Logitech 2015 Annual Report Download - page 195

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Software deliverables
• Non-essential software
• Maintenance for non-essential software, including future when-and-if available unspecified
upgrades
The relative selling price for 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 criteria
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 fair value, based on VSOE, of non-essential software-related
maintenance is 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.
Revenue from Cloud-based services arrangements that allow for the use of a hosted software
product or service over a contractually determined period of time without taking possession of software
are accounted for as subscriptions with billings recorded as deferred revenue and recognized as revenue
ratably over the contractual period beginning on the date the service is made available to customers.
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 are used to determine the cost of these programs in any accounting period.
The Company grants limited rights to return products. Return rights vary by customer, and range from
just the right to return defective product to stock rotation rights limited to a percentage of sales 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, new product introductions,
market acceptance of products, sales levels, product sell-through, the type of customer, seasonality,
product quality issues, competitive pressures, operational policies and procedures, and other factors.
Note 2—Summary of Significant Accounting Policies (Continued)
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Annual Report Fiscal Year 2015