Plantronics 2003 Annual Report Download - page 19

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Dilutive potential common shares consist of employee stock options. Outstanding stock
options to purchase approximately 3.5 million and 6.8 million shares of Plantronics’ stock
at March 31, 2002 and 2003, respectively, were excluded from the computation of diluted
earnings per share because their effect would have been antidilutive. Antidilutive employee
stock options were not material at March 31, 2001.
Comprehensive Income. Comprehensive income includes charges or credits to equity that
are not the result of transactions with owners. Accumulated other comprehensive income
(loss), as presented in the accompanying consolidated balance sheets, consists of foreign
currency translation adjustments.
Stock-Based Compensation. Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (“SFAS 123”), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation plans based
on the fair value of options granted. We have elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations, and
to provide additional disclosures with respect to the pro forma effects of adoption had we
recorded compensation expense as provided in SFAS 123.
Had compensation expense for our stock option and stock purchase plans been determined
based on the methods prescribed by SFAS 123, our net income and net income per share
would have been as follows:
Fiscal Year Ended March 31,
(in thousands, except earnings per share ) 2001 2002 2003
Net income:
Net income - as reported $73,550 $ 36,248 $41,476
Less stock based compensation expense
determined under fair value based method,
net of tax effects (12,023) (13,607) (14,196)
Net income - pro forma $61,527 $ 22,641 $27,280
Basic net income per share - as reported $1.49 $ 0.77 $0.92
Basic net income per share - pro forma $1.25 $ 0.48 $0.60
Diluted net income per share - as reported $1.38 $ 0.74 $0.89
Diluted net income per share - pro forma $1.16 $ 0.46 $0.59
The impact on pro forma net income per share and net income in the table above may not be
indicative of the effect in future years as options vest over several years and Plantronics
continues to grant stock options to new and current employees.
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Notes to Consolidated Financial Statements
Income Taxes. We account for income taxes under the liability method, which recognizes
deferred tax assets and liabilities for the expected future tax consequences of temporary
differences between the tax basis of assets and liabilities and their financial statement reported
amounts. We account for tax credits as a reduction of tax expense in the year in which the
credits reduce taxes payable.
Foreign Operations and Currency Translation. The functional currency of the Mexican
manufacturing operations and European sales and logistics headquarters is the U.S. dollar.
Accordingly, all revenues and cost of sales related to foreign operations are recorded using the
U.S. dollar as functional currency. The functional currency of our foreign sales and marketing
and research and development operations is the local currency of the respective operations.
The assets and liabilities of the subsidiaries whose functional currencies are other than the
U.S. dollar are translated into U.S. dollars at the current exchange rate in effect at the balance
sheet date. Income and expense items are translated using the average exchange rate for the
period. Cumulative translation adjustments are included in accumulated other comprehensive
income (loss), which is reflected as a separate component of stockholders’ equity. Foreign
currency transaction gains and losses are included in the results of operations.
Derivatives. Plantronics has entered into foreign exchange forward contracts to minimize
the impact of foreign currency fluctuations on assets and liabilities denominated in currencies
other than the functional currency of the reporting entity. Gains and losses resulting from
exchange rate fluctuations on forward foreign exchange contracts are recorded in interest and
other income, net, and are offset by the corresponding foreign exchange transaction gains and
losses from the foreign currency denominated assets and liabilities being hedged. Fair values
of foreign exchange forward contracts are determined using quoted market forward rates.
Earnings Per Share. Basic Earnings Per Share (“EPS”) is computed by dividing net income
available to common stockholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. Basic EPS excludes the dilutive effect of
stock options. Diluted EPS gives effect to all dilutive potential common shares outstanding
during a period. In computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased using the proceeds from the
exercise of stock options.
Following is a reconciliation of the numerators and denominators of basic and diluted EPS:
Fiscal Year Ended March 31,
(in thousands, except earnings per share ) 2001 2002 2003
Net income $73,550 $ 36,248 $41,476
Weighted average shares-basic 49,213 47,304 45,187
Effect of dilutive securities-employee stock options 4,050 1,934 1,397
Weighted average shares-diluted 53,263 49,238 46,584
Net earnings per common share-basic $1.49 $ 0.77 $0.92
Net earnings per common share-diluted $1.38 $ 0.74 $0.89