Edgar Filing: LOGITECH INTERNATIONAL SA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 0-29174

LOGITECH INTERNATIONAL S.A.

(Exact name of registrant as specified in its charter)

Canton of Vaud, Switzerland

None

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

Logitech International S.A.

Apples, Switzerland

c/o Logitech Inc.

7600 Gateway Boulevard

Newark, California 94560

(Address of principal executive offices and zip code)

(510) 795-8500

(Registrant’s telephone number, including area code)

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

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 x No o

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

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

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

As of October 28, 2013, there were 160,592,874 shares of the Registrant’s share capital outstanding.

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TABLE OF CONTENTS

		Page

Part I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	65
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 6.	Exhibit Index	81
Signatures		82
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.

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PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Financial Statement Description	Page

·	Consolidated Statements of Operations for the three and six months ended September 30, 2013 and 2012 (revised)	4

·	Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2013 and 2012 (revised)	5

·	Consolidated Balance Sheets as of September 30, 2013 and March 31, 2013 (revised)	6

·	Consolidated Statements of Cash Flows for the six months ended September 30, 2013 and 2012 (revised)	7

·	Consolidated Statements of Changes in Shareholders’ Equity for the six months ended September 30, 2013 and 2012 (revised)	8

·	Notes to Consolidated Financial Statements (revised)	9

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months ended September 30,					Six Months ended September 30,
	2013		2012			2013		2012
			As Revised					As Revised

Net sales	$	531,972	$	547,693		$	1,009,896	$	1,016,297
Cost of goods sold	348,559		351,919			658,128		675,177
Gross profit	183,413		195,774			351,768		341,120
Operating expenses:
Marketing and selling	93,710		110,522			194,345		211,419
Research and development	37,633		38,114			73,824		77,137
General and administrative	29,395		25,980			58,543		58,460
Restructuring charges (credits)	5,465		(2,671		)	7,799		28,556
Total operating expenses	166,203		171,945			334,511		375,572
Operating income (loss)	17,210		23,829			17,257		(34,452		)
Interest income, net	183		153			160		537
Other income (expense)	62		(509		)	279		(668		)
Income (loss) before income taxes	17,455		23,473			17,696		(34,583		)
Provision for (benefit from) income taxes	3,057		(31,076		)	2,255		(37,986		)
Net income	$	14,398	$	54,549		$	15,441	$	3,403

Net income per share:
Basic	$	0.09	$	0.35		$	0.10	$	0.02
Diluted	$	0.09	$	0.35		$	0.10	$	0.02

Shares used to compute net income per share:
Basic	159,969		156,736			159,637		158,723
Diluted	161,183		157,932			160,875		159,853

Cash dividends per share	$	0.22	$	0.85		$	0.22	$	0.85

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months ended September 30,						Six Months ended September 30,
	2013			2012			2013			2012
				As Revised						As Revised

Net income	$	14,398		$	54,549		$	15,441		$	3,403

Other comprehensive income:
Foreign currency translation gain (loss)	2,728			2,441			2,829			(4,420		)

Change in net loss (gain), and prior service cost related to defined benefit pension plans:
Net loss (gain) and prior service cost	(804		)	6,457			(1,000		)	7,920
Less amortization included in operating expenses	309			301			615			756

Net change in hedging gain (loss):
Unrealized hedging loss	(1,373		)	(5,466		)	(2,286		)	(4,261		)
Less reclassification adjustment for gain (loss) included in cost of goods sold	(94		)	1,683			184			1,577

Net change in unrealized investment loss:
Reclassification adjustment for gain included in other income (expense)	—			—			—			(343		)
Other comprehensive income	766			5,416			342			1,229
Total comprehensive income	$	15,164		$	59,965		$	15,783		$	4,632

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	September 30, 2013			March 31, 2013
				As Revised
ASSETS
Current assets:
Cash and cash equivalents	$	294,796		$	333,824
Accounts receivable	258,858			179,565
Inventories	292,777			261,083
Other current assets	65,808			58,103
Assets held for sale	—			10,960
Total current assets	912,239			843,535
Non-current assets:
Property, plant and equipment, net	87,133			87,649
Goodwill	344,759			341,357
Other intangible assets	17,747			26,024
Other assets	71,817			75,098
Total assets	$	1,433,695		$	1,373,663

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	303,089		$	265,995
Accrued and other current liabilities	219,646			192,774
Liabilities held for sale	—			3,202
Total current liabilities	522,735			461,971
Non-current liabilities	202,556			195,882
Total liabilities	725,291			657,853

Commitments and contingencies (Note 11)

Shareholders’ equity:
Shares, par value CHF 0.25 - 173,106 issued and authorized and 50,000 conditionally authorized at September 30, 2013 and and March 31, 2013	30,148			30,148
Additional paid-in capital	—			—
Less: shares in treasury, at cost, 12,556 at September 30, 2013 and 13,855 at March 31, 2013	(155,807		)	(177,847		)
Retained earnings	926,714			956,502
Accumulated other comprehensive loss	(92,651		)	(92,993		)
Total shareholders’ equity	708,404			715,810
Total liabilities and shareholders’ equity	$	1,433,695		$	1,373,663

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months ended September 30,
	2013			2012
				As Revised
Cash flows from operating activities:
Net income	$	15,441		$	3,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	19,283			22,307
Amortization of other intangible assets	10,518			12,589
Investment impairment and loss	530			—
Share-based compensation expense	8,499			13,437
Loss on disposal of property, plant and equipment	2,456			—
Gain on sales of available-for-sale securities	—			(831		)
Excess tax benefits from share-based compensation	—			(22		)
Deferred income taxes and other	(3,902		)	(3,806		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(77,042		)	(58,533		)
Inventories	(21,350		)	(31,825		)
Other assets	(5,893		)	(7,570		)
Accounts payable	39,555			71,095
Accrued and other liabilities	26,091			(10,997		)
Net cash provided by operating activities	14,186			9,247

Cash flows from investing activities:
Purchases of property, plant and equipment	(23,063		)	(32,817		)
Investment in a privately-held company	—			(3,970		)
Acquisitions, net of cash acquired	(650		)	—
Proceeds from sales of available-for-sale securities	—			917
Purchases of trading investments for deferred compensation plan	(6,146		)	(1,648		)
Proceeds from sales of trading investments for deferred compensation plan	6,602			1,638
Net cash used in investing activities	(23,257		)	(35,880		)

Cash flows from financing activities:
Payment of cash dividends	(36,123		)	(133,462		)
Purchases of treasury shares	—			(87,812		)
Proceeds from sales of shares upon exercise of options and purchase rights	6,135			9,008
Tax withholdings related to net share settlements of restricted stock units	(453		)	(635		)
Excess tax benefits from share-based compensation	—			22
Net cash used in financing activities	(30,441		)	(212,879		)
Effect of exchange rate changes on cash and cash equivalents	484			(1,825		)
Net decrease in cash and cash equivalents	(39,028		)	(241,337		)
Cash and cash equivalents at beginning of period	333,824			478,370
Cash and cash equivalents at end of period	$	294,796		$	237,033

Non-cash investing activities:
Property, plant and equipment purchased during the period and included in period end accounts payable	$	1,935		$	1,702

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

															Accumulated
				Additional											Other
	Registered Shares			Paid-in			Treasury Shares					Retained			Comprehensive
	Shares	Amounts		Capital			Shares		Amounts			Earnings			Loss			Total
				As Revised					As Revised			As Revised			As Revised			As Revised

March 31, 2012	191,606	$	33,370	$	—		27,173		$	(343,829	)	$	1,528,620		$	(95,929	)	$	1,122,232
Total comprehensive income	—	—		—			—					3,403			1,229			4,632
Purchase of treasury shares	—	—		—			8,600		(87,812		)	—			—			(87,812		)
Tax benefit from exercise of stock options	—	—		(3,011		)	—		—			—			—			(3,011		)
Sale of shares upon exercise of options and purchase rights	—	—		(1,756		)	(1,347	)	41,058			(30,285		)	—			9,017
Issuance of shares upon vesting of restricted stock units	—	—		(8,526		)	(288	)	7,946			—			—			(580		)
Share-based compensation expense	—	—		13,293			—		—			—			—			13,293
Cash dividends	—	—		—			—		—			(133,462		)	—			(133,462		)
September 30, 2012	191,606	$	33,370	$	—		34,138		$	(382,637	)	$	1,368,276		$	(94,700	)	$	924,309

March 31, 2013	173,106	$	30,148	$	—		13,855		$	(177,847	)	$	956,502		$	(92,993	)	$	715,810
Total comprehensive income	—	—		—			—		—			15,441			342			15,783
Deferred tax asset adjustment related to share-based compensation expense	—	—		(1,304		)	—		—			—			—			(1,304		)
Sale of shares upon exercise of options and purchase rights	—	—		(3,021		)	(1,074	)	18,206			(9,106		)	—			6,079
Issuance of shares upon vesting of restricted stock units	—	—		(4,231		)	(225	)	3,834			—			—			(397		)
Share-based compensation expense	—	—		8,556					—			—			—			8,556
Cash dividends	—	—		—			—		—			(36,123		)	—			(36,123		)
September 30, 2013	173,106	$	30,148	$	—		12,556		$	(155,807	)	$	926,714		$	(92,651	)	$	708,404

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

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LOGITECH INTERNATIONAL S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — The Company

Logitech International S.A, together with its consolidated subsidiaries, (“Logitech” or the “Company”) develops and markets innovative hardware and software products that enable or enhance digital navigation, music and video entertainment, gaming, social networking, and audio and video communication over the Internet.

Logitech has two operating segments, peripherals and video conferencing. Logitech’s peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs (personal computers), tablets and other digital platforms. Logitech’s video conferencing segment offers scalable HD (high-definition) video communications endpoints, HD video conferencing systems with integrated monitors, video bridges and other infrastructure software and hardware to support large-scale video deployments, and services to support these products.

Logitech sells its peripheral products to a network of distributors, retailers and OEMs (original equipment manufacturers). Logitech sells its video conferencing products and services to distributors, value-added resellers, OEMs, and, occasionally, direct enterprise customers. The large majority of its sales have historically been derived from peripheral products for use by consumers.

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

Note 2 — Revision of Previously-Issued Financial Statements

In the first quarter of fiscal year 2014, the Company identified errors related to the accounting for its product warranty liability and amortization expense of certain intangible assets. The errors impacted prior reporting periods, starting prior to fiscal year 2009. While these errors were not material to any previously issued annual or quarterly consolidated financial statements, management concluded that correcting the cumulative errors and related tax effects, which amounted to $19.1 million, in the first quarter of fiscal year 2014 would be material to the consolidated financial statements for the three months ended June 30, 2013 and to the expected results of operations for the fiscal year ending March 31, 2014.

The Company evaluated the cumulative impact of the errors on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality. The Company also evaluated the impact of correcting the errors through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to revise its previously issued financial statements to reflect the impact of the correction of these errors when it files subsequent reports on Form 10-Q and Form 10-K. Accordingly, the Company has revised its consolidated financial statements for the quarter ended June 30, 2012, to correct these errors. In addition, as a result of the decision to revise its previously issued consolidated financial statements to correct for the errors described above, the Company also corrected other immaterial errors that were previously uncorrected. On August 7, 2013, the Company filed a Form 10-K/A to revise its financial statements for the years ended March 31, 2011, 2012 and 2013 to correct for the same errors. As a result, the Company has also revised its financial statements for the three and six months ended September 30, 2012 from what it previously reported.

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The revised financial statements correct the following errors, which are included in the tables below, with associated footnotes:

(1) - Warranty accrual — The Company determined that its prior warranty model did not accurately estimate warranty costs and liabilities at each reporting period. The inherent flaws in the prior model involved use of generic assumptions, incomplete warranty cost data and inter-regional methodological differences. This error impacted prior reporting periods, starting prior to fiscal year 2009, and impacted deferred tax asset classification between current and non-current assets.

(2) - Amortization of intangibles — The Company determined that $4.2 million in intangible assets originating from a November 2009 acquisition were never amortized. The impact of this adjustment was $2.0 million in amortization expense not properly recorded during the periods from the quarter ended December 31, 2009 through the end of fiscal year 2013.

(3) - Other adjustments — The Company also corrected a number of other immaterial errors, including the cumulative translation adjustment related to the purchase of treasury shares, and an adjustment affecting the amount of property, plant and equipment purchased during the first quarter of fiscal year 2013.

Consolidated Statements of Operations.

The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statement of operations for the three and six months ended September 30, 2012 (in thousands):

	Three Months ended September 30, 2012									Six Months ended September 30, 2012
	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Revised
				(Unaudited)									(Unaudited)

Net sales	$	547,693		150		(1)	$	547,693		$	1,016,297		(1,015		)(1)	$	1,016,297
Cost of goods sold	351,698			71		(2)	351,919			676,050			142		(2)	675,177
Gross profit	195,995			(221		)	195,774			340,247			873			341,120
Operating expenses:
Marketing and selling	110,522			—			110,522			211,419			—			211,419
Research and development	38,019			95		(2)	38,114			76,947			190		(2)	77,137
General and administrative	25,980			—			25,980			58,460			—			58,460
Restructuring charges (credits)	(2,671		)	—			(2,671		)	28,556			—			28,556
Total operating expenses	171,850			95			171,945			375,382			190			375,572
Operating income (loss)	24,145			(316		)	23,829			(35,135		)	683			(34,452		)
Interest income, net	153			—			153			537			—			537
Other expense, net	(509		)	—			(509		)	(668		)	—			(668		)
Income (loss) before income taxes	23,789			(316		)	23,473			(35,266		)	683			(34,583		)
Benefit from income taxes	(31,076		)	—			(31,076		)	(37,986		)	—			(37,986		)
Net Income	$	54,865		$	(316	)	$	54,549		$	2,720		$	683		$	3,403

Net income per share:	$	0.35					$	0.35		$	0.02					$	0.02
Basic	$	0.35					$	0.35		$	0.02					$	0.02
Diluted
Shares used to compute net income per share:
Basic	156,736						156,736			158,723						158,723
Diluted	157,932						157,932			159,853						159,853

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Consolidated Statements of Comprehensive Income

The Company’s following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statements of comprehensive income for the three and six months ended September 30, 2012 (in thousands):

	Three Months ended September 30, 2012									Six Months ended September 30, 2012
	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Revised
				(Unaudited)									(Unaudited)

Net Income	$	54,865		$	(150	)(1)	$	54,549		$	2,720		$	1,015	(1)	$	3,403
				$	(166	)(2)							$	(332	)(2)

Other comprehensive income:
Foreign currency translation gain (loss)	4,970			(2,529		)(3)	2,441			(1,295		)	(3,125		)(3)	(4,420		)

Change in net loss, and prior service cost related to defined benefit pension plans:
Net loss and prior service cost	6,457			—			6,457			7,920						7,920
Less amortization included in operating expenses	301			—			301			756			—			756

Net change in hedging gain (loss):
Unrealized hedging loss	(5,466		)	—			(5,466		)	(4,261		)	—			(4,261		)
Less reclassification adjustment for gain included in cost of goods sold	1,683			—			1,683			1,577			—			1,577

Net change in unrealized investment loss:
Reclassification adjustment for gain included in other income (expense)	—			—			—			(343		)	—			(343		)

Other comprehensive income	7,945			(2,529		)	5,416			4,354			(3,125		)	1,229
Total comprehensive income	$	62,810		$	(2,845	)	$	59,965		$	7,074		$	(2,442	)	$	4,632

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Consolidated Statements of Cash Flows

The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statement of cash flows for the six months ended September 30, 2012 (in thousands):

	Six Months ended
	September 30, 2012
	As Reported			Adjustments			As Revised
				(Unaudited)
Cash flows from operating activities:
Net income	$	2,720		$	1,015	(1)	$	3,403
				(332		)(2)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	22,307			—			22,307
Amortization of other intangible assets	12,257			332		(2)	12,589
Share-based compensation expense	13,437			—			13,437
Gain on sale of available-for-sale securities	(831		)	—			(831		)
Excess tax benefits from share-based compensation	(22		)	—			(22		)
Deferred income taxes and other	(3,806		)	—			(3,806		)
Changes in assets and liabilities, net of acquisition:							—
Accounts receivable	(58,272		)	(261		)(3)	(58,533		)
Inventories	(30,733		)	(1,092		)(3)	(31,825		)
Other assets	(7,339		)	(231		)(3)	(7,570		)
Accounts payable	68,875			2,220		(3)	71,095
Accrued and other liabilities	(9,498		)	(1,015		)(1)	(10,997		)
				(484		)(3)
Net cash provided by operating activities	9,095			152			9,247
Cash flows from investing activities:							—
Purchases of property, plant and equipment	(30,522		)	(2,295		)(3)	(32,817		)
Investment in privately-held company	(3,970		)	—			(3,970		)
Proceeds from sale of available-for-sale securities	917			—			917
Purchases of trading investments for deferred compensation plan	(1,648		)	—			(1,648		)
Proceeds from sales of trading investments for deferred compensation plan	1,638			—			1,638
Net cash used in investing activities	(33,585		)	(2,295		)	(35,880		)
Cash flows from financing activities:							—
Payment of cash dividends	(133,462		)	—			(133,462		)
Purchases of treasury shares	(89,955		)	2,143		(3)	(87,812		)
Proceeds from sale of shares upon exercise of options and purchase rights	9,008			—			9,008
Tax withholdings related to net share settlements of restricted stock units	(635		)	—			(635		)
Excess tax benefits from share-based compensation	22			—			22
Net cash used in financing activities	(215,022		)	2,143			(212,879		)
Effect of exchange rate changes on cash and cash equivalents	(1,825		)	—			(1,825		)
Net decrease in cash and cash equivalents	(241,337		)	—			(241,337		)
Cash and cash equivalents at beginning of period	478,370			—			478,370
Cash and cash equivalents at end of period	$	237,033		$	—		$	237,033

Other Revisions

During fiscal year 2013, the Company also determined that geographic net sales (Note 13), previously reported in its Form 10-Q for the three and six months ended September 30, 2012, were not property stated. These revisions had no impact on the previously reported consolidated statements of operations.

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Note 3 — Summary of Significant Accounting Policies

Basis of Presentation

The consolidated interim 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 U.S. GAAP (accounting principles generally accepted in the United States of America) for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2013, included in its Annual Report on Form 10-K/A. In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Operating results for the three and six months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending March 31, 2014, or any future periods.

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

Fiscal Years

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

Changes in Significant Accounting Policies

There have been no substantial changes in the Company’s significant accounting policies during the three and six months ended September 30, 2013, compared with the significant accounting policies described in its Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.

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. Examples of significant estimates and assumptions made by management involve the fair value of goodwill, accruals for customer programs, inventory valuation, valuation allowances for deferred tax assets and warranty accruals. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. The ASU provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

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Note 4 — 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):

	Three Months ended September 30,				Six Months ended September 30,
	2013		2012		2013		2012
			As Revised				As Revised

Net income	$	14,398	$	54,549	$	15,441	$	3,403

Weighted average shares - basic	159,969		156,736		159,637		158,723
Effect of potentially dilutive share equivalents	1,214		1,196		1,238		1,130
Weighted average shares - diluted	161,183		157,932		160,875		159,853

Net income per share - basic	$	0.09	$	0.35	$	0.10	$	0.02
Net income per share - diluted	$	0.09	$	0.35	$	0.10	$	0.02

Share equivalents attributable to outstanding stock options and RSUs (restricted stock units) of 15,408,542 and 14,929,137 for the three months ended September 30, 2013 and 2012, and 16,829,424 and 15,127,253 for the six months ended September 30, 2013 and 2012 were excluded from the calculation of diluted net income per share because the combined exercise price, average unamortized fair value and assumed tax benefits upon exercise of these options and RSUs were greater than the average market price of the Company’s shares, and therefore their inclusion would have been anti-dilutive.

Note 5 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of September 30, 2013, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan). On September 4, 2013, at the fiscal year 2013 Annual General Meeting of Shareholders, Logitech shareholders approved amendments to and restatement of the1996 ESPP and the 2006 ESPP, which included the increase of 8.0 million additional shares to be issued under these plans. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.

The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and six months ended September 30, 2013 and 2012 (in thousands):

	Three Months ended						Six Months ended
	September 30,						September 30,
	2013			2012			2013			2012

Cost of goods sold	$	594		$	608		$	1,171		$	1,397
Share-based compensation expense included in gross profit	594			608			1,171			1,397

Operating expenses:
Marketing and selling	1,017			2,644			2,923			4,424
Research and development	840			1,763			1,934			3,588
General and administrative	1,658			2,251			2,471			4,028
Share-based compensation expense included in operating expenses	3,515			6,658			7,328			12,040
Total share-based compensation expense	4,109			7,266			8,499			13,437
Income tax benefit	(1,300		)	(1,671		)	(2,175		)	(3,047		)
Share-based compensation expense, net of income tax	$	2,809		$	5,595		$	6,324		$	10,390

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As of September 30 and March 31, 2013, $0.4 million and $0.4 million of share-based compensation cost was capitalized to inventory.

Defined Contribution Plans

Certain of the Company’s subsidiaries have defined contribution employee benefit plans covering all or a portion of their employees. Contributions to these plans are discretionary for certain plans and are based on specified or statutory requirements for others. The charges to expense for these plans for the three months ended September 30, 2013 and 2012 were $1.6 million and $1.8 million, and for the six months ended September 30, 2013 and 2012 were $3.3 million and $4.6 million.

Defined Benefit Plans

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

During the quarter ended September 30, 2012, the Company’s Swiss defined benefit pension plan was subject to re-measurement due to the number of plan participants affected by the April 2012 restructuring described in Note 14. The re-measurement resulted in the realization of $2.2 million in previously unrecognized losses residing within accumulated other comprehensive loss that the Company recognized during the three months ended September 30, 2012.

The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and six months ended September 30, 2013 and 2012 were as follows (in thousands):

	Three Months ended September 30,						Six Months ended September 30,
	2013			2012			2013			2012

Service cost	$	1,972		$	1,726		$	3,929		$	3,601
Interest cost	430			418			857			912
Expected return on plan assets	(490		)	(525		)	(990		)	(618		)
Amortization of net transition obligation	1			1			2			2
Amortization of net prior service cost	52			38			104			76
Recognized net actuarial loss	256			262			508			678
Settlement cost	—			2,254			—			2,254
Net periodic benefit cost	$	2,221		$	4,174		$	4,410		$	6,905

Note 6 — 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.

The income tax provision for the three months ended September 30, 2013 was $3.1 million based on an effective income tax rate of 17.5% of pre-tax income. The income tax benefit for the three months ended September 30, 2012 was $31.1 million based on an effective income tax rate of (132.4%) of pre-tax income. For the six months ended September 30, 2013, the income tax provision was $2.3 million based on an effective income tax rate of 12.7% of pre-tax income. For the six months ended September 30, 2012, the income tax benefit was $38.0 million based on an effective income rate of 109.8% of pre-tax loss. The change in the effective income tax rate for the three and six months ended September 30, 2013, compared with the same periods in fiscal year 2013, is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates, and the treatment of restructuring expenses as a discrete event in determining the annual effective tax rate in fiscal year 2013. In addition, there was a discrete tax benefit of $32.1 million in the three months ended September 30, 2012 from the reversal of uncertain tax positions resulting from the closure of federal income tax examinations in the United States.

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In fiscal year 2013, the Company incurred $43.7 million of restructuring charges and related expenses to simplify the organization and to align the organization to its strategic priorities, $28.6 million of such charges were incurred through the second quarter of fiscal year 2013 with the remaining balance primarily incurred in the fourth quarter of the fiscal year 2013. In the three and six months ended September 30, 2013, the Company incurred restructuring-related termination benefits and lease exit costs in the amount of $5.5 million and $7.8 million, respectively. In determining the estimated fiscal 2014 annual effective tax rate, the restructuring activities were not treated as a discrete event as the charges were not significantly unusual and infrequent in nature, unlike those that were incurred in fiscal year 2013. The tax benefit associated with the restructuring in the six months ended September 30, 2013 was not material.

As of September 30 and March 31, 2013, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $103.5 million and $102.0 million, of which $90.8 million and $90.3 million would affect the effective income tax rate if recognized. The Company classified the unrecognized tax benefits as non-current income taxes payable.

The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of September 30 and March 31, 2013, the Company had approximately $6.9 million and $6.6 million of accrued interest and penalties related to uncertain tax positions.

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 fiscal year 2001. The Company is under examination and has received assessment notices in foreign tax jurisdictions. At this time, the Company is not able to estimate the potential impact that these examinations may have on income tax expense. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on the Company’s results of operations.

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. It is not possible at this time to reasonably estimate changes in the unrecognized tax benefits within the next twelve months.

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Note 7 — Balance Sheet Components

The following table presents the components of certain balance sheet asset amounts as of September 30 and March 31, 2013 (in thousands):

	September 30, 2013			March 31, 2013

Accounts receivable:
Accounts receivable	$	413,696		$	325,870
Allowance for doubtful accounts	(1,071		)	(2,153		)
Allowance for returns	(19,230		)	(21,883		)
Allowances for cooperative marketing arrangements	(26,010		)	(24,160		)
Allowances for customer incentive programs	(44,788		)	(42,857		)
Allowances for pricing programs	(63,739		)	(55,252		)
	$	258,858		$	179,565
Inventories:
Raw materials	$	34,020		$	37,504
Work-in-process	75			41
Finished goods	258,682			223,538
	$	292,777		$	261,083
Other current assets:
Income tax and value-added tax refund receivables	$	25,113		$	17,403
Deferred taxes	29,109			25,400
Prepaid expenses and other	11,586			15,300
	$	65,808		$	58,103
Property, plant and equipment:
Plant, buildings and improvements	$	68,642		$	70,009
Equipment	131,913			129,868
Computer equipment	32,551			42,437
Computer software	80,136			80,930
	313,242			323,244
Less: accumulated depreciation	(236,845		)	(247,469		)
	76,397			75,775
Construction-in-progress	7,890			9,047
Land	2,846			2,827
	$	87,133		$	87,649
Other assets:
Deferred taxes	$	51,121		$	53,035
Trading investments	15,435			15,599
Other	5,261			6,464
	$	71,817		$	75,098

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The following table presents the components of certain balance sheet liability amounts as of September 30 and March 31, 2013 (in thousands):

	September 30, 2013		March 31, 2013

Accrued and other current liabilities:
Accrued personnel expenses	$	56,906	$	40,502
Accrued marketing expenses	13,039		11,005
Indirect customer incentive programs	32,539		29,464
Accrued restructuring	5,566		13,458
Deferred revenue	21,562		22,698
Accrued freight and duty	8,596		5,882
Value-added tax payable	8,477		8,544
Accrued royalties	4,012		3,358
Warranty accrual	12,634		11,878
Employee benefit plan obligations	1,571		4,351
Income taxes payable	5,392		2,463
Other accrued liabilities	49,352		39,171
	$	219,646	$	192,774
Non-current liabilities:
Income taxes payable	$	100,310	$	98,827
Warranty accrual	9,451		8,660
Obligation for deferred compensation	15,435		15,631
Employee benefit plan obligations	40,728		35,963
Deferred rent	23,690		24,136
Deferred taxes	1,872		1,989
Other liabilities	11,070		10,676
	$	202,556	$	195,882

The following table presents the changes in the allowance for doubtful accounts during the three and six months ended September 30, 2013 and 2012 (in thousands):

	Three Months ended September 30,						Six Months ended September 30,
	2013			2012			2013			2012

Beginning balance	$	(2,189	)	$	(2,321	)	$	(2,153	)	$	(2,472	)
Bad debt expense reversal, net	428			103			359			189
Write-offs, net of recoveries	690			(21		)	723			44
Ending balance	$	(1,071	)	$	(2,239	)	$	(1,071	)	$	(2,239	)

Note 8 — Financial Instruments

Fair Value Measurements

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

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

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

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

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The Company did not have level 3 assets and liabilities as of September 30 and March 31, 2013. The following table presents the Company’s financial assets and liabilities, that were accounted for at fair value, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):

	September 30, 2013				March 31, 2013
	Level 1		Level 2		Level 1		Level 2

Cash equivalents (1)	$	99,510	$	—	$	119,073	$	—
Trading investments for deferred compensation plan:
Money market funds	3,311		—		4,220		—
Mutual funds	12,124		—		11,379		—
Foreign exchange derivative assets	—		126		—		1,197
Total assets at fair value	$	114,945	$	126	$	134,672	$	1,197

Foreign exchange derivative liabilities	$	—	$	1,546	$	—	$	707
Total liabilities at fair value	$	—	$	1,546	$	—	$	707

(1) Excludes cash balances of $195.3 million as of September 30, 2013 and $214.7 million as of March 31, 2013.

The following table presents the changes in the Company’s Level 3 available-for-sale securities during the six months ended September 30, 2013 and 2012 (in thousands):

	September 30, 2013
	2013		2012

Beginning balance	$	—	$	429
Proceeds from sales of securities	—		(917		)
Reversal of unrealized gains previously recognized in accumulated other comprehensive loss	—		831
Reversal of unrealized losses previously recognized in accumulated other comprehensive loss	—		(343		)
Ending balance	$	—	$	—

Cash and Cash Equivalents

Cash equivalents consist of bank demand deposits and time deposits. The time deposits have original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value.

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Investment Securities

The Company’s investment securities portfolio consists of marketable securities (money market and mutual funds) related to a deferred compensation plan at September 30, 2013 and March 31, 2013.

The marketable securities related to the deferred compensation plan are classified as non-current other assets. Since participants in the deferred compensation plan may select the mutual funds in which their compensation deferrals are invested within the confines of the Rabbi Trust which holds the marketable securities, the Company has designated these marketable securities as trading investments, although there is no intent to actively buy and sell securities within the objective of generating profits on short-term difference in market prices. Management has classified the investments as non-current assets because final sale of the investments or realization of proceeds by plan participants is not expected within the Company’s normal operating cycle of one year. The marketable securities are recorded at a fair value of $15.4 million and $15.6 million as of September 30 and March 31, 2013, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Earnings, and realized and unrealized gains and losses on trading investments are included in other income (expense). Unrealized trading gains of $0.4 million and unrealized trading losses of $0.2 million are included in other income (expense) for the three and six months ended September 30, 2013, respectively and relate to the trading securities held at September 30, 2013. Unrealized trading gains of $0.5 million and $0.2 million are included in other income (expense) for the three and six months ended September 30, 2012 and relate to trading securities held at September 30, 2012.

Derivative Financial Instruments

The following table presents the fair values of the Company’s derivative instruments and their locations on its Consolidated Balance Sheets as of September 30 and March 31, 2013 (in thousands):

Asset Derivatives

Liability Derivatives

Fair Value

September 30,

March 31,

September 30,

March 31,

Location

2013

Location

2013

Derivatives designated as hedging instruments:

Cash flow hedges

Other assets

1,165

Other liabilities

754

—

1,165

754

—

Derivatives not designated as hedging instruments:

Foreign exchange forward contracts