Plantronics 2012 Annual Report Download - page 33

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Goodwill and Purchased Intangibles
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. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators
of impairment exist, management performs a review to determine if the carrying value of goodwill is impaired. The identification
and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level. The Company
determines its reporting units by assessing whether discrete financial information is available and if segment management regularly
reviews the results of that component. The Company has determined it has one reporting unit.
The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances
leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the
fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed;
however, if the Company concludes otherwise, the first step of the two-step impairment test must be performed by estimating the
fair value of the reporting unit and comparing it with its carrying value, including goodwill. (See Note 8)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the respective assets, which range from two to thirty years. Amortization
of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the assets
or the remaining lease term. Costs associated with internal-use software are recorded in accordance with the Intangibles - Goodwill
and Other Topic of the Accounting Standards Codification ("ASC"). Capitalized software costs are amortized on a straight-line
basis over the estimated useful life.
Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. The Company recognizes an impairment
charge in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to the assets. No
material impairment losses were incurred in the periods presented.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements. Fair value is estimated by applying the following hierarchy, which
prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest
level of input that is available and significant to the fair value measurement:
Level 1
The Company's Level 1 financial assets consist of cash, money market funds, U.S. Treasury Bills, and derivative foreign currency
forward contracts that are traded in an active market with sufficient volume and frequency of transactions. Level 1 financial
liabilities consist of derivative contracts that have closed but have not settled.
The fair value of Level 1 financial instruments is measured based on the quoted market price of identical securities.
Level 2
The Company's Level 2 financial assets and liabilities consist of Government Agency Securities, Commercial Paper, U.S. Corporate
Bonds, Certificates of Deposit ("CDs"), and derivative foreign currency call and put option contracts.
The fair value of Level 2 investment securities is determined based on other observable inputs, including multiple non-binding
quotes from independent pricing services. Non-binding quotes are based on proprietary valuation models that are prepared by the
independent pricing services and use algorithms based on inputs such as observable market data, quoted market prices for similar
securities, issuer spreads and internal assumptions of the broker. The Company corroborates the reasonableness of non-binding
quotes received from the independent pricing services using a variety of techniques depending on the underlying instrument,
including: (i) comparing them to actual experience gained from the purchases and maturities of investment securities, (ii) comparing
them to internally developed cash flow models based on observable inputs, and (iii) monitoring changes in ratings of similar
securities and the related impact on fair value.
The fair value of Level 2 derivative foreign currency call and put option contracts is determined using pricing models that use
observable market inputs.
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Earnings Per Share
Basic earnings per share is computed by dividing the net income for the period by the weighted average number of common shares
outstanding during the period, less common stock subject to repurchase. Diluted earnings per share is computed by dividing the
net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock
outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stock
options, the vesting of awards of restricted stock and the estimated shares to be purchased under the Company’s employee stock
purchase plan, which are reflected in diluted earnings per share by application of the treasury stock method. Under the treasury
stock method, the amount that the employee must pay for exercising stock options, the amount of stock-based compensation cost
for future services that the Company has not yet recognized, and the amount of tax benefit that would be recorded in additional
paid-in capital upon exercise are assumed to be used to repurchase shares. (See Note 18)
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income
refers to income, expenses, gains, and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are
excluded from net income. Accumulated other comprehensive income, as presented in the accompanying consolidated balance
sheets, consists of foreign currency translation adjustments, unrealized gains and losses on derivatives designated as cash flow
hedges, net of tax, and unrealized gains and losses related to the Company’s investments, net of tax.
Foreign Operations and Currency Translation
The functional currency of the Company’s foreign sales and marketing offices, except as noted in the following paragraph, is the
local currency of the respective operations. For these foreign operations, the Company translates assets and liabilities into U.S.
dollars using the period-end exchange rates in effect as of the balance sheet date and translates revenues and expenses using the
average monthly exchange rates. The resulting cumulative translation adjustments are included in Accumulated other
comprehensive income, a separate component of Stockholders' equity in the accompanying consolidated balance sheets.
The functional currency of the Company’s European finance, sales and logistics headquarters in the Netherlands, sales office and
warehouse in Japan, manufacturing facilities in Tijuana, Mexico and logistic and research and development facilities in China, is
the U.S. Dollar. For these foreign operations, assets and liabilities denominated in foreign currencies are re-measured at the period-
end or historical rates, as appropriate. Revenues and expenses are re-measured at average monthly rates which the Company
believes to be a fair approximation of actual rates. Currency transaction gains and losses are recognized in current operations. (See
Note 16)
Stock-Based Compensation Expense
The Company applies the provisions of the Compensation – Stock Compensation Topic of the FASB ASC, which requires the
measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee
directors based on estimated fair values. (See Note 12)
Treasury Shares
From time to time, the Company repurchases shares of its common stock, depending on market conditions, in the open market or
through privately negotiated transactions, in accordance with programs authorized by the Board of Directors. Repurchased shares
are held as treasury stock until such time as they are retired or re-issued. Retirements of treasury stock are non-cash equity
transactions in which the reacquired shares are returned to the status of authorized but unissued shares and the cost is recorded as
a reduction to both Retained earnings and Treasury stock. (See Note 13)
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents,
short-term and long-term investments and trade receivables.
Plantronics’ investment policies for cash limit investments to those that are low risk and also limit the amount of credit exposure
to any one issuer and restrict placement of these investments to issuers evaluated as creditworthy. As of March 31, 2012 and 2011,
the Company's investments were composed of U.S. Treasury Bills, Government Agency Securities, Commercial Paper, U.S.
Corporate Bonds and CDs.
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