Note 14 — Derivative Financial Instruments — Foreign Exchange Hedging

Cash Flow Hedges

The Company enters into foreign exchange forward contracts to hedge against exposure to changes in foreign currency exchange rates related to its subsidiaries' forecasted inventory purchases. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative purposes. These hedging contracts mature within three months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the foreign currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense). Such losses were immaterial during the fiscal years ended March 31, 2011, 2010 and 2009. Cash flows from such hedges are classified as operating activities in the consolidated statements of cash flows. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases were $54.9 million (€38.7 million) and $46.2 million (€34.3 million) at March 31, 2011 and 2010. The notional amount represents the future cash flows under contracts to purchase foreign currencies.

Other Derivatives

The Company also enters into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on certain foreign currency receivables or payables. These forward contracts generally mature within three months. The Company may also enter into foreign exchange swap contracts to economically extend the terms of its foreign exchange forward contracts. The primary risk managed by using forward and swap contracts is the foreign currency exchange rate risk. The gains or losses on foreign exchange forward contracts are recognized in earnings based on the changes in fair value.

The notional amounts of foreign exchange forward contracts outstanding at March 31, 2011 and 2010 relating to foreign currency receivables or payables were $12.9 million and $15.1 million. Open forward contracts as of March 31, 2011 and 2010 consisted of contracts in British pounds to purchase euros at a future date at a predetermined exchange rate. The notional amounts of foreign exchange swap contracts outstanding at March 31, 2011 and 2010 were $17.1 million and $38.9 million. Swap contracts outstanding at March 31, 2011 consisted of contracts in Canadian dollars, Japanese yen, and Mexican pesos. Swap contracts outstanding at March 31, 2010 consisted of contracts in British pounds, Japanese yen, Mexican pesos and Canadian dollars.

The fair value of all our foreign exchange forward contracts and foreign exchange swap contracts is determined based on quoted foreign exchange forward rates. Quoted foreign exchange forward rates are observable inputs that are classified as Level 1 within the fair value hierarchy.

The following table presents the fair values of the Company's derivative instruments and their locations on the Balance Sheet as of March 31, 2011 and 2010 (in thousands):


	Asset Derivatives						Liability Derivatives
			Fair Value						Fair Value
			March 31,						March 31,
	Location		2011		2010		Location		2011		2010
Derivatives designated as hedging instruments:
Cash Flow Hedges		Other assets	$	—	$	136		Other liabilities	$	1,763	$	10

				—		136				1,763		10

Derivatives not designated as hedging instruments:
Foreign Exchange Forward Contracts		Other assets		486		11		Other liabilities		—		—
Foreign Exchange Swap Contracts		Other assets		80		452		Other liabilities		118		356

				566		463				118		356

			$	566	$	599			$	1,881	$	366

The following table presents the amounts of gains and losses on the Company's derivative instruments for the fiscal years ended March 31, 2011 and 2010 and their locations on its Consolidated Financial Statements (in thousands):


	Net amount of gain/(loss) deferred as a component of accumulated other comprehensive loss					Location of gain/ (Loss) reclassified from accumulated other comprehensive loss into income	Amount of gain/(loss) reclassified from accumulated other comprehensive loss into income					Location of gain/(loss) recognized in income immediately	Amount of gain/(loss) recognized in income immediately
	2011			2010			2011		2010				2011			2010
Derivatives designated as hedging instruments:
Cash Flow Hedges	$	(4,366	)	$	1,178	Cost of goods sold	$	6,078	$	(5,615)		Other income/expense	$	(5	)	$	(57	)

		(4,366	)		1,178			6,078		(5,615)				(5	)		(57	)

Derivatives not designated as hedging instruments:
Foreign Exchange Forward Contracts		—			—			—		—		Other income/expense		855			(831	)
Foreign Exchange Swap Contracts		—			—			—		—		Other income/expense		(2,865	)		(2,306	)

		—			—			—		—				(2,010	)		(3,137	)

	$	(4,366	)	$	1,178		$	6,078	$	(5,615	)		$	(2,015	)	$	(3,194	)