United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

(Mark One)

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended April 2, 2005

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from          to         

Commission file number: 1-12696

PLANTRONICS, INC.

(Exact name of registrant as specified in its charter)

(831) 426-5858

(Registrant’s telephone number, including area code)

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

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

NONE

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 $45.05 for shares of the Registrant’s Common Stock on October 1, 2004, the last business day of the Registrant’s most recently completed second fiscal quarter as reported by the New York Stock Exchange, was approximately $2,122,933,497. 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.

Number of shares of Common Stock outstanding as of April 30, 2005 was 47,885,060.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its 2005 Annual Meeting of Stockholders to be held on July 21, 2005 are incorporated by reference into Part III of this Annual Report on Form 10-K.

Plantronics, Inc.

FORM 10-K

For the Year Ended March 31, 2005

TABLE OF CONTENTS

Plantronics the logo design, Plantronics and the logo design combined, AcuSpeak, Ameriphone, .Audio, Clarity, Clarity Power, Flex Grip, GameCom, Plantronics Discovery, Plantronics Explorer, Plantronics Voyager, RetractPro, SupraPlus, and WindSmart are trademarks or registered trademarks of Plantronics, Inc. The Bluetooth name and the Bluetooth trademarks are owned by Bluetooth SIG, Inc, and are used by Plantronics, Inc. under license. All other trademarks are the property of their respective owners.

part i

This Annual Report on Form 10-K is filed with respect to our fiscal year 2005. Each of our fiscal years ends on the Saturday closest to the last day of March. Our fiscal year 2005 ended on April 2, 2005. 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

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,” “will,” or “shall,” and include, but are not necessarily limited to, all of the statements marked below with an asterisk (“*”). Such forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors, including, but not limited to the factors discussed in the subsection entitled “Risk Factors Affecting Future Operating Results,” in Item 7 of this Form 10-K. This Annual Report on Form 10-K and our Annual Report to Stockholders should be read in conjunction with these risk factors.

Item 1. Business

HISTORY

Plantronics, Inc. (“Plantronics,” “we”, “our,” or “us”) was founded and incorporated in the state of California in 1961. Plantronics initially went public in 1977, was taken private in a leveraged buyout in 1989 and was subsequently reincorporated in the state of Delaware. Plantronics went public on the New York Stock Exchange in 1994 under the ticker symbol of “PLT”. We are a leading worldwide designer, manufacturer and marketer of lightweight communications headsets, telephone headset systems and accessories for the business and consumer markets. In addition, we manufacture and market specialty telecommunication products for the hearing-impaired and other related products for people with special communications needs.

Plantronics headsets are communications tools, providing freedom to use your hands while staying “connected,” freedom to move around, and freedom from keyboards. We apply a variety of technologies to develop high quality products to meet the needs of our customers, whether it be for communications or personal entertainment. Plantronics headsets are widely used for cell phones, in contact centers, in the office, at home for computer applications such as Voice over Internet Protocol (“VoIP”) and gaming, as well as other specialty applications.

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

We operate in one business segment. Our operations are organized functionally. Information required by Statement of Financial Accounting Standards No. 131 (Disclosures about Segments of an Enterprise and Related Information) and Item 101(b) of Regulation S-K can be found in the Consolidated Financial Statements and related notes herein.

Plantronics acquired The Walker Equipment Corporation and Ameriphone, Inc. in 1986 and 2002 respectively. In January 2004, we changed the name of our Walker and Ameriphone businesses to Clarity®. Clarity is a leading supplier of telephones with advanced sound processing, notification systems,

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assisted listening devices and other communications devices for the hearing-impaired markets. Clarity’s patented technology, Clarity Power^tm provides customized solutions for customers who otherwise may not have a way to communicate effectively.

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.

Our principal executive offices are located at 345 Encinal Street, Santa Cruz, CA, 95060. Our telephone number is (831) 426-5858. Our internet address is www.plantronics.com. Our Investor Relations website is also accessible through www.plantronics.com.

INDUSTRY BACKGROUND

General Background

Headsets enhance communications by providing the following benefits:

Demand for headsets continues to increase both in our traditional markets such as the enterprise markets as well as in the consumer market.* In each of these markets, the trend towards wireless products contributed significantly to demand, a trend we expect to continue in fiscal 2006.* Wireless products represent both an opportunity for high growth as well as a challenge because of the lower margins we experience due to competitive pressures, particularly with Bluetooth mobile products.*

The proliferation of desktop computing makes communications headsets a product of choice in many occupations because they permit the user to be more efficient in an ergonomically comfortable environment. Growing awareness of driver safety and impending or already existing hands-free legislation requiring mandatory hands-free devices for cell phone communications in cars has led to increased headset adoption for cell phone users. The increased adoption of new technologies, such as Bluetooth and VoIP described below, has also contributed to the increase in demand for telephone headsets:

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MARKETS

Office and Contact Center

Plantronics is a leader in the office and contact center markets with a broad range of communications headsets, including high-quality, ergonomically designed headsets, amplifiers and telephone systems.

The office market, which includes both corporate and small office/home office (“SOHO”), comprises the largest overall market in terms of revenue for our products today. Growth in this market comes from two main factors:

     1) the advent of wireless solutions and the freedom they allow; and

     2) a growing awareness of the benefits of headsets.

We believe this market presents an opportunity for significant expansion.*

The contact center, in which we have achieved significant market penetration, represents our second largest revenue stream and most mature market. We believe that the long-term outlook for the contact center is one of modest growth. We expect that contact centers will increasingly adopt 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 continue to lead in new product performance.*

Mobile and Entertainment

Mobile represents our largest unit volume market. The total market at OEM prices is believed to be larger than the contact center market. We believe that our market share within the mobile market as a whole, is less than our share in the office and contact center applications.* We believe that we have the opportunity to gain share in the mobile market and that this may represent a significant growth opportunity for us.* Use of headsets is growing worldwide, particularly due to hands-free legislation for cell phones and continued Bluetooth technology adoption.* The Plantronics mobile headset line delivers the freedom and mobility of hands-free communications with high sound quality, stability and comfort. Plantronics mobile headsets come in a variety of styles, colors and models. Our headsets are designed to strict quality standards, including features that provide a high quality 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 designs incorporate discreet size and high quality sound, allowing the user to both hear and transmit his or her voice more clearly.

        Entertainment and Computer Audio

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Other Specialty Products

With a growing number of people worldwide suffering from various degrees of hearing loss, the need for simple and accessible solutions is expected to grow, and we believe that we are well positioned to serve this need. Clarity delivers a comprehensive range of special needs communications products from a single manufacturer, that serve the mild, moderate and severe hearing loss markets as well as the deaf community. Product distribution includes audiologists and health care professionals, government programs, specialized distributors and retail.

FOREIGN OPERATIONS

In fiscal 2005, 2004 and 2003 revenues outside the U.S. accounted for approximately 33%, 34% and 32%, respectively, of our total net revenues. Revenues related to foreign customers are generally subject to additional risks such as fluctuations in exchange rates, increased tariffs, and the imposition of other trade barriers. In fiscal 2005, we continued to engage in hedging activities to limit our transaction and economic exposures and to mitigate our exchange rate risks. We hedged a portion of our positions in the Euro, the Great British Pound, and the Chinese Yuan, which constitute the majority of our currency exposure. To the extent that we increase revenues 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

Our product line consists of lightweight communications headsets, telephone headset systems, headset accessories and services, specialty telephones, and other products for customers with special communications needs. Our headset products incorporate unique features that we believe offer compelling performance advantages:

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In addition to our complete line of headsets, headset systems, headset telephones and amplifiers, we provide headset accessories, which include 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.

Headsets

Our headsets are sold through various distribution channels and are used for multiple applications, such as telephony, mobile, gaming, computer audio, VoIP and entertainment.

Telephony Applications

Headsets for use with corded telephones generally consist of two distinct units. The “top” is the portion that the user wears, and is generally associated with the term “headset.” The headset top contains the speaker and the microphone and a means to have these in the correct location for comfortable use. The headset “base,” often referred to as an amplifier or telephone adapter, interfaces with the telephone or other equipment. The headset base is currently required in most standard telephone applications. Increasingly, the headset interface is being built into the corded telephone or contact center call distribution system with which the headset is being used, allowing use of the headset top alone. Whether the headset is corded, cordless or wireless, in most cases, a complete solution will still include a headset “top” and an “amplifier” base.

Mobile, Entertainment and Computer Audio Applications

Most cell phones come with a dedicated standard 2.5mm headset port and are increasingly becoming Bluetooth enabled, permitting the headset to be plugged directly into the cell phone or wirelessly connected through use of a Bluetooth headset. 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.

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

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directly into the USB port of the computer, to higher end headsets which include additional software productivity tools.

Primary Headset Product Summaries

H-Series Professional Grade Headsets and Adaptors

Wireless Office

Headsets for Cell Phones

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Entertainment and Computer Audio

Other Related Headset Products

In addition to headsets, we provide other related products such as lifters and spare parts for our headsets.

Other Specialty Products

Our other specialty product offerings include the Clarity Power telephone with accessories, an extra loud ringer, an extra large lighted keypad, volume control circuitry, telephones with advanced sound processing, text telephones (“TTY’s”), notification systems, emergency response systems and other products for the hearing impaired, deaf and others with special needs. Clarity’s products have been selected by a number of state programs that provide equipment to those in need, including two of the nation’s largest state programs.

Plantronics’ Special Products group manufactures custom headsets and other equipment for special applications that are not served by our standard headset product lines. From our 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’ headsets for their unique communications needs, which may include custom headset configurations for specific applications.

Plantronics Service and Repair

We support our product offerings with a technical assistance center to answer questions from our customers. Our worldwide service center provides a quick response to warranty support, which is provided for at no additional cost and out-of-warranty service needs, which are provided at an additional cost to our end users. Customers can contact us for their support needs in a variety of ways, including:

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

COMPETITION

The market for our products is highly competitive. We compete in several different markets, specifically the office (which includes the SOHO market) and contact center, mobile, entertainment, computer audio, and other specialty markets. There are a number of different competitors in each of these market niches. Additionally, we believe that telephony and entertainment applications are converging in similar devices, and to that end, we expect that there may be additional competitors that have not historically been our direct competitors. We believe the principal competitive factors in each market are product

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features, price, comfort and fit, product reliability, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms and product life.

One of our primary competitors is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate. GN Netcom has acquired nine companies since 1996 and competes with us in the office, contact center and mobile markets. GN Netcom is now offering products for the PC market as well. In addition, Motorola and Logitech are significant competitors in the consumer headset market. Internationally, Sennheiser Communications is a competitor in the computer as well as the office and contact center markets.

The office market, including both traditional, 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. 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 communications.* Although we have historically competed very successfully in the contact center market, there can be no assurance that we will be able to retain 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 allow users the ability to drive with both hands on the wheel. Important factors on which we compete in the mobile market include product styling, competitive pricing, product reliability, product features, 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, price, superior microphone and speaker performance and headset style and color. Competition for OEM business is based upon meeting their unique requirements within their timeframes, unique styling, price targets, 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 competitors in the mobile and computer markets and, in the case of our Clarity 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 adversely 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.*

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

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

PRODUCT DEVELOPMENT

Since our introduction of the original lightweight headset in 1962, enhancing communications has been the primary focus of our development efforts. As we have expanded globally, we have increased the scope of these efforts to support international product needs. We believe that we have successfully developed innovative products that better enable us to address changing customer demands, emerging market trends, and have created an operational model to bring the right products to market at the right time.

In the past fiscal year, we have delivered new technologies and products to address market trends that include wireless and entertainment headsets, as well as professional grade headsets for core applications in the contact center. Over the course of the year, the following ongoing new products were announced:

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We also have a number of new product and core technology development programs underway to further broaden our product line. One benefit to 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 re-use of platform and product architecture hardware as well as software. These process improvements take advantage of economies of scale resulting from platform re-use.

During fiscal 2003, 2004 and 2005, we spent approximately $33.9, $35.5 and $45.2 million in research development and engineering activities, respectively. We conduct most of our research and development with an in-house staff making limited use of contractors. Key locations for our research and development staff are the United States, the United Kingdom and Mexico. We are developing a new design center which will be co-located with our manufacturing facility in China. Additionally, we have made key hires to expand our expertise in the area of style and design.

Our product development efforts are directed both toward 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 have been relatively long. 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 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 continue to monitor technological changes in telephony, as well as users’ demands for new technologies. Failure to keep pace with future technological changes could adversely affect our revenues and operating results.

SALES AND DISTRIBUTION

A broad and diverse group of worldwide customers purchase our headsets and we have a well-established, multi-level world-wide distribution network to support their needs. We primarily ship products for

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customers in the U.S. and Asian Pacific and Latin American (“APLA”) regions from our manufacturing facility in Mexico. For all other customers, our products are shipped from our Netherlands distribution center. Our principal customers are distributors, retailers, carriers, and OEMs, as well as telephone operating companies and government agencies.

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 a substantial inventory of Plantronics’ products.

Telephony 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.

“Mobile” 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. Mobile OEMs, on the other hand, generally require their own design and will sell products under their private label.

Computer OEMs include both manufacturers of computer hardware (including personal computers and specialized components and accessories for personal computers) and software. Most computer OEM’s do not manufacture headsets, but look for manufacturers such as Plantronics to supply headsets that can be used with their products.

The telephony service provider channel is comprised of telephone service providers that purchase headsets from us for use by their own agents. Certain 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 distributors are authorized resellers under a General Services Administration (“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.

Our products may also be purchased from our website at www.plantronics.com.

BACKLOG

Our backlog of unfilled orders was $17.1 million on March 31, 2005 compared to $26.8 million at the end of fiscal 2004. We include in backlog all purchase orders scheduled for delivery over the next 12 months. As part of our commitment to customer service, our goal has been to ship products to meet the 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 of the order. 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.

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MANUFACTURING AND SOURCES OF MATERIALS

Our manufacturing operations consist primarily of assembly and testing, the majority of which is performed at our facility in Mexico. We have substantially smaller assembly operations in California and the United Kingdom. We outsource the manufacturing of a limited number of products to third parties, typically in China and other Asian countries.

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. To alleviate our dependence on outsourced single suppliers, shorten our supply chain, and to reduce delays, we are currently constructing a new facility in China to increase our manufacturing and design capabilities in China. We expect to spend approximately $15 million in fiscal 2006 to complete a plant and development center, with the total project currently expected to cost approximately $20 million.*

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 sub-assemblies and components. We reserve for inventory items determined to be either excess or obsolete.

ENVIRONMENTAL MATTERS

We are actively working to gain an understanding of the complete requirements concerning the removal of certain potential 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.

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. We believe that our current manufacturing operations comply in all material 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 other facilities, operations, or products.

INTELLECTUAL PROPERTY

We maintain a program of seeking patent protection for our technologies when we believe it is commercially appropriate. As of April 30, 2005, we had 99 United States patents in force, expiring from 2005 to 2022. Some of these patents are also issued in certain foreign countries.

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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 Clarity 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

On April 30, 2005, we employed approximately 3,900 people worldwide, including 3,200 in our manufacturing facility in Tijuana, Mexico. To our knowledge, no employees are currently covered by collective bargaining agreements or are members of any labor organization. We have not experienced any work stoppages and believe that our employee relations are good. Set forth below is certain information regarding the executive officers of Plantronics and their ages as of April 30, 2005.

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

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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 an M.B.A. from Stanford University. Mr. Kannappan is also a Director of Mattson Technology, Inc., a supplier of advanced process equipment for the semiconductor industry. Mr. Kannappan is also the Chairman and a Director of 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 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 graduated from the University of Arizona with a Bachelor of Science degree in Business/ Marketing.

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 M.B.A. from the Yale School of Organization and Management. Ms. Scherer is also a Director of Keithley Instruments Inc, a supplier of measurement and testing devices.

Ms. Shimizu joined Plantronics in July 1983, and in the fall of 2005 was named Vice President, General Manager of SOHO and Residential Business Group. Prior to this, she was our Vice President, Strategic Portfolio and Product Management since fall of 2003. She also previously served as our 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 M.B.A. from the Monterey Institute of International Studies and a Bachelor’s degree in Japanese from the 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.

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Mr. Breier joined Plantronics in June 2004 as Chief Marketing Officer. Prior to joining us, Mr. Breier was Managing Partner at Fast Angels Ventures, providing seed funding to technology start-ups. From March 1998 to February 2000, Mr. Breier was President/ CEO of Beyond.com. From January 1997 through March 1998, Mr. Breier was the VP of Marketing at Amazon.com. From March 1994 through December 1996, Mr. Breier worked as VP of Marketing for Cinnabon. From October 1988 through March 1994, Mr. Breier was the Group Brand Manager at Dreyer’s Grand Ice Cream and from April 1986 through October 1988 he held various brand management positions at Kraft Foods. Mr. Breier is also currently serving on the Board of Directors for several technology start-ups including MultiDigit, TruVideo and Ecmarkets. Additionally, Mr. Breier is also on the Chairman’s for the Council of Conservation International. Mr. Breier holds an M.B.A. from Stanford University, where he also received his Bachelors of Arts in Economics.

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 of 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 President New Product Introduction and directed development of Plantronics e-commerce business. Prior to joining Plantronics, Mr. Walters spent twenty-four years at various 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. The table below lists the major facilities owned or leased as of April 2, 2005.

We believe that our existing properties are suitable and generally adequate for our current business, but anticipate that we will likely require additional space in Santa Cruz over the next several years.

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Item 3. Legal Proceedings

We are presently engaged in various 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, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

None

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

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.

Cash Dividends

We paid cash dividends of $0.15 per share totaling $7.3 million during fiscal 2005, and paid no cash dividends during fiscal 2004. We have a credit agreement with a major bank containing covenants, which limit our ability to pay cash dividends on shares of our common stock except under certain conditions. We believe that we will continue in the near future to meet the conditions that make the payment of cash dividends permissible pursuant to the credit agreement. We also expect that we will continue to pay comparable cash dividends in the future. The following table presents the quarterly dividend payments during 2005.

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Share Repurchase Programs

The following presents the shares repurchased during fiscal 2005.

We completed the above program during the first half of April. Subsequently the Board of Directors authorized an additional 1 million-share repurchase program in early fiscal 2006. See Note 5 of our Notes to Consolidated Financial Statements for more 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, 2005, there were approximately 95 holders of record of our Common Stock.

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Item 6. Selected Financial Data

SELECTED FINANCIAL DATA

The following selected financial information has been derived from the audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto 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.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CERTAIN FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as “expect,” “anticipate,” “believe,” “intend,” “plan,” “will,” or “shall,” and include, but are not necessarily limited to, all of the statements marked in this Annual Report on Form 10-K with an asterisk (“*”). Such forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors, including but not limited to the following: the office, contact center, mobile, computer, residential, and other specialty product markets not developing as we expect, and a failure to respond adequately to either changes in technology or customer preferences. For a discussion of such factors, this Annual Report on Form 10-K should be read in conjunction with the “Risk Factors Affecting Future Operating Results,” included herein. The following discussions titled “Annual Results of Operations” and “Financial Condition” should be read in conjunction with those risk factors, the Consolidated Financial Statements and related notes included elsewhere herein.

OVERVIEW

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

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

Our revenues grew 34.3% during the fiscal year ended March 31, 2005, with growth in all of our major product groups. Compared with fiscal 2004, total revenues increased from $417.0 million to $560.0 million for fiscal 2005. This growth was primarily attributable to revenues from new products within the office, contact center, mobile and entertainment markets.

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Demand for headsets continues to increase both in our traditional markets such as the enterprise markets, as well as in the consumer market.* In each of these markets, the trend to wireless products contributed significantly to demand; a trend we expect to continue in fiscal 2006.* Wireless products represent both an opportunity for high growth as well as a challenge because of the lower margins we have experienced due to competitive pressures, particularly with Bluetooth mobile products.*

We believe that our fiscal 2006 sales of mobile, gaming and computer products will increase in absolute dollars, but, remain fairly flat as a percentage of revenue.* We also believe that wireless products will become a greater percentage of our overall revenues.*

During fiscal 2005, our gross profit margins decreased slightly. We increased our investments in research and development activities, marketing activities and incurred significant expense related to Section 404 Sarbanes Oxley compliance. However the overall increase in operating expenses was substantially less than the growth in revenues. Consequently, our operating margin increased from 20.3% to 22.6%.

Net income for the fiscal year ended March 31, 2005 was $97.5 million or 17.4% of revenues, compared to net income of $62.3 million or 14.9% of revenues in fiscal 2004. Diluted earnings per share for the fiscal year ended March 31, 2005 was $1.92, up approximately 47% from $1.31 per share in fiscal 2004.

To capitalize on the growth opportunities in the office, contact center, mobile and entertainment markets, and to meet the challenges associated with competitive pricing, market share, and consumer acceptance, we launched several key initiatives during fiscal 2005, which included:

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Looking forward, we are focused on the implementation of our key initiatives. If successful, we can capitalize on these high-growth, emerging markets with competitively priced products, which are attractive to the consumer.*

In addition, during fiscal 2005, we generated $93.6 million in operating cash flows, which significantly contributed to the increase in our liquidity and cash balances at March 31, 2005.

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

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

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Net Revenues

Fiscal years 2005 and 2003 contained 52 weeks and fiscal year 2004 contained 53 weeks.

In comparison to fiscal 2004, the increase in net sales for fiscal 2005 was geographically broad based and across all major product lines and sales channels. The increase was driven primarily by continued sales of our new product lines. We define “new products” as products which have been shipped to customers in volume for eight or less quarters. Both domestic and international sales were up, resulting, in part, from increased demand for headsets for mobile phones and wireless headsets for the office, as well as from the favorable effects of foreign exchange rates on international revenues. The increase in our office and contact center products was linked to continued success of our CS50, a wireless headset for 900MHz-based office phones; CS60, a wireless headset for DECT-based office phones and SupraPlus® headsets. The increase in sales for our gaming and computer products was primarily attributable to shipments of our Halo 2 headset for the Xbox® and revenues from headsets for VoIP applications. Mobile product sales saw strong growth with the MX150 and Bluetooth related products. The increases were primarily attributable to two factors; one, in the U.S. wireless carrier market, we participated in promotional bundles which were offered by wireless carriers; and two, increased demand for Bluetooth-enabled headsets, particularly in Europe where this technology has greater market acceptance than in the U. S. market. Sales from our specialty products, which are principally our Clarity products marketed for hearing impaired individuals, grew primarily from sales of new product models, wireless products and increased distribution through our retail channels.

Within our sales channels, our distributors successfully captured the growing demand for wireless office products, retailers increased revenues with computer products for gaming and VoIP applications, and the OEM channel achieved continued success with promotional bundles of mobile headsets with cellular handsets.

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The wireless market continues to grow coupled with a trend toward the convergence of audio and entertainment. This results in a greater need to be able to communicate more freely and effectively. Our ability to innovate enables us to create compelling communication solutions and capture these opportunities.*

In comparison to fiscal 2003, sales for fiscal 2004 were stronger across all major product lines and were also driven by sales of new products. Both domestic and international revenues were up, resulting in part from increased demand due to hands-free legislation, increased demand for headsets for mobile phones and for wireless headsets for the office, the favorable effects of foreign exchange rates on international revenues, and the incremental sales from the additional 53rd week. Because our fiscal year always ends on the closest Saturday following March 31, our fiscal year periodically will have 53 weeks rather than 52 weeks. In fiscal 2004, we had a 53 week fiscal calendar. 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 include 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. In the U.S., office and contact center product sales were favorably affected by the launch of our CS50 product. Computer audio product sales, which grew 28% compared to the prior year, were primarily due to expanded retail distribution channels.

Domestic sales for fiscal 2005 and fiscal 2004 as a percentage of total sales remained at approximately 67%, which compares to 68% for fiscal 2003. Domestic sales were up in fiscal 2005 in absolute dollars and across all major channels, primarily driven by demand for office and contact center products, demand for gaming products, and the demand for mobile products including wireless Bluetooth headsets. International revenues for fiscal 2005 were favorably affected by the continued strengthening of the European exchange rates against the U.S. dollar, sales of our CS60 product, and sales related to VoIP applications and Bluetooth.

In comparison to fiscal 2003, domestic sales in fiscal 2004 increased in all major U.S. channels, with the most significant increase in our OEM distribution channel. International sales in fiscal 2004 compared to fiscal 2003 increased, reflecting growth in each of the European, Asia Pacific/ Latin American and Canadian regions. Sales were favorably affected by the continued strengthening of the Euro and the Great British Pound against the U.S. dollar, new product introductions during the year, and sales from the extra week in fiscal 2004.

Revenues may vary due to the timing of the introduction of new products, seasonality, discounts and other incentives, and channel mix.* We have a “book and ship” business model, whereby we ship most orders to our customers within 48 hours of receipt of those orders, thus, we cannot rely on the level of backlog to provide visibility into potential future revenues.

Gross Profit

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In comparison to fiscal 2004, our fiscal 2005 gross profit margins decreased slightly, which was primarily due to a mix shift towards lower margin products, particularly our Bluetooth products within our mobile products and a greater contribution of wireless products within our office and contact center products. These were offset in part by continued component cost reductions, manufacturing efficiencies and favorable exchange rates net of hedging losses.

In comparison to fiscal 2003, fiscal 2004 gross profit margin strengthened as a result of improved manufacturing efficiencies on higher volumes, component cost reductions, and favorable foreign exchange rates. A weaker U.S. dollar compared to the Euro and Great British Pound favorably affected revenues and consequently gross profit, although hedging losses dampened this effect. Partially offsetting these favorable factors was a higher percentage of sales coming from lower margin mobile and wireless office products compared to the prior year.

Gross profit margin may vary depending on the product mix, customer mix, channel mix, amount of excess and obsolete inventory charges, changes in our warranty repair costs or return rates, and other factors.

Research, Development and Engineering

In comparison to fiscal 2004, our fiscal 2005 research, development and engineering expenses, reflect, our substantial commitment to developing new products for all the markets we serve. The primary reasons for the increases were as follows:

We expect that our research and development expenses will increase substantially in fiscal year 2006 in the following areas:

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In comparison to fiscal 2003, our fiscal 2004 research, development and engineering expenses increased due to continued support of new product introductions with particular emphasis on mobile and wireless headset development.

Selling, General and Administrative

In comparison to fiscal 2004, our fiscal 2005 selling, general and administrative expenses increased primarily for the following reasons:

These expenses were partially offset by a one-time benefit of approximately $2.8 million from a favorable court ruling, which ended a lawsuit filed by one of our competitors during the quarter ended September 30, 2004.

In fiscal 2004, compared to fiscal 2003, selling, general and administrative expenses were higher, mainly driven by higher legal expenses, a larger provision for doubtful accounts, and the inclusion of a full year of expenses relating to Ameriphone.

Total Operating Expenses and Operating Income

In comparison to fiscal 2004, operating income for fiscal 2005 increased primarily from higher revenues and lower operating expenses as a percentage of revenues due to economies of scale, but was in part offset by lower margin products as a result of the change in our product mix. As a result, operating margin increased from 20.3% to 22.6%. We believe an operating margin goal of 20% or better is reasonable for fiscal 2006 and probably beyond.*

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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.

Interest and Other Income, Net

In comparison to fiscal 2004, interest and other income, net for fiscal 2005, increased primarily from higher interest income as a result of higher cash and short-term investment balances and approximately $0.3 million in interest received from a one-time litigation settlement. This was offset in part by lower foreign currency transaction gains, net of the effect of hedging activity of $0.03 million compared to foreign currency transaction gains, net of the effect of hedging activity, for fiscal 2004 of $0.9 million.

In comparison to fiscal 2003, interest and other income, net for fiscal 2004 decreased due to unfavorable foreign exchange rates on both the Euro and Great British Pound, partially offset by an increase in interest income as a result of higher cash balances.

Income Tax Expense

On October 22, 2004, the President of the United States of America signed the American Jobs Creation Act of 2004 (the “Act”). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and, as of today, uncertainty remains as how to interpret numerous provisions of the Act. As of March 31, 2005, our management had not decided whether to, or to what extent, we might repatriate foreign earnings under the Act and accordingly, the financial statements do not reflect any provision for taxes on unremitted foreign earnings. Permanently reinvested foreign earnings were approximately $168.5 million at March 31, 2005. Management will prepare its analysis for the Board of Directors on this issue during fiscal 2006.

The effective tax rate for fiscal 2003, 2004 and 2005 was 26.9%, 28.0% and 25.2%, respectively. During fiscal 2003, 2004 and 2005, the successful completion of routine tax audits and the expiration of certain statutes of limitations resulted in favorable tax adjustments of $1.7 million, $2.7 million and $3.4 million, respectively. Partially offsetting the $3.4 million favorable tax adjustments in 2005 was a write-off of

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$2.7 million relating to a tax asset that was recorded in connection with the leveraged buy-out that occurred in September of 1988. This tax asset arose in connection with the book versus tax basis difference on certain fixed assets. The tax asset should have been recorded as a component of income tax expense as the related fixed assets were depreciated, impaired or sold, which would have resulted in additional tax expense being recorded over no more than the seven years subsequent to the 1988 leveraged buy-out. Management and the Audit Committee evaluated this write-off and determined that it was immaterial to prior years’ reported results and to the current year’s results, so the adjustment was included in income tax expense in fiscal 2005. The net of the favorable tax adjustments of $3.4 million and the $2.7 write-off was a favorable $0.7 million adjustment to income tax expense in the fourth quarter of fiscal 2005. The combination of our international tax restructuring, the completion of a routine tax audit and the adjustment to write-off the tax asset resulted in an effective tax rate of approximately 16.2% for the fourth quarter of fiscal 2005.

Pre-tax earnings of our foreign subsidiaries were $21.9 million, $29.0 million and $44.2 million for fiscal years 2003, 2004 and 2005, respectively.

We are currently estimating a tax rate of approximately 27% for fiscal 2006.* We have significant operations in various tax jurisdictions. Currently, some of these operations are taxed at rates substantially lower than U.S. tax rates. If our income in these lower tax jurisdictions were no longer to qualify for these lower tax rates or if the applicable tax laws were rescinded or changed, our tax rate would be materially affected.

FINANCIAL CONDITION

The table below provides selected consolidated cash flow information, for the periods indicated:

Cash Flows From Operating Activities

Cash flows from operating activities represent the most significant source of funding. For the fiscal 2005, compared to the prior year, cash flows provided by operating activities increased significantly. Cash flows provided by operating activities for the fiscal year ended March 31, 2005 were primarily driven by net income earned on higher sales volume offset in part by higher inventory and accounts receivable balances. Our inventory balances increased proportionally with increased revenues, decisions to increase our inventory safety stock, and other factors. We have a goal of improving our inventory turns to 5 by the December fiscal 2006 quarter, while for the fiscal 2005 as a whole, we ended at 4.5 turns*. The accounts receivable increase was primarily driven by the strong growth in sales coupled with the impact of the strengthening of the Great British Pound and the Euro against the U.S. dollar. Our days sales outstanding (“DSO”) increased to 53 days at the end of the fourth quarter of fiscal 2005 from 51 days at the end of fiscal 2004. Our increase in DSO is primarily attributable to the increase in the amount and proportion of international sales to our domestic sales. In international locations, trade terms that are standard in their locales may extend longer than is standard in the U. S. This may increase our working capital requirements and may have a negative impact on our cash flow provided by operating activities. We believe that the net receivable balance is collectible and that we have sufficient reserves to cover our exposure to bad debt.* New accounting rules effective for us in the first quarter of fiscal 2007 require that

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cash benefits resulting from the tax deductibility of increases in the value of equity instruments issued under share-based arrangements be included as part of cash flows from financing activities rather than from operating activities. This change in classification will likely have a significant negative effect on our cash provided by operating activities in periods after adoption of these new rules. See Recent Accounting Pronouncements included in footnote 2 of this Form 10-K.

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors including fluctuations in our net revenues and operating results, collection of accounts receivable, changes to inventory levels, and timing of payments.

Cash Flows From Investing Activities

During fiscal 2005, our total capital expenditures were $27.7 million, including $5.6 million for our China manufacturing facility, which is still under construction and will not begin depreciating until it has been placed into service. The remainder of the capital purchases were incurred principally in tooling for new products, furniture and fixtures, and building improvements for facilities expansion. Additionally, during fiscal 2005, we purchased approximately $391.8 million of marketable securities, which were offset by sales and maturities of a portion of our marketable securities of approximately $352.0 million. These marketable securities consist primarily of bonds and auction rate securities. As noted in Note 1 of the Consolidated Financial Statements, marketable securities related to auction rate securities previously classified as cash equivalents, have been reclassified to short-term marketable securities.

For fiscal 2005, cash flows for investing activities decreased $53.4 million compared to the prior year. The reduction is primarily due to the increase of $67.5 million in the purchase of marketable securities, mainly comprised of auction rate securities, compared to the prior year. We anticipate making further investments in marketable securities as interest rates continue to rise in order to obtain more favorable yields. As our business grows, we may need additional facilities and capital expenditures to support this growth. We continuously evaluate new business opportunities and new markets. If we pursue new opportunities or markets in areas in which we do not have existing facilities, we may need additional expenditures to support future expansion.*

During fiscal 2004, our total capital expenditures were $16.9 million, which included the land and facilities purchase of our previously leased facilities in Swindon, U.K., for approximately $5.6 million. The remainder of the capital purchases were incurred primarily in tooling for new products, furniture and fixtures, leasehold and building improvements for facilities expansion. During the 2004 fiscal year, we purchased approximately $324.3 million of marketable securities, which were offset by sales and maturities of a portion of our marketable securities of approximately $220.7 million. These marketable securities consisted primarily of bonds and auction rate securities.

We have an unsecured revolving credit facility with a major bank for $75 million, including a letter of credit sub facility. The facility and sub facility both expire on July 31, 2005. As of April 30, 2005, we had no cash borrowings under the revolving credit facility and $1.9 million outstanding under the letter of credit sub facility. The amounts outstanding under the letter-of-credit sub facility 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 things. Under our current credit facility agreement, we have the ability to declare dividends so long as the aggregate amount of all such dividends declared, or paid, and common stock repurchased, or redeemed, in any four consecutive fiscal quarter periods, shall not exceed 50% of the amount of cumulative consolidated net income in the eight consecutive fiscal quarter periods ending with the fiscal quarter immediately preceding the date as of which the applicable distributions occurred. We are currently in compliance with the covenants and the dividend provision under this agreement.

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Compared to the fiscal year ended March 31, 2005 we anticipate our capital expenditures will approximately double in fiscal 2006. The largest single initiative is to complete the plant and design center in China, where we plan to spend approximately an additional $15 million.*

Cash Flows From Financing Activities

During fiscal 2005, cash flows used for financing activities were approximately $4.1 million. This was primarily due to repurchases of 770,100 shares of our common stock totaling $28.5 million at an average price of $36.96 per share and payment of cash dividends totaling $7.3 million. During fiscal 2005, the Board of Directors authorized Plantronics to repurchase an additional 1,000,000 shares of Common Stock. As of March 31, 2005, we were authorized to repurchase 372,500 shares under all repurchase plans. These cash outflows were offset by proceeds from the exercise of stock options totaling $27.7 million and reissuance of 118,751 shares of our treasury stock through employee benefit plans totaling $3.9 million. During fiscal 2004, cash flows from financing activities were approximately $65.4 million. This was primarily due to proceeds from exercises of stock options of approximately $63.9 million and proceeds from the reissuance of 183,174 shares treasury stock through employee benefit plans totaling $3.3 million, offset by repurchases of 122,800 shares of our Common Stock for $1.8 million at an average price of $14.93 per share.

The plan approved by the Board anticipates a total annualized dividend of $0.20 per common share.* The actual declaration of future dividends and the establishment of record and payment dates is subject to final determination by the Audit Committee of the Board of Directors of Plantronics each quarter after its review of our financial position and performance. During fiscal 2005, we declared and paid $7.3 million in dividends. We did not declare any dividends during fiscal 2004.

Our liquidity, capital resources, and results of operations in any period could be affected by the exercise of outstanding stock options and issuance of common stock under our employee stock purchase plan. The resulting increase in the number of outstanding shares could also affect our per share results of operations. However, we cannot predict the timing or amount of proceeds from the exercise of these securities, or whether they will be exercised at all.

We expect that for the foreseeable future, our operating expenses will continue to constitute a significant use of cash flow*. In addition, we may use cash to fund acquisitions or invest in other businesses*. Based upon our past performance and current expectations, we believe that our cash and cash equivalents, marketable securities and cash generated from operations will be sufficient to satisfy our working capital needs, capital expenditures, investment requirements, stock repurchases and financing activities for at least the next twelve months.*

Liquidity and Capital Resources

We generated positive cash flows from operations for fiscal 2005 and fiscal 2004 totaling $93.6 million and $72.4 million, respectively. Our primary cash requirements have been, and are expected to continue to be, for capital expenditures, including investment in our under construction manufacturing operations in China, tooling for new products, and leasehold improvements for facilities improvements and expansion.* We estimate that fiscal 2006 capital expenditures will be approximately $60 million.* As of the end of fiscal 2005, we had working capital of $335.5 million, including $242.8 million of cash, cash equivalents and marketable securities, compared with working capital of $249.4 million, including $180.6 million of cash, cash equivalents and marketable securities, as of the end of fiscal 2004. 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, 2005, we had no cash borrowings under the revolving credit facility and $1.9 million outstanding under the letter of credit subfacility. The amounts outstanding under the letter-of-credit subfacility were principally associated with purchases of

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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 2004 and 2005, 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.

Additionally, throughout fiscal 2004 and 2005, we entered into a hedging program to hedge a portion of forecasted revenues denominated in the Euro and Great British Pound with put and call option contracts used as collars. At each reporting period, we record the net fair value of our unrealized option contracts on the balance sheet with related unrealized gains and losses as Accumulated other comprehensive income, a separate component of stockholder’ equity. Gains and losses associated with realized option contracts are recorded against revenue.

In March 2005, we began an additional hedging program to hedge a portion of the China Yuan payments related to forecasted the construction costs for our facility in China. We are hedging the currency exposure with forward-exchange contracts. At each reporting period, we record the net fair value of our unrealized forward-exchange contracts on the balance sheet with related unrealized gains and losses as Accumulated other comprehensive income, a separate component of stockholder’ equity. Gains and losses associated with realized option contracts are recorded in Other Income and Expenses.

Auction rate securities in the amount of $164.4 million as of March 31, 2005 have been reclassified from cash and cash equivalents to short - term investments in the March 31, 2005 Consolidated Balance Sheet to conform to the fiscal 2005 financial statement presentation. Accordingly, the Statements of Cash Flows for the fiscal years ended March 31, 2004 and 2003 reflect this presentation. We have revised our presentation to exclude from cash and cash equivalents $124.7 million of auction rate securities at March 31, 2004 and to include such amounts as marketable securities. In addition, we have made corresponding adjustments to the accompanying statements of cash flows to reflect the gross purchases and sales of these securities as investing activities. This adjustment resulted in a net increase of $108.6 million in cash used for investing activities and a net increase of $13.1 million in cash provided by investing activities in fiscal 2004 and 2003, respectively.

OFF BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.

CONTRACTUAL OBLIGATIONS

The following table summarizes the contractual obligations that we were reasonably likely to incur as of March 31, 2005 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods.

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Recent Developments

On April 15, 2005, our Board of Directors approved an extension of the Company’s stock repurchase program to authorize the repurchase of up to an additional 1 million shares of common stock.

During fiscal 2005, the Board of Directors authorized Plantronics to repurchase an additional 1,000,000 shares of Common Stock. During fiscal 2005, we purchased 770,100 shares of our Common Stock in the open market at a total cost of $28.5 million, and an average price of $36.96 per share. Through our employee benefit plans, we reissued 118,752 shares for proceeds of $3.9 million. As of March 31, 2005, there were 372,500 remaining shares authorized for repurchase under all repurchase authorizations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

We believe our most critical accounting policies and estimates include the following:

Revenue Recognition

Revenue from sales of products to customers is recognized when: title and risk of ownership are transferred to customers; persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; and collection is reasonably assured. We recognize revenue net of estimated product returns

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and expected payments to resellers for customer programs including cooperative advertising, marketing development funds, volume rebates, and special pricing programs.

Estimated product returns are deducted from revenues upon shipment, based on historical return rates, the product stage relative to its expected life cycle, and assumptions regarding the rate of sell-through to end users from our various channels based on historical sell-through rates.

Should product lives vary significantly from our estimates, or should a particular selling channel experience a higher than estimated return rate, or a slower sell-through rate causing inventory build-up, then our estimated returns, which net against revenue, may need to be revised and could have an adverse impact on revenues.

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, estimates for what is due to resellers for estimated credits earned during the period and any adjustments for credits based on actual activity. If the actual payments exceed our estimates, this could result in an adverse impact on our revenues. Since we have historically been able to reliably estimate the amount of allowances required for future price adjustments and product returns, we recognize revenue, net of projected allowances, upon shipment to our customers. In situations where we are unable to reliably estimate the amount of future price adjustments and product returns, we defer recognition of the revenue until the right to future price adjustments and product returns lapses, and we are no longer under any obligation to reduce the price or accept the return of the product.

If market conditions warrant, Plantronics may take action to stimulate demand, which could include increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in incremental reductions to revenue and margins at the time such incentives are offered. To the extent that we reduce pricing, we may incur reductions to revenue for price protection based on our estimate of inventory in the channel that is subject to such pricing actions.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly perform credit evaluations of our customers’ financial condition and consider factors such as historical experience, credit quality, age of the accounts receivable balances, and geographic or country-specific risks and economic conditions that may affect a customers’ ability to pay. The allowance for doubtful accounts is reviewed monthly and adjusted if necessary based on our assessments of our customers’ ability to pay. If the financial condition of our customers should deteriorate or if actual defaults are higher than our historical experience, additional allowances may be required, which could have an adverse impact on operating expense.

Excess and Obsolete Inventory

We write-down our inventory for excess and obsolete inventories. Write-downs are determined by reviewing our demand forecast and by determining what inventory, if any, are not saleable. Our demand forecast projects future shipments using historical rates and takes into account market conditions, inventory on hand, purchase commitments, product development plans and product life expectancy, inventory on consignment, and other competitive factors. If our demand forecast is greater than actual demand, and we fail to reduce our manufacturing accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross margin.

At the point of loss recognition, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

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Warranty

We provide for the estimated cost of warranties as part of our cost of sales at the time revenue is recognized. Our warranty obligation is affected by product failure rates and our costs to repair or replace the products, as well as the number of shipments in a quarter. Should actual failure rates, actual returns and costs differ from our estimates, revisions to our warranty obligation may be required, which may affect our cost of sales.

Goodwill and Intangibles

As a result of acquisitions we have made, we have recorded goodwill and intangible assets on our balance sheet. Goodwill has been measured as the excess of the cost of acquisition over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We perform at least annually or more frequently if indicators of impairment exist, a review to determine if the carrying value of the goodwill and intangibles is impaired. Our review process for determining the carrying value is complex and utilizes estimates for future cash flow, discount rates, growth rates, estimated costs, and other factors, which utilize both historical data, internal estimates, and, in some cases, external consultants and outside data. If our estimates are inaccurate or if the underlying business requirements change, our goodwill and intangibles may become impaired, and we may be required to take an impairment charge.

Income Taxes

Our effective tax rate differs from the statutory rate due to the impact of foreign operations, tax credits, state taxes, and other factors. Our future effective tax rates could be impacted by a shift in the mix of domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax laws in the United States or internationally; a change which would result in a valuation allowance being required to be taken; or a federal, state or foreign jurisdiction’s view of tax returns which differs materially from what we originally provided. We assess the probability of adverse outcomes from tax examinations regularly to determine the adequacy of our reserve for income taxes.

We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities. We are required to evaluate on an ongoing basis whether or not we will realize a benefit from net deferred tax assets. If recovery were not likely, we would be required to establish a valuation allowance. As of the end of the fiscal year ended March 31, 2005, we believe that all of our deferred tax assets are recoverable; however, if there were a change in our ability to recover our deferred tax assets, we would be required to take a charge in the period in which we determined that recovery was not probable.

RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:

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

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, residential and related wireless 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

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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 could lead to lower and more volatile revenue and earnings, excess inventory and the inability to recover the associated development costs any of which could have a material adverse effect 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 may accept returns from our retailers of 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. The actions of our competitors, particularly with regard to pricing and promotional programs, could have a negative impact on our prices and profitability. 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 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, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new

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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, manufacture, market 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, manufacture, market 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.

We have significant operations in various tax jurisdictions throughout the world and a substantial portion of our taxable income historically has been generated in these jurisdictions. Currently, some of our operations are taxed at rates substantially lower than U.S. tax rates. If our income in these lower tax jurisdictions were no longer to qualify for these lower tax rates or if the applicable tax laws were rescinded or changed, our operating results could be materially adversely affected. Moreover, if U.S. or other foreign tax authorities were to change applicable foreign tax laws or successfully challenge the manner in which our profits are currently recognized, our overall taxes could increase, and our business, cash flow, financial condition and results of operations could be materially adversely affected.

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.

We derive approximately 20% to 25% 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 could 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

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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.

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:

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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:

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:

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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:

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.

We measure compensation expense for our employee stock compensation plans under the intrinsic value method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. On March 29, 2005, the SEC issued SAB 107, which provides the SEC Staff’s views regarding interactions between FAS 123R and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies.

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The Company is currently evaluating FAS 123R and SAB 107 to determine the fair value method to measure compensation expense, the appropriate assumptions to include in the fair value model, the transition method to use upon adoption and the period in which to adopt the provisions of FAS 123R. The impact of the adoption of FAS 123R cannot be reasonably estimated at this time due to the factors discussed above as well as the unknown level of share-based payments granted in future years.

During our fourth quarter of fiscal year 2005, approximately 35% 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:

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 99 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.

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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 corded headsets reduces radio frequency emissions at the user’s head to virtually zero. Our Bluetooth and other wireless headsets emit significantly less powerful radio frequency emissions than mobile phones. 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. Likewise, should research establish a link between radio frequency emissions and wireless headsets and public concern in this area grow, demand for our wireless headsets could be reduced creating a material adverse effect on our financial results.

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.

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.

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

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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.

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.

The Sarbanes-Oxley Act (“the Act”) of 2002, which became law in July 2002, requires changes in some of our corporate governance and securities disclosure and/or compliance practices. As part of the Act’s requirements, the Securities and Exchange Commission has been promulgating new rules on a variety of subjects, in addition to other rule proposals, and the NYSE has enacted new corporate governance listing requirements. These developments have increased our accounting and legal compliance costs and could also expose us to additional liability. In addition, such developments may make retention and recruitment of qualified persons to serve on our board of directors or executive management more difficult. We continue to evaluate and monitor regulatory and legislative developments and cannot reliably estimate the timing or magnitude of all costs we may incur as a result of the Act or other related legislation or regulation.

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.

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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 had cash and cash equivalents totaling $56.0 million at March 31, 2004 compared to $78.4 million at March 31, 2005. We had marketable securities of $124.7 million and $164.4 million at March 31, 2004 and 2005, respectively. Cash equivalents have a maturity when purchased of 90 days or less; marketable securities have a maturity of greater than 90 days, and are classified as available-for-sale. As of March 31, 2005, we were not exposed to significant interest rate risk as all of our cash and cash equivalents were invested in securities or interest bearing accounts with maturities of less than 90 days. Nearly all our investments in marketable securities are held in our name at a limited number of major financial institutions and consist primarily of bonds and auction rate securities The taxable equivalent interest rates realized on these investments averaged 2.5% for fiscal 2005. Our investment policy generally requires that we only invest in auction rate securities, deposit accounts, certificates of deposit or commercial paper with minimum ratings of A1/P1 and money market mutual funds with minimum ratings of AAA.

The following table presents the hypothetical changes in fair value in the securities, excluding cash and cash equivalents, held at March 31, 2005 that are sensitive to changes in interest rates. The modeling technique used measures the change in fair values.

We have a unsecured 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, 2005, we had no cash borrowings under the revolving credit facility and $1.9 million outstanding under the letter of credit subfacility. 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

Approximately 33% of our fiscal 2005 revenue was derived from sales outside of the United States, with approximately 23% denominated in foreign currencies, predominately the Great British Pound and the Euro. Approximately 34% of our fiscal 2004 revenue was derived from sales outside of the United States, with approximately 23% denominated predominately in the Great British Pound and the Euro. Approximately 32% of fiscal 2003 revenue was derived from sales outside the United States, with approximately 22% denominated in the Great British Pound and the Euro. In fiscal years 2003, 2004 and 2005 we engaged in a hedging strategy to diminish, and make more predictable, 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

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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.

Beginning fiscal 2004, we expanded our hedging activities to include a hedging program to hedge our economic exposure by hedging a portion of forecasted Euro and Great British Pound denominated sales As of March 31, 2005, we had foreign currency call option contracts of approximately €43.1 million and £14.9 million denominated in Euros and Great British Pounds, respectively. As of March 31, 2005, we also had foreign currency put option contracts of approximately €43.1 million and £14.9 million denominated in Euros and Great British Pounds, respectively. Collectively, our option contracts hedge against a portion of our forecasted foreign denominated sales. 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 $7.5 million or a loss of $8.1 million.

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

During fiscal 2005, we entered into forward foreign exchange contracts of approximately CNY 94.9 million denominated in China Yuan, which is $11.7 million. These forward foreign exchange

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contracts hedge against a portion of our forecasted foreign denominated cost of our manufacturing and design center construction costs. 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 loss of $1.0 million or a gain of $1.5 million.

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

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Item 8.    Financial Statements and Supplementary Data

PLANTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

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PLANTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

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PLANTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS