Logitech 2014 Annual Report Download - page 259

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company will recognize a benefit from share-based compensation in paid-in capital only if an
incremental tax benefit is realized after all other available tax attributes have been utilized. For income tax footnote
disclosure, the Company has elected to offset deferred tax assets from share-based compensation against the
valuation allowance related to the net operating loss and tax credit carryforwards from accumulated tax benefits.
The Company will recognize these tax benefits in paid-in capital when the deduction reduces cash taxes payable.
In addition, the Company has elected to account for the direct benefits of share-based compensation on the research
tax credit through continuing operations.
Product Warranty Accrual
The Company estimates cost of product warranties at the time the related revenue is recognized based on
historical and projected warranty claim rates, historical and projected costs, and knowledge of specific product
failures that are outside of the Company’s typical experience. Each quarter, the Company reevaluates estimates to
assess the adequacy of recorded warranty liabilities considering the size of the installed base of products subject
to warranty protection and adjusts the amounts as necessary. If actual product failure rates or repair costs differ
from estimates, revisions to the estimated warranty liabilities would be required and could materially affect the
Company’s results of operations.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the total change in shareholders’ equity during the period other
than from transactions with shareholders. Comprehensive income (loss) consists of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) is comprised of foreign currency translation
adjustments from those entities not using the U.S. Dollar as their functional currency, unrealized gains and losses
on marketable equity securities, net deferred gains and losses and prior service costs for defined benefit pension
plans, and net deferred gains and losses on hedging activity.
Treasury Shares
The Company periodically repurchases shares in the market at fair value. Treasury shares repurchased are
recorded at cost as a reduction of total shareholders’ equity. Treasury shares held may be reissued to satisfy the
exercise of employee stock options and purchase rights, the vesting of restricted stock units, and acquisitions, or
may be cancelled with shareholder approval. Treasury shares that are reissued are accounted for using the first-in,
first-out basis.
Derivative Financial Instruments
The Company enters into foreign exchange forward contracts to reduce the short-term effects of foreign
currency fluctuations on certain foreign currency receivables or payables and to hedge against exposure to changes
in foreign currency exchange rates related to its subsidiaries’ forecasted inventory purchases. These forward
contracts generally mature within one to three months. The Company may also enter into foreign exchange swap
contracts to extend the terms of its foreign exchange forward contracts.
Gains and losses for changes in the fair value of the effective portion of the Company’s forward contracts
related to forecasted inventory purchases are deferred as a component of accumulated other comprehensive income
(loss) until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of
goods sold. Gains or losses for changes in the fair value on forward contracts that offset translation losses or gains
on foreign currency receivables or payables are recognized are included in other income (expense), net.
Note 3 — Summary of Significant Accounting Policies (Continued)
ANNUAl REPORT
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