Plantronics 2011 Annual Report Download - page 61

Investments
The goals of the Company's investment policy, in order of priority, are preservation of capital, maintenance of liquidity and
maximization of after-tax investment income. Investments are limited to investment grade securities with limitations by policy
on the percent of the total portfolio invested in any one issue. All of the Company's investments are held in its name at a limited
number of major financial institutions. Short-term investments have a remaining maturity of greater than three months at the date
of purchase and an effective maturity of less than one year and long-term investments have effective maturities greater than one
year or the Company does not currently have the ability to liquidate the investment.
Investments are carried at fair value based upon quoted market prices at the end of the reporting period where available. As of
March 31, 2011, all investments were classified as available-for-sale with unrealized gains and losses recorded as a separate
component of Accumulated other comprehensive income in Stockholders’ equity. The specific identification method is used to
determine the cost of securities disposed of, with realized gains and losses reflected in Interest and other income (expense), net.
The Company reviews its investments for impairment on a quarterly basis. For investments with an unrealized loss, the factors
considered in the review include the credit quality of the issuer, the duration that the fair value has been less than the adjusted cost
basis, severity of impairment, reason for the decline in value and potential recovery period, the financial condition and near-term
prospects of the investees, and whether the Company would be required to sell an investment due to liquidity or contractual reasons
before its anticipated recovery. (See Note 5)
Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For
derivative instruments designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as
a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other
comprehensive income in Stockholders’ equity and subsequently reclassified into earnings when the hedged exposure affects
earnings. The ineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments that are not
designated as accounting hedges, changes in fair value are recognized in earnings in the period of change. The Company does
not hold or issue derivative financial instruments for speculative trading purposes. Plantronics enters into derivatives only with
counterparties that are among the largest United States ("U.S.") banks, ranked by assets, in order to minimize its credit risk and
to date, no such counterparty has failed to meet its financial obligations under such contracts. (See Note 14)
Provision for Doubtful Accounts
The Company maintains a provision for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. Plantronics regularly performs credit evaluations of its new and existing customers’ financial conditions
and considers factors such as historical experience, credit quality, age of the accounts receivable balances, and geographic or
country-specific risks and economic conditions that may affect a customer’s ability to pay. The provision for doubtful accounts
is reviewed quarterly and adjusted, if necessary, based on management’s assessment of a customer’s ability to pay. If the financial
condition of customers should deteriorate, additional provisions may be required which could have an adverse impact on operating
expenses.
Inventory and Related Reserves
Inventories are valued at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on
a first-in, first-out basis. Costs such as idle facility expense, double freight, and re-handling costs are accounted for as current-
period charges. Fixed production overhead is allocated to the costs of conversion based on the normal capacity of the production
facilities. All shipping and handling costs incurred in connection with the sale of products are included in the Cost of revenues.
The Company's products require long-lead time parts available from a limited number of vendors and occasionally, last-time buys
of raw materials for products with long lifecycles. The effects of demand variability, long-lead times and last-time buys have
historically contributed to inventory write-downs. The Company's demand forecast considers projected future shipments, market
conditions, inventory on hand, purchase commitments, product development plans and product life expectancy, inventory on
consignment and other competitive factors. If the demand forecast is greater than actual demand and the Company believes it can
no longer sell the inventory above cost or at all, management writes that inventory down to market value or writes-off the excess
or obsolete inventory. The Company routinely reviews inventory for usage potential, including fulfillment of customer warranty
obligations and spare part requirements; however, failure to accurately forecast demand or manage the supply chain accordingly
could result in the write down of additional inventory which would negatively impact the Company's gross profit.
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