Plantronics 2006 Annual Report Download - page 73

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part ii
historical experience and on various other factors that Plantronics’ management believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the preparation of its consolidated
financial statements. Actual results may differ from those estimates under different assumptions or
conditions.
We believe our most critical accounting policies and estimates include the following:
)Revenue Recognition
)Allowance for Doubtful Accounts
)Excess and Obsolete Inventory
)Warranty
)Goodwill and Intangibles
)Income Taxes
Revenue Recognition
Revenue from sales of products to customers is recognized when the following criteria have been met:
)Title and risk of ownership are transferred to customers;
)Persuasive evidence of an arrangement exists;
)The price to the buyer is fixed or determinable; and
)Collection is reasonably assured.
We recognize revenue net of estimated product returns and expected payments to resellers for customer
programs including cooperative advertising, marketing development funds, volume rebates, and special
pricing programs.
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 management 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 are recorded as a reduction to revenue, may need to be revised and
therefore could have an adverse impact on revenues.
Co-op advertising and marketing development funds are accounted for in accordance with EITF Issue
No. 01-09, ‘‘Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the
Vendor’s Products’’. Under these guidelines, we accrue for these funds as marketing expense if we receive
a separately identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable
benefit received; otherwise, the amount is recorded as a reduction to 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, 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 management’s estimates, this could result in an adverse impact on our
revenues. Since management has 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 management is unable to reliably
estimate the amount of future price adjustments and product returns, we defer recognition of the revenue
AR 2006 ⯗67