Logitech 2012 Annual Report Download - page 94

U.S. Federal Tax Consequences
The U.S. federal tax rules applicable to the Plan under the Code are summarized below. This summary does
not include the tax laws of any municipality or state or any country outside the United States in which a participant
resides or to which he or she may be subject.
Nonstatutory Options. An optionee does not recognize any taxable income at the time he or she is granted
a nonstatutory option. Upon exercise, the optionee recognizes taxable income generally measured by the excess
of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection
with an option exercise by an employee is subject to tax withholding. The Company’s U.S. operating subsidiary is
generally entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Upon a
disposition of the shares by the optionee, any difference between the sale price and the optionee’s exercise price, to
the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or
loss, depending on the holding period.
Stock Appreciation Rights. No taxable income is reportable when a SAR is granted to a participant. Upon
exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the
fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the
shares would be long-term or short-term capital gain or loss, depending on the holding period.
Logitech Inc., the Company’s U.S. operating subsidiary, generally will be entitled to a tax deduction in
connection with an award under the Plan in an amount equal to the ordinary income realized by a participant
subject to U.S. taxation and at the time such participant recognizes such income.
Restricted Shares. A participant generally will not have taxable income at the time an award of restricted
shares is granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her
interest in the restricted shares becomes either (i) freely transferable or (ii) no longer subject to substantial risk of
forfeiture (e.g., vested). However, a holder of restricted shares may elect to recognize income at the time he or she is
granted the award (to the extent it is not vested) in an amount equal to the fair market value of the shares underlying
the award less any amount paid for the shares on the date the award is granted. Upon the sale of any shares received,
any gain or loss, based on the difference between the sale price and the fair market value on the settlement date, will
be taxed as a long-term or short-term capital gain or loss, depending on the holding period.
Logitech Inc. generally will be entitled to a tax deduction equal to the amount of ordinary income recognized
by the participant on the date the shares are freely transferable or no longer subject to a substantial risk of forfeiture,
except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock Units. A participant generally will not have taxable income at the time an award of restricted
stock units is granted. Upon the settlement of the award, the participant normally will recognize ordinary income
in the year of receipt in an amount equal to the cash received and the fair market value of any non-restricted shares
received. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price
and the fair market value on the settlement date, will be taxed as a long-term or short-term capital gain or loss,
depending on the holding period.
Logitech Inc. generally will be entitled to a tax deduction equal to the amount of ordinary income recognized
by the participant on the settlement date, except to the extent such deduction is limited by applicable provisions of
the Code.
Performance-Based Compensation Under Code Section 162(m). Special rules limit the deductibility of
compensation paid to certain executive officers in the United States. Under Section 162(m) of the Code, the annual
compensation paid to executive officers in the U.S. may not be deductible to the extent it exceeds US $1 million.
However, Logitech Inc. can preserve the deductibility of certain compensation in excess of US $1 million if the
conditions of Section 162(m) of the Code are met. These conditions include shareholder approval of the Plan and
setting limits on the number of awards that any individual may receive per year. The Plan has been designed to
permit the administrator to grant awards that qualify as performance-based for purposes of satisfying the conditions
of Section 162(m) of the Code, which permits Logitech Inc. to continue to receive a federal income tax deduction
in connection with such awards.
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