|**UNITED STATES****SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**
|-----------------------------------------------------------------------------

FORM 10-K

|x | **ANNUAL REPORT PURSUANT TO SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**For the fiscal year ended March 31,
      2009             
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                          
|  | or                                                                                                                                                       
|  |                                                                                                                                                          
|o | 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(State or other
      jurisdiction of incorporation or organization) | None(I.R.S. Employer Identification
  No.)
|----------------------------------------------------------------------------------------------------- | ------------------------------------------

Logitech International
S.A.Apples,
Switzerlandc/o
Logitech Inc.6505 Kaiser
DriveFremont,
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
      classRegistered Shares par
      value CHF 0.25 per share | Name of each exchange on
      which registeredThe 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 oNo 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.Yes xNo o
|                                                                                                                                                                                                                                                                                                                                                                                               

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|Indicate by check mark whether
      the registrant has submitted electronically and posted on its corporate
      Web site, if any, every Interactive Data file required to be submitted and
      posted pursuant to Rule 405 of Regulation S-T during the preceding 12
      months (or for such shorter period that the registrant was required to
      submit and post such files).Yes oNo o 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                   
|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                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                   
|Non-accelerated filer 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).Yes oNo
      x                                                                                                                                                                                                                                                                 

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 26,
2008, the last business day of the registrants second fiscal quarter on the
NASDAQ Global Select Market, was approximately $3,503,988,592. 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 1, 2009, there were 179,675,378 shares of the Registrants share capital
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the registrants Proxy Statement for the 2009 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, 2009.

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TABLE OF CONTENTS

|                                                                          |                                                                                                            | Page
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ----
|Part I                                                                    |                                                                                                            |     
|Item 1.                                                                   | Business                                                                                                   | 5   
|Item 1A.                                                                  | Risk Factors                                                                                               | 21  
|Item 1B.                                                                  | Unresolved Staff
      Comments                                                                            | 27  
|Item 2.                                                                   | Properties                                                                                                 | 28  
|Item 3.                                                                   | Legal
      Proceedings                                                                                    | 28  
|Item 4.                                                                   | Submission of Matters to a Vote of Security Holders                                                        | 29  
|                                                                          |                                                                                                            |     
|Part II                                                                   |                                                                                                            |     
|Item 5.                                                                   | Market for
      Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of     |     
|                                                                          | Equity
      Securities                                                                                    | 29  
|Item 6.                                                                   | Selected Financial Data                                                                                    | 33  
|Item 7.                                                                   | Managements
      Discussion and Analysis of Financial Condition and Results of
      Operations          | 34  
|Item 7A.                                                                  | Quantitative and Qualitative Disclosures About Market
Risk                                                 | 57  
|Item 8.                                                                   | Financial
      Statements and Supplementary Data                                                          | 59  
|Item 9.                                                                   | Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure                 | 59  
|Item 9A.                                                                  | Controls and
      Procedures                                                                              | 59  
|Item 9B.                                                                  | Other Information                                                                                          | 60  
|                                                                          |                                                                                                            |     
|Part III                                                                  |                                                                                                            |     
|Item 10.                                                                  | Directors,
      Executive Officers and Corporate Governance                                               | 60  
|Item 11.                                                                  | Executive Compensation                                                                                     | 61  
|Item 12.                                                                  | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters | 61  
|Item 13.                                                                  | Certain Relationships and Related Transactions, and Director
      Independence                            | 61  
|Item 14.                                                                  | Principal
      Accountant Fees and Services                                                               | 61  
|                                                                          |                                                                                                            |     
|Part IV                                                                   |                                                                                                            |     
|Item 15.                                                                  | Exhibits and
      Financial Statement Schedules                                                           | 61  
|Signatures                                                                |                                                                                                            | 64  
|Financial Statements and Notes to
      Consolidated Financial Statements | 67                                                                                                        
|Exhibits                                                                  |                                                                                                            |     

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

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

3

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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 2010 and beyond considering
  current and future general economic conditions;
- our business and product plans for
  fiscal year 2010 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:

- deteriorating worldwide economic and business conditions, particularly
  in retail consumer markets;
- general market trends for peripherals
  for personal computers and other digital platforms and market acceptance of
  our products;
- 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;
- the impact of a failure to
  successfully innovate in our current and emerging product categories and
  identify new feature or product opportunities;
- the impact of our previously
  announced restructuring on our current operations and future
  performance;
- consumer demand for our products and
  our ability to accurately forecast such demand;
- our ability to implement our business
  strategy during declining or uncertain market conditions; and
- 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
International S.A. is a global leader in peripherals for personal computers and
other digital platforms, developing and marketing innovative products in PC
navigation, Internet communications, digital music, home-entertainment control,
video security, interactive gaming and wireless devices. For the PC, the
Companys products include mice, trackballs, keyboards, gaming controllers,
multimedia speakers, headsets, webcams and 3D control devices. For digital music
devices, the Companys products include speakers, headphones, earphones and
custom in-ear monitors. For gaming consoles, the Company offers a range of
controllers and other accessories. In addition, Logitech offers wireless music
solutions for the home, advanced remote controls for home-entertainment systems
and PC-based video security systems for a home or small business. The Company
generates revenues from sales of its products to a worldwide network of retail
distributors and resellers and to original equipment manufacturers (OEMs). The
Companys sales to its retail channels comprise the large majority of its
revenues. For the fiscal year ended March 31, 2009, the Company generated net
sales of $2.2 billion, operating income of $109.7 million, net income of $107.0
million, employed approximately 6,400 employees and conducted business in over
100 countries.

Logitech
was founded in Switzerland in 1981. Logitech International S.A., the parent
holding company of Logitech, is a Swiss holding company with its registered
office in Apples, Switzerland, which conducts its business through subsidiaries
located throughout the world. Shares of Logitech International S.A. trade 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 a single industry segment encompassing 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. 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. 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.

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.

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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 products available in the after-market (that is, the market for
peripheral upgrades and add-ons sold separately from the basic PC or Mac
computer). We believe the after-market potential for our products grows as
consumers demand more function-rich personal peripheral tools, and as the PC or
Mac computer plays 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, such as video game consoles, digital
music players and home-entertainment systems. 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.

Consumer Behavior and Customer
Experience Strategy

The
impact of the current 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 will be one of the major drivers that
should enable Logitech to emerge stronger from the downturn.

Two years
ago, we established an organization internally whose mission was 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, especially to suit todays
more discerning consumer. Through the use of metrics and consumer feedback
mechanisms, we have already helped drive a number of meaningful and measurable
improvements in our products. These improvements help drive consumer loyalty
over time. 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. We serve the installed
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. While PCs and Mac computers are being
used more and more as a digital hub, other platforms such as game consoles,
digital music players and home-entertainment systems are also becoming a rich
resource for people to access information, communicate, listen to music and
enjoy an expanding offering of interactive games.

Product Strategy

What we
have learned about the recent changes in consumer behavior has resulted in some
modifications to our product development strategy.

6

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We are
placing 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.

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 has become
the guiding principle 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 in three digital
environments:

- The Office Environment  Desktop and Notebook Computers
- The Digital Home Environment 
  Digital Music Systems, Home-Entertainment Systems, Game Consoles, Video
  Security Systems
- The Mobile EnvironmentNotebook and Netbook Computers,
  Digital Music Players, Portable Gaming Systems

The Office
Environment

Logitech
has successfully broadened our desktop presence by introducing new, more
innovative, high-performance PC and Mac computer navigation devices. In
addition, we have expanded beyond our traditional role as a provider of pointing
devices for the desktop or notebook PC or Mac computer into a leading brand for
video imaging products, keyboards, PC audio products and control devices for
emerging 3D applications and platforms.

The Digital Home Environment

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 consumer experience for a much wider audience.

Our
product portfolio includes a line of advanced remote controls for home
entertainment, a variety of speaker and headphone products, 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 for gamers. We are leveraging our investments in the
desktop PC to enhance gaming consoles with our expertise in force and vibration
feedback, cordless connectivity, voice input and video input.

The Mobile Environment

As
digital information and communication are evolving into the mobile environment,
the opportunity exists for Logitech to support an even broader set of platforms.
We believe that the growing number of mobile phones, notebook and netbook
computers and mobile entertainment and communication platforms, such as portable
digital music players and gaming devices, will bring additional demand for
complementary personal peripherals. Logitech plans to support this need in
mobile environments, as we do in the office and home.

7

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Geographic Expansion

We
believe that the market penetration for Logitech products is low in developing
markets such as Latin America, Eastern Europe, India and China. 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.

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 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
fulfills 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. The PC has
evolved into smaller form factors such as notebooks and netbooks. We believe
this provides additional opportunities for Logitech because the relevance of
navigation, interaction, video and audio interfaces and applications remains the
same. Additionally, as form factors shrink, comfort becomes increasingly
important to the user experience. All of these factors continue to support an
attractive and sizable opportunity for Logitech.

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, we intend to continue to
lead the development of new technologies and to create product innovations, such
as those introduced in fiscal years 2008 and 2009, which include the MX Air
Mouses Freespace technology, the Wave comfort keyboard design, the Harmony One
remotes color touch screen and intuitive button layout, the rechargeable design
of the diNovo Mini, the integration of glass lenses with Carl Zeiss optics on
the QuickCam Pro 9000 and QuickCam Pro for Notebooks webcams, the
omnidirectional speaker technology for the Z-5 omnidirectional speakers for PC
and Pure-Fi Express Plus iPod speakers, and the Nano-receiver that 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 our customers 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 a single industry segment encompassing the design, development,
production, marketing and support of personal peripheral products. Most of our
products share certain characteristics such as common customers, common sales
channels, common company infrastructure requirements and common company
resources such as our worldwide management of sales and marketing, supply chain
and administration.

Pointing
Devices

Mice

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

- The MX1100 Cordless Laser Mouse, introduced in fiscal year 2008, was
  developed for comfort and productivity and features a contoured, full-sized
  design, adjustable dpi (dots per inch) and the MicroGear Precision Scroll
  Wheel.
- The MX Revolution Cordless Laser
  Mouse, introduced in fiscal year 2007, includes the MicroGear Precision Scroll
  Wheel, Logitech SmartShift Technology, One-Touch Search and Document
  Quick-Flip.
- The MX Air Rechargeable Cordless Air
  Mouse works on the desk or in the air.

8

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- The VX Nano Cordless Laser Mouse for Notebooks features a Nano-receiver
  which, when plugged into a laptop, is nearly flush against the
  notebook.
- The V550 Nano Cordless Laser Mouse
  for Notebooks features the MicroGear Precision Scroll Wheel, Nano-receiver and
  a clip-and-go dock that adheres to the top of a laptop so the mouse can be
  snapped on for easy transport from place to place.
- The V220 Cordless Optical Mouse for
  Notebooks is an ergonomically designed mouse with soft rubber grips and a
  convenient mini-receiver.

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.

All of
Logitechs retail mice are bundled with Logitech SetPoint software, enabling
users to program mouse buttons for specific tasks. We also sell both corded and
cordless mice designed specifically for OEM customers.

Other Pointing
Devices

Some of our
other pointing devices include:

- The 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.

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:

- The diNovo Edge keyboard, our award-winning top-of-the-line
  rechargeable keyboard.
- The diNovo Edge, Mac Edition
  keyboard, which brings the elegance of the award-winning diNovo Edge to the
  Mac community with an optimized Mac layout.
- The diNovo Mini keyboard, the
  smallest keyboard on the market today combining thumb typing, Windows Media
  center remote controls, and a touchpad.
- The Cordless Desktop Wave Pro, which
  features a gradual wave-shaped contour that helps eliminate awkward hand and
  forearm positions, and a comfortable mouse.
- The Cordless Desktop MX 5500
  Revolution, including the Bluetooth wireless technology and other features
  such as an integrated keyboard display and several buttons designed to help
  people take advantage of key Windows Vista features, such as Flip 3D and
  Search.
- The Illuminated Keyboard, a corded
  keyboard featuring laser-etched, backlighted keys, an ultra-thin 9.3mm design
  and Logitech PerfectStroke key system.

All premium keyboards offer Logitechs innovative SetPoint software,
which enables one-touch access to a variety of common tasks, including music
software, the Internet, and Instant Messenger software.

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, USB hubs, notebook bags, lapdesks, cooling
pads and a family of notebook risers.

Some of our notebook products include:

- The Comfort Lapdesk, a new product category, which is designed for use
  on the lap to protect the user from laptop heat.

9

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- The Notebook Riser N110, a notebook stand which is designed for use
  with an external keyboard and mouse and elevates the laptop screen to an
  ergonomic level.
- The 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
premium webcam offerings include:

- QuickCam Pro 9000
- QuickCam Pro for Notebooks
- QuickCam Orbit AF

Our premium webcams feature lenses designed in an exclusive collaboration
with Carl Zeiss, a premium autofocus system, and a true 2-megapixel sensor.
These webcams also leverage High Quality Video from Skype, a video calling
functionality offered through our collaboration with Skype.

Logitechs major mid-range webcams include:

- QuickCam Ultra Vision webcam
- QuickCam Communicate Deluxe for PC
  users
- QuickCam Vision MP for Mac users

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 high-definition (HD) video format.

Logitechs entire family of webcams work 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.
In November 2008, Google added video chat to their popular gmail application and
Logitech webcams offered full support for the service at launch.

In
November 2008, Logitech acquired privately held SightSpeed Inc. The acquisition
of SightSpeed provides us with video calling technology and a software and
services development team that is focused on future video calling initiatives
that can enable cross-platform video communications for people sitting in front
of a personal computer or with their family in a living room.

PC Headsets

We offer
headsets and microphones designed for applications such as PC voice
communications, Voice-over Internet Protocol (VoIP) applications and online
gaming. Some of our major products in this category include the ClearChat
Wireless USB headset, the ClearChat Pro USB Headset, the ClearChat Comfort USB
Headset, the Logitech Premium Notebook Headset, and the Logitech Desktop
Microphone.

Video Security Systems

In
November 2007, Logitech acquired WiLife, Inc. (WiLife), which offers solutions
for using a PC and special video cameras to provide remote security monitoring
of ones 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
an Internet-based service and the ability to monitor the video feeds remotely
from a PC and Windows-based PDAs or cell phones.

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Audio

Speakers and
Headphones

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

- Logitech Z-5500 Digital speakers are 5.1-channel multi-platform,
  505-watt speakers with a 10-inch subwoofer.
- Logitech G51 Surround Sound Speaker
  System is a 5.1 speaker system featuring 360-degree surround sound with dual
  Matrix modes.
- Pure-Fi Anywhere 2 speakers include 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.
- Pure-Fi Anytime speakers include an
  iPod/iPhone alarm clock that offers premium sound, motion-activated,
  backlighted controls, AM/FM tuner and a dual alarm.
- Z-5 Omnidirectional speakers are
  USB-powered speakers designed for Mac and PC use which feature omnidirectional
  acoustics.
- FreePulse Wireless headphones are
  designed for use with iPod and other MP3 players.

In August
2008, Logitech acquired the Ultimate Ears companies, a privately held group of
companies that offers a range of earphones. The long-established leader in
custom in-ear monitors for on-stage professional musicians and sound engineers,
Ultimate Ears has over the last few years expanded its product line to include a
range of in-ear consumer earphones for portable music enthusiasts, including
users of iPhone, iPod and other MP3 players. The acquisition of Ultimate Ears
allows Logitech to expand its portfolio of digital audio products, providing
more options for portable music listening.

Ultimate Ears began offering custom earphones in early 2004 for users of
iPods and other MP3 players, as well as DVD players, notebook computers and home
audio systems. Based on the same technology and custom-molded design as Ultimate
Ears professional devices, Ultimate Ears consumer in-ear earphones are
specially tuned to optimize digital sound. In 2004, Ultimate Ears also launched
its first universal-fit models, featuring the sophisticated technology of the
custom models with a unique fit kit to provide maximum comfort to a wide range
of people. Logitech plans to continue all of these product lines.

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 2008, we expanded our line of
streaming music products with the introduction of the Logitech Squeezebox Boom.
The Squeezebox Boom is our first all-in-one network music player, featuring an
integrated amplifier, high-performance speakers and a simplified setup. Users
can plug the Squeezebox Boom into a power outlet and use an existing home
network to listen to music on their computers, Internet radio stations, and
music subscription services.

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

During fiscal year 2009, we also expanded the music services supported by
the Squeezebox family of products, which now include (either free or via partner
subscription) Amazon CD, BBC, Deezer, Classical.com, Last.fm, MediaFly,
MP3Tunes, Napster, Pandora, Radio IO, RadioTime, Rhapsody, SIRIUS and Slacker.

11

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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.

Our PC
gaming products include:

- Logitech G9x Laser Mouse is a fully customizable
  mouse and includes 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. In the United States, users can also order a special G9 ID Grip that
  they can customize with their own artwork or photo.
- Logitech G13 advanced gameboard, a CES Innovations
  Winner in the Electronic Gaming category, features a built-in LCD screen, 25
  programmable keys and onboard memory.
- Logitech G19 Gaming Keyboard features a tiltable,
  color LCD screen, VoIP communication data, and customization options such as
  user-selectable character backlighting color and 12 fully programmable
  G-keys.
- Logitech G25 Racing Wheel includes 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.

In July
2008, Logitech and Activision Publishing, Inc. announced a collaboration to
develop and market premium instrument controllers for the Guitar Hero franchise.
Logitechs first product, the Logitech Wireless Guitar Premiere Edition for
PlayStation 3, features authentic materials including a wood neck, a rosewood
fingerboard and metal frets.

Our other
major console gaming products include the Driving Force Wireless wheel and
Vantage headset for PlayStation 3, Speed Force Wireless and Cordless Keyboard
for Wii, and the Vantage USB Microphone for all platforms. Logitech also offers
protective cases for the Nintendo DS Lite and Sony PlayStation Portable (PSP).
In addition, we sell USB microphones bundled with several top-selling singing
game titles.

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 which features a touch-screen
  with backlighted buttons positioned in logical zones to make it easy to
  navigate, even in the dark.
- Harmony 1100 features a customizable 3.5-inch
  color touch-screen and includes radio frequency (RF) wireless technology that
  lets the user control devices.

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Competitive Strengths

We
believe the key competitive strengths that allow Logitech to be successful and
competitive in our product markets 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 nearly 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.

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 and
Taiwan.

Our
research and development expenses for fiscal years 2009, 2008 and 2007 were
$128.8 million, $124.5 million and $108.3 million. We expect to continue to
devote significant resources to research and development, including wireless
technologies, power management, user interfaces and device database management
to sustain our competitive position.

Marketing, Sales and Distribution

Principal Markets

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

Year ended March 31,2009
    
    2008
    
    2007EMEA
    
    $
    1,001,337
    
    $
    1,117,060
    
    $
    1,027,852Americas
    
    
    785,862
    
    
    888,529
    
    
    729,207Asia Pacific
    
    
    421,633
    
    
    364,907
    
    
    309,510Total net sales
    
    $
    2,208,832
    
    $
    2,370,496
    
    $
    2,066,569


Revenues
from sales to customers in Switzerland, our home domicile, represented a small
portion of our total consolidated net sales in fiscal year 2009 and no single
country other than the United States represented more than 10% of our total
consolidated net sales. In fiscal years 2009, 2008 and 2007, Ingram Micro Inc.
and its affiliated entities together accounted for 14% of our net sales in each
year. No other customers individually accounted for more than 10% of our net
sales during fiscal years 2009, 2008 and 2007. The material terms of our
distribution agreements with Ingram Micro Inc. 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.

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- 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.

Sales and Distribution

Logitech
sells 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 D&H
Distributing, Ingram Micro Inc. and Tech Data Corporation. In Europe,
pan-European distributors include Tech Data Corporation, Ingram Micro and Gem
Distribution. We also sell to many regional distributors such as Actebis in
Germany, MC Dos in the Netherlands, Vinzeo in Spain and Channel Distribution in
the United Arab Emirates.

Logitechs products can be found in major retail chains, where they
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 MediaMarkt/Saturn, Carrefour, KESA Group, FNAC, Dixons Stores Group PLC
and most key national consumer electronics chains. Logitech products can also be
found at the top online e-tailers, which include Amazon.com, Buy.com, CDW,
Insight, 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.

Through our operating subsidiaries,
we maintain sales offices or sales representatives in 41countries.

Backlog

In our
experience, the actual amount of backlog at any particular time 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. In addition, our backlog is
occasionally subject to cancellation or rescheduling by customers. Because of
the uncertainty of order cancellations or rescheduling, we do not believe our
backlog as of any particular date is indicative of actual sales for any future
period. Because of the foregoing, we believe that backlog information is not
material to an understanding of our overall business.

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**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.

Manufacturing

Logitechs manufacturing operations consist principally of final assembly
and testing. Our high-volume manufacturing facility 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, 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
industry is intensely competitive. It is characterized by short product life
cycles, continual performance enhancements, and rapid adoption of technological
and product advancements by competitors in our retail market, and price
sensitivity in the OEM market. We experience aggressive price competition and
other promotional activities from our primary competitors and from
less-established brands, and we may choose to adjust prices or increase
promotional activities to improve our competitive position. We may also
encounter more competition if any of our competitors decide to enter other
markets 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 streaming media devices and home or
small business video security. 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 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, in the lower-price
bands, which could potentially impact our market share. The notebook peripheral
category is also an area where we face aggressive pricing and promotions, as
well as new competitors that have broader notebook product offerings than we
do.

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

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

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

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

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.

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.

Environmental Regulation

We are
subject to laws and regulations in many jurisdictions regulating the materials
used in our products and, increasingly, 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 andcontinues to source and introduce the use of RoHS compliant components
and manufacturing methods in order to comply with the requirements of the
directive.

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.

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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 will 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.

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. 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 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
quarter-over-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.

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 and optical sensors, 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.

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Employees

As of
March 31, 2009, we employed 6,348 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 June 1, 2009:

|Name                     |  | Age |  | Nationality |  | Position                                                                 
|------------------------ |  | --- |  | ----------- |  | -------------------------------------------------------------------------
|Guerrino De Luca         |  | 56  |  | Italian     |  | Chairman of the Board                                                    
|Gerald P.
      Quindlen |  | 49  |  | U.S.        |  | President and
      Chief Executive Officer                              
|Werner Heid              |  | 50  |  | German      |  | Sr. Vice President, Worldwide Sales and Marketing                        
|David
      Henry        |  | 52  |  | U.S.        |  | Sr. Vice
      President, Customer Experience and Chief Marketing Officer
|Junien Labrousse         |  | 51  |  | French      |  | Executive Vice President, Products                                       
|L. Joseph
      Sullivan |  | 55  |  | U.S.        |  | Sr. Vice
      President, Worldwide Operations                           

Guerrino De Luca became Chairman of the
Logitech Board of Directors in January 2008, turning over his responsibilities
as President and Chief Executive Officer to Gerald P. Quindlen. Mr. De Luca
joined the Company as President and Chief Executive Officer in February 1998,
and became an executive member of the Board of Directors in 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 became the President
and Chief Executive Officer of Logitech in January 2008. Mr. Quindlen joined
Logitech as Senior Vice President, Worldwide Sales and Marketing 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.

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 Corporation 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.

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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.

19

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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 that we file that are published by the SIX
Swiss Exchange may be accessed at
http://www.six-swiss-exchange.com/admission/being_public/mtrans/publication_en.html.

For no
charge, a copy of our annual reports and 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, e-mail:
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.

20

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ITEM 1A. RISK FACTORS

***Declining economic
conditions have and could continue to significantly harm our operating
results.***

The
global deterioration of economic conditions, particularly in retail consumer
markets, could continue for an extended future period. Continuing adverse
economic conditions have had, and may continue to have, the following negative
effects on our business, operating results, and financial condition:

- Reduced sales to our customers, reflecting current
  and anticipated lower end-user consumer demand for our products as well as a
  shift in consumer buying patterns toward lower-priced
  products.
- Reduced sales to our customers as they continue to
  lower their required inventory levels.
- Increased risk of 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.
- Reduced cash flow due to customer delays or
  failures in receivables payments.
- Increased risk of excess and obsolete
  inventories.
- Financial distress or bankruptcy of key suppliers,
  resulting in insufficient product quantities to meet demand for particular
  products.
- Increased risk of counterparty failures due to the
  continuing stress on financial institutions, which may negatively impact cash,
  cash equivalents and short-term investments.

An
extended and severe global economic downturn could have a significant negative
impact on our business, operating results, and financial condition. Declining
economic conditions and fluctuations in our operating results may cause our
results in a given quarter to be below the expectations of financial analysts and
investors, which could cause the price of our shares to decline.

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.

21

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- 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, our operating
  results in the second half of fiscal year 2009 were adversely affected by
  large and rapid fluctuations in currency exchange rates, and similar
  fluctuations within a short time period could significantly affect our
  operating results in the future.

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

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

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

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

- identify new feature or product
  opportunities;
- anticipate technology, market trends and consumer
  demands;
- develop innovative and reliable new products and
  enhancements in a cost-effective and timely manner; and
- distinguish our products from those of our
  competitors.

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

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

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

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

22

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

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

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

In recent
years, we have expanded the categories of products we sell, and entered new
markets, such as the market for streaming media devices and home or small
business video security systems. 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, 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.

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, in the lower-price
bands, which could potentially impact our market share. The notebook peripheral
category is also an area where we face aggressive pricing and promotions, as
well as new competitors that have broader notebook product offerings than we
do.

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

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

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

23

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

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

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

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

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. In addition,
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. If we do not successfully innovate and
market products designed for notebook PCs and other mobile devices, or if
general consumer demand for peripherals for use with notebook PCs and mobile
devices does not increase, our business and results of operations could be
significantly harmed.

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

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

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

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

24

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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 the Apple iPod, Microsoft Xbox, Sony PlayStation, and Nintendo Wii. Our
business in these categories relies on our access to the platforms of third
parties, which can be withdrawn, denied or not be available on terms acceptable
to us.

Our
access to third-party platforms may require paying a royalty, which lowers our
product margins, or may otherwise be on terms that are not acceptable to us. In
addition, the third-party platforms or technologies used to interact with our
product portfolio can change without prior notice to us, which can result in our
having excess inventory or lower margins.

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 energy, transportation, communications, trade,
public health and other infrastructures, by conflicts, embargoes, increased
tensions or escalation of hostilities between China and Taiwan, by labor unrest,
and by other trade customs and practices that are dissimilar to those in the
United States and Europe. Interpretation and enforcement of Chinas laws and
regulations continue to evolve and we expect differences in interpretation and
enforcement to continue in the foreseeable future.

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

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

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

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

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

Our
business requires us to coordinate the manufacture and distribution of our
products over much of the world. We rely on third parties to manufacture 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.

25

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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.

***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.

26

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

27

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ITEM 2. PROPERTIES

The table
below represents our principal locations, their approximate square footage and
their purposes as of March 31, 2009:

|                                      |  |                                                                   |  | Approximate |  |           |            |     | 
|------------------------------------- |  | ----------------------------------------------------------------- |  | ----------- |  | --------- | ---------- | --- | 
|                                      |  |                                                                   |  | Square      |  |           |            |     | 
|Location                              |  | Purpose                                                           |  | Footage     |  | Ownership
|Americas:                             |  |                                                                   |  |             |  |           |            |     | 
|Fremont, California                   |  | Americas
      Headquarters, research and development, product    |  | 194,000     |  |           | Leased     |     | 
|                                      |  | marketing, sales
      management, technical support,             |  |             |  |           |            |     | 
|                                      |  | administration                                                    |  |             |  |           |            |     | 
|Vancouver,
Washington                 |  | Audio Business Unit                                               |  | 38,000      |  |           | Leased     |     | 
|Mountain View,
      California       |  | Streaming Media
      Group                                       |  | 18,000      |  |           | Leased     |     | 
|Mississauga, Canada                   |  | Remote Controls Group                                             |  | 20,000      |  |           | Leased     |     | 
|Irvine, California                    |  | Ultimate Ears
      Group                                         |  | 13,500      |  |           | Leased     |     | 
|Draper, Utah                          |  | Video Security Group                                              |  | 7,000       |  |           | Leased     |     | 
|Olive Branch,
      Mississippi       |  | Distribution
      center                                         |  | 468,000     |  |           | Contracted | (1) | 
|                                      |  |                                                                   |  |             |  |           |            |     | 
|EMEA:                                 |  |                                                                   |  |             |  |           |            |     | 
|Romanel-sur-Morges,
      Switzerland |  | Research and
      development, product marketing and technical   |  | 33,300      |  |           | Owned      |     | 
|                                      |  | support                                                           |  |             |  |           |            |     | 
|Morges, Switzerland                   |  | EMEA headquarters, sales and marketing management,                |  | 62,300      |  |           | Leased     |     | 
|                                      |  | technical support, administration                                 |  |             |  |           |            |     | 
|Nijmegen,
Netherlands                 |  | Finance, administration, distribution center support              |  | 29,000      |  |           | Leased     |     | 
|Cork, Ireland                         |  | Finance, administration, research and development                 |  | 18,000      |  |           | Leased     |     | 
|Seefeld, Germany                      |  | Research and
      development, manufacturing                     |  | 15,000      |  |           | Leased     |     | 
|Venray, Netherlands                   |  | Distribution center                                               |  | 183,000     |  |           | Contracted | (1) | 
|Venlo, Netherlands                    |  | Distribution
      center                                         |  | 80,000      |  |           | Contracted | (1) | 
|Zalaegerzeg, Hungary                  |  | Distribution center                                               |  | 45,500      |  |           | Contracted | (1) | 
|                                      |  |                                                                   |  |             |  |           |            |     | 
|Asia Pacific:                         |  |                                                                   |  |             |  |           |            |     | 
|Hsinchu, Taiwan                       |  | Asia Pacific
      headquarters, mechanical engineering, new      |  | 112,000     |  |           | Leased     |     | 
|                                      |  | product launches,
      process engineering, commodities          |  |             |  |           |            |     | 
|                                      |  | management, logistics, quality assurance, and
    administration  |  |             |  |           |            |     | 
|Suzhou, China                         |  | High-volume manufacturing                                         |  | 854,000     |  |           | Owned      |     | 
|Suzhou, China                         |  | Vertical integration, core technology development,
molding        |  | 277,000     |  |           | Leased     |     | 
|                                      |  | operations, video modules assembly                                |  |             |  |           |            |     | 
|Tokyo, Japan                          |  | Sales, logistics, finance, administration and human
    resources |  | 10,100      |  |           | Leased     |     | 

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

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 41 countries, with
various expiration dates from 2009 to 2027.

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.

28

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

None.

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 1, 2009, there were 191,606,620 shares issued (including
11,931,242 shares held as treasury stock) held by 16,094 holders of record, and
the closing price of our shares was CHF 15.41 ($13.52 based on exchange rates on
such date) per share on the SIX Swiss Exchange and $13.67 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 Registered Share on the SIX
      Swiss Exchange
|------------------------- |  | ----------------------------------------------------------
|                          |  | High                                                      
|                          |  | CHF                                                       
|Quarterly Highs and Lows: |  |                                                           
|Fiscal 2008:              |  |                                                           
|First quarter             |  | 34.95                                                     
|Second quarter            |  | 34.66                                                     
|Third quarter             |  | 41.52                                                     
|Fourth quarter            |  | 40.50                                                     
|Fiscal
      2009:        |  |                                                           
|First quarter             |  | 34.22                                                     
|Second quarter            |  | 30.46                                                     
|Third quarter             |  | 25.14                                                     
|Fourth quarter            |  | 18.01                                                     

29

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***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 2008:First quarter
    28.96
    
    25.36Second quarter
    29.55
    
    25.76Third quarter
    37.07
    
    29.00Fourth quarter
    36.20
    
    23.91Fiscal
      2009:First quarter
    33.34
    
    24.13Second quarter
    27.91
    
    21.98Third quarter
    22.59
    
    11.17Fourth quarter
    16.11
    
    7.64


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 non-resident 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.

30

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Share Repurchases

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

Total
      Numberof
      Shares
    
    
    
    
    
    
    
    
    ApproximatePurchased
      as
    
    
    
    
    
    
    
    
    Dollar Value ofPart
      of
    
    
    
    
    
    
    
    
    Shares That MayPublicly
    
    
    
    
    
    
    
    
    Yet Be PurchasedAnnounced
    
    Average Price Paid Per
      Share
    
    Under thePeriod
    
    Programs
    
    in USD
    
    in CHF
    
    ProgramsApril 2008
    
    -
    
    
    -
    
    
    
    -
    
    $
    204,616May
    2008
    
    928,000
    
    $
    31.07
    
    CHF
    
    32.21
    
    
    175,788June 2008
    
    624,000
    
    $
    32.35
    
    CHF
    
    33.24
    
    
    155,599July
    2008
    
    -
    
    
    -
    
    
    
    -
    
    
    155,599August 2008
    
    470,000
    
    $
    26.95
    
    CHF
    
    27.87
    
    
    142,931September
      2008
    
    581,000
    
    $
    24.67
    
    CHF
    
    27.03
    
    
    128,599October 2008
    
    -
    
    
    -
    
    
    
    -
    
    
    128,599November
      2008
    
    200,000
    
    $
    14.26
    
    CHF
    
    16.49
    
    
    125,746December 2008
    
    -
    
    
    -
    
    
    
    -
    
    
    125,746January
      2009
    
    -
    
    
    -
    
    
    
    -
    
    
    125,746February 2009
    
    -
    
    
    -
    
    
    
    -
    
    
    125,746March
    2009
    
    -
    
    
    -
    
    
    
    -
    
    
    125,746Total
    
    2,803,000


In fiscal
year 2009, we repurchased shares pursuant to our buyback program announced in
June 2007 authorizing the purchase of an additional $250 million of our shares.
The June 2007 program is in effect until the 2010 Annual General Meeting, unless
concluded earlier or discontinued. All share repurchases by the Company during
fiscal year 2009 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. The September 2008 program is subject to the approval
of the Swiss Takeover Board and the completion of our current share buyback
program of $250 million.

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, 2004, and
calculates the return quarterly through March 31, 2009. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.

31

---




|                             | March 31,
|---------------------------- | ---------
|                             | 2004     
|Logitech                     | $        
|Nasdaq Composite
      Index | $        
|S&P 500 Index                | $        

32

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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,                    
|----------------------------------------- |  | ----------------------------------------
|                                          |  | 2009                                    
|                                          |  | (In thousands, except per share amounts)
|Consolidated statements of operations     |  |                                         
|and cash flow
    data:                   |  |                                         
|Net
    sales                             |  | $                                       
|Gross profit                              |  |                                         
|Operating
      expenses:                 |  |                                         
|****Marketing and selling                 |  |                                         
|****Research and development              |  |                                         
|****General and administrative            |  |                                         
|****Restructuring charges                 |  |                                         
|****Total operating expenses              |  |                                         
|Operating
      income                    |  |                                         
|Net income                                |  | $                                       
|Net income per
      share:               |  |                                         
|****Basic                                 |  | $                                       
|****Diluted                               |  | $                                       
|Shares used to compute net income         |  |                                         
|****per share:                            |  |                                         
|****Basic                                 |  |                                         
|****Diluted                               |  |                                         
|Net cash provided by operating activities |  | $                                       
|                                          |  |                                         
|                                          |  | March 31,                               
|                                          |  | 2009                                    
|                                          |  | (In thousands)                          
|Consolidated balance sheet data:          |  |                                         
|Cash and cash
      equivalents           |  | $                                       
|Short-term investments                    |  | $                                       
|Total
      assets                        |  | $                                       
|Long-term debt, net of current maturities |  | $                                       
|Shareholders'
      equity                |  | $                                       

|(1) |  | Net income for fiscal years 2006
      and 2005 does not include the effect of share-based compensation expense,
      because Logitech implemented Financial Accounting Standards No. 123
      (revised 2004), *Share-based Payment,*
      effective April 1, 2006.**
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

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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 global leader in peripherals for personal computers and other digital
platforms. We develop and market innovative products in PC navigation, Internet
communications, digital music, home-entertainment control, video security,
interactive gaming and wireless devices.

For the
PC, our products include mice, trackballs, keyboards, gaming controllers,
multimedia speakers, headsets, webcams, and 3D control devices. For digital
music devices, our products include speakers, headphones, earphones and custom
in-ear monitors. For gaming consoles, we offer a range of controllers and other
accessories. In addition, we offer wireless music solutions for the home,
advanced remote controls for home entertainment systems and PC-based video
security systems for a home or small business.

We sell
our products to a network of distributors and resellers (retail) and to
original equipment manufacturers (OEMs). Our worldwide retail network includes
wholesale distributors, consumer electronics retailers, mass merchandisers,
specialty electronics stores, computer and telecommunications stores,
value-added resellers and online merchants. Our sales to our retail channels
were 85% and 87% of our net sales for the fiscal years ended March 31, 2009 and
2008. The large majority of our revenues are derived from sales of our products
for use by consumers.

Our
markets are extremely competitive and characterized by short product life
cycles, frequent new product introductions, rapidly changing technology,
evolving customer demands, and aggressive promotional and pricing practices. We
believe that the current global economic downturn has further increased
competition in our markets, as competitors with larger financial resources than
us, such as Microsoft, 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.

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

Over the
last several years, we have broadened our product offerings and the markets in
which we sell. Our product expansion has been primarily organic, but we have
also grown as a result of a limited number of acquisitions that expanded our
business into new product categories. In light of the current global economic
situation, we will continue to evaluate our strategy related to our product
offerings.

Summary of Financial
Results

The
severe global economic recession had a substantial negative impact on our
financial results for fiscal year 2009. Our total net sales (retail and OEM) for
the year decreased 7% to $2,208.8 million compared with the prior fiscal year,
with retail sales declining 23% and OEM sales declining 21% in the last six
months of the fiscal year compared with the same period in the prior fiscal
year. Retail sales in our Americas region and Europe, Middle East and Africa
(EMEA) region declined 15% and 11% in fiscal year 2009 compared with fiscal
year 2008, reflecting consumers reluctance to spend and their preference for
purchasing lower-price products, as well as our channel partners decisions to
reduce inventory levels. Retail sales in our Asia Pacific region for fiscal year
2009 increased 16%. An increase in Asia Pacific sales of 38% in the first six
months of the fiscal year was partially offset by a decline of 3% in the last
six months.

34

---

Retail
sales of all product lines except video decreased during fiscal year 2009. Video
retail sales increased compared with the depressed sales levels in fiscal year
2008. Our gross margin for fiscal year 2009 decreased to 31.3% compared with
35.8% in the prior fiscal year, primarily due to the mix of products sold and
increased promotional activity. Promotional activity includes contractual
customer marketing and sales incentive programs, volume and consumer rebates and
price protection programs, which impact our net sales and gross margin. Net
income for the fiscal year ended March 31, 2009 decreased to $107.0 million
compared with $231.0 million in the prior fiscal year. Net income for fiscal
year 2009 included the negative impact of $20.5 million in costs related to the
restructuring plan initiated in January 2009 to reduce operating expenses and
improve financial results in response to deteriorating global economic
conditions.

Trends in Our Business

Most of
our revenue comes from sales to our retail channels, which resell to consumers.
As a result, our customers demand for our products depends on their reactions
to current economic conditions, as well as trends in consumer confidence and
consumer spending. In the second half of fiscal year 2009, our customers
substantially decreased their inventory purchases, in reaction to the global
decline in consumer demand and, to a lesser extent, as a result of retailer
consolidation. In addition, our sales to customers in Eastern Europe and other
emerging markets have declined due to customers lack of available credit to
finance purchases of inventory. We believe it is likely that the decline in
demand and sales compared with year-ago periods will continue in all our regions
at least through the first quarter of fiscal year 2010.

We have a
large and varied portfolio of product lines, grouped in several product
families. Our total sales and profitability have been impacted recently by
deteriorating general economic conditions. However, within and subject to the
general trend of decreasing sales and profitability, we believe that increases
or decreases in the retail sales level of a product family are dependent on the
innovation we have designed into the product, customer acceptance of the product
line, the popularity of the digital platforms the product line relates to, and
the prices at which products are available. Historically, sales of individual
product lines rise and fall over time, 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, mobile phones and smaller form factor devices with computing or web
surfing capabilities. In our retail channels, notebook PCs and mobile devices
are sold by retailers without peripherals. We believe this creates opportunities
to sell products to consumers to help make their devices more productive and
comfortable. However, consumer acceptance and demand for peripherals for use
with smaller form factor computing devices such as notebook PCs and mobile
devices is still uncertain. In particular, the increasing popularity of notebook
PCs and mobile devices may result in a decreased demand by consumers for
keyboards, desktops and speakers, which could negatively affect our sales of
these products. We believe our future sales growth will be significantly
affected by our ability to develop sales and innovations in our current products
as well as emerging product categories which are not PC-dependent.

In
addition, in our OEM channel, the shift away from desktop PCs has adversely
affected our sales of OEM mice, which are sold with name-brand desktop PCs. Our
OEM mice sales have historically made up the bulk of our OEM sales, and our OEM
sales accounted for 15% and 13% of total revenues during fiscal years 2009 and
2008. We expect the trend of slowing OEM mice sales to continue. Our OEM sales
were growing despite the decline in sales of mice due to our sales of
microphones for use with particular game titles for gaming consoles. However,
these sales are tied to the title distributor agreeing to distribute our
microphone with their game, and to the popularity of the particular game title.
We believe future OEM sales growth depends on the development of new titles or
products, consumers gaming purchase activity, and the manufacturers decision
to combine our products with theirs, none of which is assured to occur.

Although
our financial results are reported in U.S. dollars, nearly half of our sales are
made in currencies other than the U.S. dollar, such as the euro, British pound,
Chinese renminbi and Japanese yen. Our product costs are primarily in U.S.
dollars and Chinese renminbi. Our operating expenses are incurred in U.S.
dollars, euros, Swiss francs, Taiwanese dollars and, to a lesser extent, 25
other currencies. In previous years, our pricing strategy generally included,
among other factors, raising or lowering selling prices in other currencies over
time to avoid disparity with U.S. dollar prices and to respond to
currency-driven competitive pricing actions. In the current global economic
downturn, our ability to manage local currency selling prices in response to
changes in the U.S. dollar has been reduced because of weak consumer spending.
We have chosen to prioritize sustaining and gaining market share in our product
lines, rather than managing short-term exchange rate fluctuations.

35

---

Our gross
margins vary with the mix of products sold, competitive activity, product life
cycle, new product introductions, unit volumes, commodity and supply chain
costs, foreign currency exchange rate fluctuations, geographic sales mix, and
the complexity and functionality of new product introductions. Changes in
consumer demand affect the need for us to undertake promotional efforts, such as
cooperative marketing arrangements, customer incentive programs or price
protection, which alters our product gross margins. Gross margins declined in
fiscal year 2009, compared with the prior fiscal year, due to product mix and
increases in promotional efforts in response to sagging consumer demand. We
expect these trends to also affect gross margins in 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 tax
rate depends on the amount of profits generated in each of the various tax
jurisdictions in which we operate. The higher effective tax rates for the fiscal
year ended March 31, 2009 compared with the prior fiscal year are principally
the result of decreased income before income taxes and changes in the
geographical mix of income.

In the
fiscal quarter ended March 31, 2009, we implemented a restructuring plan which
reduced Logitechs salaried workforce globally by 515 employees, in addition to
other actions aimed at reducing operating expenses. We incurred approximately
$20.5 million in pre-tax restructuring charges related to employee termination
costs, contract termination costs and other associated costs in the fourth
quarter of fiscal year 2009. We expect to incur an additional $4 million to $6
million in related charges in fiscal year 2010. The restructuring plan is
expected to generate annual personnel cost savings beginning in fiscal year 2010
of approximately $50 million, and approximately $50 million additional variable
cost savings through efforts to limit production costs and operating expenses.
The size and timing of future restructuring charges and cost savings are
estimates subject to significant future economic, competitive and other
uncertainties, and there can be no assurance that we will fully realize the
anticipated future results. In the event that the current economic conditions
significantly worsen, further restructuring measures may be required in the
future.

Critical Accounting Estimates

The
preparation of financial statements and related disclosures in conformity with
generally accepted accounting principles in the United States of America (U.S.
GAAP) requires the Company to make judgments, estimates and assumptions that
affect reported amounts of assets, liabilities, net sales and expenses, and the
disclosure of contingent assets and liabilities.

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

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 price protection. 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.

36

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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.

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 price protection. 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.

37

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Short-term Investments

We have
short-term investments that are primarily auction rate securities and are
classified as available-for-sale as of March 31, 2009. Auction rate securities
generally have maturity dates greater than 10 years, with interest rates that
typically reset through an auction every 28 days. The Companys short-term
investments are reported at estimated fair value. The fair value of short-term
investments is estimated based on quoted market prices, if available, or by
estimating the values of the underlying collateral using published mortgage
indices or interest rate spreads for comparably-rated collateral and applying
discounted cash flow or option pricing methods to the estimated collateral
value. The markets for the auction rate securities we hold as of March 31, 2009
have failed since August 2007, and due to continuing dislocations in the
worldwide credit markets, are not expected to resume in the foreseeable future,
if at all. As a result, the Company has valued the remaining $1.6 million in
short-term investments in its portfolio as of March 31, 2009 solely by pricing
the underlying collateral using published mortgage indices or interest rate
spreads for comparably-rated collateral pools and applying discounted cash flow
or option pricing methods to the estimated collateral value.

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.

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, 2009, two customers represented 18% and 10% of total accounts
receivable. The customers comprising the ten highest outstanding trade
receivable balances accounted for approximately 55% of total accounts receivable
as of March 31, 2009. 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.

38

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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 estimated using the Black-Scholes-Merton option-pricing
valuation model for stock options and stock purchases and the Monte-Carlo
simulation model for restricted stock units (RSUs). Compensation expense for
these awards 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 the
Consolidated Financial Statements for further discussion of share-based
compensation.

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 stock option 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 option 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 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 that 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
adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109(FIN 48) as of April 1, 2007, as required. The implementation of the
provisions of FIN 48 requires us to make certain 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 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. Note 14 of the consolidated financial
statements describes FIN 48 and the effects on our results of operations and
financial position arising from its adoption.

39

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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;
- 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. While the Company has fully integrated all of its acquired
companies, it continues to maintain discrete financial information for
3Dconnexion and accordingly determines impairment for the goodwill acquired with
the 3Dconnexion acquisition 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
December 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations(SFAS 141R). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs,
in-process research and development and restructuring costs. SFAS 141R is
effective for fiscal years beginning after December 15, 2008 and, as such, we
will adopt this standard for any future acquisitions beginning in fiscal year
2010, except that resolution of certain tax contingencies and adjustments to
valuation allowances related to business combinations, which previously were
adjusted to goodwill, will be adjusted to income tax expense for all such
adjustments after April 1, 2009, regardless of the date of the original business
combination.

In April
2009, the FASB issuedFASB Staff PositionNo. FAS 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies(FSP 141R-1).This FSP amends the
accounting in SFAS 141R for assets and liabilities arising from contingencies in
a business combination. FSP 141R-1 requires that pre-acquisition contingencies
be recognized at fair value, if fair value can be reasonably determined. If fair
value cannot be reasonably determined, FSP 141R-1 requires measurement based on
the best estimate in accordance with Statement of Financial Accounting Standards
No. 5, *Accounting for Contingencies*. FSP 141R-1 is effective for fiscal
years beginning after December 15, 2008 and, as such, we will adopt this
standard for any future acquisitions beginning in fiscal year 2010.

40

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In April
2009, the FASB issued FASB Staff Position No. 157-4,Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly(FSP 157-4). Based on
the guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with FASB Statement of Financial Accounting Standards No.
157,Fair Value Measurements(SFAS 157). FSP 157-4 is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. Logitech will adopt
FSP 157-4 in the first quarter of fiscal year 2010. We do not expect that FSP
157-4 will have a material impact on the Companys consolidated financial
statements and disclosures.

In April
2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of
Financial Instruments(FSP 107-1), which
amends FASB Statement No. 107,Disclosures
about Fair Values of Financial Instruments,
to require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. FSP 107-1 also
amends Accounting Principles Board Opinion No. 28,Interim Financial Reporting, to
require those disclosures in summarized financial information at interim
reporting periods. FSP 107-1 is effective for interim periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The Company will adopt FSP 107-1 in the first quarter of fiscal year 2010 and
does not expect that the adoption of the FSP will have a material impact on the
Companys consolidated financial statements and disclosures.

In April
2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2,Recognition and Presentation of
Other-Than-Temporary Impairments(FSP 115-2
and 124-2), which amends the other-than-temporary guidance in U.S. GAAP for
debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. FSP 115-2 and 124-2 is effective
for interim periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. The Company will adopt FSP 115-2 and
124-2 in the first quarter of fiscal year 2010 and does not expect that the
adoption of the FSP will have a material impact on the Companys consolidated
financial statements and disclosures.

In April
2008, the FASB issued FASB Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets(FSP 142-3). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under Statement of Financial
Accounting Standards No. 142,Goodwill and
Other Intangible Assets(SFAS 142). The
objective of FSP 142-3 is to improve the consistency between the useful life of
a recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the asset under SFAS 141R. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company
will adopt FSP 142-3 in the first quarter of fiscal year 2010 and is currently
evaluating the potential impact that the adoption of FSP 142-3 may have on its
consolidated financial statements.

In
December 2008, the FASB issued FASB Staff Position No. 132(R)-1,Employers Disclosures about Postretirement Benefit Plan
Assets(FSP 132(R)-1). FSP 132(R)-1
requires detailed disclosures regarding the investment strategies, fair value
measurements, and concentrations of risk of plan assets of a defined benefit
pension or other postretirement plan. FSP 132(R)-1 is effective for fiscal years
ending after December 15, 2009. We will adopt FSP 132(R)-1 in
fiscal year 2010, and are evaluating the disclosure impact.

41

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Results of Operations

Year Ended March 31, 2009 Compared
with Year Ended March 31, 2008

Net Sales

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

2009
    
    2008
    
    Change %Net sales by channel:Retail
    $
    1,887,343
    
    $
    2,067,288
    
    (9%)OEM
    
    321,489
    
    
    303,208
    
    6%Total net sales
    $
    2,208,832
    
    $
    2,370,496
    
    (7%)Net sales by product family:Retail - Pointing
      Devices
    $
    579,775
    
    $
    615,524
    
    (6%)Retail - Keyboards &
      Desktops
    
    384,809
    
    
    464,984
    
    (17%)Retail - Audio
    
    445,362
    
    
    478,455
    
    (7%)Retail - Video
    
    248,339
    
    
    238,728
    
    4%Retail - Gaming
    
    127,052
    
    
    146,016
    
    (13%)Retail - Remotes
    
    102,006
    
    
    123,581
    
    (17%)OEM
    
    321,489
    
    
    303,208
    
    6%Total net sales
    $
    2,208,832
    
    $
    2,370,496
    
    (7%)


Logitechs Pointing Devices product family includes our mice, trackballs
and other pointing devices. Keyboards and desktops 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. Remotes is comprised
of our advanced remote controls. Net sales reflect accruals for product
returns, cooperative marketing arrangements, customer incentive programs and
price protection.

The
decline in retail sales in fiscal year 2009 compared with fiscal year 2008 was
attributable to the global economic downturn, as reflected in consumers
reluctance to spend and their buying preference for lower-price products, and
our channel partners decisions to reduce inventory levels. Retail sales
declined 23% in the last six months of fiscal year 2009, compared with an
increase of 11% in the first six months. OEM sales were higher for fiscal year
2009, due to demand in the first three fiscal quarters of the year for our
microphones for singing games.

Approximately 46% of our sales in fiscal year 2009 were denominated in
currencies other than the U.S. dollar, which compares with approximately 45% in
fiscal year 2008. If foreign currency exchange rates in fiscal year 2009 had
been the same as in fiscal year 2008, our total sales decrease would have been
6% instead of 7%. The negative impact on net sales of the strengthening of the
U.S. dollar in the six months ended March 31, 2009 offset the positive effect of
foreign currency exchange rate fluctuations which benefited net sales in the six
months ended September 30, 2008, resulting in an immaterial impact of exchange
rates on net sales for the fiscal year considered as a whole.

Retail
Pointing Devices.Retail sales of our
pointing devices decreased 6% and units decreased 2% in fiscal year 2009
compared with the prior fiscal year. Sales of corded mice declined 13%, with
units decreasing 8%. Sales of cordless mice increased 4% and units increased
10%, primarily driven by sales of our notebook mice: the V450 Nano Cordless
Mouse, the V220 Cordless Optical Mouse, and the V550 Nano Cordless Laser 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.Sales of keyboards
and desktops decreased 17% and units decreased 10% during fiscal year 2009
compared with fiscal year 2008. Sales of corded keyboards and desktops decreased
5% and units decreased 7%. Sales of cordless keyboards and desktops decreased
21%, with a 17% decline in units, with strong sales of our cordless desktops EX
100 and MX 5500 more than offset by declines in sales of the MX5000 Laser and EX
110 cordless desktops.

Retail
Audio.Retail audio sales declined 7% in
fiscal year 2009, with units down 2%, primarily due to lower PC speaker sales,
which decreased 20% in dollars and 8% in units. The decline in PC speaker sales
was primarily attributable to weakness in our product line due to product
transitions, in addition to the deteriorating demand environment. Sales of our
iPod speakers increased 22% in fiscal year 2009, with an 8% increase in units,
primarily due to strong contributions from our PureFi Anywhere 2 speakers. PC
headset sales grew 9% and units increased 3%, driven by our new ClearChat PC
Wireless and ClearChat Comfort USB headsets. Streaming Media and Ultimate Ears
products also provided positive contributions to retail audio sales.

42

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Retail
Video.Video sales increased 4% and units
increased 3%, primarily attributable to sales of our WiLife video security
products in fiscal year 2009, and depressed comparative sales in fiscal year
2008. Sales of our Communicate MP and QuickCam Connect webcams were also strong,
but were offset by a decline in sales of our QuickCam Communicate STX.

Retail
Gaming.Retail sales of our gaming
peripherals decreased 13% while units decreased 22% in fiscal year 2009. PC
gaming sales decreased 13% with an 18% decrease in units, primarily due to lower
sales of our G15 gaming keyboard and our MOMO Racing Force Feedback steering
wheel, partially offset by sales of our G25 Racing Wheel. Console gaming sales
decreased 12% with a 28% decline in units. The growth in sales of our GT Driving
Force steering wheel were more than offset by declines in the sale of
PlayStation gamepads and the Driving Force Pro steering wheel.

Retail
Remotes.Retail remote sales decreased 17%
and units increased 8% in fiscal year 2009, reflecting strong sales of our
lower-priced Harmony One remote control, increased promotional activity and
declines in the sales of our Harmony 880 and the higher-priced Harmony
1000.

Retail
Regional Performance.Sales in our Americas
region decreased 15% and units decreased 5% in fiscal year 2009 compared with
fiscal year 2008, with sales declines in all product lines except video. The
lower decline in units compared with sales dollars reflects a higher proportion
of value-segment products in the overall product mix. Retail sales declined 26%
in the Americas region in the last six months of the fiscal year, compared with
flat sales in the first six months. EMEA region retail sales declined 11% in
U.S. dollars and 8% in local currency across all product lines in fiscal year
2009, with units decreasing 8%. Sales in Eastern Europe and other emerging
markets were particularly depressed, reflecting the economic downturn,
customers lack of available credit to finance purchases of inventory, and
currency volatility. EMEA retail sales in the last six months of fiscal year
2009 decreased 26% over the prior year, compared with an increase of 12% in the
first six months of the fiscal year. Sales in our Asia Pacific region increased
16% in U.S. dollars and 11% in local currency in fiscal year 2009, and units
increased 8%, driven by growth in all product lines. Asia Pacific region retail
sales declined 3% in the last six months of fiscal year 2009, compared with an
increase of 38% in the first six months.

OEM.Sales of OEM products increased
6% and units increased 2% during fiscal year 2009 compared with fiscal year
2008, primarily due to the continued success of our microphones for singing
games for Playstation 3, Wii and Xbox 360 in the first three quarters of the
fiscal year. OEM sales increased 38% in the first six months of fiscal year 2009
and declined 21% in the second six months. The Company does not expect sales of
microphones for singing games to be a primary driver of OEM sales growth in the
near future.

43

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Gross Profit

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

2009
    
    2008
    
    Change %Net sales
    $
    2,208,832
    
    $
    2,370,496
    
    (7%)Cost of goods
      sold
    
    1,517,606
    
    
    1,521,378
    
    (0%)Gross profit
    $
    691,226
    
    $
    849,118
    
    (19%)Gross
      margin
    
    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.

Gross
profit decreased 19% in dollars and declined as a percentage of revenue
primarily due to the decline in net sales, an increasingly promotional
environment, the mix of products sold, and higher freight and intangible
amortization costs in fiscal year 2009 compared with fiscal year 2008.

Operating Expenses

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

2009
    
    2008
    
    Change %Marketing and selling
    $
    319,167
    
    $
    324,451
    
    (2%)% of net sales
    
    14.4%
    
    
    13.7%Research and development
    
    128,755
    
    
    124,544
    
    3%% of net sales
    
    5.8%
    
    
    5.3%General and administrative
    
    113,103
    
    
    113,443
    
    0%% of net sales
    
    5.1%
    
    
    4.8%Restructuring charges
    
    20,547
    
    
    -
    
    0%0.9%
    
    
    0.0%Total operating expenses
    $
    581,572
    
    $
    562,438
    
    3%


***Marketing and Selling***

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

Marketing
and selling personnel costs increased in fiscal year 2009 compared with fiscal
year 2008. Headcount was higher in the first three quarters of fiscal year 2009,
partially due to the addition of the WiLife product marketing group. The impact
of the 9% decrease in headcount resulting from the restructuring in the fourth
quarter of fiscal year 2009 will be reflected in future quarters expenses. Bad
debt expense also increased significantly in fiscal year 2009, due to customers
financial difficulties related to the economic downturn. The increase in
personnel costs and bad debt expense was more than offset by lower spending in
advertising, marketing development funds and travel expenses compared with the
prior year. 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.

44

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***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.

Research
and development expense increased in fiscal year 2009 due to research and
development costs of companies acquired in fiscal years 2009 and 2008. The
impact of year-over-year exchange rate changes on translation of foreign
currency research and development expenses to our U.S. dollar financial
statements, particularly from the stronger Swiss franc and Taiwanese dollar
relative to the U.S. dollar during the fiscal year ended March 31, 2009, also
contributed to the increase. These increases were partially offset by decreased
travel and other discretionary expenses in the second half of fiscal year 2009.
Personnel costs were approximately the same in fiscal years 2009 and 2008. The
impact of the 8% decrease in research and development headcount resulting from
the restructuring in the fourth quarter of fiscal year 2009 will be reflected in
future quarters expenses.

***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. Personnel costs increased 2% during fiscal year 2009 primarily due to an
increase in share-based compensation expense. The impact of the 22% decrease in
general and administrative headcount resulting from the restructuring in the
fourth quarter of fiscal year 2009 will be reflected in future quarters
expenses. The impact of year-over-year exchange rate changes on translation of
foreign currency general and administrative expenses to our U.S. dollar
financial statements, particularly from the stronger Swiss franc relative to the
U.S. dollar during the fiscal year ended March 31, 2009, also contributed to the
increase. These increases were offset by decreases in consulting fees and travel
expenses resulting from cost containment efforts 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.

The
restructuring plan reduced our salaried workforce by 515 employees, resulting in
$16.4 million in termination benefits to those employees. Termination benefits
are calculated based on regional benefit practices and local statutory
requirements. An additional $3.4 million in pension plan curtailment and
settlement costs were incurred 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 will not be placed in service
due to the abandonment of the related projects.

The
following table summarizes restructuring-related activities
during fiscal year 2009 (in thousands):

|                             |  |       |         |          |  |             |         |       |  |             |      |   |  | Contract |      |   |  |  
|---------------------------- |  | ----- | ------- | -------- |  | ----------- | ------- | ----- |  | ----------- | ---- | - |  | -------- | ---- | - |  | -
|                             |  |       |         |          |  | Termination |         | Asset |  | Termination |      |   |  |         
|                             |  | Total |         | Benefits |  | Impairments |         | Costs |  | Other      
|Balance at March 31, 2008    |  | $     | -       |          |  | $           | -       |       |  | $           | -    |   |  | $        | -    |   |  | $
|Charges                      |  |       | 20,547  |          |  |             | 16,428  |       |  |             | 556  |   |  |          | 200  |   |  |  
|Cash
      payments          |  |       | (12,764 | )        |  |             | (12,579 | )     |  |             | -    |   |  |          | (185 | ) |  |  
|Charges
      against assets |  |       | (556    | )        |  |             | -       |       |  |             | (556 | ) |  |          | -    |   |  |  
|Other                        |  |       | (3,485  | )        |  |             | (121    | )     |  |             | -    |   |  |          | -    |   |  |  
|Foreign
      Exchange       |  |       | 51      |          |  |             | 51      |       |  |             | -    |   |  |          | -    |   |  |  
|Balance at March 31, 2009    |  | $     | 3,794   |          |  | $           | 3,779   |       |  | $           | -    |   |  | $        | 15   |   |  | $

45

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Interest Income,
Net

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

2009
    
    2008
    
    Change %Interest income
    
    $
    8,648
    
    
    $
    15,752
    
    
    (45%)Interest
      expense
    
    
    (20
    )
    
    
    (244
    )
    
    (92%)Interest income, net
    
    $
    8,628
    
    
    $
    15,508
    
    
    (44%)


Interest
income was lower for fiscal year 2009 due to significantly lower interest rates
compared with the prior year.

Other Income (Expense),
Net

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

2009
    
    2008
    
    Change %Foreign currency exchange gains, net
    
    $
    13,680
    
    
    $
    10,616
    
    
    29%Gain on sale of
      investments, net
    
    
    -
    
    
    
    27,761
    
    
    (100%)Write-down of investments
    
    
    (2,727
    )
    
    
    (79,823
    )
    
    (97%)Other,
      net
    
    
    (2,442
    )
    
    
    2,072
    
    
    (218%)Other income (expense), net
    
    $
    8,511
    
    
    $
    (39,374
    )
    
    (122%)


The
increase in foreign exchange gains during fiscal year 2009 was due to gains on
sales of euros for U.S. dollars. We do not speculate in currency positions, but
we are alert to opportunities to maximize foreign exchange gains.

During
the fiscal years ended March 31, 2009 and 2008, we recorded write-downs of $2.7
million and $79.8 million related to other-than-temporary declines in the
estimated fair value of our short-term investments. During fiscal year 2008, we
also recorded a realized gain of $33.7 million on short-term investments sold as
part of a confidential settlement agreement, and a realized loss of $6.0 million
related to the sale of all of our short-term investments collateralized by
corporate debt.

Other,
net decreased significantly during fiscal year 2009 compared with the prior
year, due primarily to losses in our management deferred compensation plan
investments. Other income in fiscal year 2008 also includes $1.0 million gain on the sale of our ioPen retail product line.

Provision for Income
Taxes

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

2009
    
    2008Provision for income taxes
    
    $
    19,761
    
    $
    31,788Effective income
      tax rate
    
    
    15.6%
    
    
    12.1%


The
provision for income taxes consists of income and withholding taxes.
The increase in the effective tax rate to 15.6% compared with 12.1% in fiscal
year 2008 is primarily due to decreased income before income taxes and changes
in the Companys geographic mix of income.

46

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On
October 3, 2008,The Emergency Economic
Stabilization Act of 2008, which contains theTax Extenders and Alternative Minimum Tax
Relief Act of 2008, was enacted into law by
the U.S. Congress. Under the Act, the research tax credit was retroactively
extended for amounts paid or incurred after December 31, 2007 and before January
1, 2010. As a result, the income tax expense for fiscal year 2009 reflected a
$2.0 million tax benefit for research tax credits.

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

47

---

Year Ended March 31, 2008 Compared
with Year Ended March 31, 2007

Net Sales

Net sales by channel and product
family for fiscal years 2008 and 2007 were as follows (in thousands):

2008
    
    2007
    
    Change %Net sales by channel:Retail
    
    $
    2,067,288
    
    $
    1,844,395
    
    12%OEM
    
    
    303,208
    
    
    222,174
    
    36%Total net sales
    
    $
    2,370,496
    
    $
    2,066,569
    
    15%Net sales by product family:Retail -
      Pointing Devices
    
    $
    615,524
    
    $
    508,449
    
    21%Retail -
      Keyboards & Desktops
    
    
    464,984
    
    
    372,266
    
    25%Retail -
      Audio
    
    
    478,455
    
    
    408,314
    
    17%Retail -
      Video
    
    
    238,728
    
    
    314,514
    
    (24%)Retail -
      Gaming
    
    
    146,016
    
    
    149,113
    
    (2%)Retail -
      Remotes
    
    
    123,581
    
    
    91,739
    
    35%OEM
    
    
    303,208
    
    
    222,174
    
    36%Total net sales
    
    $
    2,370,496
    
    $
    2,066,569
    
    15%


Retail
sales growth in fiscal year 2008 was primarily attributable to strong
contributions from pointing devices, keyboards, desktops, audio products and
remotes. OEM sales were higher as a result of strong sales of gaming
peripherals, keyboards and desktops. We achieved strong sales growth in spite of
a highly promotional market that resulted in higher consumer rebates as compared
with the prior fiscal year. Approximately 54% of the Companys sales were
denominated in currencies other than the U.S. dollar in fiscal year 2008. Net
sales growth benefited from the strengthening of the euro during fiscal year
2008; however this benefit does not consider the impact that currency
fluctuations had on our pricing strategy, which may result in selling prices in
one currency being raised or lowered to avoid disparity with U.S. dollar prices
and to respond to currency-driven competitive pricing actions.

Retail
Pointing Devices.Sales of our pointing
devices increased 21% and units increased 13% during fiscal year 2008 compared
with fiscal year 2007. The growth was led by sales of our cordless mice which
increased 30% during the year, with units increasing 40%. Our VX Nano Cordless
Laser Mouse for notebooks, our V220 Cordless Optical Mouse for notebooks and our
V320 Cordless Mouse for notebooks were the primary contributors to the sales
growth during the year.

Retail
Keyboards and Desktops.Sales of keyboards
and desktops increased 25% and units increased 19% during fiscal year 2008
compared with the prior fiscal year, primarily due to strong contributions from
our Cordless Desktop Wave and our MX 3200 Laser Cordless Desktop in our high-end
category and the Cordless Desktop EX 90 in our value segment. Our notebook
stands also contributed to our growth in this category.

Retail
Audio.Our retail audio sales increased 17%
in dollars and 2% in units in fiscal year 2008 compared with the prior year. The
growth was primarily from sales of PC speakers, which increased 38% with unit
growth of 26%, driven by sales of our Z-5500 Digital speakers and our X-240 and
Z-2300 speakers. Sales of our Pure-Fi Anywhere speakers in the digital music
category also contributed to the sales of our audio products.

Retail
Video.The Companys video sales in dollars
and units decreased 24% in fiscal year 2008 compared with fiscal year 2007,
primarily due to slower than expected consumer demand in the webcam market,
particularly in our EMEA region, where video sales decreased 40% as compared
with the prior fiscal year.The decline in video sales in comparison with the prior year
began in the fourth quarter of fiscal year 2007.

48

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Retail
Gaming.Sales of retail gaming peripherals in
fiscal year 2008 decreased 2% and units decreased 17% compared with the prior
fiscal year. PC gaming sales increased 3%, primarily driven by sales of our G15
Gaming Keyboard and our G25 Racing Wheel. Console gaming sales decreased 13% and
units decreased 28% as compared with the prior fiscal year, due to a decline in
sales related to peripherals for prior generation consoles, particularly the
PlayStation 2. Sales of our cordless controllers for PlayStation 3 did not
offset the decline in prior generation consoles.

Retail
Remotes.Remote control sales in fiscal year
2008 increased 35% and units increased 20% as compared with fiscal year 2007.
The growth was primarily attributable to sales of our new Harmony One and our
Harmony 1000 remote controls.

Retail
Regional Performance.The Companys Americas
and Asia Pacific regions achieved double-digit retail sales growth of 12% and
32% and unit growth of 8% and 13% compared with the prior fiscal year. Growth in
the Americas region was driven by solid contributions from sales of pointing
devices, remotes, keyboards and desktops. In the Asia Pacific region, all
product lines except video achieved double-digit retail sales growth. Retail
sales in the EMEA region increased 8% and units increased 2%, led by sales of
remotes, audio products, pointing devices, keyboards and desktops. Sales in the
EMEA region have been disproportionately impacted by the decline in video sales,
which decreased 40% compared with the prior fiscal year. Modest sales growth in
the EMEA region has hindered the Companys overall sales growth for each of the
four quarters of fiscal year 2008. The disparity between sales growth and unit
growth in all regions was primarily due to product mix and currency
fluctuations. In particular, the strengthening of the euro in fiscal year 2008
positively impacted the sales growth in the EMEA region; however this benefit
does not consider the impact that currency fluctuations have on the Companys
pricing strategy, which may result in selling prices in one currency being
raised or lowered to avoid disparity with U.S. dollar prices and to respond to
currency-driven competitive pricing actions.

OEM.Our OEM products achieved 36%
sales growth and 12% unit growth during fiscal year 2008 compared with fiscal
year 2007. OEM sales of gaming peripherals increased significantly, driven by
microphones for singing games for PlayStation 3, Wii and Xbox 360. Keyboards and
desktops also made a strong contribution to our OEM sales growth in fiscal year
2008.

Gross Profit

Gross profit for fiscal years 2008 and
2007 was as follows (in thousands):

2008
    
    2007
    
    Change %Net sales
    
    $
    2,370,496
    
    $
    2,066,569
    
    15%Cost of goods
      sold
    
    
    1,521,378
    
    
    1,357,044
    
    12%Gross profit
    
    $
    849,118
    
    $
    709,525
    
    20%Gross
      margin
    
    
    35.8%
    
    
    34.3%


Gross
profit increased 20% in fiscal year 2008 compared with the prior fiscal year.
The growth resulted from an increase in sales combined with higher margins
associated with our newly launched products. Gross margin improvements were
achieved primarily on cordless mice, cordless keyboards, PC speakers and console
gaming peripherals. In addition, we continued to make an effort to reduce
product costs and increase supply chain efficiencies during fiscal year
2008.

49

---

Operating
Expenses

Operating
expenses for fiscal years 2008 and 2007 were as follows (in
thousands):

2008
    
    2007
    
    Change %Marketing and selling
    
    $
    324,451
    
    $
    272,264
    
    19%% of net sales
    
    
    13.7%
    
    
    13.2%Research and development
    
    
    124,544
    
    
    108,256
    
    15%% of net sales
    
    
    5.3%
    
    
    5.2%General and administrative
    
    
    113,443
    
    
    98,143
    
    16%% of net sales
    
    
    4.8%
    
    
    4.7%Total operating expenses
    
    $
    562,438
    
    $
    478,663
    
    18%


***Marketing and
Selling***

Marketing
and selling expenses increased 19% in fiscal year 2008 compared with fiscal year
2007 primarily due to increased personnel costs related to headcount additions
during the year to support higher retail sales levels as well as increased
advertising and product promotion costs such as our advertising campaign for our
remotes product line launched during the fourth quarter of fiscal year 2008. The
impact of exchange rate changes on translation of foreign currency marketing and
selling expenses to the Companys U.S. dollar financial statements, particularly
from the stronger euro and Swiss franc relative to the U.S. dollar, also
contributed to the increase.

***Research and
Development***

The
increase in research and development expense reflects our commitment to
continued investment in research and development initiatives, particularly in
the audio, video and control devices product lines. Increased personnel costs
related to headcount additions in the last half of fiscal year 2007 were the
largest contributor to the increases in research and development expense for
fiscal year 2008. The impact of exchange rate changes on translation of foreign
currency research and development expenses to the Companys U.S. dollar
financial statements, particularly from the stronger euro, Swiss franc and
Canadian dollar relative to the U.S. dollar, also contributed to the
increase.

***General and
Administrative***

General
and administrative expense increased primarily as a result of an increase in
personnel and occupancy expenses. Personnel costs increased 19% during the year
due to headcount increases in the latter half of fiscal year 2007 to support new
systems and internal control procedures implemented during fiscal year 2007.
Depreciation expense increased significantly compared with the prior fiscal year
primarily due to equipment and computer hardware purchases during fiscal year
2008. Rent expense also increased during the year due to expanded facilities.
The impact of exchange rate changes on translation of foreign currency general
and administrative expenses to the Companys U.S. dollar financial statements,
particularly from the stronger euro and Swiss franc relative to the U.S. dollar,
also contributed to the increase.

Interest Income,
Net

Interest income and expense for
fiscal years 2008 and 2007 were as follows (in thousands):

2008
    
    2007
    
    Change %Interest income
    
    $
    15,752
    
    
    $
    9,083
    
    
    73%Interest
      expense
    
    
    (244
    )
    
    
    (350
    )
    
    (30%)Interest income, net
    
    $
    15,508
    
    
    $
    8,733
    
    
    78%


Interest
income was higher for fiscal year 2008 due to higher invested balances in cash,
short-term bank deposits and short-term investments, and slightly higher returns
earned on invested amounts.

50

---

Other Income (Expense),
Net

Other
income and expense for fiscal years 2008 and 2007 were as follows (in
thousands):

2008
    
    2007
    
    Change %Foreign currency exchange gains, net
    
    $
    10,616
    
    
    $
    6,190
    
    72%Gain on sale of
      investments, net
    
    
    27,761
    
    
    
    9,048
    
    207%Write-down of investments
    
    
    (79,823
    )
    
    
    -
    
    -Other,
      net
    
    
    2,072
    
    
    
    724
    
    186%Other income (expense), net
    
    $
    (39,374
    )
    
    $
    15,962
    
    (347%)


During
fiscal year 2008, we recorded a write-down of $79.8 million related to an
other-than-temporary decline in the estimated fair value of our short-term
investments. We also recorded a gain of $33.7 million related to the short-term
investments that we sold as part of a confidential settlement agreement in the
third quarter of fiscal year 2008. In addition, we sold all of our investments
collateralized by corporate debt during the third quarter of fiscal year 2008
and recorded a realized loss of $6.0 million. The change in foreign currency
exchange gains during fiscal year 2008 resulted primarily from gains related to
the sale of the Companys euro currency for U.S. dollars. The Company does not
speculate in currency positions, but is alert to opportunities to maximize its
foreign exchange gains. Other income also includes $1.0 million gain on the sale
of our ioPen retail product line.

Other
income for fiscal year 2007 included a gain of $9.1 million on the sale of our
investment in Anoto Group AB, a publicly traded Swedish technology company from
which we licensed our digital pen technology.

Provision for Income
Taxes

The
provision for income taxes and effective tax rate for fiscal years 2008 and 2007
were as follows (in thousands):

2008
    
    2007Provision for income taxes
    
    $
    31,788
    
    $
    25,709Effective income
      tax rate
    
    
    12.1%
    
    
    10.1%


The
provision for income taxes consists of income and withholding taxes. The
increase in the effective tax rate to 12.1% compared with 10.1% in fiscal year
2007 is primarily due to changes in the Companys geographic mix of income and
other-than-temporary declines in the estimated fair value of our short-term
investments. The Company did not derive a tax benefit from the
other-than-temporary declines in the estimated fair value of short-term
investments.

51

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Liquidity and Capital
Resources

Cash Balances, Available
Borrowings, and Capital Resources

At March
31, 2009, net working capital was $709.4 million, compared with $723.2 million
at March 31, 2008. The decrease in working capital over the prior year was
due to a decrease in
accounts receivable and inventory balances, partially offset by a decrease in
accounts payable and accrued liabilities.

During
fiscal year 2009, operating activities generated cash of $200.6 million. Our
largest source of operating cash flows was cash collections from customers. We
used $113.1 million in investing activities, $64.4 million of which was paid primarily for
our acquisitions of Ultimate Ears and SightSpeed, and $48.3 million was used for
capital expenditures, including investments for manufacturing equipment,
leasehold improvements, tooling costs and computer hardware and software
purchases. Net cash used in financing activities was $41.2 million. We used
$78.9 million during fiscal year 2009 to repurchase shares under our share
buyback programs, while proceeds from the exercise of employee stock options
provided $31.1 million.

At March
31, 2009, we had cash and cash equivalents of $492.8 million and short-term
investments of $1.6 million. Cash and cash equivalents are carried at cost,
which is equivalent to fair value. Short-term investments are carried at fair
value, determined by estimating the values of the underlying collateral using
published mortgage indices or interest rate spreads for comparably-rated
collateral and applying discounted cash flow or option pricing methods to the
estimated collateral value. The Company considers the inputs used to measure the fair value
of its short-term investments as Level 3 within the fair value hierarchy, as
described in Note 4 of our consolidated financial statements. Due to continued
disruptions in the U.S. credit market, we recorded a $2.7 million impairment
loss related to the other-than-temporary decline in the fair value of our
short-term investments during fiscal year 2009. We also recorded an unrealized
gain of $0.4 million related to temporary increases in the fair value of our
short-term investments. Further changes in the fair value of our short-term
investments would not materially affect our liquidity or capital
resources.

The
Company has credit lines with several European and Asian banks totaling $139.0
million as of March 31, 2009. As is common for businesses in European and Asian
countries, these credit lines are uncommitted and unsecured. Despite the lack of
formal commitments from the banks, we believe that these lines of credit will
continue to be made available because of our long-standing relationships with
these banks and our current financial condition. At March 31, 2009, the Company
had no outstanding borrowings under these lines of credit. There are no
financial covenants under these facilities.

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
its 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, despite the anticipated decline in sales
and profits.

52

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Cash Flow from Operating
Activities

The
following table presents selected financial information and statistics for
fiscal years 2009, 2008 and 2007 (dollars in thousands):

2009
    
    2008
    
    2007Accounts receivable, net
    
    $
    213,929
    
    $
    373,619
    
    $
    310,377Inventories
    
    $
    233,467
    
    $
    245,737
    
    $
    217,964Working capital
    
    $
    709,382
    
    $
    723,221
    
    $
    549,125Days sales in
      accounts receivable (DSO) (1)
    
    
    47
days
    
    
    56
days
    
    
    54
  daysInventory turnover (ITO) (2)
    
    
    5.2x
    
    
    6.3x
    
    
    6.2xNet cash
      provided by operating activities
    
    $
    200,587
    
    $
    393,079
    
    $
    303,825


|(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 2009, the Companys operating activities generated net cash of
$200.6 million compared with $393.1 million in the prior year. The decrease was
due primarily to a decline in net income during the year. DSO for fiscal year
2009 improved by 9 days compared with fiscal year 2008 due to higher collections
and lower sales. 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 decreased compared with the
prior year because sales decreased at a faster rate than inventory was
reduced.

During
fiscal year 2008, the Companys operating activities generated net cash of
$393.1 million compared with $303.8 million in the prior year. The increase was
primarily due to improved working capital efficiency and operating profit. DSO
for fiscal year 2008 increased by 2 days compared with fiscal year 2007. Our
accounts receivable increased at a faster rate than our net sales, which
contributed to the increase in DSO.

Cash Flow from Investing
Activities

Cash flows from investing activities
during fiscal years 2009, 2008 and 2007 were as follows (in
thousands):

|                                                                    |  | 2009 |          | 2008 |  | 2007
|------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ----
|Purchases of property, plant and equipment                          |  | $    | (48,263  | )    |  | $   
|Purchases of
      short-term investments                           |  |      | -        |      |  |     
|Sales of short-term investments                                     |  |      | -        |      |  |     
|Sale of
      investment                                            |  |      | -        |      |  |     
|Acquisitions, net of cash acquired                                  |  |      | (64,430  | )    |  |     
|Premiums paid on
      cash surrender value life insurance policies |  |      | (427     | )    |  |     
|Net cash provided by (used in)
      investing activities           |  | $    | (113,120 | )    |  | $   

Our
purchases of plant and equipment during fiscal year 2009 were principally for
computer hardware and software purchases, machinery and equipment and normal
expenditures for tooling.

In fiscal
year 2009, we acquired the Ultimate Ears companies for $31.8 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 has been recorded as a
liability in the accompanying consolidated financial statements. We also
acquired SightSpeed for $31.1 million in cash including transaction costs of
$1.0 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.

Our
purchases of plant and equipment during fiscal year 2008 were principally for
machinery and equipment for two new production and manufacturing facilities,
including a new surface mount technology factory in China, leasehold
improvements for a new office facility in Switzerland, computer hardware and
software purchases, and normal expenditures for tooling.

53

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During
the third quarter of fiscal year 2008, we sold 50% of all of our short-term
investments as part of a confidential settlement agreement and received $84.3
million in cash. In addition, we sold our remaining short-term 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 short-term 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 March 2007 of
the balance of our investment in Anoto. We also received $2.0 million from the
sale of our ioPen retail product line.

In fiscal
year 2008, the Company acquired WiLlife, Inc. for $22.0 million, net of cash
acquired of $0.1 million and including $0.7 million in transaction costs. We
also paid a deferred payment of $37.7 million to the former shareholders of
Intrigue Technologies, Inc., which we acquired in May 2004.

The
Companys purchases of property, plant and equipment in fiscal year 2007 were
primarily normal expenditures for tooling costs, machinery and equipment, and
computer hardware and software. In April 2006, we sold 42% of our Anoto stock
for $12.9 million. In fiscal year 2007, we acquired Slim Devices Inc. for $20.4
million, net of $0.2 million cash acquired and including $0.6 million in
transaction costs.

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
2009, 2008 and 2007 (in thousands except per share amounts):

|                                                          |  | 2009 |         | 2008 |  | 2007
|--------------------------------------------------------- |  | ---- | ------- | ---- |  | ----
|Repayments of short-term debt, net                        |  | $    | -       |      |  | $   
|Purchases of
      treasury shares                        |  |      | (78,870 | )    |  |     
|Proceeds from sale of shares upon exercise of options and |  |      |         |      |  |     
|purchase rights                                           |  |      | 31,119  |      |  |     
|Excess tax
      benefits from share-based compensation   |  |      | 6,592   |      |  |     
|Net cash used
      in financing activities               |  | $    | (41,159 | )    |  | $   
|                                                         
|                                                          |  | 2009 |         | 2008 |  | 2007
|Number of shares repurchased                              |  |      | 2,803   |      |  |     
|Value of shares
      repurchased                         |  | $    | 78,870  |      |  | $   
|Average price per share                                   |  | $    | 28.14   |      |  | $   

Cash used
in financing activities during fiscal year 2009 included share repurchases of
2.8 million shares, totaling $78.9 million under the Companys June 2007 buyback
program. The buyback program announced in June 2007 authorized the purchase of
up to $250.0 million in Logitech shares. We received proceeds of $31.1 million
from the sale of 3.1 million shares upon exercise of employee stock options and share purchases under our stock
plans. In addition, tax benefits recognized on the exercise of share-based
payment awards provided $6.6 million.

During
fiscal year 2008, we repaid in full our short-term debt borrowings of $11.7
million. We also repurchased 7.8 million shares for $219.7 million under the
buyback programs announced in May 2006 and June 2007. The buyback program
announced in May 2006 authorized the purchase of up to $250.0 million in
Logitech shares. The sale of 4.7 million shares upon exercise of employee stock options
pursuant to the Companys stock plans realized $50.6 million during fiscal year
2008. In addition, cash of $15.2 million was provided by tax benefits recognized
on the exercise of share-based payment awards.

During
fiscal year 2007, we used $138.1 million for share repurchases of 5.6 million
shares pursuant to the Companys buyback programs announced in June 2005 and May
2006. The buyback program announced in June 2005 authorized the purchase of up
to CHF 300.0 million (approximately $235.0 million based on exchange rates at
the date of announcement) in Logitech shares. Cash flow from financing
activities included $44.7 million in proceeds from the sale of 5.2 million
shares under the Companys employee option and share purchase plans, and $13.1
million related to tax benefits recognized on the exercise of share-based
payment awards. Short-term debt was reduced by $2.2 million.

54

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Cash Outlook

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

In June
2007, we announced the approval by our Board of Directors of a new share buyback
program authorizing the repurchase of up to $250 million of our shares. The
approved amount remaining under the June 2007 program at March 31, 2009 was
$125.7 million. We significantly lowered our share repurchase activity in the
second half of fiscal year 2009 compared with the prior fiscal year in order to
maximize our cash position in light of the current economic
environment.

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

In the
fiscal quarter ended March 31, 2009, we implemented a restructuring plan which
reduced Logitechs salaried workforce globally by 515 employees, in addition to
other actions aimed at reducing operating expenses. We incurred $20.5 million in
pre-tax restructuring charges related to employee termination costs, contract
termination costs and other associated costs in the fourth quarter of fiscal
year 2009. We expect to incur an additional $4 million to $6 million in fiscal
year 2010. The restructuring plan is expected to generate annual personnel cost
savings beginning in fiscal year 2010 of approximately $50 million, and
approximately $50 million additional variable cost savings through efforts to
limit production costs and operating expenses. The size and timing of future
restructuring charges and cost savings are estimates subject to significant
future economic, competitive and other uncertainties, and there can be no
assurance that we will fully realize the anticipated future results. In the
event that the current economic conditions significantly worsen, further
restructuring measures may be required in the future.

In
December 2006, we acquired Slim Devices, Inc., a privately held company
specializing in network-based audio systems for digital music. The purchase
agreement provides for a possible performance-based payment, payable in the
first calendar quarter of 2010. The performance-based payment is based on net
revenues from the sale of products and services in calendar year 2009 derived
from Slim Devices technology. The maximum performance-based payment is $89.5
million, and no payment is due if the applicable net revenues total $40 million
or less. The total performance-based payment amount, if any, will be recorded in
goodwill and will not be final until the end of calendar year 2009. As of March
31, 2009, no amounts were payable towards performance-based payments under our
acquisition agreement.

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

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. We generated cash from operations of $200.6 million in
fiscal year 2009. Despite the deteriorating 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.

55

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Contractual Obligations and
Commitments

As of
March 31, 2009, 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, 2009 (in
thousands):

|                                                |       |         |      | **Payments Due by Period (1)**
|----------------------------------------------- | ----- | ------- | ---- | ------------------------------
|                                                |       |         |      | Less than 1                   
|                                                | Total |         | year |                               
|Operating leases                                | $     | 46,850  |      | $                             
|Purchase
      commitments - inventory          |       | 106,686 |      |                               
|Purchase obligations - capital expenditures     |       | 8,267   |      |                               
|Purchase
      obligations - operating expenses |       | 27,616  |      |                               
|Other liabilities(2)                            |       | 137,401 |      |                               
|Total
      contractual obligations             |       |         |      |                               
|and commitments                                 | $     | 326,820 |      | $                             

|(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.                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Other liabilities at March 31,
      2009 included $10.5 million for deferred compensation, $101.5 million
      related to our FIN 48 income tax liability, $22.7 million in pension
      liability related to our defined benefit pension plans, of which $2.9
      million is payable in the next 12 months, and $2.7 million related to
      various other obligations. As the specific payment dates for 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 2027. Our asset retirement obligations on these leases as of March 31,
2009 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, 2009,
fixed purchase commitments for capital expenditures amounted to $8.3 million,
and primarily related 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, 2009,
fixed purchase commitments for inventory amounted to $106.7 million, which are
expected to be fulfilled by December 31, 2009. We also had other commitments of
$27.6 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, 2009, we had $101.5 million in non-current income taxes payable, including
interest and penalties, related to our FIN 48 income tax liability. At this
time, we cannot make a reasonably reliable estimate of the period in which a
cash settlement will be made with the tax authorities.

56

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Defined Benefit Pension Plan
Obligations

At March 31,
2009, we had $22.7 million in pension liability related to our defined benefit
pension plans, of which $2.9 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, 2009,
the amount of outstanding guaranteed purchase obligations was approximately $0.1
million. The maximum potential future payments under two of the three guarantee
arrangements is limited to $2.8 million in total. The third guarantee is limited
to purchases of specified components from the named supplier.

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 $4.9 million as of March 31, 2009. As of March 31, 2009, $4.9 million was
outstanding under these guarantees. 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 any of the Companys
guarantee arrangements.

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, 2009. 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.

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, Japanese yen, Taiwanese dollar,
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.

57

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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, 2009. The table below
represents the U.S. dollar impact on earnings of a 10% appreciation and a 10%
depreciation of the functional currency as compared with the transaction
currency (in thousands):

FX Gain (Loss)
    
    FX Gain (Loss)Net Exposed
    
    From 10%
    
    From 10%Long (Short)
    
    Appreciation of
    
    Depreciation ofFunctional
    
    
    
    Currency
    
    Functional
    
    FunctionalCurrency
    
    Transaction Currency
    
    Position
    
    Currency
    
    CurrencyU.S. dollar
    
    Chinese renminbi
    
    $
    104,088
    
    
    $
    (9,463
    )
    
    $
    11,565Euro
    
    British
      pound
    
    
    24,949
    
    
    
    (2,268
    )
    
    
    2,772Japanese yen
    
    U.S. dollar
    
    
    (23,341
    )
    
    
    2,122
    
    
    
    (2,593
    )Taiwanese
      dollar
    
    U.S.
      dollar
    
    
    12,540
    
    
    
    (1,140
    )
    
    
    1,393Mexican peso
    
    U.S. dollar
    
    
    (7,184
    )
    
    
    653
    
    
    
    (798
    )U.S.
      dollar
    
    Swiss
      franc
    
    
    (6,916
    )
    
    
    629
    
    
    
    (768
    )Euro
    
    Swiss franc
    
    
    (4,222
    )
    
    
    384
    
    
    
    (469
    )U.S.
      dollar
    
    Euro
    
    
    3,152
    
    
    
    (287
    )
    
    
    350U.S. dollar
    
    Canadian dollar
    
    
    (1,697
    )
    
    
    154
    
    
    
    (189
    )Euro
    
    Swedish
      krona
    
    
    (1,500
    )
    
    
    136
    
    
    
    (167
    )Euro
    
    Croatian kuna
    
    
    980
    
    
    
    (89
    )
    
    
    109Euro
    
    United Arab
      Emirates dirham
    
    
    942
    
    
    
    (86
    )
    
    
    105Euro
    
    Danish krone
    
    
    684
    
    
    
    (62
    )
    
    
    76Euro
    
    Czech
      koruna
    
    
    (566
    )
    
    
    51
    
    
    
    (63
    )Euro
    
    Polish zloty
    
    
    522
    
    
    
    (47
    )
    
    
    58$
    102,431
    
    
    $
    (9,313
    )
    
    $
    11,381


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, 2009, net assets held in CNY
totaled $104.1 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.

From time
to time, certain subsidiaries enter into forward exchange contracts to hedge
inventory purchase exposures denominated in U.S. dollars. The amount of the
forward exchange contracts is based on forecasts of inventory purchases. These
forward exchange contracts are denominated in the same currency as the
underlying transactions. Logitech does not use derivative financial instruments
for trading or speculative purposes. Gains and losses in the fair value of the
effective portion of contracts 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,
2009, the notional amount of forward foreign exchange contracts outstanding for
forecasted inventory exposures was $21.9 million. These forward contracts
generally mature within three months. Deferred realized gains of $1.5 million
and deferred unrealized losses of $1.3 million are recorded in accumulated other
comprehensive loss at March 31, 2009, and are expected to be reclassified to
cost of goods sold when the related inventory is sold.

58

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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. 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).

The
notional amounts of foreign exchange forward contracts outstanding at March 31,
2009 were $8.0 million. The notional amounts of foreign exchange swap contracts
outstanding at March 31, 2009 were $20.2 million. Unrealized net losses on the
contracts outstanding at March 31, 2009 were $0.4 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 $4.2 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 $4.2 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 short-term investments. 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, 2009 and March
31, 2008 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 acting 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.

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 acting Chief Financial
Officer, to allow timely decisions regarding required disclosure.

59

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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, 2009. In making this assessment, management
used the criteria established inInternal
ControlIntegrated Frameworkissued 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, 2009.

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, 2009 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears in
Item 8.

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, 2009 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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 2009 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, 2009 (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.

60

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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 2009, 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:

LogitechInvestor 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
2009 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 2009 Annual Meeting of Shareholders and is incorporated herein by
reference.

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

The following information is
incorporated herein by reference to the Proxy Statement:

- Information regarding transactions with related
  persons is set forth under Certain Related Person
  Transactions.
- Information regarding director independence is set
  forth under Election of Directors.

ITEM 14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES

Information with respect to this item may be found in the Proxy Statement
for the 2009 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.                                                                                 
| |     |  |                                                                                    
| |     |  |                                                                                    
| |     |  |                                                                                    
| |     |  |                                                                                    
| |     |  |                                                                                    
| |     |  |                                                                                    

61

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| |  |  |    |  | Consolidated Statements of
      Cash Flows  Years Ended March 31, 2009, 2008 and 2007                           
| |  |  | -- |  | ------------------------------------------------------------------------------------------------------------------
| |  |  |    |  |                                                                                                                   
| |  |  |    |  | Consolidated Statements of
      Changes in Shareholders Equity  Years Ended March 31, 2009, 2008 and
      2007
| |  |  |    |  |                                                                                                                   
| |  |  |    |  | Notes to Consolidated
      Financial Statements                                                                  
| |  |  |    |  |                                                                                                                   
| |  |  |    |  | Unaudited Quarterly Financial
      Data                                                                          
| |  |  |    |  |                                                                                                                   
| |  |  | 2. |  | Financial
      Statement Schedule                                                                                
| |  |  |    |  |                                                                                                                   
| |  |  |    |  | Schedule II  Valuation and
      Qualifying Accounts                                                             
| |  |  |    |  |                                                                                                                   
| |  |  | 3. |  | Exhibits                                                                                                          

62

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Index to Exhibits

|Exhibit |  |                                                                                                                                                                                                | Incorporated by
      Reference |  | **Filed** 
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- |  | ----------
|No.     |  | Exhibit                                                                                                                                                                                        | Form                            |  | File No.  
|3.1     |  | Articles of Incorporation of Logitech International S.A. as
      amended                                                                                                                      | 10-Q                            |  | 0-29174   
|3.2     |  | Organizational Regulations of Logitech International S.A. as
      amended                                                                                                                     |                                 |  |           
|10.1    |  | 1996 Stock Plan, as amended **                                                                                                                                                                 | S-8                             |  | 333-100854
|10.2    |  | Logitech International S.A. 2006 Stock Incentive Plan (including
      related forms of option grant agreements) **                                                                            | S-8                             |  | 333-140429
|10.3    |  | Representative form of Performance Restricted Stock Unit agreement
      under the Logitech International S.A. 2006 Stock Incentive Plan
    **                                                |                                 |  |           
|10.4    |  | Logitech Inc. Management Deferred Compensation Plan **                                                                                                                                         | 10-Q                            |  | 0-29174   
|10.5    |  | 1996 Employee Share Purchase Plan (U.S.), as amended **                                                                                                                                        | S-8                             |  | 333-157038
|10.6    |  | 2006 Employee Share Purchase Plan (Non-U.S.), as amended
    **                                                                                                                                | S-8                             |  | 333-157038
|10.7    |  | Form of Director and Officer Indemnification Agreement with
      Logitech International S.A. **                                                                                               | 20-F                            |  | 0-29174   
|10.8    |  | Form of Director and Officer Indemnification Agreement with
      Logitech Inc. **                                                                                                             | 20-F                            |  | 0-29174   
|10.9    |  | Logitech Management Performance Bonus Plan **                                                                                                                                                  | 8-K                             |  | 0-29174   
|10.10   |  | Employment Agreement dated December 3, 2008 between Logitech Inc.
      and Gerald P. Quindlen **                                                                                              | 8-K                             |  | 0-29174   
|10.11   |  | Change of Control Severance Agreement dated December 3, 2008 among
      Logitech International S.A., Logitech Inc. and Gerald P. Quindlen
    **                                              | 8-K                             |  | 0-29174   
|10.12   |  | Employment agreement dated January 28, 2008 between Logitech Inc.
      and Guerrino De Luca **                                                                                                | 10-K                            |  | 0-29174   
|10.13   |  | Change of Control Severance Agreement dated December 3, 2008 among
      Logitech International S.A., Logitech Inc. and Guerrino De Luca
    **                                                | 8-K                             |  | 0-29174   
|10.14   |  | 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   
|10.15   |  | 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   
|10.16   |  | Offer letter dated December 24, 2008 between Logitech Inc. and
      Werner Heid **                                                                                                            |                                 |  |           
|21.1    |  | List of subsidiaries of Logitech International S.A.                                                                                                                                            |                                 |  |           
|23.1    |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                       |                                 |  |           
|24.1    |  | Power of Attorney (incorporated by reference to the signature page
      of this Annual Report of Form 10-K)                                                                                   |                                 |  |           
|31.1    |  | Certification by acting Chief Financial Officer pursuant to section
      302 of the Sarbanes-Oxley Act of 2002                                                                                |                                 |  |           
|31.2    |  | Certification by Chief Executive Officer pursuant to section 302 of
      the Sarbanes-Oxley Act of 2002                                                                                       |                                 |  |           
|32.1    |  | Certification by Chief Executive Officer and acting Chief Financial
      Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
    *                                              |                                 |  |           

|*  |  | 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.                                                                                                                                                                                                                                                                                                                                                                      

63

---

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/ Gerald P. Quindlen            
| | Gerald
      P. Quindlen          
| | President and Chief Executive     
| | Officer                           
| |                                   
| |                                   
| |                                   
| | /s/ Thomas E. Fergoda             
| | Thomas
      E. Fergoda           
| | Vice
      President and Corporate
| | Controller                        

June 1, 2009

64

---

POWER OF ATTORNEY

KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gerald P. Quindlen and Thomas E. Fergoda, 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.

65

---

|Signature                |  | Title                                                    |  | Date              
|------------------------ |  | -------------------------------------------------------- |  | ------------------
|/s/ Gerald P. Quindlen   |  | President and Chief
      Executive Officer (Principal   |  | June 1,
      2009
|Gerald P.
      Quindlen |  | Executive
      Officer)                                 |  |                   
|                        
|/s/ Thomas E. Fergoda    |  | Vice President and
      Corporate Controller (Principal |  | June 1,
      2009
|Tom E.
      Fergoda     |  | Financial Officer and
      Principal Accounting         |  |                   
|                         |  | Officer)                                                 |  |                   
|                        
|/s/ Guerrino De Luca     |  | Chairman of the
      Board                              |  | June 1,
      2009
|Guerrino De
      Luca   |  |                                                          |  |                   
|                        
|/s/ Gerald P. Quindlen   |  | Director                                                 |  | June 1,
      2009
|Gerald P.
      Quindlen |  |                                                          |  |                   
|                        
|/s/ Daniel Borel         |  | Director                                                 |  | June 1,
      2009
|Daniel
      Borel       |  |                                                          |  |                   
|                        
|/s/ Matthew Bousquette   |  | Director                                                 |  | June 1,
      2009
|Matthew
      Bousquette |  |                                                          |  |                   
|                        
|/s/ Erh-Hsun Chang       |  | Director                                                 |  | June 1,
      2009
|Erh-Hsun
      Chang     |  |                                                          |  |                   
|                        
|/s/ Kee-Lock Chua        |  | Director                                                 |  | June 1,
      2009
|Kee-Lock
      Chua      |  |                                                          |  |                   
|                        
|/s/ Sally Davis          |  | Director                                                 |  | June 1,
      2009
|Sally
      Davis        |  |                                                          |  |                   
|                        
|/s/ Robert Malcolm       |  | Director                                                 |  | June 1,
      2009
|Robert
      Malcolm     |  |                                                          |  |                   
|                        
|/s/ Monika Ribar         |  | Director                                                 |  | June 1,
      2009
|Monika
      Ribar       |  |                                                          |  |                   
|                        
|/s/ Richard Laube        |  | Director                                                 |  | June 1,
      2009
|Richard
      Laube      |  |                                                          |  |                   

66

---

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                             | Page
|------------------------------------------------------------------------------------------------------------ | ----
|Report of the Independent Registered Public Accounting
    Firm                                              | 68  
|Consolidated
      Statements of Income  Years Ended March 31, 2009, 2008 and 2007                          | 69  
|Consolidated Balance Sheets  March 31, 2009 and 2008                                                        | 70  
|Consolidated
      Statements of Cash Flows  Years Ended March 31, 2009, 2008 and
    2007                  | 71  
|Consolidated Statements of Changes in Shareholders Equity  Years
      Ended March 31, 2009, 2008 and 2007 | 72  
|Notes to
      Consolidated Financial Statements                                                             | 73  
|Unaudited Quarterly Financial Data                                                                           | 106 

67

---

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, 2009
and March 31, 2008, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2009 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 aspects, 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, 2009, based on criteria established inInternal Control - Integrated Frameworkissued 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 14 the Company changed the manner in which it accounts for
uncertainty in income taxes starting April 1, 2007.

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 LLP

San Jose, CaliforniaMay 29, 2009

68

---

LOGITECH INTERNATIONAL
S.A.

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

|                                                   | Year ended March 31,
|-------------------------------------------------- | --------------------
|                                                   | 2009                
|Net sales                                          | $                   
|Cost of goods
      sold                           |                     
|Gross profit                                       |                     
|Operating
      expenses:                          |                     
|Marketing and
selling                              |                     
|Research and
    development                       |                     
|General and
      administrative                   |                     
|Restructuring
charges                              |                     
|Total operating expenses                           |                     
|Operating
      income                             |                     
|Interest income, net                               |                     
|Other income
      (expense), net                  |                     
|Income before income taxes                         |                     
|Provision for
      income taxes                   |                     
|Net income                                         | $                   
|                                                  
|Net income per share:                              |                     
|Basic                                              | $                   
|Diluted                                            | $                   
|Shares used to
      compute net income per share: |                     
|Basic                                              |                     
|Diluted                                            |                     

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

69

---

LOGITECH INTERNATIONAL
S.A.

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

|                                                                     | March 31,
|-------------------------------------------------------------------- | ---------
|                                                                     | 2009     
|ASSETS                                                              
|Current
      assets:                                                |          
|Cash and cash
      equivalents                                      | $        
|Short-term
    investments                                           |          
|Accounts receivable                                                  |          
|Inventories                                                          |          
|Other current assets                                                 |          
|Total current assets                                                 |          
|Property, plant and equipment                                        |          
|Goodwill                                                             |          
|Other intangible assets                                              |          
|Other
      assets                                                   |          
|Total assets                                                         | $        
|                                                                    
|LIABILITIES AND SHAREHOLDERS' EQUITY                                
|Current
      liabilities:                                           |          
|Accounts payable                                                     | $        
|Accrued liabilities                                                  |          
|Total current liabilities                                            |          
|Other
      liabilities                                              |          
|Total liabilities                                                    |          
|                                                                    
|Commitments and contingencies                                        |          
|                                                                    
|Shareholders' equity:                                                |          
|Shares, par value CHF 0.25 -
      191,606,620 issued and authorized |          
|and 50,000,000 conditionally authorized at March 31, 2009;           |          
|231,606,620 authorized, 60,661,860 conditionally authorized          |          
|and 191,606,620 issued at March 31, 2008                             |          
|Additional paid-in
      capital                                     |          
|Shares in treasury, at cost,
      12,124,078 at March 31, 2009      |          
|and 12,431,093 at March 31, 2008                                     |          
|Retained earnings                                                    |          
|Accumulated other
      comprehensive loss                           |          
|Total shareholders' equity                                           |          
|Total liabilities and shareholders' equity                           | $        

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

70

---

LOGITECH INTERNATIONAL
S.A.

CONSOLIDATED STATEMENTS OF CASH
FLOWS(In
thousands)

|                                                                    | Year ended March
31,
|------------------------------------------------------------------- | --------------------
|                                                                    | 2009                
|Cash flows from operating activities:                               |                     
|Net income                                                          | $                   
|Non-cash items included in net
      income:                        |                     
|Depreciation                                                        |                     
|Amortization of other intangible assets                             |                     
|Share-based compensation expense related to options,                |                     
|restricted stock units ("RSUs") and stock purchase rights           |                     
|Write-down of investments                                           |                     
|Gain on sale of investments                                         |                     
|Excess tax benefits from share-based compensation                   |                     
|Loss (gain) on cash surrender value of life insurance policies      |                     
|In-process research and development                                 |                     
|Deferred income taxes and other                                     |                     
|Changes in assets and
      liabilities, net of acquisitions:       |                     
|Accounts receivable                                                 |                     
|Inventories                                                         |                     
|Other assets                                                        |                     
|Accounts payable                                                    |                     
|Accrued liabilities                                                 |                     
|Net cash provided by operating activities                           |                     
|                                                                   
|Cash flows from investing activities:                               |                     
|Purchases of property, plant
      and equipment                    |                     
|Purchases of short-term
      investments                           |                     
|Sales of short-term
      investments                               |                     
|Sale of investment                                                  |                     
|Acquisitions, net of cash
      acquired                            |                     
|Premiums paid on cash
      surrender value life insurance policies |                     
|Net cash provided by (used in) investing activities                 |                     
|                                                                   
|Cash flows from financing activities:                               |                     
|Repayments of short-term debt,
      net                            |                     
|Purchases of treasury
      shares                                  |                     
|Proceeds from sale of shares
      upon exercise of options and     |                     
|purchase rights                                                     |                     
|Excess tax benefits from
      share-based compensation             |                     
|Net cash used in financing activities                               |                     
|                                                                   
|Effect of exchange rate changes on cash and cash
    equivalents    |                     
|Net increase (decrease) in cash and cash equivalents                |                     
|Cash and cash equivalents at beginning of period                    |                     
|Cash and cash
      equivalents at end of period                    | $                   
|                                                                   
|Supplemental cash flow information:                                 |                     
|Interest paid                                                       | $                   
|Income taxes paid                                                   | $                   

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

71

---

LOGITECH INTERNATIONAL
S.A.

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

|                                                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  | Accumulated |         |   |  |  
|----------------------------------------------- | ----------------- |  | ------- | ------ | --------------- | ---------- | -------- | - | ------------- | ------ | -------- |  | ---- | -------- | ----- |  | - | --------- | ----- |  | ----------- | ------- | - |  | -
|                                                |                   |  |         |        |                 | Additional |          |   |               |        |          |  |      |          |       |  |   |           | other |  |             |         |  
|                                                | Registered shares |  | paid-in |        | Treasury shares |            | Retained |   | comprehensive |        |          |  |     
|                                                | Shares            |  | Amount  |        | capital         |            | Shares   |   | Amount        |        | earnings |  | loss |          | Total
|March 31, 2006                                  | 191,606           |  | $       | 33,370 |                 | $          | 100,339  |   |               | 8,955  |          |  | $    | (186,080 | )     |  | $ | 765,758   |       |  | $           | (28,211 | ) |  | $
|Net income                                      | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | 229,848   |       |  |             | -       |   |  |  
|Cumulative translation      
      adjustment   | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | 9,695   |   |  |  
|Change in unrealized gain on                    |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|investment, net of tax of
      $601            | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (10,211 | ) |  |  
|Reclassification adjustment for net realized    |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|gains on investment, net of
      tax of $1,058 | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (9,400  | ) |  |  
|Deferred realized hedging gain                  | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | 697     |   |  |  
|Total comprehensive
      income                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  | $
|Adoption of SFAS 158,                           |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|net of tax of $859                              | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (2,728  | ) |  |  
|Tax benefit from exercise of                    |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|stock options                                   | -                 |  |         | -      |                 |            | 14,668   |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|Purchase of treasury shares                     | -                 |  |         | -      |                 |            | -        |   |               | 5,610  |          |  |      | (138,095 | )     |  |   | -         |       |  |             | -       |   |  |  
|Sale of shares upon exercise of                 |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|options and purchase
      rights               | -                 |  |         | -      |                 |            | (62,396  | ) |               | (5,201 | )        |  |      | 107,102  |       |  |   | -         |       |  |             | -       |   |  |  
|Share-based compensation expense                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|related to employee stock
      options         |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|and stock purchase
    plan                     | -                 |  |         | -      |                 |            | 20,168   |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|March 31, 2007                                  | 191,606           |  | $       | 33,370 |                 | $          | 72,779   |   |               | 9,364  |          |  | $    | (217,073 | )     |  | $ | 995,606   |       |  | $           | (40,158 | ) |  | $
|Net income                                      | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | 231,026   |       |  |             | -       |   |  |  
|Cumulative translation                          |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|adjustment                                      | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | 28,006  |   |  |  
|Deferred realized hedging loss                  | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (992    | ) |  |  
|Actuarial loss on pension plan,                 |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|net of tax of $31                               | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (6,339  | ) |  |  
|Total comprehensive
      income                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  | $
|Change in pension plan measurement date         |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   | (317      | )     |  |             |         |   |  |  
|Adjustment for the adoption of FASB             |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|Interpretation No. 48 (FIN
      48)            | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | 8,314     |       |  |             | -       |   |  |  
|Tax benefit from exercise of                    |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|stock options                                   | -                 |  |         | -      |                 |            | 3,894    |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|Purchase of treasury shares                     | -                 |  |         | -      |                 |            | -        |   |               | 7,784  |          |  |      | (219,742 | )     |  |   | -         |       |  |             | -       |   |  |  
|Sale of shares upon exercise of                 |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|options and purchase
      rights               | -                 |  |         | -      |                 |            | (47,919  | ) |               | (4,717 | )        |  |      | 98,522   |       |  |   | -         |       |  |             | -       |   |  |  
|Share-based compensation expense                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|related to employee stock
      options         |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|and stock purchase
    plan                     | -                 |  |         | -      |                 |            | 21,067   |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|March 31, 2008                                  | 191,606           |  | $       | 33,370 |                 | $          | 49,821   |   |               | 12,431 |          |  | $    | (338,293 | )     |  | $ | 1,234,629 |       |  | $           | (19,483 | ) |  | $
|Net income                                      |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   | 107,032   |       |  |             |         |   |  |  
|Cumulative translation                          |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|adjustment, net of tax of
      $1,018          | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (55,983 | ) |  |  
|Net deferred hedging gains                      | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | 216     |   |  |  
|Actuarial loss on pension plan,                 |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|net of tax of $182                              | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | (6,055  | ) |  |  
|Unrealized gain on investment                   | -                 |  |         | -      |                 |            | -        |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | 424     |   |  |  
|Total comprehensive
      income                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  | $
|Tax benefit from exercise of                    |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|stock options                                   | -                 |  |         | -      |                 |            | 15,253   |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|Purchase of treasury shares                     | -                 |  |         | -      |                 |            | -        |   |               | 2,803  |          |  |      | (78,870  | )     |  |   | -         |       |  |             | -       |   |  |  
|Sale of shares upon exercise of                 |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|options and purchase
      rights               | -                 |  |         | -      |                 |            | (44,590  | ) |               | (3,110 | )        |  |      | 75,709   |       |  |   | -         |       |  |             | -       |   |  |  
|Share-based compensation expense                |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|related to employee stock
      options,        |                   |  |         |        |                 |            |          |   |               |        |          |  |      |          |       |  |   |           |       |  |             |         |   |  |  
|RSUs and stock purchase
      rights            | -                 |  |         | -      |                 |            | 24,528   |   |               | -      |          |  |      | -        |       |  |   | -         |       |  |             | -       |   |  |  
|March 31, 2009                                  | 191,606           |  | $       | 33,370 |                 | $          | 45,012   |   |               | 12,124 |          |  | $    | (341,454 | )     |  | $ | 1,341,661 |       |  | $           | (80,881 | ) |  | $

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

72

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LOGITECH INTERNATIONAL
S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  The Company

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

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

Note 2  Summary of Significant
Accounting Policies

Basis of Presentation

The
consolidated financial statements include the accounts of Logitech and its
subsidiaries. All intercompany balances and transactions have been eliminated.
The consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States of America (U.S.
GAAP). 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.

Use of Estimates

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

73

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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.

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 price protection. Significant
management judgments 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.

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. 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.

74

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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 our accruals for product returns,
cooperative marketing arrangements, customer incentive programs and price
protection. 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.

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

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 $151.2
million, $188.5 million and $169.8 million in fiscal years 2009, 2008 and 2007.
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, 2009, two customers represented 18% and 10% of total accounts
receivable. As of March 31, 2008, two customers each represented 15% 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.

75

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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 product life cycle stage, technology trends, historical sales,
product development plans, component cost trends and assumptions about future
demand and market conditions.

Investments

The
Companys short-term investments are primarily auction rate securities and are
classified as available-for-sale as of March 31, 2009. Auction rate securities
generally have maturity dates greater than 10 years, with interest rates that
typically reset through an auction every 28 days. The Companys short-term
investments are reported at estimated fair value. The fair value of short-term
investments is estimated based on quoted market prices, if available, or by
estimating the values of the underlying collateral using published mortgage
indices or interest rate spreads for comparably-rated collateral and applying
discounted cash flow or option pricing methods to the estimated collateral
value.

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 two years to ten years. Intangible assets with indefinite lives, which
include goodwill, are recorded at cost and evaluated at least annually for
impairment.

76

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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.

During
the first quarter of fiscal year 2008, Logitech adopted the provisions of
Financial Accounting Standards Board (FASB) Interpretation No. 48 (As
Amended),Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109(FIN 48). Note 14 of the consolidated financial statements describes
FIN 48 and the effects on our results of operations and financial position
arising from its adoption.

The
Companys assessment of uncertain tax positions under FIN 48 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

Effective
April 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157,Fair Value
Measurements(SFAS 157), which defines fair
value, establishes a fair value hierarchy and requires expanded disclosures
about fair value measurements. The impact of adopting SFAS 157 was not material
to our consolidated financial statements.

The
Company also adopted Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and
Liabilities  including an amendment of FASB Statement No. 115(SFAS 159) as of April 1, 2008. SFAS 159 permits entities
to choose to measure many financial instruments and certain other items at fair
value at specified election dates. The Company did not elect the fair value
option for any financial assets and liabilities existing at April 1, 2008 which
had not previously been carried at fair value. Therefore, the adoption of SFAS
159 has not impacted our consolidated financial statements. Any future
transacted financial assets or liabilities will be evaluated for the fair value
election as prescribed by SFAS 159.

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
short-term investments are reported at estimated fair value. The fair value of
short-term investments is estimated based on quoted market prices, if available,
or by estimating the values of the underlying collateral using published
mortgage indices or interest rate spreads for comparably-rated collateral and
applying discounted cash flow or option pricing methods to the estimated
collateral value. The fair value of all our derivative financial instruments is
determined based on quoted foreign exchange forward rates.

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 employee stock options.

77

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The
dilutive effect of in-the-money stock options 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 stock options, 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 estimated using the
Black-Scholes-Merton option-pricing valuation model for stock options and stock
purchases, and the Monte-Carlo simulation model for restricted stock units
(RSUs). These compensation costs are 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 two 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. These compensation costs are 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.

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 three 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. Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 161,*Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No.
133*(SFAS 161). This Statement requires enhanced
disclosures about an entitys derivative and hedging
activities.

78

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Recent Accounting Pronouncements

In
December 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations(SFAS 141R). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs,
in-process research and development and restructuring costs. SFAS 141R is
effective for fiscal years beginning after December 15, 2008 and, as such, we
will adopt this standard for any future acquisitions beginning in fiscal year
2010, except that resolution of certain tax contingencies and adjustments to
valuation allowances related to business combinations, which previously were
adjusted to goodwill, will be adjusted to income tax expense for all such
adjustments after April 1, 2009, regardless of the date of the original business
combination.

In April
2009, the FASB issuedFASB Staff PositionNo. FAS 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies(FSP 141R-1).This FSP amends the
accounting in SFAS 141R for assets and liabilities arising from contingencies in
a business combination. FSP 141R-1 requires that pre-acquisition contingencies
be recognized at fair value, if fair value can be reasonably determined. If fair
value cannot be reasonably determined, FSP 141R-1 requires measurement based on
the best estimate in accordance with Statement of Financial Accounting Standards
No. 5,Accounting for
Contingencies. FSP 141R-1 is effective for
fiscal years beginning after December 15, 2008 and, as such, we will adopt this
standard for any future acquisitions beginning in fiscal year 2010.

In April
2009, the FASB issued FASB Staff Position No. 157-4,Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly(FSP 157-4). Based on
the guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with FASB Statement of Financial Accounting Standards No.
157,Fair Value Measurements(SFAS 157). FSP 157-4 is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. Logitech will adopt
FSP 157-4 in the first quarter of fiscal year 2010. We do not expect that FSP
157-4 will have a material impact on the Companys consolidated financial
statements and disclosures.

In April
2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of
Financial Instruments(FSP 107-1), which
amends FASB Statement No. 107,Disclosures
about Fair Values of Financial Instruments,
to require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. FSP 107-1 also
amends Accounting Principles Board Opinion No. 28,Interim Financial Reporting, to
require those disclosures in summarized financial information at interim
reporting periods. FSP 107-1 is effective for interim periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The Company will adopt FSP 107-1 in the first quarter of fiscal year 2010 and
does not expect that the adoption of the FSP will have a material impact on the
Companys consolidated financial statements and disclosures.

In April
2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2,Recognition and Presentation of
Other-Than-Temporary Impairments(FSP 115-2
and 124-2) , which amends the other-than-temporary guidance in U.S. GAAP for
debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. FSP 115-2 and 124-2 is effective
for interim periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. The Company will adopt FSP 115-2 and
124-2 in the first quarter of fiscal year 2010 and does not expect that the
adoption of the FSP will have a material impact on the Companys consolidated
financial statements and disclosures.

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In April
2008, the FASB issued FASB Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets(FSP 142-3). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under Statement ofFinancial
Accounting Standards No. 142,Goodwill and
Other Intangible Assets(SFAS 142). The
objective of FSP 142-3 is to improve the consistency between the useful life of
a recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the asset under SFAS 141R. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company
will adopt FSP 142-3 in the first quarter of fiscal year 2010 and is currently
evaluating the potential impact that the adoption of FSP 142-3 may have on its
consolidated financial statements.

In
December 2008, the FASB issued FASB Staff Position No. 132(R)-1,Employers Disclosures about Postretirement Benefit Plan
Assets(FSP 132(R)-1). FSP 132(R)-1
requires detailed disclosures regarding the investment strategies, fair value
measurements, and concentrations of risk of plan assets of a defined benefit
pension or other postretirement plan. FSP 132(R)-1 is effective for fiscal years
ending after December 15, 2009. We will adopt FSP 132(R)-1 in fiscal year 2010, and are evaluating the disclosure impact.

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,
|---------------------------------------- |  | --------------------
|                                         |  | 2009                
|Net income **** basic and diluted       |  | $                   
|                                        
|Weighted average shares - basic          |  |                     
|Effect of
      dilutive stock options   |  |                     
|Weighted average shares - diluted        |  |                     
|                                        
|Net income per share **** basic         |  | $                   
|Net income per
      share **** diluted |  | $                   

During
fiscal years 2009, 2008 and 2007, 10,567,217, 3,957,572 and 3,327,825 share
equivalents attributable to outstanding stock options and RSUs were excluded
from the calculation of diluted net income per share because the exercise prices
of these options 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 equity
instruments granted by the Company are treated as potential shares in computing
diluted net income per share. Diluted shares outstanding include the dilutive
effect of in-the-money options which is calculated based on the average share
price for each fiscal period using the treasury stock method. Under the treasury
stock method, the amount that the employee must pay for exercising stock
options, the amount of compensation cost for future service that the Company has
not yet recognized, and the amount of tax impact that would be recorded in
additional paid-in capital when the award becomes deductible are assumed to be
used to repurchase shares. The following table presents the effect of
in-the-money employee stock options treated as potential shares in computing
diluted earnings per share (in thousands except per share
amounts):

|                                                                      |  | Year Ended March 31,
|--------------------------------------------------------------------- |  | --------------------
|                                                                      |  | 2009                
|In-the-money employee stock options treated as potential
      shares |  |                     
|Percentage of
      basic weighted average shares outstanding         |  |                     
|Average share price                                                   |  | $                   

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The following table illustrates the
dilution effect of stock options granted and exercised (in thousands):

|                                                         |  | **Year
      ended March 31,**
|-------------------------------------------------------- |  | ------------------------------
|                                                         |  | **2009**                      
|Basic weighted average shares outstanding as of March 31 |  | 178,811                       
|                                                         |  |                               
|Stock options and RSUs granted                           |  | 4,239                         
|Stock options canceled, forfeited, or expired            |  | (1,163                        
|Net options granted                                      |  | 3,076                         
|                                                         |  |                               
|Grant dilution (1)                                       |  | 1.7%                          
|                                                         |  |                               
|Stock options exercised                                  |  | 2,037                         
|                                                         | 
|Exercise dilution (2)                                    |  | 1.1%                          

|(1) |  | The
      percentage of grant dilution is computed based on net options granted as a
      percentage ofbasic weighted average shares
      outstanding.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                         
|(2) |  | The
      percentage of exercise dilution is computed based on options exercised as
      a percentage ofweighted average shares
      outstanding.     

Note 4  Fair Value Measurements

The
Company adopted SFAS 157 effective April 1, 2008. SFAS 157 defines 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. SFAS 157 establishes the following three-level fair value
hierarchy that prioritizes 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, 2009, classified by the level
within the fair value hierarchy (in thousands):

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


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

81

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Note 5  Cash and Cash Equivalents
and Short-term Investments

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 short-term investments portfolio as of March 31, 2009 and 2008
consisted of auction rate securities collateralized by residential and
commercial mortgages. The short-term investments are classified as
available-for-sale and reported at estimated fair value. Auction rate securities
generally have maturity dates greater than 10 years, with interest rates that
typically reset through an auction every 28 days. All our short-term investments
as of March 31, 2009 have maturity dates in excess of 10 years. Since August
2007, auctions for these investments have failed. Consequently, the investments
are not currently liquid and the Company will not be able to realize the
proceeds, if any, from these investments until a future auction of these
investments is successful or a buyer is found outside of the auction
process.

The fair
value of our short-term investments is determined by estimating the values of
the underlying collateral using published mortgage indices or interest rate
spreads for comparably-rated collateral and applying discounted cash flow or
option pricing methods to the estimated collateral value. The mortgage indices
and spreads are adjusted for factors such as the issuance date of the auction
rate security and the rating of the underlying assets. In addition, inputs to
the valuation methods include factors such as the timing and amount of cash flow
streams, the default risk underlying the collateral, discount rates, and overall
capital market liquidity. Under SFAS 157, such adjustments indicate the inputs
fall within Level 3 of the fair value hierarchy.

The
following table presents the changes in fair value of the Companys short-term
investments during fiscal years 2009 and 2008:

March 31,2009
    
    2008Beginning balance
    
    $
    3,940
    
    
    $
    214,625Purchases
    
    
    -
    
    
    
    379,793Sales
    
    
    -
    
    
    
    (538,479
    )Write-down of
      investments
    
    
    (2,727
    )
    
    
    (79,823
    )Unrealized gain
    
    
    424
    
    
    
    -Gain on sale,
      net of loss
    
    
    -
    
    
    
    27,824Ending balance
    
    $
    1,637
    
    
    $
    3,940


The
par value of our short-term investments portfolio at March 31, 2009 and 2008 was
$47.5 million. The write-down of investments recorded in other income (expense),
net related to the other-than-temporary decline in the estimated fair value
of these investments due to continuing declines in the residential mortgage
markets. The unrealized gain as of March 31, 2009 related to temporary increases
in the fair value and was recorded in other comprehensive income. As of March
31, 2008, the Company had not recognized any unrealized gains or losses related
to its short-term investments in other comprehensive income.

82

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Note 6 
Acquisitions

SightSpeed

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

Total
consideration paid was $31.1 million, which includes $1.0 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
preliminary 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
    
    $
    370Intangible
      assets acquiredExisting technology
    
    
    800
    
    
    5 yearsIn-process research and development
    
    
    1,000
    
    
    -Patents and core technology
    
    
    2,700
    
    
    5 yearsTrademark/trade name
    
    
    200
    
    
    2
    yearsCustomer relationships and other
    
    
    1,200
    
    
    4.9
      yearsGoodwill
    
    
    21,985
    
    
    -28,255Liabilities
      assumed
    
    
    (567
    )Deferred tax asset, net
    
    
    3,424Total consideration
    
    $
    31,112


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. 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.

83

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Ultimate Ears

In August
2008, the Company acquired the Ultimate Ears companies (Ultimate Ears), a
privately held group of companies that offers 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 $34.3 million, which includes $0.5 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 $1.8 million has been recorded as a liability in the accompanying
consolidated financial statements and $5.1 million has been held in escrow. 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
preliminary 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
    
    $
    4,182Intangible
      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
    
    
    24,508
    
    
    -41,890Liabilities assumed
    
    
    (2,334
    )Deferred tax
      liability, net
    
    
    (5,235
    )Total consideration
    
    $
    34,321


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.

WiLife

In
November 2007, the Company acquired WiLife, Inc. (WiLife), a privately held
company that manufactures 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.

84

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Total
consideration paid, net of cash acquired was $22.0 million, which includes $0.7
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.

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
    
    $
    3,432Intangible
      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
    
    
    -27,487Liabilities assumed
    
    
    (6,016
    )Deferred tax
      asset, net
    
    
    639Total consideration
    
    $
    22,110


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. 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.

Slim Devices

In
October 2006, the Company acquired Slim Devices, Inc. (Slim Devices), a
privately held company specializing in network-based audio systems for digital
music, based in Mountain View, California. The acquisition is part of the
Companys strategy to expand its presence in the digital music and
home-entertainment control environment.

85

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Total
consideration paid was $20.6 million, which includes $0.6 million in transaction
costs. Under the terms of the purchase agreement, the Company acquired all of
the outstanding shares of Slim Devices for $20.0 million in cash, plus a
possible performance-based payment, payable in the first calendar quarter of
2010. The performance-based payment is based on net revenues from the sale of
products and services in calendar year 2009 derived from Slim Devices
technology. No payment is due if the applicable net revenues total $40 million
or less. The maximum performance-based payment is $89.5 million. The total
performance-based payment amount, if any, will be recorded in goodwill and will
not be final until the end of calendar year 2009. As of March 31, 2009, no
amounts were payable towards performance-based payments under our 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 Slim Devices were included in Logitechs consolidated
financial statements from the date of acquisition, and were not material to the
Companys reported results.

The total
consideration, including transaction costs, was allocated to the fair values of
assets acquired and liabilities assumed as follows (in thousands):

October 17,
    
    Estimated2006
    
    LifeTangible assets acquired
    
    $
    1,749Intangible
      assets acquiredTechnology
    
    
    9,000
    
    
    5 yearsIn-process research and development
    
    
    1,000
    
    
    -Trademark/trade name
    
    
    3,100
    
    
    6.5 yearsCustomer relationships and other
    
    
    520
    
    
    3.7
      yearsGoodwill
    
    
    10,683
    
    
    -26,052Liabilities assumed
    
    
    (473
    )Deferred tax
      liability related to intangible assets acquired
    
    
    (4,998
    )Total consideration
    
    $
    20,581


The
technology relates to proprietary hardware and software developed by Slim
Devices including the Squeezebox, the Transporter, the SlimServer software and
the SqueezeNetwork. The SqueezeNetwork delivers content to devices such as the
Squeezebox and Transporter directly from the Internet, without requiring a PC.

Trademark/trade name relates to the Slim Devices product brand names.
The value of the trademark/trade name was determined using the royalty savings
approach, which estimates the value of the assets by capitalizing the royalties
saved as a result of acquiring the assets. The intangible assets acquired are
amortized on a straight-line basis over their estimated useful lives. 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 values of the existing technology, in-process technology and
customer relationships were determined by estimating the expected cash flows
from the projects once commercially viable, discounting the net cash flows back
to their present value and then applying a percentage of completion to the
calculated value. The goodwill associated with the acquisition is not subject to
amortization and is not expected to be deductible for income tax
purposes.

86

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Note 7  Balance Sheet Components

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

March 31,2009
    
    2008Accounts receivable:Accounts receivable
    
    $
    339,903
    
    
    $
    504,406Allowance for doubtful accounts
    
    
    (6,705
    )
    
    
    (2,497
    )Allowance for returns
    
    
    (25,470
    )
    
    
    (21,099
    )Cooperative marketing arrangements
    
    
    (41,082
    )
    
    
    (41,516
    )Customer incentive programs
    
    
    (40,369
    )
    
    
    (49,341
    )Price protection
    
    
    (12,348
    )
    
    
    (16,334
    )$
    213,929
    
    
    $
    373,619Inventories:Raw materials
    
    $
    30,959
    
    
    $
    46,315Work-in-process
    
    
    19
    
    
    
    13Finished goods
    
    
    202,489
    
    
    
    199,409$
    233,467
    
    
    $
    245,737Other current
      assets:Tax
      and VAT refund receivables
    
    $
    17,275
    
    
    $
    23,882Deferred taxes
    
    
    25,546
    
    
    
    18,961Prepaid expenses and other
    
    
    14,063
    
    
    
    17,825$
    56,884
    
    
    $
    60,668Property, plant and equipment:Plant, buildings and improvements
    
    $
    56,211
    
    
    $
    58,101Equipment
    
    
    108,779
    
    
    
    98,818Computer equipment
    
    
    49,532
    
    
    
    47,027Computer software
    
    
    60,259
    
    
    
    51,552274,781
    
    
    
    255,498Less: accumulated depreciation
    
    
    (188,371
    )
    
    
    (167,153
    )86,410
    
    
    
    88,345Construction-in-progress
    
    
    14,708
    
    
    
    12,866Land
    
    
    3,014
    
    
    
    3,250$
    104,132
    
    
    $
    104,461Other
      assets:Deferred taxes
    
    $
    27,718
    
    
    $
    22,618Cash surrender value of life insurance contracts
    
    
    10,685
    
    
    
    12,793Deposits and other
    
    
    5,301
    
    
    
    4,631$
    43,704
    
    
    $
    40,042Accrued liabilities:Accrued marketing expenses
    
    $
    21,984
    
    
    $
    30,764Accrued personnel expenses
    
    
    34,373
    
    
    
    40,586Income taxes payable - current
    
    
    6,828
    
    
    
    15,051Accrued freight and duty
    
    
    9,048
    
    
    
    13,969Accrued restructuring
    
    
    3,794
    
    
    
    -Other accrued liabilities
    
    
    55,469
    
    
    
    55,724$
    131,496
    
    
    $
    156,094Long-term liabilities:Income taxes payable - non-current
    
    $
    101,463
    
    
    $
    95,013Obligation for management deferred compensation
    
    
    10,499
    
    
    
    14,806Defined benefit pension plan liability
    
    
    19,822
    
    
    
    12,309Other long-term liabilities
    
    
    2,744
    
    
    
    1,665$
    134,528
    
    
    $
    123,793


87

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

March 31,2009
    
    2008
    
    **2007**Beginning balance
    
    $
    2,497
    
    
    $
    3,322
    
    
    $
    2,988Bad debt
      expense
    
    
    5,102
    
    
    
    603
    
    
    
    527Write-offs net of recoveries
    
    
    (894
    )
    
    
    (1,428
    )
    
    
    (193
    )Ending
      balance
    
    $
    6,705
    
    
    $
    2,497
    
    
    $
    3,322


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, 2009 and 2008 (in thousands):

March 31,2009
    
    2008Beginning balance
    
    $
    194,383
    
    $
    179,991Additions
    
    
    48,526
    
    
    17,569Cumulative translation adjustments
    
    
    -
    
    
    (3,177
    )Ending
      balance
    
    $
    242,909
    
    $
    194,383


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.

Additions
to goodwill during fiscal year 2008 were primarily due to the acquisition of
WiLife. Goodwill also increased by $4.0 million due to an increase in the
deferred payment amount payable to the former shareholders of Intrigue
Technologies, Inc. During the third quarter of fiscal year 2008, the Company
determined that the functional currency of an entity acquired in fiscal year
2005 was incorrectly designated. The Company recorded an adjustment of $7.5
million to reduce goodwill with a corresponding amount recorded in cumulative
translation adjustment which is a component of accumulated other comprehensive
loss. This correcting adjustment was recorded in the third quarter of fiscal
year 2008 since the impact was not material to goodwill, accumulated other
comprehensive loss and comprehensive income in this period or any prior periods.
The remainder of the change in goodwill related to foreign currency translation
adjustments. None of the goodwill is expected to be deductible for tax purposes.

The
Company intends to fully integrate SightSpeeds, Ultimate Ears and WiLifes
businesses into its existing operations, and discrete financial information for
the companies will not be maintained. Accordingly, the acquired goodwill will be
evaluated for impairment at the total enterprise 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. The Company has fully integrated all of its
acquired companies, and evaluates acquired goodwill for impairment at the total
enterprise level, with the exception of 3Dconnexion which is a separate
reporting unit. The Company maintains discrete financial information for
3DConnexion and determines impairment of the goodwill acquired at the entity
level. Based on impairment tests performed, there has been no impairment of the
Companys goodwill to date.

88

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

|                    |  | March 31, 2009 |        | March 31, 2008
|------------------- |  | -------------- | ------ | --------------
|                    |  | Gross Carrying |        | Accumulated   
|                    |  | Amount         |        | Amortization  
|Trademark/tradename |  | $              | 24,398 |               
|Technology          |  |                | 49,268 |               
|Customer contracts  |  |                | 7,018  |               
|                    |  | $              | 80,684 |               

During
fiscal years 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 2009, 2008 and 2007, amortization expense for other intangible
assets was $8.2 million, $5.4 million and $4.9 million. The Company expects that
annual amortization expense for the fiscal years ending 2010, 2011, 2012, 2013
and 2014 will be $8.8 million, $8.5 million, $7.6 million, $5.0 million and $2.2
million.

Note 9  Financing Arrangements

The
Company had several uncommitted, unsecured bank lines of credit aggregating
$139.0 million at March 31, 2009. There are no financial covenants under these
lines of credit with which the Company must comply. At March 31, 2009, the
Company had no outstanding borrowings under these lines of credit.

Note 10  Shareholders
Equity

Stock Split

In June
2006, the Companys shareholders approved a two-for-one split of Logitechs
shares, which took effect on July 14, 2006. All references to share and
per-share data for all periods presented herein have been adjusted to give
effect to this stock split.

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
12,124,078 of which were held in treasury as of March 31, 2009.

Pursuant
to the Companys Articles of Incorporation, the Board of Directors was
previously authorized to increase the share capital of the Company through the
issuance of up to 40,000,000 shares. This authorization expired in July 2008 and
was not renewed.

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.

89

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***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 354.9 million or $311.7 million based on
exchange rates at March 31, 2009) and is subject to shareholder
approval.

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 $8.4 million at March 31, 2009 (based on exchange
rates at March 31, 2009).

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 $342.2 million at March 31, 2009.

Share
Repurchases

During
fiscal years 2009, 2008 and 2007, the Company had the following approved share
buyback programs in place (in thousands):

Approved
    
    EquivalentDate
      of
    
    Buyback
    
    USD
    
    Expiration
    
    
    
    AmountAnnouncement
    
    Amount
    
    Amount (1)
    
    Date
    
    Completion Date
    
    RemainingJune 2007
    
    USD
    250,000
    
    $
    250,000
    
    June 2010
    
    -
    
    $
    125,746May
    2006
    
    USD
    250,000
    
    $
    250,000
    
    June
    2009
    
    February
      2008
    
    $
    -June 2005
    
    CHF
    300,000
    
    $
    235,000
    
    June 2008
    
    November 2006
    
    $
    -


|(1) |  | Represents the approved buyback  amount in U.S.
      dollars, calculated based on exchange rates on the announcement
      date.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

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

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

|              |  | Amount Repurchased During Year ended
      March 31, (1)
|------------- |  | --------------------------------------------------------
|Date
      of |  | Program to date                                         
|Announcement  |  | Shares                                                  
|June 2007     |  | 4,553                                                   
|May
    2006  |  | 8,760                                                   
|June 2005     |  | 11,286                                                  
|              |  | 24,599                                                  

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

90

---

Note 11 Accumulated Other
Comprehensive Loss

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

March 31,2009
    
    2008Cumulative translation adjustment
    
    $
    (66,399
    )
    
    $
    (10,416
    )Pension
      liability adjustments, net of tax of $990 and $821
    
    
    (15,122
    )
    
    
    (9,067
    )Unrealized gain on investments
    
    
    424Net deferred
      hedging gains
    
    
    216
    
    
    
    -$
    (80,881
    )
    
    $
    (19,483
    )


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 515
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 year 2009 (in
thousands):

|                           |  |       |         |          |  |             |         |       |  |             |      |   |  | Contract |      |   |  |  
|-------------------------- |  | ----- | ------- | -------- |  | ----------- | ------- | ----- |  | ----------- | ---- | - |  | -------- | ---- | - |  | -
|                           |  |       |         |          |  | Termination |         | Asset |  | Termination |      |   |  |         
|                           |  | Total |         | Benefits |  | Impairments |         | Costs |  | Other      
|Balance at March 31, 2008  |  | $     | -       |          |  | $           | -       |       |  | $           | -    |   |  | $        | -    |   |  | $
|Charges                    |  |       | 20,547  |          |  |             | 16,428  |       |  |             | 556  |   |  |          | 200  |   |  |  
|Cash payments              |  |       | (12,764 | )        |  |             | (12,579 | )     |  |             | -    |   |  |          | (185 | ) |  |  
|Charges against
    assets |  |       | (556    | )        |  |             | -       |       |  |             | (556 | ) |  |          | -    |   |  |  
|Other                      |  |       | (3,485  | )        |  |             | (121    | )     |  |             | -    |   |  |          | -    |   |  |  
|Foreign Exchange           |  |       | 51      |          |  |             | 51      |       |  |             | -    |   |  |          | -    |   |  |  
|Balance at March 31, 2009  |  | $     | 3,794   |          |  | $           | 3,779   |       |  | $           | -    |   |  | $        | 15   |   |  | $

Termination benefits incurred pursuant to the 2009 Restructuring Plan are
calculated based on regional benefit practices and local statutory requirements.
Asset impairments have been recorded to write down fixed assets that will not be
placed in service due to the abandonment of the related projects. Contract
termination costs relate to exit costs associated with the closure of existing
facilities. Other charges primarily consist 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 are reflected as a
reduction of pension assets. We expect to substantially complete the
restructuring by the end of the second quarter of fiscal year 2010.

Note 13  Employee Benefit
Plans

Employee Share Purchase Plans and
Stock Incentive Plans

As of
March 31, 2009, the Company offers the 2006 Employee Share Purchase Plan
(Non-U.S.) (2006 ESPP), the 1996 Employee Share Purchase Plan (U.S.) (1996
ESPP), and the 2006 Stock Incentive Plan. Shares issued to employees as a
result of purchases or exercises under these plans are generally issued from
shares held in treasury.

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, 2009, a total of 3,845,908 shares
were available for issuance under these plans.

91

---

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
14,000,000 shares was reserved for issuance under the 2006 Plan. As of March 31,
2009, a total of 5,064,930 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 2009 and 2008 (in thousands).

|                                                                 |  | Year Ended March 31,
|---------------------------------------------------------------- |  | --------------------
|                                                                 |  | 2009                
|Cost of goods sold                                               |  | $                   
|Share-based
      compensation expense included in gross profit  |  |                     
|                                                                 |  |                     
|Operating expenses:                                              |  |                     
|Marketing and
selling                                            |  |                     
|Research and
      development                                   |  |                     
|General and
      administrative                                 |  |                     
|Share-based compensation expense included in                     |  |                     
|operating
      expenses                                         |  |                     
|Total
      share-based compensation expense related to employee |  |                     
|stock
      options, RSUs and employee stock purchases           |  |                     
|Tax benefit                                                      |  |                     
|Share-based
      compensation expense related to employee stock |  |                     
|options, RSUs
      and employee stock purchases, net of tax     |  | $                   

As of
March 31, 2009 and 2008 $0.8 million and $0.7 million of share-based
compensation cost was capitalized to inventory. As of March 31, 2009, total
compensation cost related to non-vested stock options not yet recognized was
$44.7 million, which is expected to be recognized over the next 35 months on a
weighted-average basis. As of March 31, 2009, total compensation cost related to
RSUs not yet recognized was $2.0 million, which is expected to be recognized
over the next 18 months.

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,
|----------------------------- |  | --------------------
|                              |  | 2009                
|                              |  | Purchase Plans      
|Dividend yield                |  | 0%                  
|Expected
      life           |  | 6
    months        
|Expected volatility           |  | 63%                 
|Risk-free
      interest rate |  | 1.23%               

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.

92

---

The
expected option life represents the weighted-average period the stock options or
purchase offerings are expected to remain outstanding. The expected life is
based on historical settlement rates, which the Company believes are most
representative of future exercise and post-vesting termination behaviors.

Expected
share price volatility is based on historical volatility using daily prices over
the term of past options or purchase offerings. The Company considers historical
share price volatility as most representative of future stock option volatility.
The risk-free interest rate assumptions are based upon the implied yield of U.S.
Treasury zero-coupon issues appropriate for the term of the Companys stock
options or purchase offerings.

The
Company estimates forfeitures at the time of grant and revises those estimates
in subsequent periods if actual forfeitures differ from those estimates. The
Company uses historical data to estimate pre-vesting option forfeitures and
records share-based compensation expense only for those awards that are expected
to vest.

The
following table represents the weighted average grant-date fair values of
options granted and the expected forfeiture rates:

|                                    |  | Year ended March
31,
|----------------------------------- |  | --------------------
|                                    |  | 2009                
|                                    |  | Purchase Plans      
|Weighted average grant-date         |  |                     
|fair value of options
      granted |  | $                   
|Expected
      forfeitures          |  |                     

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

|                               |  | Year ended March
31,
|------------------------------ |  | --------------------
|                               |  | 2009                
|                               |  |                     
|                               |  | Number              
|Outstanding, beginning of year |  | 17,952              
|Granted                        |  | 4,145               
|Exercised                      |  | (2,037              
|Cancelled or
      expired     |  | (1,163              
|Outstanding, end of year       |  | 18,897              
|                              
|Exercisable, end of year       |  | 10,981              

The total
pretax intrinsic value of options exercised during the fiscal years ended March
31, 2009, 2008 and 2007 was $33.2 million, $84.9 million and $72.0 million and
the tax benefit realized for the tax deduction from options exercised during
those periods was $8.5 million, $18.9 million and $16.5 million. The total fair
value of options vested as of March 31, 2009, 2008 and 2007 was $57.7 million, $42.9 million and $37.9 million.

93

---

The
following table summarizes significant ranges of outstanding and exercisable
options as of March 31, 2009 (in thousands except per share data; exercise
prices and contractual lives are weighted averages):

|                  |       |        |   |          |  | Options Outstanding |  | Options Exercisable
|----------------- | ----- | ------ | - | -------- |  | ------------------- |  | -------------------
|Range of Exercise |       |        |   | Exercise |  | Contractual         |  | Aggregate          
|Prices            |       | Number |   | Price    |  | Life (years)        |  | **Intrinsic Value**
|$                 | 1.00  | -      | $ | 9.19     |  | 3,473               |  | $                  
|$                 | 9.20  | -      | $ | 13.29    |  | 3,723               |  | $                  
|$                 | 13.30 | -      | $ | 21.49    |  | 3,641               |  | $                  
|$                 | 21.50 | -      | $ | 23.50    |  | 3,962               |  | $                  
|$                 | 23.51 | -      | $ | 35.40    |  | 4,098               |  | $                  
|$                 | 1.00  | -      | $ | 35.40    |  | 18,897              |  | $                  

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 $10.28 at March 31, 2009, 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, 2009 was 4,574,389. As of March 31, 2009, 7,915,787 options were unvested,
of which 7,333,185 are expected to vest, based on an estimated forfeiture rate
of 7%.

During
fiscal year 2009, the Company granted RSUs to certain senior company executives
pursuant to the 2006 Stock Incentive Plan. The RSUs vest at the end of two years
from the grant date upon meeting certain share price performance criteria
measured against market conditions. Compensation expense related to 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, 2009, total
compensation cost related to RSUs not yet recognized was $2.0 million, which is
expected to be recognized over the next 18 months.

During
fiscal year 2009 the Company granted 93,750 RSUs with a grant date fair value of
$27.90 per unit. No RSUs were granted during fiscal year 2008.

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

Dividend yield
    
    0%Expected
      life
    
    2
    yearsExpected volatility
    
    41%Risk-free
      interest rate
    
    1.82%


The
dividend yield assumption is based on the Companys history and future
expectations of dividend payouts. The expected life of RSUs is the service
period at the end of which the RSUs will vest. 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
2009, 2008 and 2007, were $8.3 million, $7.0 million and $5.7
million.

Defined Benefit
Plans

Certain
of the Companys subsidiaries sponsor defined benefit pension plans covering
substantially all of their employees. Retirement benefits are provided based on
employees years of service and earnings, or in accordance with applicable
employee benefit regulations. The Companys practice is to fund amounts
sufficient to meet the requirements set forth in the applicable employee benefit
and tax regulations.

The
Company recognizes the underfunded or overfunded status of defined benefit
pension and postretirement plans as an asset or liability in its statement of
financial position, and recognizes changes in the funded status 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.

94

---

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 2009 and 2008 was as follows (in
thousands):

Year ended March 31,2009
    
    2008Service cost
    
    $
    2,391
    
    
    $
    2,568Interest
      cost
    
    
    1,452
    
    
    
    1,157Expected return on plan assets
    
    
    (1,489
    )
    
    
    (1,486
    )Amortization of
      net transition obligation
    
    
    5
    
    
    
    5Recognized net actuarial loss
    
    
    444
    
    
    
    141Net periodic
      benefit cost
    
    $
    2,803
    
    
    $
    2,385


Additional benefit costs of $3.4 million related to the restructuring
were recognized in restructuring expenses in fiscal year 2009.

The changes in projected benefit
obligations for fiscal years 2009 and 2008 were as follows (in
thousands):

March 31,2009
    
    2008Projected benefit obligation, beginning of year
    
    $
    49,808
    
    
    $
    34,787Service
      cost
    
    
    2,391
    
    
    
    2,568Interest cost
    
    
    1,452
    
    
    
    1,157Plan participant
      contributions
    
    
    1,656
    
    
    
    1,430Actuarial loss due to assumption changes
    
    
    3,828
    
    
    
    -Actuarial loss
      due to plan experience
    
    
    988
    
    
    
    2,962Benefits paid
    
    
    (1,286
    )
    
    
    (500
    )Plan
      amendments
    
    
    2,590
    
    
    
    -Settlement/curtailment
    
    
    (9,503
    )
    
    
    -Initial adoption
      of Japanese plan
    
    
    431
    
    
    
    -Administrative expense paid
    
    
    (183
    )
    
    
    (211
    )Foreign currency
      exchange rate changes
    
    
    (6,062
    )
    
    
    7,615Projected benefit obligation, end of year
    
    $
    46,110
    
    
    $
    49,808


The
accumulated benefit obligation for all defined benefit pension plans as of March
31, 2009 and 2008 was $39.0 million and $42.0 million.

95

---

The
following table presents the changes in the fair value of plan assets for fiscal
years 2009 and 2008 (in thousands):

March 31,2009
    
    2008Fair value of plan assets, beginning of year
    
    $
    35,059
    
    
    $
    27,362Actual return on
      plan assets
    
    
    (4,928
    )
    
    
    (2,050
    )Employer contributions
    
    
    3,404
    
    
    
    3,041Plan participant
      contributions
    
    
    1,656
    
    
    
    1,430Benefits paid
    
    
    (1,286
    )
    
    
    (500
    )Settlement
    
    
    (6,580
    )
    
    
    -Initial adoption of Japanese plan
    
    
    244
    
    
    
    -Administrative
      expenses paid
    
    
    (183
    )
    
    
    (211
    )Foreign currency exchange rate changes
    
    
    (3,971
    )
    
    
    5,987Fair value of
      plan assets, end of year
    
    $
    23,415
    
    
    $
    35,059


The
defined benefit pension plans have the following asset allocations. Investment
strategies are determined by the insurer or the applicable governmental
regulatory agency.

March 31,2009
    
    2008Cash
    
    0.0%
    
    4.3%Equity
      securities
    
    24.4%
    
    30.7%Debt securities
    
    53.2%
    
    44.0%Real
      estate
    
    5.3%
    
    5.5%Other
    
    17.1%
    
    15.5%100.0%
    
    100.0%


The
funded status of the defined benefit pension plans is the fair value of plan
assets less benefit obligations. Projected benefit obligations exceeded plan
assets for all plans by $22.7 million and $14.7 million as of March 31, 2009 and
2008. Amounts recognized on the balance sheet for the plans were as follows (in
thousands):

March 31,2009
    
    2008Current assets
    
    $
    990
    
    
    $
    902Current
      liabilities
    
    
    (2,873
    )
    
    
    (2,440
    )Non-current liabilities
    
    
    (19,822
    )
    
    
    (12,309
    )Net
      liability
    
    $
    (21,705
    )
    
    $
    (13,847
    )


Amounts recognized in other
comprehensive income were as follows (in thousands):

March 31,2009
    
    2008Net prior service cost
    
    $
    2,077
    
    
    $
    -Net actuarial
      loss
    
    
    14,000
    
    
    
    9,842Amortization of net transition obligation
    
    
    35
    
    
    
    46Accumulated
      other comprehensive income
    
    
    16,112
    
    
    
    9,888Deferred tax benefit
    
    
    (990
    )
    
    
    (821
    )Accumulated
      other comprehensive loss, net of tax
    
    $
    15,122
    
    
    $
    9,067


96

---

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

March 31,2009
    
    2008Accumulated other comprehensive loss, beginning of year
    
    $
    9,067
    
    
    $
    2,728Transition
      obligation recognized
    
    
    (5
    )
    
    
    (5
    )Loss recognized
    
    
    (415
    )
    
    
    (138
    )Settlement/curtailment loss recognized
    
    
    (6,225
    )
    
    
    -Prior service cost occurred
    
    
    2,443
    
    
    
    -Loss
      occurred
    
    
    10,812
    
    
    
    6,448Deferred tax benefit
    
    
    (182
    )
    
    
    31Foreign currency
      exchange rate changes
    
    
    (373
    )
    
    
    3Accumulated other comprehensive loss, end of year
    
    $
    15,122
    
    
    $
    9,067


The
following table presents the amounts included in accumulated other comprehensive
loss as of March 31, 2009, 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
    $
    4Amortization of
      net prior service costs
    
    133Amortization of net actuarial loss
    
    882$
    1,019


The
Company reassesses its benefit plan assumptions on a regular basis. The
actuarial assumptions for the pension plans for fiscal year 2009 are as
follows:

Benefit Obligation
    
    Periodic CostDiscount rate
    
    2.00% to 3.00%
    
    2.50% to 3.50%Estimated rate
      of compensation increase
    
    2.50% to
      4.00%
    
    2.50% to
      4.25%Expected average rate of return on plan assets
    
    1.00% to 4.25%
    
    2.75% to 4.75%


The
discount rate is estimated based on relevant bond market yields. The Company
bases the compensation increase assumptions on historical experience and future
expectations. The expected average rate of return for the Companys retirement
benefit 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 31,2010
    $
    2,8742011
    
    2,2522012
    
    2,2762013
    
    2,2912014
    
    2,285Thereafter
    
    11,672$
    23,650


The
Company expects to contribute approximately $3.8 million to its defined benefit
pension plans during fiscal year 2010.

97

---

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 $10.7 million and $12.8 million at March 31, 2009 and 2008 and
was included in other assets. 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 $10.5
million and $14.8 million at March 31, 2009 and 2008 and was included in other
liabilities. The additional compensation expenses related to investment
performance have not been significant to date.

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, 2009, 2008 and 2007 is
summarized as follows (in thousands):

2009
    
    2008
    
    2007Income before income taxes:Swiss
    
    $
    40,717
    
    $
    145,403
    
    $
    141,749Non-Swiss
    
    
    86,076
    
    
    117,411
    
    
    113,808Total
    
    $
    126,793
    
    $
    262,814
    
    $
    255,557


The provision for income taxes is
summarized as follows (in thousands):

Year ended March
31,2009
    
    2008
    
    2007Current:Swiss
    
    $
    53
    
    
    $
    2,509
    
    
    $
    4,644Non-Swiss
    
    
    32,274
    
    
    
    31,055
    
    
    
    36,295Deferred:Swiss
    
    
    (36
    )
    
    
    (75
    )
    
    
    (89
    )Non-Swiss
    
    
    (12,530
    )
    
    
    (1,701
    )
    
    
    (15,141
    )Total
    
    $
    19,761
    
    
    $
    31,788
    
    
    $
    25,709


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
31,2009
    
    2008
    
    2007Expected tax provision at statutory income tax rates
    
    $
    10,777
    
    
    $
    22,339
    
    
    $
    21,722Income taxes at
      different rates
    
    
    7,221
    
    
    
    12,245
    
    
    
    10,194Research and development tax credits
    
    
    (2,524
    )
    
    
    (1,572
    )
    
    
    (1,868
    )Unrealized
      investment income
    
    
    1,004
    
    
    
    (248
    )
    
    
    -Stock Compensation
    
    
    2,767
    
    
    
    423
    
    
    
    391Other
    
    
    516
    
    
    
    (1,399
    )
    
    
    (4,730
    )Total provision for income taxes
    
    $
    19,761
    
    
    $
    31,788
    
    
    $
    25,709


98

---

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 $4.0 million and $7.3
million for fiscal years 2009 and 2008. The benefit of the tax holiday on net
income per share (diluted) was approximately $0.02 and $0.05
respectively.

Deferred income tax assets and
liabilities consist of the following (in thousands):

March 31,2009
    
    2008Deferred tax assets:Net operating loss carry
      forwards
    
    $
    8,781
    
    
    $
    4,171Accruals
    
    
    35,610
    
    
    
    29,977Depreciation
      and amortization
    
    
    8,100
    
    
    
    6,630Share-based
      compensation
    
    
    11,983
    
    
    
    7,504Gross deferred
      tax assets
    
    
    64,474
    
    
    
    48,282Deferred tax liabilities:Acquired
      intangible assets
    
    
    (11,462
    )
    
    
    (6,992
    )Gross deferred tax liabilities
    
    
    (11,462
    )
    
    
    (6,992
    )Net deferred tax
      assets
    
    $
    53,012
    
    
    $
    41,290


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 the 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 the 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 2009 and 2008. 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 2009 and 2008, the
Company recorded a credit to equity of $15.3 million and $3.9
million.

As of
March 31, 2009, the Company had foreign net operating loss and tax credit
carryforwards for income tax purposes of $182.9 million and $17.8 million.
Approximately $145.6 million of the net operating loss carryforwards and
substantially all 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
2012 to 2029, and the tax credit carryforwards will start expiring beginning in
fiscal year 2010.

Effective
April 1, 2007, the Company adopted the provisions of FIN 48, which contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. 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 a
result of the implementation of FIN 48, the Company reduced the liability for
net unrecognized tax benefits and related accrued interest and penalties by
approximately $8.3 million, and accounted for the reduction as the cumulative
effect of a change in accounting principle, which resulted in an increase to
retained earnings of approximately $8.3 million during the first quarter of
fiscal year 2008. As of March 31, 2009 and 2008, the total amount of
unrecognized tax benefits was $108.2 million and $101.5 million, of which $88.1
million and $80.2 million would affect the effective tax rate if realized. The
Company classified unrecognized tax benefits under FIN 48 as non-current income
taxes payable, as no amounts appear payable within the next 12
months.

99

---

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
    $
    97,627


The
Company continues to recognize interest and penalties related to unrecognized
tax positions in income tax expense. Upon the adoption of FIN 48, the total
amount of accrued interest and penalties relating to unrecognized tax benefits
was $7.2 million. The Company recognized $1.8 million and $1.6 million in
interest and penalties in income tax expense during fiscal years 2009 and 2008.
As of March 31, 2009 and 2008, the Company had approximately $10.7 million and
$8.8 million of accrued interest and penalties related to uncertain tax
positions.

On
October 3, 2008,The Emergency Economic
Stabilization Act of 2008, which contains theTax Extenders and Alternative Minimum Tax
Relief Act of 2008, was enacted into law by
the U.S. Congress. Under the Act, the research tax credit was retroactively
extended for amounts paid or incurred after December 31, 2007 and before January
1, 2010. As a result, income tax expense for fiscal year 2009 reflected a $2.0
million tax benefit for research tax credits.

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

The
Company files Swiss and foreign tax returns. For all these tax returns, the
Company is generally not subject to tax examinations for years prior to
1999.The Internal
Revenue Service has initiated an examination of the Companys U.S. subsidiary
for fiscal year 2006. At this time it is not possible to estimate the potential
impact that the examination may have on income tax expense.

Although
timing of the resolution or closure on audits is highly uncertain, the Company
does not believe it is reasonably possible that the unrecognized tax benefits
would materially change in the next 12 months.

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.

100

---

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 in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). These hedging contracts generally
mature within three months. Gains and losses in the fair value of the effective
portion of the hedges are deferred as a component of accumulated other
comprehensive loss until the hedged inventory purchases are sold, at which time
the gains or losses are reclassified to cost of goods sold. The Company assesses
the effectiveness of the hedges by comparing changes in the spot rate of the
currency underlying the forward contract with changes in the spot rate of the
currency in which the forecasted transaction will be consummated. If the
underlying transaction being hedged fails to occur or if a portion of the hedge
does not generate offsetting changes in the foreign currency exposure of
forecasted inventory purchases, the Company immediately recognizes the gain or
loss on the associated financial instrument in other income (expense). Such
losses were immaterial during the year ended March 31, 2009. The notional
amounts of foreign exchange forward contracts outstanding related to forecasted
inventory purchases were $21.9 million (17.4 million euros) at March 31, 2009.
There were no such contracts outstanding at March 31, 2008. The notional amount
represents the future cash flows under contracts to purchase foreign
currencies.

Other
Derivatives

The
Company also enters into foreign exchange forward contracts to reduce the
short-term effects of foreign currency fluctuations on certain foreign currency
receivables or payables. These forward contracts generally mature within one to
three months. The Company may also enter into foreign exchange swap contracts to
economically extend the terms of its foreign exchange forward contracts. The
primary risk managed by using forward and swap contracts is the foreign currency
exchange rate risk. The gains or losses on foreign exchange forward contracts
are recognized in earnings based on the changes in fair value.

The
notional amounts of foreign exchange forward contracts outstanding at March 31,
2009 and 2008 relating to foreign currency receivables or payables were $8.0
million and $8.4 million. Open forward contracts as of March 31, 2009 consisted
of contracts in British pounds to purchase euros at a future date at a
pre-determined exchange rate. The notional amounts of foreign exchange swap
contracts outstanding at March 31, 2009 and 2008 were $20.2 million and $21.5
million. Swap contracts outstanding at March 31, 2009 consisted of contracts in
Mexican pesos, Japanese yen 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. Under
SFAS 157, quoted foreign exchange forward rates are observable inputs that are
classified as Level 1 within the fair value hierarchy.

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

|                                      |  | Asset Derivatives  |  | Liability
Derivatives
|------------------------------------- |  | ------------------ |  | ---------------------
|                                      |  | Location           |  | Fair Value           
|Derivatives designated as hedging     |  |                    |  |                      
|instruments under SFAS
      133:     |  |                    |  |                      
|Cash Flow Hedges                      |  | Other
      assets |  | $                    
|                                      |  |                    |  |                      
|                                     
|Derivatives not designated as hedging |  |                    |  |                      
|instruments under SFAS
      133:     |  |                    |  |                      
|Foreign Exchange Forward
Contracts    |  | Other
      assets |  |                      
|Foreign Exchange Swap Contracts       |  | Other assets       |  |                      
|                                      |  |                    |  |                      
|                                      |  |                    |  |                      
|                                      |  |                    |  | $                    

101

---

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

|                                      |  | Net amount of        |     | Location
      of |                    | Amount of         |   |                   |  |                      |  |  
|------------------------------------- |  | -------------------- | --- | ----------------- | ------------------ | ----------------- | - | ----------------- |  | -------------------- |  | -
|                                      |  | gain/(loss) deferred |     | gain/(Loss)       |                    | gain/(loss)       |   |                   |  |                      |  |  
|                                      |  | as a component of    |     | reclassified from |                    | reclassified from |   | Location
      of |  | Amount of           
|                                      |  | accumulated          |     | accumulated       |                    | accumulated       |   | gain/(loss)       |  | gain/(loss)         
|                                      |  | other                |     | other             |                    | other             |   | recognized in     |  | recognized in       
|                                      |  | comprehensive        |     | comprehensive     |                    | comprehensive     |   | income            |  | income              
|                                      |  | loss                 |     | loss into
income  |                    | loss into income  |   | immediately       |  | immediately         
|Derivatives designated as hedging     |  |                      |     |                   |                    |                   |   |                   |  |                      |  |  
|instruments under SFAS
      133:     |  |                      |     |                   |                    |                   |   |                   |  |                      |  |  
|Cash Flow Hedges                      |  | $                    | 216 |                   | Cost of goods sold |                   | $ | 1,678             |  | Other income/expense |  | $
|                                      |  |                      | 216 |                   |                    |                   |   | 1,678             |  |                      |  |  
|                                      |  |                      |     |                   |                    |                   |   |                   |  |                      |  |  
|Derivatives not designated as hedging |  |                      |     |                   |                    |                   |   |                   |  |                      |  |  
|instruments under SFAS
      133:     |  |                      |     |                   |                    |                   |   |                   |  |                      |  |  
|Foreign Exchange Forward
Contracts    |  |                      | -   |                   |                    |                   |   | -                 |  | Other income/expense |  |  
|Foreign Exchange Swap Contracts       |  |                      | -   |                   |                    |                   |   | -                 |  | Other income/expense |  |  
|                                      |  |                      | -   |                   |                    |                   |   | -                 |  |                      |  |  
|                                      |  | $                    | 216 |                   |                    |                   | $ | 1,678             |  |                      |  | $

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, 2009 are as follows (in
thousands):

Year ending
      March 31,2010
    $
    12,8052011
    
    9,4822012
    
    7,4632013
    
    6,7232014
    
    3,417Thereafter
    
    6,960$
    46,850


Rent
expense was $15.5 million, $13.8 million and $9.9 million for the years ended
March 31, 2009, 2008 and 2007. The Companys asset retirement obligations for
its leased facilities as of March 31, 2009 were not material.

At March
31, 2009, fixed purchase commitments for capital expenditures amounted to $8.3
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, 2009, fixed purchase commitments for inventory amounted to $106.7
million, which are expected to be fulfilled by December 31, 2009. The Company
also had other commitments totaling $27.6 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, 2009, the
amount of outstanding guaranteed purchase obligations was approximately $0.1
million. The maximum potential future payments under two of the three guarantee
arrangements is limited to $2.8 million. The third guarantee is limited to
purchases of specified components from the named supplier. The Company does not
believe, based on historical experience and information currently available,
that it is probable that any amounts will be required to be paid under these
guarantee arrangements.

102

---

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 $4.9 million as of March 31, 2009. As of March 31, 2009, $4.9 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, 2009. The Company does not believe, based on historical
experience and information currently available, that it is probable that any
amounts will be required to be paid under its indemnification
arrangements.

In
December 2006, the Company acquired Slim Devices, Inc., a privately held company
specializing in network-based audio systems for digital music. The purchase
agreement provides for a possible performance-based payment, payable in the
first calendar quarter of 2010. The performance-based payment is based on net
revenues from the sale of products and services in calendar year 2009 derived
from Slim Devices technology. The maximum performance-based payment is $89.5
million, and no payment is due if the applicable net revenues total $40 million
or less. The total performance-based payment amount, if any, will be recorded in
goodwill and will not be final until the end of calendar year 2009. As of March
31, 2009, no amounts were payable towards performance-based payments under our
acquisition agreement.

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

The
Company is involved in a number of lawsuits and claims relating to commercial
matters that arise in the normal course of business. The Company believes these
lawsuits and claims are without merit and intends to vigorously defend against
them. However, there can be no assurances that its defenses will be successful,
or that any judgment or settlement in any of these lawsuits would not have a
material adverse impact on the Company's business, financial condition, cash
flows and results of operations. The Companys accruals for lawsuits and claims
as of March 31, 2009 were not material.

103

---

Note 17  Interest and Other Income

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

Year ended March
31,2009
    
    2008
    
    2007Interest income
    
    $
    8,648
    
    
    $
    15,752
    
    
    $
    9,083Interest
      expense
    
    
    (20
    )
    
    
    (244
    )
    
    
    (350
    )Interest income, net
    
    $
    8,628
    
    
    $
    15,508
    
    
    $
    8,733Foreign currency exchange gains, net
    
    $
    13,680
    
    
    $
    10,616
    
    
    $
    6,190Gain on sale of
      investments, net
    
    
    -
    
    
    
    27,761
    
    
    
    9,048Write-down of investments
    
    
    (2,727
    )
    
    
    (79,823
    )
    
    
    -Other,
      net
    
    
    (2,442
    )
    
    
    2,072
    
    
    
    724Other income (expense), net
    
    $
    8,511
    
    
    $
    (39,374
    )
    
    $
    15,962


Note 18  Segment Information

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

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

Year ended March 31,2009
    
    2008
    
    2007EMEA
    
    $
    1,001,337
    
    $
    1,117,060
    
    $
    1,027,852Americas
    
    
    785,862
    
    
    888,529
    
    
    729,207Asia Pacific
    
    
    421,633
    
    
    364,907
    
    
    309,510Total net sales
    
    $
    2,208,832
    
    $
    2,370,496
    
    $
    2,066,569


In fiscal
years 2009, 2008 and 2007, 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 years 2009, 2008 and 2007, one customer represented 14% of
net sales. As of March 31, 2009, two customers represented 18% and 10% of total
accounts receivable. As of March 31, 2008, two customers each represented 15% of
total accounts receivable.

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

Year ended March 31,2009
    
    2008
    
    2007Retail - Pointing Devices
    
    $
    579,775
    
    $
    615,524
    
    $
    508,449Retail -
      Keyboards & Desktops
    
    
    384,809
    
    
    464,984
    
    
    372,266Retail - Audio
    
    
    445,362
    
    
    478,455
    
    
    408,314Retail -
      Video
    
    
    248,339
    
    
    238,728
    
    
    314,514Retail - Gaming
    
    
    127,052
    
    
    146,016
    
    
    149,113Retail -
      Remotes
    
    
    102,006
    
    
    123,581
    
    
    91,739OEM
    
    
    321,489
    
    
    303,208
    
    
    222,174Total net sales
    
    $
    2,208,832
    
    $
    2,370,496
    
    $
    2,066,569


104

---

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

March 31,2009
    
    2008EMEA
    
    $
    13,947
    
    $
    20,386Americas
    
    
    40,093
    
    
    36,122Asia Pacific
    
    
    53,541
    
    
    50,330Total long-lived
    assets
    
    $
    107,581
    
    $
    106,838


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, 2009. Long-lived
assets in China, the United States and Switzerland each represented more than
10% of the Companys total consolidated long-lived assets at March 31,
2008.

105

---

LOGITECH INTERNATIONAL
S.A.

QUARTERLY FINANCIAL
DATA(Unaudited)

The
following table contains selected unaudited quarterly financial data for fiscal
years 2009 and 2008 (in thousands except per share amounts):

|                                 |  | Year ended March 31,
    2009 |         | Year ended March 31,
    2008
|-------------------------------- |  | ----------------------------- | ------- | -----------------------------
|                                 |  | First                         |         | Second                       
|Net sales                        |  | $                             | 508,711 |                              
|Gross
      profit               |  |                               | 173,572 |                              
|Operating expenses:              |  |                               |         |                              
|Marketing and selling            |  |                               | 77,280  |                              
|Research and development         |  |                               | 33,259  |                              
|General and administrative       |  |                               | 33,309  |                              
|Restructuring charges            |  |                               | -       |                              
|Total operating expense          |  |                               | 143,848 |                              
|Operating income (loss)          |  |                               | 29,724  |                              
|Net income
      (loss)          |  | $                             | 29,306  |                              
|Net income (loss) per share*:    |  |                               |         |                              
|Basic                            |  | $                             | 0.16    |                              
|Diluted                          |  | $                             | 0.16    |                              
|Shares used to
      compute net |  |                               |         |                              
|income (loss) per
      share:   |  |                               |         |                              
|Basic                            |  |                               | 179,046 |                              
|Diluted                          |  |                               | 184,692 |                              

* 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,
    2009 |  | Year ended March 31,
    2008
|-------------------------------- |  | ----------------------------- |  | -----------------------------
|                                 |  | First                         |  | Second                       
|Net sales                        |  | 100.0%                        |  | 100.0%                       
|Gross
      profit               |  | 34.1                          |  | 34.3                         
|Operating expenses:              |  |                               |  |                              
|Marketing and
selling            |  | 15.2                          |  | 12.7                         
|Research and
      development   |  | 6.5                           |  | 5.0                          
|General and
      administrative |  | 6.6                           |  | 4.5                          
|Restructuring
      charges      |  | -                             |  | -                            
|Total operating expense          |  | 28.3                          |  | 22.2                         
|Operating income (loss)          |  | 5.8                           |  | 12.1                         
|Net income
      (loss)          |  | 5.8%                          |  | 10.9%                        

106

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Schedule II

LOGITECH INTERNATIONAL
S.A.VALUATION AND QUALIFYING ACCOUNTSFor the Fiscal Years Ended March 31, 2009, 2008 and 2007 (in
thousands)

|         |  |                                          |  | Balance at   |        | Charged to    |   | Write-offs           |  | Balance at
|-------- |  | ---------------------------------------- |  | ------------ | ------ | ------------- | - | -------------------- |  | ----------
|Fiscal   |  |                                          |  | beginning of |        | Income        |   | charged              |  | end       
|**Year** |  | **Description**                          |  | period       |        | Statement
(1) |   | to allowance
    (1) |  | of period 
|2009     |  | Allowance for doubtful accounts          |  | $            | 2,497  |               | $ | 5,102                |  | $         
|2008     |  | Allowance for
      doubtful accounts    |  | $            | 3,322  |               | $ | 603                  |  | $         
|2007     |  | Allowance for doubtful accounts          |  | $            | 2,988  |               | $ | 527                  |  | $         
|         |  |                                          |  |              |        |               |   |                      |  |           
|2009     |  | Cooperative Marketing Arrangements       |  | $            | 41,516 |               | $ | 143,788              |  | $         
|2008     |  | Cooperative
      Marketing Arrangements |  | $            | 34,236 |               | $ | 141,146              |  | $         
|2007     |  | Cooperative Marketing Arrangements       |  | $            | 25,646 |               | $ | 122,088              |  | $         
|         |  |                                          |  |              |        |               |   |                      |  |           
|2009     |  | Customer Incentive Programs              |  | $            | 49,341 |               | $ | 131,353              |  | $         
|2008     |  | Customer
      Incentive Programs        |  | $            | 32,799 |               | $ | 125,923              |  | $         
|2007     |  | Customer Incentive Programs              |  | $            | 24,388 |               | $ | 88,650               |  | $         
|         |  |                                          |  |              |        |               |   |                      |  |           
|2009     |  | Reserve for Sales Returns                |  | $            | 21,099 |               | $ | 83,419               |  | $         
|2008     |  | Reserve for
      Sales Returns          |  | $            | 15,821 |               | $ | 87,114               |  | $         
|2007     |  | Reserve for Sales Returns                |  | $            | 11,653 |               | $ | 73,899               |  | $         
|         |  |                                          |  |              |        |               |   |                      |  |           
|2009     |  | Price Protection                         |  | $            | 16,334 |               | $ | 23,203               |  | $         
|2008     |  | Price
      Protection                   |  | $            | 7,818  |               | $ | 41,722               |  | $         
|2007     |  | Price Protection                         |  | $            | 2,359  |               | $ | 29,304               |  | $         

|(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.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

107

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