Plantronics 2007 Annual Report Download - page 64

60 P l a n t r o n i c s
or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
Such conditions may include an economic downturn or a change in the assessment of future operations.
Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from
the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets
that management expects to hold and use is based on the amount that the carrying value of the asset
exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or
fair value less costs to sell.
Income Taxes
We are 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 for the
financial statements. These estimates occur in 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.
We assess the probability of adverse outcomes from tax examinations regularly to determine the adequacy
of its reserve for income taxes. Tax reserves are established when despite our belief that tax return
positions are consistent with applicable tax laws, certain positions are subject to challenge and we may not
successfully defend its position. While it is difficult to predict the final outcome or timing of resolution
of any particular tax matter, we believe that reserves reflect the probable outcome of known tax
contingencies.
We account 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, 2007, we believe that all of our deferred tax assets are recoverable;
however, if there was a change in our ability to recover our deferred tax assets, we would be required to
take a charge in the period in which we determined that recovery was not more likely than not.
Stock-based Compensation Expense
During the first quarter of fiscal 2007, we adopted the provisions of, and now account for stock-based
compensation in accordance with, Financial Accounting Standards Board’s (“FASB”) SFAS No. 123(R)
which replaced SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and
supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under
the fair value recognition provisions of this statement, our stock-based compensation cost is measured at
the grant date based on the fair value of the award and is recognized as expense on a straight-line basis
over the requisite service period, which is the vesting period. We elected the modified-prospective
adoption method, under which prior periods are not restated for comparative purposes. The valuation
provisions of SFAS No. 123(R) apply to new grants, to unvested grants that were outstanding as of the
effective date and to all outstanding awards subsequently modified. Estimated compensation for unvested
grants that were outstanding as of the effective date will be recognized over the remaining service period
using the compensation cost previously estimated for the SFAS No. 123 pro forma disclosures. We make
regular assessments of the adequacy of our tax credit pool to determine if there are any deficiencies which
require recognition in our consolidated statements of operations.
We calculate the fair value of restricted stock based on the fair market value of our stock on the date of
grant. We calculate the fair value of stock options and employee stock purchase plan shares using the
Black-Scholes option-pricing model. The determination of the fair value of stock-based payment awards
using an option-pricing model is affected by our stock price as well as assumptions regarding a number of
complex and subjective variables. These variables include our expected stock price volatility over the term
of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and
expected dividends.