Plantronics 2007 Annual Report Download - page 65

part ii
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We estimate the volatility of our common stock-based on an equally weighted average of historical and
implied volatility. Implied volatility is based on the volatility of our publicly traded options on our
common stock. We determined that a blend of historical and implied volatility is more reflective of
market conditions and a better indicator of expected volatility than using purely historical volatility,
which we had used for our pro forma disclosures under SFAS No. 123 prior to fiscal 2007. We estimate
the expected life of options granted based on historical experience of similar awards, giving consideration
to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee
behavior. We base the risk-free interest rate on the U.S. Treasury yield curve in effect at the time of grant
for periods corresponding with the expected life of the option. We base the dividend yield assumption on
our current dividend and the market price of our common stock at the date of grant. SFAS No. 123(R)
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s
historical experience.
The guidance in SFAS No. 123(R) and SAB No. 107 is relatively new. The application of these principles
may be subject to further interpretation and refinement over time. There are significant differences
among valuation models, and there is a possibility that we will adopt different valuation models in the
future. This may result in a lack of consistency in future periods and could materially affect the fair value
estimate of stock-based payments. It may also result in a lack of comparability with other companies that
use different models, methods and assumptions.
On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position
No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards.” The Company has elected to adopt the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R).
The alternative transition method includes simplified methods to establish the beginning balance of the
additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based
compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon
adoption of SFAS No. 123(R).
The adoption of SFAS No. 123(R) had a material impact on our consolidated financial position and
results of operations. See Note 4, “Stock-Based Compensation”, for further information regarding our
stock-based compensation assumptions and expenses, including pro forma disclosures for prior periods as
if we had recorded stock-based compensation expense.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in interest rates and foreign
currency exchange rates. This discussion contains forward-looking statements that are subject to risks
and uncertainties. Actual results could vary materially as a result of a number of factors including those
set forth in “Risk Factors Affecting Future Operating Results.”
INTEREST RATE RISK
We had cash and cash equivalents totaling $68.7 million at March 31, 2006 compared to $94.1 million at
March 31, 2007. We had short-term investments of $8.0 million and $9.2 million at March 31, 2006 and
2007, respectively. Cash equivalents have a maturity when purchased of three months or less; short-term
investments have a maturity of greater than three months, and are classified as available-for-sale. All of
our short-term investments are held in our name at a limited number of major financial institutions and
consist of auction rate securities. The taxable equivalent interest rates realized on these investments
averaged 5.0% for fiscal 2007. Our investment policy generally requires that we only invest in auction
rate securities, deposit accounts, certificates of deposit or commercial paper with minimum ratings of
A1/P1 and money market mutual funds with minimum ratings of AAA.