Plantronics 2010 Annual Report Download - page 67

Download and view the complete annual report

Please find page 67 of the 2010 Plantronics annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

59
Estimated product returns are deducted from revenues upon shipment, based on historical return rates, assumptions regarding the rate
of sell-through to end users from our various channels based on historical sell-through rates, and other relevant factors. Such
estimates may need to be revised and could have an adverse impact on revenues if product lives vary significantly from management
estimates, a particular selling channel experiences a higher than estimated return rate, or sell-through rates are slower causing
inventory build-up.
Cooperative advertising and marketing development funds are accounted for in accordance with the Revenue Recognition Topic of the
FASB ASC. 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
recognition of the related sale. 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
The Company expenses all advertising costs as incurred. Consolidated advertising expense included in both continuing and
discontinued operations for the years ended March 31, 2008, 2009 and 2010 was $9.9 million, $6.9 million and $4.6 million,
respectively.
Income Taxes
The Company is subject to income taxes both in the U.S. as well as in several foreign jurisdictions. The Company must make certain
estimates and judgments in determining income tax expense for its financial statements. These estimates occur in the calculation of
tax benefits and deductions, tax credits, and tax assets and liabilities which are generated from differences in the timing of when items
are recognized for book purposes and when they are recognized for tax purposes.
The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-
than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being
sustained. As of March 31, 2010, the Company had $11.2 million of unrecognized tax benefits, all of which would favorably impact
the effective tax rate in future periods if recognized. The Company continues to follow the practice of recognizing interest and
penalties related to income tax matters as a part of the provision for income taxes.
The Company accounts for income taxes under an asset and liability approach that requires the expected future tax consequences of
temporary differences between book and tax bases of assets and liabilities to be recognized as deferred tax assets and liabilities.
Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than
not that the benefit of such assets will not be realized. (See Note 15)