Plantronics 2005 Annual Report Download - page 84

demand and we fail to reduce our manufacturing accordingly, we could be required to write down
additional inventory, which would have a negative impact on our gross margin.
At the point of loss recognition, a new, lower-cost basis for that inventory is established and subsequent
changes in facts and circumstances do not result in the restoration or increase in that newly established
cost basis.
WARRANTY
We provide for the estimated cost of warranties as part of our cost of sales at the time revenue is
recognized. Our warranty obligation is affected by product failure rates and our costs to repair or replace
the products, as well as the number of shipments in a quarter. Should actual failure rates and costs differ
from our estimates, revisions to our warranty obligation may be required, which may affect our cost of
sales.
GOODWILL AND INTANGIBLES
As a result of acquisitions we have made, we have recorded goodwill and intangible assets on our balance
sheet. 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. We perform at least annually
or more frequently if indicators of impairment exist, a review to determine if the carrying value of the
goodwill and intangibles is impaired. Our review process for determining the carrying value is complex
and utilizes estimates for future cash flow, discount rates, growth rates, estimated costs, and other factors,
which utilize both historical data, internal estimates, and, in some cases, external consultants and outside
data. If our estimates are inaccurate, or, if the underlying business requirements change, our goodwill and
intangibles may become impaired, and we may be required to take an impairment charge.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation
is principally calculated using the straight-line method over the estimated useful lives of the respective
assets. Depreciation expense for fiscal 2003, 2004 and 2005 was $10.6 million, $11.6 million and
$12.0 million, respectively.
Amortization of leasehold improvements is computed using the straight-line method over the shorter of
the estimated useful lives of the assets or the remaining lease term.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
ADVERTISING COSTS
We expense all advertising costs as incurred. Advertising expense for the years ended March 31, 2003,
2004 and 2005 was $3.4 million, $5.2 million and $7.8 million, respectively.
CONCENTRATION OF RISK
Financial instruments that potentially subject Plantronics to concentrations of credit risk consist
principally of cash equivalents, marketable securities and trade receivables. Our cash investment policies
limit investments to those that are short-term and low risk. Our cash investment policies also limit the
amount of credit exposure to any one issuer and restrict placement of these investments to issuers
evaluated as creditworthy. Cash equivalents have a maturity when purchased, of 90 days or less;
marketable securities have a maturity, when purchased, of greater than 90 days. Concentrations of credit
risk with respect to trade receivables are generally limited due to the large number of customers that
comprise our customer base and their dispersion across different geographies and markets. We perform
ongoing credit evaluations of our customers’ financial condition and generally require no collateral from
our customers. We maintain an allowance for uncollectible accounts receivable based upon expected
collectibility of all accounts receivable.
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