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Plantronics Announces Third Quarter Results

January 27, 2009

Plantronics, Inc. (NYSE: PLT) today announced third quarter fiscal 2009 net revenues of $182.8 million compared with $232.8 million in the third quarter of fiscal 2008. Plantronics’ GAAP diluted loss per share was $1.90 in the third quarter of fiscal 2009 compared with earnings per share of $0.39 in the same quarter of the prior year. Non-GAAP diluted earnings per share for the current quarter was $0.08 compared with $0.53 in the third quarter of fiscal 2008. The Company took a $117.5 million non-cash asset impairment charge on the carrying value of some of its goodwill and long-lived assets exclusive of the $23.9 million related tax benefit. The difference between GAAP and non-GAAP earnings per share for the current quarter includes goodwill and asset impairment charges, purchase accounting amortization, restructuring and other related costs, the cost of stock-based compensation, and the release of tax reserves due to expiration of certain statutes of limitation.

“Worsening economic conditions affected all parts of our business and make us cautious about the outlook for fiscal 2010. As announced on January 14th, we have taken significant steps to reduce our cost structure with the objective of being profitable and cash flow positive through this economic cycle while continuing to focus on core strategic initiatives such as Unified Communications. Our focus on inventory reduction in the December quarter resulted in a reduction of more than $25 million or approximately 16%, and enabled us to remain cash flow positive in the quarter,” said Ken Kannappan, President and CEO. “We’ve made progress in our consumer businesses by introducing competitive products, gaining market share and reducing costs. However, it’s clear that this economic cycle will require further actions to improve profitability and we are actively evaluating our alternatives,” Kannappan concluded.

Audio Communications Group (ACG) Non-GAAP Results
(Office & Contact Center, Mobile, Gaming and Computer, Other)
Comparisons are to the Same Quarter in the Prior Year

Third quarter fiscal 2009 net revenues of $152.6 million were down 22.1% compared with $196.0 million, with weakness in all geographies and product groups other than our Clarity products. Office and Contact Center revenue of $101.7 million declined 22.4%, with office corded products revenue declining 21% while office cordless products revenue declined 24%. Bluetooth headset revenue was $33.6 million, down 22%, and Gaming & Computer products revenue was $8.5 million, down 18%.

Gross margin in the third quarter of fiscal 2009 was 40.1% compared with 46.2% in the year-ago quarter. The lower gross margin was due to poor overall factory utilization and lower Bluetooth gross margin as the result of higher warranty costs. Operating income decreased to $9.0 million from $35.4 million, and the operating margin was 5.9% compared with 18.1%. Operating expenses declined by 5.4% from $55.2 million to $52.2 million.

The Company continues to believe that the implementation of Unified Communications (UC) technologies by large corporations will be a significant long-term driver of office headset adoption, and as a result, a key long-term driver of revenue and profit growth. “Despite weak economic conditions, trial deployments of UC solutions and headsets continue to grow, with some evidence that the cost savings and productivity enhancements derived from UC are driving the expansion of existing deployments in both in the U.S. and Europe. This is encouraging, but further growth during the recession may be unlikely,” stated Kannappan.

Audio Entertainment Group (AEG) Non-GAAP Results
(Docking Audio, PC Audio, Other)
Comparisons are to the Same Quarter in the Prior Year

Gross margin declined from $5.0 million to $1.1 million or 13.5% to 3.6% as a result of higher requirements for inventory provisions and makers’ claims, foreign exchange, and the overall composition of revenue. Relative to our internal plans and the related guidance for the quarter, the principal factors which caused the shortfall in gross profit were rework and expediting costs on a key product line, the negative impact of foreign exchange movements and the composition of revenue.

Operating expenses declined 28.5% from $8.3 million to $5.9 million. Despite the progress on the cost structure, the operating loss increased from $3.3 million to $4.8 million as a result of the lower gross margin.

Business Outlook

The following statements are based on current expectations. As described in “Safe Harbor” below, many of these statements are forward-looking. Actual results are subject to a variety of risks and uncertainties and may differ materially from the forward-looking statements.

We have a “book and ship” business model whereby we ship most orders to our customers within 48 hours of our receipt of those orders, and we thus cannot rely on the level of backlog to provide visibility into potential future revenues. Our business is inherently difficult to forecast, and there can be no assurance that the incoming orders we expect to receive over the balance of the quarter will materialize. With increasing economic uncertainty, our business is even more difficult to forecast than usual. On January 14, 2009, we announced a series of actions to lower our cost structure and improve efficiencies. These actions include a restructuring plan to reduce our worldwide workforce by approximately 18% in comparison to September 30, 2008, along with other cost cutting measures including management salary reductions and decreases in other operating expenses. As a result of the reduction in the worldwide workforce, we expect to record restructuring and other related charges, primarily for employee termination benefits, of approximately $7.7 to $8.2 million in total, of which $1 million was recognized in the third quarter. We expect the balance of $6.7 million to $7.2 million to be recognized in the fourth quarter of fiscal 2009. Annualized savings from the cost reductions are expected to be over $50 million in fiscal 2010 compared with our annualized expenditure level in the second quarter of fiscal 2009. In addition, the Company plans an approximate 50% reduction in capital expenditures for fiscal year 2010.

Revenues in all portions of our business are expected to decline in the fourth quarter. Gross margins are expected to be under pressure due to lower production, a weak demand environment and competitive pricing in the Bluetooth segment. Non-GAAP operating expenses are expected to decline further in the fourth quarter as a result of the restructuring activities announced on January 14, 2009. In addition the company remains committed to managing expenses in line with its goal of remaining profitable and positive cash flow generation.

Subject to the foregoing, we are currently expecting the following financial results for the fourth quarter of fiscal 2009:

  • Net revenues for the fourth quarter of fiscal 2009 to be in the range of $125 - $135 million;
  • A Non-GAAP operating loss of $4 - $10 million;
  • A GAAP loss.

Plantronics does not intend to update these targets during the quarter or to report on its progress toward these targets. Plantronics will not comment on these targets to analysts or investors except by its next press release announcing its fourth quarter fiscal year 2009 results or by other public disclosure. Any statements by persons outside Plantronics speculating on the progress of the fourth quarter fiscal year 2009 will not be based on internal company information and should be assessed accordingly by investors.

Plantronics has scheduled a conference call to discuss third quarter results. The conference call will take place Tuesday, January 27 at 2:00 PM (PST). All interested investors and potential investors in Plantronics stock are invited to participate. To listen to the call, please dial in five to ten minutes prior to the scheduled starting time and refer to the “Plantronics Conference Call.” Participants from North America should call (888) 301-8736 and other participants should call (706) 634-7260.

A replay of the call with the conference ID #60282103 will be available for 72 hours at (800) 642-1687 for callers from North America and at (706) 645-9291 for all other callers. The conference call will also be simultaneously web cast at www.plantronics.com under Investor Relations, and the web cast of the conference call will remain available at the Plantronics Web site for thirty days.

Use of Non-GAAP Financial Information

Plantronics excludes non-recurring transactions and non-cash expenses and charges such as restructuring and other related charges, certain tax credits and the release of certain tax reserves, stock-based compensation expenses related to stock options, awards and employee stock purchases, purchase accounting amortization and goodwill and long-lived asset impairment charges from non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin and non-GAAP effective tax rate. Plantronics excludes these expenses from its non-GAAP measures primarily because Plantronics does not believe they are reflective of ongoing operating results and are not part of its target operating model. Plantronics believes that the use of non-GAAP financial measures provides meaningful supplemental information regarding its performance and liquidity, and helps investors compare actual results to its long-term target operating model goals. Plantronics believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning, forecasting and analyzing future periods.

SAFE HARBOR

This release contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to (i) our restructuring plan, (ii) our expectation that we will incur approximately $7.7 to $8.2 million in related restructuring charges and the timing of such charges, (iii) our expectation that we will realize annualized savings from cost reductions of over $50 million, (iv) our expectations regarding our capital expenditures, (v) our objective to maintain our profitability, be cash flow positive and increase our competitive position, (vi) our ability to continue to focus on certain strategic initiatives, (vii) further actions we may take to improve profitability, (viii) the future of Unified Communications technologies, including their implementation, growth in deployments and the effect on headset adoption, (ix) our position in the Unified Communications market, (x) our estimate of revenue for the fourth quarter of fiscal 2009, and (xi) our estimate of GAAP and Non-GAAP financial results for the fourth quarter of fiscal 2009 and related components of earnings per share, as well as other matters discussed in this press release that are not purely historical data. Plantronics does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by such statements.

Among the factors that could cause actual results to differ materially from those contemplated are:

  • All aspects of our business are difficult to predict, particularly in light of the current economic conditions in both the domestic and international markets;
  • We do not know how the market for each of our product groups will continue to be negatively affected as a result of the recession in the United States or global economy;
  • Fluctuations in foreign exchange rates;
  • The bankruptcy of additional distributors or key customers or the bankruptcy of or reduction in capacity of our key suppliers;
  • Additional actions we take may affect GAAP results;
  • Failure to match production to demand given long lead times and the difficulty of forecasting unit volumes and acquiring the component parts to meet demand without having excess inventory or incurring cancellation charges;
  • We have significant intangible assets and goodwill recorded on our balance sheet. If the carrying value of our intangible assets and goodwill is not recoverable, additional impairment losses must be recognized which would adversely affect our financial results;
  • We have experienced volatility in prices from our suppliers, including our manufacturers located in China, and in light of the uncertainties of the economy in the United States and around the world, which could negatively affect profitability and/or market share; and
  • Additional risk factors include: interruption in the supply of sole-sourced critical components, continuity of component supply at costs consistent with our plans, the inherent risks of our substantial foreign operations, and problems which might affect our manufacturing facilities in Mexico or in China.

For more information concerning these and other possible risks, please refer to the Company’s Annual Report on Form 10-K filed May 27, 2008, quarterly reports filed on Form 10-Q and other filings with the Securities and Exchange Commission as well as recent press releases. These filings can be accessed over the Internet at http://www.sec.gov/edgar/searchedgar/companysearch.html.

Financial Summaries

The following related charts are provided:

About Plantronics

In 1969, a Plantronics headset carried the historic third words from the moon: “That’s one small step for man, one giant leap for mankind.” Since then, Plantronics has become the headset of choice for mission-critical applications such as air traffic control, 911 dispatch, and the New York Stock Exchange. Today, this history of Sound Innovation® is the basis for every product we build for the office, contact center, personal mobile, entertainment and residential markets. The Plantronics family of brands includes Plantronics, Altec Lansing, Clarity, and Volume Logic. For more information, go to www.plantronics.com or call (800) 544-4660.

Altec Lansing, Clarity, Plantronics, Sound Innovation, Volume Logic and AudioIQ are trademarks or registered trademarks of Plantronics, Inc. All other trademarks are the property of their respective owners

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