Logitech 2014 Annual Report Download - page 253

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3 — Summary of Significant Accounting Policies (Continued)
available; or (iii) ESP (best estimate of selling price), if neither VSOE nor TPE are available. Management judgment
must be used to determine the appropriate deliverables and associated relative selling prices. The Company has
identified Logitech Revue, discontinued in fiscal year 2013, and the Lifesize video conferencing products as
products sold with software components that qualify as multiple-deliverable revenue arrangements.
Lifesize products include the following deliverables:
• Non-software deliverables
• Hardware with software essential to the functionality of the hardware device delivered at time of sale
• Maintenance for hardware with essential software, including future when-and-if-available unspecified
upgrades
• Other services, including training and installation
• Software deliverables
• Non-essential software
• Maintenance for non-essential software, including future when-and-if available unspecified upgrades
The relative selling price for Lifesize hardware with essential software and non-essential software is based
on ESP, as VSOE and TPE cannot be established due to variable price discounting. Key factors considered in
developing ESP are historical selling prices of the product, pricing of substantially similar products, and other
market conditions. Lifesize sells maintenance for non-essential software, maintenance for hardware with essential
software, and other services on a standalone basis, and therefore has established VSOE for those deliverables.
The consideration received for multiple element arrangements consisting of both non-software and software
deliverables is allocated based on relative selling prices to the non-software deliverables and the software
deliverables as a group. Amounts allocated to non-software-related elements, such as delivered hardware with
essential software, are recognized at the time of sale provided that the other conditions for revenue recognition
have been met. Amounts allocated to maintenance services for hardware and essential software are deferred and
recognized ratably over the maintenance period. Amounts allocated to other services are deferred and recognized
upon completion of services. Amounts allocated to software deliverables such as non-essential software and related
services are further allocated to the individual deliverables within the software group. The VSOE of non-essential
software-related maintenance are deferred and recognized ratably over the maintenance period. The residual value
of the amounts allocated to software-related elements is recognized at the time of sale.
Revenues from sales to distributors and authorized resellers are recognized upon shipment net of estimated
product returns and expected payments for cooperative marketing arrangements, customer incentive programs
and pricing programs. The estimated cost of these programs is recorded as a reduction of sales or as an operating
expense, if the Company receives a separately identifiable benefit from the customer and can reasonably estimate
the fair value of that benefit. Significant management judgment and estimates must be used to determine the cost
of these programs in any accounting period.
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 sales and cost of sales for the estimated return. Return trends are influenced by product life cycle status,
ANNUAl REPORT
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