 continue to grow, and we believe we are well positioned to serve these needs. Clarity delivers a comprehensive range of special needs communications products from

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a single manufacturer, and they serve the mild, moderate and severe hearing loss markets as well as the deaf community. Product distribution also includes audiologists and health care professionals, government programs, specialized distributors and retail.

INDUSTRY SEGMENTS AND FOREIGN OPERATIONS

In fiscal 2002 and 2003, approximately 31.3% and 32.2% of our net sales were derived from sales to non-U.S. customers, respectively. In fiscal 2004, non-U.S. sales accounted for approximately 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 2004, we continued to engage in hedging activities to protect our transaction 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, which constitute the majority of our currency exposure. To the extent that we increase sales to non-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

Summary

	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.*

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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 voice tubes, ear cushions, ear 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.

Headsets

MOBILE APPLICATIONS: Most cell phones come with a dedicated standard 2.5mm headset port, permitting the headset to be plugged directly into the cell phone. On those mobile devices that do not have a standard headset port, we generally have special versions that fit directly into a non-standard headset port.

COMPUTER, GAMING AND VoIP APPLICATIONS: Headsets for computers and gaming generally do not require a separate adapter and our headsets are designed to plug directly into either the computer’s analog sound card or in the USB port of 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 to higher end headsets, which include additional software productivity tools.

Plantronics Service and 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; and
	•	Instant call-back support.

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

Other Specialty Products

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 in the early days of the space 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 centers rely on Plantronics quality headsets for their unique communications needs, which may include custom headset configurations for specific applications.

PRODUCT DEVELOPMENT

In the past fiscal year, we have delivered new technologies and products 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 call. 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 the conversation 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 professional.

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 Firefly headset in a stylish desktop design.

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We have extended our corded mobile headset line with the shipment of our MX150 mobile headset, which has quickly become our best-selling mobile product. The MX150 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 who need clearer conversations in noisier environments.

We believe that new technologies such as VoIP will be deployed at an ever-increasing rate.* To that end, we continue development activities with OEM partners for VoIP 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 underway to further broaden our product line. One benefit of our focus on technology has been a number of key 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 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. Research, development and engineering expenditures were $30.3 million, $33.9 million and $35.5 million for fiscal years 2002, 2003, and 2004, respectively. While we believe that substantial investment in research and development is necessary to maintain and grow our position in the industry, due to our heavy investment in 2004 and the related pipeline of new products, as well as improvements in our development process, we expect our spending for research, development and engineering in fiscal 2005 to increase compared to fiscal 2004. However, we believe that our research and 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 new products. To remain 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-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. The next generation usually includes 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 avoid product obsolescence, we will have to monitor technological changes in telephony, as well as 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

Commercial distributors represent our largest sales channel. This channel is comprised of headset specialists, national wholesalers, and regional wholesalers. The wholesalers typically offer a wide variety of products from multiple vendors to both resellers and end users. This distribution channel generally maintains inventory of our products, and our revenues may be affected by our distributors’ fluctuating inventory levels even when market demand is stable.

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

Contact center OEMs and manufacturers of automatic call distributor systems (“ACDs”) and other telecommunications and computer equipment also utilize Plantronics headsets. Contact 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.

Cell phone OEMs include both manufacturers of cell phones and wireless carriers. Wireless carriers do not manufacture headsets, but distribute our headsets as a Plantronics branded product or under their own private label. Cell phone OEMs, on the other hand, generally require their own design and will sell products under their private label.

Computer OEM’s include both manufacturers of computer hardware (including personal computers and specialized components and accessories for personal computers) and software. Many companies do not typically manufacture headsets but look to us for bundling our headsets with their products. Bundling configurations include product bundled with Plantronics-labeled headsets, product bundled with headsets privately labeled by the OEM, or product co-branded with Plantronics and the OEM.

The telephony service provider channel is comprised of 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’ representatives to assist in selling through the retail channel.

BACKLOG

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customers’ requested shipment dates. We have a “book and ship” business model whereby we fulfill the majority of our orders within 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. Because 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

The office market, including both traditional and SOHO, and residential markets, involves the sale of headsets for connection to single-line or office telephone systems, wireless and cordless telephones and computers. There is indirect competition from speakerphones. Competitors in the contact center user market also 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.* Although we have historically competed very successfully in the contact center market, there can be no assurance that we will be able to continue our leadership position in that market.

Competitors in the mobile market generally come from outside the contact center market. They include the cell 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 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 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

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competitors in the mobile and computer markets and, in the case of our 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-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.

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, and Europe. 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. We 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

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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 as well as the names of many of our products and product 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 may seek copyright 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

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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 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 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 MBA 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. Houston 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. May 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’s responsibilities expanded to include President of the Office and Contact Center Division. In Fall 2003, Mr. May took on the position of Senior Vice President — Marketing, Product Development and 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

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

Ms. 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 the Boston Consulting Group from 1985-1987. For two years prior to that, she was a member of the corporate finance staff at ARCO. Ms. Scherer has a Bachelor’s degree from the University of California, Santa Barbara and received an MBA from the Yale School of Organization and Management.

Ms. Shimizu joined Plantronics in July 1983, and was named Vice President, Strategic Portfolio and Product Management in Fall 2003. Prior to that, she was President of the Mobile Communications 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’s degree in Japanese from University of California, Los Angeles.

Mr. 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 for the Business Systems Division in the 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 merged into Fujitsu-ICL’s Personal Systems and Client-Server Division where he continued as Vice President of Marketing 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 1977 where he specialized in structured programming and office automation. Mr. Vanhoutte studied Applied Economics and Engineering at the University of Leuven, Belgium.

Mr. Walters 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

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President New Product Introduction and 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. There are no family relationships between any of the directors and executive officers of Plantronics.

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Item 2. Properties

Our principal executive offices are located in Santa Cruz, California. Our facilities are located throughout the Americas, Europe, and Asia/ Pacific. As of April 30, 2004, we owned or leased a total of approximately 512,200 square feet of assembly, sales, engineering, and administrative facilities. The table below lists the major facilities owned or leased as of 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 and our planned manufacturing facility in China will provide sufficient capacity over the next several years.*

Item 3. Legal 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 the breach of contract claim and $30 million in damages for conduct arising at or after termination of the contract.

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This case was tried in October 2003. We were granted summary judgment on GN Hello Direct’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, and a defense verdict was returned on our behalf. We were awarded approximately $0.8 million with 10% simple interest from March 15, 2001 for product sold by us to GN Hello Direct and for which 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 with GN Hello Direct agreeing to pay Plantronics approximately $1.1 million plus 10% simple interest from the date of the judgment. The briefing and remainder 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 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.

Item 4. Submission 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, 2004.

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

We paid no cash dividends during fiscal 2003 and 2004, however our Board of Directors is currently reviewing our position regarding dividends subject to various economic factors. Our Credit Agreement with a major bank contains covenants which limit our ability to pay cash dividends on shares of our Common Stock.

There were no stock repurchases for the fourth quarter ended March 31, 2004. See Note 5 of our Notes to Condensed Consolidated Financial Statements for information regarding our stock repurchase programs.

Certain Equity Compensation Plan Information included in Item 12 of Part III hereof is hereby incorporated into this Item 5 of Part II.

As of April 30, 2004 there were 104 holders of record of our Common Stock.

Item 6. Selected Financial Data

SELECTED FINANCIAL DATA

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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.

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 common share by $0.03. For fiscal 2003 this favorable tax effect increased diluted net 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 for the fourth quarter of fiscal 2004 included a favorable tax effect resulting from higher profit in lower taxed regions which reduced our effective tax rate for the fiscal year from our previous estimate of 30% to 28%.

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Item 7. Management’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.

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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

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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

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$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

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$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

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“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

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

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

Inventory. 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’ products and corresponding demand decline, then additional write downs may be necessary.

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

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

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

RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:

We derive approximately 25% to 35% of our net sales from the contact center market and we expect that this market will continue to account for a significant portion of our net sales. While we believe that this market may grow in future periods, this growth could be slow or revenues from this market could be flat or decline in response to various factors. For example, legislation enabling consumers to block telemarketing calls may adversely affect growth in the contact center market. A deterioration in general economic conditions could result in a reduction in the establishment of new contact centers and in capital investments to expand or upgrade existing centers, which may continue to negatively affect our business. Because of our reliance on the contact center market, we will be affected more by changes in the rate of contact center establishment and expansion and the communications products that contact center agents use than would a company serving a broader market. Any decrease in the demand for contact centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.

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.

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

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

The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Currently, our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. Internationally, Sennheiser Communications is a significant competitor in the computer, office and contact center market.

We currently operate principally in a multilevel distribution model — we sell most of our products to distributors who, in turn, resell to dealers or end-customers. GN Netcom’s acquisitions indicate it may be

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moving towards a direct sales model, since six of their nine acquisitions were of companies employing direct sales and marketing models. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices which could materially adversely affect our business and results of operations.

We also 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 substantially greater financial, marketing and other 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, or are direct copies of our products. These new competitors are likely to offer very low cost products which may result in price pressure in the market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition or results of operations could be materially adversely affected.

Historically, we have generally been able to increase production to meet increasing demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. We have experienced sharp fluctuations in demand, especially for headsets for wireless and cellular phones. Significant unanticipated fluctuations in demand and the global trend towards consignment of products could cause the following operating problems, among others:

	•	If forecasted demand does not develop, we 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 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

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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 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. Adverse economic conditions could lead to a higher risk of failure of our suppliers to remain in business or to be able to purchase the raw materials, subcomponents and parts required by them to produce and provide to us the parts we need. An interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations.

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	•	Prices of raw materials, components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations.
	•	Due to the lead times required to obtain certain raw materials, subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the raw materials, subassemblies, components and products. Lead times are particularly long on silicon-based components incorporating radio frequency and digital signal processing technologies and such components are an increasingly important part of our product costs. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand could increase our inventories and/or decrease our revenues, consequently materially adversely affecting our business, financial condition and results of operations.
	•	Most of our suppliers are not obligated to continue to provide us with raw materials, components and subassemblies. Rather, we buy most raw materials, components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those raw materials, components and subassemblies. This would materially adversely affect our business, financial condition and results of operations.
	•	Although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permits us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet time to market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, and/or the inability to meet our customer demand for these new products. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these factors.

We sell substantially all of our products through distributors, retailers, OEM’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, 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.

As a result of the growth of our mobile 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 purchasing activities over time. If we are unable to anticipate the purchase requirements of these customers, our quarterly revenues may be adversely affected and/or we may be exposed to large volumes of inventory that cannot be immediately resold to other customers.

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The market price for our common stock may continue to be affected 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 the operating performance of these companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, could materially adversely affect the market price of our common stock.

The majority of our revenues come from products that are produced in our facilities in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facilities could have a material adverse effect on our business, financial condition and results of operations. The prospect of such unscheduled interruptions may continue for the foreseeable future and we are unable to predict their occurrence, duration or cessation. While we have developed a disaster recovery plan and believe we are adequately insured with respect to these facilities, we may be unable to implement the plan effectively or to 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 competitive marketplace. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), allows companies the choice of either using a fair value method of accounting for options, which would result in expense recognition for all options granted, or using an intrinsic value method, as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), with pro forma disclosure of the impact on net income (loss) of using the fair value option expense recognition method. We have elected to apply APB 25 and accordingly we generally do not recognize any expense with respect to employee stock 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 have a significant impact on our consolidated statement of operations as we will be required to expense the fair value of our stock options rather than disclosing the impact on our consolidated results of operations within our footnotes in accordance with the disclosure provisions of SFAS 123 (see Note 2 of the Notes to the consolidated financial statements). This will result in lower reported earnings per share which could negatively impact our future stock price. In addition, should the proposal be finalized, this could impact our ability to utilize broad based employee stock plans to reward employees and could result in a competitive disadvantage to us in the employee marketplace. We believe that the expected expense related to the fair value of our stock options under the Binomial Model as proposed by the FASB will be slightly less than the Black-Scholes valuation approach.*

During fiscal year 2004, approximately 33.5% of our net sales were derived from customers outside the United States. In addition, we conduct the majority of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. We also purchase a growing number of turn-key products directly from Asia. The inherent risks of international operations, either in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include, among others:

	•	cultural differences in the conduct of business;
	•	greater difficulty in accounts receivable collection;
	•	unexpected changes in regulatory requirements;
	•	tariffs and other trade barriers;
	•	economic and political conditions in each country;
	•	management and operation of an enterprise spread over various countries; and
	•	the burden of complying with a wide variety of foreign laws.

Our 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 our margins or a decrease in demand for our products if the costs are passed along. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their marketability.

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Our success will depend in part on our ability to protect our copyrights, patents, trademarks, trade dress, trade secrets, and other intellectual property, including our rights to certain domain names. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. Effective trademark, patent, copyright, and trade secret protection may not be available in every country in which our products and media properties are distributed to customers. We currently hold 81 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’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.

The use of our products exposes us to the risk of product liability and hearing loss claims. These claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition 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’s head to virtually zero. However, if research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for mobile phones, which reduces demands for headset products.

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.

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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 are actively working to gain an understanding of the 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 electronic 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 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 aggressive schedule set by our customers or comply with the legislation as passed by the EU member states. If that were to happen, a material negative effect on our financial results 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 one or more of our 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

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authorities, such as the Securities Exchange Commission or the New York Stock Exchange. Any such action could adversely effect our 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.

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

Item 7A. Quantitative 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 Factors Affecting Future Operating Results.”

INTEREST RATE RISK

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.

FOREIGN CURRENCY EXCHANGE RATE RISK

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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 2002 we did not engage in any hedging activities. In fiscal 2003, and 2004 we engaged in a hedging strategy to minimize the effect of currency fluctuations. Specifically, we hedged our European transaction exposure, hedging both our Great British Pound 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 provides information about our financial instruments and underlying transactions that are sensitive to foreign 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.*

As 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, 2004, 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% appreciation or 10% depreciation versus the U.S. dollar we could incur a gain of $4.1 million or a loss of $4.5 million.

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The table below presents the impact on our currency option contracts of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated option contract type for cash flow hedges:

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Item 8.    Financial Statements and Supplementary Data

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

PLANTRONICS, INC.

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

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PLANTRONICS, INC.

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

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PLANTRONICS, INC.

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

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PLANTRONICS, INC.