Logitech 2011 Annual Report Download - page 230

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The Company continues to recognize interest and penalties related to unrecognized tax positions in income
tax expense. The Company recognized $1.3 million, $1.9 million and $1.8 million in interest and penalties in
income tax expense during fiscal years 2011, 2010 and 2009. As of March 31, 2011, 2010 and 2009, the Company had
approximately $8.0 million, $12.5 million and $10.7 million of accrued interest and penalties related to uncertain
tax positions.
The Company files Swiss and foreign tax returns. For all these tax returns, the Company is generally not
subject to tax examinations for years prior to 1999. During the third quarter of fiscal year 2011, the U.S. Internal
Revenue Service expanded its examination of the Company’s U.S. subsidiary to include fiscal years 2008 and 2009
in addition to fiscal years 2006 and 2007. At this time it is not possible to estimate the potential impact that the
examination may have on income tax expense. The Company is also under examination in other jurisdictions.
Although the Company has adequately provided for uncertain tax positions, the provisions on these positions
may change as revised estimates are made or the underlying matters are settled or otherwise resolved. Although
the timing of the resolution or closure on audits is highly uncertain, the Company does not believe it is reasonably
possible that the unrecognized tax benefits would materially change in the next twelve months.
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.