SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community
 
| More

TMCNet:  LOGITECH INTERNATIONAL SA - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[February 05, 2013]

LOGITECH INTERNATIONAL SA - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) 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, 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 and in emerging markets, our expectations regarding trends in global economic conditions and consumer demand for PCs and mobile, tablet, gaming, audio, video, digital home and other computer devices and the interoperability of our products with such third party platforms, 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 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, 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, and Logitech's ability to achieve 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, audio and video communication over the Internet, video security and home-entertainment control. We have two operating 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 accessories include keyboards, keyboard cases and covers, headsets, wireless speakers, earphones and stands. Our Internet communications products include webcams, headsets, video 31 -------------------------------------------------------------------------------- Table of Contents communications services, and digital video security systems. Our digital music products include speakers, earphones, custom in-ear monitors and Smart Radios.

For home entertainment systems, we offer the Harmony line of advanced remote controls. Our gaming products include a range of gaming controllers and microphones, as well as other accessories. 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 controls and digital video security product categories, and we plan to discontinue other non-strategic products, such as speaker docks and console gaming peripherals, by the end of calendar year 2013. This decision primarily resulted from our belief that these categories of products would not make a meaningful contribution to improving our growth or profitability because they are not critical to our plans for improved future performance and in some cases we believe they may no longer be relevant in today's markets.

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 business groups are organized by product categories. Our global marketing organization is responsible for developing and building the Logitech brand, consumer insight, public relations and social media, customer care 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, India and Australia).

We sell our peripheral 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 nine months ended December 31, 2012 and 2011. The large majority of our revenues have historically been derived from sales of our peripheral products for use by consumers. Our OEM customers include the majority of the world's largest PC manufacturers. Sales to OEM customers were 7% and 8% of our net sales for the nine months ended December 31, 2012 and 2011.

Our video conferencing segment encompasses the design, manufacturing and marketing of video conferencing products, infrastructure, and services for the enterprise, public sector, and other 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 Platforms 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% of our net sales for the nine months ended December 31, 2012 and 2011. As discussed in Note 7, during the quarter ended December 31, 2012 we recorded a non-cash goodwill impairment charge estimate of $211.0 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 customer 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. We believe innovation and product quality are important to gaining market acceptance and maintaining market leadership.

We are developing new categories of products, such as tablet accessories, expanding in emerging retail markets, such as China, Russia and Latin America, increasing our presence in digital music, and entering new product arenas, such as hosted video conferencing as a service, and peripherals and services for UC (unified communications). As we do so, we are confronting new competitors, many of which have 32 -------------------------------------------------------------------------------- Table of Contents 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.

Our 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 markets 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.

As we address the current and future market challenges we face, we are simplifying our current product portfolio and roadmap to align our resources, prioritize our investments, and focus on fewer, more compelling products. 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.

Summary of Financial Results Our total net sales for the nine months ended December 31, 2012 decreased 9%, compared with the nine months ended December 31, 2011, due to the continued sharp decline in OEM sales, and from declines in retail and video conferencing.

The most significant decline was in OEM, with sales decreasing by 25% in the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, and OEM units sold decreasing by 12%, primarily in keyboard/desktops and pointing devices.

Retail sales during the nine months ended December 31, 2012 decreased 7% and retail units decreased 6%, compared with the nine months ended December 31, 2011. We experienced declines in all retail regions, 9% in the Americas region, 7% in the EMEA region, and 6% in the Asia Pacific region. If foreign currency exchange rates had been the same in the nine months ended December 31, 2012 and 2011, the percentage changes in our constant dollar retail sales would have been a decrease of 8% in the Americas, 2% in EMEA, and 6% in the Asia Pacific region.

Sales incentive spending (including pricing discounts) during the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, decreased by 5% due to lower sell-through during this period. Sales returns expense during the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, decreased by 2% due to improved channel inventory aging during this period.

Sales of video conferencing products, which were 6% of total net sales in each of the nine months ended December 31, 2012 and 2011, decreased by 3% in the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, due to sales declines in all geographic regions.

Our gross margin for the nine months ended December 31, 2012 improved to 33.7% compared with 32.7% in the same period of the prior fiscal year. The gross margin improvement primarily resulted from the absence of a $34.1 million inventory valuation adjustment related to Logitech Revue and related peripherals which occurred during the nine months ended December 31, 2011, and from improvements to our channel pricing program and global supply chain process, offset in part by an unfavorable change in retail product mix, the negative impact of a weaker euro, $4.5 million in pricing actions related to the simplification of our product portfolio and $3.0 million in restructuring-related costs.

Operating expenses for the nine months ended December 31, 2012 were 47% of net sales compared with 30% in the same period of the prior fiscal year. This increase was primarily attributable to an estimated $211.0 million goodwill impairment charge related to our video conferencing reporting unit and from $28.2 million in costs related to the restructuring plan initiated in April 2012.

33 -------------------------------------------------------------------------------- Table of Contents Net loss for the nine months ended December 31, 2012 was $192.2 million, compared with net income of $43.2 million in the nine months ended December 31, 2011. This decline primarily resulted from the estimated $211.0 million goodwill impairment charge and $28.2 million in restructuring charges, offset in part by a discrete tax benefit of $32.1 million from the closure of federal income tax examinations in the United States.

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 two years, the PC market has changed dramatically and there continues to be significant weakness in the global market for new PCs. This weakness has 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 and headphones, to limit and offset the decline in our PC peripherals and to pursue growth opportunities in emerging markets, mobility-related products, products for digital music and sales to 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 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 PCs has declined in recent months and may potentially 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 selected PC peripheral product lines in mature markets, we believe there are large 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 third-largest country in retail sales for the nine months ended December 31, 2012. We are also expanding our presence and our sales in Russia and Latin America.

Enterprise Market. We are increasing our efforts on creating and selling 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, and this "consumerization" of information technology has made the enterprise market open to embracing consumer technology and design. We are still in the early stages of our enterprise market team's efforts for our productivity peripherals. 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, led by strong initial demand for our Logitech Ultrathin Keyboard Cover.

Digital Music. We believe that digital music, the seamless consumption of audio content on home and mobile devices, presents a significant growth opportunity for Logitech, based on our history of successful earphone, headset 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.

Logitech has a solid foundation of audio solutions to satisfy consumers' needs for music consumption, including Logitech UE earphones, headphones, and digital music speakers.

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.

34 -------------------------------------------------------------------------------- Table of Contents Trends in Other Peripheral Product Categories. Some of our other peripherals product categories are experiencing significant market challenges. As the quality of PC-embedded webcams improves, we expect future sales of our PC-connected webcams in mature consumer markets to continue declining. We intend to address this market decline by enhancing our webcam product line-up to enable experiences that cannot be easily achieved with an embedded webcam and by targeting webcam applications on non-PC platforms. We believe the recent disappointing sales results for Harmony reflect the aging of our Harmony products at the mid- and high-level price points as we previously directed significant digital home engineering and marketing resources towards our Logitech Revue and related peripherals for Google TV. We have since exited the Google TV product category. We recently released two new products, Logitech TV Cam HD with built-in Skype capability as well as our long-awaited Harmony Touch remote control which features an intuitive, color touch-screen enabling users the ability to personalize their screens. 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 controls and digital video security product categories, and we plan to discontinue other non-strategic products, such as speaker docks and console gaming peripherals, by the end of calendar year 2013.

Trends Specific to our Video Conferencing Segment The trend among businesses and institutions to use video conferencing offers a key 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 and we have experienced lower demand related to our new product launches. This resulted in an estimated $211.0 million non-cash goodwill impairment charge in the quarter ended December 31, 2012. 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.

Emerging Market. China also represents a significant targeted emerging market for our video conferencing segment. We have invested significantly in growing the number of our video conferencing sales, marketing and administrative personnel in China.

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 the Company to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities.

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

We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.

There have been no significant changes 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 for the fiscal year ended March 31, 2012, except for Valuation of Long-Lived Assets described below, during the nine months ended December 31, 2012.

Valuation of Long-Lived Assets We perform our annual goodwill impairment test of each reporting unit as of December 31 and complete the assessment during our fiscal fourth quarter, or more frequently, if certain events or circumstances warrant. Events or changes in circumstances which might indicate potential impairment in goodwill include the company-specific factors, including, but not limited to, stock price volatility, market capitalization relative to net book value, and projected revenue, market growth and operating results. Determining the number of reporting units and the fair value of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions. We have two reporting units: peripherals and video conferencing. The allocation of assets and liabilities to each of our reporting units also involves judgment and assumptions.

35 -------------------------------------------------------------------------------- Table of Contents The goodwill impairment assessment involves three tests, Step 0, Step 1 and Step 2. The Step 0 test involves performing an initial qualitative assessment to determine whether it is more likely than not that the asset is impaired and thus whether it is necessary to proceed to Step 1 and calculate the fair value of the respective reporting unit. We may proceed directly to the Step 1 test without performing the Step 0 test. The Step 1 test involves measuring the recoverability of goodwill at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair value is estimated using an income approach employing both a discounted cash flow ("DCF") and a market-based model. The DCF model is based on projected cash flows from our most recent forecast ("assessment forecast") developed in connection with each of our reporting units to perform the goodwill impairment assessment. The assessment forecast is based on a number of key assumptions, including, but not limited to, discount rate, compound annual growth rate ("CAGR") during the forecast period, and terminal value. The terminal value is 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 is 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 is derived from the weighted average cost of capital of market participants in similar businesses. The market approach model was based on applying certain revenue and earnings multiples of comparable companies relevant to each of our reporting units to the respective revenue and earnings metrics of our reporting units. To test the reasonableness of the fair values indicated by the income approach and the market-based approach, we also assessed the implied premium of the aggregate fair value over the market capitalization considered attributable to an acquisition control premium, which is the price in excess of a stock market's price that investors would typically pay to gain control of an entity. The discounted cash flow model and the market approach 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. If the carrying amount of the reporting unit exceeds its fair value as determined by these assessments, goodwill is considered impaired, and the Step 2 test is performed to measure the amount of impairment loss. The Step 2 test measures the impairment loss by allocating the reporting unit's fair value to its assets and liabilities other than goodwill, comparing the resulting implied fair value of goodwill with its carrying amount, and recording an impairment charge for the difference.

We performed our annual goodwill impairment analysis of each of our reporting units as of December 31, 2012 using the income approach and market approach described above. We chose not to perform the Step 0 test and to proceed directly to the Step 1 test. This assessment resulted in us determining that our peripherals reporting unit passed the Step 1 test because the estimated fair value exceeded its carrying value by more than 75%. By contrast, our video conferencing reporting unit failed the Step 1 test because the estimated fair value was less than its carrying value, thus requiring a Step 2 assessment of this reporting unit. This impairment primarily resulted from a decrease in our expected CAGR during the assessment forecast period based on greater evidence of the overall enterprise video conferencing industry experiencing a slowdown in recent quarters, combined with lower demand related to new product launches, increased competition in fiscal year 2013 and other market data. These factors had an adverse effect on our recent video conferencing operating results and are anticipated to have an adverse effect on its future business.

Peripherals Key assumptions used in the Step 1 income approach analyses for our peripherals reporting unit 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 peripherals reporting unit Step 1 test is presented below.

† Discount rate assumptions. A hypothetical percentage increase of approximately 108% in the discount rate, holding all other assumptions constant, would not have decreased the fair value of the peripherals reporting unit below its carrying value, and thus it would not result in the reporting unit failing Step 1 of the goodwill impairment test.

† CAGR assumptions. A hypothetical percentage decrease of approximately 600% in the CAGR rate, holding all other assumptions constant, would not have decreased the fair value of the peripherals reporting unit below its carrying value.

† Terminal value assumptions. A hypothetical percentage decrease of approximately 110% in the terminal value, holding all other assumptions constant, would not have decreased the fair value of the peripherals reporting unit below its carrying value.

36 -------------------------------------------------------------------------------- Table of Contents Video Conferencing Key assumptions used in the Step 1 income approach analyses for our video conferencing reporting unit also 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. Both the income and market approaches arrived at estimated fair values within a relatively close range, which supported the reasonableness of each assessment.

We proceeded with a Step 2 assessment because the estimated fair value of our video conferencing reporting unit was less than its carrying value. The Step 2 test required us to fair value all assets and liabilities of our video conferencing reporting unit to determine the implied fair value of this reporting unit's goodwill. We were unable to fully complete the Step 2 analysis prior to filing of this Form 10-Q for the quarterly period ended December 31, 2012 due to the complexities of determining the implied fair value of goodwill of our video conferencing reporting unit. Based on the work performed as of this filing date, we recorded an estimated goodwill impairment charge of $211.0 million. This impairment charge had no cash flow impact. Additional adjustments to this estimated goodwill impairment charge may be required during the fourth quarter of fiscal year 2013 when our Step 2 assessment is finalized.

Applicable to Both Reporting Units We continue to evaluate and monitor all key factors impacting the carrying value of our 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 our revenues and profitability. 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, but not limited to: † Our 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.

† 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 in response to a revenue shortfall.

† 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.

† 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 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, we expect competition in the industry to further intensify.

Should the actual outcome of some or all of these assumptions differ significantly from the current assumptions, revisions to current cash flow assumptions could cause the fair value of the reporting units to be significantly different in future periods.

37 -------------------------------------------------------------------------------- Table of Contents Results of Operations Net Sales Net sales by channel for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change % 2012 2011 Change % Peripherals Retail $ 542,388 $ 630,873 (14 )% $ 1,413,968 $ 1,527,385 (7 )% OEM 35,300 45,527 (22 )% 108,693 144,966 (25 )% Total Peripherals 577,688 676,400 (15 )% 1,522,661 1,672,351 (9 )% Video Conferencing 36,812 38,196 (4 )% 108,136 111,890 (3 )% Total net sales $ 614,500 $ 714,596 (14 )% $ 1,630,797 $ 1,784,241 (9 )% Although our financial results are reported in U.S. dollars, a portion of our sales for the three and nine months ended December 31, 2012 were made in currencies other than the U.S. dollar, such as the euro, Chinese renminbi, Japanese yen, Canadian dollar and Australian dollar. 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 nine months ended December 31, 2012 and 2011: Three months ended December 31, Nine months ended December 31, 2012 2011 2012 2011 Currencies other than USD 48 % 49 % 47 % 44 % If foreign currency exchange rates had been the same in the three and nine months ended December 31, 2012 and 2011, the percentage change in our constant dollar net sales would have been: Three Months Ended Nine months ended December 31, 2012 December 31, 2012 Peripherals Retail (13 )% (5 )% OEM (22 )% (25 )% Video Conferencing (4 )% (3 )% Total net sales (13 )% (7 )% Our retail sales in the three and nine months ended December 31, 2012 declined by 14% and 7%, compared with the same periods of the prior fiscal year. We experienced declines in all three regions during these periods. Retail units sold decreased 15% during the three months ended December 31, 2012, and decreased 6% in the nine months ended December 31, 2012, compared with the same periods of the prior fiscal year. Our overall retail average selling price declined 2% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year. Products priced below $40 represented 50% and 54% of retail sales in the three and nine months ended December 31, 2012, compared with 53% and 55% of retail sales in the three and nine months ended December 31, 2011. Sales of our retail products priced above $100 represented 15% and 13% of retail sales in the three and nine months ended December 31, 2012, compared with 16% and 15% of total retail sales in the three and nine months ended December 31, 2011. If foreign currency exchange rates had been the same in the three and nine months ended December 31, 2012 and 2011, our constant dollar retail sales would have been decreases of 13% and 5%.

38 -------------------------------------------------------------------------------- Table of Contents OEM net sales decreased 22% and 25% and units sold decreased 13% and 12% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year. These declines were primarily due to lower sales in the keyboard/desktop category due to product mix changes with a large customer, and lower sales of OEM mice.

Video conferencing net sales decreased 4% and 3% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, due to sales declines in all geographic regions, and were impacted by the slowdown in the overall video conferencing industry in recent quarters, together with the competitive environment in fiscal year 2013 and lower demand related to new product launches. Foreign currency exchange rates did not affect video conferencing sales.

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 current period sales in each local currency at the prior 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 nine months ended December 31, 2012 compared with the three and nine months ended December 31, 2011.

Three months ended December 31, 2012 Nine months ended December 31, 2012 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 (22 )% (20 )% (18 )% (7 )% (7 )% (2 )% Asia Pacific (15 )% (11 )% (11 )% (5 )% (6 )% (6 )% Americas (7 )% (8 )% (9 )% (5 )% (9 )% (8 )% Total retail sales (15 )% (14 )% (13 )% (6 )% (7 )% (5 )% Retail sales in our EMEA region experienced a significant decrease during the three months ended December 31, 2012, compared with the same period of the prior fiscal year. This decrease resulted from double-digit percentage sales declines in all of our product categories, except tablet accessories where sales increased by 172% due to continued strong demand for our Logitech Ultrathin Keyboard Cover for the iPad. Retail sales decreased in our EMEA region during the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, resulted from double-digit percentage sales declines in our other, audio-PC and remote categories, single-digit percentage sales declines in pointing devices and video, offset in part by a 275% sales increase in tablet accessories. Sales results varied by country, with significant sales decreases during the three months ended December 31, 2012 in Germany, France, Switzerland, Netherlands, Spain, Poland, United Kingdom and Czech Republic, offset in part by significant increases in Italy, Turkey and Belarus. During the nine months ended December 31, 2012, we experienced significant sales decreases in Germany, France, Poland, Spain, Netherlands, Switzerland, Czech Republic, Russia and Greece, offset in part by significant increases in Italy, Turkey, Belarus, Denmark and Slovakia. Retail sell-through in the EMEA region decreased 14% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year.

39 -------------------------------------------------------------------------------- Table of Contents Asia Pacific region retail sales decreased by 11% during the three months ended December 31, 2012, compared with the same period in the prior fiscal year. This decrease resulted from double-digit percentage declines in retail other, PC gaming, audio-PC and PC keyboards and desktops, offset in part by a 162% increase in tablet accessories and a 81% increase in audio-wearables and wireless categories. Declines by country within the Asia Pacific region during the three months ended December 31, 2012 were from weakness in Australia, Japan, Taiwan, India and South Korea, offset in part by continued growth in China.

Asia Pacific region retail sales decreased by 6% during the nine months ended December 31, 2012, compared with the same period of the prior fiscal year. This decrease resulted from double-digit percentage declines in retail other, PC gaming and video, single-digit percentage declines in PC keyboards and desktops, audio-PC and pointing devices, partially offset by a 192% increase in tablet accessories and by a 130% increase in the audio-wearables and wireless categories. Declines by country within the Asia Pacific region during the nine months ended December 31, 2012 were primarily from weakness in Australia, India, Taiwan and South Korea, offset in part by significant sales increases in China, New Zealand, Indonesia, Thailand and Vietnam. Retail sales in China increased by 7% during the three months ended December 31, 2012, with declines in all categories except tablet accessories where sales increased by 486%, audio-wearables and wireless where sales increased by 165%, and PC keyboards and desktops with a 10% increase. For the nine months ended December 31, 2012, retail sales in China increased by 4%, primarily from a 478% increase in tablet accessories, a 528% increase in audio-wearables and wireless, and by a 5% increase in PC keyboards and desktops, offset in part by double-digit declines in audio-PC and video, and by single-digit declines in pointing devices and PC gaming. China was our third-largest country in terms of net revenue during the three and nine months ended December 31, 2012, compared to the same periods of the prior fiscal year. Retail sell-through in China increased 20% and 13% in the three and nine months ended December 31, 2012 compared with the same periods in the prior fiscal year, while retail sell-through in the rest of the Asia Pacific region decreased 5% and 4% during the same periods.

The 8% decline in retail sales in the Americas region for the three months ended December 31, 2012, compared with the same period in the prior fiscal year, was driven by declines in most categories except tablet accessories where sales increased by 85% and PC keyboards and desktops where sales increased by 8%. The Americas region experienced a 9% decline in retail sales during the nine months ended December 31, 2012, compared with the same period in the prior fiscal year, due to declines in most categories except tablet accessories where sales increased by 89%, audio-wearables and wireless where sales increased by 34%, as well as a 6% increase in PC keyboards and desktops. During the three months ended December 31, 2012, compared to the same period of the prior fiscal year, we experienced weakness in the United States and Canada, which was offset in part by improvement in Brazil. During the nine months ended December 31, 2012, we experienced weakness in the United States and Canada, which was offset in part by improvement in Mexico and Brazil. Retail sell-through in the Americas region decreased 7% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year.

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. Although the sell-through data we obtain typically represents a majority of our retail sales, the customers supplying sell-through data vary by geographic region and from period to period. As a result of these limitations, sell-through data may not be an accurate indicator of actual consumer demand for our products.

40 -------------------------------------------------------------------------------- Table of Contents Net Retail Sales by Product Category Net retail sales by product category during the three and six ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change % 2012 2011 Change % Retail - Pointing Devices $ 153,921 $ 171,920 (10 )% $ 392,274 $ 427,031 (8 )% Retail - PC Keyboards & Desktops 110,671 117,507 (6 )% 302,299 302,840 0 % Retail - Tablet Accessories 39,398 17,976 119 % 89,021 36,565 143 % Retail - Audio - PC 75,366 92,766 (19 )% 214,158 238,932 (10 )% Retail - Audio - Wearables & Wireless 23,577 23,233 1 % 57,284 39,071 47 % Retail - Video 51,664 58,343 (11 )% 138,276 166,370 (17 )% Retail - PC Gaming 45,111 56,177 (20 )% 118,567 129,839 (9 )% Retail - Remotes 30,094 39,706 (24 )% 60,260 74,105 (19 )% Retail - Other 12,586 53,245 (76 )% 41,829 112,632 (63 )% Total net retail sales $ 542,388 $ 630,873 (14 )% $ 1,413,968 $ 1,527,385 (7 )% In the third quarter of fiscal year 2013, we changed the product category classification for a number of our retail products in an effort to help investors more clearly track the progress of our various product initiatives.

Products within the retail product categories as presented in the three and nine months ended December 31, 2011 have been reclassified to conform to the fiscal year 2013 presentation, with no impact on previously reported total net retail sales. 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 controls, which represents our retail remotes category, and digital video security categories, included within our retail video category, and we plan to discontinue other non-strategic products, such as speaker docks and console gaming peripherals, by the end of calendar year 2013.

Net sales reflect accruals for product returns, cooperative marketing arrangements, customer incentive programs and pricing programs.

Retail Pointing Devices Our retail pointing device category is comprised of PC-related mice, trackpads, touchpads and presenters. Retail sales of our pointing devices decreased 10% and 8% in the three and nine months ended December 31, 2012, compared with the same period in the prior fiscal year, while retail units sold decreased 12% and 4% during these periods. The continued weakness in the global PC market was a major factor in the sales declines in this category across all regions, particularly EMEA. The primary weakness during the three and nine months ended December 31, 2012, compared to the same periods of the prior fiscal year, was in our low and mid-range product offerings which experienced double-digit declines, offset in part by our high-end product offerings which increased by 90% and 32% during these periods. The high-end sales growth was driven by our TouchMouse T620 and our new Wireless Rechargeable Touchpad T650. Sales of all cordless mice decreased 10% and 7% in the three and nine months ended December 31, 2012, while units sold decreased 10% and 2% during the same period. Corded mice sales decreased 18% and 13% and units sold decreased 16% and 9% in the three and nine months ended December 31, 2012 compared with the same periods in the prior fiscal year.

Retail PC Keyboards and Desktops Our retail PC keyboard and desktop category is comprised of PC keyboards and keyboard/mice combo products. Retail sales of PC keyboards and desktops decreased 6% and remained constant during the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while units sold decreased 10% and 1% during these periods. This category also continued to be affected by the global PC market, particularly in the EMEA and APAC regions. Sales of corded and cordless desktops decreased 27% and 10% in sales and 25% and 4% in units during the three months ended December 31, 2012, compared with the same period in the prior fiscal year. During the nine months ended December 31, 2012, compared with the same period in the prior fiscal year, corded and cordless desktops decreased 15% and increased 2% in sales and decreased 10% and increased 7% in units. Sales of corded and cordless keyboards increased 9% and 18% in sales and decreased 16% and increased 29% in units during the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year. The primary driver of the increase in sales of corded and cordless keyboards during both periods was from strong sales of Logitech Wireless Touch Keyboard K400.

41 -------------------------------------------------------------------------------- Table of Contents Retail Tablet Accessories Our retail table accessory is comprised of our tablet keyboards and accessories. Retail sales of tablets and accessories increased 119% and 143% during the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while units sold increased 119% and 116% during these periods. These increases were driven by continued strong demand for the Logitech Ultrathin Keyboard Cover during both the three and nine months ended December 31, 2012, compared to the same periods in the prior fiscal year.

Retail Audio - PC Our retail audio-PC category is comprised of PC speakers and PC headsets. Retail audio-PC sales decreased 19% and 10% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while retail units sold decreased 22% and 11% during these periods. The decrease during the three months ended December 31, 2012, compared to the same period of the prior fiscal year, was due to a 16% decline in PC speakers and a 25% decline in PC headsets. For the nine months ended December 31, 2012, PC speakers declined by 11% and PC headsets declined by 9%. These declines were primarily due to the overall weakness in PCs and a market shift towards mobile audio devices.

Retail Audio - Wearables & Wireless Our retail audio-wearables and wireless category is comprised of non-PC audio products, including ear and headphones, and wireless speakers. Retail audio-wearables and wireless sales increased 1% and 47% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while retail units sold decreased 15% and increased 24% during these periods. The increase in sales during the three and nine months ended December 31, 2012, compared to the same period of the prior fiscal year, was driven by 29% and 98% increases in our wireless speakers for smartphones and tablets during these periods. We continued to experience strong sales from our new wireless speakers including Logitech UE Mobile Boombox and Logitech UE Boombox, both of which began shipping late in the second quarter of fiscal year 2013. Our audio wearables product category experienced a 26% decline in sales during the three months ended December 31, 2012, almost entirely due to our participation in an aggressive Black Friday promotion of our UE earphones with a large U.S. online retailer in the same period of the prior fiscal year. This year we chose not to participate in similarly aggressive promotions for our new music products launched under the Logitech UE brand, which caused our sales to decline substantially during the three months ended December 31, 2012, as compared to the same period of the prior fiscal year. For the nine months ended December 31, 2012, compared to the same period of the prior fiscal year, our audio wearables product category experienced a 12% increase in sales, driven in part by the strong initial sales of the new Logitech UE products which were initially available exclusively through Apple stores during the second quarter of fiscal year 2013.

Retail Video Our retail video category is comprised of webcams, digital video security systems and TV Cams. Retail sales of our video products declined 11% and 17% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while retail units sold decreased 29% and 23% during these periods. The sales decrease was mainly due to weakness in our webcam product line, which declined by 21% and 22% during both periods, 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. We expect future sales of our USB cable connected consumer webcams in the consumer market to continue declining, as the embedded webcam experience appears to be sufficient to meet the needs of many retail consumers. We are enhancing our webcam product line-up to enable experiences that cannot be easily achieved with an embedded webcam. For example, we experienced strong growth in the high-end category driven by the Logitech HD Pro Webcam C920, which 42 -------------------------------------------------------------------------------- Table of Contents offers full HD 1080p video calls on Skype, and from Logitech BCC950 Conference Cam for the enterprise market during both the three and nine months ended December 31, 2012. The retail video sales decrease was also due to 6% and 3% declines in our digital video security products during both the three and nine months ended December 31, 2012. These decreases were offset in part by 74% and 22% increase in sales of Logitech TV Cam HD during both the three and nine months ended December 31, 2012. We made a strategic decision to divest our digital video security category of products, included within our retail video category by the end of calendar year 2013.

Retail PC Gaming Our retail PC gaming category is comprised of PC gaming mice, gamepads, headsets, joysticks and steering wheels. Retail sales of our PC gaming peripherals declined 20% and 9% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while retail units sold decreased 10% and increased 5% during these periods. During the three months ended December 31, 2012, we experienced declines across most product categories, with the most significant decline in our steering wheel products, offset in part by strong sales of Logitech G600 MMO Gaming Mouse.

For the nine months ended December 31, 2012, we experienced significant sales decline in our steering wheel products, offset in part by increased sales from gaming mice, due primarily to strong sales of Logitech G600 MMO Gaming Mouse, and gaming headsets, due to strong sales of Logitech G35 and G930 Wireless Gaming Headsets. The difference between the decline in PC gaming sales and the increase in units during the nine months ended December 31, 2012 reflects a product mix shift away from steering wheels to lower-priced mice, keyboards and gamepads.

Retail Remotes Retail sales of our remotes category, comprised of our Harmony remotes, decreased 24% and 19% in the three and nine months ended December 31, 2012, compared with the same periods in the prior fiscal year, while retail units sold decreased 55% and 36% during these periods. Sales decline was concentrated in the low and mid-range remotes during both the three and nine months ended December 31, 2012. The high-end category experienced a modest increase of 4% during the three months ended December 31, 2012 due to the launch of Harmony Touch in October 2012, our first new high-end remote in over four years. The significantly steeper decline in units, relative to sales, primarily reflects our transition over the last several quarters away from selling low to mid-range remotes. We made a strategic decision to divest our remotes category by the end of calendar year 2013.

Retail Other This category is comprised of a variety of products that we currently intend to transition out of, or have already transitioned out of, as they are no longer strategic to our business. Products currently included in this category include speaker docks, streaming media systems, console gaming peripherals and Logitech Revue for Google TV products. Retail sales of this category decreased by 76% and 63% in the three and nine months ended December 31, 2012, compared with same periods in the prior fiscal year, while retail units sold decreased 68% and 48% during these periods. Speaker docks decreased by 74% and 60%, streaming media systems decreased by 83% and 38%, Logitech Revue for Google TV decreased by 100% and 93%, and console gaming peripherals decreased by 60% and 76%, during the three and nine months ended December 31, 2012, compared to the same periods of the prior fiscal year. We plan to discontinue other non-strategic products, such as speaker docks and console gaming peripherals, by the end of calendar year 2013.

43 -------------------------------------------------------------------------------- Table of Contents Gross Profit Gross profit for the three and nine months ended December 31, 2012 and 2011 was as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change 2012 2011 Change Net sales $ 614,500 $ 714,596 (14 )% $ 1,630,797 $ 1,784,241 (9 )% Cost of goods sold 404,402 455,922 (11 )% 1,080,452 1,201,539 (10 )% Gross profit $ 210,098 $ 258,674 (19 )% $ 550,345 $ 582,702 (6 )% Gross margin 34.2 % 36.2 % 33.7 % 32.7 % 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, write-down of inventories and amortization of intangible assets.

The decline in gross margin for the three months ended December 31, 2012, compared with the same period of the prior fiscal year, was primarily a result of an unfavorable change in retail product mix and the negative impact of a weaker euro, offset in part by tight management of channel pricing programs and a variety of efficiency improvements in our global supply chain process. The improvement in gross margin for the nine months ended December 31, 2012, compared with the same period of the prior fiscal year, primarily resulted from a $34.1 million valuation adjustment to cost of goods sold which occurred during the three months ended June 30, 2011, and from the improvements to our channel pricing programs and global supply chain process, offset in part by an unfavorable change in retail product mix and the negative impact of a weaker euro. The $34.1 million valuation adjustment reflected the lower of cost or market on our inventory of Logitech Revue and related peripherals on hand and at our suppliers. The gross margin for the nine months ended December 31, 2012 was also negatively impacted by $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 restructuring, a provision for a patent dispute, and changes in our product mix.

Operating Expenses Operating expenses for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change 2012 2011 Change Marketing and selling $ 112,698 $ 116,313 (3 )% $ 324,117 $ 323,552 0 % % of net sales 18 % 16 % 20 % 18 % Research and development 40,393 41,911 (4 )% 117,340 121,383 (3 )% % of net sales 7 % 6 % 7 % 7 % General and administrative 26,382 30,673 (14 )% 84,842 89,527 (5 )% % of net sales 4 % 4 % 5 % 5 % Goodwill impairment 211,000 - 100 % 211,000 - 100 % % of net sales 34 % 0 % 13 % 0 % Restructuring charges (credits) (358 ) - 100 % 28,198 - 100 % % of net sales 0 % 0 % 2 % 0 % Total operating expenses $ 390,115 $ 188,897 107 % $ 765,497 $ 534,462 43 % The increase in total operating expenses as a percentage of net sales was primarily attributable to the estimated $211.0 million goodwill impairment charge related to our video conferencing reporting unit and from $28.2 million in costs related to the restructuring plan initiated in April 2012.

Our operating expenses are incurred in U.S. dollars, Chinese renminbi, Swiss francs, euros, and, to a lesser extent, 28 other currencies. To the extent that the U.S. dollar significantly increases or decreases in value relative to the currencies in which our operating expenses are denominated, the reported dollar amounts of our sales and expenses may decrease or increase. 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.

44 -------------------------------------------------------------------------------- Table of Contents 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 current period operating expenses in each local currency at the prior 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 decreased by 3% in the three months ended December 31, 2012, compared with the same period in the prior fiscal year, primarily due to decreases in personnel-related expenses, share-based compensation expense and facility-related costs from the reduction in worldwide workforce resulting from the restructuring plan initiated in the first quarter of fiscal year 2013. These decreases were offset in part by an increase in product design, consulting and marketing expenses associated with the launch of new products.

Marketing and selling expense remained relatively constant during the nine months ended December 31, 2012, compared with same period of the prior fiscal year. We experienced increased product design, advertising, consulting and marketing expenses associated with the launch of new products, which were offset by decreases in personnel-related expenses and share-based compensation expense from our recent restructuring plan initiated in the first quarter of fiscal year 2013.

Foreign currency exchange rates did not have a material effect on marketing and sales expense during the three months ended December 31, 2012, compared to the same period of the prior fiscal year. If foreign currency exchange rates had been the same in the nine months ended December 31, 2012 and 2011, the percentage change in constant dollar marketing and sales expense would have been an increase of 3% instead of a less than 1% increase.

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 4% and 3% decreases in research and development expense during the three and nine months ended December 31, 2012, compared with the same periods 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 plan.

Foreign currency exchange rates did not have a material effect on research and development expense during the three months ended December 31, 2012, compared to the same period of the prior fiscal year. For the nine months ended December 31, 2012 and 2011, the percentage change in constant dollar research and development expense would have been a 1% decrease instead of a 3% decrease.

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 decreased by 14% from the three months ended December 31, 2011 to 2012, primarily from the decline in personnel-related expenses and share-based compensation expense due to the reduction in worldwide workforce from our recent restructuring plan.

45 -------------------------------------------------------------------------------- Table of Contents General and administrative expense decreased by 5% from the nine months ended December 31, 2011 to 2012, primarily from the decline in personnel-related expenses and share-based compensation expense due to the reduction in worldwide workforce from our recent restructuring plan, offset in part by the write-off of the remaining lease obligations resulting from the exit of our former corporate headquarters.

Foreign currency exchange rates did not have a material effect on general and administrative expense during the three months ended December 31, 2012, compared to the same period of the prior fiscal year. If foreign currency exchange rates had been the same in the nine months ended December 31, 2012 and 2011, the percentage change in constant dollar general and administrative expense would have been a decrease of 3% instead of a decrease of 5%.

Goodwill Impairment While performing our annual goodwill impairment analysis of each of our reporting units as of December 31, 2012, we determined that our video conferencing reporting unit's estimated fair value was less than its carrying value, thus requiring a Step 2 assessment of this reporting unit. This impairment primarily resulted from a decrease in our expected CAGR during the assessment forecast period based on greater evidence of the overall enterprise video conferencing industry experiencing a slowdown in recent quarters, combined with lower demand related to new product launches, increased competition in fiscal year 2013 and other market data. The Step 2 test requires us to fair value all assets and liabilities of our video conferencing reporting unit to determine the implied fair value of this reporting unit's goodwill. We were unable to complete the Step 2 analysis prior to filing of this Form 10-Q for the quarterly period ended December 31, 2012 due to the complexities of determining the implied fair value of goodwill of our video conferencing reporting unit.

Based on the work performed as of this filing date, we recorded an estimated goodwill impairment charge of $211.0 million. We will not be required to make any current or future cash payments as a result of this impairment charge.

Additional adjustments to this estimated goodwill impairment charge may be required during the fourth quarter of fiscal year 2013 when our Step 2 assessment is finalized.

Restructuring Charges Restructuring charges consist of termination benefits, lease exit costs and other charges associated with the restructuring plan initiated in April 2012.

The restructuring plan reduced our worldwide non-direct-labor workforce by approximately 340 employees. During the current quarter, we incurred a $0.2 million credit in termination benefits to affected employees due to the further refinement of estimates which were previously accrued during the three months ended June 30, 2012. For the nine months ended December 31, 2012, we incurred a $24.7 million charge 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 $2.2 million as a result of the terminations during the three and nine months ended December 31, 2012. We also incurred $0.2 million credit and $1.3 million charge in lease exit costs primarily related to costs associated with the closure of existing facilities during the three and nine months ended December 31, 2012. We believe we will complete the restructuring plan by the end of our fiscal year 2013.

46 -------------------------------------------------------------------------------- Table of Contents The following table summarizes restructuring-related activities during the three and nine months ended December 31, 2012 (in thousands): Termination Lease Exit Total Benefits Costs Other Accrual 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 - - Accrual 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 Accrual 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 - - - - Accrual balance at December 31, 2012 $ 917 $ 673 $ 182 $ 62 Interest Income, Net Interest income and expense for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change 2012 2011 Change Interest income $ 427 $ 1,020 (58 )% $ 1,654 $ 2,312 (28 )% Interest expense (313 ) (103 ) 204 % (1,003 ) (104 ) 864 % Interest income, net` $ 114 $ 917 (88 )% $ 651 $ 2,208 (71 )% The changes in interest income for the three and nine months ended December 31, 2012, compared with the same period in the prior fiscal year, primarily resulted from lower invested balances resulting from the $133.5 million cash dividend payment made on September 18, 2012.

Interest expense for the three and nine months ended December 31, 2012 represents commitment fees and non-recurring fees related to the revolving credit facility entered into in December 2011.

Other Income (Expense), Net Other income and expense for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 Change 2012 2011 Change Investment impairment $ (3,600 ) $ - 100 % $ (3,600 ) $ - 100 % Foreign currency exchange gain (loss), net 26 32 (19 )% (1,582 ) (681 ) 132 % Gain (loss) on sale of property and plant (165 ) - 100 % (165 ) 4,904 (103 )% Investment income (loss) related to deferred compensation plan 261 40 553 % 360 (488 ) (174 )% Gain on sale of investments - 6,118 0 % 831 6,118 (86 )% Other, net (192 ) 523 (137 )% (182 ) 288 (163 )% Other income (expense), net $ (3,670 ) $ 6,713 (155 )% $ (4,338 ) $ 10,141 (143 )% The $3.6 million investment impairment resulted from the write-down of an investment in a privately-held company.

47 -------------------------------------------------------------------------------- Table of Contents 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.

The $4.9 million gain on sale of property and plant for the nine months ended December 31, 2011 relates to the sale of an unused manufacturing facility in China.

Investment income (loss) for the three and nine months ended December 31, 2012 and 2011 represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

During the nine months ended December 31, 2012, we sold the remaining two of our available-for-sale securities with a total carrying value of $0.4 million and a total par value of $15.2 million for $0.9 million. This sale resulted in $0.8 million of gain recognized in other income (expense), net, $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 (Benefit from) Income Taxes The provision for (benefit from) income taxes and effective tax rates for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands): Three months ended Nine months ended December 31, December 31, 2012 2011 2012 2011 Provision for (benefit from) income taxes $ 11,370 $ 22,074 $ (26,616 ) $ 17,417 Effective income tax rate (6.2 )% 28.5 % 12.2 % 28.7 % 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 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.

In determining the annual effective tax rate, both the restructuring described in Note 13 and the goodwill impairment described in Note 7 were treated as discrete events as they were significantly unusual and infrequent in nature. As such, related charges and costs were excluded from ordinary income in determining the annual effective tax rate. The tax benefit associated with the restructuring is approximately $0.2 million. There was no tax benefit associated with goodwill impairment as the goodwill is not tax-deductible.

The income tax provision for the three months ended December 31, 2012 was $11.4 million based on an effective income tax rate of 6.2% of pre-tax loss. For the three months ended December 31, 2011, the income tax provision was $22.1 million based on an effective income tax rate of 28.5% of pre-tax income. The income tax benefit for the nine months ended December 31, 2012 was $26.6 million based on an effective income tax rate of 12.2% of pre-tax loss. For the nine months ended December 31, 2011, the income tax provision was $17.4 million based on an effective income tax rate of 28.7% of pre-tax income. The change in the effective income tax rate for the three and nine months ended December 31, 2012 compared with the same periods in fiscal year 2012 is primarily due to the mix of income and losses in the various tax jurisdictions in which we operate, and a discrete tax benefit of $32.1 million and $3.5 million during the fiscal quarter ended September 30, 2012 and December 31, 2012, respectively, related to the reversal of uncertain tax positions resulting from the closure of federal income tax examinations in the United States.

48 -------------------------------------------------------------------------------- Table of Contents The American Taxpayer Relief Act of 2012, which was enacted on January 2, 2013, extends the Federal research tax credit retroactively for two years from January 1, 2012 through December 31, 2013. An estimated tax benefit of approximately $2.5 million from the extension of the Federal research tax credit will be reflected in our income tax provision in the quarter ending March 31, 2013.

As of December 31 and March 31, 2012, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $102.5 million and $143.3 million, of which $89.2 million and $125.4 million would affect the effective income tax rate if recognized. The decline in unrecognized tax benefits associated with uncertain tax positions in the amount of $40.8 million is primarily due to $42.8 million from the settlement of income tax examinations in the United States.

We continue to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of December 31 and March 31, 2012, we had approximately $6.8 million and $7.5 million, respectively, 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 2000. In the fiscal quarter ended September 30, 2012, we effectively settled the examinations of fiscal years 2006 and 2007 with the IRS (U.S. Internal Revenue Service).

We reversed $33.8 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $1.7 million tax provision from the proposed revised assessments as a result of the closure, resulting in a net tax benefit of $32.1 million. There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

In addition, the IRS completed its field examination of our U.S. subsidiary for fiscal years 2008 and 2009 during the fiscal quarter ended September 30, 2012.

We received Notices of Proposed Adjustments ("NOPAs") related to various domestic and international tax issues on August 15, 2012 and subsequently, received final letters dated October 17, 2012 which effectively settled the examinations. As a result of the closure of income tax examinations for fiscal years 2008 and 2009, we reversed $9.0 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $5.5 million tax provision from the assessments, resulting in a net tax benefit of $3.5 million.

There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

We are also under examination and have received assessment notices in other 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 consolidated operating results.

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 decrease of the unrecognized tax benefits within the next twelve months.

Liquidity and Capital Resources Cash Balances, Available Borrowings, and Capital Resources At December 31, 2012, our working capital was $395.7 million, compared with $576.7 million at March 31, 2012. This decrease in working capital was primarily due to lower cash balances, primarily resulting from the $133.5 million cash dividend payment paid on September 18, 2012.

During the nine months ended December 31, 2012, we generated $104.2 million from operating activities. Our main sources of operating cash flows were net loss after adding non-cash expenses of depreciation, amortization, goodwill impairment, investment impairment and share-based compensation expense, and from an increase in accounts payables and accrued liabilities. These sources of operating cash 49 -------------------------------------------------------------------------------- Table of Contents flows were offset in part by an increase in accounts receivables and other assets during this period. Net cash used in investing activities was $42.8 million, primarily from $39.7 million of investments in leasehold improvements, computer hardware and software, tooling and equipment and from a $4.0 million investment in a privately-held company. Net cash used by financing activities was $216.5 million, primarily from the $133.5 million cash dividend payment and from the $90.0 million used to repurchase 8.6 million shares under our share buyback program, offset in part by $8.8 million in proceeds received from sale of shares upon exercise of options and purchase rights.

At December 31, 2012, we had cash and cash equivalents of $322.0 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 52% of our cash and cash equivalents are held by our Swiss-based entities, and approximately 32% is held by our subsidiaries in Hong Kong and China. We do not believe we would be subject to any material adverse tax impact or significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.

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. There were no outstanding borrowings under the credit facility at December 31, 2012.

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, 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 December 31, 2012, we were in compliance with all covenants and conditions of this facility.

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.

50 -------------------------------------------------------------------------------- Table of Contents We have credit lines with several European and Asian banks totaling $76.8 million as of December 31, 2012. 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 December 31, 2012, 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 available credit lines related to corporate credit cards totaling $30.2 million as of December 31, 2012. 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.

Cash Flow from Operating Activities The following table presents selected financial information and statistics as of December 31, 2012 and 2011 (dollars in thousands): December 31, 2012 2011 Accounts receivable, net $ 264,589 $ 318,678 Inventories 277,477 295,749 Working capital 395,739 621,034Days sales in accounts receivable (DSO) (1) 39 days 40 days Inventory turnover (ITO) (2) 5.6x 6.2x Net cash provided by operating activities $ 104,196 $ 154,168 -------------------------------------------------------------------------------- (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 nine months ended December 31, 2012, we generated net cash of $104.2 million from operating activities, compared to $154.2 million for the same period in the prior fiscal year. The primary drivers of this decrease involved a net loss of $192.2 million generated in the nine months ended December 31, 2012 compared with net income of $43.2 million in the nine months ended December 31, 2011, and from a $39.7 million increase in accounts payables, a $5.2 million increase in accrued liabilities and a $1.4 million decrease in inventories.

These increases to operating activities were offset in part by a $41.3 million increase in accounts receivables and a $2.2 million increase in other assets.

DSO for the current quarter decreased by 1 day compared with the same period of the prior fiscal year primarily from increased cash collections. Typical payment terms require customers to pay for product sales generally within 30 to 60 days. However, terms may vary by customer type, by country and by selling season. Extended payment terms are sometimes offered to a limited number of customers during the second and third fiscal quarters. We do not modify payment terms on existing receivables, but may offer discounts for early payment.

Inventory turnover between the nine months ended December 31, 2012 and 2011 decreased due to lower annualized cost of goods sold between the two periods.

51 -------------------------------------------------------------------------------- Table of Contents Cash Flow from Investing Activities Cash flows from investing activities during the nine months ended December 31, 2012 and 2011 were as follows (in thousands): Nine months ended December 31, 2012 2011 Purchases of property, plant and equipment $ (39,737 ) $ (31,417 ) Acquisition, net of cash acquired - (18,814 ) Investment in privately-held company (3,970 ) - Proceeds from sale of property and plant - 4,904 Proceeds from sale of available-for-sale securities 917 6,550 Purchases of trading investments (2,294 ) (5,577 ) Proceeds from sale of trading investments 2,309 5,520 Net cash used in investing activities $ (42,775 ) $ (38,834 ) Our expenditures for property, plant and equipment during the nine months ended December 31, 2012 and 2011 were principally normal expenditures for leasehold improvements, computer hardware and software, tooling and equipment.

During the second quarter of fiscal year 2013, we invested $4.0 million in a privately-held company in exchange for convertible preferred stock. We account for this investment under the cost method of accounting since we have less than a 20% ownership interest and we lack the ability to exercise significant influence over the operating and financial policies of the investee.

Proceeds from the sale of property and plant were related to the sale of an unused manufacturing facility in China in the three months ended June 30, 2011.

During the nine months ended December 31, 2012, we sold our two remaining available-for-sale securities with a total carrying value of $0.4 million and a total par value of $15.2 million for $0.9 million. This sale resulted in $0.8 million of gain recognized in other income (expense), net, $0.3 million of which resulted from the recognition of a temporary increase in fair value previously recorded in accumulated other comprehensive income.

The purchases and sales of trading investments in the nine months ended December 31, 2012 and 2011 represent mutual fund activity directed by participants in a deferred compensation plan offered by one of the Company's 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 nine months ended December 31, 2012 and 2011 (in thousands): Nine months ended December 31, 2012 2011 Cash dividend payment $ (133,462 ) $ - Purchase of treasury shares (89,955 ) (73,134 ) Proceeds from sale of shares upon exercise of options and purchase rights 8,843 9,852 Tax withholdings related to net share settlements of RSUs (1,995 ) (890 ) Excess tax benefits from share-based compensation 26 33 Net cash used in financing activities $ (216,543 ) $ (64,139 ) Nine months ended December 31, 2012 2011 Number of shares repurchased 8,600 7,609 Value of shares repurchased $ 89,955 $ 73,134 Average price per share $ 10.46 $ 9.61 52 -------------------------------------------------------------------------------- Table of Contents On September 5, 2012, our shareholders approved a cash dividend payment of CHF 125.7 million out of retained earnings to Logitech shareholders who owned shares on September 17, 2012. Eligible shareholders were paid CHF 0.79 per share ($0.85 per share in U.S. dollars), totaling $133.5 million in U.S. dollars on September 18, 2012.

During the nine months ended December 31, 2012, we repurchased 8.6 million shares for $90.0 million under the Company's amended September 2008 buyback program, compared with the nine months ended December 31, 2011, during which we repurchased 7.6 million shares for $73.1 million. There were no repurchases during the three months ended December 31, 2012. The amounts of the repurchases include transaction costs incurred as part of the repurchase.

Cash of $8.8 million and $9.9 million was provided during the nine months ended December 31, 2012 and 2011 from the sale of shares upon exercise of options and purchase rights pursuant to the Company's stock plans. The payment of tax withholdings related to net share settlements of RSUs (restricted stock units) required the use of $2.0 million and $0.9 million in cash in the nine month periods ended December 31, 2012 and 2011.

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, 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. 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. 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 December 31, 2012. As of December 31, 2012, we were in compliance with all covenants and conditions related to this facility.

In September 2008, our Board of Directors approved a share buyback program, which authorizes the Company to invest up to $250 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 7.6 million shares for $73.1 million under the September 2008 program. Under the amended September 2008 program, we repurchased 9.9 million shares for $82.9 million in fiscal year 2012 and 8.6 million shares for $90.0 million in the first quarter of fiscal year 2013. As of December 31, 2012, the approved amount remaining under the amended September 2008 program was $4.4 million. 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.

We file Swiss and foreign tax returns. For all these tax returns, we are generally not subject to tax examinations for years prior to 2000. In the fiscal quarter ended September 30, 2012, we effectively settled the examinations of fiscal years 2006 and 2007 with the IRS (U.S. Internal Revenue Service).

We reversed $33.8 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $1.7 million tax provision from the proposed revised assessments as a result of the closure, resulting in a net tax benefit of $32.1 million. There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

53 -------------------------------------------------------------------------------- Table of Contents In addition, the IRS completed its field examination of our U.S. subsidiary for fiscal years 2008 and 2009 during the fiscal quarter ended September 30, 2012.

We received NOPAs related to various domestic and international tax issues on August 15, 2012 and subsequently, received final letters dated October 17, 2012 which effectively settled the examinations. As a result of the closure of income tax examinations for fiscal years 2008 and 2009, we reversed $9.0 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $5.5 million tax provision from the assessments, resulting in a net tax benefit of $3.5 million. There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

We are also under examination and have received assessment notices in other 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 consolidated operating results.

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 decrease of the unrecognized tax benefits within the next twelve months.

On April 25, 2012, we announced a restructuring plan to reduce operating costs and improve financial results. We believe we will complete the restructuring plan by the end of our fiscal year 2013.

Our other contractual obligations and commitments which 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 $196.1 million in fiscal year 2012. During the nine months ended December 31, 2012, 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 share repurchases during this period. 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, credit lines and credit facility 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 December 31, 2012, 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.

54 -------------------------------------------------------------------------------- Table of Contents The following summarizes our contractual obligations and commitments at December 31, 2012 (in thousands): December 31, 2012 Operating leases $ 102,406 Purchase commitments - inventory 131,990 Purchase obligations - capital expenditures 18,608 Purchase obligations - operating expenses 63,986 Income taxes payable - non-current 100,358 Obligation for deferred compensation 15,199 Pension and post-employment obligations 38,925 Other long-term liabilities 12,740 Total contractual obligations and commitments $ 484,212 Operating Leases We lease facilities under operating leases, certain of which require us 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 December 31, 2012 were $1.8 million.

Purchase Commitments At December 31, 2012, we have fixed purchase commitments of $132.0 million for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers, which are expected to be fulfilled by March 2013. We also had commitments of $64.0 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 $18.6 million at December 31, 2012, 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 December 31, 2012, we had $100.4 million in non-current income taxes payable, including interest and penalties, related to our income tax liability for recognized uncertain tax positions, compared with $137.3 million in non-current taxes payable as of March 31, 2012. The decline in income tax liability associated with uncertain tax positions in the amount of $36.9 million is primarily due to $38.9 million from the closure of income tax examinations in the United States.

Obligation for Deferred Compensation At December 31, 2012, we had $15.2 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 for the fiscal year ended March 31, 2012.

Pension and Post-Employment Obligations At December 31, 2012, we had $38.9 million in liabilities related to our defined benefit pension plans and non-retirement post-employment benefit obligations.

For more information, please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

55 -------------------------------------------------------------------------------- Table of Contents Other Contractual Obligations and Commitments For further detail about our contractual obligations and commitments, please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

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 $36.0 million. At December 31, 2012, 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 three guarantee agreements. Two of these guarantees do not specify a maximum amount. The remaining guarantee has a total limit of $7.0 million. As of December 31, 2012, $0.1 million 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 three guarantee agreements. The maximum amount of these guarantees was $5.3 million as of December 31, 2012. As of December 31, 2012, $0.6 million of guaranteed purchase obligations were outstanding under these agreements.

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 $36.4 million as of December 31, 2012. As of December 31, 2012, $9.9 million of guaranteed liabilities were subject to these guarantees.

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 December 31, 2012. 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.

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.

56 -------------------------------------------------------------------------------- Table of Contents 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 our business.

[ Back To asia.tmcnet.com's Homepage 's Homepage ]

comments powered by Disqus





Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved | Privacy Policy