Logitech 2011 Annual Report Download - page 148

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over the service period of the award. For share-based compensation awards granted prior to but not yet vested as of
April 1, 2006, share-based compensation expense is based on the grant-date fair value estimated using the Black-
Scholes-Merton option-pricing valuation model reduced for estimated forfeitures, and recognized on a straight-line
basis over the service period for each separately vesting portion of the award. See Note 12-Employee Benefit Plans
in the Notes to Consolidated Financial Statements for further discussion of share-based compensation.
Our estimates of share-based compensation expense require a number of complex and subjective assumptions
including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects
and the selection of an appropriate fair value model. We estimate expected share price volatility based on historical
volatility using daily prices over the term of past options, RSUs or purchase offerings, as we consider historical share
price volatility as most representative of future volatility. We estimate expected life based on historical settlement
rates, which we believe are most representative of future exercise and post-vesting termination behaviors. We use
historical data to estimate pre-vesting forfeitures, and we record share-based compensation expense only for those
awards that are expected to vest. The dividend yield assumption is based on the Company’s history and future
expectations of dividend payouts.
The assumptions used in calculating the fair value of share-based compensation expense and related tax effects
represent management’s best estimates, but these estimates involve inherent uncertainties and the application of
management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a
different valuation model, our share-based compensation expense could be materially different in the future from
what we have recorded in the current period, which could materially affect our results of operations.
Accounting for Income Taxes
Logitech operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions.
The Company’s effective income tax rate may be affected by the changes in or interpretations of tax laws in any
given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of
income and expense, and changes in management’s assessment of matters such as the ability to realize deferred
tax assets. As a result of these considerations, we must estimate income taxes in each of the jurisdictions in which
we operate. This process involves estimating current tax exposure together with assessing temporary differences
resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax
assets and liabilities, which are included in the consolidated balance sheet.
We assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering
all available evidence such as historical levels of income, expectations and risks associated with estimates of future
taxable income and ongoing prudent and feasible tax strategies. We believe it is more likely than not such assets will
be realized; however, ultimate realization could be negatively impacted by market conditions and other variables
not known or anticipated at this time. When we determine that we are not able to realize all or part of our deferred
tax assets, an adjustment is charged to earnings in the period such determination is made. Likewise, if we later
determine that it is more likely than not that the deferred tax assets would be realized, the previously provided
valuation allowance would be reversed.
We make certain estimates and judgments about the application of tax law, the expected resolution of uncertain
tax positions and other matters surrounding the recognition and measurement of uncertain tax benefits. In the
event that uncertain tax positions are resolved for amounts different than our estimates, or the related statutes of
limitations expire without the assessment of additional income taxes, we 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 our income tax provision and our results of operations.