Plantronics 2010 Annual Report Download - page 50

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The uncertainties in the credit markets have affected all of our auction rate securities (“ARS”) holdings, and, as a consequence, these
investments are not currently liquid, and we 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. In November
2008, we accepted an agreement (the “Agreement”) from UBS AG (“UBS”), the investment provider for our now $23.3 million par
value ARS portfolio, granting us certain rights relating to our ARS (the “Rights”). Prior to the UBS agreement, we recorded our ARS
investments as available-for-sale securities and any unrealized gains or losses were recorded to Accumulated other comprehensive
income within Stockholders’ Equity as the intent was to hold the ARS until the market recovered. In connection with the acceptance
of the Agreement, we transferred our ARS from long-term available-for-sale investments to long-term trading securities, reflecting
management’s intent to exercise our put option during the period from June 30, 2010 to July 3, 2012 per the Agreement. At the time
of transfer, we recognized a loss on the ARS of approximately $4.0 million in Interest and other income (expense), net. Upon
acceptance of the Rights offer in November 2008, we recognized a gain of $3.9 million on the put option which offset the ARS loss in
fiscal 2009. In fiscal 2010, we recorded an unrealized gain on the ARS of $0.3 million to Interest and other income (expense), net
which was offset in part by a $0.2 million unrealized loss recorded on the Rights.
We expect to sell our ARS under the Rights; however, UBS’s obligations under the Rights are not secured and do not require UBS to
obtain any financing to support its performance obligations under the Rights. Although we currently have the ability to hold these
ARS investments until a recovery of the auction process, until maturity or until purchased by UBS, if UBS does not purchase the ARS
as per their Agreement, the current market conditions deteriorate further or a recovery in market values does not occur, we may incur
further other-than-temporary impairment charges resulting in further losses in our statement of operations, which would reduce net
income. Also, the valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact
its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of
default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and
liquidity. If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may
incur further other-than-temporary impairment charges resulting in unrealized losses in our Consolidated statement of operations
which would reduce net income. We continue to monitor the market for ARS transactions and consider the impact, if any, on the fair
value of our investments.
Our investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate
concentrations, and delivers an appropriate yield in relationship to our investment guidelines and market conditions. We are currently
limiting our investments in ARS to our current holdings and increasing our investments in more liquid investments.
We enter into foreign currency forward-exchange contracts, which typically mature in one month, to hedge the exposure to foreign
currency fluctuations of foreign currency-denominated receivables, payables, and cash balances. We record on the Consolidated
balance sheet at each reporting period the fair value of our forward-exchange contracts and record any fair value adjustments in our
Consolidated statement of operations. Gains and losses associated with currency rate changes on contracts are recorded within
Interest and other income (expense), net, offsetting transaction gains and losses on the related assets and liabilities.
We also have a hedging program to hedge a portion of forecasted revenues denominated in the Euro and Great Britain Pound with put
and call option contracts used as collars. We also started hedging a portion of the forecasted expenditures in Mexican Peso with a
cross-currency swap in the second quarter of fiscal 2010. At each reporting period, we record the net fair value of our unrealized
option contracts on the Consolidated balance sheet with related unrealized gains and losses as a component of Accumulated other
comprehensive income, a separate element of Stockholders’ equity. Gains and losses associated with realized option contracts and
swap contracts are recorded within Net revenues and Cost of revenues, respectively.
Our liquidity, capital resources, and results of operations in any period could be affected by the exercise of outstanding stock options,
restricted stock grants to employees, and the issuance of common stock under our employee stock purchase plan. Further, the
resulting increase in the number of outstanding shares could affect our per share earnings; however, we cannot predict the timing or
amount of proceeds from the sale or exercise of these securities or whether they will be exercised at all.
We believe that our current cash and cash equivalents and cash provided by operations will be sufficient to fund operations for at least
the next twelve months; however, any projections of future financial needs and sources of working capital are subject to
uncertainty. See “Certain Forward-Looking Information” and “Risk Factors” in this Annual Report on Form 10-K for factors that
could affect our estimates for future financial needs and sources of working capital.