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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2019or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period from to
Commission File Number: 0-29174
LOGITECH INTERNATIONAL S.A.
(Exactnameofregistrantasspecifiedinitscharter)
Canton of Vaud, Switzerland(Stateorotherjurisdictionofincorporationororganization)
None(I.R.S.EmployerIdentificationNo.)
Logitech International S.A.EPFL - Quartier de l'InnovationDaniel Borel Innovation Center
1015 Lausanne, Switzerlandc/o Logitech Inc.
7700 Gateway BoulevardNewark, California 94560
(Addressofprincipalexecutiveofficesandzipcode)
(510) 795-8500
(Registrant'stelephonenumber,includingareacode)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Title of each class Name of each exchange on which registered
RegisteredSharesparvalueCHF0.25pershare TheNasdaqGlobalSelectMarket;SIXSwissExchange
SecuritiesregisteredortoberegisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesýNoo
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNoý
Indicatebycheckmarkwhethertheregistrant (1)hasfiledall reportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding 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 past90days.YesýNoo
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDatafilerequiredtobesubmittedpursuanttoRule405ofRegulationS-Tduringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).YesýNoo
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Indicate by check mark if disclosure of delinquent filers pursuant to Item405of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not becontained,tothebestoftheregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.ý
Indicatebycheckmarkwhether theregistrant is alargeacceleratedfiler, anacceleratedfiler, anon-acceleratedfiler, asmaller reportingcompanyor anemerginggrowth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of theExchangeAct.
Largeacceleratedfilerý Acceleratedfilero Non-acceleratedfilero Smallerreportingcompanyo EmergingGrowthCompanyo
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.o
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).YesoNoý
Theaggregatemarketvalueofthevotingsharesheldbynon-affiliatesoftheregistrant,basedupontheclosingsalepriceofthesharesonSeptember28,2018,thelastbusinessdayoftheregistrant'ssecondfiscalquarterontheNasdaqGlobalSelectMarket,was$7,359,961,924.Forpurposesofthisdisclosure,votingsharesheldbypersonsknowntotheRegistranttobeneficiallyownmorethan5%oftheRegistrant'ssharesandsharesheldbyofficersanddirectorsoftheRegistranthavebeenexcludedbecausesuchpersonsmaybedeemedtobeaffiliates.Inthecaseof5%orgreatershareholders,wehavenotdeemedsuchshareholderstobeaffiliatesunlesstherearefactsand circumstances which would indicate that such shareholders exercise any control over the Registrant, or unless they hold 10% or more of Registrant’s share capitaloutstanding.Thisdeterminationisnotnecessarilyaconclusivedeterminationforotherpurposes.
AsofMay3,2019,therewere166,598,546sharesoftheRegistrant'ssharecapitaloutstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portionsoftheregistrant'sProxyStatementforthe2019AnnualMeetingofShareholdersareincorporatedhereinbyreferenceinPartIIIofthisAnnualReportonForm10-Ktotheextentstatedherein.SuchproxystatementwillbefiledwiththeSecuritiesandExchangeCommissionwithin120daysoftheregistrant'sfiscalyearendedMarch31,2019.
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass TradingSymbol(s) Nameofeachexchangeonwhichregistered
RegisteredShares
LOGNLOGI
SIXSwissExchangeNasdaqGlobalSelectMarket
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TABLE OF CONTENTS
PagePart I Item1. Business 3Item1A. RiskFactors 16Item1B. UnresolvedStaffComments 32Item2. Properties 33Item3. LegalProceedings 33Item4. MineSafetyDisclosures 33
Part II Item5. MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesof
EquitySecurities34
Item6. SelectedFinancialData 36Item7. Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations 38Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 55Item8. FinancialStatementsandSupplementaryData 56Item9. ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure 56Item9A. ControlsandProcedures 56Item9B. OtherInformation 57
Part III Item10. Directors,ExecutiveOfficersandCorporateGovernance 58Item11. ExecutiveCompensation 58Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholder
Matters 58Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 58Item14. PrincipalAccountantFeesandServices 59
Part IV Item15. ExhibitsandFinancialStatementSchedules 59
Signatures
Inthisdocument,unlessotherwiseindicated,referencestothe"Company","Logitech""we,""our,"and"us"aretoLogitechInternationalS.A.anditsconsolidatedsubsidiaries.Unlessotherwisespecified,allreferencestoU.S.Dollar,Dollaror$aretotheUnitedStatesDollar,thelegalcurrencyoftheUnitedStatesofAmerica.AllreferencestoCHFaretotheSwissFranc,thelegalcurrencyofSwitzerland.
Logitech,theLogitechlogo,andtheLogitechproductsreferredtohereinareeitherthetrademarksortheregisteredtrademarksofLogitech.Allothertrademarksarethepropertyoftheirrespectiveowners.
TheCompany'sfiscalyearendsonMarch31.Interimquartersaregenerallythirteen-weekperiods,eachendingonaFriday.Forpurposesofpresentation,theCompanyhasindicateditsquarterlyperiodsendonthelastdayofthecalendarquarter.
Theterm“Sales”meansnetsales,exceptasotherwisespecified.
Allreferencestoourwebsitesareintendedtobeinactivetextualreferencesonly,andthecontentofsuchwebsitesdonotconstituteapartofandarenotintendedtobeincorporatedbyreferenceintothisAnnualReportonForm10-K.
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FORWARD-LOOKING INFORMATION
ThisAnnualReportonForm10-Kcontains"forward-lookingstatements"withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Forward-lookingstatementsarebasedonbeliefsofourmanagementasofthefilingdateofthisAnnualForm10-K.Theseforward-lookingstatementsinclude,amongotherthings,statementsrelatedto:
• Ourstrategyforgrowth,futurerevenues,earnings,cashflow,usesofcashandothermeasuresoffinancialperformance,andmarketposition;
• Ourbusinessstrategyandinvestmentprioritiesinrelationtocompetitiveofferingsandevolvingconsumerdemandtrendsaffectingourproductsandmarkets,worldwideeconomicandcapitalmarketconditions,fluctuationsincurrencyexchangerates,andcurrentandfuturegeneralregionaleconomicconditionsforfiscalyear2020andbeyond;
• Thescope,natureorimpactofacquisition,strategicalliance,divestitureactivitiesandrestructuringofourorganizationalstructure;• Ourexpectationsregardingthesuccessofourstrategicacquisitions,includingintegrationofacquiredoperations,products,technology,
internalcontrols,personnelandmanagementteams;• Ourbusinessandproductplansanddevelopmentandproductinnovationandtheirimpactonfutureoperatingresultsandanticipated
operatingcostsforfiscalyear2020andbeyond;• Opportunitiesforgrowth,marketopportunitiesandourabilitytotakeadvantageofthem;• Potentialtariffs,theireffectsandourabilitytomitigatetheireffects;• Capitalinvestmentsandresearchanddevelopment;• Ourexpectationsregardingoursharebuybackanddividendprograms;• Thesufficiencyofourcashandcashequivalents,cashgeneratedfromoperations,andavailableborrowingsunderourbanklinesofcredit
tofundcapitalexpendituresandworkingcapitalneeds;and• TheeffectsofenvironmentalandotherlawsandregulationsintheUnitedStatesandothercountriesinwhichweoperate.
Forward-lookingstatementsalsoinclude,amongothers,thosestatementsincludingthewords"anticipate","believe","could","estimate","expect","forecast","intend","may","plan","project","predict","should","will"andsimilarlanguage.ThesestatementsreflectourviewsandassumptionsasofthedateofthisAnnualReportonForm10-K.Allforward-lookingstatementsinvolverisksanduncertaintiesthatcouldcauseouractualperformancetodiffermateriallyfromthoseanticipatedintheforward-lookingstatementsdependingonavarietyoffactors.ImportantinformationastothesefactorscanbefoundinthisAnnualReportonForm10-Kundertheheadingsof“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”,“Overview”,“CriticalAccountingEstimates”and“LiquidityandCapitalResources”,amongothers.Factorsthatmightcauseorcontributetosuchdifferencesinclude,butarenotlimitedto,thosediscussedunderItem1A,RiskFactors,aswellaselsewhereinthisAnnualReportonForm10-KandinourotherfilingswiththeU.S.SecuritiesandExchangeCommission,or"SEC."Youarecautionednottoplaceunduerelianceontheforward-lookingstatements,whichspeakonlyasofthedateofthisAnnualReportonForm10-K.Weundertakenoobligationtopubliclyreleaseanyrevisionstotheforward-lookingstatementsorreflecteventsorcircumstancesafterthedateofthisdocument.
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PART I
ITEM 1. BUSINESS
Company Overview
Logitechisaworldleaderindesigning,manufacturingandmarketingproductsthathelpconnectpeopletodigitalandcloudexperiences.Morethan35yearsago,Logitechcreatedproductstoimproveexperiencesaroundthepersonalcomputer(PC)platform,andtodayitisamulti-brand,multi-categorycompanydesigningproductsthatenablebetterexperiencesconsuming,sharingandcreatingdigitalcontentforcomputing,gaming,videoandmusic,whetheritisonacomputer,mobiledeviceorinthecloud.Logitech'sbrandsincludeLogitech,Jaybird,UltimateEars,LogitechG,ASTROGamingandBlueMicrophones.
LogitechwasfoundedinSwitzerlandin1981,andLogitechInternationalS.A.hasbeentheparentholdingcompanyofLogitechsince1988.LogitechInternationalS.A.isaSwissholdingcompanywithitsregisteredofficeinApples,Switzerland,whichconductsitsbusinessthroughsubsidiariesintheAmericas(includingNorthandSouthAmerica),EMEA(Europe,MiddleEast,Africa)andAsiaPacific(including,amongothercountries,China,Taiwan,Japan,IndiaandAustralia).SharesofLogitechInternationalS.A.arelistedonboththeSIXSwissExchange,underthetradingsymbolLOGN,andtheNasdaqGlobalSelectMarket,underthetradingsymbolLOGI.ReferencesinthisAnnualReportonForm10-Ktothe"Company,""Logitech,""we,""our,"and"us"refertoLogitechInternationalS.A.anditsconsolidatedsubsidiaries.
Weoperateinasingleoperatingsegment:Peripherals.Formoreinformationaboutsegmentsandgeographicareas,pleaserefertoNote15ofourconsolidatedfinancialstatementsincludedinthisAnnualReportonForm10-K.Ourproductsparticipateinfivelargemarkets:Creativity&Productivity,Gaming,VideoCollaboration,MusicandSmartHome.Wesellourproductstoabroadnetworkofdomesticandinternationalcustomers,includingdirectsalestoretailersande-tailersandindirectsalesthroughdistributors.Ourworldwidechannelnetworkincludesconsumerelectronicsdistributors,retailers,massmerchandisers,specialtystores,computerandtelecommunicationsstores,value-addedresellersandonlinemerchants.
Acquisitions
OnAugust21,2018,weacquiredallequityinterestsinBlueMicrophonesHoldingCorporation(BlueMicrophones)foratotalconsiderationof$134.8millionincash(theBlueMicrophonesAcquisition),whichincludedaworkingcapitaladjustmentandrepaymentofdebtonbehalfofBlueMicrophones.BlueMicrophonesisaleadingaudiomanufacturerthatdesignsandproducesmicrophones,headphones,recordingtools,andaccessoriesforaudioprofessionals,musiciansandconsumers.TheBlueMicrophonesAcquisitionsupplementsourproductportfolio.
OnAugust11,2017,weacquiredcertainassetsandliabilitiesconstitutingtheASTROGamingbusiness(ASTRO)fromAGAcquisitionCorporationforapurchasepriceof$85.0millionincash(theASTROAcquisition).ASTROisaleadingconsolegamingaccessorybrandwithahistoryofproducingaward-winningheadsetsforprofessionalgamersandenthusiasts.ASTROprovidesastronggrowthplatformintheconsolegamingaccessoriesmarket.
Industry Overview
Historically,Logitech'sbusinesshasbeendrivenbythesametrendsthatdrovetheadoptionofdesktopandlaptopPCsforconsumers,businessesandinstitutionalapplications,includingthegrowthinaffordableprocessingpower,communicationsbandwidth,theincreasedaccessibilityofdigitalcontent,andthegrowingandpervasiveuseoftheInternetforproductivity,communicationandentertainment.Thesetrendshavecreatedopportunitiesfornewapplications,newusersanddramaticallyricherinteractionbetweenpeopleanddigitalcontent.
Inthelastseveralyears,newPCshipmentshavestagnatedand,combinedwithincreasedinterestinsmaller,mobilecomputingdevices(suchassmartphonesandtablets),themarketforPCperipheralshasrapidlychanged.WeseeopportunitieswithinthelargeinstalledbaseofPCs,createdbyconsumers'desiretorefreshtheircurrentPCswithnewperipherals,aswellasnewtrendsdevelopingwithintheconnecteddeviceecosystems.Inaddition,therefreshofoperatingsystemsandnewusecasescreatedbythegrowthofspecificcloud-basedservicesandapplicationsdrivenewperipheralsopportunities.Consumersarealsoenhancingtheirtabletexperiencewitharangeofkeyboardsandcasesthatenablethemtocreate,consumeanddomorewiththeirtabletsconvenientlyandcomfortably.
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Growingadoptionofcloud-basedexperiencesingaming,video,musicandsmarthomehasexpandedouraddressablemarketopportunities.Moreandmoreconsumerstodayinteractwithcloud-basedcontentplatforms,suchasSteamandTwitchforgaming,Spotify,AppleMusicandPandoraforstreamingmusic,orZoomorMicrosoftTeamsforvideocollaboration.Logitechoffersperipheralsandaccessoriestoenhancetheuseofsuchcloud-basedcontentplatforms.
Inthegamingmarket,therapidriseofelectronicsports(esports),andthedevelopmentofnewtechnologiesinsocial,virtualandaugmentedrealitypresentgrowthopportunities.Weleverageourdeepresearchanddevelopment(R&D)capabilitiesintheareaofPCperipheralstodevelopindustry-leadinggaminggearthatenhancesconsumers'overallgamingexperienceandperformance.Asconsumersincreasinglywatchvariousesportstournamentsorothergamingbroadcastsoncloud-basedplatformssuchasTwitch,thegamingindustryisbecomingbothasourceofentertainmentandparticipationbymainstreamconsumers.Wesponsorandworkcloselywithesportsathletestoimproveourbrandandthequalityandfunctionalityofourgamingproducts.Wealsooffergamingperipheralsthatenhancetheexperienceofmorecasualgamers.
Theuseofvideoacrossmultipleplatforms-PCs,laptopsandmobiledevicessuchastabletsandsmartphones-isacontinuingtrend.Thevideocommunicationindustrycontinuestomakeprogresstowardavisioninwhichpeoplecanconductavideocallfromanyoftheseplatformstoanyotherplatform.AndthistrendtoembracecloudvideoconferencingbybusinessesandinstitutionsisdrivingourVideoCollaborationcategoryandoffersalong-termgrowthopportunityforLogitech.Forbusinessesandinstitutions,videoconferencingisincreasinglysubstitutedfortravel,becauseofhightravelcostsaswellastheproductivitygainthatcanbeachievedbyahigh-qualityface-to-facemeetingthatdoesnotrequiretravelawayfromtheoffice.Further,withtheincreasedavailabilityofhighInternetbandwidth,videoconferencingisbecomingakeycomponentofUnifiedCommunications,whichistheintegrationofcommunicationssolutionssuchasvoicemail,e-mail,chat,presentationsharingandlivevideomeetings.Themarketopportunitytoprovideinnovative,affordable,andeasy-to-usevideocollaborationproductstothemillionsofsmall-tomedium-sizedmeetingroomslackingvideoissubstantial,andwearewell-positionedtotakeadvantageofthatopportunityandtoexpandintolarge-sizedmeetingrooms.
Cloud-basedmusicserviceshaveenjoyedtremendousgrowth,fueledbytheadoptionofsmartphones,tablets,andotherconnecteddevices.Consumersareoptimizingtheiraudioexperiencesontheirtabletsandsmartphoneswithwirelessmobilespeakersthatpaireasilywiththeirmobiledevicesandwithin-earandotherheadphones.Ourmobilespeakersandin-earheadphoneproductstargetalargeandgrowingmarketthatreflectstheincreasingpopularityofmobiledevicesorvariousvoiceassistantsforaccessingdigitalmusic.Additionally,withinthemusicmarket,consumersareincreasinglylisteningwithwirelessearphoneswhiletheyundertakeotheractivitiessuchassports.Theinnovationintrulywirelessheadphoneshasledtodouble-digitindustrygrowthinrevenueandaveragesellingprice,whichhighlightsamajoropportunityforLogitech.
Thehomeisalsoanimportantplacefortechnologicaldevelopment,particularlyasanincreasingnumberofobjectsbecomeconnectedsmarthomedevicessuchashomesecuritycameras,lightbulbs,securitylocks,thermostatsandothers.Logitech’slineofuniversalremotesandhubscontrolelectronicandconnecteddevicesaroundthehomeaswellastheseothersmartdevices.
Business Strategy
Logitech'sfoundationforfuturegrowthisbuiltonfivecorecapabilitiesthatapplytoallofourproductcategories:• Design;• Engineering;• Go-to-market;• Marketing;and• Operations.
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Design
Inthepastfewyears,Logitechhasstrengtheneditsdesigncapabilitiesbybuildingaworld-classteamofinternaldesigners.Ourdesignshaveaneverydayplaceinpeople’slives,connectingthemtothedigitalexperiencestheycareabout.Theseproductshavebeenearningprestigiousdesignawards-215designawardsduringthepastfivefiscalyears-andenthusiasticreviewsinthemedia.ThisisanimportantindicationthatLogitech’sstrategicaimtobecomeadesigncompanyisworking.Duringfiscalyear2019,wewon50designawardsspanningallofourproductcategories.AsLogitechestablishesitselfasadesigncompany,designthinkingandcultureareusedasastrategicandculturaldifferentiator.Designalsohelpstoreduceproductcoststhroughincreasedcollaborationbetweenourdesign,engineeringandmanufacturingteams.OurkeydesigncentersareinSwitzerland,Ireland,theUnitedStates,andTaiwan.
Engineering
Ourdecades-longexpertiseinkeyengineeringdisciplinessuchassensors,acoustics,optics,wireless,andpowermanagementisacorecompetitiveadvantageofLogitech.Furthermore,wecontinuetoextendourengineeringcapabilitiesintomoreadvancedtechnologiessuchassoftware,apps,cloud,dataanalyticsandmachinelearning.OurengineeringteamhasexpertiseindevelopingproductsforabroadarrayofplatformssuchasPCs,mobileandpersonalvoiceassistants(suchasAmazonAlexaandGoogleAssistant).Theseengineeringcapabilitiescombinedwithouraward-winningdesignteamformthebasisofLogitech'skeyinnovationengine.
Go-To-Market
Overthepast30-plusyears,Logitechhasbuiltanextensiveglobalgo-to-marketnetworkthatcanbeleveragedasweintroducenewproducts,enternewmarketcategoriesandoptimizethevalueofourexistingproductsandproductcategories.Wehavemultipleopportunitiestodrivegrowth-existingproductsinexistingretailers,newproductsinexistingretailers,existingproductsinnewretailers,andnewproductsinnewretailers.Beyondtraditionalretailanddistributionchannels,wehavealsocultivatedvariousnon-traditionalretailchannelsandarebuildingourdirectsalesforcetosellourproducts.Aswecontinuetoexpandintonewchannels,therearenumerouscross-sellingopportunitiesacrossourbroadproductportfolio.WehaveestablishedLogitechasaneutraltechnologysupplierthatcanworkwithleadingtechnologyvendorsandplatformsaswellasprovideconnectionsamongtheirproductsandecosystems.
Marketing
AsLogitechexpandsintomultiplecategorieswithmultiplebrands,wearefocusingonenhancingourmarketingcapabilitiesaroundbrandstrategyandexecution,digitalmarketing,andmarketingtechnology.Mostofthemarketingandcreativeeffortsthatwereonceoutsourcedtooutsidemarketingagenciesarenowexecutedthroughourinternalteamsfromconcepttoexecution,whichimprovesspeedandcostefficiency.Weareincreasingourleverageofdigitalmediachannelsandprogramstodriveconsumerbrandengagementandpurchase.Wearealsoincreasingourfocusonmarketinganalyticsplatformstoimproveourunderstandingofmarketinginvestmentsandtomaximizereturnoninvestment(ROI).Andwearemakinginvestmentstoupgradeandexpandallaspectsofourmarketingtechnologyinfrastructure,includingthere-platformingofourwebsitestosupporttheglobalexpansionofourbrandsacrosscountries,languagesanddevicesandprovidethefoundationfortheaccelerationofourdigitalmarketingeffortsandevolutiontopersonalizedconsumercommunication.
Operations
Logitech’soperationscapabilityconsistsofahybridmodelofin-housemanufacturingandthird-partycontractmanufacturers,whichallowsustoeffectivelyrespondtorapidlychangingdemandandleverageeconomiesofscale.Oursupplychain’sextensiveglobalreach,keydistribution,adoptionoffactoryautomationandstrategicbusinessrelationshipscombinedwithextensiveanalyticmodelingexpertise,optimizationtoolsandglobalprocessesprovideacompetitiveadvantageagainstmanyofourcompetitors.
Products
Logitechdesigns,manufacturesandmarketsproductsthatallowpeopletoconnectthroughmusic,gaming,video,computing,andotherdigitalplatforms.Thelargemajorityofourrevenuehashistoricallybeenderivedfromsalesofourproductsforusebyconsumers.
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Creativity & Productivity
Pointing Devices: Logitechoffersavarietyofpointingdevices.Someofourkeyproductsinthiscategoryinclude:
• TheLogitechMXMaster2SandMXAnywhere2Swirelessmice,ourflagshipwirelessmouseproducts.EnabledwithLogitechFlowcross-computercontrolsoftware,theseproductsrepresentthenewparadigmforprecise,fast,comfortablecross-computerdigitalnavigation.
• TheLogitechMXErgo,awirelesstrackballthatofferspersonalizedcomfortwithauniqueadjustablehinge,precisiontrackingandmulti-deviceconnectivity.
• TheLogitechMXVertical,awirelessmousewhichisangled57degreeandofferspersonalizedergonomiccomfortprecisiontrackingandmulti-deviceconnectivity.
• TheLogitechWirelessMouseM325,whichoffersmicro-precisescrolling,18-monthbatterylifeandcomfortabledesign.• TheLogitechWirelessMouseM185,awirelessmousewithnanoreceivertechnologythatiscompatiblewithanycomputer.
Keyboards & Combos: Logitechoffersavarietyofcordedandcordlesskeyboards,livingroomkeyboards,andcombos(keyboard-and-mousecombinations).Someofourproductsinthiscategoryinclude:
• TheLogitechCraftAdvancedWirelesskeyboard,apremiumbacklitkeyboardwithcustomizableinputdialtoaccessdirectlymenusandshortcutswithinleadingcreativityandproductivityapps.
• TheLogitechWirelessTouchKeyboardK400Plus,acompactkeyboardwithanintegratedtouchpadand10-meterwirelessrange,designedforuseinthelivingroom.
• TheLogitechWirelessComboMK270,afull-sizekeyboardandmousecombinationwithatinyUSBreceiver.
PC Webcams: OurPCWebcamscategorycomprisesPC-basedwebcamstargetedprimarilyatconsumers.TheLogitechHDProWebcamsC920&C922,whichofferrazor-sharpHD1080pvideorecordingsandstereosound,weretoprevenue-generatingwebcamsduringfiscalyear2019.
Tablet & Other Accessories: OurTablet&OtherAccessoriescategoryincludeskeyboardsfortabletsandsmartphonesaswellasotheraccessoriesformobiledevices.TheseproductsaremostlyforiPadsbutarealsoforselectSamsungandotherAndroidtablets.Someofourproductsinthiscategoryinclude:
• TheLogitechSlimComboBacklitKeyboardCasewithSmartConnectorfortheiPadPro12.9andiPadPro10.5thatprovidesthinandlightfrontandbackprotection,adetachablebacklitkeyboardandamulti-anglestandforoptimalviewingandface-time.
• TheLogitechSlimFolioKeyboardCasewithBluetoothfortheiPad6thGenerationthatprovidesthinandlightfrontandbackprotection,akeyboardwithshortcutkeysandanoptimizedangleforviewing.
• TheLogitechKeys-To-Go,anultra-portable,stand-alonekeyboard.
Gaming
LogitechGprovidesgamersofalllevelswithindustry-leadingkeyboards,mice,headsetsandsimulationproductssuchassteeringwheelsandflightsticks,incorporatinginnovativedesignandadvancedtechnologies.Someofourproductsinthiscategoryinclude:
• TheLogitechG513RGBMechanicalGamingKeyboard,whichfeatureshigh-performancemechanicalswitches,LIGHTSYNCintelligentRGBillumination,aleatherpalmrest,ametaltopcase,andaUSBpass-through.
• TheLogitechGPROWirelessGamingMousethatwasdesignedincollaborationwiththeworld'stopprofessionals,andfeaturesourLIGHTSPEEDTMprofessionalgradewirelesstechnology,ourexclusivehigh-performanceHEROgamingsensor,aflexibleambidextrousdesign,andsupportforourPOWERPLAYTMwirelesschargingsolution,formaximumperformanceandcomfortoverlonggameplaysessions.
• TheLogitechG29DrivingForceSteeringWheelforSonyPlayStation4,whichfeaturesapowerfuldual-motorforcefeedbacktransmission,hand-stitchedleather-wrappedrim,andstainlesssteelthrottle,brakeandclutchpedalsforanultra-realisticdrivingexperience.
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ASTROGamingisaperformancegamingandlifestylebrandfocusedontheconsolegamingperipheralsmarketwithacross-platformlineupconsistingoffourprimaryheadsetmodelsandahigh-performancecontrollerforPlaystation4andPC:
• TheA50WirelessHeadsetandBaseStationthattargetsthediscerning“prosumer”consumer,featuringintegratedMixAmptechnology,Dolby®DigitalsurroundsoundandtheASTROCommandCenterSoftwaresystem.
• TheA40TRandMixAmpPro,awiredsolutionthattargetstheesportprofessionalandlivestreamer,featuringDolby®Digitalsurroundsound,daisy-chainchat,livestreamportandtheASTROCommandCenterSoftwaresystem.
• TheA20WirelessHeadset,astereoheadsetdeliveringthesignatureASTROcomfortandaudiocustomizationviatheASTROCommandCenterSoftware.
• TheA10wiredheadset,anultra-durablerobustheadsetdeliveringASTROsignaturecomfortandsoundqualityatamoreaccessiblepricepoint.
• TheC40TR(TournamentReady)wirelesscontrollerforPlayStation4andPC,whichhasmodular,swappableandreplaceablejoysticksandd-pad,andalsousesaproprietarylow-latencywirelessconnectionthatsupportsadvancedwirelessaudiodirectlytothecontroller.
Video Collaboration
TheVideoCollaborationcategoryincludesLogitech’sConferenceCams,whichcombineenterprise-qualityaudioandhighdefinition(HD)1080pvideowithaffordabilitytobringvideoconferencingtobusinessesofanysize.Ourkeyproductsinthiscategoryinclude:
• LogitechRally,whichoffersbest-in-classvideoconferencingwithUltraHD4kvideoandprofessionalaudiothateasilyturnsmedium-tolarge-sizedconferenceroomsintovideo-enabledcollaborationrooms.
• LogitechMeetUpisLogitech’spremierConferenceCamdesignedforhuddlerooms,witharoom-capturing120°fieldofview(FOV),4Kopticsandexceptionalaudioperformance.
• LogitechBRIO,whichhas4Kvideo,RightLight3andhighdynamicrange(HDR)toimprovechallenginglighting,andWindowsHellofacialrecognitionsupportforsecureloginusingjustauser'sface.
Music
Mobile Speakers: OurMobileSpeakerscategorycomprisesportablewirelessBluetoothandWi-Fispeakers.Oneofourtoprevenue-generatingproductsintheMobileSpeakerscategoryduringfiscalyear2019wastheUltimateEarsWONDERBOOM,oursmallersizedadditiontoourline-upof360°portableBluetoothwirelessspeakersthatprovidebold,immersivesoundineverydirection.TheUltimateEarsWONDERBOOMwasakeydriverforsuccessinfiscalyear2018inthisproductcategoryalongwiththeUltimateEarsBOOM2,ourflagshipBluetoothspeaker,andMEGABOOM,whichhasmorebassandisalargerandmorepowerfulcomplementtotheUltimateEarsBOOM2.Infiscalyear2019,wereleasedourUltimateEarsBOOM3andUltimateEarsMEGABOOM3,whichcomparedwiththepriormodel,havebeenupdatedwithbettersound,moredurablefabricandaMagicButtonfeaturethatenablesdirectaccesstoaconsumer’spersonalplaylists.
Audio & Wearables: OurAudio&WearablescategorycomprisesPCspeakers,PCheadsets,in-earheadphonesandpremiumwirelessaudiowearablesdesignedtoenhancetheaudioexperienceandstudio-qualitymicrophonesforprofessionalsandconsumers.WeofferboththeJaybirdwirelessaudiowearablesforsportsandactivelifestylesandourcustomin-earheadphones,madebyUltimateEars.Jaybirdisadigitallynativebrandthatpioneeredthewirelessin-earheadphonespaceandcontinuestobealeadingbrandinheadphonesmadeforathletes.Designedforsport&IPX7rated,Jaybird’sTarahPro,Tarah,X4andRunXToffergreatsoundwiththedurabilitythatathletesdemand.AllJaybirdproductsareaccompaniedbysoftwaresupportedonbothAndroidandiOSthatoffersarichpersonalizedlisteningexperience.
OurBlueMicrophonesproductlinehasa20-yearlegacyofinnovative,designandperformanceacrossbothprofessionalandconsumermarkets.BlueMicrophonesoffersarangeofaudiotoolsforrecordingorbroadcastingapplication,fromYouTubeandpodcastproductiontomusicandgaming.ExamplesofproductsinBlueMicrophonesproductslineupinclude:
• Yeti:ApremiumUSBmicrophoneforgamestreaming,podcasting,YouTube,Skype/VoIPandmusic.Withitsproprietary3-capsulearray,itdeliversastoundingdetailsandpresenceandincludesfourrecordingpatterns(cardioid,omni,bi-directionalandstereo)forversatility.
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• YetiPro:Aversatilehigh-resolutionUSBandXLRmicrophone.TheYetiProisahigherresolutionversionofYetiandincludes24-bit/192kHzaudioresolutionforhigh-resolutionmusicrecording,sounddesignandpodcasting,anXLRbreakoutcableforconnectingtoexistinghomestudioaudiointerfacesormixersanda3-capsulearraywithcardioid,omni,bi-directionalandstereopickuppatterns.
• YetiNano:ApremiumUSBmicrophonewithbroadcastsoundqualityinamorecompactformat.Dualcapsuledesignenablescardioidandomnipatterns.
Smart Home
OurSmartHomecategoryincludesourHarmonylineofadvancedhomeentertainmentcontrollers,newproductsdedicatedtocontrollingemergingcategoriesofconnectedsmarthomedevicessuchaslighting,thermostatsanddoorlocks,andhomesecuritycameras.Examplesofproductsinthiscategoryinclude:
• TheLogitechHarmonyEliteandtheLogitechHarmonyCompanion,bothofwhichfeatureLogitech'sHarmonyHubandintegrationwiththemostpopularvoiceplatforms-GoogleandAmazon-forcompletecontrolofthehomeentertainmentsystem,includingBluetoothandIPdevicessuchasPS4andRoku.
• TheLogitechHarmony350,650and950remotes,whichofferinfrared(IR)-onlycontrolofhomeentertainmentdevicesandenableconsumerstoreplacemanyremoteswithone.
• Circle2,anindoorandoutdoor,weatherproof,wiredor100%wire-free1080pHDhomesecuritycamerawithnightvisionandupto180°field-of-view,whichconnectswithsmarthomeplatformsincludingAmazonAlexa,GoogleAssistantandAppleHomeKit.
Research and Development
Werecognizethatcontinuedinvestmentinproductresearchanddevelopment(includingdesign)iscriticaltofacilitateinnovationofnewandimprovedproducts,technologiesandexperiences.Ourresearchanddevelopmentexpensesforfiscalyears2019,2018and2017were$161.2million,$143.8millionand$130.5million,respectively.Weexpecttocontinuetodevotesignificantresourcestoresearch,developmentanddesign,includingdevicesfordigitalplatforms,videocommunications,wirelesstechnologies,powermanagement,userinterfacesanddevicedatabasemanagementtosustainourcompetitiveposition.
Sales and Distribution
Principal Markets
Salesbygeographicregionforfiscalyears2019,2018and2017(basedonthecustomers'location)areasfollows(inthousands):
Year Ended March 31,
2019 2018 2017Americas $ 1,190,216 $ 1,118,324 $ 963,674EMEA 861,731 820,347 746,898AsiaPacific 736,375 628,192 510,855TotalSales $ 2,788,322 $ 2,566,863 $ 2,221,427
RevenuesfromsalestocustomersinSwitzerland,ourhomedomicile,represented3%,2%and2%ofoursalesinfiscalyears2019,2018and2017,respectively.Infiscalyears2019,2018and2017,revenuesfromsalestocustomersintheUnitedStatesrepresented36%,37%and37%ofoursales,respectively.Infiscalyear2019,2018and2017,revenuesfromsalestocustomersinGermanyrepresented18%,16%and17%ofoursales,respectively.RevenuesfromsalestocustomersinChinarepresented10%ofoursalesforfiscalyear2019.Noothercountryrepresentedmorethan10%ofoursalesforfiscalyears2019,2018or2017.
Sales and Distribution
Oursalesandmarketingactivitiesareorganizedintothreegeographicregions:theAmericas(NorthandSouthAmerica),EMEA(Europe,MiddleEast,Africa)andAsiaPacific(China,Japan,Australia,Taiwan,Indiaandothercountries).
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Wesellourproductsprimarilytoanetworkofdistributors,retailersande-tailers.Wesupportthesechannelswithourdirectsalesforceandthird-partydistributioncenterslocatedinNorthAmerica,SouthAmerica,EuropeandAsiaPacific.
MajordistributorsinNorthAmericaincludeIngramMicroInc.,TechDataCorporation,D&HDistributingCompany,andSynnexCorporation.InEurope,majorPan-EuropeandistributorsincludeIngramMicro,TechData,andGemDistribution.WealsoselltomanyregionaldistributorssuchasActebisGmbHinGermany,LittlebitTechnologyPartnersAGintheNetherlands,CopacoDcB.V.intheNetherlandsandothers.InAsia,majordistributorsincludeWincheersInternationalTradingCo.,LtdinChina,BeijingDigitalChinaLimitedinChina,DaiwaboinJapan,SynnexinAustraliaandthePan-Asiandistributor,IngramMicro.Ourdistributorcustomerstypicallyresellproductstoretailers,value-addedresellers,systemsintegratorsandotherdistributorswithwhomLogitechdoesnothaveadirectrelationship.
Logitech'sproductscanbepurchasedinmostmajorretailchains,wherewetypicallyhaveaccesstosignificantshelfspace.IntheU.S.,thesechainsincludeBestBuy,Walmart,Staples,OfficeDepotandTarget.InEurope,chainsincludeMetroGroup(Media-SaturnGroup),Elkjop,FNAC,andDixonsStoresGroupPLC.Logitechalsosellsproductstonon-traditionalretailchannelssuchastelcos.Inaddition,LogitechproductscanbepurchasedonlineeitherdirectlyfromLogitech.comorthroughe-tailers,suchasAmazon.com,thewebsitesofourmajorretailchainsnotedpreviously,andothers.Logitechproductsarealsocarriedbybusiness-to-businessdirectmarketresellerssuchasCDW,Insight,Zones,PCConnection,andSHI.
Infiscalyears2019,2018and2017,IngramMicroanditsaffiliatedentitiestogetheraccountedfor13%,15%and15%ofourgrosssales,respectively.Infiscalyears2019,2018and2017,AmazonInc.anditsaffiliatedentitiestogetheraccountedfor14%,13%and12%ofourgrosssales,respectively.Noothercustomerindividuallyaccountedformorethan10%ofourgrosssalesduringfiscalyears2019,2018or2017.
ThematerialtermsofourdistributionagreementswithIngramMicroanditsaffiliatedentitiesaresummarizedasfollows:
• Theagreementsarenon-exclusiveintheparticularterritoryandcontainnominimumpurchaserequirements.• Eachagreementmaybeterminatedforconvenienceatanytimebyeitherparty.Mostagreementsprovideforterminationon30dayswritten
noticefromeitherparty,withtwoIngramMicroagreementsprovidingforterminationon90daysnotice.• Wegenerallyofferanallowanceformarketingactivitiesequaltoanegotiatedpercentageofsalesandvolumerebatesrelatedtopurchase
volumesorsalesofspecificproductstospecifiedretailers.Thesetermsvarybyagreement.• Agreementsallowpriceprotectioncreditstobeissuedforon-handorin-transitnewinventoryifwe,inoursolediscretion,lowerthepriceof
theproduct.• Wegrantlimitedstockrotationreturnrightsincertainterritories.
ThematerialtermsofourreselleragreementswithAmazonanditsaffiliatedentitiesaresummarizedasfollows:
• Eachagreementhasaoneyeartermfollowedbyone-yearautomaticrenewals.• Wegenerallyofferanallowanceformarketingactivitiesequaltoanegotiatedpercentageofsalesthroughtransactionsandadditional
rebatesrelatedtosalesofspecificproductstoendusers.Thesetermsvarybyagreement.• Agreementsallowpriceprotectioncreditstobeissuedforon-handorin-transitnewinventoryifwe,inoursolediscretion,lowerthepriceof
theproduct.
Throughouroperatingsubsidiaries,wemaintainmarketingandchannelsupportofficesinapproximately40countries.
Backlog
Inourexperience,theamountofbacklogatanyparticularfiscalperiod-endisnotameaningfulindicationofourfuturebusinessprospects,asthecyclebetweenorderandshipmentofoursalesisgenerallyrelativelyshort,andalsothebacklogisimpactedbythecommercialcycleofourproducts.
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Customer Service and Technical Support
Ourcustomerserviceorganizationprovidesusertechnicalsupport,supportrelatedtoproductinquiry,andordersupport.WesupportthesecustomerservicefunctionswithanoutsourcedoperationthathassupportcenterslocatedinChina,SouthKorea,India,thePhilippines,Mexico,BulgariaandNorthernIreland.Ourcustomerserviceandtechnicalpersonnelineachofourregionsprovidesupportservicestoretailpurchasersofproductsthroughtelephone,e-mail,forums,chat,andtheLogitechSupportwebsite.Forsomeofourbrands,dedicatedsupportwebsitesandchannelsareavailable.Logitechprovideswarrantiesonourbrandedproductsthatrangefromonetofiveyears.ForourVideoCollaborationbusiness,wealsoworkwithchannelpartnerstoofferbundledsupportserviceswithLogitechVideoCollaborationsolutions.
InKorea,India,andChina,therearemultiplelocationswhereconsumersmayobtainservicefortheirLogitechproducts.Theselocationsaremanagedbythird-partylogisticsproviders.ConsumerswhohavepurchasedLogitechproductscanvisittheselocationsforproductinspection,testingandreturnorexchangeofproducts.WithinChina,thereisalsoamail-incentertoprovidetheseservicesformoreremotelocationsinChina.
Manufacturing
Logitech'smanufacturingoperationsconsistprincipallyoffinalassemblyandtesting.Since1994,wehavehadourownmanufacturingoperationsinSuzhou,China,whichcurrentlyhandlesapproximatelyhalfofourtotalproductionofproducts.WecontinuetofocusonensuringtheefficiencyoftheSuzhoufacilities,throughtheimplementationofqualitymanagement,automation,processimprovements,andemployeeinvolvementprograms.WeoutsourcetheremainingproductiontocontractmanufacturersandoriginaldesignmanufacturerslocatedinAsia.Bothourin-houseandoutsourcedmanufacturingoperationsaremanagedbyourworldwideoperationsgroup.Theworldwideoperationsgroupalsosupportsthebusinessunitsandmarketingandsalesorganizationsthroughthemanagementofdistributioncentersandthesupplychainandtheprovisionoftechnicalsupportandotherservices.
Newproductlaunches,processengineering,commoditiesmanagement,logistics,qualityassurance,operationsmanagementandmanagementofLogitech'scontractmanufacturersoccurinChina,Taiwan,HongKongandMalaysia.CertaincomponentsaremanufacturedtoLogitech'sspecificationsbyvendorsinAsia,theUnitedStates,andEurope.Wealsousecontractmanufacturerstosupplementinternalcapacityandtoreducevolatilityinproductionvolumes.Inaddition,someproducts,includingmostkeyboards,certaingamingdevicesandcertainaudioproductsaremanufacturedbycontractmanufacturerstoLogitech'sspecifications.
Ourhybridmodelofin-housemanufacturingandcontractmanufacturersallowsustoeffectivelyrespondtorapidlychangingdemandandleverageeconomiesofscale.Throughourhigh-volumemanufacturingoperationslocatedinSuzhou,China,webelievewehavebeenabletomaintainstrongqualityprocesscontrolsandhaverealizedsignificantcostefficiencies.OurSuzhouoperationprovidesforincreasedproductioncapacity,manufacturingknow-how,IPprotectionandgreaterflexibilityinrespondingtoproductdemand.Further,byoutsourcingthemanufacturingofcertainproducts,weseektoreducevolatilityinproductionvolumesaswellasimprovetimetomarket.
Competition
Ourproductcategoriesarecharacterizedbylarge,well-financedcompetitors,shortproductlifecycles,continualperformanceenhancements,andrapidadoptionoftechnologicalandproductadvancementsbycompetitorsinourretailmarkets.Wehaveexperiencedaggressivepricecompetitionandotherpromotionalactivitiesfromourprimarycompetitorsandless-establishedbrands,includingbrandsownedbysomeretailcustomersknownashousebrands.Wemayalsoencountermorecompetitionifanyofourcompetitorsinoneormorecategoriesdecidetoenterothercategoriesinwhichwecurrentlyoperate.
Aswetargetopportunitiesinnewcategoriesandmarketsandassomeofourproductcategoriesdemonstrategrowth,weareconfrontingnewcompetitors,manyofwhichmayhavemoreexperienceinthecategoriesormarketsandhavegreatermarketingresourcesandbrandnamerecognitionthanwehave.Inaddition,becauseofthecontinuingconvergenceofthemarketsforcomputingdevicesandconsumerelectronics,weexpectgreatercompetitioninthefuturefromwell-establishedconsumerelectronicscompaniesinourdevelopingcategories,aswellasfutureoneswemightenter.Manyofthesecompanieshavegreaterfinancial,technical,sales,marketing,andotherresourcesthanwehave.
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Weexpectcontinuedcompetitivepressureinourbusiness,includinginthetermsandconditionsthatourcompetitorsoffercustomers,whichmaybemorefavorablethanourtermsandconditionsandmayrequireustotakeactionstoincreaseourcustomerincentiveprograms,whichcouldimpactoursalesandoperatingmargins.
Creativity and Productivity
Pointing Devices: Apple,MicrosoftCorporationandHPInc.areourmaincompetitorsworldwide.Wealsoexperiencecompetitionandpricingpressurefromless-establishedbrands,includinghousebrandsandlocalcompetitorsinAsianmarkets,suchasElecomCo.,Ltd.,BuffaloInc.,ShenzhenRapooTechnologyCo.,Ltd.,andXiaomiInc.
Keyboards & Combos: MicrosoftandApplearethemaincompetitorsinourPCkeyboardandcomboproductlines.Wealsoexperiencecompetitionandpricingpressureforcordedandcordlesskeyboardandcombosfromless-establishedbrands,includinghousebrandsandlocalcompetitorsinAsianmarkets.
Tablet & Other Accessories: CompetitorsinthetabletkeyboardmarketareApple,ZaggInc.,KensingtonComputerProductsGroup,BelkinInternational,Inc.,TargusCorporationandotherless-establishedbrands.Althoughweareoneoftheleadersinthetabletkeyboardmarketandcontinuetobringinnovativeofferingstothemarket,weexpectthecompetitionmayincrease.CompetitorsinthetabletcasemarketincludeApple,OtterProductsLLC,SpeckProductsandalargenumberofsmallbrands.
PC Webcams: OurprimarycompetitorsforPCwebcamsareMicrosoftandothermanufacturerstakingsmallermarketsharesuchasRazerInc.
Gaming
CompetitorsforourGamingproductsincludeRazerInc.,Corsair,SteelSeries,TurtleBeachCorporationandKingstonTechnologyCorporation,amongothers.
Video Collaboration
OurcompetitorsforVideoCollaborationproductsincludeCiscoSystems,Inc.,Polycom,Inc.(acquiredbyPlantronics,Inc.),GNNetcom/Jabra(whichrecentlyacquiredAltiaSystems),andAVerInformationInc.,amongothers.
Music
Mobile Speakers: OurcompetitorsforBluetoothwirelessspeakersincludeBoseCorporation,HarmanInternationalIndustries,Inc(ownedbySamsungElectronicsCo.,Ltd.),andBeatsElectronicsLLC(ownedbyAppleInc.),amongothers.Harmanisourlargestcompetitor.Personalvoiceassistantsandotherdevicesthatoffermusic,suchasSonos,Amazon'sEcho,GoogleHomeandAppleHomePod,alsocompetewithourproducts.Amazonisalsoasignificantcustomerofourproducts.
Audio & Wearables: ForPCspeakers,ourcompetitorsincludeBose,CyberAcoustics,Phillips,CreativeLabs,Inc,AppleandSamsung,amongothers.
ForPCheadsets,ourmaincompetitorsincludePlantronicsInc.andGNNetcom,amongothers.In-earheadphonescompetitorsincludeBeats,Bose,Apple,Sony,JBLandSennheiser,amongothers.Theplatformproviders(e.g.,AppleandSamsung)areabletocrafttighterexperiencesfortheirconsumersduetotheirabilitytocontrolbothendsoftheecosystem(theheadphoneandthemobiledevice).
OurcompetitorsforBlueMicrophonesproductsincludeRodeMicrophonesLLC,AudioTechnicaCorporation,SamsonTechnologies,ShureInc,RazerIncandApogeeElectronics,amongothers.
Smart Home
Directcompetitorsintheremotecontrolmarketincludepro-installer-focusedUniversalRemoteControlInc.,andnew“DIY”entrants.Indirectcompetitionexistsintheformoflow-end“replacementremotes”suchasSonyCorporation,RCACorporation,GeneralElectricCompany(GE),pureapp-basedsolutionssuchasPeelTechnologies,aswellasdeviceand/orsubscriber-specificsolutionsfromTVmakerssuchasSamsungandVizioandmultiple-systemoperators(MSOs)suchasComcastCorporationandDirecTV.CompetitioninthehomecontrolmarketalsoexistsintheformofhomeautomationplatformssuchasSmartThings(ownedbySamsung),AmazonwithitsEchoproduct,GoogleHomeandNest(ownedbyAlphabetInc.),Winkandmanyotherstartupsinthe
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space.ManyoftheseproductsandbrandsarepartnerswithLogitechaswellviaintegrationswithHarmonyremotes.
Intellectual Property and Proprietary Rights
IntellectualpropertyrightsthatapplytoLogitech'sproductsandservicesincludepatents,trademarks,copyrights,andtradesecrets.
WeholdvariousUnitedStatespatentsandpendingapplications,togetherwithcorrespondingpatentsandpendingapplicationsfromothercountries.Whilewebelievethatpatentprotectionisimportant,wealsobelievethatpatentsareoflesscompetitivesignificancethanfactorssuchastechnologicalinnovation,easeofuse,andqualitydesign.NosinglepatentisinitselfessentialtoLogitechasawhole.Fromtimetotimewereceiveclaimsthatwemaybeinfringingonpatentsorotherintellectualpropertyrightsofothers.Asappropriate,claimsarereferredtocounsel,andcurrentclaimsareinvariousstagesofevaluationandnegotiation.Ifnecessaryordesirable,wemayseeklicensesforcertainintellectualpropertyrights.ReferalsotothediscussioninItem1A,RiskFactors—"Wemaybeunabletoprotectourproprietaryrights.Unauthorizeduseofourtechnologymayresultinthedevelopmentofproductsthatcompetewithourproducts."and"Claimsbyothersthatweinfringetheirproprietarytechnologycouldadverselyaffectourbusiness."
TodistinguishgenuineLogitechproductsfromcompetingproductsandcounterfeitproducts,Logitechhasused,registered,orappliedtoregistercertaintrademarksandtradenamesintheUnitedStatesandothercountriesandjurisdictions.LogitechenforcesitstrademarkandtradenamerightsintheUnitedStatesandothercountries.Inaddition,thesoftwareforLogitech'sproductsandservicesisentitledtocopyrightprotection,andwegenerallyrequireourcustomerstoobtainasoftwarelicensebeforeprovidingthemwiththatsoftware.Wealsoprotectdetailsaboutourproductsandservicesastradesecretsthroughemployeetraining,licenseandnon-disclosureagreements,technicalmeasuresandotherreasonableeffortstopreserveconfidentiality.
Environmental Regulation
Wearesubjecttolawsandregulationsinmanyjurisdictionsregulatingthematerialsusedinourproductsand,increasingly,product-relatedenergyconsumption,andtherecyclingofourproducts,batteries,andpackaging.
Europe. InEurope,wearesubjecttotheEuropeanUnion's(EU's),RestrictionofUseofCertainHazardousSubstancesinElectricalandElectronicsEquipmentDirective2011/65/EU(RoHSDirective).ThisdirectiverestrictstheplacementintotheEUmarketofelectricalandelectronicequipmentcontainingcertainhazardousmaterialsincludinglead,mercury,cadmium,chromium,phthalatesandhalogenatedflame-retardants.AllLogitechproductsarecoveredbythedirectiveandhavebeenmodified,ifnecessary,tobecompliantwiththeRoHSDirective,weissueadeclarationofconformityandmarktheproductwiththe'CE'mark.
WearealsosubjecttotheEU'sEnergy-relatedProductsDirective(ErPDirective),whichaimstoencouragemanufacturersandimporterstoproduceproductsdesignedtominimizeoverallenvironmentalimpact.UndertheErPDirective,manufacturersmustensurethattheirenergy-relatedproductscomplywithapplicablerequirements,issueadeclarationofconformityandmarktheproductwiththe'CE'mark.
Wehaveassessedtheapplicabilityandimplementationoftheapplicablemeasuresonourrelevantproductlinesandhavetakenstepstoensurethatourproductsmeettherequirements.AdoptionoftheErPDirectivewillbealignedinallEUmemberstates.SimilarrequirementsexistinthefourmemberstatesoftheEuropeanFreeTradeAssociation(Iceland,Norway,LiechtensteinandSwitzerland).SuchrequirementsaresubstantiallymetbycompliancewiththeErPDirective.
WearealsosubjecttoanumberofEndofLifeStewardshipdirectivesincludingtheEU'sWasteElectricalandElectronicEquipmentDirective,theEUPackagingDirectiveandtheEUBatteryDirective,whichrequireproducersofelectricalgoods,packaging,andbatteriestobefinanciallyresponsibleforcostsofspecifiedcollection,recycling,treatmentanddisposalofcoveredproducts.Whereapplicable,wehaveprovidedfortheestimatedcosts,whicharenotmaterial,ofmanagingandrecyclinghistoricalandfuturewasteequipment,packagingandbatteries.WearealsosubjecttotheEuropeanREACHDirective(Regulation(EC)No.1907/2006forRegistration,Evaluation,Authorization,andRestrictionsofChemicals)(REACHDirective)andwehavetakenstepstoensurethatourrelevantproductlinesarecompliantwiththeapplicableprovisionoftheREACHDirective.
China. InChina,wearesubjecttoChina'slawsonManagementMethodsontheControlofPollutionCausedbyElectronicInformationProducts(theChinaRoHSlaws).TheChinaRoHSlawsaresubstantiallysimilartotheEU
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RoHSDirective,andassuch,ourproductsarealreadycompliant.TheChinaRoHSlawsrequireadditionallabelingofproductsthatwillbeshippedtoChinaandwehavetakenstepstoensurewecomplywiththeserequirements.
United States and Canada. IntheU.S.,wearesubjectto,amongotherlaws,theApplianceEfficiencyRegulationsadoptedviatheU.S.EnergyIndependenceandSecurityActof2007.TheregulationssetoutstandardsfortheenergyconsumptionperformanceofproductsandsuchstandardsapplytoappliancessoldorofferedforsalethroughouttheU.S.Wehaveredesignedorchangedcertainofourproductstoensurecompliancewiththeseregulations.WearealsosubjecttoCalifornia'sProposition65,whichrequiresthatclearandreasonablewarningsbegiventoconsumerswhoareexposedtocertainchemicalsdeemedbythestateofCaliforniatobedangerous.
LogitechisalsosubjecttotherequirementassetoutbytheDodd-FrankWallStreetReformandConsumerProtectionActof2010,specificallySection1502,whichaddressestheuseof"ConflictMinerals"inthesupplychain.Wehaveestablishedsystemswhichfacilitateourcompliancewiththesourcing,traceabilityandreportingobligationsandthereportingrequirementsofthisActalignedwithguidelinespublishedbytheSecuritiesandExchangeCommission.AsamemberoftheResponsibleBusinessAllianceorRBA(formerlytheEICC),weparticipateintheindustry-wideConflict-FreeSourcingInitiativeanditsConflict-FreeSmelterProgrambywhichtheserequirementsaremet.
Inaddition,theTransparencyinSupplyChainActof2010(S.B.657)iseffectivefromLogitech'sfiscalyear2012.ThelawrequiresallretailersandmanufacturersoftangibleproductswhodobusinessinCaliforniaandhaveannualworldwidegrossreceiptsexceeding$100milliontodiscloseontheircompanywebsitestheireffortstocombatforcedlaborandhumantraffickingintheirownsupplychains.Similarly,LogitechcomplieswiththerequirementsoftheUnitedKingdomModernSlaveryActof2015requiringcertaincommercialorganizationstotransparentlyreporttheireffortstoidentifyanderadicateslaveryandhumantraffickingintheirsupplychain.FurtherinformationisprovidedinourannualSustainabilityReportandLogitech'sdisclosurepostedonourwebsite,www.logitech.com.
WearesubjecttolawsinvariousCanadianprovincesandU.S.statesthatimposefeestocoverthecostofendofliferesponsibledisposalandrecyclingofpackaging,product,andbatteries.Theselawsrequireproducersofelectricalgoods,packaging,andbatteriestobefinanciallyresponsibleforcostsofspecifiedcollection,recycling,treatmentanddisposalofcoveredproducts.Whereapplicable,wehaveprovidedfortheestimatedcosts,whicharenotmaterial,ofmanagingandrecyclinghistoricalandfuturewasteequipment,packaging,andbatteries.
Australia and New Zealand. InAustraliaandNewZealand,wearesubjecttotheMinimumEnergyPerformanceStandardsregulations(MEPS).Theseregulationssetoutstandardsfortheenergyconsumptionperformanceofproductswithinthescopeoftheregulations,whichincludessomeofourproducts.WehavetakenstepstomodifyproductstoensuretheyareincompliancewithMEPS.
Weexpectfurtherlawsgoverningproductandpackagingrecyclingtobeintroducedinotherjurisdictions,manyormostofwhichcouldimposefeestocoverrecyclingcosts,thecumulativeimpactofwhichcouldbesignificant.Ifsuchlegislationisenactedinothercountries,Logitechintendstodevelopcomplianceprogramsasnecessary.However,untilthattime,wearenotabletoestimateanypossibleimpact.
TheeffectsonLogitech'sbusinessofcomplyingwithothergovernmentregulationsarelimitedtothecostofagencyfeesandtesting,aswellasthetimerequiredtoobtainagencyapprovals.Therearealsostewardshipcostsassociatedwiththeendoflifecollection,recyclingandrecoveryofLogitechproducts,packagingandbatterieswhereLogitechisrecognizedasthestewardandparticipatesinrelevantprograms.ThecostsandschedulerequirementsareindustryrequirementsandthereforedonotrepresentanundueburdenrelativetoLogitech'scompetitiveposition.Asregulationschange,wewillmodifyourproductsorprocessestoaddressthosechanges.
Inadditiontomonitoringandmanagingcompliancewithenvironmentalregulations,wealsomonitorandalignwithinternationalgoodpracticestandardsforenvironmental,socialandsustainabilityperformance.WejoinedtheRBA(formerlyEICC)in2007tocollaboratewithindustrypeerstodriveinternationalgoodpracticeacrosstheelectronicssector.Since2007,wehavefullyadoptedtheRBACodeofConductandwepublishanannualSustainabilityReport,inalignmentwiththegoodpracticestandardsoftheGlobalReportingInitiative.Formoreinformationonourapproachtosustainabilitymanagement,RBACodeofConductcomplianceandinternationalgoodpractice,refertoourannualSustainabilityReport,whichisavailablefromthesustainabilitypageonwww.logitech.com.
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Seasonality
Ourproductsalesaretypicallyseasonal.Salesaregenerallyhighestduringourthirdfiscalquarter(OctobertoDecember)primarilyduetotheincreasedconsumerdemandforourproductsduringtheyear-endholidaybuyingseasonandyear-endspendingbyenterprises.Duetothetimingofournewproductintroductions,webelievethatyear-over-yearcomparisonsaremoreindicativeofvariabilityinourresultsofoperationsthanthecurrentquartertopriorquartercomparisons.
Materials
Wepurchasecertainproductsandkeycomponentsusedinourproductsfromalimitednumberofsources.Ifthesupplyoftheseproductsorkeycomponents,suchasmicro-controllersandopticalsensors,weretobedelayedorconstrained,orifoneormoreofoursingle-sourcesuppliersgooutofbusiness,wemightbeunabletofindanewsupplieronacceptableterms,oratall,andourshipmentstoourcustomerscouldbedelayed.Inaddition,leadtimesformaterials,components,andproductsorderedbyusorbyourcontractmanufacturerscanvarysignificantlyanddependonfactorssuchascontractterms,demandforacomponent,ourabilitytoforecastproductdemand,andsuppliercapacity.Fromtimetotime,wehaveexperiencedcomponentshortagesandextendedleadtimesonsemiconductors,suchasmicro-controllersandopticalsensors,andbasemetalsusedinourproducts.Shortagesorinterruptionsinthesupplyofcomponentsorsubcontractedproducts,orourinabilitytoprocurethesecomponentsorproductsfromalternatesourcesatacceptablepricesinatimelymanner,coulddelayshipmentofourproductsorincreaseourproductioncosts.
Employees
AsofMarch31,2019,weemployedapproximately6,600regularemployees,ofwhichapproximately3,400employeesareinourSuzhoumanufacturingfacilities,andfromtheremaining3,200regularemployees,approximately740arededicatedtoresearchanddevelopment.NoneofLogitech'sU.S.employeesarerepresentedbyalaborunionoraresubjecttoacollectivebargainingagreement.Certainothercountries,suchasChina,providebylawforemployeerights,whichincluderequirementssimilartocollectivebargainingagreements.Webelievethatouremployeerelationsaregood.
Executive Officers of the Registrant
ThefollowingsetsforthcertaininformationregardingourexecutiveofficersasofMarch31,2019*:
Name Age Nationality PositionGuerrinoDeLuca 66 ItalianandU.S. ExecutiveChairmanoftheBoardBrackenDarrell 56 U.S. PresidentandChiefExecutiveOfficerVincentPilette* 47 Belgian ChiefFinancialOfficerNateOlmstead* 47 U.S. InterimChiefFinancialOfficer
* OnApril29,2019,Mr.Piletteannouncedhisresignation,effectivefollowingthefilingofthisAnnualReportonForm10-K,andLogitechappointedMr.OlmsteadasinterimChiefFinancialOfficer,tobeeffectiveasofJune1,2019.Inaddition,MarcelStolk,ExecutiveChairman,LogitechEuropeS.A.andLogitech'sSeniorVicePresident,BusinessModelInnovation,resignedasanexecutiveofficer,effectiveasofMarch31,2019.
GuerrinoDeLucahasservedasChairmanoftheLogitechBoardofDirectorssince2008.Mr.DeLucaservedasChiefExecutiveOfficerfromApril2012toJanuary2013andactingPresidentandLogitech'sChiefExecutiveOfficerfromJuly2011toApril2012.Previously,Mr.DeLucaservedasLogitech'sPresidentandChiefExecutiveOfficerfromFebruary1998,whenhejoinedtheCompany,toJanuary2008.HehasbeenanexecutivememberoftheBoardofDirectorssinceJune1998.PriortojoiningLogitech,Mr.DeLucaservedasExecutiveVicePresidentofWorldwideMarketingforAppleComputer,Inc.,aconsumerelectronicsandcomputercompany,fromFebruary1997toSeptember1997,andasPresidentofClarisCorporation,aU.S.personalcomputingsoftwarevendor,fromMay1994toFebruary1997.PriortojoiningClaris,Mr.DeLucaheldvariouspositionswithAppleintheUnitedStatesandinEurope.Mr.DeLucaservesontheboardofdirectorsofNielsenHoldingsplc.Mr.DeLucaholdsaLaureadegreeinElectronicEngineeringfromtheUniversityofRome,Italy.
BrackenDarrelljoinedLogitechasPresidentinApril2012andbecameChiefExecutiveOfficerinJanuary2013.PriortojoiningLogitech,Mr.DarrellservedasPresidentofWhirlpoolEMEAandExecutiveVicePresidentofWhirlpoolCorporation,ahomeappliancemanufacturerandmarketingcompany,fromJanuary2009toMarch2012.
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Previously,Mr.DarrellhadbeenSeniorVicePresident,OperationsofWhirlpoolEMEAfromMay2008toJanuary2009.From2002toMay2008,Mr.DarrellwaswiththeProcter&GambleCompany(P&G),aconsumerbrandcompany,mostrecentlyasthePresidentofitsBraunGmbHsubsidiary.PriortorejoiningP&Gin2002,Mr.DarrellservedinvariousexecutiveandmanagerialpositionswithGeneralElectricCompanyfrom1997to2002,withP&Gfrom1991to1997,andwithPepsiCoInc.from1987to1989.Mr.DarrellholdsaBAdegreefromHendrixCollegeandanMBAfromHarvardUniversity.
VincentPilettejoinedLogitechinSeptember2013asChiefFinancialOfficer.PriortojoiningLogitech,Mr.PiletteservedasChiefFinancialOfficerofElectronicsforImaging,Inc.,adigitalprintinginnovationandsolutionscompany,fromJanuary2011throughAugust2013.FromJanuary2009throughDecember2010,heservedasVicePresidentofFinancefortheEnterpriseServer,StorageandNetworkingGroupatHewlett-PackardCompany(HP).Priortothisrole,Mr.PiletteservedasVicePresidentofFinancefortheHPSoftwareGroupfromDecember2005throughDecember2008.Mr.PiletteheldvariousotherfinancepositionsatHP,intheU.SandEurope,MiddleEastandAfrica,sincejoiningHPin1997.Mr.PiletteholdsanMSinEngineeringandBusinessfromUniversitéCatholiquedeLouvaininBelgiumandanMBAfromKelloggSchoolofManagementatNorthwesternUniversity.
NateOlmsteadjoinedLogitechinApril2019asVicePresidentofBusinessFinanceandwasappointedinterimChiefFinancialOfficertobeeffectiveasofJune2019.PriortojoiningLogitech,Mr.OlmsteadservedinvariousfinancialmanagementrolesatHewlett-PackardCompanyandHewlett-PackardEnterprise,amultinationalinformationtechnologycompany,mostrecentlyastheVicePresidentofFinanceforGlobalOperationsatHewlett-PackardEnterprisefromJune2017toMarch2019.HealsoservedasVicePresidentofFinance,EGGlobalSupplyChainandQualityfromFebruary2015toJune2017,VicePresidentofFinance,HPStorageandHPConvergedSystemsfrom2009toFebruary2015,andDirector,HPInvestorRelationsfrom2006to2009.Mr.OlmsteadholdsaBAdegreefromStanfordUniversityandanMBAfromHarvardBusinessSchool.
Available Information
OurInvestorRelationswebsiteislocatedathttps://ir.logitech.com.Wepostandmaintainanarchiveofourearningsandotherpressreleases,currentreports,annualandquarterlyreports,earningsreleaseschedule,informationregardingannualgeneralmeetings,furtherinformationoncorporategovernance,andotherinformationregardingtheCompanyontheInvestorRelationswebsite.TheinformationwepostincludesfilingswemakewiththeSEC,includingreportsonForms10-K,10-Q,8-K,andourproxystatementrelatedtoourannualshareholders'meetingandanyamendmentstothosereportsorstatementsfiledorfurnishedpursuanttoU.S.securitieslawsorSwisslaws.Allsuchfilingsandinformationareavailablefreeofchargeonthewebsite,andwemakethemavailableonthewebsiteassoonasreasonablypossibleafterwefileorfurnishthemwiththeSEC.Thecontentsofthesewebsitesarenotintendedtobeincorporatedbyreferenceintothisreportorinanyotherreportordocumentwefileandourreferencestothesewebsitesareintendedtobeinactivetextualreferencesonly.
Inaddition,LogitechpublishespressreleasesupontheoccurrenceofsignificanteventswithinLogitech.Shareholdersandmembersofthepublicmayelecttoreceivee-mailswhenLogitechissuespressreleasesupontheoccurrenceofsignificanteventswithinLogitechorotherpressreleasesbysubscribingthroughhttp://ir.logitech.com/alerts.cfm.
AsaSwisscompanytradedontheSIXSwissExchange,andasacompanysubjecttotheprovisionsofSection16oftheSecuritiesExchangeActof1934,asamended,wefilereportsontransactionsinLogitechsecuritiesbymembersofLogitech'sBoardofDirectorsandexecutiveofficers.ThereportsthatwefilewiththeSecuritiesandExchangeCommissiononForms3,4and5,alongwithourotherSECfilings,maybeaccessedonourwebsiteorontheSecuritiesandExchangeCommission'swebsiteathttp://www.sec.gov,andthereportswefilethatarepublishedbytheSIXSwissExchangemaybeaccessedathttp://www.six-exchange-regulation.com/obligations/management_transactions_en.html.
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ITEM 1A. RISK FACTORS
Our operating results are difficult to predict and fluctuations in results may cause volatility in the price of our shares.
Ourrevenuesandprofitabilityaredifficulttopredictduetothenatureofthemarketsinwhichwecompete,fluctuatinguserdemand,theuncertaintyofcurrentandfutureglobaleconomicconditions,andformanyotherreasons,includingthefollowing:
• Ouroperatingresultsarehighlydependentonthevolumeandtimingofordersreceivedduringthequarter,whicharedifficulttoforecast.
Customersgenerallyorderonanas-neededbasisandwetypicallydonotobtainfirm,long-termpurchasecommitmentsfromourcustomers.Asaresult,ourrevenuesinanyquarterdependprimarilyonordersbookedandshippedinthatquarter.
• Asignificantportionofourquarterlyretailsalestypicallyoccursinthelastweeksofeachquarter,furtherincreasingthedifficultyin
predictingquarterlyrevenuesandprofitability.• Oursalesareimpactedbyconsumerdemandandcurrentandfutureglobaleconomicandpoliticalconditions,includingtraderestrictions
andtariffs,andcan,therefore,fluctuateabruptlyandsignificantlyduringperiodsofuncertaineconomicconditionsorgeographicdistress,aswellasfromshiftsindistributorinventorypracticesandconsumerbuyingpatterns.
• Wemustincuralargeportionofourcostsinadvanceofsalesordersbecausewemustplanresearchandproduction,ordercomponents,buytoolingequipment,andenterintodevelopment,salesandmarketing,andotheroperatingcommitmentspriortoobtainingfirmcommitmentsfromourcustomers.Thismakesitdifficultforustorapidlyadjustourcostsduringthequarterinresponsetoarevenueshortfall,whichcouldadverselyaffectouroperatingresults.
• Weengageinacquisitionsanddivestitures,andsuchactivityvariesfromperiodtoperiod.Suchvariancemayaffectourgrowth,ourpreviousoutlookandexpectations,andcomparisonsofouroperatingresultsandfinancialstatementsbetweenperiods.
• Wehaveattemptedtosimplifyourorganization,toreduceoperatingcoststhroughexpensereductionandglobalworkforcereductions,toreducethecomplexityofourproductportfolio,andtobetteraligncostswithourcurrentbusinessasweexpandfromPCaccessoriestogrowthopportunitiesinaccessoriesandotherproductsformusic,gaming,videocollaboration,digitalhome,mobiledevicesandotherproductcategories.Wemaynotachievethecostsavingsorotheranticipatedbenefitsfromtheseefforts,andthesuccessorfailureofsucheffortsmaycauseouroperatingresultstofluctuateandtobedifficulttopredict.
• Fluctuationsincurrencyexchangeratescanimpactourrevenues,expensesandprofitabilitybecausewereportourfinancialstatementsinU.S.Dollars,whereasasignificantportionofourrevenuesandexpensesareinothercurrencies.Weattempttoadjustproductpricesovertimetooffsettheimpactofcurrencymovements.However,overshortperiodsoftime,duringperiodsofweaknessinconsumerspendingorgivenhighlevelsofcompetitioninmanyproductcategories,ourabilitytochangelocalcurrencypricestooffsettheimpactofcurrencyfluctuationsislimited.
Becauseouroperatingresultsaredifficulttopredict,ourresultsmaybebelowtheexpectationsoffinancialanalystsandinvestors,whichcouldcausethepriceofoursharestodecline.
If we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories, ourbusiness and operating results could be adversely affected.
Ourproductcategoriesarecharacterizedbyshortproductlifecycles,intensecompetition,frequentnewproductintroductions,rapidlychangingtechnology,dynamicconsumerdemandandevolvingindustrystandards.Asaresult,wemustcontinuallyinnovateinournewandexistingproductcategories,introducenewproductsandtechnologies,andenhanceexistingproductsinordertoremaincompetitive.
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Thesuccessofourproductportfoliodependsonseveralfactors,includingourabilityto:
• Identifynewfeatures,functionalityandopportunities;
• Anticipatetechnology,markettrendsandconsumerpreferences;
• Developinnovative,high-quality,andreliablenewproductsandenhancementsinacost-effectiveandtimelymanner;
• Distinguishourproductsfromthoseofourcompetitors;and
• Offerourproductsatpricesandontermsthatareattractivetoourcustomersandconsumers.
Ifwedonotexecuteonthesefactorssuccessfully,productsthatweintroduceortechnologiesorstandardsthatweadoptmaynotgainwidespreadcommercialacceptance,andourbusinessandoperatingresultscouldsuffer.Inaddition,ifwedonotcontinuetodifferentiateourproductsthroughdistinctive,technologicallyadvancedfeatures,designs,andservicesthatareappealingtoourcustomersandconsumers,aswellascontinuetobuildandstrengthenourbrandrecognitionandouraccesstodistributionchannels,ourbusinesscouldbeadverselyaffected.
Thedevelopmentofnewproductsandservicescanbeverydifficultandrequireshighlevelsofinnovation.Thedevelopmentprocessalsocan
belengthyandcostly.Therearesignificantinitialexpendituresforresearchanddevelopment,tooling,manufacturingprocesses,inventoryandmarketing,andwemaynotbeabletorecoverthoseinvestments.Ifwefailtoaccuratelyanticipatetechnologicaltrendsorourusers’needsorpreferences,areunabletocompletethedevelopmentofproductsandservicesinacost-effectiveandtimelyfashionorareunabletoappropriatelyincreaseproductiontofulfillcustomerdemand,wewillbeunabletosuccessfullyintroducenewproductsandservicesintothemarketorcompetewithotherproviders.Evenifwecompletethedevelopmentofournewproductsandservicesinacost-effectiveandtimelymanner,theymaynotbecompetitivewithproductsdevelopedbyothers,theymaynotachieveacceptanceinthemarketatanticipatedlevelsoratall,theymaynotbeprofitableor,eveniftheyareprofitable,theymaynotachievemarginsashighasourexpectationsorashighasthemarginswehaveachievedhistorically.
Asweintroduceneworenhancedproducts,integratenewtechnologyintoneworexistingproducts,orreducetheoverallnumberofproducts
offered,wefacerisksincluding,amongotherthings,disruptionincustomers’orderingpatterns,excessivelevelsofnewandexistingproductinventories,revenuedeteriorationinourexistingproductlines,insufficientsuppliesofnewproductstomeetcustomers’demand,possibleproductandtechnologydefects,andapotentiallydifferentsalesandsupportenvironment.Prematureannouncementsorleaksofnewproducts,featuresortechnologiesmayexacerbatesomeoftheserisksbyreducingtheeffectivenessofourproductlaunches,reducingsalesvolumesofcurrentproductsduetoanticipatedfutureproducts,makingitmoredifficulttocompete,shorteningtheperiodofdifferentiationbasedonourproductinnovation,strainingrelationshipswithourpartnersorincreasingmarketexpectationsfortheresultsofournewproductsbeforewehavehadanopportunitytodemonstratethemarketviabilityoftheproducts.Ourfailuretomanagethetransitiontonewproductsortheintegrationofnewtechnologyintoneworexistingproductscouldadverselyaffectourbusiness,resultsofoperations,operatingcashflowsandfinancialcondition.Our future growth will depend on our diversified product growth opportunities, and if we do not successfully execute on our growthopportunities, or if our growth opportunities are more limited than we expect, our operating results could be adversely affected.
WehavehistoricallytargetedperipheralsforthePCplatform.ConsumerdemandforPCs,especiallyinourtraditional,maturemarketssuchasNorthAmerica,WesternandNordicEurope,JapanandAustralia,hasbeendecliningorflatforseveralyears,anditmaycontinuetodeclineinthefuture.ThishasputpressureonconsumerdemandforPCperipheralsinmanyofourmarketsandmaycausesalesgrowthofourPCperipheralstoslowand,insomecases,decline.Weexpectthistrendmaycontinue.
OursalesofPCperipheralsmightbelessthanweexpectduetoadeclineinbusinessoreconomicconditionsinoneormoreofthecountriesor
regions,agreaterdeclinethanweexpectindemandforourproducts,ourinabilitytosuccessfullyexecuteoursalesandmarketingplans,orforotherreasons.Globaleconomicconcerns,suchasthevaryingpaceofglobaleconomicrecovery,politicaluncertaintiescreatedbypolicychangessuchasBrexit,tariffsandpoliciesthatinhibittrade,theimpactofsovereigndebtissuesinEurope,theimpactofoilpricesonRussiaand
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othercountries,conflictswitheitherlocalorglobalfinancialimplicationsandeconomicslowdowninChina,createunpredictabilityandaddrisktoourfutureoutlook.
Asaresult,weareattemptingtodiversifyourproductcategoryportfolioandfocusingmoreofourattention,whichmayincludepersonnel,
financialresourcesandmanagementattention,onproductinnovationsandgrowthopportunities,includingproductsforgaming,productsforvideocollaboration,productsfortheconsumptionofdigitalmusic,productsforthedigitalhome,andonotherpotentialgrowthopportunitiesinadditiontoourPCperipheralsproductcategories.Ourinvestmentsmaynotresultinthegrowthweexpect,orwhenweexpectit,foravarietyofreasonsincludingthosedescribedbelow.
Creativity & Productivity .DespiteslowingordeclinesinsalesofPCs,ourpointingdevices,keyboards,webcamsandotherPCperipheralshavecontinuedtoseesomegrowthasaresultofconsumersrefreshingtheirexistingPCs,productinnovationandnewconsumertrends,suchassocialcontentcreation.Ifthesetrendsandothergrowthdriversdonotcontinue,orresultinerraticperiodsofgrowth,ourresultsofoperationscouldbemoresusceptibletothetrendsinPCsandourbusinessandourresultscouldbeadverselyaffected.
Gaming .Wearebuildingadiversebusinessthatfeaturesavarietyofgamingperipherals.Therapidlyevolvingandchangingmarketandincreasingcompetitionincreasetheriskthatwedonotallocateourresourcesinlinewiththemarketandourbusinessandourresultsofoperationscouldbeadverselyaffected.
Video Collaboration. Whileweviewthesmallandmedium-sizedusergroupsopportunitytobelargeandrelativelyunaddressed,thisisanewandevolvingmarketsegmentthatweandourcompetitorsaredeveloping.Ifthemarketopportunityprovestobesustainable,weexpectincreasedcompetitionfromestablishedcompetitorsinthevideoconferencingmarketaswellasfromnewentrantswhoaregainingtractionastheindustrycomestoacceptnewtechnologyandnewsolutions.Inordertocontinuetogrowinthisopportunity,wemayneedtofurtherbuildandscaleourownenterprisesalesforce,acapabilitythatseveralofourcompetitorsinthiscategoryalreadyhave.
Music. Wearefocusedonproductsfortheconsumptionofdigitalmusicasasalesgrowtharea.Competitioninthemobilespeakerandheadphonecategoriesisintense,andweexpectittoincrease.Moreover,themarketformobilespeakersappearstobematuringwithslowergrowthorevendeclining.Ifwearenotabletogrowourexistingandacquiredproductlinesandintroducedifferentiatedproductsandmarketingstrategiestoseparateourproductsandbrandsfromcompetitors'productsandbrands,ourmobilespeakerandaudioheadphoneeffortswillnotbesuccessful,andourbusinessandresultsofoperationscouldbeadverselyaffected.
Smart Home .Whilewearealeaderinprogrammable,performanceremotecontrolsforhomeentertainment,thesmarthomemarketisstillinits
earlystagesanditisnotyetclearwhenthecategorywillproducedynamicgrowthorwhichproductswillsucceedandbeabletotakeadvantageofmarketgrowthortohelpdefineandgrowthemarket.Despiteitsearlystages,thesmarthomemarketalreadyisexperiencingincreasingcompetitionfromstrongcompetitors.
Inadditiontoourcurrentgrowthopportunities,ourfuturegrowthmaybereliantonourabilitytoidentifyanddeveloppotentialnewgrowthopportunities.Thisprocessisinherentlyriskyandwillresultininvestmentsintimeandresourcesforwhichwedonotachieveanyreturnorvalue.
Eachofthesegrowthcategoriesandmanyofthegrowthopportunitiesthatwemaypursuearesubjecttoconstantandrapidlychangingandevolvingtechnologiesandevolvingindustrystandardsandmaybereplacedbynewtechnologyconceptsorplatforms.Someofthesegrowthcategoriesandopportunitiesarealsocharacterizedbyshortproductcycles,frequentnewproductintroductionsandenhancementsandrapidlychangingandevolvingconsumerpreferenceswithrespecttodesignandfeaturesthatrequirecalculatedrisk-takingandfastresponsivenessandresultinshortopportunitiestoestablishamarketpresence.Inaddition,someofthesegrowthcategoriesandopportunitiesarecharacterizedbypricecompetition,erosionofpremium-pricedsegmentsandaveragesellingprices,commoditization,andsensitivitytogeneraleconomicconditionsandcyclicaldownturns.Thegrowthopportunitiesandstrengthandnumberofcompetitorsthatwefaceinallofourproductcategoriesmeansthatweareatriskofnewcompetitorscomingtomarketwithmoreinnovativeproductsthataremoreattractivetocustomersthanoursorpricedmorecompetitively.Ifwedonotdevelopinnovativeandreliableperipheralsandenhancementsinacost-effectiveandtimelymannerthatareattractivetoconsumersinthesemarkets,ifweareotherwiseunsuccessfulenteringandcompetinginthesegrowthcategoriesorrespondingtoourmanycompetitorsandtotherapidlychangingconditionsinthesegrowthcategories,ifthegrowthcategoriesinwhichweinvestour
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limitedresourcesdonotemergeastheopportunitiesordonotproducethegrowthorprofitabilityweexpect,orwhenweexpectit,orifwedonotcorrectlyanticipatechangesandevolutionsintechnologyandplatforms,ourbusinessandresultsofoperationscouldbeadverselyaffected.
If we are not able to maintain and enhance our brands, or if our brands or reputation are damaged, our reputation, business and operatingresults could be adversely affected.
Wehavedevelopedlong-termvalueinourbrandsandhaveinvestedsignificantlyindesignandinourexistingandnewbrandsoverthepastseveralyears.Webelievethatourdesignandbrandshavesignificantlycontributedtothesuccessofourbusinessandthatmaintainingandenhancingourbrandsisveryimportanttoourfuturegrowthandsuccess.Maintainingandenhancingourbrandswillrequiresignificantinvestmentsandwilldependlargelyonourfuturedesign,productsandmarketing,whichmaynotbesuccessfulandmaydamageourbrands.Ourbrandsandreputationarealsodependentonthirdparties,suchassuppliers,manufacturers,distributors,retailers,productreviewersandthemediaaswellasonlineconsumerproductreviews,consumerrecommendationsandreferrals.Itcantakesignificanttime,resourcesandexpensetoovercomenegativepublicity,reviewsorperception.Anynegativeeffectonourbrands,regardlessofwhetheritisinourcontrol,couldadverselyaffectourreputation,businessandresultsofoperations.
If we do not compete effectively, demand for our products could decline and our business and operating results could be adverselyaffected.
Theperipheralsindustryisintenselycompetitive.Mostofourproductcategoriesarecharacterizedbylarge,well-financedcompetitorswithstrongbrandnamesandhighlyeffectiveresearchanddevelopment,marketingandsalescapabilities,shortproductlifecycles,continualperformanceenhancements,andrapidadoptionoftechnologicalandproductadvancementsbycompetitorsinourretailmarkets.Manyofourcompetitorshavebroadproductportfoliosacrossseveralofourproductcategoriesandareabletousethestrengthoftheirbrandstomoveintoadjacentcategories.Ourcompetitorshavetheabilitytobringnewproductstomarketquicklyandatcompetitiveprices.Weexperienceaggressivepricecompetitionandotherpromotionalactivitiesfromourprimarycompetitorsandfromless-establishedbrands,includingbrandsownedbyretailcustomersknownashousebrands.Inaddition,ourcompetitorsmayoffercustomerstermsandconditionsthatmaybemorefavorablethanourtermsandconditionsandmayrequireustotakeactionstoincreaseourcustomerincentiveprograms,whichcouldimpactourrevenuesandoperatingmargins.
Inrecentyears,wehaveexpandedthecategoriesofproductswesellandenterednewmarkets.Weremainalerttoopportunitiesinnew
categoriesandmarkets.Aswedoso,weareconfrontingnewcompetitors,manyofwhichhavemoreexperienceinthecategoriesormarketsandhavegreatermarketingresourcesandbrandnamerecognitionthanwehave.Inaddition,becauseofthecontinuingconvergenceofthemarketsforcomputingdevicesandconsumerelectronics,weexpectgreatercompetitioninthefuturefromwell-establishedconsumerelectronicscompaniesinourdevelopingcategoriesaswellasinfuturecategorieswemightenter.Manyofthesecompanies,suchasMicrosoft,Apple,Google,Cisco,SonyCorporation,Samsungandothers,havegreaterfinancial,technical,sales,marketingandotherresourcesthanwehave.
Microsoft,Apple,GoogleandAmazonareleadingproducersofoperatingsystems,hardware,platformsandapplicationswithwhichourmice,
keyboards,wirelessspeakersandotherproductsaredesignedtooperate.Inaddition,Microsoft,Apple,GoogleandAmazoneachhassignificantlygreaterfinancial,technical,sales,marketingandotherresourcesthanLogitech,aswellasgreaternamerecognitionandalargercustomerbase.Asaresult,Microsoft,Apple,GoogleandAmazoneachmaybeabletoimprovethefunctionalityofitsproducts,ifany,ormaychoosetoshowpreferencetoourcompetitors'products,tocorrespondwithongoingenhancementstoitsoperatingsystems,hardwareandsoftwareapplicationsbeforeweareabletomakesuchimprovements.ThisabilitycouldprovideMicrosoft,Apple,Google,Amazonorothercompetitorswithsignificantlead-timeadvantages.Inaddition,Microsoft,Apple,Google,Amazonorothercompetitorsmaybeabletocontroldistributionchannelsorofferpricingadvantagesonbundledhardwareandsoftwareproductsthatwemaynotbeabletooffer,andmaybefinanciallypositionedtoexertsignificantdownwardpressureonproductpricesandupwardpressureonpromotionalincentivesinordertogainmarketshare.
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Creativity & Productivity
Pointing Devices. Apple,MicrosoftandHPareourmaincompetitorsworldwide.Wealsoexperiencecompetitionandpricingpressurefromless-establishedbrands,includinghousebrandsandlocalcompetitorsinAsianmarketssuchasElecom,Buffalo,RapooandXiaomi.
Keyboards & Combo .MicrosoftandAppleareourmaincompetitorsinourPCkeyboardandcomboproductlines.Wealsoexperiencecompetitionandpricingpressureforkeyboardandcombosfromless-establishedbrands,includinghousebrandsandlocalcompetitorsinAsianmarkets.
Tablet & Other Accessories .CompetitorsinthetabletkeyboardmarketareApple,Zagg,Kensington,Belkin,Targusandotherless-establishedbrands.Althoughweareoneoftheleadersinthetabletkeyboardmarketandcontinuetobringinnovativeofferingstothemarket,weexpectthecompetitionmayincrease.CompetitorsinthetabletcasemarketincludeApple,Otter,Speckandalargenumberofsmallbrands.
PC Webcams. OurprimarycompetitorsforPCwebcamsareMicrosoftandothermanufacturerstakingsmallermarketsharesuchasRazer.
Gaming
CompetitorsforourGamingproductsincludeRazer,Corsair,Component,SteelSeries,TurtleBeachandKingston,amongothers.
Video Collaboration
OurcompetitorsforVideoCollaborationproductsarenumerousacrossvariouscategorieswithmanynewentrants.CompetitorsincludeCiscoSystems,Polycom,Inc.(acquiredbyPlantronics),GNNetcom/Jabra(whichrecentlyacquiredAltiaSystems),AVerInformation,amongothers.
Music
Mobile Speakers. OurcompetitorsforBluetoothwirelessspeakersincludeBose,Harman(ownedbySamsung)andBeats(ownedbyApple)amongothers.Harmanisourlargestcompetitor.Apple'sownershipofBeatsmayimpactouraccesstoshelfspaceinAppleretailstoresandadverselyimpactourabilitytosucceedinthisimportantgrowthmarket.Personalvoiceassistantsandotherdevicesthatoffermusic,suchasSonos,Amazon'sEcho,GoogleHomeandAppleHomePodalsocompetewithourproducts.Amazonisalsoasignificantcustomerofourproducts.
Audio & Wearables .ForPCspeakers,ourcompetitorsincludeBose,CyberAcoustics,PhillipsandCreativeLabs,AppleandSamsung.ForPCheadset,wefacenumerouscompetitors,includingPlantronicsandGNNetcomamongothers.In-earheadphonescompetitorsincludeBeats,Bose,AppleSony,JBLandSennheiser,amongothers.OurcompetitorsforBlueMicrophonesproductsincludeRode,Audio-Technica,Samson,Shure,RazerandApogee,amongothers.
Smart Home
Directcompetitorsintheremotecontrolmarketincludepro-installer-focusedUniversalRemoteControlandnew“DIY”entrants.Indirectcompetitionexistsintheformoflow-end“replacementremotes”suchasSony,RCA,GE,pureapp-basedsolutionssuchasPeel,aswellasdeviceand/orsubscriber-specificsolutionsfromTVmakerssuchasSamsungandVizioandmultisystemoperators,orMSOs,suchasComcastandDirecTV.
CompetitioninthehomecontrolmarketalsoexistsinformofhomeautomationplatformssuchasSmartThings(ownedbySamsung),AmazonwiththeirEchoproduct,GoogleHomeandNest(ownedbyAlphabet),Winkandmanyotherstartups.ManyofthesecompaniesalsointegratetheirproductswithLogitech'ssmarthomeandHarmonyremoteproducts.
Our business depends in part on access to third-party platforms or technologies, and if the access is withdrawn, denied, or is notavailable on terms acceptable to us, or if the platforms or technologies change without notice to us, our business and operating resultscould be adversely affected.
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OurperipheralsbusinesshashistoricallybeenbuiltlargelyaroundthePCplatform,whichovertimebecamerelativelyopen,anditsinputsand
operatingsystemstandardized.Withthegrowthofmobile,tablet,gamingandothercomputerdevices,digitalmusicandpersonalvoiceassistants,thenumberofplatformshasgrown,andwithitthecomplexityandincreasedneedforustohavebusinessandcontractualrelationshipswiththeplatformownersinordertoproduceproductscompatiblewiththeseplatforms.Ourproductportfolioincludescurrentandfutureproductsdesignedforusewiththird-partyplatformsorsoftware,suchastheAppleiPad,iPod,iPhoneandSiri,Androidphonesandtablets,GoogleAssistantandAmazonAlexa. Ourbusinessinthesecategoriesreliesonouraccesstotheplatformsofthirdparties,someofwhomareourcompetitors.Platformownersthatarecompetitorshaveacompetitiveadvantageindesigningproductsfortheirplatformsandmayproduceperipheralsorotherproductsthatworkbetter,orareperceivedtoworkbetter,thanourproductsinconnectionwiththoseplatforms.Asweexpandthenumberofplatformsandsoftwareapplicationswithwhichourproductsarecompatible,wemaynotbesuccessfulinlaunchingproductsforthoseplatformsorsoftwareapplications,wemaynotbesuccessfulinestablishingstrongrelationshipswiththenewplatformorsoftwareowners,orwemaynegativelyimpactourabilitytodevelopandproducehigh-qualityproductsonatimelybasisforthoseplatformsandsoftwareapplicationsorwemayotherwiseadverselyaffectourrelationshipswithexistingplatformorsoftwareowners.
Ouraccesstothird-partyplatformsmayrequirepayingaroyalty,whichlowersourproductmarginsormayotherwisebeontermsthatarenot
acceptabletous.Inaddition,thethird-partyplatformsortechnologiesusedtointeractwithourproductportfoliocanbedelayedinproductionorcanchangewithoutpriornoticetous,whichcanresultinourhavingexcessinventoryorlowermargins.
Ifweareunabletoaccessthird-partyplatformsortechnologies,orifouraccessiswithdrawn,denied,orisnotavailableontermsacceptableto
us,oriftheplatformsortechnologiesaredelayedorchangewithoutnoticetous,ourbusinessandoperatingresultscouldbeadverselyaffected.
If we do not accurately forecast market demand for our products, our business and operating results could be adversely affected.
Weuseourforecastsofproductdemandtomakedecisionsregardinginvestmentsofourresourcesandproductionlevelsofourproducts.Althoughwereceiveforecastsfromourcustomers,manyarenotobligatedtopurchasetheforecasteddemand.Also,actualsalesvolumesforindividualproductsinourretaildistributionchannelcanbevolatileduetochangesinconsumerpreferencesandotherreasons.Inaddition,ourproductshaveshortproductlifecycles,soafailuretoaccuratelypredicthighdemandforaproductcanresultinlostsalesthatwemaynotrecoverinsubsequentperiods,orhigherproductcostsifwemeetdemandbypayinghighercostsformaterials,productionanddelivery.Wecouldalsofrustrateourcustomersandloseshelfspace.Ourfailuretopredictlowdemandforaproductcanresultinexcessinventory,lowercashflowsandlowermarginsifwearerequiredtoreduceproductpricesinordertoreduceinventories.
Ifoursaleschannelpartnershaveexcessinventoryofourproductsordecidetodecreasetheirinventoriesforanyreason,theymaydecreasetheamountofproductstheyacquireinsubsequentperiods,causingdisruptioninourbusinessandadverselyaffectingourforecastsandsales.
Overthepastfewyears,wehaveexpandedthetypesofproductswesellandthegeographicmarketsinwhichwesellthem.Thechangesinourproductportfolioandtheexpansionofoursalesmarketshaveincreasedthedifficultyofaccuratelyforecastingproductdemand.
Inaddition,startinginfiscalyear2016,weincreasedthenumberofourproductsthatwemanufactureinourownfacilities.Thisincreasestheinventorythatwepurchaseandmaintaintosupportsuchmanufacturing.Wearealsoutilizingseashipmentsmoreextensivelythanairdelivery,whichwillcauseustobuildandshipproductstoourdistributioncentersearlierandwillalsoresultinincreasesininventory.Theseoperationalshiftsincreasetheriskthatwehaveexcessorobsoleteinventoryifwedonotaccuratelyforecastproductdemand.
Wehaveexperiencedlargedifferencesbetweenourforecastsandactualdemandforourproducts.Weexpectotherdifferencesbetweenforecastsandactualdemandtoariseinthefuture.Ifwedonotaccuratelypredictproductdemand,ourbusinessandoperatingresultscouldbeadverselyaffected.
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Our success largely depends on our ability to hire, retain, integrate and motivate sufficient numbers of qualified personnel, includingsenior management. Our strategy and our ability to innovate, design and produce new products, sell products, maintain operatingmargins and control expenses depend on key personnel that may be difficult to replace.
Oursuccessdependsonourabilitytoattractandretainhighlyskilledpersonnel,includingseniormanagementandinternationalpersonnel.Fromtimetotime,weexperienceturnoverinsomeofourseniormanagementpositions.
Wecompensateouremployeesthroughacombinationofsalary,bonuses,benefitsandequitycompensation.Recruitingandretainingskilled
personnel,includingsoftwareandhardwareengineers,ishighlycompetitive.Ifwefailtoprovidecompetitivecompensationtoouremployees,itwillbedifficulttoretain,hireandintegratequalifiedemployeesandcontractors,andwemaynotbeabletomaintainandexpandourbusiness.Ifwedonotretainourseniormanagersorotherkeyemployeesforanyreason,werisklosinginstitutionalknowledge,experience,expertiseandotherbenefitsofcontinuityaswellastheabilitytoattractandretainotherkeyemployees.Inaddition,wemustcarefullybalancethesizeofouremployeebasewithourcurrentinfrastructure,managementresourcesandanticipatedoperatingcashflows.Ifweareunabletomanagethesizeofouremployeebase,particularlyengineers,wemayfailtodevelopandintroducenewproductssuccessfullyandinacost-effectiveandtimelymanner.Ifourrevenuegrowthoremployeelevelsvarysignificantly,ouroperatingcashflowsandfinancialconditioncouldbeadverselyaffected.Volatilityorlackofpositiveperformanceinourstockprice,includingdeclinesinourstockpricesinthepastyear,mayalsoaffectourabilitytoretainkeyemployees,manyofwhomhavebeengrantedequityincentives.Logitech’spracticehasbeentoprovideequityincentivestoitsemployees,butthenumberofsharesavailableforequitygrantsislimited.Wemayfinditdifficulttoprovidecompetitiveequityincentives,andourabilitytohire,retainandmotivatekeypersonnelmaysuffer.
Recentlyandinpastyears,wehaveinitiatedreductionsinourworkforcetoalignouremployeebasewithourbusinessstrategy,ouranticipated
revenuebaseorwithourareasoffocus.Wehavealsoexperiencedturnoverinourworkforce.Thesereductionsandturnoverhaveresultedinreallocationsofduties,whichcouldresultinemployeeuncertaintyanddiscontent.Reductionsinourworkforcecouldmakeitdifficulttoattract,motivateandretainemployees,whichcouldadverselyaffectourbusiness.
Our gross margins can vary significantly depending on multiple factors, which can result in unanticipated fluctuations in our operatingresults.
Ourgrossmarginscanvaryduetoconsumerdemand,competition,productpricing,productlifecycle,productmix,newproductintroductions,unitvolumes,acquisitionsanddivestitures,commodity,supplychainandlogisticscosts,capacityutilization,geographicsalesmix,currencyexchangerates,tradepolicyandtariffs,thecomplexityandfunctionalityofnewproductinnovationsandotherfactors.Inparticular,ifwearenotabletointroducenewproductsinatimelymannerattheproductcostweexpect,orifconsumerdemandforourproductsislessthanweanticipate,orifthereareproductpricing,marketingandotherinitiativesbyourcompetitorstowhichweneedtoreactorthatareinitiatedbyustodrivesalesthatlowerourmargins,thenouroverallgrossmarginwillbelessthanweproject.
Inaddition,ourgrossmarginsmayvarysignificantlybyproductline,salesgeographyandcustomertype,aswellaswithinproductlines.When
themixofproductssoldshiftsfromhighermarginproductlinestolowermarginproductlines,tolowermarginsalesgeographies,ortolowermarginproductswithinproductlines,ouroverallgrossmarginsandourprofitabilitymaybeadverselyaffected.
Asweexpandwithinandintonewproductcategories,ourproductsinthosecategoriesmayhavelowergrossmarginsthaninourtraditional
productcategories.Consumerdemandintheseproductcategories,basedonstyle,colorandotherfactors,tendstobelesspredictableandtendstovarymoreacrossgeographicmarkets.Asaresult,wemayfacehigherup-frontinvestments,inventorycostsassociatedwithattemptingtoanticipateconsumerpreferences,andincreasedinventorywrite-offs.Ifweareunabletooffsetthesepotentiallylowermarginsbyenhancingthemarginsinourmoretraditionalproductcategories,ourprofitabilitymaybeadverselyaffected.
Theimpactofthesefactorsongrossmarginscancreateunanticipatedfluctuationsinouroperatingresults,whichmaycausevolatilityinthe
priceofourshares.
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As we continue our efforts to lower our costs and improve our operating leverage, we may or may not fully realize our goals.
Ourstrategyoverthepastseveralyearshasbeenbasedinpartonsimplifyingtheorganization,reducingoperatingcoststhroughglobalworkforcereductionsandareductioninthecomplexityofourproductportfolio,withthegoalofbetteraligningcostswithourcurrentbusiness.Werestructuredourbusinessinfiscalyears2014through2016,andwemaycontinuetodivestordiscontinuenon-strategicproductcategories.Duringthethirdquarteroffiscalyear2016,wedivestedourLifesizevideoconferencingbusinessandcompletedourexitfromtheOEMbusiness.Duringthefirstquarteroffiscalyear2019,weimplementedarestructuringplantostreamlineandrealignouroverallorganizationalstructureandreallocateresourcestosupportlong-termgrowthopportunities.Weexpecttohavesubstantiallycompletedthisrestructuringwithinthenextthreemonths.
Ourabilitytoachievethedesiredandanticipatedcostsavingsandotherbenefitsfromthesesimplification,cost-cuttingandrestructuringactivities,andwithinourdesiredandexpectedtimeframes,aresubjecttomanyestimatesandassumptions,andtheactualsavingsandtimingforthosesavingsmayvarymateriallybasedonfactorssuchaslocallaborregulations,negotiationswiththirdparties,andoperationalrequirements.Theseestimatesandassumptionsarealsosubjecttosignificanteconomic,competitiveandotheruncertainties,someofwhicharebeyondourcontrol.Therecanbenoassurancethatwewillfullyrealizethedesiredandanticipatedbenefitsfromtheseactivities.Totheextentthatweareunabletoimproveourfinancialperformance,furtherrestructuringmeasuresmayberequiredinthefuture.Furthermore,weareexpectingtobeabletousetheanticipatedcostsavingsfromtheseactivitiestofundandsupportourcurrentgrowthopportunitiesandincrementalinvestmentsforfuturegrowth.Ifthecost-savingsdonotmaterializeasanticipated,orwithinourexpectedtimeframes,ourabilitytoinvestingrowthmaybelimitedandourbusinessandoperatingresultsmaybeadverselyaffected.Aswegrow,explorenewopportunitiesandmarkets,hirenewmanagementandotherpersonnel,andfundresearchanddevelopment,marketing,branddevelopment,sales,operations,investmentsinintellectualpropertyandacquisitionstosupportthisgrowthandournewopportunities,someorallofwhichmaynotsucceed,weexpecttoexperiencecontinuedpressureonourcoststructureandexpenses.
Aspartoftherestructuringplans,wereducedthesizeofourproductportfolioandtheassortmentofsimilarproductsatsimilarpricepoints
withineachproductcategoryoverthepastseveralfiscalyears.Whileweareconstantlyreplacingproductsandaredependentonthesuccessofournewproducts,thisproductportfoliosimplificationhasmadeusevenmoredependentonthesuccessofthenewproductsthatweareintroducing.
As we focus on growth opportunities, we are divesting or discontinuing non-strategic product categories and pursuing strategicacquisitions and investments, which could have an adverse impact on our business.
Wecontinuetoreviewourproductportfolioandupdateournon-strategicproductcategoriesandproducts.Duringthethirdquarteroffiscalyear2016,wedivestedourLifesizevideoconferencingbusinessandcompletedourexitfromtheOEMbusiness.Ifweareunabletoeffectsalesonfavorabletermsorifrealignmentismorecostlyordistractingthanweexpectorhasanegativeeffectonourorganization,employeesandretention,thenourbusinessandoperatingresultsmaybeadverselyaffected.Discontinuingproductswithservicecomponentsmayalsocauseustocontinuetoincurexpensestomaintainserviceswithintheproductlifecycleortoadverselyaffectourcustomerandconsumerrelationshipsandbrand.Divestituresmayalsoinvolvewarranties,indemnificationorcovenantsthatcouldrestrictourbusinessorresultinlitigation,additionalexpensesorliabilities.Inaddition,discontinuingproductcategories,evencategoriesthatweconsidernon-strategic,reducesthesizeanddiversificationofourbusinessandcausesustobemoredependentonasmallernumberofproductcategories.
Asweattempttogrowourbusinessinstrategicproductcategoriesandemergingmarketgeographies,wewillconsidergrowththrough
acquisitionorinvestment.Wewillevaluateacquisitionopportunitiesthatcouldprovideuswithadditionalproductorserviceofferingsorwithadditionalindustryexpertise,assetsandcapabilities.Forexample,weacquiredASTROGamingtoexpandintotheconsolegamingmarket,weacquiredJaybirdtoexpandintothewirelessaudiowearablesmarket,weacquiredSaitektoexpandintothegamingsimulationandcontrollermarkets,andweacquiredBlueMicrophonestoexpandintothemicrophonesmarket.Acquisitionscouldresultindifficultiesintegratingacquiredoperations,products,technology,internalcontrols,personnelandmanagementteamsandresultinthediversionofcapitalandmanagement’sattentionawayfromotherbusinessissuesandopportunities.Ifwefailtosuccessfullyintegrateacquisitions,ourbusinesscouldbeharmed.Acquisitionscouldalsoresultintheassumptionofknownandunknownliabilities,product,regulatoryandothercomplianceissues,dilutiveissuancesofourequitysecurities,theincurrenceofdebt,disputesoverearn-outsorotherlitigation,andadverseeffectsonrelationshipswithourandourtarget’semployees,customersandsuppliers.Moreover,ouracquisitions
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maynotbesuccessfulinachievingourdesiredstrategy,product,financialorotherobjectivesorexpectations,whichwouldalsocauseourbusinesstosuffer.Acquisitionscanalsoleadtolargenon-cashchargesthatcanhaveanadverseeffectonourresultsofoperationsasaresultofwrite-offsforitemssuchasfutureimpairmentsofintangibleassetsandgoodwillortherecordingofshare-basedcompensation.Severalofourpastacquisitionshavenotbeensuccessfulandhaveledtoimpairmentcharges,includinga$122.7millionnon-cashgoodwillimpairmentchargeinfiscalyear2015relatedtoourLifesizevideoconferencingbusinesswhichisreportedindiscontinuedoperations.Acquisitionsanddivestituresmayalsocauseouroperatingresultstofluctuateandmakeitdifficultforinvestorstocompareoperatingresultsandfinancialstatementsbetweenperiods.Inaddition,fromtimetotimewemakestrategicventureinvestmentsinothercompaniesthatprovideproductsandservicesthatarecomplementarytoours.Iftheseinvestmentsareunsuccessful,thiscouldhaveanadverseimpactonourresultsofoperations,operatingcashflowsandfinancialcondition.
We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of ourrelationship with these channel partners, changes in or issues with their business practices, their failure to provide timely and accurateinformation, changes in distribution partners, practices or models, conflicts among our channels of distribution, or failure to build andscale our own sales force for certain product categories and enterprise channel partners could adversely affect our business, results ofoperations, operating cash flows and financial condition.
Weprimarilysellourproductstoanetworkofdistributors,retailersande-tailers(togetherwithourdirectsaleschannelpartners).Wearedependentonthosedirectsaleschannelpartnerstodistributeandsellourproductstoindirectsaleschannelpartnersandultimatelytoconsumers.Thesalesandbusinesspracticesofallsuchsaleschannelpartners,theircompliancewithlawsandregulations,andtheirreputations-ofwhichwemayormaynotbeaware-mayaffectourbusinessandourreputation.
Whileouroveralldistributionrelationshipsarediffuse,overaquarterofourgrosssalesareconcentratedwithtwocustomers-AmazonInc.andIngramMicro-andtheiraffiliatedentities.Ifonlinesalesgrowasapercentageofoverallsales,weexpectthatwewillbecomeevenmorereliantonAmazon.WhilewebelievethatwehavegoodrelationshipswithAmazonandIngramMicro,anyadversechangeineitherofthoserelationshipscouldhaveanadverseonourresultsofoperationsandfinancialcondition.
Theimpactofeconomicconditions,evolvingconsumerpreferences,andpurchasingpatternsonourdistributionpartners,orcompetitionbetweenoursaleschannels,couldresultinsaleschanneldisruption.Forexample,ifsalesatlargeretailstoresaredisplacedasaresultofbankruptcy,competitionfromInternetsaleschannelsorotherwise,ourproductsalescouldbeadverselyaffected.Anylossofamajorpartnerordistributionchannelorotherchanneldisruptioncouldmakeusmoredependentonalternatechannels,increasepricingandpromotionalpressuresfromotherpartnersanddistributionchannels,increaseourmarketingcosts,oradverselyimpactbuyingandinventorypatterns,paymenttermsorothercontractualterms.
Oursaleschannelpartnersalsosellproductsofferedbyourcompetitorsand,inthecaseofretailerhousebrands,mayalsobeourcompetitors.
Ifproductcompetitorsofferoursaleschannelpartnersmorefavorableterms,havemoreproductsavailabletomeettheirneeds,orutilizetheleverageofbroaderproductlinessoldthroughthechannel,orifoursaleschannelpartnersshowpreferencefortheirownhousebrands,oursaleschannelpartnersmayde-emphasizeordeclinetocarryourproducts.Inaddition,certainofoursaleschannelpartnerscoulddecidetode-emphasizetheproductcategoriesthatweofferinexchangeforotherproductcategoriesthattheybelieveprovidethemwithhigherreturns.Ifweareunabletomaintainsuccessfulrelationshipswiththesesaleschannelpartnersortomaintainourdistributionchannels,ourbusinesswillsuffer.
Asweexpandintonewproductcategoriesandmarketsinpursuitofgrowth,wewillhavetobuildrelationshipswithnewchannelpartnersand
adapttonewdistributionandmarketingmodels.Thesenewpartners,practicesandmodelsmayrequiresignificantmanagementattentionandoperationalresourcesandmayaffectouraccounting,includingrevenuerecognition,grossmargins,andtheabilitytomakecomparisonsfromperiodtoperiod.Entrenchedandmoreexperiencedcompetitorswillmakethesetransitionsdifficult.Certainproductscategories,suchasVideoCollaboration,mayalsorequirethatwefurtherbuildandscaleourownenterprisesalesforce.Severalofourcompetitorsalreadyhavelargeenterprisesaleforcesandexperienceandsuccesswiththatsalesmodel.Ifweareunabletobuildsuccessfuldistributionchannels,buildandscaleourownandenterprisesalesforceorsuccessfullymarketourproductsinthesenewproductcategories,wemaynotbeabletotakeadvantageofthegrowthopportunities,andourbusinessandourabilitytogrowourbusinesscouldbeadverselyaffected.
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Wereserveforcooperativemarketingarrangements,incentiveprogramsandpricingprogramswithoursaleschannelpartners.Thesereservesarebasedonjudgmentsandestimates,usinghistoricalexperiencerates,inventorylevelsindistribution,currenttrendsandotherfactors.Therecouldbesignificantdifferencesbetweentheactualcostsofsucharrangementsandprogramsandourestimates.
Weusesell-throughdata,whichrepresentssalesofourproductsbyourdirectretailerande-tailercustomerstoconsumers,andbyourdistributorcustomerstotheircustomers,alongwithothermetrics,toassessconsumerdemandforourproducts.Sell-throughdataissubjecttolimitationsduetocollectionmethodsandthethird-partynatureofthedataandthusmaynotbeanaccurateindicatorofactualconsumerdemandforourproducts.Inaddition,thecustomerssupplyingsell-throughdatavarybygeographicregionandfromperiodtoperiod,buttypicallyrepresentamajorityofourretailsales.Inaddition,werelyonchannelinventorydatafromoursaleschannelpartners.Ifwedonotreceivethisinformationonatimelyandaccuratebasis,orifwedonotproperlyinterpretthisinformation,ourresultsofoperationsandfinancialconditionmaybeadverselyaffected.
Our principal manufacturing operations and third-party contract manufacturers are located in China and Southeast Asia, which exposesus to risks associated with doing business in that geographic area as well as potential tariffs, adverse tax consequences and pressure tomove or diversify our manufacturing locations.
WeproduceapproximatelyhalfofourproductsatthefacilitiesweowninChina.Themajorityofourotherproductionisperformedbythird-partycontractmanufacturers,includingoriginaldesignmanufacturers,inChinaandMalaysia.
OurmanufacturingoperationsinChinacouldbeadverselyaffectedbychangesintheinterpretationandenforcementoflegalstandards,strains
onChina’savailablelaborpool,changesinlaborcostsandotheremploymentdynamics,highturnoveramongChineseemployees,infrastructureissues,import-exportissues,currencytransferrestrictions,naturaldisasters,conflictsordisagreementsbetweenChinaandTaiwanorChinaandtheUnitedStates,laborunrest,andothertradecustomsandpracticesthataredissimilartothoseintheUnitedStatesandEurope.InterpretationandenforcementofChina’slawsandregulationscontinuetoevolveandweexpectdifferencesininterpretationandenforcementtocontinueintheforeseeablefuture.
Ourmanufacturingoperationsatthird-partycontractorscouldbeadverselyaffectedbycontractualdisagreements,bylaborunrest,bynatural
disasters,bystrainsonlocalcommunications,trade,andotherinfrastructures,bycompetitionfortheavailablelaborpoolormanufacturingcapacity,byincreasinglaborandothercosts,andbyothertradecustomsandpracticesthataredissimilartothoseintheUnitedStatesandEurope.
Further,wemaybeexposedtofluctuationsinthevalueofthelocalcurrencyinthecountriesinwhichmanufacturingoccurs.Futureappreciationoftheselocalcurrenciescouldincreaseourcomponentandotherrawmaterialcosts.Inaddition,ourlaborcostscouldcontinuetoriseaswageratesincreaseandtheavailablelaborpooldeclines.Theseconditionscouldadverselyaffectourfinancialresults.
If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales.
Ourbusinessrequiresustocoordinatethemanufactureanddistributionofourproductsovermuchoftheworld.Werelyonthirdpartiestomanufacturemanyofourproducts,managecentralizeddistributioncenters,andtransportourproducts.Ifwedonotsuccessfullycoordinatethetimelymanufacturinganddistributionofourproducts,ifourmanufacturers,distributionlogisticsprovidersortransportprovidersarenotabletosuccessfullyandtimelyprocessourbusinessorifwedonotreceivetimelyandaccurateinformationfromsuchproviders,andespeciallyifweexpandintonewproductcategoriesorourbusinessgrowsinvolume,wemayhaveaninsufficientsupplyofproductstomeetcustomerdemand,wecouldlosesales,wemayexperienceabuild-upininventory,wemayincuradditionalcosts,andourfinancialperformanceandreportingmaybeadverselyaffected.
BylocatingourmanufacturinginChinaandSoutheastAsia,wearereliantonthirdpartiestogetourproductstodistributorsaroundtheworld.
Transportationcosts,fuelcosts,laborunrest,naturaldisastersandotheradverseeffectsonourability,timingandcostofdeliveringproductscanincreaseourinventory,decreaseourmargins,adverselyaffectourrelationshipswithdistributorsandothercustomersandotherwiseadverselyaffectourresultsofoperationsandfinancialcondition.
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Asignificantportionofourquarterlyretailordersandproductdeliveriesgenerallyoccurinthelastweeksofthefiscalquarter.Thisplacespressureonoursupplychainandcouldadverselyaffectourrevenuesandprofitabilityifweareunabletosuccessfullyfulfillcustomerordersinthequarter.
We purchase key components and products from a limited number of sources, and our business and operating results could be adverselyaffected if supply were delayed or constrained or if there were shortages of required components.
Wepurchasecertainproductsandkeycomponentsfromalimitednumberofsources.Ifthesupplyoftheseproductsorkeycomponents,suchasmicro-controllersandopticalsensors,weretobedelayedorconstrained,orifoneormoreofoursingle-sourcesuppliersgooutofbusinessasaresultofadverseglobaleconomicconditionsornaturaldisasters,wemightbeunabletofindanewsupplieronacceptableterms,oratall,andourproductshipmentstoourcustomerscouldbedelayed,whichcouldadverselyaffectourbusiness,financialconditionandoperatingresults.
Leadtimesformaterials,componentsandproductsorderedbyusorbyourcontractmanufacturerscanvarysignificantlyanddependonfactors
suchascontractterms,demandforacomponent,andsuppliercapacity.Fromtimetotime,wehaveexperiencedcomponentshortagesandextendedleadtimesonsemiconductors,suchasmicro-controllersandopticalsensors,andbasemetalsusedinourproducts.Shortagesorinterruptionsinthesupplyofcomponentsorsubcontractedproducts,orourinabilitytoprocurethesecomponentsorproductsfromalternatesourcesatacceptablepricesinatimelymanner,coulddelayshipmentofourproductsorincreaseourproductioncosts,whichcouldadverselyaffectourbusinessandoperatingresults.
The moral and regulatory imperatives to avoid purchasing conflict minerals are causing us to incur additional expenses, could limit thesupply and increase the cost of certain metals used in manufacturing our products and could adversely affect the distribution and salesof our products.
AspartoftheDodd-FrankWallStreetReformandConsumerProtectionAct,theSECadopteddisclosurerequirementsregardingtheuseofcertainminerals,knownasconflictminerals,whichareminedfromtheDemocraticRepublicofCongoandadjoiningcountries,aswellasproceduresregardingamanufacturer’seffortstoidentifyandpreventthesourcingofsuchmineralsandmetalsproducedfromthoseminerals.AdditionalreportingobligationsarebeingconsideredbytheEuropeanUnion.TheimplementationoftheexistingU.S.requirementsandanyadditionalrequirementsinEuropecouldaffectsourcingatcompetitivepricesandavailabilityinsufficientquantitiesofcertainmineralsusedinthemanufactureofourproducts.Thenumberofsupplierswhoprovideconflict-freemineralsmaybelimited,andtheimplementationoftheserequirementsmaydecreasethenumberofsupplierscapableofsupplyingourneedsforcertainmetals.Inaddition,theremaybematerialcostsassociatedwithcomplyingwiththedisclosurerequirements,suchascostsrelatedtotheduediligenceprocessofdeterminingthesourceofcertainmineralsusedinourproducts,aswellascostsofpossiblechangestoproducts,processes,orsourcesofsupplyasaconsequenceofsuchverificationactivities.Asoursupplychainiscomplexandweusecontractmanufacturersforsomeofourproducts,wemaynotbeabletosufficientlyverifytheoriginsoftherelevantmineralsusedinourproductsthroughtheduediligenceproceduresthatweimplement,whichmayadverselyaffectourreputation.Wemayalsoencounterchallengestosatisfythosecustomerswhorequirethatallofthecomponentsofourproductsbecertifiedasconflict-free,whichcould,ifweareunabletosatisfytheirrequirementsorpassthroughanyincreasedcostsassociatedwithmeetingtheirrequirementsplaceusatacompetitivedisadvantage,adverselyaffectourbusinessandoperatingresults,orboth.Wefiledourreportforthecalendaryear2017withtheSEConMay31,2018.
We conduct operations in a number of countries and have invested significantly in growing our sales and marketing activities in China,and the effect of business, legal and political risks associated with international operations could adversely affect us.
WeconductoperationsinanumberofcountriesandhaveinvestedsignificantlyingrowingourpersonnelandsalesandmarketingactivitiesinChinaand,toalesserextent,otheremergingmarkets.Wemayalsoincreaseourinvestmentstogrowsalesinotheremergingmarkets,suchasLatinAmerica,EasternEurope,theMiddleEastandAfrica.Therearerisksinherentindoingbusinessininternationalmarkets,including:
• Difficultiesinstaffingandmanaginginternationaloperations;
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• Compliancewithlawsandregulations,includingenvironmental,tax,import/exportandanti-corruptionlaws,whichvaryfromcountrytocountryandovertime,increasingthecostsofcomplianceandpotentialrisksofnon-compliance;
• Varyinglaws,regulationsandotherlegalprotections,uncertainandvaryingenforcementofthoselawsandregulations,dependenceon
localauthorities,andtheimportanceoflocalnetworksandrelationships;• Exposuretopoliticalandfinancialinstability,especiallywiththeuncertaintyassociatedwiththeongoingsovereigndebtcrisisincertain
EurozonecountriesandthestabilityoftheEuropeanUnion,whichmayleadtoreducedsales,currencyexchangelossesandcollectiondifficultiesorotherlosses;
• Politicalandeconomicuncertaintyaroundtheworld,includinguncertaintyresultingfromtherecentUnitedStatespresidentialandcongressionalelections,changeofadministrationintheUnitedStatesandtheUnitedKingdom'sreferenduminJune2016,andothernationalelectionsandpolicyshifts;
• Importorexportrestrictionsorlicensingrequirementsthatcouldaffectsomeofourproducts,includingthosewithencryptiontechnology;
• Tradeprotectionmeasures,customduties,tariffs,importorexportduties,andothertradebarriers,restrictionsandregulations;• Lackofinfrastructureorservicesnecessaryorappropriatetosupportourproductsandservices;• Exposuretofluctuationsinthevalueoflocalcurrencies;• Difficultiesandincreasedcostsinestablishingsalesanddistributionchannelsinunfamiliarmarkets,withtheirownmarketcharacteristics
andcompetition,includingentrenchedlocalcompetition;• Weakprotectionofourintellectualpropertyrights;• Highercreditrisks;• ChangesinVAT(value-addedtax)orVATreimbursement;
• Impositionofcurrencyexchangecontrols;• Delaysfromcustomsbrokersorgovernmentagencies;and• Abroadrangeofcustoms,consumertrends,andmore.
Anyoftheseriskscouldadverselyaffectourbusiness,financialconditionandoperatingresults.Salesgrowthinkeymarkets,includingChina,isanimportantpartofourexpectationsforourbusiness.Asaresult,ifeconomic,politicalor
businessconditionsdeteriorateinthesemarkets,orifoneormoreoftherisksdescribedabovematerializeinthesemarkets,ouroverallbusinessandresultsofoperationswillbeadverselyaffected.
Changes in trade policy in the United States and other countries, including changes in trade agreements and the imposition of tariffs andthe resulting consequences, may have adverse impacts on our business, results of operations and financial condition.
TheU.S.governmenthasindicatedanddemonstrateditsintenttoalteritsapproachtointernationaltradepolicythroughtherenegotiation,andpotentialtermination,ofcertainexistingbilateralormultilateraltradeagreementsandtreatieswith,andtheimpositionoftariffsonawiderangeofproductsandothergoodsfrom,China,countriesinEMEAandothercountries.Asnotedpreviously,wehaveinvestedsignificantlyinmanufacturingfacilitiesinChinaandSoutheastAsia.Givenourmanufacturinginthosecountries,andourlackofmanufacturingelsewhere,policychangesintheUnitedStatesorothercountries,suchasthetariffsalreadyproposed,implementedandthreatenedin2018and2019,presentparticularrisksforus.Tariffsalreadyannouncedandimplementedarehavinganadverseeffectoncertainofourproducts,tariffsannouncedbutnotyetimplemented
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mayhaveanadverseeffectonmanyofourproducts,andthreatenedtariffscouldadverselyaffectmoreorallofourproducts.Therearealsorisksassociatedwithretaliatorytariffsandresultingtradewars.Wecannotpredictfuturetradepolicy,thetermsofanyrenegotiatedtradeagreementsortreaties,ortariffsandtheirimpactonourbusiness.Atradewarcouldhaveasignificantadverseeffectonworldtradeandtheworldeconomy.TotheextentthattradetariffsandotherrestrictionsimposedbytheUnitedStatesorothercountriesincreasethepriceof,orlimittheamountof,ourproductsorcomponentsormaterialsusedinourproductsimportedintotheUnitedStatesorothercountries,orcreateadversetaxconsequences,thecostorgrossmarginofourproductsmaybeadverselyaffectedandthedemandfromourcustomersforproductsandservicesmaybediminished.Uncertaintysurroundinginternationaltradepolicyanddisputesandprotectionistmeasurescouldalsohaveanadverseeffectonconsumerconfidenceandspending.Ifwedeemitnecessarytoalteralloraportionofouractivitiesoroperationsinresponsetosuchpolicies,agreementsortariffs,ourcapitalandoperatingcostsmayincrease.Ourongoingeffortstoaddresstheserisksmaynotbeeffectiveandmayhavelong-termadverseeffectsonouroperationsandoperatingresultsthatwemaynotbeabletoreverse.Sucheffortsmayalsotaketimetoimplementortohaveaneffect,andmayresultinadversequarterlyfinancialresultsorfluctuationsinourquarterlyfinancialresults.Asaresult,changesininternationaltradepolicy,changesintradeagreementsandtariffscouldadverselyaffectourbusiness,resultsofoperationsandfinancialcondition.
Our financial performance is subject to risks associated with fluctuations in currency exchange rates.
AsignificantportionofourbusinessisconductedincurrenciesotherthantheU.S.Dollar.Therefore,wefaceexposuretomovementsincurrencyexchangerates.
Ourprimaryexposuretomovementsincurrencyexchangeratesrelatestonon-U.S.Dollar-denominatedsalesandoperatingexpensesworldwide.Forfiscalyear2019,approximately50%ofourrevenuewasinnon-U.S.denominatedcurrencies.TheweakeningofcurrenciesrelativetotheU.S.DollaradverselyaffectstheU.S.Dollarvalueofournon-U.S.Dollar-denominatedsalesandearnings.Ifweraiseinternationalpricingtocompensate,itcouldpotentiallyreducedemandforourproducts,adverselyaffectingoursalesandpotentiallyhavinganadverseimpactonourmarketshare.Marginsonsalesofourproductsinnon-U.S.Dollar-denominatedcountriesandonsalesofproductsthatincludecomponentsobtainedfromsuppliersinnon-U.S.Dollar-denominatedcountriescouldbeadverselyaffectedbycurrencyexchangeratefluctuations.Insomecircumstances,forcompetitiveorotherreasons,wemaydecidenottoraiselocalpricestofullyoffsettheU.S.Dollar’sstrengthening,whichwouldadverselyaffecttheU.S.Dollarvalueofournon-U.S.Dollar-denominatedsalesandearnings.Competitiveconditionsinthemarketsinwhichweoperatemayalsolimitourabilitytoincreasepricesintheeventoffluctuationsincurrencyexchangerates.Conversely,strengtheningofcurrencyratesmayalsoincreaseourproductcomponentcostsandotherexpensesdenominatedinthosecurrencies,adverselyaffectingoperatingresults.Wefurthernotethatalargerportionofoursalesthanofourexpensesaredenominatedinnon-U.S.denominatedcurrencies.
Weusederivativeinstrumentstohedgecertainexposurestofluctuationsincurrencyexchangerates.Theuseofsuchhedgingactivitiesmaynotoffsetany,ormorethanaportion,oftheadversefinancialeffectsofunfavorablemovementsincurrencyexchangeratesoverthelimitedtimethehedgesareinplaceanddonotprotectusfromlongtermshiftsincurrencyexchangerates.
Asaresult,fluctuationsincurrencyexchangeratescouldadverselyaffectourbusiness,operatingresultsandfinancialcondition.Moreover,theseexposuresmaychangeovertime.
As a company operating in many markets and jurisdictions, expanding into new growth categories and engaging in acquisitions, and as aSwiss, dual - listed company, we are subject to risks associated with new, existing and potential future laws and regulations.
Basedonourcurrentbusinessmodelandasweexpandintonewmarketsandproductcategoriesandacquirecompanies,businessesandassets,wemustcomplywithawidevarietyoflaws,standardsandotherrequirementsgoverning,amongotherthings,healthandsafety,hazardousmaterialsusage,product-relatedenergyconsumption,packaging,recyclingandenvironmentalmatters.Ourproductsmayberequiredtoobtainregulatoryapprovalsandsatisfyotherregulatoryconcernsinthevariousjurisdictionswheretheyaremanufactured,soldorboth.Companies,businessesandassetsthatweacquiremaynotbeincompliancewithregulationsinalljurisdictions.Theserequirementscreateprocurementanddesignchallenges,which,amongotherthings,requireustoincuradditionalcostsidentifyingsuppliersandcontractmanufacturerswhocanprovideorobtaincompliantmaterials,partsandendproducts.Failuretocomplywithsuchrequirementscansubjectustoliability,additionalcosts,andreputationalharmand,inseverecases,forceustorecallproductsorpreventusfromsellingourproductsincertainjurisdictions.
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AsaSwisscompanywithshareslistedonboththeSIXSwissExchangeandtheNasdaqGlobalSelectMarket,wearealsosubjecttoboth
SwissandUnitedStatescorporategovernanceandsecuritieslawsandregulations.Inadditiontotheextracostsandregulatoryburdensofourdualregulatoryobligations,thetworegulatoryregimesmaynotalwaysbecompatibleandmayimposedisclosureobligations,operatingrestrictionsortaxeffectsonourbusinesstowhichourcompetitorsandothercompaniesarenotsubject.Forexample,onJanuary1,2014,subjecttocertaintransitionalprovisions,theSwissFederalCouncilOrdinanceAgainstExcessiveCompensationatPublicCompanies(theOrdinance)becameeffectiveinconnectionwiththeMinderinitiativeapprovedbySwissvotersduring2013.TheOrdinance,amongotherthings,(a)requiresabindingshareholder“sayonpay”votewithrespecttothecompensationofmembersofourexecutivemanagementandBoardofDirectors,(b)generallyprohibitsthemakingofseverance,advance,transactionpremiumsandsimilarpaymentstomembersofourexecutivemanagementandBoardofDirectors,(c)imposesotherrestrictivecompensationpractices,and(d)requiresthatourarticlesofincorporationspecifyvariouscompensation-relatedmatters.Inaddition,during2013,Swissvotersconsideredaninitiativetolimitpayforachiefexecutiveofficertoamultipleofnomorethantwelvetimesthesalaryofthelowest-paidemployee.Althoughvotersrejectedthatinitiative,itdidreceivesubstantialvotersupport.TheOrdinance,potentialfutureinitiativesrelatingtocorporategovernanceorexecutivecompensation,andSwissvotersentimentinfavorofsuchregulationsmayincreaseournon-operatingcostsandadverselyaffectourabilitytoattractandretainexecutivemanagementandmembersofourBoardofDirectors.
WeprepareourconsolidatedfinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates(U.S.GAAP)whicharesubjecttointerpretationorchangesbytheFinancialAccountingStandardsBoard(FASB),theSECandothervariousbodiesformedtopromulgateandinterpretappropriateaccountingprinciples.Newaccountingpronouncementsandchangesinaccountingprincipleshaveoccurredinthepastandareexpectedtooccurinthefuturewhichmayhaveasignificanteffectonourfinancialresultsorourcompliancewithregulations.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other countryin which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies orthe taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in thefuture, which could adversely affect our net income and cash flows.
Weoperateinmultiplejurisdictionsandourprofitsaretaxedpursuanttothetaxlawsofthesejurisdictions.Oureffectiveincometaxratemaybe
affectedbychangesinorinterpretationsoftaxlaws,treaties,rulings,regulationsoragreementsinanygivenjurisdiction,utilizationofnetoperatinglossandtaxcreditcarryforwards,changesingeographicalallocationofincomeandexpense,andchangesinmanagement’sassessmentofmatterssuchastherealizabilityofdeferredtaxassets.Inthepast,wehaveexperiencedfluctuationsinoureffectiveincometaxrate.Oureffectiveincometaxrateinagivenfiscalyearreflectsavarietyoffactorsthatmaynotbepresentinthesucceedingfiscalyearoryears.Thereisnoassurancethatoureffectiveincometaxratewillnotchangeinfutureperiods.
WeareincorporatedintheCantonofVaudinSwitzerlandandoureffectiveincometaxratebenefitsfromalongstandingrulingfromtheCanton
ofVaud.ThetaxrulesinSwitzerlandareexpectedtochangeinresponsetocertainguidanceanddemandsfromboththeEuropeanUnionandtheOrganizationforEconomicCo-operationandDevelopmentandthatcouldhaveanadverseeffectonourtaxrulingandeffectiveincometaxrate.ThesechangescontinuetoprogressthroughSwitzerlandlegislativeprocess.Switzerland’simplementationofanymaterialchangeintaxlawsorpoliciesoritsadoptionofnewinterpretationsofexistingtaxlawsandrulings,orchangesinourtaxrulingfromtheCantonofVaud,couldresultinahighereffectiveincometaxrateonourworldwideearningsandsuchchangecouldadverselyaffectournetincome.
WefileSwissandforeigntaxreturns.Wearefrequentlysubjecttotaxaudits,examinationsandassessmentsinvariousjurisdictions.Ifanytax
authoritysuccessfullychallengesouroperationalstructure,intercompanypricingpoliciesorthetaxablepresenceofourkeysubsidiariesincertaincountries,ifthetermsofcertainincometaxtreatiesareinterpretedinamannerthatisadversetoourstructure,orifweloseamaterialtaxdisputeinanycountry,oureffectiveincometaxratecouldincrease.Forexample,policychangesintheUnitedStatesorChinapredicatedonourpresenceinthosecountriescouldadverselyaffectwherewerecognizeprofitandoureffectiveincometaxrate.Amaterialassessmentbyagoverningtaxauthoritycouldadverselyaffectourprofitability.Ifoureffectiveincometaxrateincreasesinfutureperiods,ournetincomeandcashflowscouldbeadverselyaffected.
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Claims by others that we infringe their proprietary technology could adversely affect our business.
Wehavebeenexpandingthecategoriesofproductswesell,suchasenteringnewmarketsandintroducingproductsfortablets,othermobiledevices,digitalmusic,andvideocollaboration.Weexpecttocontinuetoenternewcategoriesandmarkets.Aswedoso,wefaceanincreasedriskthatclaimsallegingweinfringethepatentorotherintellectualpropertyrightsofothers,regardlessofthemeritoftheclaims,mayincreaseinnumberandsignificance.Infringementclaimsagainstusmayalsoincreaseasthefunctionalityofvideo,voice,dataandconferencingproductsbegintooverlap.Thisriskisheightenedbytheincreaseinlawsuitsbroughtbyholdersofpatentsthatdonothaveanoperatingbusinessorareattemptingtolicensebroadpatentportfoliosandbytheincreasingattemptsbycompaniesinthetechnologyindustriestoenjointheircompetitorsfromsellingproductsthattheyclaiminfringetheirintellectualpropertyrights.Intellectualpropertylawsuitsaresubjecttoinherentuncertaintiesduetothecomplexityofthetechnicalissuesinvolved,andwecannotbecertainthatwewillbesuccessfulindefendingourselvesagainstintellectualpropertyclaims.Asuccessfulclaimantcouldsecureajudgmentthatrequiresustopaysubstantialdamagesorpreventsusfromdistributingcertainproductsorperformingcertainservices.Wemightalsoberequiredtoseekalicensefortheuseofsuchintellectualproperty,whichmaynotbeavailableoncommerciallyacceptabletermsoratall.Alternatively,wemayberequiredtodevelopnon-infringingtechnology,whichcouldrequiresignificanteffortandexpenseandmayultimatelynotbesuccessful.Anyclaimsorproceedingsagainstus,whethermeritoriousornot,couldbetime-consuming,resultincostlylitigationorthediversionofsignificantoperationalresources,orrequireustoenterintoroyaltyorlicensingagreements,anyofwhichcouldmateriallyandadverselyaffectourbusinessandresultsofoperations.
We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products thatcompete with our products.
Ourfuturesuccessdependsinpartonourproprietarytechnology,technicalknow-howandotherintellectualproperty.Werelyonacombinationofpatent,tradesecret,copyright,trademarkandotherintellectualpropertylaws,andconfidentialityproceduresandcontractualprovisionssuchasnondisclosuretermsandlicenses,toprotectourintellectualproperty.
WeholdvariousUnitedStatespatentsandpendingapplications,togetherwithcorrespondingpatentsandpendingapplicationsfromother
countries.Itispossiblethatanypatentownedbyuswillbeinvalidated,deemedunenforceable,circumventedorchallenged,thatthepatentrightsgrantedwillnotprovidecompetitiveadvantagestous,orthatanyofourpendingorfuturepatentapplicationswillnotbegranted.Inaddition,otherintellectualpropertylawsorourconfidentialityproceduresandcontractualprovisionsmaynotadequatelyprotectourintellectualproperty.Also,othersmayindependentlydevelopsimilartechnology,duplicateourproducts,ordesignaroundourpatentsorotherintellectualpropertyrights.Unauthorizedpartieshavecopiedandmayinthefutureattempttocopyaspectsofourproductsortoobtainanduseinformationthatweregardasproprietary.Anyoftheseeventscouldadverselyaffectourbusiness,financialconditionandoperatingresults.
Product quality issues could adversely affect our reputation, business and our operating results.
Themarketforourproductsischaracterizedbyrapidlychangingtechnologyandevolvingindustrystandards.Toremaincompetitive,wemustcontinuallyintroducenewproductsandtechnologies.Theproductsthatwesellcouldcontaindefectsindesignormanufacture.Defectscouldalsooccurintheproductsorcomponentsthataresuppliedtous.Therecanbenoassurancewewillbeabletodetectandremedyalldefectsinthehardwareandsoftwarewesell.Failuretodosocouldresultinproductrecalls,productliabilityclaimsandlitigation,productredesignefforts,lostrevenue,lossofreputation,andsignificantwarrantyandotherexpensestoremedy.
Whilewemaintainreservesforreasonablyestimableliabilitiesandpurchaseliabilityinsurance,ourreservesmaynotbeadequatetocoversuchclaimsandliabilitiesandourinsuranceissubjecttodeductiblesandmaynotbeadequatetocoversuchclaimsandliabilities.Furthermore,ourcontractswithdistributorsandretailersmaycontainwarranty,indemnificationandotherprovisionsrelatedtoproductqualityissues,andclaimsunderthoseprovisionsmayadverselyaffectourbusinessandoperatingresults.
Significant disruptions in, or breaches in security of, our websites or information technology systems could adversely affect ourbusiness.
Asaconsumerelectronicscompany,ourwebsitesareanimportantpresentationofourcompany,identityandbrandsandanimportantmeansofinteractionwithandsourceofinformationforconsumersofourproducts.We
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alsorelyonourcentralizedinformationtechnologysystemsforproduct-relatedinformationandtostoreintellectualproperty,forecastourbusiness,maintainfinancialrecords,manageoperationsandinventory,andoperateothercriticalfunctions.Weallocatesignificantresourcestomaintainourinformationtechnologysystemsanddeploynetworksecurity,dataencryption,trainingandothermeasurestoprotectagainstunauthorizedaccessormisuse.Nevertheless,ourwebsitesandinformationtechnologysystemsaresusceptibletodamage,disruptionsorshutdownsduetopoweroutages,hardwarefailures,structuraloroperationalfailures,computerviruses,attacksbycomputerhackers,otherdatasecurityissues,telecommunicationfailures,usererror,malfeasance,catastrophes,systemorsoftwareupgrades,integrationormigration,orotherforeseeableandunforeseenevents.Fromtimetotime,weandoursuppliershaveidentifiedvulnerabilitiesorotherissuesthatwebelievehavebeenaddressed,andweexpectsuchissuestocontinuetoarise.Breachesordisruptionsofourwebsitesorinformationtechnologysystems,breachesofconfidentialinformation,datacorruptionorotherdatasecurityissuescouldadverselyaffectourbrands,reputation,relationshipswithcustomersorbusinesspartners,orconsumerorinvestorperceptionofourcompany,businessorproductsorresultindisruptionsofouroperations,lossofintellectualpropertyorourcustomers’orourbusinesspartners’data,reducedvalueofourinvestmentsinourbrands,design,researchanddevelopmentorengineering,orcoststoaddressregulatoryinquiriesoractionsorprivatelitigation,torespondtocustomersorpartnersortorebuildorrestoreourwebsitesorinformationtechnologysystems.The collection, storage, transmission, use and distribution of user data could give rise to liabilities and additional costs of operation as aresult of laws, governmental regulation and risks of security breaches.
Inconnectionwithcertainofourproducts,wecollectdatarelatedtoourconsumers.Thisinformationisincreasinglysubjecttolegislationandregulationsinnumerousjurisdictionsaroundtheworld,andespeciallyinEurope.Forexample,theEuropeanUnionadoptedtheGeneralDataProtectionRegulation(GDPR),whichisapplicabletousandtoallcompaniesprocessingdataofEuropeanUnionresidents,becameeffectiveinMay2018andimposessignificantfinesandsanctionsforviolationoftheRegulation.Governmentactionsaretypicallyintendedtoprotecttheprivacyandsecurityofpersonalinformationanditscollection,storage,transmission,useanddistributioninorfromthegoverningjurisdiction.Inaddition,becausevariousjurisdictionshavedifferentlawsandregulationsconcerningtheuse,storageandtransmissionofsuchinformation,wemayfacerequirementsthatposecompliancechallengesinexistingmarketsaswellasnewinternationalmarketsthatweseektoenter.ThecollectionofuserdataheightenstheriskofsecuritybreachesandotherdatasecurityissuesrelatedtoourITsystemsandthesystemsofthird-partydatastorageandotherserviceandITproviders.Suchlawsandregulations,andthevariationbetweenjurisdictions,aswellasadditionalsecuritymeasuresandrisk,couldsubjectustocosts,allocationofadditionalresources,liabilitiesornegativepublicitythatcouldadverselyaffectourbusiness.
In previous periods, we identified material weaknesses in our internal control over financial reporting and, if we are unable to satisfyregulatory requirements relating to internal controls or if our internal control over financial reporting is not effective, our business andstock price could be adversely affected.
InconnectionwithSection404oftheSarbanes-OxleyAct,wehaveidentifiedinthepastandmay,fromtime-to-timeinthefuture,identifyissueswithourinternalcontrolsanddeficienciesinourinternalcontroloverfinancialreporting.ThemostrecentmaterialweaknesswasidentifiedduringthepreparationofourauditedfinancialstatementsfortheyearendedMarch31,2017,andwasrelatedtotheallowancesandaccrualsforcustomerincentives,cooperativemarketingandpricingprograms.Inthepast,wehaveidentifiedothermaterialweaknessesinourinternalcontroloverfinancialreporting,asdescribedinourAnnualReportsonForm10-Kforfiscalyear2017,certainofwhichresultedinlatefilingsofandanamendmenttoourperiodicreportsandinrestatementsofourfinancialresults.Amaterialweaknessisdefinedasadeficiency,orcombinationofdeficiencies,ininternalcontroloverfinancialreporting,suchthatthereisareasonablepossibilitythatamaterialmisstatementofourannualorinterimfinancialstatementswillnotbepreventedordetectedonatimelybasis.Ifourremediationeffortsarenoteffectiveorifadditionalmaterialweaknessesorsignificantdeficienciesinourinternalcontrolsarediscoveredoroccurinthefuture,ourconsolidatedfinancialstatementsmaycontainmaterialmisstatementsandwecouldberequiredtorestateourfinancialresults,wecouldbesubjecttolitigationwhich,whethermeritoriousornot,remediationeffortscouldbetime-consuming,costlyand/ordivertsignificantoperationalresources,wecouldloseinvestorconfidenceintheaccuracyandcompletenessofourfinancialreports,andourreputation,business,resultsofoperationsandstockpricecouldbeadverselyaffected.
We cannot ensure that our current share repurchase program will be fully utilized or that it will enhance long-term shareholder value.Share repurchases may also increase the volatility of the trading price of our shares. We similarly cannot ensure that we will continue toincrease our dividend payments or to pay dividends at all. Share repurchases and dividends diminish our cash reserves.
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InMarch2017,ourBoardofDirectorsauthorizedathree-year$250.0millionrepurchaseprogramofourregisteredshares.Wehavealsopaidcashdividendsandincreasedthesizeofourdividend,eachyearsincefiscalyear2013.Oursharerepurchaseprogramanddividendpolicymaybeaffectedbymanyfactors,includinggeneralbusinessandeconomicconditions,ourfinancialconditionandoperatingresults,ourviewsonpotentialfuturecapitalrequirements,restrictionsimposedinanyfuturedebtagreements,theemergenceofalternativeinvestmentoracquisitionopportunities,changesinourbusinessstrategy,legalrequirements,changesintaxlaws,andotherfactors.Oursharerepurchaseprogramdoesnotobligateustorepurchasealloranyofthedollarvalueofsharesauthorizedforrepurchase.Theprogramcouldalsoincreasethevolatilityofthetradingpriceofourshares.Similarly,wearenotobligatedtopaydividendsonourregisteredshares.UnderSwisslaw,wemayonlypaydividendsupontheapprovalofamajorityofourshareholders,whichisunderthediscretionofandgenerallyfollowsarecommendationbyourBoardofDirectorsthatsuchadividendisinthebestinterestsofourshareholders.TherecanbenoassurancethatourBoardofDirectorswillcontinuetorecommend,orthatourshareholderswillapprove,dividendincreasesoranydividendatall.Ifwedonotpayaregulardividend,wemaylosetheinterestofinvestorsthatfocustheirinvestmentsondividend-payingcompanies,whichcouldcreatedownwardpressureonourshareprice.Anyannouncementofterminationorsuspensionofoursharerepurchaseprogramordividendmayresultinadecreaseinourshareprice.Thesharerepurchaseprogramandpaymentofcashdividendscouldalsodiminishourcashreservesthatmaybeneededforinvestmentsinourbusiness,acquisitionsorotherpurposes.Withoutdividends,thetradingpriceofoursharesmustappreciateforinvestorstorealizeagainontheirinvestment.
Goodwill impairment charges could have an adverse effect on the results of our operations.
Goodwillassociatedwithanumberofpreviousacquisitionscouldresultinimpairmentcharges.Theslowdownintheoverallvideoconferencingindustrytogetherwiththecompetitiveenvironmentinfiscalyear2013resultedina$214.5millionnon-cashgoodwillimpairmentchargeinfiscalyear2013,whichsubstantiallyimpactedresultsofdiscontinuedoperations.Werecordedanadditionalimpairmentchargeofgoodwillof$122.7millionrelatedtoourLifesizevideoconferencingdiscontinuedoperationsinfiscalyear2015,reducingitsgoodwilltozero,whichsubstantiallyimpactedresultsofdiscontinuedoperationsagain.Ifwedivestordiscontinueproductcategoriesorproductsthatwepreviouslyacquired,orifthevalueofthosepartsofourbusinessbecomeimpaired,wemayneedtoevaluatethecarryingvalueofourgoodwill.Additionalimpairmentchargescouldadverselyaffectourresultsofoperations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
OurheadquartersislocatedinLausanne,Switzerland,whereweoccupyapproximately50,500squarefeetunderaleasethatexpiresinJuly2020.Ourprincipalcorporateandadministrativeoffices,whichincludesourheadquartersinLausanne,Switzerland,andcorporateofficesinNewark,CaliforniaandHsinchu,Taiwan,togethermakeupapproximately286,000squarefeetofleasedspace.BothourLausanne,SwitzerlandandNewark,Californialocationsserveourresearchanddevelopment,productmarketing,salesmanagement,technicalsupportandadministrativefunctions.OurHsinchu,Taiwanlocationservesourmechanicalengineering,processengineering,manufacturingsupport,qualityassurance,design,researchanddevelopment,andadministrativefunctions.Wemaintainmarketingandchannelsupportofficesinapproximately77locationsand40countries,withleaseexpirationdatesfrom2019to2030.
AsofMarch31,2019,themajorityofourpropertiesareleased;however,wealsoownsomeofthemanufacturingunitsandemployeedormitoriesinSuzhou,China,fromwhichweoccupyapproximately722,000squarefeet.Weanticipatenodifficultyinextendingtheleasesofourfacilitiesorobtainingcomparablefacilitiesinsuitablelocations.Wealsocontractwithvariousthird-partydistributioncentersinNorthAmerica,SouthAmerica,EuropeandAsiaPacificforadditionalwarehousesinwhichwestoreinventory.Webelievethatourmanufacturinganddistributionfacilitiesareadequateforourongoingneedsandwecontinuetoevaluatetheneedforfacilitiestomeetcurrentandanticipatedfuturerequirements.
ITEM 3. LEGAL PROCEEDINGS
Fromtime-to-time,weareinvolvedinclaimsandlegalproceedingsthatariseintheordinarycourseofourbusiness.Wearecurrentlysubjecttoseveralsuchclaimsandasmallnumberoflegalproceedings.Webelievethatthesematterslackmeritandweintendtovigorouslydefendagainstthem.Basedonthecurrentlyavailableinformation,wedonotbelievethatresolutionofpendingmatterswillhaveamaterialadverseeffectonourfinancialcondition,cashflowsorresultsofoperations.However,litigationissubjecttoinherentuncertainties,andtherecanbenoassurancesthatourdefenseswillbesuccessfulorthatanysuchlawsuitorclaimwouldnothaveamaterialadverseimpactonourbusiness,financialcondition,cashflowsandresultsofoperationsinaparticularperiod.Anyclaimsorproceedingsagainstus,whethermeritoriousornot,canhaveanadverseimpactbecauseofdefensecosts,diversionofmanagementandoperationalresources,negativepublicityandotherfactors.Anyfailuretoobtainanecessarylicenseorotherrights,orlitigationarisingoutofintellectualpropertyclaims,couldadverselyaffectourbusiness.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES
Logitech'ssharesarelistedandtradedonboththeSIXSwissExchange,wherethesharepriceisdenominatedinSwissfrancsandontheNasdaqGlobalSelectMarket,wherethesharepriceisdenominatedinU.S.Dollars.ThetradingsymbolforLogitechsharesisLOGNontheSIXSwissExchangeandLOGIontheNasdaqGlobalSelectMarket.AsofMay3,2019,therewere173,106,620sharesissued(including6,508,074sharesheldastreasurystock)heldby16,510holdersofrecord,andtheclosingpriceofourshareswasCHF41.21($40.45basedonexchangeratesonsuchdate)pershareontheSIXSwissExchangeand$40.35pershareasreportedbytheNasdaqGlobalSelectMarket.
Dividends
UnderSwisslaw,acorporationmayonlypaydividendsuponavoteofitsshareholders.Thisvotetypicallyfollowstherecommendationofthecorporation'sBoardofDirectors.InMay2019,theBoardofDirectorsrecommendedthattheCompanyincreasethecashdividendforfiscalyear2019byapproximately10%toCHF121.8million($122.4millionbasedontheexchangerateonMarch31,2019).OnSeptember5,2018,Logitech'sshareholdersapprovedacashdividendpaymentofCHF110.7millionoutofretainedearningstoLogitechshareholderswhoownedsharesonSeptember18,2018.EligibleshareholderswerepaidCHF0.67pershare($0.69pershareinU.S.Dollars),totaling$114.0millioninU.S.DollarsonSeptember21,2018.OnSeptember12,2017,Logitech'sshareholdersapprovedacashdividendpaymentofCHF100.0millionoutofretainedearningstoLogitechshareholderswhoownedsharesonSeptember22,2017.EligibleshareholderswerepaidCHF0.61pershare($0.63pershareinU.S.Dollars),totaling$104.2millioninU.S.DollarsonSeptember27,2017.
Dividendspaidandsimilarcashorin-kinddistributionsmadebyLogitechtoaholderofLogitechshares(includingdividendsorliquidationproceedsandstockdividends),otherthandistributionsofqualifyingadditionalpaid-in-capitalifitisavailableunderthecurrentSwisstaxregime,aresubjecttoaSwissfederalanticipatorytaxatarateof35%.TheanticipatorytaxmustbewithheldbyLogitechfromthegrossdistributionandpaidtotheSwissFederalTaxAdministration.
ASwissresidentholderandbeneficialownerofLogitechsharesmayqualifyforafullrefundoftheSwissanticipatorytaxwithheldfromsuchdividends.AholderandbeneficialownerofLogitechshareswhoisanon-residentofSwitzerland,butaresidentofacountrythatmaintainsadoubletaxtreatywithSwitzerland,mayqualifyforafullorpartialrefundoftheSwissanticipatorytaxwithheldfromsuchdividendsbyvirtueoftheprovisionsoftheapplicabletreatybetweenSwitzerlandandthecountryofresidenceoftheholderandbeneficialowneroftheLogitechshares.
InaccordancewiththetaxconventionbetweentheUnitedStatesandtheSwissConfederation(Treaty),amechanismisprovidedwherebyaU.S.resident(asdeterminedundertheTreaty),andU.S.corporations,otherthanU.S.corporationshavinga"permanentestablishment"orafixedbase,asdefinedintheTreaty,inSwitzerland,generallycanobtainarefundoftheSwissanticipatorytaxwithheldfromdividendsinrespectofLogitechshares,totheextentthat15%ofthegrossdividendiswithheldasfinalwithholdingtax(i.e.20%ofthegrossdividendmaygenerallyberefunded).Inspecificcases,U.S.companiesnothavinga"permanentestablishment"orafixedbaseinSwitzerlandowningatleast10%ofLogitechregisteredsharesmayreceivearefundoftheSwissanticipatorytaxwithheldfromdividendstotheextentitexceeds5%ofthegrossdividend(i.e.,30%ofthegrossdividendmayberefunded).Togetthebenefitofarefund,holdersmustbeneficiallyownLogitechsharesatthetimesuchdividendbecomesdue.
Share Repurchases
Infiscalyear2019,thefollowingapprovedsharebuybackprogramwasinplace(inthousands):
Share Buyback Program Approved Shares (1) Approved AmountsMarch2017 17,311 $ 250,000
(1)TheapprovalofoursharebuybackprogramsbytheSwissTakeoverBoardlimitsthenumberofsharesthatwemayrepurchasetonomorethan10%ofourauthorizedsharecapitalandvotingrights.
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ThefollowingtablepresentscertaininformationrelatedtopurchasesmadebyLogitechofitsequitysecuritiesunderitspubliclyannouncedsharebuybackprograms(inthousands,exceptpershareamounts):
Weighted Average Price Per Share Remaining Amountthat May Yet Be
Repurchased underthe ProgramDuring Fiscal Year Ended
SharesRepurchased CHF (LOGN) USD (LOGI)
March31,2017 4,027 22.00 15.29 $ 94,642March31,2018 863 34.53 — $ 219,893March31,2019 808 39.58 — $ 187,433
Total Number ofShares
Repurchased
Weighted Average Price Paid Per Share RemainingAmount that May
Yet BeRepurchased
under the ProgramDuring the three months ended March 31, 2019 CHF (LOGN) USD (LOGI) Month1 December29,2018toJanuary25,2019 — — — $ 197,428Month2 January26,2019toFebruary22,2019 276 35.95 — 187,433Month3 February23,2019toMarch31,2019 — — — 187,433 276 35.95 — $ 187,433
Performance Graph
The information contained in the Performance Graph shall not be deemed to be "soliciting material" or "filed" with the SEC or subject to theliabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent that we specifically incorporateit by reference into a document filed under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act .
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Thefollowinggraphcomparesthecumulativetotalstockholderreturnonourshares,theNasdaqCompositeIndex,andtheS&P500InformationandTechnologyIndex.Thegraphassumesthat$100wasinvestedinourLOGIshares,theNasdaqCompositeIndexandtheS&P500InformationandTechnologyIndexonMarch31,2014,andcalculatestheannualreturnthroughMarch31,2019.Thestockpriceperformanceonthefollowinggraphisnotnecessarilyindicativeoffuturestockpriceperformance.
________________________________________
*$100investedonMarch31,2014,instockorindex,includingreinvestmentofdividends.Copyright©2019Standard&Poor's,adivisionofS&PGlobal.Allrightsreserved.
March 31,
2014 2015 2016 2017 2018 2019Logitech $ 100 $ 90 $ 113 $ 232 $ 273 $ 296NasdaqCompositeIndex $ 100 $ 118 $ 119 $ 146 $ 176 $ 195S&P500InformationandTechnologyIndex $ 100 $ 118 $ 128 $ 159 $ 204 $ 235
ITEM 6. Selected Financial Data
Thisfinancial datashouldbereadinconjunctionwithItem7, Management's DiscussionandAnalysis of Financial ConditionandResults ofOperations.Thesehistoricalresultsarenotnecessarilyindicativeoftheresultstobeexpectedinthefuture.
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Years ended March 31,
2019 2018 2017 2016 (1) 2015 (1)
(in thousands, except for per share amounts)Consolidated statement of operations and cashflow data Netsales $ 2,788,322 $ 2,566,863 $ 2,221,427 $ 2,018,100 $ 2,004,908Operatingincome $ 263,194 $ 229,733 $ 211,860 $ 129,058 $ 154,184Netincomefromcontinuingoperations $ 257,573 $ 208,542 $ 205,876 $ 128,362 $ 148,429
Lossfromdiscontinuedoperations(1) $ — $ — $ — $ (9,045) $ (139,146)Netincome $ 257,573 $ 208,542 $ 205,876 $ 119,317 $ 9,283Netincome(loss)pershare-basic: Continuingoperations $ 1.56 $ 1.27 $ 1.27 $ 0.79 $ 0.91Discontinuedoperations $ — $ — $ — $ (0.06) $ (0.85)
Netincomepershare-basic $ 1.56 $ 1.27 $ 1.27 $ 0.73 $ 0.06
NetIncome(loss)pershare-diluted: Continuingoperations $ 1.52 $ 1.23 $ 1.24 $ 0.77 $ 0.89Discontinuedoperations $ — $ — $ — $ (0.05) $ (0.83)
Netincomepershare-diluted $ 1.52 $ 1.23 $ 1.24 $ 0.72 $ 0.06
Cashdividendpershare $ 0.69 $ 0.63 $ 0.57 $ 0.53 $ 0.27
Netcashprovidedbyoperatingactivities $ 305,181 $ 346,261 $ 288,389 $ 185,195 $ 181,463
Netcashusedininvestingactivities(2) $ (173,345) $ (128,704) $ (99,679) $ (59,975) $ (48,289)
March 31,
2019 2018 2017 2016 (3) 2015 (3)
Consolidated balance sheet data Cashandcashequivalents $ 604,516 $ 641,947 $ 547,533 $ 519,195 $ 533,380Totalassets $ 2,024,124 $ 1,743,157 $ 1,498,677 $ 1,324,147 $ 1,426,680Totalshareholders'equity $ 1,176,339 $ 1,050,557 $ 856,111 $ 759,948 $ 758,134
_______________________________________________________________________________
(1) OnDecember28,2015,wedivestedourLifesizevideoconferencingbusinessand,asaresult,wehavereflectedtheLifesizevideoconferencingbusinessasdiscontinuedoperationsinourconsolidatedstatementsofoperationsdataaboveforallperiodsnoted.Historicalcashflowsfromdiscontinuedoperationswerenotmaterialandareincludedinthecashflowdataabove.
(2) ThelineitempreviouslycalledChangeinrestrictedcashhasbeeneliminatedfromthestatementsofcashflowsandinsteadrestrictedcashhasbeenincludedinthecash,cashequivalentsandrestrictedcashlineitemstoconformtotheconsolidatedstatementsofcashflowsforfiscalyear2019duetotheadoptionofASU2016-18.Theimpactwasnotmaterial.
(3) TheaboveconsolidatedcashandcashequivalentsexcludeLifesizevideoconferencingbusiness.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statementsthat involve risks and uncertainties. Our actual results could differ materially from those anticipated in these statements as a result of certain factors,including those set forth above in Item 1A, Risk Factors, and below in Item 7A, Quantitative and Qualitative Disclosures about Market Risk. Pleaseread the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements andrelated notes included under Item 8 of this Annual Report on Form 10-K.
Overview of Our Company
Logitechisaworldleaderindesigning,manufacturingandmarketingproductsthathelpconnectpeopletodigitalandcloudexperiences.Morethan35yearsago,LogitechcreatedproductstoimproveexperiencesaroundthepersonalPCplatform,andtodayitisamulti-brand,multi-categorycompanydesigningproductsthatenablebetterexperiencesconsuming,sharingandcreatinganydigitalcontentsuchasmusic,gaming,videoandcomputing,whetheritisonacomputer,mobiledeviceorinthecloud.Logitech'sbrandsincludeLogitech,Jaybird,UltimateEars,LogitechG,ASTROGamingandBlueMicrophones.
Ourproductsparticipateinfivelargemarketopportunities:Creativity&Productivity,Gaming,VideoCollaboration,MusicandSmartHome.Wesellourproductstoabroadnetworkofdomesticandinternationalcustomers,includingdirectsalestoretailersande-tailers,andindirectsalesthroughdistributors.Ourworldwidechannelnetworkincludesconsumerelectronicsdistributors,retailers,massmerchandisers,specialtystores,computerandtelecommunicationsstores,value-addedresellersandonlinemerchants.
Fromtimetotime,wemayseektopartnerwithoracquirewhenappropriate,companiesthathaveproducts,personnel,andtechnologiesthatcomplementourstrategicdirection.Wecontinuallyreviewourproductofferingsandourstrategicdirectioninlightofourprofitabilitytargets,competitiveconditions,changingconsumertrendsandtheevolvingnatureoftheinterfacebetweentheconsumerandthedigitalworld.
OnAugust21,2018,weacquiredallequityinterestsinBlueMicrophonesHoldingCorporation(BlueMicrophones)foratotalconsiderationof$134.8millionincash(theBlueMicrophonesAcquisition),whichincludedaworkingcapitaladjustmentandrepaymentofdebtonbehalfofBlueMicrophones.BlueMicrophonesisaleadingaudiomanufacturerthatdesignsandproducesmicrophones,headphones,recordingtools,andaccessoriesforaudioprofessionals,musiciansandconsumers.TheBlueMicrophonesAcquisitionsupplementsourproductportfolio.
OnAugust11,2017,weacquiredcertainassetsandliabilitiesconstitutingtheASTROGamingbusiness(ASTRO)fromAGAcquisitionCorporationforapurchasepriceof$85.0millionincash(theASTROAcquisition).ASTROisaleadingconsolegamingaccessorybrandwithahistoryofproducingaward-winningheadsetsforprofessionalgamersandenthusiasts.ASTROprovidesastronggrowthplatformintheconsolegamingaccessoriesmarket.
Summary of Financial Results
Ourtotalsalesforfiscalyear2019increased9%incomparisontofiscalyear2018.Thegrowthwasbroad-basedacrossourregionsandacrossmostofourproductcategories.TheresultsofoperationsforBlueMicrophoneshavebeenincludedinourconsolidatedstatementsofoperationsfromtheacquisitiondate.Forfiscalyear2019,BlueMicrophonescontributedapproximately2percentagepointsofthesalesgrowthrate.
Salesforfiscalyear2019increased6%,5%and17%intheAmericas,EMEAandAsiaPacific,respectively.
Grossmarginincreasedby180basispointsto37.2%duringfiscalyear2019,comparedtofiscalyear2018.Theincreaseingrossmarginwasprimarilydrivenbyfavorableproductmixandcostreductions.Inaddition,extracostsfromthetransitionofthedistributioncenterinNorthAmericainthethirdquarteroffiscalyear2018negativelyaffectedthegrossmargininfiscalyear2018.
Operatingexpensesforfiscalyear2019were$773.8million,or27.8%ofsales,comparedto$679.5million,or26.5%ofsales,forfiscalyear2018.Theincreaseinoperatingexpenseswasprimarilydrivenby:$47.8millionhigherpersonnel-relatedcostduetorestructuringchargesinthecurrentperiod,increasedperformance-basedvariablecompensationandadditionalheadcountfrombusinessacquisitions;$32.6millionhigherthird-partycosts,primarilyadvertisingandmarketingexpensestosupportournewproductintroductionsandnewmarket
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opportunities;$5.0millionhigheramortizationofintangibleassetsfromthebusinessacquisitions;anda$4.9millionnon-recurringcreditforchangeinfairvalueofcontingentconsiderationfromanacquisitionrecordedinfiscalyear2018.
Netincomeforfiscalyear2019was$257.6million,comparedto$208.5millionforfiscalyear2018.
Trends in Our Business
Ourstrategyfocusesonfivelargemulti-categorymarketopportunitiesincludingCreativity&Productivity,Gaming,VideoCollaboration,MusicandSmartHome.Weseeopportunitiestodelivergrowthwithproductsinallthesemarkets.Thefollowingdiscussionrepresentskeytrendsspecifictoourmarketopportunities.
Trends Specific to Our Five Market Opportunities
Creativity & Productivity: AlthoughnewPCshipmentscontinuetobeweak,theinstalledbaseofPCusersremainslarge.WebelievethatinnovativePCperipherals,suchasourmiceandkeyboards,canrenewthePCusageexperience,thusprovidinggrowthopportunities.Increasingadoptionofvariouscloud-basedapplicationshasledtomultiplenewconsumerusecases,whichweareaddressingwithourinnovativeproductportfolio.TheincreasingpopularityofstreamingandbroadcastingprovidesadditionalgrowthopportunitiesforourWebcamproducts. Smallermobilecomputingdevices,suchastablets,havecreatednewmarketsandusagemodelsforperipheralsandaccessories.Weofferanumberofproductstoenhancetheuseofmobiledevices,includingacombobacklitkeyboardcasefortheiPadProandkeyboardfoliosfortheiPadandiPadmini.Infiscalyear2019,wehaveseenarecoveryoftheiPadtabletmarket,andourTablet&OtherAccessoriescategoryhasbenefitedfromtherecoveryalongwithourinnovativeproducts.
Gaming: ThePCgamingandconsolegamingplatformscontinuetoshowstronggrowthasonlinegaming,multi-platformexperiences,andesportsgaingreaterpopularityandgamingcontentbecomesincreasinglymoredemanding.WebelieveLogitechiswellpositionedtobenefitfromthegamingmarketgrowth.WithASTROGaming,wearealsostrengtheningourportfolioinadjacentcategories,suchastheconsolecontrollermarket.
Video Collaboration: Thenearandlong-termstructuralgrowthopportunitiesinthevideocollaborationmarketaresignificantandarealreadyattractingmorecompetition.Videomeetingsareontherise,andcompaniesincreasinglywantlower-cost,cloud-basedsolutions.Wearecontinuingoureffortstocreateandsellinnovativeproductstoaccommodatetheincreasingdemandfrommediumandlarge-sizedmeetingroomstosmall-sizedroomssuchashuddlerooms.Wewillcontinuetoinvestinselectbusiness-specificproducts,targetedproductmarketingandsaleschanneldevelopment.
Music: Themusicmarketgrewduringfiscalyear2019,drivenbygrowingconsumptionofmusicthroughmobiledevicessuchassmartphonesandtablets.Theintegrationofpersonalvoiceassistantshasbecomeincreasinglycompetitiveinthespeakercategories,butthemarketforthird-party,voice-enabledspeakershasnotyetgainedtraction.Moreover,themarketformobilespeakersappearstobematuring,whichledtoadeclineinUltimateEarssalesinfiscalyear2019.Infiscalyear2019,theheadphoneindustrycontinuedtoflourishwithstrongrevenuegrowth.ThelargestgrowthcameinTrueWirelessheadphoneswherethemarkettripledyearoveryearandaddedsubstantialincreasestoaveragesellingprice.Continuedgrowthintheheadphonecategoryisexpectedforthenextseveralyearsasconsumersincreasinglyadoptwirelessheadphonesoverwiredheadphones.WithBlueMicrophones,wearestrengtheningourportfolioinadjacentcategories,suchasthemicrophonesmarket.
Smart Home: Ourremotebusinessdeclinedsubstantiallyinfiscalyear2019astheattachmenttothevoiceassistantsofHarmonyHub-basedremotecontrolswasnotasustainabletrend.Ingeneral,thespaceisunderpressureasthewaypeopleconsumecontentischanging.WewillcontinuetoexploreotherinnovativeexperiencesfortheSmartHomecategory.
Business Seasonality, Product Introductions and Business Acquisitions
WehavehistoricallyexperiencedhighersalesinourthirdfiscalquarterendingDecember31,comparedtootherfiscalquartersinourfiscalyear,primarilyduetotheincreasedconsumerdemandforourproductsduringtheyear-endholidaybuyingseasonandyear-endspendingbyenterprises.Additionally,newproductintroductionsandbusinessacquisitionscansignificantlyimpactsales,productcostsandoperatingexpenses.Productintroductionscanalsoimpactoursalestodistributionchannelsasthesechannelsarefilledwithnewproductinventoryfollowingaproductintroduction,andoftenchannelinventoryofanearliermodelproductdeclinesasthenextrelatedmajorproductlaunchapproaches.Salescanalsobeaffectedwhenconsumersanddistributorsanticipateaproductintroductionorchangesinbusinesscircumstances.However,neitherhistoricalseasonalpatternsnorhistorical
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patternsofproductintroductionsshouldbeconsideredreliableindicatorsofourfuturepatternofproductintroductions,futuresalesorfinancialperformance.
Critical Accounting Estimates
ThepreparationoffinancialstatementsandrelateddisclosuresinconformitywithU.S.GAAPrequiresustomakejudgments,estimates,andassumptionsthataffectreportedamountsofassets,liabilities,salesandexpenses,andthedisclosureofcontingentassetsandliabilities.
Weconsideranaccountingestimatecriticalifit:(i)requiresmanagementtomakejudgmentsandestimatesaboutmattersthatareinherentlyuncertain;and(ii)isimportanttoanunderstandingofourfinancialconditionandoperatingresults.
Webaseourestimatesonhistoricalexperienceandonvariousotherassumptionswebelievetobereasonableunderthecircumstances.Althoughtheseestimatesarebasedonmanagement'sbestknowledgeofcurrenteventsandactionsthatmayimpactusinthefuture,actualresultscoulddifferfromthoseestimates.Managementhasdiscussedthedevelopment,selectionanddisclosureofthesecriticalaccountingestimateswiththeAuditCommitteeoftheBoardofDirectors.
Webelievethefollowingaccountingestimatesaremostcriticaltoourbusinessoperationsandtoanunderstandingofourfinancialconditionandresultsofoperationsandreflectthemoresignificantjudgmentsandestimatesusedinthepreparationofourconsolidatedfinancialstatements.
Accruals for Customer Programs and Product Returns
Werecordaccrualsforcooperativemarketing,customerincentive,pricingprograms(CustomerPrograms)andproductreturns.Theestimatedcostoftheseprogramsisusuallyrecordedasareductionofrevenue.Significantmanagementjudgmentsandestimatesmustbeusedtodeterminethecostoftheseprogramsinanyaccountingperiod.CertainCustomerProgramsrequiremanagementtoestimatethepercentageofthoseprogramswhichwillnotbeclaimedorwillnotbeearnedbycustomersbasedonhistoricalexperienceandonthespecifictermsandconditionsofparticularprograms.Thepercentageofthesecustomerprogramsthatwillnotbeclaimedorearnediscommonlyreferredtoas"breakage".Ifwereceiveaseparatelyidentifiablebenefitfromacustomerandcanreasonablyestimatethefairvalueofthatbenefit,thecostoftheCustomerProgramsisrecognizedinoperatingexpenses.
Cooperative Marketing Arrangements. Weenterintocustomermarketingprogramswithmanyofourcustomers,andwithcertainindirectpartners,allowingcustomerstoreceiveacreditequaltoasetpercentageoftheirpurchasesofourproducts,orafixeddollarcreditforvariousmarketingprograms.Theobjectiveofthesearrangementsistoencourageadvertisingandpromotionaleventstoincreasesalesofourproducts.
Customer Incentive Programs. Customerincentiveprogramsincludeperformance-basedincentivesandconsumerrebates.Weofferperformance-basedincentivestoourcustomersandindirectpartnersbasedonpre-determinedperformancecriteria.Consumerrebatesareofferedfromtimetotimeatourdiscretionfortheprimarybenefitofend-users.
Cooperativemarketingarrangementsandcustomerincentiveprogramsareconsideredvariableconsideration,whichweestimateandrecordasareductiontorevenueatthetimeofsalebasedonnegotiatedterms,historicalexperiences,forecastedincentives,theanticipatedvolumeoffuturepurchases,andinventorylevelsinthechannel.
Pricing Programs. Wehaveagreementswithcertaincustomersthatcontaintermsallowingpriceprotectioncreditstobeissuedintheeventofasubsequentpricereduction.Atourdiscretion,wealsoofferspecialpricingdiscountstocertaincustomers.Specialpricingdiscountsareusuallyofferedonlyforlimitedtimeperiodsorforsalesofselectedproductstospecificindirectpartners.Ourdecisiontomakepricereductionsisinfluencedbyproductlifecyclestage,marketacceptanceofproducts,thecompetitiveenvironment,newproductintroductionsandotherfactors.Accrualsforestimatedexpectedfuturepricingactionsarerecognizedatthetimeofsalebasedonanalysisofhistoricalpricingactionsbycustomerandbyproduct,inventoriesownedbyandlocatedatdistributorsandretailers,currentcustomerdemand,currentoperatingconditions,andotherrelevantcustomerandproductinformation,suchasstageofproductlife-cycle.
Product Returns. Wegrantlimitedrightstoreturnproducts.Returnrightsvarybycustomerandrangefromjusttherighttoreturnthedefectiveproducttostockrotationrightslimitedtoapercentageofsalesapprovedbymanagement.Estimatesofexpectedfutureproductreturnsarerecognizedatthetimeofsalebasedonanalysesof
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historicalreturntrendsbythecustomerandbyproduct,inventoriesownedbyandlocatedatcustomers,currentcustomerdemand,currentoperatingconditions,andotherrelevantcustomerandproductinformation.Uponrecognition,wereducesalesandcostofgoodssoldfortheestimatedreturn.Returntrendsareinfluencedbyproductlifecyclestatus,newproductintroductions,marketacceptanceofproducts,saleslevels,productsell-through,thetypeofcustomer,seasonality,productqualityissues,competitivepressures,operationalpoliciesandprocedures,andotherfactors.Returnratescanfluctuateovertimebutaresufficientlypredictabletoallowustoestimateexpectedfutureproductreturns.
WeapplyabreakageratetoreduceouraccrualsofCustomerProgramsbasedontheestimatedpercentageofthesecustomerprogramsthatwillnotbeclaimedorearned.Thebreakagerateisappliedatthetimeofsale.Significantmanagementjudgmentsandestimatesareusedtodeterminethebreakageoftheprogramsinanyaccountingperiod.
WeregularlyevaluatetheadequacyofouraccrualsforCustomerProgramsandproductreturns.Futuremarketconditionsandproducttransitionsmayrequireustotakeactiontoincreasesuchprograms.Inaddition,whenthevariablesusedtoestimatethesecostschange,orifactualcostsdiffersignificantlyfromtheestimates,wewouldberequiredtorecordincrementalincreasesorreductionstorevenueoroperatingexpenses.
Inventory Valuation
Wemustordercomponentsforourproductsandbuildinventoryinadvanceofcustomerorders.Further,ourindustryischaracterizedbyrapidtechnologicalchange,short-termcustomercommitmentsandrapidchangesindemand.
Werecordinventoriesatthelowerofcostandnetrealizablevalueandrecordwrite-downsofinventoriesthatareobsoleteorinexcessofanticipateddemandornetrealizablevalue.Areviewofinventoryisperformedeachfiscalquarterthatconsidersfactorsincludingthemarketabilityandproductlifecyclestage,productdevelopmentplans,componentcosttrends,historicalsalesanddemandforecastswhichconsidertheassumptionsaboutfuturedemandandmarketconditions.Inventoryonhandwhichisnotexpectedtobesoldorutilizedisconsideredexcess,andwerecognizethewrite-downinthecostofgoodssoldatthetimeofsuchdetermination.Thewrite-downisdeterminedbytheexcessofcostovernetrealizablevalue.Netrealizablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposalandtransportation.Atthetimeoflossrecognition,newcostbasisperunitandthelower-costbasisforthatinventoryisestablishedandsubsequentchangesinfactsandcircumstanceswouldnotresultinanincreaseinthecostbasis.IfthereisanabruptandsubstantialdeclineindemandforLogitech'sproductsoranunanticipatedchangeintechnologicalorcustomerrequirements,wemayberequiredtorecordadditionalwrite-downsthatcouldadverselyaffectgrossmarginsintheperiodwhenthewrite-downsarerecorded.
Share-Based Compensation Expense
ThegrantdatefairvalueforstockoptionsandstockpurchaserightsisestimatedusingtheBlack-Scholes-Mertonoption-pricingvaluationmodel.Thegrantdatefairvalueofrestrictedstockunits(RSUs)thatvestuponmeetingcertainmarketconditionsisestimatedusingtheMonte-Carlosimulationmethod.Thegrantdatefairvalueoftime-basedRSUsandRSUswithperformanceconditionsiscalculatedbasedontheclosingmarketpriceonthedateofgrant,adjustedbyestimateddividendsyieldpriortovesting.
Ourestimatesofshare-basedcompensationexpenserequireanumberofcomplexandsubjectiveassumptionsincludingourstockpricevolatility,theprobabilityofachievementofthesetperformanceconditions,dividendyield,relatedtaxeffectsandtheselectionofanappropriatefairvaluemodel.Weestimateexpectedsharepricevolatilitybasedonhistoricalvolatilityusingdailypricesoverthetermofoptions,RSUsorpurchaseofferings,asweconsiderhistoricalsharepricevolatilityasmostrepresentativeoffuturevolatility.Thedividendyieldassumptionisbasedonourhistoryandexpectationsoffuturedividendpayouts.
Theassumptionsusedincalculatingthefairvalueofshare-basedcompensationexpenseandrelatedtaxeffectsrepresentourbestestimates,buttheseestimatesinvolveinherentuncertaintiesandtheapplicationofmanagementjudgments.Asaresult,iffactorschangeandweusedifferentassumptions,orifwedecidetouseadifferentvaluationmodel,ourshare-basedcompensationexpensecouldbemateriallydifferentinthefuturefromwhatwehaverecordedinthecurrentperiod,whichcouldmateriallyaffectourresultsofoperations.
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Accounting for Income Taxes
Weoperateinmultiplejurisdictionsandourprofitsaretaxedpursuanttothetaxlawsofthesejurisdictions.Oureffectiveincometaxratemaybeaffectedbythechangesinorinterpretationsoftaxlawsandtaxagreementsinanygivenjurisdiction,utilizationofnetoperatinglossandtaxcreditcarryforwards,changesingeographicalmixofincomeandexpense,andchangesinourassessmentofmatterssuchastheabilitytorealizedeferredtaxassets.Asaresultoftheseconsiderations,wemustestimateincometaxesineachofthejurisdictionsinwhichweoperate.Thisprocessinvolvesestimatingcurrenttaxexposuretogetherwithassessingtemporarydifferencesresultingfromthedifferenttreatmentofitemsfortaxandaccountingpurposes.Thesedifferencesresultindeferredtaxassetsandliabilities,whichareincludedintheconsolidatedbalancesheet.
Weassessthelikelihoodthatourdeferredtaxassetswillberecoveredfromfuturetaxableincome,consideringallavailableevidencesuchashistoricallevelsofincome,expectationsandrisksassociatedwithestimatesoffuturetaxableincomeandongoingprudentandfeasibletaxstrategies.Whenwedeterminethatitisnotmorelikelythannotthatwewillrealizeallorpartofourdeferredtaxassets,anadjustmentischargedtoearningsintheperiodwhensuchdeterminationismade.Likewise,ifwelaterdeterminethatitismorelikelythannotthatallorapartofourdeferredtaxassetswouldberealized,thepreviouslyprovidedvaluationallowancewouldbereversed.
Wemakecertainestimatesandjudgmentsabouttheapplicationoftaxlaws,theexpectedresolutionofuncertaintaxpositionsandothermatterssurroundingtherecognitionandmeasurementofuncertaintaxbenefits.Intheeventthatuncertaintaxpositionsareresolvedforamountsdifferentthanourestimates,ortherelatedstatutesoflimitationsexpirewithouttheassessmentofadditionalincometaxes,wewillberequiredtoadjusttheamountsoftherelatedassetsandliabilitiesintheperiodinwhichsucheventsoccur.Suchadjustmentsmayhaveamaterialimpactonourincometaxprovisionandourresultsofoperations.
Goodwill Impairment Analysis
WeconductagoodwillimpairmentanalysisannuallyatDecember31ormorefrequentlyifindicatorsofimpairmentexistorifadecisionismadetosellorexitabusiness.RefertoNote11totheconsolidatedfinancialstatementsincludedinthisAnnualReportonForm10-Kforthedisclosures.Significantjudgmentsareinvolvedindeterminingifanindicatorofimpairmenthasoccurred.Suchindicatorsmayincludedeteriorationingeneraleconomicconditions,negativedevelopmentsinequityandcreditmarkets,adversechangesinthemarketsinwhichanentityoperates,increasesininputcoststhathaveanegativeeffectonearningsandcashflows,atrendofnegativeordecliningcashflows,adeclineinactualorplannedrevenueorearningscomparedwithactualandprojectedresultsofrelevantpriorperiods,orotherrelevantentity-specificeventssuchaschangesinmanagement,keypersonnel,strategyorcustomers,contemplationofbankruptcy,orlitigation.Thefairvaluethatcouldberealizedinanactualtransactionmaydifferfromthatusedtoevaluatetheimpairmentofgoodwill.
Inreviewinggoodwillforimpairment,wehavetheoptiontofirstassessqualitativefactorstodeterminewhethertheexistenceofeventsorcircumstancesleadstoadeterminationthatitismorelikelythannot(greaterthan50%)thattheestimatedfairvalueofareportingunitislessthanitscarryingamount.FortheyearendedMarch31,2019,weelectedtoperformaqualitativeassessmentanddeterminedthatimpairmentwasnotmorelikelythannotandnofurtheranalysiswasrequired.Wealsomayelectnottoperformthequalitativeassessmentand,instead,proceeddirectlytothequantitativeimpairmenttest.Theultimateoutcomeofthegoodwillimpairmentreviewforareportingunitshouldbethesamewhetheranentitychoosestoperformthequalitativeassessmentorproceedsdirectlytothequantitativeimpairmenttest.Goodwillisallocatedamongandevaluatedforimpairmentatthereportingunitlevel,whichisdefinedasanoperatingsegmentoronelevelbelowanoperatingsegment.Wecurrentlyhaveonlyonereportingunit.
Product Warranty Accrual
Weestimatethecostofproductwarrantiesatthetimetherelatedrevenueisrecognizedbasedonhistoricalandprojectedwarrantyclaimrates,historicalandprojectedcosts,andknowledgeofspecificproductfailuresthatareoutsideofourtypicalexperience.Eachfiscalquarter,wereevaluateestimatestoassesstheadequacyofrecordedwarrantyliabilities.Whenweexperiencechangesinwarrantyclaimactivityorcostsassociatedwithfulfillingthoseclaims,thewarrantyliabilityisadjustedaccordingly.Ifactualproductfailureratesorrepaircostsdifferfromestimates,revisionstotheestimatedwarrantyliabilitieswouldberequiredandcouldmateriallyaffectourresultsofoperations.
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Business Acquisitions
Accountingforbusinessacquisitionsrequiresustomakesignificantestimatesandassumptions,especiallyattheacquisitiondatewithrespecttotangibleandintangibleassetsacquiredandliabilitiesassumedandpre-acquisitioncontingencies.Weuseourbestestimatesandassumptionstoaccuratelyassignfairvaluetothetangibleandintangibleassetsacquiredandliabilitiesassumedattheacquisitiondate.
Examplesofcriticalestimatesinvaluingcertainintangibleassetsandgoodwillwehaveacquiredincludebutarenotlimitedto:• assumptionsregardingroyaltyraterangeandforecastedrevenuegrowthrate;• assumptionsregardingtheestimatedusefullifeoftheacquiredintangibles;• discountrates.
Unanticipatedeventsandcircumstancesmayoccurthatmayaffecttheaccuracyorvalidityofsuchassumptions,estimatesoractualresults.
Theeconomicusefullifeofthedevelopedtechnologyfromthebusinessacquisitionswasdeterminedbasedonthetechnologycyclerelatedtodevelopedtechnologyofexistingproducts,aswellasthecashflowsovertheforecastedperiods.
Theeconomicusefullifeofthecustomerrelationshipsfromthebusinessacquisitionswasdeterminedbasedonhistoricalcustomerturnoverratesandtheindustrybenchmarks.
Theeconomicusefullifeofthetrademarksandtradenamesfromthebusinessacquisitionswasdeterminedbasedontheexpectedlifeofthetradenamesandthecashflowsanticipatedovertheforecastedperiods
Adoption of New Accounting Pronouncements
RefertoNote2totheconsolidatedfinancialstatementsincludedinthisAnnualReportonForm10-Kforrecentaccountingpronouncementsadoptedandtobeadopted.
Constant Currency
Werefertoournetsalesgrowthratesexcludingtheimpactofcurrencyexchangeratefluctuationsas"constantcurrency"salesgrowthrates.Percentageofconstantcurrencysalesgrowthiscalculatedbytranslatingpriorperiodsalesineachlocalcurrencyatthecurrentperiod’saverageexchangerateforthatcurrencyandcomparingthattocurrentperiodsales.
GivenourglobalsalespresenceandthereportingofourfinancialresultsinU.S.Dollars,ourfinancialresultscouldbeaffectedbysignificantshiftsincurrencyexchangerates.See“ResultsofOperations”forinformationontheeffectofcurrencyexchangeresultsonoursales.IftheU.S.Dollarappreciatesordepreciatesincomparisontoothercurrenciesinfutureperiods,thiswillaffectourresultsofoperationsinfutureperiodsaswell.
Reference to Sales
Theterm“sales”meansnetsales,exceptasotherwisespecifiedandthesalesgrowthdiscussionandsalesgrowthratepercentagesareinU.S.Dollars,exceptasotherwisespecified.
Results of Operations
Net Sales
Duringfiscalyear2019,salesincreased9%incomparisontofiscalyear2018.Ifcurrencyexchangerateshadbeenconstantin2019and2018,ourconstantcurrencysalesgrowthratewouldhavebeen10%.Wegrewacrossmostofourproductcategories,withdouble-digitgrowthinourGaming,VideoCollaboration,Tablet&OtherAccessoriesandAudio&WearablesproductcategoriesandstronggrowthinKeyboards&Combos.SalesdeclinedforMobileSpeakersandSmartHomeproductcategories.BlueMicrophonescontributedapproximately2percentagepointsofthesalesgrowthrate.TheadoptionofTopic606increasedoursalesforfiscalyear2019by$3.7million.
Duringfiscalyear2018,salesincreased16%incomparisontofiscalyear2017.Ifcurrencyexchangerateshadbeenconstantin2018and2017,ourconstantcurrencysalesgrowthratewouldhavebeen13%.Wegrewacrossalmostallourproductcategories.Tablet&OtherAccessories,VideoCollaboration,Gaming,andSmart
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Homegrewdoubledigits,withGamingcontributingmorethan8percentagepointsofthesalesgrowthrateduringtheyear,includingapproximately2percentagepointscontributedbyASTRO.
Sales Denominated in Other Currencies
AlthoughourfinancialresultsarereportedinU.S.Dollars,aportionofoursaleswasgeneratedincurrenciesotherthantheU.S.Dollar,suchastheEuro,ChineseRenminbi,JapaneseYen,CanadianDollar,TaiwanDollar,BritishPoundandAustralianDollar.Foreachofthefiscalyears2019,2018and2017,50%ofoursalesweredenominatedincurrenciesotherthantheU.S.Dollar.
Sales by Region
Thefollowingtablepresentsthechangeinsalesbyregionforfiscalyear2019comparedwithfiscalyear2018,andfiscalyear2018comparedwithfiscalyear2017:
2019 vs. 2018 2018 vs. 2017
SalesGrowthRate SalesGrowthRateinConstantCurrency SalesGrowthRate
SalesGrowthRateinConstantCurrency
Americas 6% 7% 16% 16%EMEA 5 7 10 4AsiaPacific 17 19 23 22
Americas
Theincreaseinsalesinfiscalyear2019of6%comparedwithfiscalyear2018wasdrivenbygrowthinGaming,VideoCollaboration,Audio&Wearables,KeyboardsandCombos,Tablet&OtherAccessoriesandPCWebcams,partiallyoffsetbysalesdeclinesinMobileSpeakers,SmartHomeandPointingDevices.
Theincreaseinsalesinfiscalyear2018of16%comparedwithfiscalyear2017wasdrivenbygrowthinPointingDevices,Tablet&OtherAccessories,VideoCollaboration,Gaming,andSmartHome.
EMEA
Theincreaseinsalesinfiscalyear2019of5%comparedwithfiscalyear2018wasdrivenbyseveralofourproductcategories,withgrowthinVideoCollaboration,Gaming,PointingDevicesandTablet&OtherAccessories,partiallyoffsetbysalesdeclinesinMobileSpeakersandSmartHome.
Theincreaseinsalesinfiscalyear2018of10%comparedwithfiscalyear2017wasdrivenbyseveralofourproductcategories,withgrowthinVideoCollaboration,Gaming,andSmartHome,partiallyoffsetbyPointingDevicesandAudio&Wearables.
Asia Pacific
Theincreaseinsalesinfiscalyear2019of17%comparedwithfiscalyear2018wasprimarilydrivenbysalesincreasesinGaming,VideoCollaboration,Keyboard&CombosandPointingDevices,offsetbysalesdeclinesinMobileSpeakers.
Theincreaseinsalesinfiscalyear2018of23%comparedwithfiscalyear2017wasprimarilydrivenbysalesincreasesinPointingDevices,VideoCollaboration,MusicandGaming.
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Sales by Product Categories
Salesbyproductcategoriesforfiscalyears2019,2018and2017wereasfollows(Dollarsinthousands):
Years Ended March 31, Change
2019 2018 2017 2019 vs. 2018 2018 vs. 2017PointingDevices $ 536,890 $ 516,637 $ 501,562 4% 3%Keyboards&Combos 536,619 498,472 480,312 8 4PCWebcams 121,282 112,147 107,087 8 5Tablet&OtherAccessories 128,315 107,942 76,879 19 40VideoCollaboration 259,521 182,717 127,009 42 44MobileSpeakers 230,378 314,817 301,021 (27) 5Audio&Wearables 277,429 252,330 246,390 10 2Gaming 648,130 491,995 314,362 32 57SmartHome 49,344 89,373 65,510 (45) 36Other(1) 414 433 1,295 (4) (67)TotalSales $ 2,788,322 $ 2,566,863 $ 2,221,427 9 16
(1) Othercategoryincludesproductswhichwecurrentlyintendtophaseout,orhavealreadyphasedout,becausetheyarenolongerstrategictoourbusiness.
Sales by Product Categories:
Creativity & Productivity market:
Pointing Devices
OurPointingDevicescategorycomprisesPCandMac-relatedmiceincludingtrackballs,touchpadsandpresentationtools.
Duringfiscalyear2019,PointingDevicessalesincreased4%,comparedtofiscalyear2018.Theincreasewasprimarilydrivenbytheincreasesinsalesofcordlessmiceandpresentationtools.TheincreaseincordlessmicewasleadbystrongcontributionfromtheMXfamilyofpremiumcordlessmice,includingtheVerticalWirelessMouseintroducedinthesecondquarteroffiscalyear2019aswellascontinuedperformanceforMXMaster2SWirelessMouseandB220SilentMouse.
Duringfiscalyear2018,PointingDevicessalesincreased3%,comparedtofiscalyear2017.Theincreasewasprimarilydrivenbytheincreasesinsalesofcordlessmice,trackballandpresentationtools,partiallyoffsetbyadecreaseinthesalesofcordedmice.
Keyboards & Combos
OurKeyboards&ComboscategorycomprisesPCkeyboards,livingroomkeyboardsandkeyboard/micecomboproducts.
Duringfiscalyear2019,Keyboards&Combossalesincreased8%,comparedtofiscalyear2018.Theincreasewasprimarilydrivenbytheincreasesinsalesofwirelesskeyboard/micecombos,mainlyfromincreasedsalesofourMK540,MK270andMK110wirelesskeyboard/micecombo,andanincreaseinsalesofourwirelessPCkeyboard.
Duringfiscalyear2018,Keyboards&Combossalesincreased4%,comparedtofiscalyear2017.TheincreasewasprimarilydrivenbytheintroductionofCraftcordlesskeyboardandincreasedsalesofourMK270andMK235wirelesskeyboard/micecombo,partiallyoffsetbythedecreasesinsalesoftheMK710wirelesskeyboard/micecomboandK400Pluswirelesskeyboard.
PC Webcams
OurPCWebcamscategorycomprisesPC-basedwebcamstargetedprimarilyatconsumers.
Duringfiscalyear2019,PCWebcamssalesincreased8%,comparedtofiscalyear2018.TheincreasewasprimarilydrivenbytheincreasesinsalesofourHDProWebcamC920and1080ProSteamWebcam.
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Duringfiscalyear2018,PCWebcamssalesincreased5%,comparedtofiscalyear2017.Theincreasewasprimarilydrivenbytheincreasesinsalesofour1080PProStreamWebcam,partiallyoffsetbythedecreaseinsalesofourHDProWebcamC920andHDWebcamC525.
Tablet & Other Accessories
OurTablet&OtherAccessoriescategorycompriseskeyboardsfortabletsandsmartphonesaswellasotheraccessoriesformobiledevices.
Duringfiscalyear2019,Tablet&OtherAccessoriessalesincreased19%,comparedtofiscalyear2018.TheincreasewasprimarilydrivenbytheintroductionsofourSlimFoliokeyboardcasesfortheiPad5th/6thGeneration,education-basedRuggedCombo2,SlimCombokeyboardcasesfortheiPad5th/6thGeneration,Crayon(adigitalpencil)andPOWERED(awirelesschargingdockforiPhone)duringfiscalyear2019.
Duringfiscalyear2018,Tablet&OtherAccessoriessalesincreased40%,comparedtofiscalyear2017.TheincreasewasprimarilydrivenbytheintroductionofSlimFoliokeyboardcasesfortheiPad5thGeneration,SlimCombokeyboardcasesfortheiPadPro,andRuggedCombokeyboardcase,partiallyoffsetbyadecreaseinsalesofCreateandType+keyboardcases.
Gaming market:
Gaming
OurGamingcategorycomprisesgamingmice,keyboards,headsets,gamepads,steeringwheels,simulationcontrollers,consolegamingheadsetsandconsolegamingcontrollers.
Duringfiscalyear2019,Gamingsalesincreased32%,comparedtofiscalyear2018.TheincreasewasprimarilyduetoincreasesinsalesofourcorePCgamingproductsandconsolegamingheadsets,whichbenefitedfromthegrowinggamingmarket,growthineSports,expansionsinnewchannelsandregions,andexpansioninproductportfolios.Theincreaseforfiscalyear2019wasalsodrivenbythefactthattheASTROAcquisitionclosedonAugust11,2017,inthemiddleofourfiscalyear2018secondquarter,resultinginapartialcomparativeperiodimpact.Thegrowthwaspartiallyoffsetbyaslightdeclineinoursimulationproducts.
Duringfiscalyear2018,Gamingsalesincreased57%,comparedtofiscalyear2017.GrowthinGamingsaleswasbroad-based,especiallydrivenbytheASTROAcquisition,thesalesincreasesoftheG29DrivingForcesteeringwheel,theG502ProteusSpectrumgamingmouseandtheG203gamingmouse,andtheintroductionoftheG903gamingmouse.Forfiscalyear2018,ASTROcontributed$54.1milliontosales.
Video Collaboration market:
Video Collaboration
OurVideoCollaborationcategoryincludesLogitech’sConferenceCams,whichcombinesaffordableenterprise-qualityaudioandhighdefinition(HD)1080pvideotobringvideoconferencingtobusinessesofanysize.
Duringfiscalyear2019,VideoCollaborationsalesincreased42%,comparedtofiscalyear2018.TheincreasewasprimarilyduetoincreasesinsalesofourMeetUpandPTZPro2videoconferencecameras,BRIOProWebcamandC925EWebcam,andtheintroductionsofourRallyandRallyUltra-HDPTZConferenceCamerainthethirdquarteroffiscalyear2019.
Duringfiscalyear2018,VideoCollaborationsalesincreased44%,comparedtofiscalyear2017.TheincreasewasprimarilyduetotheintroductionsofMeetUpandPTZPro2videoconferencecamerasandincreasesinsalesofourLogitechGroupconferencecamera,C930eandBrio4KProwebcams.ThesalesincreasewaspartiallyoffsetbyadecreaseinsalesofourPTZProvideoconferencecamera.
Music market:
Mobile Speakers
OurMobileSpeakerscategorycomprisesportablewirelessBluetoothandWi-Fispeakers.
Duringfiscalyear2019,MobileSpeakerssalesdecreased27%,comparedtofiscalyear2018.ThedecreasewasprimarilyduetodecreasesinsalesofourexistingUltimateEarsspeakers.ThedecreasewaspartiallyoffsetbysalesfromtheintroductionsofourUltimateEarsMEGABOOM3andBOOM3mobilespeakersinthesecondquarteroffiscalyear2019.
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Duringfiscalyear2018,MobileSpeakerssalesincreased5%,comparedtofiscalyear2017.TheincreasewasprimarilyduetotheincreasesinsalesoftheUltimateEarsWONDERBOOMproductandtheintroductionsoftheUltimateEarsBLASTandMEGABLAST,whichwerebothreleasedinthethirdquarteroffiscalyear2018.ThesalesincreasewaspartiallyoffsetbyadecreaseinsalesofourUltimateEarsBOOM2,UltimateEarsMEGABOOM,andUltimateEarsROLL2.
Audio & Wearables
OurAudio&WearablescategorycomprisesPCspeakers,PCheadsets,in-earheadphones,premiumwirelessaudiowearablesandstudio-qualitymicrophonesforprofessionalsandconsumers.
Duringfiscalyear2019,Audio&Wearablessalesincreased10%,comparedtofiscalyear2018.TheincreasewasprimarilyduetotheincreaseinsalesofourcordedheadsetsandsalesfromproductsasaresultoftheBlueMicrophonesAcquisition(seeNote3totheconsolidatedfinancialstatements),partiallyoffsetbyadecreaseinsalesofourPCspeakersandJaybirdwirelessin-earheadphones.
Duringfiscalyear2018,Audio&Wearablessalesincreased2%,comparedtofiscalyear2017.TheincreasewasprimarilyduetotheincreaseinsalesfromourJaybirdwirelessin-earheadphones,partiallyoffsetbyadecreaseinsalesofourPCspeakers.
Smart Home market:
Smart Home
OurSmartHomecategorymainlycomprisesourHarmonylineofadvancedhomeentertainmentcontrollersandhomesecuritycameras.
Duringfiscalyear2019,SmartHomesalesdecreased45%,comparedtofiscalyear2018.ThedecreasewasprimarilyduetothedecreasesinsalesofourHarmonyremotesandhomesecuritycameras.
Duringfiscalyear2018,SmartHomesalesincreased36%,comparedtofiscalyear2017.TheincreasewasprimarilyduetotheintroductionsofourCircle2wiredandwirelesshomesecuritycameras,inadditiontotheincreaseinsalesofourHarmonyEliteremote,partiallyoffsetbyadecreaseinsalesofourHarmony650remote.
Gross Profit
Grossprofitforfiscalyears2019,2018and2017wasasfollows(Dollarsinthousands):
Years Ended March 31,
2019 2018 2017Netsales $ 2,788,322 $ 2,566,863 $ 2,221,427Grossprofit $ 1,037,011 $ 909,241 $ 820,041Grossmargin 37.2% 35.4% 36.9%
Grossprofitconsistsofsales,lesscostofgoodssold(whichincludesmaterials,directlaborandrelatedoverheadcosts,costsofmanufacturingfacilities,royalties,costsofpurchasingcomponentsfromoutsidesuppliers,distributioncosts,warrantycosts,customersupport,shippingandhandlingcosts,outsideprocessingcostsandwrite-downofinventories),amortizationofintangibleassetsandpurchaseaccountingeffectoninventory.
Grossmarginincreasedby180basispointsto37.2%duringfiscalyear2019,comparedtofiscalyear2018.Theincreaseingrossmarginwasprimarilydrivenbyfavorableproductmixandcostreductions.Inaddition,extracostsincurredduetothetransitionofthedistributioncenterinNorthAmericainthethirdquarteroffiscalyear2018negativelyaffectedthegrossmargininfiscalyear2018.
Grossmargindecreasedby150basispointsto35.4%duringfiscalyear2018,comparedtofiscalyear2017.ThedecreaseingrossmarginwasprimarilydrivenbyincreasesinCustomerProgramspend,additionalcostsincurredduetothetransitionofthedistributioncenterinNorthAmericainthethirdquarteroffiscalyear2018,andproductmix,partiallyoffsetbyproductcostreductionsandfavorablecurrencyexchangerates.Inaddition,infiscalyear2017,werecordedabenefitof$14.4millionprimarilyduetoachangeinestimatedbreakageattributabletoCustomerProgramaccrualsinEMEA.
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Operating Expenses
Operatingexpensesforfiscalyears2019,2018and2017wereasfollows(Dollarsinthousands):
Years Ended March 31,
2019 2018 2017Marketingandselling $ 488,263 $ 435,489 $ 379,641%ofsales 17.5% 17.0% 17.1%
Researchanddevelopment 161,230 143,760 130,525%ofsales 5.8% 5.6% 5.9%
Generalandadministrative 98,732 96,353 100,270%ofsales 3.5% 3.8% 4.5%
Amortizationofintangibleassetsandacquisition-relatedcosts 14,290 8,930 5,814%ofsales 0.5% 0.3% 0.3%
Changeinfairvalueofcontingentconsiderationforbusinessacquisition — (4,908) (8,092)%ofsales —% (0.2)% (0.4)%
Restructuringcharges(credits),net 11,302 (116) 23%ofsales 0.4% —% —%Totaloperatingexpenses $ 773,817 $ 679,508 $ 608,181
%ofsales 27.8% 26.5% 27.4%
Theincreaseintotaloperatingexpensesduringfiscalyear2019,comparedtofiscalyear2018,wasduetoincreasesinmarketingandsellingexpenses,researchanddevelopmentexpenses,restructuringcharges,amortizationofintangibleassetsfromthebusinessacquisitions,andacreditfromthechangeinfairvalueofcontingentconsiderationrecordedinfiscalyear2018forabusinessacquisitioncompletedinfiscalyear2017.
Theincreaseintotaloperatingexpensesduringfiscalyear2018,comparedtofiscalyear2017,wasduetoincreasesinmarketingandsellingexpenses,researchanddevelopmentexpenses,amortizationofintangibleassetsfromthebusinessacquisitions,andalowercreditfromthechangeinfairvalueofcontingentconsiderationforbusinessacquisition,partiallyoffsetbythedecreaseingeneralandadministrativeexpenses.
Marketing and Selling
Marketingandsellingexpensesconsistofpersonnelandrelatedoverheadcosts,corporateandproductmarketing,promotions,advertising,tradeshows,technicalsupportforcustomerexperiencesandfacilitiescosts.
Duringfiscalyear2019,marketingandsellingexpensesincreased$52.8million,comparedtofiscalyear2018.Theincreasewasprimarilyduetoanincreaseof$25.4millioninthird-partycostsincludingadvertisingandmarketingexpensestosupportournewproductsandanincreaseof$23.9millioninpersonnel-relatedcostsduetoincreasedheadcount,partlyresultingfromtheBlueMicrophonesAcquisition,andincreasedperformance-basedvariablecompensation.
Duringfiscalyear2018,marketingandsellingexpensesincreased$55.8million,comparedtofiscalyear2017.Theincreasewasprimarilyduetoanincreaseof$30.2millioninexpensesforexternaladvertisingandmarketingandanincreaseof$23.2millioninpersonnel-relatedcostsduetoincreasedheadcountduringthelasttwelvemonthstoexpandourmarketingteamtosupportourincreasedadvertisingandmarketingeffortsforourproducts,includingtheincreasedheadcountresultingfromtheASTROAcquisition.
Research and Development
Researchanddevelopmentexpensesconsistofpersonnelandrelatedoverheadcostsforcontractorsandoutsideconsultants,suppliesandmaterials,equipmentdepreciationandfacilitiescosts,allassociatedwiththedesignanddevelopmentofnewproductsandenhancementsofexistingproducts.
Duringfiscalyear2019,researchanddevelopmentexpensesincreased$17.5million,comparedtofiscalyear2018.Theincreasewasprimarilyduetoanincreaseof$9.6millioninpersonnel-relatedcostsforthedevelopment
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ofnewproductsandincreasedheadcount,partlyresultingfromtheBlueMicrophonesAcquisition,andanincreaseof$5.8millioninthird-partycosts.
Duringfiscalyear2018,researchanddevelopmentexpensesincreased$13.2million,comparedtofiscalyear2017.Theincreasewasprimarilyduetoanincreaseinhigherpersonnel-relatedcostsforthedevelopmentofnewproductsandincreasedheadcountfromtheASTROAcquisition.
General and Administrative
Generalandadministrativeexpensesconsistprimarilyofpersonnelandrelatedoverheadandfacilitiescostsforthefinance,informationsystems,executives,humanresourcesandlegalfunctions.
Duringfiscalyear2019,generalandadministrativeexpensesincreased$2.4million,comparedtofiscalyear2018.Theincreasewasprimarilyduetoanincreaseof$2.8millioninpersonnel-relatedcostsandanincreaseof$1.4millioninthird-partycostsincludingconsultingcosts,partiallyoffsetbyadecreaseof$1.9millionininfrastructurecosts.
Duringfiscalyear2018,generalandadministrativeexpensesdecreased$3.9million,comparedtofiscalyear2017.Thedecreasewasprimarilyduetoadecreaseof$6.8millioninthird-partycosts,includingmainlyconsultingcosts,partiallyoffsetbyanincreaseof$2.6millioninpersonnel-relatedcosts.
Amortization of Intangibles and Acquisition-Related Costs
Amortizationofintangiblesincludedinoperatingexpenseandacquisition-relatedcostsduringfiscalyears2019,2018and2017wereasfollows(inthousands):
Years Ended March 31,
2019 2018 2017Amortizationofintangibleassets $ 12,594 $ 7,518 $ 4,352Acquisition-relatedcosts 1,696 1,412 1,462Total $ 14,290 $ 8,930 $ 5,814
Amortizationofintangibleassetsconsistsofamortizationofacquiredintangibleassets,includingcustomerrelationshipsandtrademarksandtradenames.Acquisition-relatedcostsincludelegalexpense,duediligencecosts,andotherprofessionalcostsincurredforbusinessacquisitions.
Theincreaseinamortizationofintangibleassetsfromfiscalyear2018to2019wasprimarilyduetotheBlueMicrophonesAcquisitionandtheASTROAcquisition.Theincreaseinamortizationofintangibleassetsfromfiscalyear2018to2017wasprimarilydrivenbytheASTROAcquisition.
Change in Fair Value of Contingent Consideration for Business Acquisition
Thechangeinfairvalueofcontingentconsiderationforbusinessacquisitionduringfiscalyears2018and2017isprimarilyduetolower-than-expectedsalesofJaybirdproducts,andrevisedprojectedsalesofJaybirdproductsduringtheremainingJaybirdAcquisitionearn-outperiod,primarilydrivenbysupplyconstraints,anevolvingproductportfolioandchangesinthecompetitivetargetmarket.
InOctober2017,LogitechandthesellersofJaybirdenteredintoanagreementfully,irrevocablyandunconditionallyreleasingLogitechfromtheearn-outrightsandpaymentsinexchangefor$5.0millionincash.
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Restructuring Charges (Credits)
Thefollowingtablesummarizesrestructuring-relatedactivitiesduringfiscalyears2019,2018and2017fromcontinuingoperations(inthousands):
Restructuring - Continuing Operations
Termination
Benefits Lease Exit
Costs TotalAccrualbalanceatMarch31,2016 $ 5,907 $ 125 $ 6,032Charges,net 23 — 23Cashpayments (5,195) (125) (5,320)
AccrualbalanceatMarch31,2017 735 — 735Credits,net (116) — (116)Cashpayments (619) — (619)
AccrualbalanceatMarch31,2018 — — —Charges,net 11,302 — 11,302Cashpayments (6,913) — (6,913)
AccrualbalanceatMarch31,2019 $ 4,389 $ — $ 4,389
Duringthefirstquarteroffiscalyear2019,weimplementedarestructuringplantostreamlineandrealignouroverallorganizationalstructureandreallocateresourcestosupportlong-termgrowthopportunities.InJuly2018,theBoardofDirectorsapprovedadditionalcostsunderthisrestructuringplan,totalingpre-taxchargesofapproximately$10.0millionto$15.0million,ofwhich$11.3millionwasrecognizedduringfiscalyear2019.Thetotalchargesconsistedofcashseveranceandotherpersonnelcostsandarepresentedasrestructuringcharges(credits),netintheConsolidatedStatementsofOperations.Weexpecttohavesubstantiallycompletedthisrestructuringwithinthenextthreemonths.
Therestructuring-relatedactivitiesfortheyearsendedMarch31,2018and2017includeactivitiesfromourrestructuringplanimplementedinfiscalyear2016.
Interest Income
Interestincomeforfiscalyears2019,2018and2017wasasfollows(inthousands):
Years Ended March 31,
2019 2018 2017InterestIncome $ 8,375 $ 4,969 $ 1,452
Weinvestinhighlyliquidinstrumentswithanoriginalmaturityofthreemonthsorlessatthedateofpurchase,whichareclassifiedascashequivalents.Theincreasesininterestincomeforfiscalyears2019and2018comparedtothepriorperiodswerebothduetohigheryieldearnedonthoseinvestments.
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Other Income (Expense), Net
Otherincomeandexpenseforfiscalyears2019,2018and2017wasasfollows(inthousands):
Years Ended March 31,
2019 2018 2017Investmentincomerelatedtothedeferredcompensationplan $ 664 $ 1,386 $ 1,343Currencyexchangegain(loss),net (3,608) (4,613) 169Other 2,508 790 165Total $ (436) $ (2,437) $ 1,677
Investmentincomerelatedtothedeferredcompensationplanforfiscalyears2019,2018and2017representsearnings,gains,andlossesontradinginvestmentsrelatedtoadeferredcompensationplanofferedbyoneofoursubsidiaries.
Currencyexchangegainsorlossesrelatetobalancesdenominatedincurrenciesotherthanthefunctionalcurrencyinoursubsidiaries,aswellastothesaleofcurrencies,andtogainsorlossesrecognizedoncurrencyexchangeforwardcontracts.Wedonotspeculateincurrencypositions,butwearealerttoopportunitiestomaximizecurrencyexchangegainsandminimizecurrencyexchangelosses.
ThecomponentsofnetperiodicbenefitcostotherthantheservicecostcomponentfortheyearendedMarch31,2019areincludedintheline“Other”aboveasaresultofadoptingASU2017-07effectiveApril1,2018.Theimpacttothecomparativeperiodwasimmaterialandthereforethepriorperiodstatementsofoperationswerenotrevised.
Provision for Income Taxes
Theprovisionforincometaxesandtheeffectiveincometaxrateforfiscalyears2019,2018and2017wereasfollows(Dollarsinthousands):
Years Ended March 31,
2019 2018 2017Provisionforincometaxes $ 13,560 $ 23,723 $ 9,113Effectiveincometaxrate 5.0% 10.2% 4.2%
Thechangeintheeffectiveincometaxratebetweenfiscalyears2019and2018wasprimarilyduetothemixofincomeandlossesinthevarioustaxjurisdictionsinwhichweoperateandprovisionalincometaxaccountingimpactfromtheenactmentofH.R.1,alsoknownasthe"TaxCutsandJobsAct"(theTaxAct)intheUnitedStatesonDecember22,2017.TheTaxActpermanentlyreducedthecorporateincometaxrateintheUnitedStatesfrom35%to21%.Werecordedaprovisionalincometaxchargeof$21.7million,netofvaluationallowanceagainsttaxcredits,infiscalyear2018toremeasurethedeferredtaxeffectsat21%.Furthermore,werecognized$10.1millionand$13.4millionofexcesstaxbenefits,netofshortfalls,infiscalyear2019and2018,respectively.Inthesameperiods,thereweretaxbenefitsof$2.9millionand$8.3million,respectively,fromthereversalofuncertaintaxpositionsfromtheexpirationofstatutesoflimitations.
Thechangeintheeffectiveincometaxratebetweenfiscalyears2018and2017wasprimarilydrivenbyprovisionalimpactsinfiscalyear2018fromtheTaxActdescribedabove.Werecognized$13.4millionofexcesstaxbenefits,netofshortfalls,infiscalyear2018aftertheadoptionofASU2016-09.Furthermore,therewasataxbenefitof$8.3millioninfiscalyear2018relatedtothereversalofuncertaintaxpositionsresultingfromtheexpirationofstatutesoflimitations,comparedto$15.4millioninfiscalyear2017.
AsofMarch31,2019and2018,thetotalamountsofunrecognizedtaxbenefitsduetouncertaintaxpositionswere$76.5millionand$69.1million,respectively,allofwhichwouldaffecttheeffectiveincometaxratesifrecognized.
AsofMarch31,2019and2018,wehad$36.4millionand$35.0million,respectively,innon-currentincometaxespayable,includinginterestandpenalties,relatedtoourincometaxliabilityforuncertaintaxpositions.Werecognized$0.6million,$0.6millionand$0.7millionininterestandpenaltiesrelatedtounrecognizedtaxpositions
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inincometaxexpenseduringfiscalyears2019,2018and2017,respectively.AsofMarch31,2019and2018,wehad$2.5millionand$2.3million,respectively,ofaccruedinterestandpenaltiesrelatedtouncertaintaxpositions.
WefileSwissandforeigntaxreturns.WereceivedfinaltaxassessmentsinSwitzerlandthroughfiscalyear2017.ForotherforeignjurisdictionssuchastheUnitedStates,wearegenerallynotsubjecttotaxexaminationsforyearspriortofiscalyear2016.Weareunderexaminationandhavereceivedassessmentnoticesinforeigntaxjurisdictions.Iftheexaminationsareresolvedunfavorably,thereisapossibilitythattheymayhaveamaterialnegativeimpactonourresultsofoperations.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
AsofMarch31,2019,wehadcashandcashequivalentsof$604.5million,comparedwith$641.9millionasofMarch31,2018.Ourcashandcashequivalentsconsistofbankdemanddepositsandshort-termtimedeposits,ofwhich77%isheldinSwitzerlandand10%isheldinChina(includingHongKong).Wedonotexpecttoincuranymaterialadversetaximpact,exceptforwhathasbeenrecognized,orbesignificantlyinhibitedbyanycountryinwhichwedobusinessfromtherepatriationoffundstoSwitzerland,ourhomedomicile.
AsofMarch31,2019,ourworkingcapitalwas$632.6million,comparedwithworkingcapitalof$597.4millionasofMarch31,2018.Theincreaseinworkingcapitaloverfiscalyear2018wasprimarilyduetohigheraccountsreceivable,net,higherinventoriesandothercurrentassets,andlowerbalanceofaccountspayable,partiallyoffsetbylowerbalancesofcashandcashequivalentsandhigheraccruedandothercurrentliabilities.
Wehadseveraluncommitted,unsecuredbanklinesofcreditaggregatingto$80.6millionasofMarch31,2019.Therearenofinancialcovenantsundertheselinesofcreditwithwhichwemustcomply.AsofMarch31,2019,wehadoutstandingbankguaranteesof$34.3millionundertheselinesofcredit.
ThefollowingtablepresentsselectedfinancialinformationandstatisticsasofMarch31,2019,2018and2017(Dollarsinthousands):
March 31,
2019 2018 2017Accountsreceivable,net $ 383,309 $ 214,885 $ 185,179Accountspayable $ 283,922 $ 293,988 $ 274,805Inventories $ 293,495 $ 259,906 $ 253,401Dayssalesinaccountsreceivable(DSO)(Days)(1) 55 33 33Daysaccountspayableoutstanding(DPO)(Days)(2) 65 70 79Inventoryturnover(ITO)(x)(3) 5.3 5.9 4.9
______________________________
(1) DSOisdeterminedusingendingaccountsreceivable,netasofthemostrecentquarter-endandsalesforthemostrecentquarter.(2) DPOisdeterminedusingendingaccountspayableasofthemostrecentquarter-endandcostofgoodssoldforthemostrecentquarter.(3) ITOisdeterminedusingendinginventoriesandtheannualizedcostofgoodssold(basedoncostofgoodssoldforthemostrecentquarter).
DSOasofMarch31,2019increasedby22daysto55days,ascomparedto33daysasofMarch31,2018.TheadoptionofTopic606negativelyimpactedourDSOfortheyearendedMarch31,2019by18days,mainlyasaresultofchangesinthebalancesheetpresentationofcertainreservebalancespreviouslyshownnetwithinaccountsreceivablewhicharenowpresentedasaccruedandothercurrentliabilities.TheadoptionofTopic606didnothaveanimpactoverthetotalcashflowsfromoperating,investingorfinancingactivities.RefertoNote2totheconsolidatedfinancialstatementsforthedetailsoftheadoptionimpactofTopic606.TimingofsalesalsoincreasedDSOby4days.DSOasofMarch31,2018wasconsistentwithDSOasofMarch31,2017.
DPOasofMarch31,2019decreased5days,comparedtoMarch31,2018,primarilyduetothetimingofpurchases.DPOasofMarch31,2018decreased9days,comparedtoMarch31,2017,primarilyduetothetimingofpurchasesandpayments.
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ITOasofMarch31,2019waslowercomparedtoMarch31,2018,duetohigherinventoryrelatedtonewproductintroductionsandinventoryfromtheBlueMicrophonesAcquisition.ITOasofMarch31,2018washighercomparedtoMarch31,2017,duetohighersalesgrowth(hencehighercostofgoodssold)thaninventoryincrease.
Ifwearenotsuccessfulinlaunchingandphasinginournewproductslaunchedduringthecurrentfiscalyear,orwearenotabletosellthenewproductsatthepricesplanned,itcouldhaveamaterialimpactonourrevenue,grossprofitmargin,operatingresultsincludingoperatingcashflow,andinventoryturnoverinthefuture.
Duringfiscalyear2019,wegenerated$305.2millionincashfromoperatingactivities.Ourmainsourcesofoperatingcashflowswerefromnetincome,afteraddingbacknon-cashexpensesofdepreciation,amortization,andshare-basedcompensationexpense,andfromchangesinoperatingassetsandliabilities.Theincreaseinaccountsreceivable,netwasprimarilydrivenbygrowthandtimingofsales.Thedecreaseinaccountspayablewasprimarilydrivenbythetimingofpurchases.Theincreaseininventoriesnetofeffectofacquisitionwasprimarilydrivenbynewproductintroductions.Theincreaseinaccruedandotherliabilitieswasprimarilyduetohigheraccruedpersonnelexpensesandincreaseinwarrantyliabilities.
Netcashusedininvestingactivitieswas$173.3million,primarilydueto$133.8millionofthepurchaseprice(netofcashacquired)forbusinessacquisitions,$35.9millionofpurchasesofproperty,plant,andequipment,and$2.7millionofinvestmentsinprivatelyheldcompanies.
Netcashusedinfinancingactivitieswas$159.1million,primarilydueto$114.0millionofcashdividendspaidduringtheyear,$32.4millionofrepurchasesofourregisteredsharesand$30.8millionoftaxwithholdingsrelatedtonetsharesettlementsofrestrictedstockunits,partiallyoffsetby$18.1millioninproceedsreceivedfromthesaleofsharesuponexerciseofstockoptionsandpurchaserights.
Ourexpendituresforproperty,plantandequipmentduringfiscalyears2019,2018and2017wereprimarilyfortoolingandequipment,computerhardwareandsoftwareandleaseholdimprovements.Ourexpendituresforproperty,plantandequipmentdecreasedduringfiscalyear2019,comparedtofiscalyear2018,primarilyduetoaloweramountoftoolingpurchases.Ourexpendituresforproperty,plantandequipmentincreasedduringfiscalyear2018,comparedtofiscalyear2017,primarilyduetoahigheramountoftoolingpurchases.
Ourpaymentsforacquisitions,netofcashacquired,duringfiscalyear2019wereprimarilyfortheBlueMicrophonesAcquisition.Ourpaymentsforacquisitions,netofcashacquired,duringfiscalyear2018,wereprimarilyfortheASTROAcquisition(referto"Note3-BusinessAcquisitions"totheconsolidatedfinancialstatements).Ourpaymentsforacquisitions,netofcashacquired,duringfiscalyear2017,werefortheJaybirdAcquisitionandtheSaitekAcquisition.
Thepurchasesandsalesoftradinginvestmentsduringfiscalyears2019,2018and2017representmutualfundactivitydirectedbyparticipantsinadeferredcompensationplanofferedbyoneofoursubsidiaries.ThemutualfundsareheldbyaRabbiTrust.
Duringfiscalyear2019,therewasa$10.1millionlossofcurrencytranslationexchangerateeffectoncashandcashequivalents,comparedtoagainof$4.7millionofcurrencytranslationexchangerateeffectduringfiscalyear2018,anda$5.4millionlossofcurrencytranslationexchangerateeffectduringfiscalyear2017.Currencytranslationexchangeeffectsduringfiscalyear2019wereprimarilyduetotheweakeningofEuroandChineseRenminbiversustheU.S.Dollarby9%and7%,respectively,infiscalyear2019.Currencytranslationexchangeeffectsduringfiscalyear2018wereprimarilyduetothestrengtheningoftheEuroversustheU.S.Dollarby15%infiscalyear2018.
Cash Outlook
Ourprincipalsourcesofliquidityareourcashandcashequivalents,cashflowgeneratedfromoperationsand,toamuchlesserextent,capitalmarketsandborrowings.Ourfutureworkingcapitalrequirementsandcapitalexpendituresmayincreasetosupportinvestmentsinproductinnovationsandgrowthopportunitiesortoacquireorinvestincomplementarybusinesses,products,services,andtechnologies.
InMay2019,theBoardofDirectorsrecommendedthattheCompanypayCHF121.8million($122.4millionbasedontheexchangerateonMarch31,2019)incashdividendsforfiscalyear2019.Infiscalyear2019,wepaidacashdividendofCHF110.7million(U.S.Dollaramountof$114.0million)outofretainedearnings.Infiscalyear2018,wepaidacashdividendofCHF100.0million(U.S.Dollaramountof$104.2million)outofretainedearnings.Duringfiscalyear2017,wepaidacashdividendofCHF90.2million(U.S.Dollaramountof$93.1million)outofretainedearnings.
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InMarch2017,ourBoardofDirectorsapprovedanewsharebuybackprogram,whichauthorizesustoinvestupto$250.0milliontopurchaseourownshares,followingtheexpirationdateofthe2014sharebuybackprogram.ThenewprogramwasapprovedbytheSwissTakeoverBoardinMay2017.Althoughweenterintotradingplansforsystematicrepurchases(e.g.10b5-1tradingplans)fromtimetotime,oursharebuybackprogramprovidesuswiththeopportunitytomakeopportunisticrepurchasesduringperiodsoffavorablemarketconditionsandisexpectedtoremainineffectforaperiodofthreeyears.Sharesmayberepurchasedfromtimetotimeontheopenmarket,throughblocktradesorotherwise.Opportunisticpurchasesmaybestartedorstoppedatanytimewithoutpriornoticedependingonmarketconditionsandotherfactors.AsofMarch31,2019,theremainingamountthatmayberepurchasedundertheprogramis$187.4million.
Forovertenyears,wehavegeneratedpositivecashflowsfromouroperatingactivities,includingcashfromoperationsof$305.2million,$346.3millionand$288.4millionduringfiscalyears2019,2018,and2017,respectively.Ifwedonotgeneratesufficientoperatingcashflowstosupportouroperationsandfutureplannedcashrequirements,ouroperationscouldbeharmedandouraccesstocreditfacilitiescouldberestrictedoreliminated.However,webelievethatthetrendofourhistoricalcashflowgeneration,ourprojectionsoffutureoperationsandouravailablecashbalanceswillprovidesufficientliquiditytofundouroperationsforatleastthenext12months.
Ourothercontractualobligationsandcommitmentsthatrequirecasharedescribedinthefollowingsections.
Contractual Obligations and Commitments
ThefollowingtablesummarizesourcontractualobligationsandcommitmentsasofMarch31,2019(inthousands):
Payments Due by Period
March 31, 2019 <1 year 1-3 years 3-5 years >5 yearsInventorypurchasecommitments $ 227,609 $ 227,609 $ — $ — $ —Capitalpurchasecommitments 12,132 12,132 — — —Expectedcontributiontoemployeebenefitplan 5,456 5,456 * * *Operatingleasesobligations 39,620 11,849 17,884 6,241 3,646Total $ 284,817 $ 257,046 $ 17,884 $ 6,241 $ 3,646
*Expectedcontributiontoemployeebenefitplan:Commitmentsundertheretirementplansrelatetoexpectedcontributionstobemadetoourdefinedbenefitplansforthenextyearonly.Wefundourpensionplanssothatwemeetatleasttheminimumcontributionrequirements,asestablishedbylocalgovernment,fundingandtaxingauthorities.Expectedcontributionsandpaymentstoourdefinedbenefitpensionplansandnon-retirementpost-employmentbenefitplansbeyondoneyearareexcludedfromthecontractualobligationstablebecausetheyaredependentonnumerousfactorsthatmayresultinawiderangeofoutcomesandthusareimpracticaltoestimate.Formoreinformationonourdefinedbenefitpensionplansandnon-retirementpost-employmentbenefitplans,seeNote5totheConsolidatedFinancialStatementsinItem8,whichisincorporatedhereinbyreference.
Purchase Commitments
AsofMarch31,2019,wehavenon-cancelablepurchasecommitmentsof$227.6millionforinventorypurchasesmadeinthenormalcourseofbusinessfromoriginaldesignmanufacturers,contractmanufacturersandothersuppliers,themajorityofwhichareexpectedtobefulfilledduringthefirsttwoquartersoffiscalyear2020.Werecordedaliabilityforfirm,non-cancelable,andunhedgedinventorypurchasecommitmentsinexcessofanticipateddemandornetrealizablevalueconsistentwithourvaluationofexcessandobsoleteinventory.AsofMarch31,2019,theliabilityforthesepurchasecommitmentswas$14.1millionandisrecordedinaccruedandothercurrentliabilitiesandisnotincludedintheprecedingtable.Wehavefirmpurchasecommitmentsof$12.1millionforcapitalexpenditures,primarilyrelatedtocommitmentsfortooling,computerhardwareandleaseholdimprovements.Weexpecttocontinuemakingcapitalexpendituresinthefuturetosupportproductdevelopmentactivitiesandongoingandexpandedoperations.Althoughopenpurchasecommitmentsareconsideredenforceableandlegallybinding,thetermsgenerallyallowustheoptiontorescheduleandadjustourrequirementsbasedonbusinessneedspriortodeliveryofgoods.
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Operating Leases Obligation
Weleasefacilitiesunderoperatingleases,certainofwhichrequireustopaypropertytaxes,insuranceandmaintenancecosts.Operatingleasesforfacilitiesaregenerallyrenewableatouroptionandusuallyincludeescalationclauseslinkedtoinflation.Theremainingtermsofournon-cancelableoperatingleasesexpireinvariousyearsthrough2030.
Income Taxes Payable
AsofMarch31,2019,wehad$36.4millioninnon-currentincometaxespayable,includinginterestandpenalties,relatedtoourincometaxliabilityforuncertaintaxpositions.Atthistime,weareunabletomakeareasonablyreliableestimateofthetimingofpaymentsinindividualyearsinconnectionwiththesetaxliabilities;therefore,suchamountsarenotincludedinthecontractualobligationtableabove.
Indemnifications
Weindemnifycertainofoursuppliersandcustomersforlossesarisingfrommatterssuchasintellectualpropertydisputesandproductsafetydefects,subjecttocertainrestrictions.Thescopeoftheseindemnitiesvaries,butinsomeinstancesincludesindemnificationfordamagesandexpenses,includingreasonableattorneys'fees.AsofMarch31,2019,noamountshavebeenaccruedforindemnificationprovisions.Wedonotbelieve,basedonhistoricalexperienceandinformationcurrentlyavailable,thatitisprobablethatanymaterialamountswillberequiredtobepaidunderourindemnificationarrangements.
Wealsoindemnifyourcurrentandformerdirectorsandcertainofourcurrentandformerofficers.Certaincostsincurredforprovidingsuchindemnificationmayberecoverableundervariousinsurancepolicies.Weareunabletoreasonablyestimatethemaximumamountthatcouldbepayableunderthesearrangementsbecausetheseexposuresarenotcapped,theobligationsareconditionalinnature,andthefactsandcircumstancesinvolvedinanysituationthatmightarisearevariable.
Off-Balance Sheet Arrangements
Wedonothaveanyoff-balancesheetarrangementsthathave,orarereasonablylikelytohave,acurrentorfutureeffectonourfinancialcondition,changesinfinancialcondition,revenuesorexpenses,resultsofoperations,liquidity,capitalexpendituresorcapitalresourcesthatarematerialtoinvestors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Marketriskrepresentsthepotentialforlossduetoadversechangesinthefairvalueoffinancialinstruments.Asaglobalconcern,wefaceexposuretoadversemovementsincurrencyexchangeratesandinterestrates.Theseexposuresmaychangeovertimeasbusinesspracticesevolveandcouldhaveamaterialadverseimpactonourfinancialresults.
Currency Exchange Rates
WereportourresultsinU.S.Dollars.ChangesincurrencyexchangeratescomparedtotheU.S.Dollarcanhaveamaterialimpactonourresultswhenthefinancialstatementsofournon-U.S.subsidiariesaretranslatedintoU.S.Dollars.ThefunctionalcurrencyofouroperationsisprimarilytheU.S.Dollar.CertainoperationsusetheSwissFrancorthelocalcurrencyofthecountryastheirfunctionalcurrencies.Accordingly,unrealizedcurrencygainsorlossesresultingfromthetranslationofnetassetsorliabilitiesdenominatedinothercurrenciestotheU.S.Dollarareaccumulatedinthecumulativetranslationadjustmentcomponentofothercomprehensiveincome(loss)inshareholders'equity.
Weareexposedtocurrencyexchangerateriskaswetransactbusinessinmultiplecurrencies,includingexposurerelatedtoanticipatedsales,anticipatedpurchasesandassetsandliabilitiesdenominatedincurrenciesotherthantheU.S.Dollar.Wetransactbusinessinover30currenciesworldwide,ofwhichthemostsignificanttooperationsaretheEuro,ChineseRenminbi,AustralianDollar,TaiwaneseDollar,BritishPound,BrazilianReal,CanadianDollar,JapaneseYenandMexicanPeso.FortheyearendedMarch31,2019,approximately50%ofoursaleswereinnon-U.S.denominatedcurrencies,with25%ofoursalesdenominatedinEuro.Themixofourcostofgoodssoldandoperatingexpensesbycurrencyaresignificantlydifferentfromthemixofoursales,withalargerportiondenominatedinU.S.DollarandlessdenominatedinEuroandothercurrencies.AstrengtheningU.S.Dollar
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hasamoreunfavorableimpactonoursalesthanthefavorableimpactonouroperatingexpenses,resultinginanadverseimpactonouroperatingresults.
Weenterintocurrencyforwardandswapcontractstoreducetheshort-termeffectsofcurrencyfluctuationsoncertainreceivablesorpayablesdenominatedincurrenciesotherthanthefunctionalcurrenciesofoursubsidiaries.Theseforwardcontractsgenerallymaturewithinonemonth.Thegainsorlossesonthesecontractsarerecognizedinearningsbasedonthechangesinfairvalue.
Ifanadverse10%foreigncurrencyexchangeratechangewasappliedtototalmonetaryassetsandliabilitiesdenominatedincurrenciesotherthanthefunctionalcurrenciesatthebalancesheetdates,itwouldhaveresultedinanadverseeffectonincomebeforeincometaxesofapproximately$7.8millionand$10.0millionasofMarch31,2019and2018,respectively.TheadverseeffectasofMarch31,2019and2018isafterconsiderationoftheoffsettingeffectofapproximately$4.2millionforbothperiodsfromopenforeignexchangecontractsinplaceasofMarch31,2019and2018.
Weenterintocashflowhedgecontractstoprotectagainstexchangerateexposureofforecastedinventorypurchases.Thesehedgingcontractsmaturewithinfourmonths.Gainsandlossesinthefairvalueoftheeffectiveportionofthehedgesaredeferredasacomponentofaccumulatedothercomprehensivelossuntilthehedgedinventorypurchasesaresold,atwhichtimethegainsorlossesarereclassifiedtocostofgoodssold.
IftheU.S.dollarweakenedby10%asofMarch31,2019,theamountrecordedinaccumulatedothercomprehensiveincome(AOCI)relatedtoourforeignexchangecontractsbeforetaxeffectwouldhavebeenapproximately$4.1millionlowerasofMarch31,2019.AsofMarch31,2018,therewerenocurrencyforwardcontractsoutstandingrelatedtoforecastedinventorypurchases.ThechangeinthefairvaluerecordedinAOCIwouldbeexpectedtooffsetacorrespondingforeigncurrencychangeincostofgoodssoldwhenthehedgedinventorypurchasesaresold.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Logitech'sfinancialstatementsandsupplementarydatarequiredbythisitemaresetforthasaseparatesectionofthisAnnualReportonForm10-K.SeeItem15(a)foralistingoffinancialstatementsandsupplementarydataprovidedinthesectiontitled"FinancialStatementsandSupplementaryData."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Notapplicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
TheCompany'smanagement,withtheparticipationoftheCompany’sChiefExecutiveOfficer(CEO)andChiefFinancialOfficer(CFO),hasconductedanevaluationoftheeffectivenessofthedesignandoperationoftheCompany'sdisclosurecontrolsandprocedures(asdefinedinRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,asamended(theExchangeAct))asoftheendoftheperiodcoveredbythisAnnualReportonForm10-K(thisAnnualReport)requiredbyExchangeActRules13a-15(b)or15d-15(b).DisclosurecontrolsandproceduresaredesignedtoreasonablyassurethatinformationrequiredtobedisclosedinourreportsfiledorsubmittedundertheExchangeAct,suchasthisAnnualReportonForm10-K,isrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSecuritiesandExchangeCommission'srulesandforms.Disclosurecontrolsandproceduresarealsodesignedtoreasonablyassurethatthisinformationisaccumulatedandcommunicatedtoourmanagement,includingtheCEOandCFO,toallowtimelydecisionsregardingrequireddisclosure.Basedonthisevaluation,theCEOandCFOconcludedthat,asoftheendoftheperiodcoveredbythisAnnualReport,theCompany’sdisclosurecontrolsandprocedureswereeffectiveatareasonableassurancelevel.
TheCompanyacquiredBlueMicrophonesonAugust21,2018.ManagementexcludedfromitsevaluationoftheeffectivenessofitsinternalcontroloverfinancialreportingasofMarch31,2019theacquiredentity’sinternalcontroloverfinancialreportingassociatedwith8%oftotalassetsand2%oftotalsalesincludedintheconsolidatedfinancialstatementsasofandfortheyearendedMarch31,2019.
AttachedasexhibitstothisAnnualReportarecertificationsoftheCEOandCFO,whicharerequiredin
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accordancewithRule13a-14oftheExchangeAct.ThisControlsandProceduressectionincludestheinformationconcerningthecontrolsevaluationreferredtointhecertifications,anditshouldbereadinconjunctionwiththecertificationsforamorecompleteunderstandingofthetopicspresented.
(b) Management's Report on Internal Control over Financial Reporting
TheCompany'smanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreportingasdefinedinRules13a-15(f)and15d-15(f)undertheExchangeAct.UnderthesupervisionandwiththeparticipationoftheCompany’smanagement,includingtheCEOandCFO,theCompanyconductedanevaluationoftheeffectivenessofitsinternalcontroloverfinancialreportingbasedonthecriteriaestablishedintheInternalControl-IntegratedFramework(2013),issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Basedonthisevaluation,managementhasconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofMarch31,2019.
TheeffectivenessoftheCompany'sinternalcontroloverfinancialreportingasofMarch31,2019hasbeenauditedbyKPMGLLP,anindependentregisteredpublicaccountingfirm,asstatedinitsreport,whichappearsinItem15.
(c) Changes in Internal Control over Financial Reporting
Therewerenochangesinourinternalcontroloverfinancialreportingduringthefourthquarteroffiscalyear2019thathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
(d) Limitations on the Effectiveness of Controls
TheCompany'smanagement,includingtheCEOandCFO,doesnotexpectthattheCompany'sdisclosurecontrolsandproceduresorinternalcontroloverfinancialreportingwillpreventallerrorsandallfraud.Internalcontroloverfinancialreporting,nomatterhowwelldesignedandoperated,canprovideonlyreasonable,notabsolute,assurancethattheobjectiveswillbemet.Becauseoftheinherentlimitationsininternalcontroloverfinancialreporting,noevaluationofcontrolscanprovideabsoluteassurancethatallcontrolissuesandinstancesoffraud,ifany,withintheCompanyhavebeendetected.Theseinherentlimitationsincludetherealitiesthatjudgmentsindecisionmakingcanbefaultyandthatbreakdownscanoccurbecauseofsimpleerrorormistake.Controlscanalsobecircumventedbytheindividualactsofsomepersons,bycollusionoftwoormorepeople,orbymanagementoverrideofthecontrols.Thedesignofanysystemofcontrolsisbasedinpartoncertainassumptionsaboutthelikelihoodoffutureevents,andtherecanbenoassurancethatanydesignwillsucceedinachievingitsstatedgoalsunderallpotentialfutureconditions.Overtime,controlsmaybecomeinadequatebecauseofchangesinconditionsordeteriorationinthedegreeofcompliancewithpoliciesorprocedures.Becauseoftheinherentlimitationsinacost-effectivecontrolsystem,misstatementsduetoerrororfraudmayoccurandnotbedetected.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
InformationregardingourexecutiveofficersisincorporatedhereinbyreferencetoPartI,Item1,above.
OtherinformationrequiredbythisItemmaybefoundinthedefinitiveProxyStatementforthe2019AnnualMeetingofShareholdersandisincorporatedhereinbyreference.ThedefinitiveProxyStatementwillbefiledwiththeCommissionwithin120daysafterourfiscalyearendofMarch31,2019(theProxyStatement).
TheCompany'scodeofethicspolicyentitled,"LogitechCodeofConduct"coversmembersoftheCompany'sboardofdirectors,theprincipalexecutiveofficer,principalfinancialandaccountingofficerandotherexecutiveofficersaswellasallotheremployees.
AnyamendmentsorwaiversofthecodeofethicsformembersoftheCompany'sboardofdirectorsorexecutiveofficerswillbedisclosedintheinvestorrelationssectionoftheCompany'swebsitewithinfourbusinessdaysfollowingthedateoftheamendmentorwaiver.Duringfiscalyear2016,theCompanyupdatedandreviseditscodeofethics.ThenewcodewaspostedtotheinvestorrelationssectionoftheCompany'swebsite.
Logitech'scodeofethicsisavailableontheCompany'swebsiteatwww.logitech.com,andfornocharge,acopyoftheCompany'scodeofethicscanberequestedviathefollowingaddressorphonenumber:
LogitechInvestorRelations7700GatewayBoulevardNewark,CA94560USAMain(510)795-8500
ITEM 11. EXECUTIVE COMPENSATION
TheinformationrequiredbythisitemmaybefoundintheProxyStatementforthe2019AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
TheinformationrequiredbythisitemmaybefoundintheProxyStatementforthe2019AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
TheinformationrequiredbythisitemmaybefoundintheProxyStatementforthe2019AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
TheinformationrequiredbythisitemmaybefoundintheProxyStatementforthe2019AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) ThefollowingdocumentsarefiledaspartofthisAnnualReportonForm10-K:
1.FinancialStatementsandSupplementaryData
FinancialStatements:
ReportofIndependentRegisteredPublicAccountingFirm
ConsolidatedStatementsofOperations—YearsEndedMarch31,2019,2018and2017
ConsolidatedStatementsofComprehensiveIncome—YearsEndedMarch31,2019,2018and2017
ConsolidatedBalanceSheets—March31,2019and2018
ConsolidatedStatementsofCashFlows—YearsEndedMarch31,2019,2018and2017
ConsolidatedStatementsofChangesinShareholders'Equity—YearsEndedMarch31,2019,2018and2017
NotestoConsolidatedFinancialStatements
SupplementaryData:
UnauditedQuarterlyFinancialData
2.FinancialStatementSchedule
ScheduleII—ValuationandQualifyingAccounts
3.Exhibits
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Index to Exhibits
Incorporated by Reference
Exhibit No. Exhibit Form File No. Filing Date Exhibit
No. Filed
Herewith2.1
AgreementandPlanofMerger,datedasofNovember10,2009,asamendedbytheFirstAmendmenttoAgreementandPlanofMerger,enteredintoasofNovember16,2009,bothbyandamongLogitechInc.,AgoraAcquisitionCorporation,LifesizeCommunications,Inc.,ShareholderRepresentativeServicesLLC,asstockholderrepresentative,andU.S.BankNationalAssociation,asescrowagent.
8-K
0-29174
12/14/2009
2.1
2.2
***
SecuritiesPurchaseAgreement,datedasofApril12,2016,byandamongLogitechEuropeS.A.,JayBird,LLC,theunitholdersofJayBird,LLC,andJuddArmstrong(asthesellers'representative)
10-K
0-29174
5/23/2016
2.2
2.3
***
AssetPurchaseAgreement,datedasofJuly10,2017,byandbetweenAGAcquisitionCorporationandLogitechEuropeS.A.
10-Q
0-29174
11/1/2017
2.1
2.4
***
AmendmentNo.1toAssetPurchaseAgreement,datedasofAugust11,2017,byandbetweenAGAcquisitionCorporationandLogitechEuropeS.A.
10-Q
0-29174
11/1/2017
2.2
2.5
***
StockPurchaseAgreement,datedasofJuly30,2018,byandamongBlueMicrophonesHoldingCorporation,RiversideMicro-CapFundII,L.P.theotherstockholdersandoptionholdersofBlueMicrophonesHoldingCorporation,LogitechEuropeS.A.andLogitechInc.
10-Q
0-29174
10/25/2018
2.1
3.1
ArticlesofIncorporationofLogitechInternationalS.A.,asamended
X
3.2
OrganizationalRegulationsofLogitechInternationalS.A.,asamended
X
10.1 **
1996StockPlan,asamended
S-8
333-
100854 5/27/2003
4.2
10.2 **
LogitechInternationalS.A.2006StockIncentivePlan,asamendedandrestatedeffectiveSeptember7,2016
DEFA14A
0-29174
7/22/2016
App.A
10.3 ** LogitechInc.ManagementDeferredCompensationPlan 10-Q 0-29174 11/4/2008 10.1 10.4
**
1996EmployeeSharePurchasePlan(U.S.),asamendedandrestated
DEFA14A
0-29174
7/23/2013
App.A
10.5 **
2006EmployeeSharePurchasePlan(Non-U.S.),asamendedandrestated
DEFA14A
0-29174
7/23/2013
App.B
10.6 **
FormofDirectorandOfficerIndemnificationAgreementwithLogitechInternationalS.A.
20-F
0-29174
5/21/2003
4.1
10.7 **
FormofDirectorandOfficerIndemnificationAgreementwithLogitechInc.
20-F
0-29174
5/21/2003
4.2
10.8 **
LogitechManagementPerformanceBonusPlan,asamendedandrestated
DEFA14A
0-29174
7/23/2013
App.C
10.9 **
EmploymentagreementdatedJanuary28,2008betweenLogitechInc.andGuerrinoDeLuca
10-K
0-29174
5/30/2008
10.1
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10.10
**
Representativeformofstockoptionagreement(employees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-Q
0-29174
11/4/2009
10.2
10.11
**
2012StockInducementEquityPlan
S-8
333-
180726 4/13/2012
10.1
10.12 **
Representativeformofstockoptionagreementunderthe2012StockInducementEquityPlan
S-8
333-180726
4/13/2012
10.2
10.13
**
Representativeformofperformancestockoptionagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-Q
0-29174
2/5/2013
10.2
10.14
**
Representativeformofperformancerestrictedstockunitagreement(non-executiveemployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-Q
0-29174
2/5/2013
10.3
10.15
**
Representativeformofperformanceshareunitagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlanforgrantsstartinginApril2013
10-K
0-29174
5/30/2013
10.39
10.16
**
EmploymentAgreementbetweenLogitechInc.andBrackenDarrell,datedasofDecember18,2015
10-Q
0-29174
1/22/2016
10.1
10.17 **
EmploymentAgreementbetweenLogitechInc.andVincentPilette,datedasofDecember18,2015
10-Q
0-29174
1/22/2016
10.2
10.18 **
EmploymentAgreementbetweenLogitechInc.andL.JosephSullivan,datedasofDecember18,2015
10-Q
0-29174
1/22/2016
10.3
10.19
SeriesBPreferredStockPurchaseAgreement,datedasofDecember28,2015,byandbetweenLogitechInternationalS.A.,Lifesize,Inc.,andInvestorsassociatedwithRedpointVentures,SutterHillVenturesandMeritechCapitalPartners.
10-Q
0-29174
1/22/2016
10.5
10.20
**
Representativeformofrestrictedstockunitagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-K
0-29174
5/23/2016
10.31
10.21
**
Representativeformofperformanceshareunitagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-K
0-29174
5/23/2016
10.32
10.22
**
Representativeformofrestrictedstockunitagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-K
0-29174
5/26/2017
10.33
10.23
**
Representativeformofperformanceshareunitagreement(executivesandotheremployees)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-K
0-29174
5/26/2017
10.34
10.24
**
Representativeformofrestrictedstockunitagreement(non-employeedirectors)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-K
0-29174
5/26/2017
10.35
10.25
**
LetterAgreement,datedasofJuly22,2017,betweenLogitechEuropeS.A.andMarcelStolk
10-Q 0-29174
11/1/2017
10.1
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10.26
**
Representativeformofrestrictedstockunitagreement(non-executiveboardmembers)undertheLogitechInternationalS.A.2006StockIncentivePlan
10-Q
0-29174
10/25/2018
10.1
21.1 ListofsubsidiariesofLogitechInternationalS.A. X23.1 ConsentofIndependentRegisteredPublicAccountingFirm X24.1
PowerofAttorney(incorporatedbyreferencetothesignaturepageofthisAnnualReportonForm10-K)
X
31.1
CertificationbyChiefFinancialOfficerpursuanttosection302oftheSarbanes-OxleyActof2002
X
31.2
CertificationbyChiefExecutiveOfficerpursuanttosection302oftheSarbanes-OxleyActof2002
X
32.1
*
CertificationbyChiefExecutiveOfficerandChiefFinancialOfficerpursuanttosection906oftheSarbanes-OxleyActof2002
X
101.INS
XBRLInstanceDocument-theinstancedocumentdoesnotappearintheInteractiveDataFilebecauseitsXBRLtagsareembeddedwithintheInlineXBRLdocument
X
101.SCH XBRLTaxonomyExtensionSchemaDocument X101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument X101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument X101.LAB XBRLTaxonomyExtensionLabelLinkbaseDocument X101.PRE
XBRLTaxonomyExtensionPresentationLinkbaseDocument
X
_______________________________________________________________________________
*Thisexhibitisfurnishedherewith,butnotdeemed"filed"forpurposesofSection18oftheSecuritiesExchangeActof1934,asamended,orotherwisesubjecttoliabilityunderthatsection.SuchcertificationwillnotbedeemedtobeincorporatedbyreferenceintoanyfilingundertheSecuritiesActortheExchangeAct,excepttotheextentthatweexplicitlyincorporateitbyreference.
**Indicatesmanagementcompensatoryplan,contractorarrangement.
***ConfidentialtreatmenthasbeenrequestedforcertainprovisionsomittedfromthisexhibitpursuanttoRule406promulgatedundertheSecuritiesActof1933,asamended.TheomittedinformationhasbeenfiledseparatelywiththeSecuritiesandExchangeCommission.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theRegistranthasdulycausedthisReporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
LOGITECHINTERNATIONALS.A. /s/BRACKENDARRELL
BrackenDarrell
President and Chief Executive Officer /s/VINCENTPILETTE
VincentPilette
Chief Financial Officer May17,2019
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POWER OF ATTORNEY
KNOWALLPERSONSBYTHESEPRESENTS,thateachpersonwhosesignatureappearsbelowconstitutesandappointsBrackenDarrellandVincentPilette,jointlyandseverally,hisorherattorney-in-fact,withthepowerofsubstitution,forhimorherinanyandallcapacities,tosignanyamendmentstothisAnnualReportonForm10-Kandtofilethesame,withexhibitstheretoandotherdocumentsinconnectiontherewith,withtheSecuritiesandExchangeCommission,herebyratifyingandconfirmingallthateachofsaidattorneys-in-fact,orhisorhersubstituteorsubstitutes,maydoorcausetobedonebyvirtuehereof.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisAnnualReportonForm10-KhasbeensignedbelowbythefollowingpersonsonbehalfoftheRegistrantandinthecapacitiesandonthedatesindicated.
Signature Title Date
/s/GUERRINODELUCAGuerrinoDeLuca ChairmanoftheBoard May17,2019
/s/BRACKENDARRELLBrackenDarrell President,ChiefExecutiveOfficerandDirector May17,2019
/s/VINCENTPILETTEVincentPilette
ChiefFinancialOfficer(PrincipalFinancialOfficerandPrincipalAccountingOfficer) May17,2019
/s/PATRICKAEBISCHERPatrickAebischer Director May17,2019
/s/WENDYBECKERWendyBecker Director May17,2019
/s/EDOUARDBUGNIONEdouardBugnion Director May17,2019/s/DIDIERHIRSCH
DidierHirsch Director May17,2019/s/NEILHUNT
NeilHunt Director May17,2019/s/MARJORIELAO
MarjorieLao Director May17,2019/s/NEELAMONTGOMERY
NeelaMontgomery Director May17,2019/s/DIMITRIPANAYOTOPOULOS
DimitriPanayotopoulos Director May17,2019/s/LUNGYEHLungYeh Director May17,2019
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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PageReportofIndependentRegisteredPublicAccountingFirm 66ConsolidatedStatementsofOperations—YearsEndedMarch31,2019,2018and2017 68
ConsolidatedStatementsofComprehensiveIncome—YearsEndedMarch31,2019,2018and201769
ConsolidatedBalanceSheets—March31,2019and2018 70ConsolidatedStatementsofCashFlows—YearsEndedMarch31,2019,2018and2017 71ConsolidatedStatementsofChangesinShareholders'Equity—YearsEndedMarch31,2019,2018and2017 72NotestoConsolidatedFinancialStatements 73
INDEX TO SUPPLEMENTARY DATA UnauditedQuarterlyFinancialData 110
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Report of Independent Registered Public Accounting Firm
TotheShareholdersandBoardofDirectors
LogitechInternationalS.A.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofLogitechInternationalS.A.andsubsidiaries(“theCompany”)asofMarch31,2019and2018,therelatedconsolidatedstatementsofoperations,comprehensiveincome,changesinshareholders’equity,andcashflowsforeachoftheyearsinthethree-yearperiodendedMarch31,2019,andtherelatednotesandfinancialstatementschedule(collectively,the“consolidatedfinancialstatements”).WealsohaveauditedtheCompany’sinternalcontroloverfinancialreportingasofMarch31,2019,basedoncriteriaestablishedinInternal Control - Integrated Framework (2013) issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofMarch31,2019and2018,andtheresultsofitsoperationsanditscashflowsforeachoftheyearsinthethree-yearperiodendedMarch31,2019,inconformitywithU.S.generallyacceptedaccountingprinciples.Alsoinouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofMarch31,2019basedoncriteriaestablishedinInternal Control - Integrated Framework (2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
TheCompanyacquiredBlueMicrophoneHoldingCorporation(BlueMicrophones)onAugust21,2018.ManagementexcludedfromitsevaluationoftheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofMarch31,2019,theacquiredentity’sinternalcontroloverfinancialreportingassociatedwith8%oftotalassetsand2%oftotalsalesincludedintheconsolidatedfinancialstatementsoftheCompanyasofandfortheyearendedMarch31,2019.OurauditofinternalcontroloverfinancialreportingoftheCompanyalsoexcludedanevaluationoftheinternalcontroloverfinancialreportingofBlueMicrophones.
Change in Accounting Principle
AsdiscussedinNote2totheconsolidatedfinancialstatements,theCompanychangeditsmethodofaccountingforrevenuein2019duetotheadoptionoftheFASB’sAccountingStandardsCodification(“ASC”)Topic606,Revenue from Contracts with Customers anditsmethodofaccountingforexcesstaxbenefitsfromshare-basedpaymentsin2018duetotheadoptionofASCTopic718,Improvements to Employee Share-Based Payment Accounting .
Basis for Opinions
TheCompany’smanagementisresponsiblefortheseconsolidatedfinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’sReportonInternalControloverFinancialReportingincludedinItem9A.OurresponsibilityistoexpressanopinionontheCompany’sconsolidatedfinancialstatementsandanopinionontheCompany’sinternalcontroloverfinancialreportingbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(“PCAOB”)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud,andwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.
Ourauditsoftheconsolidatedfinancialstatementsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationof
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theconsolidatedfinancialstatements.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
Definition and Limitations of Internal Control Over Financial Reporting
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
/s/KPMGLLP
WehaveservedastheCompany’sauditorsince2015.
SantaClara,California
May17,2019
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years Ended March 31,
2019 2018 2017Netsales $ 2,788,322 $ 2,566,863 $ 2,221,427Costofgoodssold 1,737,969 1,648,744 1,395,211Amortizationofintangibleassetsandpurchaseaccountingeffectoninventory 13,342 8,878 6,175Grossprofit 1,037,011 909,241 820,041
Operatingexpenses: Marketingandselling 488,263 435,489 379,641Researchanddevelopment 161,230 143,760 130,525Generalandadministrative 98,732 96,353 100,270Amortizationofintangibleassetsandacquisition-relatedcosts 14,290 8,930 5,814Changeinfairvalueofcontingentconsiderationforbusinessacquisition — (4,908) (8,092)Restructuringcharges(credits),net 11,302 (116) 23
Totaloperatingexpenses 773,817 679,508 608,181Operatingincome 263,194 229,733 211,860Interestincome 8,375 4,969 1,452Otherincome(expense),net (436) (2,437) 1,677Incomebeforeincometaxes 271,133 232,265 214,989Provisionforincometaxes 13,560 23,723 9,113
Netincome $ 257,573 $ 208,542 $ 205,876
Netincomepershare: Basic $ 1.56 $ 1.27 $ 1.27Diluted $ 1.52 $ 1.23 $ 1.24
Weightedaveragesharesusedtocomputenetincomepershare: Basic 165,609 164,038 162,058Diluted 168,965 168,971 165,540
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended March 31,
2019 2018 2017Netincome $ 257,573 $ 208,542 $ 205,876Othercomprehensiveincome(loss): Currencytranslationgain(loss):
Currencytranslationgain(loss),netoftaxes (7,790) 5,860 (5,670)Reclassificationofcurrencytranslationlossincludedinotherincome(expense),net (510) — —
Definedbenefitplans: Netgain(loss)andpriorservicecredits(costs),netoftaxes (7,353) 3,955 14,201Reclassificationofamortizationincludedinotherincome(expense),net (181) 127 1,490
Hedginggain(loss): Deferredhedginggain(loss),netoftaxes 1,781 (8,499) 2,928Reclassificationofhedgingloss(gain)includedincostofgoodssold 1,810 5,808 (1,670)
Totalothercomprehensiveincome(loss) (12,243) 7,251 11,279Totalcomprehensiveincome $ 245,330 $ 215,793 $ 217,155
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31,
2019 2018Assets
Currentassets: Cashandcashequivalents $ 604,516 $ 641,947Accountsreceivable,net 383,309 214,885Inventories 293,495 259,906Othercurrentassets 69,116 56,362
Totalcurrentassets 1,350,436 1,173,100Non-currentassets: Property,plantandequipment,net 78,552 86,304Goodwill 343,684 275,451Otherintangibleassets,net 118,999 87,547Otherassets 132,453 120,755
Totalassets $ 2,024,124 $ 1,743,157
Liabilities and Shareholders' Equity Currentliabilities: Accountspayable $ 283,922 $ 293,988Accruedandothercurrentliabilities 433,897 281,732
Totalcurrentliabilities 717,819 575,720Non-currentliabilities: Incometaxespayable 36,384 34,956Othernon-currentliabilities 93,582 81,924
Totalliabilities 847,785 692,600Commitmentsandcontingencies(Note13) Shareholders'equity: Registeredshares,CHF0.25parvalue: 30,148 30,148
Issuedshares—173,106atMarch31,2019and2018 Additionalsharesthatmaybeissuedoutofconditionalcapitals—50,000atMarch31,2019andMarch31,2018 Additionalsharesthatmaybeissuedoutofauthorizedcapital—34,621atMarch31,2019andnoneatMarch31,2018
Additionalpaid-incapital 56,655 47,234Sharesintreasury,atcost—7,244and8,527sharesatMarch31,2019and2018,respectively (169,802) (165,686)Retainedearnings 1,365,036 1,232,316Accumulatedothercomprehensiveloss (105,698) (93,455)
Totalshareholders'equity 1,176,339 1,050,557Totalliabilitiesandshareholders'equity $ 2,024,124 $ 1,743,157
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)
Years Ended March 31, 2019 2018 2017Cash flows from operating activities: Netincome $ 257,573 $ 208,542 $ 205,876Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities: Depreciation 43,471 41,295 41,121Amortizationofintangibleassets 24,180 15,607 9,367Share-basedcompensationexpense 50,265 44,138 35,890Gainoninvestments (816) (669) (569)Deferredincometaxes (12,257) 7,141 (2,397)Changeinfairvalueofcontingentconsiderationforbusinessacquisition — (4,908) (8,092)Other (230) (11) 107Changesinassetsandliabilities,netofacquisitions: Accountsreceivable,net (58,798) (26,363) (46,553)Inventories (21,551) 16,047 (15,428)Otherassets (8,800) (16,908) (5,309)Accountspayable (19,134) 17,695 24,459Accruedandotherliabilities 51,278 44,655 49,917
Net cash provided by operating activities 305,181 346,261 288,389Cash flows from investing activities: Purchasesofproperty,plantandequipment (35,930) (39,748) (31,804)Investmentinprivatelyheldcompanies (2,717) (1,240) (960)Acquisitions,netofcashacquired (133,814) (88,323) (66,987)Proceedsfromreturnofinvestments 124 237 —Purchasesofshort-terminvestments (1,505) (6,789) —Salesofshort-terminvestments — 6,789 —Purchasesoftradinginvestments (5,203) (6,053) (7,052)Proceedsfromsalesoftradinginvestments 5,700 6,423 7,124
Net cash used in investing activities (173,345) (128,704) (99,679)Cash flows from financing activities: Paymentofcashdividends (113,971) (104,248) (93,093)Purchasesofregisteredshares (32,449) (30,722) (83,786)Paymentofcontingentconsiderationforbusinessacquisition — (5,000) —Proceedsfromexercisesofstockoptionsandpurchaserights 18,057 41,910 39,574Taxwithholdingsrelatedtonetsharesettlementsofrestrictedstockunits (30,770) (29,813) (18,412)
Net cash used in financing activities (159,133) (127,873) (155,717)Effect of exchange rate changes on cash, cash equivalents and restricted cash (10,134) 4,730 (5,370)
Net increase (decrease) in cash, cash equivalents and restricted cash (37,431) 94,414 27,623Cash, cash equivalents and restricted cash at beginning of the period 641,947 547,533 519,910
Cash, cash equivalents and restricted cash at end of the period $ 604,516 $ 641,947 $ 547,533
Supplementary Cash Flow Disclosures: Non-cashinvestingactivities: Property,plantandequipmentpurchasedduringtheperiodandincludedinperiodendliabilityaccounts $ 3,983 $ 3,869 $ 5,072
Supplemental cash flow information:
Incometaxespaid,net $ 15,312 $ 15,051 $ 11,323
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Registered shares Additionalpaid-incapital
Treasury shares Retainedearnings
Accumulatedother
comprehensiveloss
Shares Amount Shares Amount Total
March31,2016 173,106 $ 30,148 $ 6,616 10,697 $ (128,407) $ 963,576 $ (111,985) $ 759,948
Totalcomprehensiveincome — — — — — 205,876 11,279 217,155
Purchasesofregisteredshares — — — 4,027 (83,786) — — (83,786)
Taxeffectsfromshare-basedawards — — (1,251) — — — — (1,251)Saleofsharesuponexerciseofstockoptionsandpurchaserights — — 15,403 (2,513) 24,171 — — 39,574Issuanceofsharesuponvestingofrestrictedstockunits — — (30,148) (1,484) 13,985 (2,249) — (18,412)
Share-basedcompensation — — 35,976 — — — — 35,976
Cashdividends($0.57pershare) — — — — — (93,093) — (93,093)
March31,2017 173,106 $ 30,148 $ 26,596 10,727 $ (174,037) $ 1,074,110 $ (100,706) $ 856,111Cumulativeeffectofadoptionofnewaccountingstandard(Note2) — — 3,297 — — 53,912 — 57,209
Totalcomprehensiveincome — — — — 208,542 7,251 215,793
Purchasesofregisteredshares — — — 863 (30,722) — — (30,722)Saleofsharesuponexerciseofstockoptionsandpurchaserights — — 21,315 (1,527) 20,595 — — 41,910Issuanceofsharesuponvestingofrestrictedstockunits — — (48,291) (1,536) 18,478 — (29,813)
Share-basedcompensation — — 44,317 — — — 44,317
Cashdividends($0.63pershare) — — — — — (104,248) — (104,248)
March31,2018 173,106 $ 30,148 $ 47,234 8,527 $ (165,686) $ 1,232,316 $ (93,455) $ 1,050,557Cumulativeeffectofadoptionofnewaccountingstandard(Note2) — — — — — (10,882) — (10,882)
Totalcomprehensiveincome — — — — 257,573 (12,243) 245,330
Purchasesofregisteredshares — — — 808 (32,449) — — (32,449)Saleofsharesuponexerciseofstockoptionsandpurchaserights — — 10,526 (575) 7,531 — — 18,057Issuanceofsharesuponvestingofrestrictedstockunits — — (51,572) (1,516) 20,802 — (30,770)
Share-basedcompensation — — 50,467 — — — — 50,467
Cashdividends($0.69pershare) — — — — — (113,971) — (113,971)
March31,2019 173,106 $ 30,148 $ 56,655 7,244 $ (169,802) $ 1,365,036 $ (105,698) $ 1,176,339
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—The Company
LogitechInternationalS.A,togetherwithitsconsolidatedsubsidiaries(LogitechortheCompany),designs,manufacturesandmarketsproductsthathelpconnectpeopletodigitalandcloudexperiences.Morethan35yearsago,LogitechcreatedproductstoimproveexperiencesaroundthepersonalPCplatform,andtodayitisamulti-brand,multi-categorycompanydesigningproductsthatenablebetterexperiencesconsuming,sharingandcreatinganydigitalcontentsuchasmusic,gaming,videoandcomputing,whetheritisonacomputer,mobiledeviceorinthecloud.
TheCompanysellsitsproductstoabroadnetworkofdomesticandinternationalcustomers,includingdirectsalestoretailersande-tailers,andindirectsalesthroughdistributors.
LogitechwasfoundedinSwitzerlandin1981andLogitechInternationalS.A.hasbeentheparentholdingcompanyofLogitechsince1988.LogitechInternationalS.A.isaSwissholdingcompanywithitsregisteredofficeinApples,SwitzerlandandheadquartersinLausanne,Switzerland,whichconductsitsbusinessthroughsubsidiariesintheAmericas,EMEAandAsiaPacific.SharesofLogitechInternationalS.A.arelistedonboththeSIXSwissExchangeunderthetradingsymbolLOGNandtheNasdaqGlobalSelectMarketunderthetradingsymbolLOGI.
Business Acquisitions
InAugust2018,theCompanyacquiredBlueMicrophonesHoldingCorporation.Duringfiscalyear2018,theCompanyacquiredASTROGamingbusinessandanothersmalltechnologycompany.See"Note3-BusinessAcquisitions"formoreinformation.
Reference to Sales
Referencesto"sales"inthenotestotheconsolidatedfinancialstatementsmeansnetsales,exceptasotherwisespecified.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
TheconsolidatedfinancialstatementsincludetheaccountsofLogitechanditssubsidiaries.Allintercompanybalancesandtransactionshavebeeneliminated.TheconsolidatedfinancialstatementsarepresentedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates(U.S.GAAP).
Fiscal Year
TheCompany'sfiscalyearendsonMarch31.Interimquartersaregenerallythirteen-weekperiods,eachendingonaFriday.Forpurposesofpresentation,theCompanyhasindicateditsquarterlyperiodsendonthelastdayofthecalendarquarter.
Reclassification
CertainamountsfromthecomparativeperiodsintheaccompanyingconsolidatedfinancialstatementshavebeenreclassifiedtoconformtotheconsolidatedfinancialstatementpresentationasofandfortheyearendedMarch31,2019,duetotheadoptionofthenewaccountingpronouncementsduringtheyear.
Use of Estimates
ThepreparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomakejudgments,estimatesandassumptionsthataffecttheamountsreportedintheconsolidatedfinancialstatements.Managementbasesitsestimatesonhistoricalexperienceandvariousotherassumptionsbelievedtobereasonable.Significantestimatesandassumptionsmadebymanagementinvolvethefairvalueofgoodwill,intangibleassetsacquiredfrombusinessacquisitions,warrantyliabilities,accrualsforcustomerincentives,cooperativemarketing,andpricingprograms(CustomerPrograms)andrelatedbreakagewhenappropriate,salesreturnreserves,allowancefordoubtfulaccounts,inventoryvaluation,contingentconsiderationfrombusinessacquisitionsandperiodicalreassessmentofitsfairvalue,share-basedcompensationexpense,uncertaintaxpositions,andvaluationallowancesfordeferredtaxassets.Althoughtheseestimatesarebasedonmanagement’s
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bestknowledgeofcurrenteventsandactionsthatmayimpacttheCompanyinthefuture,actualresultscoulddiffermateriallyfromthoseestimates.
Currencies
ThefunctionalcurrencyoftheCompany'soperationsisprimarilytheU.S.Dollar.CertainoperationsusetheEuro,ChineseRenminbi,SwissFranc,orotherlocalcurrenciesastheirfunctionalcurrencies.ThefinancialstatementsoftheCompany'ssubsidiarieswhosefunctionalcurrencyisotherthantheU.S.DollararetranslatedtoU.S.Dollarsusingperiod-endratesofexchangeforassetsandliabilitiesandmonthlyaverageratesforsales,incomeandexpenses.Cumulativetranslationgainsandlossesareincludedasacomponentofshareholders'equityinaccumulatedothercomprehensiveloss.Gainsandlossesarisingfromtransactionsdenominatedincurrenciesotherthanasubsidiary'sfunctionalcurrencyarereportedinotherincome(expense),netintheconsolidatedstatementsofoperations.
Revenue Recognition
RevenueisrecognizedwhenacustomerobtainscontrolofpromisedgoodsorserviceinanamountthatreflectsthetransactionpricetheCompanyexpectstoreceiveinexchangeforthosegoodsorservices.
SubstantiallyallrevenuerecognizedbytheCompanyrelatestothecontractswithcustomerstosellproductsthatallowpeopletoconnect
throughmusic,gaming,video,computing,andotherdigitalplatforms.Theseproductsarehardwaredevices,whichmayincludeembeddedsoftwarethatfunctiontogether,andareconsideredasoneperformanceobligation.Hardwaredevicesaregenerallyplugandplay,requiringnoconfigurationandlittleornoinstallation.Revenueisrecognizedatapointintimewhencontroloftheproductsistransferredtothecustomerwhichgenerallyoccursuponshipment.TheCompany’ssalescontractswithitscustomershaveaoneyearorshorterterm.TheCompanyappliesthepracticalexpedientofnotdisclosingthevalueofunsatisfiedperformanceobligationsforcontractswithanoriginalexpecteddurationofoneyearorless.
TheCompanyalsoprovidespost-contractcustomersupport(“PCS”)forcertainproductsandrelatedsoftware,whichincludesunspecifiedsoftwareupdatesandupgrades,bugfixesandmaintenance.Thetransactionpriceisallocatedtotwoperformanceobligationsinsuchcontracts,basedonarelativestandalonesellingprice.ThetransactionpriceallocatedtoPCSisrecognizedasrevenueonastraight-linebasis,whichreflectsthepatternofdeliveryofPCS,overtheestimatedtermofthesupportthatisbetweenonetotwoyears.DeferredrevenueassociatedwithremainingPCSperformanceobligationasofMarch31,2019andMarch31,2018wasnotmaterial.
TheCompanynormallyrequirespaymentfromcustomerswithinthirtytosixtydaysfromtheinvoicedate.However,termsmayvarybycustomertype,bycountryandbysellingseason.Extendedpaymenttermsaresometimesofferedtoalimitednumberofcustomersduringthesecondandthirdfiscalquarters.TheCompanydoesnotmodifypaymenttermsonexistingreceivables.TheCompany'scontractswithcustomersdonotincludesignificantfinancingcomponentsastheperiodbetweenthesatisfactionofperformanceobligationsandtimingofpaymentaregenerallywithinoneyear.
ThetransactionpricereceivedbytheCompanyfromsalestoitsdistributors,retailcompanies("retailers"),andauthorizedresellersiscalculatedassellingpricenetofvariableconsiderationwhichmayincludeproductreturnsandtheCompany’spaymentsforCustomerProgramsrelatedtocurrentperiodproductrevenue.TheestimatedimpactoftheseprogramsisrecordedasareductionoftransactionpriceorasanoperatingexpenseiftheCompanyreceivesadistinctgoodorservicefromthecustomerandcanreasonablyestimatethefairvalueofthatgoodorservicereceived.CertainCustomerProgramsrequiremanagementtoestimatethepercentageofthoseprogramswhichwillnotbeclaimedorwillnotbeearnedbycustomersbasedonhistoricalexperienceandonthespecifictermsandconditionsofparticularprograms.ThepercentageoftheseCustomerProgramsthatwillnotbeclaimedorearnediscommonlyreferredtoas"breakage".TheCompanyaccountsforbreakageaspartofvariableconsideration,subjecttoconstraint,andrecordstheestimatedimpactinthesameperiodwhenrevenueisrecognizedattheexpectedvalue.Significantmanagementjudgmentsandestimatesareusedtodeterminetheimpactoftheprogramandbreakageinanyaccountingperiod.
TheCompanyentersintocooperativemarketingarrangementswithmanyofitscustomersandwithcertainindirectpartners,allowingcustomerstoreceiveacreditequaltoasetpercentageoftheirpurchasesoftheCompany'sproducts,orafixeddollaramountforvariousmarketingandincentiveprograms.TheobjectiveofthesearrangementsistoencourageadvertisingandpromotionaleventstoincreasesalesoftheCompany'sproducts.
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Customerincentiveprogramsincludeconsumerrebatesandperformance-basedincentives.ConsumerrebatesareofferedtotheCompany'scustomersandindirectpartnersattheCompany'sdiscretionfortheprimarybenefitofend-users.Inaddition,theCompanyoffersperformance-basedincentivestomanyofitscustomersandindirectpartnersbasedonpredeterminedperformancecriteria.Atmanagement'sdiscretion,theCompanyalsooffersspecialpricingdiscountstocertaincustomers.Specialpricingdiscountsareusuallyofferedonlyforlimitedtimeperiodsorforsalesofselectedproductstospecificindirectpartners.
Cooperativemarketingarrangementsandcustomerincentiveprogramsareconsideredvariableconsideration,whichtheCompanyestimatesandrecordsasareductiontorevenueatthetimeofsalebasedonnegotiatedterms,historicalexperiences,forecastedincentives,anticipatedvolumeoffuturepurchases,andinventorylevelsinthechannel.
TheCompanyhasagreementswithcertaincustomersthatcontaintermsallowingpriceprotectioncreditstobeissuedintheeventofasubsequentpricereduction.Management'sdecisiontomakepricereductionsisinfluencedbyproductlifecyclestage,marketacceptanceofproducts,thecompetitiveenvironment,newproductintroductionsandotherfactors.Accrualsforestimatedexpectedfuturepricingactionsarerecognizedatthetimeofsalebasedonanalysesofhistoricalpricingactionsbycustomerandbyproduct,inventoriesownedbyandlocatedatcustomers,currentcustomerdemand,currentoperatingconditions,andotherrelevantcustomerandproductinformation,suchasstageofproductlife-cycle.
Productreturnrightsvarybycustomer.Estimatesofexpectedfutureproductreturnsqualifyasvariableconsiderationandarerecordedasareductionofthetransactionpriceofthecontractatthetimeofsalebasedonananalysesofhistoricalreturntrendsbycustomerandbyproduct,inventoriesownedbyandlocatedatcustomers,currentcustomerdemand,currentoperatingconditions,andotherrelevantcustomerandproductinformation.TheCompanyassessestheestimatedassetforrecoveryvalueforimpairment,andadjuststhevalueoftheassetforanyimpairment.Returntrendsareinfluencedbyproductlifecyclestatus,newproductintroductions,marketacceptanceofproducts,saleslevels,productsell-through,thetypeofcustomer,seasonality,productqualityissues,competitivepressures,operationalpoliciesandprocedures,andotherfactors.ReturnratescanfluctuateovertimebutaresufficientlypredictabletoallowtheCompanytoestimateexpectedfutureproductreturns.
Typically,variableconsiderationdoesnotneedtobeconstrainedasestimatesarebasedonpredictivehistoricaldataorfuturecommitmentsthatareplannedandcontrolledbytheCompany.However,theCompanycontinuestoassessvariableconsiderationestimatessuchthatitisprobablethatasignificantreversalofrevenuewillnotoccur.
TheCompanyregularlyevaluatestheadequacyofitsestimatesforCustomerProgramsandproductreturns.FuturemarketconditionsandproducttransitionsmayrequiretheCompanytotakeactiontochangesuchprogramsandrelatedestimates.Whenthevariablesusedtoestimatethesecostschange,orifactualcostsdiffersignificantlyfromtheestimates,theCompanywouldberequiredtoincreaseorreducerevenueoroperatingexpensestoreflecttheimpact.DuringtheyearendedMarch31,2019,changestotheseestimatesrelatedtoperformanceobligationssatisfiedinpriorperiodswerenotmaterial.
Salestaxesandvalue-addedtaxes(“VAT”)collectedfromcustomers,ifapplicable,whichareremittedtogovernmentalauthoritiesarenotincludedinrevenue,andarereflectedasaliabilityontheconsolidatedbalancesheets.
Shipping and Handling Costs
TheCompany'sshippingandhandlingcostsareincludedincostofgoodssoldintheconsolidatedstatementsofoperationsforallperiodspresented.
Contract Balances
TheCompanyrecordsaccountsreceivablefromcontractswithcustomerswhenithasanunconditionalrighttoconsideration,asaccountsreceivable,netontheconsolidatedbalancesheet.
TheCompanyrecordscontractliabilitieswhencashpaymentsarereceivedordueinadvanceofperformance,primarilyforimpliedsupportandsubscriptions.Contractliabilitiesareincludedinaccruedandothercurrentliabilitiesontheconsolidatedbalancesheets.
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AsofMarch31,2019andfortheyearthenended,andasofApril1,2018,theCompanydidnothaveanymaterialcontractliabilitiesbalancesorchanges.
Contract Costs
TheCompanyrecognizestheincrementalcostsofobtainingcontractsasanexpensewhenincurrediftheamortizationperiodoftheassetsthatotherwisewouldhavebeenrecognizedisoneyearorless.Thesecostsareincludedinmarketingandsellingexpensesintheconsolidatedstatementsofoperations.AsofMarch31,2019andMarch31,2018,theCompanydidnothaveanymaterialdeferredcontractcosts.
Research and Development Costs
Costsrelatedtoresearch,designanddevelopmentofproducts,whichconsistprimarilyofpersonnel,productdesignandinfrastructureexpenses,arechargedtoresearchanddevelopmentexpenseastheyareincurred.
Advertising Costs
Advertisingcostsarerecordedaseitheramarketingandsellingexpenseoradeductionfromrevenueastheyareincurred.AdvertisingcostspaidorreimbursedbytheCompanytodirectorindirectcustomersmusthaveanidentifiablebenefitandanestimablefairvalueinordertobeclassifiedasanoperatingexpense.Ifthesecriteriaarenotmet,thepaymentisclassifiedasareductionofrevenue.Advertisingcostsrecordedasmarketingandsellingexpenseareexpensedasincurred.Totaladvertisingcostsincludingthosecharacterizedasrevenuedeductionsduringfiscalyears2019,2018and2017were$278.2million,$233.7millionand$208.7million,respectively,outofwhich$58.8million,$36.7millionand$32.2million,respectively,wereincludedasoperatingexpenseintheconsolidatedstatementsofoperations.
Cash Equivalents
TheCompanyclassifiesallhighlyliquidinstrumentspurchasedwithanoriginalmaturityofthreemonthsorlessatthedateofpurchasetobecashequivalents.Cashequivalentsarecarriedatcost,whichapproximatestheirfairvalue.
AlloftheCompany'sbanktimedepositshaveanoriginalmaturityofthreemonthsorlessandareclassifiedascashequivalentsandarerecordedatcost,whichapproximatestheirfairvalue.
Concentration of Credit Risk
FinancialinstrumentsthatpotentiallysubjecttheCompanytoconcentrationsofcreditriskconsistprincipallyofcashandcashequivalentsandaccountsreceivable.TheCompanymaintainscashandcashequivalentswithvariousfinancialinstitutionstolimitexposurewithanyonefinancialinstitution,butisexposedtocreditriskintheeventofdefaultbyfinancialinstitutionstotheextentthatcashbalanceswithindividualfinancialinstitutionsareinexcessofamountsthatareinsured.
TheCompanysellstolargedistributorsandretailersand,asaresult,maintainsindividuallysignificantreceivablebalanceswithsuchcustomers.
TheCompanyhadthefollowingcustomersthatindividuallycomprised10%ormoreofitsgrosssales:
Years Ended March 31,
2019 2018 2017CustomerA 13% 15% 15%CustomerB 14% 13% 12%
TheCompanyhadthefollowingcustomersthatindividuallycomprised10%ormoreofaccountsreceivable:
March 31,
2019 2018CustomerA 14% 15%CustomerB 15% 12%CustomerC * 11%
*Lessthan10%
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Typicalpaymenttermsrequirecustomerstopayforproductsalesgenerallywithin30to60days;however,termsmayvarybycustomertype,bycountryandbysellingseason.Extendedpaymenttermsaresometimesofferedtoalimitednumberofcustomersduringthesecondandthirdfiscalquarters.TheCompanydoesnotmodifypaymenttermsonexistingreceivables.
TheCompanymanagesitsaccountsreceivablecreditriskthroughongoingcreditevaluationofitscustomers'financialconditions.TheCompanygenerallydoesnotrequirecollateralfromitscustomers.
Allowances for Doubtful Accounts
AllowancesfordoubtfulaccountsaremaintainedforestimatedlossesresultingfromtheCompany'scustomers'inabilitytomakerequiredpayments.TheallowancesarebasedontheCompany'sregularassessmentofthecredit-worthinessandfinancialconditionofspecificcustomers,aswellasitshistoricalexperiencewithbaddebtsandcustomerdeductions,receivablesaging,currenteconomictrends,geographicorcountry-specificrisksandthefinancialconditionofitsdistributionchannels.
Inventories
Inventoriesarestatedatthelowerofcostandnetrealizablevalue.Costsarecomputedunderthestandardcostmethod,whichapproximatesactualcostsdeterminedonthefirst-in,first-outbasis.TheCompanyrecordswrite-downsofinventorieswhichareobsoleteorinexcessofanticipateddemandornetrealizablevaluebasedonaconsiderationofmarketabilityandproductlifecyclestage,productdevelopmentplans,componentcosttrends,historicalsalesanddemandforecastswhichconsidertheassumptionsaboutfuturedemandandmarketconditions.Inventoryonhandwhichisnotexpectedtobesoldorutilizedisconsideredexcess,andtheCompanyrecognizesthewrite-downincostofgoodssoldatthetimeofsuchdetermination.Thewrite-downisdeterminedbytheexcessofcostovernetrealizablevalue.Netrealizablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposalandtransportation.Atthetimeoflossrecognition,newcostbasisperunitandlower-costbasisforthatinventoryareestablishedandsubsequentchangesinfactsandcircumstanceswouldnotresultinanincreaseinthecostbasis.
AsofMarch31,2019and2018,theCompanyalsorecordedaliabilityof$14.1millionand$12.6million,respectively,arisingfromfirm,non-cancelable,andunhedgedinventorypurchasecommitmentsinexcessofanticipateddemandornetrealizablevalueconsistentwithitsvaluationofexcessandobsoleteinventory.Suchliabilityisincludedinaccruedandothercurrentliabilitiesontheconsolidatedbalancesheets.
Property, Plant and Equipment
Property,plantandequipmentarestatedatcost.Additionsandimprovementsarecapitalized,andmaintenanceandrepairsareexpensedasincurred.TheCompanycapitalizesthecostofsoftwaredevelopedforinternaluseinconnectionwithmajorprojects.Costsincurredduringthefeasibilitystageareexpensed,whereasdirectcostsincurredduringtheapplicationdevelopmentstagearecapitalized.
Depreciationexpenseisrecognizedusingthestraight-linemethod.Plantandbuildingsaredepreciatedoverestimatedusefullivesoftwenty-fiveyears,equipmentoverusefullivesfromthreetofiveyears,internal-usesoftwareoverusefullivesfromthreetosevenyears,toolingoverusefullivesfromsixmonthstooneyear,andleaseholdimprovementsoverthelesseroftheusefullifeoftheimprovementorthetermofthelease.
Whenpropertyandequipmentisretiredorotherwisedisposedof,thecostandaccumulateddepreciationarerelievedfromtheaccountsandthenetgainorlossisincludedinoperatingexpenses.
Intangible Assets
TheCompany'sintangibleassetsprincipallyincludegoodwill,acquiredtechnology,trademarks,andcustomerrelationshipsandcontracts.Intangibleassetswithfinitelives,whichincludeacquiredtechnology,trademarks,customerrelationshipsandcontracts,andothersarecarriedatcostandamortizedusingthestraight-linemethodovertheirusefullivesrangingfromfourtotenyears.Intangibleassetswithindefinitelives,whichincludeonlygoodwill,arerecordedatcostandevaluatedatleastannuallyforimpairment.
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Impairment of Long-Lived Assets
TheCompanyreviewslong-livedassets,suchaspropertyandequipment,andfinite-livedintangibleassets,forimpairmentwhenevereventsindicatethatthecarryingamountsmightnotberecoverable.Recoverabilityofpropertyandequipment,andotherfinite-livedintangibleassetismeasuredbycomparingtheprojectedundiscountednetcashflowsassociatedwiththoseassetstotheircarryingvalues.Ifanassetisconsideredimpaired,itiswrittendowntoitsfairvalue,whichisdeterminedbasedontheasset'sprojecteddiscountedcashflowsorappraisedvalue,dependingonthenatureoftheasset.Forpurposesofrecognitionofimpairmentforassetsheldforuse,theCompanygroupsassetsandliabilitiesatthelowestlevelforwhichcashflowsareseparatelyidentifiable.
Impairment of Goodwill
Goodwillrepresentstheexcessofthepurchasepriceoverthefairvalueofthenettangibleandidentifiableintangibleassetsacquiredineachbusinesscombination.TheCompanyconductsagoodwillimpairmentanalysisannuallyatDecember31ormorefrequentlyifindicatorsofimpairmentexistorifadecisionismadetosellorexitabusiness.Significantjudgmentsareinvolvedindeterminingifanindicatorofimpairmenthasoccurred.Suchindicatorsmayincludedeteriorationingeneraleconomicconditions,negativedevelopmentsinequityandcreditmarkets,adversechangesinthemarketsinwhichanentityoperates,increasesininputcoststhathaveanegativeeffectonearningsandcashflows,oratrendofnegativeordecliningcashflowsovermultipleperiods,amongothers.Thefairvaluethatcouldberealizedinanactualtransactionmaydifferfromthatusedtoevaluatetheimpairmentofgoodwill.
Inreviewinggoodwillforimpairment,theCompanyhastheoptiontofirstassessqualitativefactorstodeterminewhethertheexistenceofeventsorcircumstancesleadstoadeterminationthatitismorelikelythannot(greaterthan50%)thattheestimatedfairvalueofareportingunitislessthanitscarryingamount.FortheyearendedMarch31,2019,theCompanyelectedtoperformaqualitativeassessmentanddeterminedthatanimpairmentwasnotmorelikelythannotandnofurtheranalysiswasrequired.TheCompanyalsomayelectnottoperformthequalitativeassessmentand,instead,proceeddirectlytothequantitativeimpairmenttest.TheultimateoutcomeofthegoodwillimpairmentreviewforareportingunitshouldbethesamewhethertheCompanychoosestoperformthequalitativeassessmentorproceedsdirectlytothequantitativeimpairmenttest.
Income Taxes
TheCompanyprovidesforincometaxesusingtheassetandliabilitymethod,whichrequiresthatdeferredtaxassetsandliabilitiesberecognizedfortheexpectedfuturetaxconsequencesoftemporarydifferencesresultingfromdifferingtreatmentofitemsfortaxandfinancialreportingpurposes,andforoperatinglossesandtaxcreditcarryforwards.Inestimatingfuturetaxconsequences,expectedfutureeventsaretakenintoconsideration,withtheexceptionofpotentialtaxlawortaxratechanges.TheCompanyrecordsavaluationallowancetoreducedeferredtaxassetstoamountsmanagementbelievesaremorelikelythannottoberealized.
TheCompany'sassessmentofuncertaintaxpositionsrequiresthatmanagementmakesestimatesandjudgmentsabouttheapplicationoftaxlaw,theexpectedresolutionofuncertaintaxpositionsandothermatters.IntheeventthatuncertaintaxpositionsareresolvedforamountsdifferentthantheCompany'sestimates,ortherelatedstatutesoflimitationsexpirewithouttheassessmentofadditionalincometaxes,theCompanywillberequiredtoadjusttheamountsoftherelatedassetsandliabilitiesintheperiodinwhichsucheventsoccur.SuchadjustmentsmayhaveamaterialimpactontheCompany'sincometaxprovisionanditsresultsofoperations.
Fair Value of Financial Instruments
ThecarryingvalueofcertainoftheCompany'sfinancialinstruments,includingcashequivalents,accountsreceivableandaccountspayableapproximatestheirfairvalueduetotheirshortmaturities.
TheCompany'sinvestmentsecuritiesportfolioconsistsofbanktimedepositswithanoriginalmaturityofthreemonthsorlessandmarketablesecurities(moneymarketandmutualfunds)relatedtoadeferredcompensationplan.
TheCompany'stradinginvestmentsrelatedtothedeferredcompensationplanarereportedatfairvaluebasedonquotedmarketprices.Themarketablesecuritiesrelatedtothedeferredcompensationplanareclassifiedasnon-currenttradinginvestments,astheyareintendedtofundthedeferredcompensationplan'slong-termliability.SinceparticipantsinthedeferredcompensationplanmayselectthemutualfundsinwhichtheircompensationdeferralsareinvestedwithintheconfinesoftheRabbiTrustwhichholdsthemarketablesecurities,
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theCompanyhasdesignatedthesemarketablesecuritiesastradinginvestments,althoughthereisnointenttoactivelybuyandsellsecuritieswiththeobjectiveofgeneratingprofitsonshort-termdifferencesinmarketprices.Thesesecuritiesarerecordedatfairvaluebasedonquotedmarketprices.Earnings,gainsandlossesontradinginvestmentsareincludedinotherincome(expense),netintheconsolidatedstatementsofoperations.
TheCompanyalsoholdsnon-marketableinvestmentsinequityandothersecuritiesthatareaccountedundertheequitymethod,whichareclassifiedasotherassets.Inaddition,theCompanyhascertaininvestmentswithoutreadilydeterminablefairvaluesduetotheabsenceofquotedmarketprices,theinherentlackofliquidity,andthefactthatinputsusedtomeasurefairvalueareunobservableandrequiremanagement'sjudgment.TheCompanyelectedthemeasurementalternativetorecordtheseinvestmentsatcostandtoadjustforimpairmentsandobservablepricechangesresultingfromtransactionswiththesameissuerwithinthestatementofoperations.
Net Income per Share
Basicnetincomepershareiscomputedbydividingnetincomebytheweightedaverageoutstandingshares.Dilutednetincomepershareiscomputedusingtheweightedaverageoutstandingsharesanddilutiveshareequivalents.Dilutiveshareequivalentsconsistofshare-basedawards,includingstockoptions,purchaserightsunderemployeesharepurchaseplan,andrestrictedstockunits(RSUs).
Thedilutiveeffectofin-the-moneyshare-basedcompensationawardsiscalculatedbasedontheaveragesharepriceforeachfiscalperiodusingthetreasurystockmethod.
Share-Based Compensation Expense
Share-basedcompensationexpenseincludescompensationexpenseforshare-basedawardsgrantedbasedonthegrantdatefairvalue.ThegrantdatefairvalueforstockoptionsandstockpurchaserightsisestimatedusingtheBlack-Scholes-Mertonoption-pricingvaluationmodel.ThegrantdatefairvalueofRSUswhichvestuponmeetingcertainmarketconditionsisestimatedusingtheMonte-Carlosimulationmethod.Thegrantdatefairvalueoftime-basedandperformance-basedRSUsiscalculatedbasedonthemarketpriceonthedateofgrant,reducedbyestimateddividendsyieldpriortovesting.Withrespecttoawardswithserviceconditionsonly,compensationexpenseisrecognizedratablyoverthevestingperiodoftheawards.Forperformance-basedRSUs,theCompanyrecognizestheestimatedexpenseusingagraded-vestingmethodoverrequisiteserviceperiodsofonetothreeyearswhentheperformanceconditionisdeterminedtobeprobable.Theperformanceperiodandtheserviceperiodofthemarket-basedgrantsoftheCompanyarebothapproximatelythreeyearsandtheestimatedexpenseisrecognizedratablyovertheserviceperiod.
InMarch2016,theFASBissuedASU2016-09,"Compensation-StockCompensation(Topic718)":ImprovementstoEmployeeShare-BasedPaymentAccounting"(ASU2016-09).TheCompanyadoptedthisstandardeffectiveApril1,2017usingmodifiedretrospectiveapproach.Underthenewstandard,theCompanyaccountsforforfeituresastheyoccur.Thechangeinaccountingforforfeituresresultedinacumulative-effectadjustmenttodecreaseretainedearningsasofApril1,2017by$3.3million.TheCompanyfurtherrecognizedacumulative-effectadjustmenttoincreaseretainedearningsasofApril1,2017by$57.2millionuponadoptionofthenewguidancetoaccountforgrossexcesstaxbenefitsof$75.2millionthatwerepreviouslynotrecognizedbecausetherelatedtaxdeductionhadnotreducedcurrentincometaxes,offsetbyavaluationallowanceof$18.0milliontoreducethedeferredtaxassetstoamountsthataremorelikelythannottoberealized.
Product Warranty Accrual
AlloftheCompany'sproductsarecoveredbywarrantytobefreefromdefectsinmaterialandworkmanshipforperiodsrangingfromoneyeartofiveyears.Thewarrantyperiodvariesbyproductandbyregion.TheCompany’swarrantydoesn’tprovideaservicebeyondassuringthattheproductcomplieswithagreed-uponspecificationsandisnotsoldseparately.ThewarrantytheCompanyprovidesqualifiesasanassurancewarrantyandisnottreatedasaseparateperformanceobligation.TheCompanyestimatescostofproductwarrantiesatthetimetherelatedrevenueisrecognizedbasedonhistoricalwarrantyclaimrates,historicalcosts,andknowledgeofspecificproductfailuresthatareoutsideoftheCompany'stypicalexperience.TheCompanyaccruesawarrantyliabilityforestimatedcoststoprovideproducts,partsorservicestorepairorreplaceproductsinsatisfactionofthewarrantyobligation.Eachquarter,theCompanyreevaluatesestimatestoassesstheadequacyofrecordedwarrantyliabilities.WhentheCompanyexperienceschangesinwarrantyclaimactivityorcostsassociatedwithfulfillingthoseclaims,thewarrantyliabilityisadjustedaccordingly.Ifactualproductfailureratesorrepaircostsdifferfromestimates,revisionstotheestimatedwarrantyliabilitieswouldberequiredandcouldmateriallyaffecttheCompany'sresultsofoperations.
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Comprehensive Income (Loss)
Comprehensiveincome(loss)isdefinedasthetotalchangeinshareholders'equityduringtheperiodotherthanfromtransactionswithshareholders.Comprehensiveincome(loss)consistsofnetincome(loss)andothercomprehensiveincome(loss).Othercomprehensiveincome(loss)iscomprisedofcurrencytranslationadjustmentsfromthoseentitiesnotusingtheU.S.Dollarastheirfunctionalcurrency,netdeferredgainsandlossesandpriorservicecostsandcreditsfordefinedbenefitpensionplans,andnetdeferredgainsandlossesonhedgingactivity.
Treasury Shares
TheCompanyperiodicallyrepurchasessharesinthemarketatfairvalue.Sharesrepurchasedarerecordedatcostasareductionoftotalshareholders'equity.Treasurysharesheldmaybereissuedtosatisfytheexerciseofemployeestockoptionsandpurchaserightsandthevestingofrestrictedstockunits,ormaybecanceledwithshareholderapproval.Treasurysharesthatarereissuedareaccountedforusingthefirst-in,first-outbasis.
Derivative Financial Instruments
TheCompanyentersintoforeignexchangeforwardcontractstoreducetheshort-termeffectsofcurrencyfluctuationsoncertainforeigncurrencyreceivablesorpayablesandtohedgeagainstexposuretochangesincurrencyexchangeratesrelatedtoitssubsidiaries'forecastedinventorypurchases.
GainsandlossesforchangesinthefairvalueoftheeffectiveportionoftheCompany'sforwardcontractsrelatedtoforecastedinventorypurchasesaredeferredasacomponentofaccumulatedothercomprehensiveincome(loss)untilthehedgedinventorypurchasesaresold,atwhichtimethegainsorlossesarereclassifiedtocostofgoodssold.TheCompanypresentstheearningsimpactfromforwardpointsinthesamelineitemthatisusedtopresenttheearningsimpactofthehedgeditem,i.e.costofgoodssold,forhedgingforecastedinventorypurchases.
Gainsorlossesfromchangesinthefairvalueofforwardcontractsthatoffsettranslationlossesorgainsonforeigncurrencyreceivablesorpayablesarerecognizedimmediatelyandincludedinotherincome(expense),netintheconsolidatedstatementsofoperations.
Restructuring Charges
TheCompany'srestructuringchargesconsistofemployeeseverance,one-timeterminationbenefitsandongoingbenefitsrelatedtothereductionofitsworkforce,leaseexitcosts,andothercosts.Liabilitiesforcostsassociatedwitharestructuringactivityaremeasuredatfairvalueandarerecognizedwhentheliabilityisincurred,asopposedtowhenmanagementcommitstoarestructuringplan.One-timeterminationbenefitsareexpensedatthedatetheentitynotifiestheemployee,unlesstheemployeemustprovidefutureservice,inwhichcasethebenefitsareexpensedratablyoverthefutureserviceperiod.Ongoingbenefitsareexpensedwhenrestructuringactivitiesareprobableandthebenefitamountsareestimable.Coststoterminatealeasebeforetheendofitstermarerecognizedwhenthepropertyisvacated.Othercostsprimarilyconsistoflegal,consulting,andothercostsrelatedtoemployeeterminationsareexpensedwhenincurred.Terminationbenefitsarecalculatedbasedonregionalbenefitpracticesandlocalstatutoryrequirements.
Recent Accounting Pronouncements Adopted
InMay2014,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardUpdate(ASU)No.2014-09,"RevenuefromContractswithCustomers(Topic606)"(ASU2014-09orTopic606)whichsupersedestherevenuerecognitionrequirementsunderASC605(Topic605),RevenueRecognition.ASU2014-09outlinesanew,single,comprehensivemodelforentitiestouseinaccountingforrevenuearisingfromcontractswithcustomersandsupersedesexistingrevenuerecognitionguidance,includingindustry-specificguidance.Underthenewguidance,recognitionofrevenueoccurswhenacustomerobtainscontrolofpromisedgoodsorservicesinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Thenewstandardrequiresreportingcompaniestodisclosethenature,amount,timing,anduncertaintyofrevenueandcashflowsarisingfromcontractswithcustomers.OnApril1,2018,theCompanyadoptedthenewstandardandallrelatedamendmentsusingthemodifiedretrospectivemethodappliedtothosecontractsthatwerenotcompletedasofApril1,2018.ResultsforreportingperiodsbeginningafterApril1,2018arepresentedunderTopic606,whilepriorperiodamountsarenotadjustedandcontinuetobereportedinaccordancewithhistoricaccountingstandardsunderTopic605.
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Asaresultoftheadoptionofthenewstandard,theCompanyrecorded:a)areductiontoretainedearningsasofApril1,2018;andb)reclassificationsofcertainallowancesforsalesreturnsandcertainotherCustomerProgramsfromaccountsreceivable,nettoaccruedandothercurrentliabilitiesandothercurrentassets.
ThecumulativeeffectofthechangestotheconsolidatedbalancesheetfromtheadoptionofTopic606wasasfollows(inthousands):
As of
March 31, 2018 Effect of Adoption of
Topic 606 As of
April 1, 2018Accountsreceivable,net $ 214,885 $ 105,768 $ 320,653Othercurrentassets 56,362 6,195 62,557Accruedandothercurrentliabilities 281,732 122,845 404,577Retainedearnings 1,232,316 (10,882) 1,221,434
Net Reduction to Retained Earnings as of April 1, 2018
• UnderTopic605,accrualsforcertainCustomerProgramswererecognizedasareductionofrevenueatthelaterofwhentherelatedrevenueisrecognizedorwhentheprogramisofferedtothecustomer.UnderTopic606,theseprogramsqualifyasvariableconsiderationandarerecordedasareductionofthetransactionpriceatthecontractinceptionbasedontheexpectedvaluemethod.TheCompanyisrequiredtoestimatetheaccrualsfortheseprogramsaheadofcommitmentdateifcustomarybusinesspracticecreatesanimpliedexpectationthatsuchactivitieswilloccurinthefuture.
• UnderTopic606,variableconsiderationmustbeestimatedattheoutsetofthearrangement,subjecttotheconstraintguidancetoensurethatasignificantrevenuereversalwillnotoccur.Asaresult,uponadoptionofTopic606,estimatedbreakageforaccrualsofcertainCustomerProgramsisrecognizedsoonerascomparedtoTopic605.
Balance Sheet Reclassifications
• UnderTopic605,thegrossamountofaccruedrevenuereservesforsalesreturnsof$31.4million,netofexpectedreturnedinventoryof$11.4millionwasincludedwithinaccountsreceivable,netasofMarch31,2018.Expectedscrapcostof$5.2millionforsuchexpectedreturnedinventorywasincludedinaccruedandothercurrentliabilitiesasofMarch31,2018.SubsequenttotheadoptionofTopic606,suchbalancesarepresentedonagrossbasisasaccruedrevenuereservefromreturnsof$31.4millionincludedinaccruedandothercurrentliabilitiesandasreturnassetsof$6.2millionincludedinothercurrentassets.
• UnderTopic605,revenuereservesforcertainCustomerProgramstotaling$76.7million,whichwereestimatedusingportfolioapproachbasedonaggregatedcustomerleveldata,wereincludedwithinaccountsreceivable,netasofMarch31,2018.SubsequenttotheadoptionofTopic606,suchbalancesarepresentedasaccruedcustomermarketing,pricingandincentiveprogramsincludedinaccruedandothercurrentliabilities.
CertainbalancesofallowancesforsalesreturnandaccrualsforCustomerProgramswhichwereaccruedbasedonCustomerProgramoffersmadetoindividualcustomers,mettherightofoffsetcriteriainaccordancewithASC210-20,"BalanceSheet(Topic210)",andarestillincludedwithinaccountsreceivable,net.
TheadoptionofTopic606didnothaveanimpactonthetotalcashflowsfromoperating,investing,orfinancingactivities.
ThefollowingtablessummarizetheimpactsofadoptingTopic606ontheCompany’sconsolidatedstatementsofoperationsfortheyearendedMarch31,2019,andconsolidatedbalancesheetasofMarch31,2019(inthousands):
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Year Ended March 31, 2019
As Reported Under
Topic 606 If Reported Under Topic
605 Effect of Change
Netsales $ 2,788,322 $ 2,784,636 $ 3,686
As of March 31, 2019
As Reported Under
Topic 606 Balance Under Topic
605 Effect of Change
Accountsreceivable,net $ 383,309 $ 260,401 $ 122,908Othercurrentassets 69,116 60,449 8,667Accruedandothercurrentliabilities 433,897 295,126 138,771Retainedearnings 1,365,036 1,372,232 (7,196)
InJanuary2016,theFASBissuedASU2016-01,"FinancialInstruments-RecognitionandMeasurementofFinancialAssetsandFinancialLiabilities(Subtopic825-10)"(ASU2016-01).ASU2016-01requiresequityinvestmentsthatarenotaccountedforundertheequitymethodordonotresultinconsolidationtoberecordedatfairvalueandanychangesinfairvaluetoberecognizedwithinthestatementofoperations.TheCompanyadoptedASU2016-01effectiveApril1,2018,onaprospectivebasisforitsprivatelyheldstrategicequityinvestmentswithoutreadilydeterminablefairvalues.TheCompanyelectedthemeasurementalternativetorecordtheseinvestmentsatcostandtoadjustforimpairmentsandobservablepricechangesresultingfromtransactionswiththesameissuerwithinthestatementofoperations.TheadoptionofASU2016-01didnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.
InOctober2016,theFASBissuedASU2016-16,"IncomeTaxes(Topic740):Intra-EntityTransfersofAssetsOtherThanInventory"(ASU2016-16),whicheliminatesthedeferralofincometaxeffectsofintra-entityassettransfersuntilthetransferredassetissoldtoanunrelatedpartyorrecoveredthroughuse.However,thisstandarddoesnotapplytointra-entitytransferofinventory.TheCompanyadoptedthisstandardeffectiveApril1,2018onamodifiedretrospectivebasis,andtheadoptionofASU2016-16didnothaveamaterialimpactonitsconsolidatedfinancialstatements.
InDecember2016,theFASBissuedASU2016-18,"StatementofCashFlows(Topic230):RestrictedCash"(ASU2016-18),whichrequiresthatastatementofcashflowsexplainsthechangeduringtheperiodinthetotalofcash,cashequivalents,andamountsgenerallydescribedasrestrictedcashorrestrictedcashequivalents.TheCompanyadoptedthisstandardeffectiveApril1,2018,utilizingtheretrospectivetransitionmethodtoeachperiodpresentedandtheadoptionofASU2016-18didnothaveamaterialimpactonitsconsolidatedfinancialstatements.TheconsolidatedstatementofcashflowsfortheyearendedMarch31,2017hasbeenrevisedasaresultoftheadoptionandtheCompanyhasnorestrictedcashbalancesoractivitiessincethen.
InJanuary2017,theFASBissuedASU2017-01,"BusinessCombination(Topic805):ClarifyingtheDefinitionofaBusiness"(ASU2017-01),whichchangesthedefinitionofabusinesstoassistwithevaluatingwhenasetoftransferredassetsandactivitiesisabusiness.TheCompanyadoptedthisstandardeffectiveApril1,2018,andtheadoptionofASU2017-01didnothaveamaterialimpactonitsconsolidatedfinancialstatements.
InMarch2017,theFASBissuedASU2017-07,"Compensation-RetirementBenefit(Topic715):ImprovingthePresentationofNetPeriodicPensionCostandNetPeriodicPostretirementBenefitCost"(ASU2017-07),whichrequiresthattheCompanydisaggregatetheservicecostcomponentfromtheothercomponentsofnetbenefitcost,andalsoprovidesguidanceonhowtopresenttheservicecostcomponentandtheothercomponentsofnetbenefitcostintheincomestatementandallowonlytheservicecostcomponentofnetbenefitcosttobeeligibleforcapitalization.TheCompanyadoptedthisstandardeffectiveApril1,2018usingaretrospectiveadoptionmethod.Otherthantherevisedstatementofoperationspresentationfortheperiodsinthecurrentyear,theadoptionofASU2017-07didnothaveanimpactontheCompany’sconsolidatedfinancialstatements.Theimpacttothecomparativeperiodswasimmaterialandthereforethepriorperiodstatementsofoperationswerenotrevised.
InAugust2017,theFASBissuedASU2017-12,"DerivativesandHedging(Topic815):TargetedImprovementstoAccountingforHedgingActivities"(ASU2017-12),whichimprovesthefinancialreportingofhedgingrelationshipstobetterportraytheeconomicresultsofanentity’sriskmanagementactivitiesinitsfinancialstatementsand
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simplifiestheapplicationofthehedgeaccountingguidance.TheCompanyadoptedthisstandardprospectivelyeffectiveApril1,2018,andtheadoptionofASU2017-12didnothaveamaterialimpactonitsconsolidatedfinancialstatements.InaccordancewithASU2017-12,theCompanyhasstartedpresentingtheearningsimpactfromforwardpointsinthecostofgoodssoldlineitem,whichisusedtopresenttheearningsimpactofthehedgeditem.
Recent Accounting Pronouncements To Be Adopted
InFebruary2016,theFASBissuedASU2016-02,"Leases(Topic842)"(ASU2016-02orTopic842),whichgenerallyrequireslesseestorecognizeright-of-use(ROU)assetsandleaseliabilitiesarisingfromoperatingandfinancingleaseswithtermslongerthan12monthsintheconsolidatedbalancesheetsandandtodisclosekeyinformationaboutleasingarrangements.InJuly2018,theFASBissuedASU2018-11,"Leases(Topic842):TargetedImprovements(ASU2016-02orTopic842)",whichprovidesanalternativemodifiedtransitionmethod.Underthismethod,thecumulative-effectadjustmenttotheopeningbalanceofretainedearningsisrecognizedonthedateofadoptionwithcomparativepriorperiodsnotrestated.Thenewstandard,includingrelatedamendmentssubsequentlyissuedbytheFASB,iseffectiveforourinterimandannualperiodsbeginningApril1,2019.TheCompanywilladoptthenewguidanceinthefirstquarteroffiscalyear2020onthealternativemodifiedtransitionbasis,therebyrecognizingthecumulativeeffectofinitiallyapplyingTopic842asanadjustmenttoopeningretainedearningsontheadoptiondate,withoutrevisingthebalancesincomparativeperiods.TheCompanyplansonelectingthepackageoftransitionalpracticalexpedientsuponadoptionwhich,amongotherprovisions,allowstheCompanytonottoreassessunderthenewstandardourpriorconclusionsaboutleaseidentification,leaseclassificationandinitialdirectcost,foranyexistingleasesontheadoptiondate.Inaddition,forthefacilityleases,theCompanyintendstoelecttoaccountforleaseandnon-leasecomponentsasasingleleasecomponent.TheCompanywillalsomakeanaccountingpolicyelectionnottorecordleasesthat,attheleasecommencementdate,havealeasetermof12monthsorlessonthebalancesheet.TheCompanyhassubstantiallycompleteditsevaluationoftheeffectthattheadoptionofthisguidancewillhaveonitsconsolidatedfinancialstatements.Inconnectionwiththeadoptionofthenewguidance,theCompanyexpectstorecognizeROUassetsintherangeof$25millionto$35millionandleaseliabilitiesintherangeof$30millionto$40milliononitsstatementoffinancialpositionforoperatingleases,withlimitedimpacttoitsresultsofoperationsandcashflows.TheCompanybelievesthatsubstantiallyallofitsundiscountedfutureminimumoperatingleasecommitmentsbasedonitscurrentleaseportfoliothatwerenotrecognizedonitsconsolidatedbalancesheetasofMarch31,2019andasdisclosedinNote13totheconsolidatedfinancialstatements,willbesubjecttothenewstandard.
InAugust2018,theFASBissuedASU2018-13,"FairValueMeasurement(Topic820):DisclosureFramework-ChangestotheDisclosureRequirementsforFairValueMeasurements"(ASU2018-13),whichaimstoimprovetheoverallusefulnessofdisclosurestofinancialstatementusersandreduceunnecessarycoststocompanieswhenpreparingfairvaluemeasurementdisclosures.ASU2018-13iseffectiveforannualandinterimperiodsinfiscalyearsbeginningafterDecember15,2019.Earlyadoptionispermitted.Retrospectiveadoptionisrequired,exceptforcertaindisclosureswhichwillberequiredtobeappliedprospectivelyforonlythemostrecentinterimorannualperiodpresentedintheinitialfiscalyearofadoption.TheCompanydoesnotexpecttheadoptionofASU2018-13willhaveamaterialimpactonitsconsolidatedfinancialstatementsandwilladoptthestandardeffectiveApril1,2020.
InAugust2018,theFASBissuedASU2018-14,"Compensation-RetirementBenefits-DefinedBenefitsPlans-General(Subtopic715-20):DisclosureFramework-ChangestotheDisclosureRequirementsforDefinedBenefitPlans"(ASU2018-14),whichaimstoimprovetheoverallusefulnessofdisclosurestofinancialstatementusersandreduceunnecessarycoststocompanieswhenpreparingdefinedbenefitplandisclosures.ASU2018-14iseffectiveforannualperiodsinfiscalyearsendingafterDecember15,2020.Retrospectiveadoptionisrequiredandearlyadoptionispermitted.TheCompanydoesnotexpecttheadoptionofASU2018-14willhaveamaterialimpactonitsconsolidatedfinancialstatementsandwilladoptthestandardeffectiveApril1,2020.
InAugust2018,theFASBissuedASU2018-15,"Intangibles-GoodwillandOther-Internal-UseSoftware(Subtopic350-40):Customer'sAccountingforImplementationCostsIncurredinaCloudComputingArrangementThatIsaServiceContract"(ASU2018-15),whichclarifiesthatimplementationcostsincurredbycustomersincloudcomputingarrangementsaredeferrediftheywouldbecapitalizedbycustomersinsoftwarelicensingarrangementsundertheinternal-usesoftwareguidance.ASU2018-15iseffectiveforannualandinterimperiodsinfiscalyearsbeginningafterDecember15,2019,withearlyadoptionpermitted.Entitieshavetheoptiontoapplytheguidanceprospectivelytoallimplementationcostsincurredafterthedateofadoptionorretrospectively.TheCompanydoesnotexpecttheadoptionofASU2018-15willhaveamaterialimpactonitsconsolidatedfinancialstatementsandwilladoptthestandardprospectivelyeffectiveApril1,2019.
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Note 3—Business Acquisitions
Fiscal Year 2019 Acquisition
Blue Microphones Acquisition
OnAugust21,2018(the"BlueMicrophonesAcquisitionDate"),theCompanyacquiredallequityinterestsinBlueMicrophonesHoldingCorporation("BlueMicrophones")foratotalconsiderationof$134.8millionincash(the"BlueMicrophonesAcquisition"),whichincludedaworkingcapitaladjustmentandrepaymentofdebtonbehalfofBlueMicrophones.
BlueMicrophonesisaleadingaudiomanufacturerthatdesignsandproducesmicrophones,headphones,recordingtools,andaccessoriesforaudioprofessionals,musiciansandconsumers.TheBlueMicrophonesAcquisitionsupplementstheCompany'sproductportfolio.
BlueMicrophonesmetthedefinitionofabusiness,andthereforetheacquisitionisaccountedforusingtheacquisitionmethod.
ThefollowingtablesummarizestheestimatedfairvaluesoftheassetsacquiredandliabilitiesassumedattheBlueMicrophonesAcquisitionDate(inthousands):
Estimated Fair ValueCashandcashequivalents $ 1,110Accountsreceivable 10,979Inventories 19,546Othercurrentassets 997Property,plantandequipment 452Intangibleassets 55,567
Totalidentifiableassetsacquired $ 88,651Accountspayable (10,322)Accruedliabilities (11,162)Otherlong-termliabilities (661)
Netidentifiableassetsacquired $ 66,506Goodwill 68,269Netassetsacquired $ 134,775
GoodwillrelatedtotheacquisitionisprimarilyattributabletoopportunitiesandeconomiesofscalefromcombiningtheoperationsandtechnologiesofLogitechandBlueMicrophonesandisnotdeductiblefortaxpurposes.
Thefairvalueoftheinventoryacquiredisestimatedatitsnetrealizablevalue,whichusestheestimatedsellingprices,lessthecostofdisposalandareasonableprofitallowanceforthesellingefforts.ThedifferencebetweenthefairvalueoftheinventoriesandtheamountrecordedbyBlueMicrophonesimmediatelybeforetheacquisitiondateis$1.8million,whichhasbeenrecognizedin"amortizationofintangiblesassetsandpurchaseaccountingeffectoninventory"intheconsolidatedstatementsofoperationsuponthesaleoftheacquiredinventory.
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ThefollowingtablesummarizestheestimatedfairvaluesandestimatedusefullivesofthecomponentsofintangibleassetsacquiredasoftheBlueMicrophonesAcquisitionDate(Dollarsinthousands):
Fair Value Estimated Useful Life (years)Developedtechnology $ 17,967 5.0Customerrelationships 25,100 10.0Trademarkandtradename 12,500 7.0Totalintangibleassetsacquired $ 55,567 7.7
IntangibleassetsacquiredasaresultoftheBlueMicrophonesAcquisitionarebeingamortizedovertheirestimatedusefullivesusingthestraight-linemethodofamortization,whichmateriallyapproximatesthedistributionoftheeconomicvalueoftheintangibleassets.Amortizationofdevelopedtechnologyof$2.1millionduringtheyearendedMarch31,2019isincludedin"amortizationofintangibleassetsandpurchaseaccountingeffectofinventory"intheconsolidatedstatementsofoperations.Amortizationofcustomerrelationships,trademarkandtradenamesof$2.5millionduringtheyearendedMarch31,2019isincludedin"amortizationofintangibleassetsandacquisition-relatedcosts"intheconsolidatedstatementsofoperations.
DevelopedtechnologyrelatestoexistingBlueMicrophonesproducts.Theeconomicusefullifewasdeterminedbasedonthetechnologycyclerelatedtodevelopedtechnologyofexistingproducts,aswellasthecashflowsanticipatedovertheforecastedperiods.
CustomerrelationshipsrepresentthefairvalueoffutureprojectedrevenuethatwillbederivedfromsalesofproductstoexistingcustomersofBlueMicrophones.Theeconomicusefullifewasdeterminedbasedonhistoricalcustomerattritionratesandindustrybenchmarks.
Trademarkandtradenamerelatesto“BlueMicrophones”.Theeconomicusefullifewasdeterminedbasedontheexpectedlifeofthetradenameandthecashflowsanticipatedovertheforecastedperiods.
Thefairvaluesofdevelopedtechnologyandtradenamewereestimatedusingtherelief-from-royaltymethod,anincomeapproach(Level3),whichestimatesthecostsavingsthataccruetotheowneroftheintangibleassetsthatwouldotherwisebepayableasroyaltiesorlicensefeesonrevenuesearnedthroughtheuseoftheasset.Aroyaltyrateisappliedtotheprojectedrevenuesassociatedwiththeintangibleassetstodeterminetheamountofsavings,whichisthendiscountedtodeterminethefairvalue.Thedevelopedtechnologyandtradenamewerevaluedusingroyaltyratesof10%and3%,respectively,andbothwerediscountedatarateof11%.
Thefairvalueofcustomerrelationshipswasestimatedusingtheexcessearningsmethod,anincomeapproach(Level3),whichconvertsprojectedrevenuesandcostsintocashflows.Toreflectthefactthatcertainotherassetscontributedtothecashflowsgenerated,thereturnsforthesecontributoryassetswereremovedtoarriveatestimatedcashflowssolelyattributabletothecustomerrelationships,whichwerediscountedatarateof11%.
TheCompanybelievesthefairvalueoftheintangibleassetsrecordedaboveapproximatestheamountsamarketparticipantwouldpayfortheseintangibleassetsasoftheAcquisitionDate.
TheCompanyincludedBlueMicrophones'estimatedfairvalueofassetsacquiredandliabilitiesassumedinitsconsolidatedbalancesheetbeginningontheBlueMicrophonesAcquisitionDate.TheresultsofoperationsforBlueMicrophonessubsequenttotheacquisitiondatehavebeenincludedin,butarenotmaterialto,theCompany'sconsolidatedstatementsofoperations.FortheyearendedMarch31,2019,BlueMicrophonescontributed$45.7milliontosales,representingapproximately2%ofthesalesoftheCompany.
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Fiscal Year 2018 Acquisitions
ASTRO Acquisition
OnAugust11,2017(theASTROAcquisitionDate),theCompanyacquiredcertainassetsandliabilitiesconstitutingtheASTROGamingbusiness(ASTRO)fromAGAcquisitionCorporationforapurchasepriceof$85.0millionincash(theASTROAcquisition).ASTROisaleadingconsolegamingaccessorybrandwithahistoryofproducingaward-winningheadsetsforprofessionalgamersandenthusiasts.ASTROprovidestheCompanywithastronggrowthplatformintheconsolegamingaccessoriesmarket.
ASTROmeetsthedefinitionofabusiness,anditsacquisitionisaccountedforusingtheacquisitionmethod.ThefollowingtablesummarizestheestimatedfairvaluesoftheassetsacquiredandliabilitiesassumedattheASTROAcquisitionDate(inthousands):
Estimated Fair ValueInventories $ 10,331Property,plantandequipment 2,760Intangibleassets 52,520Otherassets 605
Totalidentifiableassetsacquired 66,216Accruedliabilities (2,982)
Netidentifiableassetsacquired 63,234Goodwill 21,766Netassetsacquired $ 85,000
GoodwillrelatedtotheacquisitionisprimarilyattributabletoopportunitiesandeconomiesofscalefromcombiningtheoperationsandtechnologiesofLogitechandASTRO.Goodwillisexpectedtobedeductiblefortaxpurposes.
Thefairvalueoftheinventoryacquiredisestimatedattheirnetrealizablevalue,whichusestheestimatedsellingprices,lessthecostsofdisposalandareasonableprofitallowanceforthesellingefforts.ThedifferencebetweenthefairvalueoftheinventoriesandtheamountrecordedbyASTROimmediatelybeforetheASTROAcquisitionDateis$0.8million,whichhasbeenrecognizedin"amortizationofintangiblesassetsandpurchaseaccountingeffectoninventory"intheconsolidatedstatementsofoperationsuponthesaleoftheacquiredinventory.
ThefollowingtablesummarizestheestimatedfairvaluesandestimatedusefullivesofthecomponentsofintangibleassetsacquiredasoftheASTROAcquisitionDate(Dollarsinthousands):
Fair Value Estimated Useful Life (years)Developedtechnology $ 12,540 4.0Customerrelationships 33,100 8.0Trademarkandtradename 6,880 6.0Totalintangibleassetsacquired $ 52,520 6.8
IntangibleassetsacquiredasaresultoftheASTROAcquisitionarebeingamortizedovertheirestimatedusefullivesusingthestraight-linemethodofamortization,whichmateriallyapproximatesthedistributionoftheeconomicvalueoftheintangibleassets.Amortizationofdevelopedtechnologyof$3.1millionand$2.0millionduringtheyearendedMarch31,2019and2018,respectively,isincludedin"amortizationofintangibleassetsandpurchaseaccountingeffectofinventory"intheconsolidatedstatementsofoperations.Amortizationofcustomerrelationshipsandtradenameof$5.3millionand$3.3millionduringtheyearendedMarch31,2019and2018,respectively,isincludedin"amortizationofintangibleassetsandacquisition-relatedcosts"intheconsolidatedstatementsofoperations.
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DevelopedtechnologyrelatestoexistingASTROgamingheadsetproducts.Theeconomicusefullifewasdeterminedbasedonthetechnologycyclerelatedtodevelopedtechnologyofexistingproducts,aswellasthecashflowsanticipatedovertheforecastedperiods.
CustomerrelationshipsrepresentthefairvalueoffutureprojectedrevenuethatwillbederivedfromsalesofproductstoexistingcustomersofASTRO.Theeconomicusefullifewasdeterminedbasedonhistoricalcustomerattritionratesandindustrybenchmarks.
Trademarkandtradenamerelatesto“ASTRO”.Theeconomicusefullifewasdeterminedbasedontheexpectedlifeofthetradenameandthecashflowsanticipatedovertheforecastedperiods.
Thefairvalueofdevelopedtechnologyandtradenamewasestimatedusingtherelief-from-royaltymethod,anincomeapproach(Level3),whichestimatesthecostsavingsthataccruetotheowneroftheintangibleassetsthatwouldotherwisebepayableasroyaltiesorlicensefeesonrevenuesearnedthroughtheuseoftheasset.Aroyaltyrateisappliedtotheprojectedrevenuesassociatedwiththeintangibleassetstodeterminetheamountofsavings,whichisthendiscountedtodeterminethefairvalue.Thedevelopedtechnologyandtradenamewerevaluedusingroyaltyratesof10%and2%,respectively,andbothwerediscountedatarateof13%.
Thefairvalueofcustomerrelationshipswasestimatedusingtheexcessearningsmethod,anincomeapproach(Level3),whichconvertsprojectedrevenuesandcostsintocashflows.Toreflectthefactthatcertainotherassetscontributedtothecashflowsgenerated,thereturnsforthesecontributoryassetswereremovedtoarriveatestimatedcashflowssolelyattributabletothecustomerrelationships,whichwerediscountedatarateof13%.
TheCompanybelievesthevalueofintangibleassetsrecordedaboveapproximatestheamountsamarketparticipantwouldpayfor,theseintangibleassetsasoftheASTROAcquisitionDate.
TheCompanyincludedASTRO'sestimatedfairvalueofassetsacquiredandliabilitiesassumedinitsconsolidatedbalancesheetsbeginningontheASTROAcquisitionDate.TheresultsofoperationsforASTROhavebeenincludedin,butarenotmaterialto,theCompany'sconsolidatedstatementsofoperationsfromtheASTROAcquisitionDate.
InNovember2017,theCompanyalsomadeasmalltechnologyacquisitionforatotalconsiderationof$5.2million,includingcashacquiredof$0.9million.
Change in fair value of contingent consideration for business acquisition
OnApril20,2016(theJaybirdAcquisitionDate),theCompanyacquiredalloftheequityinterestsofJayBird,LLC(Jaybird),aUtahlimitedliabilitycompanythatdevelopsBluetoothearbuds,activitytrackers,andaccessoriesforsportsandactivelifestyles,forapurchasepriceof$54.2millionincash,withanadditionalearn-outofupto$45.0millionbasedontheachievementofcertainnetrevenuegrowthtargetsoverapproximatelyatwoyearperiod(theJaybirdAcquisition).Ifthenetrevenuegrowthtargetswouldhavebeenmet,theCompanywouldhavepaidamaximumof$25.0millionand$20.0millioninfiscalyears2018and2019,respectively.Thefairvalueoftheearn-outasoftheJaybirdAcquisitionDatewas$18.0million.Thefairvalueofthecontingentconsiderationdecreasedby$4.9millionand$8.1millionfortheyearendedMarch31,2018and2017,respectively,resultingprimarilyfromJaybird'slower-than-expectedsalesandrevisedprojectedsalesintheremainingearn-outperiod.InOctober2017,LogitechandthesellersofJaybirdenteredintoanagreementfully,irrevocablyandunconditionallyreleasingLogitechfromtheearn-outrightsandpaymentsinexchangefor$5.0millionincash,whichwaspaidinNovember2017.
Acquisition-related costs and pro forma results of operations
TheCompanyincurredacquisition-relatedcostsofapproximately$1.7million,$1.4millionand$1.5million,inaggregate,fortheyearendedMarch31,2019, 2018and2017,respectively.Theacquisition-relatedcostsareincludedin"Amortizationofintangibleassetsandacquisition-relatedcosts"intheconsolidatedstatementsofoperations.
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Proformaresultsofoperationsforthealltheacquisitionscompletedinfiscalyear2019and2018havenotbeenpresentedbecausetheeffectsoftheseacquisitionsarenotmaterialtotheconsolidatedstatementsofoperationsindividuallyorinaggregateforeachyear.
Note 4—Net Income per Share
ThecomputationsofbasicanddilutednetincomepersharefortheCompanywereasfollows(inthousandsexceptpershareamounts):
Years Ended March 31,
2019 2018 2017Net Income $ 257,573 $ 208,542 $ 205,876
Shares used in net income per share computation: Weightedaveragesharesoutstanding-basic 165,609 164,038 162,058Effectofpotentiallydilutiveequivalentshares 3,356 4,933 3,482Weightedaveragesharesoutstanding-diluted 168,965 168,971 165,540
Net income per share: Basic $ 1.56 $ 1.27 $ 1.27Diluted $ 1.52 $ 1.23 $ 1.24
Shareequivalentsattributabletooutstandingstockoptions,restrictedstockunits("RSUs")andemployeesharepurchaserightstotaling1.8million,1.1millionand1.4millionduringfiscalyears2019,2018and2017wereexcludedfromthecalculationofdilutednetincomepersharebecausethecombinedexercisepriceandaverageunamortizedgrantdatefairvalueoftheseoptionsandESPPorvestingofRSUsweregreaterthantheaveragemarketpriceoftheCompany'ssharesduringtheperiodspresentedherein,andthereforetheirinclusionwouldhavebeenanti-dilutive.Performance-basedawardswerenotincludedbecauseallnecessaryconditionshavenotbeensatisfiedbytheendoftherespectiveperiod,andthoseshareswerenotissuableiftheendofthereportingperiodweretheendofthecontingencyperiod.
Note 5—Employee Benefit Plans
Employee Share Purchase Plans and Stock Incentive Plans
AsofMarch31,2019,theCompanyoffersthe2006EmployeeSharePurchasePlan,asamendedandrestated(Non-U.S.)(2006ESPP),the1996EmployeeSharePurchasePlan(U.S.),asamendedandrestated(1996ESPP),the2006StockIncentivePlan(2006Plan)asamendedandrestatedandthe2012StockInducementEquityPlan(2012Plan).Sharesissuedtoemployeesasaresultofpurchasesorexercisesundertheseplansaregenerallyissuedfromsharesheldintreasurystock.
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Thefollowingtablesummarizesshare-basedcompensationexpenseandtotalincometaxbenefitrecognizedforfiscalyears2019,2018and2017(inthousands):
Years Ended March 31,
2019 2018 2017Costofgoodssold $ 3,812 $ 3,733 $ 2,663Marketingandselling 20,630 17,765 14,723Researchanddevelopment 7,368 6,381 4,200Generalandadministrative 18,455 16,259 14,304Totalshare-basedcompensationexpense 50,265 44,138 35,890
Incometaxbenefit (17,091) (15,998) (8,536)Totalshare-basedcompensationexpense,netofincometaxbenefit $ 33,174 $ 28,140 $ 27,354
The income tax benefit in the respective period primarily consists of tax benefit related to the share-based compensation expense for theperiodanddirecttaxbenefitrealized,includingnetexcesstaxbenefitsrecognizedfromshare-basedawardsvestedorexercisedupontheadoptionofASU2016-09onApril1,2017.TheincometaxbenefitfortheyearendedMarch31,2018wasreducedbytheincometaxprovisionresultingfromtheremeasurementofapplicabledeferredtaxassetsandliabilitiesduetotheenactmentoftheTaxActintheUnitedStatesonDecember22,2017.See"Note7-IncomeTaxes"formoreinformation.
AsofMarch31, 2019 ,2018and2017, thebalanceof capitalizedstock-basedcompensationincludedininventorywas$0.9million,$0.7millionand$0.6million,respectively.
Thefollowingtablesummarizestotalunamortizedshare-basedcompensationexpenseandtheremainingperiodoverwhichsuchexpenseisexpectedtoberecognized,onaweighted-averagebasisbytypeofgrant(inthousands,exceptnumberofmonths):
March 31, 2019
Unamortized
Expense Remaining
MonthsESPP $ 1,515 4StockOptions 7,384 35Time-basedRSUs 65,798 33Market-basedandperformance-basedRSUs 16,277 20Totalunamortizedshare-basedcompensationexpense
$ 90,974
Underthe1996ESPPand2006ESPPplans,eligibleemployeesmaypurchasesharesatthelowerof85%ofthefairmarketvalueatthebeginningortheendofeachofferingperiod,whichisgenerallysixmonths.Subjecttocontinuedparticipationintheseplans,purchaseagreementsareautomaticallyexecutedattheendofeachofferingperiod.Anaggregateof29.0millionshareswasreservedforissuanceunderthe1996and2006ESPPplans.AsofMarch31,2019,atotalof5.4millionshareswasavailablefornewawardsundertheseplans.
The2006Planprovidesforthegranttoeligibleemployeesandnon-employeedirectorsofstockoptions,stockappreciationrights,restrictedstockandRSUs.Awardsunderthe2006Planmaybeconditionedoncontinuedemployment,thepassageoftimeorthesatisfactionofperformanceandmarketvestingcriteria.The2006Plan,asamended,hasnoexpirationdate.Allstockoptionsunderthisplanhavetermsnotexceedingtenyearsandareissuedatexercisepricesnotlessthanthefairmarketvalueonthedateofgrant.Anaggregateof30.6millionshareswasreservedforissuanceunderthe2006Plan.AsofMarch31,2019,atotalof9.2millionshareswasavailablefornewawardsunderthisplan.
Time-basedRSUsgrantedtoemployeesunderthe2006Plangenerallyvestinfourequalannualinstallmentsonthegrantdateanniversary.Time-basedRSUsgrantedtonon-executiveboardmembersunderthe2006Planvestonthegrantdateanniversary,orifearlierandonlyifthenon-executiveboardmemberisnotre-electedasadirectoratsuchannualgeneralmeeting,thedateofthenextannualgeneralmeetingfollowingthegrantdate.
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Performance-basedRSUsgrantedinfiscalyears2016and2017underthe2006Planvestcontingentupontheachievementofpredeterminedfinancialmetrics,theperformanceperiodofwhichisapproximatelythreeyears.Theperformanceconditioncanbeachievedbeforetheendoftheperformanceperiod.Market-basedoptionsgrantedunderthe2006PlanvestuponmeetingtheCompany'ssharepriceperformancecriteria.Thenumberofsharesofcommonstocktobereceivedatvestingformarket-basedRSUsgrantedinfiscalyears2016and2017underthe2006Planwillrangefrom0percentto150percentofthetargetnumberofstockunitsbasedontheCompany'stotalstockholderreturn(TSR)relativetotheperformanceofcompaniesintheNASDAQ-100Indexforeachmeasurementperiod,generallyoverathree-yearperiod.Infiscalyears2018and2019,theCompanygrantedRSUswithbothperformanceandmarketconditions,whichvestattheendofthethree-yearperformanceperioduponmeetingpredeterminedfinancialmetricsoverthreeyears,withthenumberofsharestobereceiveduponvestingdeterminedbasedonweightedaverageconstantcurrencyrevenuegrowthrateandtheCompany'sTSRrelativetotheperformanceofcompaniesintheNASDAQ-100Indexoverthesamethreeyearsperiod.TheCompanypresentssharesgrantedandvestedat100percentofthetargetofthenumberofstockunitsthatmaypotentiallyvest.
Underthe2012Plan,stockoptionsandRSUsmaybegrantedtoeligibleemployeestoserveasaninducementtoenterintoemploymentwiththeCompany.Awardsunderthe2012Planmaybeconditionedoncontinuedemployment,thepassageoftimeorthesatisfactionofmarketstockperformancecriteria,basedonindividuallywrittenemploymentofferletter.The2012PlanhasanexpirationdateofMarch28,2022.Anaggregateof1.8millionshareswasreservedforissuanceunderthe2012Plan.AsofMarch31,2019,noshareswereavailablefornewawardsunderthisplan.
Theestimatesofshare-basedcompensationexpenserequireanumberofcomplexandsubjectiveassumptionsincludingstockpricevolatility,employeeexercisepatterns,probabilityofachievementofthesetperformancecondition,dividendyield,relatedtaxeffectsandtheselectionofanappropriatefairvaluemodel.
ThegrantdatefairvalueoftheawardsusingtheBlack-Scholes-Mertonoption-pricingvaluationmodelandMonte-Carlosimulationmethodisdeterminedwiththefollowingassumptionsandvalues:
Stock Options Employee Stock Purchase Plans Years Ended March 31, Years Ended March 31,
2019 2018 2017 2019 2018 2017Dividendyield 1.72% * * 1.73% 1.67% 2.50%Risk-freeinterestrate 2.45% * * 2.35% 1.37% 0.51%Expectedvolatility 33% * * 31% 27% 35%Expectedlife(years) 6.2 * * 0.5 0.5 0.5Weightedaveragegrantdatefairvaluepershare $ 11.55 * * $ 9.33 $ 8.69 $ 5.73
*Notapplicableasnostockoptionsweregrantedintheperiod.
RSUs with Market Conditions Years Ended March 31,
2019 2018 2017Dividendyield 1.59% 1.75% 3.29%Risk-freeinterestrate 2.51% 1.40% 0.86%Expectedvolatility 30% 31% 34%Expectedlife(years) 3.0 3.0 3.0
ThedividendyieldassumptionisbasedontheCompany'shistoryandfutureexpectationsofdividendpayouts.TheunvestedRSUsorunexercisedoptionsarenoteligibleforthesedividends.Theexpectedlifeisbasedonthepurchaseofferingsperiodsexpectedtoremainoutstandingforemployeestockpurchaseplan,ortheperformanceperiodforRSUswithmarketconditions.Theexpectedlifeforstockoptionsisbasedonhistoricalsettlementrates,whichtheCompanybelievesaremostrepresentativeoffutureexerciseandpost-vestingterminationbehaviors.ExpectedvolatilityisbasedonhistoricalvolatilityusingtheCompany'sdailyclosingprices,orincludingthevolatilityofcomponentsoftheNASDAQ100indexformarket-basedRSUs,overtheexpectedlife.TheCompanyconsidersthehistoricalpricevolatilityofitssharesasmostrepresentativeoffuturevolatility.Therisk-freeinterestrate
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assumptionsarebasedupontheimpliedyieldofU.S.Treasuryzero-couponissuesappropriatefortheexpectedlifeoftheCompany'sshare-basedawards.
ForRSUswithperformanceconditions,theCompanyestimatestheprobabilityandtimingoftheachievementofthesetperformanceconditionatthetimeofthegrantbasedonthehistoricalfinancialperformanceandthefinancialforecastintheremainingperformanceperiodandreassessestheprobabilityinsubsequentperiodswhenactualresultsornewinformationbecomeavailable.
AsummaryoftheCompany'sstockoptionactivitiesunderallstockplansforfiscalyears2019,2018and2017isasfollows:
Number of Shares Weighted-Average
Exercise Price
Weighted-AverageRemaining Contractual
Term
Aggregate IntrinsicValue
(In thousands) (Years) (In thousands)Outstanding,March31,2016 5,334 Granted — Exercised (1,784) $ 14,627Canceledorexpired (500)
Outstanding,March31,2017 3,050 Granted — Exercised (994) $ 8,347Canceledorexpired (16)
Outstanding,March31,2018 2,040 $ 14 Granted 649 $ 39 Exercised (82) $ 21 $ 1,707Canceledorexpired —
Outstanding,March31,2019 2,607 $ 20 4.8 $ 51,005Vestedandexercisable,March31,2019 1,958 $ 13 3.1 $ 50,593
AsofMarch31,2019,theexercisepriceofoutstandingoptionsrangedfrom$2to$39pershareoption.
Thetaxbenefitrealizedforthetaxdeductionfromoptionsexercisedduringfiscalyears2019,2018and2017was$0.2million,$1.8millionand$4.2million,respectively.
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AsummaryoftheCompany'stime-based,market-based,andperformance-basedRSUactivitiesforfiscalyears2019,2018and2017isasfollows:
Number of Shares
Weighted-AverageGrant Date Fair
Value
Weighted-AverageRemaining Vesting
Period AggregateFair Value
(In thousands) (Years) (In thousands)Outstanding,March31,2016 5,521 Granted—time-based 2,390 $ 16 Granted—market-based 160 $ 15 Granted-performance-based 604 $ 15 Vested (2,126) $ 48,644Canceledorexpired (368)
Outstanding,March31,2017 6,181 $ 14 Granted—time-based 1,212 $ 33 Granted-performance-based 409 $ 33 Vested (2,248) $ 81,582Canceledorexpired (333)
Outstanding,March31,2018 5,221 $ 20 Granted—time-based 1,290 $ 40 Granted—marketandperformance-based 381 $ 39 Vested (2,148) $ 17 $ 89,159Canceledorexpired (323) $ 26 Outstanding,March31,2019 4,421 $ 29 1.2 $ 173,970
TheRSUoutstandingasofMarch31,2019aboveincludes1.1millionshareswithmarket-basedandperformance-basedvestingconditions.
ThetaxbenefitrealizedforthetaxdeductionfromRSUsthatvestedduringfiscalyears2019,2018and2017was$16.2million,$20.3millionand$13.1million,respectively.
Defined Contribution Plans
CertainoftheCompany'ssubsidiarieshavedefinedcontributionemployeebenefitplanscoveringalloraportionoftheiremployees.Contributionstotheseplansarediscretionaryforcertainplansandarebasedonspecifiedorstatutoryrequirementsforothers.Thechargestoexpensefortheseplansforfiscalyears2019,2018and2017,were$8.7million,$7.6millionand$5.8million,respectively.
Defined Benefit Plans
CertainoftheCompany'ssubsidiariessponsordefinedbenefitpensionplansornon-retirementpost-employmentbenefitscoveringsubstantiallyalloftheiremployees.Benefitsareprovidedbasedonemployees'yearsofserviceandearnings,orinaccordancewithapplicableemployeebenefitregulations.TheCompany'spracticeistofundamountssufficienttomeettherequirementssetforthintheapplicableemployeebenefitandtaxregulations.
TheCompanyrecognizestheoverfundedorunderfundedstatusofdefinedbenefitpensionplansandnon-retirementpost-employmentbenefitobligationsasanassetorliabilityinitsconsolidatedbalancesheetsandrecognizeschangesinthefundedstatusofdefinedbenefitpensionplansintheyearinwhichthechangesoccurthroughaccumulatedothercomprehensiveincome(loss),whichisacomponentofshareholders'equity.Eachplan'sassetsandbenefitobligationsareremeasuredasofMarch31eachyear.
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Thenetperiodicbenefitcostofthedefinedbenefitpensionplansandthenon-retirementpost-employmentbenefitobligationsforfiscalyears2019,2018and2017wasasfollows(inthousands):
Years Ended March 31,
2019 2018 2017Servicecosts $ 10,564 $ 9,715 $ 10,385Interestcosts 1,301 1,126 800Expectedreturnonplanassets (2,167) (1,792) (1,724)Amortization: Nettransitionobligation — — 4
Netpriorservicecreditrecognized (443) (51) (117)Netactuariallossrecognized 450 242 1,032Settlement (97) — —
Totalnetperiodicbenefitcost $ 9,608 $ 9,240 $ 10,380
Thecomponentsofnetperiodicbenefitcostotherthantheservicecostscomponentareincludedintheline“otherincome(expense),net”intheconsolidatedstatementsofoperations.
Thechangesinprojectedbenefitobligationsforfiscalyears2019and2018wereasfollows(inthousands):
Years Ended March 31,
2019 2018Projectedbenefitobligations,beginningoftheyear $ 128,915 $ 114,640Servicecosts 10,564 9,715Interestcosts 1,301 1,126Planparticipantcontributions 3,666 3,522Actuarialgains(losses) 9,506 (1,580)Benefitspaid (3,793) (1,202)Planamendmentrelatedtostatutorychange (705) (2,519)Settlementandcurtailment (335) —Administrativeexpensepaid (142) (144)Currencyexchangeratechangesandother (5,315) 5,357
Projectedbenefitobligations,endoftheyear $ 143,662 $ 128,915
TheaccumulatedbenefitobligationforalldefinedbenefitpensionplansasofMarch31,2019and2018was$118.7millionand$108.9million,respectively.
Thefollowingtablepresentsthechangesinthefairvalueofdefinedbenefitpensionplanassetsforfiscalyears2019and2018(inthousands):
Years Ended March 31,
2019 2018Fairvalueofplanassets,beginningoftheyear $ 84,718 $ 71,376Actualreturnonplanassets 3,350 1,824Employercontributions 6,383 5,995Planparticipantcontributions 3,666 3,522Benefitspaid (3,793) (1,202)Settlementandcurtailment (335) —Administrativeexpensespaid (142) (144)Currencyexchangeratechanges (3,482) 3,347Fairvalueofplanassets,endoftheyear $ 90,365 $ 84,718
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TheCompany'sinvestmentobjectivesaretoensurethattheassetsofitsdefinedbenefitplansareinvestedtoprovideanoptimalrateofinvestmentreturnonthetotalinvestmentportfolio,consistentwiththeassumptionofareasonablerisklevel,andtoensurethatpensionfundsareavailabletomeettheplans'benefitobligationsastheybecomedue.TheCompanybelievesthatawell-diversifiedinvestmentportfoliowillresultinthehighestattainableinvestmentreturnwithanacceptablelevelofoverallrisk.Investmentstrategiesandallocationdecisionsarealsogovernedbyapplicablegovernmentalregulatoryagencies.TheCompany'sinvestmentstrategywithrespecttoitslargestdefinedbenefitplan,whichisavailableonlytoSwissemployees,istoinvestperthefollowingallocation:33%inequities,34%inbonds,28%inrealestate,2%incashandcashequivalentsandtheremaininginotherinvestments.TheCompanyalsocaninvestinrealestatefunds,commodityfunds,andhedgefundsdependinguponeconomicconditions.
ThefollowingtablespresentthefairvalueofthedefinedbenefitpensionplanassetsbymajorcategoriesandbylevelswithinthefairvaluehierarchyasofMarch31,2019and2018(inthousands):
March 31,
2019 2018
Level 1 Level 2 Total Level 1 Level 2 TotalCashandcashequivalents $ 10,737 $ — $ 10,737 $ 18,331 $ 24 $ 18,355Equitysecurities 27,559 — 27,559 26,204 — 26,204Debtsecurities 26,823 — 26,823 25,150 — 25,150Swissrealestatefunds 21,659 — 21,659 12,096 — 12,096Hedgefunds — 912 912 — — —Other 2,377 298 2,675 2,623 290 2,913Totalfairvalueofplanassets
$ 89,155 $ 1,210 $ 90,365 $ 84,404 $ 314 $ 84,718
Thefundedstatusoftheplanswasasfollows(inthousands):
Years Ended March 31, 2019 2018Fairvalueofplanassets $ 90,365 $ 84,718Less:projectedbenefitobligations 143,662 128,915Underfundedstatus $ (53,297) $ (44,197)
Amountsrecognizedonthebalancesheetfortheplanswereasfollows(inthousands):
March 31,
2019 2018Currentliabilities $ 1,849 $ 1,763Non-currentliabilities 51,448 42,434Totalliabilities $ 53,297 $ 44,197
Amountsrecognizedinaccumulatedothercomprehensivelossrelatedtodefinedbenefitpensionplanswereasfollows(inthousands):
March 31,
2019 2018 2017Netpriorservicecredits $ 3,965 $ 3,843 $ 1,274Netactuarialloss (17,630) (9,821) (11,407)Accumulatedothercomprehensiveloss (13,665) (5,978) (10,133)
Deferredtax (267) (420) (347)Accumulatedothercomprehensiveloss,netoftax $ (13,932) $ (6,398) $ (10,480)
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ThefollowingtablepresentstheamountsincludedinaccumulatedothercomprehensivelossasofMarch31,2019,whichareexpectedtoberecognizedasacomponentofnetperiodicbenefitcostinfiscalyear2020(inthousands):
Year Ending
March 31, 2020Amortizationofnetpriorservicecredits $ (432)Amortizationofnetactuarialloss 645 $ 213
TheCompanyreassessesitsbenefitplanassumptionsonaregularbasis.Theactuarialassumptionsforthedefinedbenefitplansforfiscalyears2019and2018wereasfollows:
Years Ended March 31,
2019 2018Benefit Obligations: Discountrate 0.55%-7.25% 0.85%-7.50%Estimatedrateofcompensationincrease 2.50%-10.00% 2.25%-10.00%Periodic Costs: Discountrate 0.75%-7.50% 0.75%-7.00%Estimatedrateofcompensationincrease 2.50%-10.00% 2.50%-10.00%Expectedaveragerateofreturnonplanassets 0.75%-2.75% 1.00%-2.50%
Thediscountrateisestimatedbasedoncorporatebondyieldsorsecuritiesofsimilarqualityintherespectivecountry,withadurationapproximatingtheperiodoverwhichthebenefitobligationsareexpectedtobepaid.TheCompanybasesthecompensationincreaseassumptionsonhistoricalexperienceandfutureexpectations.TheexpectedaveragerateofreturnfortheCompany'sdefinedbenefitpensionplansrepresentstheaveragerateofreturnexpectedtobeearnedonplanassetsovertheperiodthatthebenefitobligationsareexpectedtobepaid,basedongovernmentbondnotesintherespectivecountry,adjustedforcorporateriskpremiumsasappropriate.
ThefollowingtablereflectsthebenefitpaymentsthattheCompanyexpectstheplanstopayintheperiodsnoted(inthousands):
Years Ending March 31, 2020 $ 7,9562021 7,2252022 7,5532023 7,2942024 7,6072025-2029 39,367 $ 77,002
TheCompanyexpectstocontribute$5.5milliontoitsdefinedbenefitpensionplansduringfiscalyear2020.
Deferred Compensation Plan
OneoftheCompany'ssubsidiariesoffersadeferredcompensationplanthatpermitseligibleemployeestomake100%vestedsalaryandincentivecompensationdeferralswithinestablishedlimits.TheCompanydoesnotmakecontributionstotheplan.
Thedeferredcompensationplan'sassetsconsistofmarketablesecuritiesandareincludedinotherassetsontheconsolidatedbalancesheets.Themarketablesecuritiesareclassifiedastradinginvestmentsandwererecordedatafairvalueof$20.4millionand$17.7millionasofMarch31,2019and2018,respectively,basedonquotedmarketprices.TheCompanyalsohad$20.4millionand$17.7millionindeferredcompensationliabilityasofMarch31,2019and2018,respectively.Earnings,gainsandlossesontradinginvestmentsareincludedinother
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income(expense),netandcorrespondingchangesindeferredcompensationliabilityareincludedinoperatingexpensesandcostofgoodssold.
Note 6—Other Income (Expense), net
Otherincome(expense),netcomprisesofthefollowing(inthousands):
Years Ended March 31,
2019 2018 2017Investmentincomerelatedtothedeferredcompensationplan $ 664 $ 1,386 $ 1,343Currencyexchangegain(loss),net (3,608) (4,613) 169Other 2,508 790 165Otherincome(expense),net $ (436) $ (2,437) $ 1,677
ThecomponentsofnetperiodicbenefitcostotherthantheservicecostcomponentfortheyearendedMarch31,2019areincludedintheline“Other”aboveasaresultofadoptingASU2017-07effectiveApril1,2018.Theimpacttothecomparativeperiodswasimmaterialandthereforethepriorperiodstatementsofoperationswerenotrevised.
Note 7—Income Taxes
TheCompanyisincorporatedinSwitzerlandbutoperatesinvariouscountrieswithdifferingtaxlawsandrates.Further,aportionoftheCompany'sincome(loss)beforetaxesandtheprovisionfor(benefitfrom)incometaxesisgeneratedoutsideofSwitzerland.
Incomefromcontinuingoperationsbeforeincometaxesforfiscalyears2019,2018and2017issummarizedasfollows(inthousands):
Years Ended March 31,
2019 2018 2017Swiss $ 212,986 $ 177,935 $ 161,544Non-Swiss 58,147 54,330 53,445Incomebeforetaxes $ 271,133 $ 232,265 $ 214,989
Theprovisionfor(benefitfrom)incometaxesissummarizedasfollows(inthousands):
Years Ended March 31, 2019 2018 2017Current: Swiss $ 1,364 $ 3,526 $ 1,934Non-Swiss 24,334 13,142 9,774
Deferred: Non-Swiss (12,138) 7,055 (2,595)
Provisionforincometaxes $ 13,560 $ 23,723 $ 9,113
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Thedifferencebetweentheprovisionforincometaxesandtheexpectedtaxprovisionatthestatutoryincometaxrateof8.5%isreconciledbelow(inthousands):
Years Ended March 31,
2019 2018 2017Expectedtaxprovisionatstatutoryincometaxrates $ 23,046 $ 19,743 $ 18,274Incometaxesatdifferentrates (10,113) (9,611) (5,247)Researchanddevelopmenttaxcredits (5,432) (4,124) (2,309)Executivecompensation 3,344 1,835 654Stock-basedcompensation (7,288) (9,376) 1,794DeferredtaxeffectsfromTaxAct — 22,325 —Valuationallowance 1,891 533 1,024Restructuringcharges/(credits) 961 (10) 2Taxreserves(releases),net 8,269 3,627 (5,570)Other,net (1,118) (1,219) 491Provisionforincometaxes $ 13,560 $ 23,723 $ 9,113
Deferredincometaxassetsandliabilitiesconsistofthefollowing(inthousands):
March 31,
2019 2018Deferredtaxassets: Netoperatinglosscarryforwards $ 16,323 $ 15,476Taxcreditcarryforwards 52,263 45,421Accruals 52,304 42,765Depreciationandamortization 5,716 1,505Share-basedcompensation 8,703 7,479
Grossdeferredtaxassets 135,309 112,646Valuationallowance (28,375) (25,148)
Grossdeferredtaxassetsaftervaluationallowance 106,934 87,498Deferredtaxliabilities: Acquiredintangibleassetsandother (18,176) (4,827)
Grossdeferredtaxliabilities (18,176) (4,827)Deferredtaxassets,net $ 88,758 $ 82,671
TheTaxActenactedintheUnitedStatesinfiscalyear2018permanentlyreducedthecorporateincometaxratefrom35%to21%effectivefortaxyearsincludingorcommencingonJanuary1,2018.Italsorepealedcorporatealternativeminimumtax,limitedvariousbusinessdeductionssuchasexecutivecompensationunderIRC162(m)andmodifiedthemaximumdeductionofnetoperatinglosswithnocarrybackbutindefinitecarryforwardprovisionamongotherthings.TheCompanyrecordedaprovisionalincometaxchargeof$21.7million,netofvaluationallowanceagainsttaxcredits,infiscalyear2018toremeasurethedeferredtaxeffectsat21%.
TheCompanycompleteditsreview,inthethirdquarteroffiscalyear2019,ofpreviouslyrecordedprovisionalincometaxamountsrelatedtonetdeferredtaxassetsimpactedbytheTaxActandconcludedthatadditionalinformation,interpretationandguidancethatbecameavailableduringthetwelve-monthmeasurementperioddidnotaltertheCompany’sapplicationoftaxlawinremeasuringgrossdeferredtaxassetsandrelatedvaluationallowance.Therewerenoadjustmentsdeemednecessaryinfiscalyear2019.
ManagementregularlyassessestheabilitytorealizedeferredtaxassetsrecordedintheCompany'sentitiesbasedupontheweightofavailableevidence,includingsuchfactorsasrecentearningshistoryandexpectedfuturetaxableincome.IntheeventthattheCompanychangesitsdeterminationastotheamountofdeferredtaxassets
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thatcanberealized,theCompanywilladjustitsvaluationallowancewithacorrespondingimpacttotheprovisionforincometaxesintheperiodinwhichsuchdeterminationismade.
TheCompanyhadavaluationallowanceof$28.4millionatMarch31,2019,comparedto$25.1millionatMarch31,2018.Thefederalvaluationallowanceagainsttaxcreditswasreducedfrom$2.3millionasofMarch31,2018to$1.9millionasofMarch31,2019duetoareleaseof$0.4million.TheCompanyhadavaluationallowanceof$25.7millionasofMarch31,2019againstdeferredtaxassetsinthestateofCalifornia,anincreasefrom$22.1millionasofMarch31,2018.Theincreaseprimarilyrelatesto$2.3millionand$1.3millionfromactivitiesrelatedtodeferredtaxassetsandtheacquisitionofBlueMicrophones,respectively.Theremainingvaluationallowanceprimarilyrepresents$0.8millionforvarioustaxcreditcarryforwards.TheCompanydeterminedthatitismorelikelythannotthattheCompanywouldnotgeneratesufficienttaxableincomeinthefuturetoutilizesuchdeferredtaxassets.
AsofMarch31,2019,theCompanyhadforeignnetoperatinglossandtaxcreditcarryforwardsforincometaxpurposesof$252.6millionand$58.1million.Unusednetoperatinglosscarryforwardswillexpireatvariousdatesinfiscalyears2020to2039.CertainnetoperatinglosscarryforwardsintheUnitedStatesrelatetoacquisitionsand,asaresult,arelimitedintheamountthatcanbeutilizedinanyoneyear.Thetaxcreditcarryforwardswillbegintoexpireinfiscalyear2020.
Swissincometaxesandnon-Swisswithholdingtaxesassociatedwiththerepatriationofearningsorforothertemporarydifferencesrelatedtoinvestmentsinnon-Swisssubsidiarieshavenotbeenprovidedfor,astheCompanyintendstoreinvesttheearningsofsuchsubsidiariesindefinitelyortheCompanyhasconcludedthatnoadditionaltaxliabilitywouldariseonthedistributionofsuchearnings.IftheseearningsweredistributedtoSwitzerlandintheformofdividendsorotherwise,orifthesharesoftherelevantnon-Swisssubsidiariesweresoldorotherwisetransferred,theCompanymaybesubjecttoadditionalSwissincometaxesandnon-Swisswithholdingtaxes.AsofMarch31,2019,thecumulativeamountofunremittedearningsofnon-Swisssubsidiariesforwhichnoincometaxeshavebeenprovidedisapproximately$100.3million.Theamountofunrecognizeddeferredincometaxliabilityrelatedtotheseearningsisestimatedtobeapproximately$0.8million.
TheCompanyfollowsatwo-stepapproachinrecognizingandmeasuringuncertaintaxpositions.Thefirststepistoevaluatethetaxpositionforrecognitionbydeterminingiftheweightofavailableevidenceindicatesthatitismorelikelythannotthatthepositionwillbesustainedonaudit,includingresolutionofrelatedappealsorlitigationprocesses,ifany.Thesecondstepistomeasurethetaxbenefitasthelargestamountthatismorethan50%likelyofbeingrealizeduponultimatesettlement.
AsofMarch31,2019and2018,thetotalamountofunrecognizedtaxbenefitsduetouncertaintaxpositionswas$76.5millionand$69.1million,respectively,allofwhichwouldaffecttheeffectiveincometaxrateifrecognized.
AsofMarch31,2019and2018,theCompanyhad$36.4millionand$35.0million,respectively,innon-currentincometaxespayable,includinginterestandpenalties,relatedtotheCompany'sincometaxliabilityforuncertaintaxpositions.
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Theaggregatechangesingrossunrecognizedtaxbenefitsinfiscalyears2019,2018and2017wereasfollows(inthousands):
March31,2016 $ 69,879Lapseofstatuteoflimitations (14,161)Decreasesinbalancesrelatedtotaxpositionstakenduringprioryears (1,610)Increasesinbalancesrelatedtotaxpositionstakenduringtheyear 9,559
March31,2017 $ 63,667Lapseofstatuteoflimitations (7,505)Decreasesinbalancesrelatedtotaxpositionstakenduringprioryears (704)Increasesinbalancesrelatedtotaxpositionstakenduringtheyear 13,673
March31,2018 $ 69,131Lapseofstatuteoflimitations (2,511)Decreasesinbalancesrelatedtotaxpositionstakenduringprioryears (1,550)Increasesinbalancesrelatedtotaxpositionstakenduringtheyear 11,479
March31,2019 $ 76,549
TheCompanyrecognizesinterestandpenaltiesrelatedtounrecognizedtaxpositionsinincometaxexpense.TheCompanyrecognized$0.6million,$0.6millionand$0.7millionininterestandpenaltiesinincometaxexpenseduringfiscalyears2019,2018and2017,respectively.AsofMarch31,2019and2018,theCompanyhad$2.5millionand$2.3million,respectively,ofaccruedinterestandpenaltiesrelatedtouncertaintaxpositions.
TheCompanyfilesSwissandforeigntaxreturns.TheCompanyreceivedfinaltaxassessmentsinSwitzerlandthroughfiscalyear2017.ForotherforeignjurisdictionssuchastheUnitedStates,theCompanyisgenerallynotsubjecttotaxexaminationsforyearspriortofiscalyear2016.TheCompanyisunderexaminationandhasreceivedassessmentnoticesinforeigntaxjurisdictions.Iftheexaminationsareresolvedunfavorably,thereisapossibilitytheymayhaveamaterialnegativeimpactonitsresultsofoperations.
AlthoughtheCompanyhasadequatelyprovidedforuncertaintaxpositions,theprovisionsonthesepositionsmaychangeasrevisedestimatesaremadeortheunderlyingmattersaresettledorotherwiseresolved.Duringthenext12months,itisreasonablypossiblethattheamountofunrecognizedtaxbenefitscouldincreaseordecreasesignificantlyduetochangesintaxlawinvariousjurisdictions,newtaxauditsandchangesintheU.S.Dollarascomparedtoothercurrencies.Excludingthesefactors,uncertaintaxpositionsmaydecreasebyasmuchas$3.8millionprimarilyfromthelapseofthestatutesoflimitationsinvariousjurisdictionsduringthenext12months.
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Note 8—Balance Sheet Components
ThefollowingtablepresentsthecomponentsofcertainbalancesheetassetamountsasofMarch31,2019and2018(inthousands):
March 31,
2019 2018Accountsreceivable,net: Accountsreceivable $ 573,348 $ 482,872Allowancefordoubtfulaccounts (84) (122)Allowanceforsalesreturns(1) (6,486) (25,515)Allowanceforcooperativemarketingarrangements(1) (35,080) (30,389)Allowanceforcustomerincentiveprograms(1) (60,036) (70,592)Allowanceforpricingprograms(1) (88,353) (141,369)
$ 383,309 $ 214,885
Inventories: Rawmaterials $ 40,970 $ 33,603Finishedgoods 252,525 226,303
$ 293,495 $ 259,906
Othercurrentassets: Value-addedtaxreceivables $ 34,321 $ 29,477Prepaidexpensesandotherassets(1) 34,795 26,885
$ 69,116 $ 56,362
Property,plantandequipment,net: Plant,buildingsandimprovements $ 65,219 $ 60,747Equipmentandtooling 197,540 183,466Computerequipment 24,132 22,752Software 62,663 65,723
349,554 332,688Less:accumulateddepreciationandamortization (280,793) (260,284)
68,761 72,404Construction-in-process 7,021 11,029Land 2,770 2,871
$ 78,552 $ 86,304
Otherassets: Deferredtaxassets $ 90,808 $ 84,651Tradinginvestmentsfordeferredcompensationplan 20,363 17,748Investmentinprivatelyheldcompanies 16,022 12,448Otherassets 5,260 5,908
$ 132,453 $ 120,755
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ThefollowingtablepresentsthecomponentsofcertainbalancesheetliabilityamountsasofMarch31,2019and2018(inthousands):
March 31,
2019 2018Accruedandothercurrentliabilities: Accruedpersonnelexpenses $ 103,166 $ 82,330Accruedsalesreturnliability(1)
37,749 —Accruedcustomermarketing,pricingandincentiveprograms(1) 143,888 71,962Warrantyaccrual 21,524 16,279Incometaxespayable 6,207 4,354Othercurrentliabilities 121,363 106,807
$ 433,897 $ 281,732
Othernon-currentliabilities: Warrantyaccrual $ 12,705 $ 11,294Obligationfordeferredcompensationplan 20,363 17,748Employeebenefitplanobligation 51,448 42,434Deferredtaxliability 2,050 1,980Othernon-currentliabilities 7,016 8,468
$ 93,582 $ 81,924
(1)CertainallowancesforsalesreturnandcertainotherCustomerProgramswereincludedwithinaccountsreceivable,netbalanceasofMarch31,2018.UponadoptionofTopic606,suchbalancesarepresentedasaccruedrevenuereservefromreturnsandaccruedcustomermarketing,pricingandincentiveprogramsincludedinaccruedandothercurrentliabilities,andasreturnassetsincludedinothercurrentassets,respectively,ontheconsolidatedbalancesheetasofMarch31,2018.RefertoNote2totheconsolidatedfinancialstatementsformoreinformation.
Note 9—Fair Value Measurements
TheCompanyconsidersfairvalueastheexchangepricethatwouldbereceivedforanassetorpaidtotransferaliability(anexitprice)intheprincipalormostadvantageousmarketfortheassetorliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.TheCompanyutilizesthefollowingthree-levelfairvaluehierarchytoestablishtheprioritiesoftheinputsusedtomeasurefairvalue:
• Level1—Quotedpricesinactivemarketsforidenticalassetsorliabilities.• Level2—ObservableinputsotherthanquotedmarketpricesincludedinLevel1,suchasquotedpricesforsimilarassetsandliabilitiesin
activemarkets;quotedpricesforidenticalorsimilarassetsandliabilitiesinmarketsthatarenotactive;orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdata.
• Level3—Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificanttothefairvalueoftheassetsorliabilities.Thisincludescertainpricingmodels,discountedcashflowmethodologiesandsimilartechniquesthatusesignificantunobservableinputs.
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ThefollowingtablepresentstheCompany'sfinancialassetsandliabilitiesthatwereaccountedforatfairvalueonarecurringbasis,excludingassetsrelatedtotheCompany'sdefinedbenefitpensionplans,classifiedbythelevelwithinthefairvaluehierarchy(inthousands):
March 31, 2019 March 31, 2018
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Assets: Cashequivalents $ 496,434 $ — $ — $ 492,535 $ — $ —Tradinginvestmentsfordeferredcompensationplanincludedinotherassets: Moneymarketfunds $ 4,080 $ — $ — $ 2,881 $ — $ —Mutualfunds 16,283 — — 14,867 — —
Totaloftradinginvestmentsfordeferredcompensationplan $ 20,363 $ — $ — $ 17,748 $ — $ —
Currencyderivativeassetsincludedinothercurrentassets $ — $ 455 $ — $ — $ — $ —
Liabilities: Currencyderivativeliabilitiesincludedinaccruedandothercurrentliabilities $ — $ 36 $ — $ — $ 34 $ —
Investment Securities
ThemarketablesecuritiesfortheCompany'sdeferredcompensationplanarerecordedatafairvalueof$20.4millionand$17.7millionasofMarch31,2019and2018,respectively,basedonquotedmarketprices.QuotedmarketpricesareobservableinputsthatareclassifiedasLevel1withinthefairvaluehierarchy.Unrealizedtradinggainsrelatedtotradingsecuritiesforfiscalyears2019,2018and2017werenotmaterialandareincludedinotherincome(expense),netintheconsolidatedstatementsofoperations.
Equity Method Investments
TheCompanyhascertainnon-marketableinvestmentsincludedinotherassetsthatareaccountedforundertheequitymethodofaccounting,withacarryingvalueof$6.6millionand$5.1millionasofMarch31,2019and2018,respectively.
Assets Measured at Fair Value on a Nonrecurring Basis
TheCompany’snon-financialassets,suchasintangibleassetsandacquisition-relatedproperty,plantandequipment,arerecordedatfairvalueonlyuponinitialrecognitionorifanimpairmentisrecognized.Therewasnoimpairmentoflong-livedassetsduringfiscalyears2019,2018and2017.
Financial Assets. TheCompanyhascertaininvestmentsinequitysecuritiesofprivatelyheldentitieswithoutreadilydeterminablefairvaluesduetotheabsenceofquotedmarketprices,theinherentlackofliquidity,andthefactthatinputsusedtomeasurefairvalueareunobservableandrequiremanagement'sjudgment.Whencertaineventsorcircumstancesindicatethatimpairmentmayexist,theCompanyrevaluestheinvestmentsusingvariousassumptions,includingthefinancialmetricsandratiosofcomparablepubliccompanies.Thecarryingvalueisalsoadjustedforobservablepricechangeswiththesameorsimilarsecurityfromthesameissuer.TheamountoftheseinvestmentsincludedinotherassetsasofMarch31,2019andMarch31,2018was$9.5millionand$7.3million,respectively.Therewasnoimpairmentoftheseassetsduringfiscalyears2019and2018.
Non-Financial Assets. Goodwill,intangibleassets,andproperty,plantandequipment,arenotrequiredtobemeasuredatfairvalueonarecurringbasis.However,ifcertaintriggeringeventsoccur(ortestedatleastannuallyforgoodwill)suchthatanon-financialinstrumentisrequiredtobeevaluatedforimpairmentandanimpairmentisrecordedtoreducethenon-financialinstrument'scarryingvaluetothefairvalueasaresultofsuchtriggeringevents,thenon-financialassetsandliabilitiesaremeasuredatfairvaluefortheperiodsuchtriggeringeventsoccur.SeeNote2totheconsolidatedfinancialstatementsforadditionalinformationabouthowtheCompanytestsvariousassetclassesforimpairment.
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Note 10—Derivative Financial Instruments
UndercertainagreementswiththerespectivecounterpartiestotheCompany'sderivativecontracts,subjecttoapplicablerequirements,theCompanyisallowedtonetsettletransactionsofthesametypewithasinglenetamountpayablebyonepartytotheother.However,theCompanypresentsitsderivativeassetsandderivativeliabilitiesonagrossbasisinothercurrentassetsoraccruedandothercurrentliabilitiesontheconsolidatedbalancesheetsasofMarch31,2019and2018.
ThefairvaluesoftheCompany’sderivativeinstrumentswerenotmaterialasofMarch31,2019orMarch31,2018(refertoNote9totheconsolidatedfinancialstatementsformoreinformation).ThefollowingtablepresentstheamountsofgainsandlossesontheCompany'sderivativeinstrumentsdesignatedashedginginstrumentsforfiscalyears2019,2018and2017andtheirlocationsonitsconsolidatedstatementsofoperationsandconsolidatedstatementsofcomprehensiveincome(inthousands):
Amount of Gain (Loss) Deferred as
a Component of Accumulated Other
Comprehensive Loss
Amount of Loss (Gain) Reclassified from
Accumulated Other Comprehensive Loss
to Costs of Goods Sold
2019 2018 2017 2019 2018 2017Designatedashedginginstruments: Cashflowhedges $ 1,781 $ (8,499) $ 2,928 $ 1,810 5,808 $ (1,670)
UponadoptionofASU2017-12,theCompanyhasstartedpresentingtheearningsimpactfromforwardpointsinthesamelineitemthatisusedtopresenttheearningsimpactofthehedgeditem,i.e.costofgoodssold,forhedgingforecastedinventorypurchasesandsuchamountisnotmaterialforallperiodspresented.
Cash Flow Hedges: TheCompanyentersintocashflowhedgecontractstoprotectagainstexchangerateexposureofforecastedinventorypurchases.Thesehedgingcontractsmaturewithinfourmonths.Gainsandlossesinthefairvalueoftheeffectiveportionofthehedgesaredeferredasacomponentofaccumulatedothercomprehensivelossuntilthehedgedinventorypurchasesaresold,atwhichtimethegainsorlossesarereclassifiedtocostofgoodssold.Cashflowsfromsuchhedgesareclassifiedasoperatingactivitiesintheconsolidatedstatementsofcashflows.Hedgingrelationshipsarediscontinuedwhenhedgingcontractisnolongereligibleforhedgeaccounting,orissold,terminatedorexercised,orwhentheCompanyremoveshedgedesignationforthecontract.Gainsandlossesinthefairvalueoftheeffectiveportionofthediscontinuedhedgescontinuetobereportedinaccumulatedothercomprehensivelossuntilthehedgedinventorypurchasesaresold,unlessitisprobablethattheforecastedinventorypurchaseswillnotoccurbytheendoftheoriginallyspecifiedtimeperiodorwithinanadditionaltwo-monthperiodoftimethereafter.AsofMarch31,2019,thenotionalamountsofcurrencyforwardcontractsoutstandingrelatedtoforecastedinventorypurchaseswas$41.4million.AsofMarch31,2018,therewerenocurrencyforwardcontractsoutstandingrelatedtoforecastedinventorypurchases.TheCompanyestimatesthat$0.4millionofnetgainrelatedtoitscashflowhedgesincludedinaccumulatedothercomprehensivelossasofMarch31,2019willbereclassifiedintoearningswithinthenexttwelvemonths.
Other Derivatives: TheCompanyalsoentersintocurrencyforwardandswapcontractstoreducetheshort-termeffectsofcurrencyfluctuationsoncertainreceivablesorpayablesdenominatedincurrenciesotherthanthefunctionalcurrenciesofitssubsidiaries.Theseforwardandswapcontractsgenerallymaturewithinonemonth.Theprimaryriskmanagedbyusingforwardandswapcontractsisthecurrencyexchangeraterisk.Thegainsorlossesonthesecontractsarerecognizedinotherincome(expense),netintheconsolidatedstatementsofoperationsbasedonthechangesinfairvalue.ThenotionalamountsofthesecontractsoutstandingasofMarch31,2019and2018were$50.4millionand$47.2million,respectively.OpenforwardandswapcontractsasofMarch31,2019and2018consistedofcontractsinTaiwaneseDollars,AustralianDollars,MexicanPesos,JapaneseYenandCanadianDollarstobesettledatfuturedatesatpre-determinedexchangerates.
Thefairvalueofallcurrencyforwardandswapcontractsisdeterminedbasedonobservablemarkettransactionsofspotcurrencyratesandforwardrates.Cashflowsfromthesecontractsareclassifiedasoperatingactivitiesintheconsolidatedstatementsofcashflows.
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Note 11—Goodwill and Other Intangible Assets
TheCompanyperformeditsannualimpairmentanalysisofgoodwillasofDecember31,2018byperformingaqualitativeassessmentandconcludedthatitwasmorelikelythannotthatthefairvalueofitsperipheralsreportingunit,exceededitscarryingamount.Inassessingthequalitativefactors,theCompanyconsideredtheimpactofthesekeyfactors:changeinindustryandcompetitiveenvironment,growthinmarketcapitalization,andbudgeted-to-actualrevenueperformanceforthetwelvemonthsendedDecember31,2018.Therehavebeennosignificanteventsorcircumstancesaffectingthevaluationofgoodwillsubsequenttotheannualimpairmenttest.
ThefollowingtablesummarizestheactivityintheCompany'sgoodwillbalanceduringfiscalyears2019and2018(inthousands):
Years Ended March 31, 2019 2018Beginningoftheperiod $ 275,451 $ 249,741Acquisitions 68,269 25,800Currencyexchangerateimpact (36) (90)
Endoftheperiod $ 343,684 $ 275,451
TheCompany'sacquiredintangibleassetssubjecttoamortizationwereasfollows(inthousands):
March 31, 2019 2018
Gross Carrying
Amount AccumulatedAmortization
Net CarryingAmount
Gross CarryingAmount
AccumulatedAmortization
Net CarryingAmount
Trademarksandtradenames $ 36,370 $ (13,659) $ 22,711 $ 23,870 $ (9,482) $ 14,388Developedtechnology 95,207 (62,341) 32,866 77,175 (50,755) 26,420Customercontracts/relationships 84,610 (21,188) 63,422 59,510 (12,771) 46,739 $ 216,187 $ (97,188) $ 118,999 $ 160,555 $ (73,008) $ 87,547
Forfiscalyears2019,2018and2017,amortizationexpenseforintangibleassetswas,$24.2million,$15.6millionand$9.4million,respectively.TheCompanyexpectsthatannualamortizationexpenseforfiscalyears2020,2021,2022,2023and2024willbe$27.5million,$23.2million,$20.0million,$15.9millionand$13.0million,respectively,and$19.3millionthereafter.
Note 12—Financing Arrangements
TheCompanyhadseveraluncommitted,unsecuredbanklinesofcreditaggregating$80.6millionasofMarch31,2019.TherearenofinancialcovenantsundertheselinesofcreditwithwhichtheCompanymustcomply.AsofMarch31,2019,theCompanyhadoutstandingbankguaranteesof$34.3millionundertheselinesofcredit.TherewasnoborrowingoutstandingunderthelineofcreditasofMarch31,2019orMarch31,2018.
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Note 13—Commitments and Contingencies
Operating Leases
TheCompanyleasesfacilitiesunderoperatingleases,certainofwhichrequireittopaypropertytaxes,insuranceandmaintenancecosts.OperatingleasesforfacilitiesaregenerallyrenewableattheCompany'soptionandusuallyincludeescalationclauseslinkedtoinflation.Futureminimumannualrentalsundernon-cancelableoperatingleasesatMarch31,2019areasfollows(inthousands):
Years Ending March 31, 2020 $ 11,8492021 10,0022022 7,8822023 5,1112024 1,130Thereafter 3,646 $ 39,620
Rentexpenseforfiscalyears2019,2018and2017was$12.4million,$11.2millionand$9.9million,respectively.
Inconnectionwithitsleasedfacilities,theCompanyrecognizedaliabilityforassetretirementobligationsfor2019and2018representingthepresentvalueofestimatedremediationcoststobeincurredatleaseexpiration.TheliabilitiesforassetretirementobligationswerenotmaterialasofMarch31,2019and2018.
Product Warranties
ChangesintheCompany'swarrantyliabilityforfiscalyears2019and2018wereasfollows(inthousands):
Years Ended March 31,
2019 2018Beginningoftheperiod $ 27,573 $ 21,911Assumedfrombusinessacquisition 351 1,230Provision 36,927 25,103Settlements (29,874) (21,766)Currencytranslation (748) 1,095
Endoftheperiod $ 34,229 $ 27,573
Indemnifications
TheCompanyindemnifiescertainofitssuppliersandcustomersforlossesarisingfrommatterssuchasintellectualpropertydisputesandproductsafetydefects,subjecttocertainrestrictions.Thescopeoftheseindemnitiesvaries,butinsomeinstancesincludesindemnificationfordamagesandexpenses,includingreasonableattorneys'fees.AsofMarch31,2019,noamountshavebeenaccruedfortheseindemnificationprovisions.TheCompanydoesnotbelieve,basedonhistoricalexperienceandinformationcurrentlyavailable,thatitisprobablethatanymaterialamountswillberequiredtobepaidunderitsindemnificationarrangements.
TheCompanyalsoindemnifiesitscurrentandformerdirectorsandcertainofitscurrentandformerofficers.Certaincostsincurredforprovidingsuchindemnificationmayberecoverableundervariousinsurancepolicies.TheCompanyisunabletoreasonablyestimatethemaximumamountthatcouldbepayableunderthesearrangementsbecausetheseexposuresarenotlimited,theobligationsareconditionalinnatureandthefactsandcircumstancesinvolvedinanysituationthatmightarisearevariable.
Legal Proceedings
FromtimetotimetheCompanyisinvolvedinclaimsandlegalproceedingswhichariseintheordinarycourseofitsbusiness.TheCompanyiscurrentlysubjecttoseveralsuchclaimsandasmallnumberoflegalproceedings.TheCompanybelievesthatthesematterslackmeritandintendstovigorouslydefendagainstthem.Basedoncurrentlyavailableinformation,theCompanydoesnotbelievethatresolutionofpendingmatterswillhaveamaterial
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adverseeffectonitsfinancialposition,cashflowsorresultsofoperations.However,litigationissubjecttoinherentuncertainties,andtherecanbenoassurancesthattheCompany'sdefenseswillbesuccessfulorthatanysuchlawsuitorclaimwouldnothaveamaterialadverseimpactontheCompany'sbusiness,financialposition,cashflowsorresultsofoperationsinaparticularperiod.AnyclaimsorproceedingsagainsttheCompany,whethermeritoriousornot,canhaveanadverseimpactbecauseofdefensecosts,diversionofmanagementandoperationalresources,negativepublicityandotherfactors.Anyfailuretoobtainanecessarylicenseorotherrights,orlitigationarisingoutofintellectualpropertyclaims,couldadverselyaffecttheCompany'sbusiness.
Note 14—Shareholders' Equity
Share Capital
TheCompany'snominalsharecapitalisCHF43.3million,consistingof173,106,620shareswithaparvalueofCHF0.25each,allofwhichwereissuedand7,243,733ofwhichwereheldintreasurysharesasofMarch31,2019.
TheCompany'shasreservedconditionalcapitalof25,000,000sharesforpotentialissuanceontheexerciseofrightsgrantedundertheCompany'semployeeequityincentiveplansandadditionalconditionalcapitalforfinancingpurposes,representingtheissuanceofupto25,000,000sharestocoveranyconversionrightsunderafutureconvertiblebondissuance.Thisconditionalcapitalwascreatedinordertoprovidefinancingflexibilityforfutureexpansion,investmentsoracquisitions.Duringthe2018AnnualGeneralMeeting,theshareholdersoftheCompanyauthorizedtheBoardofDirectorstoissueuptoanadditional34,621,324sharesoftheCompanyuntilSeptember5,2020.
Dividends
PursuanttoSwisscorporatelaw,thepaymentofdividendsislimitedtocertainamountsofunappropriatedretainedearnings(CHF940.9millionor$945.2millionbasedontheexchangerateatMarch31,2019)andissubjecttoshareholderapproval.
InMay2019,theBoardofDirectorsrecommendedthattheCompanypayCHF121.8million($122.4millionbasedontheexchangerateonMarch31,2019)incashdividendsforfiscalyear2019.InSeptember2018,theCompanydeclaredandpaidcashdividendsofCHF0.67(USDequivalentof$0.69)percommonshare,totaling$114.0millionontheCompany'soutstandingcommonstock.InSeptember2017,theCompanydeclaredandpaidcashdividendsofCHF0.61(USDequivalentof$0.63)percommonshare,totalingapproximately$104.2millioninU.S.Dollars,ontheCompany’soutstandingcommonstock.InSeptember2016,theCompanydeclaredandpaidcashdividendsofCHF0.56(USDequivalentof$0.57)percommonshare,totalingapproximately$93.1millioninU.S.Dollars,ontheCompany’soutstandingcommonstock.
AnyfuturedividendswillbesubjecttotheapprovaloftheCompany'sshareholders.
Legal Reserves
UnderSwisscorporatelaw,aminimumof5%oftheCompany'sannualnetincomemustberetainedinalegalreserveuntilthislegalreserveequals20%oftheCompany'sissuedandoutstandingaggregateparvaluepersharecapital.Theselegalreservesrepresentanappropriationofretainedearningsthatarenotavailablefordistributionandtotaled$9.6millionatMarch31,2019(basedontheexchangerateatMarch31,2019).
Share Repurchases
InMarch2014,theCompany'sBoardofDirectorsapprovedthe2014sharebuybackprogram,whichauthorizestheCompanytouseupto$250.0milliontopurchaseitsownshares.ThissharebuybackprogramexpiredinApril2017.InMarch2017,theCompany'sBoardofDirectorsapprovedthe2017sharebuybackprogram,whichauthorizestheCompanytouseupto$250.0milliontopurchaseitsownsharesfollowingtheexpirationdateof2014buybackprogram.TheCompany'ssharebuybackprogramisexpectedtoremainineffectforaperiodofthreeyears.Sharesmayberepurchasedfromtimetotimeontheopenmarket,throughblocktradesorotherwise.Purchasesmaybestartedorstoppedatanytimewithoutpriornoticedependingonmarketconditionsandotherfactors.AsofMarch31,2019, $187.4millionisstillavailableforrepurchaseunderthe2017buybackprogram.
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Asummaryoftheapprovedandactivesharebuybackprogramisshowninthefollowingtable(inthousands,excludingtransactioncosts):
Approved Repurchased
Share Buyback Program Shares (1) Amounts Shares AmountsMarch2014 17,311 $ 250,000 9,113 $ 155,983March2017 17,311 $ 250,000 1,651 $ 62,567
(1)TheapprovalofeachofthesharebuybackprogramsbytheSwissTakeoverBoardlimitsthenumberofsharesthattheCompanymayrepurchasetonomorethan10%ofitsauthorizedsharecapitalandvotingrights.
Accumulated Other Comprehensive Loss
Thecomponentsofaccumulatedothercomprehensivelosswereasfollows(inthousands):
Accumulated Other Comprehensive Income (Loss)
CumulativeTranslation
Adjustment (1)
DefinedBenefitPlans (1)
DeferredHedging
Gains (Losses) TotalMarch31,2018 $ (83,848) $ (6,398) $ (3,209) $ (93,455)Othercomprehensiveincome(loss) (8,300) (7,534) 3,591 (12,243)March31,2019 $ (92,148) $ (13,932) $ 382 $ (105,698)
_______________________________________(1)TaxeffectwasnotsignificantasofMarch31,2019or2018.
Therewasa$0.5millionreclassificationofcurrencytranslationlossincludedinotherincome(expense),netfortheyearendedMarch31,2019duetotheliquidationofoneoftheCompany'ssubsidiaries.
Note 15—Segment Information
TheCompanyoperatesinasingleoperatingsegmentthatencompassesthedesign,manufacturingandmarketingofperipheralsforPCs,tabletsandotherdigitalplatforms.OperatingperformancemeasuresareprovideddirectlytotheCompany'sCEO,whoisconsideredtobetheCompany’sChiefOperatingDecisionMaker.TheCEOperiodicallyreviewsinformationsuchassalesandadjustedoperatingincome(loss)tomakebusinessdecisions.Theseoperatingperformancemeasuresdonotincluderestructuringcharges(credits),net,share-basedcompensationexpense,amortizationofintangibleassets,chargesfromthepurchaseaccountingeffectoninventory,acquisition-relatedcosts,orchangeinfairvalueofcontingentconsiderationfrombusinessacquisition.
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Salesbyproductcategorieswereasfollows(inthousands):
Years Ended March 31,
2019 2018 2017PointingDevices $ 536,890 $ 516,637 $ 501,562Keyboards&Combos 536,619 498,472 480,312PCWebcams 121,282 112,147 107,087Tablet&OtherAccessories 128,315 107,942 76,879VideoCollaboration 259,521 182,717 127,009MobileSpeakers 230,378 314,817 301,021Audio&Wearables 277,429 252,330 246,390Gaming 648,130 491,995 314,362SmartHome 49,344 89,373 65,510Other(1) 414 433 1,295TotalSales $ 2,788,322 $ 2,566,863 $ 2,221,427
(1) OthercategoryincludesproductsthattheCompanycurrentlyintendstophaseout,orhavealreadyphasedout,becausetheyarenolongerstrategictotheCompany'sbusiness.
Salesbygeographicregionforfiscalyears2019,2018and2017(basedonthecustomers'locations)wereasfollows(inthousands):
Years Ended March 31,
2019 2018 2017Americas $ 1,190,216 $ 1,118,324 $ 963,674EMEA 861,731 820,347 746,898AsiaPacific 736,375 628,192 510,855TotalSales $ 2,788,322 $ 2,566,863 $ 2,221,427
RevenuesfromsalestocustomersintheUnitedStatesrepresented36%,37%and37%ofsalesinfiscalyears2019,2018and2017,respectively.RevenuesfromsalestocustomersinGermanyrepresented18%,16%and17%ofsalesinfiscalyears2019, 2018and2017,respectively.RevenuesfromsalestocustomersinChinarepresented10%ofsalesinfiscalyear2019.Noothersinglecountryrepresentedmorethan10%ofsalesduringtheseperiods.RevenuesfromsalestocustomersinSwitzerland,theCompany'shomedomicile,represented3%,2%and2%ofsalesinfiscalyears2019,2018and2017,respectively.
Property,plantandequipment,netbygeographicregionwereasfollows(inthousands):
March 31,
2019 2018Americas $ 29,813 $ 35,404EMEA 4,537 4,690AsiaPacific 44,202 46,210TotalProperty,plantandequipment,net $ 78,552 $ 86,304
Property,plantandequipment,netintheUnitedStatesandChinawere$29.8millionand$36.4million,respectively,asofMarch31,2019,and$35.3millionand$37.9million,respectively,asofMarch31,2018.Noothercountriesrepresentedmorethan10%oftheCompany'stotalconsolidatedproperty,plantandequipment,netatMarch31,2019or2018.Property,plantandequipment,netinSwitzerland,theCompany'shomedomicile,were$1.7millionand$1.9millionatMarch31,2019and2018,respectively.
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Note 16—Restructuring
Duringthefirstquarteroffiscalyear2019,theCompanyimplementedarestructuringplantostreamlineandrealigntheCompany'soverallorganizationalstructureandreallocateresourcestosupportlong-termgrowthopportunities.InJuly2018,theCompany'sBoardofDirectorsapprovedadditionalcostsunderthisrestructuringplan,totalingpre-taxchargesofapproximately$10.0millionto$15.0million,ofwhich$11.3millionwasrecognizedduringfiscalyear2019.Thetotalchargesconsistedofcashseveranceandotherpersonnelcostsandarepresentedasrestructuringcharges(credits),netintheConsolidatedStatementsofOperations.TheCompanyexpectstohavesubstantiallycompletedthisrestructuringwithinthenextthreemonths.
Therestructuring-relatedactivitiesfortheyearsendedMarch31,2018and2017includeactivitiesfromtherestructuringplanimplementedinfiscalyear2016.
Thefollowingtablesummarizesrestructuring-relatedactivitiesduringfiscalyear2019,2018and2017(inthousands):
Restructuring - Continuing Operations
Termination
Benefits Lease Exit
Costs TotalAccrualbalanceatMarch31,2016 $ 5,907 $ 125 $ 6,032Charges,net 23 — 23Cashpayments (5,195) (125) (5,320)
AccrualbalanceatMarch31,2017 735 — 735Credits,net (116) — (116)Cashpayments (619) — (619)
AccrualbalanceatMarch31,2018 — — —Charges,net 11,302 — 11,302Cashpayments (6,913) — (6,913)
AccrualbalanceatMarch31,2019 $ 4,389 $ — $ 4,389
TheaccrualbalancesareincludedinaccruedandothercurrentliabilitiesontheCompany’sconsolidatedbalancesheets.
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LOGITECH INTERNATIONAL S.A.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA
(unaudited)
The following table contains selected unaudited quarterly financial data for fiscal years 2019 and 2018 (in thousands, except per shareamounts):
Year ended March 31, 2019 (1) Year ended March 31, 2018 (1)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Netsales $ 608,480 $ 691,146 $ 864,388 $ 624,308 $ 529,946 $ 632,470 $ 812,021 $ 592,426
Costofgoodssold 382,171 432,063 535,707 388,028 334,774 402,722 533,631 377,617Amortizationofintangibleassetsandpurchaseaccountingeffectoninventory 2,372 2,966 4,699 3,305 1,504 2,011 2,789 $ 2,574
Grossprofit 223,937 256,117 323,982 232,975 193,668 227,737 275,601 212,235
Operatingexpenses:
Marketingandselling 114,584 121,801 132,250 119,628 102,378 107,386 116,153 109,572
Researchanddevelopment 38,987 39,542 40,591 42,110 35,099 36,647 34,398 37,616
Generalandadministrative 25,473 25,206 24,496 23,557 25,409 25,266 22,291 23,387Amortizationofintangibleassetsandacquisition-relatedcosts 2,521 4,317 3,539 3,913 1,390 2,491 2,496 2,553Changeinfairvalueofcontingentconsiderationforbusinessacquisition — — — — (1,978) (2,930) — —
Restructuringcharges(credits),net 9,921 119 (278) 1,540 (55) (61) — —
Totaloperatingexpenses 191,486 190,985 200,598 190,748 162,243 168,799 175,338 173,128
Operatingincome 32,451 65,132 123,384 42,227 31,425 58,938 100,263 39,107
Interestincome 2,369 1,858 1,482 2,666 1,175 1,048 874 1,872
Otherincome(expense),net (1,571) 3,389 (2,747) 493 (1,029) 459 (324) (1,543)
Incomebeforeincometaxes 33,249 70,379 122,119 45,386 31,571 60,445 100,813 39,436
Provisionfor(benefitfrom)incometaxes (5,217) 6,203 9,309 3,265 (5,436) 4,087 20,040 5,032
NetIncome $ 38,466 $ 64,176 $ 112,810 $ 42,121 $ 37,007 $ 56,358 $ 80,773 $ 34,404
Netincomepershare:
Basic $ 0.23 $ 0.39 $ 0.68 $ 0.25 $ 0.23 $ 0.34 $ 0.49 $ 0.21
Diluted $ 0.23 $ 0.38 $ 0.67 $ 0.25 $ 0.22 $ 0.33 $ 0.48 $ 0.20
Sharesusedtocomputenetincomepershare:
Basic 165,317 165,630 165,707 165,776 163,407 164,120 164,248 164,374
Diluted 168,756 169,234 168,907 168,956 168,339 169,078 169,079 169,387______________________________
(1)Financialresultsofalltheperiodsinfiscalyears2019and2018includedtheimpactfrombusinessesacquiredduringtheyear.RefertoNote3totheconsolidatedfinancialstatements.
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Schedule II
LOGITECH INTERNATIONAL S.A.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended March 31, 2019 , 2018 and 2017 (in thousands)
TheCompany'sScheduleIIincludesvaluationandqualifyingaccountsrelatedtoallowancesfordoubtfulaccounts,salesreturns,cooperativemarketingarrangements,customerincentiveprograms,andpricingprograms,fordirectcustomersandtaxvaluationallowances.TheCompanyalsohassalesincentiveprogramsforindirectcustomerswithwhomitdoesnothaveadirectsalesandreceivablerelationship.Theseprogramsarerecordedasaccruedliabilitiesandarenotconsideredvaluationorqualifyingaccounts.
Balance atBeginning of
Year
Charged(Credited) toStatement of
Operations (1)(2)(3)
Claims andAdjustments
Applied AgainstAllowances (1)
Balance atEnd ofYear
Allowancefordoubtfulaccounts: 2019 $ 122 $ 840 $ (878) $ 842018 $ 607 $ (404) $ (81) $ 1222017 $ 667 $ 47 $ (107) $ 607
Allowanceforsalesreturns: 2019(2) $ 25,515 $ 94,381 $ (113,410) $ 6,4862018 $ 18,800 $ 111,969 $ (105,254) $ 25,5152017 $ 18,526 $ 78,242 $ (77,968) $ 18,800
Allowanceforcooperativemarketingarrangements: 2019(2) $ 30,389 $ 176,323 $ (171,632) $ 35,0802018 $ 28,022 $ 160,664 $ (158,297) $ 30,3892017 $ 28,157 $ 144,656 $ (144,791) $ 28,022
Allowanceforcustomerincentiveprograms: 2019(2) $ 70,592 $ 237,580 $ (248,136) $ 60,0362018 $ 60,857 $ 230,838 $ (221,103) $ 70,5922017 $ 60,872 $ 196,363 $ (196,378) $ 60,857
Allowanceforpricingprograms: 2019(2) $ 141,369 $ 444,540 $ (497,556) $ 88,3532018 $ 102,289 $ 445,048 $ (405,968) $ 141,3692017 $ 81,553 $ 322,118 $ (301,382) $ 102,289
Taxvaluationallowance: 2019 $ 25,148 $ 3,244 $ (17) $ 28,3752018(3) $ 6,626 $ 18,496 $ 26 $ 25,1482017 $ 5,338 $ 1,299 $ (11) $ 6,626
(1)Theamountsforfiscalyears2019and2018bothincludeimmaterialimpactsfromthebusinessacquisitionsduringtheyear.RefertoNote3totheconsolidatedfinancialstatements.
(2)TheamountschargedtotheStatementofOperationsforallowancesforvariousCustomerProgramsandsalesreturnsinfiscalyear2019includetheimpactof$105.8millionreductionasaresultoftheadoptionofASU2014-09effectiveApril1,2018,ofwhich$20.0millionwasforallowanceforsalesreturns,$3.2millionwasfortheallowanceforcooperativemarketingarrangements,$18.7millionforallowanceforcustomerincentiveprogramsand$63.8millionforallowanceforpricingprograms.RefertoNote2totheconsolidatedfinancialstatements.
(3)TheamountchargedtotheStatementofOperationsforthetaxvaluationallowanceinfiscalyear2018primarilyincludestheimpactof$18.0millionfromtheadoptionofASU2016-09effectiveApril1,2017.
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Exhibit 3.1
LOGITECH INTERNATIONAL S.A.
ARTICLES OF INCORPORATION
TITLE I
CORPORATE NAME – REGISTERED OFFICE – PURPOSE – DURATION
Article 1
There exists under the corporate name
" Logitech International S.A. "
a corporation ( société anonyme ) governed by these Articles of Incorporation and by Title twenty-six of the Swiss Code of Obligations (the"CO").
The duration of the Company shall be indefinite.
The registered office is in Apples.
Article 2
The Company shall be a holding company with the purpose of coordinating the activities of various Swiss and foreign subsidiaries of theLogitech group.
In addition, it shall have as a purpose the acquisition and management of shareholdings in other companies, and in particular the acquisition,holding and/or assignment of shareholdings in other commercial, industrial, financial or real property companies and enterprises, inSwitzerland or abroad, directly or indirectly, in its own name and for its own account, or for the accounts of third parties, as investments orfor other reasons, as well as for the financing of affiliated companies.
The Company may conduct, in Switzerland or abroad, any manner of activities, create branch offices, and undertake any real estate, financialor commercial operations which relate directly or indirectly to its purpose.
1
TITLE II
SHARE CAPITAL AND SHARES
Article 3
The share capital is fixed at CHF 43,276,655 (forty-three million two hundred seventy-six thousand six hundred fifty-five Swiss francs),entirely paid-in.
It is divided into 173,106,620 (one hundred seventy-three million one hundred and six thousand six hundred twenty) registered shares with anominal value of CHF 0.25 (twenty-five centimes) each.
Article 4
The shares shall be registered.
The general meeting of shareholders (the "General Meeting") shall have the authority to convert the registered shares into bearer shares bymeans of an amendment to these Articles of Incorporation.
Subject to the paragraph below, the registered shares of the Company will be uncertificated securities (in terms of the Swiss Code ofObligations) and book entry securities (in terms of the Swiss Book Entry Securities Act).
A shareholder registered in the Company's shareholders' register may request from the Company a statement of the shareholder's registeredshares at any time. Shareholders do not have a right to the printing and delivery of share certificates. The Company may, however, print anddeliver certificates for shares at any time at its option. The Company may also, at its option, withdraw uncertificated shares from thecustodian system where they have been registered and, with the consent of the shareholder, cancel issued certificates that are returned to theCompany.
Article 5
Each share shall confer the right to a proportional part of the profit resulting from the balance sheet and the proceeds of liquidation.
Shareholders shall only have those obligations specified in these Articles of Incorporation, and shall not be personally liable for the debts ofthe Company.
Shares shall be indivisible; the Company shall recognize only one representative per share.
The ownership of a share shall entail acceptance of the provisions of these Articles of Incorporation.
Article 6
The Company shall maintain a share register which lists the names of the owners and beneficiaries of the shares as well as their domiciles.
Only those persons entered in the share register as owners shall be deemed to be shareholders of the Company.
2
The transfer of ownership of certificated shares shall require delivery of the properly endorsed share certificate to the purchaser.
The transfer of ownership of shares held as book entry securities shall be carried out according to the provisions of the Swiss Book EntrySecurities Act.
Registered shares not incorporated into a certificate and that are not held as book entry securities as well as the respective rights associatedtherewith which are not incorporated into any certificate may be transferred only by assignment. Such assignment shall be valid only if theCompany has been notified thereof.
Article 7
Should a shareholder change his address, he must so inform the Company. As long as a shareholder has not provided notice of a change ofaddress to the Company, any written communication shall be validly made to his last address entered in the share register.
TITLE III
THE ORGANIZATION OF THE COMPANY
A. GENERAL MEETING OF SHAREHOLDERS
Article 8
The General Meeting shall be the supreme authority of the Company. It holds the inalienable rights provided by law.
The General Meeting shall convene at the place designated by the Board of Directors.
One or more shareholders who represent together at least ten percent of the share capital may demand that a General Meeting be called. Oneor more shareholders, who represent together shares representing at least the lesser of (i) one (1) percent of the share capital or (ii) anaggregate nominal value of CHF 1,000,000 (one million Swiss Francs), may demand that an item be included on the agenda for ashareholders' meeting. A shareholder demand to call a meeting and to include an item on the agenda shall be made in writing and shalldescribe the matters to be considered and any proposals to be made to the shareholders. Such written request shall be received by the Board ofDirectors at least sixty (60) days before the date proposed for the General Meeting.
Article 9
General Meetings shall be called at least twenty days before the date of the meeting by a single notice published in the media specified inArticle 24 below.
A General Meeting can alternatively be called by means of a notice sent to shareholders at the address entered in the share register. In such acase, the twenty-day notice period referred to above shall begin on the day following the date on which the notice shall have been mailed.
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Article 10
Each share confers the right to one vote.
Article 11
Any shareholder may appoint a representative who need not be a shareholder, provided that person holds a written proxy. Members of theBoard of Directors who are present shall decide whether to accept or refuse such proxies.
Statutory provisions relating to the representations of shareholders by the independent proxy are reserved.
Article 12
The General Meeting shall be presided over by the Chairman of the Board of Directors or any other member of the Board of Directors. In theabsence of such persons, the chairman shall be appointed by the General Meeting.
The Chairman of the General Meeting shall appoint the secretary of the General Meeting and the scrutineers.
Article 13
In the absence of any provision to the contrary in the law or these Articles of Incorporation, the General Meeting shall make resolutions andproceed to elections by an absolute majority of the votes cast. In the event of a tie vote, the vote of the Chairman of the General Meeting shalldecide.
As a general rule, voting and elections shall be conducted by a show of hands; however, a secret ballot shall be used when the Chairman ofthe General Meeting so orders or when 25 shareholders present at the meeting shall so request. An electronic vote shall be deemed a secretballot.
B. BOARD OF DIRECTORS
Article 14
The Board of Directors of the Company shall be composed of at least three members elected individually by the General Meeting for a termof office expiring after completion of the subsequent Annual General Meeting and who shall be indefinitely re-eligible.
The Chairman of the Board of Directors shall also be appointed by the General Meeting for a term of office expiring after completion of thesubsequent Annual General Meeting and who shall be indefinitely re-eligible.
Unless provided otherwise in the law or these Articles of Incorporation, the Board of Directors shall organize itself. It shall be entitled to electone or more vice-chairmen, who shall assume the responsibilities of the Chairman of the Board of Directors if the latter is incapacitated.
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Article 15
The Board of Directors shall make decisions and proceed to elections by a majority vote of the members present at the meeting. In the eventof a tie vote, the vote of the Chairman shall decide.
The decisions of the Board of Directors may be made in the form of a written consent (given by letter, fax or telegram) to a proposal, suchconsent representing a majority of all the members of the Board of Directors inasmuch as the proposal was submitted to all the members ofthe Board of Directors, unless a discussion is requested by one of them.
Article 16
The Board of Directors shall have the non-transferable and inalienable powers provided for under Art. 716a of the CO.
It may make decisions on any matters which have not been reserved to another corporate body of the Company pursuant to the law or theseArticles of Incorporation.
Article 17
The Board of Directors may, in compliance with the organizational regulations, entrust the management and the representation of theCompany to one or more of its members or to other natural persons who need not be shareholders (the "Management Team").
Article 17 bis
No member of the Board of Directors shall assume more than ten (10) mandates in supreme management or supervisory bodies of legalentities outside the Logitech group, of which no more than four (4) may be in listed companies. In addition, Members of the Board ofDirectors may assume up to ten (10) mandates in the governing bodies of charitable or similar organizations. The Chairman of the Board ofDirectors must be informed of such mandates.
The limits contemplated in the preceding paragraph do not apply to mandates:a) for companies controlled by the Company or that control the Company;b) that a member of the Board of Directors assumes at the request of the Company or of a company controlled by it; andc) for companies that are not required to be registered in the commercial registry in Switzerland or in an equivalent registry outside of
Switzerland.
Mandates for legal entities under common control or at the request of such legal entities are counted as one single mandate for the purpose ofthis Article 17 bis.
Article 17 ter
The Board of Directors shall establish a Compensation Committee. The Compensation Committee shall be composed of at least two membersof the Board of Directors, who shall be elected individually by the General Meeting for a term of office expiring after completion of thesubsequent Annual General Meeting and who shall be indefinitely re-eligible.
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The chairman of the Compensation Committee shall be appointed by the Board of Directors. The Compensation Committee shall otherwiseorganize itself.
The Compensation Committee shall support the Board of Directors in establishing and reviewing the Company's compensation strategy,guidelines and the performance targets, as well as in preparing the proposals to the General Meeting regarding the compensation of the Boardof Directors and of the Management Team. It may submit proposals to the Board of Directors in other compensation-related issues.
The Board of Directors shall set out in the organizational regulations (i) for which positions of the Board of Directors and of the ManagementTeam the Compensation Committee shall submit proposals for the compensation, and (ii) for which positions the Compensation Committeeshall determine such compensation in accordance with these Articles of Incorporation and the compensation guidelines.
The Board of Directors may delegate further tasks and powers to the Compensation Committee.
Article 18
In countries where laws or customs require for companies that important documents, or those subject to certain conditions of form have aseal, a seal may be affixed next to the signature.
The Board of Directors shall determine those seals and set the rules regarding the use thereof.
C. MANAGEMENT TEAM
Article 18 bis
The Company or companies controlled by it may enter into agreements relating to the compensation of the members of the ManagementTeam (the "employment agreements"). Fixed-term employment agreements shall run for a maximum period of one year. Employmentagreements entered into for an indefinite period of time shall be subject to a maximum notice period of one year.
Employment agreements entered into with members of the Management Team may contemplate a prohibition of competition aftertermination of the relevant employment agreement. The total consideration for a prohibition of competition that applies after termination ofan employment agreement and expiration of the applicable notice period, if any, shall not exceed, with respect to the entire period duringwhich the prohibition of competition applies, the total annual compensation of the relevant member of the Management Team.
Article 18 ter
No member of the Management Team may assume more than five (5) mandates in supreme management or supervisory bodies of legalentities outside the Logitech group, of which no more than two (2) may be in listed companies. In addition, Members of the ManagementTeam may assume up to five (5) mandates in the governing bodies of charitable or similar organizations. Any such mandate shall require theapproval of the Board of Directors.
This restriction does not include mandates:a) for companies controlled by the Company or that control the Company;
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b) that a member of the Management Team assumes at the request of the Company or of a company controlled by it; andc) for companies that are not required to be registered in the commercial registry in Switzerland or in an equivalent registry outside of
Switzerland.
Mandates for legal entities under common control are counted as one single mandate for the purpose of this Article 18 ter.
D. AUDITORS
Article 19
The General Meeting shall appoint one or several auditors as statutory auditors. It may appoint substitute auditors.
The term of office of the auditors shall be one year; it shall end after completion of the subsequent Annual General Meeting. Reappointmentshall be possible.
TITLE IV
COMPENSATION
Article 19 bis
The compensation of the members of the Board of Directors who do not have delegated management responsibilities shall consist of cashpayments and shares or share equivalents. The value of cash compensation and shares or share equivalents shall correspond to a fixedamount, which shall reflect the functions and responsibilities assumed. The value of shares or share equivalents shall be calculated at marketvalue.
Members of the Board of Directors who have delegated management responsibilities shall be compensated in the manner contemplated inArticle 19 ter below.
The Company shall reimburse the expenses incurred by the members of the Board of Directors. Expenses reimbursements are not part of thecompensation.
Article 19 ter
The principal components of the compensation of the Management Team shall be: (i) base salary; (ii) performance-based cash compensation,in the form of incentive cash payments and (iii) equity incentive awards.
The base salary shall reward the relevant members of the Management Team for their individual contribution to the Company and theirexpected day-to-day services.
The performance-based cash compensation shall take appropriate account of the achievement of the Company's, individual employees' orother performance goals. The target level of the performance-based cash compensation elements shall be determined as a percentage of thebase salary. The performance-
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based cash compensation may amount up to a pre-determined multiplier of the target level. Its amount may also reflect an overall assessmentof the relevant employee's performance or the Company's objectives.
Equity incentive awards shall provide, in particular, a direct incentive for future performances and align the interest of the Management Teamwith those of the Company's shareholders. Equity incentive awards shall be governed by performance metrics that take into account strategicor other objectives of the Company or by reference to the duration of the relevant employee's service to the Company or companies controlledby it.
The Board of Directors or, to the extent delegated to it, the Compensation Committee, shall determine performance metrics and target levelsapplicable to performance-based cash compensation and equity incentive awards, as well as their achievement.
Compensation may be paid or granted in the form of cash, shares, other benefits or in kind; compensation to members of the ManagementTeam may also be paid or granted in the form of financial instruments or similar units. The Board of Directors or, to the extent delegated to it,the Compensation Committee shall decide upon each grant as well as the applicable vesting, blocking, exercise and forfeiture conditions; theymay provide for continuation, acceleration or removal of vesting and exercise conditions, for payment or grant of compensation assumingtarget achievement or for forfeiture in the event of pre-determined events such as termination of employment or office or change of control.Compensation may be paid by the Company or companies controlled by it.
Members of the Management Team may participate in share purchase plans established by the Company or companies controlled by it, underthe terms of which eligible employees may allocate a portion of their compensation to the purchase of shares of the Company at a discount tomarket price.
The Company shall reimburse the expenses incurred by the members of the Management Team. Expenses reimbursements are not part of thecompensation.
Article 19 quater
Upon proposal of the Board of Directors, the General Meeting approves the maximum aggregate amount of the compensation of:
a) the Board of Directors, for the period up to the next Annual General Meeting; andb) the Management Team, for the next business year.
The Board of Directors may submit to the General Meeting for approval proposals in respect of maximum aggregate amounts and/orindividual compensation components for other time periods and/or propose the payment of additional amounts for special or extraordinaryservices of some or all of the members of the Board of Directors or of the Management Team.
If the General Meeting rejects a proposal submitted by the Board of Directors, the latter shall submit an alternative proposal to the same or asubsequent General Meeting.
The Company or companies controlled by it may grant or pay compensation subject to subsequent ratification at a General Meeting and claw-back by the Company in case of rejection by the General Meeting.
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Article 19 quinquies
If the maximum aggregate amount of compensation already approved by the General Meeting is not sufficient to also cover the compensationof one or more persons who become members of the Management Team during a compensation period for which the General Meeting hasalready approved the compensation of the Management Team (new hire), the Company or companies controlled by it shall be authorized topay an additional amount with respect to the compensation period already approved. Such additional amount shall not exceed:
a) for the head of the Management Team (CEO), one hundred and forty percent (140%) of the total annual compensation of the formerCEO; and
b) for any new hire other than the CEO, one hundred and forty percent (140%) of the highest total annual compensation of any member ofthe Management Team other than the CEO.
Article 19 sexies
Subject to Article 19 quarter, paragraph 4, above, Members of the Board of Directors and the Management Team shall not receive credits orloans from the Company or from a company controlled by it.
Compensation paid to members of the Board of Directors or Management Team for activities in companies that are controlled by theCompany shall be permitted. This compensation shall be included in the total compensation payable to the Board of Directors or ManagementTeam, as applicable, which shall be subject to the approval of the General Meeting.
Pension contributions and benefits shall be made or provided in accordance with the regulations applicable to the pension schemes in whichthe Company or the companies controlled by it participate in Switzerland or abroad.
TITLE V
BUSINESS YEAR, ANNUAL ACCOUNTS AND ALLOCATION OF PROFITS
Article 20
The business year shall begin on April 1st and end on March 31st.
Article 21
Five percent of the annual profits shall be allocated to the general reserve until such reaches twenty percent of the paid in share capital.Should the general reserve be used in any amount the allocation of profits shall be made until this level is reached again.
The balance of the profits arising from the balance sheet shall be distributed according to the resolutions of the General Meeting, uponproposition of the Board of Directors; however, the mandatory legal provisions of the law relating to the legal reserve must be complied with.
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Article 22
Dividends shall be paid at the time specified by the Board of Directors. Any dividend which has not been claimed within five years of itbecoming due is time-barred by statute of limitations and shall be forfeited to the Company by simple right and automatically.
TITLE VI
LIQUIDATION
Article 23
The General Meeting shall retain its right to approve the accounts at the time of liquidation and shall have the authority to discharge theliquidators with respect to their activities in connection therewith.
After payment of liabilities, the assets of the dissolved Company shall be distributed among the shareholders pro rata according to the parvalue of each such shareholders' shares.
TITLE VII
PUBLIC NOTICES – COMMUNICATIONS
Article 24
Public notices by the Company shall be made in the Feuille Officielle Suisse du Commerce (Swiss Official Commercial Gazette).
TITLE VIII
CONDITIONAL CAPITAL AND AUTHORIZED CAPITAL
Article 25
By the exercise of share option or other rights granted to certain employees, officers and directors of the group according to the group'semployee equity incentive plans, the share capital of the Company may be increased at most by CHF 6,250,000 (six million two hundred fiftythousand Swiss Francs) by way of the issue of 25,000,000 (twenty-five million) registered shares with a nominal value of CHF 0.25 (twenty-five centimes) each.
The shareholders' preferential subscription rights shall be eliminated for such new shares.
Article 26
By the exercise of conversion rights which are granted in relation with the issue of convertible bonds, the share capital of the Company shallbe increased by a maximum aggregate amount of CHF 6,250,000 (six million, two hundred fifty thousand Swiss Francs) through the issuanceto the holders of such bonds of a maximum of 25,000,000 (twenty-five million) fully paid-in registered shares with a nominal value of CHF0.25 (twenty-five centimes) each.
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The shareholders shall not have the right to subscribe by preference for the shares issuable on conversion of the bonds.
The Board of Directors may limit or withdraw the shareholders' right to subscribe for the bonds by preference for valid reasons, in particular(a) if the bonds are issued in connection with the financing or refinancing of the acquisition of one or more companies, businesses or parts ofbusinesses, or (b) to facilitate the placement of the bonds on the international markets or to increase the security holder base of the Company.
If the shareholders' right to subscribe for the bonds by preference is limited or withdrawn, the bonds must be issued at market conditions, theexercise period of the conversion rights must not exceed 7 (seven) years from the date of issuance of the bonds, and the conversion price mustbe set at a level that is not lower than the market price of the shares preceding the determination of the final conditions for the bonds.
Article 27
The Board of Directors is authorized at any time until September 5, 2020 to increase the share capital of the Company by a maximumaggregate amount of CHF 8,655,331 through the issuance of not more than 34,621,324 registered shares with a par value of CHF 0.25 each,which will have to be fully paid in.
Increases in partial amounts are permitted. The Board of Directors may authorize the issuance of new shares by means of an underwriting orsimilar process carried out by one or more banks or other financial institutions with a view to offering the new shares to existing shareholdersor to third parties. The Board of Directors shall determine the type of contributions, the issue price, the time of the issue, the conditions forthe exercise of the preferential subscription rights, the use of unexercised preferential subscription rights and the date upon which the newshares shall become entitled to dividends. The Board of Directors may authorize, restrict or exclude the trading of preferential subscriptionrights.
If preferential subscription rights are granted, but not exercised, the Board of Directors shall use the rights associated with the relevant sharesin the interest of the Company.
The Board of Directors may restrict or withdraw the preferential subscription rights of existing shareholders, and allocate such rights to thirdparties or to the Company for valid reasons, in particular if the new shares are being issued in connection with: (a) the acquisition ofcompanies, enterprises, participations, assets, intellectual property rights, licenses or new investment projects; (b) a public offering or privateplacement of shares for the financing and/or refinancing of an acquisition of the kind referred to under (a) above; (c) a public offering orprivate placement of shares, under circumstances in which such public offering or private placement would be difficult to carry out or couldlikely only be carried out under less favourable terms if the preferential subscription rights of existing shareholders were not restricted orwithdrawn; (d) the acquisition of a stake in the Company by a strategic partner; or (e) the broadening of the shareholder base of the Companyin certain jurisdictions or in the context of a listing or admission to trading on a domestic or foreign stock exchange.
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These articles of incorporation were approved on June 24 th , 1993, and modified on June 27 th , 1996, February 13 th , 1998, June 25 th , 1998,June 23 rd and June 29 th , 2000, March 19 th , 2001, May 1 st , 2001, June 1 st and 28 th , 2001, June 26 th and 27 th , 2002, June 24 th , 2004, June16 th , 2005, June 16 th , 2006, June 19 th , June 20 th , 2007, September 10, 2008, September 11, 2008, September 8, 2010, September 5, 2012,December 18, 2014, and September 5, 2018.
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The above text is a translation of the original French articles of incorporation ( statuts ), which constitute the definitive text and are binding inlaw.
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Exhibit 3.2
ORGANIZATIONAL REGULATIONS OF LOGITECH INTERNATIONAL SA
1. Governing principles
These organizational regulations (hereafter the " Regulations ") are adopted in accordance with Article 17 of theArticles of Incorporation of the Company.
They govern the organization, the voting procedure, as well as the powers and duties of the following organs of theCompany:
- Board of Directors (" Board ")
- Chairman of the Board
- Chief Executive Officer
- Group Management Team
2. The Board
2.1 Organization
The Board, constituted at a minimum by three members, is self-governed.
The members of the Board are elected for a 1-year term which is indefinitely renewable subject to the ageand tenure limits specified in Article 2.8 below. Employees may be members of the Board provided suchpersons do not receive compensation for their activities both as members of the Board and as employees.
At the first meeting following the ordinary general shareholders' meeting, the Board appoints one or twoVice-Chairmen (if any), a Lead Independent Director, and a Secretary. The role of Chairman or Vice-Chairman, on the one hand, and Lead Independent Director, on the other hand, may be cumulated. It is notmandatory that the Secretary be a member of the Board or a shareholder.
The term of office of the Chairman, Vice-Chairman, and Lead Independent Director matches the term ofoffice of their appointment as members of the Board. These persons can be indefinitely re-elected to theirrespective positions subject to the age and tenure limits specified in Article 2.8 below.
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2.2 Meetings, convening of meetings and agenda
A meeting of the Board may be called by the Chairman as often as the business of the Company requires.
The Board may also be convened upon request of any one of the directors. Such request is made to theChairman in writing, and it includes the reasons for which the Board meeting is being called. Upon receiptof such request, the Chairman shall convene the Board without delay. When necessary, the LeadIndependent Director may also convene the Board.
Where appropriate, but at least twice a year, the directors who meet the independence requirements of theNasdaq Stock Market rules and regulations shall meet in executive session. Such meetings may bescheduled in conjunction with the meetings of the Board.
The notice convening the Board meeting shall mention the day, the time and the place of the meeting, aswell as the agenda. The relevant documentation relating to the forthcoming meeting shall be deliveredreasonably in advance. Resolutions on items that were not mentioned in the agenda may only be taken ifall members of the Board have been consulted, except in case of emergency.
The Board is chaired by the Chairman and, in case of his absence, by the Vice-Chairman or, if he isabsent, by the Lead Independent Director or another member of the Board. Meetings of independentdirectors are chaired by the Lead Independent Director. Board meetings may be validly held by way ofvideo conference or telephone conference.
2.3 Vote, minutes
2.3.1 Vote
The Board takes its resolutions by the approval of the absolute majority of the members who are present.In the event of a tie, the Chairman has a casting vote.
While preparing its recommendations to the general shareholders' meeting for election or removal ofindependent auditors, the Board shall pay due consideration to the recommendations of the AuditCommittee established pursuant to Article 2.4.3 below.
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The resolutions of the Board may be taken by way of circular letter, provided that no member requests adiscussion.
The resolutions by way of circular letter are adopted if they have been approved by the majority of themembers of the Board. In the event of a tie, the Chairman has a casting vote.
2.3.2 Minutes
The discussions and the resolutions of the Board are set forth in minutes, signed by the Chairman and theSecretary. Each member of the Board receives a copy of the minutes. The resolutions taken by way ofcircular letter must be included in the minutes of the following meeting of the Board.
The minutes of each meeting must be ratified at the following meeting of the Board.
2.4 Attribution of powers
2.4.1 Powers delegated by the Board
The Board delegates the entire management of the Company to the Chief Executive Officer and to theGroup Management Team, except where the law, the Articles of Incorporation or the present Regulationsprovide differently.
2.4.2 Powers not delegated by the Board
The Board exercises at any time the superior management and supervision of the Company. It issuesdirectives concerning the business policy and keeps itself regularly informed on the Company'sperformance.
In particular, the Board has the following non-transferable and inalienable powers and duties:
1. It ultimately oversees the Chief Executive Officer and the Group Management Team and issues thenecessary guidelines; this includes the determination of strategic objectives, the allocation ofresources and the company policy;
2. It determines the organization structure;
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3. It establishes accounting and financial control principles as well as the financial plan;
4. It appoints and dismisses the Chief Executive Officer and the members of the Group ManagementTeam and resolves on their signatory power; it appoints and dismisses the head of the Internal Auditfunction;
5. It exercises the ultimate supervision of the persons in charge of the management of the business inorder to ensure that their activity is carried out in compliance with the law, the Articles ofIncorporation, the internal regulations and the instructions given;
6. It oversees the preparation of the annual report, prepares the shareholders' meetings and carriesout its decisions;
7. It informs the judge in case of overindebtedness (technical insolvency);
8. It takes resolutions regarding the payment of non fully paid-in shares (Art. 634 a CO);
9. It publishes the report provided for under Article 132 para. 1 of the Swiss Federal Act on FinancialMarket Infrastructures setting out the position of the Board with respect to a public takeover offer;and
10. It is responsible for the compensation report.
The Board keeps the power to resolve itself on the following objects:
a) the signatory power of its members, if any;
b) the approval of the budget submitted by the Chief Executive Officer;
c) the approval of any type of investment or acquisition not included in the approved budgets; providedthat management may from time to time request authorization to make investments and/oracquisitions up to an aggregate amount of USD 10,000,000 without Board approval, subject tomanagement’s obligation to conduct periodic post close reviews of such transactions and to presentthe findings of such reviews to the Board;
d) the approval of the acquisition and sale, as well as the constitution of security interests, over theCompany's real estate; and
e) the approval of any expenditure of more than USD 10,000,000 not specifically identified in theapproved budgets.
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2.4.3 Special committees
The members of the Compensation Committee are elected individually from among the members of theBoard by the general shareholders’ meeting. In addition, the Board constitutes within its ranks thefollowing three committees in charge of specific issues:
a) Audit Committee
b) Nominating Committee
c) Technology and Innovation Committee
Except where otherwise contemplated in the charter of the applicable committee, the recommendations ofthese four committees are submitted to the Board for approval.
In accordance with the law and the Articles of Incorporation of the Company, the Board shall issuecharters for each of these Committees which define their attributions and powers, and shall appoint theChairman of each of these Committees.
2.5 Right to information and consultation
Each member of the Board has the right to obtain information on the entire business of the Company.During the meetings, each member of the Board may request information from the other members as wellas from the persons entrusted with the management.
Outside of the meetings, each member of the Board may request from the persons entrusted with themanagement information regarding the course of business and, with the authorization of the Chairman, onspecific business issues. To the extent it is necessary for the accomplishment of his duties, each memberof the Board may request from the Chairman to review the books and files. If the Chairman rejects arequest for information, for a hearing or for consultation, the Board decides.
2.5.1 Reports
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During each meeting, the Board must be informed by the Chief Executive Officer on the development ofthe current affairs and on important events. Extraordinary events are to be notified to the members of theBoard in the shortest possible time by circular letter.
2.6 Signatory rights
The Chairman and those members of the Board who shall have the right to represent the Company shallhave either:
a. Collective signature authority, to be exercised together with another person authorized to sign, or
b. Individual signature authority, in which case their acts require prior approval of another personauthorized to sign.
The signature of a member of the Board is not necessary on documents signed on behalf of the Company.Any two authorized officials of the Company registered with the Register of Commerce, includingmembers of the Board, may execute documents on behalf of the Company. In addition, other officials ofthe Company may execute certain classes of documents on behalf of the Company together withauthorized officials under limited powers of attorney granted by the Board.
2.7 Discretion, secrecy
Each member of the Board is accountable for the documents entrusted to him. Each member is under anobligation to maintain absolute confidence towards third persons on the facts that came to his attentionduring the exercise of his directorship.
2.8 Age and tenure limits
No member of the Board of Directors can seek re-election after he or she has reached the age of 70 years,unless a specific exception is approved by the Board. The same age limit is applicable to the Board ofconsolidated subsidiaries.
No member of the Board can seek re-election after he or she has served on the Board as a non-employeemember for 12 years, unless a specific exception is approved by the Board.
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A member of the Board who has reached the age or tenure limit referred to above during the term of his orher directorship may remain a director until the expiration of his or her term.
2.9 Annual review
The Board shall review at least once a year its own structure, processes, and performance, including theadequacy of these Regulations. Independent directors shall assess the adequacy of their relationship andcooperation with executive directors.
2.10 Compensation
Subject to the powers of the general shareholders’ meeting, the Board determines the compensation of itsnon-employee members on the recommendation of the Compensation Committee. The compensation ofemployee members of the Board is determined by the Compensation Committee.
3. The Chairman of the Board
In urgent cases, the Chairman of the Board has the power to take on his own a decision which would otherwise fallin the competence of the Board, provided that a resolution by way of circular letter in accordance with Article 2.3.1above is not possible or practicable.
Decisions taken by the Chairman of the Board in this way shall be immediately notified in writing to the othermembers of the Board, and are subject to ratification by the Board at its next meeting or by way of circular letter.
4. The Chief Executive Officer
4.1 General responsibilities
In application of Article 17 of the Articles of Incorporation and subject to Article 2.4 above, theBoard delegates the entire management of the business to the Chief Executive Officer, who does not needto be a member of the Board.
The Chief Executive Officer spends his full time in this capacity. He conducts the business with thesupport of the Group Management Team. He organizes the Group Management Team and presides at itsmeetings.
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4.2 Detailed list of responsibilities
The Chief Executive Officer has, in particular, the following responsibilities and prerogatives:
- define and implement the short and medium term strategy and plans;
- establish preliminary and final budgets for submission to the Board for approval;
- produce the Company's preliminary financial statements as well as the annual report for submissionto the Board for approval and subsequent presentation to shareholders;
- hire, dismiss and promote employees, except members of the Group Management Team and thehead of the Internal Audit function;
- take immediate measures to protect the interests of the Company where a breach of duty is suspectedfrom a member of the Group Management Team, including suspending the relevant member of theGroup Management Team from office. In such a case, the Board must decide on the matter within areasonable period of time;
- implement the decisions taken by the Board;
- report regularly to the Chairman of the Board on the evolution of the business;
- prepare supporting documents for decisions which are to be made by the Board;
- decide on issues that are brought to his attention by the Group Management Team;
- keep the share register of the Company, under the supervision of the Board.
4.3 Reporting line
The Chief Executive Officer reports to the Board.
4.4 Compensation
Subject to the powers of the general shareholders’ meeting, the Compensation Committee determines thecompensation, including salary and bonus, of the Chief Executive Officer.
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5. The Group Management Team
5.1 Appointment, dismissal, remuneration
The Board appoints and dismisses the members of the Group Management Team.
5.2 Roles and responsibilities
The roles and responsibilities of the members of the Group Management Team are in the job descriptionsof each of the Managers.
5.3 Subordination
The members of the Group Management Team are directly subordinated to the Chief Executive Officer.They keep him informed on the development of the business in general, as well as on events that impactthe Company. The head of the Internal Audit function is directly subordinated to the Audit Committee.
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5.4 Compensation
Subject to the powers of the general shareholders’ meeting, the Compensation Committee determines thecompensation, including salary and bonus, of the members of the Group Management Team. Subject tothe powers of the general shareholders’ meeting, the Audit Committee determines the compensation,including salary and bonus, of the head of the Internal Audit function. The Audit Committee may delegatethis responsibility to its Chair.
6. Prohibition on Loans to Directors and Officers
The Company will not, directly or indirectly, extend or maintain credit, arrange for the extension of credit, orrenew an extension of credit in the form of a personal loan to or for any member of the Group Management Teamor member of the Board of the Company.
7. Final provisions
7.1 Entry into force
The present Regulations shall take effect upon their approval by the Board.
7.2 Amendments
On the Chairman's request, the present Regulations, must be reviewed and, as the case may be, updated ona yearly basis, i.e. during the first meeting of the Board following the ordinary shareholders meeting or asoften as the business of the Company requires.
Decisions regarding amendments of the present Regulations need to be approved by the absolute majorityof the attending members.
Adopted as of the 24 th of April, 1996, and amended as of the 28 th of June, 1999, the 14 th day of October, 2003, the8 th day of April, 2004, the 15 th day of June, 2006, the 17 th day of June, 2008, the 5 th day of September, 2013, the25 th day of March, 2015, the 29 th day of June, 2016 and the 6 th day of December, 2018.
ROMANEL, SWITZERLAND
Guerrino De Luca Bryan KoChairman of the Board Secretary
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Exhibit 21.1
LOGITECH INTERNATIONAL S.A.
LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
AMERICAS Logitech Argentina S.R.L. ArgentinaLogitech Do Brasil Comercio de Accessorios de Informatica Ltda.
Brazil
Logitech de Mexico S.A. de C.V. MexicoLogitech Canada Inc. CanadaLogitech Inc. United States of AmericaLogitech (Streaming Media) Inc. United States of AmericaLogitech (Slim Devices) Inc. United States of AmericaWiLife, Inc. United States of AmericaLogitech Servicios Latinoamérica, S.A de C.V
Mexico
Ultimate Ears Incorporated United States of AmericaSightSpeed, Inc. United States of AmericaUE Acquisition Inc. United States of AmericaLogitech Latin America, Inc. United States of AmericaBlue Microphones Holding Corporation
United States of America
Baltic Latvian Universal Electronics,LLC
United States of America
EMEA Labtec Europe S.A. SwitzerlandLogitech U.K. Limited United KingdomLogitech Espana BCN SL SpainLogitech Europe S.A. SwitzerlandSAS Logitech France Republic of FranceLogitech GmbH Federal Republic of GermanyLogitech Ireland Services Limited IrelandLogitech Italia SRL Republic of ItalyLogitech Nordic AB SwedenLogitech Benelux B.V. Kingdom of the NetherlandsLogitech Poland Spolka z.o.o PolandLogitech S.A. SwitzerlandLogitech Middle East FZ-LLC United Arab EmiratesLogitech (Streaming Media) SA SwitzerlandLogitech Hellas MEPE GreeceLogitech Schweiz AG SwitzerlandLogitech Upicto GmbH SwitzerlandLimited Liability Company “Logitech” RussiaLogi Peripherals Technologies (South Africa) (Proprietary) Limited
South Africa
Logitech Norway AS NorwayLogitech Turkey Computer Marketing Services LLC
Turkey
Name of Subsidiary Jurisdiction of Incorporation
ASIA PACIFIC LogiCool Co., Ltd JapanLogitech Electronic (India) Private Ltd IndiaLogitech Far East, Ltd Taiwan, Republic of ChinaLogitech Hong Kong Limited Hong KongLogitech Korea Ltd KoreaLogitech New Zealand Co., Ltd New ZealandLogitech Service Asia Pacific Pte Ltd Republic of SingaporeLogitech Singapore Pte Ltd Republic of SingaporeLogitech Technology (Suzhou) Co, Ltd People’s Republic of ChinaLogitech (China) Technology Co Ltd People’s Republic of ChinaLogitech Asia Logistics Limited Hong KongLogitech Asia Pacific Limited Hong KongLogitech Australia Computer Peripherals Pty, Limited Commonwealth of AustraliaLogitech (Beijing) Trading Company Limited People’s Republic of ChinaLogitech Technology (Shenzhen) Consulting Co Ltd People’s Republic of ChinaLogitech Engineering & Designs India Private Limited IndiaLogi Computer Peripherals (Malaysia) Sdn. Bhd MalaysiaLogitech JB Australia Pty Ltd. Commonwealth of Australia
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheBoardofDirectorsLogitechInternationalS.A.:
WeconsenttotheincorporationbyreferenceintheregistrationstatementsonFormS-8(No.333-100854,No.333-140429,No.333-157038,No.333-163933,No.333-167143,No.333-180725,No.333-180726,No.333-184583,No.333-192728andNo.333-221269)ofLogitechInternationalS.A.ofourreportdatedMay17,2019,withrespecttotheconsolidatedbalancesheetsofLogitechInternationalS.A.andsubsidiaries(theCompany)asofMarch31,2019and2018,andtherelatedconsolidatedstatementsofoperations,comprehensiveincome,changesinshareholders’equity,andcashflowsandtherelatednotesandfinancialstatementschedule(collectively,the“consolidatedfinancialstatements”)foreachoftheyearsinthethree-yearperiodendedMarch31,2019,andtheeffectivenessofinternalcontroloverfinancialreportingasofMarch31,2019,whichreportappearsintheMarch31,2019annualreportonForm10-KoftheCompany.
OurreportcontainsanexplanatoryparagraphthatstatestheCompanyexcludedfromitsassessmentoftheeffectivenessoftheCompany’sinternalcontroloverfinancialreportinganacquiredentity’sinternalcontroloverfinancialreportingandourauditofinternalcontroloverfinancialreportingoftheCompanyalsoexcludedanevaluationoftheinternalcontroloverfinancialreportingofthisentity.
OurreportreferstoachangeintheCompany’smethodofaccountingforrevenuein2019andexcesstaxbenefitsfromshare-basedpaymentsin2018duetotheadoptionnewaccountingstandards.
/s/KPMGLLP
SantaClara,California
May17,2019
Exhibit 31.1
CERTIFICATIONS
I,BrackenDarrell,certifythat:
1.IhavereviewedthisannualreportonForm10-KofLogitechInternationalS.A.;
2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4.Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b.Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c.Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d.Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5.Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sBoardofDirectors(orpersonsperformingtheequivalentfunctions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b.Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
May17,2019
/s/BRACKENDARRELL
BrackenDarrellPresident and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I,VincentPilette,certifythat:
1. IhavereviewedthisannualreportonForm10-KofLogitechInternationalS.A.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b. Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
c. Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d. Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5. Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sBoardofDirectors(orpersonsperformingtheequivalentfunctions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
b. Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
May17,2019 /s/VINCENTPILETTE
VincentPiletteChief Financial Officer
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(B) OR RULE15D-14(B) AND SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
The certification set forth below is being submitted in connection with this annual report on Form 10-K (the "Report") of LogitechInternationalS.A.("theCompany")forthepurposeofcomplyingwithRule13a-14(b)orRule15d-14(b)oftheSecuritiesExchangeActof1934(the"ExchangeAct")andSection1350ofChapter63ofTitle18oftheUnitedStatesCode.
BrackenDarrell,ChiefExecutiveOfficeroftheCompany,andVincentPilette,ChiefFinancialOfficeroftheCompany,eachcertifythat,tothebestofhisknowledge:
(1) theReportfullycomplieswiththerequirementsofSection13(a)or15(d)oftheExchangeAct;and(2) theinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsofthe
Company.
May17,2019 /s/BRACKENDARRELL
BrackenDarrellPresident and Chief Executive Officer
/s/VINCENTPILETTE
VincentPiletteChief Financial Officer