UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2011
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 0-29174
LOGITECH INTERNATIONAL S.A.
(Exact name of registrant as specified in its charter)
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Canton of Vaud, Switzerland (State or other jurisdiction of incorporation or organization) |
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None (I.R.S. Employer Identification No.) |
Logitech International S.A.
Apples, Switzerland
c/o Logitech Inc.
6505 Kaiser Drive
Fremont, California 94555
(Address of principal executive offices and zip code)
(510) 795-8500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of November 2, 2011, there were 172,912,488 shares of the Registrant’s share capital outstanding.
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Page |
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3 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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28 | |
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49 | ||
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52 | ||
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53 | ||
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53 | ||
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53 | ||
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61 | ||
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63 | ||
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64 | |
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Exhibits |
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In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. dollar, dollar or $ are to the United States dollar, the legal currency of the United States of America. All references to CHF are to the Swiss franc, the legal currency of Switzerland.
Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.
PART I – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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Three months ended |
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Six months ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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(Unaudited) |
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Net sales |
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$ |
589,204 |
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$ |
581,884 |
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$ |
1,069,645 |
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$ |
1,061,214 |
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Cost of goods sold |
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390,783 |
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364,950 |
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745,617 |
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675,251 |
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Gross profit |
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198,421 |
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216,934 |
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324,028 |
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385,963 |
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Operating expenses: |
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Marketing and selling |
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107,446 |
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97,412 |
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207,239 |
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188,889 |
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Research and development |
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39,491 |
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40,927 |
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79,472 |
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79,316 |
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General and administrative |
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27,989 |
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27,420 |
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58,854 |
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54,780 |
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Total operating expenses |
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174,926 |
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165,759 |
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345,565 |
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322,985 |
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Operating income (loss) |
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23,495 |
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51,175 |
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(21,537 |
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62,978 |
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Interest income, net |
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601 |
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635 |
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1,291 |
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1,156 |
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Other income (expense), net |
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(1,763 |
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(1,794 |
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3,428 |
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2 |
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Income (loss) before income taxes |
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22,333 |
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50,016 |
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(16,818 |
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64,136 |
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Provision for (benefit from) income taxes |
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4,888 |
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8,856 |
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(4,657 |
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3,454 |
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Net income (loss) |
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$ |
17,445 |
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$ |
41,160 |
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$ |
(12,161 |
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$ |
60,682 |
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Net income (loss) per share: |
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Basic |
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$ |
0.10 |
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$ |
0.23 |
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$ |
(0.07 |
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$ |
0.34 |
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Diluted |
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$ |
0.10 |
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$ |
0.23 |
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$ |
(0.07 |
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$ |
0.34 |
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Shares used to compute net income (loss) per share: |
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Basic |
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176,878 |
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176,359 |
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178,111 |
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175,921 |
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Diluted |
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177,277 |
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177,958 |
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178,111 |
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177,588 |
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The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
(In thousands, except per share amounts)
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September 30, 2011 |
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March 31, 2011 |
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(Unaudited) |
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ASSETS | |||||||
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Current assets: |
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Cash and cash equivalents |
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$ |
379,450 |
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$ |
477,931 |
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Accounts receivable |
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294,691 |
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258,294 |
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Inventories |
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325,053 |
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280,814 |
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Other current assets |
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85,004 |
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59,347 |
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Total current assets |
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1,084,198 |
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1,076,386 |
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Property, plant and equipment |
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78,416 |
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84,160 |
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Goodwill |
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560,343 |
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547,184 |
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Other intangible assets |
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66,693 |
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74,616 |
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Other assets |
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74,053 |
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79,210 |
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Total assets |
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$ |
1,863,703 |
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$ |
1,861,556 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
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Current liabilities: |
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Accounts payable |
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$ |
342,070 |
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$ |
298,160 |
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Accrued liabilities |
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187,017 |
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172,560 |
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Total current liabilities |
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529,087 |
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470,720 |
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Other liabilities |
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185,277 |
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185,835 |
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Total liabilities |
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714,364 |
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656,555 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Shares, par value CHF 0.25 - 191,606 issued and authorized and 50,000 conditionally authorized at September 30, 2011 and March 31, 2011 |
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33,370 |
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33,370 |
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Additional paid-in capital |
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— |
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— |
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Less shares in treasury at cost, 18,711 shares at September 30, 2011 and 12,433 shares at March 31, 2011 |
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(300,341 |
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(264,019 |
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Retained earnings |
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1,491,328 |
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1,514,168 |
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Accumulated other comprehensive loss |
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(75,018 |
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(78,518 |
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Total shareholders’ equity |
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1,149,339 |
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1,205,001 |
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Total liabilities and shareholders’ equity |
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$ |
1,863,703 |
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$ |
1,861,556 |
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The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Six months ended September 30, |
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2011 |
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2010 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
(12,161 |
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$ |
60,682 |
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Non-cash items included in net income (loss): |
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Depreciation |
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24,593 |
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23,343 |
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Amortization of other intangible assets |
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13,556 |
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14,027 |
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Inventory valuation adjustment |
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34,074 |
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— |
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Share-based compensation expense |
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16,453 |
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16,720 |
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Gain on disposal of property and plant |
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(4,904 |
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(838 |
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Excess tax benefits from share-based compensation |
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(30 |
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(676 |
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Loss on cash surrender value of life insurance policies |
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— |
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169 |
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Deferred income taxes and other |
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(8,554 |
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1,995 |
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Changes in assets and liabilities, net of acquisitions: |
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Accounts receivable |
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(36,517 |
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(99,615 |
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Inventories |
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(59,589 |
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(129,497 |
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Other assets |
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(6,886 |
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(5,511 |
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Accounts payable |
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45,088 |
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110,775 |
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Accrued liabilities |
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(3,489 |
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13,316 |
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Net cash provided by operating activities |
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1,634 |
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4,890 |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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(20,921 |
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(25,419 |
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Acquisitions, net of cash acquired |
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(18,814 |
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(7,300 |
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Proceeds from sale of property and plant |
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4,904 |
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2,688 |
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Purchases of trading investments |
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(4,536 |
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— |
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Proceeds from sales of trading investments |
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4,522 |
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— |
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Net cash used in investing activities |
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(34,845 |
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(30,031 |
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Cash flows from financing activities: |
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Purchases of treasury shares |
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(73,134 |
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— |
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Proceeds from sale of shares upon exercise of options and purchase rights |
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9,764 |
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16,570 |
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Tax withholdings related to net share settlements of restricted stock units |
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(185 |
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(223 |
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Excess tax benefits from share-based compensation |
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30 |
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676 |
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Net cash provided by (used in) financing activities |
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(63,525 |
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17,023 |
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Effect of exchange rate changes on cash and cash equivalents |
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(1,745 |
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(4,147 |
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Net decrease in cash and cash equivalents |
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(98,481 |
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(12,265 |
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Cash and cash equivalents at beginning of period |
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477,931 |
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319,944 |
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Cash and cash equivalents at end of period |
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$ |
379,450 |
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$ |
307,679 |
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The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Accumulated |
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Additional |
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other |
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Registered shares |
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paid-in |
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Treasury shares |
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Retained |
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comprehensive |
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Shares |
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Amount |
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capital |
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Shares |
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Amount |
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earnings |
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loss |
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Total |
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March 31, 2010 |
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191,606 |
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$ |
33,370 |
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$ |
14,880 |
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16,435 |
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$ |
(382,512 |
) |
$ |
1,406,618 |
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$ |
(72,641 |
) |
$ |
999,715 |
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Net income |
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— |
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— |
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— |
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— |
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— |
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60,682 |
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— |
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60,682 |
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Cumulative translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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7,164 |
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7,164 |
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Pension liability adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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(556 |
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(556 |
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Net deferred hedging loss |
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— |
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— |
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— |
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— |
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— |
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— |
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(10,026 |
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(10,026 |
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Total comprehensive income |
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57,264 |
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Tax provision for exercise of stock options |
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— |
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— |
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(189 |
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— |
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— |
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— |
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— |
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(189 |
) | ||||||
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Shares issued for director services |
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— |
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— |
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(116 |
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(12 |
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307 |
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191 |
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Sale of shares upon exercise of options and purchase rights |
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— |
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— |
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(26,020 |
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(1,568 |
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42,590 |
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— |
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— |
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16,570 |
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Issuance of shares upon vesting of restricted stock units |
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— |
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— |
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(1,760 |
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(56 |
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1,537 |
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— |
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— |
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(223 |
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Share-based compensation expense |
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— |
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— |
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16,753 |
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— |
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— |
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— |
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— |
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16,753 |
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September 30, 2010 |
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191,606 |
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$ |
33,370 |
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$ |
3,548 |
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14,799 |
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$ |
(338,078 |
) |
$ |
1,467,300 |
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$ |
(76,059 |
) |
$ |
1,090,081 |
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March 31, 2011 |
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191,606 |
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$ |
33,370 |
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$ |
— |
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12,433 |
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$ |
(264,019 |
) |
$ |
1,514,168 |
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$ |
(78,518 |
) |
$ |
1,205,001 |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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(12,161 |
) |
— |
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(12,161 |
) | ||||||
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Cumulative translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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(4,824 |
) |
(4,824 |
) | ||||||
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Pension liability adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
|
423 |
|
423 |
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Net deferred hedging gain |
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— |
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— |
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— |
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— |
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— |
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— |
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7,901 |
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7,901 |
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Total comprehensive income |
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(8,661 |
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Purchase of treasury shares |
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— |
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— |
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— |
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7,609 |
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(73,134 |
) |
— |
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— |
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(73,134 |
) | ||||||
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Tax benefit from exercise of stock options |
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— |
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— |
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9 |
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— |
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— |
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— |
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— |
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9 |
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Shares issued for director services |
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— |
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— |
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(643 |
) |
(33 |
) |
844 |
|
— |
|
— |
|
201 |
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Sale of shares upon exercise of options and purchase rights |
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— |
|
— |
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(13,390 |
) |
(1,220 |
) |
33,850 |
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(10,679 |
) |
— |
|
9,781 |
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Issuance of shares upon vesting of restricted stock units |
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— |
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— |
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(2,303 |
) |
(78 |
) |
2,118 |
|
— |
|
— |
|
(185 |
) | ||||||
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Share-based compensation expense |
|
— |
|
— |
|
16,327 |
|
— |
|
— |
|
— |
|
— |
|
16,327 |
| ||||||
|
September 30, 2011 |
|
191,606 |
|
$ |
33,370 |
|
$ |
— |
|
18,711 |
|
$ |
(300,341 |
) |
$ |
1,491,328 |
|
$ |
(75,018 |
) |
$ |
1,149,339 |
|
The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — The Company
Logitech is a world leader in products that connect people to the digital experiences they care about. Spanning multiple computing, communications and entertainment platforms, we develop and market innovative hardware and software products that enable or enhance digital navigation, music and video entertainment, gaming, social networking, audio and video communication over the Internet, video security and home-entertainment control. Our products for home and business PCs (personal computers) include mice, trackballs, keyboards, interactive gaming controllers, multimedia speakers, headsets, webcams, and lapdesks. Our tablet accessories include keyboards, keyboard cases, earphones, wireless speakers and speaker stands. Our Internet communications products include webcams, headsets, video communications services, and digital video security systems for a home or small business. Our digital music products include speakers, earphones, and custom in-ear monitors. For home entertainment systems, we offer the Harmony line of advanced remote controls, Squeezebox wireless music solutions and, in the United States, a line of Logitech products for the Google TV platform. For gaming consoles, we offer a range of gaming controllers and microphones, as well as other accessories. Our LifeSize division offers scalable HD (high-definition) video communications endpoints, HD video conferencing systems with integrated monitors, video bridges and other infrastructure software and hardware to support large scale video deployments, and services to support these products.
We sell our peripheral products to a network of distributors and resellers and to OEMs (original equipment manufacturers). We sell our LifeSize products and services to distributors, value-added resellers, OEMs, and, occasionally, direct enterprise customers. The large majority of our revenues have historically been derived from sales of our peripheral products for use by consumers.
Logitech was founded in Switzerland in 1981, and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Apples, Switzerland, which conducts its business through subsidiaries in the Americas, EMEA (Europe, Middle East, Africa) and Asia Pacific. Shares of Logitech International S.A. are listed on both the Nasdaq Global Select Market, under the trading symbol LOGI, and the SIX Swiss Exchange, under the trading symbol LOGN.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The consolidated financial statements are presented in accordance with U.S. GAAP (accounting principles generally accepted in the United States of America) for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2011 included in its Annual Report on Form 10-K.
Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income.
In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods
presented. Operating results for the three and six months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending March 31, 2012 or any future periods.
Fiscal Year
The Company’s fiscal year ends on March 31. Interim quarters are thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods as ending on the month end.
Changes in Significant Accounting Policies
There have been no changes in our significant accounting policies during the three and six months ended September 30, 2011 compared with the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2011, the FASB (Financial Accounting Standards Board) issued ASU (Accounting Standards Update) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 also changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective during interim and annual periods beginning after December 15, 2011. The Company will adopt ASU 2011-04 in the fourth quarter of fiscal year 2012. The Company is evaluating the impact of adopting ASU 2011-04.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income. ASU 2011-05 requires disclosure of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt ASU 2011-05 in the first quarter of fiscal year 2013. The adoption of this standard will impact only the presentation format of the consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350). ASU 2011-08 provides entities the option to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity concludes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity may elect to bypass the qualitative assessment and proceed to perform the first step of the two-step goodwill impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company will adopt ASU 2011-08 in the first quarter of fiscal year 2013. The adoption of this standard is not expected to have a material impact on the consolidated financial statements and footnote disclosures.
Note 3 — Net Income (Loss) per Share
The computations of basic and diluted net income (loss) per share for the Company were as follows (in thousands except per share amounts):
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) |
|
$ |
17,445 |
|
$ |
41,160 |
|
$ |
(12,161 |
) |
$ |
60,682 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares - basic |
|
176,878 |
|
176,359 |
|
178,111 |
|
175,921 |
| ||||
|
Effect of potentially dilutive share equivalents |
|
399 |
|
1,599 |
|
— |
|
1,667 |
| ||||
|
Weighted average shares - diluted |
|
177,277 |
|
177,958 |
|
178,111 |
|
177,588 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) per share - basic |
|
$ |
0.10 |
|
$ |
0.23 |
|
$ |
(0.07 |
) |
$ |
0.34 |
|
|
Net income (loss) per share - diluted |
|
$ |
0.10 |
|
$ |
0.23 |
|
$ |
(0.07 |
) |
$ |
0.34 |
|
Employee equity share options, non-vested shares and similar share-based compensation awards granted by the Company are treated as potential shares in computing diluted net income or loss per share. Diluted shares outstanding include the dilutive effect of in-the-money share-based awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising share-based awards, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.
Share equivalents attributable to outstanding stock options and RSUs (restricted stock units) of 17,054,444 and 13,195,403 for the three months ended September 30, 2011 and 2010, and 17,601,198 and 13,738,650 for the six months ended September 30, 2011 and 2010 were excluded from the calculation of diluted net income (loss) per share because the combined exercise price, average unamortized fair value and assumed tax benefits upon the exercise of options and the vesting of RSUs were greater than the average market price of the Company’s shares, and therefore their inclusion would have been anti-dilutive. For the six months ended September 30, 2011, potentially dilutive share equivalents were excluded from the computation of diluted net loss per share because their inclusion in calculating a net loss per share would have been anti-dilutive.
Note 4 — Employee Benefit Plans
Employee Share Purchase Plans and Stock Incentive Plans
As of September 30, 2011, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)) and the 2006 Stock Incentive Plan. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.
The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and six months ended September 30, 2011 and 2010 (in thousands):
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of goods sold |
|
$ |
950 |
|
$ |
919 |
|
$ |
2,110 |
|
$ |
1,910 |
|
|
Share-based compensation expense included in gross profit |
|
950 |
|
919 |
|
2,110 |
|
1,910 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Marketing and selling |
|
3,448 |
|
3,091 |
|
6,965 |
|
6,168 |
| ||||
|
Research and development |
|
1,754 |
|
1,776 |
|
3,562 |
|
3,552 |
| ||||
|
General and administrative |
|
586 |
|
2,472 |
|
3,816 |
|
5,090 |
| ||||
|
Share-based compensation expense included in operating expenses |
|
5,788 |
|
7,339 |
|
14,343 |
|
14,810 |
| ||||
|
Total share-based compensation expense |
|
6,738 |
|
8,258 |
|
16,453 |
|
16,720 |
| ||||
|
Income tax benefit |
|
(2,276 |
) |
(2,442 |
) |
(4,665 |
) |
(4,337 |
) | ||||
|
Share-based compensation expense, net of income tax |
|
$ |
4,462 |
|
$ |
5,816 |
|
$ |
11,788 |
|
$ |
12,383 |
|
As of September 30, 2011 and 2010, $0.9 million and $0.9 million of share-based compensation cost was capitalized to inventory. The following table summarizes total share-based compensation cost not yet recognized and the number of months over which such cost is expected to be recognized, on a weighted-average basis by type of grant (in thousands, except number of months):
|
|
|
September 30, 2011 |
| |||
|
|
|
Compensation |
|
Months of |
| |
|
|
|
Cost Not Yet |
|
Future |
| |
|
|
|
Recognized |
|
Recognition |
| |
|
|
|
|
|
|
| |
|
Non-vested stock options |
|
$ |
14,926 |
|
22 |
|
|
Time-based RSUs |
|
25,931 |
|
36 |
| |
|
Performance-based RSUs |
|
10,289 |
|
27 |
| |
|
Total compensation cost not yet recognized |
|
$ |
51,146 |
|
|
|
A summary of the Company’s stock option activity for the three and six months ended September 30, 2011 and 2010 is as follows (in thousands, except per share data; exercise prices are weighted averages):
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||||||||||
|
|
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Exercise |
| ||||
|
|
|
Number |
|
Price |
|
Number |
|
Price |
|
Number |
|
Price |
|
Number |
|
Price |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Options outstanding, beginning of period |
|
15,639 |
|
$ |
20 |
|
19,239 |
|
$ |
18 |
|
16,312 |
|
$ |
19 |
|
20,037 |
|
$ |
18 |
|
|
Granted |
|
— |
|
$ |
— |
|
68 |
|
$ |
15 |
|
— |
|
$ |
— |
|
254 |
|
$ |
15 |
|
|
Exercised |
|
(211 |
) |
$ |
8 |
|
(475 |
) |
$ |
9 |
|
(285 |
) |
$ |
8 |
|
(1,008 |
) |
$ |
9 |
|
|
Cancelled or expired |
|
(940 |
) |
$ |
18 |
|
(290 |
) |
$ |
22 |
|
(1,539 |
) |
$ |
20 |
|
(741 |
) |
$ |
22 |
|
|
Options outstanding, end of period |
|
14,488 |
|
$ |
20 |
|
18,542 |
|
$ |
18 |
|
14,488 |
|
$ |
20 |
|
18,542 |
|
$ |
18 |
|
|
Options exercisable, end of period |
|
10,807 |
|
$ |
20 |
|
11,571 |
|
$ |
18 |
|
10,807 |
|
$ |
20 |
|
11,571 |
|
$ |
18 |
|
The total pretax intrinsic value of options exercised during the three months ended September 30, 2011 and 2010 was $0.4 million and $3.2 million and the tax benefit realized for the tax deduction from options exercised during those periods was $0.1 million and $1.1 million. The total pretax intrinsic value of options exercised during the six months ended September 30, 2011 and 2010 was $0.7 million and $6.7 million and the tax benefit realized for the tax deduction from options exercised during those periods was $0.2 million and $1.9 million. The total fair value of options vested as of September 30, 2011 and 2010 was $72.4 million and $72.9 million.
The fair value of employee stock options granted and shares purchased under the Company’s employee purchase plans was estimated using the Black-Scholes-Merton option-pricing valuation model
applying the following assumptions and values. There were no stock options granted in the three and six months ended September 30, 2011.
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
Purchase Plans |
|
Stock Options |
|
Purchase Plans |
|
Stock Options |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
0 |
% |
0 |
% |
n/a |
|
0 |
% |
0 |
% |
0 |
% |
n/a |
|
0 |
% |
|
Expected life |
|
6 months |
|
6 months |
|
n/a |
|
4.0 years |
|
6 months |
|
6 months |
|
n/a |
|
4.0 years |
|
|
Expected volatility |
|
40 |
% |
36 |
% |
n/a |
|
48 |
% |
40 |
% |
36 |
% |
n/a |
|
48 |
% |
|
Risk-free interest rate |
|
0.17 |
% |
0.17 |
% |
n/a |
|
1.16 |
% |
0.17 |
% |
0.17 |
% |
n/a |
|
1.63 |
% |
The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The Company has not paid dividends since 1996. The expected option life represents the weighted-average period the stock options or purchase offerings are expected to remain outstanding. The expected life is based on historical settlement rates, which the Company believes are most representative of future exercise and post-vesting termination behaviors. Expected share price volatility is based on historical volatility using daily prices over the term of the options or purchase offerings. The Company considers historical share price volatility as most representative of future volatility. The risk-free interest rate assumptions are based upon the implied yield of U.S. Treasury zero-coupon issues appropriate for the term of the Company’s stock options or purchase offerings.
The Company estimates option forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest.
The following table presents the weighted average grant-date fair values of options granted and the expected forfeiture rates. There were no stock options granted in the three and six months ended September 30, 2011.
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||||
|
|
|
Purchase Plans |
|
Stock Options |
|
Purchase Plans |
|
Stock Options |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Weighted average grant-date fair value of options granted |
|
$ |
3.20 |
|
$ |
3.96 |
|
n/a |
|
$ |
5.92 |
|
$ |
3.20 |
|
$ |
3.96 |
|
n/a |
|
$ |
5.85 |
|
|
Expected forfeitures |
|
0 |
% |
0 |
% |
n/a |
|
9 |
% |
0 |
% |
0 |
% |
n/a |
|
9 |
% | ||||||
A summary of the Company’s time- and performance-based RSU activity for the three and six months ended September 30, 2011 and 2010 is as follows (in thousands, except per share values; grant-date fair values are weighted averages):
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||||||||||
|
|
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
| ||||
|
|
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
RSUs outstanding, beginning of period |
|
2,879 |
|
$ |
20 |
|
430 |
|
$ |
18 |
|
2,370 |
|
$ |
21 |
|
514 |
|
$ |
17 |
|
|
Granted |
|
419 |
|
$ |
9 |
|
75 |
|
$ |
16 |
|
1,133 |
|
$ |
12 |
|
75 |
|
$ |
16 |
|
|
Vested |
|
(66 |
) |
$ |
16 |
|
(41 |
) |
$ |
16 |
|
(116 |
) |
$ |
15 |
|
(119 |
) |
$ |
14 |
|
|
Cancelled or expired |
|
(533 |
) |
$ |
20 |
|
(85 |
) |
$ |
28 |
|
(688 |
) |
$ |
20 |
|
(91 |
) |
$ |
27 |
|
|
RSUs outstanding, end of period |
|
2,699 |
|
$ |
18 |
|
379 |
|
$ |
15 |
|
2,699 |
|
$ |
18 |
|
379 |
|
$ |
15 |
|
The total fair value of RSUs vested during the three months ended September 30, 2011 and 2010 was $1.3 million and $0.7 million. The tax benefit realized for the tax deduction from RSUs vested during the three months ended September 30, 2011 was $0.01 million. The tax benefit realized for the three months ended September 30, 2010 was immaterial. The total fair value of RSUs vested during the six months ended September 30, 2011 and 2010 was $1.7 million and $1.6 million and the tax benefit realized for the tax deduction from RSUs vested during these periods was $0.2 million and $0.2 million.
The Company determines the fair value of time-based RSUs based on the share market price on the date of grant. The fair value of performance-based RSUs is estimated using the Monte-Carlo simulation method applying the following assumptions:
|
|
|
FY 2012 |
|
FY 2011 |
|
FY 2010 |
|
FY 2009 |
|
|
|
|
Grants |
|
Grants |
|
Grants |
|
Grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
0 |
% |
0 |
% |
0 |
% |
0 |
% |
|
Expected life |
|
3 years |
|
3 years |
|
2 years |
|
2 years |
|
|
Expected volatility |
|
51 |
% |
51 |
% |
58 |
% |
41 |
% |
|
Risk-free interest rate |
|
1.35 |
% |
0.81 |
% |
1.11 |
% |
1.82 |
% |
The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The expected life of the performance-based RSUs is the service period at the end of which the RSUs will vest if the performance conditions are satisfied. The volatility assumption is based on the actual volatility of Logitech’s daily closing share price over a look-back period equal to the years of expected life. The risk free interest rate is derived from the yield on U.S. Treasury Bonds for a term of the same number of years as the expected life.
Defined Contribution Plans
Certain of the Company’s subsidiaries have defined contribution employee benefit plans covering all or a portion of their employees. Contributions to these plans are discretionary for certain plans and are based on specified or statutory requirements for others. The charges to expense for these plans for the three months ended September 30, 2011 and 2010 were $2.4 million and $2.0 million. During the six months ended September 30, 2011 and 2010, the charges to expense for these plans was $5.5 million and $3.9 million.
Defined Benefit Plans
Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations.
The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and six months ended September 30, 2011 and 2010 was as follows (in thousands):
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Service cost |
|
$ |
1,937 |
|
$ |
1,081 |
|
$ |
3,232 |
|
$ |
2,100 |
|
|
Interest cost |
|
632 |
|
425 |
|
1,137 |
|
827 |
| ||||
|
Expected return on plan assets |
|
(235 |
) |
(444 |
) |
(653 |
) |
(859 |
) | ||||
|
Amortization of net transition obligation and prior service cost |
|
39 |
|
36 |
|
79 |
|
73 |
| ||||
|
Recognized net actuarial loss |
|
359 |
|
92 |
|
459 |
|
179 |
| ||||
|
Net periodic benefit cost |
|
$ |
2,732 |
|
$ |
1,190 |
|
$ |
4,254 |
|
$ |
2,320 |
|
Note 5 — Income Taxes
The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for income taxes are generated outside of Switzerland.
The income tax provision for the three months ended September 30, 2011 and 2010 was $4.9 million and $8.9 million based on effective income tax rates of 21.9% and 17.7% of pre-tax income. For the six months ended September 30, 2011, the income tax benefit was $4.7 million based on an effective income tax rate of 27.7% of pre-tax loss. For the six months ended September 30, 2010, the income tax provision was $3.5 million based on an effective income tax rate of 5.4% of pre-tax income. The change in the effective income tax rate for the three months ended September 30, 2011 compared with the three months ended September 30, 2010 is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates. The change in the effective income tax rate for the six months ended September 30, 2011 compared with the six months ended September 30, 2010 is primarily due to discrete tax benefits of $7.2 million in the six months ended September 30, 2010 from the closure of income tax audits in certain jurisdictions.
Current deferred tax assets increased from $27.0 million as of March 31, 2011 to $42.9 million as of September 30, 2011. The increase is primarily due to the tax benefit from operating losses generated in the six month period ended September 30, 2011.
As of September 30 and March 31, 2011, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $136.9 million and $138.1 million, of which $116.6 million and $118.2 million would affect the effective income tax rate if recognized. The decline in the income tax liability associated with uncertain tax benefits in the six-month period is primarily due to the expiration of statutes of limitations, offset by the impact of foreign currency exchange rates and the accrual of interest expense.
The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of September 30, 2011, accrued interest and penalties related to uncertain tax positions increased to $8.3 million from $8.0 million as of March 31, 2011.
The Company files Swiss and foreign tax returns. For all these tax returns, the Company is generally not subject to tax examinations for years prior to 1999. The U.S. Internal Revenue Service has completed its field examinations of tax returns for the Company’s U.S. subsidiary for fiscal years 2006 and 2007, and has issued NOPAs (notices of proposed adjustment) related to international tax issues for those years. The Company disagrees with the NOPAs and is contesting through the administrative process for the U.S. Internal Revenue Service claims regarding 2006 and 2007. The Company believes the outcome of this examination is not expected to have a material adverse effect on our consolidated operating results.
In addition, the U.S. Internal Revenue Service is in the process of examining the Company’s U.S. subsidiary for fiscal years 2008 and 2009. The Company is also under examination in other tax jurisdictions. At this time it is not possible to estimate the potential impact that these examinations may have on income tax expense. If the examinations are resolved unfavorably, there is a possibility they may have a material impact on our results of operations.
Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. Although the timing of the resolution or closure on audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next twelve months.
Note 6 — Balance Sheet Components
The following table provides the components of certain balance sheet asset amounts as of September 30 and March 31, 2011 (in thousands):
|
|
|
September 30, 2011 |
|
March 31, 2011 |
| ||
|
Accounts receivable: |
|
|
|
|
| ||
|
Accounts receivable |
|
$ |
464,989 |
|
$ |
435,331 |
|
|
Allowance for doubtful accounts |
|
(3,726 |
) |
(4,086 |
) | ||
|
Allowance for returns |
|
(26,328 |
) |
(29,666 |
) | ||
|
Cooperative marketing arrangements |
|
(27,249 |
) |
(28,669 |
) | ||
|
Customer incentive programs |
|
(48,352 |
) |
(52,358 |
) | ||
|
Pricing programs |
|
(64,643 |
) |
(62,258 |
) | ||
|
|
|
$ |
294,691 |
|
$ |
258,294 |
|
|
Inventories: |
|
|
|
|
| ||
|
Raw materials |
|
$ |
46,312 |
|
$ |
37,126 |
|
|
Work-in-process |
|
117 |
|
3 |
| ||
|
Finished goods |
|
278,624 |
|
243,685 |
| ||
|
|
|
$ |
325,053 |
|
$ |
280,814 |
|
|
Other current assets: |
|
|
|
|
| ||
|
Tax and VAT refund receivables |
|
$ |
19,792 |
|
$ |
17,810 |
|
|
Deferred taxes |
|
42,919 |
|
27,018 |
| ||
|
Prepaid expenses and other |
|
22,293 |
|
14,519 |
| ||
|
|
|
$ |
85,004 |
|
$ |
59,347 |
|
|
Property, plant and equipment: |
|
|
|
|
| ||
|
Plant, buildings and improvements |
|
$ |
54,266 |
|
$ |
52,681 |
|
|
Equipment |
|
145,872 |
|
137,248 |
| ||
|
Computer equipment |
|
63,187 |
|
60,344 |
| ||
|
Computer software |
|
81,966 |
|
85,338 |
| ||
|
|
|
345,291 |
|
335,611 |
| ||
|
Less: accumulated depreciation |
|
(276,019 |
) |
(260,283 |
) | ||
|
|
|
69,272 |
|
75,328 |
| ||
|
Construction-in-progress |
|
6,359 |
|
5,974 |
| ||
|
Land |
|
2,785 |
|
2,858 |
| ||
|
|
|
$ |
78,416 |
|
$ |
84,160 |
|
|
Other assets: |
|
|
|
|
| ||
|
Deferred taxes |
|
$ |
52,436 |
|
$ |
55,897 |
|
|
Trading investments |
|
13,167 |
|
13,113 |
| ||
|
Deposits and other |
|
8,450 |
|
10,200 |
| ||
|
|
|
$ |
74,053 |
|
$ |
79,210 |
|
The following table provides the components of certain balance sheet liability amounts as of September 30 and March 31, 2011 (in thousands):
|
|
|
September 30, 2011 |
|
March 31, 2011 |
| ||
|
Accrued liabilities: |
|
|
|
|
| ||
|
Accrued personnel expenses |
|
$ |
47,244 |
|
$ |
50,552 |
|
|
Accrued marketing expenses |
|
35,825 |
|
32,599 |
| ||
|
Deferred revenue |
|
18,210 |
|
15,859 |
| ||
|
Accrued freight and duty |
|
11,769 |
|
12,497 |
| ||
|
Accrued royalties |
|
6,131 |
|
5,144 |
| ||
|
Warranty accrual |
|
4,832 |
|
4,970 |
| ||
|
Non-retirement post-employment benefit obligations |
|
4,190 |
|
3,563 |
| ||
|
Income taxes payable - current |
|
4,074 |
|
2,569 |
| ||
|
Other accrued liabilities |
|
54,742 |
|
44,807 |
| ||
|
|
|
$ |
187,017 |
|
$ |
172,560 |
|
|
Long-term liabilities: |
|
|
|
|
| ||
|
Income taxes payable - non-current |
|
$ |
130,892 |
|
$ |
131,968 |
|
|
Obligation for deferred compensation |
|
13,256 |
|
13,076 |
| ||
|
Defined benefit pension plan liability |
|
26,404 |
|
26,645 |
| ||
|
Other long-term liabilities |
|
14,725 |
|
14,146 |
| ||
|
|
|
$ |
185,277 |
|
$ |
185,835 |
|
Inventories are stated at the lower of cost or market. Inventory as of September 30, 2011 includes an adjustment of $19.5 million to reflect the lower of cost or market on our inventory of Logitech Revue and related peripherals on hand. Other accrued liabilities include $5.3 million to reflect the lower of cost or market adjustment on inventory purchase commitments for Logitech Revue and related peripherals. In the three months ended June 30, 2011, a valuation adjustment of $34.1 million was charged to cost of goods sold, as the result of management’s decision in early July 2011 to reduce the future retail price of Logitech Revue from $249 to $99. The decrease in the adjustment from June 30 to September 30, 2011 resulted from sales of Logitech Revue which occurred in the three months ended September 30, 2011.
The following table presents the changes in the allowance for doubtful accounts during the three and six months ended September 30, 2011 and 2010 (in thousands):
|
|
|
September 30, |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Allowance for doubtful accounts, March 31 |
|
$ |
(4,086 |
) |
$ |
(5,870 |
) |
|
Bad debt expense |
|
401 |
|
(422 |
) | ||
|
Write-offs net of recoveries |
|
(351 |
) |
597 |
| ||
|
Allowance for doubtful accounts, June 30 |
|
$ |
(4,036 |
) |
$ |
(5,695 |
) |
|
Bad debt expense |
|
(355 |
) |
140 |
| ||
|
Write-offs net of recoveries |
|
665 |
|
1,621 |
| ||
|
Allowance for doubtful accounts, September 30 |
|
$ |
(3,726 |
) |
$ |
(3,934 |
) |
Note 7 — Financial Instruments
Fair Value Measurements
The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants at the measurement date. The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:
· Level 1 – Quoted prices in active markets for identical assets or liabilities.
· Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The following table presents the Company’s financial assets and liabilities that were accounted for at fair value, classified by the level within the fair value hierarchy (in thousands):
|
|
|
September 30, 2011 |
|
March 31, 2011 |
| ||||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cash and cash equivalents |
|
$ |
379,450 |
|
$ |
— |
|
$ |
— |
|
$ |
477,931 |
|
$ |
— |
|
$ |
— |
|
|
Trading investments |
|
13,167 |
|
— |
|
— |
|
13,113 |
|
|
|
|
| ||||||
|
Available-for-sale securities |
|
— |
|
— |
|
1,695 |
|
— |
|
— |
|
1,695 |
| ||||||
|
Foreign exchange derivative assets |
|
5,799 |
|
— |
|
— |
|
566 |
|
— |
|
— |
| ||||||
|
Total assets at fair value |
|
$ |
398,416 |
|
$ |
— |
|
$ |
1,695 |
|
$ |
491,610 |
|
$ |
— |
|
$ |
1,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Foreign exchange derivative liabilities |
|
$ |
897 |
|
$ |
— |
|
$ |
— |
|
$ |
1,881 |
|
$ |
— |
|
$ |
— |
|
|
Total liabilities at fair value |
|
$ |
897 |
|
$ |
— |
|
$ |
— |
|
$ |
1,881 |
|
$ |
— |
|
$ |
— |
|
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand deposits and time deposits. The time deposits have original maturities of less than 33 days. Cash and cash equivalents are carried at cost, which approximates fair value.
Investment Securities
The Company’s investment securities portfolio consists of marketable securities related to a deferred compensation plan and auction rate securities collateralized by residential and commercial mortgages.
The marketable securities are classified as non-current trading investments and do not have maturity dates. These securities are recorded at a fair value of $13.2 million and $13.1 million at September 30 and March 31, 2011, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Earnings, gains and losses on trading investments are included in other income (expense), net, and primarily relate to trading securities held at September 30, 2011.
The auction rate securities are classified as non-current available-for-sale investments and have maturity dates in excess of 10 years. Interest rates on these securities were intended to reset through an auction every 28 days, however auctions for these securities have failed since August 2007. Four of the securities with par value of $32.2 million and estimated fair value of $0.9 million have experienced events of default and have declared acceleration. The Company does not expect to realize the proceeds, if any, from the auction rate securities until a future auction of these securities is successful or a buyer is found outside of the auction process. The auction rate securities have a par value and original cost of $47.5 million, and are recorded at an estimated fair value of $1.7 million at September 30 and March 31, 2011. The estimated fair value was determined by estimating future cash flows through time according to each security’s terms, including periodic consideration of overcollateralization and interest coverage tests, and
incorporating estimates of default rate, loss severity, prepayment, and delinquency assumptions when available, for the underlying assets in the securities based on representative indices and various research reports. The estimated coupon and principal payments were discounted at the rate of return required by investors, based on the characteristics of each security as calculated from the indices. Such valuation methods fall within Level 3 of the fair value hierarchy. Declines in fair value of the auction rate securities are deemed other-than-temporary and are included in other income (expense), net. Increases in fair value are considered temporary and are included in accumulated other comprehensive loss.
Derivative Financial Instruments
The following table presents the fair values of the Company’s derivative instruments and their locations on the Balance Sheet as of September 30 and March 31, 2011 (in thousands):
|
|
|
Asset Derivatives |
|
Liability Derivatives |
| ||||||||||||
|
|
|
|
|
Fair Value |
|
|
|
Fair Value |
| ||||||||
|
|
|
|
|
September 30, |
|
March 31, |
|
|
|
September 30, |
|
March 31, |
| ||||
|
|
|
Location |
|
2011 |
|
2011 |
|
Location |
|
2011 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash Flow Hedges |
|
Other assets |
|
$ |
5,089 |
|
$ |
— |
|
Other liabilities |
|
$ |
— |
|
$ |
1,763 |
|
|
|
|
|
|
5,089 |
|
— |
|
|
|
— |
|
1,763 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Foreign Exchange Forward Contracts |
|
Other assets |
|
— |
|
486 |
|
Other liabilities |
|
211 |
|
— |
| ||||
|
Foreign Exchange Swap Contracts |
|
Other assets |
|
710 |
|
80 |
|
Other liabilities |
|
686 |
|
118 |
| ||||
|
|
|
|
|
710 |
|
566 |
|
|
|
897 |
|
118 |
| ||||
|
|
|
|
|
$ |
5,799 |
|
$ |
566 |
|
|
|
$ |
897 |
|
$ |
1,881 |
|
The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three months ended September 30, 2011 and their locations on its Financial Statements (in thousands):
|
|
|
|
|
Location of gain (loss) |
|
Amount of gain (loss) |
|
|
|
|
| |||
|
|
|
Net amount of gain (loss) |
|
reclassified from |
|
reclassified from |
|
|
|
|
| |||
|
|
|
deferred as a component of |
|
accumulated other |
|
accumulated other |
|
Location of gain (loss) |
|
Amount of gain (loss) |
| |||
|
|
|
accumulated other |
|
comprehensive loss |
|
comprehensive loss |
|
recognized in income |
|
recognized in income |
| |||
|
|
|
comprehensive loss |
|
into income |
|
into income |
|
immediately |
|
immediately |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
| |||
|
Cash Flow Hedges |
|
$ |
7,219 |
|
Cost of goods sold |
|
$ |
1,539 |
|
Other income/expense |
|
$ |
(161 |
) |
|
|
|
7,219 |
|
|
|
1,539 |
|
|
|
(161 |
) | |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
| |||
|
Foreign Exchange Forward Contracts |
|
— |
|
|
|
— |
|
Other income/expense |
|
246 |
| |||
|
Foreign Exchange Swap Contracts |
|
— |
|
|
|
— |
|
Other income/expense |
|
(403 |
) | |||
|
|
|
— |
|
|
|
— |
|
|
|
(157 |
) | |||
|
|
|
$ |
7,219 |
|
|
|
$ |
1,539 |
|
|
|
$ |
(318 |
) |
The following table presents the amounts of gains and losses on the Company’s derivative instruments for the six months ended September 30, 2011 and their locations on its Financial Statements (in thousands):
|
|
|
|
|
Location of gain (loss) |
|
Amount of gain (loss) |
|
|
|
|
| |||
|
|
|
Net amount of gain (loss) |
|
reclassified from |
|
reclassified from |
|
|
|
|
| |||
|
|
|
deferred as a component of |
|
accumulated other |
|
accumulated other |
|
Location of gain (loss) |
|
Amount of gain (loss) |
| |||
|
|
|
accumulated other |
|
comprehensive loss |
|
comprehensive loss |
|
recognized in income |
|
recognized in income |
| |||
|
|
|
comprehensive loss |
|
into income |
|
into income |
|
immediately |
|
immediately |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
| |||
|
Cash Flow Hedges |
|
$ |
7,901 |
|
Cost of goods sold |
|
$ |
4,017 |
|
Other income/expense |
|
$ |
(258 |
) |
|
|
|
7,901 |
|
|
|
4,017 |
|
|
|
(258 |
) | |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
| |||
|
Foreign Exchange Forward Contracts |
|
— |
|
|
|
— |
|
Other income/expense |
|
194 |
| |||
|
Foreign Exchange Swap Contracts |
|
— |
|
|
|
— |
|
Other income/expense |
|
(620 |
) | |||
|
|
|
— |
|
|
|
— |
|
|
|
(426 |
) | |||
|
|
|
$ |
7,901 |
|
|
|
$ |
4,017 |
|
|
|
$ |
(684 |
) |
Cash Flow Hedges
The Company enters into foreign exchange forward contracts to hedge against exposure to changes in foreign currency exchange rates related to its subsidiaries’ forecasted inventory purchases. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative purposes. These hedging contracts generally mature within four months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the foreign currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income (expense). Such gains or losses were immaterial during the three and six months ended September 30, 2011 and 2010. Cash flows from such hedges are classified as operating activities in the consolidated statements of cash flows. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases at September 30, 2011 and 2010 were $77.4 million (€57.3 million) and $98.7 million (€71.9 million). The notional amount represents the future cash flows under contracts to purchase foreign currencies.
Other Derivatives
The Company enters into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on certain foreign currency receivables or payables. These forward contracts generally mature within three months. The Company may also enter into foreign exchange swap contracts to economically extend the terms of its foreign exchange forward contracts. The primary risk managed by using forward and swap contracts is the foreign currency exchange rate risk. The gains or losses on foreign exchange forward contracts are recognized in earnings based on the changes in fair value.
The notional amounts of foreign exchange forward contracts outstanding at September 30, 2011 and 2010 relating to foreign currency receivables or payables were $22.3 million and $14.3 million. Open forward contracts as of September 30, 2011 consisted of contracts in euros to purchase or sell British pounds and contracts in Australian dollars to purchase U.S. dollars at future dates at pre-determined exchange rates. The notional amounts of foreign exchange swap contracts outstanding at September 30, 2011 and 2010 were $25.6 million and $26.6 million. Swap contracts outstanding at September 30, 2011 consisted of contracts in Taiwanese dollar Non Deliverable Forwards, Mexican pesos, Japanese yen and Canadian dollars.
The fair value of all our foreign exchange forward contracts and foreign exchange swap contracts is determined based on quoted foreign exchange forward rates. Quoted foreign exchange forward rates are observable inputs that are classified as Level 1 within the fair value hierarchy.
Note 8 —Goodwill and Other Intangible Assets
The following table summarizes the activity in the Company’s goodwill account during the six months ended September 30, 2011 (in thousands):
|
|
|
September 30, 2011 |
| |
|
|
|
|
| |
|
Goodwill, March 31, 2011 |
|
$ |
547,184 |
|
|
Additions |
|
14,068 |
| |
|
Reductions |
|
(909 |
) | |
|
Goodwill, September 30, 2011 |
|
$ |
560,343 |
|
Our acquisition of Mirial S.r.l. on July 18, 2011 added $14.1 million to goodwill. The impact of foreign exchange rates reduced goodwill by $0.9 million. Mirial’s business will be fully integrated into the Company’s LifeSize division, and discrete financial information for Mirial will not be maintained. Accordingly, the acquired goodwill related to Mirial will be evaluated for impairment at the video conferencing reporting unit level.
The Company performs its annual goodwill impairment test during its fiscal fourth quarter, or more frequently, if certain events or circumstances warrant. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired, and a second test is performed to measure the amount of impairment loss. The Company’s reporting units consist of peripherals and video conferencing.
Between our annual goodwill impairment tests, the Company monitors potential triggering events to determine when an evaluation of goodwill for impairment should be performed. During the quarter ended September 30, 2011 and after the quarter-end, the Company experienced volatility in its stock price and market capitalization. During this period, the Company’s market capitalization was greater than its net book value. In September, 2011, management reduced the Company’s projected fiscal year 2012 consolidated operating results, based on the current economic environment in mature western markets and the Company’s current product offerings. As the Company’s consolidated operating results are projected to be profitable for fiscal year 2012, management determined there were no triggering events requiring the review of goodwill for impairment as of September 30, 2011. Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill, as well as other long-lived assets. Further adverse changes in the Company’s expected operating results, market capitalization, business climate, or other negative events could result in a non-cash impairment charge in the future.
The Company’s acquired other intangible assets subject to amortization were as follows (in thousands):
|
|
|
September 30, 2011 |
|
March 31, 2011 |
| ||||||||||||||
|
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
| ||||||
|
|
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Trademark/tradename |
|
$ |
32,113 |
|
$ |
(24,699 |
) |
$ |
7,414 |
|
$ |
31,907 |
|
$ |
(23,290 |
) |
$ |
8,617 |
|
|
Technology </ | |||||||||||||||||||