Plantronics 2007 Annual Report Download - page 63

part ii
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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 fail to reduce our supply chain 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
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, the Company has recorded goodwill and intangible assets on the
consolidated balance sheets. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,”
(“SFAS No. 142”) we classify intangible assets into three categories: (1) goodwill; (2) intangible assets
with indefinite lives not subject to amortization; and (3) intangible assets with definite lives subject to
amortization. Goodwill and intangible assets with indefinite lives are not amortized. 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 intangible assets is impaired. 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. The identification and measurement of goodwill
impairment involves the estimation of the fair value at the Company’s reporting unit level. Such
impairment tests for goodwill include comparing the fair value of a reporting unit with its carrying value,
including goodwill. 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 outside data. If the carrying value of the asset exceeds
management’s estimate of fair value, goodwill may become impaired, and the Company may be required
to take an impairment charge, which would negatively impact our operating results.
The identification and measurement of purchased intangible assets with indefinite lives involves the
estimation of the fair value which is based on 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 outside data. Purchased intangible assets with finite lives are amortized
using the straight-line method over the estimated economic lives of the assets, which range from five to
ten years. Long-lived assets, including intangible assets, are reviewed for impairment whenever events