Plantronics 2014 Annual Report Download - page 50

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Inventory Valuation
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. Our products require long-
lead time parts available from a limited number of vendors and, occasionally, last-time buys of raw materials for products with
long lifecycles. The effects of demand variability, long-lead times, and last-time buys have historically contributed to inventory
write-downs. Our demand forecast considers projected future shipments, market conditions, inventory on hand, purchase
commitments, product development plans and product life cycle, inventory on consignment, and other competitive factors. Refer
to "Off Balance Sheet Arrangements" in this Annual Report on Form 10-K for additional details regarding consigned inventories.
We have not made any material changes in the accounting methodology we use to estimate our inventory write-downs or adverse
purchase commitments during the past three fiscal years. If the demand or market conditions for our products are less favorable
than forecasted or if unforeseen technological changes negatively impact the utility of our inventory, we may be required to record
additional inventory write-downs or adverse purchase commitments, which would negatively affect our results of operations in
the period the write-downs or adverse purchase commitments were recorded. If we increased our inventory reserve and adverse
purchase commitment reserve estimates as of March 31, 2014 by a hypothetical 10%, the reserves and cost of revenues would
have each increased by approximately $0.7 million and our net income would have been reduced by approximately $0.6 million.
Product Warranty Obligations
The Company records a liability for the estimated costs of warranties at the time the related revenue is recognized. Factors that
affect the warranty obligation include product failure rates, estimated return rates, material usage, and service related costs incurred
in correcting product failures. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses
or gains that could be material. If we increased our warranty obligation estimate as of March 31, 2014 by a hypothetical 10%,
our obligation and the associated cost of revenues would have each increased by approximately $0.8 million and our net income
would have been reduced by approximately $0.6 million.
Income Taxes
We are subject to income taxes in the U.S. and foreign jurisdictions and our income tax returns are periodically audited by domestic
and foreign tax authorities. These audits may include questions regarding our tax filing positions, including the timing and amount
of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years may be subject
to audit by various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record a liability
for such exposures. A number of years may elapse before a particular matter for which we have established a liability is audited
and fully resolved or clarified.
We recognize the impact of an uncertain income tax position on income tax expense at the largest amount that is more-likely-than-
not to be sustained. An unrecognized tax benefit will not be recognized unless it has a greater than 50% likelihood of being
sustained. We adjust our tax liability for unrecognized tax benefits in the period in which an uncertain tax position is effectively
settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information
becomes available. We recognize interest and penalties related to income tax matters as part of our provision for income taxes.
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and apply
judgment to estimate the exposures associated with our various filing positions. Our effective income tax rate is also affected by
changes in tax law, the level of earnings and the results of tax audits.
Our provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with
the repatriation of undistributed earnings of certain foreign operations that we intend to reinvest indefinitely in the foreign
operations. If these earnings were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional
U.S. income taxes, subject to an adjustment for foreign tax credits, and foreign withholding taxes. Our current plans do not require
repatriation of earnings from foreign operations to fund the U.S. operations because we generate sufficient domestic operating
cash flow and have access to external funding under our line of credit. As a result, we do not expect a material impact on our
business or financial flexibility with respect to undistributed earnings of our foreign operations.
Although we believe that our judgments and estimates are reasonable, actual results could differ and we may be exposed to losses
or gains that could be material.