Plantronics 2008 Annual Report Download - page 68

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62
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment
of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about how and why an entity uses
derivative instruments, how derivative instruments and related hedged items are accounted for and their effect on an entity’s financial
position, financial performance, and cash flows. SFAS No. 161 will be effective in the first quarter of fiscal year 2010. The Company
is evaluating the impact that this statement will have, if any, on its consolidated financial statements.
4. INVESTMENTS
The following table presents the Company’s investments at March 31, 2007 and 2008:
(in thousands)
Cost Unrealized Accrued Fair Cost Unrealized Accrued Fair
Basis Gain(Loss) Interest Value Basis Gain(Loss) Interest Value
Short-term investments:
Auction rate securities $ 9,150 $ - $ 84 $ 9,234 $ - $ - $ - $ -
Total short-term investments 9,150 - 84 9,234 - - - -
Long-term investments: - - - - - - - -
Auction rate securities - - - - 28,000 (2,864) - 25,136
Total long-term investments - - - - 28,000 (2,864) - 25,136
Total short-term and long-term investments $ 9,150 $ - $ 84 $ 9,234 $ 28,000 $ (2,864) $ - $ 25,136
Balances at March 31, 2008Balances at March 31, 2007
At March 31, 2007 and 2008, all of the Company’s investments were classified as available-for-sale and consisted of ARS. The
Company holds a variety of ARS, primarily comprised of interest bearing state sponsored student loan revenue bonds. Historically
these ARS investments have provided liquidity via an auction process that resets the applicable interest rate at predetermined calendar
intervals, typically every 7 or 35 days, allowing the Company to either roll over the holdings or gain immediate liquidity by selling
such interests at par. The recent uncertainties in the credit markets have affected all of the Company’s holdings in ARS investments
and auctions for the Company’s investments in these securities have failed to settle on their respective settlement dates. Consequently,
the investments are not currently liquid and the Company will not be able to access these funds until a future auction of these
investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the auction process.
Maturity dates for these ARS investments range from 2029 to 2039. All of the ARS investments are investment grade quality and were
in compliance with the Company’s investment policy at the time of acquisition. The Company currently has the ability to hold these
ARS investments until a recovery of the auction process or until maturity. The Company has classified the entire ARS investment
balance as long-term investments on its consolidated balance sheet as of March 31, 2008 because of the Company’s inability to
determine when its investments in ARS will settle.
Historically, the fair value of ARS investments has approximated par value due to the frequent resets through the auction process.
While the Company continues to earn interest on its ARS investments at the maximum contractual rate, these investments are not
currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of
ARS no longer approximates par value.
The Company has used a discounted cash flow model to determine the estimated fair value of its investment in ARS as of March 31,
2008. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of
cash flows and expected holding periods of the ARS. Based on this assessment of fair value, as of March 31, 2008 the Company
determined there was a decline in the fair value of its ARS investments of $2.9 million, which was deemed temporary. The
differentiating factors between temporary and other-than-temporary impairment are primarily the length of the time and the extent to
which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability
of Plantronics to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
The Company recorded a full valuation allowance against the associated deferred tax asset due to the uncertainty in realizing this
asset.
The Company did not incur any realized gains or losses in the years ended March 31, 2006, 2007, and 2008.