Plantronics 2011 Annual Report Download - page 64

Income Taxes
The Company is subject to income taxes both in the U.S. as well as in several foreign jurisdictions. The Company must make
certain estimates and judgments in determining income tax expense for its financial statements. These estimates occur in the
calculation of tax benefits and deductions, tax credits, and tax assets and liabilities which are generated from differences in the
timing of when items are recognized for book purposes and when they are recognized for tax purposes.
The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-
likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood
of being sustained. The Company continues to follow the practice of recognizing interest and penalties related to income tax
matters as a part of the provision for income taxes.
The Company accounts 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. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is
more likely than not that the benefit of such assets will not be realized. (See Note 16)
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period, less common stock subject to repurchase. Diluted earnings per share is computed
by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive
common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of
outstanding stock options, the vesting of awards of restricted stock and the estimated shares to be purchased under the Company’s
employee stock purchase plan, which are reflected in diluted earnings per share by application of the treasury stock method. Under
the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of stock-based
compensation cost for future services that the Company has not yet recognized, and the amount of tax benefit that would be
recorded in additional paid-in capital upon exercise are assumed to be used to repurchase shares. (See Note 17)
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (expense). Other
comprehensive income (loss) refers to income, expenses, gains, and losses that under U.S. GAAP are recorded as an element of
stockholders’ equity but are excluded from net income (loss). Accumulated other comprehensive income, as presented in the
accompanying consolidated balance sheets, consists of foreign currency translation adjustments, unrealized gains and losses on
derivatives designated as cash flow hedges, net of tax, and unrealized gains and losses related to the Company’s investments, net
of tax.
Foreign Operations and Currency Translation
The functional currency of the Company’s foreign sales and marketing offices, except as noted in the following paragraph, is the
local currency of the respective operations. For these foreign operations, the Company translates assets and liabilities into U.S.
dollars using the period-end exchange rates in effect as of the balance sheet date and translates revenues and expenses using the
average monthly exchange rates. The resulting cumulative translation adjustments are included in Accumulated other
comprehensive income, a separate component of Stockholders' equity in the accompanying consolidated balance sheets.
The functional currency of the Company’s European finance, sales and logistics headquarters in the Netherlands, sales office and
warehouse in Japan, manufacturing facilities in Tijuana, Mexico and logistic and research and development facilities in China, is
the U.S. Dollar. For these foreign operations, assets and liabilities denominated in foreign currencies are re-measured at the period-
end or historical rates, as appropriate. Revenues and expenses are re-measured at average monthly rates which the Company
believes to be a fair approximation of actual rates. Currency transaction gains and losses are recognized in current operations. (See
Note 14)
Stock-Based Compensation Expense
The Company applies the provisions of the Compensation – Stock Compensation Topic of the FASB ASC which requires the
measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee
directors based on estimated fair values. (See Note 12)
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