Plantronics 2006 Annual Report Download - page 85

part ii
Goodwill and Intangibles
As a result of past acquisitions, Plantronics has 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
goodwill and indefinite lived intangibles is impaired. The identification and measurement of goodwill
impairment involves the estimation of the fair value of the Company’s 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 the Company may be
required to take an impairment charge, which would negatively impact our operating results. (See
Note 5).
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. (See Note 6).
Property, Plant and Equipment
Property, plant 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, which range from one to 30 years. Depreciation expense for fiscal 2004, 2005 and 2006
was $11.6 million, $12.0 million and $16.1 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.
Disposals of capital equipment are recorded by removing the costs and accumulated depreciation from the
accounts and gains or losses on disposals are included in the results of operations.
Costs associated with internal-use software are recorded in accordance with Statement of Position
No. 98-1 (‘‘SOP 98-1’’), Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 requires certain costs of computer software developed or obtained for internal use
be capitalized when the preliminary project stage is completed, management authorizes and commits to
funding the software project, it is probable that the project will be completed, and the software will be
used for the function intended. Capitalized software costs are amortized on a straight-line basis over the
estimated useful life. Unamortized capitalized software costs were $4.6 million and $4.7 million at
March 31, 2005 and 2006, respectively. The amounts amortized to expense were $2.3 million,
$1.7 million, and $1.9 million in fiscal 2004, 2005 and 2006, respectively.
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