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
      1934For
      the quarter ended September 30, 2009orTRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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 INFORMATIONItem
      1.
            Consolidated
      Financial Statements (Unaudited)
            3Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            25Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            42Item
      4.
            Controls
      and Procedures
            44Part II
            OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            45Item
      1A.
            Risk
      Factors
            45Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            53Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            53Item 6.
            Exhibit
      Index
            55Signatures
            56Exhibits





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.





1


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











2


LOGITECH
INTERNATIONAL S.A.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except per share amounts)











Three
      months ended
            
            Six
      months endedSeptember
      30,
            
            September
      30,2009
            
            2008
            
            2009
            
            2008(Unaudited)Net
      sales
            $
            498,093
            
            $
            664,707
            
            $
            824,203
            
            $
            1,173,418Cost
      of goods sold
            
            346,305
            
            
            436,633
            
            
            594,593
            
            
            771,772Gross
      profit
            
            151,788
            
            
            228,074
            
            
            229,610
            
            
            401,646Operating
      expenses:Marketing
      and selling
            
            68,835
            
            
            84,740
            
            
            127,773
            
            
            162,020Research
      and development
            
            31,825
            
            
            33,351
            
            
            63,185
            
            
            66,610General
      and administrative
            
            23,739
            
            
            29,620
            
            
            44,920
            
            
            62,929Restructuring
      charges
            
            45
            
            
            -
            
            
            1,494
            
            
            -Total
      operating expenses
            
            124,444
            
            
            147,711
            
            
            237,372
            
            
            291,559Operating
      income (loss)
            
            27,344
            
            
            80,363
            
            
            (7,762
            )
            
            110,087Interest
      income, net
            
            639
            
            
            2,775
            
            
            1,231
            
            
            5,327Other
      expense, net
            
            (1,438
            )
            
            (853
            )
            
            (636
            )
            
            (292
            )Income
      (loss) before income taxes
            
            26,545
            
            
            82,285
            
            
            (7,167
            )
            
            115,122Provision
      for income taxes
            
            5,802
            
            
            9,974
            
            
            9,455
            
            
            13,505Net
      income (loss)
            $
            20,743
            
            $
            72,311
            
            $
            (16,622
            )
            $
            101,617Net
      income (loss) per share:Basic
            $
            0.12
            
            $
            0.41
            
            $
            (0.09
            )
            $
            0.57Diluted
            $
            0.11
            
            $
            0.39
            
            $
            (0.09
            )
            $
            0.55Shares
      used to compute net income (loss) per share:Basic
            
            178,395
            
            
            178,630
            
            
            179,058
            
            
            178,835Diluted
            
            180,989
            
            
            183,509
            
            
            179,058
            
            
            184,154
























































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


3


LOGITECH
INTERNATIONAL S.A.


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share and per share amounts)








September
      30,
            
            
            March
      31,2009
            
            
            2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            524,844
            
            
            $
            492,759Short-term
      investments
            
            
            -
            
            
            
            1,637Accounts
      receivable
            
            
            259,776
            
            
            
            213,929Inventories
            
            
            239,904
            
            
            
            233,467Other
      current assets
            
            
            60,104
            
            
            
            56,884Total
      current assets
            
            
            1,084,628
            
            
            
            998,676Property,
      plant and equipment
            
            
            97,664
            
            
            
            104,132Goodwill
            
            
            243,108
            
            
            
            242,909Other
      intangible assets
            
            
            27,505
            
            
            
            32,109Other
      assets
            
            
            49,092
            
            
            
            43,704Total
      assets
            
            $
            1,501,997
            
            
            $
            1,421,530LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            291,661
            
            
            $
            157,798Accrued
      liabilities
            
            
            154,529
            
            
            
            131,496Total
      current liabilities
            
            
            446,190
            
            
            
            289,294Other
      liabilities
            
            
            142,370
            
            
            
            134,528Total
      liabilities
            
            
            588,560
            
            
            
            423,822Commitments
      and contingenciesShareholders'
      equity:Shares,
      par value CHF 0.25 - 191,606,620 issued and authorizedand
      50,000,000 conditionally authorized at September 30, 2009
    andMarch
      31, 2009
            
            
            33,370
            
            
            
            33,370Additional
      paid-in capital
            
            
            24,091
            
            
            
            45,012Less
      shares in treasury, at cost, 16,281,115 at September 30,
    2009and
      12,124,078 at March 31, 2009
            
            
            (395,995
            )
            
            
            (341,454
            )Retained
      earnings
            
            
            1,325,039
            
            
            
            1,341,661Accumulated
      other comprehensive loss
            
            
            (73,068
            )
            
            
            (80,881
            )Total
      shareholders' equity
            
            
            913,437
            
            
            
            997,708Total
      liabilities and shareholders' equity
            
            $
            1,501,997
            
            
            $
            1,421,530




















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


4


LOGITECH
INTERNATIONAL S.A.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)








Six
      months endedSeptember
      30,2009
            
            
            2008(Unaudited)Cash
      flows from operating activities:Net
      income (loss)
            
            $
            (16,622
            )
            
            $
            101,617Non-cash
      items included in net income (loss):Depreciation
            
            
            26,057
            
            
            
            22,501Amortization
      of other intangible assets
            
            
            4,603
            
            
            
            3,470Share-based
      compensation expense related to options, RSUs andpurchase
      rights
            
            
            11,166
            
            
            
            11,710Write-down
      of investments
            
            
            -
            
            
            
            979Excess
      tax benefits from share-based compensation
            
            
            (1,346
            )
            
            
            (6,032
            )Loss
      (gain) on cash surrender value of life insurance policies
            
            
            (402
            )
            
            
            363Deferred
      income taxes and other
            
            
            (274
            )
            
            
            3,434Changes
      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
            
            
            
            118,930Accrued
      liabilities
            
            
            28,407
            
            
            
            23,359Net
      cash provided by operating activities
            
            
            132,900
            
            
            
            83,407Cash
      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
            
            
            
            22,355Excess
      tax benefits from share-based compensation
            
            
            1,346
            
            
            
            6,032Net
      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
            
            
            
            482,352Cash
      and cash equivalents at end of period
            
            $
            524,844
            
            
            $
            455,231























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


5


LOGITECH
INTERNATIONAL S.A.


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(In
thousands)





(Unaudited)





AccumulatedAdditional
            
            
            
            
            
            
            
            
            
            
            
            otherRegistered
      shares
            
            
            paid-in
            
            
            Treasury
      shares
            
            
            Retained
            
            
            comprehensiveShares
            
            
            Amount
            
            
            capital
            
            
            Shares
            
            
            Amount
            
            
            earnings
            
            
            loss
            
            
            TotalMarch
      31, 2008
            
            
            191,606
            
            
            $
            33,370
            
            
            $
            49,821
            
            
            
            12,431
            
            
            $
            (338,293
            )
            
            $
            1,234,629
            
            
            $
            (19,483
            )
            
            $
            960,044Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            101,617
            
            
            
            -
            
            
            
            101,617Cumulative
      translationadjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (13,772
            )
            
            
            (13,772
            )Minimum
      pension liability adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            148
            
            
            
            148Unrealized
      gain on investment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            457
            
            
            
            457Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            88,450Tax
      benefit from exercise ofstock
      options
            
            
            -
            
            
            
            -
            
            
            
            6,527
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,527Purchase
      of treasury shares
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,603
            
            
            
            (76,017
            )
            
            
            -
            
            
            
            -
            
            
            
            (76,017
            )Sale
      of shares upon exercise ofoptions
      and purchase rights
            
            
            -
            
            
            
            -
            
            
            
            (18,375
            )
            
            
            (1,876
            )
            
            
            40,730
            
            
            
            -
            
            
            
            -
            
            
            
            22,355Share-based
      compensation expenserelated
      to employee stock optionsand
      stock purchase rights
            
            
            -
            
            
            
            -
            
            
            
            11,824
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,824September
      30, 2008
            
            
            191,606
            
            
            $
            33,370
            
            
            $
            49,797
            
            
            
            13,158
            
            
            $
            (373,580
            )
            
            $
            1,336,246
            
            
            $
            (32,650
            )
            
            $
            1,013,183March
      31, 2009
            
            
            191,606
            
            
            $
            33,370
            
            
            $
            45,012
            
            
            
            12,124
            
            
            $
            (341,454
            )
            
            $
            1,341,661
            
            
            $
            (80,881
            )
            
            $
            997,708Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (16,622
            )
            
            
            
            
            
            
            (16,622
            )Cumulative
      translationadjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,046
            
            
            
            12,046Minimum
      pension liability adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            30
            
            
            
            30Net
      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 ofstock
      options
            
            
            -
            
            
            
            -
            
            
            
            1,811
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,811Sale
      of shares upon exercise ofoptions
      and purchase rights
            
            
            -
            
            
            
            -
            
            
            
            (33,754
            )
            
            
            (1,681
            )
            
            
            46,726
            
            
            
            -
            
            
            
            -
            
            
            
            12,972Share-based
      compensation expenserelated
      to employee stock options,RSUs
      and stock purchase rights
            
            
            -
            
            
            
            -
            
            
            
            11,022
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,022September
      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.


6


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, Materialityand 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.







7





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,toprovide 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.





8


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 endedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income (loss)
            
            $
            20,743
            
            
            $
            72,311
            
            
            $
            (16,622
            )
            
            $
            101,617.Weighted
      average shares - basic
            
            
            178,395
            
            
            
            178,630
            
            
            
            179,058
            
            
            
            178,835Effect
      of potentially dilutive stock optionsand
      stock purchase rights
            
            
            2,594
            
            
            
            4,879
            
            
            
            -
            
            
            
            5,319Weighted
      average shares - diluted
            
            
            180,989
            
            
            
            183,509
            
            
            
            179,058
            
            
            
            184,154Net
      income (loss) per share - basic
            
            $
            0.12
            
            
            $
            0.41
            
            
            $
            (0.09
            )
            
            $
            0.57Net
      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.








9


·
            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
      3Cash
      and cash equivalents
            
            $
            524,844
            
            
            $
            -
            
            
            $
            -Investment
      securities
            
            
            -
            
            
            
            -
            
            
            
            1,637Foreign
      exchange derivative assets
            
            
            954
            
            
            
            -
            
            
            
            -Total
      assets at fair value
            
            $
            525,798
            
            
            $
            -
            
            
            $
            1,637Foreign
      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
      3Cash
      and cash equivalents
            
            $
            492,759
            
            
            $
            -
            
            
            $
            -Investment
      securities
            
            
            -
            
            
            
            -
            
            
            
            1,637Foreign
      exchange derivative assets
            
            
            208
            
            
            
            -
            
            
            
            -Total
      assets at fair value
            
            $
            492,967
            
            
            $
            -
            
            
            $
            1,637Foreign
      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.






10





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
            
            $
            1,637Unrealized
      loss
            
            
            -Balance
      as of June 30, 2009
            
            
            1,637Unrealized
      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.






11





Note
6 — Balance Sheet Components





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




September
      30,
            
            
            March
      31,2009
            
            
            2009Accounts
      receivable:Accounts
      receivable
            
            $
            383,611
            
            
            $
            339,903Allowance
      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
            
            
            $
            213,929Inventories:Raw
      materials
            
            $
            36,747
            
            
            $
            30,959Work-in-process
            
            
            3
            
            
            
            19Finished
      goods
            
            
            203,154
            
            
            
            202,489$
            239,904
            
            
            $
            233,467Other
      current assets:Tax
      and VAT refund receivables
            
            $
            21,956
            
            
            $
            17,275Deferred
      taxes
            
            
            22,855
            
            
            
            25,546Prepaid
      expenses and other
            
            
            15,293
            
            
            
            14,063$
            60,104
            
            
            $
            56,884Property,
      plant and equipment:Plant
      and buildings
            
            $
            59,009
            
            
            $
            56,211Equipment
            
            
            113,305
            
            
            
            108,779Computer
      equipment
            
            
            55,138
            
            
            
            49,532Computer
      software
            
            
            64,055
            
            
            
            60,259291,507
            
            
            
            274,781Less:
      accumulated depreciation
            
            
            (210,027
            )
            
            
            (188,371
            )81,480
            
            
            
            86,410Construction-in-progress
            
            
            13,058
            
            
            
            14,708Land
            
            
            3,126
            
            
            
            3,014$
            97,664
            
            
            $
            104,132Other
      assets:Deferred
      taxes
            
            $
            31,251
            
            
            $
            27,718Cash
      surrender value of life insurance contracts
            
            
            10,275
            
            
            
            10,685Investment
      securities
            
            
            1,637
            
            
            
            -Deposits
      and other
            
            
            5,929
            
            
            
            5,301$
            49,092
            
            
            $
            43,704Accrued
      liabilities:Accrued
      marketing expenses
            
            $
            25,940
            
            
            $
            21,984Accrued
      personnel expenses
            
            
            52,452
            
            
            
            34,373Income
      taxes payable - current
            
            
            5,950
            
            
            
            6,828Accrued
      freight and duty
            
            
            13,050
            
            
            
            9,048Accrued
      restructuring
            
            
            423
            
            
            
            3,794Other
      accrued liabilities
            
            
            56,714
            
            
            
            55,469$
            154,529
            
            
            $
            131,496Long-term
      liabilities:Income
      taxes payable - non-current
            
            $
            109,386
            
            
            $
            101,463Obligation
      for management deferred compensation
            
            
            9,788
            
            
            
            10,499Defined
      benefit pension plan liability
            
            
            20,477
            
            
            
            19,822Other
      long-term liabilities
            
            
            2,719
            
            
            
            2,744$
            142,370
            
            
            $
            134,528








12





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
            
            
            2008Balance
      as of March 31, 2009
            
            $
            6,705
            
            
            $
            2,497Bad
      debt expense
            
            
            (1,194
            )
            
            
            821Write-offs
      net of recoveries
            
            
            446
            
            
            
            (161
            )Balance
      as of June 30, 2009
            
            $
            5,957
            
            
            $
            3,157Bad
      debt expense
            
            
            599
            
            
            
            20Write-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
            
            $
            242,909Additions
            
            
            199Balance
      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, 2009Gross
      Carrying
            
            
            Accumulated
            
            
            Net
      Carrying
            
            
            Gross
      Carrying
            
            
            Accumulated
            
            
            Net
      CarryingAmount
            
            
            Amortization
            
            
            Amount
            
            
            Amount
            
            
            Amortization
            
            
            AmountTrademark/tradename
            
            $
            24,472
            
            
            $
            (19,333
            )
            
            $
            5,139
            
            
            $
            24,398
            
            
            $
            (18,559
            )
            
            $
            5,839Technology
            
            
            49,267
            
            
            
            (30,009
            )
            
            
            19,258
            
            
            
            49,268
            
            
            
            (26,598
            )
            
            
            22,670Customer
      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.







13





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
      RemainingJune
      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
            
            
            2008Announcement
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            AmountJune
      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
            
            
            2009Cumulative
      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
            
            
            
            424Net
      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.







14





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




Total
            
            
            Termination
      Benefits
            
            
            Contract
      Termination Costs
            
            
            OtherBalance
      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
            
            
            
            58Cash
      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.







15





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 endedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Cost
      of goods sold
            $
            628
            
            
            $
            669
            
            
            $
            1,426
            
            
            $
            1,400Share-based
      compensation expense included in gross profit
            
            628
            
            
            
            669
            
            
            
            1,426
            
            
            
            1,400Operating
      expenses:Marketing
      and selling
            
            2,154
            
            
            
            1,989
            
            
            
            3,913
            
            
            
            3,838Research
      and development
            
            1,068
            
            
            
            1,147
            
            
            
            1,909
            
            
            
            2,109General
      and administrative
            
            1,908
            
            
            
            2,018
            
            
            
            3,918
            
            
            
            4,363Share-based
      compensation expense included in operating
    expenses
            
            5,130
            
            
            
            5,154
            
            
            
            9,740
            
            
            
            10,310Total
      share-based compensation expense related to employeestock
      options, RSUs and employee stock purchases
            
            5,758
            
            
            
            5,823
            
            
            
            11,166
            
            
            
            11,710Tax
      benefit
            
            449
            
            
            
            1,241
            
            
            
            833
            
            
            
            2,198Share-based
      compensation expense related to employee stockoptions,
      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 Plans2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Dividend
      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
      yearsExpected
      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.







16





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 Plans2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Expected
      forfeitures
            
            
            0
            %
            
            
            0
            %
            
            
            10
            %
            
            
            7
            %
            
            
            0
            %
            
            
            0
            %
            
            
            10
            %
            
            
            7
            %Weighted
      average grant-datefair
      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
            
            
            2008Number
            
            
            Exercise
      Price
            
            
            Number
            
            
            Exercise
      Price
            
            
            Number
            
            
            Exercise
      Price
            
            
            Number
            
            
            Exercise
      PriceOutstanding,
      beginning of period
            
            
            17,751
            
            
            $
            18
            
            
            
            17,033
            
            
            $
            18
            
            
            
            18,897
            
            
            $
            18
            
            
            
            17,952
            
            
            $
            17Granted
            
            
            2,200
            
            
            $
            14
            
            
            
            146
            
            
            $
            25
            
            
            
            2,389
            
            
            $
            14
            
            
            
            452
            
            
            $
            28Exercised
            
            
            (365
            )
            
            $
            9
            
            
            
            (492
            )
            
            $
            9
            
            
            
            (1,034
            )
            
            $
            7
            
            
            
            (1,544
            )
            
            $
            10Cancelled
      or expired
            
            
            (456
            )
            
            $
            22
            
            
            
            (101
            )
            
            $
            26
            
            
            
            (1,122
            )
            
            $
            23
            
            
            
            (276
            )
            
            $
            24Outstanding,
      end of period
            
            
            19,130
            
            
            $
            18
            
            
            
            16,586
            
            
            $
            18
            
            
            
            19,130
            
            
            $
            18
            
            
            
            16,584
            
            
            $
            18Exercisable,
      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.






17





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 GrantsDividend
      yield
            
            
            0
            %
            
            
            0
            %Expected
      life
            
            2
      years
            
            
            2
      yearsExpected
      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 endedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Service
      cost
            
            $
            874
            
            
            $
            614
            
            
            $
            1,712
            
            
            $
            1,248Interest
      cost
            
            
            352
            
            
            
            373
            
            
            
            674
            
            
            
            758Expected
      return on plan assets
            
            
            (320
            )
            
            
            (383
            )
            
            
            (586
            )
            
            
            (779
            )Amortization
      of net transition obligation
            
            
            1
            
            
            
            1
            
            
            
            2
            
            
            
            2Amortization
      of net prior service cost
            
            
            34
            
            
            
            -
            
            
            
            68
            
            
            
            -Recognized
      net actuarial loss
            
            
            189
            
            
            
            112
            
            
            
            414
            
            
            
            227Net
      periodic benefit cost
            
            $
            1,130
            
            
            $
            717
            
            
            $
            2,284
            
            
            $
            1,456


18





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.






19





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.






20





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
      DerivativesLocation
            
            Fair
      Value
            
            Location
            
            Fair
      ValueDerivatives
      designated as hedginginstruments:Cash
      Flow Hedges
            Other
      assets
            
            $
            -
            
            Other
      liabilities
            
            $
            1,424-
            
            
            
            
            1,424Derivatives
      not designated as hedginginstruments:Foreign
      Exchange Forward Contracts
            Other
      assets
            
            
            715
            
            Other
      liabilities
            
            
            -Foreign
      Exchange Swap Contracts
            Other
      assets
            
            
            239
            
            Other
      liabilities
            
            
            738954
            
            
            
            
            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 immediatelyDerivatives
      designated as hedginginstruments:Cash
      Flow Hedges
            
            $
            1,264
            
            Cost
      of goods sold
            
            $
            (3,373
            )
            Other
      income/expense
            
            $
            61,264
            
            
            
            
            (3,373
            )
            
            
            
            6Derivatives
      not designated as hedginginstruments:Foreign
      Exchange Forward Contracts
            
            
            -
            
            
            
            
            -
            
            Other
      income/expense
            
            
            387Foreign
      Exchange Swap Contracts
            
            
            -
            
            
            
            
            -
            
            Other
      income/expense
            
            
            (669
            )-
            
            
            
            
            -
            
            
            
            
            (282
            )$
            1,264
            
            
            
            $
            (3,373
            )
            
            
            $
            (276
            )





The
following table presents the amounts of gains and losses on the Company’s
derivative instruments for the six 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 immediatelyDerivatives
      designated as hedginginstruments:Cash
      Flow Hedges
            
            $
            (4,263
            )
            Cost
      of goods sold
            
            $
            (1,943
            )
            Other
      income/expense
            
            $
            (31
            )(4,263
            )
            
            
            
            (1,943
            )
            
            
            
            (31
            )Derivatives
      not designated as hedginginstruments:Foreign
      Exchange Forward Contracts
            
            
            -
            
            
            
            
            -
            
            Other
      income/expense
            
            
            (158
            )Foreign
      Exchange Swap Contracts
            
            
            -
            
            
            
            
            -
            
            Other
      income/expense
            
            
            (1,944
            )-
            
            
            
            
            -
            
            
            
            
            (2,102
            )$
            (4,263
            )
            
            
            $
            (1,943
            )
            
            
            $
            (2,133
            )




21


Note
15 — Commitments and Contingencies





The
Company leases facilities under operating leases, certain of which require it to
pay property taxes, insurance and maintenance costs. Operating leases for
facilities are generally renewable at the Company’s option and usually include
escalation clauses linked to inflation. Total future minimum annual rentals
under non-cancelable operating leases at September 30, 2009 amounted to $49.0
million.





At
September 30, 2009, fixed purchase commitments for capital expenditures amounted
to $9.9 million, and primarily related to commitments for manufacturing
equipment, tooling, computer software and computer hardware. Also, the Company
has commitments for inventory purchases made in the normal course of business to
original design manufacturers, contract manufacturers and other suppliers. At
September 30, 2009, fixed purchase commitments for inventory amounted to $148.0
million, which are expected to be fulfilled by December 31, 2009. The Company
also had other commitments totaling $43.0 million for consulting services,
marketing arrangements, advertising and other services. Although open purchase
orders are considered enforceable and legally binding, the terms generally allow
the Company the option to reschedule and adjust its requirements based on the
business needs prior to delivery of goods or performance of
services.





The
Company has guaranteed the purchase obligations of some of its contract
manufacturers and original design manufacturers to certain component suppliers.
These guarantees generally have a term of one year and are automatically
extended for one or more years as long as a liability exists. The amount of the
purchase obligations of these manufacturers varies over time, and therefore the
amounts subject to Logitech’s guarantees similarly vary. At September 30, 2009,
there were no outstanding guaranteed purchase obligations. The maximum total
potential future payments under three of the four guarantee arrangements is
limited to $30.8 million. The fourth guarantee is limited to purchases of
specified components from the named supplier. The Company does not believe,
based on historical experience and information currently available, that it is
probable that any amounts will be required to be paid under these guarantee
arrangements.





Logitech
International S.A., the parent holding company, has guaranteed certain
contingent liabilities of various subsidiaries related to specific transactions
occurring in the normal course of business. The maximum amount of the guarantees
was $5.2 million as of September 30, 2009. As of September 30, 2009, $5.2
million was outstanding under these guarantees. The parent holding company has
also guaranteed the purchases of one of its subsidiaries. The guarantee does not
specify a maximum amount. As of September 30, 2009, there were no outstanding
amounts under this guarantee.





Logitech
indemnifies some of its suppliers and customers for losses arising from matters
such as intellectual property rights and product safety defects, subject to
certain restrictions. The scope of these indemnities varies, but in some
instances, includes indemnification for damages and expenses, including
reasonable attorneys’ fees. No amounts have been accrued for indemnification
provisions at September 30, 2009. The Company does not believe, based on
historical experience and information currently available, that it is probable
that any amounts will be required to be paid under its indemnification
arrangements.





In
December 2006, the Company acquired Slim Devices, Inc., a privately held company
specializing in network-based audio systems for digital music. The purchase
agreement provides for a possible performance-based payment, payable in the
first calendar quarter of 2010. The performance-based payment is based on net
revenues from the sale of products and services in calendar year 2009 derived
from Slim Devices’ technology. The maximum performance-based payment is $89.5
million, and no payment is due if the applicable net revenues total $40.0
million or less. The total performance-based payment amount, if any, will be
recorded in goodwill and will not be final until the end of calendar year 2009.
As of September 30, 2009, no amounts were payable towards performance-based
payments under our acquisition agreement.







22





In
November 2007, the Company acquired WiLife, Inc., a privately held company that
manufactures PC-based video cameras for self-monitoring a home or a small
business. The purchase agreement provides for a possible performance-based
payment, payable in the first calendar quarter of 2011. The performance-based
payment is based on net revenues attributed to WiLife during calendar 2010. No
payment is due if the applicable net revenues total $40.0 million or less. The
maximum performance-based payment is $64.0 million.  The total
performance-based payment amount, if any, will be recorded in goodwill and will
not be known until the end of calendar year 2010.





The
Company is involved in a number of lawsuits and claims relating to commercial
matters that arise in the normal course of business. The Company believes these
lawsuits and claims are without merit and intends to vigorously defend against
them. However, there can be no assurances that its defenses will be successful,
or that any judgment or settlement in any of these lawsuits would not have a
material adverse impact on the Company's business, financial condition and
results of operations. The Company’s accruals for lawsuits and claims as of
September 30, 2009 were not material.





Note
16 — Segment Information





The
Company operates in one operating segment, which is the design, manufacturing
and marketing of personal peripherals for personal computers and other digital
platforms. Geographic net sales information in the table below is based on the
location of the selling entity. Long-lived assets, primarily fixed assets, are
reported below based on the location of the asset.





Retail
and OEM net sales to unaffiliated customers by geographic region were as follows
(in thousands):





Three
      months ended
            
            
            Six
      months endedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008EMEA
            
            $
            229,394
            
            
            $
            309,815
            
            
            $
            354,547
            
            
            $
            512,878Americas
            
            
            177,526
            
            
            
            233,818
            
            
            
            297,941
            
            
            
            436,767Asia
      Pacific
            
            
            91,173
            
            
            
            121,074
            
            
            
            171,715
            
            
            
            223,773Total
      net sales
            
            $
            498,093
            
            
            $
            664,707
            
            
            $
            824,203
            
            
            $
            1,173,418





The
United States and Germany each represented more than 10% of the Company’s total
consolidated net sales for the three months ended September 30, 2009, and no
single country other than the United States represented more than 10% of the
Company’s total consolidated net sales for the six months ended September 30,
2009 or the three and six months ended September 30, 2008. One customer group
represented 14% and 15% of net sales in the three months ended September 30,
2009 and 2008 and one customer group represented 13% and 15% of net sales in the
six months ended September 30, 2009 and 2008.









23








Net sales
by product family were as follows (in thousands):








Three
      months ended
            
            
            Six
      months endedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Retail
      - Pointing Devices
            
            $
            130,611
            
            
            $
            178,089
            
            
            $
            220,847
            
            
            $
            324,446Retail
      - Keyboards & Desktops
            
            
            79,906
            
            
            
            111,073
            
            
            
            137,915
            
            
            
            206,029Retail
      - Audio
            
            
            121,001
            
            
            
            116,812
            
            
            
            193,121
            
            
            
            200,030Retail
      - Video
            
            
            58,263
            
            
            
            70,288
            
            
            
            101,077
            
            
            
            127,477Retail
      - Gaming
            
            
            28,493
            
            
            
            39,030
            
            
            
            45,642
            
            
            
            69,539Retail
      - Remotes
            
            
            24,428
            
            
            
            28,924
            
            
            
            27,866
            
            
            
            55,863OEM
            
            
            55,391
            
            
            
            120,491
            
            
            
            97,735
            
            
            
            190,034Total
      net sales
            
            $
            498,093
            
            
            $
            664,707
            
            
            $
            824,203
            
            
            $
            1,173,418





Long-lived
assets by geographic region were as follows (in thousands):








September
      30,
            
            
            March
      31,2009
            
            
            2009EMEA
            
            $
            13,034
            
            
            $
            13,947Americas
            
            
            39,882
            
            
            
            40,093Asia
      Pacific
            
            
            48,554
            
            
            
            53,541Total
      long-lived assets
            
            $
            101,470
            
            
            $
            107,581








Long-lived assets in China and the
United States each represented more than 10% of the Company’s total consolidated
long-lived assets at September 30, 2009 and March 31, 2009.









24


ITEM
2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS







You
should read the following discussion in conjunction with the interim unaudited
Consolidated Financial Statements and related notes.







This
Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements include, among other things, statements regarding
current or future general economic conditions, trends in consumer demand for our
products, plans, strategies and objectives of management for future operations,
our current or future revenue mix, potential promotional actions, our
competitive position, the impact of new product introductions and product
innovation on future performance, the financial condition of our suppliers and
customers, or our anticipated costs and expenses. Forward-looking statements
also include, among others, those statements including the words “expects,”
“anticipates,” “intends,” “believes” and similar language. These forward-looking
statements involve risks and uncertainties that could cause our results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause or contribute to such differences include, but are not
limited to, those discussed in the section titled “Risk Factors” in
Part II, Item 1A of this quarterly report on Form 10-Q. You should
carefully review the risks described in other documents we file from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q or Current Reports on Form 8-K that we file in fiscal year
2010 and our fiscal year 2009 Form 10-K, which was filed on June 1, 2009, which
discuss our business in greater detail. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this Quarterly Report on Form 10-Q. We undertake no obligation to publicly
release any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.





Overview
of Our Company





Logitech
is a global leader in personal peripherals for computers and other digital
platforms. We develop and market innovative products in PC navigation, Internet
communications, digital music, home-entertainment control, video security,
interactive gaming and wireless devices. Our products combine essential core
technologies, continuing innovation, award-winning industrial design and
excellent value.





For the
PC, our products include mice, trackballs, keyboards, interactive gaming
devices, multimedia speakers, headsets, webcams, 3D control devices and notebook
stands. For digital music devices, our products include speakers, headphones,
earphones, custom in-ear monitors and network music systems. For gaming
consoles, we offer a range of gaming controllers, including racing wheels,
wireless guitar and drum controllers, and microphones, as well as other
accessories. In addition, we offer 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.





We sell
our products to a network of distributors and resellers (“retail”) and to
original equipment manufacturers (“OEMs”). Our worldwide retail network includes
wholesale distributors, consumer electronics retailers, mass merchandisers,
specialty electronics stores, computer and telecommunications stores,
value-added resellers and online merchants. Our sales to our retail channels
were 88% and 84% of our net sales for the six months ended September 30, 2009
and 2008. The large majority of our revenues are derived from sales of our
products for use by consumers.





Our
markets are extremely competitive and characterized by short product life
cycles, frequent new product introductions, rapidly changing technology,
evolving customer demands, and aggressive promotional and pricing practices. We
believe that the current global economic downturn has further increased
competition in our markets, as competitors with larger financial resources, such
as Microsoft, Sony and others, seek to gain market share by discounting prices
or offering more favorable terms to customers, and competitors with smaller
financial resources also discount prices or engage in other promotional
practices in order to maintain their market share.







25





We
believe continued investment in product research and development is critical to
driving the innovation required to strengthen our competitive advantage. We are
committed to identifying and meeting current and future customer trends with new
and improved product technologies, as well as leveraging the value of the
Logitech brand from a competitive, channel partner and consumer experience
perspective. We believe innovation and product quality are important to gaining
market acceptance and maintaining market leadership.





The
broadening of our product lines has been primarily organic, but we have also
grown as a result of a limited number of acquisitions that expanded our business
into new product categories. We continually evaluate our product offerings and
our strategic direction in light of the current global economic weakness,
changing consumer trends, and the evolving nature of the interface between the
consumer and the digital world.





Summary
of Financial Results





Our total
net sales (retail and OEM) for the three and six months ended September 30, 2009
decreased 25% and 30% compared with the three and six months ended September 30,
2008. Retail sales decreased 26% in the six months ended September 30, 2009
compared with the same period in the prior year, and were down 19% in the three
months ended September 30, 2009. Although the global economic recession
continues to affect our retail sales, the impact has lessened from the fiscal
quarter ended June 30, 2009, when retail sales declined 35% compared with the
same period in the prior fiscal year. Retail units sold in the three months and
six months ended September 30, 2009 decreased 14% and 18% compared with the
prior year.





OEM sales
decreased 54% and 49% in the three and six months ended September 30, 2009
compared with the same periods in the prior fiscal year. OEM units sold
decreased 40% and 37% in the same periods. The substantial decline in OEM sales
was related to console microphones, which sold well in the prior fiscal year,
but have reached the latter stages of the typical gaming sales cycle in the
current fiscal year.





Retail
sales in our Europe-Middle East-Africa (“EMEA”), Americas and Asia Pacific
regions decreased 30%, 21% and 25% in the six months ended September 30, 2009,
and 24%, 5% and 28% in the three months ended September 30, 2009, compared with
the three and six months ended September 30, 2008.





Our gross
margins for the three and six months ended September 30, 2009 were 30.5% and
27.9% compared with 34.3% and 34.2% in the same periods of the prior fiscal
year. Net income for the three months ended September 30, 2009 was $20.7
million, and net loss for the six months ended September 30, 2009 was $16.6
million, compared with net income of $72.3 million and $101.6 million in the
three and six months ended September 30, 2008. The return to profitability in
the second quarter of fiscal year 2010 was primarily the result of the
improvement in gross margin over the preceding fiscal quarter and our continuing
cost reduction efforts.













26





Trends
in Our Business




We have a
large and varied portfolio of product lines, grouped in several product
families. Within and subject to the recent general trend of decreasing total
sales caused by the global economic recession, we believe that normal increases
or decreases in the retail sales level of a product family are dependent on the
innovation we have designed into the product, customer acceptance of the product
line, the popularity of the digital platforms the product line relates to,
competitive activity in the product family, and the prices at which products are
available. Historically, sales of individual product lines rise and fall over
time, causing our overall product mix to shift both between and within product
lines, and we expect these types of trends to continue under all economic
conditions.





We have
historically targeted peripherals for the PC platform, a market that is
dynamically changing as a result of the declining popularity of desktop PCs and
the increasing popularity of notebook PCs and mobile devices, such as netbooks,
mobile phones and smaller form factor devices with computing or web surfing
capabilities. In our retail channels, notebook PCs and mobile devices are sold
by retailers without peripherals. We believe this creates opportunities to sell
products to consumers to help make their devices more productive and
comfortable. However, consumer acceptance and demand for peripherals for use
with smaller form factor computing devices such as notebook PCs and mobile
devices is still uncertain. The increasing popularity of notebook PCs and mobile
devices may result in a decreased demand by consumers for keyboards and
speakers, which could negatively affect our sales of these products. The
increasing popularity of mobile devices has coincided with a steadily decreasing
average sales price for computing devices, including for desktop and notebook
PCs. As a result, there is a risk that the demand for those of our products that
have a relatively high average sales price in relation to the price of a desktop
or notebook PC will decline. We believe our future sales growth will be
significantly affected by our ability to develop sales and innovations in our
current products for notebook PCs and other mobile devices, as well as for
emerging product categories which are not PC-dependent.





In our
OEM channel, the shift away from desktop PCs has adversely affected our sales of
OEM mice, which are sold with name-brand desktop PCs. Our OEM mice sales have
historically made up the bulk of our OEM sales, and our OEM sales accounted for
12% and 16% of total revenues during the six months ended September 30, 2009 and
2008.  We expect the trend of slowing OEM mice sales to continue. Our
OEM sales were growing in fiscal year 2008 despite the decline in sales of mice
due to our sales of microphones for use with particular game titles for gaming
consoles. However, these sales have declined as the game titles have reached the
latter stages of the typical gaming cycle. We believe future OEM sales growth
depends on the development of new game titles or other products, consumers’
purchase activity, and manufacturers’ decisions to combine our products with
theirs, none of which is assured to occur.









Although
our financial results are reported in U.S. dollars, approximately half of our
sales are made in currencies other than the U.S. dollar, such as the euro,
British pound, Chinese renminbi and Japanese yen. Our product costs are
primarily in U.S. dollars and Chinese renminbi. Our operating expenses are
incurred in U.S. dollars, euros, Swiss francs, Taiwanese dollars, Chinese
renminbi and, to a lesser extent, 25 other currencies. To the extent that the
U.S. dollar significantly increases or decreases in value relative to the
currencies in which  our sales and operating expenses are denominated,
the reported dollar amounts of our sales and expenses may decrease or increase.
In the six months ended September 30, 2009, the impact of foreign currency
exchange rates on our results of operations was not material.







27







Our gross
margins vary with the mix of products sold, competitive activity, product life
cycle, new product introductions, unit volumes, commodity and supply chain
costs, foreign currency exchange rate fluctuations, geographic sales mix, and
the complexity and functionality of new product introductions. Changes in
consumer demand affect the need for us to undertake promotional efforts, such as
cooperative marketing arrangements, customer incentive programs or price
protection, which alters our product gross margins. Gross margins declined in
the six months ended September 30, 2009, compared with the same period in the
prior fiscal year, due to product mix, increased promotional efforts in response
to lower consumer demand and the effect on net sales of foreign currency rate
fluctuations. Gross margin improved in the three months ended September 30, 2009
compared with the three months ended June 30, 2009, indicating decreasing
promotional pressures.





Logitech is incorporated in
Switzerland but operates in various countries with differing tax laws and rates.
A portion of our income before taxes and the provision for income taxes are
generated outside of Switzerland. Therefore, our effective tax rate depends on
the amount of profits generated in each of the various tax jurisdictions in
which we operate. 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 rate for the six months ended September 30, 2009 and 2008 is
primarily due to the mix of income and losses in the various tax jurisdictions
in which the Company operates. We expect future effective tax rates to fluctuate
for similar reasons.





In the
fiscal quarter ended March 31, 2009, we implemented a restructuring plan which
included a reduction in Logitech’s salaried workforce and other actions aimed at
reducing operating expenses. We incurred $20.5 million in pre-tax restructuring
charges in the fourth quarter of fiscal year 2009 and $1.5 million in the six
months ended September 30, 2009 related to employee termination costs, contract
termination costs and other associated costs. We expect to incur an additional
$0.6 million or less related to contract termination and associated costs in the
remaining quarters of fiscal year 2010. The restructuring plan is expected to
generate annual personnel cost savings beginning in fiscal year 2010 of $50
million, and approximately $50 million additional variable cost savings through
efforts to limit production costs and operating expenses. The size and timing of
future restructuring charges and cost savings are estimates subject to
significant future economic, competitive and other uncertainties, and there can
be no assurance that we will fully realize the anticipated future results. In
the event that the current economic conditions significantly worsen, additional
restructuring measures may be required in the future.





Critical
Accounting Estimates





The
preparation of financial statements and related disclosures in conformity with
generally accepted accounting principles in the United States of America (“U.S.
GAAP”) requires the Company 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.





We
consider an accounting estimate critical if it: (i) requires management to make
judgments and estimates about matters that are inherently uncertain; and (ii) is
important to an understanding of Logitech’s financial condition and operating
results.











28





We base
our estimates on historical experience and on various other assumptions we
believe to be reasonable under the circumstances. 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. Management has discussed the development, selection and disclosure of
these critical accounting estimates with the Audit Committee of the Board of
Directors.





There
have been no significant changes during the six months ended September 30, 2009
to the nature of the critical accounting estimates disclosed in the Management’s
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the fiscal year ended March 31,
2009.





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,toprovide 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.




Results
of Operations





Net
Sales





Net sales
by channel for the three and six months ended September 30, 2009 and 2008 were
as follows (in thousands):








Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
      %
            
            
            2009
            
            
            2008
            
            
            Change
      %Net
      sales by channel:Retail
            
            $
            442,702
            
            
            $
            544,216
            
            
            
            (19
            %)
            
            $
            726,468
            
            
            $
            983,384
            
            
            
            (26
            %)OEM
            
            
            55,391
            
            
            
            120,491
            
            
            
            (54
            %)
            
            
            97,735
            
            
            
            190,034
            
            
            
            (49
            %)Total
      net sales
            
            $
            498,093
            
            
            $
            664,707
            
            
            
            (25
            %)
            
            $
            824,203
            
            
            $
            1,173,418
            
            
            
            (30
            %)











29





The
decline in retail sales for the three and six months ended September 30, 2009
compared with 2008 was primarily due to consumers’ reluctance to spend, their
buying preference for lower-price products and their strong response to
promotions, as well as our customers’ alignment of inventory levels with
consumer demand, all factors which are attributable to the global economic
downturn. Retail units sold declined 14% and 18% in the three and six months
ended September 30, 2009, reflecting consumers’ inclination towards Logitech’s
value-priced products.





The
significant decline in OEM sales for the three and six months ended September
30, 2009 compared with 2008 was attributable to the popularity of our console
microphones in 2008, which in 2009 have reached the latter stages of the typical
gaming sales cycle. The quarter over prior year quarter OEM sales decline is
expected to continue in the three months ended December 31, 2009.





Approximately
51% and 52% of the Company’s total net sales were denominated in currencies
other than the U.S. dollar in the three and six months ended September 30, 2009
compared with approximately 58% in both the three and six months ended September
30, 2008. If foreign currency exchange rates had been the same in the three and
six months ended September 30, 2009 and 2008, our total sales decline would have
been 24% and 28% instead of 25% and 30%.





Retail
Sales by Region





The
following table presents the change in retail sales by region for the three and
six months ended September 30, 2009 compared with the three and six months ended
September 30, 2008.








Three
      months ended
            
            
            Six
      months endedSeptember
      30, 2009
            
            
            September
      30, 2008Change
      in retail sales by region:EMEA
            
            
            (24
            %)
            
            
            (30
            %)Americas
            
            
            (5
            %)
            
            
            (21
            %)Asia
      Pacific
            
            
            (28
            %)
            
            
            (25
            %)Total
      net sales
            
            
            (19
            %)
            
            
            (26
            %)








For the
three and six months ended September 30, 2009 compared with 2008, the EMEA
region experienced sales decreases in all product families, as the effects of
the global economic downturn continued. Based on retail sell-through data for
the three month period, we believe our EMEA channel partners were achieving
improved alignment between their inventory levels and consumer demand. If
foreign currency exchange rates had been the same in the three and six months
ended September 30, 2009 and 2008, the EMEA region sales declines would have
been 21% and 25%.





The
Americas region had modest positive sales growth for the three months ended
September 30, 2009 in the audio and remotes product families. For the six months
ended September 30, 2009, retail sales in the Americas region declined over the
prior year in all product families. Retail sell-through for the three month
period in the Americas region reflected improved alignment of our channel
partners’ inventory levels with consumer demand. Foreign currency exchange rates
had no significant effect on retail sales in the Americas region.





Retail
sales in the Asia Pacific region declined in all product families except audio
during the three and six months ended September 30, 2009 compared with the same
period in the prior fiscal year.  Sell-through data for the three
month period in the Asia Pacific region indicated continued weakness in
consumer demand and further efforts by our channel partners related to inventory
management. If foreign currency exchange rates had been the same in the three
and six months ended September 30, 2009 and 2008, the Asia Pacific region sales
declines would have been 29% and 26%.









30





Net
Sales by Product Family





Net sales
by product family during the three and six months ended September 30, 2009 and
2008 were as follows (in thousands):








Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
      %
            
            
            2009
            
            
            2008
            
            
            Change
      %Net
      sales by product family:Retail
      - Pointing Devices
            
            $
            130,611
            
            
            $
            178,089
            
            
            
            (27
            %)
            
            $
            220,847
            
            
            $
            324,446
            
            
            
            (32
            %)Retail
      - Keyboards & Desktops
            
            
            79,906
            
            
            
            111,073
            
            
            
            (28
            %)
            
            
            137,915
            
            
            
            206,029
            
            
            
            (33
            %)Retail
      - Audio
            
            
            121,001
            
            
            
            116,812
            
            
            
            4
            %
            
            
            193,121
            
            
            
            200,030
            
            
            
            (3
            %)Retail
      - Video
            
            
            58,263
            
            
            
            70,288
            
            
            
            (17
            %)
            
            
            101,077
            
            
            
            127,477
            
            
            
            (21
            %)Retail
      - Gaming
            
            
            28,493
            
            
            
            39,030
            
            
            
            (27
            %)
            
            
            45,642
            
            
            
            69,539
            
            
            
            (34
            %)Retail
      - Remotes
            
            
            24,428
            
            
            
            28,924
            
            
            
            (16
            %)
            
            
            27,866
            
            
            
            55,863
            
            
            
            (50
            %)OEM
            
            
            55,391
            
            
            
            120,491
            
            
            
            (54
            %)
            
            
            97,735
            
            
            
            190,034
            
            
            
            (49
            %)Total
      net sales
            
            $
            498,093
            
            
            $
            664,707
            
            
            
            (25
            %)
            
            $
            824,203
            
            
            $
            1,173,418
            
            
            
            (30
            %)





Logitech’s
Pointing Devices product family includes our mice, trackballs and other pointing
devices. Keyboards and desktops (mouse and keyboard combined) include cordless
and corded keyboards and desktops. Audio includes speakers and headset products
for the PC, the home, and mobile entertainment platforms and wireless music
systems. Our video product family is comprised of PC webcams and WiLife video
security systems. Gaming includes console and PC gaming peripherals. The Remotes
product family is comprised of our advanced remote controls. Net sales reflect
accruals for product returns, cooperative marketing arrangements, customer
incentive programs and price protection.





Retail-Pointing
Devices





Retail
units of our pointing devices decreased 17% and 24% in the three and six months
ended September 30, 2009 compared with the same periods in 2008. Sales of
cordless mice decreased 26% and 30%, and units decreased 8% and 14%. Sales of
corded mice decreased 31% and 35%, and units decreased 21% and 29%.





Retail-Keyboards
and Desktops





Retail
unit sales of keyboards and desktops decreased 24% in the three months ended
September 30, 2009 and 26% during the six months ended September 30, 2009
compared with the same periods in the prior fiscal year. Cordless keyboards and
desktops sales declined 34% and 42%, with units decreasing 17% and 25%. Sales of
corded keyboards and desktops decreased 23% and units decreased 29% in both the
three months and six months ended September 30, 2009 compared with the prior
year.





Retail Audio





Retail
unit sales of our audio products increased 9% in the three months and 7% in the
six months ended September 30, 2009 compared with the prior fiscal year. Digital
music speaker sales increased 47% in the three month period and 20% in the six
month period, with units increasing 74% and 35%, based on the popularity of our
Pure-Fi Anywhere speakers. PC headsets increased 14% in dollars and 13% in units
in the quarter and 15% in dollars and units in the six months compared with the
prior year, led by the new G35 Surround Sound headset. Our Ultimate Ears line of
in-ear monitors and earphones also made a positive contribution to sales in both
the three and six month periods.








31





Retail Video





Video
unit sales declined 5% and 9% in the three and six months ended September 30,
2009 compared with the prior fiscal year. While products such as our Quickcam
Pro 9000 sold well, our higher-priced WiLife video monitoring products struggled
in the current price-conscious market.





Retail Gaming





Without
the support of new or growing game titles, retail unit sales of our gaming
peripherals decreased 37% and 38% in the three and six months ended September
30, 2009 compared with the same period in 2008. PC gaming sales decreased 24%
and 23% in the three and six months, with units decreasing 35% and 34%. Console
gaming sales declined 57% and 40% in the same periods, with units decreasing 42%
and 45%.





Retail Remotes





Retail
remote unit sales decreased 36% and 43% in the three and six months ended
September 30, 2009 compared with 2008, reflecting consumers’ reluctance to
purchase discretionary, premium-segment products, as well as our customers’
alignment of inventory levels with consumer demand .





OEM





OEM unit
sales dropped 40% in the three months and 37% in the six months ended September
30, 2009 compared with the same period in 2008, due to the decline in sales of
our microphones, which have reached the latter stages of the typical gaming
sales cycle.





Gross
Profit





Gross profit for the three and six
months ended September 30, 2009 and 2008 was as follows (in
thousands):








Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeNet
      sales
            
            $
            498,093
            
            
            $
            664,707
            
            
            
            (25
            %)
            
            $
            824,203
            
            
            $
            1,173,418
            
            
            
            (30
            %)Cost
      of goods sold
            
            
            346,305
            
            
            
            436,633
            
            
            
            (21
            %)
            
            
            594,593
            
            
            
            771,772
            
            
            
            (23
            %)Gross
      profit
            
            $
            151,788
            
            
            $
            228,074
            
            
            
            (33
            %)
            
            $
            229,610
            
            
            $
            401,646
            
            
            
            (43
            %)Gross
      margin
            
            
            30.5
            %
            
            
            34.3
            %
            
            
            (11
            %)
            
            
            27.9
            %
            
            
            34.2
            %
            
            
            (18
            %)








Gross
profit consists of net sales, less cost of goods sold which includes materials,
direct labor and related overhead costs, costs of manufacturing facilities,
costs of purchasing components from outside suppliers, distribution costs and
write-down of inventories.





Gross
profit declined 33% and 43% in the three and six months ended September 30, 2009
compared with the same period in the prior fiscal year. The declines in gross
margin for both the three and six months ended September 30, 2009 were primarily
due to lower net sales, a shift in product mix both between and within product
categories, and the effect on net sales of the stronger U.S. dollar compared
with the prior fiscal year.







32





Operating
Expenses





Operating
expenses for the three and six months ended September 30, 2009 and September 30,
2008 were as follows (in thousands):








Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeMarketing
      and selling
            
            $
            68,835
            
            
            $
            84,740
            
            
            
            (19
            %)
            
            $
            127,773
            
            
            $
            162,020
            
            
            
            (21
            %)%
      of net sales
            
            
            14
            %
            
            
            13
            %
            
            
            
            
            
            
            16
            %
            
            
            14
            %Research
      and development
            
            
            31,825
            
            
            
            33,351
            
            
            
            (5
            %)
            
            
            63,185
            
            
            
            66,610
            
            
            
            (5
            %)%
      of net sales
            
            
            6
            %
            
            
            5
            %
            
            
            
            
            
            
            8
            %
            
            
            6
            %General
      and administrative
            
            
            23,739
            
            
            
            29,620
            
            
            
            (20
            %)
            
            
            44,920
            
            
            
            62,929
            
            
            
            (29
            %)%
      of net sales
            
            
            5
            %
            
            
            4
            %
            
            
            
            
            
            
            5
            %
            
            
            5
            %Restructuring
      charges
            
            
            45
            
            
            
            -
            
            
            
            
            
            
            
            1,494
            
            
            
            -%
      of net sales
            
            
            0
            %
            
            
            0
            %
            
            
            
            
            
            
            0
            %
            
            
            0
            %Total
      operating expenses
            
            $
            124,444
            
            
            $
            147,711
            
            
            
            (16
            %)
            
            $
            237,372
            
            
            $
            291,559
            
            
            
            (19
            %)








Marketing
and Selling





Marketing
and selling expense consists of personnel and related overhead costs, corporate
and product marketing, promotions, advertising, trade shows, customer and
technical support and facilities costs.





Marketing
and selling expenses decreased 19% and 21% in the three and six months ended
September 30, 2009 compared with the same period in the prior fiscal year partly
due to a 14% reduction in headcount. Travel expenses also decreased, reflecting
the reduction in headcount and cost management efforts. Advertising expenses in
the three and six months ended September 30, 2009 were lower due to a major ad
campaign and brand initiative that occurred in the prior year. Marketing
development funds, trade shows and consumer promotion expenses decreased in the
three and six months ended September 30, 2009 compared with the prior year, due
to the alignment of promotional expenditures with current sales levels and
targeted product promotion activities which occurred in the prior year. If
foreign currency exchange rates had been the same in the three and six months
ended September 30, 2009 and 2008, the decrease in marketing and selling
expenses would have been  17% and 18% instead of 19% and
21%.





Research
and Development





Research
and development expense consists of personnel and related overhead costs,
contractors and outside consultants, supplies and materials, equipment
depreciation and facilities costs, all associated with the design and
development of new products and enhancements of existing products.





The 5%
reduction in research and development expense for both the three and six months
ended September 30, 2009 compared with the same period in the prior year
reflects a 10% reduction in headcount combined with lower travel expenses as a
result of our cost management efforts. The decline in research and development
expense is smaller than the declines in marketing and selling or general and
administrative due to our commitment to continued investment in product
innovation. If foreign currency exchange rates had been the same in the three
and six months ended September 30, 2009 and 2008, the decrease in research and
development expenses would have been 3% instead of 5%.





General
and Administrative





General
and administrative expense consists primarily of personnel and related overhead
and facilities costs for the finance, information systems, executive, human
resources and legal functions.






33





General
and administrative expense declined 20% and 29% in the three and six months
ended September 30, 2009 compared with the same period in the prior fiscal year
primarily due to the 28% reduction in headcount. Decreases in consulting, travel
and occupancy expenses resulting from lower headcount and cost management
efforts also contributed to the decline. The decrease in general and
administrative expenses for the three months ended September 30, 2009 would not
have changed if foreign currency exchange rates had been the same as the three
months ended September 30, 2008. If foreign currency exchange rates had been the
same in the six months ended September 30, 2009 and 2008, the decrease in
general and administrative expenses would have been 28% instead of
29%.





Restructuring
Charges





Restructuring
charges consist of termination benefits, asset impairment charges, contract
termination costs and other charges associated with the restructuring plan
initiated in January 2009. We completed a majority of the restructuring activity
during the fourth quarter of fiscal year 2009, incurring costs of $22.0 million
in the period from January 1, 2009 to September 30, 2009. We expect to complete
the restructuring by the end of fiscal year 2010, and record approximately $0.6
million in additional contract termination costs.





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








Total
            
            
            Termination
      Benefits
            
            
            Contract
      Termination Costs
            
            
            OtherBalance
      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
            
            
            
            58Cash
      payments
            
            
            (718
            )
            
            
            (698
            )
            
            
            (20
            )
            
            
            -Other
            
            
            (4
            )
            
            
            63
            
            
            
            -
            
            
            
            (67
            )Foreign
      exchange
            
            
            19
            
            
            
            19
            
            
            
            -
            
            
            
            -Balance
      at September 30, 2009
            
            $
            423
            
            
            $
            374
            
            
            $
            58
            
            
            $
            (9
            )








Interest
Income, Net





Interest
income and expense for the three and six months ended September 30, 2009 and
2008 were as follows (in thousands):








Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeInterest
      income
            
            $
            650
            
            
            $
            2,777
            
            
            
            (77
            %)
            
            $
            1,244
            
            
            $
            5,457
            
            
            
            (77
            %)Interest
      expense
            
            
            (11
            )
            
            
            (2
            )
            
            
            (450
            %)
            
            
            (13
            )
            
            
            (130
            )
            
            
            90
            %Interest
      income, net
            
            $
            639
            
            
            $
            2,775
            
            
            
            (77
            %)
            
            $
            1,231
            
            
            $
            5,327
            
            
            
            (77
            %)





Interest
income was lower for the three and six months ended September 30, 2009 despite
higher invested balances due to significantly lower interest rates compared with
the prior year.









34





Other
Expense, Net





Other
income and expense for the three and six months ended September 30, 2009 and
2008 were as follows (in thousands):





Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeForeign
      currency exchange gains(losses),
      net
            
            $
            (2,275
            )
            
            $
            (220
            )
            
            
            934
            %
            
            $
            (1,138
            )
            
            $
            1,171
            
            
            
            (197
            %)Insurance
      investment income (loss)
            
            
            786
            
            
            
            (50
            )
            
            
            (1672
            %)
            
            
            404
            
            
            
            (365
            )
            
            
            (211
            %)Write-down
      of investments
            
            
            -
            
            
            
            (403
            )
            
            
            (100
            %)
            
            
            -
            
            
            
            (978
            )
            
            
            (100
            %)Other,
      net
            
            
            51
            
            
            
            (180
            )
            
            
            (128
            %)
            
            
            98
            
            
            
            (120
            )
            
            
            (181
            %)Other
      expense, net
            
            $
            (1,438
            )
            
            $
            (853
            )
            
            
            69
            %
            
            $
            (636
            )
            
            $
            (292
            )
            
            
            117
            %








The
increase in foreign currency exchange losses in the three and six months ended
September 30, 2009 resulted from higher losses experienced on balances
denominated in currencies other than the functional currency of a particular
subsidiary.





Insurance
investment income or loss represents changes in the cash surrender value of
Company-owned life insurance contracts related to a management deferred
compensation plan offered by one of the Company’s subsidiaries.





During
the three and six months ended September 30, 2008, we recorded unrealized losses
of $0.4 million and $1.0 million related to other-than-temporary declines in the
estimated fair value of our  auction-rate investment
securities.





Provision
for Income Taxes





The
provision for income taxes and effective tax rates for the three and six months
ended September 30, 2009 and 2008 were as follows (in thousands):




Three
      months ended September 30,
            
            
            
            
            
            Six
      months ended September 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeProvision
      for income taxes
            
            $
            5,802
            
            
            $
            9,974
            
            
            
            (42
            %)
            
            $
            9,455
            
            
            $
            13,505
            
            
            
            (30
            %)Effective
      income tax rate
            
            
            21.9
            %
            
            
            12.1
            %
            
            
            
            
            
            
            (131.9
            %)
            
            
            11.7
            %




The
provision for income taxes consists of income and withholding taxes. Logitech
operates in multiple jurisdictions and its profits are taxed pursuant to tax
laws of these jurisdictions. The Company’s effective income tax rate may be
affected by changes in tax laws or interpretations of tax laws in any given
jurisdiction, utilization of net operating loss and tax credit carryforwards,
changes in geographical mix of income and expense, and changes in management’s
assessment of matters such as the ability to realize deferred tax
assets.





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.








35




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.





Liquidity
and Capital Resources





Cash
Balances, Available Borrowings, and Capital Resources





At
September 30, 2009, net working capital was $638.4 million, compared with $709.4
million at March 31, 2009. Although cash balances increased over March 31, 2009,
working capital decreased due to higher accounts payable, as production
increased in preparation for the holiday selling season.





During
the six months ended September 30, 2009, operating activities generated cash of
$132.9 million. Our largest sources of operating cash flows were increased
accounts payable and accrued liabilities. We invested $18.1 million during the
six months ended September 30, 2009 in capital expenditures for tooling costs,
computer hardware, and software. Net cash used in financing activities was $86.9
million, primarily due to the purchase of treasury stock, offset in part by
proceeds from employee stock purchases and the exercise of stock
options.





At
September 30, 2009, we had cash and cash equivalents of $524.8 million and
investment securities of $1.6 million. Cash and cash equivalents are carried at
cost, which is equivalent to fair value. Investment securities are carried at
fair value, determined by estimating the value 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 value. The Company considers the inputs used to measure the fair value
of its investment securities as Level 3 within the fair value hierarchy. During
the six months ended September 30, 2009, Logitech’s management decided 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
securities were reclassified from short-term investments to non-current assets.
Further changes in the fair value of these investment securities would not
materially affect the Company’s liquidity or capital resources.





The
Company has credit lines with several European and Asian banks totaling $143.2
million as of September 30, 2009. As is common for businesses in European and
Asian countries, these credit lines are uncommitted and unsecured. Despite the
lack of formal commitments from the banks, we believe that these lines of credit
will continue to be made available because of our long-standing relationships
with these banks. At September 30, 2009, the Company had no outstanding
borrowings under these lines of credit. There are no financial covenants under
these lines of credit with which the Company must comply.





The
Company has financed its operating and capital requirements primarily through
cash flow from operations and, to a lesser extent, from capital markets and bank
borrowings. The Company’s normal short-term liquidity and long-term capital
resource requirements are provided from three sources: cash flow generated from
operations, cash and cash equivalents on hand, and borrowings, as needed, under
our credit facilities.





Based
upon our available cash balances and credit lines, and the trend of our
historical cash flow generation, we believe we have sufficient liquidity to fund
operations for the foreseeable future.







36





Cash
Flow from Operating Activities





The
following table presents selected financial information and statistics as of
September 30, 2009 and 2008 (dollars in thousands):





September
      30,2009
            
            
            2008Accounts
      receivable, net
            
            $
            259,776
            
            
            $
            467,499Inventories
            
            
            239,904
            
            
            
            323,673Working
      capital
            
            
            638,438
            
            
            
            744,976Days
      sales in accounts receivable (DSO)(1)
            
            47
      days
            
            
            63
      daysInventory
      turnover (ITO) (2)
            
            
            5.8
            x
            
            
            5.4
            xNet
      cash provided by operating activities
            
            $
            132,900
            
            
            $
            83,407
















(1)
            DSO is determined using ending
      accounts receivable as of the most recent quarter-end and net sales for
      the most recent quarter.


(2)
            ITO
      is determined using ending inventories and annualized cost of goods sold
      (based on the most recent quarterly cost of goods
  sold).





Net cash
provided by operating activities increased to $132.9 million in the six months
ended September 30, 2009, from $83.4 million for the same period in the prior
year. The increased cash flow resulted from lower inventory levels and increased
accounts payable.





DSO for
the three months ended September 30, 2009 was 16 days lower than the same period
in the prior year, primarily due to lower sales levels resulting from the
economic downturn. Typical payment terms require customers to pay for product
sales generally within 30 to 60 days. However, terms may vary by customer type,
by country and by selling season.  Extended payment terms are
sometimes offered to a limited number of customers during the second and third
fiscal quarters. The Company does not modify payment terms on existing
receivables, but may offer discounts for early payment.





Inventory
turns for the six months ended September 30, 2009 improved over the six months
ended September 30, 2008, as we reduced inventory levels in line with the weak
demand environment and our channel partners’ efforts to reduce their
inventory.





Cash
Flow from Investing Activities





Cash
flows from investing activities during the six months ended September 30, 2009
and 2008 were as follows (in thousands):





Six
      months ended September 30,2009
            
            
            2008Purchases
      of property, plant and equipment
            
            $
            (18,144
            )
            
            $
            (25,047
            )Acquisitions,
      net of cash acquired
            
            
            (200
            )
            
            
            (31,832
            )Proceeds
      from cash surrender of life insurance policies
            
            
            813
            
            
            
            -Premiums
      paid on cash surrender value life insurance policies
            
            
            -
            
            
            
            (427
            )Net
      cash used in investing activities
            
            $
            (17,531
            )
            
            $
            (57,306
            )








Our
capital expenditures during the six months ended September 30, 2009 and 2008
were principally for computer hardware and software purchases and normal
expenditures for tooling. Purchasing activity was lower in the six months ended
September 30, 2009, as we focused our cash outlays on critical capital
needs.





In the
six months ended September 30, 2008, we acquired the Ultimate Ears companies for
$31.8 million.






37





Cash
Flow from Financing Activities





The
following tables present information on our cash flows from financing
activities, including information on our share repurchases during the six months
ended September 30, 2009 and 2008 (in thousands except per share
amounts):








Six
      months ended September 30,2009
            
            
            2008Purchases
      of treasury shares
            
            $
            (101,267
            )
            
            $
            (76,017
            )Proceeds
      from sale of shares upon exercise of options and purchase
      rights
            
            
            12,972
            
            
            
            22,355Excess
      tax benefits from share-based compensation
            
            
            1,346
            
            
            
            6,032Net
      cash used in financing activities
            
            $
            (86,949
            )
            
            $
            (47,630
            )Six
      months ended September 30,2009
            
            
            
            2008Number
      of shares repurchased
            
            
            5,838
            
            
            
            2,603Value
      of shares repurchased
            
            $
            101,267
            
            
            $
            76,017Average
      price per share
            
            $
            17.35
            
            
            $
            29.20








During
the six months ended September 30, 2009, we repurchased 5.8 million shares for
$101.3 million under the Company’s June 2007 buyback program.  The
sale of shares upon exercise of options and purchase rights pursuant to the
Company’s stock plans realized $13.0 million.  Tax benefits recognized
on the exercise of share-based payment awards provided $1.3
million.





During
the six months ended September 30, 2008, we repurchased 2.6 million shares for
$76.0 million under our June 2007 buyback program. The sale of shares upon
exercise of options realized $22.4 million. In addition, cash of $6.0 million
was provided by tax benefits recognized on the exercise of share-based payment
awards.





Cash
Outlook





We have
financed our operations and capital requirements primarily through cash flow
from operations and, to a lesser extent, capital markets and bank borrowings.
Our working capital requirements and capital expenditures may increase to
support future expansion of Logitech operations. Future acquisitions or
expansion of our operations may be significant and may require the use of cash.
In addition, continued deterioration of global economic conditions could
adversely affect our operations and may also require the use of
cash.





In June
2007, we announced the approval by our Board of Directors of a share buyback
program authorizing the repurchase of up to $250 million of our shares. The
approved amount remaining under the June 2007 program at September 30, 2009 was
$25 million. The program expires in June 2010. We lowered our share repurchase
activity beginning in the second half of fiscal year 2009 in order to maximize
our cash position. Beginning July 29, 2009, the Company resumed the repurchase
of its shares under the June 2007 share repurchase program and repurchased 5.8
million shares on the open market for $101.3 million, calculated based on
exchange rates on the repurchase dates.







38





In
September 2008, our Board of Directors approved a new 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 our current share buyback program of
$250 million.





In
January 2009, Logitech initiated a restructuring plan in order to reduce
operating expenses and improve financial results in response to deteriorating
global economic conditions. We incurred pre-tax restructuring charges of $20.5
million and $1.5 million in the three months ended March 31, 2009 and the six
months ended September 30, 2009. We expect to incur up to $0.6 million
additional restructuring costs during the remainder of fiscal year 2010. The
restructuring plan is expected to generate annual personnel cost savings
beginning in fiscal year 2010 of approximately $50 million, and approximately
$50 million additional variable cost savings through efforts to limit production
costs and operating expenses. The size and timing of future restructuring
charges and cost savings are estimates subject to significant future economic,
competitive and other uncertainties, and there can be no assurance that we will
fully realize the anticipated future results. If economic conditions were to
significantly worsen, further actions to reduce costs might be
required.





In
December 2006, the Company acquired Slim Devices, Inc., a privately held company
specializing in network-based audio systems for digital music. The purchase
agreement provides for a possible performance-based payment, payable in the
first calendar quarter of 2010. The performance-based payment is based on net
revenues from the sale of products and services in calendar year 2009 derived
from Slim Devices’ technology. The maximum performance-based payment is $89.5
million, and no payment is due if the applicable net revenues total $40.0
million or less. The total performance-based payment amount, if any, will be
recorded in goodwill and will not be final until the end of calendar year 2009.
As of September 30, 2009, no amounts were payable towards performance-based
payments under our acquisition agreement.





In
November 2007, the Company acquired WiLife, Inc., a privately held company that
manufactures PC-based video cameras for self-monitoring a home or a small
business.  The purchase agreement provides for a possible
performance-based payment, payable in the first calendar quarter of 2011. The
performance-based payment is based on net revenues attributed to WiLife during
calendar year 2010. No payment is due if the applicable net revenues total $40.0
million or less. The maximum performance-based payment is $64.0
million.  The total performance-based payment amount, if any, will be
recorded in goodwill and will not be known until the end of calendar year
2010.





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.





In fiscal
year 2009, the U.S. Internal Revenue Service initiated an examination of the
Company’s U.S. subsidiary for fiscal year 2006. As of September 30, 2009, the
Company is not able to estimate the potential future liability, if any, which
may result from this examination.





Other
contractual obligations and commitments of the Company which require cash are
described in the following sections.





Over the
past several years, we have generated positive cash flow from our operating
activities, including cash from operations of $200.6 million in fiscal year 2009
and $132.9 million in the six months ended September 30, 2009. Despite the
uncertain economic environment, we believe that our cash and cash equivalents,
cash flow generated from operations, and available borrowings under our bank
lines of credit will be sufficient to fund our operations for the foreseeable
future.







39




Contractual
Obligations and Commitments





As of
September 30, 2009, the Company’s outstanding contractual obligations and
commitments included the following (in thousands), in addition to the
performance based payments we may have to make as part of our acquisition
agreements described above:








September
      30, 2009Operating
      leases
            
            $
            48,993Purchase
      commitments - inventory
            
            
            148,092Purchase
      obligations - capital expenditures
            
            
            9,930Purchase
      obligations - operating expenses
            
            
            43,093Income
      taxes payable - non-current
            
            
            109,386Obligation
      for management deferred compensation
            
            
            9,788Defined
      benefit pension plan liability
            
            
            20,477Other
      long-term liabilities
            
            
            2,719Total
      contractual obligationsand commitments
            
            $
            392,478








The
Company leases facilities under operating leases, certain of which require it to
pay property taxes, insurance and maintenance costs. Operating leases for
facilities are generally renewable at the Company’s option and usually include
escalation clauses linked to inflation. The remaining terms on our
non-cancelable operating leases expire in various years through
2027.





Commitments
for inventory purchases are made in the normal course of business to original
design manufacturers, contract manufacturers and other suppliers, and are
expected to be fulfilled by December 31, 2009. Purchase obligations for future
capital expenditures support product development activities and ongoing and
expanded operations. At September 30, 2009, these purchase obligations primarily
related to commitments for manufacturing equipment and tooling. Purchase
obligations for operating expenses related to consulting, marketing
arrangements, advertising and other services. Although open purchase commitments
are considered enforceable and legally binding, the terms generally allow us the
option to reschedule and adjust our requirements based on business needs prior
to the delivery of the purchases.





The
non-current income taxes payable relates to the net unrecognized tax benefits
and related accrued interest and penalties of uncertain tax positions. We are
unable make a reasonably reliable estimate of the period in which a cash
settlement may be made with the tax authorities.





For
further detail about our contractual obligations and commitments, please refer
to our Annual Report on Form 10-K for the fiscal year ended March 31,
2009.




Off-Balance Sheet
Arrangements




The
Company has not entered into any transactions with unconsolidated entities
whereby we have financial guarantees, subordinated retained interests,
derivative instruments or other contingent arrangements that expose us to
material continuing risks, contingent liabilities, or any other obligation under
a variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the Company.








40





Guarantees





The
Company has guaranteed the purchase obligations of some of its contract
manufacturers and original design manufacturers to certain component suppliers.
These guarantees generally have a term of one year and are automatically
extended for one or more years as long as a liability exists. The amount of the
purchase obligations of these manufacturers varies over time, and therefore the
amounts subject to Logitech’s guarantees similarly vary. At September 30, 2009,
there were no outstanding guaranteed purchase obligations. The maximum total
potential future payments under three of the four guarantee arrangements is
limited to $30.8 million. The fourth guarantee is limited to purchases of
specified components from the named supplier. The Company does not believe,
based on historical experience and information currently available, that it is
probable that any amounts will be required to be paid under these guarantee
arrangements.





Logitech
International S.A., the parent holding company, has guaranteed certain
contingent liabilities of various subsidiaries related to specific transactions
occurring in the normal course of business. The maximum amount of the guarantees
was $5.2 million as of September 30, 2009. As of September 30, 2009, $5.2
million was outstanding under these guarantees. The parent holding company has
also guaranteed the purchases of one of its subsidiaries. The guarantee does not
specify a maximum amount. As of September 30, 2009, there were no outstanding
amounts under this guarantee.





Indemnifications





Logitech
indemnifies some of its suppliers and customers for losses arising from matters
such as intellectual property rights and product safety defects, subject to
certain restrictions. The scope of these indemnities varies, but in some
instances, includes indemnification for damages and expenses, including
reasonable attorneys’ fees. No amounts have been accrued for indemnification
provisions at September 30, 2009. The Company does not believe, based on
historical experience and information currently available, that it is probable
that any amounts will be required to be paid under its indemnification
arrangements.





41


ITEM
3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK





Market
Risk





Market
risk represents the potential for loss due to adverse changes in the fair value
of financial instruments. As a global concern, the Company faces exposure to
adverse movements in foreign currency exchange rates and interest rates. These
exposures may change over time as business practices evolve and could have a
material adverse impact on the Company’s financial results.





Foreign
Currency Exchange Rates





The
Company is exposed to foreign currency exchange rate risk as it transacts
business in multiple foreign currencies, including exposure related to
anticipated sales, anticipated purchases and assets and liabilities denominated
in currencies other than the U.S. dollar. Logitech transacts business in over 30
currencies worldwide, of which the most significant to operations are the
Chinese renminbi (“CNY”), Japanese yen, euro, British pound, Taiwanese dollar,
Canadian dollar and Mexican peso. The functional currency of the Company’s
operations is primarily the U.S. dollar. To a lesser extent, certain operations
use the euro, Swiss franc, Japanese yen or the local currency of the country as
their functional currencies. Accordingly, unrealized foreign currency gains or
losses resulting from the translation of net assets or liabilities denominated
in foreign currencies to the U.S. dollar are accumulated in the cumulative
translation adjustment component of other comprehensive income in shareholders’
equity.





The table
below provides information about the Company’s underlying transactions that are
sensitive to foreign exchange rate changes, primarily assets and liabilities
denominated in currencies other than the functional currency, where the net
exposure is greater than $0.5 million at September 30, 2009. The table below
represents the U.S. dollar impact on earnings of a 10% appreciation and a 10%
depreciation of the functional currency as compared with the transaction
currency (in thousands):








Functional Currency
            Transaction
      Currency
            
            Net
      Exposed Long (Short) Currency Position
            
            
            FX
      Gain (Loss) From 10% Appreciation of Functional Currency
            
            
            FX
      Gain (Loss) From 10% Depreciation of Functional CurrencyU.S.
      dollar
            Chinese
      renminbi
            
            $
            38,740
            
            
            $
            (3,522
            )
            
            $
            4,304euro
            British
      pound
            
            
            22,651
            
            
            
            (2,059
            )
            
            
            2,517Taiwanese
      dollar
            U.S.
      dollar
            
            
            11,590
            
            
            
            (1,054
            )
            
            
            1,288Japanese
      yen
            U.S.
      dollar
            
            
            (14,226
            )
            
            
            1,293
            
            
            
            (1,581
            )U.S.
      dollar
            Canadian
      dollar
            
            
            10,360
            
            
            
            (942
            )
            
            
            1,151Mexican
      peso
            U.S.
      dollar
            
            
            (8,543
            )
            
            
            777
            
            
            
            (949
            )Swiss
      franc
            euro
            
            
            (3,287
            )
            
            
            299
            
            
            
            (365
            )euro
            Swedish
      krona
            
            
            (2,330
            )
            
            
            212
            
            
            
            (259
            )euro
            U.S.
      dollar
            
            
            (1,273
            )
            
            
            116
            
            
            
            (141
            )euro
            Utd.
      Arab Emir. dirham
            
            
            893
            
            
            
            (81
            )
            
            
            99U.S.
      dollar
            Hong
      Kong dollar
            
            
            (860
            )
            
            
            78
            
            
            
            (96
            )euro
            Czech
      koruna
            
            
            (693
            )
            
            
            63
            
            
            
            (77
            )euro
            Polish
      zloty
            
            
            (640
            )
            
            
            58
            
            
            
            (71
            )U.S.
      dollar
            Swiss
      franc
            
            
            551
            
            
            
            (50
            )
            
            
            61$
            52,933
            
            
            $
            (4,812
            )
            
            $
            5,881





Long
currency positions represent net assets being held in the transaction currency
while short currency positions represent net liabilities being held in the
transaction currency.








42





The
Company’s principal manufacturing operations are located in China, with much of
its component and raw material costs transacted in CNY. However, the functional
currency of its Chinese operating subsidiary is the U.S. dollar as its sales and
trade receivables are transacted in U.S. dollars. To hedge against any potential
significant appreciation of the CNY, the Company holds a portion of its cash
investments in CNY-denominated deposit accounts. At September 30, 2009, net
assets held in CNY totaled $39 million.  The Company continues to
evaluate the level of net assets held in CNY relative to component and raw
material purchases and interest rates on cash equivalents.





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 Company has designated these derivatives as
cash flow hedges. Logitech does not use derivative financial instruments for
trading or speculative purposes. These hedging contracts generally mature within
six 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 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. The notional amount
represents the future cash flows under contracts to purchase foreign currencies.
Deferred realized losses of $2.6 million are recorded in accumulated other
comprehensive loss at September 30, 2009, and are expected to be reclassified to
cost of goods sold when the related inventory is sold. Deferred unrealized
losses of $1.4 million related to open cash flow hedges are also recorded in
accumulated other comprehensive loss as of September 30, 2009 and will be
revalued in future periods until the related inventory is sold, at which time
the resulting gains or losses will be reclassified to cost of good
sold.





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
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 relating to foreign currency receivables or payables were $19.3
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 were $26.1 million.
Swap contracts outstanding at September 30, 2009 consisted of contracts in
Mexican pesos, Japanese yen, Canadian dollars and British pounds.





If the
U.S. dollar had appreciated by 10% compared with the hedged foreign currency, an
unrealized gain of $7.3 million in our forward foreign exchange contract
portfolio would have occurred. If the U.S. dollar had depreciated by 10%
compared with the hedged foreign currency, an $11.8 million unrealized loss in
our forward foreign exchange contract portfolio would have
occurred.





Interest
Rates





Changes
in interest rates could impact the Company’s anticipated interest income on its
cash equivalents and investment securities and interest expense on variable rate
short-term debt. The Company prepared sensitivity analyses of its interest rate
exposures to assess the impact of hypothetical changes in interest rates. Based
on the results of these analyses, a 100 basis point decrease or increase in
interest rates from the September 30, 2009 and March 31, 2009 period end rates
would not have a material effect on the Company’s results of operations or cash
flows.





43


ITEM
4.   CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





Logitech’s
Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rule 13a-15(e)) as of the end of the period covered by this Form 10-Q, have
concluded that, as of such date, our disclosure controls and procedures are
effective.





Disclosure
controls are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Exchange
Act, such as this Form 10-Q, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls are also designed to reasonably assure that
this information is accumulated and communicated to our management, including
the Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosure.





Changes
in Internal Control over Financial Reporting





There
have been no changes in the Company’s internal control over financial reporting
during the fiscal quarter ended September 30, 2009, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.


44


PART
II – OTHER INFORMATION





ITEM
1.   LEGAL PROCEEDINGS







From time
to time, we become involved in claims and legal proceedings which arise in the
ordinary course of our business. We are currently subject to several such claims
and a small number of legal proceedings. We presently do not believe that the
resolution of these claims and legal proceedings will have a material impact on
our results of operations or financial condition.





ITEM
1A.   RISK FACTORS





The
strength and timing of the anticipated improvement of our business is uncertain,
and economic conditions have and could continue to significantly harm our
operating results.





The
global economic recession has had a significant negative impact on our
business.  We anticipate that our business and operating results will
improve, in part as a result of the steps we have taken in response to general
economic conditions.  However, the strength and precise timing of the
anticipated improvement of our business is uncertain. In addition, the recession
may continue to have the following negative effects on our business, operating
results, and financial condition:





·
            Reduced
      sales to our customers, reflecting current and anticipated lower end-user
      consumer demand for our products as well as a shift in consumer buying
      patterns toward lower-priced
products.





·
            Reduced
      sales to those customers that continue to lower their required inventory
      levels.





·
            Risk
      of further customer bankruptcy or business failures, resulting in lower
      sales levels and increases in bad debt write-offs and receivables
      reserves.





·
            Higher
      costs for customer incentive programs, cooperative marketing arrangements
      and price protection used to stimulate demand, which lowers our net
      sales.





·
            Increased
      downward pressure on our product prices as we lower prices to stimulate
      demand or reduce inventory, or as competitors lower prices to gain market
      share in slow-growing or shrinking
markets.





·
            Product
      returns in excess of our historical experience rate, resulting in higher
      returns reserves rates.





·
            Risk
      of excess and obsolete inventories.





·
            Financial
      distress or bankruptcy of key suppliers, resulting in insufficient product
      quantities to meet demand for particular
  products.





·
            Risk
      of counterparty failures due to continuing stress on financial
      institutions, which may negatively impact cash, cash equivalents and
      investment securities.





If our
business does not improve as we expect, or if global economic conditions
deteriorate, our operating results in a given quarter could be below the
expectations of financial analysts and investors, which could cause the price of
our shares to decline.








45





Our
operating results are difficult to predict and fluctuations in results may cause
volatility in the price of our shares.





Our
revenues and profitability are difficult to predict due to the nature of the
markets in which we compete and for many other reasons, including the
following:





·
            Our
      operating results are highly dependent on the volume and timing of orders
      received during the quarter, which are difficult to forecast. Customers
      generally order on an as-needed basis and we typically do not obtain firm,
      long-term purchase commitments from our customers. As a result, our
      revenues in any quarter depend primarily on orders booked and shipped in
      that quarter.





·
            A
      significant portion of our quarterly retail sales typically occurs in the
      last weeks of each quarter, further increasing the difficulty in
      predicting quarterly revenues and
profitability.





·
            We
      must incur a large portion of our costs in advance of sales orders,
      because we must plan research and production, order components, buy
      tooling equipment, and enter into development, sales and marketing, and
      other operating commitments prior to obtaining firm commitments from our
      customers. This makes it difficult for us to rapidly adjust our costs
      during the quarter in response to a revenue shortfall, which could
      adversely affect our operating
results.





·
            Fluctuations
      in currency exchange rates can impact our revenues, expenses and
      profitability because we report our financial statements in U.S. dollars,
      whereas a significant portion of our revenues and expenses are in other
      currencies. We attempt to adjust product prices over time to offset the
      impact of currency movements. However, the weakness in consumer spending
      caused by the current global economic recession has limited our ability to
      increase local currency selling prices, which has negatively affected and
      may continue to negatively affect our ability to offset the impact of
      currency fluctuations.





Because
our operating results are difficult to predict, our results may be below the
expectations of financial analysts and investors, which could cause the price of
our shares to decline.





If
we fail to successfully innovate in our current and emerging product categories,
our business and operating results could suffer.





The
personal peripherals industry is characterized by short product life cycles,
frequent new product introductions, rapidly changing technology and evolving
industry standards. As a result, we must continually innovate in our current and
emerging product categories, introduce new products and technologies, and
enhance existing products in order to remain competitive.





The
success of our products depends on several factors, including our ability
to:





·
            identify
      new feature or product
opportunities;





·
            anticipate
      technology, market trends and consumer
demands;





·
            develop
      innovative and reliable new products and enhancements in a cost-effective
      and timely manner;  and





·
            distinguish
      our products from those of our
competitors.









46




If we do
not execute on these factors successfully, products that we introduce or
technologies or standards that we adopt may not gain widespread commercial
acceptance, and our business and operating results could suffer. In addition, if
we do not continue to distinguish our products, particularly our retail
products, through distinctive, technologically advanced features, designs, and
services, as well as continue to build and strengthen our brand recognition and
our access to distribution channels, our business could be harmed.





Our
gross margins can vary significantly depending on multiple factors, which can
result in unanticipated fluctuations in our operating results.





Our gross
margins can vary due to consumer demand, competition, product life cycle, new
product introductions, unit volumes, commodity and supply chain costs,
geographic sales mix, foreign currency exchange rates, and the complexity and
functionality of new product innovations.  In particular, if we are
not able to introduce new products in a timely manner at the product cost we
expect, or if consumer demand for our products is less than we anticipate, or if
there are product pricing, marketing and other initiatives by our competitors to
which we need to react that lower our margins, then our overall gross margin
will be less than we project. For example, in the second half of fiscal year
2009 and the first half of fiscal year 2010, economic uncertainty caused our
customers to reduce purchases of our products below what we had forecasted, and
also led us to increase our customer incentives to stimulate demand, which
significantly lowered our overall gross margin.




In
addition, our gross margins may vary significantly by product line, sales
geography and customer type, as well as within product lines. When the mix of
products sold shifts from higher margin product lines to lower margin product
lines, to lower margin sales geographies, or to lower margin products within
product lines, our overall gross margins and our profitability may be adversely
affected.





The
impact of these factors on gross margins can create unanticipated fluctuations
in our operating results, which may cause volatility in the price of our
shares.





If
we do not compete effectively, demand for our products could decline and our
business and operating results could be adversely affected.





Our
industry is intensely competitive. It is characterized by short product life
cycles, continual performance enhancements, and rapid adoption of technological
and product advancements by competitors in our retail market, and price
sensitivity in the OEM market. We are experiencing aggressive price competition
and other promotional activities from our primary competitors and from
less-established brands in response to declining consumer demand in both the
retail and OEM markets. In addition, our competitors may offer customers terms
and conditions which may be more favorable than our terms and conditions and may
require us to take actions to increase our customer incentive programs, which
could impact our revenues and operating margins.





In recent
years, we have expanded the categories of products we sell, and entered new
markets, such as the markets for streaming media devices and for home or small
business video security systems. We remain alert to opportunities in new
categories and markets. As we do so, we are confronting new competitors, many of
which have more experience in the categories or markets and have greater
marketing resources and brand name recognition than we have. In addition,
because of the continuing convergence of the markets for computing devices and
consumer electronics, we expect greater competition in the future from
well-established consumer electronics companies in our developing categories, as
well as in future categories we might enter. Many of these companies, such as
Microsoft Corporation, Cisco Systems, Sony and others, have greater financial,
technical, sales, marketing and other resources than we have.






47





Microsoft
is a leading producer of operating systems and applications with which our mice,
keyboards and webcams are designed to operate. In addition, Microsoft has
significantly greater financial, technical, sales, marketing and other resources
than Logitech, as well as greater name recognition and a larger customer base.
As a result, Microsoft may be able to improve the functionality of its own
peripherals to correspond with ongoing enhancements to its operating systems and
software applications before we are able to make such improvements. This ability
could provide Microsoft with significant lead-time advantages. In addition,
Microsoft may be able to offer pricing advantages on bundled hardware and
software products that we may not be able to offer, and may be financially
positioned to exert significant downward pressure on product prices and upward
pressure on promotional incentives in order to gain market share.





Pointing Devices, Keyboards and
Desktops.Microsoft is our main competitor in the mice, keyboard and
desktop product lines. We also experience competition and pricing pressure for
corded and cordless mice and desktops from less-established brands, which has
impacted our market share in some sales geographies and which could potentially
further impact our market share. The notebook peripheral category is also an
area where we face aggressive pricing and promotions, as well as new competitors
that have broader notebook product offerings than we do.





Video. Our competitors for PC
Web cameras include Microsoft, Creative Labs and Philips. We are encountering
aggressive pricing practices and promotions on a worldwide basis, which have
impacted our revenues and margins. The worldwide market for PC webcams has been
very competitive, and as a result, pricing practices and promotions by our
competitors have become more aggressive.





Audio. Competitors in audio
devices vary by product line. In the PC, mobile entertainment and communication
platform speaker business, competitors include Plantronics and its Altec Lansing
subsidiary, Creative Labs, and Bose Corporation. In the PC headset and
microphone business, our main competitors include Plantronics and its Altec
Lansing subsidiary.  We have expanded our audio product portfolio to
include network-based audio systems for digital music, an emerging market with
several small competitors as well as larger established consumer electronics
companies, like Sony and Philips.





Gaming.Competitors for our
interactive entertainment products include Intec, Pelican Accessories, Mad Catz
and its Saitek subsidiary. Our controllers for PlayStation also compete against
controllers offered by Sony.





Remotes. Our competitors for
remotes include, among others, Philips, Universal Remote, Universal Electronics,
RCA and Sony. We expect that the growth in recent years in consumer demand for
personal peripheral devices for home entertainment systems will likely result in
increased competition.





If we do
not compete effectively, demand for our products could decline, our gross margin
could decrease, we could lose market share and our revenues could
decline.





If
we do not successfully innovate and market products for notebook PCs and mobile
devices, our business and results of operations may suffer.




We have
historically targeted peripherals for the PC platform, a market that is
dynamically changing as a result of the declining popularity of desktop PCs and
the increasing popularity of notebook PCs and mobile devices, such as
“netbooks”, mobile phones and smaller form factor devices with computing or web
surfing capabilities. In our OEM channel, this shift has adversely affected our
sales of OEM mice, which are sold with name-brand desktop PCs. Our OEM mice
sales have historically made up the bulk of our OEM sales, and our OEM sales
accounted for 15% and 13% of total revenues during fiscal years 2009 and 2008.
If the desktop PC market continues to experience slower growth or decline, and
if we do not successfully diversify our OEM business, our OEM revenues could be
adversely affected.






48





In our
retail channels, notebook PCs and mobile devices are sold by retailers without
peripherals.  We believe this creates opportunities to sell products
to consumers to help make their devices more productive and
comfortable.  However, consumer acceptance and demand for peripherals
for use with smaller form factor computing devices such as notebook PCs and
mobile devices is still uncertain. The increasing popularity of notebook PCs and
mobile devices may result in a decreased demand by consumers for keyboards and
speakers, which could negatively affect our sales of these products. The
increasing popularity of mobile devices has coincided with a steadily decreasing
average sales price for computing devices, including for desktop and notebook
PCs.  As a result, there is a risk that the demand for those of our
products that have a relatively high average sales price in relation to the
price of a desktop or notebook PC will decline.  If we do not
successfully innovate and market products designed for notebook PCs and other
mobile devices, or if general consumer demand for peripherals for use with
notebook PCs and mobile devices does not increase, our business and results of
operations could be significantly harmed.




If
we do not accurately forecast product demand, our business and operating results
could be adversely affected.





We use
our forecasts of product demand to make decisions regarding investments of our
resources and production levels of our products. Although we receive forecasts
from our customers, many are not obligated to purchase the forecasted demand.
Also, actual sales volumes for individual products in our retail distribution
channel can be volatile due to changes in consumer preferences and other
reasons. In addition, our retail products have short product life cycles, so a
failure to accurately predict high demand for a product can result in lost sales
that we may not recover in subsequent periods, or higher product costs if we
meet demand by paying higher costs for materials, production and delivery. We
could also frustrate our customers and lose shelf space. Our failure to predict
low demand for a product can result in excess inventory, lower cash flows and
lower margins if we are required to reduce product prices in order to reduce
inventories.





Over the
past few years, we have expanded the number and types of products we sell, and
the geographic markets in which we sell them, and we will endeavor to further
expand our product portfolio and sales reach. The growth of our product
portfolio and our sales markets has increased the difficulty of accurately
forecasting product demand.




We have
experienced large differences between our forecasts and actual demand for our
products and expect differences to arise in the future. If we do not accurately
predict product demand, our business and operating results could be adversely
affected.





Our business
depends in part on access to third-party platforms or technologies, and if the
access is withdrawn, denied, or is not available on terms acceptable to us, or
if the platforms or technologies change without notice to us, our business and
operating results could be adversely affected.





Our
product portfolio includes products designed for use with third-party platforms,
such as Apple iPod, Microsoft Xbox, Sony PlayStation, and Nintendo Wii. Our
business in these categories relies on our access to the platforms of third
parties, which can be withdrawn, denied or not be available on terms acceptable
to us.
 
 Our
access to third-party platforms may require paying a royalty, which lowers our
product margins, or may otherwise be on terms that are not acceptable to us. In
addition, the third-party platforms or technologies used to interact with our
product portfolio can change without prior notice to us, which can result in our
having excess inventory or lower margins.




49





If we are
unable to access third-party platforms or technologies, or if our access is
withdrawn, denied, or is not available on terms acceptable to us, or if the
platforms or technologies change without notice to us, our business and
operating results could be adversely affected.





Our
principal manufacturing operations and third-party contract manufacturers are
located in China, which exposes us to risks associated with doing business in
that country.





Our
principal manufacturing operations and third-party contract manufacturers are
located in China. Our manufacturing operations in Suzhou, China could be
severely impacted by changes in the interpretation and enforcement of legal
standards, by strains on China’s transportation, communications, trade, public
health and other infrastructures, by conflicts, embargoes, disagreements or
increased tensions between China and Taiwan, by labor unrest, and by other trade
customs and practices that are dissimilar to those in the United States and
Europe. Interpretation and enforcement of China’s laws and regulations continue
to evolve and we expect differences in interpretation and enforcement to
continue in the foreseeable future.





Further,
we may be exposed to fluctuations in the value of the Chinese renminbi (“CNY”),
the local currency of China. Significant future appreciation of the CNY could
increase our component and other raw material costs, as well as our labor costs,
and could adversely affect our financial results.





We
purchase key components and products from a limited number of sources, and our
business and operating results could be harmed if supply were delayed or
constrained or if there were shortages of required components.





We
purchase certain products and key components from a limited number of sources.
If the supply of these products or key components, such as micro-controllers and
optical sensors, were to be delayed or constrained, or if one or more of our
single-source suppliers goes out of business as a result of adverse global
economic conditions, we might be unable to find a new supplier on acceptable
terms, or at all, and our product shipments to our customers could be delayed,
which could harm our business, financial condition and operating
results.





Lead
times for materials, components and products ordered by us or by our contract
manufacturers can vary significantly and depend on factors such as contract
terms, demand for a component, and supplier capacity. From time to time, we have
experienced component shortages and extended lead times on semiconductors, such
as micro-controllers and optical sensors, and base metals used in our products.
Shortages or interruptions in the supply of components or subcontracted
products, or our inability to procure these components or products from
alternate sources at acceptable prices in a timely manner, could delay shipment
of our products or increase our production costs, which could adversely affect
our business and operating results.





If
we do not successfully coordinate the worldwide manufacturing and distribution
of our products, we could lose sales.





Our
business requires us to coordinate the manufacture and distribution of our
products over much of the world. We rely on third parties to manufacture many of
our products, manage centralized distribution centers, and transport our
products. If we do not successfully coordinate the timely manufacturing and
distribution of our products, we may have insufficient supply of products to
meet customer demand and we could lose sales, or we may experience a build-up in
inventory.





A
significant portion of our quarterly retail orders and product deliveries
generally occur in the last weeks of the fiscal quarter. This places pressure on
our supply chain and could adversely impact our revenues and profitability if we
are unable to successfully fulfill customer orders in the quarter.








50





We
conduct operations in a number of countries and the effect of business, legal
and political risks associated with international operations could significantly
harm us.





We
conduct operations in a number of countries. There are risks inherent in doing
business in international markets, including:





·
            difficulties
      in staffing and managing international
  operations;





·
            compliance
      with laws and regulations, including environmental and tax laws, which
      vary from country to country and over time, increasing the costs of
      compliance and potential risks of
  non-compliance;





·
            exposure
      to political and financial instability, leading to currency exchange
      losses and collection difficulties or other
  losses;





·
            exposure
      to fluctuations in the value of local
  currencies;





·
            difficulties
      or increased costs in establishing sales and distribution channels in
      unfamiliar markets, with their own market characteristics and competition,
      particularly in Latin America, Eastern Europe and
  Asia;





·
            changes
      in value-added tax (“VAT”) or VAT
reimbursement;





·
            imposition
      of currency exchange controls; and





·
            delays
      from customs brokers or government
agencies.





Any of
these risks could significantly harm our business, financial condition and
operating results.





We
may be unable to protect our proprietary rights. Unauthorized use of our
technology may result in the development of products that compete with our
products.





Our
future success depends in part on our proprietary technology, technical know-how
and other intellectual property. We rely on a combination of patent, trade
secret, copyright, trademark and other intellectual property laws, and
confidentiality procedures and contractual provisions such as nondisclosure
terms and licenses, to protect our intellectual property.





We hold
various United States patents and pending applications, together with
corresponding patents and pending applications from other countries. It is
possible that any patent owned by us will be invalidated, deemed unenforceable,
circumvented or challenged, that the patent rights granted will not provide
competitive advantages to us, or that any of our pending or future patent
applications will not be granted. In addition, other intellectual property laws
or our confidentiality procedures and contractual provisions may not adequately
protect our intellectual property. Also, others may independently develop
similar technology, duplicate our products, or design around our patents or
other intellectual property rights. Unauthorized parties have copied and may in
the future attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Any of these events could
significantly harm our business, financial condition and operating
results.






51





Product
quality issues could adversely affect our reputation and could impact our
operating results.





The
market for our products is characterized by rapidly changing technology and
evolving industry standards. To remain competitive, we must continually
introduce new products and technologies. The products that we sell could contain
defects in design or manufacture. Defects could also occur in the products or
components that are supplied to us. There can be no assurance we will be able to
detect and remedy all defects in the hardware and software we sell. Failure to
do so could result in product recalls, product redesign efforts, lost revenue,
loss of reputation, and significant warranty and other expenses to
remedy.





Our
effective tax rates may increase in the future, which could adversely affect our
net income.





We
operate in multiple jurisdictions and our profits are taxed pursuant to the tax
laws of these jurisdictions. Our effective tax rate may be affected by changes
in or interpretations of tax laws in any given jurisdiction, utilization of net
operating loss and tax credit carryforwards, changes in geographical allocation
of income and expense, and changes in management’s assessment of matters such as
the realizability of deferred tax assets. In the past, we have experienced
fluctuations in our effective income tax rate. Our effective income tax rate in
a given fiscal year reflects a variety of factors that may not be present in the
succeeding fiscal year or years. There is no assurance that our effective income
tax rate will not change in future periods.  We are currently subject
to ongoing audits in various jurisdictions and a material assessment by a
governing tax authority could adversely affect our profitability. If our
effective tax rate increases in future periods, our net income could be
adversely affected.





We
may not fully realize the anticipated positive impacts to future financial
results from the restructuring announced in January 2009.





In the
fiscal quarter ended March 31, 2009, we implemented a restructuring which
reduced Logitech’s salaried workforce globally by 515 employees, in addition to
other actions aimed at reducing operating expenses. The restructuring plan is
expected to generate annual personnel cost savings beginning in fiscal year 2010
of approximately $50 million, and approximately $50 million additional variable
cost savings through efforts to limit production costs and operating
expenses.





Our
ability to achieve the anticipated variable cost savings and other benefits from
this restructuring within the expected time frame is subject to many estimates
and assumptions, and may vary materially based on factors such as negotiations
with third parties and operational requirements. These estimates and assumptions
are subject to significant economic, competitive and other uncertainties, some
of which are beyond our control. There can be no assurance that we will fully
realize the anticipated positive impacts to future financial results from this
restructuring. In the event that the current economic conditions significantly
worsen, further restructuring measures may be required in the
future.





If our
estimates and assumptions are incorrect or if other unforeseen events occur, we
may not achieve the cost savings expected in fiscal year 2010 and beyond, and
our business and results of operations could be adversely affected.








52





ITEM
2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





Share
Repurchases





The
following table sets forth certain information related to purchases made by
Logitech of its equity securities (in thousands, except share and per share
amounts):








Period
            Total
      Number of Shares Purchased
            Average
      Price Paid Per Share
            Total
      Number of Shares Purchased as a Part of Publicly Announced
      Programs
            Approximate
      Dollar Value of Shares That May Yet Be Purchased Under the
      Programsin
      USD
            in
      CHFJuly,
      2009
            -
            -
            -
            -
            $126,025August,
      2009
            3,325
            $16.82
            CHF
      17.99
            3,325
            70,224September,
      2009
            2,513
            $18.04
            CHF
      19.09
            2,513
            24,985Total
            5,838
            $17.35
            CHF
      18.46
            5,838





The
repurchases were made pursuant to the share buyback program of $250 million
approved in June 2007, which is in effect until the 2010 Annual General Meeting,
unless concluded earlier or discontinued.





In
September 2008, our Board of Directors approved a new 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 our current share buyback program of $250
million.





ITEM
4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





We held
our Annual General Meeting of Shareholders on September 1, 2009. At the meeting,
our shareholders voted on the following seven proposals and cast their votes as
follows:





Proposal
1: Approval of the Annual Report, the Compensation Report, the consolidated
financial statements and the statutory financial statements of Logitech
International S.A. for fiscal year 2009




For
            Against
            Abstain
            Non-Votes72,127,983
            98,994
            1,594,013
            099.86%
            0.14%
            N/A
            N/A





Proposal
2: Advisory vote on compensation philosophy, policies and practices




For
            Against
            Abstain
            Non-Votes71,315,314
            1,985,103
            520,573
            097.29%
            2.71%
            N/A
            N/A





Proposal
3: Appropriation of retained earnings without payment of a dividend




For
            Against
            Abstain
            Non-Votes72,071,718
            1,610,655
            137,792
            097.81%
            2.19%
            N/A
            N/A






53





Proposal
4: Increase of the number of shares available for issuance under the 2006 Stock
Incentive Plan




For
            Against
            Abstain
            Non-Votes44,569,727
            19,941,905
            324,835
            8,983,19869.09%
            30.91%
            N/A
            N/A





Proposal
5: Release of the Board of Directors and Executive Officers for activities
during fiscal year 2009




For
            Against
            Abstain
            Non-Votes61,685,410
            553,066
            380,718
            099.11%
            0.89%
            N/A
            N/A





Proposal
6.1: Re-election of Mr. Erh-Hsun Chang




For
            Against
            Abstain
            Non-Votes73,141,310
            323,905
            353,927
            099.56%
            0.44%
            N/A
            N/A





Proposal
6.2: Re-election of Mr. Kee-Lock Chua




For
            Against
            Abstain
            Non-Votes73,224,332
            241,795
            353,015
            099.67%
            0.33%
            N/A
            N/A





Proposal
7: Re-election of PricewaterhouseCoopers SA as auditors




For
            Against
            Abstain
            Non-Votes73,495,104
            199,124
            124,914
            099.73%
            0.27%
            N/A
            N/A








54


ITEM
6.   EXHIBITS





Exhibit
Index








Exhibit No.
            Description10.1
            Representative
      form of Stock Option Agreement for non-executive Board members under the
      Logitech International S.A. 2006 Stock Incentive Plan10.2
            Representative
      form of Stock Option Agreement for employees, including executive
      officers, under the Logitech International S.A. 2006 Stock Incentive
      Plan10.3
            Representative
      form of Restricted Stock Unit Agreement for non-executive Board members
      under the Logitech International S.A. 2006 Stock Incentive
      Plan10.4
            Representative
      form of Restricted Stock Unit Agreement for executive officers under the
      Logitech International S.A. 2006 Stock Incentive Plan10.5
            Compensation
      terms for non-executive Board members for the September 2009 - September
      2010 Board Year10.14.1
            Executive
      Officer base salary, duties and authority under form of employment
      agreements dated December 3, 200831.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32.1
            Section
      1350 Certifications of Chief Executive Officer and Chief Financial
      Officer**





**
            This
      exhibit is furnished herewith, but not deemed “filed” for purposes of
      Section 18 of the Securities Exchange Act of 1934, as amended, or
      otherwise subject to liability under that section. Such certifications
      will not be deemed to be incorporated by reference in any filing under the
      Securities Act or the Exchange Act, except to the extent that we
      explicitly incorporate them by
reference.





55


SIGNATURES





Pursuant
to the requirements the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





LOGITECH
INTERNATIONAL S.A.





/s/
      Gerald P. QuindlenGerald
      P. Quindlen
              President
      and Chief Executive Officer








/s/
      Erik K. BardmanErik
      K. Bardman
              Senior
      Vice President of Finance
              and
      Chief Financial Officer











November
4, 2009