Plantronics 2007 Annual Report Download - page 75

part ii
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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.” Capitalized software costs are amortized on a straight-line basis over the estimated useful
life. Unamortized capitalized software costs were $4.7 million and $5.6 million at March 31, 2006 and
2007, respectively. The amounts amortized to expense were $1.7 million, $3.6 million, and $3.1 million
in fiscal 2005, 2006 and 2007, respectively.
Revenue Recognition
Revenue from sales of products to customers is recognized when the following criteria have been met:
• Title and risk of ownership are transferred to customers;
• Persuasive evidence of an arrangement exists;
• The price to the buyer is fixed or determinable; and
• Collection is reasonably assured.
Plantronics recognizes 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 contractual obligations.
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 estimated returns, which are recorded as a reduction to revenue, may need to be revised and could
have an adverse impact on revenues.
Co-op advertising and marketing development funds are accounted 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, the Company accrues for these funds as marketing expense if it
receives a separately identifiable benefit in exchange and can reasonably estimate the fair value of the
identifiable benefit received; otherwise, it 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 the
Company’s revenues. Since management has historically been able to reliably estimate the amount of
allowances required for future price adjustments and product returns, the Company recognizes revenue,
net of projected allowances, upon shipment to its customers. In situations where management is unable to
reliably estimate the amount of future price adjustments and product returns, the Company defers
recognition of the revenue until the right to future price adjustments and product returns lapses, and the
Company is no longer under any obligation to reduce the price or accept the return of the product.
If market conditions warrant, Plantronics may take actions to stimulate demand, which could include
increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in
incremental reductions to revenues and margins at the time such incentives are offered. To the extent that
Plantronics reduces pricing, the Company 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.
Advertising Costs
Plantronics expenses all advertising costs as incurred. Advertising expense for the years ended March 31,
2005, 2006 and 2007 was $7.8 million, $16.0 million and $10.2 million, respectively.