Logitech 2014 Annual Report Download - page 258

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes
The Company provides for income taxes using the asset and liability method, which requires that deferred
tax assets and liabilities be recognized for the expected future tax consequences of temporary differences resulting
from differing treatment of items for tax and accounting purposes. In estimating future tax consequences, expected
future events are taken into consideration, with the exception of potential tax law or tax rate changes.
The Company’s assessment of uncertain tax positions requires that management make estimates and judgments
about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event
that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes
of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the
amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a
material impact on the Company’s income tax provision and its results of operations.
Fair Value of Financial Instruments
The carrying value of certain of the Company’s financial instruments, including cash equivalents, accounts
receivable and accounts payable approximates fair value due to their short maturities. The Company’s trading
investments related to the deferred compensation plan are reported at fair value based on quoted market prices.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average
outstanding shares. Diluted net income (loss) per share is computed using the weighted average outstanding shares
and dilutive share equivalents. Dilutive share equivalents consist of share-based compensation awards, including
stock options, employee share purchase plan, and restricted stock.
The dilutive effect of in-the-money share-based compensation awards is calculated based on the average share
price for each fiscal period using the treasury stock method, which assumes that the amount used to repurchase
shares includes the amount the employee must pay for exercising share-based awards, the amount of compensation
cost not yet recognized for future service, and the amount of tax impact that would be recorded in additional paid-in
capital when the award becomes deductible.
Share-Based Compensation Expense
Share-based compensation expense includes compensation expense, reduced for estimated forfeitures, for
share-based compensation awards granted based on the grant-date fair value. The grant date fair value for stock
options and stock purchase rights is estimated using the Black-Scholes-Merton option-pricing valuation model.
The grant date fair value of RSUs (“restricted stock units”) which vest upon meeting certain market conditions is
estimated using the Monte-Carlo simulation method. The grant date fair value of time-based RSUs is calculated
based on the market price on the date of grant.
Excess tax benefits resulting from the exercise of stock options are classified as cash flows from financing
activities in the consolidated statements of cash flows. Excess tax benefits are realized tax benefits from tax
deductions for exercised options in excess of the deferred tax asset attributable to share-based compensation costs
for such options.
Note 3 — Summary of Significant Accounting Policies (Continued)
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