Plantronics 2005 Annual Report Download - page 64

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Warranty
We provide for the estimated cost of warranties as part of our cost of sales at the time revenue is
recognized. Our warranty obligation is affected by product failure rates and our costs to repair or replace
the products, as well as the number of shipments in a quarter. Should actual failure rates, actual returns
and costs differ from our estimates, revisions to our warranty obligation may be required, which may
affect our cost of sales.
Goodwill and Intangibles
As a result of acquisitions we have made, we have recorded goodwill and intangible assets on our balance
sheet. Goodwill has been measured as the excess of the cost of acquisition over the amount assigned to
tangible and identifiable intangible assets acquired less liabilities assumed. We perform at least annually
or more frequently if indicators of impairment exist, a review to determine if the carrying value of the
goodwill and intangibles is impaired. Our review process for determining the carrying value is complex
and utilizes estimates for future cash flow, discount rates, growth rates, estimated costs, and other factors,
which utilize both historical data, internal estimates, and, in some cases, external consultants and outside
data. If our estimates are inaccurate or if the underlying business requirements change, our goodwill and
intangibles may become impaired, and we may be required to take an impairment charge.
Income Taxes
Our effective tax rate differs from the statutory rate due to the impact of foreign operations, tax credits,
state taxes, and other factors. Our future effective tax rates could be impacted by a shift in the mix of
domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax laws in the United
States or internationally; a change which would result in a valuation allowance being required to be taken;
or a federal, state or foreign jurisdiction’s view of tax returns which differs materially from what we
originally provided. We assess the probability of adverse outcomes from tax examinations regularly to
determine the adequacy of our reserve for income taxes.
We account 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. We are required to evaluate on an ongoing basis whether
or not we will realize a benefit from net deferred tax assets. If recovery were not likely, we would be
required to establish a valuation allowance. As of the end of the fiscal year ended March 31, 2005, we
believe that all of our deferred tax assets are recoverable; however, if there were a change in our ability to
recover our deferred tax assets, we would be required to take a charge in the period in which we
determined that recovery was not probable.
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:
Investors or potential investors in our stock should carefully consider the risks described below. Our stock
price will reflect the performance of our business relative to, among other things, our competition,
expectations of securities analysts or investors, general economic and market conditions and industry
conditions. You should carefully consider the following factors in connection with any investment in our
stock. Our business, financial condition and results of operations could be materially adversely affected if
any of the risks occur. Should any or all of the following risks materialize, the trading price of our stock
could decline and investors could lose all or part of their investment.
We depend on the development of the office, mobile, computer and residential markets, and we could
be materially adversely affected if they do not develop as we expect.
While the contact center market is still a substantial portion of our business, we believe that our future
prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer,
residential and related wireless markets. These communications headset markets are relatively new and
continue to be developed. Moreover, we do not have extensive experience in selling headset products to
36 ⯗Plantronics