Plantronics 2013 Annual Report Download - page 63

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For investments with an unrealized loss, the factors considered in the review include the credit quality of the issuer, the duration
that the fair value has been less than the adjusted cost basis, severity of impairment, reason for the decline in value and potential
recovery period, the financial condition and near-term prospects of the investees, and whether the Company would be required to
sell an investment due to liquidity or contractual reasons before its anticipated recovery.
Foreign Currency Derivatives
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative foreign
currency call and put option contracts are valued using pricing models that use observable inputs. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and
liabilities denominated in currencies other than the functional currency of the reporting entity. These foreign exchange forward
contracts are not subject to the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC, but are
carried at fair value with changes in the fair value recorded within interest and other income (expense), net in the consolidated
statements of operations in accordance with the Foreign Currency Matters Topic of the FASB ASC. Gains and losses on these
contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated assets
and liabilities, and therefore, do not subject the Company to material balance sheet risk.
The Company has significant international revenues and costs denominated in foreign currencies, subjecting it to foreign currency
risk. The Company purchases foreign currency exchange contracts that qualify as cash flow hedges, with maturities of 12 months
or less, to reduce the volatility of cash flows related primarily to forecasted revenue and intercompany transactions denominated
in certain foreign currencies. All outstanding derivatives are recognized on the balance sheet at fair value. The effective portion
of the designated derivative's gain or loss is initially reported as a component of AOCI and is subsequently reclassified into the
financial statement line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings.
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 United States ("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.
Provision for Doubtful Accounts
The Company maintains a provision 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 conditions and considers
factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-specific risks,
and economic conditions that may affect a customer’s ability to pay.
Inventory and Related Reserves
Inventories are valued at the lower of cost or market. The Company writes down inventories that have become obsolete or are in
excess of anticipated demand or net realizable value. Our estimate of write downs for excess and obsolete inventory is based on
a detailed analysis of on-hand inventory and purchase commitments in excess of forecasted demand. Cost is computed using
standard cost, which approximates actual cost on a first-in, first-out basis. Shipping and handling costs incurred in connection
with the sale of products are included in cost of revenues.
A substantial portion of the raw materials, components and subassemblies used in the Company's products are provided by its
suppliers on a consignment basis. These consigned inventories are not recorded on the Company's consolidated balance sheet
until it takes possession of and title to the raw materials, components, and subassemblies, which occurs when they are consumed
in the production process. Prior to consumption in the production process, the Company's suppliers bear the risk of loss and retain
title to the consigned inventory. Consigned inventory not consumed in the production process is returnable to the Company's
suppliers in accordance with the terms of the Company's agreements with them. If the Company were to purchase all or a material
portion of the materials and components consigned by its suppliers, the Company could incur unanticipated expenses, including
write-downs for excess and obsolete inventory. As of March 31, 2013 and 2012, the off-balance sheet consigned inventory balances
were $31.3 million and $24.7 million, respectively.
Product Warranty Obligations
The Company records a liability for the estimated costs of warranties at the time the related revenue is recognized. The specific
warranty terms and conditions range from one to two years starting from the delivery date to the end user and vary depending
upon the product sold and the country in which the Company does business. Factors that affect the warranty obligations include
product failure rates, estimated return rates, the amount of time lapsed from the date of sale to the date of return, material usage,
and service delivery costs incurred in correcting product failures.
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