Logitech 2010 Annual Report Download - page 186

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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, such as stage of product life-cycle. Return trends are influenced by the timing of the sale, the type
of customer, operational policies and procedures, product sell-through, product quality issues, sales levels, market
acceptance of products, competitive pressures, new product introductions, product life cycle status, and other
factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future
product returns.
The Company’s cooperative marketing arrangements include contractual customer marketing and sales
incentive programs. We enter into customer marketing programs with many of our distribution and retail customers
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 programs is to encourage advertising and
promotional events to increase sales of our products. Accruals for the estimated costs of these marketing programs
are recorded based on the contractual percentage of product purchased in the period we recognize revenue. The
Company also offers rebates and discounts for certain types of sell-through programs. Accruals for these sales
incentive programs are recorded at the time of sale, or time of commitment, based on negotiated terms, historical
experience and inventory levels in the channel.
Customer incentive programs include volume and consumer rebates. The Company offers volume rebates
to its distribution and retail customers related to purchase volumes or sales of specific products by distributors to
specified retailers. Reserves for volume rebates are recognized as a reduction of the sale price at the time of sale.
Estimates of required reserves 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 directly to end-users. Estimated costs of consumer rebates and similar
incentives are recorded at the time 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 contractual agreements with certain of its customers that contain terms allowing price
protection credits to be issued in the event of a subsequent price reduction (contractual price protection). 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 to specific indirect partners. Management’s
decision to make price reductions is influenced by channel inventory levels, product life cycle stage, market
acceptance of products, the competitive environment, new product introductions and other factors. Credits are
issued for units that customers have on hand or in transit at the date of the price reduction. Reserves for the estimated
amounts to be reimbursed to qualifying customers are established quarterly based on planned price reductions,
analyses of qualified inventories on hand with distributors and retailers and historical trends by customer and
by product.
The Company regularly evaluates the adequacy of the accruals 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 increase 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 reductions to revenue 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.
The Company’s shipping and handling costs are included in cost of sales in the accompanying Consolidated
Statements of Income for all periods presented.