Note 2—Restatement and Revision of Previously Issued Consolidated Financial Statements

As the Company announced on May 21, 2014, the Audit Committee, with the assistance of independent advisors, began an independent investigation of certain accounting matters related to the Company's previously issued financial statements.

On September 3, 2014, the Company announced that, in connection with this investigation, the Audit Committee, on the recommendation of management, concluded that the Company's previously issued financial statements for fiscal years 2011 and 2012 and the first quarter of fiscal year 2012 could no longer be relied on due to an accounting misstatement for inventory valuation reserves for Logitech's now-discontinued Revue product. As a result, the Company recorded an adjustment to increase cost of goods sold and to increase inventory valuation reserves and the accrual for supplier liability for components related to the Company's now discontinued Revue product by $30.7 million during fiscal year ended March 31, 2011, with a corresponding decrease to cost of goods sold in fiscal year ended March 31, 2012. As a result, net income and net income per share for fiscal year ended March 31, 2011 was reduced by $30.7 million and $0.17 per share, respectively, with a corresponding increase in fiscal year ended March 31, 2012. In conjunction with recording of the adjustments related to this restatement, the Company recorded other immaterial corrections to the consolidated financial statements included in this Form 10-K for the fiscal years ended March 31, 2013 and 2012.

The Audit Committee has completed its independent investigation and found that, in connection with its quarterly close processes, up until June 2013, the Company's finance organization would compile lists of financial items, which included significant accounting entries recorded during the quarter, late accounting entries, disclosure items and certain other items with potential accounting implications. The lists used to track these financial items appear to have been primarily shared within certain parts of the Company's finance organization and were not shared with the Company's independent registered public accounting firm. Typically, there were between approximately thirty to fifty items per quarter on these lists and there were multiple versions of these lists per quarter, as items were added, removed and changed. Some of the items on the list were discussed with the Company's independent registered public accounting firm while others were not.

As part of the independent investigation, the Company determined that nine historical items from these lists during a five year period should have been recorded in an earlier period or a different amount should have been recorded. The largest item relates to the now-discontinued Revue product and is the cause for the restatement. Two items—the warranty accrual and the amortization of certain intangible assets—were on the lists in prior periods and were not addressed in a timely manner before the Company corrected them in its revised Form 10-K/A filed on August 7, 2013. Certain former finance employees signed the May 30, 2013 management representation letter to the Company's independent registered public accounting firm without disclosing these issues and, as a result, the management representation letter was inaccurate on this point. Six items are not material individually or in aggregate to any of the annual or interim periods reported but are nevertheless being corrected in these restated consolidated financial statements.

There are two elements to the restatement related to the Revue product: (1) a lower of cost or market ("LCM") charge based on the net realizable value of finished goods and work in process on-hand inventory and non-cancelable orders for such inventory, and (2) an excess and obsolescence charge for non-cancelable orders for inventory components. The Audit Committee found that certain former members of the finance organization had information that was not considered, that showed a future loss that was estimable and probable before the filing of the Form 10-K on May 27, 2011 and that such loss was not recorded in the Company's fiscal year 2011 financial statements. Certain former members of the finance organization erroneously accounted for the LCM charge in fiscal year 2011 based on the current price or on price reductions approved by management instead of considering available contemporaneous evidence of anticipated future price reductions and losses which were estimable and probable at the time. In addition, the Audit Committee found that a management representation letter dated May 27, 2011 to the Company's independent registered public accounting firm incorrectly stated that probable future pricing adjustments were considered in the LCM calculation. With respect to the Revue components, certain former members of the finance organization did not consider all available information and therefore did not record a charge in the fourth quarter of fiscal year 2011 for non-cancelable orders related to components considered excess and obsolete. The analysis erroneously assumed the components would be manufactured into finished goods, though there was information available that showed that the components would not be manufactured into finished goods. This information was not reflected in the Company's accounting or provided to the Company's independent registered public accounting firm. The Audit Committee found that the Company did not have an adequate basis for the historical accounting treatment of the components in the fourth quarter of fiscal year 2011.

The restated and revised financial statements included the following adjustments:

(1)

Inventory Valuation Reserve—As described above, the Company determined that there was a material accounting misstatement for Logitech's now-discontinued Revue product in fiscal years 2012 and 2011. As a result, the Company recorded an adjustment to increase cost of goods sold, and to increase inventory valuation reserves and supplier liability for components related to the Company's now discontinued Revue product by $30.7 million during fiscal year ended March 31, 2011, with a corresponding decrease to cost of goods sold during fiscal year ended March 31, 2012.

(2)

Property Plant and Equipment Capitalization Threshold Convention—Historically, the Company's practice was to apply an accounting convention to immediately expense the entire purchase price of all property and equipment that cost less than certain dollar thresholds instead of capitalizing and depreciating such property and equipment over its useful life. The Company determined that the thresholds utilized were incorrect and resulted in a cumulative understatement of net income and retained earnings through March 31, 2011 of $8.3 million, which the company corrected through an increase to opening retained earnings as of that date. The impact of the correction also resulted in a decrease in cost of goods sold and operating expense and increase in operating income of $0.1 million in fiscal year 2012 and an increase in cost of goods sold and operating expense and increase in operating loss of $1.3 million in fiscal year 2013.

(3)

Settlement Accrual—The Company determined that it incorrectly recorded a release of a legal settlement accrual of $1.3 million in fiscal year 2012 instead of correctly in fiscal year 2011 as the contingency was resolved before the Annual Report Form 10-K of fiscal year 2011 was issued. The impact of this adjustment was an increase in operating income by $1.3 million in fiscal year 2011 and a corresponding decrease of operating income for the same amount in fiscal year 2012.

(4)

Other Adjustments—The Company is also correcting a number of other immaterial errors which were previously recorded in prior periods as out-of-period adjustments and are now being revised to report them in the correct period as well as to correct other immaterial errors that were previously uncorrected. Among the corrections, the Company is correcting its accrual for worker compensation, liability for certain of its defined benefit pension plans, balance sheet reclassifications, cash flow reclassifications and tax impact of the above adjustments.

Consolidated Statements of Operations

The following table presents the impact of correcting adjustments on the Company's previously-reported consolidated statements of operations for fiscal years 2013 and 2012 (in thousands):

	Year ended March 31, 2013									Year ended March 31, 2012

	As Reported			Adjustments			As Revised			As Reported		Adjustments			As Restated
Net sales	$	2,099,883		$	(606	)(4)	$	2,099,277		$	2,316,203	$	—		$	2,316,203
Cost of goods sold		1,389,726			—			1,389,643			1,537,921		(30,730	)(1)		1,508,670
					408	(2)							(25	)(2)
					—								1,294	(3)
					(491	)(4)							210	(4)


Gross profit		710,157			(523	)		709,634			778,282		29,251			807,533


Operating expenses:
Marketing and selling		431,598			396	(2)		431,886			423,854		(24	)(2)		422,116
					(108	)(4)							(1,714	)(4)
Research and development		154,207			324	(2)		155,012			162,711		(20	)(2)		162,159
					481	(4)							(532	)(4)
General and administrative		113,824			214	(2)		114,381			109,456		(13	)(2)		109,260
					343	(4)							(183	)(4)
Impairment of goodwill and other assets		216,688			—			216,688			—		—			—
Restructuring charges		43,704			—			43,704			—		—			—


Total operating expenses		960,021			1,650			961,671			696,021		(2,486	)		693,535


Operating income (loss)		(249,864	)		(2,173	)		(252,037	)		82,261		31,737			113,998
Interest income, net		907			—			907			2,674		—			2,674
Other income (expense), net		(2,198	)		—			(2,198	)		7,655		—			7,655


Income (loss) before income taxes		(251,155	)		(2,173	)		(253,328	)		92,590		31,737			124,327
Provision for (benefit from) income taxes		(25,588	)		(222	)(4)		(25,810	)		19,819		271	(4)		20,090


Net income (loss)	$	(225,567	)	$	(1,951	)	$	(227,518	)	$	72,771	$	31,466		$	104,237




Net income (loss) per share:
Basic	$	(1.42	)	$	(0.02	)	$	(1.44	)	$	0.42	$	0.18		$	0.60
Diluted	$	(1.42	)	$	(0.02	)	$	(1.44	)	$	0.41	$	0.18		$	0.59
Shares used to compute net income (loss) per share:
Basic		158,468			—			158,468			174,648		—			174,648
Diluted		158,468			—			158,468			175,591		—			175,591
Cash dividend per share	$	0.85		$	—		$	0.85		$	—	$	—		$	—

Consolidated Statements of Comprehensive Income (Loss)

The following table presents the impact of correcting adjustments on the Company's previously-reported consolidated statements of comprehensive income (loss) for fiscal years 2013 and 2012 (in thousands):

	Year ended March 31, 2013									Year ended March 31, 2012

	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Restated
Net income (loss)	$	(225,567	)	$	—		$	(227,518	)	$	72,771		$	30,730	(1)	$	104,237
					(1,342	)(2)								82	(2)
					—									(1,294	)(3)
					(609	)(4)								1,948	(4)
Other comprehensive income:
Foreign currency translation loss:
Foreign currency translation loss		(6,333	)		(48	)(4)		(6,381	)		(8,213	)		(19	)(4)		(8,232	)
Defined benefit pension plans:
Net gain (loss) and prior service costs, net of taxes		4,794			(921	)(4)		3,873			(11,564	)		15	(4)		(11,549	)
Reclass of amortization included in operating expenses		4,252			(619	)(4)		3,633			275			(15	)(4)		260
Hedging gain (loss):
Unrealized hedging gain (loss)		(1,190	)		—			(1,190	)		3,337			—			3,337
Reclass of hedging loss (gain) included in cost of goods sold		1,756			—			1,756			(421	)		—			(421	)
Net change in unrealized investment loss:
Net unrealized loss on investments for the period		—			—			—			(342	)		—			(342	)
Reclass of investment gain included in other income (expense), net		(343	)		—			(343	)		(483	)		—			(483	)


Other comprehensive income (loss):		2,936			(1,588	)		1,348			(17,411	)		(19	)		(17,430	)


Total comprehensive income (loss)	$	(222,631	)	$	(3,539	)	$	(226,170	)	$	55,360		$	31,447		$	86,807

Consolidated Balance Sheet

The following table presents the impact of correcting adjustments on the Company's previously-reported consolidated balance sheet as of March 31, 2013 (in thousands):

	March 31, 2013

	As Reported			Adjustments			As Revised
ASSETS
Current assets:
Cash and cash equivalents	$	333,824		$	—		$	333,824
Accounts receivable, net		179,565			(606	)(4)		178,959
Inventories		261,083			1,561	(4)		262,644
Other current assets		58,103			2,274	(4)		60,377
Asset held for sale		10,960			—			10,960


Total current assets		843,535			3,229			846,764
Non-recurring assets:
Property, plant and equipment, net		87,649			7,034	(2)		93,721
					(962	)(4)
Goodwill		341,357			—			341,357
Other intangible assets		26,024			—			26,024
Other assets		75,098			(631	)(4)		74,467


Total assets	$	1,373,663		$	8,670		$	1,382,333




LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	265,995			(590	)(4)		265,405
Accrued and other current liabilities		192,774			310	(4)		193,084
Liabilities held for sale		3,202			—			3,202


Total current liabilities		461,971			(280	)		461,691
Non-current liabilities:
Income taxes payable		98,827			—			98,827
Other non-current liabilities		97,055			2,807	(4)		99,862


Total liabilities	$	657,853		$	2,527		$	660,380




Commitments and contingencies
Shareholders' equity:
Registered shares, CHF 0.25 par value: Issued and authorized shares—173,106 at March 31, 2013 Conditionally authorized shares—50,000 at March 31, 2013	$	30,148			—			30,148
Additional paid-in capital		—			—			—
Less: shares in treasury, at cost—13,855 at March 31, 2013		(177,847	)		(2,143	)(4)		(179,990	)
Retained earnings		956,502			7,034	(2)		966,924
					3,388	(4)
Accumulated other comprehensive loss		(92,993	)		(2,136	)(4)		(95,129	)


Total shareholders' equity		715,810			6,143			721,953


Total liabilities and shareholders' equity	$	1,373,663		$	8,670		$	1,382,333

Consolidated Statements of Cash Flows

The following table presents the impact of correcting adjustments on the Company's previously-reported consolidated statements of cash flows for fiscal years 2013 and 2012 (in thousands):

	Year ended March 31, 2013									Year ended March 31, 2012

	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Restated
Cash flows from operating activities:
Net income (loss)	$	(225,567	)	$	—		$	(227,518	)	$	72,771		$	30,730	(1)	$	104,237
					(1,342	)(2)								82	(2)
					—									(1,294	)(3)
					(609	)(4)								1,948	(4)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		44,419			6,589	(2)		51,766			45,968			6,310	(2)		52,277
					758	(4)								(1	)(4)
Amortization of other intangible assets		23,571			—			23,571			27,198			—			27,198
Share-based compensation expense		25,198			—			25,198			31,529			—			31,529
Impairment of goodwill and other assets		216,688			—			216,688			—			—			—
Impairment of investments		3,600			—			3,600			—			—			—
Loss (gain) on disposal of property, plant and equipment		—			2,007	(4)		2,007			(8,967	)		2,434	(4)		(6,533	)
Gain on sales of available-for-sale securities		(831	)		—			(831	)		(6,109	)		—			(6,109	)
Inventory valuation adjustment		—			—			—			34,074			(34,074	)(1)		—
Excess tax benefits from share-based compensation		(26	)		—			(26	)		(37	)		—			(37	)
Deferred income taxes and other		11,552			(14,761	)(4)		(3,209	)		137			(2,386	)(4)		(2,249	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		44,667			606	(4)		45,273			29,279			—			29,279
Inventories		23,954			(845	)(4)		23,109			(36,621	)		3,344	(4)		(33,277	)
Other assets		(1,420	)		6,801	(4)		5,381			(4,621	)		2,051	(4)		(2,570	)
Accounts payable		(34,069	)		663	(4)		(33,406	)		3,622			(295	)(4)		3,327
Accrued and other liabilities		(14,594	)		—			(9,214	)		7,919			1,294	(3)		5,462
					5,380	(4)								(3,751	)(4)


Net cash provided by operating activities		117,142			5,247			122,389			196,142			6,392			202,534


Cash flows from investing activities:
Purchases of property, plant and equipment		(49,240	)		(5,247	)(2)		(54,487	)		(47,807	)		(6,392	)(2)		(54,199	)
Purchase of strategic investment		(4,420	)		—			(4,420	)		—			—			—
Acquisitions, net of cash acquired		—			—			—			(18,814	)		—			(18,814	)
Proceeds from sales of available-for-sale securities		917			—			917			6,550			—			6,550
Proceeds from sales of property and plant		—			—			—			8,967			—			8,967
Purchases of trading investments		(4,196	)		—			(4,196	)		(7,505	)		—			(7,505	)
Proceeds from sales of trading investments		4,463			—			4,463			7,399			—			7,399


Net cash used in investing activities		(52,476	)		(5,247	)		(57,723	)		(51,210	)		(6,392	)		(57,602	)


Cash flows from financing activities:
Payment of cash dividends		(133,462	)		—			(133,462	)		—			—			—
Purchases of treasury shares		(87,812	)		—			(87,812	)		(156,036	)		—			(156,036	)
Proceeds from sales of shares upon exercise of options and purchase rights		15,982			—			15,982			17,591			—			17,591
Tax withholdings related to net share settlements of restricted stock units		(2,375	)		—			(2,375	)		(966	)		—			(966	)
Excess tax benefits from share-based compensation		26			—			26			37			—			37


Net cash used in financing activities		(207,641	)		—			(207,641	)		(139,374	)		—			(139,374	)


Effect of exchange rate changes on cash and cash equivalents		(1,571	)		—			(1,571	)		(5,119	)		—			(5,119	)


Net increase (decrease) in cash and cash equivalents		(144,546	)		—			(144,546	)		439			—			439


Cash and cash equivalents at beginning of period		478,370			—			478,370			477,931			—			477,931


Cash and cash equivalents at end of period	$	333,824		$	—		$	333,824		$	478,370		$	—		$	478,370




Non-cash investing activities:
Property, plant and equipment purchased during the period and included in period end liability accounts	$	4,828		$	—		$	4,828		$	5,454		$	—		$	5,454
Supplemental cash flow information:
Interest paid	$	1,293		$	—		$	1,293		$	110		$	—		$	110
Income taxes paid, net	$	14,108		$	—		$	14,108		$	14,422		$	—		$	14,422