Plantronics 2015 Annual Report Download - page 59

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.
Foreign Currency Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative foreign
currency contracts are valued using pricing models that use observable inputs. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting designation.
The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and
liabilities denominated in currencies other than the functional currency of the reporting entity. The Company does not elect to
obtain hedge accounting for these forward contracts. These forward contracts are carried at fair value with changes in the fair
value recorded within interest and other income (expense), net in the consolidated statements of operations. Gains and losses on
these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated
assets and liabilities, and therefore, do not subject the Company to material balance sheet risk.
The Company has significant international revenues and costs denominated in foreign currencies, subjecting it to foreign currency
risk. The Company purchases foreign currency option contracts and cross-currency swaps that qualify as cash flow hedges, with
maturities of 12 months or less, to reduce the volatility of cash flows related primarily to forecasted revenue and intercompany
transactions denominated in certain foreign currencies. All outstanding derivatives are recognized on the balance sheet at fair
value. The effective portion of the designated derivative's gain or loss is initially reported as a component of AOCI and is
subsequently reclassified into the financial statement line item in which the hedged item is recorded in the same period the forecasted
transaction affects earnings.
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.
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 customers’ financial conditions and considers
factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-specific risks,
and economic conditions that may affect a customer’s ability to pay.
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. The Company writes down inventories that have become obsolete or are in excess of anticipated demand
or net realizable value. Our estimate of write downs for excess and obsolete inventory is based on a detailed analysis of on-hand
inventory and purchase commitments in excess of forecasted demand.
A substantial portion of the raw materials, components and subassemblies (together, “parts”) used in the Company's products are
provided by its suppliers on a consignment basis. These consigned inventories are not recorded on the Company's consolidated
balance sheet until it takes title to the parts, which occurs when they are consumed in the production process. The Company
provides forecasts to its suppliers covering up to thirteen weeks of demand and places purchase orders when the parts are consumed
in the production process, at which time all right, title, and interest in and to the parts transfers to the Company. Prior to consumption
in the production process, the Company's suppliers bear the risk of loss and retain title to the consigned inventory.
The terms of the agreements allow the Company to return parts in excess of maximum order quantities to the suppliers at the
supplier’s expense. Returns for other reasons are negotiated with the suppliers on a case-by-case basis and to date have been
immaterial. As of March 31, 2015, the Company’s aggregate commitment to suppliers for parts used in the manufacture of the
Company’s products was $123.0 million, which the Company expects to utilize in the normal course of business, net of an immaterial
purchase commitments reserve. The Company’s purchase commitments reserve reflects the Company’s estimate of purchase
commitments it does not expect to use in normal ongoing operations within the next twelve months. As of March 31, 2015 and
2014, the off-balance sheet consigned inventory balances were $33.4 million and $40.0 million, respectively.
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