Plantronics 2009 Annual Report Download - page 74

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Investments
The goals of the Company’s investment policy, in order of priority, are preservation of capital, maintenance of liquidity,
diversification and maximization of after-tax investment income. Investments are limited to investment grade securities with
limitations by policy on the percent of the total portfolio invested in any one issue. All of the Company’s investments are held in the
Company’s name at a limited number of major financial institutions. Investments with remaining maturities greater than one year and
Auction Rate Securities (“ARS”) that the Company does not have the ability and intent to liquidate within the next twelve months are
classified as long-term investments. Investments are carried at fair value based upon quoted market prices at the end of the reporting
period where available. The Company’s ARS investments are carried at fair value based on a discounted cash flow model. As of
March 31, 2009, all investments, except the ARS, are classified as available-for-sale with unrealized gains and losses recorded as a
separate component of Accumulated other comprehensive income (loss) in Stockholders’ Equity. The specific identification method
is used to determine the cost of securities disposed of, with realized gains and losses reflected in Interest and other income (expense),
net. As of March 31, 2009, the Company’s ARS portfolio is classified as long-term trading securities due to management’s intent to
exercise our put option with UBS during the period from June 30, 2010 to July 3, 2012. (See Note 4)
Impairment on investments is determined pursuant to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities”, and related guidance issued by the FASB and SEC in order to determine the classification of the impairment as
“temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the
Accumulated other comprehensive income (loss) component of Stockholders’ Equity. Such an unrealized loss does not affect net
income (loss) for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the
consolidated statement of operations and reduces net income for the applicable accounting period. The differentiating factors between
temporary and other-than-temporary impairment are primarily the length of the time and the extent to which the market value has been
less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of Plantronics to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative
instruments designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow
hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other comprehensive
income (loss) in Stockholders’ Equity and subsequently reclassified into earnings when the hedged exposure affects earnings. The
ineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments that are not designated as
accounting hedges under Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for Derivative
Instruments and Hedging Activities”, changes in fair value are recognized in earnings in the period of change. The Company does not
hold or issue derivative financial instruments for speculative trading purposes. Plantronics enters into derivatives only with
counterparties that are among the largest U.S. banks, ranked by assets, in order to minimize its credit risk and to date, no such
counterparty has failed to meet its financial obligations under such contracts. (See Note 13)
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. Plantronics regularly performs credit evaluations of its customers’ financial condition and considers 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 customer’s ability to pay. The allowance for doubtful accounts is reviewed quarterly and adjusted if
necessary based on management’s assessment of a customer’s ability to pay. If the financial condition of customers should
deteriorate, additional allowances may be required which could have an adverse impact on operating expenses.
Inventory and Related Reserves
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. Costs such as idle facility expense, double freight, and re-handling costs are accounted for as current-period
charges. Additionally, the Company allocates 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.