Plantronics 2012 Annual Report Download - page 28

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We are subject to income taxes in the U.S. and foreign jurisdictions and our income tax returns, like those of most companies, are
periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions,
including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time,
multiple tax years may be subject to audit by the various tax authorities. In evaluating the exposures associated with our various
tax filing positions, we record a liability for such exposures. A number of years may elapse before a particular matter for which
we have established a liability is audited and fully resolved or clarified.
We recognize the impact of an uncertain income tax position on income tax expense at the largest amount that is more-likely-than-
not to be sustained. An unrecognized tax benefit will not be recognized unless it has a greater than 50% likelihood of being
sustained. We adjust our tax liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively
settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information
becomes available. We recognize interest and penalties related to income tax matters as part of our provision for income taxes.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply
judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by
changes in tax law, the level of earnings and the results of tax audits.
Our provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with
the repatriation of undistributed earnings of certain foreign operations that we intend to reinvest indefinitely in the foreign
operations. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional
U.S. income taxes, subject to an adjustment for foreign tax credits, and foreign withholding taxes. Our current plans do not require
repatriation of earnings from foreign operations to fund the U.S. operations because we generate sufficient domestic operating
cash flow and have access to external funding under our line of credit. As a result, we do not expect a material impact on our
business or financial flexibility with respect to undistributed earnings of our foreign operations.
Although we believe that our judgments and estimates are reasonable, actual results could differ and we may be exposed to losses
or gains that could be material.
To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our
established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable
tax settlement would generally require use of our cash and may result in an increase in our effective income tax rate in the period
of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of
resolution.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08,
Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU allows entities to first assess qualitative
factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting
unit is less than its carrying amount. If this is the case, the entity is required to perform a more detailed two-step goodwill
impairment test that is used to identify potential goodwill impairment and to measure the amount of goodwill impairment losses,
if any, to be recognized. We adopted ASU 2011-08 in the fourth quarter of fiscal year 2012 and it did not have an impact on our
financial statements. Refer to Note 8, Goodwill and Purchased Intangible Assets, of the Notes to Consolidated Financial Statements
in this Form 10-K for details of our goodwill impairment analysis.
Recently Issued Pronouncements
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.
This ASU requires an entity to disclose both net and gross information about assets and liabilities that have been offset, if any,
and the related arrangements. The disclosures under this new guidance are required to be provided retrospectively for all comparative
periods presented. We are required to implement this guidance effective for the first quarter of fiscal year 2014. We do not expect
the adoption of ASU 2011-11 to have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, as
amended, which requires us to present the total of comprehensive income, the components of net income, and the components of
other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements. Certain of the provisions are effective for the us in the first quarter of fiscal year 2013 and will be applied retrospectively.
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We intend to present other comprehensive income in two separate and consecutive statements.
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 Item 1A, Risk Factors.
INTEREST RATE AND MARKET RISK
As of March 31, 2012 and 2011, we reported the following balances in cash and cash equivalents, short-term investments and
long-term investments:
March 31,
(in millions) 2012 2011
Cash and cash equivalents $ 209.3 $ 277.4
Short-term investments 125.2 152.6
Long-term investments 55.3 39.3
As of March 31, 2012, our investments were composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper,
U.S. Corporate Bonds and CDs.
Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. A portion
of our cash is managed by external managers within the guidelines of our investment policy. Our exposure to market risk for
changes in interest rates relates primarily to our investment portfolio. We typically invest in highly rated securities and our policy
generally limits the amount of credit exposure to any one issuer. Our investment policy requires investments to be high credit
quality, primarily rated A or A2 and above, with the objective of minimizing the potential risk of principal loss. All highly liquid
investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents. We classify
our investments as either short-term or long-term based on each instrument's underlying effective maturity date. All short-term
investments have effective maturities less than 12 months, while all long-term investments have effective maturities greater than
12 months or we do not currently have the ability to liquidate the investment. We may sell our investments prior to their stated
maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. We recognized no material
realized or unrealized net gains or losses during the years ended March 31, 2012 and 2011.
Interest rates in general were relatively unchanged in the year ended March 31, 2012 compared to the prior year; however, we
earned slightly greater interest income due to a higher average investment portfolio in fiscal year 2012 compared with the prior
year. During the year ended March 31, 2012, we generated approximately $1.5 million in interest income from our portfolio of
cash equivalents and investments, compared to an immaterial amount in fiscal year 2011. A hypothetical increase or decrease in
our interest rates by 10 basis points would have a minimal impact on our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to currency fluctuations, primarily in the Euro ("EUR"), Great Britain Pound ("GBP"), Australian Dollar ("AUD")
and the Mexican Peso ("MX$"). We use a hedging strategy to diminish, and make more predictable, the effect of currency
fluctuations. All of our hedging activities are entered into with large financial institutions, which we periodically evaluate for
credit risks. We hedge our balance sheet exposure by hedging EUR, GBP and AUD denominated cash, receivables and payables
balances, and our economic exposure by hedging a portion of anticipated EUR and GBP denominated sales and our MX$
denominated expenditures. We can provide no assurance that our strategy will be successful in the future and that exchange rate
fluctuations will not materially adversely affect our business.
We experienced immaterial net foreign currency losses in the year ended March 31, 2012. Although we hedge a portion of our
foreign currency exchange exposure, the weakening of certain foreign currencies, particularly the Euro and the Great Britain Pound
in comparison to the U.S. Dollar ("USD"), could result in material foreign exchange losses in future periods.
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