Plantronics 2006 Annual Report Download - page 74

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, we 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 management’s 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 management’s assessments of customer’s ability to pay. If the financial condition of customers should
deteriorate or if actual defaults are higher than historical experience would indicate, additional allowances
may be required, which could have an adverse impact on operating expenses.
Inventory and Excessive and Obsolete Inventory
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.
We account for abnormal amounts such as idle facility expense, excessive spoilage, double freight, and re-
handling costs as current-period charges. Additionally, we allocate fixed production overheads to the
costs of conversion based on the normal capacity of the production facilities. All shipping and handling
costs incurred in connection with the sale of products are included in the cost of revenues.
Management writes down 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
demand, and management fails to reduce manufacturing accordingly, we could be required to write down
additional inventory, which would have a negative impact on our gross profit.
At the point of inventory write-down, 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.
Product Warranty Obligations
Management provides for product warranties in accordance with the underlying contractual terms given
to the customer or end user of the product. The contractual terms may vary depending upon the
geographic region in which the customer is located, the brand and type of product sold, and other
conditions, which affect or limit the customers’ rights to return product under warranty. Where specific
warranty return rights are given to customers, management accrues for the estimated cost of those
warranties at the time revenue is recognized. Generally, warranties start at the delivery date and continue
for one or two years, depending on the type and brand, and the location in which the product was
purchased. Where specific warranty return rights are not given to the customer but where the customers
are granted limited rights of return or discounts in lieu of warranty, management records these rights of
return or discounts as adjustments to revenue. In certain circumstances, we may sell product without
warranty, and accordingly, no charge is taken for warranty. Factors that affect the warranty obligation
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