Plantronics 2009 Annual Report Download - page 64

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The fair value of the AEG reporting unit was determined using an equal weighting of the income approach and the underlying asset
approach. For the income approach, we made the following assumptions: the current economic downturn would continue through
fiscal 2010, followed by a recovery period in fiscal 2011 and 2012 with slightly better than historical growth and then growth in line
with industry norms for each of the major product lines (Docking Audio and PC Audio). Gross margin assumptions reflect improved
margins as the revenue grows. A 5% growth factor was used to calculate the terminal value of our reporting units, consistent with the
rate used in the prior year. The discount rate was adjusted from 14% used in the prior year to 15% reflecting the current volatility of
the stock prices of public companies within the consumer electronics industry. For the underlying asset approach, the asset and
liability balances were adjusted to their fair value equivalents. The fair value of the equity of the business is then indicated by the sum
of the fair value of the assets less the fair value of the liabilities.
For both ACG and AEG, the assumptions used in the annual impairment review performed during the fourth quarter of fiscal 2009
were consistent with the assumptions used in the interim impairment review in the third quarter of fiscal 2009 as no significant
changes were identified.
In performing the impairment test for intangible assets with indefinite useful lives, we compare the fair value of intangible assets with
indefinite useful lives to its carrying value. The fair value measurement of purchased intangible assets with indefinite lives involves
the estimation of the fair value which is based on our 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 indefinite useful life intangible asset exceeds our estimate of fair value, goodwill may become impaired, and we may be
required to record an impairment charge which would negatively impact its operating results.
The fair value of the Altec Lansing trademark and trade name was determined using the income approach with the same assumptions
used for the income approach in determining the fair value of the AEG reporting unit.
Given the current economic environment and the uncertainties regarding the impact on our business, there can be no assurance that
our estimates and assumptions regarding the duration of the current economic downturn, or the period or strength of recovery, made
for purposes of testing the goodwill and indefinite lived intangible assets for impairment during the third and fourth quarter of fiscal
2009 will prove to be accurate predictions of the future. If our assumptions regarding forecasted revenue or margin growth rates of
the AEG reporting unit are not achieved or if certain alternatives being evaluated by management to improve the profitability of the
AEG segment do not materialize, it is reasonably possible we may be required to record additional impairment charges related to the
Altec Lansing trademark and trade name in future periods, whether in connection with our next annual impairment review in the
fourth quarter of fiscal 2010 or prior to that if indicators of impairment exist. It is not possible at this time to determine if any such
future impairment charge would result or, if it does, whether such charge would be material.
If we were to decrease the long-term growth rate or increase the discount rate used in the income approach by one percentage point,
there would be no change in the goodwill impairment amount for the AEG reporting unit and it would not change our conclusion that
there was no goodwill impairment in the ACG reporting unit in fiscal 2009. With respect to the Altec Lansing trademark and trade
name, if we were to decrease the long-term growth rate by one percentage point, there would be no significant change in the
impairment recorded in fiscal 2009; however, a one percentage point increase in the discount rate would have increased the
impairment of the Altec Lansing trademark and trade name by approximately $1.3 million in fiscal 2009.
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. Long-lived assets, including intangible assets, are reviewed for impairment in accordance
with SFAS No. 144, “Impairment of Long-Lived Assets,” (“SFAS No. 144”) whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a change in
the assessment of future operations. 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 we
expect to hold and use is based on the amount that the carrying value of the asset exceeds its fair value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less costs to sell.
In the third quarter of fiscal 2009, as a result of the impairment indicators that existed, we performed a review of our long-lived assets
within the AEG reporting unit to test for impairment in accordance with SFAS No. 144. The fair value of the intangible assets was
determined using a discounted cash flow model based on revenue and cost projections estimated by management for the periods 2010
through 2016 and the following discount rates: 13% for technology, 14.7% for customer contracts and relationships and 15% for the
inMotion trade name.
If we were to increase the discount rates used in the discounted cash flow approach by one percentage point, there would be no
significant change in the impairment amount recorded in fiscal 2009 for the intangible assets with finite lives within the AEG
reporting unit.