Plantronics 2008 Annual Report Download - page 55

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49
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 AND MARKET RISK
We had cash and cash equivalents totaling $94.1 million at March 31, 2007 compared to $163.1 million at March 31, 2008. We had
short-term investments of $9.2 million and zero at March 31, 2007 and 2008, 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.
We hold a variety of auction rate securities, or ARS, primarily comprised of interest bearing state sponsored student loan revenue
bonds guaranteed by the Department of Education. Historically these ARS investments have provided liquidity via an auction process
that resets the applicable interest rate at predetermined calendar intervals, typically every 7 or 35 days, allowing us to either roll over
our holdings or gain immediate liquidity by selling such interests at par. The recent uncertainties in the credit markets have affected all
of our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective
settlement dates. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future
auction of these investments is successful, the underlying securities are redeemed by the issuer, or a buyer is found outside of the
auction process. Maturity dates for these ARS investments range from 2029 to 2039. All of the ARS investments were investment
grade quality and were in compliance with our investment policy at the time of acquisition. We currently have the ability to hold these
ARS investments until a recovery of the auction process or until maturity. We have classified the entire ARS investment balance as
long-term investments on our consolidated balance sheet as of March 31, 2008 because of our inability to determine when our
investments in ARS will settle. During the fourth quarter of fiscal 2008, we determined there was a decline in the fair value of our
ARS investments of $2.9 million, which was deemed temporary.
The valuation of our ARS investments are subject to uncertainties that are difficult to predict. Factors that may impact their valuation
include changes in interest rates, timing and amount of cash flows, and expected holding periods of the ARS.
If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may incur further
temporary impairment charges requiring us to record additional unrealized losses in other comprehensive income (loss). We could
also incur other-than-temporary impairment charges resulting in realized losses in the consolidated statement of operations which
would reduce net income. We continue to monitor the market for ARS transactions and consider their impact (if any) on the fair value
of our investments.
As of April 26, 2008, we had no borrowings under the revolving credit facility and $0.5 million committed under the letter of credit
sub-facility. If we choose to borrow additional amounts under this facility in the future and market interest rates rise, then our interest
payments would increase accordingly.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are engaged in a hedging strategy to diminish, and make more predictable, the effect of currency fluctuations. We hedge our
balance sheet exposure by hedging Euro and Great British Pound denominated receivables, payables, and cash balances, and our
economic exposure by hedging a portion of anticipated Euro and Great British Pound denominated sales; however, we can provide no
assurance our strategy will be successfully implemented and that exchange rate fluctuations will not materially adversely affect our
business in the future.
Non-designated Hedges
We hedge our Euro and Great British Pound denominated receivables, payables and cash balances by entering into foreign exchange
forward contracts.
The table below presents the impact of a hypothetical 10% appreciation and a 10% depreciation of the U.S. dollar against the forward
currency contracts as of March 31, 2008 (in millions):