Plantronics 2003 Annual Report Download - page 20

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Recent Accounting Pronouncements. In June 2002, the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”),
“Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized when the liability
is incurred. SFAS 146 eliminates the definition and requirement for recognition of exit costs
in Emerging Issues Task Force No. 94-3 pursuant to which a liability for an exit cost was
recognized at the date of an entity’s commitment to an exit plan. This statement is effective
for exit or disposal activities initiated after December 31, 2002. The adoption of this statement
has not had a material impact on our financial position and results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN45”), “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others.” FIN 45 requires disclosures about the guarantees that an entity has
issued, including a reconciliation of changes in the entity’s product warranty liabilities. The
initial recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for Plantronics
for financial statements issued after December 15, 2002. These consolidated financial
statements comply with the disclosure requirements of this interpretation and also comply
with the recognition and measurement provisions for guarantees issued or modified after
December 31, 2002.
In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue
No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery or performance
of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21
are effective for Plantronics beginning in the second quarter of fiscal 2004. We believe that the
adoption of this standard will have no material impact on our financial statements.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No.
123 and APB Opinion No. 28, Interim Financial Reporting, to require more prominent
disclosure of the effects of an entity’s accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim financial
statements. SFAS 148 does not amend SFAS 123 to require companies to account for
employee stock options using the fair value method. SFAS 148 is effective for fiscal years
ending after December 15, 2002. These consolidated financial statements comply with the
provisions of SFAS 148.
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Notes to Consolidated Financial Statements
Product Warranty Obligations. Plantronics provides for the estimated costs of product
warranties at the time revenue is recognized. The specific terms and conditions of those
warranties vary depending upon the product sold. In the case of products manufactured by us,
our warranties generally start from the delivery date and continue for up to two years
depending on the product purchased. Factors that affect our warranty obligation include
product failure rates, material usage, and service delivery costs incurred in correcting product
failures. We assess the adequacy of our recorded warranty liabilities quarterly and make
adjustments to the liability if necessary.
Changes in warranty obligation, which is included as a component of “Accrued liabilities” on
the consolidated balance sheets, during the year ended March 31, 2003, are as follows:
Warranty
(in thousands) Liability
Warranty liability at March 31, 2002 $6,420
Warranty provision related to products shipped during the year 8,320
Deductions for warranty claims processed (8,835)
Warranty liability at March 31, 2003 $5,905
Other Guarantees and Obligations. As permitted and/or required under Delaware law
and to the maximum extent allowable under that law, Plantronics has agreements whereby
Plantronics indemnifies its current and former officers and directors for certain events or
occurrences while the officer or director is, or was, serving at Plantronics’ request in such
capacity. These indemnifications are valid as long as the director or officer acted in good faith
and in a manner that a reasonable person believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The maximum potential amount
of future payments Plantronics could be required to make under these indemnification
agreements is unlimited; however, Plantronics has a director and officer insurance policy that
limits Plantronics’ exposure and enables Plantronics to recover a portion of any future amounts
paid. As a result of Plantronics’ insurance policy coverage, Plantronics believes the estimated
fair value of these indemnification obligations is not significant.*
As is customary in Plantronics’ industry, as provided for in local law in the U.S. and other
jurisdictions, Plantronics’ standard contracts provide remedies to its customers, such as defense,
settlement, or payment of judgment for intellectual property claims related to the use of our
products. From time to time, Plantronics indemnifies customers against combinations of loss,
expense, or liability arising from various trigger events to the sale and the use of our products
and services. In addition, from time to time Plantronics also provides protection to customers
against claims related to undiscovered liabilities, additional product liability or environmental
obligations. In Plantronics’ experience, claims made under these indemnifications are rare and
the associated estimated fair value of the liability is not material.*