Plantronics 2009 Annual Report Download - page 78

70
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. As of March 31, 2009, the Company had $11.1 million of unrecognized tax benefits all of
which would favorably impact the effective tax rate in future periods if recognized. The Company continues to follow the practice of
recognizing interest and penalties related to income tax matters as a part of the provision for income taxes.
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 (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period, less common stock subject to repurchase. Diluted earnings 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 the estimated shares to be purchased under 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 15)
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (expense). Other
comprehensive income (loss) 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 (loss). 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 as noted in the following paragraph, is the local
currency of the respective operations. For these foreign operations, the Company translates assets and liabilities into U.S. dollars
using the period-end exchange rates in effect as of the balance sheet date and translates revenues and expenses using the 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. Realized foreign currency exchange gains (losses) were $2.3
million, $0.9 million, and $(6.3) million in fiscal 2007, 2008 and 2009, respectively.
Stock-Based Compensation Expense
The Company applies 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 non-employee directors based on estimated fair
values.