Plantronics 2005 Annual Report Download - page 58

Download and view the complete annual report

Please find page 58 of the 2005 Plantronics annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 123

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123

$2.7 million relating to a tax asset that was recorded in connection with the leveraged buy-out that
occurred in September of 1988. This tax asset arose in connection with the book versus tax basis
difference on certain fixed assets. The tax asset should have been recorded as a component of income tax
expense as the related fixed assets were depreciated, impaired or sold, which would have resulted in
additional tax expense being recorded over no more than the seven years subsequent to the 1988
leveraged buy-out. Management and the Audit Committee evaluated this write-off and determined that
it was immaterial to prior years’ reported results and to the current year’s results, so the adjustment was
included in income tax expense in fiscal 2005. The net of the favorable tax adjustments of $3.4 million
and the $2.7 write-off was a favorable $0.7 million adjustment to income tax expense in the fourth
quarter of fiscal 2005. The combination of our international tax restructuring, the completion of a routine
tax audit and the adjustment to write-off the tax asset resulted in an effective tax rate of approximately
16.2% for the fourth quarter of fiscal 2005.
Pre-tax earnings of our foreign subsidiaries were $21.9 million, $29.0 million and $44.2 million for fiscal
years 2003, 2004 and 2005, respectively.
We are currently estimating a tax rate of approximately 27% for fiscal 2006.* We have significant operations in
various tax jurisdictions. Currently, some of these operations are taxed at rates substantially lower than U.S. tax
rates. If our income in these lower tax jurisdictions were no longer to qualify for these lower tax rates or if the
applicable tax laws were rescinded or changed, our tax rate would be materially affected.
FINANCIAL CONDITION
The table below provides selected consolidated cash flow information, for the periods indicated:
Fiscal Year Ended
March 31, March 31, Increase
$ in thousands 2004 2005 (Decrease)
Cash provided by operating activities $ 72,393 $ 93,604 21,211 29.3%
Cash used for capital expenditures (16,883) (27,723) (10,840) 64.2%
Cash used for all other investing activities (104,030) (39,776) 64,254 (61.8)%
Cash used for investing activities (120,913) (67,499) 53,414 (44.2)%
Cash provided by (used for) financing activities $ 65,359 $ (4,061) (69,420) (106.2)%
Cash Flows From Operating Activities
Cash flows from operating activities represent the most significant source of funding. For the fiscal 2005,
compared to the prior year, cash flows provided by operating activities increased significantly. Cash flows
provided by operating activities for the fiscal year ended March 31, 2005 were primarily driven by net
income earned on higher sales volume offset in part by higher inventory and accounts receivable balances.
Our inventory balances increased proportionally with increased revenues, decisions to increase our
inventory safety stock, and other factors. We have a goal of improving our inventory turns to 5 by the
December fiscal 2006 quarter, while for the fiscal 2005 as a whole, we ended at 4.5 turns*. The accounts
receivable increase was primarily driven by the strong growth in sales coupled with the impact of the
strengthening of the Great British Pound and the Euro against the U.S. dollar. Our days sales
outstanding (‘‘DSO’’) increased to 53 days at the end of the fourth quarter of fiscal 2005 from 51 days at
the end of fiscal 2004. Our increase in DSO is primarily attributable to the increase in the amount and
proportion of international sales to our domestic sales. In international locations, trade terms that are
standard in their locales may extend longer than is standard in the U. S. This may increase our working
capital requirements and may have a negative impact on our cash flow provided by operating activities.
We believe that the net receivable balance is collectible and that we have sufficient reserves to cover our
exposure to bad debt.* New accounting rules effective for us in the first quarter of fiscal 2007 require that
30 ⯗Plantronics