Logitech 2015 Annual Report Download - page 124

programs. The objective of these arrangements is to encourage advertising and promotional events to
increase sales of our products. Accruals for these marketing arrangements are recorded at the later of
time of sale or time of commitment, based on negotiated terms, historical experience and inventory levels
in the channel.
Customer Incentive Programs. Customer incentive programs include performance-based incentives
and consumer rebates. We offer performance-based incentives to our distribution customers, retail
customers and indirect partners based on pre-determined performance criteria. Accruals for performance-
based incentives are recognized as a reduction of the sale price at the time of sale. Estimates of required
accruals 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 our discretion for the primary benefit of end-users. Accruals for the estimated costs of
consumer rebates and similar incentives are recorded at the later of time of sale or when 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.
Pricing Programs. We have agreements with certain customers that contain terms allowing price
protection credits to be issued in the event of a subsequent price reduction. At our discretion, we also
offer special pricing discounts to certain customers. Special pricing discounts are usually offered only for
limited time periods or for sales of selected products to specific indirect partners. Our decision to make
price reductions is influenced by product life cycle stage, market acceptance of products, the competitive
environment, new product introductions and other factors. Accruals for estimated expected future pricing
actions are recognized at the time of sale based on analysis of historical pricing actions by customer and
by products, 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.
We regularly evaluate the adequacy of our accruals for product returns, cooperative marketing
arrangements, customer incentive programs and pricing programs. Future market conditions and product
transitions may require us 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, we would be
required to record incremental increases or reductions to revenue or operating expenses. If, at any future
time, we become unable to reasonably estimate these costs, recognition of revenue might be deferred
until products are sold to users, which would adversely impact revenue in the period of transition.
Inventory Valuation
We must order components for our products and build inventory in advance of customer orders.
Further, our industry is characterized by rapid technological change, short-term customer commitments
and rapid changes in demand.
We record inventories at the lower of cost or market value and record write-downs of inventories
that are obsolete or in excess of anticipated demand or market value. A review of inventory is performed
each fiscal quarter that considers factors including the marketability and product life cycle stage, product
development plans, component cost trends, demand forecasts and current sales levels. Inventory on
hand which is not expected to be sold or utilized is considered excess, and we recognize the write-off in
cost of sales at the time of such determination. The write-off is determined by comparison of the current
replacement cost with the estimated selling price less any costs of completion and disposal (net realizable
value) and the net realizable value less an allowance for normal profit. At the time of loss recognition,
a new cost basis per unit, lower-cost basis for that inventory is established and subsequent changes in
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Annual Report Fiscal Year 2015