Plantronics 2006 Annual Report Download - page 89

part ii
The impact on pro forma net income and net income per share in the table above may not be indicative of
the effect in future years as options typically vest over several years, and Plantronics continues to grant
stock options to new and current employees.
The following table sets forth the assumptions used in determining the estimated fair value of stock-
based awards and the resulting estimated fair value of the awards:
Employee Stock
Employee Stock Options Purchase Plan
Fiscal Year Ended March 31, 2004 2005 2006 2004 2005 2006
Expected dividend yield 0.0% 0.5% 0.7% 0.0% 0.5% 0.6%
Expected life (in years) 6.0 5.1 4.9 0.5 0.5 0.5
Expected volatility 56.0% 58.2% 53.1% 38.5% 33.4% 34.0%
Risk-free interest rate 3.2% 3.4% 4.2% 1.0% 2.4% 4.4%
Weighted-average fair value $14.81 $20.70 $14.79 $4.61 $7.07 $8.67
Volatility represents the measure of the amount by which a stock price is expected to fluctuate over the
expected life of the option. The higher the volatility, the more the returns on the stock can be expected to
vary. The risk free interest rate is the rate on a U.S. Treasury bill or bond that approximates the expected
life of the option.
On March 8, 2005, Plantronics accelerated the vesting of certain unvested and ‘‘out-of-the-money’’ stock
options outstanding under the Company’s stock plans that have exercise prices per share of $38.19 or
higher. Options to purchase approximately 1.5 million shares of the company’s common stock became
fully vested and exercisable immediately. In addition, in order to prevent unintended personal benefits to
executive officers and directors, restrictions are imposed on any shares received through the exercise of
accelerated options held by those individuals. Those restrictions will prevent the sale of any shares
received from the exercise of an accelerated option prior to the earlier of the original vesting date of the
option or the individual’s termination of employment.
The Company believes that the acceleration of the vesting was in the best interest of stockholders as it
will enable the Company to avoid recognizing in its statement of operations compensation expense
associated with the options in future periods, primarily when the Company adopts FASB Statement
No. 123R ‘‘Share-Based Payment’’ in the first quarter of fiscal 2007.
Concentration of Risk
Financial instruments that potentially subject Plantronics to concentrations of credit risk consist
principally of cash equivalents, marketable securities and trade receivables. Plantronics’ investment
policies for cash limit investments to those that are short-term and low risk and also limit the amount of
credit exposure to any one issuer and restrict placement of these investments to issuers evaluated as
creditworthy. Cash equivalents have a maturity when purchased, of three months or less; marketable
securities have a maturity, when purchased, of greater than three months. Concentrations of credit risk
with respect to trade receivables are generally limited due to the large number of customers that comprise
the Company’s customer base and their dispersion across different geographies and markets. Plantronics
performs ongoing credit evaluations of its customers’ financial condition and generally requires no
collateral from its customers. We maintain an allowance for uncollectible accounts receivable based upon
expected collectibility of all accounts receivable.
AR 2006 ⯗83