Plantronics 2006 Annual Report Download - page 75

part ii
include sales terms, which obligate us to provide warranty, product failure rates, estimated return rates,
material usage, and service delivery costs incurred in correcting product failures. Management assesses the
adequacy of the recorded warranty obligation quarterly and makes adjustments to the obligation based on
actual experience and changes in estimated future return rates.
Goodwill and Intangibles
As a result of past acquisitions, we have recorded goodwill and intangible assets on the 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. Management performs a review at least
annually, or more frequently if indicators of impairment exist to determine if the carrying value of the
goodwill and indefinite lived intangible assets is impaired. The identification and measurement of
goodwill impairment involves the estimation of the fair value of our reporting units. The estimates of fair
value of reporting units are based on the best information available as of the date of the assessment, which
primarily incorporate management assumptions about expected future cash flows, discount rates, growth
rates, estimated costs, and other factors, which utilize historical data, internal estimates, and, in some
cases, external consultants and outside data. If management’s estimates require adjustment or if the
underlying business requirements change, goodwill may become impaired, and we may be required to
take an impairment charge, which would negatively impact our operating results.
Purchased intangible assets with finite lives are amortized using the straight-line method over the
estimated economic lives of the assets, which range from three to ten years. Purchased intangible assets
determined to have indefinite useful lives are not amortized. Long lived assets, including intangible
assets, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.
Measurement of an impairment loss for long-lived assets that management expects to hold and use is
based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.
Income Taxes
We are subject to income taxes both in the United States as well as in several foreign jurisdictions.
Management must make certain estimates and judgments in determining income tax expense for the
financial statements. These estimates occur in the calculation of tax benefits and deductions, tax credits,
and tax assets and liabilities which are generated from differences in the timing of when items are
recognized for book purposes and when they are recognized for tax purposes.
Our effective tax rate differs from the statutory rate due to the impact of foreign operations, tax credits,
state taxes, purchase accounting, and other factors. Our future effective tax rates could be impacted by a
shift in the mix of domestic and foreign income; tax treaties with foreign jurisdictions; changes in tax laws
in the United States or internationally; a change in management’s estimates of future taxable income
which results in a valuation allowance being required; or a federal, state or foreign jurisdiction’s view of
tax returns which differs materially from what management originally provided. Management assesses the
probability of adverse outcomes from tax examinations regularly to determine the adequacy of the reserve
for income taxes.
We account for income taxes under an asset and liability approach that requires the expected future tax
consequences of temporary differences between book and tax bases of assets and liabilities to be
recognized as deferred tax assets and liabilities. Valuation allowances are established to reduce deferred tax
assets when, based on available objective evidence, it is more likely than not that the benefit of such assets
will not be realized. As of March 31, 2006, we believe that all of our deferred tax assets are recoverable;
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