Plantronics 2008 Annual Report Download - page 53

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assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. (See Note 8)
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 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.
On April 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. Under
FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-
likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of
being sustained. There were no material adjustments as a result of the adoption of FIN 48. We continue to follow the practice of
recognizing interest and penalties related to income tax matters as a part of the provision for income taxes.
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.
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.
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