Plantronics 2007 Annual Report Download - page 62

58 P l a n t r o n i c s
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
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.
Excess 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, 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.