Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of March 31, 2017, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan). Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury stock.

The following table summarizes share-based compensation expense and related tax benefit recognized for fiscal years 2017, 2016 and 2015 (in thousands):



	Years Ended March 31,
	2017			2016			2015
Cost of goods sold	$	2,663		$	2,340		$	2,474
Marketing and selling	14,723			9,273			8,570
Research and development	4,200			3,046			2,381
General and administrative	14,304			12,353			10,766
Restructuring	—			7			—
Total share-based compensation expense	35,890			27,019			24,191
Income tax benefit	(8,536		)	(6,297		)	(4,814		)
Total share-based compensation expense, net of income tax	$	27,354		$	20,722		$	19,377

As of March 31, 2017, 2016 and 2015, the Company capitalized $0.6 million, $0.5 million and $0.5 million, respectively, of stock-based compensation expenses as inventory.

The following table summarizes total unamortized share-based compensation expense and the remaining months over which such expense is expected to be recognized, on a weighted-average basis by type of grant (in thousands, except number of months):



	March 31, 2017
	Unamortized Expense		Remaining Months
ESPP	$	1,191	4
Time-based RSUs	36,172		21
Market-based and performance-based RSUs	9,241		17
	$	46,604

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 offering period, which is generally six months. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. An aggregate of 29 million shares was reserved for issuance under the 1996 and 2006 ESPP plans. As of March 31, 2017, a total of 6.5 million shares were available for issuance under these plans. The Company was not current with its periodic reports required to be filed with the SEC and was therefore unable to issue any shares under its Registration Statements on Form S-8 from July 31, 2014 to November 26, 2014. Given the proximity of the unavailability of those registration statements and the end of the then-current ESPP offering period, on July 31, 2014, the Compensation Committee authorized the termination of the then-current ESPP offering period and a one-time payment to each participant in an amount equal to the fifteen percent (15%) discount at which shares would otherwise have been repurchased pursuant to the then-current period of the ESPPs. This one-time payment aggregating to $1.1 million was accounted for as a repurchase of equity awards that reduced additional paid-in capital, resulting in no additional compensation cost. A new ESPP offering period of seven months was initiated on January 1, 2015, which ended on July 31, 2015. Subsequent to that, the offering periods have returned to standard six months.

The 2006 Plan provides for the grant to eligible employees and non-employee directors of stock options, stock appreciation rights, restricted stock and RSUs. Awards under the 2006 Plan may be conditioned on continued employment, the passage of time or the satisfaction of performance and market vesting criteria. The 2006 Plan had an expiration date of June 16, 2016 until September 5, 2012 when shareholder approved the amendment of the 2006 Plan to eliminate the expiration date. 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 generally 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, or if earlier and only if the non-executive board member is not re-elected as a director at such annual general meeting, the date of the next annual general meeting following the grant date. Performance-based RSUs granted under the 2006 plan vest contingent upon the achievement of pre-determined financial metrics. The performance period for performance-based RSUs granted in each of fiscal years 2015, 2016 and 2017 is approximately three years and the performance condition can be achieved before the end of the performance period. Market-based options granted under the 2006 Plan vest upon meeting certain share price performance criteria. Market-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 approximately three years for market-based RSU granted in fiscal years 2017, 2016 and 2015. An aggregate of 30.6 million shares was reserved for issuance under the 2006 Plan. As of March 31, 2017, a total of 11.2 million shares were available for issuance under this plan.

Under the 2012 Plan, stock options and RSUs may be granted to eligible employees to serve as an inducement to enter into employment with the Company. Awards under the 2012 Plan may be conditioned on continued employment, the passage of time or the satisfaction of market stock performance criteria, based on individual written employment offer letter. The 2012 Plan has an expiration date of March 28, 2022. Premium-priced stock options granted under the 2012 Plan vest in full if and only when Logitech's average closing share price, over a consecutive ninety-day trading period, meets or exceeds the exercise price of each of the three tranches of the grant. An aggregate of 1.8 million shares was reserved for issuance under the 2012 Plan. As of March 31, 2017, no shares were available for issuance under this plan.

The estimates of share-based compensation expense require a number of complex and subjective assumptions including stock price volatility, employee exercise patterns, future forfeitures, probability of achievement of the set performance condition, dividend yield, related tax effects and the selection of an appropriate fair value model.

The grant date fair value of the awards using the Black-Scholes-Merton option-pricing valuation model and Monte-Carlo simulation method are determined with the following assumptions and values:



Employee Stock Purchase Plans	Years Ended March 31,
	2017			2016			2015
Dividend yield	2.50		%	3.47		%	1.97		%
Risk-free interest rate	0.51		%	0.29		%	0.14		%
Expected volatility	35		%	26		%	30		%
Expected life (years)	0.5			0.5			0.6
Weighted average fair value	$	5.73		$	3.29		$	3.18



Market-based RSUs	Years Ended March 31,
	2017		2016		2015
Dividend yield	3.29	%	3.78	%	1.86	%
Risk-free interest rate	0.86	%	0.84	%	0.83	%
Expected volatility	34	%	38	%	46	%
Expected life (years)	3.0		3.0		3.0

The dividend yield assumption is based on the Company's history and future expectations of dividend payouts. The unvested RSUs or unexercised options are not eligible for these dividends. The expected life is based on historical settlement rates, which the Company believes are most representative of future exercise and post-vesting termination behaviors, or the purchase offerings periods expected to remain outstanding, or the derived period based on the expected stock performance for market-based awards. Expected volatility is based on historical volatility using the Company's daily closing prices, or including the volatility of components of the NASDAQ 100 index for market-based RSUs, over the expected life. The Company considers the historical price volatility of its shares 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 expected life of the Company's share-based awards.

The Company estimates awards 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 and RSU forfeitures and records share-based compensation expense only for those awards that are expected to vest. Effective April 1, 2017, the Company will adopt ASU 2016-09 and will account for forfeitures as they occur. The impact from change in the accounting for forfeitures will not have a material impact on the Company's consolidated financial statements.

For performance-based RSU’s, the Company estimates the probability and timing of the achievement of the set performance condition at the time of the grant based on the historical financial performance and the financial forecast in the remaining performance period and reassesses the probability in subsequent periods when actual results or new information become available.

A summary of the Company's stock option activities under all stock plans for fiscal years 2017, 2016 and 2015 is as follows (including discontinued operations for fiscal year 2015 and 2016):



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)				(Years)	(In thousands)
Outstanding, March 31, 2014	9,816
Granted	—
Exercised	(390	)				$	1,505
Cancelled or expired	(1,550	)
Outstanding, March 31, 2015	7,876
Granted	—
Exercised	(746	)				$	4,026
Cancelled or expired	(1,796	)
Outstanding, March 31, 2016	5,334		$	18
Granted	—		$	—
Exercised	(1,784	)	$	16		$	14,627
Cancelled or expired	(500	)	$	23
Outstanding, March 31, 2017	3,050		$	18	3.6	$	41,853
Vested and expected to vest, March 31, 2017	3,050		$	18	3.6	$	41,853
Vested and exercisable, March 31, 2017	3,050		$	18	3.6	$	41,853

As of March 31, 2017, the exercise price of outstanding options ranged from $4 to $38 per option.

The tax benefit realized for the tax deduction from options exercised during the fiscal years 2017, 2016 and 2015 was $4.2 million, $1.2 million and $0.5 million, respectively.

A summary of the Company's time-based, market-based, and performance-based RSU activities for fiscal years 2017, 2016 and 2015 is as follows (including discontinued operations for all the periods presented):



	Number of Shares		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Vesting Period	Aggregate Fair Value
	(In thousands)				(Years)	(In thousands)
Outstanding, March 31, 2014	6,088		$	10
Granted—time-based	1,332		$	13
Granted—market-based	523		$	13
Granted - performance-based	55		$	12
Vested	(1,949	)	$	10		$	27,844
Cancelled or expired	(1,110	)	$	11
Outstanding, March 31, 2015	4,939		$	11
Granted—time-based	2,247		$	13
Granted—market-based	356		$	14
Granted - performance-based	356		$	13
Vested	(1,557	)	$	10		$	22,823
Cancelled or expired	(820	)	$	12
Outstanding, March 31, 2016	5,521		$	11
Granted—time-based	2,390		$	16
Granted—market-based	160		$	15
Granted - performance-based	604		$	15
Vested	(2,126	)	$	11		$	48,644
Cancelled or expired	(368	)	$	14
Outstanding, March 31, 2017	6,181		$	14	1.2	$	196,983
Expected to vest, March 31, 2017	4,859		$	14	1.2	$	154,846

The RSU outstanding as of March 31, 2017 above includes 1.7 million shares of market-based and performance-based shares. The number of shares expected to vest for these awards is calculated assuming March 31, 2017 were the end of the performance contingency period. The number of shares of common stock for market-based awards to be received at vesting will range from zero percent to 150 percent of the target number of stock units based on the Company's total stockholder return (“TSR”) relative to the performance of companies in the NASDAQ-100 Index for each measurement period, generally over a three-year period. The performance-based shares granted were to be earned based on achievement of a Non-GAAP operating margin metric. The Company presents shares granted at 100 percent of target of the number of stock units that may potentially vest.

The tax benefit realized for the tax deduction from RSUs that vested during the fiscal years 2017, 2016 and 2015 was $13.1 million, $5.1 million and $6.9 million, respectively.

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 2017, 2016 and 2015, were $5.8 million, $6.8 million and $5.5 million, respectively.

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 overfunded or underfunded status of defined benefit pension plans and non-retirement post-employment benefit obligations as an asset or liability in its consolidated balance sheets, and recognizes changes in the funded status of defined benefit pension plans in the year in which the changes occur through accumulated other comprehensive income (loss), which is a component of shareholders' equity. Each plan's assets and benefit obligations are remeasured as of March 31 each year.

Except for the balance as of March 31, 2016, all the amounts in this "Defined Benefit Plans" section include activities from both continuing and discontinued operations for fiscal year 2015 and 2016, and the amounts from discontinued operations are not material for those periods.

The net periodic benefit cost of the defined benefit pension plans and the non-retirement post-employment benefit obligations for fiscal years 2017, 2016 and 2015 was as follows (in thousands):



	Years Ended March 31,
	2017			2016			2015
Service costs	$	10,385		$	10,117		$	7,646
Interest costs	800			1,147			1,970
Expected return on plan assets	(1,724		)	(1,657		)	(2,084		)
Amortization:
Net transition obligation	4			4			4
Net prior service costs (credit) recognized	(117		)	(124		)	(45		)
Net actuarial loss recognized	1,032			1,854			301
Settlement and curtailment	—			—			(13		)
	$	10,380		$	11,341		$	7,779

The changes in projected benefit obligations for fiscal years 2017 and 2016 were as follows (in thousands):



	Years Ended March 31,
	2017			2016
Projected benefit obligations, beginning of the year	$	120,473		$	113,323
Service costs	10,385			10,117
Interest costs	800			1,147
Plan participant contributions	3,020			2,990
Actuarial (gains) losses	(11,081		)	(2,496		)
Benefits paid	(5,214		)	(5,277		)
Plan amendment related to statutory change	65			—
Administrative expense paid	(132		)	—
Currency exchange rate changes	(3,676		)	669
Projected benefit obligations, end of the year	$	114,640		$	120,473

The accumulated benefit obligation for all defined benefit pension plans as of March 31, 2017 and 2016 was $94.3 million and $99.5 million, respectively.

The following table presents the changes in the fair value of defined benefit pension plan assets for fiscal years 2017 and 2016 (in thousands):



	Years Ended March 31,
	2017			2016
Fair value of plan assets, beginning of the year	$	65,279		$	60,910
Actual return on plan assets	4,733			(1,160		)
Employer contributions	5,865			7,171
Plan participant contributions	3,020			2,990
Benefits paid	(5,214		)	(5,277		)
Administrative expenses paid	(132		)	—
Currency exchange rate changes	(2,175		)	645
Fair value of plan assets, end of the year	$	71,376		$	65,279

The Company's investment objectives are to ensure that the assets of its defined benefit plans are invested to provide an optimal rate of investment return on the total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that pension funds are available to meet the plans' benefit obligations as they become due. The Company believes that a well-diversified investment portfolio will result in the highest attainable investment return with an acceptable level of overall risk. Investment strategies and allocation decisions are also governed by applicable governmental regulatory agencies. The Company's investment strategy with respect to its largest defined benefit plan, which is available only to Swiss employees, is to invest in the following allocation ranges: 29.5-36.5% for equities, 29.0-39.0% for bonds, and 5-15.0% for cash and cash equivalents. The Company also can invest in real estate funds, commodity funds, and hedge funds depend upon economic conditions.

The following tables present the fair value of the defined benefit pension plan assets by major categories and by levels within the fair value hierarchy as of March 31, 2017 and 2016 (in thousands):



	March 31,
	2017						2016
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash and cash equivalents	$	11,864	$	46	$	11,910	$	9,268	$	47	$	9,315
Equity securities	20,985		—		20,985		18,640		—		18,640
Debt securities	22,373		—		22,373		21,781		—		21,781
Swiss real estate funds	9,699		—		9,699		9,622		—		9,622
Hedge funds	—		3,507		3,507		—		3,492		3,492
Insurance contracts	—		61		61		—		94		94
Other	2,654		187		2,841		2,195		140		2,335
	$	67,575	$	3,801	$	71,376	$	61,506	$	3,773	$	65,279

The funded status of the plans was as follows (in thousands):



	Years Ended March 31,
	2017			2016
Fair value of plan assets	$	71,376		$	65,279
Less: projected benefit obligations	114,640			120,473
Under funded status	$	(43,264	)	$	(55,194	)

Amounts recognized on the balance sheet for the plans were as follows (in thousands):



	March 31,
	2017			2016
Current liabilities	$	(1,266	)	$	(1,285	)
Non-current liabilities	(41,998		)	(53,909		)
Net liabilities	$	(43,264	)	$	(55,194	)

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



	March 31,
	2017			2016			2015
Net prior service credits	$	1,274		$	1,613		$	1,672
Net actuarial loss	(11,407		)	(27,612		)	(28,751		)
Net transition obligation	—			(4		)	(8		)
Accumulated other comprehensive loss	(10,133		)	(26,003		)	(27,087		)
Deferred tax benefit	(347		)	(168		)	123
Accumulated other comprehensive loss, net of tax	$	(10,480	)	$	(26,171	)	$	(26,964	)

The following table presents the amounts included in accumulated other comprehensive loss as of March 31, 2017, which are expected to be recognized as a component of net periodic benefit cost in fiscal year 2018 (in thousands):



	Year Ending March 31, 2018
Amortization of net prior service credits	$	(107	)
Amortization of net actuarial loss	306
	$	199

The Company reassesses its benefit plan assumptions on a regular basis. The actuarial assumptions for the defined benefit plans for fiscal years 2017 and 2016 were as follows:



	Years Ended March 31,
	2017	2016
Benefit Obligations:
Discount rate	0.75%-7.00%	0.5%-8.00%
Estimated rate of compensation increase	2.5%-10.00%	2.50%-10.00%
Periodic Costs:
Discount rate	0.5%-8.00%	0.75%-7.75%
Estimated rate of compensation increase	2.5%-10.00%	0.0%-8.00%
Expected average rate of return on plan assets	1.0%-2.75%	1.00%-2.75%

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):



Years Ending March 31,
2018	$	5,006
2019	5,408
2020	5,720
2021	5,291
2022	5,595
2023-2027	30,614
	$	57,634

The Company expects to contribute $5.5 million to its defined benefit pension plans during fiscal year 2018.

Deferred Compensation Plan

One of the Company's subsidiaries offers a deferred compensation plan that permits eligible employees to make 100% vested salary and incentive compensation deferrals within established limits. The Company does not make contributions to the plan.

The deferred compensation plan's assets consist of marketable securities and are included in other assets on the consolidated balance sheets. The marketable securities are classified as trading investments and were recorded at a fair value of $15.0 million and $14.8 million as of March 31, 2017 and 2016, respectively, based on quoted market prices. The Company also had $15.0 million and $14.8 million deferred compensation liability as of March 31, 2017 and 2016, respectively. Earnings, gains and losses on trading investments are included in other income (expense), net and corresponding changes in deferred compensation liability are included in operating expenses and cost of goods sold.