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					Fair Value
		September 30,		March 31,			September 30,		March 31,
	Location	2013		2013		Location	2013		2013

Derivatives designated as hedging instruments:
Cash flow hedges	Other assets	$	8	$	1,165	Other liabilities	$	754	$	—
		8		1,165			754		—

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other assets	118		—		Other liabilities	240		270
Foreign exchange swap contracts	Other assets	—		32		Other liabilities	552		437
		118		32			792		707

		$	126	$	1,197		$	1,546	$	707

The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three and six months ended September 30, 2013 and 2012 and their locations on its consolidated statements of operations (in thousands):

	Net Amount of Gain/(Loss) Deferred as a Component of Accumulated Other Comprehensive Loss						Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive	Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income						Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income Immediately
	2013			2012			Loss into Income	2013			2012			Immediately	2013			2012
Derivatives designated as hedging instruments:
Cash flow hedges	$	(1,467	)	$	(3,783	)	Cost of goods sold	$	(94	)	$	(1,683	)	Other income/expense	$	16		$	120
	(1,467		)	(3,783		)		(94		)	(1,683		)		16			120

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	—			—							—			Other income/expense	(482		)	(92		)
Foreign exchange swap contracts	—			—							—			Other income/expense	5			(390		)
	—			—							—				(477		)	(482		)
	$	(1,467	)	$	(3,783	)		$	(94	)	$	(1,683	)		$	(461	)	$	(362	)

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	Net Amount of Gain/(Loss) Deferred as a Component of Accumulated Other Comprehensive Loss						Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive	Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Income					Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income Immediately
	2013			2012			Loss into Income	2013		2012			Immediately	2013		2012
Derivatives designated as hedging instruments:
Cash flow hedges	$	(2,102	)	$	(2,684	)	Cost of goods sold	$	184	$	(1,577	)	Other income/expense	$	46	$	172
	(2,102		)	(2,684		)		184		(1,577		)		46		172

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	—			—						—			Other income/expense	165		(837		)
Foreign exchange swap contracts	—			—						—			Other income/expense	743		435
	—			—						—				908		(402		)
	$	(2,102	)	$	(2,684	)		$	184	$	(1,577	)		$	954	$	(230	)

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 Company has one entity with a euro functional currency that purchases inventory in U.S. dollars. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative purposes. These hedging contracts mature within four months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the foreign currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense). Such gains and losses were immaterial during the three and six months ended September 30, 2013 and 2012. Cash flows from such hedges are classified as operating activities in the consolidated statements of cash flows. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases were $56.7 million (€41.9 million) and $38.5 million (€30.1 million) at September 30, 2013 and March 31, 2013, respectively. 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 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 other income (expense) based on the changes in fair value.

The notional amounts of foreign exchange forward contracts outstanding at September 30 and March 31, 2013 relating to foreign currency receivables or payables were $16.4 million and $14.2 million. Open forward contracts as of September 30, 2013 consisted of contracts in U.S. dollars to purchase Taiwanese dollars and contracts in euros to sell British pounds at future dates at pre-determined exchange rates. Open forward contracts as of March 31, 2013 consisted of contracts in U.S. dollars to purchase Taiwanese dollars and contracts in euros to sell British pounds at future dates at pre-determined exchange rates. The notional amounts of foreign exchange swap contracts outstanding at September 30 and March 31, 2013 were $31.7 million and $19.6 million. Swap contracts outstanding at September 30, 2013 consisted of contracts in Mexican Pesos, Japanese Yen and Australian Dollars. Swap contracts outstanding at March 31, 2013 consisted of contracts in Mexican Pesos, Japanese Yen and Australian Dollars.

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The fair value of all foreign exchange forward contracts and foreign exchange swap contracts is determined based on observable market transactions of spot currency rates and forward rates. Cash flows from these contracts are classified as operating activities in the consolidated statements of cash flows.

Note 9 — Goodwill and Other Intangible Assets

Interim Goodwill Impairment Testing

During the second quarter of fiscal year 2014, the Company implemented a restructuring plan (“this plan”) associated with its video conferencing reporting unit to simplify its organization, to better align costs with its current business, and to free up resources to pursue growth opportunities. This plan resulted in restructuring charges of $5.4 million in termination benefits to affected employees and $0.6 million in lease exit costs. This plan also involved a $5.2 million write-off of video conferencing discontinued products. In addition, actual performance was significantly less than projected results for the periods since the most recent goodwill impairment assessment performed during the third quarter of fiscal 2013, due to a combination of a changing industry landscape caused by a shift to less expensive, cloud-based video conferencing solutions, an evolving LifeSize product line and challenges in execution. These factors resulted in the Company concluding that it is more likely than not that the fair value of its video conferencing reporting unit was less than its carrying amount. The Company, therefore, performed an interim Step 1 assessment of its video conferencing reporting unit during the second quarter of fiscal year 2014.

The Step 1 assessment involved measuring the recoverability of goodwill by comparing the video conferencing reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value was estimated using both an income approach employing a discounted cash flow (“DCF”) model and a market approach. The DCF model was based on projected cash flows from the Company’s most recent forecast, which was based on a number of key assumptions, including, but not limited to, discount rate, compounded annual growth rate (“CAGR”) during the forecast period, and terminal value. The terminal value was based on an exit price at the end of the assessment forecast using an earnings multiple applied to the final year of the assessment forecast. The discount rate was applied to the projected cash flows to reflect the risks inherent in the timing and amount of the projected cash flows, including the terminal value, and was derived from the weighted average cost of capital of market participants in similar businesses. The market approach model was based on applying certain revenue multiples of comparable companies to the respective revenue and earnings metrics of the reporting unit. The DCF and market approach models require the exercise of significant judgment, including assumptions about appropriate discount rates, long-term growth rates for purposes of determining a terminal value at the end of the discrete forecast period, economic expectations, timing of expected future cash flows, and expectations of returns on equity that will be achieved. Such assumptions are subject to change as a result of changing economic and competitive conditions.

Key assumptions used in the Step 1 income approach analysis included the appropriate discount rates, CAGR during the forecast period, and long-term growth rates for purposes of determining a terminal value at the end of the discrete forecast period. Sensitivity assessment of key assumptions for the video conferencing reporting unit Step 1 test is presented below.

· CAGR assumption was 7.0% through fiscal year 2021, with a forecast decline in the remainder of fiscal year 2014, higher growth rates from fiscal years 2015 through 2019, reducing to a growth rate of 4% in fiscal year 2021. The forecasted growth contrasts with the recent performance of the video conferencing reporting unit, when the Company experienced a decline in revenue (see Note 13 for further details). A hypothetical decrease to 2.1% in the CAGR rate, holding all other assumptions constant, would decrease the fair value of the video conferencing reporting unit below its carrying value and hence would result in the reporting unit failing Step 1 of the goodwill impairment test.

· Discount rate assumptions was 15%. A hypothetical increase to 18.7% in the discount rate, holding all other assumptions constant, would result in the reporting unit failing Step 1 of the goodwill impairment test.

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· Terminal growth rate assumption was 4%. A hypothetical decrease to 0% in the terminal growth rate assumption, holding all other assumptions constant, would result in the reporting unit passing Step 1 of the goodwill impairment test.

The assumptions used also included a reduction in future operating expenses as a percentage of revenue, driven by increases in forecast revenue as described above, combined with reduced operating expenses related to the fourth Q4’13 and Q2’14 restructuring activities.

The Step 1 assessment resulted in the Company determining that the video conferencing reporting unit passed the Step 1 test because the estimated fair value exceeded its carrying value by approximately 23%, thus not requiring a Step 2 assessment of this reporting unit. This result presents a future video conferencing reporting unit goodwill impairment risk to the Company since the margin it cleared the current Step 1 assessment was not significant.

The Company continues to evaluate and monitor all key factors impacting the carrying value of its recorded goodwill, as well as other long-lived assets. There are a number of uncertainties associated with the key assumptions described above based primarily on the difficulty of predicting the Company’s revenues and profitability. The Company’s revenues and profitability are difficult to predict due to the nature of the markets in which it competes, fluctuating end-user demand, the uncertainty of current and future global economic conditions, and for many other reasons, including, but not limited to:

· The video conferencing industry is characterized by continual performance enhancements and large, well-financed competitors. There is increased participation in the video conferencing market by companies such as Cisco Systems, Inc. and Polycom, Inc., and as a result, the Company expects competition in the industry to further intensify.

· The Company’s revenues are impacted by end-user consumer demand and future global conditions, which could fluctuate abruptly and significantly during periods of uncertain economic conditions or geographic distress, as well as from shifts in consumer buying patterns.

· The Company must incur a large portion of its costs in advance of sales orders, because it 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 its customers. This makes it difficult for it to rapidly adjust its costs in response to a revenue shortfall.

· Fluctuations in currency exchange rates can impact the Company’s revenues, expenses and profitability because it reports its financial statements in U.S. dollars, whereas a significant portion of its revenues and expenses are in other currencies.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and operating margins, discount rates and future market conditions, among others. It is reasonably possible that changes in the judgments, assumptions and estimates that the Company used in assessing the fair value of the video conferencing reporting unit result in the goodwill to become impaired. A goodwill impairment charge would have the effect of decreasing the Company’s earnings or increasing its losses in such period. If the Company is required to take a substantial impairment charge, its operating results would be materially and adversely affected in such period.

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Goodwill and Other Intangible Assets

During the first quarter of fiscal year 2014, the Company decided not to sell its Remotes product category, previously classified as assets held for sale as of March 31, 2013. This decision required the Company to assess whether the fair value of the goodwill and other intangibles related to its Remotes category were less than the carrying value of these assets. For other intangibles, carrying value was adjusted by amortization expense not taken during the period in which this category was classified as assets held for sale. The Company concluded that the carrying value of these assets was less than their fair value. Accordingly, the Company reclassified these assets from assets held for sale back to goodwill and other intangible assets at their respective carrying values, which amounted to $2.5 million for goodwill and $1.6 million for intangibles as of June 30, 2013.

The following table summarizes the activity in the Company’s goodwill during the six months ended September 30, 2013 (in thousands):

	September 30, 2013
	Peripherals		Video Conferencing		Total
Beginning balance	$	216,744	$	124,613	$	341,357
Additions	202		—		202
Foreign currency movements	—		731		731
Reclassified from assets held for sale	2,469		—		2,469
Ending balance	$	219,415	$	125,344	$	344,759

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

	September 30, 2013							March 31, 2013
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount

Trademark/tradename	$	32,085	$	(30,127	)	$	1,958	$	29,842	$	(26,558	)	$	3,284
Technology (1)	92,007		(84,144		)	7,863		73,249		(61,560		)	11,689
Customer contracts	40,345		(32,419		)	7,926		39,068		(28,017		)	11,051
	$	164,437	$	(146,690	)	$	17,747	$	142,159	$	(116,135	)	$	26,024

(1) During the six months ended September 30, 2013, the Company changed its classification of its Retail - Remote product category and digital video security product line from assets held for sale to assets held and used. The increase in gross carrying amount and accumulated amortization between March 31, 2013 and September 30, 2013 was due to this change in classification.

Amortization expense for other intangible assets was $5.3 million and $6.2 million for the three months ended September 30, 2013 and 2012, and $10.5 million and $12.6 million for the six months ended September 30, 2013 and 2012. The Company expects that amortization expense for the remaining six months of fiscal year 2014 will be $7.3 million, and annual amortization expense for fiscal years 2015, 2016 and 2017 will be $8.4 million, $1.8 million and $0.1 million, respectively.

Note 10 — Financing Arrangements

In December 2011, the Company entered into a Senior Revolving Credit Facility Agreement with a group of primarily Swiss banks that provides for a revolving multicurrency unsecured credit facility in an amount of up to $250.0 million. The Company may, upon notice to the lenders and subject to certain requirements, arrange with existing or new lenders to provide up to an aggregate of $150.0 million in additional commitments, for a total of $400.0 million of unsecured revolving credit. The credit facility may be used for working capital, general corporate purposes, and acquisitions. There were no outstanding borrowings under the credit facility at September 30, 2013.

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The credit facility matures on October 31, 2016. The Company may prepay the loans under the credit facility in whole or in part at any time without premium or penalty. Borrowings under the credit facility will accrue interest at a per annum rate based on LIBOR (London Interbank Offered Rate), or EURIBOR (Euro Interbank Offered Rate) in the case of loans denominated in euros, plus a variable margin determined quarterly based on the ratio of senior debt-to-earnings before interest, taxes, depreciation and amortization for the preceding four-quarter period, plus, if applicable, an additional rate per annum intended to compensate the lenders for the cost of compliance with regulatory reserve requirements and other banking regulations. The Company also pays a quarterly commitment fee of 40% of the applicable margin on the available commitment. In connection with entering into the credit facility, the Company incurred non-recurring fees totaling $1.5 million, which are amortized on a straight-line basis over the term of the credit facility.

The facility agreement contains representations, covenants, including threshold financial covenants, and events of default customary in Swiss credit markets. Affirmative covenants include covenants regarding reporting requirements, maintenance of insurance, maintenance of properties and compliance with applicable laws and regulations, and financial covenants that require the maintenance of net senior debt, interest cover and adjusted equity ratios determined in accordance with the terms of the facility. Negative covenants limit the ability of the Company and its subsidiaries, among other things, to grant liens, make investments, incur debt, make restricted payments, enter into a merger or acquisition, or sell, transfer or dispose of assets, in each case subject to certain exceptions. As of March 31, 2013, the Company was not in compliance with the interest coverage ratio of this credit facility. This situation resulted from the significant operating loss incurred during fiscal year 2013. On June 13, 2013, the Company amended this credit facility to amend the definitions of (a) EBITDA to exclude the effect of impairment of goodwill and other intangible assets and (b) interest coverage ratio calculation to utilize EBITDA rather than EBIT. As of September 30, 2013, the Company was not in compliance with the adjusted equity ratio of this facility. This facility continues to be available for the Company’s use based on a temporary waiver of the adjusted equity ratio covenant through the end of the third quarter of fiscal year 2014.

This credit facility stipulates that, upon an uncured event of default under the facility, the lenders may declare all or a portion of the outstanding obligations payable by the Company to be immediately due and payable, terminate their commitments and exercise other rights and remedies provided for under the facility. The events of default under the facility include, among other things, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross defaults with certain other indebtedness, bankruptcy and insolvency events and events that have a material adverse effect (as defined in the facility). Upon a change of control of the Company, lenders whose commitments aggregate more than two-thirds of the total commitments under the facility may terminate the commitments and declare all outstanding obligations to be due and payable.

The Company had several uncommitted, unsecured bank lines of credit aggregating $62 million at September 30, 2013. There are no financial covenants under these lines of credit with which the Company must comply. At September 30, 2013, the Company had no outstanding borrowings under these lines of credit. The Company also had credit lines related to corporate credit cards totaling $17.4 million at September 30, 2013. The outstanding borrowings under these credit lines are recorded in other current liabilities. There are no financial covenants under these credit lines.

Note 11 — Commitments and Contingencies

Operating Leases

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 September 30, 2013 amounted to $84.7 million.

In connection with its leased facilities, the Company has recognized a liability for asset retirement obligations representing the present value of estimated remediation costs to be incurred at lease expiration.

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The following table describes changes to the Company’s asset retirement obligation liability for 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	$	1,532		$	2,001		$	1,750		$	1,918
Liabilities incurred	—			—			—			—
Liabilities settled	(375		)	—			(596		)	—
Accretion expense	9			4			11			16
Foreign currency translation	12			(135		)	13			(64		)
Ending balance	$	1,178		$	1,870		$	1,178		$	1,870

Product Warranties

All of the Company’s products are covered by warranty to be free from defects in material and workmanship for periods ranging from one year to five years. At the time of sale, the Company accrues a warranty liability for estimated costs to provide replacement products, parts or services to repair or replace products in satisfaction of the warranty obligation. The Company’s estimate of costs to fulfill its warranty obligations is based on historical experience and expectations of future requirements. When the Company experiences changes in warranty claim activity or costs associated with fulfilling those claims, the warranty liability is adjusted accordingly. Changes in the Company’s warranty liability 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
				As Revised						As Revised
Beginning balance	$	22,655		$	23,966		$	20,538		$	25,494
Provision during the period	3,356			3,444			6,645			5,981
Settlements made during the year, net of adjustments	(3,926		)	(3,873		)	(7,425		)	(7,938		)
Amount classified as liabilities held for sale (1)	—			—			2,327			—
Ending balance	$	22,085		$	23,537		$	22,085		$	23,537

(1) Represents warranty liability previously allocated to the Company’s Retail — Remotes product category which was classified as an asset held for sale as of March 31, 2013.

Deferred Services Revenue

The Company’s video conferencing reporting unit offers maintenance contracts for sale of the majority of its products which allow for customers to receive service and support in addition to the expiration of the product warranty contractual term. The Company also provides installation services to its customer under contractual arrangements. The Company recognizes these contracts over the life of the service period. Change in the Company’s deferred services revenue during 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

Beginning balance	$	29,080		$	26,340		$	29,328		$	24,568
Additions for extended warranties issued during the period	7,914			8,112			15,830			16,394
Amortization of deferred revenue for the period	(7,926		)	(7,333		)	(16,090		)	(13,843		)
Ending balance	$	29,068		$	27,119		$	29,068		$	27,119

The cost of providing these services for the three months ended September 30, 2013 and 2012 was $2.1 million and $2.3 million, respectively, and for the six months ended September 30, 2013 and 2012 was $4.2 million and $4.3 million, respectively.

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Purchase Commitments

At September 30, 2013, the Company had the following outstanding purchase commitments:

	September 30, 2013

Inventory purchases	$	132,782
Operating expenses	63,426
Capital expenditures	18,372
	$	214,580

Commitments for inventory purchases are made in the normal course of business to original design manufacturers, the majority of the contract manufacturers and other suppliers and are expected to be fulfilled by December 2013. Operating expense commitments are for consulting services, marketing arrangements, advertising, outsourced customer services, information technology maintenance and support services, and other services. Fixed purchase commitments for capital expenditures primarily related to commitments for computer hardware and leasehold improvements. 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.

Guarantees

Logitech International S.A., the parent holding company, has guaranteed payment of the purchase obligations of various subsidiaries from certain component suppliers. These guarantees generally have an unlimited term. The maximum potential future payment under the guarantee arrangements is limited to $30.0 million. At September 30, 2013, there were no purchase obligations outstanding for which the parent holding company was required to guarantee payment.

Logitech Europe S.A., a subsidiary of the parent holding company, has guaranteed the purchase obligations of another Logitech subsidiary under two guarantee agreements. One of these guarantees does not specify a maximum amount. The remaining guarantee has a total limit of $7.0 million. As of September 30, 2013, there was an immaterial amount of guaranteed purchase obligations that were outstanding under these guarantees. Logitech Europe S.A. has also guaranteed payment of the purchase obligations of a third-party contract manufacturer under one guarantee agreement. The maximum amount of this guarantee was $3.5 million as of September 30, 2013. As of September 30, 2013, $2.8 million of guaranteed purchase obligations were outstanding under this agreement.

Logitech International S.A. and Logitech Europe S.A. have guaranteed certain contingent liabilities of various subsidiaries related to transactions occurring in the normal course of business. The maximum amount of the guarantees was $35.0 million as of September 30, 2013 and $5.6 million of guaranteed obligations were outstanding under these agreements.

Indemnifications

Logitech indemnifies certain of its suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. No amounts have been accrued for indemnification provisions at September 30, 2013. The Company does not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under its indemnification arrangements.

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Logitech also indemnifies its current and former directors and certain of its current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. Logitech is unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and the facts and circumstances involved in any situation that might arise are variable.

Legal Proceedings

From time to time the Company is involved in claims and legal proceedings which arise in the ordinary course of its business. The Company is currently subject to several such claims and a small number of legal proceedings. The Company believes that these matters lack merit and intends to vigorously defend against them. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company’s business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect the Company’s business.

Note 12 — Shareholders’ Equity

Share Repurchases

In September 2008, the Company’s Board of Directors approved the September 2008 share buyback program for $250.0 million. In November 2011, an amendment to the September 2008 share buyback program (“September 2008 - amended”) was approved by the Company’s Board of Directors to enable future purchases of shares for cancellation. During the three months ended December 31, 2012, 18.5 million shares were cancelled. In August 2013, the September 2008 share buyback and September 2008 - amended share buyback programs expired. The approved share buyback programs are shown in the following table (in thousands, excluding transaction costs).

Date of Announcement	Approved Share Buyback Number	Approved Buyback Amount		Expiration Date	Shares Repurchased	Amounts

September 2008 - amended	28,465	$	177,030	August 2013	18,500	$	170,714
September 2008	8,344	$	250,000	August 2013	7,609	$	73,134

During the six months ended September 30, 2012, the Company repurchased 18.5 million shares under the September 2008-amended program. No shares were repurchased during the three months ended September 30, 2013 and 2012 and six months ended September 30, 2013.

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Accumulated Other Comprehensive Loss

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

	Accumulated Other Comprehensive Loss
	Cumulative			Defined			Deferred
	Translation			Benefit			Hedging
	Adjustment			Plan (1)			Gains (Losses)			Total
March 31, 2013 (As Revised)	$	(73,187	)	$	(20,316	)	$	510		$	(92,993	)
Net change in other comprehensive loss	2,829			(385		)	(2,102		)	342
September 30, 2013	$	(70,358	)	$	(20,701	)	$	(1,592	)	$	(92,651	)

(1) Net of tax of $315 as of September 30 and March 31, 2013.

Note 13 — Segment Information

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

	Three Months ended				Six Months ended
	September 30,				September 30,
	2013		2012(1)		2013		2012(1)
Peripherals
Retail - Pointing Devices	$	130,656	$	122,524	$	245,307	$	238,353
Retail - PC Keyboards & Desktops	105,236		97,069		203,186		191,628
Retail - Tablet Accessories	34,711		33,737		73,270		49,623
Retail - Audio PC	67,199		77,267		119,164		138,792
Retail - Audio - Wearables & Wireless	25,648		19,108		44,723		33,707
Retail - Video	41,061		49,453		76,319		86,612
Retail - PC Gaming	41,493		46,673		81,110		73,456
Retail - Remotes	13,327		16,434		27,901		30,166
Retail - Other	5,522		14,214		7,109		29,243
OEM	37,526		36,718		72,039		73,393
Total peripherals	502,379		513,197		950,128		944,973
Video conferencing	29,593		34,496		59,768		71,324
Total net sales	$	531,972	$	547,693	$	1,009,896	$	1,016,297

(1) Certain products within the retail product families as presented in the prior year have been reclassified to conform to the current year presentation, with no impact on previously reported total peripheral sales.

The Company has two reporting segments, peripherals and video conferencing, based on product markets and internal organizational structure. The peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs, tablets and other digital platforms. The video conferencing segment encompasses the design, manufacturing and marketing of LifeSize video conferencing products, infrastructure and services for the enterprise, public sector and other business markets. The Company’s reporting segments do not record revenue on sales between segments, as such sales are not material.

Operating performance measures for the peripherals segment and the video conferencing segment are reported separately to Logitech’s Chief Executive Officer, who is considered to be the Company’s chief operating decision maker. The Chief Executive Officer periodically reviews information such as net sales and operating income (loss) for each operating segment to make business decisions. These operating performance measures do not include share-based compensation expense, and amortization of intangible

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assets. Share-based compensation expense and amortization of intangible assets are presented in the following financial information by operating segment as “other charges.” Assets by operating segment are not presented since the Company does not present such data to the chief operating decision maker. Net sales and operating income (loss) for the Company’s reporting segments were as follows (in thousands):

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

Net sales by reporting segment:
Peripherals	$	502,379		$	513,197		$	950,128		$	944,973
Video conferencing	29,593			34,496			59,768			71,324
Total net sales	$	531,972		$	547,693		$	1,009,896		$	1,016,297

Operating income (loss) by segment:
Peripherals (1)	$	39,281		$	39,097		$	52,151		$	(5,505	)
Video conferencing (1)	(12,708		)	(1,811		)	(15,877		)	(2,921		)
Operating income (loss) before other charges	26,573			37,286			36,274			(8,426		)
Other charges:
Share-based compensation	(4,109		)	(7,266		)	(8,499		)	(13,437		)
Amortization	(5,254		)	(6,191		)	(10,518		)	(12,589		)
Total operating income (loss)	$	17,210		$	23,829		$	17,257		$	(34,452	)

(1) The previously-reported operating income (loss) for the three and six months ended September 30, 2012 was impacted by the errors described in Note 2 as follows: (a) For the three and six months ended September 30, 2012, Peripherals operating income (loss) decreased by an immaterial amount and increased by $1.2 million, respectively, and (b) For the three and six months ended September 30, 2012, Video Conferencing operating loss decreased by less than $0.1 million and $0.2 million, respectively. These changes resulted from the warranty accrual and amortization of intangibles error correction.

Geographic net sales information in the table below is based on the customer location. Long-lived assets, primarily fixed assets, are reported below based on the location of the asset.

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

	Three Months ended September 30,									Six Months ended September 30,
	2013		2012							2013		2012
			As Reported		Adjustments (1)			As Revised				As Reported		Adjustments (1)			As Revised

Americas	$	202,381	$	216,596	$	(17,079	)	$	199,517	$	402,834	$	420,522	$	(36,438	)	$	384,084
EMEA	203,353		212,050		10,939			222,989		358,576		362,056		24,306			386,362
Asia Pacific	126,238		119,047		6,140			125,187		248,486		233,719		12,132			245,851
Total net sales	$	531,972	$	547,693	$	—		$	547,693	$	1,009,896	$	1,016,297	$	—		$	1,016,297

(1) During fiscal year 2013, the Company determined that net sales to unaffiliated customers by geographic regions previously reported, including the three and six months ended September 30, 2012, were not properly stated since amounts related to its Video Conferencing segment and other businesses were improperly allocated solely to the Americas region.

Sales are attributed to countries on the basis of the customers’ locations. The United States represented 34% and 32% of the Company’s total consolidated net sales for the quarter ended September 30, 2013 and 2012. No other single country represented more than 10% of the Company’s total consolidated net sales during those periods. Revenues from sales to customers in Switzerland, the Company’s home domicile, represented 2% of the Company’s total consolidated net sales for the three and six months ended September 30, 2013 and 2012. One customer group of the Company’s peripheral operating segment represented 14% and 13% of sales for the quarters ended September 30, 2013 and 2012. The United States represented 35% and 33% of the Company’s total consolidated net sales for the six months ended September 30, 2013 and 2012. Revenues from sales to customers in Switzerland represented 1% and 2% of the Company’s total consolidated net sales for the six months ended September 30, 2013 and 2012. No other single country represented more than 10% of the Company’s total consolidated net sales during those periods. One customer group of the Company’s peripheral reporting segment represented 14% and 12% of net sales in each of the six month periods ended September 30, 2013 and 2012.

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

	September 30, 2013		March 31, 2013

Americas	$	43,386	$	43,357
EMEA	5,875		8,315
Asia Pacific	42,396		40,952
Total long-lived assets	$	91,657	$	92,624

Long-lived assets in the United States and China were $43.2 million and $35.0 million at September 30, 2013 and $43.2 million and $33.1 million at March 31, 2013. No other countries represented more than 10% of the Company’s total consolidated long-lived assets at September 30 and March 31, 2013. Long-lived assets in Switzerland were $1.9 million and $4.2 million at September 30 and March 31, 2013.

Note 14 — Restructuring

During the first quarter of fiscal year 2013, Logitech implemented a restructuring plan to simplify the Company’s organization, to better align costs with its current business, and to free up resources to pursue growth opportunities. A majority of the restructuring activity was completed during the three months ended June 30, 2012. As part of this restructuring plan, the Company reduced its worldwide non-direct labor workforce. Charges and other costs related to the workforce reduction are presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2012, the Company incurred a $3.8 million credit in termination benefits to affected employees due to the further refinement of estimates previously accrued during the three months ended June 30, 2012. For the six months ended September 30, 2012, the Company incurred $24.8 million in termination benefits to affected employees under this plan. In addition, the Company incurred legal, consulting, and other costs of $1.1 million and $2.2 million as a result of the terminations during the three and six months ended September 30, 2012. The Company also incurred $1.5 million in lease exit costs primarily related to costs associated with the closure of existing facilities during the six months ended September 30, 2012. During the six months ended September 30, 2012, charges of approximately $3.0 million related to discontinuance of certain product development efforts are included in cost of goods sold in the consolidated statements of operations. During the quarter ended September 30, 2012, the Company also incurred $2.2 million from the re-measurement of its Swiss defined benefit pension plan caused by the number of plan participants affected by this restructuring that was not included in restructuring charge since it related to prior services.

During the fourth quarter of fiscal year 2013, Logitech implemented an additional restructuring plan to align the organization to its strategic priorities of increasing focus on mobility products, improving profitability in PC-related products and enhancing global operational efficiencies. As part of this restructuring plan, the Company reduced its worldwide non-direct labor workforce. Restructuring charges under this plan primarily consisted of severance and other one-time termination benefits. Charges and other costs related to the workforce reduction are presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2013, the Company incurred a $0.8 million credit in termination benefits to affected employees due to the further refinement of estimates which were previously accrued and a $0.3 million charge in lease exit costs. During the six months ended September 30, 2013, restructuring changes under this plan included $1.2 million in termination benefits to affected employees and $0.6 million in lease exit costs. The Company estimates to complete this restructuring plan by March 31, 2014.

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During the second quarter of fiscal year 2014, Logitech implemented a restructuring plan associated with its video conferencing operating segment to simplify its organization, to better align costs with its current business, and to free up resources to pursue growth opportunities. A majority of the restructuring activity was completed during the three months ended September 30, 2013. As part of this restructuring plan, the Company reduced its non-direct labor workforce, which is presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2013, restructuring charges under this plan included $5.4 million in termination benefits to affected employees and $0.6 million in lease exit costs. During the three months ended September 30, 2013, the Company also incurred a $5.2 million write-off of discontinued products included in cost of goods sold in the consolidated statements of operations resulting from the restructuring of our video conferencing reporting segment. The Company estimates to complete this restructuring plan by March 31, 2014.

Termination benefits were calculated based on regional benefit practices and local statutory requirements. Lease exit costs primarily relate to costs associated with the closure of existing facilities. Other charges primarily consist of legal, consulting and other costs related to employee terminations.

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The following table summarizes restructuring related activities (in thousands):

	Total			Termination Benefits			Lease Exit Costs			Other

Balance at March 31, 2012	$	—		$	—		$	—		$	—

Charges	31,227			28,655			1,472			1,100
Cash payments	(5,195		)	(4,766		)	—			(429		)
Foreign exchange	63			63			—			—

Balance at June 30, 2012	26,095			23,952			1,472			671

Charges (credits)	(2,671		)	(3,816		)	48			1,097
Cash payments	(17,652		)	(16,642		)	(52		)	(958		)
Foreign exchange	14			—			—			14

Balance at September 30, 2012	$	5,786		$	3,494		$	1,468		$	824

Charges (credits)	(358		)	(188		)	(182		)	12
Cash payments	(4,511		)	(2,633		)	(1,104		)	(774		)
Foreign exchange	—			—			—			—

Balance at December 30, 2012	917			673			182			62

Charges (credits)	15,507			16,437			(30		)	(900		)
Cash payments	(2,966		)	(3,727		)	(77		)	838
Foreign exchange	—			—			—			—

Balance at March 31, 2013	13,458			13,383			75			—

Charges	2,334			2,004			330			—
Cash payments	(8,422		)	(8,422		)	—			—
Foreign exchange	(170		)	(170		)	—			—

Balance at June 30, 2013	7,200			6,795			405			—

Charges	5,465			4,562		(1)	903		(1)	—
Cash payments	(7,099		)	(6,535		)	(564		)	—
Foreign exchange	—			—			—			—

Balance at September 30, 2013	$	5,566		$	4,822		$	744		$	—

(1) During the three months ended September 30, 2013, the Company incurred $4.6 million in termination benefits, $5.4 million charge related to the restructuring plan initiated during the second quarter of fiscal year 2014 offset by a $0.8 million credit related to the restructuring plan initiated during the fourth quarter of fiscal year 2013. During the same period, the Company also incurred $0.9 million in lease exit costs, $0.6 million related to the restructuring plan initiated during the second quarter of fiscal year 2014 and $0.3 million related to the restructuring plan initiated during the fourth quarter of fiscal year 2013.

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

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, among other things, statements regarding our business strategy, the impact of investment prioritization decisions, product offerings, sales and marketing initiatives, addressing execution challenges, trends in consumer demand affecting our products and markets, trends in the composition of our customer base, our current or future revenue and revenue mix by product, among our lower- and higher-margin products and by geographic region, our expectations regarding the potential growth opportunities for our products in mature and emerging markets and the enterprise market, our expectations regarding trends in global economic conditions and consumer demand for PCs and mobile devices, smartphones, tablets, gaming, audio, video and video conferencing, digital home digital music and other computer devices and the interoperability of our products with such third party platforms, our expectations regarding the convergence of markets for computing devices and consumer electronics, our competitive position and the effect of pricing, product, marketing and other initiatives by us and our competitors, the impact of our restructuring plan on future costs, expenses and financial performance and the timing thereof, our estimates of future charges related to our restructuring plan, our expectations regarding the recoverability of our goodwill, goodwill impairment charge estimates and the potential for future impairment charges, the impact of our current and proposed product divestitures, changes in our planned divestitures, and the timing thereof, significant fluctuations in currency exchange rates, the impact of new product introductions and product innovation on future performance or anticipated costs and expenses and the timing thereof, cash flows, the sufficiency of our cash and cash equivalents, cash generated and available borrowings (including the availability of our uncommitted lines of credit) to fund future cash requirements, compliance with our credit facilities, our expectations regarding share repurchases and share cancellations, our expectations regarding our future working capital requirements and our anticipated capital expenditures needed to support our product development and expanded operations, our expectations regarding our future tax benefits and the adequacy of our provisions for uncertain tax positions, our expectations regarding our potential indemnification obligations, and the outcome of pending or future legal proceedings and tax audits, remediation of our material weaknesses and Logitech’s ability to achieve and sustain renewed growth, profitability and future success. 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 forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from that anticipated in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part II, Item 1A of this quarterly report on Form 10-Q. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Overview of Our Company

Logitech is a world leader in products that connect people to the digital experiences they care about. Spanning multiple computing, communication and entertainment platforms, we develop and market 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. We have two reporting segments: peripherals and video conferencing.

Our peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs (personal computers), tablets and other digital platforms. Our products for home and business PCs include mice, trackballs, keyboards, interactive gaming controllers, multimedia speakers, headsets and webcams. Our tablet accessory products include keyboards, keyboard cases and covers, headphones, wireless

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speakers and earphones. Our Internet communications products include webcams and headsets. Our digital music products include wireless speakers, earphones, headphones and custom in-ear monitors. For home entertainment systems, we offer the Harmony line of advanced remote controls. Our gaming products include mice, keyboards, headsets and gaming controllers. During the third quarter of fiscal year 2013, we identified a number of product categories that no longer fit with our current strategic direction. As a result, we made a strategic decision to divest our remote product category and our digital video security product line, included within our video product category. During the first quarter of fiscal year 2014, we updated our strategic focus, deciding to retain our remote product category and transition out of our digital video security product line. Since fiscal year 2013, we have been exiting other non-strategic products, such as speaker docks, and continue to evaluate non-strategic products as part of our ongoing portfolio management.

Our brand, portfolio management, product definition and engineering teams in our peripherals segment are responsible for product strategy, technological innovation, product design and development, and bringing our products to market. Our peripherals business groups are organized by the following product categories: Pointing Devices, PC Keyboards & Desktops, Tablet Accessories, Audio PC, Audio-Wearables & Wireless, Video, PC Gaming and Remotes. Our global marketing organization is responsible for developing and building the Logitech brand, consumer insights, public relations and social media, and digital marketing. Our regional retail sales and marketing activities are organized into three geographic areas: Americas (including North and South America), EMEA (Europe, Middle East, Africa) and Asia Pacific (including, among other countries, China, Taiwan, Japan and Australia).

We sell our peripherals products to a network of distributors, retailers and 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. Sales of peripherals to our retail channels were 87% and 86% of our net sales for the six months ended September 30, 2013 and 2012. The large majority of our revenues have historically been derived from sales of our peripherals products for use by consumers. Our OEM customers include several of the world’s largest PC manufacturers. Sales to OEM customers were 7% of our net sales for each of the six months ended September 30, 2013 and 2012.

Our video conferencing segment encompasses the design, manufacturing and marketing of video conferencing products, infrastructure and services for the enterprise, public sector, and other small to medium business markets. Video conferencing products include scalable HD (high-definition) video communication 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. The video conferencing segment maintains a separate marketing and sales organization, which sells LifeSize products and services worldwide. Video conferencing product development and product management organizations are separate, but coordinated with our peripherals business, particularly our Consumer Computing Platform group. We sell our LifeSize products and services to distributors, value-added resellers, OEMs, and occasionally, direct enterprise customers. Sales of LifeSize products were 6% and 7% of our net sales in the six months ended September 30, 2013 and 2012. During fiscal year 2013, we recorded a non-cash goodwill impairment charge of $214.5 million related to our video conferencing segment.

We seek to fulfill the increasing demand for interfaces between people and the expanding digital world across multiple platforms and user environments. The interface evolves as platforms, user models and our target markets evolve. As access to digital information has expanded, we have extended our focus to mobile devices, the digital home, and the enterprise as access points to the Internet and the digital world. All of these platforms require interfaces that are customized according to how the devices are used. We believe that continued investment in product research and development is critical to creating the innovation required to strengthen our competitive advantage and to drive future sales growth. We are committed to identifying and meeting current and future consumer trends with new and improved product technologies, partnering with others where our strengths are complementary, as well as leveraging the value of the Logitech and LifeSize brands from a competitive, channel partner and consumer experience perspective.

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We believe innovation and product quality are important to gaining market acceptance and maintaining market leadership.

We have been expanding the categories of products we sell and entering new markets, such as the markets for mobile device accessories. 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 new 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.

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

From time to time, we may seek to partner with or acquire, when appropriate, companies that have products, personnel, and technologies that complement our strategic direction. We continually review our product offerings and our strategic direction in light of our profitability targets, competitive conditions, changing consumer trends, and the evolving nature of the interface between the consumer and the digital world.

Revision of Financial Statements for the Three and Six Months ended September 30, 2012

In the first quarter of fiscal year 2014, we identified errors related to the accounting for our 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.

We evaluated the cumulative impact of the errors on prior periods under the guidance in ASC 250-10 relating to SEC SAB No. 99, Materiality. We also evaluated the impact of correcting the errors through an adjustment to our 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 our previously issued financial statements to reflect the impact of the correction of these errors when we file subsequent reports on Form 10-Q and Form 10-K. Accordingly, we revised our consolidated financial statements for the quarter ended June 30, 2012 to correct these errors. In addition, as a result of the decision to revise our previously issued consolidated financial statements to correct for the errors described above, we corrected other immaterial errors that were previously uncorrected. We filed a Form 10-K/A to revise our financial statements for the years ended March 31, 2011, 2012 and 2013 to correct for the same errors. As a result, we have also revised our financial statements for the three and six months ended September 30, 2012 from what we previously reported.

The revised financial statements corrected the following errors:

(1) - Warranty accrual — We determined that our prior warranty model did not accurately estimate warranty costs and liabilities. 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.

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(2) - Amortization of intangibles – We 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 – We 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.

The adjustments made as a result of the revisions to the historical financial statements are more fully discussed in Note 2, Revision of Previously Issued Financial Statements, to the Consolidated Financial Statements.

Summary of Financial Results

Our total net sales for the six months ended September 30, 2013 decreased 1%, compared with the six months ended September 30, 2012, due to a decrease of 2% in OEM sales and a decrease of 16% in video conferencing sales, offset in part by an increase of 1% in retail sales.

Retail sales during the six months ended September 30, 2013 increased 1% and retail units sold decreased 5%, compared with the six months ended September 30, 2012. We experienced an increase of 9% in the Americas and a decrease of 7% in the EMEA regions. Sales in Asia Pacific region remained constant. If foreign currency exchange rates had been the same in the six months ended September 30, 2013 and 2012, the percentage changes in our constant dollar retail sales would have been a decrease of 1% for total retail sales, an increase of 9% in the Americas, an increase of 4% in the Asia Pacific, and a decrease of 9% in the EMEA regions. Sales incentive spending (including pricing discounts) during the six months ended September 30, 2013, compared with the six months ended September 30, 2012, increased by 4% during this period. Sales returns expense during the six months ended September 30, 2013, compared with the six months ended September 30, 2012, decreased by 13% due to lower channel inventory return rate and lower channel inventory level during this period.

OEM net sales decreased 2% and units sold remained constant in the six months ended September 30, 2013, compared with the preceding fiscal year. The decline was primarily due to overall weak market conditions for sale of new desktop PCs.

Sales of video conferencing products, which were 7% of total net sales in the six months ended September 30, 2013, decreased by 16% in the six months ended September 30, 2013, compared with the six months ended September 30, 2012, due to a combination of a changing industry landscape caused by a shift to less expensive, cloud-based video conferencing solutions, an evolving LifeSize product line and challenges in execution.

Our gross margin for the six months ended September 30, 2013 improved to 34.8%, compared with 33.6% for the six months ended September 30, 2012. The improvement in gross margin for the six months ended September 30, 2013, compared with the same period of the prior fiscal year, primarily resulted from cost improvements in some of our PC-related categories and from actions we took during fiscal year 2013 to streamline our product portfolio. The improvement also resulted from negative factors affecting our gross margin during the same period of the prior fiscal year which did not exist during the six months ended September 30, 2013, including $4.5 million in pricing actions related to the simplification of our product portfolio in the Americas and EMEA regions, $3.0 million in costs related to product development efforts that were discontinued as a result of the April 2012 restructuring, and a provision for a patent dispute. The improvement was offset in part by a $5.2 million write-off of video conferencing discontinued products resulting from the restructuring of our video conferencing reporting segment during the quarter ended September 30, 2013.

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Operating expenses for the six months ended September 30, 2013 were 33.1% of net sales, compared with 37.0% in the same period of the prior fiscal year. The decrease in total operating expenses as a percentage of net sales was primarily due to a decrease of $20.8 million in restructuring charges combined with a $17.1 million decrease in market and selling expense due to a decline in marketing spend activity.

Net income for the six months ended September 30, 2013 was $15.4 million, compared with net income of $3.4 million in the six months ended September 30, 2012. This improvement primarily resulted from a decrease of $20.8 million in restructuring charges and a decrease in market and selling expense, offset in part by a shift from a $38.0 million benefit from income taxes during the six months ended September 30, 2012 to a $2.3 million provision for income taxes during the six months ended September 30, 2013.

Trends in Our Business

Our sales of PC peripherals for use by consumers in the Americas and Europe have historically made up the large majority of our revenues. In the last several years, the PC market has changed dramatically and there continues to be significant weakness in the global market for new PCs. This weakness had a negative impact on our net sales in all of our PC-related categories. We believe that this weakness reflects the growing popularity of tablets and smartphones as mobile computing devices.

We believe Logitech’s future growth will be determined by our ability to rapidly create innovative products across multiple digital platforms, especially accessories for mobility-related products, including tablets, smartphones and other mobile devices, and for digital music, including wireless speakers and wearables such as earphones, to limit and offset the decline in our PC peripherals. We pursue growth opportunities in emerging markets, mobility-related products, products for digital music and enterprise markets. The following discussion represents key trends specific to each of our two operating segments, peripherals and video conferencing.

Trends Specific to our Peripherals Segment

Mature and Emerging Markets. In our traditional, mature markets, such as North America, Western and Northern Europe, Japan, and Australia, although the installed base of PC users is large, consumer demand for new PCs has declined in recent years, and we believe it will continue to decline in future years. As a consequence, consumer demand for PC peripherals is slowing, or in some case declining. While we continue to pursue growth opportunities in select PC peripherals product lines in mature markets, we believe there are growth opportunities for our PC peripherals outside the mature markets. We have invested significantly in growing the number of our sales, marketing and administrative personnel in China, our largest target emerging market, with the result that China was our second-largest country in retail sales for the six months ended September 30, 2013. We are also expanding our presence in other emerging markets.

Enterprise Market. We are continuing our efforts to create and sell products and services to enterprises. We believe the preferences of employees increasingly drive companies’ choices in the information technologies they deploy to their employee base. Growing our enterprise peripherals business will continue to require investment in selected business-specific products, targeted product marketing, and sales channel development.

Tablets, Smartphones and Other Mobile Devices. The increasing popularity of smaller, mobile computing devices, such as tablets and smartphones with touch interfaces, have created new markets and usage models for peripherals and accessories. Logitech has begun to offer products to enhance the use of mobile devices. For example, we are experiencing strong demand for our tablet keyboards. We introduced the Logitech Ultrathin Keyboard mini, a slim protective keyboard cover designed to enhance the iPad mini experience during the fourth quarter of fiscal year 2013. Demand for the Logitech Ultrathin Keyboard mini

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has continued to be very positive. The tablet accessories category is one of the primary strategic categories of our business. We continue to expand and leverage on our success in this category through the recent introduction of innovative products such as the Logitech Keyboard Folio and Folio mini, the Logitech FabricSkin Keyboard Folio for iPad and iPad mini, the Logitech Wired Keyboard for iPad, and the Logitech Ultrathin Keyboard Folio for Samsung Galaxy Tablet.

Digital Music. We believe that digital music, the seamless consumption of digital audio content on mobile devices, presents a growth opportunity for Logitech, based on our history of successful earphone and speaker products. Many consumers listen to music as a pervasive entertainment activity, fueled by the growth in smartphones, tablets, music services and Internet radio. We believe we have a solid foundation of audio solutions to satisfy consumers’ needs for music consumption, including earphones and digital music speakers. We continue to invest and introduce innovative new products in this category such as UE BOOM, a wireless speaker offering 360-degree stereo sound announced in late May 2013.

OEM Business. Sales of our OEM mice and keyboards have historically made up the bulk of our OEM sales. In recent years, there has been a dramatic shift away from desktop PCs and there continues to be significant weakness in the global market for PCs, which has adversely affected our sales of OEM mice and keyboards, all of which are sold with name-brand desktop PCs. We expect this trend to continue and for OEM sales to comprise a smaller percentage of our total revenues in the future.

Trends in Other Peripherals Product Categories. Some of our other peripherals product categories are experiencing significant market challenges. As the quality of PC-embedded webcams improves along with the increasing popularity of tablets and smartphones with embedded webcams, we expect future sales of our PC-connected webcams in mature consumer markets to continue declining. During the third quarter of fiscal year 2013, we identified a number of product categories that no longer fit with our current strategic direction. As a result, we made a strategic decision to divest our entire Retail-Remotes product category and our digital video security product line included in our Retail-Video product category. During the first quarter fiscal year 2014, we updated our strategic focus deciding to retain our Retail-Remote product category. We will continue to evaluate our product offerings and will exit those which no longer support our strategic direction.

Trends Specific to our Video Conferencing Segment

The trend among businesses and institutions to use video conferencing offers a long-term growth opportunity for Logitech. However, the overall video conferencing industry has experienced a slowdown in recent quarters. In addition, there has been an increase in the competitive environment in fiscal year 2013. This resulted in a $214.5 million non-cash goodwill impairment charge in the fiscal year ended March 31, 2013. During the fourth quarter of fiscal year 2013 and the second quarter fiscal year 2014, we implemented restructuring plans affecting our video conferencing operating segment to align its organization to it strategic priorities of increasing focus on a tighter range of products, expanding cloud-based video conferencing services and improving profitability. We believe the growth in our video conferencing segment depends in part on our ability to increase sales to enterprises with existing installed bases of equipment supplied by our competitors, and to enterprises that may purchase such competitor equipment in the future. We believe the ability of our LifeSize products to interoperate with the equipment of other telecommunications, video conferencing or telepresence equipment suppliers to be a key factor in purchasing decisions by current or prospective LifeSize customers. In addition, LifeSize has broadened its product portfolio to include infrastructure, cloud services and other offerings which require different approaches to developing customer solutions. We also are seeking to offer LifeSize products designed to enhance the use of mobile devices in video conferencing applications.

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Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP (generally accepted accounting principles in the United States of America) requires us 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 us in the future, actual results could differ from those estimates. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.

There have been no significant changes during the three and six months ended September 30, 2013, except for product warranty accrual, to the nature of the critical accounting policies, and no significant changes to the critical accounting estimates that were disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.

Product Warranty Accrual

We provide for the estimated cost of product warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost, and knowledge of specific product failures that are outside of our typical experience. Each quarter, we reevaluate our estimates to assess the adequacy of our recorded warranty liabilities considering the size of the installed base of products subject to warranty protection and adjust the amounts as necessary. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect our results of operations.

As discussed in the subsection titled, Revision of Financial Statements for the three and six months ended September 30, 2012, we determined that our prior warranty model did not accurately accrue for costs of product warranties given to end customers, including an on-going review of the assumptions to determine the completeness and accuracy of the warranty accrual 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. During the quarter ended June 30, 2013, we developed and implemented a new warranty model (“new model”) to estimate its warranty costs and liability at each reporting period. The new model has been implemented by all regions and incorporates a waterfall method to more accurately capture consumer return behavior and a single model approach for all regions. Key assumptions used in the new model include:

· Warranty expenses: All warranty costs, including product, freight, handling and warehousing costs are captured by the new model.

· Sell-through revenue, if available: Use of sell-through revenue, defined as sales data to end consumers, is relevant given that the warranty period comments on the date the consumer purchases the product.

· Historic product return waterfall rates: Waterfall rates are used in the new model to predict consumer product warranty returns based on historical consumer behavior patterns.

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This error impacted prior reporting periods, starting prior to fiscal year 2009, and resulted in a $17.1 million cumulative correcting adjustment to our consolidated financial statements from the beginning of fiscal year 2009 through the end of fiscal year 2013.

Recent Accounting Pronouncement

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. We do not expect the adoption of this guidance to have a material impact on our cash flows, results of operations, financial position or liquidity.

Results of Operations

Net Sales

Net sales by channel 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		Change %		2013		2012		Change %

Retail	$	464,853	$	476,479	(2	)%	$	878,089	$	871,580	1	%
OEM	37,526		36,718		2	%	72,039		73,393		(2	)%
Video Conferencing	29,593		34,496		(14	)%	59,768		71,324		(16	)%
Total net sales	$	531,972	$	547,693	(3	)%	$	1,009,896	$	1,016,297	(1	)%

The following table presents the approximate percentage of our total net sales that were denominated in currencies other than the U.S. dollar in the three and six months ended September 30, 2013 and 2012:

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

Currencies other than USD	45	%	47	%	44	%	45	%

If foreign currency exchange rates had been the same in the three and six months ended September 30, 2013 and 2012, the percentage change in our constant dollar net sales would have been:

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

Retail	(3	)%	1	%
OEM	3	%	(2	)%
Video Conferencing	(14	)%	(16	)%
Total net sales	(3	)%	(1	)%

Our retail sales in the three and six months ended September 30, 2013 decreased by 2% and increased by 1%, compared with the same periods of the prior fiscal year. Retail sales increased in Americas and declined in EMEA and Asia Pacific regions during the three months ended September 30, 2013, and increased in Americas, declined in EMEA, and remained constant in Asia Pacific regions during the six months ended September 30, 2013, compared with the same periods of the prior fiscal year. Retail units sold decreased 4% and 5% during the three and six months ended September 30, 2013, compared with

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the same periods of the prior fiscal year. Our overall retail average selling price increased by 2% and 6% during the three and six months ended September 30, 2013. Products priced below $40 represented approximately 53% and 54% of retail sales in the three and six months ended September 30, 2013, compared with 53% and 59% of retail sales in the three and six months ended September 30, 2012. Sales of retail products priced above $100 represented 15% and 14% of retail sales in the three and six months ended September 30, 2013, compared with 12% and 11% of total retail sales in the three and six months ended September 31, 2012. If foreign currency exchange rates had been the same in the three and six months ended September 30, 2013 and 2012, our constant dollar retail sales increase would have been a decrease of 3% and an increase of 1%.

OEM net sales increased 2% and decreased 2% and units sold increased 2% and remained constant in the three and six months ended September 30, 2013, compared with the same periods in the prior fiscal year. The increase during the three months ended September 30, 2013 was due to new business from a large customer as well as a sale opportunity in the Gaming category. The decline during the six months ended September 30, 2013 was primarily due to overall weak market conditions for sale of new desktop PCs.

Video conferencing net sales decreased 14% and 16% during the three and six months ended September 30, 2013, compared with the same periods of the prior fiscal year. This decrease primarily resulted from the combination of a changing industry landscape caused by a shift to less expensive, cloud-based video conferencing solutions, an evolving LifeSize product line and challenges in execution.

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

Retail Sales by Region

The following table presents the changes in retail units sold, retail sales and constant dollar retail sales by region for the three and six months ended September 30, 2013, compared with the three and six months ended September 30, 2012.

	Three Months ended September 30, 2013						Six Months ended September 30, 2013
	Change in				Change in		Change in				Change in
	Retail Units		Change in		Constant Dollar		Retail Units		Change in		Constant Dollar
	Sold		Retail Sales		Retail Sales		Sold		Retail Sales		Retail Sales

EMEA	(14	)%	(10	)%	(13	)%	(13	)%	(7	)%	(9	)%
Asia Pacific	4	%	(4	)%	0	%	(1	)%	0	%	4	%
Americas	2	%	7	%	7	%	0	%	9	%	9	%
Total retail sales	(4	)%	(2	)%	(3	)%	(5	)%	1	%	1	%

Americas

The Americas region experienced a 7% increase in retail sales during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. Sales increased in Pointing Devices, PC Keyboards & Desktops, Audio-Wearables & Wireless, Tablet Accessories and PC Gaming, offset in part by sales declines in Audio-PC, Non-strategic Other, Remotes and Video. Sales increase in Pointing Devices was driven by both high-end and low-end products, while sales increase in PC Keyboards & Desktops was driven by low-end products. Sales increase in Tablets Accessories was led by sales increases from the Logitech Ultrathin Keyboard Cover for iPad mini, and from the recently introduced

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Logitech Keyboard Folio suite of products designed for the iPad and iPad mini. We also experienced sales increases in PC Gaming due to a recent launch of new gaming products and in Audio-Wearables & Wireless from the UE Mobile Boombox and the UE BOOM. Compared to the same period of the prior fiscal year, we experienced sales improvement in the United States and Canada. Retail sell-through in the Americas region increased 4% in three months ended September 30, 2013, compared with the same period of the prior fiscal year.

The Americas region experienced a 9% increase in retail sales during six months ended September 30, 2013, compared with the same period of the prior fiscal year. Sales increased in Tablet Accessories, Pointing Devices, PC Keyboards & Desktops, Audio-Wearables & Wireless, and PC Gaming, offset in part by sales declines in Non-strategic Other, Audio-PC, Remotes and Video. This increase was led by sales increase in Tablet Accessories due to sales increase from the Logitech Ultrathin Keyboard Cover for iPad mini, and from the recently introduced Logitech Keyboard Folio suite of products designed for the iPad and iPad mini. We also experienced sales increases in Pointing Devices driven by mid-range and high-end products, in PC Keyboards & Desktops driven by low-end products, in Audio-Wearables & Wireless from the UE Mobile Boombox and the UE BOOM, and in PC Gaming due to a recent launch of new gaming products. During the six months ended September 30, 2013, compared to the same period of the prior fiscal year, we experienced improvement in the United States and Canada. Retail sell-through in the Americas region increased 4% in the six months ended September 30, 2013, compared with the same period of the prior fiscal year.

EMEA

Retail sales in the EMEA region experienced a 10% decrease during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. Sales declined in all categories except Audio-Wearables & Wireless and PC Keyboards & Desktops. We experienced significant sales decrease in Germany, our largest country within this region, due to execution challenges that we are in the process of addressing. The decrease in Germany was offset in part by a sales increase in the United Kingdom. Retail sell-through in the EMEA region decreased 5% in the three months ended September 30, 2013, compared with the same period of the prior fiscal year.

Retail sales in the EMEA region a 7% decrease during the six months ended September 30, 2013, compared with the same period of the prior fiscal year. During the six months ended September 30, 2013, sales declined in all categories except Audio-Wearables & Wireless, Tablet Accessories, Remotes and PC Keyboards & Desktops. During the six months ended September 30, 2013, we also experienced significant sales decrease in Germany due to execution challenges which we are in the process of addressing. The decrease in Germany was offset in part by sales increase in the United Kingdom. Retail sell-through in the EMEA region decreased 6% in the six months ended September 30, 2013, compared with the same period of the prior fiscal year.

Asia Pacific

Asia Pacific region retail sales decreased by 4% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. The decrease was primarily driven by declines in Non-Strategic Other, Audio-PC, Audio-Wearable & Wireless, Video and Tablet Accessories, offset in part by increases in PC Gaming, Pointing Devices, PC Keyboards & Desktops and Remotes. We experienced sales decline in Japan, offset in part by sales growth in China, compared to the same period of the prior fiscal year. Retail sell-through in the Asia Pacific region increased 3% in the three months ended September 30, 2013, compared with the same period of the prior fiscal year.

Asia Pacific region retail sales remained constant during the six months ended September 30, 2013, compared with the same period of the prior fiscal year. Sales in PC Gaming, Tablet Accessories, PC Keyboard & Desktops and Remotes increased while sales in Audio PC, non-strategic Other, Video, Pointing Device, Audio-PC and Audio-Wearables & Wireless decreased. We also experienced sales decrease in Japan, offset in part by sales growth in China, compared to the same periods of the prior fiscal year. Retail sell-through in the Asia Pacific region increased 2% in the six months ended September 30, 2013, compared with the same period of the prior fiscal year.

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Net Retail Sales by Product Category

Net retail sales by product category during 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		Change %		2013		2012		Change %

Retail - Pointing Devices	$	130,656	$	122,524	7	%	$	245,307	$	238,353	3	%
Retail - PC Keyboards & Desktops	105,236		97,069		8	%	203,186		191,628		6	%
Retail - Tablet Accessories	34,711		33,737		3	%	73,270		49,623		48	%
Retail - Audio PC	67,199		77,267		(13	)%	119,164		138,792		(14	)%
Retail - Audio - Wearables & Wireless	25,648		19,108		34	%	44,723		33,707		33	%
Retail - Video	41,061		49,453		(17	)%	76,319		86,612		(12	)%
Retail - PC Gaming	41,493		46,673		(11	)%	81,110		73,456		10	%
Retail - Remotes	13,327		16,434		(19	)%	27,901		30,166		(8	)%
Retail - Other	5,522		14,214		(61	)%	7,109		29,243		(76	)%
	$	464,853	$	476,479			$	878,089	$	871,580

Retail Pointing Devices

Retail sales of Pointing Devices increased 7% and retail units sold increased 3% in the three months ended September 30, 2013, compared with the same period ended September 30, 2012. The growth was primarily from the Americas region, where sales increased by 16%, compared with the same period of the prior fiscal year. The growth was offset in part by the continued weakness in the global PC market. Specifically, the increase during the three months ended September 30, 2013 was driven by our low-end product offerings, which experienced a 12% increase, followed by our high-end product offerings, which experienced a 53% increase, offset in part by a decrease of 25% in our mid-range product offerings. Sales of all cordless mice increased 9% and units sold increased 12% in the three months ended September 30, 2013, compared with the same period of the prior fiscal year. Corded mice sales decreased 4% and units sold decreased 9% in the three months ended September 30, 2013, compared with the same period of the prior fiscal year. By geography, the Americas region sales and units sold increased by 16% and 10%, the EMEA region sales and units sold remained constant and decreased by 9%, and the Asia Pacific region sales and units sold increased by 5% and 16% during this period.

Retail sales of Pointing Devices increased 3% and retail units sold increased 2% in the six months ended September 30, 2013, compared with the same period ended September 30, 2012. The increase during the six months ended September 30, 2013 was primarily driven by our mid-range product offerings, which experienced a 9% increase, followed by our high-end product offerings, which experienced a 23% increase, offset in part by a decrease of 1% in our low-end product offerings. The growth was offset in part by the continued weakness in the global PC market. Sales of all cordless mice increased 6%, while units sold increased 8% in the six months ended September 30, 2013, compared with the same period of the prior fiscal year. Corded mice sales and units sold decreased 7% in the six months ended September 30, 2013, compared with the same period of the prior fiscal year. By geography, the Americas region sales and units sold increased by 15% and 10%, the EMEA region sales and units sold decreased by 4% and 6%, and the Asia Pacific region sales and units sold decreased by 3% and increased by 6% during this period.

Retail PC Keyboards and Desktops

Retail sales of PC Keyboards & Desktops increased 8% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year, and units sold increased 3% during this period. This sales increase was driven by a very strong quarter in our cordless keyboard category, led by our Wireless Touch Keyboard K400, which features an integrated touchpad and has been popular for use in the living room. Sales of corded and cordless keyboard decreased by 2% and increased by 33% in sales and decreased by 14% and increased by 29% in units sold during the three months ended September 30, 2013, compared with the same period in the prior fiscal year. Sales of corded and cordless desktops increased by 7% and units sold increased by 6% and 18% during the three months ended September 30, 2013, compared with the same period in the prior fiscal year. By geography, the Americas region sales increased by 16% and units sold increased by 5%, the EMEA region sales increased by 3% and units sold decreased by 3%, and the Asia Pacific region sales and units sold increased by 5% and 7% during this period.

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Retail sales of PC Keyboards & Desktops increased 6% during the six months ended September 30, 2013, compared with the same period of the prior fiscal year, while units sold decreased 1% during this period. This sales increase was driven by a very strong quarter in our cordless keyboard category, led by our Wireless Touch Keyboard K400. Sales of corded and cordless keyboard decreased by 10% and increased by 36% in sales and decreased by 20% and increased by 25% in units sold during the six months ended September 30, 2013, compared with the same period in the prior fiscal year. Sales of corded and cordless desktops increased by 7% and 4% and units sold increased by 5% and 12% during the six months ended September 30, 2013, compared with the same period in the prior fiscal year. By geography, the Americas region sales increased by 15% and units sold remained constant, the EMEA region sales remained constant and units sold decreased by 7%, and the Asia Pacific region sales and units sold increased by 2% and 3% during this period.

Retail Tablet Accessories

Retail Tablet Accessories increased 3% and retail units sold increased 26% in the three months ended September 30, 2013, compared with the same period ended September 30, 2012. The stronger unit growth reflects the broadening of our portfolio to address a larger portion of the tablet accessory market, including tablet cases. The relatively low sales growth in the quarter is primarily due to the timing of our new product launches. We launched a number of new iPad accessories in the first quarter of the current fiscal year, which led to a sales increase of over 100% during the first quarter. Given the timing of the release date of the next generation iPad, we did not have a similar product launch during the quarter ended September 30, 2013, compared with the same quarter of the prior year. Specifically, this increase in sales was driven by strong demand from the Logitech Ultrathin Keyboard Cover for the iPad Mini and the Logitech Keyboard Folio suite of products designed for the iPad and iPad mini. By geography, the Americas region sales increased by 21% and units sold increased by 23%, the EMEA region sales decreased by 13% while units sold increased by 37%, and the Asia Pacific region sales decreased by 19% while units sold increased by 17% during this period.

Retail Tablet Accessories increased 48% and retail units sold increased 70% in the six months ended September 30, 2013, compared with the same period ended September 30, 2012. This increase was driven by sales growth from the Logitech Ultrathin Keyboard Cover for the iPad Mini and the Logitech Keyboard Folio suite of products designed for the iPad and iPad mini. The stronger unit growth reflects the broadening of our portfolio to address a larger portion of the tablet accessory market, including tablet cases. By geography, the Americas region sales increased by 56% and units sold increased by 64%, the EMEA region sales increased by 25% while units sold increased by 64%, and the Asia Pacific region sales increased by 70% while units sold increased by 100% during this period.

Retail Audio-PC

Retail Audio-PC sales and units sold decreased 13% and 17% during the three months ended September 30, 2013, compared with the same period in the prior fiscal year. This decrease was due to sales and unit declines of 14% and 17% in PC speakers and sales and unit declines of 11% and 17% in PC headsets. These declines reflect both weakness in the overall market for new PCs, a market shift toward mobile audio devices, and a product line that has not been meaningfully refreshed in over a year. We have started to address this situation through our recent introduction of the Logitech Bluetooth Speakers Z600, wireless stereo speakers that stream music and other audio from a computer, smartphone or tablet. By geography, we experienced declines in all regions during this period. The declines were led by the Asia Pacific region where sales and units sold decreased by 19% and 27%, followed by the EMEA region where sales and units sold decreased by 11% and 19%, and by the Americas region where sales and units sold decreased by 14% and 11%.

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Retail Audio-PC sales and units sold decreased 14% and 20% during the six months ended September 30, 2013, compared with the same period in the prior fiscal year. This decrease was due to sales and unit declines of 14% and 19% in PC speakers and sales and unit declines of 15% and 22% in PC headsets. These declines reflect both weakness in the overall market for new PCs, a market shift toward mobile audio devices, and a product line that has not been meaningfully refreshed in over a year. We have started to address this situation through our recent introduction of the Logitech Bluetooth Speakers Z600, wireless stereo speakers that stream music and other audio from a computer, smartphone or tablet. By geography, we experienced declines in all regions during this period. The declines were led by the Asia Pacific region where sales and units sold decreased by 21% and 31%, followed by the EMEA region where sales and units sold decreased by 13% and 21%, and by the Americas region where sales and units sold decreased by 13% and 14%.

Retail Audio - Wearables & Wireless

Retail Audio-Wearables & Wireless sales increased 34% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year, while retail units sold decreased 35% during this period. This increase was due to a 119% increase in our wireless speakers for smartphones and tablets, driven by strong demand for the UE Mobile Boombox, the UE BOOM and the UE Mini Boombox. Sales of our audio wearables products continued to be weak, decreasing by 49% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. By geography, we experienced strong overall growth in Americas and EMEA regions, led by the Americas region where sales increased by 73% while units sold decreased by 19%, followed by the EMEA region where sales increased by 63% while units sold decreased by 4%, offset in part by the Asia Pacific region where sales and units sold decreased by 27% and 59%.

Retail Audio-Wearables & Wireless sales increased 33% during the six months ended September 30, 2013, compared with the same period of the prior fiscal year, while retail units sold decreased 29% during this period. This increase was due to a 122% increase in our wireless speakers for smartphones and tablets, driven by strong demand for the UE Mobile Boombox, the UE BOOM and UE Mini Boombox. Sales of our audio wearables products continued to be weak, decreasing by 45% during the six months ended September 30, 2013, compared with the same period of the prior fiscal year. By geography, we experienced strong growth in Americas and EMEA regions, led by the Americas region where sales increased by 51% while units sold decreased by 14%, followed by the EMEA region where sales and units sold increased by 59% and 3%, offset in part by the Asia Pacific region where sales and units sold decreased by 5% and 51%.

Retail Video

Retail Video sales and units sold decreased by 17% and 31% during the three months ended September 30, 2013, compared with the same period in the prior fiscal year. The sales decrease was mainly due to weakness in our retail webcam product line, which declined by 14% during this period, and which continued to be negatively impacted by the combination of market trends, including the popularity of embedded webcams in mobile devices, and the overall weakness of the PC market. The decline in our webcam product line was concentrated in the low-end, from which we are gradually shifting away. The decline was offset in part by strong growth in our high-end webcam category, which increased by 25%, driven by the Logitech HD Pro Webcam C920 and the webcams targeted at the Unified Communications applications. The decrease in retail video sales was also from a 25% decline in our digital video security products, a category we announced we would transition out of by the end of fiscal year 2014. By geography, sales and units sold decreased by 7% and 16% in the Americas region, 26% and 42% in the EMEA region, and 15% and 25% in the Asia Pacific region.

Retail Video sales and units sold decreased by 12% and 31% during the six months ended September 30, 2013, compared with the same period in the prior fiscal year. The sales decrease was mainly due to weakness in our consumer webcam product line, which declined by 10% during this period, and which continued to be negatively impacted by the combination of market trends, including the popularity of embedded webcams in mobile devices, and the overall weakness of the PC market. The decline in our

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webcam product line was concentrated in the low-end, from which we are gradually shifting away. The decline was offset in part by strong growth in our high-end category, which increased by 40%, and our mid-range webcam category, which increased by 195%, driven by the Logitech HD Pro Webcam C920 and the webcams targeted at the Unified Communications applications. The decrease in retail video sales was also from a 26% decline in our digital video security products. By geography, sales and units sold decreased by 1% and 15%, 21% and 42%, and 13% and 28% in Americas, EMEA and Asia Pacific regions, respectively.

Retail PC Gaming

Retail PC Gaming sales and units sold decreased by 11% and 1% during the three months ended September 30, 2013, compared with the same period in the prior fiscal year. The decrease was primarily driven by the weakness in EMEA region caused by poor sales execution in Germany, our largest market in the region. The decrease was offset in part by the recent launch of new gaming products, including mice, keyboards and headsets. PC Gaming sales increased by 17% and 14% in the Americas and Asia Pacific regions and decreased by 34% in the EMEA region in the three months ended September 30, 2013, compared with the same period of the prior fiscal year.

Retail PC Gaming sales and units sold increased by 10% and 6% during the six months ended September 30, 2013, compared with the same period in the prior fiscal year. This growth was driven by the recent launch of new gaming products, including mice, keyboards and headsets. PC Gaming sales increased by 39% and 24% in the Americas and Asia Pacific regions and decreased by 11% in the EMEA region in the six months ended September 30, 2013, compared with the same period of the prior fiscal year.

Retail Remotes

Retail sales and units sold of our Remotes category decreased 19% and 51% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. The 51% decline in units sold, relative to the 19% sales decrease, reflects our shift in focus on high-end remote categories. During the three months ended September 30, 2013, we experienced strong demand for the Logitech Harmony Ultimate and Harmony Touch, our premium remote product launched during the current quarter. By geography, remote sales decreased in the Americas and the EMEA regions by 20% and 19%, and increased by 7% in the Asia Pacific region.

Retail sales and units sold of our Remotes category decreased 8% and 46% during the six months ended September 30, 2013, compared with the same period of the prior fiscal year. The 46% decline in units sold, relative to the 8% sales decrease, reflects our shift in focus on high-end remote categories. During the six months ended September 30, 2013, we also experienced strong demand for the Logitech Harmony Ultimate and Harmony Touch. By geography, remote sales decreased in the Americas region by 17% and increased by 31% and 74% in the EMEA and Asia Pacific regions.

Retail Other

This category comprises a variety of products that we currently intend to transition out of, or have already transitioned out of, because they are no longer strategic to our business. Products currently included in this category include speaker docks, streaming media systems, console gaming peripherals and other products. We will continue to evaluate non-strategic products as part of our ongoing portfolio management.

Retail sales of this category decreased by 61% during the three months ended September 30, 2013, compared with the same period in the prior fiscal year, while retail units sold decreased 59% during this period. Our other category sales in the Americas, EMEA and Asia Pacific regions decreased by 73%, 42% and 105% in the three months ended September 30, 2013, compared with same period of the prior fiscal year.

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Retail sales of this category decreased by 76% during the six months ended September 30, 2013, compared with the same period in the prior fiscal year, while retail units sold decreased 73% during this period. Our other category sales in the Americas, EMEA and Asia Pacific regions decreased by 86%, 64% and 105% in the six months ended September 30, 2013, compared with same period of the prior fiscal year.

OEM

OEM sales and units sold increased by 2% and 2% during the three months ended September 30, 2013, compared with the same period of the prior fiscal year. This increase was primarily driven by a 32% increase in OEM PC Keyboards & Desktops sales during this period due to new business from a large customer as well as a sale opportunity in the Gaming category.

OEM sales and units sold decreased by 2% and remained constant during the six months ended September 30, 2013, compared with the same period of the prior fiscal year. This decrease was primarily driven by the weakness of global PC market, offset in part by a 23% increase in OEM PC Keyboards & Desktops sales during this period due to new business from a large customer as well as a sale opportunity in the Gaming category.

Video Conferencing

Video conferencing net sales decreased 14% and 16% during the three and six months ended September 30, 2013, compared with the same periods of the prior fiscal year. This decrease was experienced in all geographic regions, and resulted from the combination of a changing industry landscape caused by a shift to less expensive, cloud-based video conferencing solutions, an evolving LifeSize product line and challenges in execution.

Gross Profit

Gross profit for the three and six months ended September 30, 2013 and 2012 was as follows (in thousands):

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

Net sales	$	531,972		$	547,693		(3	)%	$	1,009,896		$	1,016,297		(1	)%
Cost of goods sold	348,559			351,919			(1	)%	658,128			675,177			(3	)%
Gross profit	$	183,413		$	195,774		(6	)%	$	351,768		$	341,120		3	%
Gross margin	34.5		%	35.7		%			34.8		%	33.6		%

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, outside processing costs, write-down of inventories and amortization of intangible assets.

The decline in gross margin for the three months ended September 30, 2013, compared with the same period of the prior fiscal year, primarily resulted from a $5.2 million write-off of discontinued products, resulting from the restructuring of our video conferencing reporting segment during the three months ended September 30, 2013.

The improvement in gross margin for the six months ended September 30, 2013, compared with the same period of the prior fiscal year, primarily resulted from cost improvements across all of our PC-related categories and from actions we took during fiscal year 2013 to streamline our product portfolio. The improvement also resulted from negative factors affecting the September 30, 2012 gross margin which did not exist during the three months ended September 30, 2013, including $4.5 million in pricing actions related to the simplification of our product portfolio in the Americas and EMEA regions, $3.0 million in costs related to product development efforts that were discontinued as a result of the April 2012 restructuring, and a provision for a patent dispute. The improvement was offset in part by the $5.2 million write-off of discontinued products, a product rationalization initiative resulting from the restructuring of our video conferencing reporting segment during the quarter ended September 30, 2013.

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Operating Expenses

Operating expenses 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			Change		2013			2012			Change
				As Revised								As Revised

Marketing and selling	$	93,710		$	110,522		(15	)%	$	194,345		$	211,419		(8	)%
% of net sales	18		%	20		%			19		%	21		%
Research and development	37,633			38,114			(1	)%	73,824			77,137			(4	)%
% of net sales	7		%	7		%			7		%	8		%
General and administrative	29,395			25,980			13	%	58,543			58,460			0	%
% of net sales	6		%	5		%			6		%	6		%
Restructuring charges	5,465			(2,671		)	(305	)%	7,799			28,556			(73	)%
% of net sales	1		%	0		%			1		%	3		%
Total operating expenses	$	166,203		$	171,945		(3	)%	$	334,511		$	375,572		(11	)%

The decrease in total operating expenses as a percentage of net sales was primarily due to the restructuring plans initiated in first and fourth quarters of fiscal year 2013, which reduced personnel-related expenses.

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

Marketing and Selling

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

Marketing and selling expense reduced by 15% and 8% during the three and six months ended September 30, 2013, compared with the same periods of the prior fiscal year. The decrease was primarily driven by the decreases in personnel-related expenses and share-based compensation expense due to the reduction in worldwide workforce resulting from our recent restructuring plans. During the three months ended September 30, 2013, new product launches declined substantially since such activities were shifted to the three months ended June 30, 2013, which caused the decrease of marketing and selling expense during the three month ended September 30, 2013 being greater than the decrease during the six month ended September 30, 2013.

If foreign currency exchange rates had been the same in the three months ended September 30, 2013 and 2012, the percentage change in constant dollar marketing and selling expense would have also been 15%. If foreign currency exchange rates had been the same in the six months ended September 30, 2013 and 2012, the percentage change in constant dollar marketing and selling expense would have also been 8%.

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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.

Although we continued to make investments in product development, we experienced 1% and 4% decreases in research and development expense during the three and six months ended September 30, 2013, compared with the same period of the prior fiscal year, primarily from a decline in personnel-related expenses due to the reduction in worldwide workforce resulting from our recent restructuring plans.

If foreign currency exchange rates had been the same in the three months ended September 30, 2013 and 2012, the change in constant dollar research and development expense would have also been a decrease of 2%. If foreign currency exchange rates had been the same in the six months ended September 30, 2013 and 2012, the change in constant dollar research and development expense would have also been a decrease of 4%.

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 increased 13% in the three months ended September 30, 2013, compared with the three months ended September 30, 2012, primarily driven by higher variable compensation costs related to our improved performance during the current quarter. General and administrative expense remained constant in the six months ended September 30, 2013, compared with the six months ended September 30, 2012. During the six months ended September, 2013, higher variable compensation costs were offset in part by the decline in personnel-related expenses, facility-related expenses and share-based compensation expense due to our recent restructuring plans combined with the write-off of the remaining lease obligations resulting from the exit of our former corporate headquarters which occurred during the three months ended June 30, 2012.

If foreign currency exchange rates had been the same in the three months ended September 30, 2013 and 2012, the percentage change in constant dollar general and administrative expense would have also been a decrease of 13%. If foreign currency exchange rates had been the same in the six months ended September 30, 2013 and 2012, the percentage change in constant dollar general and administrative expense would have also remained constant.

Restructuring Charges

Restructuring charges consist of termination benefits, lease exit costs and other charges associated with our restructuring plans.

During the first quarter of fiscal year 2013, we implemented a restructuring plan to simplify our organization, to better align costs with our current business, and to free up resources to pursue growth opportunities. A majority of the restructuring activity was completed during the three months ended June 30, 2012. As part of this restructuring plan, we reduced our worldwide non-direct-labor workforce. Charges and other costs related to the workforce reduction are presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2012, we incurred a $3.8 million credit in termination benefits to affected employees due to the further refinement of estimates previously accrued during the three months ended June 30, 2012. For the six months ended September 30, 2012, we incurred $24.8 million in termination benefits to affected employees under this plan. Termination benefits are calculated based on regional benefit practices and local statutory requirements. In addition, we incurred legal, consulting, and other costs of $1.1 million and $2.2 million as a result of the terminations during the three and six months ended September 30, 2012. We also incurred $1.5 million in lease exit costs primarily related to costs associated with the closure of existing facilities during the six months ended September 30, 2012.

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During the fourth quarter of fiscal year 2013, we implemented an additional restructuring plan to align our organization to our strategic priorities of increasing focus on mobility products, improving profitability in PC-related products and enhancing global operational efficiencies. As part of this restructuring plan, we reduced our worldwide non-direct-labor workforce. Restructuring charges under this plan primarily consisted of severance and other one-time termination benefits. Charges and other costs related to the workforce reduction are presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2013, we incurred a $0.8 million credit in termination benefits to affected employees due to the further refinement of estimates which were previously accrued and a $0.3 million charge in lease exit costs. During the six months ended September 30, 2013, restructuring changes under this plan included $1.2 million in termination benefits to affected employees and $0.6 million in lease exit costs. We estimate completing this restructuring plan during fiscal year 2014.

During the second quarter of fiscal year 2014, we implemented a restructuring plan solely affecting our video conferencing operating segment to align its organization to its strategic priorities of increasing focus on a tighter range of products, expanding cloud-based video conferencing services and improving profitability. Restructuring charges under this plan primarily consist of severance and other one-time termination benefits. Charges and other costs related to the workforce reduction are presented as restructuring charges in the consolidated statements of operations. During the three months ended September 30, 2013, restructuring charges under this plan included $5.4 million in termination benefits to affected employees and $0.6 million in lease exit costs. We estimate completing this restructuring plan during fiscal year 2014.

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The following table summarizes restructuring-related activities (in thousands):

	Total			Termination Benefits			Lease Exit Costs			Other

Balance at March 31, 2012	$	—		$	—		$	—		$	—

Charges	31,227			28,655			1,472			1,100
Cash payments	(5,195		)	(4,766		)	—			(429		)
Foreign exchange	63			63			—			—

Balance at June 30, 2012	26,095			23,952			1,472			671

Charges (credits)	(2,671		)	(3,816		)	48			1,097
Cash payments	(17,652		)	(16,642		)	(52		)	(958		)
Foreign exchange	14			—			—			14

Balance at September 30, 2012	$	5,786		$	3,494		$	1,468		$	824

Charges (credits)	(358		)	(188		)	(182		)	12
Cash payments	(4,511		)	(2,633		)	(1,104		)	(774		)
Foreign exchange	—			—			—			—

Balance at December 30, 2012	917			673			182			62

Charges (credits)	15,507			16,437			(30		)	(900		)
Cash payments	(2,966		)	(3,727		)	(77		)	838
Foreign exchange	—			—			—			—

Balance at March 31, 2013	13,458			13,383			75			—

Charges	2,334			2,004			330			—
Cash payments	(8,422		)	(8,422		)	—			—
Foreign exchange	(170		)	(170		)	—			—

Balance at June 30, 2013	7,200			6,795			405			—

Charges	5,465			4,562		(1)	903		(1)	—
Cash payments	(7,099		)	(6,535		)	(564		)	—
Foreign exchange	—			—			—			—

Balance at September 30, 2013	$	5,566		$	4,822		$	744		$	—

(1) During the three months ended September 30, 2013, we incurred $4.6 million in termination benefits, $5.4 million charge related to the restructuring plan initiated during the second quarter of fiscal year 2014 offset by a $0.8 million credit related to the restructuring plan initiated during the fourth quarter of fiscal year 2013. During the same period, we also incurred $0.9 million in lease exit costs, $0.6 million related to the restructuring plan initiated during the second quarter of fiscal year 2014 and $0.3 million related to the restructuring plan initiated during the fourth quarter of fiscal year 2013.

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Interest Income, net

Interest income, net 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			Change		2013			2012			Change

Interest income	$	496		$	495		0	%	$	918		$	1,227		(25	)%
Interest expense	(313		)	(342		)	(8	)%	(758		)	(690		)	10	%
Interest income, net	$	183		$	153		20	%	$	160		$	537		(70	)%

Interest income remained constant in the three months ended September 30, 2013, compared with the three months ended September 30, 2012. Interest income was lower in the six months ended September 30, 2013, compared with the six months ended September 30, 2012, primarily due to lower invested balances resulting from the $133.5 million cash dividend payment made on September 18, 2012 and from the $87.8 million paid to repurchase 8.6 million shares under our amended September 2008 buyback program.

Other Income (Expense)

Other income (expense) 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			Change		2013			2012			Change

Foreign currency exchange gain (loss)	(77		)	(937		)	92	%	413			(1,608		)	126	%
Investment income (loss) related to deferred compensation plan	(121		)	510			124	%	243			99			(145	)%
Gain on sale of investments	—			—			(100	)%	—			831			(100	)%
Other, net	260			(82		)	(417	)%	(377		)	10			(3870	)%
Other income (expense)	$	62		$	(509	)	112	%	$	279		$	(668	)	142	%

Foreign currency exchange gains or losses relate to balances denominated in currencies other than the functional currency of a particular subsidiary, to the sale of currencies, and to gains or losses recognized on foreign exchange forward contracts. We do not speculate in currency positions, but we are alert to opportunities to maximize foreign exchange gains.

Investment income (loss) for three and six months ended September 30, 2013 and 2012 represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

During the six months ended September 30, 2012, we sold the remaining two of our available-for-sale securities for $0.9 million. This sale resulted in $0.8 million of gain recognized in other income (expense), $0.3 million of which resulted from the recognition of a temporary increase in fair value previously recorded in accumulated other comprehensive loss.

Provision for Income Taxes

The provision for income taxes and effective tax rates 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

Benefit from income taxes	$	3,057		$	(31,076	)	$	2,255		$	(37,986	)
Effective income tax rate	17.5		%	(132.4		)%	12.7		%	109.8		%

The provision for (benefit from) income taxes consists of income and withholding taxes. We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws and tax agreements 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.

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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 we operate, 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.

In fiscal year 2013, we 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. In the three and six months ended September 30, 2013, we 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. We classified the unrecognized tax benefits as non-current income taxes payable.

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

We file Swiss and foreign tax returns. For all these tax returns, we are generally not subject to tax examinations for years prior to fiscal year 2001. We are under examination and have received assessment notices in foreign tax jurisdictions. At this time, we are 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 our results of operations.

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

Liquidity and Capital Resources

Cash Balances, Available Borrowings, and Capital Resources

At September 30, 2013, our working capital was $389.5 million, compared with $381.6 million at March 31, 2013. The increase in working capital over the prior year was primarily due to higher receivable and inventory balances, offset in part by a $36.1 million cash dividend payment. This dividend was approved on September 4, 2013 by our shareholders at the Annual General Meeting of Shareholders and paid in September 2013.

During the six months ended September 30, 2013, we generated $14.2 million from operating activities. Our main sources of operating cash flows were net income after adding non-cash expenses of depreciation, amortization, and share-based compensation expense, and from an increase in accounts payable and accrued and other liabilities. These sources of operating cash flows were offset in part by a increase in accounts receivable and inventories. Net cash used in investing activities was $23.3 million,

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primarily from $23.1 million of investments in leasehold improvements, computer hardware and software, tooling and equipment and from a $0.7 million investment in a privately-held company. Net cash used by financing activities was $30.4 million, primarily from the $36.1 million cash dividend, offset in part by $6.1 million in proceeds received from sale of shares upon exercise of options and purchase rights.

At September 30, 2013, we had cash and cash equivalents of $294.8 million. Our cash and cash equivalents are comprised of bank demand deposits and short-term time deposits carried at cost, which is equivalent to fair value. Approximately 58% of our cash and cash equivalents are held by our Swiss-based entities, and approximately 27% is held by our subsidiaries in Hong Kong and China. We do not expect to incur any material adverse tax impact or be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.

The credit facility matures on October 31, 2016. We may prepay the loans under the credit facility in whole or in part at any time without premium or penalty. Borrowings under the credit facility will accrue interest at a per annum rate based on LIBOR (London Interbank Offered Rate), or EURIBOR (Euro Interbank Offered Rate) in the case of loans denominated in euros, plus a variable margin determined quarterly based on the ratio of senior debt to earnings before interest, taxes, depreciation and amortization for the preceding four-quarter period, plus, if applicable, an additional rate per annum intended to compensate the lenders for the cost of compliance with regulatory reserve requirements and other banking regulations. We also pay a quarterly commitment fee of 40% of the applicable margin on the available commitment. In connection with entering into the credit facility, we incurred non-recurring fees totaling $1.5 million, which are amortized on a straight-line basis over the term of the credit facility.

The facility agreement contains representations and covenants, including threshold financial covenants, and events of default customary in Swiss credit markets. Affirmative covenants include covenants regarding reporting requirements, maintenance of insurance, maintenance of properties and compliance with applicable laws and regulations, and financial covenants that require the maintenance of net senior debt, interest cover and adjusted equity ratios determined in accordance with the terms of the facility. Negative covenants limit the ability of the Company and its subsidiaries, among other things, to grant liens, make investments, incur debt, make restricted payments, enter into a merger or acquisition, or sell, transfer or dispose of assets, in each case subject to certain exceptions. As of March 31, 2013, we were not in compliance with the interest coverage ratio of the credit facility. This situation resulted from the significant operating loss incurred during fiscal year 2013. On June 13, 2013, we amended the credit facility to amend the definitions of (a) EBITDA to exclude the effect of impairment of goodwill and other intangible assets and (b) interest coverage ratio calculation to utilize EBITDA rather than EBIT. As of September 30, 2013, we were not in compliance with the adjusted equity ratio of this facility. The facility continues to be available for our use based on a temporary waiver of the adjusted equity ratio covenant through the end of the third quarter of fiscal year 2014.

This facility stipulates that, upon an uncured event of default under the facility, the lenders may declare all or a portion of the outstanding obligations payable by us to be immediately due and payable, terminate their commitments and exercise other rights and remedies provided for under the facility. The events of default under the facility include, among other things, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross defaults with certain other indebtedness, bankruptcy and insolvency events and events that have a material adverse effect (as defined in the facility). Upon a change of control of the Company, lenders whose commitments aggregate more than two-thirds of the total commitments under the facility may terminate the commitments and declare all outstanding obligations to be due and payable.

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We have credit lines with several European and Asian banks totaling $62 million as of September 30, 2013. 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 September 30, 2013, there were no outstanding borrowings under these lines of credit. There are no financial covenants or cross default provisions under these facilities. We also have credit lines related to corporate credit cards totaling $17.4 million as of September 30, 2013. The outstanding borrowings under these credit lines are recorded in other current liabilities. There are no financial covenants or cross default provisions under these credit lines.

We have financed our operating and capital requirements primarily through cash flow from operations and, to a lesser extent, from capital markets and bank borrowings. Our normal liquidity for the next 12 months and our longer-term capital resource requirements are provided from three sources: cash flow generated from operations, cash and cash equivalents on hand, and borrowings, as needed, under our credit facilities. We believe that, based on the trend of our historical cash flow generation, our projections of future operations and reduced expenses, our available cash balances and credit lines will provide sufficient liquidity to fund our operation for at least the next 12 months.

Cash Flow from Operating Activities

The following table presents selected financial information and statistics as of September 30, 2013 and 2012 (dollars in thousands):

	September 30,
	2013		2012
			As Revised

Accounts receivable, net	$	258,858	$	284,451
Inventories	292,777		321,307
Working capital	389,504		345,071
Days sales in accounts receivable (DSO) (1)	44 days		47 days
Inventory turnover (ITO) (2)	4.8x		4.4x
Net cash provided by operating activities	$	14,186	$	9,247

(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 the six months ended September 30, 2013, operating activities provided net cash of $14.2 million, compared with net cash provided by operating activities of $9.2 million for the same period in the prior fiscal year. The primary drivers of the increase in net cash provided by operating cash flows include increase in net income, from $3.4 million in the six months ended September 30, 2012 to $15.4 million in the six months ended September 30, 2013, and from a $39.6 million increase in accounts payable and a $26.1 million increase in accrued and other liabilities. These increases of operating cash flows were offset in part by a $77.0 million increase in accounts receivable and a $21.4 million increase in inventories during this period.

DSO improved by three days between the three months ended September 30, 2013 and the three months ended September 30, 2012, primarily due to lower accounts receivable balances resulting from increased cash collection. 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.

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Extended payment terms are sometimes offered to a limited number of customers during the second and third fiscal quarters. We do not modify payment terms on existing receivables, but may offer discounts for early payment.

Inventory turnover between the three months ended September 30, 2013 and 2012 increased primarily due to lower inventory level as of September 31, 2013, compared to the inventory level as of September 30, 2012.

Cash Flow from Investing Activities

Cash flows from investing activities during the six months ended September 30, 2013 and 2012 were as follows (in thousands):

	Six Months ended September 30,
	2013			2012
				As Revised

Purchases of property, plant and equipment	$	(23,063	)	$	(32,817	)
Acquisition of a privately-held company	(650		)	(3,970		)
Proceeds from sale of available-for-sale securities	—			917
Purchases of trading investments	(6,146		)	(1,648		)
Proceeds from sale of trading investments	6,602			1,638
Net cash used in investing activities	$	(23,257	)	$	(35,880	)

Our expenditures for property, plant and equipment during the six months ended September 30, 2013 and 2012 were principally normal expenditures for leasehold improvements, computer hardware and software, tooling and equipment. During the six months ended September 30, 2013, purchases of property, plant and equipment decreased, compared with the six months ended September 30, 2012, primarily due to leasehold improvements related to our new Silicon Valley campus during the three months ended June 30, 2012.

During the six months ended September 30, 2013, we invested $0.7 million to acquire a privately-held company. During the six months ended September 30, 2012, we sold our two remaining available-for-sale securities for $0.9 million. The purchases and sales of trading investments in the six months ended September 30, 2013 and 2012 represent mutual fund activity directed by participants in a deferred compensation plan offered by one of our subsidiaries. The mutual funds are held by a Rabbi Trust.

Cash Flow from Financing Activities

The following table presents information on our cash flows from financing activities during the six months ended September 30, 2013 and 2012 (in thousands):

	Six Months ended September 30,
	2013			2012
				As Revised

Cash dividend payment	$	(36,123	)	$	(133,462	)
Purchase of treasury shares	—			(87,812		)
Proceeds from sale of shares upon exercise of options and purchase rights	6,135			9,008
Tax withholdings related to net share settlements of RSUs	(453		)	(635		)
Excess tax benefits from share-based compensation	—			22
Net cash used in financing activities	$	(30,441	)	$	(212,879	)

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During the six months ended September 30, 2012, we repurchased 8.6 million shares for $87.8 million under the Company’s amended September 2008 buyback program, compared with the six months ended September 30, 2013, during which no share repurchases were made. The amounts of the repurchases include transaction costs incurred as part of the repurchase.

Cash Outlook

Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from operations and, to a lesser extent, capital markets and borrowings. Our future working capital requirements and capital expenditures may increase to support investment in product innovations and growth opportunities, or to acquire or invest in complementary businesses, products, services, and technologies.

In December 2011, we entered into a Senior Revolving Credit Facility Agreement with a group of primarily Swiss banks that provides for a revolving multicurrency unsecured credit facility in an amount of up to $250.0 million. We may, upon notice to the lenders and subject to certain requirements, arrange with existing or new lenders to provide up to an aggregate of $150.0 million in additional commitments, for a total of $400.0 million of unsecured revolving credit. The credit facility may be used for working capital, general corporate purposes, and acquisitions. The credit facility matures on October 31, 2016. We may prepay the loans under the credit facility in whole or in part at any time without premium or penalty. The facility agreement contains representations, covenants, including threshold financial covenants, and events of default customary in Swiss credit markets. There were no outstanding borrowings under the credit facility at September 30, 2013. As of September 30, 2013, we were not in compliance with the adjusted equity ratio of this facility. The facility continues to be available for our use based on a temporary waiver of the adjusted equity ratio covenant through the end of the third quarter of fiscal year 2014.

In September 2008, our Board of Directors approved a share buyback program, which authorizes the Company to invest up to $250.0 million to purchase its own shares. In November 2011, we received approval from the Swiss regulatory authorities for an amendment to the September 2008 share buyback program to enable future repurchases of shares for cancellation. In fiscal year 2012, we repurchased 17.5 million shares for $156.0 million under the September 2008 program. Under the amended September 2008 program, we repurchased 8.6 million shares for $87.8 million during fiscal year 2013. On September 5, 2012, our shareholders approved the cancellation of 18.5 million shares repurchased under the September 2008 amended share buyback program. These shares were legally cancelled during the third quarter of fiscal year 2013. In August 2013, we announced that the $250.0 million share buyback program expired.

Our shareholders approved a distribution of a gross dividend of CHF 0.21 per share (US dollar amount of $0.22 per share based on the exchange rate at September 13, 2013), or an aggregate amount of approximately CHF 33.7 million (U.S. dollar amount of $36.1 million based on the exchange rate at September 13, 2013). The dividend payment was made in September 2013.

We file Swiss and foreign tax returns. For all these tax returns, we are generally not subject to tax examinations for years prior to fiscal year 2001. We are under examination and have received assessment notices in foreign tax jurisdictions. At this time, we are 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 our results of operations.

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

During the first quarter of fiscal year 2013, we implemented a restructuring plan to reduce operating costs and improve financial results. We substantially completed this restructuring plan during the fourth quarter of fiscal year 2013. During the fourth quarter of fiscal year 2013, we implemented an additional restructuring plan to realign our organization to increase our focus on mobility products, improve profitability in PC-related products and enhance our global operational efficiencies. During the second quarter of fiscal year 2014, we implemented a restructuring plan solely affecting our video conferencing reporting segment to align its organization to it strategic priorities of increasing focus on a tighter range of products, expanding cloud-based video conferencing services and improving profitability.

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Our other contractual obligations and commitments that require cash are described in the following sections.

For over ten years, we have generated positive cash flows from our operating activities, including cash from operations of $117.1 million in fiscal year 2013. During fiscal year 2013, our normal level of cash and cash equivalents was significantly reduced by the cash dividend payment of CHF 125.7 million (U.S. dollar amount of $133.5 million at the time it was paid) out of retained earnings, and by the $87.8 million in share repurchases during this period. During fiscal year 2014, our cash and cash equivalents was further reduced by the cash dividend payment of CHF 33.7 million (U.S. dollar amount of $36.1 million at the time it was paid) out of retained earnings. If we do not generate sufficient operating cash flows to support our operations and future planned cash requirements, our operations could be harmed and our access to credit facilities could be restricted or eliminated. However, we believe that the trend of our historical cash flow generation, our projections of future operations and reduced expenses, our available cash balances and credit lines will provide sufficient liquidity to fund our operations for at least the next 12 months.

Although we believe that we can meet our liquidity needs, if we fail to meet our operating forecast or market conditions negatively affect our cash flows or ability to fund growth opportunities, we may be required to seek additional funding. If we seek additional funding, adequate funds may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, operating cash flows and financial condition.

Contractual Obligations and Commitments

As of September 30, 2013, our outstanding contractual obligations and commitments included: (i) facilities leased under operating lease commitments, (ii) purchase commitments and obligations, (iii) long-term liabilities for income taxes payable, and (iv)defined benefit pension plan and non-retirement post-employment benefit obligations. The following summarizes our contractual obligations and commitments at September 30, 2013 (in thousands):

	September 30, 2013

Operating leases	$	84,640
Purchase commitments - inventory	132,782
Purchase obligations - capital expenditures	18,372
Purchase obligations - operating expenses	63,426
Income taxes payable - non-current	100,310
Obligation for deferred compensation	15,435
Pension and post-employment obligations	40,728
Other long-term liabilities	11,070
Total contractual obligations and commitments	$	466,763

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Operating Leases

We lease 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 our option and usually include escalation clauses linked to inflation. The remaining terms on our non-cancelable operating leases expire in various years through 2028. Our asset retirement obligations on these leases as of September 30, 2013 were $1.2 million.

Purchase Commitments

At September 30, 2013, we have fixed purchase commitments of $132.8 million for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers, the majority of which are expected to be fulfilled by December 2013. We also had commitments of $63.4 million for consulting services, marketing arrangements, advertising, outsourced customer services, information technology maintenance and support services, and other services. Fixed purchase commitments for capital expenditures amounted to $18.4 million at September 30, 2013, and primarily relate to commitments for computer hardware and leasehold improvements. We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations. 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 delivery of goods or performance of services.

Income Taxes Payable

At September 30, 2013, we had $100.3 million in non-current income taxes payable, including interest and penalties, related to our income tax liability for recognized uncertain tax positions, compared with $98.8 million in non-current taxes payable as of March 31, 2013.

We file Swiss and foreign tax returns. For all these tax returns, we are generally not subject to tax examinations for years prior to fiscal year 2001. We are under examination and have received assessment notices in foreign tax jurisdictions. At this time, we are 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 our results of operations.

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

Obligation for Deferred Compensation

At September 30, 2013, we had $15.4 million in liabilities related to a deferred compensation plan offered by one of our subsidiaries. For more information, please refer to our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.

Pension and Post-Employment Obligations

At September 30, 2013, we had $42.3 million in liabilities related to our defined benefit pension plans and non-retirement post-employment benefit obligations, of which $1.6 million is payable in the next 12 months. For more information, please refer to our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.

Other Contractual Obligations and Commitments

For further detail about our contractual obligations and commitments, please refer to our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.

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Off-Balance Sheet Arrangements

We have 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 us.

Guarantees

Logitech International S.A., the parent holding company, has guaranteed payment of the purchase obligations of various subsidiaries from certain component suppliers. These guarantees generally have an unlimited term. The maximum potential future payment under the guarantee arrangements is limited to $30 million. At September 30, 2013, there were no purchase obligations outstanding for which the parent holding company was required to guarantee payment.

Logitech Europe S.A., a subsidiary of the parent holding company, has guaranteed the purchase obligations of another Logitech subsidiary under two guarantee agreements. One of these guarantees does not specify a maximum amount. The remaining guarantee has a total limit of $7.0 million. As of September 30, 2013, an immaterial amount of guaranteed purchase obligations were outstanding under these guarantees. Logitech Europe S.A. has also guaranteed payment of the purchase obligations of a third-party contract manufacturer under one guarantee agreement. The maximum amount of this guarantee was $3.5 million as of September 30, 2013. As of September 30, 2013, $2.8 million of guaranteed purchase obligations were outstanding under this agreement.

Logitech International S.A. and Logitech Europe S.A. have guaranteed certain contingent liabilities of various subsidiaries related to transactions occurring in the normal course of business. The maximum amount of the guarantees was $35.0 million as of September 30, 2013. As of September 30, 2013, $5.6 million of guaranteed obligations were outstanding under these agreements.

Indemnifications

Logitech indemnifies certain of its suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. No amounts have been accrued for indemnification provisions at September 30, 2013. We do not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under our indemnification arrangements.

Legal Proceedings

From time to time we are involved in claims and legal proceedings which arise in the ordinary course of its business. We are currently subject to several such claims and a small number of legal proceedings. We believe that these matters lack merit and we intend to vigorously defend against them. Based on currently available information, we do not believe that resolution of pending matters will have a material adverse effect on our financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that our defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on our business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect our business.

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ITEM 3. 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, we face 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 our financial results.

Foreign Currency Exchange Rates

We are exposed to foreign currency exchange rate risk as we transact 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, Australian Dollar, Taiwanese Dollar, Euro, British Pound, Canadian Dollar, Japanese Yen and Mexican Peso. The functional currency of our operations is primarily the U.S. dollar. To a lesser extent, certain operations use the Euro, Chinese Renminbi, Swiss Franc, 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 (loss) in shareholders’ equity.

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The table below provides information about our underlying transactions that are sensitive to foreign exchange rate changes, primarily assets and liabilities denominated in currencies other than the functional currency, where the net exposure is greater than $0.5 million at September 30, 2013. The table also presents the U.S. dollar impact on earnings of a 10% appreciation and a 10% depreciation of the functional currency as compared with the transaction currency (in thousands):

Functional Currency	Transaction Currency	Net Exposed Long (Short) Currency Position			FX Gain (Loss) From 10% Appreciation of Functional Currency			FX Gain (Loss) From 10% Depreciation of Functional Currency

Euro	British Pound	$	15,486		$	(1,408	)	$	1,721
U.S. Dollar	Australian Dollar	12,025			(1,093		)	1,336
Taiwanese Dollar	U.S. Dollar	11,867			(1,079		)	1,319
Singapore Dollar	U.S. Dollar	2,926			(266		)	325
U.S. Dollar	Indian Rupee	865			(79		)	96
Euro	Romanian New Lei	742			(67		)	82
Euro	Russian Rouble	704			(64		)	78
Euro	Utd. Arab Emir. dirham	(525		)	48			(58		)
U.S. Dollar	Euro	(622		)	57			(69		)
Euro	Hungarian Forint	(658		)	60			(73		)
Euro	Polish Zloty	(710		)	65			(79		)
Euro	Hungarian Forint	(772		)	70			(86		)
Euro	Norwegian Kroner	(777		)	71			(86		)
Euro	Swedish Krona	(1,953		)	178			(217		)
Mexican Peso	U.S. Dollar	(11,177		)	1,016			(1,242		)
Japanese Yen	U.S. Dollar	(13,272		)	1,207			(1,475		)
Chinese Renminbi	U.S. Dollar	(54,541		)	4,958			(6,060		)
		$	(40,392	)	$	3,674		$	(4,488	)

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.

Our principal manufacturing operations are located in China, with much of our component and raw material costs transacted in CNY. However, the functional currency of our 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, we maintain a portion of our cash investments in CNY-denominated accounts. At September 30, 2013, net liabilities held in CNY totaled $54.5 million. We continue to evaluate the level of net assets held in CNY relative to component and raw material purchases and interest rates on cash equivalents.

Derivatives

We enter into foreign exchange forward contracts to hedge against exposure to changes in foreign currency exchange rates related to our subsidiaries’ forecasted inventory purchases. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. We have designated these derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative purposes. These hedging contracts generally mature within four months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. We assess 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, we immediately recognize the gain or loss on the associated financial instrument in other income (expense). As

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of September 30, 2013, the notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases were $56.7 million (€41.9 million). Deferred realized losses of $0.8 million are recorded in accumulated other comprehensive loss at September 30, 2013, and are expected to be reclassified to cost of goods sold when the related inventory is sold. Deferred unrealized losses of $0.8 million related to open cash flow hedges are also recorded in accumulated other comprehensive loss as of September 30, 2013 and these forward contracts will be revalued in future periods until the related inventory is sold, at which time the resulting gains or losses will be reclassified to cost of goods sold.

We also enter 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 three months. We 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. Cash flows from these contracts are classified as operating activities in the consolidated statements of cash flows.

The notional amounts of foreign exchange forward contracts outstanding at September 30, 2013 relating to foreign currency receivables or payables were $16.4 million. Open forward contracts as of September 30, 2013 consisted of contracts in U.S. Dollars to purchase Taiwanese Dollars and contract in euros to sell British Pounds. The notional amounts of foreign exchange swap contracts outstanding at September 30, 2013 were $31.7 million. Swap contracts outstanding at September 30, 2013 consisted of contracts in Mexican Pesos, Japanese Yen and Australian Dollars. Unrealized net loss on the contracts outstanding at September 30, 2013 was $0.7 million.

If the U.S. dollar had appreciated by 10% at September 30, 2013 compared with the foreign currencies in which we have forward or swap contracts, an unrealized gain of $6.3 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 $10.7 million unrealized loss in our forward foreign exchange contract portfolio would have occurred.

Interest Rates

Changes in interest rates could impact our future interest income on our cash equivalents and investment securities. We prepared sensitivity analyses of our interest rate exposures to assess the impact of hypothetical changes in interest rates. Based on the results of these analyses, a 100 basis point decrease or increase in interest rates from the September 30, 2013 period end rates would not have a material effect on our results of operations or cash flows.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, Logitech carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)). Disclosure controls and procedures are controls and other procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that this information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based on that evaluation, Logitech’s Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective as a result of the material weakness that existed in our internal control over financial reporting described below.

Notwithstanding the material weaknesses discussed below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses as of March 31, 2013 that continued to exist as of September 30, 2013:

(a) We did not design and maintain effective controls over the review of supporting information to determine the completeness and accuracy of the consolidated statement of cash flows, the consolidated statement of comprehensive income (loss), and disclosures in the notes to the consolidated financial statements. While this control deficiency did not result in any material misstatement of our historical financial statements through June 30, 2013, it did result in audit adjustments to the consolidated statement of cash flows, the consolidated statement of comprehensive income (loss) and disclosures in the notes to the Company’s fiscal 2013 consolidated financial statements and revisions to the Company’s consolidated financial statements for the interim periods ended June 30, 2013 and September 30, 2013, and will result in additional similar revisions to our interim consolidated financial statements for the interim period ended December 31, 2013 when reported in fiscal 2014, if applicable to the interim consolidated financial statements.

(b) We did not design and maintain effective controls related to developing an appropriate methodology to accrue costs of product warranties given to end customers, including an on-going review of the assumptions within the methodology to determine the completeness and accuracy of the warranty accrual. While this control deficiency did not result in any material misstatement of our historical financial statements as of March 31, 2013, it did result in adjustments to our cost of goods sold and warranty accrual accounts and revisions to the Company’s consolidated financial statements for fiscal 2013, 2012 and 2011, and interim periods in fiscal 2013 and 2012.

Additionally, these control deficiencies could result in a misstatement to the Company’s consolidated financial statements and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined these control deficiencies constitutes material weaknesses.

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Management’s Plan for Remediation

Logitech’s management has been actively engaged in developing a comprehensive remediation plan to fully address the material weaknesses. Remediation efforts taken by management include the following:

· implemented new controls and improved existing controls over financial reporting, including disclosures in the notes to the financial statements;

· implemented appropriate controls to accrue for product warranty costs, including an on-going review of assumptions within the methodology to capture all relevant costs related to product warranties given to end customers;

· hired an additional financial reporting manager and engaged consultants to assist in the financial reporting process; and

· increased training to reinforce pre-established and new controls to improve our ability to detect potential misstatements in our internally prepared reports, analyses and financial records.

Logitech’s management believes the foregoing efforts will effectively remediate the material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address the material weaknesses or determine to modify the remediation plan described above.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those controls 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.

Changes in Internal Control over Financial Reporting

The changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting are discussed above in Management’s Plan for Remediation.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time-to-time we are 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 believe that these matters lack merit and we intend to vigorously defend against them. Based on currently available information, we do not believe that resolution of pending matters will have a material adverse effect on our financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that our defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on our business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect our business.

ITEM 1A. RISK FACTORS

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, fluctuating end-user demand, the uncertainty of current and future global economic conditions, 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.

· Our sales are impacted by end-user consumer demand and current and future global economic conditions, and can therefore fluctuate abruptly and significantly during periods of uncertain economic conditions or geographic distress, as well as from shifts in consumer buying patterns.

· 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.

· We may not fully or in a timely manner realize the anticipated benefits from the restructuring plans we implemented during fiscal years 2013 and 2014. The restructuring plans were intended to simplify the organization, to reduce operating costs through global workforce reductions and a reduction in the complexity of our product portfolio, and to better align costs with our current business as we attempt to expand from PC accessories to growth opportunities in accessories for mobile devices and digital music.

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· 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, over short periods of time and during periods of weakness in consumer spending, our ability to increase local currency selling prices to offset the impact of currency fluctuations is limited.

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 innovate and develop new products in a timely and cost-effective manner for our new and existing product categories, our business and operating results could be adversely affected.

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

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

· identify new features, functionality and opportunities;

· anticipate technology, market trends and consumer preferences;

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

· distinguish our products from those of our competitors; and

· offer our products at prices and on terms that are attractive to our customers and consumers.

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 differentiate our products through distinctive, technologically advanced features, designs, and services that are appealing to our customers and consumers, as well as continue to build and strengthen our brand recognition and our access to distribution channels, our business could be adversely affected.

The development of new products and services is very difficult and requires high levels of innovation. The development process is also lengthy and costly. There are significant initial expenditures for research and development, tooling, manufacturing processes, inventory and marketing, and we may not be able to recover those investments. If we fail to accurately anticipate technological trends or our end-users’ needs or preferences, are unable to complete the development of products and services in a cost-effective and timely fashion or are unable to appropriately increase production to fulfill customer demand, we will be unable to successfully introduce new products and services into the market or compete with other providers. Even if we complete the development of our new products and services in a cost-effective and timely manner, they may be not competitive with products developed by others, they may not achieve acceptance in the market at anticipated levels or at all, they may not be profitable or, even if they are profitable, they may not achieve margins as high as our expectations or as high as the margins we have achieved historically.

As we introduce new or enhanced products, integrate new technology into new or existing products, or reduce the overall number of products offered, we face risks including, among other things, disruption in customers’ ordering patterns, excessive levels of new and existing product inventories, revenue deterioration in our existing product lines, insufficient supplies of new products to meet customers’

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demand, possible product and technology defects, and a potentially different sales and support environment. Premature announcements or leaks of new products, features or technologies may exacerbate some of these risks by reducing the effectiveness of our product launches, reducing sales volumes of current products due to anticipated future products, making it more difficult to compete, shortening the period of differentiation based on our product innovation, straining relationships with our partners or increasing market expectations for the results of our new products before we have had an opportunity to demonstrate the market viability of the products. Our failure to manage the transition to new products or the integration of new technology into new or existing products could adversely affect our business, results of operations, operating cash flows and financial condition.

We believe sales of our PC (personal computer) peripherals in our mature markets will continue to decline, and that our future growth will depend on our new product categories and sales in emerging market geographies, and if we do not successfully execute on our growth opportunities, or if our sales of PC peripherals in mature markets are less than we expect, our operating results could be adversely affected.

We have historically targeted peripherals for the PC platform. Consumer demand for PCs in our traditional, mature markets such as North America, Western and Nordic Europe, Japan and Australia has been declining and we expect it to continue to decline in the future. As a result, consumer demand for PC peripherals in mature markets is slowing and in some cases declining. We expect this trend to continue. For example, we experienced weak consumer demand for many of our PC peripherals in each quarter of fiscal year 2013, which adversely affected our financial performance. From time to time, our channel partners have also reduced their inventory levels for PC peripherals as the PC market has continued to decline. In our OEM channel, the decline of desktop PCs has adversely impacted our sales of OEM mice, which have historically made up the bulk of our OEM sales. Our OEM sales accounted for 7%, 8% and 9% of total revenues in the fiscal years ended March 31, 2013, 2012 and 2011.

In addition, our sales in our mature markets in North America, Western and Nordic Europe, Japan and Australia might be less than we expect due to a decline in business or economic conditions in one or more of the countries or regions, a greater decline than we expect in demand for our products, our inability to successfully execute our sales and marketing plans, or for other reasons. Global economic concerns, such as the varying pace of global economic recovery and the impact of sovereign debt issues in Europe, create unpredictability and add risk to our future outlook.

As a result, we are focusing more of our personnel, financial resources, and management attention on product innovations and growth opportunities, on products for tablets and mobile devices, on products for the consumption of digital music, on products for PC gaming, in emerging markets, and on other potential growth opportunities. Our investments may not result in the growth we expect, or when we expect it, for a variety of reasons including those described below.

Tablets, Smartphones and Other Mobile Devices. The increasing popularity of smaller, mobile computing devices such as tablets and smartphones with touch interfaces is rapidly changing the consumer PC market. In our retail channels, tablets and smartphones 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 tablets and other mobile computing devices is still uncertain. The increasing popularity of tablets and smartphones has decreased consumer demand for our PC peripherals, which has adversely affected our sales of these products. If we do not successfully innovate and market products designed for tablets and smartphones, if our distributor or retailer customers do not choose to carry or market such peripherals, or if general consumer demand for peripherals for use with these devices does not increase, our business and results of operations could be adversely affected.

Digital Music. We are focused on products for the consumption of digital music as a future sales growth area. During fiscal year 2013, we increased our product development and marketing investment in digital music. However, several of our product launches were not as successful in fiscal year 2013 as we had expected due to a combination of our decision to limit our investment in lifestyle brand marketing and

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weak competitive differentiation. This remains a new market for us, and we still face a steep learning curve. Historically our audio product development and marketing efforts have focused primarily on products for the PC platform and on sound quality. This past experience has not been transferable to the consumption of music through mobile devices such as tablets and smartphones, where we believe consumers put a greater emphasis on features such as convenience and brand. In addition, competition in the digital music consumption category is intense, and we expect it to increase. If we are not able to identify product development and marketing skill gaps, resolve them, and introduce differentiated product and marketing strategies to separate ourselves from competitors, our digital music efforts will not be successful, and our business and results of operations could be adversely affected.

PC Gaming. We are shifting the focus of our gaming accessories from devices for console gaming, such as PlayStation, Xbox and Nintendo Wii, to keyboards, mice and other products for PC gaming, which we believe are the market segments with better growth opportunities. The developing and changing market and increasing competition increase the risk that we will not be successful with this more narrow focus, and our business and results of operations could be adversely affected.

Emerging Markets. We believe that the world’s emerging markets, such as China, Eastern Europe and Latin America, will, for the next several years though with volatility from period to period, continue to be growth markets for our peripherals product lines. We have allocated significant resources to our sales, marketing and administrative personnel in China and, to a lesser extent, other emerging markets. We anticipate that emerging markets will include potentially high growth opportunities, offset by potentially entrenched local competition, higher credit risks, and other factors that affect consumer trends in ways that may be substantially different from our current major markets. PCs may not continue to be a growth category in emerging markets, and consumers in emerging markets may prefer tablets, smartphones, other mobile devices or other technologies. If we do not develop innovative and reliable peripherals and enhancements in a cost-effective and timely manner that are attractive to consumers in these markets, if consumer demand for PCs and our peripherals in emerging markets declines or does not increase as much as we expect, or if we invest resources in products or geographic areas that do not produce the growth or profitability we expect, or when we expect it, our business and results of operations could be adversely affected.

As we expand into new markets and product categories, we must comply with a wide variety of laws, standards and other requirements governing, among other things, health and safety, hazardous materials usage, product-related energy consumption, packaging, recycling and environmental matters. Our products may be required to obtain regulatory approvals and satisfy other regulatory concerns in the various jurisdictions where they are manufactured, sold or both. These requirements create procurement and design challenges, which, among other things, require us to incur additional costs identifying suppliers and contract manufacturers who can provide or obtain compliant materials, parts and end products. Failure to comply with such requirements can subject us to liability, additional costs, and reputational harm and, in severe cases, force us to recall products or prevent us from selling our products in certain jurisdictions.

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

The peripherals and video conferencing industries are intensely competitive.

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

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The video conferencing industry is characterized by continual performance enhancements and large, well-financed competitors. There is increased participation in the video conferencing market by companies such as Cisco Systems, Inc. and Polycom, Inc., and as a result, competition has increased in fiscal year 2013 and we expect competition in the industry to further intensify. In addition, there are an increasing number of PC-based multi-person video conferencing applications, such as Microsoft’s Lync and Skype, which could compete at the lower end of the video conferencing market with our LifeSize products and services or could provide other competitors with lower barriers of entry into the video conferencing market.

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

Microsoft and Apple are leading producers of operating systems, hardware and applications with which our mice, keyboards and other peripherals are designed to operate. In addition, Microsoft and Apple each 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 and Apple each may be able to improve the functionality of its own peripherals to correspond with ongoing enhancements to its operating systems, hardware and software applications before we are able to make such improvements. This ability could provide Microsoft and Apple with significant lead-time advantages. In addition, Microsoft and Apple 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 and PC Keyboards & Desktops. Microsoft Corporation is our main competitor in our mice, keyboard and desktop product lines. We also experience competition and pricing pressure for corded and cordless mice and desktops from less-established brands, including house brands, which we believe have impacted our market share in some sales geographies and which could potentially impact our market share.

Tablet Accessories. We primarily manufacture tablet keyboards and other accessories for Apple products, such as iPad and iPhone. Competitors in the tablet keyboard market are Zagg, Kensington, Belkin, Targus and other less-established brands. Although we are one of the front runners in the tablet keyboard market and continue to expand our product portfolio to other tablet products, we expect the competition will increase as large tablet manufactures, such as Microsoft Corporation, start to offer tablet keyboards and other accessories along with their tablet products.

Audio PC. In the PC speaker business, our competitors include Bose, Cyber Acoustics, Altec Lansing LLC and Creative Labs, Inc. In the PC headset business, our main competitors include Plantronics and Altec Lansing.

Audio Wearables & Wireless. Our competitors for non-PC audio products, such as earphones and wireless speakers, include Skullcandy, Beats Electronics, Bose, Sennheiser and Jawbone, each of which have higher consumer recognition and retailer shelf space than we do.

Video. Our primary competitor for PC webcams is Microsoft, with various other manufacturers taking smaller market share. The worldwide market for PC webcams has been declining, and as a result, fewer competitors have entered the market.

PC Gaming. Competitors for our PC Gaming peripheral products include Razer USA Ltd., SteelSeries, A4TECH, Turtle Beach and Mad Catz Interactive.

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Remotes. Our primary competitors for remotes include Philips, Universal Remote Control, Inc., General Electric, RCA and Sony. We expect that the technological innovation in smartphone and tablet devices, as well as subscriber service specific remotes such as Direct TV, will likely result in increased competition.

Video Conferencing. We primarily compete in the medium and small business, education, and state and local business sectors of the enterprise video conferencing market. This market is characterized by continual performance enhancements and large, well-financed competitors. There is increased participation in the video conferencing market by companies such as Cisco Systems, Inc., Polycom, Inc. and Avaya, Inc., and as a result, competition has increased in fiscal year 2013 and we expect competition in the industry to further intensify. In addition, there are an increasing number of PC-based multi-person video conferencing applications, such as Microsoft’s Lync and Skype, which could compete at the lower-end of the video conferencing market with our LifeSize products and services, or could provide other competitors with lower barriers of entry into the video conferencing market.

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 peripherals business has historically been built largely around the PC platform, which over time became relatively open, and its inputs and operating system standardized. With the growth of mobile, tablet, gaming and other computer devices, the number of platforms has grown, and with it the complexity and increased need for us to have business and contractual relationships with the platform owners in order to produce products compatible with these platforms. Our product portfolio includes current and future products designed for use with third-party platforms or software, such as the Apple iPad, iPod and iPhone and Android phones and tablets. Our business in these categories relies on our access to the platforms of third parties, some of whom are our competitors. Platform owners that are competitors have a competitive advantage in designing products for their platforms and may produce peripherals or other products that work better than our products in connection with those platforms. As we expand the number of platforms and software applications with which our products are compatible, we may not be successful in launching products for those platforms or software applications, we may not be successful in establishing strong relationships with the new platform or software owners, or we may negatively impact our ability to develop and produce high-quality products on a timely basis for those platforms and software applications or we may otherwise adversely affect our relationships with existing platform or software owners.

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 be delayed in production or 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 are delayed or change without notice to us, our business and operating results could be adversely affected.

If we do not accurately forecast market demand for our products, 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.

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Over the past few years, we have expanded the types of products we sell, and the geographic markets in which we sell them. The changes in our product portfolio and the expansion of our sales markets have increased the difficulty of accurately forecasting product demand.

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

Our success largely depends on our ability to hire, retain, integrate and motivate sufficient numbers of qualified personnel, including senior management. Our strategy and our ability to innovate, design and produce new products, sell products, maintain operating margins and control expenses depend on key personnel that may be difficult to replace.

Our success depends on our ability to attract and retain highly skilled personnel, including senior management and international personnel. From time to time, we experience turnover in some of our senior management positions.

We compensate our employees through a combination of salary, bonuses, benefits and equity compensation. Recruiting and retaining skilled personnel, including software and hardware engineers, is highly competitive. If we fail to provide competitive compensation to our employees, it will be difficult to retain, hire and integrate qualified employees and contractors, and we may not be able to maintain and expand our business. If we do not retain our senior managers or other key employees for any reason, we risk losing institutional knowledge, experience, expertise and other benefits of continuity as well as the ability to attract and retain other key employees. In addition, we must carefully balance the size of our employee base with our current infrastructure, management resources and anticipated operating cash flows. If we are unable to manage the size of our employee base, particularly engineers, we may fail to develop and introduce new products successfully and in a cost-effective and timely manner. If our revenue growth or employee levels vary significantly, our operating cash flows and financial condition could be adversely affected. Volatility or lack of positive performance in our stock price, including declines in our stock prices in the past year, may also affect our ability to retain key employees, many of whom have been granted equity incentives. Logitech’s practice has been to provide equity incentives to its employees, but the number of shares available for equity grants is limited. We may find it difficult to provide competitive equity incentives, and our ability to hire, retain and motivate key personnel may suffer.

Recently and in past years, we have initiated reductions in our workforce to align our employee base with our anticipated revenue base or with our areas of focus. We have also experienced turnover in our workforce. These reductions and turnover have resulted in reallocations of duties, which could result in employee uncertainty and discontent. Reductions in our workforce could make it difficult to attract, motivate and retain employees, which could adversely affect our business.

We may not fully realize the anticipated benefits from our restructuring plans.

In order to simplify the organization, to implement our strategic focus on growth opportunities, to reduce operating costs through global workforce reductions and a reduction in the complexity of our product portfolio, and to better align costs with our current business and decreasing revenues, we restructured our business in fiscal year 2013 and in the first half of fiscal year 2014. We may continue to restructure in fiscal year 2014 as we divest or discontinue non-strategic product categories.

Our ability to achieve the anticipated cost savings and other benefits from these restructurings within our expected timeframes are subject to many estimates and assumptions, and the actual savings and timing for those savings may vary materially based on factors such as local labor regulations, 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 benefits from these restructuring plans. To the extent that we are unable to improve our financial performance, further restructuring measures may be required in the future.

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As part of the restructuring plans, we conducted intensive reviews of our product portfolio in fiscal year 2013 and attempted to reduce the assortment of similar products at similar price points within each product category, which we believe has generated confusion for the consumer. While we are constantly replacing products and dependent on the success of our new products, this product line simplification effort was substantial, making us even more dependent on the success of the new products that we are introducing.

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 or that are initiated by us to drive sales that lower our margins, then our overall gross margin will be less than we project.

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.

As we expand into accessories for tablets and other mobile devices, and digital music, our products in those categories may have lower gross margins than in our traditional product categories. Consumer demand in these product categories, based on style, color and other factors, tends to be less predictable and tends to vary more across geographic markets. As a result, we may face higher up-front investments and inventory costs associated with attempting to anticipate consumer preferences. If we are unable to offset these potentially lower margins by enhancing the margins in our more traditional product categories, our profitability may be adversely affected.

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

As we focus on growth opportunities, we are divesting or discontinuing non-strategic product categories and pursuing strategic acquisitions and investments, which could have an adverse impact on our business if they are unsuccessful.

During the third quarter of fiscal year 2013, the declining trends in our PC peripherals accelerated, and we made a strategic decision to divest or discontinue certain non-strategic product categories and products. If we are unable to effect such sales on favorable terms or if such realignment is more costly or distracting than we expect or has a negative effect on our organization, employees and retention, then our business and operating results may be adversely affected. In addition, discontinuing products with service components may cause us to continue to incur expenses to maintain services within the product life cycle or to adversely affect our customer and consumer relationships and brand.

As we attempt to grow our business in strategic product categories and emerging market geographies, we will consider growth through acquisition or investment. We will evaluate acquisition opportunities that could provide us with additional product or service offerings or with additional industry expertise, assets and capabilities. Acquisitions could result in difficulties integrating acquired operations, products, technology, internal controls, personnel and management teams and result in the diversion of

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capital and management’s attention away from other business issues and opportunities. If we fail to successfully integrate acquisitions, our business could be harmed. Moreover, our acquisitions may not be successful in achieving our desired strategic objectives, which would also cause our business to suffer. Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets and goodwill or the recording of stock-based compensation. Several of our past acquisitions have not been successful and have led to impairment charges, including a $214.5 million non-cash goodwill impairment charge in fiscal year 2013. In addition, from time to time we make strategic venture investments in other companies that provide products and services that are complementary to ours. If these investments are unsuccessful, this could have an adverse impact on our results of operations, operating cash flows and financial condition.

We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of our relationship with these channel partners, changes in their business practices, their failure to provide timely and accurate information or conflicts among our channels of distribution could adversely affect our business, results of operations, operating cash flows and financial condition.

Our sales channel partners, the distributors and retailers who distribute and sell our products, also sell products offered by our competitors and, in the case of retailer house brands, may also be our competitors. If product competitors offer our sales channel partners more favorable terms, have more products available to meet their needs, or utilize the leverage of broader product lines sold through the channel, or if our retailer channel partners show preference for their own house brands, our sales channel partners may de-emphasize or decline to carry our products. In addition, certain of our sales channel partners could decide to de-emphasize the product categories that we offer in exchange for other product categories that they believe provide them with higher returns. If we are unable to maintain successful relationships with these sales channel partners or to maintain our distribution channels, our business will suffer.

As we expand into accessories for tablets and other mobile devices and digital music, we will have to build relationships with new channel partners and adapt to new distribution and marketing models. Entrenched and more experienced competitors will make these transitions difficult. If we are unable to build successful distribution channels or successfully market our products in these new product categories, we may not be able to take advantage of the growth opportunities, and our business and our ability to effect a turnaround in our declining revenues could be adversely affected.

The impact of economic conditions, evolving consumer preferences, and purchasing patterns on our distribution partners, or competition between our sales channels, could result in sales channel disruption. For example, if sales at large retail stores are displaced as a result of bankruptcy, competition from internet sales channels or otherwise, our product sales could be adversely affected. Any loss of a major partner or distribution channel or other channel disruption could make us more dependent on alternate channels, increase pricing and promotional pressures from other partners and distribution channels, increase our marketing costs, or adversely impact buying and inventory patterns, payment terms or other contractual terms.

We use retail sell-through data, which represents sales of our products by our retailer customers to consumers, and by our distributor customers to their customers, along with other metrics, to assess consumer demand for our products. Sell-through data is subject to limitations due to collection methods and the third party nature of the data and thus may not be an accurate indicator of actual consumer demand for our products. In addition, the customers supplying sell-through data vary by geographic region and from period to period, but typically represent a majority of our retail sales. If we do not receive this information on a timely and accurate basis, or if we do not properly interpret this information, our results of operations and financial condition may be adversely affected.

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

We produce approximately half of our products at facilities we own in China. The majority of our other production is performed by third-party contract manufacturers, including other design manufacturers, in China. We also utilize third-party contract manufacturers in Malaysia and India.

Our manufacturing operations in China could be adversely affected by changes in the interpretation and enforcement of legal standards, by strains on China’s available labor pool, communications, trade, and other infrastructures, by natural disasters, by conflicts or disagreements between China and Taiwan or China and the United States, 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.

Our manufacturing operations at third-party contractors could be adversely affected by contractual disagreements, by labor unrest, by natural disasters, by strains on local communications, trade, and other infrastructures, by competition for the available labor pool or manufacturing capacity, and by other trade customs and practices that are dissimilar to those in the United States and Europe.

Further, we may be exposed to fluctuations in the value of the local currency in the countries in which manufacturing occurs. Future appreciation of these local currencies could increase our component and other raw material costs. In addition, our labor costs could continue to rise as wage rates increase and the available labor pool declines. These conditions could adversely affect our gross margins and financial results.

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

We purchase certain products and key components from a limited number of sources. If the supply of these products or key components, such as micro-controllers, optical sensors and LifeSize hardware products, were to be delayed or constrained, or if one or more of our single-source suppliers goes out of business as a result of adverse global economic conditions or natural disasters, 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 adversely affect our business, financial condition and operating results.

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

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

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

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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 affect 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 have invested significantly in growing our sales and marketing activities in China, and the effect of business, legal and political risks associated with international operations could adversely affect us.

We conduct operations in a number of countries, and have invested significantly in growing our sales and marketing activities in China. We may also increase our investments to grow sales in other emerging markets, such as Latin America and Eastern Europe. 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;

· varying laws, regulations and other legal protections, uncertain and varying enforcement of those laws and regulations, dependence on local authorities, and the importance of local networks and relationships;

· exposure to political and financial instability, especially with the uncertainty associated with the ongoing sovereign debt crisis in certain Euro zone countries, which may lead to currency exchange losses and collection difficulties or other losses;

· lack of infrastructure or services necessary or appropriate to support our products and services;

· exposure to fluctuations in the value of local currencies;

· difficulties and increased costs in establishing sales and distribution channels in unfamiliar markets, with their own market characteristics and competition;

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

· imposition of currency exchange controls; and

· delays from customs brokers or government agencies.

Any of these risks could adversely affect our business, financial condition and operating results.

Our sales in China have increased substantially in the last two fiscal years, and continued sales growth in China is an important part of our expectations for our business. As a result, if Chinese economic, political or business conditions deteriorate, or if one or more of the risks described above materializes in China, our overall business and results of operations will be adversely affected.

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

We have been expanding the categories of products we sell, and entering new markets, such as the market for enterprise video conferencing and our introduction of products for tablets, other mobile devices and digital music. We expect to continue to enter new categories and markets. As we do so, we face an increased risk that claims alleging we infringe the patent or other intellectual property rights of others, regardless of the merit of the claims, may increase in number and significance. Infringement claims against

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us may also increase as the functionality of video, voice, data and conferencing products begin to overlap. This risk is heightened by the increase in lawsuits brought by holders of patents that do not have an operating business or are attempting to license broad patent portfolios and by the increasing attempts by companies in the technology industries to enjoin their competitors from selling products that they claim infringe their intellectual property rights. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we will be successful in defending ourselves against intellectual property claims. A successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing certain products or performing certain services. We might also be required to seek a license for the use of such intellectual property, which may not be available on commercially acceptable terms or at all. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation or the diversion of significant operational resources, or require us to enter into royalty or licensing agreements, any of which could materially and adversely affect our business and results of operations.

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 adversely affect 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.

We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.

As disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as amended on Form 10-K/A, we identified material weaknesses in our internal control over financial reporting. This follows the identification in previous periods of significant deficiencies in our internal controls over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control

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over financial reporting was not effective as of March 31, 2013, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework. We are actively engaged in developing a remediation plan designed to address these material weaknesses. If our remediation measures are insufficient to address these material weaknesses, or if additional material weaknesses in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.

The collection, storage, transmission, use and distribution of user data could give rise to liabilities and additional costs of operation as a result of laws and governmental regulation.

In connection with certain of our products, we collect data related to our consumers. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, and especially in Europe. Government actions are typically intended to protect the privacy and security of personal information and its collection, storage, transmission, use and distribution in or from the governing jurisdiction. In addition, because various jurisdictions have different laws and regulations concerning the use, storage and transmission of such information, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seek to enter. Such laws and regulations, and the variation between jurisdictions, could subject us to costs, liabilities or negative publicity that could adversely affect our business.

We are upgrading our worldwide business application suite, and difficulties, distraction or disruptions may interrupt our normal operations and adversely affect our business and operating results.

During fiscal years 2014 and 2015, we plan to devote significant resources to the upgrade of our worldwide business application suite to Oracle’s version R12. Oracle has already begun to discontinue its support for our current business application suite, version 11i. As a result of that discontinued support or our upgrade or both, we may experience difficulties with our systems, management distraction, and significant business disruptions. Difficulties with our systems may interrupt our normal operations, including our enterprise resource planning, forecasting, demand planning, supply planning, intercompany processes, promotion management, internal financial controls, pricing, and our ability to provide quotes, process orders, ship products, provide services and support to our customers and consumers, bill and track our customers, fulfill contractual obligations, and otherwise run and track our business. In addition, we may need to expend significant attention, time and resources to correct problems or find alternative sources for performing these functions. Any such difficulty or disruption may adversely affect our business and operating results.

Goodwill impairment charges could have an adverse effect on the results of our operations.

Goodwill associated with a number of previous acquisitions could result in impairment charges. The slowdown in the overall video conferencing industry in recent quarters, together with the competitive environment in fiscal year 2013, resulted in a $214.5 million non-cash goodwill impairment charge in fiscal year 2013, which substantially impacted operating results. As we attempt to effect a turnaround of our business, including returning our LifeSize video conferencing segment to profitability and divesting or discontinuing product categories or products that we previously acquired, we will need to continue to evaluate the carrying value of our goodwill. Additional impairment charges could adversely affect our results of operations.

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

We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws and tax agreements 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.

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We file Swiss and foreign tax returns. We are frequently subject to tax audits, examinations and assessments in various jurisdictions. A material assessment by a governing tax authority could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income could be adversely affected.

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

Share Repurchases

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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ITEM 6. EXHIBITS

Exhibit Index

Exhibit No.		Description

10.1 **		Offer Letter between Logitech Inc. and Vincent Pilette dated September 3, 2013 (previously filed as Exhibit 10.1 to Form 8-K filed on September 6, 2013)

10.2 **		Form of restricted stock unit agreement for new hire grants to Vincent Pilette on September 15, 2013 under the Logitech International S.A. 2006 Stock Incentive Plan.

10.3 **		Form of performance share unit agreement for new hire grants to Vincent Pilette on September 15, 2013 under the Logitech International S.A. 2006 Stock Incentive Plan.

10.4 **		Form of restricted stock unit agreement for grant to Guerrino De Luca on October 15, 2013 under the Logitech International S.A. 2006 Stock Incentive Plan.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1 *		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

* 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.

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SIGNATURES

Pursuant to the requirements 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/ Bracken P. Darrell
	Bracken P. Darrell President and Chief Executive Officer


	/s/ Vincent Pilette
	Vincent Pilette
	Chief Financial Officer

November 5, 2013