Plantronics 2006 Annual Report Download - page 67

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part ii
$0.03 million in fiscal 2005, which is primarily due to a period-over-period strengthening of the
U.S. dollar compared to the Euro and British pound. In addition, in order to finance the acquisition of
Altec Lansing, we drew down on our line of credit and we used short-term investments. As a result, we
incurred higher interest expense attributable to the outstanding balance on our line of credit and lower
interest income due to lower short-term investment balances.
In comparison to fiscal 2004, interest and other income, net in fiscal 2005, increased primarily from
higher interest income as a result of higher cash and short-term investment balances and approximately
$0.3 million in interest received from a one-time litigation settlement. This was offset, in part, by lower
foreign currency transaction gains, net of the effect of hedging activity of $0.03 million compared to
foreign currency transaction gains, net of the effect of hedging activity, for fiscal 2004 of $0.9 million.
Income Tax Expense
Consolidated
Fiscal Year Ended Fiscal Year Ended
March 31, March 31, Increase March 31, March 31, Increase
($ in thousands) 2004 2005 (Decrease) 2005 2006 (Decrease)
Income before
income taxes $86,499 $130,360 $43,861 50.7% $130,360 $112,554 $(17,806) (13.7)%
Income tax
expense 24,220 32,840 8,620 35.6% 32,840 31,404 (1,436) (4.4)%
Net income $62,279 $ 97,520 $35,241 56.6% $ 97,520 $ 81,150 $(16,370) (16.8)%
Effective tax rate 28.0% 25.2% (2.8) ppt. 25.2% 27.9% 2.7 ppt.
In comparison to fiscal 2005, income tax expense in fiscal 2006 was negatively impacted by the
acquisition of Altec Lansing, which has a higher tax rate than our core Plantronics business. This
effective rate increase was offset in part by special incentives that Plantronics received under the
Maquiladora program in Mexico and additional tax credits that we received for expansion of our research
and development in Mexico.
During fiscal 2004 and 2005, the successful completion of routine tax audits and the expiration of certain
statutes of limitations resulted in favorable tax adjustments of $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. Management and the Audit Committee evaluated this write-off and determined that it was
immaterial to prior years’ reported results and to the fiscal 2005 results, so the adjustment was included in
income tax expense in fiscal 2005.
In fiscal 2006, our deferred tax assets were not subject to any valuation allowances. 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. As of March 31, 2006, we believe that it is
more likely than not that the benefit of all of our deferred tax assets are recoverable.
Pre-tax earnings of our foreign subsidiaries were $29.0 million, $44.2 million and $45.6 million for fiscal
years 2004, 2005 and 2006, respectively.
AR 2006 ⯗61