Logitech 2006 Annual Report Download - page 132

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of activity in the Company’s allowance for doubtful accounts was as follows (in thousands):
Year ended March 31,
2006 2005 2004
Balance at beginning of period .......................................... $5,166 $6,068 $7,716
Baddebtexpense ................................................. 9 55 1,271
Write-offs ....................................................... (2,187) (957) (2,919)
Balance at end of period ............................................... $2,988 $5,166 $6,068
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a first-in, first-out basis. The
Company records write-downs of inventories which are obsolete or in excess of anticipated demand or market
value based on a consideration of product life cycle stage, technology trends, product development plans,
component cost trends and assumptions about future demand and market conditions.
Investments
Investments consist of companies in which Logitech owns less than a 20% interest. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt
and Equity Securities,” investments with a quoted market value are classified as available-for-sale. Such
investments are reported at fair value with the unrealized gains and losses included as a separate component of
shareholders’ equity. Unrealized losses are charged against income when a decline in fair value is determined to
be other than temporary. Realized gains and losses upon the sale or disposition of such investments are based on
the average cost of the specific investments sold.
The cost method is used for all other investments which are adjusted for any decrease in value deemed to be
other than temporary in nature.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions and improvements are capitalized, and
maintenance and repairs are expensed as incurred. The Company capitalizes the cost of software developed for
internal use in connection with major projects. Costs incurred during the feasibility stage are expensed, whereas
costs incurred during the application development stage are capitalized.
With the exception of tooling, depreciation is provided using the straight-line method. Plant and buildings
are depreciated over estimated useful lives from ten to twenty-five years, equipment over useful lives from three
to five years, software development over useful lives of three to five years and leasehold improvements over the
life of the lease, not to exceed five years. Tooling is depreciated over the forecasted life of the tool, not to exceed
one year from the time it is placed into production. Depreciation for tooling is calculated based on the forecasted
production volume and adjusted quarterly based on actual production. When property and equipment is retired or
otherwise disposed of, the cost and accumulated depreciation are relieved from the accounts and the net gain or
loss is included in the determination of net income.
Goodwill and Other Intangible Assets
The Company’s intangible assets principally include goodwill, acquired technology, trademarks and
customer contracts. Intangible assets with finite lives, which include acquired technology, trademarks and
customer contracts, are recorded at cost and amortized on the straight-line method over their useful lives ranging
from four to ten years. Intangible assets with indefinite lives, which include goodwill, are recorded at cost and
evaluated at least annually for impairment.
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