10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2015
 
Or
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                to                
 
Commission File Number: 0-29174
 
LOGITECH INTERNATIONAL S.A.
(Exact name of registrant as specified in its charter)
 
Canton of Vaud, Switzerland
(State or other jurisdiction
of incorporation or organization)
 
None
(I.R.S. Employer
Identification No.)
 
Logitech International S.A.
Apples, Switzerland
c/o Logitech Inc.
7700 Gateway Boulevard
Newark, California 94560
(Address of principal executive offices and zip code)
 
(510) 795-8500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ý  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ý   No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 

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Large accelerated filer  ý
 
Accelerated filer  o
 
 
 
Non-accelerated filer  o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o
  No  ý
 
As of January 11, 2016, there were 162,983,760 shares of the Registrant’s share capital outstanding.


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TABLE OF CONTENTS
 
 
 
Page
 
 
 
Part I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
Exhibits
 
In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America. All references to CHF are to the Swiss Franc, the legal currency of Switzerland.
 
Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.

The Company’s fiscal year ends on March 31. Interim quarters end on the last Friday of each quarter. The third quarter of fiscal year 2016 ended on December 25, 2015 and the same quarter in the prior fiscal year ended on December 26, 2014. For purposes of presentation, the Company has indicated its quarterly periods as ending on the last day of the calendar quarter.


      

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PART I — FINANCIAL INFORMATION 

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED) 

LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
621,079

 
$
604,322

 
$
1,587,259

 
$
1,562,625

Cost of goods sold
 
412,582

 
391,715

 
1,048,312

 
998,842

Gross profit
 
208,497

 
212,607

 
538,947

 
563,783

Operating expenses:
 
 

 
 

 
 

 
 

Marketing and selling
 
87,295

 
87,486

 
241,924

 
246,103

Research and development
 
29,273

 
27,397

 
86,336

 
80,009

General and administrative
 
24,080

 
28,172

 
77,966

 
96,762

Restructuring charges (credits), net
 
(666
)
 

 
14,018

 
(35
)
Total operating expenses
 
139,982

 
143,055

 
420,244

 
422,839

Operating income
 
68,515

 
69,552

 
118,703

 
140,944

Interest income, net
 
105

 
224

 
549

 
824

Other income (expense), net
 
862

 
(2,688
)
 
(894
)
 
(3,702
)
Income from continuing operations before income taxes
 
69,482

 
67,088

 
118,358

 
138,066

Provision for income taxes
 
1,442

 
670

 
7,006

 
8,455

Net income from continuing operations
 
68,040

 
66,418

 
111,352

 
129,611

Loss from discontinued operations, net of taxes
 
(2,954
)
 
(3,634
)
 
(20,732
)
 
(11,061
)
Net income
 
$
65,086

 
$
62,784

 
$
90,620

 
$
118,550


 
 
 
 
 
 
 
 
Net income (loss) per share - basic:
 
 

 
 

 
 

 
 

Continuing operations
 
$
0.42

 
$
0.41

 
$
0.68

 
$
0.79

Discontinued operations
 
$
(0.02
)
 
$
(0.03
)
 
$
(0.13
)
 
$
(0.06
)
Net income per share - basic
 
$
0.40

 
$
0.38

 
$
0.55

 
$
0.73


 
 
 
 
 
 
 
 
Net income (loss) per share - diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.41

 
$
0.40

 
$
0.67

 
$
0.78

Discontinued operations
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.12
)
 
$
(0.07
)
Net income per share - diluted
 
$
0.39

 
$
0.38

 
$
0.55

 
$
0.71


 
 
 
 
 
 
 
 
Weighted average shares used to compute net income (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
162,669

 
163,533

 
163,521

 
163,261

Diluted
 
165,168

 
166,321

 
165,951

 
166,076

 
 
 
 
 
 
 
 
 
Cash dividends per share
 
$

 
$
0.27

 
$
0.53

 
$
0.27

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


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LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
 
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
65,086

 
$
62,784

 
$
90,620

 
$
118,550

Other comprehensive income (loss):
 
 

 
 

 
 
 
 
Currency translation loss, net of taxes
 
(3,098
)
 
(4,400
)
 
(488
)
 
(8,051
)
Defined benefit pension plans:
 
 

 
 

 
 
 
 
Net gain and prior service costs, net of taxes
 
283

 
529

 
475

 
1,476

Amortization included in operating expenses
 
400

 
101

 
1,233

 
323

Hedging gain (loss):
 
 

 
 

 
 
 
 
Deferred hedging gain (loss), net of taxes
 
(62
)
 
1,286

 
(1,236
)
 
5,038

Reclassification of hedging loss (gain) included in cost of goods sold
 
45

 
(2,025
)
 
(2,443
)
 
(1,840
)
Other comprehensive loss:
 
(2,432
)
 
(4,509
)
 
(2,459
)
 
(3,054
)
Total comprehensive income
 
$
62,654

 
$
58,275

 
$
88,161

 
$
115,496

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


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LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
  (unaudited)
 
 
December 31,
2015
 
March 31,
2015
Assets
 


 
 
Current assets:
 
 

 
 

Cash and cash equivalents
 
$
505,082

 
$
533,380

Accounts receivable, net
 
284,089

 
167,196

Inventories
 
239,962

 
255,980

Other current assets
 
71,661

 
63,362

Current assets held for sale
 
28,969

 
32,102

Total current assets
 
1,129,763

 
1,052,020

Non-current assets:
 
 

 
 

Property, plant and equipment, net
 
99,145

 
86,478

Goodwill
 
218,198

 
218,213

Other assets
 
57,271

 
62,333

Long-term assets held for sale
 
5,506

 
7,636

Total assets
 
$
1,509,883

 
$
1,426,680

Liabilities and Shareholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
363,781

 
$
292,797

Accrued and other current liabilities
 
211,219

 
163,344

Current liabilities held for sale
 
34,642

 
38,766

Total current liabilities
 
609,642

 
494,907

Non-current liabilities:
 
 

 
 

Income taxes payable
 
67,885

 
72,107

Other non-current liabilities
 
85,347

 
91,195

Long-term liabilities held for sale
 
10,063

 
10,337

Total liabilities
 
772,937

 
668,546

Commitments and contingencies (Note 10)
 


 


Shareholders’ equity:
 
 

 
 

Registered shares, CHF 0.25 par value:
 
30,148

 
30,148

Issued and authorized shares —173,106 at December 31 and March 31, 2015
 


 


Conditionally authorized shares — 50,000 at December 31 and March 31, 2015
 


 


Additional paid-in capital
 
2,352

 

Less shares in treasury, at cost — 10,178 at December 31, 2015 and 8,625 at March 31, 2015
 
(114,737
)
 
(88,951
)
Retained earnings
 
934,879

 
930,174

Accumulated other comprehensive loss
 
(115,696
)
 
(113,237
)
Total shareholders’ equity
 
736,946

 
758,134

Total liabilities and shareholders’ equity
 
$
1,509,883

 
$
1,426,680

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


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LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
 
Nine Months Ended
December 31,
 
 
2015
 
2014
Operating activities:
 
 

 
 

Net income
 
$
90,620

 
$
118,550

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation
 
36,884

 
29,559

Amortization of other intangible assets
 
1,536

 
7,624

Share-based compensation expense
 
19,875

 
20,046

Impairment of investments
 
176

 
2,259

Gain on disposal of property, plant and equipment
 

 
(44
)
Excess tax benefits from share-based compensation
 
(2,089
)
 
(2,533
)
Deferred income taxes
 
2,914

 
(3,151
)
Changes in operating assets and liabilities, net of acquisitions:
 
 

 
 

Accounts receivable, net
 
(115,814
)
 
(131,026
)
Inventories
 
18,066

 
(30,171
)
Other assets
 
(9,329
)
 
(6,592
)
Accounts payable
 
68,763

 
111,310

Accrued and other liabilities
 
39,244

 
21,227

Net cash provided by operating activities
 
150,846

 
137,058

Investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(50,443
)
 
(34,777
)
Investment in privately held companies
 
(2,099
)
 
(2,550
)
Purchase of trading investments
 
(4,395
)
 
(3,463
)
Proceeds from sales of trading investments
 
4,668

 
3,856

Net cash used in investing activities
 
(52,269
)
 
(36,934
)
Financing activities:
 
 

 
 

Payment of cash dividends
 
(85,915
)
 
(43,767
)
Contingent consideration related to prior acquisition
 

 
(100
)
Repurchases of ESPP awards
 

 
(1,078
)
Purchases of treasury shares
 
(48,802
)
 

Proceeds from sales of shares upon exercise of options and purchase rights
 
12,562

 
2,466

Tax withholdings related to net share settlements of restricted stock units
 
(5,357
)
 
(7,456
)
Excess tax benefits from share-based compensation
 
2,089

 
2,533

Net cash used in financing activities
 
(125,423
)
 
(47,402
)
Effect of exchange rate changes on cash and cash equivalents
 
(1,205
)
 
(5,521
)
Net increase (decrease) in cash and cash equivalents
 
(28,051
)
 
47,201

Cash and cash equivalents, beginning of the period
 
537,038

 
469,412

Cash and cash equivalents, end of the period
 
$
508,987

 
$
516,613

 
 
 
 
 
Supplementary Cash Flow Disclosures:
 
 
 
 
Non-cash investing activities:
 
 

 
 

Property, plant and equipment purchased during the period and included in period end liability accounts
 
$
3,417

 
$
2,990


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The following amounts reflected in the statements of cash flows are included in discontinued operations:
Depreciation
 
$
2,207

 
$
1,930

Amortization of other intangible assets
 
$
1,089

 
$
7,027

Purchases of property, plant and equipment
 
$
1,431

 
$
1,601

Cash and cash equivalents, beginning of the period
 
$
3,659

 
$
1,894

Cash and cash equivalents, end of the period
 
$
3,905

 
$
8,128

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

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LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(unaudited)
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
Accumulated
Other
 
Total
 
Registered Shares
 
Paid-in
 
Treasury Shares
 
Retained
 
Comprehensive
 
Shareholders’
 
Shares
 
Amount
 
Capital
 
Shares
 
Amount
 
Earnings
 
Income (Loss)
 
Equity
March 31, 2014
173,106

 
$
30,148

 
$

 
10,206

 
$
(116,510
)
 
$
976,292

 
$
(85,802
)
 
$
804,128

Total comprehensive income (loss)

 

 

 

 

 
118,550

 
(3,054
)
 
115,496

Tax effects from share-based awards

 

 
842

 

 

 

 

 
842

Sales of shares upon exercise of options and purchase rights

 

 
(1,609
)
 
(238
)
 
4,075

 

 

 
2,466

Issuance of shares upon vesting of restricted stock units

 

 
(18,438
)
 
(1,059
)
 
18,764

 
(7,782
)
 

 
(7,456
)
Share-based compensation expense

 

 
20,283

 

 

 

 

 
20,283

Repurchase of ESPP awards

 

 
(1,078
)
 

 

 

 

 
(1,078
)
Cash dividends

 

 

 

 

 
(43,767
)
 

 
(43,767
)
December 31, 2014
173,106

 
$
30,148

 
$

 
8,909

 
$
(93,671
)
 
$
1,043,293

 
$
(88,856
)
 
$
890,914

 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
Accumulated Other
 
Total
 
Registered Shares
 
Paid-in
 
Treasury Shares
 
Retained
 
Comprehensive
 
Shareholders’
 
Shares
 
Amount
 
Capital
 
Shares
 
Amount
 
Earnings
 
Income (Loss)
 
Equity
March 31, 2015
173,106

 
$
30,148

 
$

 
8,625

 
$
(88,951
)
 
$
930,174

 
$
(113,237
)
 
$
758,134

Total comprehensive income (loss)

 

 

 

 

 
90,620

 
(2,459
)
 
88,161

Tax effects from share-based awards

 

 
(1,749
)
 

 

 

 

 
(1,749
)
Sales of shares upon exercise of options and purchase rights

 

 
(2,327
)
 
(1,147
)
 
14,889

 

 

 
12,562

Issuance of shares upon vesting of restricted stock units

 

 
(13,484
)
 
(802
)
 
8,127

 

 

 
(5,357
)
Share-based compensation expense

 

 
19,912

 

 

 

 

 
19,912

Purchases of treasury shares

 

 

 
3,502

 
(48,802
)
 

 

 
(48,802
)
Cash dividends

 

 

 

 

 
(85,915
)
 

 
(85,915
)
December 31, 2015
173,106

 
$
30,148

 
$
2,352

 
10,178

 
$
(114,737
)
 
$
934,879

 
$
(115,696
)
 
$
736,946

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


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LOGITECH INTERNATIONAL S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1 — The Company and Summary of Significant Accounting Policies and Estimates

The 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, the Company develops and markets 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 and home-entertainment control.

Basis of Presentation
 
The condensed consolidated interim financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and therefore do not include all the information required by GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2015, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 5, 2015. 

In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary and in all material aspects, for a fair statement of the results of operations, financial position, comprehensive income, cash flows and changes in shareholders' equity for the periods presented. Operating results for the three and nine months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2016, or any future periods.
 
During the third quarter of fiscal year 2016, the Company's Board of Directors approved a plan to divest the Lifesize video conferencing business, and the Company met all other criteria to classify this business as held for sale. As a result, the Company has classified the results of Lifesize video conferencing business as discontinued operations in its condensed consolidated statements of operations for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale on its condensed consolidated balance sheets. On December 28, 2015, the Company and Lifesize, Inc., a wholly owned subsidiary of the Company (“Lifesize”) which holds the assets of the Company’s Lifesize video conferencing business, entered into a stock purchase agreement (the “Stock Purchase Agreement”) with three venture capital firms. Immediately following the December 28, 2015 closing of the transactions contemplated by the Stock Purchase Agreement, the venture capital firms held 62.5% of the outstanding shares of Lifesize, which resulted in a divestiture of the Lifesize video conferencing business by the Company. The disposition of the Lifesize video conferencing business represents a strategic shift that will have a major effect on the Company's operations and financial results.

Unless indicated otherwise, the information in the Notes to the condensed consolidated financial statements relates to our continuing operations and does not include results of Lifesize video conferencing business, which is classified as discontinued operations. See "Note 2 - Discontinued Operations" for more information.

Segments
 
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The guidance defines reportable segments as operating segments that meet certain quantitative thresholds. As a result of the events of December 28, 2015 described above and the decision to divest the Company's video conferencing segment, the composition of the Company's previously reported segments changed significantly, such that the remaining peripheral segment is the only segment reported in continuing operations.



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Fiscal Year
 
The Company's fiscal year ends on March 31. Interim quarters end on the last Friday of each quarter. For purposes of presentation, the Company has indicated its quarterly periods as ending on the last day of the calendar quarter.

Changes in Significant Accounting Policies
 
There have been no substantial changes in the Company’s significant accounting policies during the nine months ended December 31, 2015 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2015.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Examples of significant estimates and assumptions made by management involve the fair value of goodwill, warranty liabilities, accruals for discretionary customer programs, sales return reserves, allowance for doubtful accounts, inventory valuation, restructuring charges, contingent liabilities, uncertain tax positions, and valuation allowances for deferred tax assets. 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 materially from those estimates.
 
Recent Accounting Pronouncements 

In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity". This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard is effective prospectively for years beginning on or after December 15, 2014, with early application permitted. The Company adopted ASU No. 2014-08 on April 1, 2015 on a prospective basis and applied the guidance to its disposal of the Lifesize video conferencing business.

In May 2014, the FASB issued Accounting Standards Update No. 2014-9, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-9"). ASU 2014-9 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 was originally to be effective for the Company on April 1, 2017. In July 2015, the FASB affirmed a one-year deferral of the effective date of the new revenue standard. The new standard will become effective for the Company on April 1, 2018. Early application is permitted but not before the original effective date of annual periods beginning after December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet selected a transition method nor has it determined the impact of the new standard on its condensed consolidated financial statements.

In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-11, "Simplifying the Measurement of Inventory (Topic 330)", ("ASU 2015-11"). Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. The amendments in ASU 2015-11 require an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective in the first quarter of fiscal year 2018 for the Company, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes.” This guidance eliminates the current requirement for an entity to separate deferred income tax

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liabilities and assets into current and non-current amounts in a classified balance sheet. Instead, this guidance requires deferred tax liabilities, deferred tax assets and valuation allowances be classified as non-current in a classified balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. Additionally, this guidance may be applied either prospectively or retrospectively to all periods presented. The Company is still evaluating whether to early adopt this guidance as the Company expects adoption will cause significant balance sheet reclassifications. See Note 6, “Balance Sheet Components” for details of the current and non-current deferred income taxes balances.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)  2016-01 “Financial Instruments- Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10).” The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its condensed consolidated financial statements.

Note 2 — Discontinued operations

During the third quarter of fiscal year 2016, the Company's Board of Directors approved a plan to divest the Lifesize video conferencing business. Subsequently, on December 28, 2015 in the fourth quarter of fiscal year 2016, the Company and Lifesize, Inc.(“Lifesize”), a wholly owned subsidiary of the Company which holds the assets of the Company’s video conferencing reportable segment, entered into a stock purchase agreement (the “Stock Purchase Agreement”) with entities affiliated with three venture capital firms - Redpoint Ventures, Sutter Hill Ventures and Meritech Capital Partners (the "Venture Investors"). Pursuant to the terms of the Stock Purchase Agreement, the Company sold 2,500,000 shares of Series B Preferred Stock of Lifesize to the Venture Investors for cash proceeds of $2,500,000 and retained 12,000,000 non-voting shares of Series A Preferred Stock of Lifesize. The shares of Series A Preferred Stock of Lifesize retained by the Company represent 37.5% of the total shares outstanding immediately after the closing of the transactions (the "Closing"). Lifesize also issued 17,500,000 shares of Series B Preferred Stock to the Venture Investors for cash proceeds of $17,500,000. The shares of Series B Preferred Stock held by the Venture Investors represent 62.5% of the total shares outstanding immediately after the Closing. In addition, Lifesize reserved 8,000,000 shares of common stock for issuance pursuant to a stock plan to be adopted by Lifesize following the Closing (the “Employee Pool”), none of which are issued or outstanding at the Closing. The divestiture of the Lifesize video conferencing business is effective on December 28, 2015. The Stock Purchase Agreement contains representations, warranties and covenants of the parties and includes certain indemnification obligations of the Company to the Venture Investors. See “Note 10 - Commitments and Contingencies” for more information. The Stock Purchase Agreement also contains certain post-closing working capital adjustments. Post closing continuing involvement with the discontinued operations includes certain customary services and support which are expected to be provided to Lifesize during the transition period from December 28, 2015 until approximately the end of the third quarter of fiscal year 2017.

The disposition of the Lifesize video conferencing business represents a strategic shift as contemplated by ASC 205-20, Presentation of Financial statement - Discontinued Operations, ("ASC 205-20") that will have a major effect on the Company's operations and financial results. As such, the Company has classified the results of its Lifesize video conferencing business as discontinued operations in its condensed consolidated statement of operations for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale on its condensed consolidated balance sheets for all periods presented. Evaluating whether the disposal of the business represents a strategic shift requires the Company's judgment. Also, evaluating whether the strategic shift will have a "major effect" on the Company's operations and financial results requires assessing not only quantitative factors but also the magnitude of qualitative factors.
The retained Series A Preferred Stock gives the Company no voting rights or other influence over the disposed Lifesize video conferencing business, and therefore is expected to be accounted for as a cost-method investment

12

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which is expected to be recognized at fair value. The Company expects to recognize a disposal gain of $15 million to $20 million as a result of the divestiture, which will be reported in discontinued operations included in the results of the fourth quarter of fiscal year 2016.

Discontinued operations include results of the Lifesize video conferencing business. Discontinued operations also includes other costs incurred by Logitech to effect the divestiture of the Lifesize video conferencing business. These costs include transaction charges, advisory and consulting fees and restructuring cost related to the Lifesize video conferencing business.

The following table presents financial results of the video conferencing segment classified as discontinued operations (in thousands):

 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,

 
2015
 
2014
 
2015
 
2014
Net sales
 
$
21,553

 
$
29,882

 
$
65,554

 
$
84,093

Cost of goods sold
 
8,240

 
11,206

 
24,951

 
30,062

Gross profit
 
13,313

 
18,676

 
40,603

 
54,031

Operating expenses:
 
 

 
 

 


 


Marketing and selling
 
8,877

 
15,822

 
31,550

 
44,112

Research and development
 
4,924

 
6,218

 
16,592

 
17,248

General and administrative
 
1,836

 
1,636

 
5,308

 
4,195

Restructuring charges (credits), net
 
1,064

 
(146
)
 
8,070

 
(111
)
Total operating expenses
 
16,701

 
23,530

 
61,520

 
65,444

Operating loss from discontinued operations
 
(3,388
)
 
(4,854
)
 
(20,917
)
 
(11,413
)
Interest expense and other expense, net
 
(47
)
 
(328
)
 
(180
)
 
(385
)
Loss from discontinued operations before income taxes
 
(3,435
)
 
(5,182
)
 
(21,097
)
 
(11,798
)
Benefit from income taxes
 
(481
)
 
(1,548
)
 
(365
)
 
(737
)
Net loss from discontinued operations
 
$
(2,954
)
 
$
(3,634
)
 
$
(20,732
)
 
$
(11,061
)


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The following table presents the aggregate carrying amounts of the classes of held for sale assets and liabilities (in thousands):
 
 
December 31,
2015
 
March 31,
2015
Carrying amounts of assets included as part of discontinued operations:
 
 
 
 
Cash and cash equivalents
 
$
3,905

 
$
3,659

Accounts receivable, net
 
10,360

 
12,627

Inventories
 
12,708

 
14,749

Other current assets
 
1,996

 
1,067

Total current assets
 
28,969

 
32,102

Property, plant and equipment, net
 
3,965

 
5,115

Other assets
 
1,541

 
2,521

Total non-current assets
 
5,506

 
7,636

Total assets classified as held for sale on the condensed consolidated balance sheets
 
$
34,475

 
$
39,738

 
 
 
 
 
Carrying amounts of liabilities included as part of discontinued operations:
 
 
 
 
Accounts payable
 
2,434

 
7,198

Accrued and other current liabilities
 
32,208

 
31,568

Total current liabilities
 
34,642

 
38,766

Non-current liabilities
 
10,063

 
10,337

Total liabilities classified as held for sale on the condensed consolidated balance sheets
 
$
44,705

 
$
49,103


The following table presents the components of certain balance sheet asset amounts as of December 31 and March 31, 2015 from discontinued operations (in thousands):
 
 
December 31,
2015
 
March 31,
2015
Accounts receivable, net:
 
 

 
 

Accounts receivable
 
$
13,397

 
$
16,082

Allowance for accounts receivable
 
(3,037
)
 
(3,455
)
 
 
$
10,360

 
$
12,627

Inventories:
 
 

 
 

Raw materials
 
$
574

 
$
332

Finished goods
 
12,134

 
14,417

 
 
$
12,708

 
$
14,749

 
 
 
 
 
Property, plant and equipment, net:
 
 

 
 

Property, plant and equipment
 
16,019

 
16,672

Less: accumulated depreciation and amortization
 
(12,054
)
 
(11,557
)
 
 
$
3,965

 
$
5,115



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The following table presents the components of certain balance sheet liability amounts as of December 31 and March 31, 2015 from discontinued operations (in thousands):

 
 
December 31,
2015
 
March 31,
2015
Accrued and other current liabilities:
 
 

 
 

Accrued personnel expenses
 
$
4,201

 
$
3,992

Deferred revenue
 
24,499

 
24,423

Other current liabilities
 
3,508

 
3,153

 
 
$
32,208

 
$
31,568

Non-current liabilities:
 
 

 
 

Long term deferred revenue
 
9,359

 
9,109

Other non-current liabilities
 
704

 
1,228

 
 
$
10,063

 
$
10,337


Note 3 — Net Income per Share
 
The computations of basic and diluted net income per share for the Company were as follows (in thousands, except per share amounts):
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014
Net Income (loss):
 
 
 
 
 
 
 
 
Continuing operations
 
68,040

 
66,418

 
111,352

 
129,611

Discontinued operations
 
(2,954
)
 
(3,634
)
 
(20,732
)
 
(11,061
)
Net income
 
$
65,086

 
$
62,784

 
$
90,620

 
$
118,550

 
 
 
 
 
 
 
 
 
Shares used in net income (loss) per share computation:
 
 

 
 

 
 

 
 

Weighted average shares outstanding - basic
 
162,669

 
163,533

 
163,521

 
163,261

Effect of potentially dilutive equivalent shares
 
2,499

 
2,788

 
2,430

 
2,815

Weighted average shares outstanding - diluted
 
165,168

 
166,321

 
165,951

 
166,076

 
 
 
 
 
 
 
 
 
Net income (loss) per share - basic:
 
 

 
 

 
 

 
 

Continuing operations
 
$
0.42

 
$
0.41

 
$
0.68

 
$
0.79

Discontinued operations
 
$
(0.02
)
 
$
(0.03
)
 
$
(0.13
)
 
$
(0.06
)
Net income per share - basic
 
$
0.40

 
$
0.38

 
$
0.55

 
$
0.73

 
 
 
 
 
 
 
 
 
Net income (loss) per share - diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.41

 
$
0.40

 
$
0.67

 
$
0.78

Discontinued operations
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.12
)
 
$
(0.07
)
Net income per share - diluted
 
$
0.39

 
$
0.38

 
$
0.55

 
$
0.71

 
Share equivalents attributable to outstanding stock options and restricted stock units ("RSUs") of 6.3 million and 8.1 million for the three months ended December 31, 2015 and 2014, respectively, and 6.6 million and 8.1 million for the nine months ended December 31, 2015 and 2014, were anti-dilutive and excluded from the calculation of diluted net income per share.
 

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Table of Contents

Note 4 — Employee Benefit Plans
 
Employee Share Purchase Plans and Stock Incentive Plans
 
As of December 31, 2015, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan).

The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and nine months ended December 31, 2015 and 2014, excluding balances classified as discontinued operations (in thousands):
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014
Cost of goods sold
 
$
464

 
$
560

 
$
1,648

 
$
1,725

Marketing and selling
 
2,484

 
2,552

 
6,545

 
6,659

Research and development
 
846

 
765

 
2,174

 
1,780

General and administrative
 
2,668

 
2,520

 
8,917

 
8,565

Restructuring
 

 

 
7

 

Total share-based compensation expense
 
6,462

 
6,397

 
19,291

 
18,729

Income tax benefit
 
(1,446
)
 
(1,391
)
 
(2,479
)
 
(4,285
)
Total share-based compensation expense, net of income tax
 
$
5,016

 
$
5,006

 
$
16,812

 
$
14,444

 
As of December 31, 2015 and March 31, 2015, the Company capitalized $0.5 million and $0.5 million of stock-based compensation expenses as inventory, respectively.
 
Defined Benefit Plans
 
Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The cost recorded of $2.8 million and $1.8 million for the three months ended December 31, 2015 and 2014, respectively, and $8.6 million and $5.7 million for the nine months ended December 31, 2015 and 2014, respectively, was primarily related to service costs.
 
Note 5 — Income Taxes
 
The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for (benefit from) income taxes are generated outside of Switzerland.
 
The income tax provision for the three months ended December 31, 2015 was $1.4 million based on an effective income tax rate of 2.1% of pre-tax income, compared to an income tax provision of $0.7 million based on an effective income tax rate of 1.0% of pre-tax income for the three months ended December 31, 2014. The income tax provision for the nine months ended December 31, 2015 was $7.0 million based on an effective income tax rate of 5.9% of pre-tax income, compared to an income tax provision of $8.5 million based on an effective income tax rate of 6.1% of pre-tax income for the nine months ended December 31, 2014.

The change in the effective income tax rate for the three and nine months ended December 31, 2015, compared to the three and nine months ended December 31, 2014, is due to the mix of income and losses in the various tax jurisdictions in which the Company operates. In the three months ended December 31, 2015 and December 31, 2014, there was a discrete tax benefit of $8.4 million and $8.0 million, respectively, from the reversal of uncertain tax positions from the expiration of statutes of limitations. In the nine months ended December 31, 2015 and December 31, 2014, there was an additional discrete tax benefit of $2.2 million and $0.8 million, respectively, from the preferential income tax rate reduction pursuant to the High and New Technology Enterprise Program in China.

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Table of Contents


On December 18, 2015, the enactment of the Protecting Americans from Tax Hikes Act of 2015 in the U.S. extended the federal research and development tax credit permanently which had previously expired on December 31, 2014. The income tax provision in the three and nine months ended December 31, 2015 reflected a $1.2 million tax benefit, respectively, as a result of the extension of the tax credit.

As of December 31 and March 31, 2015, the total amount of unrecognized tax benefits due to uncertain tax positions was $75.9 million and $79.0 million, respectively, all of which would affect the effective income tax rate if recognized.
 
The Company had $67.9 million in non-current income taxes payable and $0.1 million in current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions as of December 31, 2015, compared to $72.1 million in non-current income taxes payable and $0.1 million in current income taxes payable as of March 31, 2015.
 
The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. As of December 31 and March 31, 2015, the Company had $4.3 million and $4.9 million of accrued interest and penalties related to uncertain tax positions, respectively.
 
Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2016, the Company will continue to review its tax positions and provide for or reverse unrecognized tax benefits as issues arise. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to other currencies. Excluding these factors, uncertain tax positions may decrease by as much as $17.1 million from the lapse of the statutes of limitations in various jurisdictions during the next 12 months.


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Table of Contents

Note 6— Balance Sheet Components
 
The following table presents the components of certain balance sheet asset amounts as of December 31 and March 31, 2015, excluding balances classified as held for sale (in thousands): 
 
 
December 31,
2015
 
March 31,
2015
Accounts receivable, net:
 
 

 
 

Accounts receivable
 
$
521,772

 
$
328,373

Allowance for doubtful accounts
 
(666
)
 
(707
)
Allowance for sales returns
 
(19,838
)
 
(17,236
)
Allowance for cooperative marketing arrangements*
 
(46,036
)
 
(24,919
)
Allowance for customer incentive programs*
 
(74,692
)
 
(47,364
)
Allowance for pricing programs*
 
(96,451
)
 
(70,951
)
 
 
$
284,089

 
$
167,196

Inventories:
 
 

 
 

Raw materials
 
$
53,929

 
$
36,044

Finished goods
 
186,033

 
219,936

 
 
$
239,962

 
$
255,980

Other current assets:
 
 

 
 

Income tax and value-added tax receivables
 
$
25,278

 
$
19,318

Deferred tax assets
 
27,798

 
27,790

Prepaid expenses and other assets
 
18,585

 
16,254

 
 
$
71,661

 
$
63,362

Property, plant and equipment, net:
 
 

 
 

Property, plant and equipment
 
368,969

 
332,562

Less: accumulated depreciation and amortization
 
(269,824
)
 
(246,084
)
 
 
$
99,145

 
$
86,478

Other assets:
 
 

 
 

Deferred tax assets
 
$
33,672

 
$
39,310

Trading investments for deferred compensation plan
 
15,265

 
17,237

Other assets
 
8,334

 
5,786

 
 
$
57,271

 
$
62,333







18

Table of Contents

The following table presents the components of certain balance sheet liability amounts as of December 31 and March 31, 2015, excluding balances classified as held for sale (in thousands): 
 
 
December 31,
2015
 
March 31,
2015
Accrued and other current liabilities:
 
 

 
 

Accrued personnel expenses
 
$
52,956

 
$
46,022

Indirect customer incentive programs *
 
32,080

 
19,730

Warranty accrual
 
12,099

 
12,630

Employee benefit plan obligation
 
1,969

 
1,219

Income taxes payable
 
3,732

 
5,759

Other current liabilities
 
108,383

 
77,984

 
 
$
211,219

 
$
163,344

Non-current liabilities:
 
 

 
 

Warranty accrual
 
$
7,407

 
$
9,080

Obligation for deferred compensation plan
 
15,265

 
17,237

Employee benefit plan obligation
 
49,705

 
51,081

Deferred tax liability
 
1,761

 
1,936

Other non-current liabilities
 
11,209

 
11,861

 
 
$
85,347

 
$
91,195


*The increase in the allowances for cooperative marketing arrangements, customer incentive programs, pricing programs and indirect customer incentive programs as of December 31, 2015 compared with March 31, 2015 was primarily the result of seasonality in the Company's business and changes in product mix, and increases in these marketing activities offset by price increases.
 
Note 7— Fair Value Measurements
 
Fair Value Measurements
 
The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities.
 
Level 2 — Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.


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The following table presents the Company’s financial assets and liabilities, that were accounted for at fair value, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands): 
 
 
December 31, 2015
 
March 31, 2015
 
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Cash equivalents:
 
 

 
 
 
 

 
 

Cash equivalents
 
$
80,000

 
$

 
$
264,597

 
$

 
 
$
80,000

 
$

 
$
264,597

 
$

Trading investments for deferred compensation plan:
 
 

 
 
 
 

 
 

Money market funds
 
$
2,898

 
$

 
$
2,936

 
$

Mutual funds
 
12,367

 

 
14,301

 

 
 
$
15,265

 
$

 
$
17,237

 
$

Foreign exchange derivative assets
 
$

 
$
22

 
$

 
$
2,080

Foreign exchange derivative liabilities
 
$

 
$
1,108

 
$

 
$
75

 
There were no material Level 3 financial assets as of December 31 or March 31, 2015.
 
Investment Securities
 
The marketable securities for the Company's deferred compensation plan are recorded at a fair value of $15.3 million and $17.2 million as of December 31, 2015 and March 31, 2015, respectively, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Unrealized trading gains / (losses) related to trading securities for the three or nine months ended December 31, 2015 and 2014 were not significant and are included in other income (expense), net.
 
Derivative Financial Instruments
 
Under certain agreements with the respective counterparties to the Company’s derivative contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, the Company presents its derivative assets and derivative liabilities on a gross basis on the Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, 2015.

The fair values of the Company’s derivative instruments not designated as hedging instruments were not material as of December 31, 2015 or March 31, 2015. The following table presents the fair values of the Company’s derivative instruments designated as hedging instruments and their accounting line presentation on its Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, 2015 (in thousands):
 
 
Derivatives
 
 
Asset
 
Liability
 
 
December 31,
2015
 
March 31,
2015
 
December 31,
2015
 
March 31,
2015
Cash flow hedges
 
$
17

 
$
2,080

 
$
1,032

 
$


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The amount of gain (loss) recognized on derivatives not designated as hedging instruments were not material in all periods presented herein. The following table presents the amounts of gains (losses) on the Company’s derivative instruments designated as hedging instruments and their locations on its condensed consolidated statements of operations and condensed consolidated statements of comprehensive income for the three and nine months ended December 31, 2015 and 2014 (in thousands):

 
 
Three Months Ended
December 31,
 
 
Amount of
Gain (Loss) Deferred as 
a Component of 
Accumulated Other 
Comprehensive Loss After Reclassification to Costs of Goods Sold
 
Amount of Loss (Gain)
Reclassified from Accumulated Other Comprehensive Loss to
Costs of Goods Sold
 
Amount of Gain (Loss) Immediately Recognized in
Other Expense, Net
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Cash flow hedges
 
$
(17
)
 
$
(739
)
 
$
45

 
$
(2,025
)
 
$
64

 
$
36


 
 
Nine Months Ended
December 31,
 
 
Amount of
Gain (Loss) Deferred as 
a Component of 
Accumulated Other 
Comprehensive Loss After Reclassification to Costs of Goods Sold
 
Amount of Loss (Gain)
Reclassified from Accumulated Other Comprehensive Loss to
Costs of Goods Sold
 
Amount of Gain (Loss) Immediately Recognized in
Other Expense, Net
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Cash flow hedges
 
$
(3,679
)
 
$
3,198

 
$
(2,443
)
 
$
(1,840
)
 
$
207

 
$
(20
)
 
Cash Flow Hedges
 
The Company enters into currency exchange forward contracts to hedge against exposure to changes in currency exchange rates related to its subsidiaries’ forecasted inventory purchases. The Company has one entity with a euro functional currency that purchases inventory in U.S. Dollars. The primary risk managed by using derivative instruments is the currency exchange rate risk. However, there can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in currency exchange rates. The Company has designated these derivatives as cash flow hedges. These hedging contracts mature within four months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense), net. Such gains and losses were not material during the three or nine months ended December 31, 2015 and 2014. Cash flows from such hedges are classified as operating activities in the condensed consolidated statements of cash flows. The notional amounts of currency exchange forward contracts outstanding related to forecasted inventory purchases were $48.4 million and $43.5 million at December 31, 2015 and March 31, 2015, respectively. The Company estimates that $0.3 million of net gains related to its cash flow hedges included in accumulated other comprehensive loss as of December 31, 2015 will be reclassified into earnings within the next 12 months.
 
Other Derivatives
 
The Company also enters into currency exchange forward and swap contracts to reduce the short-term effects of currency exchange rate fluctuations on certain foreign currency receivables or payables. These contracts generally mature within one month. The primary risk managed by using forward and swap contracts is the currency exchange rate risk. The gains or losses on currency exchange contracts are recognized in other income (expense), net based on the changes in fair value.
 

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Table of Contents

The notional amounts of currency exchange forward and swap contracts outstanding as of December 31 and March 31, 2015 relating to foreign currency receivables or payables were $81.8 million and $61.7 million, respectively. Open forward and swap contracts outstanding at December 31, 2015 and March 31, 2015 consisted of contracts in Mexican Pesos, Japanese Yen, British Pounds, Taiwanese Dollars and Australian Dollars to be settled at future dates at pre-determined exchange rates.
 
The fair value of all currency exchange forward and swap contracts is determined based on observable market transactions of spot currency rates and forward rates. Cash flows from these contracts are classified as operating activities in the Condensed Consolidated Statements of Cash Flows.

Note 8 — Goodwill and Other Intangible Assets
  
In accordance with ASC Topic 350-10 (“ASC 350-10”), the Company conducts a goodwill impairment analysis annually at December 31 or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test. As of December 31, 2015 and March 31, 2015, all of the Company's goodwill is related to the peripherals reporting unit.

The Company performed its annual impairment analysis of the goodwill for its peripherals reporting unit at December 31, 2015 by performing a qualitative assessment and concluded that it was more likely than not that the fair value of its peripherals reporting unit exceeded its carrying amount.  In assessing the qualitative factors, the Company considered the impact of these key factors: change in industry and competitive environment, growth in market capitalization to $2.5 billion as of December 31, 2015 from $2.3 billion a year ago, and budgeted-to-actual revenue performance from prior year.
 
The following table summarizes the activity in the Company’s goodwill balance during the nine months ended December 31, 2015 (in thousands):
As of March 31, 2015
 
$
218,213

Currency impact
 
(15
)
As of December 31, 2015
 
$
218,198


Other Intangible Assets

Amortization expense for other intangible assets was $0.1 million and $0.2 million for the three months ended December 31, 2015 and 2014, respectively, and $0.4 million and $0.6 million for the nine months ended December 31, 2015 and 2014, respectively.
 
Note 9— Financing Arrangements
 
The Company had several uncommitted, unsecured bank lines of credit aggregating $45.5 million as of December 31, 2015. There are no financial covenants under these lines of credit with which the Company must comply. As of December 31, 2015, the Company had outstanding bank guarantees of $21.8 million under these

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lines of credit. There was no borrowing outstanding under these lines of credit as of December 31, 2015 or March 31, 2015.

Note 10 — Commitments and Contingencies
 
Product Warranties
 
All of the Company’s peripherals products sold are covered by warranty to be free from defects in material and workmanship. Except for the products sold prior to April 1, 2014, the standard warranty period up to five years, starting from April 1, 2014, which had the standard warranty for all new products launched was changed to two years from date of purchase for European Countries and generally one year from date of purchase for all other countries. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of the warranty obligation. The Company’s estimate of costs to fulfill its warranty obligations is based on historical experience and expectations of future conditions. When the Company experiences changes in warranty claim activity or costs associated with fulfilling those claims, the warranty liability is adjusted accordingly.
 
Changes in the Company’s warranty liability for the three and nine months ended December 31, 2015 and 2014 were as follows (in thousands): 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
2015
 
2014
 
2015
 
2014
Beginning of the period
$
20,399

 
$
22,204

 
$
21,710

 
$
24,380

Provision
1,870

 
2,381

 
5,804

 
6,607

Settlements
(2,763
)
 
(2,493
)
 
(8,008
)
 
(8,895
)
End of the period
$
19,506

 
$
22,092

 
$
19,506

 
$
22,092

 
Other Contingencies
 
The Company is subject to an ongoing formal investigation by the Enforcement Division of the U.S. Securities and Exchange Commission ("SEC"), relating to certain issues including the accounting for Revue inventory valuation reserves that resulted in the restatement described in the Fiscal 2014 Form 10-K, revision to the Company’s consolidated financial statements concerning warranty accruals and amortization of intangible assets presented in the Company’s Amended Annual Report on Form10-K/A, filed on August 7, 2013, and the Company’s transactions with a distributor for Fiscal Year 2007 through Fiscal Year 2009. The Company has entered into an agreement with the Enforcement Staff to extend the statute of limitations. The Company is cooperating with the investigation and, after discussions with the Enforcement Staff, the Company made an offer of settlement to resolve the matter, which is subject to approval by the SEC.  The proposed settlement would be entered into by the Company without admitting or denying the SEC’s findings and would resolve alleged violations of certain provisions of the Securities Exchange Act of 1934 and related rules, including the anti-fraud provisions.  Under the terms of the proposed settlement, the Company would pay $7.5 million in a civil penalty and agree not to commit or cause any violations of certain provisions of the Securities Exchange Act of 1934 and related rules. There is no assurance that the proposal will be approved by the SEC. In accordance with U.S. GAAP, the Company has made a corresponding accrual in its financial statements.
 
Guarantees
 
Logitech Europe S.A. guaranteed payments of certain third-party contract manufacturers’ purchase obligations. As of December 31, 2015, the maximum amount of this guarantee was $3.8 million, of which $1.3 million of guaranteed purchase obligations were outstanding.

Indemnifications
 
The Company 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. As of December 31, 2015, no amounts have been accrued for these indemnification

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provisions. The Company does not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under its indemnification arrangements.
 
The Company 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. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not limited, the obligations are conditional in nature and the facts and circumstances involved in any situation that might arise are variable.

The Stock Purchase Agreement in connection with the investment by three venture capital firms in Lifesize, Inc. contains representations, warranties and covenants of Logitech and Lifesize, Inc. to the Investors. Logitech has agreed, subject to certain limitations, to indemnify the Investors and certain persons related to the Investors for certain losses resulting from breaches of or inaccuracies in such representations, warranties and covenants as well as certain other obligations, including third-party expenses, restructuring costs and pre-closing tax obligations of Lifesize.
 
Legal Proceedings
 
From time to time the Company is involved in claims and legal proceedings that 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 or results of operations in a particular period. Any claims or proceedings against the Company, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect the Company’s business.

Note 11— Shareholders’ Equity
 
Share Repurchase Program

In March 2014, the Company’s Board of Directors approved the 2014 share buyback program, which authorizes the Company to use up to $250.0 million to purchase its own shares. The Company’s share buyback program is expected to remain in effect for a period of three years. Shares may be repurchased from time to time on the open market with consideration given to Logitech’s stock price, market conditions and other factors. During the nine months ended December 31, 2015, 3.5 million shares were repurchased for $48.8 million. There were no share repurchases during the three months ended December 31, 2015, or the three and nine months ended December 31, 2014.
 
Cash Dividends on Shares of Common Stock

In September 2015, the Company declared and paid cash dividends of CHF 0.51 (USD equivalent of $0.53) per common share, totaling $85.9 million, on the Company’s outstanding common stock.

Any future dividends will be subject to the approval of the Company's shareholders.


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Table of Contents

Accumulated Other Comprehensive Income (Loss)
 
On total company basis, the components of accumulated other comprehensive income (loss) was as follows (in thousands):
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Cumulative
Translation
Adjustment (1)
 
Defined
Benefit
Plan (1)
 
Deferred
Hedging
Gains (Losses)
 
Total
March 31, 2015
 
$
(90,224
)
 
$
(26,964
)
 
$
3,951

 
$
(113,237
)
Other comprehensive income (loss)
 
(488
)
 
1,708

 
(3,679
)
 
(2,459
)
December 31, 2015
 
$
(90,712
)
 
$
(25,256
)
 
$
272

 
$
(115,696
)
 
(1)        Tax effect was not significant as of December 31 or March 31, 2015.
 
Note 12 — Segment Information
 
As discussed in "Note 1 — The Company and Summary of Significant Accounting Policies and Estimates", the Company's Peripherals segment remains as the sole reporting segment reported in continuing operations.

The Company's Peripherals segment continues to encompass the design, manufacturing and marketing of peripherals for PCs, tablets and other digital platforms. Operating performance measures for Peripherals reports directly to the Company's Chief Executive Officer (“CEO”), who is considered to be the Company’s Chief Operating Decision Maker (“CODM”). The CEO periodically reviews information such as net sales and operating income (loss) to make business decisions. These operating performance measures do not include restructuring charges, net, share-based compensation expense and amortization of intangible assets.

Net sales by product categories and sales channels, excluding intercompany transactions, for the three and nine months ended December 31, 2015 and 2014 were as follows (in thousands):
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014

 
 

 
 

 
 

 
 

Mobile Speakers
 
$
85,081

 
$
62,264

 
$
206,175

 
$
139,631

Gaming
 
77,706

 
70,188

 
189,000

 
164,570

Video Collaboration
 
26,216

 
16,935

 
67,460

 
45,968

Tablet & Other Accessories
 
35,873

 
55,100

 
73,222

 
114,974

Growth
 
224,876

 
204,487

 
535,857

 
465,143

Pointing Devices
 
139,711

 
141,789

 
381,364

 
382,524

Keyboards & Combos
 
116,531

 
114,051

 
324,458

 
325,217

Audio-PC & Wearables
 
57,300

 
56,741

 
149,341

 
162,480

PC Webcams
 
29,648

 
31,709

 
74,689

 
77,454

Home Control
 
25,684

 
25,116

 
48,548

 
56,224

Profit Maximization
 
368,874

 
369,406

 
978,400

 
1,003,899

Retail Strategic Sales
 
593,750

 
573,893

 
1,514,257

 
1,469,042

Non-Strategic
 
817

 
132

 
1,961

 
2,259

Retail
 
594,567

 
574,025

 
1,516,218

 
1,471,301

OEM
 
26,512

 
30,297

 
71,041

 
91,324

 
 
$
621,079

 
$
604,322

 
$
1,587,259

 
$
1,562,625


Certain products within the retail product categories presented in prior periods have been reclassified to conform to the current periods' presentation.

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Table of Contents

 
Net sales to unaffiliated customers by geographic region (based on the customers’ location) for the three and nine months ended December 31, 2015 and 2014 were as follows (in thousands):
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 
2015
 
2014
 
2015
 
2014
Americas
 
$
279,286

 
$
266,499

 
$
719,735

 
$
678,343

EMEA
 
205,827

 
209,949

 
494,592

 
533,401

Asia Pacific
 
135,966

 
127,874

 
372,932

 
350,881

Total net sales
 
$
621,079

 
$
604,322

 
$
1,587,259

 
$
1,562,625

 
Sales are attributed to countries on the basis of the customers’ locations. The United States represented 40% and 35% of the Company’s total consolidated net sales from continuing operations for the three months ended December 31, 2015 and 2014, respectively. No other single country represented more than 10% of the Company's total consolidated net sales during those periods. One customer group of the Company represented 13% and 14% of total consolidated net sales from continuing operations for the three months ended December 31, 2015 and 2014, respectively. Another customer group of the Company represented 13% of sales for the three months ended December 31, 2015.

The United States represented 40% and 36% of the Company’s total consolidated net sales from continuing operations for the nine months ended December 31, 2015 and 2014, respectively. No other single country represented more than 10% of the Company’s total consolidated net sales from continuing operations during those periods. One customer group of the Company represented 14% and 15% of the Company’s total consolidated net sales from continuing operations for the nine months ended December 31, 2015 and 2014, respectively. Another customer group of the Company represented 10% of total consolidated net sales from continuing operations for the nine months ended December 31, 2015.

Revenues from sales to customers in Switzerland, the Company’s home domicile, represented 2% of the Company’s total consolidated net sales from continuing operations for all the periods presented herein.
 
Long-lived assets by geographic region were as follows (in thousands):
 
 
December 31,
2015
 
March 31,
2015
Americas
 
$
41,170

 
$
44,263

EMEA
 
3,294

 
3,473

Asia Pacific
 
54,681

 
38,742

 
 
$
99,145

 
$
86,478

 
Long-lived assets in the United States and China were $40.9 million and $50.3 million as of December 31, 2015, respectively, and $44.3 million and $33.4 million at March 31, 2015, respectively. No other countries represented more than 10% of the Company’s total consolidated long-lived assets as of December 31 or March 31, 2015. Long-lived assets in Switzerland, the Company’s