Plantronics 2008 Annual Report Download - page 65

59
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.
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”). 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. At the adoption date, the Company had $12.4 million of unrecognized tax benefits, $9.8 million of which would
affect income tax expense if recognized. The remaining balance of the unrecognized tax benefits of $2.6 million would be an
adjustment to goodwill if recognized before April 1, 2009 prior to the adoption of SFAS No. 141R. As of March 31, 2008, the
Company had $12.4 million of unrecognized tax benefits all of which would favorably impact the effective tax rate in future periods if
recognized.
Plantronics accounts 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.
Earnings Per Share
Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares
outstanding during the period, less common stock subject to repurchase. Diluted net income per share is computed by dividing the net
income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding
during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock options, the
vesting of restricted stock awards and from withholdings associated with the Company’s employee stock purchase plan, which are
reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, the amount that
the employee must pay for exercising stock options, the amount of stock-based compensation cost for future services that the
Company has not yet recognized, and the amount of tax benefit that would be recorded in additional paid-in capital upon exercise are
assumed to be used to repurchase shares. (See Note 16)
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income
refers to income, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of
stockholders’ equity but are excluded from net income. Accumulated other comprehensive income (loss), as presented in the
accompanying consolidated balance sheets, consists of foreign currency translation adjustments, unrealized gains and losses on
derivatives designated as cash flow hedges, net of tax and unrealized gains and losses related to the Company’s investments, net of
tax.
Foreign Operations and Currency Translation
The functional currency of the Company’s foreign sales and marketing offices, except for the Netherlands entity, is the local currency
of the respective operations. For these foreign operations, the Company translates assets and liabilities into U.S. dollars using period-
end exchange rates in effect as of the balance sheet date and translates revenues and expenses using average monthly exchange rates.
The resulting cumulative translation adjustments are included in accumulated other comprehensive income (loss), a separate
component of stockholders' equity in the accompanying consolidated balance sheets.
The functional currency of the Company’s European finance, sales and logistics headquarters in the Netherlands, sales office,
warehouse and distribution center in Hong Kong, sales office and warehouse in Japan, and manufacturing facilities in Tijuana, Mexico
and Suzhou, China and foreign research and development facilities, is the U.S. dollar. For these foreign operations, assets and
liabilities denominated in foreign currencies are re-measured at the period-end or historical rates, as appropriate. Revenues and
expenses are re-measured at average monthly rates which the Company believes to be a fair approximation of actual rates. Currency
transaction gains and losses are recognized in current operations.
Stock-Based Compensation Expense
Effective April 2, 2006, the first day of fiscal year 2007, the Company adopted SFAS No. 123-Revised 2004 (“SFAS No. 123(R)”),
which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and