Edgar Filing: LOGITECH INTERNATIONAL SA

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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 quarterly period ended September 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 0-29174

LOGITECH INTERNATIONAL S.A.

(Exact name of registrant as specified in its charter)

Canton of Vaud, Switzerland

(State or other jurisdiction
of incorporation or organization)

None

(I.R.S. Employer
Identification No.)

Logitech International S.A.

Apples, Switzerland

c/o Logitech Inc.

7600 Gateway Boulevard

Newark, California 94560

(Address of principal executive offices and zip code)

(510) 795-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of November 10, 2014, there were 163,259,279 shares of the Registrant’s share capital outstanding.

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TABLE OF CONTENTS

		Page

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	47
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibit Index	63
Signatures		64

Exhibits

In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. dollar, dollar or $ are to the United States dollar, the legal currency of the United States of America. All references to CHF are to the Swiss franc, the legal currency of Switzerland.

Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.

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PART I — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Page
	Financial Statement Description

·	Consolidated Statements of Operations for the three and six months ended September 30, 2014 and 2013	4

·	Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2014 and 2013	5

·	Consolidated Balance Sheets as of September 30, 2014 and March 31, 2014	6

·	Consolidated Statements of Cash Flows for the six months ended September 30, 2014 and 2013	7

·	Consolidated Statements of Changes in Shareholders’ Equity for the six months ended September 30, 2014 and 2013	8

·	Notes to Consolidated Financial Statements	9

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2014			2013		2014			2013

Net sales	$	530,311		$	531,143	$	1,012,514		$	1,009,673
Cost of goods sold	325,533			348,181		625,984			657,449
Gross profit	204,778			182,962		386,530			352,224

Operating expenses:
Marketing and selling	95,862			93,451		186,908			194,544
Research and development	32,325			37,485		63,641			74,012
General and administrative	34,470			29,172		71,149			58,249
Restructuring charges, net	—			5,465		—			7,799
Total operating expenses	162,657			165,573		321,698			334,604
Operating income	42,121			17,389		64,832			17,620
Interest income, net	355			183		613			160
Other (expense) income , net	(885		)	62		(1,083		)	279
Income before income taxes	41,591			17,634		64,362			18,059
Provision for income taxes	5,501			3,058		8,596			2,257
Net income	$	36,090		$	14,576	$	55,766		$	15,802

Net income per share:
Basic	$	0.22		$	0.09	$	0.34		$	0.10
Diluted	$	0.22		$	0.09	$	0.34		$	0.10

Shares used to compute net income per share :
Basic	163,230			159,969		163,121			159,637
Diluted	166,065			161,183		165,949			160,875

Cash dividends per share	$	—		$	0.22	$	—		$	0.22

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2014			2013			2014			2013

Net income	$	36,090		$	14,576		$	55,766		$	15,802

Other comprehensive income:
Foreign currency translation (loss) gain	(3,852		)	2,728			(3,651		)	3,427
Defined benefit pension plans:
Net gain (loss) and prior service costs, net of taxes	807			(804		)	946			(239		)
Amortization included in operating expenses	109			309			222			1,394
Hedging gain (loss):
Unrealized hedging gain (loss)	3,505			(1,373		)	3,753			(2,286		)
Reclassification of hedging loss (gain) included in cost of goods sold	(215		)	(94		)	185			184
Other comprehensive income:	354			766			1,455			2,480
Total comprehensive income	$	36,444		$	15,342		$	57,221		$	18,282

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

	September 30,			March 31,
	2014			2014
Assets
Current assets:
Cash and cash equivalents	$	500,222		$	469,412
Accounts receivable, net	252,692			182,029
Inventories	245,237			222,402
Other current assets	69,169			59,157
Total current assets	1,067,320			933,000
Non-current assets:
Property, plant and equipment, net	89,749			88,391
Goodwill	343,955			345,010
Other intangible assets	5,046			10,529
Other assets	67,440			74,460
Total assets	$	1,573,510		$	1,451,390
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	300,128		$	242,815
Accrued and other current liabilities	216,591			211,972
Total current liabilities	516,719			454,787
Non-current liabilities:
Income taxes payable	86,390			93,126
Other non-current liabilities	96,040			99,349
Total liabilities	699,149			647,262

Commitments and contingencies (note 11)

Shareholders’ equity:
Registered shares, CHF 0.25 par value:	30,148			30,148
Issued and authorized shares —173,106 at September 30, 2014 and March 31, 2014	—			—
Conditionally authorized shares — 50,000 at September 30, 2014 and March 31, 2014	—			—
Additional paid-in capital	6,478			—
Less shares in treasury, at cost —9,847 at September 30, 2014 and 10,206 at March 31, 2014	(109,976		)	(116,510		)
Retained earnings	1,032,058			976,292
Accumulated other comprehensive loss	(84,347		)	(85,802		)
Total shareholders’ equity	874,361			804,128
Total liabilities and shareholders’ equity	$	1,573,510		$	1,451,390

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended
	September 30,
	2014			2013

Operating activities:
Net income	$	55,766		$	15,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	19,692			21,842
Amortization of other intangible assets	5,358			10,518
Share-based compensation expense	12,999			8,499
Impairment of investment	105			530
Loss (gain) on disposal of property, plant and equipment	(10		)	2,456
Excess tax benefits from share-based compensation	(666		)	—
Deferred income taxes	(2,358		)	(3,901		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(73,561		)	(76,305		)
Inventories	(26,984		)	(21,673		)
Other assets	(5,640		)	(7,141		)
Accounts payable	60,112			38,593
Accrued and other liabilities	15,891			27,089
Net cash provided by operating activities	60,704			16,309

Investing activities:
Purchases of property, plant and equipment	(24,964		)	(25,186		)
Investment in privately held companies	(2,550		)	—
Acquisitions, net of cash acquired	—			(650		)
Purchase of trading investments	(2,230		)	(6,146		)
Proceeds from sales of trading investments	2,545			6,602
Net cash used in investing activities	(27,199		)	(25,380		)

Financing activities:
Payment of cash dividends	—			(36,123		)
Contingent consideration related to prior acquisition	(100		)	—
Repurchase of ESPP awards	(1,078		)	—
Proceeds from sales of shares upon exercise of options and purchase rights	1,533			6,135
Tax withholdings related to net share settlements of restricted stock units	(1,323		)	(453		)
Excess tax benefits from share-based compensation	666			—
Net cash used in financing activities	(302		)	(30,441		)

Effect of exchange rate changes on cash and cash equivalents	(2,393		)	484
Net increase (decrease) in cash and cash equivalents	30,810			(39,028		)
Cash and cash equivalents, beginning of the period	469,412			333,824
Cash and cash equivalents, end of the period	$	500,222		$	294,796

Non-cash investing activities:
Property, plant and equipment purchased during the period and included in period end liability accounts	$	1,568		$	1,935

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

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LOGITECH INTERNATIONAL S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

															Accumulated
				Additional											Other			Total
	Registered Shares			Paid-in			Treasury Shares					Retained			Comprehensive			Shareholders’
	Shares	Amount		Capital			Shares		Amount			Earnings			Gain (Loss)			Equity

March 31, 2013	173,106	$	30,148	$	—		13,855		$	(179,990	)	$	966,924		$	(95,129	)	$	721,953
Total comprehensive income	—	—		—			—		—			15,802			2,480			18,282
Tax effects from share-based awards	—	—		(1,218		)	—					—			—			(1,218		)
Sales of shares upon exercise of options and purchase rights	—	—		(3,107		)	(1,074	)	18,206			(9,020		)	—			6,079
Issuance of shares upon vesting of restricted stock units	—	—		(4,231		)	(225	)	3,834			—			—			(397		)
Share-based compensation expense	—	—		8,556			—		—			—			—			8,556
Cash dividends	—	—		—			—		—			(36,123		)	—			(36,123		)
September 30, 2013	173,106	$	30,148	$	—		12,556		$	(157,950	)	$	937,583		$	(92,649	)	$	717,132

				Additional										Other			Total
	Registered Shares			Paid-in			Treasury Shares					Retained		Comprehensive			Shareholders’
	Shares	Amount		Capital			Shares		Amount			Earnings		Gain (Loss)			Equity

March 31, 2014	173,106	$	30,148	$	—		10,206		$	(116,510	)	$	976,292	$	(85,802	)	$	804,128
Total comprehensive income	—	—		—			—		—			55,766		1,455			57,221
Tax effects from share-based awards	—	—		825			—		—			—		—			825
Sales of shares upon exercise of options and purchase rights	—	—		(881		)	(134	)	2,414			—		—			1,533
Issuance of shares upon vesting of restricted stock units	—	—		(5,443		)	(225	)	4,120			—		—			(1,323		)
Share-based compensation expense	—	—		13,055			—		—			—		—			13,055
Repurchase of ESPP awards	—	—		(1,078		)	—		—			—		—			(1,078		)
September 30, 2014	173,106	$	30,148	$	6,478		9,847		$	(109,976	)	$	1,032,058	$	(84,347	)	$	874,361

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

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LOGITECH INTERNATIONAL S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — The Company

Logitech International S.A, together with its consolidated subsidiaries, (“Logitech” or the “Company”) develops and markets innovative hardware and software products that enable or enhance digital navigation, music and video entertainment, gaming, social networking, and audio and video communication over the Internet.

The Company has two operating segments, peripherals and video conferencing. Logitech’s peripherals segment encompasses the design, manufacturing and marketing of peripherals for personal computers (“PCs”), tablets and other digital platforms. The Company’s video conferencing segment offers scalable high-definition (“HD”) video communications endpoints, HD video conferencing systems a Software as a Service (“SaaS”) video service infrastructure software and appliance to support large-scale video deployments, and services to support these products.

The Company sells its peripherals products to a network of distributors, retailers and original equipment manufacturers (“OEMs”). The Company sells its video conferencing products and services to distributors, value-added resellers, OEMs and, occasionally, direct enterprise customers. The large majority of the Company’s net sales have historically been derived from peripherals 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, Europe, Middle East, Africa (“EMEA”) 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 —Revision of Previously Issued Financial Statements

As disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014 and in the audited consolidated financial statements contained therein, the Company has restated and revised its financial statements for the fiscal years ended March 31, 2012 and 2013, respectively. The impact of the adjustments also immaterially impact the financial statements for the first three quarters of the fiscal year ended March 31, 2014 as previously included in the Company’s quarterly reports on Form 10-Q for Fiscal 2014. The financial statements for three and six months ended September 30, 2013 included in this Form 10-Q are revised as described below for those adjustments and should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014, filed with the SEC on November 13, 2014.

The adjustments included in these financial statements for the three and six months ended September 30, 2013 primarily related to a correction to revenue that was previously recorded as an out-of-period adjustment and is now being reported in the correct period, capitalization of property, plant and equipment which was previously incorrectly expensed, other misstatements, and the tax impact of these adjustments.

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Consolidated Statements of Operations.

The following table presents the impact of the correcting adjustments on the Company’s previously reported consolidated statement of operations for the three and six months ended September 30, 2013 (in thousands):

	Three Months Ended							Six Months Ended
	September 30, 2013							September 30, 2013
	As Reported		Adjustments*			As Revised		As Reported		Adjustments*			As Revised

Net sales	$	531,972	$	(829	)	$	531,143	$	1,009,896	$	(223	)	$	1,009,673
Cost of goods sold	348,559		(378		)	348,181		658,128		(679		)	657,449
Gross profit	183,413		(451		)	182,962		351,768		456			352,224
Operating expenses:
Marketing and selling	93,710		(259		)	93,451		194,345		199			194,544
Research and development	37,633		(148		)	37,485		73,824		188			74,012
General and administrative	29,395		(223		)	29,172		58,543		(294		)	58,249
Restructuring charges	5,465		—			5,465		7,799		—			7,799
Total operating expenses	166,203		(630		)	165,573		334,511		93			334,604
Operating income	17,210		179			17,389		17,257		363			17,620
Interest income, net	183		—			183		160		—			160
Other income, net	62		—			62		279		—			279
Income before income taxes	17,455		179			17,634		17,696		363			18,059
Provision for income taxes	3,057		1			3,058		2,255		2			2,257
Net income	$	14,398	$	178		$	14,576	$	15,441	$	361		$	15,802

Net income per share:
Basic	$	0.09	$	—		$	0.09	$	0.10	$	—		$	0.10
Diluted	$	0.09	$	—		$	0.09	$	0.10	$	—		$	0.10
Shares used to compute net income per share:
Basic	159,969		—			159,969		159,637		—			159,637
Diluted	161,183		—			161,183		160,875		—			160,875

* The adjustments included in these financial statements for the three and six months ended September 30, 2013 primarily related to a correction to revenue that was previously recorded as an out-of-period adjustment and is now being reported in the correct period, capitalization of property, plant and equipment which was previously incorrectly expensed, pension obligation, other misstatements, and the tax impact of these adjustments.

Consolidated Statements of Comprehensive Income

The following table presents the impact of the correcting adjustments on the Company’s previously reported consolidated statement of comprehensive income for the three and six months ended September 30, 2013 (in thousands):

	Three Months Ended								Six Months Ended
	September 30, 2013								September 30, 2013
	As Reported			Adjustments*		As Revised			As Reported			Adjustments*		As Revised

Net income	$	14,398		$	178	$	14,576		$	15,441		$	361	$	15,802

Other comprehensive income:
Foreign currency translation gain	2,728			—		2,728			2,829			598		3,427
Defined benefit pension plans:												—		—
Net loss and prior service costs, net of taxes	(804		)	—		(804		)	(1,000		)	761		(239		)
Reclassification of amortization included in operating expenses	309			—		309			615			779		1,394
Hedging gain (loss):
Unrealized hedging loss	(1,373		)	—		(1,373		)	(2,286		)	—		(2,286		)
Reclassification of hedging (gain) loss included in cost of goods sold	(94		)	—		(94		)	184			—		184
Other comprehensive income:	766			—		766			342			2,138		2,480
Total comprehensive income	$	15,164		$	178	$	15,342		$	15,783		$	2,499	$	18,282

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Consolidated Statement of Cash Flows

The following table presents the impact of the correcting adjustments on the Company’s previously reported consolidated statement of cash flows for the six months ended September 30, 2013 (in thousands):

	Six months ended September 30, 2013
	As Reported			Adjustments*			As Revised

Cash flows from operating activities:
Net income	$	15,441		361			$	15,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	19,283			2,559			21,842
Amortization of other intangible assets	10,518			—			10,518
Share-based compensation expense	8,499			—			8,499
Impairment of investments	530			—			530
Loss on disposal of property, plant and equipment	2,456			—			2,456
Deferred income taxes	(3,902		)	1			(3,901		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(77,042		)	737			(76,305		)
Inventories	(21,350		)	(323		)	(21,673		)
Other assets	(5,893		)	(1,248		)	(7,141		)
Accounts payable	39,555			(962		)	38,593
Accrued and other liabilities	26,091			998			27,089
Net cash provided by operating activities	14,186			2,123			16,309

Cash flows from investing activities:
Purchases of property, plant and equipment	(23,063		)	(2,123		)	(25,186		)
Acquisitions, net of cash acquired	(650		)	—			(650		)
Purchases of trading investments	(6,146		)	—			(6,146		)
Proceeds from sales of trading investments	6,602			—			6,602
Net cash used in investing activities	(23,257		)	(2,123		)	(25,380		)

Cash flows from financing activities:
Payment of cash dividends	(36,123		)	—			(36,123		)
Proceeds from sales of shares upon exercise of options and purchase rights	6,135			—			6,135
Tax withholdings related to net share settlements of restricted stock units	(453		)	—			(453		)
Net cash used in financing activities	(30,441		)	—			(30,441		)
Effect of exchange rate changes on cash and cash equivalents	484			—			484
Net decrease in cash and cash equivalents	(39,028		)	—			(39,028		)
Cash and cash equivalents at beginning of period	333,824			—			333,824
Cash and cash equivalents at end of period	$	294,796		$	—		$	294,796

Property, plant and equipment purchased during the period and included in period end liability accounts	$	1,935		$	—		$	1,935

* The adjustments included in these financial statements for the six months ended September 30, 2013 primarily related to a correction to revenue that was previously recorded as an out-of-period adjustment and is now being reported in the correct period, capitalization of property, plant and equipment which was previously incorrectly expensed, pension obligation, other misstatements, and the tax impact of these adjustments.

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Note 3 — Summary of Significant Accounting Policies

Basis of Presentation

The consolidated interim 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 accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and therefore do not include all the information required by GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2014, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 13, 2014. 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, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2015, 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 substantial changes in the Company’s significant accounting policies during the six months ended September 30, 2014 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

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. Examples of significant estimates and assumptions made by management involve the fair value of goodwill, accruals for customer programs, inventory valuation, valuation allowances for deferred tax assets and warranty accruals. 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 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The new standard will be effective for the Company beginning April 1, 2017. Early application is prohibited. The Company is currently evaluating the impact that adopting this new guidance will have on its consolidated financial statements.

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Note 4 — Net Income per Share

The computations of basic and diluted net income per share for the Company were as follows (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2014		2013		2014		2013

Net income	$	36,090	$	14,576	$	55,766	$	15,802

Shares used in net income per share computation:
Weighted average shares outstanding - basic	163,230		159,969		163,121		159,637
Effect of potentially dilutive equivalent shares	2,835		1,214		2,828		1,238
Weighted average shares outstanding - diluted	166,065		161,183		165,949		160,875

Net income per share:
Basic	$	0.22	$	0.09	$	0.34	$	0.10
Diluted	$	0.22	$	0.09	$	0.34	$	0.10

Share equivalents attributable to outstanding stock options and RSUs, and ESPP of 8,317,744 and 15,408,542 for the three months ended September 30, 2014 and 2013 and 8,147,312 and 16,829,424 for the six months ended September 30, 2014 and 2013 were excluded from the calculation of diluted net income per share because to do so would have been anti-dilutive for the periods indicated.

Note 5 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of September 30, 2014, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan). Please refer to our fiscal year 2014 Form 10-K for additional information regarding the Employee Share Purchase Plans and Stock Incentive Plans.

The Company was not current with its periodic reports required to be filed with the SEC and was therefore unable to issue any shares under its Registration Statements on Form S-8 after July 31, 2014. Given the proximity of the unavailability of those registration statements and the end of the current ESPP offering period, also on July 31, 2014, the Compensation Committee authorized the termination of the current ESPP offering period and a one-time payment to each participant in an amount equal to the fifteen percent (15%) discount at which shares would otherwise have been repurchased pursuant to the current period of the ESPPs. This one-time payment was accounted for as a repurchase of equity awards that reduced additional paid in capital, resulting in no additional compensation cost. Given the unavailability of the Company’s Registration Statements on Form S-8, no new ESPP offering periods were initiated during the three months ended September 30, 2014.

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The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and six months ended September 30, 2014 and 2013 (in thousands):

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Cost of goods sold	$	627		$	594		$	1,165		$	1,171
Marketing and selling	1,653			1,017			4,209			2,923
Research and development	552			840			1,396			1,934
General and administrative	3,229			1,658			6,229			2,471
Total share-based compensation expense	6,061			4,109			12,999			8,499
Income tax benefit	(1,913		)	(1,300		)	(3,097		)	(2,175		)
Total share-based compensation expense, net of income tax	$	4,148		$	2,809		$	9,902		$	6,324

During both of the three months ended September 30, 2014 and 2013, the Company capitalized $0.4 million of stock-based compensation expenses as inventory.

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, 2014 and 2013 were $1.1 million and $1.6 million, and for the six months ended September 30, 2014 and 2013 were $2.7 million and $3.3 million, respectively.

Defined Benefit Plans

Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The cost recorded of $1.9 million and $2.2 million for the three months ended September 30, 2014 and 2013 and $3.9 million and $5.2 million for the six months ended September 30, 2014 and 2013 was primarily related to service costs.

Note 6 — 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 (loss) before taxes and the provision for (benefit from) income taxes are generated outside of Switzerland.

The income tax provision for the three months ended September 30, 2014 was $5.5 million based on an effective income tax rate of 13.2% of pre-tax income, compared to an income tax provision of $3.1 million based on an effective income tax rate of 17.3% of pre-tax income for the three months ended September 30, 2013. The income tax provision for the six months ended September 30, 2014 was $8.6 million based on an effective income tax rate of 13.4% of pre-tax income, compared to an income tax provision of $2.3 million based on an effective income tax rate of 12.5% of pre-tax income for the six months ended September 30, 2013. The change in the effective income tax rate for the three and six months ended September 30, 2014, compared to the three and six months ended September 30, 2013, was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates.

As of September 30 and March 31, 2014, the total amount of unrecognized tax benefits due to uncertain tax positions was $90.9 million and $91.0 million, respectively, of which $88.7 million and $86.1 million would affect the effective income tax rate if recognized.

As of September 30, 2014, the Company had $86.4 million in non-current income taxes payable and $0.1 million in current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions. As of March 31, 2014, the Company had $93.1 million in non-current income taxes payable and $0.3 million in current income taxes payable. Pursuant to ASU 2013-11, which became effective in the first quarter of fiscal year 2015, the Company reclassified $9.3 million of

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unrecognized tax benefits previously presented as non-current income taxes payable as a reduction to non-current deferred tax assets for tax credit carryforwards.

The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of September 30 and March 31, 2014, the Company had $5.8 million and $5.6 million, respectively, of accrued interest and penalties related to uncertain tax positions, respectively.

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2015, the Company will continue to review its tax positions and provide for or reverse unrecognized tax benefits as issues arise. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to foreign currencies. Excluding these factors, uncertain tax positions may decrease by as much as $15.0 million from the lapse of the statutes of limitations in various jurisdictions during the next 12 months.

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Note 7— Balance Sheet Components

The following table presents the components of certain balance sheet asset amounts as of September 30 and March 31, 2014 (in thousands):

	September 30,			March 31,
	2014			2014
Accounts receivable:
Accounts receivable	$	433,237		$	338,194
Allowance for doubtful accounts	(1,762		)	(1,712		)
Allowance for sales returns	(19,578		)	(19,472		)
Allowance for cooperative marketing arrangements	(29,607		)	(24,135		)
Allowance for customer incentive programs	(49,003		)	(41,400		)
Allowance for pricing programs	(80,595		)	(69,446		)
	$	252,692		$	182,029

Inventories:
Raw materials	$	29,333		$	24,031
Work-in-process	—			42
Finished goods	215,904			198,329
	$	245,237		$	222,402

Other current assets:
Income tax and value-added tax receivables	$	20,420		$	18,252
Deferred tax assets	29,466			27,013
Prepaid expenses and other assets	19,283			13,892
	$	69,169		$	59,157

Property, plant and equipment, net:
Plant, buildings and improvements	$	70,691		$	69,897
Equipment	136,379			134,975
Computer equipment	40,654			40,610
Software	82,238			81,179
	329,962			326,661
Less accumulated depreciation and amortization	(265,119		)	(256,424		)
	64,843			70,237
Construction-in-process	22,104			15,362
Land	2,802			2,792
	$	89,749		$	88,391

Other assets:
Deferred tax assets	$	42,325		$	52,883
Trading investments	17,601			16,611
Other assets	7,514			4,966
	$	67,440		$	74,460

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The following table presents the components of certain balance sheet liability amounts as of September 30 and March 31, 2014 (in thousands):

	September 30,		March 31,
	2014		2014
Accrued and other current liabilities:
Accrued personnel expenses	$	56,224	$	55,165
Accrued marketing expenses	10,459		12,844
Indirect customer incentive programs	29,876		31,737
Accrued restructuring	1,987		2,121
Deferred revenue	22,015		22,529
Accrued freight and duty	8,402		6,276
Value-added taxes payable	6,632		9,354
Accrued royalties	3,113		2,653
Warranty accrual	12,910		13,905
Employee benefit plan obligation	1,215		1,100
Income taxes payable	7,499		7,701
Other current liabilities	56,259		46,587
	$	216,591	$	211,972

Non-current liabilities:
Warranty accrual	$	9,294	$	10,475
Obligation for deferred compensation	17,601		16,611
Long term restructuring	4,691		5,440
Employee benefit plan obligation	36,311		37,899
Deferred rent	14,541		15,555
Deferred tax liability	2,054		2,304
Long term deferred revenue	9,959		9,350
Other non-current liabilities	1,589		1,715
	$	96,040	$	99,349

Note 8— Fair Value Measurements

Fair Value Measurements

The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:

· Level 1 — Quoted prices in active markets for identical assets or liabilities.

· Level 2 — Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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

	September 30, 2014				March 31, 2014
	Level 1		Level 2		Level 1		Level 2
Cash equivalents:
Cash equivalents	220,565		—		200,641		—
	$	220,565	$	—	$	200,641	$	—

Trading investments for deferred compensation plan:
Money market funds	$	3,189	$	—	$	3,139	$	—
Mutual funds	14,412		—		13,472		—
	$	17,601	$	—	$	16,611	$	—

Foreign exchange derivative assets	$	—	$	2,690	$	—	$	155

Foreign exchange derivative liabilities	$	—	$	77	$	—	$	701

There were no significant Level 3 financial assets as of September 30, 2014 and March 31, 2014.

Cash and Cash Equivalents

Cash equivalents consist of bank demand deposits and time deposits. The time deposits have original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value.

Investment Securities

The Company’s investment securities portfolio consists of marketable securities (money market and mutual funds) related to a deferred compensation plan at September 30, 2014 and March 31, 2014.

The marketable securities related to the deferred compensation plan are classified as non-current assets. Since participants in the deferred compensation plan may select the mutual funds in which their compensation deferrals are invested within the confines of the Rabbi Trust, which holds the marketable securities, the Company has designated these marketable securities as trading investments, although there is no intent to actively buy and sell securities within the objective of generating profits on short-term difference in market prices. Management has classified the investments as non-current assets because final sale of the investments or realization of proceeds by plan participants is not expected within the Company’s normal operating cycle of one year. The marketable securities are recorded at a fair value of $17.6 million and $16.6 million as of September 30 and March 31, 2014, respectively, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 securities. Earnings, gains and losses on trading investments are included in other income (expense), net.

Derivative Financial Instruments

Under the agreements with the respective counterparties to the Company’s derivative contracts, subject to applicable requirements, the Company does not net settle transactions with a single net amount payable by one party to the other. In accordance with ASU 2011-11, the Company presents its derivative instruments at gross fair values in the Consolidated Balance Sheets as of September 30, 2014 and March 31, 2014.

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The following table presents the fair values of the Company’s derivative instruments and their locations on its Consolidated Balance Sheets as of September 30 and March 31, 2014 (in thousands):

	Derivatives
	Asset				Liability
	September 30,		March 31,		September 30,		March 31,
	2014		2014		2014		2014
Designed as hedging instruments:
Cash flow hedges	$	2,689	$	4	$	—	$	243

Not designed as hedging instruments:
Foreign exchange contracts	1		151		77		458
	$	2,690	$	155	$	77	$	701

The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three and six months ended September 30, 2014 and 2013 (in thousands):

	Three Months Ended
	September 30,
	Amount of					Amount of Gain (Loss)
	Gain (Loss) Deferred as a					Reclassified from Accumulated						Amount of Gain (Loss)
	Component of Accumulated					Other Comprehensive Income to						Immediately Recognized in
	Other Comprehensive Income					Costs of Goods Sold						Other Income (Expense), Net
	2014		2013			2014			2013			2014			2013
Designed as hedging instruments:
Cash flow hedges	$	3,290	$	(1,467	)	$	(215	)	$	(94	)	$	(1	)	$	16

Not designed as hedging instruments:
Foreign exchange contracts	—		—			—			—			735			(477		)
	$	3,290	$	(1,467	)	$	(215	)	$	(94	)	$	734		$	(461	)

	Six Months Ended
	September 30,
	Amount of					Amount of Gain (Loss)
	Gain (Loss) Deferred as a					Reclassified from Accumulated				Amount of Gain (Loss)
	Component of Accumulated					Other Comprehensive Income to				Immediately Recognized in
	Other Comprehensive Income					Costs of Goods Sold				Other Income (Expense), Net
	2014		2013			2014		2013		2014			2013
Designed as hedging instruments:
Cash flow hedges	$	3,938	$	(2,102	)	$	185	$	184	$	(56	)	$	46

Not designed as hedging instruments:
Foreign exchange contracts	—		—			—		—		316			908
	$	3,938	$	(2,102	)	$	185	$	184	$	260		$	954

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 Company has one entity with a euro functional currency that purchases inventory in U.S. dollars. The primary risk managed by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these derivatives as cash flow hedges. The Company does not use derivative financial instruments for trading or speculative purposes. These hedging contracts mature within four months, and are denominated in the same currency as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. The Company assesses the effectiveness of the hedges by comparing changes in the spot rate of the currency underlying the forward contract with changes in the spot rate of the currency in which the forecasted transaction will be consummated. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the 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 and losses were immaterial during the three and six months ended September 30, 2014 and 2013. Cash flows from such hedges are classified as operating activities in the consolidated statements

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of cash flows. The notional amounts of foreign exchange forward contracts outstanding related to forecasted inventory purchases were $63.4 million (€49.8 million) and $51.8 million (€37.6 million) at September 30, 2014 and March 31, 2014. The notional amount represents the future cash flows under contracts to purchase foreign currencies.

Other Derivatives

The Company also 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 other income (expense), net based on the changes in fair value.

The notional amounts of foreign exchange forward contracts outstanding at September 30 and March 31, 2014 relating to foreign currency receivables or payables were $11.4 million and $23.2 million, respectively. Open forward contracts as of September 30, 2014 consisted of contracts in U.S. dollars to purchase Taiwanese dollars at future dates at pre-determined exchange rates. Open forward contracts as of March 31, 2014 consisted of contracts in U.S. dollars to purchase Taiwanese dollars and contracts in euros to sell British pounds at future dates at pre-determined exchange rates. The notional amounts of foreign exchange swap contracts outstanding at September 30 and March 31, 2014 were $27.8 million and $30.5 million, respectively. Swap contracts outstanding at September 30, 2014 consisted of contracts in Mexican pesos, Japanese yen, British pounds, and Australian dollars. Swap contracts outstanding at March 31, 2014 consisted of contracts in Mexican pesos, Japanese yen and Australian dollars.

The fair value of all foreign exchange forward contracts and foreign exchange swap contracts is determined based on observable market transactions of spot currency rates and forward rates. Cash flows from these contracts are classified as operating activities in the Consolidated Statements of Cash Flows.

Note 9 — Goodwill and Other Intangible Assets

Annual Goodwill Impairment Testing

In accordance with ASC Topic 350-10 (“ASC 350-10”) as it relates to Goodwill and Other Intangible Assets, the Company conducts a goodwill impairment analysis annually at December 31 and as necessary if changes in facts and circumstances indicate that it is more likely than not that the fair value of the Company’s reporting units may be less than its carrying amount.

FASB ASC 350-20 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit.

There have been no events or circumstances during the three months ended September 30, 2014 that have required the Company to perform an interim assessment of goodwill.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others. It is reasonably possible that changes in the judgments, assumptions and estimates that the Company used in assessing the fair value of the video conferencing reporting unit result in the goodwill to become impaired. A goodwill impairment charge would have the effect of decreasing the Company’s earnings or increasing its losses in such period.

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The following table summarizes the activity in the Company’s goodwill balance during the six months ended September 30, 2014 (in thousands):

	September 30, 2014
			Video
	Peripherals		Conferencing			Total
Beginning of the period	$	219,415	$	125,595		$	345,010
Foreign currency impact	—		(1,055		)	(1,055		)
End of the period	$	219,415	$	124,540		$	343,955

Amortization expense for other intangible assets was $2.6 million and $5.3 million for the three months ended September 30, 2014 and 2013, respectively and $5.4 million and $10.5 million for the six months ended September 30, 2014 and 2013, respectively. The Company expects that amortization expense for the remaining six months of fiscal year 2015 will be $3.0 million, and annual amortization expense for fiscal years 2016 and 2017 will be $1.8 million and $0.2 million respectively.

Note 10— Financing Arrangements

The Company had several uncommitted, unsecured bank lines of credit aggregating $39.1 million as of September 30, 2014. There are no financial covenants under these lines of credit with which the Company must comply. As of September 30, 2014, the Company had outstanding bank guarantees of $7.0 million under these lines of credit. The Company also had credit lines related to corporate credit cards totaling $6.8 million as of September 30, 2014 and $6.9 million as of March 31, 2014. There are no financial covenants under these credit lines.

Note 11 — Commitments and Contingencies

Product Warranties

All of the Company’s peripherals products are covered by warranty to be free from defects in material and workmanship for periods ranging from one year to five years. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of the warranty obligation. The Company’s estimate of costs to fulfill its warranty obligations is based on historical experience and expectations of future conditions. When the Company experiences changes in warranty claim activity or costs associated with fulfilling those claims, the warranty liability is adjusted accordingly.

Changes in the Company’s warranty liability for the three and six months ended September 30, 2014 and 2013 were as follows (in thousands):