Plantronics 2005 Annual Report Download - page 93

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part ii
Permanently reinvested foreign earnings were approximately $168.5 million at March 31, 2005. Management
expects to complete its analysis and reach a decision on this issue during fiscal year 2006.
The effective tax rate for fiscal 2003, 2004 and 2005 was 26.9%, 28.0% and 25.2%, respectively. During
fiscal 2003, 2004 and 2005, the successful completion of routine tax audits and the expiration of certain
statutes of limitations resulted in favorable tax adjustments of $1.7 million, $2.7 million and $3.4 million,
respectively. Partially offsetting the $3.4 million favorable tax adjustments in 2005 was a write-off of
$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.
The following is a reconciliation between statutory federal income taxes and the total provision for
income taxes (in thousands):
Fiscal Year Ended March 31, 2003 2004 2005
Tax expense at statutory rate $19,866 $30,275 $45,626
Foreign operations taxed at different rates (1,787) (3,592) (12,115)
Foreign tax credit (135) (441) (440)
State taxes, net of federal benefit 154 833 2,095
Research and development credit (898) (940) (1,257)
Net favorable tax contingency adjustments (1,744) (2,700) (694)
Other, net (172) 785 (375)
$15,284 $24,220 $32,840
AR 2005 ⯗65