Logitech 2004 Annual Report Download - page 69

Looking forward to fiscal 2005, Logitech intends to focus on expanding beyond the PC platform and pursue
new areas of growth, as well as build on its current strengths. To help address the Company’s flat retail mice
sales in fiscal year 2004, it plans to strengthen its competitive position in the corded mice segment with new
offerings focused on value and low cost. Also, the Company anticipates that cordless mice and desktops will
become a standard for consumers. To maintain its market share in this growing market, the Company will be
introducing a refreshed line of cordless mice and desktops. Further, the Company intends to capitalize on the
growth of notebook computers by introducing new corded and cordless mice products focused on meeting the
needs of notebook users. Foreseeing sustained growth in the webcam and speaker categories, the Company will
continue to invest in bringing innovative, high quality integrated video and audio communications to the PC
platform. The Company is committed to accelerating its progress in newer market categories and intends to make
investments to further increase demand for its mobile headsets and digital pen offerings. Further, Logitech
expects its recent acquisition of Intrigue Technologies to broaden its presence in the digital living room. In
addition, the Company will continue to focus on its supply chain management in order to increase efficiency and
effectively manage potential component shortages and further customer satisfaction. To ensure it has the
productive capacity and resources to meet anticipated increases in demand, the Company is investing in a new
expanded manufacturing facility in China slated for completion in the summer of 2005.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with generally accepted
accounting principles in the United States of America (“U.S. GAAP”) and in compliance with relevant Swiss
law, requires the Company to make judgments, estimates and assumptions that affect reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those estimates.
Logitech considers an accounting estimate critical if: (i) it requires management to make judgments and
estimates about matters that are inherently uncertain; and (ii) is important to an understanding of the Company’s
financial condition and operating results.
Management has discussed the development, selection and disclosure of these critical accounting estimates
with the Audit Committee of the Board of Directors. The Company believes the following accounting estimates
are most critical to its business operations and to an understanding of its financial condition and results of
operations and affect its more significant judgments and estimates used in the preparation of its consolidated
financial statements. They should be read in conjunction with the Company’s consolidated financial statements.
Customer Programs
The Company records accruals for customer programs and incentive offerings, including certain rights of
return, price protection, consumer rebates, volume-based incentives and other customer marketing programs. The
estimated cost of these programs is accrued as a reduction to revenue or as an operating expense in the period the
Company has sold the product or committed to the program. Significant management judgments and estimates
must be used to determine the cost of these programs in any accounting period.
The Company grants limited rights of returns for certain products. Estimates of expected future product
returns are based on analyses of historical returns, inventories owned by and located at distributors and retailers,
and current customer demand. Return rates are influenced by the location and timing of the sale, product sell-
through, product quality issues and sales levels; and can fluctuate quarter by quarter. Distributor and retail
inventory levels fluctuate depending on product levels purchased and actual sell-through. Customer demand
varies depending on market acceptance and competitive pressures, new product introductions, and product
lifecycle status.
The Company has agreements with most of its customers that contain terms allowing price protection
credits to be issued in the event of a subsequent price reduction. The Company’s decision to effect price
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