Note 12 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of March 31, 2011, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)) and the 2006 Plan (2006 Stock Incentive Plan). Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.

The following table summarizes the share-based compensation expense and related tax benefit recognized for fiscal years 2011, 2010 and 2009 (in thousands).


	Year Ended March 31,
	2011		2010		2009
Cost of goods sold	$	4,223	$	3,073	$	3,163

Share-based compensation expense included in gross profit		4,223		3,073		3,163

Operating expenses:
Marketing and selling		12,030		9,201		7,989
Research and development		7,829		4,902		4,488
General and administrative		10,764		8,631		8,863

Share-based compensation expense included in operating expenses		30,623		22,734		21,340

Total share-based compensation expense		34,846		25,807		24,503
Tax benefit		8,279		5,768		3,102

Share-based compensation expense, net of income tax	$	26,567	$	20,039	$	21,401

As of March 31, 2011, 2010 and 2009, $1.0 million, $0.9 million and $0.8 million of share-based compensation cost was capitalized to inventory. The following table summarizes total share-based compensation cost not yet recognized and the number of months over which such cost is expected to be recognized, on a weighted-average basis by type of grant (in thousands, except number of months):


	March 31, 2011
	Compensation Cost Not Yet Recognized		Months of Future Recognition
Non-vested stock options	$	55,691		30
Time-based RSUs		29,775		48
Performance-based RSUs		13,330		33

Total compensation cost not yet recognized	$	98,796

Under the 1996 ESPP and 2006 ESPP plans, eligible employees may purchase shares at the lower of 85% of the fair market value at the beginning or the end of each six-month offering period. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. An aggregate of 16,000,000 shares was reserved for issuance under the 1996 and 2006 ESPP plans. As of March 31, 2011, a total of 1,643,369 shares were available for issuance under these plans.

The 2006 Plan provides for the grant to eligible employees and non-employee directors of stock options, stock appreciation rights, restricted stock and RSUs (restricted stock units), which are bookkeeping entries reflecting the equivalent of shares. Awards under the 2006 Plan may be conditioned on continued employment, the passage of time or the satisfaction of performance vesting criteria. The 2006 Stock Plan has an expiration date of June 16, 2016. Stock options granted under the 2006 Plan generally vest over three years for non-executive Directors and over four years for employees. All stock options under this plan have terms not exceeding ten years and are issued at exercise prices not less than the fair market value on the date of grant. Time-based RSUs granted to employees under the 2006 Plan vest in four equal annual installments on the grant date anniversary. Time-based RSUs granted to non-executive board members under the 2006 Plan vest in one annual installment on the grant date anniversary. Performance-based RSUS granted under the 2006 Plan vest at the end of the performance period upon meeting certain share price performance criteria measured against market conditions. The performance period is three years for performance-based RSU grants made in fiscal year 2011 and two years for performance-based RSU grants made in fiscal years 2010 and 2009. An aggregate of 17,500,000 shares was reserved for issuance under the 2006 Plan. As of March 31, 2011, a total of 4,493,291 shares were available for issuance under this plan.

A summary of the Company's stock option activity for fiscal years 2011, 2010 and 2009 is as follows (in thousands, except per share data; exercise prices are weighted averages):


	Year ended March 31,
	2011					2010					2009
	Number			Exercise Price		Number			Exercise Price		Number			Exercise Price
Outstanding, beginning of year		20,037		$	18		18,897		$	18		17,952		$	17
Granted		294		$	16		3,520		$	14		4,145		$	21
Assumed in LifeSize acquisition		—		$	—		1,024		$	5		—		$	—
Exercised		(2,747	)	$	10		(1,980	)	$	8		(2,037	)	$	9
Cancelled or expired		(1,272	)	$	21		(1,424	)	$	17		(1,163	)	$	24

Outstanding, end of year		16,312		$	19		20,037		$	18		18,897		$	18

Exercisable, end of year		11,205		$	20		11,287		$	17		10,981		$	14

The total pretax intrinsic value of stock options exercised during the fiscal years ended March 31, 2011, 2010 and 2009 was $23.1 million, $15.0 million and $33.2 million and the tax benefit realized for the tax deduction from options exercised during those periods was $7.6 million, $3.9 million and $8.5 million. The total fair value of options vested as of March 31, 2011, 2010 and 2009 was $74.3 million, $66.4 million and $57.7 million.

The fair value of employee stock options granted and shares purchased under the Company's employee purchase plans was estimated using the Black-Scholes-Merton option-pricing valuation model applying the following assumptions and values:


	Year ended March 31,
	2011		2010		2009		2011		2010		2009
	Purchase Plans						Stock Option Plans
Dividend yield		0%		0%		0%		0%		0%		0%
Expected life		6 months		6 months		6 months		4 years		3.3 years		3.7 years
Expected volatility		35%		59%		63%		48%		47%		36%
Risk-free interest rate		0.16%		0.19%		1.23%		1.57%		1.64%		2.40%

The dividend yield assumption is based on the Company's history and future expectations of dividend payouts. The Company has not paid dividends since 1996. The expected option life represents the weighted-average period the stock options or purchase offerings are expected to remain outstanding. The expected life is based on historical settlement rates, which the Company believes are most representative of future exercise and post-vesting termination behaviors. Expected share price volatility is based on historical volatility using daily prices over the term of past options or purchase offerings. The Company considers historical share price volatility as most representative of future volatility. The risk-free interest rate assumptions are based upon the implied yield of U.S. Treasury zero-coupon issues appropriate for the term of the Company's stock options or purchase offerings.

The Company estimates option forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest.

The following table presents the weighted average grant-date fair values of options granted and the expected forfeiture rates:


	Year ended March 31,
	2011			2010			2009			2011			2010			2009
	Purchase Plans									Stock Option Plans
Weighted average grant-date fair value of options granted	$	4.26		$	4.23		$	5.46		$	6.11		$	6.66		$	6.25
Expected forfeitures		0	%		0	%		0	%		9	%		9	%		7	%

The following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2011 (in thousands except per share data; exercise prices and contractual lives are weighted averages):


	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number		Exercise Price		Contractual Life (years)		Aggregate Intrinsic Value		Number		Exercise Price		Contractual Life (years)		Aggregate Intrinsic Value
$ 1.00 - $11.45		2,870	$	9		3.8	$	27,256		2,359	$	9		2.9	$	20,768
$11.46 - $16.35		3,964	$	15		6.8		14,511		1,695	$	14		4.8		6,663
$16.36 - $23.35		5,468	$	20		5.7		1,340		4,127	$	20		5.0		846
$23.36 - $50.00		4,010	$	31		6.2		—		3,024	$	31		6.1		—

$ 1.00 - $50.00		16,312					$	43,107		11,205					$	28,277

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than the Company's closing price of $18.13 at March 31, 2011, which would have been received by the option holders had these option holders exercised their options as of that date. The total number of fully vested in-the-money options exercisable as of March 31, 2011 was 4,883,941. As of March 31, 2011, 5,107,861 options were unvested, of which 4,648,154 are expected to vest, based on an estimated forfeiture rate of 9%.

A summary of the Company's time- and performance-based RSU activity for fiscal years 2011, 2010 and 2009 is as follows (in thousands, except per share values; grant-date fair values are weighted averages):


	Year ended March 31,
	2011					2010					2009
	Number			Grant Date Fair Value		Number			Grant Date Fair Value		Number		Grant Date Fair Value
Outstanding, beginning of year		514		$	18		94		$	28		—	$	—
Time-based RSUs granted		1,599		$	20		267		$	15		—	$	—
Performance-based RSUs granted		538		$	28		115		$	18		94	$	28
Assumed in LifeSize acquisition		—		$	—		54		$	5		—	$	—
Vested		(142	)	$	15		—		$	—		—	$	—
Cancelled or expired		(139	)	$	24		(16	)	$	23		—	$	—

Outstanding, end of year		2,370		$	21		514		$	18		94	$	28

The Company estimates the fair value of the time-based RSUs based on the share market price on the date of grant. The fair value of the performance-based RSUs is estimated using the Monte-Carlo simulation model applying the following assumptions:


	FY 2011 Grants		FY 2010 Grants		FY 2009 Grants
Dividend yield		0%		0%		0%
Expected life		3 years		2 years		2 years
Expected volatility		51%		58%		41%
Risk-free interest rate		0.81%		1.11%		1.82%

The dividend yield assumption is based on the Company's history and future expectations of dividend payouts. The expected life of the performance-based RSUs is the service period at the end of which the RSUs will vest if the performance conditions are satisfied. The volatility assumption is based on the actual volatility of Logitech's daily closing share price over a look-back period equal to the years of expected life. The risk free interest rate is derived from the yield on US Treasury Bonds for a term of the same number of years as the expected life.

As of March 31, 2011, the grant date fair values of outstanding RSUs ranged from $14 to $28 per RSU, and the weighted average contractual life was 3.8 years.

Defined Contribution Plans

Certain of the Company's subsidiaries have defined contribution employee benefit plans covering all or a portion of their employees. Contributions to these plans are discretionary for certain plans and are based on specified or statutory requirements for others. The charges to expense for these plans for fiscal years 2011, 2010 and 2009, were $8.9 million, $8.2 million and $8.3 million.

Defined Benefit Plans

Certain of the Company's subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees' years of service and earnings, or in accordance with applicable employee benefit regulations. The Company's practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations.

The Company recognizes the underfunded or overfunded status of defined benefit pension plans and non-retirement post-employment benefit obligations as an asset or liability in its statement of financial position, and recognizes changes in the funded status of defined benefit pension plans in the year in which the changes occur through accumulated other comprehensive loss, which is a component of shareholders' equity. Each plan's assets and benefit obligations are measured approximately as of March 31.

The net periodic benefit cost of the defined benefit pension plans and the non-retirement post-employment benefit obligations for fiscal years 2011, 2010 and 2009 was as follows (in thousands):


	Year ended March 31,
	2011			2010			2009
Service cost	$	4,396		$	3,983		$	2,814
Interest cost		1,745			1,430			1,520
Expected return on plan assets		(1,818	)		(1,200	)		(1,488	)
Amortization of net transition obligation		4			4			5
Amortization of net prior service cost		161			138			—
Settlement		2			—			—
Recognized net actuarial loss		482			1,239			232

Net periodic benefit cost	$	4,972		$	5,594		$	3,083

Additional benefit costs of $3.4 million related to the restructuring were recognized in restructuring expenses in fiscal year 2009.

The changes in projected benefit obligations for fiscal years 2011 and 2010 were as follows (in thousands):


	March 31,
	2011			2010
Projected benefit obligation, beginning of year	$	57,531		$	48,135
Service cost		4,396			3,983
Interest cost		1,745			1,430
Plan participant contributions		2,321			1,848
Actuarial (gain) loss		3,911			(78	)
Benefits paid		(2,220	)		(1,037	)
Plan amendments		19			—
Settlement		(218	)		—
Administrative expense paid		(131	)		(177	)
Foreign currency exchange rate changes		8,791			3,427

Projected benefit obligation, end of year	$	76,145		$	57,531

The accumulated benefit obligation for all defined benefit pension plans as of March 31, 2011 and 2010 was $60.2 million and $46.3 million.

The following table presents the changes in the fair value of defined benefit pension plan assets for fiscal years 2011 and 2010 (in thousands):


	March 31,
	2011			2010
Fair value of plan assets, beginning of year	$	35,427		$	23,415
Actual return on plan assets		34			5,267
Employer contributions		4,409			4,137
Plan participant contributions		2,321			1,848
Benefits paid		(2,016	)		(864	)
Settlement		(85	)		—
Administrative expenses paid		(131	)		(177	)
Foreign currency exchange rate changes		5,978			1,801

Fair value of plan assets, end of year	$	45,937		$	35,427

The defined benefit pension plans have the following asset allocations. Investment strategies and allocation decisions are determined by the applicable governmental regulatory agency.


	March 31,
	2011			2010
Equity securities		33.4	%		34.8	%
Debt securities		43.3	%		43.6	%
Real estate		6.5	%		10.7	%
Other		16.8	%		10.9	%

		100.0	%		100.0	%

The funded status of the defined benefit pension plans is the fair value of plan assets as determined by the governmental regulatory agency less benefit obligations. The funded status of the non-retirement post-employment benefits is the fair value of the benefit obligations. Projected benefit obligations exceeded plan assets for all plans by $30.2 million and $22.1 million as of March 31, 2011 and 2010. Amounts recognized on the balance sheet for the plans were as follows (in thousands):


	March 31,
	2011			2010
Current assets	$	759		$	936
Current liabilities		(3,563	)		(2,761	)
Non-current liabilities		(26,645	)		(19,343	)

Net liability	$	(29,449	)	$	(21,168	)

Amounts recognized in other comprehensive income related to defined benefit pension plans were as follows (in thousands):


	March 31,
	2011			2010
Net prior service cost	$	(2,084	)	$	(2,075	)
Net actuarial loss		(16,714	)		(9,641	)
Amortization of net transition obligation		(34	)		(33	)

Accumulated other comprehensive income		(18,832	)		(11,749	)
Deferred tax benefit		759			936

Accumulated other comprehensive loss, net of tax	$	(18,073	)	$	(10,813	)

Changes in accumulated other comprehensive loss related to the defined benefit pension plans were as follows (in thousands):


	March 31,
	2011			2010
Accumulated other comprehensive loss, beginning of year	$	(10,813	)	$	(15,122	)
Transition obligation recognized		5			4
Prior service cost recognized		146			120
Loss recognized		396			1,276
Settlement loss recognized		23			—
Gain (loss) occurred		(5,609	)		4,143
Deferred tax expense		(241	)		(122	)
Foreign currency exchange rate changes		(1,980	)		(1,112	)

Accumulated other comprehensive loss, end of year	$	(18,073	)	$	(10,813	)

The following table presents the amounts included in accumulated other comprehensive loss as of March 31, 2011, which are expected to be recognized as a component of net periodic benefit cost in fiscal year 2012 (in thousands):


	March 31, 2011
Amortization of net transition obligation	$	5
Amortization of net prior service costs		152
Amortization of net actuarial loss		837

	$	994

The Company reassesses its benefit plan assumptions on a regular basis. The actuarial assumptions for the pension plans for fiscal years 2011 and 2010 were as follows:

2011

2010

Benefit Obligation

Periodic Cost

Benefit Obligation

Periodic Cost

Discount rate

2.00% to 3.75%

2.00% to 3.25%

2.00% to 3.00%

Estimated rate of compensation increase

3.00% to 5.00%

2.50% to 5.00%

Expected average rate of return on plan assets

1.00% to 4.00%

1.00% to 4.75%

1.00% to 4.25%

The discount rate is estimated based on corporate bond yields or securities of similar quality in the respective country, with a duration approximating the period over which the benefit obligations are expected to be paid. The Company bases the compensation increase assumptions on historical experience and future expectations. The expected average rate of return for the Company's defined benefit pension plans represents the average rate of return expected to be earned on plan assets over the period that the benefit obligations are expected to be paid, based on government bond notes in the respective country, adjusted for corporate risk premiums as appropriate.

The following table reflects the benefit payments that the Company expects the plans to pay in the periods noted (in thousands):


Year ending March 31,
2012	$	3,898
2013		4,024
2014		4,058
2015		4,018
2016		4,217
Thereafter		19,360

	$	39,575

The Company expects to contribute approximately $4.1 million to its defined benefit pension plans during fiscal year 2012.

Deferred Compensation Plan

One of the Company's subsidiaries offers a management deferred compensation plan which permits eligible employees to make 100%-vested salary and incentive compensation deferrals within established limits. The Company does not make contributions to the plan. Prior to December 2010, the participants' deferrals were invested in Company-owned life insurance contracts held in a Rabbi Trust. In December 2010, the Company surrendered the life insurance contracts for cash, and invested the proceeds of $11.3 million, in addition to $0.8 million in cash held by the Rabbi Trust, investment earnings and employee contributions, in a Company-selected portfolio of marketable securities, which are also held by the Rabbi Trust.

The fair value of the deferred compensation plan's assets is included in other assets in the statements of financial position. The marketable securities are classified as trading investments and are recorded at a fair value of $13.1 million as of March 31, 2011, based on quoted market prices. Earnings, gains and losses on trading investments are included in other income (expense), net. The cash surrender value of the insurance contracts was approximately $10.4 million and trust cash balances were $0.7 million as of March 31, 2010. Expenses and gains or losses related to the insurance contracts are included in other income (expense), net.

The unsecured obligation to pay the compensation deferred, adjusted to reflect the positive or negative performance of investment options selected by each participant, was approximately $13.1 million and $10.3 million at March 31, 2011 and 2010 and was included in other liabilities.