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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549


FORM 10-K


x
            
            ANNUAL REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31,
      2010oro
            
            TRANSITION 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
            None(State or other
      jurisdiction
            (I.R.S. Employerof incorporation or
      organization)
            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)


_______________ Securities registered pursuant to Section 12(b) of the
Act:




Title of
      each class
            Name of
      each exchange on which registeredRegistered Shares par value CHF 0.25 per
      share
            The NASDAQ Global Select
      MarketSIX Swiss
  Exchange


Securities registered or to be registered
pursuant to Section 12(g) of the Act:
None___________________




Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes xNo o  Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes o No x  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. YesxNoo 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). YesoNoo Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of the
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x  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 oNon-accelerated filer o
            Smaller reporting company o


(Do not check if a smaller reporting
company) Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). YesoNox The aggregate market value of the voting
shares held by non-affiliates of the registrant, based upon the closing sale
price of the shares on September 25, 2009, the last business day of the
registrant’s second fiscal quarter on the NASDAQ Global Select Market, was
approximately $2,430,631,788. For purposes of this disclosure, voting shares
held by persons known to the Registrant to beneficially own more than 5% of the
Registrant’s shares and shares held by officers and directors of the Registrant
have been excluded because such persons may be deemed to be affiliates. This
determination is not necessarily a conclusive determination for other
purposes. As of May 3, 2010, there were
175,458,482 shares of the Registrant’s share capital outstanding.


DOCUMENTS INCORPORATED BY REFERENCE


Portions of the registrant’s Proxy Statement
for the 2010 Annual Meeting of Shareholders are incorporated herein by reference
in Part III of this Annual Report on Form 10-K to the extent stated herein. Such
proxy statement will be filed with the Securities and Exchange Commission within
120 days of the registrant’s fiscal year ended March 31, 2010.


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TABLE OF CONTENTS




PagePart IItem 1.
            
            Business
            4Item 1A.
            
            Risk Factors
            22Item 1B.
            
            Unresolved Staff Comments
            30Item 2.
            
            Properties
            31Item 3.
            
            Legal Proceedings
            32Item 4.
            
            (Removed and Reserved)
            32Part IIItem 5.
            
            Market for Registrant’s Common Equity, Related Stockholder Matters
      and Issuer Purchasesof Equity Securities
            33Item
      6.
            
            Selected Financial Data
            37Item 7.
            
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            38Item
      7A.
            
            Quantitative and Qualitative Disclosures
      About Market Risk
            61Item 8.
            
            Financial Statements and Supplementary Data
            63Item
      9.
            
            Changes in and Disagreements With
      Accountants on Accounting and FinancialDisclosure
            63Item 9A.
            
            Controls and Procedures
            63Item
      9B.
            
            Other Information
            64Part IIIItem 10.
            
            Directors, Executive Officers and Corporate Governance
            65Item
      11.
            
            Executive Compensation
            65Item 12.
            
            Security Ownership of Certain Beneficial Owners and Management and
      Related StockholderMatters
            65Item
      13.
            
            Certain Relationships and Related
      Transactions, and Director Independence
            66Item 14.
            
            Principal Accountant Fees and Services
            66Part IVItem 15.
            
            Exhibits and Financial Statement Schedules
            66Signatures
            
            
            69Financial Statements and Notes to
      Consolidated Financial Statements
            71Exhibits


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.




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FORWARD-LOOKING
INFORMATION




This Annual Report on Form 10-K contains
forward-looking statements based on beliefs of our management as of the filing
date of this Form 10-K. These forward-looking statements include statements
related to:


- our business strategy for fiscal
  year 2011 and beyond considering current and future general economic
  conditions;
- our business and product plans for
  fiscal year 2011 and evolving consumer demand trends affecting our
  products; and
- the sufficiency of our cash and
  cash equivalents, cash generated from operations, and available borrowings under our bank lines of credit to
  fund capital expenditures and working capital needs for the foreseeable future.

Factors that might affect these
forward-looking statements include, among other things:


- worldwide economic and business
  conditions, particularly in retail consumer markets, and our ability to
  implement our business strategy during
  uncertain market conditions;
- general market trends for
  peripherals for personal computers and other digital platforms and
  market acceptance of our
  products;
- the impact of our acquisition of
  LifeSize Communications on our current operations and future performance;
- the impact of a failure to
  successfully innovate in our current and emerging product categories
  and identify new features or
  product opportunities;
- the effect of pricing, product,
  marketing and other initiatives by our competitors and our reaction to
  them on our sales, gross margins,
  operating expenses and profitability;
- consumer demand for our products
  and our ability to accurately forecast such demand;
- our ability to match production
  levels with product demand and to successfully coordinate worldwide
  manufacturing and distribution of our
  products.

Forward-looking statements also include, among
others, those statements including the words “anticipate,” “believe,” “could,”
“estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,”
“should,” “will” and similar language. These statements reflect our views and
assumptions as of the date of this Annual Report on Form 10-K. All
forward-looking statements involve risks and uncertainties that could cause our
actual results to differ materially from those projected in the forward-looking
statements. Factors that might cause or contribute to such differences include,
but are not limited to, those discussed under Item 1A “Risk Factors,” as well as
elsewhere in this Annual Report on Form 10-K and in our other filings with the
U.S. Securities and Exchange Commission. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this Annual Report on Form 10-K. 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.




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PART I




ITEM 1. BUSINESS




Company Overview




Logitech is a world 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, gaming and wireless devices. With our acquisition of
LifeSize Communications, Inc. in December 2009, we entered the market for
enterprise video conferencing products and services. Our products combine
essential core technologies, continuing innovation, and award-winning industrial
design.




For the PC, our products include mice,
trackballs, keyboards, interactive gaming controllers, multimedia speakers,
headsets, webcams, 3D control devices and lapdesks. Our Internet communications
products include webcams, headsets, video communications services, and digital
video security systems for a home or small business. Our LifeSize division
offers scalable high-definition (“HD”) video communication products, support and
services. Our digital music products include speakers, earphones, and custom
in-ear monitors. For home entertainment systems, we offer the Harmony line of
advanced remote controls and the Squeezebox and Transporter wireless music
solutions for the home. 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.




We sell our peripheral products to a network
of retail distributors and resellers and to original equipment manufacturers, or
OEMs. We sell our LifeSize products and services to distributors, value-added
resellers, OEMs and direct enterprise customers. The large majority of our
revenues are derived from sales of our personal peripheral products for use by
consumers.




For the fiscal year ended March 31, 2010, we
generated net sales of $2.0 billion, operating income of $78.4 million, net
income of $65.0 million, employed approximately 10,000 employees and conducted
business in approximately 100 countries.




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 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. References in this Form 10-K to the “Company,”
“Logitech,” “we,” “our,” and “us” refer to Logitech International S.A. and its
consolidated subsidiaries.




Logitech operates in two industry segments,
personal peripherals and video conferencing. Our personal peripherals segment
encompasses the design, manufacturing and marketing of personal peripherals for
personal computers and other digital platforms. Our research and product
management teams are organized along product lines, and are responsible for
product strategy, industrial design and development, and technological
innovation. Our global marketing and sales organization helps define product
opportunities and bring our products to market, and is responsible for building
the Logitech brand and consumer awareness of our products. This organization is
comprised of retail and OEM sales and marketing groups. Our retail sales and
marketing activities are organized into three geographic regions: Americas
(including North and South America), Europe-Middle East-Africa (“EMEA”), and
Asia Pacific. Our OEM sales team is a worldwide organization with
representatives in each of our three regions. Our OEM customers include the
majority of the world’s largest PC manufacturers. Our video conferencing segment
encompasses the design, manufacturing and marketing of LifeSize video
conferencing products and services for the enterprise and small-to-medium
business markets. The LifeSize segment maintains a separate marketing and sales
organization. The LifeSize product development and product management
organizations are separate, but coordinated with our personal peripherals
business, particularly our webcam and video communications groups. Based on
financial measurements for the fiscal year ended March 31, 2010 as evaluated by
Logitech’s Chief Executive Officer, the LifeSize operating segment does not meet
the quantitative threshold for separate disclosure of financial information
required by generally accepted accounting principles in the United
States.




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A summary of our net sales and long-lived
assets by geographic region can be found in Note 18 to the Consolidated
Financial Statements in Item 15, which is incorporated herein by reference. A
discussion of factors potentially affecting our operations is set forth in Item
1A Risk Factors, which is incorporated herein by reference.




Since 1994, we have had our own manufacturing
operations in Suzhou, China, which currently handle approximately half of our
total production of peripheral products. We outsource the remaining production
to contract manufacturers and original design manufacturers located in Asia.
Both our in-house and outsourced manufacturing is managed by our worldwide
operations group. The worldwide operations group also supports the business
units and marketing and sales organizations through management of distribution
centers and of the product supply chain, and the provision of technical support,
customer relations and other services. Our LifeSize video communications
products are manufactured in Malaysia under contract with a third-party
manufacturer.




Industry Overview




Affordable prices and wider availability of
business, consumer, education, and communication applications have created a
very large installed base of desktop and notebook personal computers. We believe
that market penetration of PCs, Mac computers and other information access
devices, already high in developed countries, will eventually increase
worldwide.




In addition, continuing growth in processing
power and communications bandwidth, the increased accessibility of digital
content, and the pervasive access and use of the Internet, create opportunities
for new applications, new users and dramatically richer interactions between
users and digital information. These developments create new demands by users
who want to take full advantage of the increased processing power, new
applications and new technologies in an intuitive, productive, comfortable and
convenient manner.




Today’s desktop and notebook PCs and Mac
computers have evolved into affordable multimedia appliances or “digital hubs”
capable of creating and manipulating vast amounts of graphics, sound and video.
Logitech believes the expanded capabilities of PCs and Mac computers and the
large installed base present a significant opportunity for companies that
provide innovative personal peripheral products for the computer, since basic
input devices alone do not fully enable many of the newest applications, or are
not as convenient or comfortable as the peripheral upgrades and add-ons sold
separately from the basic PC or Mac computer. We believe the potential demand
for our products grows as consumers demand more function-rich personal
peripheral tools, and as the PC or Mac computer play an increasing role in the
new digital lifestyle.




In addition, we believe that trends
established in the consumer technology market – such as brand identity,
affordability, ease of installation and use as well as visual appeal – have
become important aspects of the purchase decision when buying a desktop or
notebook PC or Mac computer and personal peripherals.




We also believe that similar industry dynamics
and personal peripheral device opportunities exist for non-PC platforms that are
connected to the Internet, such as home-entertainment systems, smartphones,
tablets and video conferencing platforms. As these additional platforms deliver
new functionality, increased processing power and growing communications
capabilities, we expect demand to increase for add-on, complementary devices
connected to these platforms. The product expertise Logitech has developed
around the PC extends to these other platforms as well and provides further
opportunity for growth and leverage.




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In the video conferencing industry, we believe
there is potential for growth in the sales of video communications products and
services both in the enterprise markets and among consumers. The technological
and economic trends creating this growth include the increased availability of
high-bandwidth internet connections in enterprises and homes, improvements in
video processing speeds, wide geographic distribution of employees, customers
and families, and a desire to lower travel costs. These trends also generate
increased interest in the video conferencing market by large, well-financed
competitors, such as Cisco Systems, Inc. and Hewlett-Packard Company and, as a
result, we expect competition in the industry to further intensify.




Consumer Behavior and Customer Experience
Strategy




The impact of the global macroeconomic
recession on buying behavior in consumer electronics has been significant. In
the current environment, we believe that consumers have become more discerning
and more value-oriented and are increasingly moving online both to research and
purchase products. Our strategy is to continue to stay close to consumers and
adapt rapidly to their changing needs, which is exemplified by our greater
emphasis on integrating consumer insights into our product and marketing
strategies. We believe that a deeper understanding of the consumer is one of the
major drivers that has enabled Logitech to emerge stronger from the
downturn.




The mission of our customer experience
organization is to focus on understanding and improving the consumer’s overall
experience with Logitech products. This group’s goal is to ensure optimal levels
of experience in all Logitech products and at each consumer touch point. We use
metrics and consumer feedback mechanisms to drive meaningful and measurable
improvements in our products. We believe that these improvements increase
consumer loyalty over time. In addition, by focusing on maximizing the number of
consumers who actively recommend Logitech products, we are fueling brand
preference within and across our many product categories. This is especially
important because we believe today’s consumer exhibits increasing skepticism
toward manufacturers, yet is more trusting of personal
recommendations.




Business Strategy




Logitech’s objective is to strengthen our
leadership in the market for personal peripherals, linking people to the digital
world wherever and whenever they need to access digital information for work or
play. Our current business is focused on the installed and still-growing base of
desktop, notebook and netbook PCs and Mac computers by offering innovative
personal peripherals to address needs for comfort and productivity as well as
entertainment and communication. Historically, the PC has been the main
interface to the digital world and the Internet. As access to digital
information expands beyond the PC platform, we are also extending our vision to
the living room, meeting room and other platforms as access points to the
Internet and the digital world. We believe that the market for PC personal
peripherals will continue to present significant opportunities. However, we are
increasingly focusing our efforts on other platforms and devices that will allow
consumers to easily access information, communicate conveniently, and enjoy
multiple media.




In addition, as part of our corporate
strategy, we plan to increase investments in and realign resources to focus on
certain market adjacencies, geographic markets or new categories, including
video communications and the China market. We also plan to increase our
investment in applications and peripherals for open platforms, which do not
require direct collaboration and agreement with the platform owner.




We continually evaluate our product offerings
and our strategic direction in light of current global economic conditions,
changing consumer trends, and the evolving nature of the interface between the
consumer and the digital world.




Product Strategy




We have placed an increasing emphasis on
strengthening the competitiveness of our entry level products. We have always
participated at the entry level, but given the increased price sensitivity among
a growing number of consumers and what we believe is a resulting shift by
consumers to lower priced products, we are taking action to ensure that we are
also the consumer’s first choice at lower price points.




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Beyond the entry level, we have heightened our
focus on providing the consumer with the strongest possible overall value across
all price points. Our goal, using the lessons we have learned from our customer
experience initiatives, is to maximize the product’s benefits and the value the
consumer associates with those benefits. Maximizing the consumer’s perceived
value of our products is one of the guiding principles of our product strategy
above the entry level.




To capitalize on the many opportunities in the
growing digital marketplace, Logitech’s product strategy focuses on personal
peripherals around four platforms or environments: the PC, the living room, the
meeting room, and other platforms.




The PC




Logitech continues to provide new, more
innovative, high-performance PC and Mac computer navigation devices. In
addition, we are also a leading brand for video imaging products, keyboards and
PC audio products.




The Living Room




The dramatic proliferation of digital content
available for the home provides a significant source of new opportunities for
Logitech. We believe that the new digital home – with a broad and evolving
selection of digital entertainment and information content available from
multiple sources, and the innovation in affordably priced digital-technology
equipment – will over time allow us to play a significant role in the home
entertainment experience for a much wider audience.




Our product portfolio includes a line of
advanced remote controls for home entertainment, the Squeezebox network music
system that allows people to enjoy digital music in any room of the house, the
diNovo Mini keyboard and the WiLife video security solution. These products
represent part of our strategy to pursue new opportunities in the digital home
environment, positioning Logitech at the convergence of consumer electronics and
personal computing in the digital home. Logitech also offers a broad spectrum of
products to enhance gaming consoles. We continue to innovate and develop new
product offerings focused around the TV screen.




The Meeting Room




With our acquisition of LifeSize in December
2009, we entered the video conferencing market. LifeSize represents our focused
investment in the growth of the video communications market, as well as an
opportunity to gain greater access to enterprise customers. Together, Logitech
and LifeSize plan to pursue existing and new relationships with unified
communications, collaboration and voice-over Internet protocol (“VoIP”)
industry partners and competitors to drive the development of an open eco-system
for interoperable video communications.




Other Platforms




The significant growth of smartphones, tablets
and other mobile devices that have the same or better processing capability as
computers from a few years ago provides opportunities for Logitech to support
these increasingly powerful platforms. Our current product portfolio includes
portable digital music players and the Ultimate Ears line-up of earphones. We
believe there will be additional demand for complementary personal peripherals
for mobile and small form factor devices.




Geographic Expansion




We believe that the market penetration for
Logitech products is low in developing markets such as China, India, Latin
America and Eastern Europe. We are committing resources to capitalize on the
growth opportunities in key emerging countries, including securing new channel
partners, strengthening relationships with existing partners, expanding our
sales force and investing in product and marketing initiatives. As part of our
business strategy, we plan to selectively increase investments and realign
resources in certain key geographic markets, such as China.




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Manufacturing




To effectively respond to rapidly changing
demand and to leverage economies of scale, we intend to continue our hybrid
model of in-house manufacturing and third-party contract manufacturers to supply
our products. Through our high-volume manufacturing operations for personal
peripherals located in Suzhou, China, we believe we have been able to maintain
strong quality process controls and have realized significant cost efficiencies.
Our Suzhou operation provides for increased production capacity and greater
flexibility in responding to product demand. Further, by outsourcing the
manufacturing of certain products, we seek to reduce volatility in production
volumes as well as improve time to market.




Technological Innovation




Logitech seeks to fulfill the increasing
demand for interfaces between people and the expanding digital world across
multiple platforms and user environments. The interface evolves as platforms,
user models and our target markets evolve. As access to digital information has
expanded, we have extended our focus to the living room, the meeting room, and
other platforms, in addition to the PC, as access points to the Internet and the
digital world. All of these platforms require interfaces that are customized
according to how the devices are used. We believe this expansion of access
points provides additional attractive and sizable opportunities for Logitech
because the relevance and importance of navigation, interaction, video and audio
interfaces and applications remains substantially the same across
platforms.




To capitalize on market opportunities for
personal peripherals, we recognize that continued investment in product research
and development is critical to facilitating innovation of new and improved
products and technologies. Beyond updating our existing line of personal
peripherals and video conferencing products and services, we intend to continue
to lead the development of new technologies and to create product innovations,
such as those introduced in fiscal years 2010 and 2009, which include the
Logitech Performance Mouse MX, the Logitech Anywhere Mouse MX with Logitech
Darkfield Laser Tracking technology, the Logitech Wireless Desktop MK710 with
three-year battery life, the Harmony 900 remote with RF technology which lets
you control your devices through cabinets, the Webcam Pro 9000 with Zeiss optics
and a true 2-megapixel HD sensor, VID software which allows video calling with
Logitech webcams, the Z320, Z323, Z520 and Z523 speakers with 360-degree speaker
technology, the Logitech Speaker Lapdesk N700 with built-in high definition
speakers, the Ultimate Ears 18 Pro Customer In-Ear Monitors featuring a
six-speaker design, and the unifying Nano-receiver, which can connect multiple
wireless mice and keyboards. The Nano-receiver was first introduced to the
market in the VX Nano mouse and has since proliferated across a wide range of
our mice.




Logitech is committed to meeting consumers’
needs for personal peripheral devices and believes that innovation, value and
product quality are important elements to gaining market acceptance and
strengthening our market position.




Products




Logitech operates in two industry segments,
personal peripherals and video conferencing. Our personal peripherals segment
encompasses the design, manufacturing and marketing of personal peripherals for
personal computers and other digital platforms. We sell our peripheral products
to a network of retail distributors and resellers and to original equipment
manufacturers, or OEMs. The large majority of our revenues are derived from
sales of our personal peripheral products for use by consumers. The video
conferencing segment encompasses the design, manufacturing and marketing of
LifeSize video conferencing products and services. We sell our LifeSize products
and services to distributors, value-added resellers, OEMs and direct enterprise
customers.




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Pointing Devices




Mice




Logitech offers many varieties of computer
mice, sold through retail and OEM channels. Some of our major mice products
include:


- Performance Mouse MX and Anywhere
  Mouse MX with Logitech Darkfield Laser Tracking, which allows the mouse to be used virtually
  anywhere including clear glass and high-gloss surfaces.
- Marathon Mouse 750, a wireless
  mouse that runs up to three years on one set of batteries.
- MX Air Rechargeable Cordless Air
  Mouse works on the desk or in the air.
- M505 wireless mouse with extended
  battery life, precise laser tracking, and ambidextrous
  design.
- M305 wireless mouse with advanced
  2.4 GHz connection.

Our mice products also include an expanded
line of gaming mice, including the customizable G9x, which gives PC gamers the
ability to modify the mouse for the best personal fit, feel and performance. In
addition, we sell both corded and cordless mice designed specifically for OEM
customers.




Other Pointing Devices




Some of our other pointing devices
include:


- Cordless Optical TrackMan
  trackball, featuring a “cruise control” scrolling feature and several
  programmable buttons.
- 3D input devices such as
  SpaceNavigator, SpaceExplorer, SpaceNavigator for Notebooks, and
  SpacePilot, sold under the
  3Dconnexion brand.

Keyboards and Desktops




Logitech offers a variety of corded and
cordless keyboards and desktops (keyboard-and-mouse combinations). Some of our
major keyboards and desktops include:


- Wireless Keyboards K350, K340 and
  K320, our wireless keyboards with up to a three-year battery life.
- The diNovo Edge keyboard, our
  award-winning top-of-the-line rechargeable keyboard.
- The diNovo Mini keyboard,
  combining thumb typing, Windows Media center remote controls and a
  touchpad.
- The Illuminated Keyboard, a corded
  keyboard featuring laser-etched, backlighted keys, an ultra-thin 9.3mm design and Logitech PerfectStroke key
  system.

Notebook Essentials




Logitech offers a range of personal
peripherals that help improve the laptop-computing experience. Our products
include notebook mice, webcams, speakers, headsets, presentation tools, numeric
pads, lapdesks, cooling pads and notebook risers.




Some of our notebook products
include:


- Speaker Lapdesk N700 with built-in
  high definition speakers, a quiet, efficient fan and an ergonomic design.
- The Notebook Kit MK605 which
  includes a wireless laser mouse, pivoting riser, and compact, wireless
  keyboard connected to your notebook
  through one tiny unifying receiver.

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- Comfort Lapdesk, a new product
  category, which is designed for use on the lap to protect the user from
  laptop heat.
- Cooling Pad N100, introduced in
  fiscal year 2009, a new category which features a slotted surface that
  enables airflow around a laptop using
  the USB-powered fan and can be used on a table or a lap.

Voice and Video Communications




Web Cameras




Logitech’s webcam offerings
include:


- WebCam Pro 9000
- Webcam C905
- QuickCam Orbit AF
- Webcam C600, C500 and C250

Our premium webcams feature lenses designed in
an exclusive collaboration with Carl Zeiss, a premium autofocus system, and a
true 2-megapixel HD sensor. These webcams also leverage High Quality Video from
Skype, a video calling functionality offered through our collaboration with
Skype. Our mid-range webcams feature glass lenses, auto focus technology, and
RightSound and RightLight2 Technology. These webcams record video at up to 30
frames per second and support the 720p HD video format.




Logitech has also developed Vid, easy-to-use
software that enables clear, simple video calling. Vid can be downloaded from
the Logitech website and is powered by the Logitech SightSpeed network.
Logitech’s entire family of webcams works with most popular video messaging
applications, including Skype, Windows Live Messenger, Yahoo! Messenger and AIM.
In addition, our Logitech Video Effects software has become a favorite
application for users wishing to record and post video on the
Internet.




Logitech also offers the SightSpeed video
calling service, as a result of the acquisition of privately-held SightSpeed
Inc. in November 2008.




Video Security Systems




Logitech’s WiLife video security systems use a
PC and special video cameras to provide remote security monitoring of a home or
small business. The WiLife solution includes monitoring cameras that use the
HomePlug Powerline technology to transfer video over standard electrical wiring.
The cameras can record video on a scheduled basis, at all times, or when they
detect motion. The video is stored locally on a computer and can be played back
locally on the PC. For an additional fee, the solution offers Platinum Digital
Video Security which is an internet-based security system with the ability to
monitor video feeds remotely on a PC, Windows-based PDAs, or cell
phones.




Audio




Speakers and Earphones




Logitech designs and manufactures a
wide variety of multimedia speakers including:


- Z320, Z323, Z520 and Z523 speakers
  featuring 360-degree surround sound.
- The Laptop Z205 speaker, a
  lightweight speaker with an easy-to-attach clip-on design.
- Logitech Z-5500 Digital speakers,
  which are 5.1-channel multi-platform, 505-watt speakers with a 10-inch subwoofer.

10




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- Pure-Fi Anywhere 2 speakers
  including a rechargeable battery, with a battery-life indicator, an
  improved traveling case, and an
  advanced remote control with one-touch access to shuffle and repeat for
  the iPod.
- Rechargeable Speaker S315i
  offering up to 20 hours of battery life, that can play your music while
  it’s plugged in and charging
  your iPod.
- The Portable Speaker S125i, an
  easy-to-transport speaker dock with extra bass.
- Z-5 Omnidirectional speakers,
  USB-powered speakers designed for Mac and PC use which feature omnidirectional acoustics.

The Ultimate Ears product line offers a range
of custom stage earphones for professional musicians and sound engineers, as
well as in-ear consumer or universal fit earphones for portable music
enthusiasts.




Our line of Ultimate Ears
noise-isolating universal fit earphones includes:


- The TripleFi 10 and TripleFi 10vi
  with triple armature speakers and voice capability options.
- The SuperFi 5 and 5vi featuring
  single armature speakers with flexible wearing styles and voice capability options.
- The MetroFi series which includes
  a range of six earphones priced from $29.99 to $79.99.

In addition, we design and
manufacture a line of Ultimate Ears Custom Stage Earphones
including:


- The UE-18 Pro featuring a unique
  six-speaker design.
- The UE-10 which has a
  three-speaker design and flat response for studio mixing and
  audiophiles.
- The UE-7 Pro for live performance
  and stage use.
- The UE-4 Pro featuring a dual
  speaker design for emerging artists.

Streaming Media




Building on our platform and product
development expertise, Logitech offers a portfolio of affordable network music
systems that make it easier to enjoy and control digital music anywhere in the
home. In fiscal year 2010, we expanded our line of streaming music products with
the introduction of the Logitech Squeezebox Radio and Logitech Squeezebox Touch.
The Squeezebox Radio allows you to connect to your home network, and access
internet radio, your personal music collection or subscription services. The
Squeezebox Touch, with its 4.3-inch color touch screen, connects to your
existing stereo system and speakers and supports sampling rates of up to 24 bits
at 96 kHz, delivering rich sound with very little distortion.




To expand the home network music system,
Logitech also offers other players, including the Logitech Squeezebox Boom,
Logitech Squeezebox Duet network music system, and the hi-end Transporter
network music player.




PC Headsets




We offer headsets and microphones designed for
applications such as PC voice communications, VoIP applications and online
gaming. Some of our major products in this category include the ClearChat PC
Wireless headset, the ClearChat Pro USB Headset, the USB Headset H360, the
Notebook Headset H165, and the USB Desktop Microphone.




Gaming




PC Game Controllers




Logitech offers a full range of dedicated game
controllers for PC gamers including joysticks, steering wheels, gamepads, mice
and keyboards, and headsets.




11




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Our PC gaming products include:


- Logitech G9x Laser Mouse, a fully
  customizable mouse including features such as interchangeable grips, on-the-fly, full-speed USB laser
  tracking, an onboard-memory profiling system, weight tuning, a custom-color LED and the hyper-fast
  MicroGear Precision Scroll Wheel.
- Logitech G13 advanced gameboard, a
  CES Innovations Winner in the Electronic Gaming category, featuring a built-in LCD screen, 25
  programmable keys and onboard memory.
- Logitech G27 Racing Wheel with
  several advanced features such as a six-speed gated shifter and clutch
  pedal, a high-torque, dual-motor
  force-feedback mechanism, 900 degrees of rotation, an 11-inch wheel,
  and premium materials such as
  stainless steel and leather.

Console Game Controllers and
Accessories




We offer gaming products for console platforms
such as PlayStation2, PlayStation3, PSP (PlayStation Portable), Xbox, Xbox 360
and Nintendo Wii. Products include the Wireless Guitar Controller, Wireless Drum
Controller, Driving Force GT Wheel and Vantage USB headset for PlayStation 3,
and the USB Microphone for all platforms.




Gaming Headsets




Our gaming headsets include the Logitech G35
Surround Sound Headset, a CES Innovations Winner, which offers 7.1 channel
surround sound, a proprietary ear-enclosing design and three customizable G keys
for one-touch command over music, voice morphing and more. The Logitech Gaming
Headset G330 features an adjustable behind-the-head design and silicone-lined
headband for a comfortable fit.




Remote Controls




Our current line of Harmony advanced remote
controls uses our patented Smart State Technology. The Logitech family of
remotes includes:


- Harmony One remote features a
  touch-screen with backlighted buttons positioned in logical zones to
  make it easy to navigate, even in the
  dark.
- Harmony 900 remote features a
  full-color touch screen, intuitive button layout, and RF system
  allowing you to control your
  devices through cabinet doors and walls.
- Harmony 1100 features a
  customizable 3.5-inch color touch-screen and supports optional radio
  frequency (RF) wireless
  technology that lets the user control devices through cabinet doors and
  walls.
- Harmony 700 controls up to six
  devices from one color LCD screen, and features rechargeable batteries
  and one-click control for your
  favorite activities.
- Harmony 600 and Harmony 650
  control up to five devices and simplify complex home-entertainment
  systems by giving you one-click
  control over your favorite activities.
- Harmony 300 controls up to four
  devices and requires just one button to watch TV.

Video Conferencing




In December 2009, Logitech acquired LifeSize
Communications, Inc., which offers HD video communication solutions that provide
a productive, true-to-life experience.




LifeSize products
include :


- Passport, an HD video system that
  delivers telepresence-quality at a price point that enables broad deployment across an organization.

12




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- Express Series, which provides
  full HD video quality at the lowest possible bandwidth, allowing
  data-sharing and supporting
  dual HD display, full HD camera, and phone or microphone
  options.
- Team Series, providing full HD
  video quality for natural, realistic interactions, along with ease of
  use and flexibility for
  workgroups.
- Room Series, a full HD
  standards-based system that provides high resolution and strong motion
  handling with lower latency.
  The LifeSize Room 220 comes standard with an embedded 8-way continuous
  multipoint bridge showing four visible
  sites.
- Conference Series 200 which, with
  full HD, allows dual streams to share data and documents in full motion and includes an embedded multipoint
  control unit complete with transcoding.

LifeSize’s video conferencing solutions
include HD video communications products, HD audio conference telephones,
hardware infrastructure solutions, video management software, and services to
support reliable video and audio communications and help users connect to any
network securely and with ease.




Competitive Strengths




We believe the key competitive strengths that
allow Logitech to be successful and competitive in the markets for personal
peripherals include:


- Our understanding of product
  definition, technology and industrial design excellence, as
  demonstrated by the various
  awards that our product designs continue to receive.
- Our expertise in key engineering
  disciplines that underlie our products and our continued enhancement
  of our products through the use of
  advanced technologies.
- Our continuing to embrace new
  technologies and standards, with a list of 100 industry “firsts” to our
  name and a patent portfolio of
  approximately 400 patents.
- The Logitech brand name and
  industrial designs which are recognized worldwide as symbols of product
  quality, innovation, ease of use and
  price-performance value.
- Our volume manufacturing and
  distribution capabilities which allow us to maintain strong quality
  process controls and realize
  significant cost efficiencies.
- Our global presence, capable of
  drawing upon the strengths of our global resources, global distribution
  system and geographical revenue
  mix.
- Our expertise in a broad array of
  PC peripherals and video conferencing solutions.

We believe that we have competed successfully
based on these factors. We believe that Logitech’s future lies with our ability
to continue to capitalize on these strengths.




Research and Development




We believe that continued investment in
product research and development is critical to Logitech’s success. Our
international structure provides advantages and synergies to our overall product
development efforts. We have development centers in the United States,
Switzerland, Ireland, Canada, Germany, India and Taiwan.




Our research and development expenses for
fiscal years 2010, 2009, and 2008 were $135.8 million, $128.8 million, and
$124.5 million. We expect to continue to devote significant resources to
research and development, including devices for the digital home, video
communications, wireless technologies, power management, user interfaces and
device database management to sustain our competitive position.




13




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Marketing, Sales and
Distribution




Principal Markets




Net sales to unaffiliated customers
by geographic region were as follows (in thousands):




Year ended March 31,2010
            
            2009
            
            2008EMEA
            
            $
            882,635
            
            $
            1,001,337
            
            $
            1,117,060Americas
            
            
            729,473
            
            
            785,862
            
            
            888,529Asia Pacific
            
            
            354,640
            
            
            421,633
            
            
            364,907Total net sales
            
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496


Revenues from sales to customers in
Switzerland, our home domicile, represented a small portion of our total
consolidated net sales in fiscal years 2010, 2009 and 2008. The United States
and Germany each represented more than 10% of our total consolidated net sales
for fiscal year 2010. In fiscal years 2009 and 2008, no single country other
than the United States represented more than 10% of our total consolidated net
sales.




In fiscal year 2010, Ingram Micro Inc. and its
affiliated entities together accounted for 13% of our net sales; in fiscal years
2009 and 2008, the same customer represented 14% of net sales. No other customer
individually accounted for more than 10% of our net sales during fiscal years
2010, 2009 and 2008. The material terms of our distribution agreements with
Ingram Micro and its affiliated entities are summarized as follows:


- The agreements are non-exclusive
  in the particular territory and contain no minimum purchase
  requirements.
- Each agreement may be terminated
  for convenience at any time by either party. Most agreements provide for
  termination on 30 days’ written notice from either party, with two Ingram
  Micro agreements providing for termination on 90 days’
  notice.
- We generally offer an allowance
  for marketing activities equal to a negotiated percentage of sales and volume
  rebates related to purchase volumes or sales of specific products to specified
  retailers. These terms vary by agreement.
- Most agreements allow price
  protection credits to be issued for on–hand or in transit new inventory if we,
  in our sole discretion, lower the price of the product.
- We grant limited rights to return
  product, which vary by distributor. Under most of the Ingram Micro agreements,
  the Ingram Micro entities may return defective products and may return up to
  10% of the previous quarter’s purchases, if they place an offsetting order for
  the amount they returned.

Marketing




Logitech builds awareness of our products and
recognition of our brand through targeted advertising, public relations efforts,
distinct packaging of our retail products, in-store promotions and
merchandising, a Worldwide Web site and other efforts. We also acquire knowledge
of our users through customer feedback and market research, including focus
groups, product registrations, user questionnaires, primary and multi-client
surveys and other techniques. In addition, manufacturers of PCs and other
products also receive customer feedback and perform user market research, which
sometimes results in requests to Logitech for specific products, features or
enhancements.




14




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Sales and Distribution




Logitech sells its personal peripherals
through many distribution channels, including distributors, OEMs and regional
and national retail chains, including online retailers. We support these retail
channels with third-party distribution centers located in North America, Europe
and Asia Pacific. These centers perform final configuration of products and
product localization with local language manuals, packaging, software CDs and
power plugs. In addition, Logitech’s distribution mix includes e-commerce in the
U.S. as well as e-commerce capabilities in several European
countries.




In retail channels, Logitech’s direct sales
force sells to distributors and large retailers. Our distributor customers
typically resell products to retailers, value-added resellers, and systems
integrators with whom Logitech does not have a direct relationship. These
distributors in the U.S. include Ingram Micro, Tech Data Corporation and D&H
Distributing. In Europe, pan-European distributors include Ingram Micro, Tech
Data and Gem Distribution. We also sell to many regional distributors such as
Actebis GmbH in Germany, Copaco Dc B.V. in the Netherlands, Vinzeo Informatica,
SLU in Spain and Channel Distribution in the United Arab Emirates.




Logitech’s products can be purchased in most
major retail chains, where we typically have access to significant shelf space.
These chains in the U.S. include Best Buy, Office Depot, Staples, Target and
Wal-Mart, and in Europe include Metro Group (MediaMarkt and Saturn), Carrefour
Group, Kesa Electricals, Fnac, Dixons Stores Group PLC and most key national
consumer electronics chains. Logitech products can also be purchased at the top
online e-tailers, which include Amazon.com, TigerDirect.com, Buy.com, CDW,
Insight Enterprises, Inc., and others.




Logitech’s OEM products are sold to large OEM
customers through a direct sales force, and we support smaller OEM customers
through distributors. We count the majority of the world’s largest PC
manufacturers among our customers.




Our Life Size division maintains a separate
marketing and sales organization that sells LifeSize products and services to
distributors, value-added resellers, OEMs and direct enterprise customers. The
large majority of LifeSize revenues are derived from sales of products for use
by large enterprises, small-to-medium businesses and public healthcare,
education and government organizations.




Through our operating subsidiaries,
we maintain sales offices or sales representatives in 38 countries.




Backlog




We typically have a relatively small amount of
orders at the end of our fiscal periods that we have received but have not
shipped, which is referred to as backlog. In our experience, the amount of
backlog at any particular fiscal period-end is not a meaningful indication of
our future business prospects. Our backlog often increases in anticipation of or
immediately following new product introductions as retailers anticipate
shortages and is often reduced once retailers and customers believe they can
obtain sufficient supply. Our net sales in any fiscal year depend primarily on
orders booked and shipped in that year, and our customers generally order on an
as-needed basis. In addition, our backlog is occasionally subject to
cancellation or rescheduling by customers. Therefore, there is a lack of
meaningful correlation between backlog at the end of a fiscal year and the
following fiscal year’s net sales. Similarly, there is a lack of meaningful
correlation between year-over-year changes in backlog as compared with
year-over-year changes in net sales. As a result, we believe that backlog
information is not material to an understanding of our overall
business.




Customer Service and Technical
Support




Logitech maintains customer service and
technical support operations in the United States, Canada, Europe, Asia and
Australia. Customer service and technical personnel provide support services to
retail purchasers of products through telephone, e-mail, facsimile and the
Logitech Web site. The Logitech Web site is designed to expedite overall
response time while minimizing the resources required for effective customer
support. In general, OEMs provide customer service and technical support for
their products, including components purchased from suppliers such as Logitech.
Logitech provides warranties on our branded products which range from one to
five years.




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Manufacturing




Logitech’s manufacturing operations consist
principally of final assembly and testing. Our high-volume manufacturing
facility for personal peripherals products is located in Suzhou, China. The
Suzhou facilities are designed to allow production growth as well as flexibility
in responding to changing demands for Logitech’s products. We continue to focus
on ensuring the efficiency of the Suzhou facilities, through the implementation
of quality management and employee involvement programs.




New product launches, process engineering,
commodities management, logistics, quality assurance, operations management and
management of Logitech’s contract manufacturers occur in Hsinchu, Taiwan,
Suzhou, China, Shenzhen, China and Hong Kong, China. Certain components are
manufactured to Logitech’s specifications by vendors in Asia, the United States
and Europe. We also use contract manufacturers to supplement internal capacity
and to reduce volatility in production volumes. In addition, some products,
including most keyboards, certain gaming devices and audio products, and video
conferencing equipment are manufactured by third-party suppliers to Logitech’s
specifications. Retail product localization with local language manuals,
packaging, software CDs and power plugs is performed at distribution centers in
North America, Europe and Asia Pacific.




Competition




Our personal peripherals and video
conferencing industries are intensely competitive. The personal peripherals
industry is characterized by short product life cycles, continual performance
enhancements, and rapid adoption of technological and product advancements by
competitors in our retail markets, and price sensitivity in the OEM market. We
experience aggressive price competition and other promotional activities from
our primary competitors and from less-established brands, including brands owned
by some retail customers known as house brands, in response to declining
consumer demand in both the retail and OEM markets. We may also encounter more
competition if any of our competitors in one or more categories decide to enter
other categories in which we currently operate.




In addition, we have been expanding the
categories of products we sell, and entering new markets, such as the market for
enterprise video conferencing. 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 future ones we might enter. Many of these companies have greater
financial, technical, sales, marketing and other resources than we
have.




We expect continued competitive pressure in
both our retail and OEM business, including in the terms and conditions that our
competitors offer customers, 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.




Pointing Devices, Keyboards and Desktops. Microsoft Corporation is our main competitor
in our mice, keyboard and desktop product lines. We also experience competition
and pricing pressure for corded and cordless mice and desktops from
less-established brands, including house brands, which we believe have impacted
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.




16




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Video. Our
competitors for PC Web cameras include Microsoft, Creative Labs, Inc., Royal
Philips Electronics NV and Hewlett-Packard. 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, Inc.,
Altec Lansing LLC, Creative Labs and Bose Corporation. In the PC headset and
microphone business, our main competitors include Plantronics and Altec Lansing.
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 Corporation
and Philips.




Gaming. Competitors
for our interactive entertainment products include Intec, Razer USA Ltd.,
Performance Designed Products, LLC (Pelican Accessories), Mad Catz Interactive,
Inc. and its Saitek brand. Our controllers for PlayStation also compete against
controllers offered by Sony.




Remotes. Our
competitors for remotes include, among others, Philips, Universal Remote
Control, Inc., Universal Electronics Inc., 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.




Video Conferencing. Our primary competitors in the enterprise video conferencing market are Tandberg
ASA and Polycom, Inc. These companies have longer experience and a larger
customer installed base than LifeSize. Cisco and Hewlett-Packard also compete
with us for sales of higher-end systems. Cisco and Hewlett-Packard have
substantially greater financial, sales and marketing, and engineering resources
than we do. We also expect Cisco’s recent purchase of Tandberg to further
intensify competition. In addition, there are a number of smaller competitors
which compete with LifeSize, along with Polycom, Cisco and Hewlett-Packard, for
new accounts, OEM relationships, and installations.




Intellectual Property and Proprietary
Rights




Intellectual property rights that apply to
Logitech’s products and services include patents, trademarks, copyrights and
trade secrets.




We hold various United States patents and
pending applications, together with corresponding patents and pending
applications from other countries. While we believe that patent protection is
important, we also believe that patents are of less competitive significance
than factors such as technological expertise and innovation, ease of use, and
quality design. No single patent is in itself essential to Logitech as a whole.
From time to time we receive claims that we may be infringing on patents or
other intellectual property rights of others. Claims are referred to counsel,
and current claims are in various stages of evaluation and negotiation. If
necessary or desirable, we may seek licenses for certain intellectual property
rights. Refer also to the discussion in Item 1A Risk Factors – “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.” and “Claims by
others that we infringe their proprietary technology could harm our
business.”




To distinguish genuine Logitech products from
competing products and counterfeit products, Logitech has used, registered, or
applied to register certain trademarks and trade names in the U.S. and in
foreign countries and jurisdictions. Logitech enforces its trademark and trade
name rights in the U.S. and abroad. In addition, the software for Logitech’s
products and services is entitled to copyright protection, and we generally
require our customers to obtain a software license before providing them with
that software. We also protect details about our products and services as trade
secrets through employee training, license and non-disclosure agreements and
technical measures.




17




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Environmental Regulation




We are subject to laws and regulations in many
jurisdictions regulating the materials used in our products and, increasingly,
product related energy consumption, the recycling of our products and of their
packaging.




Europe. In Europe
we are subject to the European Union’s (“EU”) Directive on the Restriction of
Use of Certain Hazardous Substances in Electrical and Electronics Equipment
(“RoHS”). This directive restricts the placement into the EU market of
electrical and electronic equipment containing certain hazardous materials
including lead, mercury, cadmium, chromium, and halogenated flame-retardants.
Most Logitech products are covered by the directive and have been modified, if
necessary, to be RoHS compliant. Logitech has an active program to ensure
compliance with the RoHS directive and continues to source and introduce the use
of RoHS compliant components and manufacturing methods in order to comply with
the requirements of the directive.




Logitech is also subject to the Energy-related
Products Directive (“ErP”), which aims to encourage manufacturers and importers
to produce products designed to minimize overall environmental impact. Under the
directive, manufacturers must ensure that their energy-related products comply
with applicable requirements, issue a declaration of conformity and mark the
product with the ‘CE’ mark. The directive does not have binding requirements for
specific products, but does define conditions and criteria for setting, through
subsequent implementing measures, requirements regarding environmentally
relevant product characteristics. To date the following implementing measures
within the ErP directive are active and applicable to Logitech
products:


- Eco-design requirements for
  standby and off mode electric power consumption of electrical and electronic household and office
  equipment.
- Eco-design requirements for
  no-load condition power consumption and average active efficiency of
  external power supplies.

Logitech has assessed the applicability of
these implementing measures on relevant product lines and has taken steps to
ensure that our products meet the requirements. Adoption of the ErP directive
will be aligned in all EU member states and conformity will be demonstrated by
Logitech in conjunction with current CE conformity marking
requirements.




We are also subject to a number of End of Life
(“EOL”) Stewardship directives including the EU’s Waste Electrical and
Electronic Equipment Directive (“WEEE”), the EU Packaging Directive and the EU
Battery Directive, which require producers of electrical goods, packaging and
batteries to be financially responsible for costs of specified collection,
recycling, treatment and disposal of covered products. Where applicable, we have
provided for the estimated costs, which are not material, of managing and
recycling historical and future waste equipment, packaging and
batteries.




Logitech has also assessed the applicability
of the European REACH directive  (Regulation (EC)
No. 1907/2006 for Registration, Evaluation, Authorization, and Restrictions of
Chemicals). This directive does not currently impact Logitech due to our current
manufacturing structure and product content. If the directive impacts Logitech
in the future, we intend to comply with the applicable
requirements.




China. In China we
are subject to China’s law on Management Methods on the Control of Pollution
Caused by Electronic Information Products (“China RoHS”). This is substantially
similar to the EU RoHS directive and as such, Logitech products are already
compliant. China RoHS requires additional labelling of product that will be
shipped in China and Logitech has taken steps to help ensure we comply with
these requirements.




United States and Canada. In the U.S., we are subject to, among other laws, Appliance Efficiency
Regulations adopted via the U.S. Energy Independence and Security Act of 2007.
The regulations set out standards for the energy consumption performance of
products within the scope of the regulations, which includes some of Logitech’s
products. The standards apply to appliances sold or offered for sale throughout
the U.S., and Logitech has redesigned or changed products to comply with these
regulations. We are also subject to California’s Proposition 65, which requires
that clear and reasonable warnings be given to consumers who are exposed to
certain chemicals deemed by the state of California to be dangerous, such as
lead.




18




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In Canada, we are subject to laws in various
Canadian provinces that impose fees to cover the cost of recycling
packaging.




Australia and New Zealand . In Australia and New Zealand, we are subject to the Minimum Energy
Performance Standards (“MEPS”) regulations. These regulations set out standards
for the energy consumption performance of products within the scope of the
regulations, which includes some of Logitech’s products. We have taken steps to
modify products to ensure they are in compliance with MEPS.




We expect further laws governing product and
packaging recycling to be introduced in other jurisdictions, many or most of
which could impose fees to cover recycling costs, the cumulative impact of which
could be significant. If such legislation is enacted in other countries,
Logitech intends to develop compliance programs as necessary. However, until
that time, we are not able to estimate any possible impact.




The effects on Logitech’s business of
complying with other government regulations are limited to the cost of
allocation of the appropriate resources for agency fees and testing as well as
the time required to obtain agency approvals. There are also stewardship costs
associated with the end of life collection, recycling and recovery of Logitech
products, packaging and batteries where Logitech is recognized as the Steward
and participates in relevant schemes. The costs and schedule requirements are
industry requirements and therefore do not represent an undue burden relative to
Logitech’s competitive position. As regulations change, we will seek to modify
our products or processes to address those changes.




Seasonality




Our retail personal peripheral product sales
are typically seasonal. Sales are generally highest during our third fiscal
quarter (October to December), due primarily to the increased demand for our
products during the year-end holiday buying season, and to a lesser extent in
the fourth fiscal quarter (January to March). Our sales in the first and second
quarters can vary significantly as a result of new product introductions and
other factors. Accordingly, we believe that year-over-year comparisons are more
indicative of variability in our results of operations than current quarter to
prior quarter comparisons. The deteriorating retail environment in the second
half of fiscal year 2009 resulted in an atypical sales pattern, with sales
declining in the second half of fiscal year 2009 compared with the first
half.




Our enterprise product sales are
generally not seasonal.




Materials




We purchase some of our products and the key
components used in our products from a limited number of sources. If the supply
of these products or key components, such as micro-controllers, optical sensors
and LifeSize hardware products, were to be delayed or constrained, or if one or
more of our single-source suppliers goes out of business, 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. Due to the recent global economic downturn, we
are subject to a higher risk of insolvency of our key suppliers, possibly
resulting in product delays. In addition, 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.




19




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Employees




As of March 31, 2010, we employed 9,944
people. None of Logitech’s U.S. employees are represented by a labor union or
are subject to a collective bargaining agreement. Certain foreign countries,
such as China, provide by law for employee rights, which include requirements
similar to collective bargaining agreements. We believe that our employee
relations are good.




Executive Officers of the
Registrant




The following sets forth certain
information regarding our executive officers as of May 26, 2010:




Name
            
            
            Age
            
            Nationality
            
            PositionGuerrino De Luca
            
            57
            
            Italian
            
            Chairman of the BoardGerald P. Quindlen
            
            50
            
            U.S.
            
            President and Chief Executive
      OfficerErik Bardman
            
            43
            
            U.S.
            
            Sr. Vice President, Finance and
      ChiefFinancial OfficerWerner Heid
            
            51
            
            German
            
            Sr. Vice President, Worldwide Sales
      andMarketingDavid Henry
            
            53
            
            U.S.
            
            Sr. Vice President, Customer
      Experienceand Chief Marketing OfficerJunien Labrousse
            
            52
            
            French
            
            Executive Vice President,
    ProductsL. Joseph Sullivan
            
            56
            
            U.S.
            
            Sr. Vice President, Worldwide
      Operations


Guerrino De Luca has served as Chairman of the
Logitech Board of Directors since January 2008. Previously, Mr. De Luca served
as Logitech’s President and Chief Executive Officer from February 1998, when he
joined the Company, to January 2008. He has been an executive member of the
Board of Directors since June 1998. Prior to joining Logitech, Mr. De Luca
served as Executive Vice President of Worldwide Marketing for Apple, Inc. from
February 1997 to September 1997, and as President of Claris Corporation, a U.S.
personal computing software vendor, from May 1994 to February 1997. Prior to
joining Claris, Mr. De Luca held various positions with Apple in the United
States and in Europe. Mr. De Luca holds a BS degree in Electronic Engineering
from the University of Rome, Italy.




Gerald P. Quindlen has been Logitech’s
President and Chief Executive Officer since January 2008, previously serving as
Logitech’s Senior Vice President, Worldwide Sales and Marketing since he joined
the Company in October 2005. From August 1987 to September 2004, Mr. Quindlen
worked for Eastman Kodak Company where he was most recently Vice President of
Global Sales and Operations for the Consumer and Professional Imaging Division
and previously held senior sales or marketing management positions in the United
States, Japan and Asia Pacific. From September 2004 to September 2005, Mr.
Quindlen was a private consultant. Prior to his 17 year tenure at Eastman Kodak,
he worked for Mobil Oil Corporation in engineering. Mr. Quindlen holds a BS
degree in chemical engineering from Villanova University in Pennsylvania, and an
MBA degree in Finance from the University of Pennsylvania’s Wharton
School.




Erik Bardman joined Logitech as Senior Vice
President, Finance and Chief Financial Officer in October 2009. Prior to joining
Logitech, Mr. Bardman served as a financial consultant to Zillion TV, an
interactive television service company. Previously, he had been with eBay from
2003 to 2008, most recently as the chief financial officer for eBay
Marketplaces, the company’s largest portfolio of businesses. At eBay, Mr.
Bardman led a large global team focused on financial strategy, acquisitions,
resource allocation and performance analysis. Prior to joining eBay, Mr. Bardman
was with General Electric Company for 15 years in a variety of roles, developing
broad expertise in consumer financial services, international finance and
mergers and acquisitions. Mr. Bardman earned a BA degree from Dickinson College
in Pennsylvania, with a major in history and a minor in economics. He is a
graduate of GE’s intensive Financial Management Program.




20




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Werner Heid joined Logitech as Senior Vice
President, Worldwide Sales & Marketing, in February 2009. Prior to joining
Logitech, Mr. Heid was a consultative CEO to private equity firms from 2006 to
2009. Previously, he served as the president and chief executive officer of
Iomega Corporation, the provider of consumer and small-business data-storage
solutions, from 2001 to 2006. Before joining Iomega, Mr. Heid was the executive
vice president of global sales, marketing and service for InFocus Corporation, a
leading supplier of multimedia projection systems for consumers and business,
from 2000 to 2001. He joined InFocus when it acquired Proxima Corporation, where
Mr. Heid served as president from 1998 to 2000. Prior to taking on his
leadership role at Proxima, Mr. Heid was with Hewlett-Packard Company for 14
years, in both Europe and the United States. At Hewlett-Packard, he led the
business definition and the successful global market launch of the company’s
All-In-One and color copier product businesses. Mr. Heid holds a masters degree
in electrical engineering from University Karlsruhe in Germany.




David Henry joined Logitech as Senior Vice
President, Control Devices Business Unit, in August 2001 and was named Senior
Vice President, Customer Experience and Chief Marketing Officer in March 2007.
From January 2000 to June 2001, Mr. Henry served as Vice President of Business
Development and Product Management of Xigo Inc., a U.S. on-line intelligence
software company. From November 1997 to January 2000, Mr. Henry held various
positions with Iomega, a U.S. portable storage company. His last position with
Iomega was Vice President and General Manager of Magnetic Products. Mr. Henry
holds a BS degree in Mechanical Engineering from Union College of New
York.




Junien Labrousse joined Logitech as Vice
President of the Video Division in 1997. He was named Senior Vice President,
Video Business Unit in April 2001, Senior Vice President, Entertainment and
Communications in July 2005 and Executive Vice President, Products in March
2007. Prior to joining Logitech, he was Vice President of Engineering from 1995
to 1997 at Winnov LP, a U.S. company engaged in the development and marketing of
multimedia products. For more than 10 years he held several engineering and
management positions at Royal Philips Electronics NV, a global electronics
company, in research and in the semiconductor business division. Mr. Labrousse
holds an MS degree in Electrical Engineering from the Ecole Superieure
d’Ingenieurs de Marseille, France and an MBA degree from Santa Clara University
in California.




L. Joseph Sullivan joined Logitech in October
2005 as Vice President, Operations Strategy, and was appointed Senior Vice
President, Worldwide Operations in April 2006. Prior to joining Logitech, Mr.
Sullivan was Vice President of Operational Excellence and Quality for Carrier
Corporation, a subsidiary of United Technologies, from 2001 to 2005. Previously,
he was with ACCO Brands, Inc. in engineering and manufacturing management roles
from 1998 to 2001. Mr. Sullivan holds a BS degree in Marketing Management and an
MBA degree in Operations Management from Suffolk University in
Massachusetts.




Available Information




Our Investor Relations Web site is located at http://ir.logitech.com . We post and maintain an archive of our
earnings and other press releases, current reports, annual and quarterly
reports, earnings release schedule, information regarding annual general
meetings, further information on corporate governance, and other information
regarding the Company on the Investor Relations Web site. The information we
post includes, and in the future will include, filings we make with the U.S.
Securities and Exchange Commission (“SEC”), including reports on Forms 10-K,
10-Q, 20-F, 6-K, 8-K, our proxy statement related to our annual shareholders’
meeting and any amendments to those reports or statements filed or furnished
pursuant to U.S. securities laws. All such filings and information are available
free of charge on the web site, and we make them available on the web site as
soon as reasonably possible after we file or furnish them with the SEC. The
contents of these web sites are not intended to be incorporated by reference
into this report or in any other report or document we file and our references
to these Web sites are intended to be inactive textual references
only.




In addition, Logitech publishes press releases
upon occurrence of significant events within Logitech. Shareholders and members
of the public may elect to receive e-mails when Logitech issues press releases
upon occurrence of significant events within Logitech or other press releases by
subscribing through http://ir.logitech.com/alerts.cfm .




21




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As a Swiss company traded on the SIX Swiss
Exchange, and as a company subject to the provisions of Section 16 of the
Securities Exchange Act of 1934, as amended, we file reports on transactions in
Logitech securities by members of Logitech’s board of directors and executive
officers. The reports that we file with the Securities and Exchange Commission
on Forms 3, 4 and 5 may be accessed on our website or on the Securities and
Exchange Commission’s website at http://www.sec.gov ,
and the reports we file that are published by the SIX Swiss Exchange may be
accessed at: http://www.six-exchange-regulation.com/obligations/management_transactions_en.html .




For no charge, a copy of our filings made with
the SEC can be requested by contacting our Investor Relations department:
Logitech Investor Relations, 6505 Kaiser Drive, Fremont, CA 94555 USA, Main
510-795-8500, email: investorrelations@logitech.com




The public may read and copy any materials the
Company files with the SEC at the SEC’s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.




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 continue to 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 future 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, or sales lower than
  we expect, in our EMEA sales region (which represented 45% of our total net sales in fiscal 2010), as a
  result of continuing economic uncertainty in Europe and the potential continuing decline in the value of
  the euro against the U.S. dollar.
- Risk of future 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.




22




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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.




We may encounter difficulties with our acquisition of LifeSize
Communications, and may not realize the anticipated benefits of the
acquisition.




In December 2009, we acquired LifeSize
Communications, Inc., a privately-held company providing high definition video
communication solutions. This acquisition is part of the Company’s strategy to
acquire, when appropriate, companies that have products, personnel and
technologies that complement our strategic direction and roadmap.




Our acquisition of LifeSize involves
risks and uncertainties, including:


- Insufficient future revenues and
  profitability of LifeSize, which could negatively impact our consolidated
  results.
- Significant goodwill and
  intangible assets recorded in connection with the acquisition, which could
  require an impairment and resulting reduction in consolidated results if
  future revenues and profitability of LifeSize do not meet
  expectations.
- Increased or unpredictable
  resource allocation requirements for LifeSize, which could impact the
  availability of resources for other Logitech strategic or operational
  investments.
- Diversion of management’s
  attention from normal daily operations of the business and the challenges of
  managing larger and more widespread operations resulting from the
  acquisition.
- Initial dependence on unfamiliar
  supply chains, relatively small supply partners, or a limited number of
  suppliers.
- Exposure to potential product
  quality issues.

23




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In addition, through our acquisition of
LifeSize, we have entered the market for enterprise video conferencing. Although
we plan to maintain the LifeSize enterprise sales organization, we have little
experience with selling to enterprise accounts, or in marketing to large
enterprises. We will also be exposed to additional competitors in the video
conferencing market, some of which may have greater resources, including
technical and engineering resources, than we do. Additionally, as customers
complete video conferencing installations, they may require greater levels of
service and support than we have provided in the past. Demand for these types of
services and support may increase in the future. There can be no assurance that
we can provide products, services and support to effectively compete for these
market opportunities. Further, provision of greater levels of services and
support by us may result in a delay in the timing of revenue
recognition.




Any of these and other factors, many of which
are out of our control, could prevent us from realizing the anticipated benefits
of the acquisition and could adversely affect our business, operating results or
financial condition. There can be no assurance that LifeSize product
enhancements will be made in a timely fashion or that pre-acquisition due
diligence will have identified all possible issues that might arise with respect
to LifeSize products.




Acquisitions are inherently risky, and no
assurance can be given that our acquisition of LifeSize or other future
acquisitions will be successful and will not adversely affect our business,
operating results or financial condition.




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 features or product
  opportunities;
- anticipate changes in technology,
  market trends, and consumer and business 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.

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.




If we do not successfully innovate and market products for notebook PCs,
tablets and other 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, tablets, 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 10% and 15% of total
revenues during fiscal years 2010 and 2009. 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.




24




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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 compete effectively, demand for our products could decline
and our business and operating results could be adversely
affected.




The personal peripherals and video
conferencing industries are intensely competitive.




The personal peripherals industry is
characterized by short product life cycles, continual performance enhancements,
and rapid adoption of technological and product advancements by competitors in
our retail markets, and price sensitivity in the OEM market. We experience
aggressive price competition and other promotional activities from our primary
competitors and from less-established brands, including brands owned by retail
customers known as house 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.




The video conferencing industry is
characterized by continual performance enhancements and increasing
consolidation. There is heightened interest in the video conferencing market by
large, well-financed competitors, such as Cisco Systems, Inc. and
Hewlett-Packard Company, and as a result, we expect competition in the industry
to further intensify.




In recent years, we have expanded the
categories of products we sell, and entered new markets, such as the market for
enterprise video conferencing. 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, Sony Corporation, Hewlett-Packard, Polycom, Inc.,
Tandberg ASA and others, have greater financial, technical, sales, marketing and
other resources than we have.




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.




25




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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,
including house 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, Royal Philips
Electronics NV and Hewlett-Packard. 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, Inc.,
Altec Lansing LLC, Creative Labs, and Bose Corporation. In the PC headset and
microphone business, our main competitors include Plantronics and Altec Lansing.
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, Razer USA Ltd.,
Performance Designed Products, LLC (Pelican Accessories), Mad Catz Interactive,
Inc., and its Saitek brand. Our controllers for PlayStation also compete against
controllers offered by Sony.




Remotes. Our
competitors for remotes include, among others, Philips, Universal Remote
Control, Inc., Universal Electronics Inc., 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.




Video Conferencing. Our primary competitors in the enterprise video conferencing market are
Tandberg and Polycom. These companies have longer experience and a larger
customer installed base than LifeSize. Cisco and Hewlett-Packard also compete
with us for sales of higher-end systems. Cisco and Hewlett-Packard have
substantially greater financial, sales and marketing, and engineering resources
than we do. In addition, there are a number of smaller competitors which compete
with LifeSize, along with Tandberg, Polycom, Cisco and Hewlett-Packard, for new
accounts, OEM relationships, and installations.




We also expect Cisco’s recent purchase of
Tandberg to further intensify competition. Cisco is a leading producer of
networking, switching and other telecommunications infrastructure products and
end-points, such as phones, that are frequently used within enterprises. The
growth of our LifeSize division depends in part on our ability to increase sales
to enterprises with installed bases of Cisco and Tandberg equipment, and to
enterprises that may purchase their equipment in the future. We believe the
ability of our LifeSize products to interoperate with Cisco and Tandberg
equipment, and with the equipment of other telecommunications, video
conferencing or telepresence equipment suppliers, to be a key factor in
purchasing decisions by current or prospective LifeSize customers. Cisco and
Tandberg may be able to improve the functionality of their own videoconferencing
equipment to correspond with ongoing enhancements to Cisco’s networking,
switching and other telecommunications equipment before we are able to make such
improvements, or may restrict the interoperability of their products with ours.
This could significantly harm the sales of our LifeSize division. As a result,
the growth of our LifeSize division, and the growth of Logitech as a whole,
could be significantly harmed.




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.




26




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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 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 those periods.




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.




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.




27




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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.




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, optical sensors and LifeSize hardware
products, 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.




28




---



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.




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.




29




---



Claims by others that we infringe
their proprietary technology could harm our business.




We have been expanding the categories of
products we sell, and entering new markets, such as the market for enterprise
video conferencing. We expect to continue to enter new categories and markets.
As we do so, we face an increased risk that claims that we infringe the patent
or other intellectual property rights of others, regardless of the merit of the
claims, may increase in number and significance. Infringement claims against us
may also increase as the functionality of video, voice, data and conferencing
products begin to overlap. This risk is heightened by the increase in lawsuits
brought by holders of patents that do not have an operating business.
Intellectual property lawsuits are subject to inherent uncertainties due to the
complexity of the technical issues involved, and we cannot be certain that we
will be successful in defending ourselves against intellectual property claims.
A successful claimant could secure a judgment that requires us to pay
substantial damages or prevents us from distributing certain products or
performing certain services. We might also be required to seek a license for the
use of such intellectual property, which may not be available on commercially
acceptable terms or at all. Alternatively, we may be required to develop
non-infringing technology, which could require significant effort and expense
and may ultimately not be successful. Any claims or proceedings against us,
whether meritorious or not, could be time consuming, result in costly
litigation, result in the diversion of significant operational resources, or
require us to enter into royalty or licensing agreements, any of which could
materially and adversely affect our business and results of
operations.




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 income 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
income 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 income tax rate increases
in future periods, our net income could be adversely affected.




ITEM 1B. UNRESOLVED STAFF
COMMENTS




None.




30




---



ITEM 2. PROPERTIES




The table below represents our principal
locations, their approximate square footage and their purposes as of March 31,
2010:




ApproximateSquareLocation
            
            
            Purpose
            
            Footage
            
            OwnershipAmericas:Fremont, California
            
            Americas headquarters, research and
            
            
            194,000
            
            
            Leaseddevelopment, product
      marketing,sales management,
      technicalsupport,
    administrationAustin, Texas
            
            LifeSize Division
            
            
            54,000
            
            
            LeasedVancouver, Washington
            
            Audio Business Unit
            
            
            38,000
            
            
            LeasedMississauga, Canada
            
            Remote Controls Group
            
            
            20,000
            
            
            LeasedIrvine, California
            
            Ultimate Ears Group
            
            
            13,500
            
            
            LeasedDraper, Utah
            
            Video Security Group
            
            
            7,000
            
            
            LeasedOlive Branch, Mississippi
            
            Distribution center
            
            
            397,000
            
            
            Contracted(1)Mexico City, Mexico
            
            Distribution center
            
            
            17,000
            
            
            Contracted(1)EMEA:Romanel-sur-Morges, Switzerland
            
            Research and development,
    product
            
            
            33,300
            
            
            Ownedmarketing and technical supportMorges, Switzerland
            
            EMEA headquarters, sales and
            
            
            62,300
            
            
            Leasedmarketing management,
      technicalsupport,
    administrationNijmegen, Netherlands
            
            Finance, administration,
      distribution
            
            
            29,000
            
            
            Leasedcenter supportCork, Ireland
            
            Finance, administration, research and
            
            
            18,000
            
            
            LeaseddevelopmentSeefeld, Germany
            
            Research and development,
      manufacturing
            
            
            15,000
            
            
            LeasedOostrum, Netherlands
            
            Distribution center
            
            
            183,000
            
            
            Contracted(1)Asia Pacific:Hsinchu, Taiwan
            
            Asia Pacific headquarters, mechanical
            
            
            112,000
            
            
            Leasedengineering, new product
      launches,process engineering,
      commoditiesmanagement, logistics,
      qualityassurance, and
      administrationSuzhou, China
            
            High-volume manufacturing
            
            
            854,000
            
            
            OwnedSuzhou, China
            
            Vertical integration, molding operations
            
            
            277,000
            
            
            LeasedTokyo, Japan
            
            Sales, logistics, finance,
      administration
            
            
            10,100
            
            
            Leasedand human resourcesBangalore, India
            
            LifeSize Business Division research and
            
            
            9,000
            
            
            LeaseddevelopmentBeijing, China
            
            Distribution center
            
            
            57,000
            
            
            Contracted(1)Tokyo, Japan
            
            Distribution center
            
            
            39,000
            
            
            Contracted(1)Hong Kong, China
            
            Distribution center
            
            
            65,000
            
            
            Contracted(1)Singapore, Singapore
            
            Distribution center
            
            
            50,000
            
            
            Contracted(1)Dayuan Township, Taiwan
            
            Distribution center
            
            
            28,000
            
            
            Contracted(1)


(1)
            
            Contracted
      through a third-party warehouse management
  company


31




---



Logitech also contracts with various
distribution services throughout the world for additional warehouses in which we
store inventory.




We also have leased sales offices in more than
60 locations in 38 countries, with various expiration dates from 2010 to
2028.




We believe that Logitech’s manufacturing and
distribution facilities are adequate for our ongoing needs and we continue to
evaluate the need for facilities to meet current and anticipated future
requirements.




ITEM 3. 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, cash
flows or financial condition.




ITEM 4. (REMOVED AND
RESERVED)




32




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PART II




ITEM 5.
            MARKET FOR REGISTRANT’S COMMON EQUITY,
      RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES




Logitech’s shares are listed and traded on
both the SIX Swiss Exchange, where the share price is denominated in Swiss
francs, and on the Nasdaq Global Select Market, where the share price is
denominated in U.S. dollars. Prior to October 2006, Logitech’s American
Depositary Shares (“ADSs”) traded on the Nasdaq Global Select Market, with each
ADS representing one registered share. In October 2006, we exchanged Logitech
shares for our ADSs on a one-for-one basis, so that the same Logitech shares
trade on the Nasdaq Global Select Market as on the SIX Swiss
Exchange.




The trading symbol for Logitech shares is LOGI
on Nasdaq and LOGN on the SIX Swiss Exchange. As of May 3, 2010, there were
191,606,620 shares issued (including 16,148,138 shares held as treasury stock)
held by 20,527 holders of record, and the closing price of our shares was CHF
17.83 ($16.45 based on exchange rates on such date) per share on the SIX Swiss
Exchange and $16.44 per share as reported by the Nasdaq Stock
Market.




SIX Swiss
Exchange




The following table sets forth certain
historical share price information for the Company’s shares traded on the SIX
Swiss Exchange, as reported by the SIX Swiss Exchange. The U.S. dollar
equivalent is based on the noon buying rate on the trading day of the month in
which the high or low closing sales price occurred. The noon buying rate is the
rate in New York City for cable transfers in selected currencies as certified
for customs purposes by the Federal Reserve Bank of New York.




Price per share on
  theSIX Swiss ExchangeHigh
            
            Low
            
            High
            
            LowCHF
            
            CHF
            
            $
            
            $Quarterly Highs and
    Lows:Fiscal year 2009:First quarter
            
            34.22
            
            24.18
            
            32.65
            
            24.13Second quarter
            
            30.46
            
            24.56
            
            27.92
            
            22.35Third quarter
            
            25.14
            
            14.29
            
            22.43
            
            11.68Fourth quarter
            
            18.01
            
            9.00
            
            16.26
            
            7.74Fiscal year 2010:First quarter
            
            16.80
            
            11.94
            
            14.85
            
            10.41Second quarter
            
            20.10
            
            14.30
            
            19.21
            
            13.17Third quarter
            
            19.21
            
            16.44
            
            18.95
            
            15.87Fourth quarter
            
            19.23
            
            16.40
            
            18.40
            
            15.10


33




---



Nasdaq Global Select
Market




The following table sets forth certain
historical share price information for the Company’s shares traded on the Nasdaq
Global Select Market.




Price per share on
    NasdaqHigh
            
            Low$
            
            $Quarterly Highs and
    Lows:Fiscal year 2009:First quarter
            
            
            33.34
            
            
            
            24.13Second quarter
            
            
            27.91
            
            
            
            21.98Third quarter
            
            
            22.59
            
            
            
            11.17Fourth quarter
            
            
            16.11
            
            
            
            7.64Fiscal year 2010:First quarter
            
            
            15.19
            
            
            
            10.64Second quarter
            
            
            19.15
            
            
            
            13.32Third quarter
            
            
            18.95
            
            
            
            15.85Fourth quarter
            
            
            18.49
            
            
            
            15.40


Dividends




Under Swiss law, a corporation may only pay
dividends upon a vote of its shareholders. This vote typically follows the
recommendation of the corporation’s board of directors. Logitech has not paid
dividends since 1996 in order to retain earnings for use in the operation and
expansion of the business and, in more recent years, to repurchase its
shares.




Dividends paid and similar cash or in-kind
distributions made by Logitech to a holder of Logitech shares (including
dividends or liquidation proceeds and stock dividends) are subject to a Swiss
federal anticipatory tax at a rate of 35%. The anticipatory tax must be withheld
by Logitech from the gross distribution, and paid to the Swiss Federal Tax
Administration.




A Swiss resident holder and beneficial owner
of Logitech shares may qualify for a full refund of the Swiss anticipatory tax
withheld from such dividends. A holder and beneficial owner of Logitech shares
who is a nonresident of Switzerland, but a resident of a country that maintains
a double tax treaty with Switzerland, may qualify for a full or partial refund
of the Swiss anticipatory tax withheld from such dividends by virtue of the
provisions of the applicable treaty between Switzerland and the country of
residence of the holder and beneficial owner of the Logitech
shares.




In accordance with the tax convention between
the United States and the Swiss Confederation (“Treaty”), a mechanism is
provided whereby a United States resident (as determined under the Treaty), and
United States corporations, other than U.S. corporations having a “permanent
establishment” or a fixed base, as defined in the Treaty, in Switzerland,
generally can obtain a refund of the Swiss anticipatory tax withheld from
dividends in respect of Logitech shares, to the extent that 15% of the gross
dividend is withheld as final withholding tax (i.e. 20% of the gross dividend
may generally be refunded). In specific cases, U.S. companies not having a
“permanent establishment” or a fixed base in Switzerland owning at least 10% of
Logitech registered shares may receive a refund of the Swiss anticipatory tax
withheld from dividends to the extent it exceeds 5% of the gross dividend (i.e.
30% of the gross dividend may be refunded). To get the benefit of a refund,
holders must beneficially own Logitech shares at the time such dividend becomes
due.




34




---



Share Repurchases




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




In fiscal year 2010, we repurchased shares
pursuant to our buyback program announced in June 2007 authorizing the purchase
of $250 million of our shares. The June 2007 program was completed in March
2010. All share repurchases by the Company during fiscal year 2010 were made as
part of publicly announced programs. 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. As of May 27, 2010, we have not
started repurchases under the September 2008 program.




ApproximateDollar Value ofTotal
            
            
            
            
            
            
            
            
            
            Shares That MayNumber
            
            Average Price Paid
            
            Yet Be Purchasedof Shares
            
            Per Share
            
            Under thePeriod
            
            
            Purchased
            
            in USD
            
            in CHF
            
            ProgramApril 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            $
            125,746May 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            125,746June 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            125,746July 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            125,746August 2009
            
            
            3,325
            
            
            
            16.82
            
            
            
            17.99
            
            
            
            
            69,820September 2009
            
            
            2,513
            
            
            
            18.04
            
            
            
            19.09
            
            
            
            
            24,479October 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            24,479November 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            24,479December 2009
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            24,479January 2010
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            24,479February 2010
            
            
            230
            
            
            
            15.58
            
            
            
            16.21
            
            
            
            
            20,896March 2010
            
            
            1,357
            
            
            
            15.81
            
            
            
            17.14
            
            
            
            
            —Total
            
            
            7,425


35




---



Performance Graph




The information contained in the Performance Graph shall not be deemed to
be “soliciting material” or “ filed” with the SEC or subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), except to the extent that we specifically incorporate it by reference
into a document filed under the Securities Act of 1933, as amended (the
“Securities Act”), or the Exchange Act.




The following graph compares the cumulative
total stockholder return on our shares, the Nasdaq Composite Index, and the
S&P 500 Information Technology Index. The graph assumes that $100 was
invested in our shares, the Nasdaq Composite Index and the S&P 500
Information Technology Index on March 31, 2005, and calculates the annual return
through March 31, 2010. The stock price performance on the following graph is
not necessarily indicative of future stock price performance.









March 31,2005
            
            2006
            
            2007
            
            2008
            
            2009
            
            2010Logitech
            
            $
            100
            
            $
            131
            
            $
            183
            
            $
            167
            
            $
            68
            
            $
            107Nasdaq Composite Index
            
            $
            100
            
            $
            117
            
            $
            121
            
            $
            114
            
            $
            76
            
            $
            120S&P 500 Index
            
            $
            100
            
            $
            110
            
            $
            120
            
            $
            112
            
            $
            68
            
            $
            99


36




---



ITEM 6. SELECTED FINANCIAL
DATA




The financial data below should be read in
conjunction with Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” These historical results are not
necessarily indicative of the results to be expected in the future.




Year ended March 31,2010
            
            2009
            
            2008
            
            2007
            
            2006(1)(In thousands, except per share
      amounts)Consolidated statements of operations
      and       cash flow
      data:Net sales
            
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496
            
            $
            2,066,569
            
            $
            1,796,715Gross profit
            
            
            626,896
            
            
            691,226
            
            
            849,118
            
            
            709,525
            
            
            574,110Operating expenses:Marketing and selling
            
            
            304,788
            
            
            319,167
            
            
            324,451
            
            
            272,264
            
            
            221,504Research and development
            
            
            135,813
            
            
            128,755
            
            
            124,544
            
            
            108,256
            
            
            87,953General and administrative
            
            
            106,147
            
            
            113,103
            
            
            113,443
            
            
            98,143
            
            
            65,742Restructuring charges
            
            
            1,784
            
            
            20,547
            
            
            —
            
            
            —
            
            
            —Total operating expenses
            
            
            548,532
            
            
            581,572
            
            
            562,438
            
            
            478,663
            
            
            375,199Operating income
            
            
            78,364
            
            
            109,654
            
            
            286,680
            
            
            230,862
            
            
            198,911Net income
            
            $
            64,957
            
            $
            107,032
            
            $
            231,026
            
            $
            229,848
            
            $
            181,105Net income per share:Basic
            
            $
            0.37
            
            $
            0.60
            
            $
            1.27
            
            $
            1.26
            
            $
            1.00Diluted
            
            $
            0.36
            
            $
            0.59
            
            $
            1.23
            
            $
            1.20
            
            $
            0.92Shares used to compute net income per
      share:Basic
            
            
            177,279
            
            
            178,811
            
            
            181,362
            
            
            182,635
            
            
            181,361Diluted
            
            
            179,340
            
            
            182,911
            
            
            187,942
            
            
            190,991
            
            
            198,769Net cash provided by operating activities
            
            $
            365,259
            
            $
            200,587
            
            $
            393,079
            
            $
            303,825
            
            $
            152,217


March 31,2010
            
            2009
            
            2008
            
            2007
            
            2006(1)(In thousands)Consolidated balance sheet
      data:Cash and cash equivalents
            
            $
            319,944
            
            $
            492,759
            
            $
            482,352
            
            $
            196,197
            
            $
            245,014Short-term investments
            
            $
            —
            
            $
            1,637
            
            $
            3,940
            
            $
            214,625
            
            $
            —Total assets
            
            $
            1,599,678
            
            $
            1,421,530
            
            $
            1,526,932
            
            $
            1,327,463
            
            $
            1,057,064Long-term debt, net of current
      maturities
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            4Shareholders’ equity
            
            $
            999,715
            
            $
            997,708
            
            $
            960,044
            
            $
            844,524
            
            $
            685,176


(1)
            
            Net income for
      fiscal year 2006 does not include the effect of share-based compensation
      expense, because Logitech changed its method of accounting for share-based
      compensation expense effective April 1,
2006.





37




---



ITEM 7.
            
            MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


The following Management’s Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company’s actual results could differ materially from
those anticipated in these statements as a result of certain factors, including
those set forth above in Item 1A “Risk Factors,” and below in Item 7A
“Quantitative and Qualitative Disclosures about Market
Risk.”




Overview of Our Company




Logitech is a world 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, gaming and wireless devices. With our acquisition of
LifeSize Communications, Inc. in December 2009, we entered the market for
enterprise video conferencing products and services. Our products combine
essential core technologies, continuing innovation, and award-winning industrial
design.




Logitech operates in two industry
segments, personal peripherals and video conferencing.




Our personal peripherals segment encompasses
the design, manufacturing and marketing of personal peripherals for personal
computers and other digital platforms. Our research and product management teams
are organized along product lines, and are responsible for product strategy,
industrial design and development, and technological innovation. Our global
marketing and sales organization helps define product opportunities and bring
our products to market, and is responsible for building the Logitech brand and
consumer awareness of our products. This organization is comprised of retail and
OEM (original equipment manufacturer) sales and marketing groups. Our retail
sales and marketing activities are organized into three geographic regions:
Americas (including North and South America), Europe-Middle East-Africa
(“EMEA”), and Asia Pacific. Our OEM sales team is a worldwide organization with
representatives in each of our three regions. Our OEM customers include the
majority of the world’s largest PC manufacturers.




Our video conferencing segment encompasses the
design, manufacturing and marketing of LifeSize video conferencing products and
services for the enterprise and small-to-medium business markets. The LifeSize
segment maintains a separate marketing and sales organizations. The LifeSize
product development and product management organizations are separate, but
coordinated with our personal peripherals business, particularly our webcam and
video communications groups. Based on the financial measurements for the fiscal
year ended March 31, 2010 as evaluated by Logitech’s Chief Executive Officer,
the LifeSize operating segment does not meet the quantitative threshold for
separate disclosure of financial information required by generally accepted
accounting principles in the United States.




For the PC, our products include mice,
trackballs, keyboards, interactive gaming controllers, multimedia speakers,
headsets, webcams, 3D control devices and lapdesks. Our Internet communications
products include webcams, headsets, video communications services, and digital
video security systems for a home or small business. Our LifeSize division
offers scalable high-definition (“HD”) video communication products, support and
services. Our digital music products include speakers, earphones, and custom
in-ear monitors. For home entertainment systems, we offer the Harmony line of
advanced remote controls and the Squeezebox and Transporter wireless music
solutions for the home. 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.




We sell our peripheral products to a network
of retail distributors and resellers and to OEMs. Our worldwide retail network
for our peripherals 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 for our peripherals were 89% and 85% of our net sales for
the fiscal years ended March 31, 2010 and 2009. The large majority of our
revenues have historically been derived from sales of our personal peripheral
products for use by consumers.




38




---



We sell our LifeSize products and services to
distributors, value-added resellers, OEMs and direct enterprise customers. The
large majority of LifeSize revenues have historically been derived from sales to
large enterprises, small-to-medium businesses, and public healthcare, education
and government organizations.




Our markets are extremely competitive. The
personal peripherals market is 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 global economic downturn has further increased competition in our
markets, as competitors with larger financial resources, such as Microsoft
Corporation, Sony Corporation 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.




The video conferencing market is characterized
by continual performance enhancements and increasing consolidation. There is
heightened interest in the video conferencing market by large, well-financed
competitors, such as Cisco Systems, Inc. and Hewlett-Packard Company, and as a
result, we expect competition in the market to further intensify.




We believe continued investment in product
research and development is critical to creating the innovation required to
strengthen our competitive advantage and to drive future sales growth. 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. However we also seek to acquire, when appropriate, companies
that have products, personnel, and technologies that complement our strategic
direction. As access to digital information expands beyond the PC platform, we
are also extending our vision to other platforms, such as the living room,
meeting room and other platforms as access points to the Internet and the
digital world. For example, with our acquisition of LifeSize in December 2009,
we entered the video conferencing market. Together, Logitech and LifeSize plan
to pursue existing and new relationships with unified communications,
collaboration and voice-over Internet protocol (“VoIP”) industry partners and
competitors to drive the development of an open eco-system for interoperable
video communications. In addition, as part of our corporate strategy, we plan to
increase investments in and realign resources to focus on certain market
adjacencies, geographic markets or new categories, including video
communications and the China market. We also plan to increase our investment in
applications and peripherals for open platforms, which do not require direct
collaboration and agreement with the platform owner.




We continually evaluate our product offerings
and our strategic direction in light of current global economic conditions,
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 for the fiscal year ended
March 31, 2010 decreased 11% compared with the fiscal year ended March 31, 2009.
Net sales in the second half of fiscal year 2010 increased 10% over the same
period in 2009, after decreasing 30% in the first six months of the year. While
not yet resuming the sales levels in fiscal year 2008, the improvement in net
sales in the last six months of fiscal year 2010 reflects more stable global
economic conditions.




39




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Retail sales in fiscal year 2010 decreased 8%
compared with 2009. Retail unit sales decreased 2%, less than the decrease in
sales dollars, reflecting the shift by consumers towards value-priced products
as a result of the economic downturn.




Retail sales in our Asia Pacific and EMEA
regions decreased 16% and 11% in fiscal year 2010 compared with fiscal year
2009. Retail sales in our Americas region increased 1% in the same period.
Retail sales in the last six months of fiscal year 2010 increased in the EMEA
and Americas region, and decreased slightly in the Asia Pacific region,
indicating an improvement in the sales trend.




OEM sales decreased 38% in fiscal year 2010
compared with fiscal year 2009. OEM units sold decreased 25% in the same period.
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 fiscal year 2010.




The sales of LifeSize Communications, Inc.,
which we acquired on December 11, 2009, are included in our financial results
from the date of acquisition to the end of the fiscal year.




Our gross margin for fiscal year 2010 was
31.9% compared with 31.3% in the prior fiscal year, primarily due to the impact
of operational efficiencies across our supply chain and a favorable shift in
product mix towards products with higher margins.




Net income for the year ended March 31, 2010
was $65.0 million, compared with net income of $107.0 million in fiscal year
2009. The decline in net income in 2010 resulted primarily from the decline in
net sales. Net income also included the negative impact of $1.8 million in
fiscal year 2010 and $20.5 million in fiscal year 2009 of costs related to the
restructuring plan initiated in January 2009 in response to deteriorating global
economic conditions.




Trends in Our Business




We have a large and varied portfolio of
product lines for personal peripherals, grouped in several product families. In
addition to changes resulting from general economic trends, we believe that
normal increases or decreases in the retail sales level of a product family
reflect 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.




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, smartphones, tablets 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 decreased
demand by consumers for personal peripherals, which could negatively affect our
business. 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.




40




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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. Our OEM sales accounted for 10% and 15% of total revenues during
fiscal years 2010 and 2009. We expect the trend of slowing OEM mice sales to
continue.




Most of our revenue comes from sales to our
retail channels, which resell to consumers and other retailers. As a result, our
customers’ demand for our products depends in substantial part on trends in
consumer confidence and consumer spending, as well as the levels of inventory
which our customers choose to maintain. We use sell-through data, which
represents sales of our products by our retailer customers to consumers and by
our distributor customers to retailers, along with other metrics to indicate
consumer demand for our products. Sell-through data is subject to limitations
due to collection methods and the third-party nature of the data and thus may
not be an entirely accurate indicator of actual consumer demand for our
products. In addition, the customers supplying sell-through data vary by
geographic region and from period to period, but typically represent a majority
of our retail sales.




The acquisition of LifeSize in December 2009
expands our video communication product portfolio beyond webcams and video
calling into the enterprise meeting room. We believe our video conferencing
segment offers significant growth opportunities for our business. However, the
segment currently represents a small part of our net sales and will require
continuing investments in product development and sales and
marketing.




We will continue to evaluate potential
acquisitions to enhance the breadth and depth of our expertise in engineering
and other functional areas, our technologies and our product offerings. We also
intend to continue to invest in video communications, in products for the
digital home, and in growing our sales in China by increasing hiring in related
engineering and sales and marketing functions.




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, Japanese yen, Chinese renminbi
and Canadian dollar. Our product costs are primarily in U.S. dollars and Chinese
renminbi. Our operating expenses are incurred in U.S. dollars, euros, Chinese
renminbi, Swiss francs, Taiwanese dollars, 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 fiscal year 2010 the impact of foreign currency
exchange rates on our operating income was not material.




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 for the fiscal year ended March 31, 2010
were 31.9%, compared with 31.3% in fiscal year 2009, primarily due to the impact
of operational efficiencies across our supply chain and a favorable shift in
product mix towards products with higher margins. We currently anticipate
our gross margins to be higher in fiscal year 2011 compared with fiscal year
2010.




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 income tax rate depends on the amount
of profits generated in each of the various tax jurisdictions in which we
operate. For fiscal years 2010 and 2009, the income tax provision was $18.7
million and $19.8 million based on effective income tax rates of 22.3% and
15.6%. The change in effective income tax rate between fiscal years 2010 and
2009 is primarily due to the mix of income and losses in the various tax
jurisdictions in which the Company operates. We expect future effective income
tax rates to fluctuate for similar reasons.




41




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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 $1.8 million in the twelve months ended March 31, 2010
related to employee termination costs, contract termination costs and other
associated costs. The restructuring plan was 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 cost savings
realized from the restructuring are partially offset in the operating results of
fiscal year 2010 by the addition of LifeSize’s operating expenses and
by increased spending to support the return to revenue growth.




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.




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.




We believe the following accounting estimates
are most critical to our business operations and to an understanding of our
financial condition and results of operations, and reflect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements.




Accruals for Customer Programs




We record accruals for product returns,
cooperative marketing arrangements, customer incentive programs and pricing
programs. The estimated cost of these programs is accrued in the period the
Company sells the product or commits to the program as a reduction of revenue or
as an operating expense, if we receive a separately identifiable benefit from
the customer and can reasonably estimate the fair value of that benefit.
Significant management judgment and estimates must be used to determine the cost
of these programs in any accounting period.




Returns. The
Company grants limited rights to return product. Return rights vary by customer,
and range from just the right to return defective product to stock rotation
rights to return a limited percentage of the previous quarter’s purchases.
Estimates of expected future product returns are recognized at the time of sale
based on analyses of historical return trends by customer and by product,
inventories owned by and located at distributors and retailers, current customer
demand, current operating conditions, and other relevant customer and product
information, such as stage of product life-cycle. Return trends are influenced
by the timing of the sale, the type of customer, operational policies and
procedures, product sell-through, product quality issues, sales levels, market
acceptance of products, competitive pressures, new product introductions,
product life cycle status, and other factors. Return rates can fluctuate over
time, but are sufficiently predictable to allow us to estimate expected future
product returns.




Cooperative Marketing Arrangements. The Company’s cooperative marketing
arrangements include contractual customer marketing and sales incentive
programs. We enter into customer marketing programs with many of our
distribution and retail customers allowing customers to receive a credit equal
to a set percentage of their purchases of the Company’s products, or a fixed
dollar credit for various marketing programs. The objective of these programs is
to encourage advertising and promotional events to increase sales of our
products. Accruals for the estimated costs of these marketing programs are
recorded based on the contractual percentage of product purchased in the period
we recognize revenue. The Company also offers rebates and discounts for certain
types of sell-through programs. Accruals for these sales incentive programs are
recorded at the time of sale, or time of commitment, based on negotiated terms,
historical experience and inventory levels in the channel.




42




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Customer Incentive Programs. Customer incentive programs include volume
and consumer rebates. We offer volume rebates to our distribution and retail
customers related to purchase volumes or sales of specific products by
distributors to specified retailers. Reserves for volume rebates are recognized
as a reduction of the sale price at the time of sale. Estimates of required
reserves are determined based on negotiated terms, consideration of historical
experience, anticipated volume of future purchases, and inventory levels in the
channel. Consumer rebates are offered from time to time at the Company’s
discretion directly to end-users. Estimated costs of consumer rebates and
similar incentives are recorded at the time the incentive is offered, based on
the specific terms and conditions. Certain incentive programs, including
consumer rebates, require management to estimate the number of customers who
will actually redeem the incentive based on historical experience and the
specific terms and conditions of particular programs.




Price Protection and Special Pricing. We have contractual agreements with certain
of our customers that contain terms allowing price protection credits to be
issued in the event of a subsequent price reduction (contractual price
protection). At management’s discretion, we also offer special pricing discounts
to certain customers. Special pricing discounts are usually offered only for
limited time periods or for sales to specific indirect partners. Our decision to
make price reductions is influenced by channel inventory levels, product life
cycle stage, market acceptance of products, the competitive environment, new
product introductions and other factors. Credits are issued for units that
customers have on hand or in transit at the date of the price reduction.
Reserves for the estimated amounts to be reimbursed to qualifying customers are
established quarterly based on planned price reductions, analyses of qualified
inventories on hand with distributors and retailers and historical trends by
customer and by product.




We regularly evaluate the adequacy of our
accruals for product returns, cooperative marketing arrangements, customer
incentive programs and pricing programs. Future market conditions and product
transitions may require the Company to take action to increase such programs. In
addition, when the variables used to estimate these costs change, or if actual
costs differ significantly from the estimates, we would be required to record
incremental reductions to revenue or increase operating expenses. If, at any
future time, the Company becomes unable to reasonably estimate these costs,
recognition of revenue might be deferred until products are sold to end-users,
which would adversely impact revenue in the period of transition.




Investment Securities




Our investment securities portfolio as of
March 31, 2010 and 2009 consisted of auction rate securities collateralized by
residential and commercial mortgages. The estimated fair value of our investment
securities was $1.0 million and $1.6 million at March 31, 2010 and 2009.
Estimated fair value was determined by estimating values of the underlying
collateral using analogous published indices or by estimating future cash flows,
either through discounted cash flow or option pricing methods, incorporating
assumptions of default and other future conditions. The investments are
classified as available-for-sale, and were reclassified from current to
non-current assets as of April 1, 2009, as sale or realization of proceeds from
sale is not expected within our normal operating cycle of one year.




Allowance for Doubtful Accounts




We sell our products through a worldwide
network of distributors, retailers and OEM customers. Logitech generally does
not require any collateral from its customers. However, we seek to control our
credit risk through ongoing credit evaluations of our customers’ financial
condition.




43




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We regularly evaluate the collectibility of
our accounts receivable and maintain allowances for doubtful accounts. The
allowances are based on management’s assessment of the collectibility of
specific customer accounts, including their credit worthiness and financial
condition, as well as the Company’s historical experience with bad debts and
customer deductions, receivables aging, current economic trends and geographic
or country-specific risks and the financial condition of our distribution
channel. If management determines that a customer’s accounts receivable balance
is uncollectible, recognition of revenue from that customer is deferred until
collectibility is reasonably assured.




As of March 31, 2010, one customer represented
14% of total accounts receivable. The customers comprising the ten highest
outstanding trade receivable balances accounted for approximately 58% of total
accounts receivable as of March 31, 2010. A deterioration of a significant
customer’s financial condition could cause actual write-offs to be materially
different from the estimated allowance. If any of these customers’ receivable
balances should be deemed uncollectible or if actual write-offs are higher than
historical experience, we would have to make adjustments to our allowance for
doubtful accounts, which could result in an increase in the Company’s operating
expenses.




Inventory Valuation




The Company must order components for its
products and build inventory in advance of customer orders. Further, our
industry is characterized by rapid technological change, short-term customer
commitments and rapid changes in demand.




We record inventories at the lower of cost or
market value and record write-downs of inventories which are obsolete or in
excess of anticipated demand or market value. A review of inventory is performed
each fiscal quarter that considers factors including the marketability and
product life cycle stage, product development plans, component cost trends,
demand forecasts and current sales levels. We identify inventory exposures by
comparing inventory on hand, in the channel and on order to historical and
forecasted sales over six month periods. Inventory on hand which is not expected
to be sold or utilized based on review of forecasted sales and utilization is
considered excess, and we recognize the write-off in cost of sales at the time
of such determination. At the time of loss recognition, a new, lower-cost basis
for that inventory is established and subsequent changes in facts and
circumstances would not result in an increase in the cost basis. If there were
an abrupt and substantial decline in demand for Logitech’s products or an
unanticipated change in technological or customer requirements, we may be
required to record additional write-downs which could adversely affect gross
margins in the period when the write-downs are recorded.




Share-Based Compensation Expense




Share-based compensation expense includes
compensation expense, reduced for estimated forfeitures, for awards granted
after April 1, 2006 based on the grant-date fair value. The grant date fair
value for stock options and stock purchase rights is estimated using the
Black-Scholes-Merton option-pricing valuation model. The grant date fair value
of restricted stock units (“RSUs”) which vest upon meeting certain market
conditions is estimated using the Monte-Carlo simulation method. The grant date
fair value of time-based RSUs is calculated based on the share market price on
the date of grant. For stock options and restricted stock assumed by Logitech
when LifeSize was acquired, the grant date used to estimate fair value is deemed
to be December 11, 2009, the date of acquisition. Compensation expense for
awards granted or assumed after April 1, 2006 is recognized on a straight-line
basis over the service period of the award. For share-based compensation awards
granted prior to but not yet vested as of April 1, 2006, share-based
compensation expense is based on the grant-date fair value estimated using the
Black-Scholes-Merton option-pricing valuation model reduced for estimated
forfeitures, and recognized on a straight-line basis over the service period for
each separately vesting portion of the award. See Note 13-Employee Benefit Plans
in the Notes to Consolidated Financial Statements for further discussion of
share-based compensation.




44




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Our estimates of share-based compensation
expense require a number of complex and subjective assumptions including our
stock price volatility, employee exercise patterns, future forfeitures, dividend
yield, related tax effects and the selection of an appropriate fair value model.
We estimate expected share price volatility based on historical volatility using
daily prices over the term of past options, RSUs or purchase offerings, as we
consider historical share price volatility as most representative of future
volatility. We estimate expected life based on historical settlement rates,
which we believe are most representative of future exercise and post-vesting
termination behaviors. We use historical data to estimate pre-vesting
forfeitures, and we record share-based compensation expense only for those
awards that are expected to vest. The dividend yield assumption is based on the
Company’s history and future expectations of dividend payouts.




The assumptions used in calculating the fair
value of share-based compensation expense and related tax effects represent
management’s best estimates, but these estimates involve inherent uncertainties
and the application of management judgment. As a result, if factors change and
we use different assumptions, or if we decide to use a different valuation
model, our share-based compensation expense could be materially different in the
future from what we have recorded in the current period, which could materially
affect our results of operations.




Accounting for Income Taxes




Logitech operates in multiple jurisdictions
and its profits are taxed pursuant to the tax laws of these jurisdictions. The
Company’s effective income tax rate may be affected by the changes in 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. As a result of these considerations,
we must estimate income taxes in each of the jurisdictions in which we operate.
This process involves estimating current tax exposure together with assessing
temporary differences resulting from different treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in the consolidated balance sheet.




We assess the likelihood that our deferred tax
assets will be recovered from future taxable income, considering all available
evidence such as historical levels of income, expectations and risks associated
with estimates of future taxable income and ongoing prudent and feasible tax
strategies. We believe it is more likely than not such assets will be realized;
however, ultimate realization could be negatively impacted by market conditions
and other variables not known or anticipated at this time. In the event we
determine that we would not be able to realize all or part of our deferred tax
assets, an adjustment would be charged to earnings in the period such
determination is made. Likewise, if we later determine that it is more likely
than not that the deferred tax assets would be realized, the previously provided
valuation allowance would be reversed.




We make certain estimates and judgments about
the application of tax law, the expected resolution of uncertain tax positions
and other matters surrounding the recognition and measurement of uncertain tax
benefits. In the event that uncertain tax positions are resolved for amounts
different than our estimates, or the related statutes of limitations expire
without the assessment of additional income taxes, we will be required to adjust
the amounts of the related assets and liabilities in the period in which such
events occur. Such adjustments may have a material impact on our income tax
provision and our results of operations.




Valuation of Long-Lived Assets




We review long-lived assets, such as
investments, property, plant and equipment, and goodwill and other intangible
assets for impairment whenever events indicate that the carrying amount of these
assets might not be recoverable. Factors considered important which could
require us to review an asset for impairment include the following:


- significant underperformance
  relative to historical or projected future operating results;
- significant changes in the manner
  of use of the assets or the strategy for the Company’s overall business;

45




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- significant negative industry or
  economic trends;
- significant decline in the
  Company’s stock price for a sustained period; and
- market capitalization relative to
  net book value.

Recoverability of investments, property, plant
and equipment, and other intangible assets is measured by comparing the
projected undiscounted cash flows the asset is expected to generate with its
carrying amount. If an asset is considered impaired, the impairment to be
recognized is measured by the excess of the carrying amount of the asset over
its fair value.




We evaluate goodwill for impairment on an
annual basis and whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable from our estimated future cash flows.
Recoverability of goodwill is measured at the reporting unit level by comparing
the reporting unit’s carrying amount, including goodwill, to the fair value of
the reporting unit. If the carrying amount of the reporting unit exceeds its
fair value, goodwill is considered impaired, and a second test is performed to
measure the amount of impairment loss. We continue to maintain discrete
financial information for 3Dconnexion and LifeSize, and accordingly determine
impairment for the goodwill acquired with these acquisitions at the entity
level. All other acquired goodwill is evaluated for impairment at a total
enterprise level.




In determining fair value, we consider various
factors including estimates of future market growth and trends, forecasted
revenue and costs, expected periods over which our assets will be utilized, and
other variables. We calculate the Company’s fair value based on the present
value of projected cash flows using a discount rate determined by management to
be commensurate to the risk inherent in the Company’s current business model. To
date, we have not recognized any impairment of goodwill. Logitech bases its fair
value estimates on assumptions it believes to be reasonable, but which are
inherently uncertain.




Recent Accounting
Pronouncements




In October 2009, the Financial Accounting
Standards Board (“FASB”) published Accounting Standards Update (“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 ASC 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.




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




46




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In January 2010, the FASB published ASU
2010-06, Improving Disclosures about Fair Value
Measurement , which
requires additional disclosures regarding the activity in fair value
measurements classified as Level 3 in the fair value hierarchy. Disclosure of
activity in Level 3 fair value measurements is required for fiscal years
beginning after December 15, 2010. Early adoption is permitted. We will provide
these disclosures beginning in the first quarter of fiscal year 2011, when such
activity occurs.




In April 2010, the FASB published ASU 2010-13, Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades .
The ASU provides that a share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity shares trades should not be considered to contain a condition
that is not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies as
equity. The ASU is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. Earlier adoption is
permitted. Our adoption of ASU 2010-13 in the first quarter of fiscal year 2011
will not impact the Company’s consolidated financial statements.




Results of Operations




Net Sales




Net sales by channel for fiscal
years 2010, 2009 and 2008 were as follows (in thousands):




Change %Year Ended March 31,
            
            2010 vs
            
            2009 vs2010
            
            2009
            
            2008
            
            2009
            
            2008Net sales by channel:Retail
            
            $
            1,745,152
            
            $
            1,887,343
            
            $
            2,067,288
            
            
            (8
            )%
            
            
            
            (9
            )%OEM
            
            
            198,364
            
            
            321,489
            
            
            303,208
            
            
            (38
            )%
            
            
            
            6
            %LifeSize
            
            
            23,232
            
            
            —
            
            
            —
            
            
            0
            %
            
            
            
            0
            %Total net sales
            
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496
            
            
            (11
            )%
            
            
            
            (7
            )%


The decreases in retail sales in fiscal years
2009 and 2010 reflected the global economic downturn. The impact began in the
third quarter of fiscal year 2009 and continued through the second quarter of
fiscal year 2010. During this period, our retail sales were affected by
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 the declining consumer demand. Sales of products priced
below $40 represented 57% of retail sales in fiscal year 2010, compared with 50%
in fiscal year 2009 and 49% in fiscal year 2008. Retail units decreased 2% in
fiscal year 2010, compared with a 5% decrease in 2009, indicating the beginnings
of economic stabilization. Foreign currency exchange rates did not affect the
retail sales decline.




The significant decline in OEM sales for
fiscal year 2010 compared with 2009 was attributable to the popularity of our
console microphones in fiscal year 2008 and the first three quarters of fiscal
year 2009. These products reached the latter stages of the typical gaming sales
cycle in the fourth quarter of fiscal year 2009. OEM units sold decreased 25%
during fiscal year 2010 and increased 2% in fiscal year 2009, compared with the
prior fiscal years. Foreign currency exchange rates did not significantly affect
the OEM sales decline.




LifeSize net sales represent sales of video
conferencing units and related software and services for the period from
December 11, 2009, the date of acquisition, to the end of the fiscal year.
Although we consider LifeSize a separate operating segment, based on financial
measurements for the fiscal year ended March 31, 2010 and our near-term
expectations, the LifeSize segment does not meet the quantitative threshold for
separate disclosure of financial information required by generally accepted
accounting principles in the United States.




47




---



Approximately 51%, 46% and 45% of the
Company’s total net sales were denominated in currencies other than the U.S.
dollar in fiscal years 2010, 2009 and 2008. If foreign currency exchange rates
had been the same in fiscal years 2010 and 2009, our constant dollar sales
decline would have been 12%. If foreign currency exchange rates had been the
same in fiscal years 2009 and 2008, our constant dollar sales decrease would
have been 6%.




We refer to our net sales excluding the impact
of foreign currency exchange rates as constant dollar sales. Constant dollar
sales are a non-GAAP financial measure, which is information derived from
consolidated financial information but not presented in our financial statements
prepared in accordance with U.S. GAAP. Our management uses these non-GAAP
measures in its financial and operational decision-making, and believes these
non-GAAP measures, when considered in conjunction with the corresponding GAAP
measures, facilitate a better understanding of changes in net sales. Constant
dollar sales are calculated by translating prior period sales in each local
currency at the current period’s average exchange rate for that
currency.




Retail Sales by Region




The following table presents the change in
retail sales by region for fiscal year 2010 compared with fiscal year 2009, and
fiscal year 2009 compared with fiscal year 2008:




Year Ended March 31,2010 vs 2009
            
            2009 vs 2008Change in retail sales by
    region:EMEA
            
            (11
            )%
            
            
            
            (11
            )%Americas
            
            1
            %
            
            
            
            (15
            )%Asia Pacific
            
            (16
            )%
            
            
            
            16
            %Total retail sales
            
            (8
            )%
            
            
            
            (9
            )%


Sales in the EMEA region decreased in all
product families except audio in fiscal year 2010 compared with 2009, reflecting
the effects of the global economic downturn. For the same reason in fiscal year
2009, the EMEA region experienced sales decreases in all product families
compared with the prior year. Retail units sold declined 5% and 8% in fiscal
years 2010 and 2009 compared with the prior year. In both fiscal years 2010 and
2009, sales in Eastern Europe and other emerging markets were depressed,
reflecting the economic downturn, customers’ lack of available credit to finance
purchases of inventory, and currency volatility. The percentage decline in
retail sell-through in the EMEA region for fiscal year 2010 was less than the
decline in sell-in, which indicates comparatively stronger consumer demand for
our products than our sales results reflected, as well as a continuance of the
realignment of our channel partners’ weeks of supply levels. If foreign currency
exchange rates had been the same in fiscal years 2010 and 2009, our EMEA
constant dollar retail sales decline would have been 12%. If foreign currency
exchange rates had been the same in fiscal years 2009 and 2008, our EMEA
constant dollar retail sales decrease would have been 8%.




Retail sales were essentially flat in the
Americas region in fiscal year 2010 compared with 2009, reflecting modest
economic stability in the region. Sales of pointing devices, keyboards and
desktops, and remotes increased. The 15% decrease in sales in fiscal year 2009
compared with 2008 was driven by declines in all product families except video.
Total retail units sold in the Americas region in fiscal year 2010 increased 7%
over the prior year, an indication of consumers’ preference for value-segment
products, compared with a 5% decrease in fiscal year 2009. Retail sell-through
in fiscal year 2010 was also essentially flat compared with the prior year, as
our channel partners, during the first half of the year, completed the
realignment of their weeks of supply levels. Foreign currency exchange rates had
no significant effect on retail sales in the Americas region in either fiscal
year 2010 or fiscal year 2009.




Retail sales in the Asia Pacific region
declined in all product families during fiscal year 2010 compared with 2009, as
our channel partners completed their alignment of inventory levels with consumer
demand. This alignment activity was also reflected by positive sell-through
compared with the sell-in decline. In fiscal year 2009, before the economic
downturn affected the region, retail sales increased in all product families
compared with the prior year. Correspondingly, total retail units sold in the
Asia Pacific region declined 10% in fiscal year 2010 and increased 11% in fiscal
year 2009 compared with the prior years. If foreign currency exchange rates had
been the same in fiscal years 2010 and 2009, our Asia Pacific constant dollar
retail sales decline would have been 17%. If foreign currency exchange rates had
been the same in fiscal years 2009 and 2008, our Asia Pacific constant dollar
retail sales increase would have been 12%.




48




---



Net Retail Sales by Product Family




Net retail sales by product family for fiscal years 2010, 2009 and 2008
were as follows (in thousands):




Change %Year Ended March 31,
            
            2010vs
            
            2009vs2010
            
            2009
            
            2008
            
            2009
            
            2008Net retail sales by product
      family:Retail — Pointing
      Devices
            $
            528,236
            
            $
            579,775
            
            $
            615,524
            
            (9
            )%
            
            (6
            )%Retail — Keyboards & Desktops
            
            329,038
            
            
            384,809
            
            
            464,984
            
            (14
            )%
            
            (17
            )%Retail — Audio
            
            454,957
            
            
            445,362
            
            
            478,455
            
            2
            %
            
            (7
            )%Retail — Video
            
            228,344
            
            
            248,339
            
            
            238,728
            
            (8
            )%
            
            4
            %Retail — Gaming
            
            107,595
            
            
            127,052
            
            
            146,016
            
            (15
            )%
            
            (13
            )%Retail — Remotes
            
            96,982
            
            
            102,006
            
            
            123,581
            
            (5
            )%
            
            (17
            )%Total net retail sales
            $
            1,745,152
            
            $
            1,887,343
            
            $
            2,067,288
            
            (8
            )%
            
            (9
            )%


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 pricing programs.




Retail — Pointing
Devices




Retail unit sales of our pointing devices
decreased 2% in both fiscal years 2010 and 2009 compared with the prior fiscal
years. Sales of corded mice declined 19% in fiscal year 2010 and 13% in fiscal
year 2009, with units decreasing 11% and 8%. Sales of cordless mice decreased 3%
in fiscal year 2010 and increased 4% in fiscal year 2009. Unit sales of cordless
mice increased 15% in fiscal year 2010 and 10% in fiscal year 2009, driven by
sales of our notebook mice, including in 2010 the Performance Mouse MX and the
Anywhere Mouse MX, both with Darkfield Laser Tracking, and in 2009 the V450 Nano
Cordless Mouse and the V220 Cordless Optical Mouse. The slower decline or higher
increase in unit sales compared with dollar sales for cordless and corded mice
indicates consumers’ current preference for the value segment of our product
lines.




Retail — Keyboards and
Desktops




Retail unit sales of keyboards and desktops
decreased 11% and 10% during fiscal years 2010 and 2009. Sales of corded
keyboards and desktops decreased 11% and 5% in fiscal years 2010 and 2009, while
units decreased 17% and 7%. In fiscal year 2010, cordless keyboards and desktops
decreased 20% in sales and 5% in units. Sales of the MK300 wireless desktop and
the EX 100 cordless desktop were strong, but were offset by declines in sales of
the EX 110 cordless desktop. In fiscal year 2009, sales of cordless keyboards
and desktops decreased 21%, with a 17% decline in units. Strong sales of our
cordless desktops EX 100 and MX 5500 were offset by declines in sales of the
MX5000 Laser and EX 110 cordless desktops.




49




---



Retail
Audio




Retail audio unit sales increased 11% in
fiscal year 2010 and decreased 2% in fiscal year 2009. PC speaker sales
decreased 7% in dollars, but increased 7% in units in fiscal year 2010,
following a decline of 20% in dollars and 8% in units in fiscal year 2009. The
decline in PC speaker sales was primarily attributable to product transitions
and the weak demand environment. Sales of our iPod speakers increased 1% in
dollars and 8% in units in fiscal year 2010 compared with increases of 22% and
8% in fiscal year 2009. Sales of our PureFi Anywhere 2 speakers made strong
contributions to the increases in both fiscal years 2010 and 2009. In fiscal
year 2010, the S315i Rechargeable Speaker and the S215i Portable Speaker also
made positive contributions to sales. PC headset sales grew 23% in fiscal year
2010 and 9% in fiscal year 2009, with units increasing 22% and 3%. Ultimate Ears
products also provided positive contributions to retail audio sales in both
fiscal years 2010 and 2009.




Retail
Video




Video sales decreased 8% in fiscal year 2010
after increasing 4% in fiscal year 2009, compared with the previous years. Units
sold increased 2% and 3% in fiscal years 2010 and 2009. The sales fluctuations
were primarily attributable to our WiLife video security products, which sold
well in fiscal year 2009, and were negatively affected in fiscal year 2010 by a
planned future product transition. Strong sellers in our webcam family included
the value-priced C250 and C200 webcams in fiscal year 2010, and our Communicate
MP and QuickCam Connect webcams in fiscal year 2009.




Retail
Gaming




Retail unit sales of our gaming peripherals
decreased 26% in fiscal year 2010, compared with a decrease of 22% in fiscal
year 2009. PC gaming sales decreased 12% and 13% in fiscal years 2010 and 2009
compared with the previous year. Unit sales of PC gaming peripherals decreased
25% and 18% in fiscal years 2010 and 2009. In the cyclical manner typical of
gaming peripherals, sales of our G25 Racing Wheel, popular in fiscal year 2009,
were replaced by our G27 Racing Wheel, with lower sales of the G15 Gaming
Keyboard in both years. Console gaming sales declined 27% and 12%, with unit
declines of 27% and 28% in fiscal years 2010 and 2009.




Retail
Remotes




Retail remote sales decreased 5% in fiscal
year 2010 compared with the decline of 17% in fiscal year 2009. Unit sales
decreased 14% in fiscal year 2010 compared with an 8% increase in fiscal year
2009, reflecting strong sales of our lower-priced Harmony One remote control and
increased promotional activity in both years, and our newer Harmony 900 and
Harmony 700 Advanced Universal Remote in fiscal year 2010.




Gross
Profit




Gross profit for fiscal years 2010,
2009 and 2008 was as follows (in thousands):




Change %Year Ended March 31,
            
            2010vs
            
            2009vs2010
            
            2009
            
            2008
            
            2009
            
            2008Net sales
            $
            1,966,748
            
            
            $
            2,208,832
            
            
            $
            2,370,496
            
            
            (11
            )%
            
            (7
            )%Cost of goods sold
            
            1,339,852
            
            
            
            1,517,606
            
            
            
            1,521,378
            
            
            (12
            )%
            
            0
            %Gross profit
            $
            626,896
            
            
            $
            691,226
            
            
            $
            849,118
            
            
            (9
            )%
            
            (19
            )%Gross margin
            
            31.9
            %
            
            
            31.3
            %
            
            
            35.8
            %


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.




50




---



The improvement in the gross margin percentage
in fiscal year 2010 over fiscal year 2009 was primarily due to operational
efficiencies across our supply chain, including lower product costs as well as
faster inventory turnover, and a favorable shift in product mix towards products
with higher margins. Gross profit in fiscal year 2009 decreased 19% in dollars
and declined as a percentage of revenue compared with fiscal year 2008 primarily
due to the decline in net sales, an increasingly promotional environment, the
mix of products sold, and higher freight and intangible amortization
costs.




Operating Expenses




Operating expenses for fiscal years
2010, 2009 and 2008 were as follows (in thousands):




Change %Year Ended March 31,
            
            2010vs
            
            2009vs2010
            
            2009
            
            2008
            
            2009
            
            2008Marketing and selling
            $
            304,788
            
            
            $
            319,167
            
            
            $
            324,451
            
            
            (5
            )%
            
            (2
            )%%
      of net sales
            
            15.5
            %
            
            
            14.4
            %
            
            
            13.7
            %Research and development
            
            135,813
            
            
            
            128,755
            
            
            
            124,544
            
            
            5
            %
            
            3
            %% of net sales
            
            6.9
            %
            
            
            5.8
            %
            
            
            5.3
            %General and administrative
            
            106,147
            
            
            
            113,103
            
            
            
            113,443
            
            
            (6
            )%
            
            0
            %%
      of net sales
            
            5.4
            %
            
            
            5.1
            %
            
            
            4.8
            %Restructuring charges
            
            1,784
            
            
            
            20,547
            
            
            
            —
            
            
            (91
            )%
            
            0
            %% of net sales
            
            0.1
            %
            
            
            0.9
            %
            
            
            0.0
            %Total operating expenses
            $
            548,532
            
            
            $
            581,572
            
            
            $
            562,438
            
            
            (6
            )%
            
            3
            %%
      of net sales
            
            27.9
            %
            
            
            26.3
            %
            
            
            23.7
            %


Total operating expenses for fiscal year 2009,
excluding the impact of restructuring charges, were comparable to fiscal year
2008. In fiscal year 2010, operating expenses declined less than net sales
declined, as the Company continued to invest in product development and other
areas to help ensure we were positioned for the resumption of revenue growth
when economic conditions improved. We expect to limit future growth in operating
expenses below the growth rate in revenues, restraining or reducing non-critical
expenses while investing in activities that will sustain and drive revenue
growth.




We refer to our operating expenses excluding
the impact of foreign currency exchange rates as constant dollar operating
expenses. Constant dollar operating expenses are a non-GAAP financial measure,
which is information derived from consolidated financial information but not
presented in our financial statements prepared in accordance with U.S. GAAP. Our
management uses these non-GAAP measures in its financial and operational
decision-making, and believes these non-GAAP measures, when considered in
conjunction with the corresponding GAAP measures, facilitate a better
understanding of changes in operating expenses. Constant dollar operating
expenses are calculated by translating prior period operating expenses in each
local currency at the current period’s average exchange rate for that
currency.




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.




The decline in marketing and selling expenses
in fiscal year 2010 compared with fiscal year 2009 resulted primarily from lower
spending in marketing development funds, travel expenses and consulting fees.
The decrease in spending between fiscal years 2009 and 2008 was the result of
lower spending in advertising, marketing development funds, and travel expenses.
These decreases in marketing costs related to the alignment of promotional
expenditures with current sales levels and targeted product promotion activities
which occurred in fiscal year 2008.




51




---



Personnel costs increased in fiscal years 2010
and 2009 over the preceding fiscal years partially due to the addition of
LifeSize sales and marketing personnel in fiscal year 2010 and the WiLife
product marketing group in fiscal year 2009, and partially relating to the
comparison of periods in which discretionary personnel costs were reduced. Bad
debt expense declined significantly in fiscal year 2010 as economic conditions
stabilized, after increasing significantly in fiscal year 2009 as a result of
customers’ financial difficulties related to the economic downturn.




If foreign currency exchange rates had been
the same in fiscal years 2010 and 2009, the percentage decrease in constant
dollar marketing and selling expense for fiscal year 2010 would not have
changed. The impact of year-over-year exchange rate changes on translation of
foreign currency marketing and selling expenses to our U.S. dollar financial
statements was not material in fiscal year 2009 compared with fiscal year
2008.




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 increases in research and development
expenses in fiscal years 2010 and 2009 resulted from the addition of research
and development costs of companies acquired in fiscal years 2010, 2009 and 2008.
Personnel costs were approximately the same in fiscal years 2009 and 2008, but
increased in fiscal year 2010 in comparison with fiscal year 2009, when
discretionary personnel costs were reduced.




If foreign currency exchange rates had been
the same in fiscal years 2010 and 2009, the change in constant dollar research
and development expense would have been 5%, the same as the change in U.S.
dollars. In fiscal year 2009, exchange rate changes, particularly from the
stronger Swiss franc and Taiwanese dollar relative to the U.S. dollar,
contributed to the increase in research and development expense.




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.




General and administrative expense was
approximately the same in fiscal years 2009 and 2008, and declined in fiscal
year 2010. The decline in fiscal year 2010 was primarily due to a decrease of 5%
in personnel costs, as headcount was reduced, although the headcount reduction
was offset by the addition of LifeSize personnel in the fourth fiscal quarter.
Personnel costs increased 2% during fiscal year 2009 primarily due to an
increase in share-based compensation expense. Decreases in travel and
infrastructure expenses in fiscal year 2010 were partially offset by $6.6
million in transaction costs related to the acquisition of LifeSize. Consulting
fees and travel expenses decreased in fiscal year 2009 compared with fiscal year
2008 as a result of cost containment efforts.




If foreign currency exchange rates had been
the same in fiscal years 2010 and 2009, the percentage decrease in constant
dollar general and administrative expense for fiscal year 2010 would have been
7%. Exchange rate changes, particularly from the stronger Swiss franc relative
to the U.S. dollar, contributed to the increase in general and administrative
expense in fiscal year 2009.




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. In the period
from January 2009 to March 31, 2010, we incurred pre-tax restructuring charges
of $22.3 million.




52




---



The restructuring plan reduced our salaried
workforce by approximately 500 employees, resulting in $17.8 million in
termination benefits to those employees. Termination benefits were calculated
based on regional benefit practices and local statutory requirements. An
additional $3.4 million in pension plan curtailment and settlement costs were
incurred in fiscal year 2009 as a result of the terminations. Restructuring
charges also included exit costs associated with the closure of existing
facilities and write downs of fixed assets that were not placed in service due
to the abandonment of the related projects.




The restructuring was completed as of March
31, 2010. The cost savings realized from the restructuring are
partially offset in the operating results of fiscal year 2010 by the
addition of LifeSize’s operating expenses and by increased spending to
support the return to revenue growth.




The following table summarizes
restructuring-related activities during fiscal years 2010 and 2009 (in
thousands). No restructuring costs were incurred in fiscal year
2008.




ContractTermination
            
            Asset
            
            TerminationTotal
            
            Benefits
            
            Impairments
            
            Costs
            
            OtherBalance at March 31, 2008
            
            $
            —
            
            
            $
            —
            
            
            
            $
            —
            
            
            
            $
            —
            
            
            $
            —Charges
            
            
            20,547
            
            
            
            16,427
            
            
            
            
            556
            
            
            
            
            200
            
            
            
            3,364Cash payments
            
            
            (12,764
            )
            
            
            (12,579
            )
            
            
            
            —
            
            
            
            
            (185
            )
            
            
            —Charges against
    assets
            
            
            (556
            )
            
            
            —
            
            
            
            
            (556
            )
            
            
            
            —
            
            
            
            —Other
            
            
            (3,485
            )
            
            
            (121
            )
            
            
            
            —
            
            
            
            
            —
            
            
            
            (3,364
            )Foreign exchange
            
            
            52
            
            
            
            52
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            —Balance at March 31, 2009
            
            $
            3,794
            
            
            $
            3,779
            
            
            
            $
            —
            
            
            
            $
            15
            
            
            $
            —Charges
            
            
            1,784
            
            
            
            1,318
            
            
            
            
            —
            
            
            
            
            419
            
            
            
            47Cash payments
            
            
            (5,194
            )
            
            
            (5,098
            )
            
            
            
            —
            
            
            
            
            (96
            )
            
            
            —Charges against
    assets
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            —Other
            
            
            (86
            )
            
            
            53
            
            
            
            
            —
            
            
            
            
            (4
            )
            
            
            (135
            )Foreign exchange
            
            
            101
            
            
            
            106
            
            
            
            
            —
            
            
            
            
            —
            
            
            
            (5
            )Balance at March
      31, 2010
            
            $
            399
            
            
            $
            158
            
            
            
            $
            —
            
            
            
            $
            334
            
            
            $
            (93
            )


Interest Income, Net




Interest income and expense for fiscal years 2010, 2009 and 2008 were as
follows (in thousands):




Change %Year Ended March 31,
            
            2010vs
            
            2009vs2010
            
            2009
            
            2008
            
            2009
            
            2008Interest income
            $
            2,406
            
            
            $
            8,648
            
            
            $
            15,752
            
            
            
            (72
            )%
            
            
            
            (45
            )%Interest expense
            
            (286
            )
            
            
            (20
            )
            
            
            (244
            )
            
            
            1330
            %
            
            
            
            (92
            )%Interest income, net
            $
            2,120
            
            
            $
            8,628
            
            
            $
            15,508
            
            
            
            (75
            )%
            
            
            
            (44
            )%


Interest income declined in fiscal years 2010
and 2009 compared with 2008 due to lower invested balances and significantly
lower interest rates.




53




---



Other Income (Expense), Net




Other income and expense for fiscal years 2010, 2009 and 2008 were as
follows (in thousands):




Change %Year Ended March 31,
            
            2010vs
            
            2009vs2010
            
            2009
            
            2008
            
            2009
            
            2008Foreign currency exchange gains,
      net
            $
            1,720
            
            
            $
            13,680
            
            
            $
            10,616
            
            
            
            (87
            )%
            
            
            
            29
            %Write-down of investments
            
            (643
            )
            
            
            (2,727
            )
            
            
            (79,823
            )
            
            
            (76
            )%
            
            
            
            (97
            )%Gain on sale of investments,
    net
            
            —
            
            
            
            —
            
            
            
            27,761
            
            
            
            0
            %
            
            
            
            (100
            )%Insurance investment income (loss)
            
            1,221
            
            
            
            (2,883
            )
            
            
            710
            
            
            
            (142
            )%
            
            
            
            (506
            )%Other, net
            
            841
            
            
            
            441
            
            
            
            1,362
            
            
            
            91
            %
            
            
            
            (68
            )%Other income (expense), net
            $
            3,139
            
            
            $
            8,511
            
            
            $
            (39,374
            )
            
            
            (63
            )%
            
            
            
            (122
            )%


Foreign currency exchange gains or losses
relate to balances denominated in currencies other than the functional currency
of a particular subsidiary, to the sale of currencies, and to gains or losses
recognized on foreign exchange forward contracts. The higher foreign exchange
gains during fiscal year 2009 were due to gains on sales of euros for U.S.
dollars. The gains on currency sales in fiscal year 2010 were offset by losses
on foreign exchange forward contracts intended to reduce the short-term effects
of foreign currency fluctuations on foreign currency receivables or payables. We
do not speculate in currency positions, but we are alert to opportunities to
maximize foreign exchange gains.




We recorded write-downs of $0.6 million, $2.7
million and $79.8 million in fiscal years 2010, 2009 and 2008 related to
other-than-temporary declines in the estimated fair value of our investment
securities. During fiscal year 2008, we also recorded a realized gain of $33.7
million on investments sold as part of a confidential settlement agreement, and
a realized loss of $6.0 million on the sale of investments collateralized by
corporate debt.




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 our
subsidiaries.




Other income in fiscal year 2008 also includes
a gain of $1.0 million on the sale of our ioPen retail product
line.




Provision for Income Taxes




The provision for income taxes and effective
income tax rate for fiscal years 2010, 2009 and 2008 were as follows (in
thousands):




Year Ended March 31,2010
            
            2009
            
            2008Provision for income taxes
            $
            18,666
            
            
            $
            19,761
            
            
            $
            31,788Effective income tax rate
            
            22.3
            %
            
            
            15.6
            %
            
            
            12.1
            %


The provision for income taxes consists of
income and withholding taxes. Logitech operates in multiple jurisdictions and
its profits are taxed pursuant to the tax laws of these jurisdictions. The
Company’s effective income tax rate may be affected by the changes in 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 change in management’s assessment of matters such as the
ability to realize deferred tax. The increase in the effective income tax rate
to 22.3% compared with 15.6% in fiscal year 2009 is due to the mix of income and
losses in the various tax jurisdictions in which we operate. The increase in the
effective income tax rate to 15.6% in fiscal year 2009 compared with 12.1% in
fiscal year 2008 is primarily due to the mix of income and losses in the various
tax jurisdictions in which we operate and the decrease in income before income
taxes.




54




---



The U.S. Federal research tax credit expired
as of December 31, 2009. The U.S. House of Representatives in December 2009 and
the U.S. Senate in March 2010 passed different draft legislation which would
extend the tax credit for an additional year, however the extension has not yet
passed into law as of March 31, 2010. Accordingly, our income tax provision for
fiscal year 2010 includes a tax benefit for the Federal research tax credit of
$0.9 million calculated through December 31, 2009.




The U.S. state of California has enacted
legislation affecting the methodology which must be used by corporate taxpayers
to apportion income to California. These changes will become effective for our
fiscal year ending March 31, 2012. Although the Company has significant
operations in California, we believe these changes will not have a material
impact on our results of operations or financial condition.




Liquidity and Capital
Resources




Cash Balances, Available Borrowings, and Capital
Resources




At March 31, 2010, our working capital was
$353.4 million, compared with $709.4 million at March 31, 2009. The decrease in
working capital over the prior year was due to the cash paid for the acquisition
of LifeSize, offset by decreases in accounts receivable and inventories, and
increases in accounts payable and accrued liabilities.




During fiscal year 2010, operating activities
provided net cash of $365.3 million, generated from cash collections on accounts
receivable, inventory management efforts, and increases in short-term
liabilities. We used $427.8 million in investing activities, including $378.6
million for the acquisition of LifeSize, net of cash acquired of $3.7 million,
$10.0 million for certain assets of TV Compass, and $39.8 million for
investments in tooling, computer hardware, and software. Net cash used in
financing activities was $108.2 million, primarily for the repurchase of shares
under our share buyback programs and the repayment of short and long-term debt
assumed in the LifeSize acquisition, partially offset by proceeds from employee
stock purchases and the exercise of stock options.




At March 31, 2010, we had cash and cash
equivalents of $319.9 million, comprised of bank demand deposits and short-term
time deposits. Cash and cash equivalents are carried at cost, which is
equivalent to fair value. In addition, we hold investments consisting of auction
rate securities with an estimated fair value of $1.0 million, which are carried
in non-current assets, as sale or realization of proceeds from the sale of these
securities is not expected within our normal operating cycle of one year. The
fair value of these securities at March 31, 2010 was determined by estimating
future cash flows, either through discounted cash flow or option pricing
methods, incorporating assumptions of default and other future conditions.
During fiscal year 2010, we recorded an impairment loss of $0.6 million related
to the other-than-temporary decline in the fair value of these securities.
Further changes in the fair value of our investment securities would not
materially affect our liquidity or capital resources.




The Company has credit lines with several
European and Asian banks totaling $151.9 million as of March 31, 2010. 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 and our current
financial condition. At March 31, 2010, there were no outstanding borrowings
under these lines of credit. There are no financial covenants under these
facilities.




We provide various third parties with
irrevocable letters of credit in the normal course of business to secure our
obligations to pay or perform pursuant to the requirements of an underlying
agreement or the provision of goods and services. These standby letters of
credit are cancelable only at the option of the beneficiary who is authorized to
draw drafts on the issuing bank up to the face amount of the standby letter of
credit in accordance with its terms. At March 31, 2010, we had $3.4 million of
letters of credit in place, of which $0.3 million was outstanding. These letters
of credit related primarily to equipment purchases by a subsidiary in China, and
expire between April and June 2010.




55




---



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. Our 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.




Cash Flow from Operating Activities




The following table presents selected
financial information and statistics for fiscal years 2010, 2009 and 2008
(dollars in thousands):




Year Ended March 31,2010
            
            2009
            
            2008Accounts receivable, net
            $
            195,247
            
            $
            213,929
            
            $
            373,619Inventories
            $
            219,593
            
            $
            233,467
            
            $
            245,737Working capital
            $
            353,370
            
            $
            709,382
            
            $
            723,221Days sales in accounts receivable (DSO)(1)
            
            33 days
            
            
            47 days
            
            
            56 daysInventory turnover (ITO)(2)
            
            6.1x
            
            
            5.2x
            
            
            6.3xNet cash provided by operating activities
            $
            365,259
            
            $
            200,587
            
            $
            393,079


(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).




During fiscal year 2010, the Company’s
operating activities generated net cash of $365.3 million, compared with $200.6
million in 2009 and $393.1 million in 2008. The increase in 2010 was due
primarily to targeted management of working capital, reflected in the lower DSO
and higher ITO.




DSO for fiscal year 2010 improved by 14 days
compared with fiscal year 2009 and 23 days over fiscal year 2008, due to
improved cash collections and increased order and shipment linearity. 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 turnover for fiscal year 2010
increased compared with 2009. Inventory turnover declined between fiscal years
2009 and 2008 because sales decreased at a faster rate than inventory was
reduced.




56




---



Cash Flow from Investing Activities




Cash flows from investing activities during fiscal years 2010, 2009 and
2008 were as follows (in thousands):




Year Ended March 31,2010
            
            2009
            
            2008Acquisitions and investments, net of
      cash acquired
            $
            (388,809
            )
            
            $
            (64,430
            )
            
            $
            (59,722
            )Purchases of property, plant and equipment
            
            (39,834
            )
            
            
            (48,263
            )
            
            
            (57,900
            )Purchases of investment
    securities
            
            —
            
            
            
            —
            
            
            
            (379,793
            )Sales of investment securities
            
            —
            
            
            
            —
            
            
            
            538,479Sale of investment
            
            —
            
            
            
            —
            
            
            
            13,308Proceeds from cash surrender of life insurance policies
            
            813
            
            
            
            —
            
            
            
            —Premiums paid on cash surrender value
      life insurance policies
            
            —
            
            
            
            (427
            )
            
            
            (1,151
            )Net cash provided by (used in) investing activities
            $
            (427,830
            )
            
            $
            (113,120
            )
            
            $
            53,221


In fiscal year 2010, we acquired LifeSize
Communications for $378.6 million, net of cash acquired of $3.7 million, and
certain assets of TV Compass for $10 million. In fiscal year 2009, we acquired
the Ultimate Ears companies for $32.3 million, net of cash acquired of $0.2
million, including transaction costs of $0.5 million and excluding a $1.8
million holdback provision which was recorded as a liability in the consolidated
financial statements. We also acquired SightSpeed in fiscal year 2009 for $30.9
million in cash including transaction costs of $0.8 million. In addition, we
paid $2.0 million for a pre-acquisition contingency recorded during the third
quarter of fiscal year 2009 related to our WiLife acquisition and $0.4 million
for patent rights acquired pursuant to a patent settlement agreement. In fiscal
year 2008, we acquired WiLife, Inc. for $22.0 million, net of cash acquired of
$0.1 million and including $0.5 million in transaction costs. We also paid a
deferred payment in fiscal year 2008 of $37.7 million to the former shareholders
of Intrigue Technologies, Inc., which we acquired in May 2004.




Our purchases of plant and equipment during
fiscal years 2010 and 2009 were principally for computer hardware and software
purchases, machinery and equipment and normal expenditures for tooling. In
fiscal year 2008, we also purchased machinery and equipment for two new
production and manufacturing facilities, including a new surface mount
technology factory in China, and leasehold improvements for a new office
facility in Switzerland. Purchasing activity was lower in fiscal years 2010 and
2009 as we focused our cash outlays on critical capital needs.




During the third quarter of fiscal year 2008,
we sold 50% of our investment securities as part of a confidential settlement
agreement and received $84.3 million in cash. In addition, we sold our remaining
investments collateralized by corporate debt for $28.3 million, at a realized
loss of $6.0 million. We also reinvested $130.9 million into short-term bank
deposits, which are classified as cash equivalents in the Company’s balance
sheet. The balance of the activity in investments related to purchases and sales
made during the first quarter of fiscal year 2008. The Company no longer invests
in auction rate securities.




We received $11.3 million during fiscal year
2008 from the sale in fiscal year 2007 of the balance of our investment in Anoto
Group A.B. We also received $2.0 million from the sale of our ioPen retail
product line in fiscal year 2008.




The proceeds from cash surrender and the
premiums paid on life insurance relate to investments of a management deferred
compensation plan offered by one of the Company’s subsidiaries.




57




---



Cash Flow from Financing Activities




The following tables present information on
our cash flows from financing activities, including information on our share
repurchases during fiscal years 2010, 2009 and 2008 (in thousands except per
share amounts):




Year Ended March 31,2010
            
            
            2009
            
            
            2008Purchases of treasury shares
            $
            (126,301
            )
            
            $
            (78,870
            )
            
            $
            (219,742
            )Proceeds from sale of shares upon exercise of optionsand purchase rights
            
            28,917
            
            
            
            31,119
            
            
            
            50,603Repayments of debt
            
            (13,630
            )
            
            
            —
            
            
            
            (11,739
            )Excess tax benefits from share-based compensation
            
            2,814
            
            
            
            6,592
            
            
            
            15,231Net cash used in
      financing activities
            $
            (108,200
            )
            
            $
            (41,159
            )
            
            $
            (165,647
            )


Year Ended March 31,2010
            
            2009
            
            2008Number of shares repurchased
            
            7,425
            
            
            2,803
            
            
            7,784Value of shares repurchased
            $
            126,301
            
            $
            78,870
            
            $
            219,742Average price per share
            $
            17.01
            
            $
            28.14
            
            $
            28.23


During fiscal year 2010 and 2009, we
repurchased 7.4 million and 2.8 million shares for $126.3 million and $78.9
million under our buyback program announced in June 2007. In fiscal year 2008,
we repurchased 7.8 million shares for $219.7 million under buyback programs
announced in June 2007 and May 2006. The June 2007 buyback program, which was
completed in March 2010, and the May 2006 buyback program, which was completed
in February 2008, each authorized the purchase of up to $250.0 million in
Logitech shares.




In fiscal years 2010, 2009 and 2008, we
received proceeds from the sale of 3.1 million, 3.1 million and 4.7 million
shares upon exercise of employee stock options and share purchases under our
stock plans. In addition, cash was provided in each of those fiscal years from
tax benefits on the exercise of share-based payment awards.




In fiscal year 2010, we repaid $13.6 million
of short and long-term debt assumed when we acquired LifeSize Communications.
During fiscal year 2008, we repaid in full our short-term debt borrowings of
$11.7 million.




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 also require the use of cash. In addition, future
deterioration of global economic conditions could adversely affect our
operations and require the use of cash.




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 completion of our current share buyback program of $250 million,
which occurred in March 2010. As of May 27, 2010, we have not started
repurchases under the September 2008 program.




In the fiscal quarter ended March 31, 2009, we
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 in the three months
ended March 31, 2009 and $1.8 million in the fiscal year ended March 31, 2010
related to employee termination costs, contract termination costs, and other
associated costs. The restructuring was completed as of March 31, 2010. The cost
savings realized from the restructuring are partially offset in the
operating results of fiscal year 2010 by the addition of LifeSize’s
operating expenses and by increased spending to support the return to
revenue growth.




58




---



In December 2009, we acquired LifeSize
Communications, Inc., a privately held company specializing in high definition
video communication products and services. In connection with the merger,
Logitech agreed to establish a cash and stock option retention and incentive
plan for certain LifeSize employees, linked to the achievement of LifeSize
performance targets. The duration of the plan’s performance period is two years,
from January 1, 2010 to December 31, 2011. The total available cash incentive is
$9.0 million over the two year performance period. In December 2009, options to
purchase 850,000 Logitech shares were issued in connection with the retention
and incentive plan.




In November 2007, we acquired WiLife, Inc., a
privately held company providing PC-based video cameras for self-monitoring a
home or 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. As of March 31, 2010, no
amounts were payable towards performance-based payments under our WiLife
acquisition agreement.




The U.S. state of California has enacted
legislation affecting the methodology which must be used by corporate taxpayers
to apportion income to California. These changes will become effective for our
fiscal year ending March 31, 2012. Although the Company has significant
operations in California, we believe these changes will not have a material
impact on our results of operations or financial condition.




The U.S. Internal Revenue Service has
initiated an examination of the Company’s U.S. subsidiary for fiscal years 2006
and 2007. The Company is also under examination in other foreign jurisdictions.
As of March 31, 2010, we are not able to estimate the potential future
liability, if any, which may result from these examinations.




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




Over the past several years, we have been able
to generate positive cash flow from our operating activities, including cash
from operations of $365.3 million in fiscal year 2010. 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.




Contractual Obligations and
Commitments




As of March 31, 2010, the Company’s
outstanding contractual obligations and commitments included: (i) equipment
financed under capital leases, (ii) facilities leased under operating lease
commitments, (iii) purchase commitments and obligations, (iv) long-term
liabilities for income taxes payable, and (v) defined benefit pension plan
obligations. The following summarizes our contractual obligations and
commitments at March 31, 2010 (in thousands):




Payments Due by Period(1)MoreLess than
            
            
            
            
            
            
            
            
            
            than 5Total
            
            1 year
            
            1-3 years
            
            4-5 years
            
            yearsOperating leases
            $
            46,696
            
            $
            13,679
            
            $
            17,870
            
            
            $
            7,644
            
            
            $
            7,503Purchase commitments — inventory
            
            183,560
            
            
            183,560
            
            
            —
            
            
            
            —
            
            
            
            —Purchase obligations — capital
      expenditures
            
            12,925
            
            
            12,925
            
            
            —
            
            
            
            —
            
            
            
            —Purchase obligations — operating expenses
            
            33,324
            
            
            33,324
            
            
            —
            
            
            
            —
            
            
            
            —Other liabilities(2)
            
            164,825
            
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —Total contractual obligations and commitments
            $
            441,330
            
            $
            243,488
            
            $
            17,870
            
            
            $
            7,644
            
            
            $
            7,503


(1)
            
            The table above does not include the
      performance based payments that we may have to make as part of our
      acquisition agreements described above.





59




---



(2)
            
            Other
      liabilities at March 31, 2010 included $118.9 million related to our
      income tax liability for uncertain tax positions, $22.1 million in pension
      liabilities related to our defined benefit pension plans and
      non-retirement post-employment benefit obligations, of which $0.6 million
      is payable in the next 12 months, $10.3 million related to a management
      deferred compensation plan, $5.7 million of royalties payable, $4.4
      million in deferred service revenue, and $3.4 million related to various
      other obligations. As the specific payment dates for most of these
      obligations are unknown, the related balances have not been reflected in
      the “Payments Due by Period” section of the
  table.





Operating Leases




The remaining terms on our non-cancelable
operating leases expire in various years through 2028. Our asset retirement
obligations on these leases as of March 31, 2010 were not material.




Purchase Commitments




We expect to continue making capital
expenditures in the future to support product development activities and ongoing
and expanded operations. At March 31, 2010, fixed purchase commitments for
capital expenditures amounted to $12.9 million, and primarily relate to
commitments for manufacturing equipment, tooling, computer software and computer
hardware. We also have commitments for inventory purchases made in the normal
course of business to original design manufacturers, contract manufacturers and
other suppliers. At March 31, 2010, fixed purchase commitments for inventory
amounted to $183.6 million, which are expected to be fulfilled by December 31,
2010. We also had other commitments of $33.3 million for 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.




Income Taxes Payable




At March 31, 2010, we had $116.5 million in
non-current income taxes payable and $2.4 million in current income taxes
payable, including interest and penalties, related to our income tax liability
for recognized uncertain tax positions. Although we have adequately provided for
uncertain tax positions, the provisions on these positions may change as revised
estimates are made or the underlying matters are settled or otherwise resolved.
Within the next 12 months, we anticipate that it is reasonably possible that
unrecognized tax benefits may decrease due to the resolution of income tax
audits with foreign governments. However, an estimate of such decreases cannot
reasonably be made as of March 31, 2010.




Defined Benefit Pension Plan Obligations




At March 31, 2010, we had $22.1 million in
pension liability related to our defined benefit pension plans and
non-retirement post-employment benefit obligations, of which $0.6 million is
payable in the next 12 months. See Note 13 – Employee Benefit Plans for more
information.




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.




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 the
Company’s guarantees similarly varies. At March 31, 2010, there were no
outstanding guaranteed purchase obligations. The maximum potential future
payments for three of the five guarantee arrangements is limited to $30.8
million in total. The remaining two guarantees are limited to purchases of
specified components from the named suppliers. We do not believe, based on
historical experience and information available as of the date of this report,
that it is probable that any amounts will be required to be paid under these
guarantee arrangements.




60




---



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 $8.2 million as of March 31,
2010. As of March 31, 2010, $7.6 million was outstanding under these guarantees.
The parent holding company has also guaranteed the purchases of one of its
subsidiaries under two guarantee arrangements. These guarantees do not specify a
maximum amount. As of March 31, 2010, $8.7 million was outstanding under these
guarantees.




Indemnifications




The Company indemnifies certain of its
suppliers and customers for losses arising from matters such as intellectual
property rights and safety defects, subject to certain restrictions. The scope
of these indemnities varies and may include indemnification for damages and
expenses, including reasonable attorneys’ fees. In addition, we have entered
into indemnification agreements with our officers and directors, and the bylaws
of our subsidiaries contain similar indemnification obligations to our agents.
No amounts have been accrued for indemnification provisions as of March 31,
2010. We do not believe, based on historical experience and information
available as of the date of this report, that it is probable that any amounts
will be required to be paid under these indemnification
arrangements.




Letters of Credit




We provide various third parties with
irrevocable letters of credit in the normal course of business to secure our
obligations to pay or perform pursuant to the requirements of an underlying
agreement or the provision of goods and services. These standby letters of
credit are cancelable only at the option of the beneficiary who is authorized to
draw drafts on the issuing bank up to the face amount of the standby letter of
credit in accordance with its terms. At March 31, 2010, we had $3.4 million of
letters of credit in place, of which $0.3 million was outstanding. These letters
of credit relate primarily to equipment purchases by a subsidiary in China, and
expire between April and June 2010.




Research and Development




For a discussion of the Company’s research and
development activities, patents and licenses, please refer to Item 1
“Business”.




ITEM 7A. QUANTITATIVE AND QUALITATIVE
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”), euro, British pound,
Taiwanese dollar, Japanese yen, Mexican peso and Swiss franc. 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.




61




---



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
March 31, 2010. 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):




FX Gain (Loss)
            
            FX Gain (Loss)Net Exposed
            
            From 10%
            
            From 10%Long (Short)
            
            Appreciation of
            
            Depreciation ofCurrency
            
            Functional
            
            FunctionalFunctional Currency
            
            Transaction Currency
            
            Position
            
            Currency
            
            CurrencyU.S. dollar
            Chinese renminbi
            
            
            $
            35,428
            
            
            
            
            $
            (3,221
            )
            
            
            
            $
            3,936Euro
            British pound
            
            
            
            22,143
            
            
            
            
            
            (2,013
            )
            
            
            
            
            2,460Taiwanese dollar
            U.S. dollar
            
            
            
            17,846
            
            
            
            
            
            (1,622
            )
            
            
            
            
            1,983Japanese yen
            U.S. dollar
            
            
            
            (12,769
            )
            
            
            
            
            1,161
            
            
            
            
            
            (1,419
            )Mexican peso
            U.S. dollar
            
            
            
            (6,454
            )
            
            
            
            
            587
            
            
            
            
            
            (717
            )Euro
            Swedish krona
            
            
            
            (1,736
            )
            
            
            
            
            158
            
            
            
            
            
            (193
            )Euro
            Swiss franc
            
            
            
            (1,440
            )
            
            
            
            
            131
            
            
            
            
            
            (160
            )Euro
            U.S. dollar
            
            
            
            (1,072
            )
            
            
            
            
            97
            
            
            
            
            
            (119
            )Australian dollar
            U.S. dollar
            
            
            
            671
            
            
            
            
            
            (61
            )
            
            
            
            
            75U.S. dollar
            Canadian dollar
            
            
            
            583
            
            
            
            
            
            (53
            )
            
            
            
            
            65Swiss franc
            U.S. dollar
            
            
            
            503
            
            
            
            
            
            (46
            )
            
            
            
            
            56$
            53,703
            
            
            
            
            $
            (4,882
            )
            
            
            
            $
            5,967


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.




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 transferred a portion of its cash
investments to CNY accounts. At March 31, 2010, net assets held in CNY totaled
$35.4 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
primary risk managed by using derivative instruments is the foreign currency
exchange rate risk. The Company has designated these derivatives as cash flow
hedges. Logitech does not use derivative financial instruments for trading or
speculative purposes. These hedging contracts 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. As of March 31, 2010, the notional amounts of foreign
exchange forward contracts outstanding related to forecasted inventory purchases
were $46.2 million. Deferred realized gains of $1.3 million and deferred
unrealized gains of $0.1 million are recorded in accumulated other comprehensive
loss at March 31, 2010, and are expected to be reclassified to cost of goods
sold when the related inventory is 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 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.




62




---



The notional amounts of foreign exchange
forward contracts outstanding at March 31, 2010 relating to foreign currency
receivables or payables were $15.1 million. Open forward contracts as of March
31, 2010 consisted of contracts in British pounds to purchase euros at a future
date at a predetermined exchange rate. The notional amounts of foreign exchange
swap contracts outstanding at March 31, 2010 were $38.9 million. Swap contracts
outstanding at March 31, 2010 consisted of contracts in British pounds, Japanese
yen, Mexican pesos and Canadian dollars. Unrealized net losses on the contracts
outstanding at March 31, 2010 were $0.1 million.




If the U.S. dollar had appreciated by 10%
compared with the foreign currencies in which we have forward or swap contracts,
an unrealized gain of $7.0 million in our forward foreign exchange contract
portfolio would have occurred. If the U.S. dollar had depreciated by 10%
compared with the foreign currencies in which we have forward or swap contracts,
a $7.3 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. 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 March 31, 2010 and March 31, 2009 period end rates would
not have a material effect on the Company’s results of operations or cash
flows.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA




Logitech’s financial statements and
supplementary data required by this item are set forth as a separate section of
this Form 10-K. See Item 15 (a) for a listing of financial statements provided
in the section titled “Financial Statements and Supplementary
Data.”




ITEM
      9.
            
            CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE





None.




ITEM 9A. 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-K, have concluded that, as of such date, our
disclosure controls and procedures are effective at a level designed to provide
reasonable assurance of achieving their stated objectives.




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-K,
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.




63




---



Management’s Report on Internal Control over
Financial Reporting




Logitech’s management, with oversight by the
Board of Directors, is responsible for establishing and maintaining adequate
internal control over financial reporting. Logitech’s internal control system
was designed to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation and fair presentation of financial
statements in accordance with generally accepted accounting principles in the
United States.




Logitech’s management assessed the
effectiveness of our internal control over financial reporting as of March 31,
2010. In making this assessment, management used the criteria established in Internal Control—Integrated
Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, our management concluded that our internal control over financial
reporting was effective as of March 31, 2010.




All internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those systems
determined to be effective may not prevent or detect misstatements and can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




The effectiveness of the Company’s internal
control over financial reporting as of March 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears in Item 15.




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 March
31, 2010 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.




ITEM 9B. OTHER INFORMATION




None.




64




---



PART III




ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE




Information regarding our executive
officers is incorporated herein by reference to Part I, Item 1,
above.




Other information required by this Item may be
found in the definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders and is incorporated herein by reference. The definitive Proxy
Statement will be filed with the Commission within 120 days after our fiscal
year end of March 31, 2010 (“the Proxy Statement”).




The Company’s code of ethics policy entitled,
“Business Ethics and Conflict of Interest Policy of Logitech International
S.A.,” covers members of the Company’s board of directors and its executive
officers (including the principal executive officer, principal financial officer
and controller) as well as all other employees.




The code of ethics addresses, among
other things, the following items:


- Honest and ethical conduct,
  including the ethical handling of actual or apparent conflicts of
  interest between personal and
  professional relationships;
- Full, fair, accurate, timely, and
  understandable disclosure in reports and documents that we file with,
  or submit to, the Commission
  and in other public communications made by us;
- Compliance with applicable
  governmental laws, rules and regulations;
- The prompt internal reporting to
  an appropriate person or persons identified in the code of violations
  of any of the provisions
  described above; and
- Accountability for adherence to
  the code.

Any amendments or waivers of the code of
ethics for members of the Company’s board of directors or executive officers
will be disclosed in the investor relations section of the Company’s Web site
within four business days following the date of the amendment or waiver and will
also be disclosed either on a Form 8-K or the Company’s next Form 10-K filing.
During fiscal year 2010, no waivers or amendments were made to the code of
ethics for any Director or Executive Officer.




Logitech’s code of ethics is available on the
Company’s Web site at www.logitech.com, and for no charge, a copy of the
Company’s code of ethics can be requested via the following address or phone
number:




Logitech Investor Relations 6505 Kaiser Drive Fremont, CA 94555 USA Main 510-795-8500




ITEM 11. EXECUTIVE
COMPENSATION




The information required by this Item may be
found in the Proxy Statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.




ITEM
      12.
            
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
      OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS




Information with respect to this item may be
found in the Proxy Statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.




65




---



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE




Information with respect to this item may be
found in the Proxy Statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES




Information with respect to this item may be
found in the Proxy Statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.




ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES




(a) The following documents are
filed as part of this Annual Report on Form 10-K:




1.
Financial Statements




Report
of the Independent Registered Public Accounting Firm




Consolidated
Statements of Income – Years Ended March 31, 2010, 2009 and 2008




Consolidated
Balance Sheets – March 31, 2010 and 2009




Consolidated
Statements of Cash Flows – Years Ended March 31, 2010, 2009 and
2008




Consolidated
Statements of Changes in Shareholders’ Equity – Years Ended March 31, 2010, 2009
and 2008




Notes
to Consolidated Financial Statements




Unaudited
Quarterly Financial Data




2.
Financial Statement Schedule




Schedule
II – Valuation and Qualifying Accounts




3.
Exhibits




66




---



Index to ExhibitsExhibit
            
            
            
            Incorporated by
    Reference
            
            FiledNo.
            
            Exhibit
            
            Form
            
            File No.
            
            Filing Date
            
            Exhibit
      No.
            
            Herewith2.
            1
            
            Agreement and Plan of Merger, dated as of November 10, 2009, as
      amended by the First Amendment to Agreement and Plan of Merger, entered
      into as of November 16, 2009, both by and among Logitech Inc., Agora
      Acquisition Corporation, LifeSize Communications, Inc., Shareholder
      Representative Services LLC, as stockholder representative, and U.S. Bank
      National Association, as escrow agent.
            
            8-K
            
            0-29174
            
            12/14/09
            
            2.13.
            1
            
            Articles of Incorporation of Logitech
      International S.A. as amended
            
            10-Q
            
            0-29174
            
            11/04/08
            
            3.13.
            2
            
            Organizational Regulations of Logitech
      International S.A. as amended
            
            10-K
            
            0-29174
            
            06/01/09
            
            3.210.
            1
            
            1996 Stock Plan, as amended**
            
            S-8
            
            333-100854
            
            05/27/03
            
            4.210.
            2
            
            Logitech International S.A. 2006 Stock Incentive Plan, as
      amendedand restated effective September 1, 2009**
            
            8-K
            
            0-29174
            
            09/03/09
            
            10.210.
            3
            
            Representative form of Performance
      Restricted Stock Unit agreement under the Logitech International S.A. 2006
      Stock Incentive Plan**
            
            10-K
            
            0-29174
            
            06/01/09
            
            10.310.
            4
            
            Logitech Inc. Management Deferred
      Compensation Plan**
            
            10-Q
            
            0-29174
            
            11/04/08
            
            10.110.
            5
            
            1996 Employee Share Purchase Plan
      (U.S.), as amended**
            
            S-8
            
            333-157038
            
            01/30/09
            
            10.110.
            6
            
            2006 Employee Share Purchase Plan
      (Non-U.S.), as amended**
            
            S-8
            
            333-157038
            
            01/30/09
            
            10.210.
            7
            
            Form of Director and Officer
      Indemnification Agreement with Logitech International S.A.**
            
            20-F
            
            0-29174
            
            05/21/03
            
            4.110.
            8
            
            Form of Director and Officer
      Indemnification Agreement with Logitech Inc.**
            
            20-F
            
            0-29174
            
            05/21/03
            
            4.210.
            9
            
            Logitech Management Performance Bonus
      Plan**
            
            8-K
            
            0-29174
            
            05/13/08
            
            10.110.
            10
            
            Employment Agreement dated December 3,
      2008 between Logitech Inc. and Gerald P. Quindlen**
            
            8-K
            
            0-29174
            
            12/09/08
            
            10.110.
            11
            
            Change of Control Severance Agreement
      dated December 3, 2008 among Logitech International S.A., Logitech Inc.
      and Gerald P. Quindlen**
            
            8-K
            
            0-29174
            
            12/09/08
            
            10.410.
            12
            
            Employment agreement dated January 28,
      2008 between Logitech Inc. and Guerrino De Luca**
            
            10-K
            
            0-29174
            
            05/30/08
            
            10.1010.
            13
            
            Change of Control Severance Agreement
      dated December 3, 2008 among Logitech International S.A., Logitech Inc.
      and Guerrino De Luca**
            
            8-K
            
            0-29174
            
            12/09/08
            
            10.510.
            14
            
            Form of Employment Agreement dated
      December 3, 2008 between Logitech Inc. and each of Mark J. Hawkins, David
      Henry, Junien Labrousse, and L. Joseph Sullivan**
            
            8-K
            
            0-29174
            
            12/09/08
            
            10.2


67




---



Exhibit
            
            
            
            Incorporated by
    Reference
            
            FiledNo.
            
            Exhibit
            
            Form
            
            File No.
            
            Filing Date
            
            Exhibit
      No.
            
            Herewith10.
            15
            
            Form of Change of Control Severance
      Agreement between Logitech Inc., Logitech International S.A. and executive
      officers other than the Chairman and the Chief Executive
    Officer**
            
            10-K
            
            0-29174
            
            05/30/08
            
            10.1210.
            16
            
            Offer letter dated December 24, 2008
      between Logitech Inc. and Werner Heid**
            
            10-K
            
            0-29174
            
            06/01/09
            
            10.1610.
            17
            
            Representative form of stock option
      agreement (non-executive board members) under the Logitech International
      S.A. 2006 Stock Incentive Plan**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.110.
            18
            
            Representative form of stock option
      agreement (employees) under the Logitech International S.A. 2006 Stock
      Incentive Plan**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.210.
            19
            
            Representative form of restricted stock
      unit agreement (non-executive board members) under the Logitech
      International S.A. 2006 Stock Incentive Plan**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.310.
            20
            
            Representative form of restricted stock
      unit agreement (executives) under the Logitech International S.A. 2006
      Stock Incentive Plan**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.410.
            21
            
            Compensation terms for non-executive
      board members for September 2009 – September 2010 board year**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.510.
            22
            
            Executive officer base salary, duties
      and authority under form of employment agreements dated December 3,
      2008**
            
            10-Q
            
            0-29174
            
            11/04/09
            
            10.14.110.
            23
            
            LifeSize Communications, Inc. 2003 Stock
      Option Plan**
            
            S-8
            
            333-163933
            
            12/22/09
            
            10.110.
            24
            
            Offer letter dated September 14, 2009
      between Logitech Inc. and Erik K. Bardman**
            
            8-K
            
            0-29174
            
            09/22/09
            
            10.121.
            1
            
            List of subsidiaries of Logitech
      International S.A.
            
            
            
            
            
            
            
            
            
            
            X23.
            1
            
            Consent of Independent Registered Public
      Accounting Firm
            
            
            
            
            
            
            
            
            
            
            X24.
            1
            
            Power of Attorney (incorporated by
      reference to the signature page of this Annual Report of Form
    10-K)
            
            
            
            
            
            
            
            
            
            
            X31.
            1
            
            Certification by Chief Executive
      Officer pursuant to section 302 of the Sarbanes-Oxley Act of
2002
            
            
            
            
            
            
            
            
            
            
            X31.
            2
            
            Certification by Chief Financial Officer
      pursuant to section 302 of the Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            
            
            
            X32.
            1
            
            Certification by Chief Executive Officer
      and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley
      Act of 2002*
            
            
            
            
            
            
            
            
            
            
            X


*
            
            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 certification will not be deemed to be
      incorporated by reference into any filing under the Securities Act or the
      Exchange Act, except to the extent that we explicitly incorporate it by
      reference.**
            
            Indicates
      management compensatory plan, contract or
  arrangement.





68




---



SIGNATURES




Pursuant to the requirements of Section 13 or
15(d) of 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/ GERALDP. QUINDLENGerald P. QuindlenPresident and Chief Executive
      Officer/S/ ERIKK. BARDMANErik K. BardmanSenior Vice President, Finance
      andChief Financial
  Officer


May 27,
2010




69




---



POWER OF ATTORNEY




KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Gerald P. Quindlen
and Erik K. Bardman, jointly and severally, his or her attorney-in-fact, with
the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue hereof.




Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.




Signature
            
            Title
            
            Date/S/GERALDP. QUINDLEN
            
            President and Chief Executive
      Officer
            
            May 27, 2010Gerald P. Quindlen
            
            (Principal Executive Officer)Senior Vice President, Finance
    and
            
            May 27, 2010/S/ERIKK. BARDMAN
            
            Chief Financial OfficerErik K. Bardman
            
            (Principal
      Financial Officer,Principal Accounting Officer)/S/GUERRINODELUCA
            
            Chairman of the Board
            
            May 27, 2010Guerrino De Luca/S/GERALDP. QUINDLEN
            
            Director
            
            May 27, 2010Gerald P. Quindlen/S/DANIELBOREL
            
            Director
            
            May 27, 2010Daniel Borel/S/MATTHEWBOUSQUETTE
            
            Director
            
            May 27, 2010Matthew Bousquette/S/ERH-HSUNCHANG
            
            Director
            
            May 27, 2010Erh-Hsun Chang/S/KEE-LOCKCHUA
            
            Director
            
            May 27, 2010Kee-Lock Chua/S/ SALLYDAVIS
            
            Director
            
            May 27, 2010Sally Davis/S/ROBERTMALCOLM
            
            Director
            
            May 27, 2010Robert Malcolm/S/MONIKARIBAR
            
            Director
            
            May 27, 2010Monika Ribar/S/RICHARDLAUBE
            
            Director
            
            May 27, 2010Richard Laube


70




---



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS




PageReport of the Independent Registered
      Public Accounting Firm
            72Consolidated Statements of Income – Years Ended March 31, 2010,
      2009 and 2008
            73Consolidated Balance Sheets – March 31,
      2010 and 2009
            74Consolidated Statements of Cash Flows – Years Ended March 31, 2010,
      2009 and 2008
            75Consolidated Statements of Changes in
      Shareholders’ Equity – Years Ended March 31, 2010, 2009and
      2008
            76Notes to Consolidated Financial Statements
            77Unaudited Quarterly Financial
    Data
            112


71




---



REPORT OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM




To the Shareholders
of Logitech International S.A.




In our opinion, the consolidated financial
statements listed in the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Logitech International S.A. and
its subsidiaries at March 31, 2010 and March 31, 2009, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 2010 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2010, based on criteria
established in Internal Control - Integrated
Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting included in Management’s Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial schedule, and on the
Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.




As discussed in Note 6 to the consolidated
financial statements, the Company changed the manner in which it accounts for
business combinations effective April 1, 2009.




A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.




Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




/s/
      PricewaterhouseCoopers LLPSan Jose, CaliforniaMay 27, 2010


72




---



LOGITECH INTERNATIONAL
S.A.




CONSOLIDATED STATEMENTS OF
INCOME (In thousands, except per share
amounts)




Year ended March 31,2010
            
            2009
            
            2008Net sales
            
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496Cost of goods sold
            
            
            1,339,852
            
            
            1,517,606
            
            
            1,521,378Gross profit
            
            
            626,896
            
            
            691,226
            
            
            849,118Operating expenses:Marketing and
      selling
            
            
            304,788
            
            
            319,167
            
            
            324,451Research and
      development
            
            
            135,813
            
            
            128,755
            
            
            124,544General and
      administrative
            
            
            106,147
            
            
            113,103
            
            
            113,443Restructuring
      charges
            
            
            1,784
            
            
            20,547
            
            
            —Total
      operating expenses
            
            
            548,532
            
            
            581,572
            
            
            562,438Operating income
            
            
            78,364
            
            
            109,654
            
            
            286,680Interest income, net
            
            
            2,120
            
            
            8,628
            
            
            15,508Other income
      (expense), net
            
            
            3,139
            
            
            8,511
            
            
            (39,374
            )Income before income taxes
            
            
            83,623
            
            
            126,793
            
            
            262,814Provision for income taxes
            
            
            18,666
            
            
            19,761
            
            
            31,788Net income
            
            $
            64,957
            
            $
            107,032
            
            $
            231,026Net income per share:Basic
            
            $
            0.37
            
            $
            0.60
            
            $
            1.27Diluted
            
            $
            0.36
            
            $
            0.59
            
            $
            1.23Shares used to compute net income per
      share:Basic
            
            
            177,279
            
            
            178,811
            
            
            181,362Diluted
            
            
            179,340
            
            
            182,911
            
            
            187,942


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




73




---



LOGITECH INTERNATIONAL
S.A.




CONSOLIDATED BALANCE
SHEETS (In thousands, except share and per share
amounts)




March 31,2010
            
            2009ASSETSCurrent assets:Cash and cash
      equivalents
            
            $
            319,944
            
            
            $
            492,759Short-term
      investments
            
            
            —
            
            
            
            1,637Accounts
      receivable
            
            
            195,247
            
            
            
            213,929Inventories
            
            
            219,593
            
            
            
            233,467Other current
      assets
            
            
            58,877
            
            
            
            56,884Total current
      assets
            
            
            793,661
            
            
            
            998,676Property, plant and equipment
            
            
            91,229
            
            
            
            104,132Goodwill
            
            
            553,462
            
            
            
            242,909Other intangible assets
            
            
            95,396
            
            
            
            32,109Other assets
            
            
            65,930
            
            
            
            43,704Total assets
            
            $
            1,599,678
            
            
            $
            1,421,530LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent liabilities:Accounts
      payable
            
            $
            257,955
            
            
            $
            157,798Accrued
      liabilities
            
            
            182,336
            
            
            
            131,496Total
      current liabilities
            
            
            440,291
            
            
            
            289,294Other liabilities
            
            
            159,672
            
            
            
            134,528Total liabilities
            
            
            599,963
            
            
            
            423,822Commitments and contingenciesShareholders’ equity:Shares, par
      value CHF 0.25 — 191,606,620 issued and authorized
    and50,000,000 conditionally authorized at March
      31, 2010 and 2009
            
            
            33,370
            
            
            
            33,370Additional
      paid-in capital
            
            
            14,880
            
            
            
            45,012Shares in
      treasury, at cost, 16,435,528 at March 31, 2010and
      12,124,078 at March 31, 2009
            
            
            (382,512
            )
            
            
            (341,454
            )Retained earnings
            
            
            1,406,618
            
            
            
            1,341,661Accumulated other comprehensive
      loss
            
            
            (72,641
            )
            
            
            (80,881
            )Total shareholders’
    equity
            
            
            999,715
            
            
            
            997,708Total liabilities and shareholders’
      equity
            
            $
            1,599,678
            
            
            $
            1,421,530


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




74




---



LOGITECH INTERNATIONAL
S.A.




CONSOLIDATED STATEMENTS OF CASH
FLOWS (In thousands)




Year ended March 31,2010
            
            2009
            
            2008Cash flows from operating
      activities:Net
      income
            
            $
            64,957
            
            
            $
            107,032
            
            
            $
            231,026Non-cash items
      included in net income:Depreciation
            
            
            56,380
            
            
            
            44,021
            
            
            
            43,831Amortization
      of other intangible assets
            
            
            14,515
            
            
            
            8,166
            
            
            
            5,391Share-based compensation expense related to
      options,restricted stock units (“RSUs”) and stock purchase
      rights
            
            
            25,807
            
            
            
            24,503
            
            
            
            21,040Write-down of
investments
            
            
            643
            
            
            
            2,727
            
            
            
            79,823Gain on
      sale of investments
            
            
            —
            
            
            
            —
            
            
            
            (27,761
            )Excess
      tax benefits from share-based compensation
            
            
            (2,814
            )
            
            
            (6,592
            )
            
            
            (15,231
            )Loss
      (gain) on cash surrender value of life insurance
      policies
            
            
            (1,223
            )
            
            
            2,868
            
            
            
            (724
            )In-process research and
      development
            
            
            —
            
            
            
            1,000
            
            
            
            —Deferred income taxes and
      other
            
            
            (17,895
            )
            
            
            (10,387
            )
            
            
            (2,138
            )Changes in
      assets and liabilities, net of acquisitions:Accounts receivable
            
            
            28,489
            
            
            
            152,496
            
            
            
            (31,212
            )Inventories
            
            
            30,942
            
            
            
            (9,078
            )
            
            
            (10,230
            )Other
      assets
            
            
            15,038
            
            
            
            14,615
            
            
            
            (10,725
            )Accounts payable
            
            
            94,155
            
            
            
            (123,802
            )
            
            
            61,096Accrued
      liabilities
            
            
            56,265
            
            
            
            (6,982
            )
            
            
            48,893Net cash provided by operating
      activities
            
            
            365,259
            
            
            
            200,587
            
            
            
            393,079Cash flows from investing activities:Acquisitions
      and investments, net of cash acquired
            
            
            (388,809
            )
            
            
            (64,430
            )
            
            
            (59,722
            )Purchases of
      property, plant and equipment
            
            
            (39,834
            )
            
            
            (48,263
            )
            
            
            (57,900
            )Purchases of
      investment securities
            
            
            —
            
            
            
            —
            
            
            
            (379,793
            )Sales of
      investment securities
            
            
            —
            
            
            
            —
            
            
            
            538,479Sale of
      investment
            
            
            —
            
            
            
            —
            
            
            
            13,308Proceeds from
      cash surrender of life insurance policies
            
            
            813
            
            
            
            —
            
            
            
            —Premiums paid
      on cash surrender value life insurance policies
            
            
            —
            
            
            
            (427
            )
            
            
            (1,151
            )Net cash provided by (used in) investing
      activities
            
            
            (427,830
            )
            
            
            (113,120
            )
            
            
            53,221Cash flows from financing
      activities:Purchases of
      treasury shares
            
            
            (126,301
            )
            
            
            (78,870
            )
            
            
            (219,742
            )Proceeds from
      sale of shares upon exercise of optionsand
      purchase rights
            
            
            28,917
            
            
            
            31,119
            
            
            
            50,603Repayments of
      debt
            
            
            (13,630
            )
            
            
            —
            
            
            
            (11,739
            )Excess tax benefits
      from share-based compensation
            
            
            2,814
            
            
            
            6,592
            
            
            
            15,231Net cash used in financing
      activities
            
            
            (108,200
            )
            
            
            (41,159
            )
            
            
            (165,647
            )Effect of exchange rate changes on cash
      and cash equivalents
            
            
            (2,044
            )
            
            
            (35,901
            )
            
            
            5,502Net increase (decrease) in cash and cash
      equivalents
            
            
            (172,815
            )
            
            
            10,407
            
            
            
            286,155Cash and cash equivalents at beginning
      of period
            
            
            492,759
            
            
            
            482,352
            
            
            
            196,197Cash and cash equivalents at end of
      period
            
            $
            319,944
            
            
            $
            492,759
            
            
            $
            482,352Supplemental cash flow
      information:Interest
      paid
            
            $
            66
            
            
            $
            143
            
            
            $
            22Income taxes
      paid
            
            $
            9,436
            
            
            $
            15,268
            
            
            $
            11,655


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




75




---



LOGITECH INTERNATIONAL
S.A.




CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(In thousands)




AccumulatedAdditional
            
            
            
            
            
            
            
            
            
            
            
            
            otherRegistered shares
            
            paid-in
            
            Treasuryshares
            
            Retained
            
            comprehensiveShares
            
            Amount
            
            capital
            
            Shares
            
            Amount
            
            earnings
            
            loss
            
            TotalMarch 31, 2007
            
            191,606
            
            $
            33,370
            
            
            $
            72,779
            
            
            
            9,364
            
            
            $
            (217,073
            )
            
            $
            995,606
            
            
            
            $
            (40,158
            )
            
            
            $
            844,524Net income
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            231,026
            
            
            
            
            —
            
            
            
            
            231,026Cumulative translation
    adjustment
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            28,006
            
            
            
            
            28,006Deferred realized hedging
      loss
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            (992
            )
            
            
            
            (992
            )Actuarial loss on pension
plan,net of tax of
      $31
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            (6,339
            )
            
            
            
            (6,339
            )Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            251,701Change in pension plan measurement
      date
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (317
            )
            
            
            
            
            
            
            
            
            (317
            )Adjustment for adoption of accounting requirementsfor uncertain
      tax positions
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            8,314
            
            
            
            
            —
            
            
            
            
            8,314Tax benefit from exercise of stock
      options
            
            —
            
            
            —
            
            
            
            3,894
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            3,894Purchase of treasury shares
            
            —
            
            
            —
            
            
            
            —
            
            
            
            7,784
            
            
            
            (219,742
            )
            
            
            —
            
            
            
            
            —
            
            
            
            
            (219,742
            )Sale of shares upon exercise of
      optionsand purchase
      rights
            
            —
            
            
            —
            
            
            
            (47,919
            )
            
            
            (4,717
            )
            
            
            98,522
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            50,603Share-based compensation expense
            
            —
            
            
            —
            
            
            
            21,067
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            21,067March 31, 2008
            
            191,606
            
            $
            33,370
            
            
            $
            49,821
            
            
            
            12,431
            
            
            $
            (338,293
            )
            
            $
            1,234,629
            
            
            
            $
            (19,483
            )
            
            
            $
            960,044Net income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            107,032
            
            
            
            
            
            
            
            
            
            107,032Cumulative translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (55,983
            )
            
            
            
            (55,983
            )Net deferred hedging gains
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            216
            
            
            
            
            216Actuarial loss on pension plan, net of tax of $182
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            (6,055
            )
            
            
            
            (6,055
            )Unrealized gain on investment
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            424
            
            
            
            
            424Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            45,634Tax benefit from exercise of stock
      options
            
            —
            
            
            —
            
            
            
            15,253
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            15,253Purchase of treasury shares
            
            —
            
            
            —
            
            
            
            —
            
            
            
            2,803
            
            
            
            (78,870
            )
            
            
            —
            
            
            
            
            —
            
            
            
            
            (78,870
            )Sale of shares upon exercise of
      optionsand purchase
      rights
            
            —
            
            
            —
            
            
            
            (44,590
            )
            
            
            (3,110
            )
            
            
            75,709
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            31,119Share-based compensation expense
            
            —
            
            
            —
            
            
            
            24,528
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            24,528March 31, 2009
            
            191,606
            
            $
            33,370
            
            
            $
            45,012
            
            
            
            12,124
            
            
            $
            (341,454
            )
            
            $
            1,341,661
            
            
            
            $
            (80,881
            )
            
            
            $
            997,708Net income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            64,957
            
            
            
            
            
            
            
            
            
            64,957Cumulative translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,753
            
            
            
            
            2,753Net deferred hedging gains
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            
            1,178
            
            
            
            
            1,178Actuarial gain on pension plan, net of tax of $122
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            
            4,309
            
            
            
            
            4,309Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            73,197Tax benefit from exercise of stock
      options
            
            —
            
            
            —
            
            
            
            266
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            266Purchase of treasury shares
            
            —
            
            
            —
            
            
            
            —
            
            
            
            7,425
            
            
            
            (126,301
            )
            
            
            —
            
            
            
            
            —
            
            
            
            
            (126,301
            )Sale of shares upon exercise of
      optionsand purchase
      rights
            
            —
            
            
            —
            
            
            
            (56,326
            )
            
            
            (3,114
            )
            
            
            85,243
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            28,917Share-based compensation expense
            
            —
            
            
            —
            
            
            
            25,928
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            
            25,928March 31, 2010
            
            191,606
            
            $
            33,370
            
            
            $
            14,880
            
            
            
            16,435
            
            
            $
            (382,512
            )
            
            $
            1,406,618
            
            
            
            $
            (72,641
            )
            
            
            $
            999,715


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




76




---



LOGITECH INTERNATIONAL
S.A.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




Note 1 — The Company




Logitech is a world 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, gaming and wireless devices. For the PC, our
products include mice, trackballs, keyboards, interactive gaming controllers,
multimedia speakers, headsets, webcams, 3D control devices and lapdesks. Our
Internet communications products include webcams, headsets, video communications
services, and digital video security systems for a home or small business. Our
LifeSize division offers scalable high-definition video communications products,
support and services. Our digital music products include speakers, earphones,
and custom in-ear monitors. For home entertainment systems, we offer the Harmony
line of advanced remote controls and the Squeezebox and Transporter wireless
music solutions for the home. 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.




We sell our peripheral products to a network
of retail distributors and resellers (“retail”) and to original equipment
manufacturers (“OEMs”). We sell our LifeSize products and services to
distributors, value-added resellers, OEMs and direct enterprise customers. The
large majority of our revenues are derived from sales of our personal peripheral
products for use by consumers.




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”). 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.




Net income for fiscal year 2009 includes $6.7
million in pretax charges related to revenue adjustments, accounting for
warranties, accounting for employee benefit accruals and other adjustments from
fiscal year 2008. The total pretax charge of $6.7 million was corrected in the
first, third and fourth quarters of fiscal year 2009. We reviewed the accounting
errors utilizing SEC Staff Accounting Bulletin No. 99, Materiality (“SAB
99”) and SEC Staff Accounting Bulletin No. 108, Effects of Prior Year Misstatements on Current Year Financial
Statements (“SAB
108”) , and determined the impact of the errors to be
immaterial to any period presented.




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




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.




77




---



Use of Estimates




The preparation of financial statements in
conformity with generally accepted accounting principles in the United States
(“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.




Foreign Currencies




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. The financial statements of the Company’s
subsidiaries whose functional currency is other than the U.S. dollar are
translated to U.S. dollars using period-end rates of exchange for assets and
liabilities and monthly average rates for revenues and expenses. Cumulative
translation gains and losses are included as a component of shareholders’ equity
in accumulated other comprehensive loss. Gains and losses arising from
transactions denominated in currencies other than a subsidiary’s functional
currency are reported in other income (expense), net in the consolidated
statement of income.




Revenue Recognition




Revenues are recognized when all of
the following criteria are met:


- evidence of an arrangement exists
  between the Company and the customer;
- delivery has occurred and title
  and risk of loss transfer to the customer;
- the price of the product is fixed
  or determinable; and
- collectibility of the receivable
  is reasonably assured.

Certain video communications products are
integrated with software that is essential to the functionality of the
equipment. In addition, unspecified software upgrades and enhancements are
provided for some of these products during a maintenance period of one
year.




The Company uses the residual method to
recognize revenue when an agreement includes one or more elements that are more
than incidental to the arrangement, to be delivered at a future date. If there
is an undelivered element under the arrangement, Logitech defers revenue based
on vendor-specific evidence of the fair value of the undelivered element, as
determined by the price charged when the element is sold separately. If
vendor-specific objective evidence of fair value does not exist for all
undelivered elements, the Company defers all revenue until sufficient evidence
exists or all elements have been delivered.




Separately priced maintenance contracts and
extended service revenue on hardware and software products are recognized
ratably over the service period.




Revenues from sales to distributors and
authorized resellers are recognized net of estimated product returns and
expected payments for cooperative marketing arrangements, customer incentive
programs and pricing programs. The estimated cost of these programs is accrued
in the period the Company sells the product or commits to the program as a
reduction of revenue or as an operating expense, if we receive a separately
identifiable benefit from the customer and can reasonably estimate the fair
value of that benefit. Significant management judgment and estimates must be
used to determine the cost of these programs in any accounting
period.




The Company grants limited rights to return
product. Return rights vary by customer, and range from just the right to return
defective product to stock rotation rights to return a limited percentage of the
previous quarter’s purchases. Estimates of expected future product returns are
recognized at the time of sale based on analyses of historical return trends by
customer and by product, inventories owned by and located at distributors and
retailers, current customer demand, current operating conditions, and other
relevant customer and product information, such as stage of product life-cycle.
Return trends are influenced by the timing of the sale, the type of customer,
operational policies and procedures, product sell-through, product quality
issues, sales levels, market acceptance of products, competitive pressures, new
product introductions, product life cycle status, and other factors. Return
rates can fluctuate over time, but are sufficiently predictable to allow us to
estimate expected future product returns.




78




---



The Company’s cooperative marketing
arrangements include contractual customer marketing and sales incentive
programs. We enter into customer marketing programs with many of our
distribution and retail customers allowing customers to receive a credit equal
to a set percentage of their purchases of the Company’s products, or a fixed
dollar credit for various marketing programs. The objective of these programs is
to encourage advertising and promotional events to increase sales of our
products. Accruals for the estimated costs of these marketing programs are
recorded based on the contractual percentage of product purchased in the period
we recognize revenue. The Company also offers rebates and discounts for certain
types of sell-through programs. Accruals for these sales incentive programs are
recorded at the time of sale, or time of commitment, based on negotiated terms,
historical experience and inventory levels in the channel.




Customer incentive programs include volume and
consumer rebates. The Company offers volume rebates to its distribution and
retail customers related to purchase volumes or sales of specific products by
distributors to specified retailers. Reserves for volume rebates are recognized
as a reduction of the sale price at the time of sale. Estimates of required
reserves are determined based on negotiated terms, consideration of historical
experience, anticipated volume of future purchases, and inventory levels in the
channel. Consumer rebates are offered from time to time at the Company’s
discretion directly to end-users. Estimated costs of consumer rebates and
similar incentives are recorded at the time the incentive is offered, based on
the specific terms and conditions. Certain incentive programs, including
consumer rebates, require management to estimate the number of customers who
will actually redeem the incentive based on historical experience and the
specific terms and conditions of particular programs.




The Company has contractual agreements with
certain of its customers that contain terms allowing price protection credits to
be issued in the event of a subsequent price reduction (contractual price
protection). At management’s discretion, the Company also offers special pricing
discounts to certain customers. Special pricing discounts are usually offered
only for limited time periods or for sales to specific indirect partners.
Management’s decision to make price reductions is influenced by channel
inventory levels, product life cycle stage, market acceptance of products, the
competitive environment, new product introductions and other factors. Credits
are issued for units that customers have on hand or in transit at the date of
the price reduction. Reserves for the estimated amounts to be reimbursed to
qualifying customers are established quarterly based on planned price
reductions, analyses of qualified inventories on hand with distributors and
retailers and historical trends by customer and by product.




The Company regularly evaluates the adequacy
of the accruals for product returns, cooperative marketing arrangements,
customer incentive programs and pricing programs. Future market conditions and
product transitions may require the Company to take action to increase such
programs. In addition, when the variables used to estimate these costs change,
or if actual costs differ significantly from the estimates, the Company would be
required to record incremental reductions to revenue or increase operating
expenses. If, at any future time, the Company becomes unable to reasonably
estimate these costs, recognition of revenue might be deferred until products
are sold to end-users, which would adversely impact revenue in the period of
transition.




The Company’s shipping and handling costs are
included in cost of sales in the accompanying Consolidated Statements of Income
for all periods presented.




79




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Research and Development Costs




Costs related to research, design and
development of products, which consist primarily of personnel, product design
and infrastructure expenses, are charged to research and development expense as
they are incurred.




Advertising Costs




Advertising costs are expensed as incurred and
amounted to $106.4 million, $151.2 million and $188.5 million in fiscal years
2010, 2009 and 2008. Advertising costs are recorded as either a marketing and
selling expense or a deduction from revenue. Advertising costs reimbursed by the
Company to a customer must have an identifiable benefit and an estimable fair
value in order to be classified as an operating expense. If these criteria are
not met, the cost is classified as a reduction of revenue.




Cash Equivalents




The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.




Concentration of Credit Risk




Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash and
cash equivalents and accounts receivable. The Company maintains cash and cash
equivalents with various financial institutions to limit exposure with any one
financial institution.




The Company sells to large OEMs, distributors
and key retailers and, as a result, maintains individually significant
receivable balances with such customers. As of March 31, 2010, one customer
represented 14% of total accounts receivable. As of March 31, 2009, two
customers represented 18% and 10% of total accounts receivable. 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.




The Company’s OEM customers tend to be
well-capitalized, multi-national companies, while distributors and key retailers
may be less well-capitalized. The Company manages its accounts receivable credit
risk through ongoing credit evaluation of its customers’ financial condition.
The Company generally does not require collateral from its
customers.




Allowances for Doubtful Accounts




Allowances for doubtful accounts are
maintained for estimated losses resulting from the inability of the Company’s
customers to make required payments. The allowances are based on the Company’s
regular assessment of the credit worthiness and financial condition of specific
customers, as well as its historical experience with bad debts and customer
deductions, receivables aging, current economic trends, geographic or
country-specific risks and the financial condition of its distribution
channels.




Inventories




Inventories are stated at the lower of cost or
market. Cost is computed on a first-in, first-out basis. The Company records
write-downs of inventories which are obsolete or in excess of anticipated demand
or market value based on a consideration of marketability and product life cycle
stage, product development plans, component cost trends, demand forecasts,
historical sales, and assumptions about future demand and market
conditions.




80




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Investments




The Company’s investment securities portfolio
consists 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, which is determined by estimating values
of the underlying collateral using analogous published indices or by estimating
future cash flows, either through discounted cash flow or option pricing
methods, incorporating assumptions of default and other future
conditions.




Auction rate securities generally have
maturity dates greater than 10 years, with interest rates that typically reset
through an auction every 28 days. The markets for the auction rate securities
which the Company holds as of March 31, 2010 and 2009 have failed since August
2007 and are not expected to resume in the foreseeable future, if at all. As a
result, the investments were reclassified from current to non-current assets as
of April 1, 2009, as sale or realization of proceeds from sale is not expected
within our normal operating cycle of one year.




Property, Plant and Equipment




Property, plant and equipment are stated at
cost. Additions and improvements are capitalized, and maintenance and repairs
are expensed as incurred. The Company capitalizes the cost of software developed
for internal use in connection with major projects. Costs incurred during the
feasibility stage are expensed, whereas costs incurred during the application
development stage are capitalized.




With the exception of tooling, depreciation is
provided using the straight-line method. Plant and buildings are depreciated
over estimated useful lives from ten to twenty-five years, equipment over useful
lives from three to five years, software development over useful lives of three
to five years and leasehold improvements over the life of the lease, generally
not exceeding five years. Tooling is depreciated over the forecasted life of the
tool, not to exceed one year from the time it is placed into production.
Depreciation for tooling is calculated based on the forecasted production volume
and adjusted quarterly based on actual production. When property and equipment
is retired or otherwise disposed of, the cost and accumulated depreciation are
relieved from the accounts and the net gain or loss is included in the
determination of net income.




Goodwill and Other Intangible Assets




The Company’s intangible assets principally
include goodwill, acquired technology, trademarks, customer contracts and
customer relationships, and other. Intangible assets with finite lives, which
include acquired technology, trademarks, customer contracts and customer
relationships, and other, are recorded at cost and amortized using the
straight-line method over their useful lives ranging from one year to ten years.
Intangible assets with indefinite lives, which include goodwill, are recorded at
cost and evaluated at least annually for impairment.




Impairment of Long-Lived Assets




The Company reviews long-lived assets, such as
investments, property and equipment, and intangible assets, for impairment
whenever events indicate that the carrying amounts might not be recoverable.
Recoverability of investments, property and equipment, and other intangible
assets is measured by comparing the projected undiscounted net cash flows
associated with those assets to their carrying values. If an asset is considered
impaired, it is written down to fair value, which is determined based on the
asset’s projected discounted cash flows or appraised value, depending on the
nature of the asset. Goodwill is evaluated for impairment at least
annually.




Income Taxes




The Company provides for income taxes using
the liability method, which requires that deferred tax assets and liabilities be
recognized for the expected future tax consequences of temporary differences
resulting from differing treatment of items for tax and accounting purposes. In
estimating future tax consequences, expected future events are taken into
consideration, with the exception of potential tax law or tax rate
changes.




81




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The Company’s assessment of uncertain tax
positions requires that management make estimates and judgments about the
application of tax law, the expected resolution of uncertain tax positions and
other matters. In the event that uncertain tax positions are resolved for
amounts different than the Company’s estimates, or the related statutes of
limitations expire without the assessment of additional income taxes, the
Company will be required to adjust the amounts of the related assets and
liabilities in the period in which such events occur. Such adjustments may have
a material impact on the Company’s income tax provision and its results of
operations.




Fair Value of Financial Instruments




The carrying value of certain of the Company’s
financial instruments, including cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value due to their
short maturities. The Company’s investment securities are reported at estimated
fair value.




Net Income per Share




Basic net income per share is computed by
dividing net income by the weighted average outstanding shares. Diluted net
income per share is computed using the weighted average outstanding shares and
dilutive share equivalents. Dilutive share equivalents consist of share-based
compensation awards, including stock options and restricted stock.




The dilutive effect of in-the-money
share-based compensation awards is calculated based on the average share price
for each fiscal period using the treasury stock method, which assumes that the
amount used to repurchase shares includes the amount the employee must pay for
exercising share-based awards, the amount of compensation cost not yet
recognized for future service, and the amount of tax impact that would be
recorded in additional paid-in capital when the award becomes
deductible.




Share-Based Compensation Expense




Share-based compensation expense includes
compensation expense, reduced for estimated forfeitures, for share-based
compensation awards granted after April 1, 2006 based on the grant-date fair
value. The grant date fair value for stock options and stock purchase rights is
estimated using the Black-Scholes-Merton option-pricing valuation model. The
grant date fair value of restricted stock units (“RSUs”) which vest upon meeting
certain market conditions is estimated using the Monte-Carlo simulation method.
The grant date fair value of time-based RSUs is calculated based on the share
market price on the date of grant. For stock options and restricted stock
assumed by Logitech when LifeSize was acquired, the grant date used to estimate
fair value is deemed to be December 11, 2009, the date of acquisition.
Compensation expense for awards granted or assumed after April 1, 2006 is
recognized on a straight-line basis over the service period of the award, which
is generally the vesting term of four years (single-option approach) for stock
options and one to four years for RSUs.




For share-based compensation awards granted
prior to but not yet vested as of April 1, 2006, share-based compensation
expense is based on the grant-date fair value estimated using the
Black-Scholes-Merton option-pricing valuation model reduced for estimated
forfeitures. Compensation expense for these awards is recognized on a
straight-line basis over the service period for each separately vesting portion
of the award (multiple-option approach).




Tax benefits resulting from the exercise of
stock options are classified as cash flows from financing activities in the
consolidated statement of cash flows. Excess tax benefits are realized tax
benefits from tax deductions for exercised options in excess of the deferred tax
asset attributable to share-based compensation costs for such
options.




The Company will recognize a benefit from
share-based compensation in paid-in capital only if an incremental tax benefit
is realized after all other available tax attributes have been utilized. For
income tax footnote disclosure, the Company has elected to offset deferred tax
assets against the valuation allowance related to the net operating loss and tax
credit carryforwards from accumulated tax benefits. The Company will recognize
these tax benefits in paid-in capital when the deduction reduces cash taxes
payable. In addition, the Company has elected to account for the indirect
benefits of share-based compensation on the research tax credit through the
income statement (continuing operations) rather than through paid-in
capital.




82




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Comprehensive Income




Comprehensive income is defined as the total
change in shareholders’ equity during the period other than from transactions
with shareholders. Comprehensive income consists of net income and other
comprehensive income, a component of shareholders’ equity. Other comprehensive
income is comprised of foreign currency translation adjustments from those
entities not using the U.S. dollar as their functional currency, unrealized
gains and losses on marketable equity securities, net deferred gains and losses
and prior service costs for defined benefit pension plans, and net deferred
gains and losses on hedging activity.




Derivative Financial Instruments




The Company enters into foreign exchange
forward contracts to reduce the short-term effects of foreign currency
fluctuations on certain foreign currency receivables or payables and to provide
against exposure to changes in foreign currency exchange rates related to its
subsidiaries’ forecasted inventory purchases. These forward contracts generally
mature within one to six months. The Company may also enter into foreign
exchange swap contracts to extend the terms of its foreign exchange forward
contracts.




Gains and losses in the fair value of the
effective portion of our forward contracts related to forecasted inventory
purchases 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. Gains or losses in fair value on forward
contracts which offset translation losses or gains on foreign currency
receivables or payables are recognized in earnings monthly and are included in
other income (expense), net.




Recent Accounting Pronouncements




In October 2009, the Financial Accounting
Standards Board (“FASB”) published Accounting Standards Update (“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 ASC 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.




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




83




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In January 2010, the FASB published ASU
2010-06, Improving Disclosures about Fair Value
Measurement, which
requires additional disclosures regarding the activity in fair value
measurements classified as Level 3 in the fair value hierarchy. Disclosure of
activity in Level 3 fair value measurements is required for fiscal years
beginning after December 15, 2010. Early adoption is permitted. We will provide
these disclosures beginning in the first quarter of fiscal year 2011, when such
activity occurs.




In April 2010, the FASB published ASU
2010-13 , Effect of Denominating the Exercise Price of
a Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades. The ASU provides that a share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity shares trades should not be considered to contain a condition
that is not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies as
equity. The ASU is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. Our adoption of ASU
2010-13 in the first quarter of fiscal year 2011 will not impact the Company’s
consolidated financial statements.




Note 3 — Net Income per
Share




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




Year ended March 31,2010
            
            2009
            
            2008Net income — basic and diluted
            
            $
            64,957
            
            $
            107,032
            
            $
            231,026Weighted average shares — basic
            
            
            177,279
            
            
            178,811
            
            
            181,362Effect of dilutive stock
    options
            
            
            2,061
            
            
            4,100
            
            
            6,580Weighted average shares — diluted
            
            
            179,340
            
            
            182,911
            
            
            187,942Net income per share — basic
            
            $
            0.37
            
            $
            0.60
            
            $
            1.27Net income per share — diluted
            
            $
            0.36
            
            $
            0.59
            
            $
            1.23


During fiscal years 2010, 2009 and 2008,
15,186,997, 10,567,217 and 3,957,572 share equivalents attributable to
outstanding stock options and RSUs 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.




Employee equity share options, non-vested
shares and similar share-based compensation awards 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 share-based
awards 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 share-based awards, 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. The following table presents the effect of in-the-money share-based
awards treated as potential shares in computing diluted earnings per share (in
thousands except per share amounts):




Year Ended March 312010
            
            
            2009
            
            
            2008In-the-money employee share-based awards
      treated as potential shares
            
            
            6,945
            
            
            
            9,313
            
            
            
            15,881Percentage of basic weighted average shares outstanding
            
            
            3.9
            %
            
            
            5.2
            %
            
            
            8.8
            %Average share price
            
            $
            16.06
            
            
            $
            20.55
            
            
            $
            28.74


84




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The following table illustrates the dilution
effect of share-based awards granted, assumed and exercised (in
thousands):




Year ended March 312010
            
            
            2009
            
            
            2008Basic weighted average shares
      outstanding as of March 31
            
            177,279
            
            
            178,811
            
            
            181,362Stock options and RSUs granted
            
            3,902
            
            
            4,239
            
            
            3,891Stock options and restricted stock
      assumed in LifeSize acquisition
            
            1,078
            
            
            —
            
            
            —Stock options and RSUs canceled, forfeited, or expired
            
            (1,440
            )
            
            (1,163
            )
            
            (652
            )Net awards granted and assumed
            
            3,540
            
            
            3,076
            
            
            3,239Grant dilution(1)
            
            2.0
            %
            
            1.7
            %
            
            1.8
            %Stock options exercised
            
            1,980
            
            
            2,037
            
            
            4,162Exercise dilution(2)
            
            1.1
            %
            
            1.1
            %
            
            2.3
            %


(1)
            
            The percentage
      of grant dilution is computed based on net awards granted and assumed as a
      percentage of basic weighted average shares
outstanding.(2)
            
            The percentage
      of exercise dilution is computed based on options exercised as a
      percentage of basic weighted average shares
  outstanding.




Note 4 — Fair Value
Measurements




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


- Level 1 – Quoted prices in active
  markets for identical assets or liabilities.
- Level 2 – Observable inputs other
  than quoted market prices included in Level 1, such as quoted prices
  for similar assets and
  liabilities in active markets; quoted prices for identical or similar assets
  and liabilities in markets that
  are not active; or other inputs that are observable or can be corroborated by
  observable market
  data.
- Level 3 – Unobservable inputs that
  are supported by little or no market activity and that are significant
  to the fair value of the assets or
  liabilities. This includes certain pricing models, discounted cash flow
  methodologies and similar techniques
  that use significant unobservable inputs.

The following table presents the Company’s
financial assets and liabilities that were accounted for at fair value as of
March 31, 2010 and 2009, classified by the level within the fair value hierarchy
(in thousands):




March 31, 2010
            
            March 31, 2009Level 1
            
            Level 2
            
            Level 3
            
            Level 1
            
            Level 2
            
            Level 3Cash and cash equivalents
            
            $
            319,944
            
            
            $
            —
            
            
            
            $
            —
            
            
            $
            492,759
            
            
            $
            —
            
            
            $
            —Investment securities
            
            
            —
            
            
            
            —
            
            
            
            
            994
            
            
            
            —
            
            
            
            —
            
            
            
            1,637Foreign exchange derivative
    assets
            
            
            599
            
            
            
            —
            
            
            
            
            —
            
            
            
            208
            
            
            
            —
            
            
            
            —Total assets at fair value
            
            $
            320,543
            
            
            $
            —
            
            
            
            $
            994
            
            
            $
            492,967
            
            
            $
            —
            
            
            $
            1,637Foreign exchange derivative
      liabilities
            
            $
            366
            
            
            $
            —
            
            
            
            $
            —
            
            
            $
            1,849
            
            
            $
            —
            
            
            $
            —Total liabilities at fair value
            
            $
            366
            
            
            $
            —
            
            
            
            $
            —
            
            
            $
            1,849
            
            
            $
            —
            
            
            $
            —


Notes 5 and 15 describe the inputs and valuation techniques used to
determine fair value.




85




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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 March 31, 2010 and 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, which was determined by estimating values of the underlying
collateral using analogous published indices or by estimating future cash flows,
either through discounted cash flow or option pricing methods, incorporating
assumptions of default and other future conditions. Such valuation methods fall
within Level 3 of the fair value hierarchy.




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 March 31,
2010 and 2009 have maturity dates in excess of 10 years. Since August 2007,
auctions for these investments have failed. As a result, 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 from current to non-current assets as of April 1,
2009.




The following table presents the changes in
fair value of the Company’s investment securities during fiscal years 2010 and
2009:




March 31,2010
            
            2009Beginning balance
            
            $
            1,637
            
            
            $
            3,940Write-down
            
            
            (643
            )
            
            
            (2,727
            )Unrealized gain
            
            
            —
            
            
            
            424Ending balance
            
            $
            994
            
            
            $
            1,637


The par value of our investment securities
portfolio at March 31, 2010 and 2009 was $47.5 million. The write-down of
investments related to other-than-temporary declines in the estimated fair value
of these investments and is recorded in other income (expense), net. The
unrealized gain as of March 31, 2009 related to temporary increases in the fair
value and was recorded in other comprehensive income.




Note 6 — Acquisitions




The Company changed the manner in which it
accounts for business combinations effective April 1, 2009. For business
combinations occurring after that date, transaction costs incurred in connection
with the acquisition are recognized as an expense rather than included in the
cost allocated to the assets acquired and liabilities assumed. Goodwill
recognized as of the acquisition date is measured as the excess of the
consideration transferred over the fair values of the identifiable net assets
acquired. Assets and liabilities arising from pre-acquisition contingencies, if
any, are recognized at fair value, if available, or at the Company’s best
estimate. Resolution of certain tax contingencies and adjustments to valuation
allowances related to business combinations, which previously were adjusted to
goodwill, are adjusted to income tax expense for all such adjustments after
April 1, 2009, regardless of the date of the original business combinations.
Adoption of this change had no impact on previously presented financial
information.




LifeSize




On December 11, 2009, pursuant to a merger
agreement signed November 10, 2009, Logitech acquired LifeSize Communications,
Inc., an Austin, Texas-based privately-held company specializing in high
definition video communication products and services. Logitech expects the
acquisition to drive growth in video communication for the enterprise and
small-to-medium business markets by leveraging the two companies’ technology
expertise, including camera design, firewall traversal, video compression and
bandwidth management.




86




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The total consideration paid to acquire
LifeSize was $382.8 million, not including cash acquired of $3.7 million. In
addition, Logitech incurred $6.6 million in transaction costs, which are
included in operating expenses. Logitech paid $382.3 million in cash to the
holders of all outstanding shares of LifeSize capital stock, all vested options
issued by LifeSize, and all outstanding warrants to purchase LifeSize stock. As
part of the acquisition, Logitech assumed all outstanding unvested LifeSize
stock options and unvested restricted stock held by continuing LifeSize
employees at December 11, 2009. The assumed options are exercisable for a total
of approximately 1.0 million Logitech shares and the assumed restricted stock
was exchanged for 0.1 million Logitech shares. The stock options and restricted
stock continue to have the same terms and conditions as under LifeSize’s option
plan. The fair value attributable to precombination employee services for the
stock options assumed, which is part of the consideration paid to acquire
LifeSize, was $0.5 million. The weighted average fair value of $12.07 per share
for the stock options assumed was determined using a Black-Scholes-Merton
option-pricing valuation model with the following weighted-average assumptions:
expected term of 2.0 years, expected volatility of 57%, and risk-free interest
rate of 0.7%.




The total cash consideration paid of $382.3
million included $37.0 million deposited into an escrow account as security for
indemnification claims under the merger agreement and $0.5 million deposited in
a stockholder representative expense fund. The escrow fund will be disbursed by
the escrow trustee to the former holders of LifeSize capital stock, vested
options and warrants with 50% to be disbursed in December 2010 and the remaining
fifty percent in June 2011, subject in each case to indemnification
claims.




In connection with the merger, Logitech also
agreed to establish a cash and stock option retention and incentive plan for
certain LifeSize employees, linked to the achievement of LifeSize performance
targets. The duration of the plan’s performance period is two years, from
January 1, 2010 to December 31, 2011. The total available cash incentive is $9.0
million over the two year performance period. In December 2009, options to
purchase 850,000 Logitech shares were issued in connection with the retention
and incentive plan.




The acquisition has been accounted for using
the purchase method of accounting. Accordingly, the total consideration was
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. Fair values
were determined by Logitech management based on information available at the
date of acquisition.




The allocation of total consideration to the
assets acquired and liabilities assumed based on the estimated fair value of
LifeSize was as follows (in thousands):




December 11,
            
            Estimated2009
            
            LifeTangible assets acquired
            
            
            $
            33,635Deferred tax asset, net
            
            
            
            8,828Intangible assets acquiredExisting technology
            
            
            
            30,000
            
            
            4 yearsPatents and core technology
            
            
            
            4,500
            
            
            3 yearsTrademark/trade name
            
            
            
            7,600
            
            
            5 yearsCustomer relationships and other
            
            
            
            31,500
            
            
            5 yearsGoodwill
            
            
            
            307,241
            
            
            —423,304Liabilities assumed
            
            
            
            (26,985
            )Debt assumed
            
            
            
            (13,505
            )Total consideration
            
            
            $
            382,814


87




---



The deferred tax asset primarily relates to
the tax benefit of a net operating loss carryforward, net of the deferred tax
liability related to intangible assets. The existing technology of LifeSize
relates to the platform technology used in LifeSize’s high-definition video
conferencing systems. The value of the technology was determined based on the
present value of estimated expected cash flows attributable to the technology,
assuming the highest and best use by a market participant. The patents and core
technology represent awarded patents, filed patent applications and core
architectures, trade secrets or processes used in LifeSize’s current and planned
future products. Trademark/trade name relates to the LifeSize brand names. The
value of the patents, core technology and trademark/trade name was estimated by
capitalizing the estimated profits saved as a result of acquiring or licensing
the asset. Customer relationships and other relates to the ability to sell
existing, in-process, and future versions of the technology and services to
LifeSize’s existing customer base, valued based on projected discounted cash
flows generated from customers in place. The intangible assets acquired are
amortized on a straight-line basis over their estimated useful lives. The
goodwill associated with the acquisition is primarily attributable to the
opportunities and economies of scale from combining the operations and
technologies of Logitech and LifeSize. This goodwill is not subject to
amortization and is not expected to be deductible for income tax purposes. The
debt that Logitech assumed as part of the acquisition was repaid in full on
December 18, 2009.




Unaudited pro forma financial information




The unaudited pro forma financial information
in the table below summarizes the combined results of operations of Logitech and
LifeSize during the fiscal years ended March 31, 2010 and 2009 as though the
acquisition took place as of the beginning of each fiscal year. The pro forma
financial information also includes certain adjustments such as amortization
expense from acquired intangible assets, share-based compensation expense
related to unvested stock options and restricted stock assumed, depreciation
adjustments from alignment of the companies’ policies related to property, plant
and equipment, interest expense related to debt assumed, expense related to
retention bonuses, pre-acquisition transaction costs, and the income tax impact
of the pro forma adjustments. The pro forma financial information presented
below (in thousands except per share amounts) is for informational purposes only
and is not indicative of the results of operations that would have been achieved
if the acquisition had taken place at the beginning of the periods
presented.




2010
            
            2009(Unaudited)Net sales
            
            $
            2,023
            
            $
            2,282Net income
            
            $
            44
            
            $
            88Net income per share — basic
            
            $
            0.25
            
            $
            0.49Net income per share — diluted
            
            $
            0.25
            
            $
            0.48


TV Compass




On November 27, 2009, Logitech acquired
certain assets from TV Compass, Inc., a Chicago, Illinois-based company
providing video software and services for the Web and mobile devices. The
acquisition has been treated as an acquisition of a business and has been
accounted for using the purchase method of accounting. The total consideration
paid of $10.0 million was allocated based on estimated fair values to $4.2
million of identifiable intangible assets, with the balance allocated to
goodwill. Fair values were determined by Company management based on information
available at the date of acquisition. The intangible assets acquired are
amortized on a straight-line basis over their estimated useful lives of 6 years.
The goodwill results from expected incremental revenue from the use of the
acquired technology in enhancing our products. The goodwill is not subject to
amortization and is not expected to be deductible for income tax purposes. In
addition, Logitech incurred $0.3 million in transaction costs, which are
included in operating expenses.




88




---



SightSpeed




In October 2008, the Company acquired
SightSpeed Inc., a privately held company providing high-quality Internet video
communications services. The acquisition of SightSpeed provided Logitech with
video calling technology and a software and services development team that is
focused on future video calling initiatives to enable cross-platform video
communications.




Total consideration paid was $30.9 million,
which includes $0.8 million in transaction costs. Under the terms of the
purchase agreement, the Company acquired all of the outstanding shares of
SightSpeed.




The acquisition has been accounted for using
the purchase method of accounting. Accordingly, the total consideration was
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. Fair values
were determined by Company management based on information available at the date
of acquisition. The results of operations of SightSpeed were included in
Logitech’s consolidated financial statements from the date of acquisition, and
were not material to the Company’s reported results.




The allocation of total consideration,
including transaction costs, to the assets acquired and liabilities assumed
based on the estimated fair value of SightSpeed was as follows (in
thousands):




November 3,
            
            Estimated2008
            
            LifeTangible assets acquired
            
            
            $
            370Deferred tax asset, net
            
            
            
            6,622Intangible assets acquiredExisting technology
            
            
            
            800
            
            
            
            5 yearsPatents and core technology
            
            
            
            2,700
            
            
            
            5 yearsTrademark/trade name
            
            
            
            200
            
            
            
            2 yearsCustomer relationships and other
            
            
            
            1,200
            
            
            
            4.9 yearsIn-process research and
      development
            
            
            
            1,000
            
            
            
            —Goodwill
            
            
            
            18,751
            
            
            
            —31,643Liabilities assumed
            
            
            
            (756
            )Total consideration
            
            
            $
            30,887


The deferred tax asset relates to the tax
benefit of a net operating loss carryforward, net of the deferred tax liability
related to intangible assets. The existing technology of SightSpeed relates to
internet video communications services that allow users to make video calls,
computer-to-computer voice calls, and calls to regular telephones with free and
prepaid versions. In-process research and development had not reached
technological feasibility at the time of the acquisition and had no further
alternative uses, and was expensed immediately to research and development
expense upon consummation of the acquisition. The value of the technology was
determined based on the present value of estimated expected cash flows
attributable to the technology. The patents and core technology represent
awarded patents, filed patent applications and core architectures used in
SightSpeed’s current and planned future products. Trademark/trade name relates
to the SightSpeed brand names. The value of the patents, core technology and
trademark/trade name was estimated by capitalizing the estimated profits saved
as a result of acquiring or licensing the asset. Customer relationships and
other relates to the ability to sell existing, in-process, and future versions
of the technology to SightSpeed’s existing customer base, valued based on
projected discounted cash flows generated from customers in place. The
intangible assets acquired are amortized on a straight-line basis over their
estimated useful lives. The goodwill associated with the acquisition is not
subject to amortization and is not expected to be deductible for income tax
purposes.




89




---



Ultimate Ears




In August 2008, the Company acquired the
Ultimate Ears companies, a privately held group of companies offering a range of
earphones for portable-music enthusiasts as well as a line of custom-fit in-ear
monitors for music professionals. The acquisition is part of the Company’s
strategy to expand its portfolio of digital audio products, providing more
options for portable music listening.




Total consideration paid was $34.5 million,
which includes $0.7 million in transaction costs. Under the terms of the
purchase agreement, the Company acquired all of the outstanding equity interests
of Ultimate Ears for $33.8 million, including a $6.9 million holdback provision
relating to potential indemnification claims, of which $6.0 million has been
disbursed and $0.9 million is recorded as a liability in the accompanying
consolidated financial statements. The holdback provision has been included as
part of the purchase price allocation below.




The acquisition has been accounted for using
the purchase method of accounting. Accordingly, the total consideration was
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. Fair values
were determined by Company management based on information available at the date
of acquisition. The results of operations of Ultimate Ears were included in
Logitech’s consolidated financial statements from the date of acquisition, and
were not material to the Company’s reported results.




The allocation of total consideration,
including transaction costs, to the assets acquired and liabilities assumed
based on the estimated fair value of Ultimate Ears was as follows (in
thousands):




August 19,
            
            Estimated2008
            
            LifeTangible assets acquired
            
            
            $
            4,132Intangible assets acquiredExisting technology
            
            
            
            5,900
            
            
            
            4 yearsPatents and core
      technology
            
            
            
            1,900
            
            
            
            4 yearsTrademark/trade name
            
            
            
            2,900
            
            
            
            5 yearsCustomer relationships and
      other
            
            
            
            2,500
            
            
            
            5 yearsGoodwill
            
            
            
            25,254
            
            
            
            —42,586Liabilities assumed
            
            
            
            (2,845
            )Deferred tax liability, net
            
            
            
            (5,235
            )Total consideration
            
            
            $
            34,506


The existing technology of Ultimate Ears
relates to the technical components used in the in-ear monitors and earplugs.
The value of the technology was determined based on the present value of
estimated expected cash flows attributable to the technology. The patents and
core technology represent awarded patents, filed patent applications and core
architectures used in Ultimate Ears’ current and planned future products.
Trademark/trade name relates to the Ultimate Ears brand names. The value of the
patents, core technology and trademark/trade name was estimated by capitalizing
the estimated profits saved as a result of acquiring or licensing the asset.
Customer relationships and other relates to Ultimate Ears’ existing customer
base, valued based on projected discounted cash flows generated from customers
in place. The intangible assets acquired are amortized on a straight-line basis
over their estimated useful lives. The goodwill associated with the acquisition
is not subject to amortization and is not expected to be deductible for income
tax purposes. The deferred tax liability relates to the acquired intangible
assets which are also not expected to be deductible for income tax
purposes.




90




---



WiLife




In November 2007, the Company acquired WiLife,
Inc., a privately held company providing PC-based video cameras for
self-monitoring a home or a small business. The acquisition is part of the
Company’s strategy to expand its presence in digital home products.




Total consideration paid, net of cash acquired
of $0.1 million, was $22.1 million, which includes $0.5 million in transaction
costs. Under the terms of the purchase agreement, the Company acquired all of
the outstanding shares of WiLife for $21.7 million in cash, plus 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. As of March 31, 2010, no
amounts were payable towards performance-based payments under the WiLife
acquisition agreement.




The acquisition has been accounted for using
the purchase method of accounting. Accordingly, the total consideration was
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. Fair values
were determined by Company management based on information available as of the
date of acquisition. The results of operations of WiLife were included in
Logitech’s consolidated financial statements from the date of acquisition, and
were not material to the Company’s reported results.




The allocation of total consideration to the
assets acquired and liabilities assumed based on the estimated fair value of
WiLife is presented in the following table.




November 13,
            
            Estimated2007
            
            LifeTangible assets acquired
            
            
            $
            3,432Deferred tax asset, net
            
            
            
            639Intangible assets acquiredExisting technology
            
            
            
            3,000
            
            
            
            6 yearsPatents and core technology
            
            
            
            3,700
            
            
            
            5 yearsTrademark/trade name
            
            
            
            1,300
            
            
            
            5 yearsCustomer relationships and other
            
            
            
            200
            
            
            
            3 yearsGoodwill
            
            
            
            15,855
            
            
            
            —28,126Liabilities assumed
            
            
            
            (6,016
            )Total consideration
            
            
            $
            22,110


The deferred tax asset relates to the tax
benefit of a net operating loss carryforward, net of the deferred tax liability
related to intangible assets. The existing technology relates to the video
surveillance cameras and software used in WiLife’s PC-based video security
systems. The value of the technology was determined based on the present value
of estimated expected cash flows attributable to the technology. The patents and
core technology represent awarded patents, filed patent applications and core
architectures used in WiLife’s current and planned future products.
Trademark/trade name relates to the WiLife brand names. The value of the
patents, core technology and trademark/trade name was estimated by capitalizing
the estimated profits saved as a result of acquiring or licensing the asset.
Customer relationships and other relates to WiLife’s existing customer base,
valued based on projected discounted cash flows generated from customers in
place. The intangible assets acquired are amortized on a straight-line basis
over their estimated useful lives. The goodwill associated with the acquisition
is not subject to amortization and is not expected to be deductible for income
tax purposes.




91




---



Note 7 — Balance Sheet
Components




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




March 31,2010
            
            
            2009Accounts receivable:Accounts receivable
            
            $
            349,722
            
            
            $
            339,903Allowance for doubtful accounts
            
            
            (5,870
            )
            
            
            (6,705
            )Allowance for
returns
            
            
            (23,657
            )
            
            
            (28,705
            )Cooperative marketing arrangements
            
            
            (17,527
            )
            
            
            (28,567
            )Customer incentive
      programs
            
            
            (44,306
            )
            
            
            (36,454
            )Pricing programs
            
            
            (63,115
            )
            
            
            (25,543
            )$
            195,247
            
            
            $
            213,929Inventories:Raw materials
            
            $
            31,630
            
            
            $
            30,959Work-in-process
            
            
            86
            
            
            
            19Finished goods
            
            
            187,877
            
            
            
            202,489$
            219,593
            
            
            $
            233,467Other current assets:Tax
      and VAT refund receivables
            
            $
            20,305
            
            
            $
            17,275Deferred taxes
            
            
            27,064
            
            
            
            25,546Prepaid expenses and other
            
            
            11,508
            
            
            
            14,063$
            58,877
            
            
            $
            56,884Property, plant and equipment:Plant, buildings and
      improvements
            
            $
            58,629
            
            
            $
            56,211Equipment
            
            
            112,454
            
            
            
            108,779Computer equipment
            
            
            53,576
            
            
            
            49,532Computer software
            
            
            78,156
            
            
            
            60,259302,815
            
            
            
            274,781Less: accumulated depreciation
            
            
            (224,485
            )
            
            
            (188,371
            )78,330
            
            
            
            86,410Construction-in-progress
            
            
            9,751
            
            
            
            14,708Land
            
            
            3,148
            
            
            
            3,014$
            91,229
            
            
            $
            104,132Other assets:Deferred taxes
            
            $
            45,257
            
            
            $
            27,718Cash surrender value of life
      insurance contracts
            
            
            11,097
            
            
            
            10,685Deposits and other
            
            
            9,576
            
            
            
            5,301$
            65,930
            
            
            $
            43,704Accrued liabilities:Accrued personnel
      expenses
            
            $
            51,378
            
            
            $
            34,373Accrued marketing expenses
            
            
            28,052
            
            
            
            21,984Accrued freight and
    duty
            
            
            12,696
            
            
            
            9,048Income taxes payable - current
            
            
            8,875
            
            
            
            6,828Non-retirement post-employment
      benefit obligations
            
            
            2,761
            
            
            
            4,899Accrued restructuring
            
            
            399
            
            
            
            3,794Other accrued
      liabilities
            
            
            78,175
            
            
            
            50,570$
            182,336
            
            
            $
            131,496Long-term liabilities:Income taxes payable - non-current
            
            $
            116,456
            
            
            $
            101,463Obligation for management
      deferred compensation
            
            
            10,307
            
            
            
            10,499Defined benefit pension plan liability
            
            
            19,343
            
            
            
            19,822Other long-term
      liabilities
            
            
            13,566
            
            
            
            2,744$
            159,672
            
            
            $
            134,528


92




---



The following table presents the changes in
the allowance for doubtful accounts during fiscal years ended March 31, 2010,
2009 and 2008 (in thousands):




March 31,2010
            
            
            2009
            
            
            2008Beginning balance
            
            $
            6,705
            
            
            $
            2,497
            
            
            $
            3,322Bad debt expense
            
            
            (72
            )
            
            
            5,102
            
            
            
            603Write-offs net of recoveries
            
            
            (763
            )
            
            
            (894
            )
            
            
            (1,428
            )Ending balance
            
            $
            5,870
            
            
            $
            6,705
            
            
            $
            2,497


Note 8 — Goodwill and Other Intangible
Assets




The following table summarizes the activity in
the Company’s goodwill account during fiscal years ended March 31, 2010 and 2009
(in thousands):




March 31,2010
            
            
            2009Beginning balance
            
            $
            242,909
            
            
            $
            194,383Additions
            
            
            313,041
            
            
            
            48,526Other adjustments
            
            
            (2,488
            )
            
            
            —Ending balance
            
            $
            553,462
            
            
            $
            242,909


Additions to goodwill during fiscal year 2010
primarily related to our acquisitions of LifeSize and TV Compass. Logitech will
maintain discrete financial information for LifeSize and accordingly, the
acquired goodwill related to the LifeSize acquisition will be separately
evaluated for impairment. TV Compass’s business was fully integrated into the
Company’s existing operations, and discrete financial information for TV Compass
is not maintained. Accordingly, the acquired goodwill related to TV Compass is
evaluated for impairment at the total enterprise level. The adjustment to
goodwill represents an adjustment of the deferred tax asset recognized in
connection with the acquisitions of SightSpeed, Inc. and the Ultimate Ears
companies.




Additions to goodwill during fiscal year 2009
were primarily related to our acquisitions of SightSpeed and Ultimate Ears, as
well as a $2.0 million pre-acquisition contingency related to our WiLife
acquisition.




The Company has integrated SightSpeed’s,
Ultimate Ears’ and WiLife’s businesses into its existing operations, and
discrete financial information for these companies is not maintained.
Accordingly, the acquired goodwill is evaluated for impairment at the total
enterprise level. The Company maintains discrete financial information for
3DConnexion and LifeSize and determines impairment of the goodwill for these
units acquired at the entity level.




The Company performs its annual goodwill
impairment test during its fourth fiscal quarter or more frequently if events or
circumstances indicate that an impairment may have occurred. Based on impairment
tests performed, there has been no impairment of the Company’s goodwill to
date.




93




---



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




March 31, 2010
            
            March 31, 2009Gross Carrying
            
            Accumulated
            
            Net Carrying
            
            Gross
      Carrying
            
            Accumulated
            
            Net CarryingAmount
            
            Amortization
            
            Amount
            
            Amount
            
            Amortization
            
            AmountTrademark/tradename
            
            
            $
            32,051
            
            
            
            $
            (20,421
            )
            
            
            
            $
            11,630
            
            
            
            $
            24,398
            
            
            
            $
            (18,559
            )
            
            
            
            $
            5,839Technology
            
            
            
            87,968
            
            
            
            
            (36,033
            )
            
            
            
            
            51,935
            
            
            
            
            49,268
            
            
            
            
            (26,598
            )
            
            
            
            
            22,670Customer contracts
            
            
            
            38,517
            
            
            
            
            (6,686
            )
            
            
            
            
            31,831
            
            
            
            
            7,018
            
            
            
            
            (3,418
            )
            
            
            
            
            3,600$
            158,536
            
            
            
            $
            (63,140
            )
            
            
            
            $
            95,396
            
            
            
            $
            80,684
            
            
            
            $
            (48,575
            )
            
            
            
            $
            32,109


During fiscal year 2010, changes in the gross
carrying value of other intangible assets related primarily to our acquisitions
of LifeSize and TV Compass. During fiscal year 2009, changes in the gross
carrying amount of other intangible assets related to our acquisitions of
SightSpeed and Ultimate Ears, patent rights acquired pursuant to a patent
settlement agreement, and foreign currency translation adjustments.




For fiscal years 2010, 2009 and 2008,
amortization expense for other intangible assets was $14.5 million, $8.2 million
and $5.4 million. The Company expects that annual amortization expense for the
fiscal years ending 2011, 2012, 2013, 2014 and 2015 will be $27.1 million, $24.7
million, $21.6 million, $15.5 million and $6.1 million, and $0.4 million
thereafter.




Note 9 — Financing
Arrangements




The Company had several uncommitted, unsecured
bank lines of credit aggregating $151.9 million at March 31, 2010. There are no
financial covenants under these lines of credit with which the Company must
comply. At March 31, 2010, the Company had no outstanding borrowings under these
lines of credit.




Note 10 — Shareholders’
Equity




Share Capital




The Company’s nominal share capital is CHF
47,901,655, consisting of 191,606,620 shares with a par value of CHF 0.25 each,
all of which were issued and 16,435,528 of which were held in treasury as of
March 31, 2010.




In September 2008, the Company’s shareholders
approved an amendment to the Company’s Articles of Incorporation which decreased
the conditional capital reserved for potential issuance on the exercise of
rights granted under the Company’s employee equity incentive plans from
60,661,860 shares to 25,000,000 shares. The Board of Directors determined that
the reduced amount of conditional capital, together with a portion of its shares
held in treasury, was adequate to cover employee equity incentives without
impacting the ability of the Company to maintain employee equity incentive
plans.




In September 2008, the shareholders also
approved the creation of conditional capital representing the issuance of up to
25,000,000 shares to cover any conversion rights under a future convertible bond
issuance. This conditional capital was created in order to provide financing
flexibility for future expansion, investments or acquisitions.




Dividends




Pursuant to Swiss corporate law, Logitech
International S.A. may only pay dividends in Swiss francs. The payment of
dividends is limited to certain amounts of unappropriated retained earnings (CHF
349.3 million or $329.8 million based on exchange rates at March 31, 2010) and
is subject to shareholder approval.




94




---



Legal Reserves




Under Swiss corporate law, a minimum of 5% of
the Company’s annual net income must be retained in a legal reserve until this
legal reserve equals 20% of the Company’s issued and outstanding aggregate par
value per share capital. These legal reserves represent an appropriation of
retained earnings that are not available for distribution and totaled $9.0
million at March 31, 2010 (based on exchange rates at March 31,
2010).




Additionally, under Swiss corporate law, the
Company is required to establish a reserve equal to the amount of treasury
shares repurchased at year-end. The reserve for treasury shares, which is not
available for distribution, totaled $396.3 million at March 31,
2010.




Share Repurchases




During fiscal years 2010, 2009 and 2008, the
Company had the following approved share buyback programs in place (in
thousands):




ApprovedBuyback
            
            Expiration
            
            
            
            AmountDate of Announcement
            
            
            Amount
            
            Date
            
            Completion Date
            
            RemainingJune 2007
            
            $250,000
            
            June 2010
            
            March 2010
            
            $—May 2006
            
            $250,000
            
            June
      2009
            
            February 2008
            
            $—


The Company repurchased shares under
these buyback programs as follows (in thousands):




Amounts Repurchased During Year ended
      March 31,(1)Program to date
            
            2010
            
            2009
            
            2008Date of Announcement
            
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountJune 2007
            
            11,978
            
            $
            250,555
            
            7,425
            
            $
            126,301
            
            2,803
            
            $
            78,870
            
            
            1,750
            
            
            $
            45,384May 2006
            
            8,760
            
            
            250,968
            
            —
            
            
            —
            
            —
            
            
            —
            
            
            6,034
            
            
            
            174,35820,738
            
            $
            501,523
            
            7,425
            
            $
            126,301
            
            2,803
            
            $
            78,870
            
            
            7,784
            
            
            $
            219,742


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


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 Company has not
started repurchases under the September 2008 program.




Note 11 — Accumulated Other Comprehensive
Loss




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




March 31,2010
            
            2009Cumulative translation
    adjustment
            $
            (63,646
            )
            
            $
            (66,399
            )Pension liability adjustments, net of tax of $936 and
$990
            
            (10,813
            )
            
            
            (15,122
            )Unrealized gain on investments
            
            424
            
            
            
            424Net deferred hedging gains
            
            1,394
            
            
            
            216$
            (72,641
            )
            
            $
            (80,881
            )


95




---



Note 12 — 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 three months ended March 31,
2009. As part of this restructuring plan, the Company reduced its salaried
workforce by approximately 500 employees. All charges related to the 2009
Restructuring Plan are presented as restructuring charges in our consolidated
statements of income.
  The following table summarizes
restructuring related activities during fiscal years 2010 and 2009 (in
thousands):
  ContractTermination
              
              Asset
              
              TerminationTotal
              
              Benefits
              
              Impairments
              
              Costs
              
              OtherBalance at March 31, 2008
              
              $
              —
              
              
              $
              —
              
              
              
              $
              —
              
              
              
              $
              —
              
              
              $
              —Charges
              
              
              20,547
              
              
              
              16,427
              
              
              
              
              556
              
              
              
              
              200
              
              
              
              3,364Cash payments
              
              
              (12,764
              )
              
              
              (12,579
              )
              
              
              
              —
              
              
              
              
              (185
              )
              
              
              —Charges against
    assets
              
              
              (556
              )
              
              
              —
              
              
              
              
              (556
              )
              
              
              
              —
              
              
              
              —Other
              
              
              (3,485
              )
              
              
              (121
              )
              
              
              
              —
              
              
              
              
              —
              
              
              
              (3,364
              )Foreign exchange
              
              
              52
              
              
              
              52
              
              
              
              
              —
              
              
              
              
              —
              
              
              
              —Balance at March 31, 2009
              
              $
              3,794
              
              
              $
              3,779
              
              
              
              $
              —
              
              
              
              $
              15
              
              
              $
              —Charges
              
              
              1,784
              
              
              
              1,318
              
              
              
              
              —
              
              
              
              
              419
              
              
              
              47Cash payments
              
              
              (5,194
              )
              
              
              (5,098
              )
              
              
              
              —
              
              
              
              
              (96
              )
              
              
              —Other
              
              
              (86
              )
              
              
              53
              
              
              
              
              —
              
              
              
              
              (4
              )
              
              
              (135
              )Foreign exchange
              
              
              101
              
              
              
              106
              
              
              
              
              —
              
              
              
              
              —
              
              
              
              (5
              )Balance at March 31,
      2010
              
              $
              399
              
              
              $
              158
              
              
              
              $
              —
              
              
              
              $
              334
              
              
              $
              (93
              )
  Termination benefits incurred pursuant to
the 2009 Restructuring Plan were calculated based on regional benefit practices
and local statutory requirements. Asset impairments were recorded to write down
fixed assets that were not placed in service due to the abandonment of the
related projects. Contract termination costs related to exit costs associated
with the closure of existing facilities. Other charges primarily consisted of
pension curtailment and settlement costs of $3.4 million which are reflected in
other charges in the preceding table, as the corresponding balance sheet amounts
were reflected as a reduction of pension assets. We completed the 2009
Restructuring Plan in fiscal 2010.
  Note 13 — Employee Benefit
Plans
  Employee Share Purchase Plans and Stock Incentive
Plans
  As of March 31, 2010, the Company offers
the 2006 Employee Share Purchase Plan (Non-U.S.) (“2006 ESPP”), the 1996
Employee Share Purchase Plan (U.S.) (“1996 ESPP”), the 2006 Stock Incentive
Plan, and the LifeSize Communications, Inc. 2003 Stock Option 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.
As part of the LifeSize acquisition, Logitech assumed all outstanding unvested
LifeSize stock options and unvested restricted stock held by continuing LifeSize
employees at December 11, 2009. The stock options and restricted stock continue
to have the same terms and conditions as under LifeSize’s option
plan.
  96
     Under the 1996 ESPP and 2006 ESPP plans,
eligible employees may purchase shares at the lower of 85% of the fair market
value at the beginning or the end of each six-month offering period. Subject to
continued participation in these plans, purchase agreements are automatically
executed at the end of each offering period. A total of 16,000,000 shares have
been reserved for issuance under both the 1996 and 2006 ESPP plans. As of March
31, 2010, a total of 2,772,075 shares were available for issuance under these
plans.
  On June 16, 2006, Logitech’s shareholders
approved adoption of the 2006 Stock Incentive Plan (the “2006 Plan”) with an
expiration date of June 16, 2016. The 2006 Plan provides for the grant to
eligible employees and non-employee directors of stock options, stock
appreciation rights, restricted stock and restricted stock units, which are
bookkeeping entries reflecting the equivalent of shares. Stock options granted
under the 2006 Plan will generally vest over three years for non-executive
Directors and over four years for employees. All stock options under this plan
will have terms not exceeding ten years and will be issued at exercise prices
not less than the fair market value on the date of grant. Awards under the 2006
Plan may be conditioned on continued employment, the passage of time or the
satisfaction of performance vesting criteria. An aggregate of 17,500,000 shares
was reserved for issuance under the 2006 Plan. As of March 31, 2010, a total of
5,664,605 shares were available for issuance under this plan.
  The Company assumed the LifeSize
Communications, Inc. 2003 Stock Option Plan as part of its acquisition of
LifeSize in December 2009. Under this plan, the Company may issue options to
purchase Logitech shares to employees of LifeSize. As of March 31, 2010, a total
of 215,813 shares were available for issuance under this plan.
  The following table summarizes the share-based
compensation expense and related tax benefit recognized for fiscal years 2010
and 2009 (in thousands).
  Year EndedMarch 31,2010
              
              2009Cost of goods sold
              $
              3,073
              
              $
              3,163Share-based compensation expense included in gross profit
              
              3,073
              
              
              3,163Operating expenses:Marketing and
selling
              
              9,201
              
              
              7,989Research and development
              
              4,902
              
              
              4,488General and
      administrative
              
              8,631
              
              
              8,863Share-based compensation expense
      included inoperating expenses
              
              22,734
              
              
              21,340Total share-based compensation expense related to
employeestock options, RSUs and
      employee stock purchases
              
              25,807
              
              
              24,503Tax benefit
              
              5,768
              
              
              3,102Share-based compensation expense related to employee
stockoptions, RSUs and employee
      stock purchases, net of tax
              $
              20,039
              
              $
              21,401
  As of March 31, 2010 and 2009, $0.9 million
and $0.8 million of share-based compensation cost was capitalized to inventory.
As of March 31, 2010, total compensation cost related to non-vested stock
options not yet recognized was $53.8 million, which is expected to be recognized
over the next 31 months on a weighted-average basis.
  97
     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:
  Year ended March 31,2010
              
              2009
              
              2008
              
              2010
              
              2009
              
              2008Purchase Plans
              
              Stock Option PlansDividend yield
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %Expected life
              
              6 months
              
              
              6 months
              
              
              6 months
              
              
              3.3 years
              
              
              3.7 years
              
              
              3.8 yearsExpected volatility
              
              59
              %
              
              63
              %
              
              38
              %
              
              47
              %
              
              36
              %
              
              33
              %Risk-free interest rate
              
              0.19
              %
              
              1.23
              %
              
              4.23
              %
              
              1.64
              %
              
              2.40
              %
              
              4.01
              %
  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 volatility. The risk-free interest rate
assumptions are based upon the implied yield of U.S. Treasury zero-coupon issues
appropriate for the term of the Company’s stock options or purchase
offerings.
  The Company estimates forfeitures at the time
of grant and revises those estimates in subsequent periods if actual forfeitures
differ from those estimates. The Company uses historical data to estimate
pre-vesting option forfeitures and records share-based compensation expense only
for those awards that are expected to vest.
  The following table represents the weighted
average grant-date fair values of options granted and the expected forfeiture
rates:
  Year ended March 31,2010
              
              2009
              
              2008
              
              2010
              
              2009
              
              2008Purchase Plans
              
              Stock Option PlansWeighted average grant-date fair value
      of options granted
              
              $
              4.23
              
              
              $
              5.46
              
              
              $
              7.63
              
              
              $
              6.66
              
              
              $
              6.25
              
              
              $
              9.14Expected forfeitures
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %
              
              
              9
              %
              
              
              7
              %
              
              
              7
              %
  A summary of activity under the share-based
compensation plans is as follows (in thousands, except per share data; exercise
prices are weighted averages):
  Year ended March 31,2010
              
              2009
              
              2008Exercise
              
              
              
              
              Exercise
              
              
              
              
              ExerciseNumber
              
              Price
              
              Number
              
              Price
              
              Number
              
              PriceOutstanding, beginning of year
              
              18,991
              
              
              
              $
              18
              
              
              17,952
              
              
              
              $
              17
              
              
              18,876
              
              
              
              $
              12Granted
              
              3,902
              
              
              
              $
              14
              
              
              4,239
              
              
              
              $
              21
              
              
              3,890
              
              
              
              $
              30Assumed in LifeSize
acquisition
              
              1,078
              
              
              
              $
              5
              
              
              —
              
              
              
              $
              —
              
              
              —
              
              
              
              $
              —Exercised
              
              (1,980
              )
              
              
              $
              8
              
              
              (2,037
              )
              
              
              $
              9
              
              
              (4,162
              )
              
              
              $
              9Cancelled or expired
              
              (1,440
              )
              
              
              $
              23
              
              
              (1,163
              )
              
              
              $
              24
              
              
              (652
              )
              
              
              $
              21Outstanding, end of year
              
              20,551
              
              
              
              $
              17
              
              
              18,991
              
              
              
              $
              18
              
              
              17,952
              
              
              
              $
              17Exercisable, end of year
              
              11,303
              
              
              
              $
              17
              
              
              10,981
              
              
              
              $
              14
              
              
              9,934
              
              
              
              $
              12
  98
     The total pretax intrinsic value of options
exercised during the fiscal years ended March 31, 2010, 2009 and 2008 was $15.0
million, $33.2 million and $84.9 million and the tax benefit realized for the
tax deduction from options exercised during those periods was $3.9 million, $8.5
million and $22.5 million. The total fair value of options vested as of March
31, 2010, 2009 and 2008 was $66.4 million, $57.7 million and $42.9
million.
  The following table summarizes significant
ranges of outstanding and exercisable options as of March 31, 2010 (in thousands
except per share data; exercise prices and contractual lives are weighted
averages):
  Options Outstanding
              
              Options ExercisableRange of Exercise
              
              
              
              Exercise
              
              Contractual
              
              Aggregate
              
              
              
              Exercise
              
              Contractual
              
              AggregatePrices
              
              Number
              
              Price
              
              Life (years)
              
              Intrinsic
      Value
              
              Number
              
              Price
              
              Life (years)
              
              Intrinsic
      Value$
              1.00 —$11.45
              
              
              5,910
              
              
              $
              8
              
              
              4.6
              
              
              $
              51,527
              
              
              4,397
              
              
              $
              9
              
              
              3.2
              
              
              $
              31,656$
              11.46 —$16.35
              
              
              5,546
              
              
              $
              14
              
              
              7.6
              
              
              
              11,508
              
              
              1,948
              
              
              $
              14
              
              
              4.5
              
              
              
              4,827$
              16.36
      —$23.35
              
              
              5,455
              
              
              $
              21
              
              
              7.2
              
              
              
              —
              
              
              3,083
              
              
              $
              21
              
              
              6.3
              
              
              
              —$
              23.36 —$50.00
              
              
              3,640
              
              
              $
              29
              
              
              7.4
              
              
              
              —
              
              
              1,875
              
              
              $
              29
              
              
              7.3
              
              
              
              —$
              1.00
      —$50.00
              
              
              20,551
              
              
              $
              17
              
              
              6.6
              
              
              $
              63,035
              
              
              11,303
              
              
              $
              17
              
              
              5.0
              
              
              $
              36,483
  The aggregate intrinsic value in the preceding
table represents the total pretax intrinsic value, based on options with an
exercise price less than the Company’s closing price of $16.34 at March 31,
2010, which would have been received by the option holders had these option
holders exercised their options as of that date. The total number of fully
vested in-the-money options exercisable as of March 31, 2010 was 6,195,058. As
of March 31, 2010, 9,247,646 options were unvested, of which 8,385,765 are
expected to vest, based on an estimated forfeiture rate of 9%.
  During fiscal year 2010, the Company granted
266,560 time-based RSUs to employees and board members pursuant to the 2006
Stock Incentive Plan. These RSUs had a weighted average grant date fair value of
$14.83 per unit. The time-based RSUs granted to employees vest in four equal
annual installments on the grant date anniversary. The time-based RSUs granted
to non-executive board members vest in one annual installment on the grant date
anniversary. 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 March 31, 2010,
total compensation cost related to time-based RSUs not yet recognized was $2.2
million, which is expected to be recognized over the next 39
months.
  During fiscal years 2010 and 2009, the Company
granted 115,000 and 93,750 RSUs to certain senior executives pursuant to the
2006 Stock Incentive Plan. These RSUs had a grant date fair value of $18.18 and
$27.90 per unit. 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 will be recognized over
the two year vesting period and is included in the total share-based
compensation expense disclosed above. As of March 31, 2010, total compensation
cost not yet recognized related to these RSUs was $1.9 million, which is
expected to be recognized over the next 15 months.
  The fair value of these RSUs was estimated
using the Monte-Carlo simulation model applying the following
assumptions:
  FY 2010
              
              FY 2009Grants
              
              GrantsDividend yield
              0
              %
              
              0
              %Expected life
              2 years
              
              
              2 yearsExpected volatility
              58
              %
              
              41
              %Risk-free interest rate
              1.11
              %
              
              1.82
              %
  99
     The dividend yield assumption is based on the
Company’s history and future expectations of dividend payouts. The expected life
of these RSUs is the service period at the end of which the RSUs will vest if
the performance conditions are satisfied. 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 US
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 fiscal years 2010, 2009 and 2008, were $8.2 million,
$8.3 million and $7.0 million.
  Defined Benefit Plans
  Certain of the Company’s subsidiaries sponsor
defined benefit pension plans or non-retirement post-employment benefits
covering substantially all of their employees. Benefits are provided based on
employees’ years of service and earnings, or in accordance with applicable
employee benefit regulations. The Company’s practice is to fund amounts
sufficient to meet the requirements set forth in the applicable employee benefit
and tax regulations.
  The Company recognizes the underfunded or
overfunded status of defined benefit pension plans and non-retirement
post-employment benefit obligations as an asset or liability in its statement of
financial position, and recognizes changes in the funded status of defined
benefit pension plans in the year in which the changes occur through accumulated
other comprehensive loss, which is a component of stockholders’ equity. Each
plan’s assets and benefit obligations are measured as of March 31.
  In fiscal year 2009, the Company added a
defined benefit pension plan in Japan, and amended the existing plan in
Switzerland. In addition, the restructuring which occurred in the fourth quarter
of fiscal year 2009 resulted in a curtailment of benefits and a settlement
transaction related to the terminated employees who participated in the existing
defined benefit pension plans.
  The net periodic benefit cost for
fiscal years 2010 and 2009 was as follows (in thousands):
  Year ended March 31,2010
              
              2009Service cost
              $
              3,983
              
              
              $
              2,814Interest cost
              
              1,430
              
              
              
              1,520Expected return on plan assets
              
              (1,200
              )
              
              
              (1,488
              )Amortization of net transition obligation
              
              4
              
              
              
              5Amortization of net prior service
      cost
              
              138
              
              
              
              —Recognized net actuarial loss
              
              1,239
              
              
              
              232Net periodic benefit cost
              $
              5,594
              
              
              $
              3,083
  Additional benefit costs of $3.4 million
related to the restructuring were recognized in restructuring expenses in fiscal
year 2009.
  100
     The changes in projected benefit obligations for fiscal years 2010 and
2009 were as follows (in thousands):
  March 31,2010
              
              2009Projected benefit obligation, beginning
      of year
              $
              48,135
              
              
              $
              51,632Service cost
              
              3,983
              
              
              
              2,814Interest cost
              
              1,430
              
              
              
              1,520Plan participant contributions
              
              1,848
              
              
              
              1,656Actuarial (gain) loss due to assumption
      changes
              
              (994
              )
              
              
              3,828Actuarial loss due to plan experience
              
              916
              
              
              
              776Benefits paid
              
              (1,037
              )
              
              
              (1,413
              )Plan amendments
              
              —
              
              
              
              2,590Settlement/curtailment
              
              —
              
              
              
              (9,503
              )Initial adoption of Japanese plan
              
              —
              
              
              
              431Administrative expense paid
              
              (177
              )
              
              
              (183
              )Foreign currency exchange rate changes
              
              3,427
              
              
              
              (6,013
              )Projected benefit
      obligation, end of year
              $
              57,531
              
              
              $
              48,135
  The accumulated benefit obligation for all
defined benefit pension plans as of March 31, 2010 and 2009 was $46.3 million
and $39.0 million.
  The following table presents the changes in
the fair value of defined benefit pension plan assets for fiscal years 2010 and
2009 (in thousands):
  March 31,2010
              
              2009Fair value of plan assets, beginning of
      year
              $
              23,415
              
              
              $
              35,059Actual return on plan assets
              
              5,267
              
              
              
              (4,928
              )Employer contributions
              
              4,137
              
              
              
              3,531Plan participant contributions
              
              1,848
              
              
              
              1,656Benefits paid
              
              (864
              )
              
              
              (1,413
              )Settlement
              
              —
              
              
              
              (6,580
              )Initial adoption of Japanese
    plan
              
              —
              
              
              
              244Administrative expenses paid
              
              (177
              )
              
              
              (183
              )Foreign currency exchange rate
      changes
              
              1,801
              
              
              
              (3,971
              )Fair value of plan
      assets, end of year
              $
              35,427
              
              
              $
              23,415
  The defined benefit pension plans have the
following asset allocations. Investment strategies and allocation decisions are
determined by the applicable governmental regulatory agency.
  March 31,2010
              
              2009Equity securities
              34.8
              %
              
              24.4
              %Debt securities
              43.6
              %
              
              53.2
              %Real estate
              10.7
              %
              
              5.3
              %Other
              10.9
              %
              
              17.1
              %100.0
              %
              
              100.0
              %
  101
     The funded status of the defined benefit
pension plans is the fair value of plan assets as determined by the governmental
regulatory agency less benefit obligations. The funded status of the
non-retirement post-employment benefits is the fair value of the benefit
obligations. Projected benefit obligations exceeded plan assets for all plans by
$22.1 million and $24.7 million as of March 31, 2010 and 2009. Amounts
recognized on the balance sheet for the plans were as follows (in
thousands):
  March 31,2010
              
              2009Current assets
              $
              936
              
              
              $
              990Current liabilities
              
              (2,761
              )
              
              
              (4,899
              )Non-current
      liabilities
              
              (19,343
              )
              
              
              (19,822
              )Net
liability
              $
              (21,168
              )
              
              $
              (23,731
              )
  Amounts recognized in other comprehensive
income related to defined benefit pension plans were as follows (in
thousands):
  March 31,2010
              
              2009Net prior service cost
              $
              2,075
              
              
              $
              2,077Net actuarial loss
              
              9,641
              
              
              
              14,000Amortization of
      net transition obligation
              
              33
              
              
              
              35Accumulated other comprehensive income
              
              11,749
              
              
              
              16,112Deferred tax benefit
              
              (936
              )
              
              
              (990
              )Accumulated other comprehensive loss, net of tax
              $
              10,813
              
              
              $
              15,122
  Changes in accumulated other comprehensive
loss related to the defined benefit pension plans were as follows (in
thousands):
  March 31,2010
              
              2009Accumulated other comprehensive loss,
      beginning of year
              $
              15,122
              
              
              $
              9,067Transition obligation recognized
              
              (4
              )
              
              
              (5
              )Prior service cost recognized
              
              (120
              )
              
              
              —Loss recognized
              
              (1,276
              )
              
              
              (415
              )Settlement/curtailment loss
      recognized
              
              —
              
              
              
              (6,225
              )Prior service cost occurred
              
              —
              
              
              
              2,443(Gain) loss occurred
              
              (4,143
              )
              
              
              10,812Deferred tax expense (benefit)
              
              122
              
              
              
              (182
              )Foreign currency exchange rate
      changes
              
              1,112
              
              
              
              (373
              )Accumulated other comprehensive loss, end of year
              $
              10,813
              
              
              $
              15,122
  102
     The following table presents the
amounts included in accumulated other comprehensive loss as of March 31, 2010,
which are expected to be recognized as a component of net periodic benefit cost
in fiscal year 2010 (in thousands):
  Amortization of net transition
      obligation
              $
              5Amortization of net prior service costs
              
              142Amortization of net actuarial
    loss
              
              362$
              509
  The Company reassesses its benefit
plan assumptions on a regular basis. The actuarial assumptions for the pension
plans for fiscal years 2010 and 2009 are as follows:
  2010
              
              2009Benefit Obligation
              
              Periodic Cost
              
              Benefit Obligation
              
              Periodic CostDiscount rate
              
              2.00% to 3.25%
              
              2.00% to 3.00%
              
              2.00% to 3.00%
              
              2.50% to 3.50%Estimated rate ofcompensation
increase
              
              2.50% to
      5.00%
              
              2.50% to
      5.00%
              
              2.50% to
      4.00%
              
              2.50% to
      4.25%Expected average rate ofreturn on plan assets
              
              1.00% to 4.75%
              
              1.00% to 4.25%
              
              1.00% to 4.25%
              
              2.75% to 4.75%
  The discount rate is estimated based
on corporate bond yields or securities of similar quality in the respective
country, with a duration approximating the period over which the benefit
obligations are expected to be paid. The Company bases the compensation increase
assumptions on historical experience and future expectations. The expected
average rate of return for the Company’s defined benefit pension plans
represents the average rate of return expected to be earned on plan assets over
the period that the benefit obligations are expected to be paid, based on
government bond notes in the respective country, adjusted for corporate risk
premiums as appropriate.
  The following table reflects the
benefit payments that the Company expects the plans to pay in the periods noted
(in thousands):
  Year ending March 31,2011
              $
              3,1642012
              
              3,2412013
              
              3,2642014
              
              3,2572015
              
              3,240Thereafter
              
              16,098$
              32,264
  The Company expects to contribute
approximately $5.9 million to its defined benefit pension plans during fiscal
year 2011.
  Deferred Compensation Plan
  One of the Company’s subsidiaries
offers a management deferred compensation plan which permits eligible employees
to make 100%-vested salary and incentive compensation deferrals within
established limits, which are invested in Company-owned life insurance contracts
held in a Rabbi Trust. The Company does not make contributions to the plan. The
cash surrender value of the insurance contracts was approximately $10.4 million
at March 31, 2010 and 2009 and trust cash balances were $0.7 million and $0.3
million at March 31, 2010 and 2009. The fair value of the plan’s assets was
included in other assets in the statements of financial position. Expenses and
gains or losses related to the insurance contracts are included in other income
(expense), net and have not been significant to date. The unsecured obligation
to pay the compensation deferred, adjusted to reflect the positive or negative
performance of investment measurement options selected by each participant, was
approximately $10.3 million and $10.5 million at March 31, 2010 and 2009 and was
included in other liabilities. The additional compensation expenses related to
investment performance have not been significant to date.
  103
     Note 14 — 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.
  Income before income taxes for the fiscal
years ended March 31, 2010, 2009 and 2008 is summarized as follows (in
thousands):
  Year ended March 31,2010
              
              2009
              
              2008Income before income taxes:Swiss
              
              $
              13,352
              
              $
              40,717
              
              $
              145,403Non-Swiss
              
              
              70,271
              
              
              86,076
              
              
              117,411Total
              
              $
              83,623
              
              $
              126,793
              
              $
              262,814
  The provision for
income taxes is summarized as follows (in thousands):
  Year ended March 31,2010
              
              2009
              
              2008Current:Swiss
              
              $
              1,463
              
              
              $
              53
              
              
              $
              2,509Non-Swiss
              
              
              22,279
              
              
              
              32,274
              
              
              
              31,055Deferred:Swiss
              
              
              —
              
              
              
              (36
              )
              
              
              (75
              )Non-Swiss
              
              
              (5,076
              )
              
              
              (12,530
              )
              
              
              (1,701
              )Total
              
              $
              18,666
              
              
              $
              19,761
              
              
              $
              31,788
  The difference between the provision for
income taxes and the expected tax provision at the statutory income tax rate is
reconciled below (in thousands):
  Year ended March 31,2010
              
              2009
              
              2008Expected tax provision at statutory
      income tax rates
              
              $
              7,108
              
              
              $
              10,777
              
              
              $
              22,339Income taxes at different rates
              
              
              10,473
              
              
              
              9,370
              
              
              
              12,245Research and development tax
      credits
              
              
              (1,628
              )
              
              
              (2,524
              )
              
              
              (1,572
              )Unrealized investment income
              
              
              (428
              )
              
              
              1,004
              
              
              
              (248
              )Stock compensation
              
              
              713
              
              
              
              618
              
              
              
              423Transaction costs
              
              
              1,257
              
              
              
              —
              
              
              
              —Other
              
              
              1,171
              
              
              
              516
              
              
              
              (1,399
              )Total provision for income taxes
              
              $
              18,666
              
              
              $
              19,761
              
              
              $
              31,788
  104
     The Company has negotiated a tax holiday on
certain earnings in China which is effective from January 2006 through December
2010. The tax holiday represents a tax exemption aimed to attract foreign
technological investment in China. The tax holiday decreased income tax expense
by approximately $2.4 million and $4.0 million for fiscal years 2010 and 2009.
The benefit of the tax holiday on net income per share (diluted) was
approximately $0.01 and $0.02 in fiscal years 2010 and 2009.
  The U.S. Federal research tax credit expired
as of December 31, 2009. The U.S. House of Representatives in December 2009 and
the U.S. Senate in March 2010 passed different draft legislation which would
extend the tax credit for an additional year, however the extension has not yet
passed into law as of March 31, 2010. Accordingly, the Company’s income tax
provision for fiscal year 2010 includes a $0.9 million tax benefit for federal
research tax credit calculated through December 31, 2010.
  The U.S. state of California has enacted
legislation affecting the methodology which must be used by corporate taxpayers
to apportion income to California. These changes will become effective for our
fiscal year ending March 31, 2012. Although the Company has significant
operations in California, we believe these changes will not have a material
impact on our results of operations or financial condition.
  Deferred income tax assets and
liabilities consist of the following (in thousands):
  March 31,2010
              
              2009Deferred tax assets:Net operating loss
      carryforwards
              $
              40,878
              
              
              $
              8,781Tax credit carryforwards
              
              3,367
              
              
              
              —Accruals
              
              35,346
              
              
              
              35,610Depreciation and amortization
              
              11,473
              
              
              
              8,100Share-based compensation
              
              17,438
              
              
              
              11,983Gross deferred tax assets
              
              108,502
              
              
              
              64,474Deferred tax liabilities:Acquired intangible assets
              
              (37,264
              )
              
              
              (11,462
              )Gross deferred tax liabilities
              
              (37,264
              )
              
              
              (11,462
              )Net deferred tax assets
              $
              71,238
              
              
              $
              53,012
  The current and deferred tax provision is
calculated based on estimates and assumptions that could differ from the actual
results reflected in income tax returns filed. Adjustments for differences
between the tax provisions and tax returns are recorded when identified, which
is generally in the third or fourth quarter of the subsequent year.
  Management regularly assesses the ability to
realize deferred tax assets recorded in the Company’s entities based upon the
weight of available evidence, including such factors as recent earnings history
and expected future taxable income. In the event that future taxable income is
below management’s estimates or is generated in tax jurisdictions different than
projected, the Company could be required to establish a valuation allowance for
deferred tax assets. This would result in an increase in the Company’s effective
tax rate.
  Deferred tax assets relating to tax benefits
of employee stock option grants and RSUs have been reduced to reflect exercises
in fiscal years 2010 and 2009. Some exercises resulted in tax deductions in
excess of previously recorded benefits based on the option value at the time of
grant (“windfalls”). Although these additional tax benefits are reflected in net
operating loss carryforwards, the additional tax benefit associated with the
windfall is not recorded until the deduction reduces cash taxes payable. During
fiscal years 2010 and 2009, the Company recorded a credit to equity of $0.3
million and $15.3 million.
  105
     As of March 31, 2010, the Company had foreign
net operating loss and tax credit carryforwards for income tax purposes of
$332.4 million and $22.3 million. Approximately $168.1 million of the net
operating loss carryforwards and $20.2 million of the tax credit carryforwards,
if realized, will be credited to equity since they have not met the applicable
realization criteria. Unused net operating loss carryforwards will expire at
various dates in fiscal years 2014 to 2031, and the tax credit carryforwards
will begin to expire in fiscal year 2012.
  Swiss income taxes and non-Swiss withholding
taxes associated with the repatriation of earnings or for other temporary
differences related to investments in non-Swiss subsidiaries have not been
provided for, as the Company intends to reinvest the earnings of such
subsidiaries indefinitely or the Company has concluded that no additional tax
liability would arise on the distribution of such earnings. If these earnings
were distributed to Switzerland in the form of dividends or otherwise, or if the
shares of the relevant non-Swiss subsidiaries were sold or otherwise
transferred, the Company may be subject to additional Swiss income taxes and
non-Swiss withholding taxes. Determination of the amount of unrecognized
deferred income tax liability related to these earnings is not
practicable.
  The Company follows a two-step approach to
recognizing and measuring uncertain tax positions. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon ultimate
settlement.
  As of March 31, 2010, the total amount of
unrecognized tax benefits was $125.2, of which $101.4 million would affect the
effective income tax rate if realized. The Company classified $2.4 million of
unrecognized tax benefits as current income taxes payable as the Company
anticipates payment within the next 12 months. The remainder of the unrecognized
tax benefits is classified as non-current income taxes payable.
  The aggregate changes in gross
unrecognized tax benefits were as follow (in thousands):
  Beginning balance as of April 1, 2007
      (date of adoption)
              $
              82,435Lapse of statute of limitations
              
              (1,202
              )Decreases in balances related to tax
      positions taken during prior periods
              
              (6,471
              )Increases in balances related to tax positions taken during the
      current period
              
              17,885Balance as of March 31, 2008
              $
              92,647Lapse of statute of limitations
              
              (1,978
              )Decreases in balances related to tax
      positions taken during prior periods
              
              —Increases in balances related to tax positions taken during the
      current period
              
              6,958Balance as of March 31, 2009
              $
              97,627Lapse of statute of limitations
              
              (3,667
              )Decreases in balances related to tax
      positions taken during prior periods
              
              (229
              )Increases in balances related to tax positions taken during the
      prior period
              
              2,690Increases in balances related to tax
      positions taken during the current period
              
              17,207Balance as of March 31, 2010
              $
              113,628
  The Company continues to recognize interest
and penalties related to unrecognized tax positions in income tax expense. The
Company recognized $1.9 million, $1.8 million and $1.6 million in interest and
penalties in income tax expense during fiscal years 2010, 2009 and 2008. As of
March 31, 2010, 2009 and 2008, the Company had approximately $12.5 million,
$10.7 million and $8.8 million of accrued interest and penalties related to
uncertain tax positions.
  106
     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 U.S. Internal
Revenue Service initiated an examination of the Company’s U.S. subsidiary for
fiscal year 2006. During the third quarter of fiscal year 2010, the Internal
Revenue Service expanded its examination to include fiscal year 2007. At this
time it is not possible to estimate the potential impact that the examination
may have on income tax expense. The Company is also under examination in other
foreign jurisdictions.
  Although the Company has adequately provided
for uncertain tax positions, the provisions on these positions may change as
revised estimates are made or the underlying matters are settled or otherwise
resolved. Within the next 12 months, the Company anticipates that it is
reasonably possible that unrecognized tax benefits may decrease due to the
resolution of income tax audits with foreign governments. However, an estimate
of such decreases cannot reasonably be made as of March 31, 2010.
  Note 15 — Derivative Financial Instruments –
Foreign Exchange Hedging
  Cash Flow Hedges
  The Company enters into foreign exchange
forward contracts to hedge against exposure to changes in foreign currency
exchange rates related to its subsidiaries’ forecasted inventory purchases. The
primary risk managed by using derivative instruments is the foreign currency
exchange rate risk. The Company has designated these derivatives as cash flow
hedges. Logitech does not use derivative financial instruments for trading or
speculative purposes. These hedging contracts 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 Company assesses the effectiveness of the hedges by
comparing changes in the spot rate of the currency underlying the forward
contract with changes in the spot rate of the currency in which the forecasted
transaction will be consummated. If the underlying transaction being hedged
fails to occur or if a portion of the hedge does not generate offsetting changes
in the foreign currency exposure of forecasted inventory purchases, the Company
immediately recognizes the gain or loss on the associated financial instrument
in other income (expense). Such losses were immaterial during the fiscal years
ended March 31, 2010 and 2009. The notional amounts of foreign exchange forward
contracts outstanding related to forecasted inventory purchases were $46.2
million (34.3 million euros) and $21.9 million (17.4 million euros) at March 31,
2010 and 2009. 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 March 31, 2010 and 2009 relating to foreign
currency receivables or payables were $15.1 million and $8.0 million. Open
forward contracts as of March 31, 2010 and 2009 consisted of contracts in
British pounds to purchase euros at a future date at a predetermined exchange
rate. The notional amounts of foreign exchange swap contracts outstanding at
March 31, 2010 and 2009 were $38.9 million and $20.2 million. Swap contracts
outstanding at March 31, 2010 consisted of contracts in British pounds, Japanese
yen, Mexican pesos and Canadian dollars. Swap contracts outstanding at March 31,
2009 consisted of contracts in Japanese yen, Mexican pesos 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.
  107




The following table presents the fair values
of the Company’s derivative instruments and their locations on the Balance Sheet
as of March 31, 2010 and 2009 (in thousands):




Asset Derivatives
            
            Liability
DerivativesFair Value
            
            
            
            Fair ValueLocation
            
            2010
            
            2009
            
            Location
            
            2010
            
            2009Derivatives designated as hedging
      instruments:Cash Flow Hedges
            Other
      assets
            
            $
            136
            
            $
            —
            
            Other
      liabilities
            
            $
            10
            
            $
            1,257136
            
            
            —
            
            
            
            
            10
            
            
            1,257Derivatives not designated as hedginginstruments:Foreign ExchangeForward Contracts
            Other assets
            
            
            11
            
            
            208
            
            Other liabilities
            
            
            —
            
            
            —Foreign ExchangeSwap Contracts
            Other
      assets
            
            
            452
            
            
            —
            
            Other
      liabilities
            
            
            356
            
            
            592463
            
            
            208
            
            
            
            
            356
            
            
            592$
            599
            
            $
            208
            
            
            
            $
            366
            
            $
            1,849


The following table presents the amounts of
gains and losses on the Company’s derivative instruments for the years ended
March 31, 2010 and 2009 and their locations on its Financial Statements (in
thousands):




Net amount
            
            
            
            Amount ofof gain/(loss)
            
            
            
            gain/(loss)deferred as a
            
            Location of
            
            reclassifiedcomponent of
            
            gain/(Loss)
            
            from
            
            
            
            Amount ofaccumulated
            
            reclassified from
            
            accumulated
            
            
            
            gain/(loss)other
            
            accumulated other
            
            other
            
            Location of gain/
            
            recognizedcomprehensive
            
            comprehensive
            
            comprehensive
            
            (loss) recognized in
            
            in incomeloss
            
            loss into income
            
            loss into income
            
            income immediately
            
            immediately2010
            
            2009
            
            
            
            2010
            
            2009
            
            
            
            2010
            
            2009Derivatives designated as
    hedginginstruments:Cash Flow Hedges
            $
            1,178
            
            $
            216
            
            Cost of
      goods sold
            
            $
            (5,615
            )
            
            $
            1,678
            
            Other
      income/expense
            
            $
            (57
            )
            
            $
            (12
            )1,178
            
            
            216
            
            
            
            
            (5,615
            )
            
            
            1,678
            
            
            
            
            (57
            )
            
            
            (12
            )Derivatives not designated ashedging instruments:Foreign ExchangeForward Contracts
            
            —
            
            
            —
            
            
            
            
            —
            
            
            
            —
            
            Other
      income/expense
            
            
            (831
            )
            
            
            208Foreign ExchangeSwap Contracts
            
            —
            
            
            —
            
            
            
            
            —
            
            
            
            —
            
            Other income/expense
            
            
            (2,306
            )
            
            
            (592
            )—
            
            
            —
            
            
            
            
            —
            
            
            
            —
            
            
            
            
            (3,137
            )
            
            
            (384
            )$
            1,178
            
            $
            216
            
            
            
            $
            (5,615
            )
            
            $
            1,678
            
            
            
            $
            (3,194
            )
            
            $
            (396
            )


108




---



Note 16 — 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.
Future minimum annual rentals under non-cancelable operating leases at March 31,
2010 are as follows (in thousands):




Year ending March 31,2011
            $
            13,6792012
            
            9,6662013
            
            8,2042014
            
            4,1712015
            
            3,473Thereafter
            
            7,503$
            46,696


Rent expense was $16.3 million, $15.5 million
and $13.8 million for the years ended March 31, 2010, 2009 and 2008. The
Company’s asset retirement obligations for its leased facilities as of March 31,
2010 were not material.




At March 31, 2010, fixed purchase commitments
for capital expenditures amounted to $12.9 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 March 31, 2010, fixed purchase commitments
for inventory amounted to $183.6 million, which are expected to be fulfilled by
December 31, 2010. The Company also had other commitments totaling $33.3 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 March 31, 2010, there were no outstanding
guaranteed purchase obligations. The maximum total potential future payments
under three of the five guarantee arrangements is limited to $30.8 million. The
remaining two guarantees are limited to purchases of specified components from
the named suppliers. 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 $8.2 million as of March 31,
2010. As of March 31, 2010, $7.6 million was outstanding under these guarantees.
The parent holding company has also guaranteed the purchases of one of its
subsidiaries under two guarantee agreements. These guarantees do not specify a
maximum amount. As of March 31, 2010, $8.7 million was outstanding under these
guarantees.




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 March 31, 2010. 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.




109




---



The Company provides various third parties
with irrevocable letters of credit in the normal course of business to secure
its obligations to pay or perform pursuant to the requirements of an underlying
agreement or the provision of goods and services. These standby letters of
credit are cancelable only at the option of the beneficiary who is authorized to
draw drafts on the issuing bank up to the face amount of the standby letter of
credit in accordance with its terms. At March 31, 2010, the Company had $3.4
million of letters of credit in place, of which $0.3 million was outstanding.
These letters of credit relate primarily to equipment purchases by a subsidiary
in China, and expire between April and June 2010. At March 31, 2009, The Company
had $0.4 million of letters of credit in place, with no balance
outstanding.




In November 2007, the Company acquired WiLife,
Inc., a privately held company offering 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. As of March
31, 2010, no amounts were payable towards performance-based payments under the
WiLife acquisition agreement.




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, cash flows and results of
operations. The Company’s accruals for lawsuits and claims as of March 31, 2010
were not material.




Note 17 — Interest and Other
Income




Interest and other income (expense),
net was comprised of the following (in thousands):




Year ended March 31,2010
            
            
            2009
            
            
            2008Interest income
            $
            2,406
            
            
            $
            8,648
            
            
            $
            15,752Interest expense
            
            (286
            )
            
            
            (20
            )
            
            
            (244
            )Interest income, net
            $
            2,120
            
            
            $
            8,628
            
            
            $
            15,508Foreign currency exchange gains,
      net
            $
            1,720
            
            
            $
            13,680
            
            
            $
            10,616Gain on sale of investments, net
            
            —
            
            
            
            —
            
            
            
            27,761Insurance investment income
    (loss)
            
            1,221
            
            
            
            (2,883
            )
            
            
            710Write-down of investments
            
            (643
            )
            
            
            (2,727
            )
            
            
            (79,823
            )Other, net
            
            841
            
            
            
            441
            
            
            
            1,362Other income
      (expense), net
            $
            3,139
            
            
            $
            8,511
            
            
            $
            (39,374
            )


Note 18 — Segment
Information




The Company operates in two industry segments,
personal peripherals and video conferencing, based on product markets and
internal organizational structure. The personal peripherals segment encompasses
the design, manufacturing and marketing of personal peripherals for personal
computers and other digital platforms. The video conferencing segment consists
of the LifeSize division, and encompasses the design, manufacturing and
marketing of high-definition video and audio communication products for the
enterprise and small-to-medium business markets. The video conferencing
operating segment does not meet the quantitative thresholds required for
separate disclosure of financial information.




110




---



Net sales by product family, excluding intercompany transactions, were as
follows (in thousands):




Year ended March 31,2010
            
            2009
            
            2008Retail — Pointing Devices
            $
            528,236
            
            $
            579,775
            
            $
            615,524Retail — Keyboards & Desktops
            
            329,038
            
            
            384,809
            
            
            464,984Retail — Audio
            
            454,957
            
            
            445,362
            
            
            478,455Retail — Video
            
            228,344
            
            
            248,339
            
            
            238,728Retail — Gaming
            
            107,595
            
            
            127,052
            
            
            146,016Retail — Remotes
            
            96,982
            
            
            102,006
            
            
            123,581OEM
            
            198,364
            
            
            321,489
            
            
            303,208Personal peripherals
            
            1,943,516
            
            
            2,208,832
            
            
            2,370,496LifeSize
            
            23,232
            
            
            —
            
            
            —Total net sales
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496


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.




Net sales to unaffiliated customers
by geographic region were as follows (in thousands):




Year ended March 31,2010
            
            2009
            
            2008EMEA
            $
            882,635
            
            $
            1,001,337
            
            $
            1,117,060Americas
            
            729,473
            
            
            785,862
            
            
            888,529Asia Pacific
            
            354,640
            
            
            421,633
            
            
            364,907Total net sales
            $
            1,966,748
            
            $
            2,208,832
            
            $
            2,370,496


The United States and Germany each represented
more than 10% of the Company’s total consolidated net sales for fiscal year
2010. In fiscal years 2009 and 2008, no single country other than the United
States represented more than 10% of the Company’s total consolidated net sales.
Revenues from sales to customers in Switzerland, our home domicile, represented
a small portion of the Company’s total consolidated net sales in all periods
presented. In fiscal year 2010, one customer represented 13% of net sales; in
fiscal years 2009 and 2008, the same customer represented 14% of net sales. As
of March 31, 2010, one customer represented 14% of total accounts receivable. As
of March 31, 2009, two customers represented 18% and 10% of total accounts
receivable.




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




March 31,2010
            
            2009EMEA
            $
            11,053
            
            $
            13,947Americas
            
            40,165
            
            
            40,093Asia Pacific
            
            43,765
            
            
            53,541Total long-lived assets
            $
            94,983
            
            $
            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 March 31, 2010 and 2009.




111




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LOGITECH INTERNATIONAL
S.A.




QUARTERLY FINANCIAL
DATA (Unaudited)




The following table contains selected
unaudited quarterly financial data for fiscal years 2010 and 2009 (in thousands
except per share amounts):




Year ended March 31,
    2010
            
            Year ended March 31,
    2009First
            
            Second
            
            Third
            
            Fourth
            
            First
            
            Second
            
            Third
            
            FourthNet sales
            $
            326,110
            
            
            $
            498,093
            
            $
            617,101
            
            $
            525,444
            
            $
            508,711
            
            $
            664,707
            
            $
            627,466
            
            
            $
            407,948Gross profit
            
            77,822
            
            
            
            151,788
            
            
            208,964
            
            
            188,322
            
            
            173,572
            
            
            228,074
            
            
            187,496
            
            
            
            102,084Operating expenses:Marketing and
selling
            
            58,938
            
            
            
            68,835
            
            
            87,322
            
            
            89,693
            
            
            77,280
            
            
            84,740
            
            
            86,046
            
            
            
            71,101Research and development
            
            31,360
            
            
            
            31,825
            
            
            32,931
            
            
            39,697
            
            
            33,259
            
            
            33,351
            
            
            32,401
            
            
            
            29,744General and
      administrative
            
            21,181
            
            
            
            23,739
            
            
            30,284
            
            
            30,943
            
            
            33,309
            
            
            29,620
            
            
            26,273
            
            
            
            23,901Restructuring charges
            
            1,449
            
            
            
            45
            
            
            —
            
            
            290
            
            
            —
            
            
            —
            
            
            —
            
            
            
            20,547Total operating expense
            
            112,928
            
            
            
            124,444
            
            
            150,537
            
            
            160,623
            
            
            143,848
            
            
            147,711
            
            
            144,720
            
            
            
            145,293Operating income (loss)
            
            (35,106
            )
            
            
            27,344
            
            
            58,427
            
            
            27,699
            
            
            29,724
            
            
            80,363
            
            
            42,776
            
            
            
            (43,209
            )Net income (loss)
            $
            (37,365
            )
            
            $
            20,743
            
            $
            57,086
            
            $
            24,493
            
            $
            29,306
            
            $
            72,311
            
            $
            40,493
            
            
            $
            (35,078
            )Net income (loss) per share*:Basic
            $
            (0.21
            )
            
            $
            0.12
            
            $
            0.33
            
            $
            0.14
            
            $
            0.16
            
            $
            0.41
            
            $
            0.23
            
            
            $
            (0.20
            )Diluted
            $
            (0.21
            )
            
            $
            0.11
            
            $
            0.32
            
            $
            0.14
            
            $
            0.16
            
            $
            0.39
            
            $
            0.22
            
            
            $
            (0.20
            )Shares used to compute netincome (loss) per
    share:Basic
            
            179,751
            
            
            
            178,395
            
            
            175,426
            
            
            175,738
            
            
            179,046
            
            
            178,630
            
            
            178,497
            
            
            
            179,065Diluted
            
            179,751
            
            
            
            180,989
            
            
            177,668
            
            
            177,967
            
            
            184,692
            
            
            183,509
            
            
            181,145
            
            
            
            179,065


*
            
            Basic and diluted
      earnings per share are computed independently for each of the quarters
      presented. Therefore, the sum of quarterly basic and diluted per share
      information may not equal annual basic and diluted earnings per
      share.




The following table sets forth certain quarterly financial information as
a percentage of net sales:




Year ended March 31,
    2010
            
            
            Year ended March 31,
    2009First
            
            
            Second
            
            
            Third
            
            
            Fourth
            
            
            First
            
            
            Second
            
            
            Third
            
            
            FourthNet sales
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Gross profit
            
            23.9
            
            
            30.5
            
            
            33.9
            
            
            35.8
            
            
            34.1
            
            
            34.3
            
            
            29.9
            
            
            25.0Operating expenses:Marketing and
selling
            
            18.1
            
            
            13.8
            
            
            14.2
            
            
            17.1
            
            
            15.2
            
            
            12.7
            
            
            13.7
            
            
            17.4Research and development
            
            9.6
            
            
            6.4
            
            
            5.3
            
            
            7.6
            
            
            6.5
            
            
            5.0
            
            
            5.2
            
            
            7.3General and
      administrative
            
            6.5
            
            
            4.8
            
            
            4.9
            
            
            5.9
            
            
            6.6
            
            
            4.5
            
            
            4.2
            
            
            5.9Restructuring charges
            
            0.4
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5.0Total operating expense
            
            34.6
            
            
            25.0
            
            
            24.4
            
            
            30.6
            
            
            28.3
            
            
            22.2
            
            
            23.1
            
            
            35.6Operating income (loss)
            
            (10.7
            )
            
            5.5
            
            
            9.5
            
            
            5.2
            
            
            5.8
            
            
            12.1
            
            
            6.8
            
            
            (10.6
            )Net income (loss)
            
            (11.5
            )%
            
            4.2
            %
            
            9.3
            %
            
            4.7
            %
            
            5.8
            %
            
            10.9
            %
            
            6.5
            %
            
            (8.6
            )%




112




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Schedule II




LOGITECH INTERNATIONAL S.A.VALUATION AND
QUALIFYING ACCOUNTS For the Fiscal Years Ended March 31, 2010, 2009 and 2008 (in
thousands)




Write-offsCharged
            
            charged toBalance at
            
            (credited) to
            
            (recovered
            
            Balance atFiscal
            
            
            
            beginning of
            
            Income
            
            against)
            
            endYear
            
            Description
            
            period
            
            Statement(1)
            
            allowance(1)
            
            of period2010
            
            Allowance for doubtful
accounts
            
            $
            6,705
            
            
            $
            (72
            )
            
            $
            (763
            )
            
            $
            5,8702009
            
            Allowance for doubtful accounts
            
            $
            2,497
            
            
            $
            5,102
            
            
            $
            (894
            )
            
            $
            6,7052008
            
            Allowance for doubtful
accounts
            
            $
            3,322
            
            
            $
            603
            
            
            $
            (1,428
            )
            
            $
            2,4972010
            
            Cooperative marketing
    arrangements
            
            $
            28,567
            
            
            $
            98,450
            
            
            $
            (109,490
            )
            
            $
            17,5272009
            
            Cooperative marketing arrangements
            
            $
            29,511
            
            
            $
            123,938
            
            
            $
            (124,882
            )
            
            $
            28,5672008
            
            Cooperative marketing
    arrangements
            
            $
            20,251
            
            
            $
            118,198
            
            
            $
            (108,938
            )
            
            $
            29,5112010
            
            Customer incentive programs
            
            $
            36,454
            
            
            $
            101,851
            
            
            $
            (93,999
            )
            
            $
            44,3062009
            
            Customer incentive programs
            
            $
            40,847
            
            
            $
            110,733
            
            
            $
            (115,126
            )
            
            $
            36,4542008
            
            Customer incentive programs
            
            $
            30,261
            
            
            $
            112,069
            
            
            $
            (101,483
            )
            
            $
            40,8472010
            
            Reserve for sales returns
            
            $
            28,705
            
            
            $
            78,950
            
            
            $
            (83,998
            )
            
            $
            23,6572009
            
            Reserve for sales returns
            
            $
            25,880
            
            
            $
            83,419
            
            
            $
            (80,594
            )
            
            $
            28,7052008
            
            Reserve for sales returns
            
            $
            19,387
            
            
            $
            87,114
            
            
            $
            (80,621
            )
            
            $
            25,8802010
            
            Pricing programs
            
            $
            25,543
            
            
            $
            134,323
            
            
            $
            (96,751
            )
            
            $
            63,1152009
            
            Pricing programs
            
            $
            32,052
            
            
            $
            63,259
            
            
            $
            (69,768
            )
            
            $
            25,5432008
            
            Pricing programs
            
            $
            20,775
            
            
            $
            77,266
            
            
            $
            (65,989
            )
            
            $
            32,052


(1)
            
            Transactions
      related to certain prior year charges and write-offs have been
      recharacterized to conform to the current year presentation, with no
      impact on previously reported beginning and ending
  balances.




113




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