LOGITECH INTERNATIONAL SA (Form: 10-Q, Received: 11/04/2009 16:19:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarter ended September 30, 2009

	or

	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period from to

Commission File Number: 0-29174

LOGITECH INTERNATIONAL S.A.

(Exact name of registrant as specified in its charter)

Canton of Vaud, Switzerland

(State or other jurisdiction

of incorporation or organization)

None

(I.R.S. Employer

Identification No.)

Logitech International S.A.

Apples, Switzerland

c/o Logitech Inc.

6505 Kaiser Drive

Fremont, California 94555

(Address of principal executive offices and zip code)

(510) 795-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) ¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of October 30, 2009, there were 175,385,728 shares of the Registrant’s share capital outstanding.

TABLE OF CONTENTS


Part I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	44

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 4.	Submission of Matters to a Vote of Security Holders	53

Item 6.	Exhibit Index	55

Signatures		56

Exhibits

In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. dollar, dollar or $ are to the United States dollar, the legal currency of the United States of America. All references to CHF are to the Swiss franc, the legal currency of Switzerland.

Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Financial Statement Description	Page

•	Consolidated Statements of Operations for the three and six months ended September 30, 2009 and 2008	3

•	Consolidated Balance Sheets as of September 30, 2009 and March 31, 2009	4

•	Consolidated Statements of Cash Flows for the six months ended September 30, 2009 and 2008	5

•	Consolidated Statements of Changes in Shareholders’ Equity for the six months ended September 30, 2009 and 2008	6

•	Notes to Consolidated Financial Statements	7

LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three months ended						Six months ended
	September 30,						September 30,
	2009			2008			2009			2008
	(Unaudited)

Net sales	$	498,093		$	664,707		$	824,203		$	1,173,418
Cost of goods sold		346,305			436,633			594,593			771,772
Gross profit		151,788			228,074			229,610			401,646
Operating expenses:
Marketing and selling		68,835			84,740			127,773			162,020
Research and development		31,825			33,351			63,185			66,610
General and administrative		23,739			29,620			44,920			62,929
Restructuring charges		45			-			1,494			-
Total operating expenses		124,444			147,711			237,372			291,559
Operating income (loss)		27,344			80,363			(7,762	)		110,087
Interest income, net		639			2,775			1,231			5,327
Other expense, net		(1,438	)		(853	)		(636	)		(292	)
Income (loss) before income taxes		26,545			82,285			(7,167	)		115,122
Provision for income taxes		5,802			9,974			9,455			13,505
Net income (loss)	$	20,743		$	72,311		$	(16,622	)	$	101,617

Net income (loss) per share:
Basic	$	0.12		$	0.41		$	(0.09	)	$	0.57
Diluted	$	0.11		$	0.39		$	(0.09	)	$	0.55

Shares used to compute net income (loss) per share:
Basic		178,395			178,630			179,058			178,835
Diluted		180,989			183,509			179,058			184,154

The accompanying notes are an integral part of these consolidated financial statements.

LOGITECH INTERNATIONAL S.A.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	September 30,			March 31,
	2009			2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	524,844		$	492,759
Short-term investments		-			1,637
Accounts receivable		259,776			213,929
Inventories		239,904			233,467
Other current assets		60,104			56,884
Total current assets		1,084,628			998,676
Property, plant and equipment		97,664			104,132
Goodwill		243,108			242,909
Other intangible assets		27,505			32,109
Other assets		49,092			43,704
Total assets	$	1,501,997		$	1,421,530


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	291,661		$	157,798
Accrued liabilities		154,529			131,496
Total current liabilities		446,190			289,294
Other liabilities		142,370			134,528
Total liabilities		588,560			423,822

Commitments and contingencies

Shareholders' equity:
Shares, par value CHF 0.25 - 191,606,620 issued and authorized
and 50,000,000 conditionally authorized at September 30, 2009 and
March 31, 2009		33,370			33,370
Additional paid-in capital		24,091			45,012
Less shares in treasury, at cost, 16,281,115 at September 30, 2009
and 12,124,078 at March 31, 2009		(395,995	)		(341,454	)
Retained earnings		1,325,039			1,341,661
Accumulated other comprehensive loss		(73,068	)		(80,881	)
Total shareholders' equity		913,437			997,708
Total liabilities and shareholders' equity	$	1,501,997		$	1,421,530

The accompanying notes are an integral part of these consolidated financial statements.

LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six months ended
	September 30,
	2009			2008
	(Unaudited)

Cash flows from operating activities:
Net income (loss)	$	(16,622	)	$	101,617
Non-cash items included in net income (loss):
Depreciation		26,057			22,501
Amortization of other intangible assets		4,603			3,470
Share-based compensation expense related to options, RSUs and
purchase rights		11,166			11,710
Write-down of investments		-			979
Excess tax benefits from share-based compensation		(1,346	)		(6,032	)
Loss (gain) on cash surrender value of life insurance policies		(402	)		363
Deferred income taxes and other		(274	)		3,434
Changes in assets and liabilities:
Accounts receivable		(39,896	)		(99,553	)
Inventories		(1,011	)		(83,760	)
Other assets		(8,585	)		(13,611	)
Accounts payable		130,803			118,930
Accrued liabilities		28,407			23,359
Net cash provided by operating activities		132,900			83,407

Cash flows from investing activities:
Purchases of property, plant and equipment		(18,144	)		(25,047	)
Proceeds from cash surrender of life insurance policies		813			-
Acquisitions and investments, net of cash acquired		(200	)		(31,832	)
Premiums paid on cash surrender value life insurance policies		-			(427	)
Net cash used in investing activities		(17,531	)		(57,306	)

Cash flows from financing activities:
Purchases of treasury shares		(101,267	)		(76,017	)
Proceeds from sale of shares upon exercise of options and purchase rights		12,972			22,355
Excess tax benefits from share-based compensation		1,346			6,032
Net cash used in financing activities		(86,949	)		(47,630	)

Effect of exchange rate changes on cash and cash equivalents		3,665			(5,592	)
Net increase (decrease) in cash and cash equivalents		32,085			(27,121	)
Cash and cash equivalents at beginning of period		492,759			482,352
Cash and cash equivalents at end of period	$	524,844		$	455,231

The accompanying notes are an integral part of these consolidated financial statements.

LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

																	Accumulated
					Additional												other
	Registered shares				paid-in			Treasury shares						Retained			comprehensive
	Shares		Amount		capital			Shares			Amount			earnings			loss			Total
March 31, 2008		191,606	$	33,370	$	49,821			12,431		$	(338,293	)	$	1,234,629		$	(19,483	)	$	960,044
Net income		-		-		-			-			-			101,617			-			101,617
Cumulative translation
adjustment		-		-		-			-			-			-			(13,772	)		(13,772	)
Minimum pension liability adjustment		-		-		-			-			-			-			148			148
Unrealized gain on investment		-		-		-			-			-			-			457			457
Total comprehensive income																					88,450
Tax benefit from exercise of
stock options		-		-		6,527			-			-			-			-			6,527
Purchase of treasury shares		-		-		-			2,603			(76,017	)		-			-			(76,017	)
Sale of shares upon exercise of
options and purchase rights		-		-		(18,375	)		(1,876	)		40,730			-			-			22,355
Share-based compensation expense
related to employee stock options
and stock purchase rights		-		-		11,824			-			-			-			-			11,824
September 30, 2008		191,606	$	33,370	$	49,797			13,158		$	(373,580	)	$	1,336,246		$	(32,650	)	$	1,013,183

March 31, 2009		191,606	$	33,370	$	45,012			12,124		$	(341,454	)	$	1,341,661		$	(80,881	)	$	997,708
Net loss		-		-		-			-			-			(16,622	)					(16,622	)
Cumulative translation
adjustment		-		-		-			-			-			-			12,046			12,046
Minimum pension liability adjustment		-		-		-			-			-			-			30			30
Net deferred hedging loss		-		-		-			-			-			-			(4,263	)		(4,263	)
Total comprehensive loss																					(8,809	)
Purchase of treasury shares		-		-		-			5,838			(101,267	)		-			-			(101,267	)
Tax benefit from exercise of
stock options		-		-		1,811			-			-			-			-			1,811
Sale of shares upon exercise of
options and purchase rights		-		-		(33,754	)		(1,681	)		46,726			-			-			12,972
Share-based compensation expense
related to employee stock options,
RSUs and stock purchase rights		-		-		11,022			-			-			-			-			11,022
September 30, 2009		191,606	$	33,370	$	24,091			16,281		$	(395,995	)	$	1,325,039		$	(73,068	)	$	913,437

The accompanying notes are an integral part of these consolidated financial statements.

LOGITECH INTERNATIONAL S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — The Company

Logitech International S.A. is a global leader in peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital music, home-entertainment control, video security, interactive gaming and wireless devices. For the PC, the Company’s products include mice, trackballs, keyboards, gaming controllers, multimedia speakers, headsets, webcams and 3D control devices. For digital music devices, the Company’s products include speakers, headphones, earphones and custom in-ear monitors. For gaming consoles, the Company offers a range of controllers and other accessories. In addition, Logitech offers wireless music solutions for the home, advanced remote controls for home entertainment systems and PC-based video security systems for a home or small business. The Company generates revenues from sales of its products to a worldwide network of retail distributors and resellers and to original equipment manufacturers (“OEMs”). The Company’s sales to its retail channels comprise the large majority of its revenues.

Logitech was founded in Switzerland in 1981, and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Apples, Switzerland, which conducts its business through subsidiaries in the Americas, Europe, Middle East, Africa (“EMEA”) and Asia Pacific. Shares of Logitech International S.A. are listed on both the Nasdaq Global Select Market, under the trading symbol LOGI, and the SIX Swiss Exchange, under the trading symbol LOGN.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2009 included in its Annual Report on Form 10-K.

Net loss for the six months ended September 30, 2009 includes $2.2 million in pretax charges related to restructuring accruals, bonus accruals, and revenue related adjustments from fiscal year 2009. We reviewed the accounting errors utilizing SEC Staff Accounting Bulletin No. 99, Materiality and SEC Staff Accounting Bulletin No. 108, Effects of Prior Year Misstatements on Current Year Financial Statements , and determined the impact of errors to be immaterial to the current and prior quarterly and annual periods.

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income.

Subsequent events were evaluated through the time of filing this Form 10-Q with the SEC on November 4, 2009 and are disclosed as applicable in the notes to the consolidated financial statements.

In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Operating results for the three and six months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending March 31, 2010 or any future periods.

Fiscal Year

The Company’s fiscal year ends on March 31. Interim quarters are thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods as ending on the month end.

Changes in Significant Accounting Policies

There have been no substantial changes in our significant accounting policies during the three and six months ended September 30, 2009 compared with the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) published FASB Accounting Standards Update (“ASU”) 2009-14, Certain Revenue Arrangements That Include Software Elements, to provide guidance for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality are excluded from the software revenue guidance in Accounting Standards Codification (“ASC”) Subtopic 985-605, Software-Revenue Recognition . In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. ASU 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the appropriate timing for the adoption of ASU 2009-14 and its potential impact on the Company’s consolidated financial statements.

In October 2009, the FASB published ASU 2009-13, Multiple Deliverable Revenue Arrangements, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. This guidance amends the criteria in Subtopic 605-25, Revenue Recognition--Multiple-Element Arrangements, to establish a selling price hierarchy for determining the selling price of a deliverable, based on vendor specific objective evidence, acceptable third party evidence, or estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, the disclosures required for multiple-deliverable revenue arrangements are expanded. ASU 2009-13 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the appropriate timing for the adoption of ASU 2009-13 and its potential impact on the Company’s consolidated financial statements and disclosures.

Note 3 — Net Income (Loss) per Share

The computations of basic and diluted net income (loss) per share for the Company were as follows (in thousands except per share amounts):

	Three months ended				Six months ended
	September 30,				September 30,
	2009		2008		2009			2008

Net income (loss)	$	20,743	$	72,311	$	(16,622	)	$	101,617
				.
Weighted average shares - basic		178,395		178,630		179,058			178,835
Effect of potentially dilutive stock options
and stock purchase rights		2,594		4,879		-			5,319
Weighted average shares - diluted		180,989		183,509		179,058			184,154

Net income (loss) per share - basic	$	0.12	$	0.41	$	(0.09	)	$	0.57
Net income (loss) per share - diluted	$	0.11	$	0.39	$	(0.09	)	$	0.55

Share equivalents attributable to outstanding stock options and restricted stock units (“RSUs”) of 9,961,610 and 4,997,925 for the three months ended September 30, 2009 and 2008 and 4,635,060 for the six months ended September 30, 2008 were excluded from the calculation of diluted net income per share because the combined exercise price, average unamortized fair value and assumed tax benefits upon exercise of these options and RSUs were greater than the average market price of the Company’s shares, and therefore their inclusion would have been anti-dilutive. Potentially dilutive share equivalents were not considered in the computation of diluted net loss per share for the six months ended September 30, 2009 because their inclusion in calculating a net loss per share would have been anti-dilutive.

Employee equity share options, non-vested shares and similar equity instruments granted by the Company are treated as potential shares in computing diluted net income per share. Diluted shares outstanding include the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

Note 4 — Fair Value Measurements

The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:

·	Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

·	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2009, classified by the level within the fair value hierarchy (in thousands):

	Level 1		Level 2		Level 3
Cash and cash equivalents	$	524,844	$	-	$	-
Investment securities		-		-		1,637
Foreign exchange derivative assets		954		-		-
Total assets at fair value	$	525,798	$	-	$	1,637
Foreign exchange derivative liabilities	$	2,162	$	-	$	-
Total liabilities at fair value	$	2,162	$	-	$	-

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2009, classified by the level within the fair value hierarchy (in thousands):


	Level 1		Level 2		Level 3
Cash and cash equivalents	$	492,759	$	-	$	-
Investment securities		-		-		1,637
Foreign exchange derivative assets		208		-		-
Total assets at fair value	$	492,967	$	-	$	1,637
Foreign exchange derivative liabilities	$	1,849	$	-	$	-
Total liabilities at fair value	$	1,849	$	-	$	-

Notes 5 and 14 describe the inputs and valuation techniques used to determine fair value.

Note 5 — Cash and Cash Equivalents and Investment Securities

Cash and cash equivalents consist of bank demand deposits and time deposits. The time deposits have terms of less than 30 days. Cash and cash equivalents are carried at cost, which is equivalent to fair value.

The Company’s investment securities portfolio as of September 30, 2009 and March 31, 2009 consisted of auction rate securities collateralized by residential and commercial mortgages. The investment securities are classified as available-for-sale and are reported at estimated fair value. Auction rate securities generally have maturity dates greater than 10 years, with interest rates that typically reset through an auction every 28 days. All our investment securities as of September 30, 2009 have maturity dates in excess of 10 years. Since August 2007, auctions for these investments have failed. Consequently, the investments are not currently liquid and the Company will not be able to realize the proceeds, if any, from these investments until a future auction of these investments is successful or a buyer is found outside of the auction process. Management has determined that sale or realization of proceeds from the sale of these investment securities is not expected within the Company’s normal operating cycle of one year, and hence the investment securities were reclassified to non-current assets as of June 30, 2009.

The fair value of our auction rate securities is determined by estimating the values of the underlying collateral using published mortgage indices or interest rate spreads for comparably-rated collateral and applying discounted cash flow or option pricing methods to the estimated collateral value. The mortgage indices and spreads are adjusted for factors such as the issuance date of the auction rate security and the rating of the underlying assets. In addition, inputs to the valuation methods include factors such as the timing and amount of cash flow streams, the default risk underlying the collateral, discount rates, and overall capital market liquidity. Such adjustments indicate the inputs fall within Level 3 of the fair value hierarchy.

The following table presents the change in fair value of the Company’s investment securities during the six months ended September 30, 2009:

Balance as of March 31, 2009	$	1,637
Unrealized loss		-
Balance as of June 30, 2009		1,637
Unrealized loss		-
Balance as of September 30, 2009	$	1,637

The par value of our investment securities portfolio at September 30, 2009 and March 31, 2009 was $47.5 million.

Note 6 — Balance Sheet Components

The following provides the components of certain balance sheet amounts (in thousands):

	September 30,			March 31,
	2009			2009

Accounts receivable:
Accounts receivable	$	383,611		$	339,903
Allowance for doubtful accounts		(6,398	)		(6,705	)
Allowance for returns		(14,216	)		(25,470	)
Cooperative marketing arrangements		(50,267	)		(41,082	)
Customer incentive programs		(43,457	)		(40,369	)
Price protection		(9,497	)		(12,348	)
	$	259,776		$	213,929
Inventories:
Raw materials	$	36,747		$	30,959
Work-in-process		3			19
Finished goods		203,154			202,489
	$	239,904		$	233,467
Other current assets:
Tax and VAT refund receivables	$	21,956		$	17,275
Deferred taxes		22,855			25,546
Prepaid expenses and other		15,293			14,063
	$	60,104		$	56,884
Property, plant and equipment:
Plant and buildings	$	59,009		$	56,211
Equipment		113,305			108,779
Computer equipment		55,138			49,532
Computer software		64,055			60,259
		291,507			274,781
Less: accumulated depreciation		(210,027	)		(188,371	)
		81,480			86,410
Construction-in-progress		13,058			14,708
Land		3,126			3,014
	$	97,664		$	104,132
Other assets:
Deferred taxes	$	31,251		$	27,718
Cash surrender value of life insurance contracts		10,275			10,685
Investment securities		1,637			-
Deposits and other		5,929			5,301
	$	49,092		$	43,704
Accrued liabilities:
Accrued marketing expenses	$	25,940		$	21,984
Accrued personnel expenses		52,452			34,373
Income taxes payable - current		5,950			6,828
Accrued freight and duty		13,050			9,048
Accrued restructuring		423			3,794
Other accrued liabilities		56,714			55,469
	$	154,529		$	131,496
Long-term liabilities:
Income taxes payable - non-current	$	109,386		$	101,463
Obligation for management deferred compensation		9,788			10,499
Defined benefit pension plan liability		20,477			19,822
Other long-term liabilities		2,719			2,744
	$	142,370		$	134,528

The following table presents the changes in the allowance for doubtful accounts during the six months ended September 30, 2009 and 2008 (in thousands):

	September 30,
	2009			2008
Balance as of March 31, 2009	$	6,705		$	2,497
Bad debt expense		(1,194	)		821
Write-offs net of recoveries		446			(161	)
Balance as of June 30, 2009	$	5,957		$	3,157
Bad debt expense		599			20
Write-offs net of recoveries		(158	)		(369	)
Balance as of September 30, 2009	$	6,398		$	2,808

Note 7 —Goodwill and Other Intangible Assets

The following table summarizes the activity in the Company’s goodwill account during the six months ended September 30, 2009 (in thousands):

Balance as of March 31, 2009	$	242,909
Additions		199
Balance as of September 30, 2009	$	243,108

Additions to goodwill represented an adjustment related to our acquisition of Ultimate Ears.

The Company’s acquired other intangible assets subject to amortization were as follows (in thousands):

	September 30, 2009							March 31, 2009
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount

Trademark/tradename	$	24,472	$	(19,333	)	$	5,139	$	24,398	$	(18,559	)	$	5,839
Technology		49,267		(30,009	)		19,258		49,268		(26,598	)		22,670
Customer contracts		7,018		(3,910	)		3,108		7,018		(3,418	)		3,600
	$	80,757	$	(53,252	)	$	27,505	$	80,684	$	(48,575	)	$	32,109

During the six months ended September 30, 2009, changes in the gross carrying value of other intangible assets related to foreign currency translation adjustments.

For the three months ended September 30, 2009 and 2008, amortization expense for other intangibles was $2.2 million and $1.9 million. For the six months ended September 30, 2009 and 2008, amortization expense for other intangible assets was $4.6 million and $3.5 million. The Company expects that amortization expense for the six-month period ending March 31, 2010 will be $4.2 million, and annual amortization expense for fiscal years 2011, 2012, 2013 and 2014 will be $8.5 million, $7.6 million, $5 million and $2.2 million.

Note 8 — Financing Arrangements

The Company had several uncommitted, unsecured bank lines of credit aggregating $143.2 million at September 30, 2009. There are no financial covenants under these lines of credit with which the Company must comply. At September 30, 2009, the Company had no outstanding borrowings under these lines of credit.

Note 9 — Shareholders’ Equity

Share Repurchases

During the three and six months ended September 30, 2009 and 2008, the Company had the following approved share buyback program in place (in thousands):

Date of Announcement		Approved Buyback Amount			Expiration Date		Completion Date				Amount Remaining
June 2007		$	250,000		June 2010			-			$	24,985

In September 2008, the Company’s Board of Directors approved a share buyback program which authorizes the Company to invest up to $250 million to purchase its own shares. The September 2008 program is subject to the approval of the Swiss Takeover Board and the completion of the current share buyback program of $250 million.

During the three and six months ended September 30, 2009 and 2008, the Company repurchased shares under its share buyback program as follows (in thousands):

	Three months ended September 30, (1)								Six months ended September 30, (1)
Date of	2009				2008				2009				2008
Announcement	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount
June 2007		5,838	$	101,267		1,051	$	27,000		5,838	$	101,267		2,603	$	76,017

(1) Represents the amount in U.S. dollars, calculated based on exchange rates on the repurchase dates.

Note 10 — Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):


	September 30,			March 31,
	2009			2009
Cumulative translation adjustment	$	(54,353	)	$	(66,399	)
Pension liability adjustments, net of tax of $990 and $990		(15,092	)		(15,122	)
Unrealized gain on investment		424			424
Net deferred hedging gains (losses)		(4,047	)		216
	$	(73,068	)	$	(80,881	)

Note 11 — Restructuring

In January 2009, Logitech initiated a restructuring plan (“2009 Restructuring Plan”) in order to reduce operating expenses and improve financial results in response to deteriorating global economic conditions. We completed a majority of the restructuring activity during the fourth quarter of fiscal year 2009. Restructuring activities primarily consisted of a reduction in salaried workforce, abandonment of projects, and facilities closures. All charges related to the 2009 Restructuring Plan are presented as restructuring charges in our consolidated statements of operations.

The following table summarizes restructuring related activities during the six months ended September 30, 2009 (in thousands):

	Total			Termination Benefits			Contract Termination Costs			Other
Balance at March 31, 2009	$	3,794		$	3,779		$	15		$	-
Charges		1,449			1,366			83			-
Cash payments		(4,245	)		(4,220	)		(25	)		-
Other		(8	)		(4	)		(4	)		-
Foreign exchange		91			91			-			-
Balance at June 30, 2009	$	1,081		$	1,012		$	69		$	-
Charges		45			(22	)		9			58
Cash payments		(718	)		(698	)		(20	)		-
Other		(4	)		63			-			(67	)
Foreign exchange		19			19			-			-
Balance at September 30, 2009	$	423		$	374		$	58		$	(9	)

Termination benefits incurred pursuant to the 2009 Restructuring Plan are calculated based on regional benefit practices and local statutory requirements. Contract termination costs relate to exit costs associated with the closure of existing facilities.

The Company recorded a total of $22.0 million in restructuring charges in the period from January 1, 2009 to September 30, 2009, which included $17.8 million for termination benefits, $0.5 million for asset impairments, $0.3 million for contract termination costs and $3.4 million for other charges, primarily consisting of pension curtailment and settlement costs. In addition, we expect to record approximately $0.6 million in contract termination costs during the remainder of fiscal year 2010. We expect to complete the restructuring in fiscal year 2010.

Note 12 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Option Plans

As of September 30, 2009, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.) (“2006 ESPP”), the 1996 Employee Share Purchase Plan (U.S.) (“1996 ESPP”), and the 2006 Stock Incentive Plan. Share-based awards granted to employees and directors include stock options, RSUs granted under the 2006 Stock Incentive Plan and share purchase rights granted under the 2006 ESPP and 1996 ESPP. 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 included in the Company’s consolidated statements of operations for the three and six months ended September 30, 2009 and 2008 (in thousands).

	Three months ended				Six months ended
	September 30,				September 30,
	2009		2008		2009		2008

Cost of goods sold	$	628	$	669	$	1,426	$	1,400
Share-based compensation expense included in gross profit		628		669		1,426		1,400

Operating expenses:
Marketing and selling		2,154		1,989		3,913		3,838
Research and development		1,068		1,147		1,909		2,109
General and administrative		1,908		2,018		3,918		4,363
Share-based compensation expense included in operating expenses		5,130		5,154		9,740		10,310
Total share-based compensation expense related to employee
stock options, RSUs and employee stock purchases		5,758		5,823		11,166		11,710
Tax benefit		449		1,241		833		2,198
Share-based compensation expense related to employee stock
options, RSUs and employee stock purchases, net of tax	$	5,309	$	4,582	$	10,333	$	9,512

As of September 30, 2009 and 2008, $0.6 million and $0.8 million of share-based compensation cost was capitalized to inventory. As of September 30, 2009, total compensation cost related to non-vested stock options not yet recognized was $45 million, which is expected to be recognized over the next 34 months on a weighted-average basis.

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:

	Three Months Ended September 30,												Six Months Ended September 30,
	Purchase Plans						Stock Option Plans						Purchase Plans						Stock Option Plans
	2009			2008			2009			2008			2009			2008			2009			2008

Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Expected life	6 months			6 months			3.9 years			3.7 years			6 months			6 months			3.9 years			3.7 years
Expected volatility		71	%		41	%		48	%		35	%		71	%		45	%		48	%		34	%
Risk-free interest rate		0.21	%		1.96	%		2.18	%		2.97	%		0.21	%		2.38	%		2.13	%		2.31	%

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 stock option 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 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 represents the weighted average grant-date fair values of options granted and the expected forfeiture rates:

	Three Months Ended September 30,												Six Months Ended September 30,
	Purchase Plans						Stock Option Plans						Purchase Plans						Stock Option Plans
	2009			2008			2009			2008			2009			2008			2009			2008
Expected forfeitures		0	%		0	%		10	%		7	%		0	%		0	%		10	%		7	%
Weighted average grant-date
fair value of options granted	$	4.20		$	7.01		$	14.10		$	7.39		$	4.20		$	7.94		$	13.87		$	7.87

A summary of activity under the stock option plans is as follows (in thousands, except per share data; exercise prices are weighted averages):

	Three Months ended September 30,										Six Months ended September 30,
	2009					2008					2009					2008
	Number			Exercise Price		Number			Exercise Price		Number			Exercise Price		Number			Exercise Price

Outstanding, beginning of period		17,751		$	18		17,033		$	18		18,897		$	18		17,952		$	17
Granted		2,200		$	14		146		$	25		2,389		$	14		452		$	28
Exercised		(365	)	$	9		(492	)	$	9		(1,034	)	$	7		(1,544	)	$	10
Cancelled or expired		(456	)	$	22		(101	)	$	26		(1,122	)	$	23		(276	)	$	24
Outstanding, end of period		19,130		$	18		16,586		$	18		19,130		$	18		16,584		$	18

Exercisable, end of period		10,029		$	15		10,357		$	12		10,029		$	15		10,357		$	12

The total pretax intrinsic value of options exercised during the three months ended September 30, 2009 and 2008 was $3.1 million and $ 7.8 million and the tax benefit realized for the tax deduction from options exercised during those periods was $0.7 million and $2.6 million. The total pretax intrinsic value of options exercised during the six months ended September 30, 2009 and 2008 was $7.9 million and $29.2 million and the tax benefit realized for the tax deduction from options exercised during those periods was $1.3 million and $7.8 million. The total fair value of options vested as of September 30, 2009 and 2008 was $54.1 million and $44.5 million.

During the three months ended September 30, 2009, the Company granted time-based RSUs to employees and board members pursuant to the 2006 Stock Incentive Plan. The time-based RSUs vest ratably over service periods of four years for employees and one year for non-executive board members. The Company estimates the fair value of these RSUs based on the share market price on the date of grant. Compensation expense related to time-based RSUs is recognized over the vesting period and is included in the total share-based compensation expense disclosed above. As of September 30, 2009, total compensation cost related to time-based RSUs not yet recognized was $3.0 million, which is expected to be recognized over the next 45 months.

The Company has also granted performance RSUs to certain senior company executives pursuant to the 2006 Stock Incentive Plan. The RSUs vest at the end of two years from the grant date upon meeting certain share price performance criteria measured against market conditions. Compensation expense related to these RSUs is recognized over the two year performance period and is included in the total share-based compensation expense disclosed above. As of September 30, 2009, total compensation cost related to performance RSUs not yet recognized was $3.0 million, which is expected to be recognized over the next 21 months.

The fair value of performance RSUs granted was estimated using the Monte-Carlo simulation method applying the following assumptions:

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

The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The expected life of performance RSUs is the service period at the end of which the RSUs will vest if the minimum performance is achieved. The volatility assumption is based on the actual volatility of Logitech’s daily closing share price over a look-back period of two years. The risk free interest rate is derived from the yield on U.S. Treasury Bonds for a two year term.

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 the three months ended September 30, 2009 and 2008 were $1.9 million and $2.0 million and during the six months ended September 30, 2009 and 2008 were $3.5 million and $4.3 million.

Defined Benefit Plans

Certain of the Company’s subsidiaries sponsor defined benefit pension plans covering substantially all of their employees. Retirement 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 net periodic benefit cost for the three and six months ended September 30, 2009 and 2008 was as follows (in thousands):

	Three months ended						Six months ended
	September 30,						September 30,
	2009			2008			2009			2008

Service cost	$	874		$	614		$	1,712		$	1,248
Interest cost		352			373			674			758
Expected return on plan assets		(320	)		(383	)		(586	)		(779	)
Amortization of net transition obligation		1			1			2			2
Amortization of net prior service cost		34			-			68			-
Recognized net actuarial loss		189			112			414			227
Net periodic benefit cost	$	1,130		$	717		$	2,284		$	1,456

Note 13 — Income Taxes

The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for income taxes are generated outside of Switzerland. Prior to the first quarter of fiscal year 2010, the Company’s effective tax rate was calculated using an estimate of its annual pre-tax income. Due to the impact of the economic downturn, management has determined that a reliable estimate of its annual pre-tax income and related annual effective tax rate cannot be made. Therefore, Logitech used the actual year-to-date effective income tax rate for the three and six months ended September 30, 2009. For the three months ended September 30, 2009 and 2008, the income tax provision was $5.8 million and $10.0 million based on effective income tax rates of 21.9% and 12.1%. For the six months ended September 30, 2009 and 2008, the income tax provision was $9.5 million and $13.5 million based on effective income tax rates of 131.9% of net loss and 11.7% of net income. The change in effective tax rates for the three and six months ended September 30, 2009 compared with the same periods in 2008 is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates.

As of September 30, 2009 and March 31, 2009, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $116.2 million and $108.2 million, of which $91.9 million and $88.1 million would affect the effective tax rate if recognized.

The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of September 30, 2009 and March 31, 2009, the Company had approximately $11.6 million and $10.7 million of accrued interest and penalties related to uncertain tax positions.

On February 20, 2009, California budget legislation was enacted that will affect the methodology used by corporate taxpayers to apportion income to California. These changes will become effective for the Company's fiscal year ending March 31, 2012. The Company believes that these changes will not have a material impact on its results of operations or financial condition.

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. In fiscal year 2009, the Internal Revenue Service initiated an examination of the Company’s U.S. subsidiary for fiscal year 2006. At this time it is not possible to estimate the potential impact that the examination may have on income tax expense.

Although 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 12 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. These hedging contracts generally mature within six months. 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 three and six months ended September 30, 2009. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases were $60.5 million (42.2 million euros) at September 30, 2009. There were no such contracts outstanding at September 30, 2008. 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 one to 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 September 30, 2009 and 2008 relating to foreign currency receivables or payables were $19.3 million and $15.0 million. Open forward contracts as of September 30, 2009 consisted of contracts in British pounds and Canadian dollars to purchase euros and U.S. dollars at a future date at a pre-determined exchange rate. The notional amounts of foreign exchange swap contracts outstanding at September 30, 2009 and 2008 were $26.1 million and $19.1 million. Swap contracts outstanding at September 30, 2009 consisted of contracts in Mexican pesos, Japanese yen, Canadian dollars and British pounds.

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 September 30, 2009 (in thousands):

	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
Derivatives designated as hedging
instruments:
Cash Flow Hedges	Other assets	$	-	Other liabilities	$	1,424
			-			1,424

Derivatives not designated as hedging
instruments:
Foreign Exchange Forward Contracts	Other assets		715	Other liabilities		-
Foreign Exchange Swap Contracts	Other assets		239	Other liabilities		738
			954			738
		$	954		$	2,162

The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three months ended September 30, 2009 and their locations on its 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
Derivatives designated as hedging
instruments:
Cash Flow Hedges	$	1,264	Cost of goods sold	$	(3,373	)	Other income/expense	$	6