LOGITECH INTERNATIONAL SA, 10-Q filed on 2/7/2011
Quarterly Report
CONSOLIDATED STATEMENTS OF OPERATIONS (Interim Unaudited) (USD $)
In Thousands, except Per Share data
3 Months Ended
Dec. 31,
9 Months Ended
Dec. 31,
2010
2009
2010
2009
Income Statement [Abstract]
 
 
 
 
Net sales
$ 754,054 
$ 617,101 
$ 1,815,268 
$ 1,441,304 
Cost of goods sold
482,881 
408,137 
1,158,132 
1,002,730 
Gross profit
271,173 
208,964 
657,136 
438,574 
Operating expenses:
 
 
 
 
Marketing and selling
124,914 
87,322 
313,803 
215,095 
Research and development
38,955 
32,931 
118,271 
96,116 
General and administrative
31,264 
30,284 
86,044 
75,204 
Restructuring charges
1,494 
Total operating expenses
195,133 
150,537 
518,118 
387,909 
Operating income
76,040 
58,427 
139,018 
50,665 
Interest income, net
539 
414 
1,695 
1,645 
Other income, net
795 
3,052 
797 
2,416 
Income before income taxes
77,374 
61,893 
141,510 
54,726 
Provision for income taxes
12,372 
4,807 
15,826 
14,262 
Net income
65,002 
57,086 
125,684 
40,464 
Net income per share:
 
 
 
 
Basic (in dollars per share)
0.37 
0.33 
0.71 
0.23 
Diluted (in dollars per share)
$ 0.36 
$ 0.32 
$ 0.70 
$ 0.22 
Shares used to compute net income per share:
 
 
 
 
Basic (in shares)
177,233 
175,426 
176,329 
177,829 
Diluted (in shares)
179,703 
177,668 
178,306 
179,866 
CONSOLIDATED BALANCE SHEETS (Interim Unaudited) (USD $)
In Thousands
9 Months Ended
Dec. 31, 2010
Year Ended
Mar. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 460,726 
$ 319,944 
Accounts receivable
336,098 
195,247 
Inventories
300,630 
219,593 
Other current assets
58,469 
58,877 
Total current assets
1,155,923 
793,661 
Property, plant and equipment
85,833 
91,229 
Goodwill
553,794 
553,462 
Other intangible assets
81,251 
95,396 
Other assets
71,212 
65,930 
Total assets
1,948,013 
1,599,678 
Current liabilities:
 
 
Accounts payable
386,485 
257,955 
Accrued liabilities
213,170 
182,336 
Total current liabilities
599,655 
440,291 
Other liabilities
168,913 
159,672 
Total liabilities
768,568 
599,963 
Commitments and contingencies
 
 
Shareholders' equity:
 
 
Shares, par value CHF 0.25 - 191,606 issued and authorized and 50,000 conditionally authorized at December 31, 2010 and March 31, 2010
33,370 
33,370 
Additional paid-in capital
(11,186)
14,880 
Less shares in treasury at cost, 13,643 shares at December 31, 2010 and 16,435 shares at March 31, 2010
(300,014)
(382,512)
Retained earnings
1,532,302 
1,406,618 
Accumulated other comprehensive loss
(75,027)
(72,641)
Total shareholders' equity
1,179,445 
999,715 
Total liabilities and shareholders' equity
$ 1,948,013 
$ 1,599,678 
CONSOLIDATED BALANCE SHEETS (Interim Unaudited) (Parenthetical)
In Thousands, except Per Share data
Dec. 31, 2010
Dec. 31, 2010
Mar. 31, 2010
Mar. 31, 2010
Shareholders' equity:
 
 
 
 
Share, par value CHF (in CHF per share)
0.25 
 
0.25 
 
Shares, issued (in shares)
 
191,606 
 
191,606 
Shares, authorized (in shares)
 
191,606 
 
191,606 
Shares, conditionally authorized (in shares)
 
50,000 
 
50,000 
Treasury, shares (in shares)
 
13,643 
 
16,435 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Interim Unaudited) (USD $)
In Thousands
9 Months Ended
Dec. 31,
2010
2009
Cash flows from operating activities:
 
 
Net income
$ 125,684 
$ 40,464 
Non-cash items included in net income:
 
 
Depreciation
35,665 
41,852 
Amortization of other intangible assets
21,165 
7,602 
Share-based compensation expense
23,976 
17,249 
Gain on disposal of fixed assets
(838)
Excess tax benefits from share-based compensation
(2,735)
(1,708)
Gain on cash surrender value of life insurance policies
(901)
(1,216)
Deferred income taxes and other
(1,856)
(23,414)
Changes in assets and liabilities:
 
 
Accounts receivable
(132,480)
(22,470)
Inventories
(82,636)
19,405 
Other assets
5,145 
12,314 
Accounts payable
128,586 
151,042 
Accrued liabilities
34,453 
58,230 
Net cash provided by operating activities
153,228 
299,350 
Cash flows from investing activities:
 
 
Purchases of property, plant and equipment
(31,835)
(26,438)
Purchases of trading investments
(12,554)
Proceeds from cash surrender of life insurance policies
11,313 
813 
Acquisitions, net of cash acquired
(7,300)
(388,807)
Proceeds from sale of property, plant, and equipment
2,688 
Other, net
194 
Net cash used in investing activities
(37,494)
(414,432)
Cash flows from financing activities:
 
 
Repayment of short- and long-term debt
(13,601)
Purchases of treasury shares
(101,267)
Proceeds from sale of shares upon exercise of options and purchase rights
28,336 
15,979 
Excess tax benefits from share-based compensation
2,735 
1,708 
Net cash provided by (used in) financing activities
31,071 
(97,181)
Effect of exchange rate changes on cash and cash equivalents
(6,023)
556 
Net increase (decrease) in cash and cash equivalents
140,782 
(211,707)
Cash and cash equivalents at beginning of period
319,944 
492,759 
Cash and cash equivalents at end of period
$ 460,726 
$ 281,052 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Interim Unaudited)
In Thousands
Registered shares
Additional paid-in capital
Treasury shares
Retained earnings
Accumulated other comprehensive loss
Total
Balance at Mar. 31, 2009
 
45,012 
 
1,341,661 
(80,881)
997,708 
Balance (registered shares) at Mar. 31, 2009
33,370 
 
 
 
 
 
Balance (registered shares (in shares)) at Mar. 31, 2009
191,606 
 
 
 
 
 
Balance (treasury shares) at Mar. 31, 2009
 
 
(341,454)
 
 
 
Balance (treasury shares (in shares)) at Mar. 31, 2009
 
 
12,124 
 
 
 
Net income
 
 
 
40,464 
 
40,464 
Cumulative translation adjustment
 
 
 
 
7,519 
7,519 
Pension liability adjustment
 
 
 
 
347 
347 
Net deferred hedging gain (loss)
 
 
 
 
540 
540 
Total comprehensive income (loss)
 
 
 
 
 
48,870 
Tax benefit from exercise of stock options
 
2,576 
 
 
 
2,576 
Purchase of treasury shares
 
 
(101,267)
 
 
(101,267)
Purchase of treasury shares (in shares)
 
 
5,838 
 
 
 
Sale of shares upon exercise of options and purchase rights
 
(38,909)
54,888 
 
 
15,979 
Sale of shares upon exercise of options and purchase rights, (in shares)
 
 
(1,981)
 
 
 
Share-based compensation expense
 
17,303 
 
 
 
17,303 
Balance at Dec. 31, 2009
 
25,982 
 
1,382,125 
(72,475)
981,169 
Balance (registered shares) at Dec. 31, 2009
33,370 
 
 
 
 
 
Balance (registered shares (in shares)) at Dec. 31, 2009
191,606 
 
 
 
 
 
Balance (treasury shares) at Dec. 31, 2009
 
 
(387,833)
 
 
 
Balance (treasury shares (in shares)) at Dec. 31, 2009
 
 
15,981 
 
 
 
Balance at Mar. 31, 2010
 
14,880 
 
1,406,618 
(72,641)
999,715 
Balance (registered shares) at Mar. 31, 2010
33,370 
 
 
 
 
33,370 
Balance (registered shares (in shares)) at Mar. 31, 2010
191,606 
 
 
 
 
 
Balance (treasury shares) at Mar. 31, 2010
 
 
(382,512)
 
 
382,512 
Balance (treasury shares (in shares)) at Mar. 31, 2010
 
 
16,435 
 
 
16,435 
Net income
 
 
 
125,684 
 
125,684 
Cumulative translation adjustment
 
 
 
 
2,496 
2,496 
Pension liability adjustment
 
 
 
 
(969)
(969)
Net deferred hedging gain (loss)
 
 
 
 
(3,913)
(3,913)
Total comprehensive income (loss)
 
 
 
 
 
123,298 
Tax benefit from exercise of stock options
 
3,835 
 
 
 
3,835 
Sale of shares upon exercise of options and purchase rights
 
(54,162)
82,498 
 
 
28,336 
Sale of shares upon exercise of options and purchase rights, (in shares)
 
 
(2,792)
 
 
 
Share-based compensation expense
 
24,261 
 
 
 
24,261 
Balance at Dec. 31, 2010
 
(11,186)
 
1,532,302 
(75,027)
1,179,445 
Balance (registered shares) at Dec. 31, 2010
33,370 
 
 
 
 
33,370 
Balance (registered shares (in shares)) at Dec. 31, 2010
191,606 
 
 
 
 
 
Balance (treasury shares) at Dec. 31, 2010
 
 
(300,014)
 
 
300,014 
Balance (treasury shares (in shares)) at Dec. 31, 2010
 
 
13,643 
 
 
13,643 
The Company
The Company


Note 1 — The Company
 
Logitech is a world leader in products that connect people to digital experiences. 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, audio and video communication over the Internet, video security and home-entertainment control. We have two operating segments, peripherals and video conferencing.

 
For the PC (personal computer), our products include mice, trackballs, keyboards, interactive gaming controllers, multimedia speakers, headsets, webcams, 3D control devices and lapdesks. Our Internet communications products include webcams, headsets, video communications services, and digital video security systems for a home or small business. Our LifeSize division offers scalable HD (high-definition) video communication products, support and services. Our digital music products include speakers, earphones, and custom in-ear monitors. For home entertainment systems, we offer the Harmony line of advanced remote controls, Squeezebox wireless music solutions and, in the United States, a line of Logitech products for the Google TV platform, including the Logitech Revue companion box, Logitech Mini-Controller and Logitech TV Cam with HD Vid service. For gaming consoles, we offer a range of gaming controllers and microphones, as well as other accessories.

We sell our peripheral products to a network of retail distributors and resellers and to OEMs (original equipment manufacturers). Our worldwide retail network for our peripherals includes wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecommunications stores, value-added resellers and online merchants. The large majority of our revenues have historically been derived from sales of our peripheral products for use by consumers.

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

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.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Note 2 — Summary of Significant Accounting Policies
 
Basis of Presentation
 
The consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The consolidated financial statements are presented in accordance with 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, 2010 included in its Annual Report on Form 10-K.

Net income for the nine months ended December 31, 2009 includes $2.2 million in pretax charges related to restructuring accruals, bonus accruals and revenue-related adjustments from fiscal year 2009. We reviewed the accounting errors utilizing SEC Staff Accounting Bulletin No. 99, Materiality and SEC Staff Accounting Bulletin No. 108, Effects of Prior Year Misstatements on Current Year Financial Statements, and determined the impact of the errors to be immaterial to the current and prior quarterly and annual periods.

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

In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Operating results for the three and nine months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending March 31, 2011 or any future periods.
 
Fiscal Year
  
The Company’s fiscal year ends on March 31. Interim quarters are thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods as ending on the month end.
 
Changes in Significant Accounting Policies

Logitech elected to early adopt ASU (Accounting Standards Update) 2009-13, Multiple Deliverable Revenue Arrangements, and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, during the third quarter of fiscal year 2011 on a retrospective basis for transactions originating or materially modified after April 1, 2010. ASU 2009-13 allows the use of ESP (estimated selling price) in addition to VSOE (vendor specific objective evidence) and TPE (third party evidence) for determining the relative selling price of a deliverable in a multiple element arrangement. ASU 2009-13 also requires the allocation of arrangement consideration to each deliverable based on the relative selling price. ASU 2009-14 excludes software-enabled tangible products from the scope of software revenue recognition guidance if the software is essential to the tangible product’s functionality. In addition, ASU 2009-14 provides factors that a company should consider in determining whether a tangible product is delivered with software components and non-software components that function together to deliver the tangible product’s essential functionality. Adoption of the new accounting guidance primarily impacted the revenue recognized from Logitech Revue and our LifeSize video conferencing products. The adoption had no impact on revenue recognized from the remainder of our peripherals, as they are not multiple-deliverable revenue arrangements.

The sale of Logitech Revue consists of two deliverables: the hardware with essential software delivered at the time of sale, and unspecified additional software upgrades to the essential software on a when-and-if-available basis. Logitech allocates arrangement consideration to each of these deliverables using a selling price hierarchy. Under the new accounting guidance, the selling price is based on VSOE of fair value, if available, TPE if VSOE is not available, or ESP if neither VSOE nor TPE is available. The relative selling price of the hardware with the essential software is based on ESP. The relative selling price of future upgrades to the essential software is based on TPE. Amounts allocated to the delivered hardware and essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met. Amounts allocated to the future unspecified software upgrade rights are deferred and recognized ratably over the estimated 24-month life of the hardware. There was no impact to prior period financial statements from adopting the new accounting guidance as it relates to Logitech Revue, because there were no sales of the Logitech Revue prior to adoption of the guidance.

Based on the new accounting guidance, our LifeSize products include the following deliverables:

·  
Hardware with software essential to the functionality of the hardware device delivered at the time of sale;
·  
Non-essential software;
·  
Maintenance for essential and non essential software including future, when-and-if-available unspecified upgrades; and
·  
Other services including training and installation

The Company allocates arrangement consideration based on relative selling price using the selling price hierarchy for the deliverables, which are grouped into non-software deliverables and software deliverables, based on relative selling price. The Company did not have VSOE or TPE for hardware with essential software and non-essential software, due to variable discounting, and therefore uses ESP. Amounts allocated to the delivered hardware with essential software (non-software deliverables) as well as non-essential software (software deliverables) are recognized at the time of sale provided the other conditions for revenue recognition have been met. The Company sells maintenance packages and amounts allocated to the maintenance are deferred and recognized ratably over the maintenance period. All other services are sold separately on a standalone basis and therefore have established VSOE. Amounts allocated to the services are deferred and recognized upon completion of services. Prior to the adoption of the new accounting guidance, the Company had established VSOE for the majority of  the undelivered elements, which continues to be used as the relative selling price under the new accounting guidance. The impact of adopting the new accounting guidance was not material to prior interim period financial statements or earnings per share.

There have been no substantial changes, other than those related to the adoption of ASU 2009-13 and ASU 2009-14, in the Company’s significant accounting policies during the three and nine months ended December 31, 2010 compared with the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

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

Recent Accounting Pronouncements

In December 2010, the FASB (Financial Accounting Standards Board) issued ASU 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. For reporting units with zero or negative carrying amounts, if it is more likely than not that a goodwill impairment exists, ASU 2010-28 requires performance of an additional test to determine whether goodwill has been impaired and to calculate the amount of impairment. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years and interim periods within those years beginning after December 15, 2010. Logitech will adopt ASU 2009-28 in the first quarter of fiscal year 2012. The impact of adopting ASU 2010-28 will not be known until the Company performs its evaluations of goodwill impairment.

In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 specifies that, for material business combinations when comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-09 also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-09 is effective prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting period after December 15, 2010. We will adopt this standard for acquisitions beginning in fiscal year 2012.
Net Income per Share
Net Income per Share
 
Note 3 — Net Income per Share
 
The computations of basic and diluted net income per share for the Company were as follows (in thousands except per share amounts):
 
   
Three months ended
  
Nine months ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
        
Net income
 $65,002  $57,086  $125,684  $40,464 
                  
Weighted average shares - basic
  177,233   175,426   176,329   177,829 
Effect of potentially dilutive share equivalents
  2,470   2,242   1,977   2,037 
Weighted average shares - diluted
  179,703   177,668   178,306   179,866 
                  
Net income per share - basic
 $0.37  $0.33  $0.71  $0.23 
Net income per share - diluted
 $0.36  $0.32  $0.70  $0.22 
                  

Employee equity share options, non-vested shares and similar share-based compensation awards granted by the Company are treated as potential shares in computing diluted net income per share. Diluted shares outstanding include the dilutive effect of in-the-money share-based awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising share-based awards, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.
 

Share equivalents attributable to outstanding stock options and RSUs (restricted stock units) of  11,687,238 and 12,677,929 for the three months ended December 31, 2010 and 2009, and  14,391,548 and 13,277,283 for the nine months ended December 31, 2010 and 2009 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.

Fair Value Measurements
Fair Value Measurements

Note 4 — Fair Value Measurements

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

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

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

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

The following table presents the Company’s financial assets and liabilities that were measured at fair value on a recurring basis, classified by the level within the fair value hierarchy (in thousands):

   
December 31, 2010
  
March 31, 2010
 
   
Level 1
  
Level 2
  
Level 3
  
Level 1
  
Level 2
  
Level 3
 
                    
Cash and cash equivalents
 $460,726  $-  $-  $319,944  $-  $- 
Trading investments
  12,179   -   -   -   -   - 
Investment securities
  -   -   994   -   -   994 
Foreign exchange derivative assets
  109   -   -   599   -   - 
Total assets at fair value
 $473,014  $-  $994  $320,543  $-  $994 
                          
Foreign exchange derivative liabilities
 $738  $-  $-  $366  $-  $- 
Total liabilities at fair value
 $738  $-  $-  $366  $-  $- 
                          

Notes 5, 12 and 14 describe the assets and liabilities measured at fair value on a recurring basis, and the inputs and valuation techniques used to determine fair value.
Cash and Cash Equivalents and Investment Securities
Cash and Cash Equivalents and Investment Securities
 
Note 5 — Cash, Cash Equivalents and Investment Securities

Cash and cash equivalents consist of bank demand deposits and time deposits. The time deposits have original terms of less than 40 days. Cash and cash equivalents are carried at cost, which is equivalent to fair value.

One of the Company’s subsidiaries offers a management deferred compensation plan in which participating employees’ salary and incentive compensation deferrals were invested in Company-owned life insurance contracts held in a Rabbi Trust. In December 2010, the Company surrendered the life insurance contracts for cash. The proceeds from the life insurance contracts were invested in a Company-selected portfolio of mutual funds held by the Rabbi Trust. The mutual fund investments are recorded at fair value based on quoted market prices in each reporting period and therefore the carrying value of these investments equals their fair value. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Since plan participants may select the mutual funds in which their compensation deferrals are invested, and may actively trade funds within the confines of the Rabbi Trust, the Company has designated these securities as trading investments. 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 Company’s investment securities portfolio as of December 31, 2010 and March 31, 2010 consisted of auction rate securities collateralized by residential and commercial mortgages. The investment securities are classified as available-for-sale and are carried in non-current assets. The estimated fair value of the securities was determined by estimating future cash flows, either through discounted cash flow or option pricing methods, incorporating assumptions of default and other future conditions. Such valuation methods fall within Level 3 of the fair value hierarchy. At December 31, 2010 and March 31, 2010, the carrying value of our investment securities portfolio was $1.0 million and the par value was $47.5 million.

Acquisitions
Acquisitions

Note 6 — Acquisitions
 
On July 6, 2010, Logitech acquired substantially all of the assets and employees of Paradial AS, a Norwegian company providing firewall and NAT (network address translation) traversal solutions for video communications. The acquisition will allow the Company to closely integrate firewall and NAT traversal across its video communications product portfolio, enabling end-to-end HD video calling over highly protected networks. The acquisition has been treated as an acquisition of a business and has been accounted for using the purchase method of accounting. The total consideration paid of $7.3 million was allocated based on estimated fair values to $7.0 million of identifiable intangible assets and $0.1 million of assumed liabilities, with the remaining balance allocated to goodwill. The intangible assets acquired are amortized on a straight-line basis over their estimated useful lives of five years. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes.

Balance Sheet Components
Balance Sheet Components

Note 7 — Balance Sheet Components

The following provides a breakout of certain balance sheet components (in thousands):

   
December 31,
  
March 31,
 
   
2010
  
2010
 
Accounts receivable:
      
Accounts receivable
 $525,095  $349,722 
Allowance for doubtful accounts
  (3,702)  (5,870)
Allowance for returns
  (26,965)  (23,657)
Cooperative marketing arrangements
  (32,740)  (17,527)
Customer incentive programs
  (58,859)  (44,306)
Pricing programs
  (66,731)  (63,115)
   $336,098  $195,247 
Inventories:
        
Raw materials
 $32,003  $31,630 
Work-in-process
  13   86 
Finished goods
  268,614   187,877 
   $300,630  $219,593 
Other current assets:
        
Tax and VAT refund receivables
 $17,098  $20,305 
Deferred taxes
  26,358   27,064 
Prepaid expenses and other
  15,013   11,508 
   $58,469  $58,877 
Property, plant and equipment:
        
Plant and buildings
 $52,086  $58,629 
Equipment
  134,084   112,454 
Computer equipment
  60,519   53,576 
Computer software
  82,225   78,156 
    328,914   302,815 
Less: accumulated depreciation
  (250,191)  (224,485)
    78,723   78,330 
Construction-in-progress
  4,239   9,751 
Land
  2,871   3,148 
   $85,833  $91,229 
Other assets:
        
Deferred taxes
 $49,468  $45,257 
Cash surrender value of life insurance contracts
  -   11,097 
Trading investments
  12,179   - 
Deposits and other
  9,565   9,576 
   $71,212  $65,930 
Accrued liabilities:
        
Accrued personnel expenses
 $58,376  $48,617 
Accrued marketing expenses
  42,886   28,052 
Accrued freight and duty
  17,696   12,696 
Income taxes payable - current
  6,165   8,875 
Non-retirement post-employment benefit obligations
  3,298   2,761 
Accrued restructuring
  26   399 
Other accrued liabilities
  84,723   80,936 
   $213,170  $182,336 
Long-term liabilities:
        
Income taxes payable - non-current
 $121,165  $116,456 
Obligation for management deferred compensation
  12,268   10,307 
Defined benefit pension plan liability
  21,402   19,343 
Other long-term liabilities
  14,078   13,566 
   $168,913  $159,672 
          


The following table presents the changes in the allowance for doubtful accounts during the nine months ended December 31, 2010 and 2009 (in thousands):

   
December 31,
 
   
2010
  
2009
 
        
Balance as of March 31
 $5,870  $6,705 
Bad debt expense
  422   (1,194)
Write-offs net of recoveries
  (597)  446 
Balance as of June 30
 $5,695  $5,957 
Bad debt expense
  (140)  599 
Write-offs net of recoveries
  (1,621)  (158)
Balance as of September 30
 $3,934  $6,398 
Bad debt expense
  1   505 
Write-offs net of recoveries
  (233)  (215)
Balance as of December 31
 $3,702  $6,688 

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 8 —Goodwill and Other Intangible Assets

The following table summarizes the activity in the Company’s goodwill account during the nine months ended December 31, 2010 (in thousands):

   
December 31,
 
   
2010
 
     
Balance as of March 31, 2010
 $553,462 
Additions
  332 
Balance as of December 31, 2010
 $553,794 
      

Additions to goodwill relate to our acquisition of Paradial. Paradial’s business has been fully integrated into the Company’s LifeSize division, and discrete financial information for Paradial is not maintained. Accordingly, the acquired goodwill related to Paradial will be evaluated for impairment at the LifeSize reporting unit level. The Company performs its annual goodwill impairment test during its fiscal fourth quarter, or more frequently if certain events or circumstances warrant. No events or circumstances occurred during the nine months ended December 31, 2010 which warranted a goodwill impairment test.

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

   
December 31, 2010
  
March 31, 2010
 
   
Gross Carrying
  
Accumulated
  
Net Carrying
  
Gross Carrying
  
Accumulated
  
Net Carrying
 
   
Amount
  
Amortization
  
Amount
  
Amount
  
Amortization
  
Amount
 
                    
Trademark/tradename
 $32,148  $(22,642) $9,506  $32,051  $(20,421) $11,630 
Technology
  94,968   (48,485)  46,483   87,968   (36,033)  51,935 
Customer contracts
  38,538   (13,276)  25,262   38,517   (6,686)  31,831 
   $165,654  $(84,403) $81,251  $158,536  $(63,140) $95,396 

During the nine months ended December 31, 2010, changes in the gross carrying value of other intangible assets related primarily to our acquisition of Paradial.

For the three months ended December 31, 2010 and 2009, amortization expense for other intangible assets was $7.2 million and $3.0 million. For the nine months ended December 31, 2010 and 2009, amortization expense for other intangible assets was $21.2 million and $7.6 million.  The Company expects that amortization expense for the three-month period ending March 31, 2011 will be $7.4 million, and annual amortization expense for fiscal years 2012, 2013, 2014 and 2015 will be $26.1 million, $23.0 million, $16.9 million and $7.5 million, and $0.4 million thereafter.

Financing Arrangements
Financing Arrangements

Note 9 — Financing Arrangements
 
The Company had several uncommitted, unsecured bank lines of credit aggregating $114.9 million at December 31, 2010. There are no financial covenants under these lines of credit with which the Company must comply. At December 31, 2010, the Company had no outstanding borrowings under these lines of credit.

Shareholders' Equity
Shareholders' Equity

Note 10 — Shareholders’ Equity

Share Repurchases

During the three and nine months ended December 31, 2010 and 2009, the Company had the following approved share buyback programs in place (in thousands):

Date of Announcement
 
Approved Buyback Amount
 
Expiration Date
 
Completion Date
  
Amount Remaining
 
             
June 2007
 $250,000 
September 2010
 
March 2010
  $- 
September 2008
 $250,000 
September 2012
  -  $250,000 


The Company did not repurchase any shares during the three and nine months ended December 31, 2010. During the three and nine months ended December 31, 2009, the Company repurchased shares under the June 2007 share buyback program as follows (in thousands):

   
Three months ended
  
Nine months ended
 
Date of
 
December 31, 2009
  
December 31, 2009
 
Announcement
 
Shares
  
Amount (1)
  
Shares
  
Amount (1)
 
June 2007
  -  $-   5,838  $101,267 

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

Accumulated Other Comprehensive Loss

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

   
December 31,
  
March 31,
 
   
2010
  
2010
 
        
Cumulative translation adjustment
 $(61,152) $(63,646)
Pension liability adjustments, net of tax of $792 and $936
  (11,782)  (10,813)
Unrealized gain on investments
  424   424 
Net deferred hedging gains (losses)
  (2,517)  1,394 
   $(75,027) $(72,641)
          


Restructuring
Restructuring

Note 11 — Restructuring

In January 2009, Logitech initiated the 2009 Restructuring Plan in order to reduce operating expenses and improve financial results in response to deteriorating global economic conditions. We completed the restructuring plan in fiscal year 2010. The following table summarizes restructuring related activities during the nine months ended December 31, 2010 and 2009 (in thousands):

   
Total
  
Termination Benefits
  
Contract Termination Costs
  
Other
 
              
Balance at March 31, 2009
 $3,794  $3,779  $15  $- 
Charges
  1,449   1,366   83   - 
Cash payments
  (4,245)  (4,220)  (25)  - 
Other
  (8)  (4)  (4)  - 
Foreign exchange
  91   91   -   - 
Balance at June 30, 2009
 $1,081  $1,012  $69  $- 
Charges
  45   (22)  9   58 
Cash payments
  (718)  (698)  (20)  - 
Other
  (4)  63   -   (67)
Foreign exchange
  19   19   -   - 
Balance at September 30, 2009
  423   374   58   (9)
Cash payments
  (200)  (180)  (20)  - 
Other
  (6)  (6)  -   - 
Foreign exchange
  (7)  (4)  -   (3)
Balance at December 31, 2009
 $210  $184  $38  $(12)
                  
                  
Balance at March 31, 2010
 $399  $158  $334  $(93)
Cash payments
  (168)  -   (168)  - 
Other
  (74)  (149)  -   75 
Foreign exchange
  (3)  -   -   (3)
Balance at June 30, 2010
 $154  $9  $166  $(21)
Cash payments
  (73)  -   (73)  - 
Balance at September 30, 2010
  81   9   93   (21)
Cash payments
  (55)  (9)  (67)  21 
Balance at December 31, 2010
 $26  $-  $26  $- 
                  

Termination benefits incurred pursuant to the restructuring plan are calculated based on regional benefit practices and local statutory requirements. Contract termination costs relate to exit costs associated with the closure of existing facilities.

Employee Benefit Plans
Employee Benefit Plans

Note 12 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of December 31, 2010, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)) and the 2006 Stock Incentive Plan. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.

The following table summarizes the share-based compensation expense and related tax benefit included in the Company’s consolidated statements of operations for the three and nine months ended December 31, 2010 and 2009 (in thousands).

   
Three months ended
  
Nine months ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
              
Cost of goods sold
 $1,000  $709  $2,910  $2,135 
Share-based compensation expense included in gross profit
  1,000   709   2,910   2,135 
                  
Operating expenses:
                
   Marketing and selling
  2,115   2,018   8,283   5,931 
   Research and development
  1,842   1,139   5,394   3,048 
   General and administrative
  2,299   2,217   7,389   6,135 
Share-based compensation expense included in
                
   operating expenses
  6,256   5,374   21,066   15,114 
Total share-based compensation expense
  7,256   6,083   23,976   17,249 
Income tax benefit
  (1,189)  (3,324)  (5,526)  (4,157)
Share-based compensation expense, net of income tax
 $6,067  $2,759  $18,450  $13,092 

As of December 31, 2010 and 2009, share-based compensation cost of $1.2 million and $0.8 million was capitalized to inventory. As of December 31, 2010, total compensation cost related to non-vested stock options not yet recognized was $62.2 million, which is expected to be recognized over the next 32 months on a weighted-average basis.

The fair value of employee stock options granted and shares purchased under the Company’s employee purchase plans was estimated using the Black-Scholes-Merton option-pricing valuation model applying the following assumptions and values:

   
Three Months Ended
  
Nine Months Ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
  
2010
  
2009
  
2010
  
2009
 
   
Purchase Plans
  
Stock Options
  
Purchase Plans
  
Stock Options
 
                          
Dividend yield
  0%  0%  0%  0%  0%  0%  0%  0%
Expected life
 
6 months
  
6 months
  
4.0 years
  
2.9 years
  
6 months
  
6 months
  
4.0 years
  
3.4 years
 
Expected volatility
  36%  59%  48%  53%  35%  70%  48%  50%
Risk-free interest rate
  0.17%  0.07%  1.22%  1.28%  0.16%  0.21%  1.57%  1.72%
                                  


The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The Company has not paid dividends since 1996.

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

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

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

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

   
Three Months Ended
  
Nine Months Ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
  
2010
  
2009
  
2010
  
2009
 
   
Purchase Plans
  
Stock Options
  
Purchase Plans
  
Stock Options
 
                          
Weighted average grant-date
                        
  fair value of options granted
 $3.96  $5.29  $7.81  $9.10  $4.07  $4.25  $6.11  $7.14 
Expected forfeitures
  0%  0%  9%  10%  0%  0%  9%  10%

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

   
Three Months Ended
  
Nine Months Ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
   
Number
  
Exercise Price
  
Number
  
Exercise Price
  
Number
  
Exercise Price
  
Number
  
Exercise Price
 
                          
Outstanding, beginning of period
  18,543  $18   19,130  $18   20,037  $18   18,897  $18 
Granted
  40  $20   2,179  $11   294  $16   4,568  $12 
Exercised
  (1,141) $10   (275) $10   (2,149) $10   (1,310) $8 
Cancelled or expired
  (125) $22   (191) $22   (866) $22   (1,312) $21 
Outstanding, end of period
  17,317  $19   20,843  $17   17,316  $19   20,843  $17 
                                  
Exercisable, end of period
  11,754  $20   11,751  $16   11,754  $20   11,751  $16 
                                  

The total pretax intrinsic value of options exercised during the three months ended December 31, 2010 and 2009 was $11.2 million and $1.9 million and the tax benefit realized for the tax deduction from options exercised during those periods was $3.8 million and $0.7 million. The total pretax intrinsic value of options exercised during the nine months ended December 31, 2010 and 2009 was $17.9 million and $9.8 million and the tax benefit realized for the tax deduction from options exercised during those periods was $5.9 million and $2.0 million. The total fair value of options vested as of December 31, 2010 and 2009 was $76.9 million and $70.7 million.

During fiscal years 2011 and 2010, the Company granted time-based RSUs to employees and board members pursuant to the 2006 Stock Incentive Plan. The time-based RSUs granted to employees vest in four equal annual installments on the grant date anniversary. The time-based RSUs granted to non-executive board members vest in one annual installment on the grant date anniversary. The non-executive board members’ fiscal year 2010 grants were fully vested in the three months ended September 30, 2010, and new annual grants with the same vesting term were issued.  The Company estimates the fair value of time-based RSUs based on the share market price on the date of grant. Compensation expense related to time-based RSUs is recognized over the vesting period and is included in the total share-based compensation expense disclosed above. As of December 31, 2010, total compensation cost related to time-based RSUs not yet recognized was $30.0 million, which is expected to be recognized over the next 48 months.

During fiscal years 2011, 2010 and 2009, the Company granted RSUs to certain executives pursuant to the 2006 Stock Incentive Plan. The RSUs vest at the end of the performance period upon meeting certain share price performance criteria measured against market conditions. The performance period is three years for the fiscal year 2011 grants and two years for the fiscal year 2010 and 2009 grants. Compensation expense related to performance-based RSUs will be recognized over the performance period and is included in the total share-based compensation expense disclosed above. As of December 31, 2010, total compensation cost not yet recognized related to the performance-based RSUs granted in fiscal years 2011 and 2010 was $14.9 million, which is expected to be recognized over the next 35 months. The performance period for the RSUs granted in fiscal year 2009 was completed as of September 30, 2010 with no vesting as the minimum performance condition was not satisfied.

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

   
FY 2011 Grants
  
FY 2010 Grants
 
        
Dividend yield
  0%  0%
Expected life
 
3 years
  
2 years
 
Expected volatility
  51%  58%
Risk-free interest rate
  0.81%  1.11%
          

The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The expected life of the performance-based RSUs is the performance period at the end of which the RSUs will vest if the minimum performance condition is satisfied. The volatility assumption is based on the actual volatility of Logitech’s daily closing share price over a look-back period of three years for the fiscal year 2011 grants and two years for the fiscal year 2010 grants. The risk free interest rate is derived from the yield on U.S. Treasury Bonds for a three or two year term.

A summary of the Company’s time- and performance-based RSU activity is as follows (in thousands, except per share values; grant-date fair values are weighted averages):

 

   
Three Months Ended
  
Nine Months Ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
   
Number
  
Grant-Date Fair Value
  
Number
  
Grant-Date Fair Value
  
Number
  
Grant-Date Fair Value
  
Number
  
Grant-Date Fair Value
 
                          
Outstanding, beginning of period
  378  $16   264  $15   513  $18   -  $- 
Granted
  1,935  $22   54  $14   2,010  $22   320  $12 
Vested
  (6) $14   -  $-   (124) $16   -  $- 
Cancelled or expired
  (17) $19   (3) $14   (109) $25   (5) $14 
Outstanding, end of period
  2,290  $21   315  $12   2,290  $21   315  $12 
                                  

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 charge to expense for these plans during the three months ended December 31, 2010 and 2009 was $2.3 million and $2.0 million. During the nine months ended December 31, 2010 and 2009, the charge to expense for these plans was $6.3 million and $5.5 million.

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

The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and nine months ended December 31, 2010 and 2009 was as follows (in thousands):

   
Three months ended
  
Nine months ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
              
Service cost
 $1,130  $1,026  $3,230  $2,968 
Interest cost
  449   369   1,276   1,067 
Expected return on plan assets
  (471)  (312)  (1,330)  (898)
Amortization of net transition
                
obligation and prior service cost
  38   35   111   105 
Recognized net actuarial loss
  97   221   276   635 
Net periodic benefit cost
 $1,243  $1,339  $3,563  $3,877 

Deferred Compensation Plan
 
One of the Company’s subsidiaries offers a management deferred compensation plan which permits eligible employees to make 100%-vested salary and incentive compensation deferrals within established limits, which were invested in Company-owned life insurance contracts held in a Rabbi Trust. The Company does not make contributions to the plan. In December 2010, the Company surrendered the life insurance contracts for cash, and invested the proceeds of $11.3 million, in addition to $0.8 million in cash held by the Rabbi Trust, investment earnings and employee contributions, in a Company-selected portfolio of mutual funds, which are also held by the Rabbi Trust. The mutual fund investments are recorded at fair value based on quoted market prices, and therefore the carrying value of these investments equals their fair value. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy.

Income Taxes
Income Taxes

Note 13 — Income Taxes
 
The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before income taxes and the provision for income taxes are generated outside of Switzerland.

The income tax provision for the three months ended December 31, 2010 and 2009 was $12.4 million and $4.8 million based on effective income tax rates of 16% and 7.8% of pre-tax income. For the nine months ended December 31, 2010 and 2009, the income tax provision was $15.8 million and $14.3 million based on effective income tax rates of 11.2% and 26.1% of pre-tax income. The change in the effective income tax rate for the three months ended December 31, 2010 compared with the three months ended December 31, 2009 is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates. The change in the effective income tax rate for the nine months ended December 31, 2010 compared with the nine months ended December 31, 2009 is primarily due to discrete tax benefits of $11.5 million from the expiration of statutes of limitations and the closure of income tax audits in certain foreign jurisdictions.

On December 17, 2010, the enactment in the U.S. of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended retroactively through the end of calendar year 2011 the U.S. federal research and development credit, which had expired on December 31, 2009. Accordingly, the Company’s income tax provision for the nine months ended December 31, 2010 includes a tax benefit of $1.6 million related to the U.S. federal research tax credit.

As of December 31, 2010 and March 31, 2010, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $127.7 million and $125.2 million, of which $106.5 million and $101.4 million would affect the effective income tax rate if recognized. The income tax liability associated with uncertain tax positions as of December 31, 2010 did not increase substantially compared with March 31, 2010 primarily due to the expiration of statutes of limitations and the closure of income tax audits in certain foreign jurisdictions.

The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of December 31, 2010 and March 31, 2010, the Company had approximately $10.0 million and $12.5 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 1999. During the third quarter of fiscal year 2011, the U.S. Internal Revenue Service expanded its examination of the Company’s U.S. subsidiary to include fiscal years 2008 and 2009 in addition to fiscal years 2006 and 2007. At this time it is not possible to estimate the potential impact that the examination may have on income tax expense. The Company is also under examination in other tax jurisdictions. Although the timing of the resolution or closure on audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next twelve months.

Derivative Financial Instruments - Foreign Exchange Hedging
Derivative Financial Instruments - Foreign Exchange Hedging
Note 14 - Derivative Financial Instruments – Foreign Exchange Hedging
 
Cash Flow Hedges

The Company enters into foreign exchange forward contracts to hedge against exposure to changes in foreign currency exchange rates related to its subsidiaries forecasted inventory purchases. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative purposes. These hedging contracts mature within three months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the foreign currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense). Such losses were immaterial during the three and nine months ended December 31, 2010 and 2009. Cash flows from such hedges are classified as operating activities. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases at December 31, 2010 and 2009 were $59.9 million (45.1 million) and $39.9 million (26.7 million). 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 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 earnings based on the changes in fair value.

The notional amounts of foreign exchange forward contracts outstanding at December 31, 2010 and 2009 relating to foreign currency receivables or payables were $11.0 million and $15.3 million. Open forward contracts as of December 31, 2010 consisted of contracts in British pounds to purchase euros at a future date at a pre-determined exchange rate. The notional amounts of foreign exchange swap contracts outstanding at December 31, 2010 and 2009 were $19.7 million and $37.9 million. Swap contracts outstanding at December 31, 2010 consisted of contracts in Canadian dollars, Japanese yen, and Mexican pesos.

The fair value of all our foreign exchange forward contracts and foreign exchange swap contracts is determined based on quoted foreign exchange forward rates. Quoted foreign exchange forward rates are observable inputs that are classified as Level 1 within the fair value hierarchy.

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


 
Asset Derivatives
 
Liability Derivatives
 
     
Fair Value
    
Fair Value
 
     
December 31,
  
March 31,
    
December 31,
  
March 31,
 
 
Location
 
2010
  
2010
 
Location
 
2010
  
2010
 
                  
Derivatives designated as hedging
                
instruments:
                
Cash Flow Hedges
 Other assets
 $-  $136 
 Other liabilities
 $272  $10 
      -   136     272   10 
                      
Derivatives not designated as hedging
                    
instruments:
                    
Foreign Exchange Forward Contracts
 Other assets
  109   11 
 Other liabilities
  -   - 
Foreign Exchange Swap Contracts
 Other assets
  -   452 
 Other liabilities
  466   356 
      109   463     466   356 
     $109  $599    $738  $366 
                      

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

   
Net amount of gain (loss) deferred as a component of accumulated other comprehensive loss
 
Location of gain (loss) reclassified from accumulated other comprehensive loss into income
 
Amount of gain (loss) reclassified from accumulated other comprehensive loss into income
 
Location of gain (loss) recognized in income immediately
 
Amount of gain (loss) recognized in income immediately
 
               
Derivatives designated as hedging
             
instruments:
             
Cash Flow Hedges
 $6,113 
Cost of goods sold
 $5,283 
Other income/expense
 $(70)
    6,113     5,283     (70)
                  
Derivatives not designated as hedging
                
instruments:
                
Foreign Exchange Forward Contracts
  -     - 
Other income/expense
  103 
Foreign Exchange Swap Contracts
  -     - 
Other income/expense
  (425)
    -     -     (322)
   $6,113    $5,283    $(392)
                  

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

   
Net amount of gain (loss) deferred as a component of accumulated other comprehensive loss
 
Location of gain (loss) reclassified from accumulated other comprehensive loss into income
 
Amount of gain (loss) reclassified from accumulated other comprehensive loss into income
 
Location of gain (loss) recognized in income immediately
 
Amount of gain (loss) recognized in income immediately
 
               
Derivatives designated as hedging
             
instruments:
             
Cash Flow Hedges
 $(3,913)
Cost of goods sold
 $3,364 
Other income/expense
 $17 
    (3,913)    3,364     17 
                  
Derivatives not designated as hedging
                
instruments:
                
Foreign Exchange Forward Contracts
  -     - 
Other income/expense
  228 
Foreign Exchange Swap Contracts
  -     - 
Other income/expense
  (2,676)
    -     -     (2,448)
   $(3,913)   $3,364    $(2,431)
                  

Commitments and Contingencies
Commitments and Contingencies

Note 15 — Commitments and Contingencies
 
The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at the Company’s option and usually include escalation clauses linked to inflation. Total future minimum annual rentals under non-cancelable operating leases at December 31, 2010 amounted to $71.0 million. The increase in future minimum annual rentals as of December 31, 2010 compared with March 31, 2010 was due to a new research and development office in Lausanne, Switzerland, new facilities for our LifeSize division in Austin, Texas and a new office for our audio business unit in Vancouver, Washington.

In connection with its operating leases for facilities, the Company has recognized asset retirement obligations of $1.6 million and $1.4 million at December 31 and March 31, 2010, representing the estimated remediation costs to be incurred at lease expiration. No significant changes occurred in these obligations in the three and nine months ended December 31, 2010.

At December 31, 2010, fixed purchase commitments for capital expenditures amounted to $12.9 million, and primarily related to commitments for manufacturing equipment and tooling. Also, the Company has commitments for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers. At December 31, 2010, fixed purchase commitments for inventory amounted to $131.1 million, which are expected to be fulfilled by May 31, 2011. The Company also had other commitments totaling $68.2 million for consulting and outsourced services, marketing arrangements, advertising and other services. Although open purchase commitments are considered enforceable and legally binding, the terms generally allow the Company the option to reschedule and adjust its requirements based on the business needs prior to delivery of goods or performance of services.
 
The Company has guaranteed the purchase obligations of some of its contract manufacturers and original design manufacturers to certain component suppliers. These guarantees generally have a term of one year and are automatically extended for one or more years as long as a liability exists. The amount of the purchase obligations of these manufacturers varies over time, and therefore the amounts subject to Logitech’s guarantees similarly vary. At December 31, 2010, there were no outstanding guaranteed purchase obligations. The maximum potential future payments under two of the three guarantee arrangements is limited to $30.0 million. The third guarantee is limited to purchases of specified components from the named suppliers. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements.

Logitech International S.A., the parent holding company, has guaranteed certain contingent liabilities of various subsidiaries related to specific transactions occurring in the normal course of business. The maximum amount of the guarantees was $9.1 million as of December 31, 2010. As of December 31, 2010, $9.1 million was outstanding under these guarantees. The parent holding company has also guaranteed the purchases of one of its subsidiaries under three guarantee agreements. These guarantees do not specify a maximum amount. As of December 31, 2010, $5.5 million was outstanding under these guarantees.
 
Logitech indemnifies some of its suppliers and customers for losses arising from matters such as intellectual property rights and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. No amounts have been accrued for indemnification provisions at December 31, 2010. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under its indemnification arrangements.

In November 2007, the Company acquired WiLife, Inc., a privately held company offering PC-based video cameras for self-monitoring a home or a small business. The purchase agreement provided for a performance-based payment, payable in the first calendar quarter of 2011, based on net revenues attributed to WiLife during calendar 2010. Because the minimum performance threshold was not met, no performance-based payment is due under the WiLife acquisition agreement.

The Company is involved in a number of lawsuits and claims relating to matters that arise in the normal course of business. The Company believes these lawsuits and claims are without merit and intends to vigorously defend against them. However, there can be no assurances that its defenses will be successful, or that any judgment or settlement in any of these lawsuits would not have a material adverse impact on the Company's business, financial condition, cash flows and results of operations. The Company’s accruals for lawsuits and claims as of December 31, 2010 were not material.
 
Segment Information
Segment Information
 
Note 16 — Segment Information
 
The Company has two operating segments, peripherals and video conferencing, based on product markets and internal organizational structure. The peripherals segment encompasses the design, manufacturing and marketing of peripheral products for the PC and other digital platforms. The video conferencing segment consists of the LifeSize division, and encompasses the design, manufacturing and marketing of high-definition video and audio communication products for the enterprise and small-to-medium business markets. The video conferencing operating segment does not meet the quantitative thresholds required for separate disclosure of financial information.

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

   
Three months ended
  
Nine months ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
              
Retail - Pointing Devices
 $186,507  $166,703  $472,222  $387,550 
Retail - Keyboards & Desktops
  113,929   104,624   285,546   242,539 
Retail - Audio
  155,239   147,945   370,848   341,066 
Retail - Video
  77,445   67,321   193,293   168,398 
Retail - Gaming
  46,634   36,359   81,460   82,001 
Retail - Digital Home (1)
  78,638   41,306   138,609   69,172 
OEM
  59,563   50,502   178,749   148,237 
Peripherals
  717,955   614,760   1,720,727   1,438,963 
LifeSize
  36,099   2,341   94,541   2,341 
Total net sales
 $754,054  $617,101  $1,815,268  $1,441,304 

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

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

   
Three months ended
  
Nine months ended
 
   
December 31,
  
December 31,
 
   
2010
  
2009
  
2010
  
2009
 
              
EMEA
 $309,937  $309,800  $691,832  $664,347 
Americas
  318,189   217,454   780,256   515,395 
Asia Pacific
  125,928   89,847   343,180   261,562 
   Total net sales
 $754,054  $617,101  $1,815,268  $1,441,304 


The United States and Germany each represented more than 10% of the Company’s total consolidated net sales for the three months ended December 31, 2010, and for the three and nine months ended December 31, 2009. No single country other than the United States represented more than 10% of the Company’s total consolidated net sales for the nine months ended December 31, 2010. One customer group represented 14% and 15% of net sales in the three months ended December 31, 2010 and 2009 and one customer group represented 13% of net sales in the nine months ended December 31, 2010 and 2009.

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

   
December 31,
  
March 31,
 
   
2010
  
2010
 
     
EMEA
 $10,229  $11,053 
Americas
  33,886   40,165 
Asia Pacific
  46,301   43,765 
   Total long-lived assets
 $90,416  $94,983 


Long-lived assets in China and the United States each represented more than 10% of the Company’s total consolidated long-lived assets at December 31, 2010 and March 31, 2010.
Document Information
9 Months Ended
Dec. 31, 2010
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
2010-12-31 
Entity Information
9 Months Ended
Dec. 31, 2010
Feb. 03, 2011
Sep. 30, 2010
Entity Registrant Name
LOGITECH INTERNATIONAL SA 
 
 
Entity Central Index Key
0001032975 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
3,081,748,607 
Entity Common Stock, Shares Outstanding
 
175,085,695 
 
Document Fiscal Year Focus
2010 
 
 
Document Fiscal Period Focus
Q3