Logitech 2012 Annual Report Download - page 232

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currencies
The functional currency of the Company’s operations is primarily the U.S. dollar. To a lesser extent, certain
operations use the euro, Chinese renminbi, Swiss franc, or the local currency of the country as their functional
currencies. The financial statements of the Company’s subsidiaries whose functional currency is other than the
U.S. dollar are translated to U.S. dollars using period-end rates of exchange for assets and liabilities and monthly
average rates for revenues and expenses. Cumulative translation gains and losses are included as a component
of shareholders’ equity in accumulated other comprehensive loss. Gains and losses arising from transactions
denominated in currencies other than a subsidiary’s functional currency are reported in other income (expense), net
in the consolidated statements of operations.
Revenue Recognition
Revenues are recognized when all of the following criteria are met:
• evidence of an arrangement exists between the Company and the customer;
• delivery has occurred and title and risk of loss transfer to the customer;
• the price of the product is fixed or determinable; and
• collectibility of the receivable is reasonably assured.
For sales of most hardware peripherals products and hardware bundled with software incidental to its
functionality, these criteria are met at the time delivery has occurred and title and risk of loss have transferred to
the customer.
For multiple-deliverable revenue arrangements that include both undelivered software elements and hardware
with software essential its functionality, the Company uses the following hierarchy to determine the relative selling
price for allocating revenue to the deliverables: (i) VSOE (vendor specific objective evidence) of fair value, if
available; (ii) TPE (third party evidence), if VSOE is not available; or (iii) ESP (estimated selling price), if neither
VSOE or TPE is available. Management judgment must be used to determine the appropriate deliverables and
associated relative selling prices. The Company has identified Logitech Revue and the LifeSize video conferencing
products as products sold with software components that qualify as multiple-deliverable revenue arrangements.
The sale of Logitech Revue consists of three deliverables: hardware with essential software delivered at
the time of sale, standalone hardware, and unspecified upgrades to the essential software delivered on a when-
and-if-available basis. The relative selling price of the hardware with essential software is based on ESP, using
the cost-plus margin method. The relative selling price of the standalone hardware is based on VSOE from sales
of the product on a standalone basis. As future unspecified upgrades to the essential software are not sold on a
standalone basis by Logitech or its competitors, the ESP for future upgrades is estimated as a percentage of the total
market price for similar software products sold by third parties which include upgrade rights. Amounts allocated
to the delivered hardware and essential software are recognized at the time of sale provided the other conditions
for revenue recognition have been met. Amounts allocated to the future unspecified software upgrade rights are
deferred and recognized ratably over the estimated 24-month life of the hardware.
Note 2 — Summary of Significant Accounting Policies (Continued)
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