Plantronics 2010 Annual Report Download - page 54

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Product Warranty Obligations
We provide for product warranties in accordance with the underlying contractual terms given to the customer or end user of the
product. The contractual terms may vary depending upon the geographic region in which the customer is located, the brand and type
of product sold, and other conditions, which affect or limit the customer’s rights to return product under warranty. Where specific
warranty return rights are given to customers, we accrue for the estimated cost of those warranties at the time revenue is recognized.
Generally, warranties start at the delivery date to the customer or end user and continue for one or two years, depending on the type
and brand, and the location in which the product was purchased. Where specific warranty return rights are not given to the customers
but where the customers are granted limited rights of return or discounts in lieu of warranty, we record these rights of return or
discounts as adjustments to revenue. In certain circumstances, we may sell product without warranty, and, accordingly, no charge is
taken for warranty. Factors that affect the warranty obligation include sales terms, which obligate us to provide warranty, product
failure rates, estimated return rates, material usage, and service delivery costs incurred in correcting product failures. We assess the
adequacy of the recorded warranty obligation quarterly and make adjustments to the obligation based on actual experience and
changes in estimated future return rates. If our estimates are less than the actual costs of providing warranty related services, we could
be required to record additional warranty reserves, which would have a negative impact on our gross profit.
Goodwill and Intangibles
As a result of past acquisitions, we have recorded goodwill and intangible assets on the consolidated balance sheets. In accordance
with current accounting standards, we classify intangible assets into three categories: (1) goodwill; (2) intangible assets with indefinite
lives not subject to amortization; and (3) intangible assets with definite lives subject to amortization.
Goodwill and intangible assets with indefinite lives are not amortized. Management performs a review at least annually, in the fourth
quarter of each fiscal year or more frequently if indicators of impairment exist, to determine if the carrying values of goodwill and
indefinite lived intangible assets are impaired. In the third quarter of fiscal 2009, in considering the effects of the then current
economic environment, we determined that sufficient indicators existed requiring us to perform an interim impairment review of our
then two reporting segments, ACG and AEG. Further to this, in the second quarter of fiscal 2010, as a result of signing a non-binding
letter of intent to sell Altec Lansing, our AEG segment, we determined that this triggered an interim impairment review of AEG.
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. The identification and measurement of goodwill impairment involves the estimation of fair
value at the Company’s reporting unit level. Such impairment tests for goodwill include comparing the fair value of a reporting unit
with its carrying value, including goodwill. The estimates of fair values of reporting units are based on the best information available
as of the date of the assessment which primarily incorporate management assumptions about expected future cash flows, discount
rates, overall market growth and our percentage of that market and growth rates in terminal values, estimated costs and other factors,
which utilize historical data, internal estimates, and, in some cases, outside data. If the carrying value of the reporting unit exceeds
our estimate of fair value, goodwill may become impaired, and we may be required to record an impairment charge, which would
negatively impact our operating results.
The fair value measurement of purchased intangible assets with indefinite lives involves the estimation of the fair value which is based
on our assumptions about expected future cash flows, discount rates, growth rates, estimated costs and other factors which utilize
historical data, internal estimates, and, in some cases, outside data. If the carrying value of the indefinite useful life intangible asset
exceeds our estimate of fair value, the asset may become impaired, and we may be required to record an impairment charge which
would negatively impact its operating results.
Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the
assets, which range from three to ten years. Long-lived assets, including intangible assets, are reviewed for impairment in accordance
with the Property, Plant, and Equipment Topic of the FASB ASC whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a change in the
assessment of future operations. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting
from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that we expect to hold
and use is based on the amount that the carrying value of the asset exceeds its fair value. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less costs to sell.