Plantronics 2005 Annual Report Download - page 83

part ii
accordance with EITF Issue No. 01-9, ‘‘Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor’s Products.’’ Under these guidelines, the Company classifies such costs as a
marketing expense if it receives an identifiable benefit in exchange and can reasonably estimate the fair
value of the identifiable benefit received, otherwise such costs are recorded as a reduction to sales.
Estimated product returns are deducted from revenues upon shipment, based on historical return rates,
the product stage relative to its expected life cycle, and assumptions regarding the rate of sell-through to
end users from our various channels based on historical sell- through rates.
Should product lives vary significantly from our estimates, or should a particular selling channel
experience a higher than estimated return rate, or a slower sell-through rate causing inventory build-up,
then our estimated returns, which net against revenue, may need to be revised and could have an adverse
impact on revenues.
Reductions to revenue for expected and actual payments to resellers for volume rebates and pricing
protection are based on actual expenses incurred during the period, on estimates for what is due to
resellers for estimated credits earned during the period and any adjustments for credits based on actual
activity. If the actual payments exceed our estimates, this could result in an adverse impact on our
revenues. Since we have historically been able to reliably estimate the amount of allowances required for
future price adjustments and product returns, we recognize revenue, net of projected allowances, upon
shipment to our customers. In situations where we are unable to reliably estimate the amount of future
price adjustments and product returns, we defer recognition of the revenue until the right to future price
adjustments and product returns lapses and we are no longer under any obligation to reduce the price or
accept the return of the product.
If market conditions warrant, Plantronics may take action to stimulate demand, which could include
increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in
incremental reductions to revenue and margins at the time such incentives are offered. To the extent that
we reduce pricing, we may incur reductions to revenue for price protection based on our estimate of
inventory in the channel that is subject to such pricing actions.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. We regularly perform credit evaluations of our customers’ financial
condition and consider 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 customers’
ability to pay. The allowance for doubtful accounts is reviewed monthly and adjusted, if necessary, based
on our assessments of our customers ability to pay. If the financial condition of our customers should
deteriorate, or, if actual defaults are higher than our historical experience, additional allowances may be
required, which could have an adverse impact on operating expense.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which
approximates actual cost, on a first-in, first-out basis.
EXCESS AND OBSOLETE INVENTORY
We write-down our inventory for excess and obsolete inventories. Write-downs are determined by
reviewing our demand forecast and by determining what inventory, if any, is not saleable. Our demand
forecast projects future shipments using historical rates and takes into account market conditions,
inventory on hand, purchase commitments, product development plans and product life expectancy,
inventory on consignment, and other competitive factors. If our demand forecast is greater than actual
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