Logitech 2015 Annual Report Download - page 196

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate
expected future product returns.
The Company enters into cooperative marketing arrangements with many of its distribution and
retail customers, and with certain indirect partners, 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 arrangements is to encourage advertising and promotional events to
increase sales of the Company’s 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 include performance-based incentives and consumer rebates. The
Company offers performance-based incentives to its 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 the Company’s 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.
The Company has agreements with certain of its customers that contain terms allowing price
protection credits to be issued in the event of a subsequent price reduction. 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 of selected products to specific indirect
partners. Management’s 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 analyses 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.
The Company regularly evaluates the adequacy of its estimates 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 change 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 increases or reductions to sales, cost
of goods sold or 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 users, which
would adversely impact sales in the period of transition.
Shipping and Handling Costs
The Company’s shipping and handling costs are included in cost of sales in the consolidated
statements of operations for all periods presented.
Note 2—Summary of Significant Accounting Policies (Continued)
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Annual Report Fiscal Year 2015