Plantronics 2015 Annual Report Download - page 50

Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Our exposure
to market risk for changes in interest rates relates primarily to our investment portfolio. Our investment policy limits the amount
of credit exposure to any one issuer and requires investments to be high credit quality, primarily rated A or A2 and above, with
the objective of minimizing the potential risk of principal loss. All highly liquid investments with initial maturities of three months
or less at the date of purchase are classified as cash equivalents. We classify our investments as either short-term or long-term
based on each instrument's underlying effective maturity date. All short-term investments have effective maturities less than 12
months, while all long-term investments have effective maturities greater than 12 months or we do not currently have the ability
to liquidate the investments. We may sell our investments prior to their stated maturities for strategic purposes, in anticipation of
credit deterioration, or for duration management. No material realized or unrealized net gains or losses were recognized during
the years ended March 31, 2015 and 2014.
Interest rates were relatively unchanged in the year ended March 31, 2015 compared to the prior year. During the year ended
March 31, 2015, we generated approximately $1.4 million of interest income from our portfolio of cash equivalents and investments,
compared to $1.5 million in fiscal year 2014. During the years ended March 31, 2015 and 2014, we did not incur a significant
amount of interest expense due to outstanding balances under our revolving line of credit. A hypothetical increase or decrease in
our interest rates by 10 basis points would have a minimal impact on our interest income or expense.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are a net receiver of currencies other than the U.S. dollar ("USD"). Accordingly, changes in exchange rates, and in particular
a strengthening of the U.S. dollar, could negatively affect our net revenues and gross margins as expressed in USD. There is a
risk that we will have to adjust product pricing in foreign countries due to competitive pressures if there is significant sustained
volatility in currency exchange rates.
We are exposed to currency fluctuations, primarily in the Euro ("EUR"), British Pound Sterling ("GBP"), Australian Dollar
("AUD"), Mexican Peso ("MXN"), and the Chinese Renminbi ("RMB"). We use a hedging strategy to diminish, and make more
predictable, the effect of currency fluctuations. All of our hedging activities are entered into with large financial institutions, which
we periodically evaluate for credit risks. We hedge our balance sheet exposure by hedging EUR, GBP, and AUD denominated
cash, accounts receivable, and accounts payable balances, and our economic exposure by hedging a portion of anticipated EUR
and GBP denominated sales and our MXN denominated expenditures. We can provide no assurance that our strategy will be
successful in the future and that exchange rate fluctuations will not materially adversely affect our business. We do not hold or
issue derivative financial instruments for speculative trading purposes.
We experienced $5.4 million in net foreign currency losses in the year ended March 31, 2015. Although we hedge a portion of
our foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the EUR and GBP in comparison
to the USD, could result in material foreign exchange losses in future periods.
Non-designated Hedges
We hedge our EUR, GBP, and AUD denominated cash, accounts receivable, and accounts payable balances by entering into foreign
exchange forward contracts.
The table below presents the impact on the foreign exchange gain (loss) of a hypothetical 10% appreciation and a 10% depreciation
of the USD against the forward currency contracts as of March 31, 2015 (in millions):
Currency - forward contracts Position
USD Value of Net
Foreign Exchange
Contracts
Foreign Exchange
Gain From 10%
Appreciation of USD
Foreign Exchange
(Loss) From 10%
Depreciation of USD
EUR Sell EUR $ 30.8 $ 3.1 $ (3.1)
GBP Sell GBP $ 9.7 $ 1.0 $ (1.0)
AUD Sell AUD $ 7.7 $ 0.8 $ (0.8)
Cash Flow Hedges
Approximately 44%, 42%, and 43% of net revenues in fiscal years 2015, 2014, and 2013, respectively, were derived from sales
outside of the U.S., which were denominated primarily in EUR and GBP in each of the fiscal years.
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