Plantronics 2006 Annual Report Download - page 87

part ii
Advertising Costs
Plantronics expenses all advertising costs as incurred. Advertising expense for the years ended March 31,
2004, 2005 and 2006 was $5.2 million, $7.8 million and $16.0 million, respectively.
Income Taxes
Plantronics is subject to income taxes both in the United States as well as in several foreign jurisdictions.
Management must make certain estimates and judgments in determining income tax expense reported in
the financial statements. These estimates effect 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.
Plantronics’ effective tax rate differs from the statutory rate due to the impact of foreign operations, tax
credits, state taxes, purchase accounting, and other factors. Its future effective tax rates could be impacted
by a shift in the mix of domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax
laws in the United States or internationally; a change in management’s estimates of future taxable income
which results in a valuation allowance being required; or a federal, state or foreign jurisdiction’s view of
tax returns which differs materially from what management originally provided. Management assesses the
probability of adverse outcomes from tax examinations regularly to determine the adequacy of the reserve
for income taxes.
Plantronics 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. As of March 31, 2006, management believes that all of the deferred tax assets are
recoverable; however, if there were a change in the Company’s ability to recover its deferred tax assets, the
Company would be required to take a charge in the period in which management determined that
recovery was not more likely than not. (See Note 17).
Earnings Per Share
Basic Earnings Per Share (‘‘EPS’’) is computed by dividing net income (numerator) by the weighted
average number of common shares outstanding (denominator) during the period less common stock
subject to repurchase. Basic EPS excludes the dilutive effect of stock options. Diluted EPS gives effect to
all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average
stock price for the period is used in determining the number of shares assumed to be purchased using the
proceeds from the exercise of stock options. (See Note 18).
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other
comprehensive income refers to income, expenses, gains and losses that under generally accepted
accounting principles are recorded as an element of stockholders’ equity but are excluded from net
income. Accumulated other comprehensive income (loss), 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 and unrealized gains and losses related to the Company’s
marketable securities.
AR 2006 ⯗81