Logitech 2004 Annual Report Download - page 116

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 10 — Income Taxes:
The Company is incorporated in Switzerland but operates in various countries with differing tax laws and
rates. Further, a portion of the Company’s income before taxes and the provision for income taxes are generated
outside of Switzerland. The portion of the Company’s income before taxes for fiscal year 2004, 2003 and 2002
that is subject to foreign income taxes was $57.0 million, $52.2 million and $40.8 million. Consequently, the
weighted average expected tax rate may vary from period to period to reflect the generation of taxable income in
different tax jurisdictions.
The provision for income taxes consists of the following (in thousands):
Year ended March 31,
2004 2003 2002
Current:
Swiss................................................. $ 1,481 $ 2,277 $ 1,900
Foreign ............................................... 19,451 23,353 18,407
Deferred:
Swiss................................................. (192) 1,425 —
Foreign ............................................... (7,224) (2,346) (1,568)
Total ............................................. $13,516 $24,709 $18,739
Deferred income tax assets and liabilities consist of the following (in thousands):
March 31,
2004 2003
Net operating loss carryovers ......................................... $24,793 $17,429
Research and development and other tax credit carryovers .................. 9,513 7,415
Accruals ......................................................... 16,409 18,144
Depreciation and amortization ........................................ 805 4,317
Gross deferred tax assets ............................................ 51,520 47,305
Deferred tax liabilities related to intangible assets ......................... — (3,910)
Deferred tax liabilities .............................................. — (3,910)
Valuation allowance ................................................ (34,084) (33,375)
Net deferred tax assets .............................................. $17,436 $10,020
Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s
subsidiaries based upon the weight of available evidence, including such factors as the recent earnings history
and expected future taxable income. Management determines the amount of deferred tax assets that are likely to
be realized based upon the Company’s recent earnings and estimated future taxable income in applicable tax
jurisdictions. In November 2003, the Company released a valuation allowance on specific deferred tax assets
after it had determined that the valuation allowance was no longer required. As a result, the income tax provision
and net income for the year ended March 31, 2004 included a one-time favorable impact of $13.4 million. In the
event future taxable income is below management’s estimates or is generated in tax jurisdictions different than
projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would
result in an increase in the Company’s effective tax rate.
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