Logitech 2013 Annual Report Download - page 166

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company grants limited rights to return product. Return rights vary by customer, and range from just
the right to return defective product to stock rotation rights limited to a percentage approved by management.
Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return
trends by customer and by product, inventories owned by and located at distributors and retailers, current customer
demand, current operating conditions, and other relevant customer and product information. Upon recognition the
Company reduces revenue and cost of sales for the estimated return. Return trends are influenced by product life
cycle status, new product introductions, market acceptance of products, sales levels, product sell-through, the type
of customer, seasonality, product quality issues, competitive pressures, operational policies and procedures, and
other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected
future product returns.
The Company enters into cooperative marketing arrangements with many of its distribution and retail
customers, and with certain indirect partners, allowing customers to receive a credit equal to a set percentage of
their purchases of the Company’s products, or a fixed dollar credit for various marketing programs. The objective of
these arrangements is to encourage advertising and promotional events to increase sales of the Company’s products.
Accruals for these marketing arrangements are recorded at the later of time of sale or time of commitment, based
on negotiated terms, historical experience and inventory levels in the channel.
Customer incentive programs include performance-based incentives and consumer rebates. The Company
offers performance-based incentives to its distribution customers, retail customers and indirect partners based on
pre-determined performance criteria. Accruals for performance-based incentives are recognized as a reduction
of the sale price at the time of sale. Estimates of required accruals are determined based on negotiated terms,
consideration of historical experience, anticipated volume of future purchases, and inventory levels in the channel.
Consumer rebates are offered from time to time at the Company’s discretion for the primary benefit of end-users.
Accruals for the estimated costs of consumer rebates and similar incentives are recorded at the later of time of sale
or when the incentive is offered, based on the specific terms and conditions. Certain incentive programs, including
consumer rebates, require management to estimate the number of customers who will actually redeem the incentive
based on historical experience and the specific terms and conditions of particular programs.
The Company has agreements with certain of its customers that contain terms allowing price protection
credits to be issued in the event of a subsequent price reduction. At management’s discretion, the Company also
offers special pricing discounts to certain customers. Special pricing discounts are usually offered only for limited
time periods or for sales of selected products to specific indirect partners. Management’s decision to make price
reductions is influenced by product life cycle stage, market acceptance of products, the competitive environment,
new product introductions and other factors. Accruals for estimated expected future pricing actions are recognized
at the time of sale based on analyses of historical pricing actions by customer and by products, inventories owned
by and located at distributors and retailers, current customer demand, current operating conditions, and other
relevant customer and product information, such as stage of product life-cycle.
The Company regularly evaluates the adequacy of its estimates for product returns, cooperative marketing
arrangements, customer incentive programs and pricing programs. Future market conditions and product transitions
may require the Company to take action to change such programs. In addition, when the variables used to estimate
these costs change, or if actual costs differ significantly from the estimates, the Company would be required to
record incremental increases or reductions to revenue, cost of goods sold or increase operating expenses. If, at
any future time, the Company becomes unable to reasonably estimate these costs, recognition of revenue might
be deferred until products are sold to end-users, which would adversely impact revenue in the period of transition.
Note 2 — Summary of Significant Accounting Policies (Continued)
164