Plantronics 2015 Annual Report Download - page 47

CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP"). In connection with the preparation of our financial statements, we are required to make
assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue,
expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends,
future expectations and other factors that management believes to be relevant at the time our consolidated financial statements
are prepared. On an ongoing basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our
consolidated financial statements are presented fairly and in accordance with U.S. GAAP. Because future events and their effects
cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could
be material.
Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, of the Notes to Consolidated Financial
Statements in this Annual Report on Form 10-K. We believe the following accounting estimates are the most critical to aid in
fully understanding and evaluating our reported financial results, and they require our most difficult, subjective, or complex
judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed
these critical accounting estimates and related disclosures with the Audit Committee.
• Revenue Recognition and Related Allowances
• Inventory Valuation
• Product Warranty Obligations
• Income Taxes
Revenue Recognition and Related Allowances
We sell substantially all of our products to end users through distributors, retailers, and carriers. The Company recognizes revenue
when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection
is reasonable assured. For most of the Company’s product sales, these criteria are met at either the time the product is shipped or
the customer has received the product. Commercial distributors and retailers represent our largest sources of net revenues. Sales
through our distribution and retail channels are made primarily under agreements allowing for rights of return and include various
sales incentive programs, such as rebates, advertising, price protection, and other sales incentives. We have an established sales
history for these arrangements and we record the estimated reserves and allowances at the time the related revenue is recognized.
Customer sales returns are estimated based on historical data, relevant current data, and the monitoring of inventory build-up in
the distribution channel.
The primary factors affecting our reserve for estimated customer sales returns include the general timing of historical returns and
estimated return rates. The allowance for sales incentive programs is based on contractual terms and historical experience in the
form of payments or sell-through credits redeemed by our customers. Future market conditions or an evaluation of partner
incentives may lead us to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue.
We have not made any material changes in the accounting methodology we use to measure sales return reserves or incentive
allowances during the past three fiscal years. Substantially all credits associated with these activities are processed within the
following fiscal year, and therefore, do not require subjective long-term estimates; however, if actual results are not consistent
with the assumptions and estimates used, we may be exposed to losses or gains that could be material. If we increased our estimate
as of March 31, 2015 by a hypothetical 10%, our sales returns reserve and sales incentive allowance would have increased by
approximately $0.6 million and $1.5 million, respectively. Net of the estimated value of the inventory that would be returned,
this would have decreased gross profit and net income by approximately $2.1 million and $1.6 million, respectively.
When a sales arrangement contains multiple elements, such as hardware and software products and/or services, we allocate revenue
to each element based on relative selling prices. The selling price for a deliverable is based on its vendor specific objective evidence
("VSOE"), if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE
nor TPE are available. In multiple element arrangements where more-than-incidental software deliverables are included, we
allocate revenue to each separate unit of accounting for each of the non-software deliverables and to the software deliverables as
a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price
hierarchy. Revenue recognized for the software portion of multiple element arrangements was less than 1% of total net revenues
for the years ended March 31, 2015 and 2014. As of March 31, 2015 and 2014, total deferred revenue related to the software
portion of multiple-element arrangements was $2.0 million and $3.0 million, respectively.
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