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 June 30, 2013
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.
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.
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Large accelerated filer x |
Accelerated filer o |
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Non-accelerated filer o |
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 August 1, 2013, there were 159,798,557 shares of the Registrant’s share capital outstanding.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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32 | |
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77 | |
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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)
(Unaudited)
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Three Months ended June 30, |
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2013 |
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2012 |
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As Revised |
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Net sales |
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$ |
477,924 |
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$ |
468,604 |
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Cost of goods sold |
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309,569 |
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323,258 |
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Gross profit |
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168,355 |
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145,346 |
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Operating expenses: |
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Marketing and selling |
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100,635 |
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100,897 |
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Research and development |
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36,191 |
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39,023 |
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General and administrative |
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29,148 |
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32,480 |
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Restructuring charges |
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2,334 |
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31,227 |
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Total operating expenses |
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168,308 |
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203,627 |
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Operating income (loss) |
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47 |
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(58,281 |
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Interest income, net |
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(23 |
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384 |
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Other income (expense), net |
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217 |
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(159 |
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Income (loss) before income taxes |
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241 |
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(58,056 |
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Benefit from income taxes |
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(802 |
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(6,910 |
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Net income (loss) |
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$ |
1,043 |
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$ |
(51,146 |
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Net income (loss) per share: |
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Basic |
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$ |
0.01 |
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$ |
(0.32 |
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Diluted |
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$ |
0.01 |
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$ |
(0.32 |
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Shares used to compute net income (loss) per share: |
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Basic |
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159,298 |
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160,733 |
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Diluted |
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160,281 |
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160,733 |
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The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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Three Months ended June 30, |
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2013 |
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2012 |
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As Revised |
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Net income (loss) |
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$ |
1,043 |
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$ |
(51,146 |
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Other comprehensive income (loss): |
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Foreign currency translation gain (loss) |
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101 |
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(6,861 |
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Change in net loss (gain), and prior service cost related to defined benefit pension plans: |
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Net loss (gain) and prior service cost |
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(196 |
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1,463 |
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Less amortization included in net income (loss) |
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306 |
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455 |
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Net change in hedging gain (loss): |
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Unrealized hedging gain (loss) |
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(913 |
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1,205 |
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Less reclassification adjustment for gain (loss) included in net income (loss) |
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278 |
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(106 |
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Net change in unrealized investment loss: |
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Reclassification adjustment for gain included in net loss |
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— |
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(343 |
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Net change in accumulated other comprehensive loss |
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(424 |
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(4,187 |
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Total comprehensive income (loss) |
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$ |
619 |
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$ |
(55,333 |
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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)
(Unaudited)
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June 30, 2013 |
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March 31, 2013 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
318,857 |
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$ |
333,824 |
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Accounts receivable |
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218,599 |
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179,565 |
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Inventories |
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296,012 |
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261,083 |
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Other current assets |
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63,698 |
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58,103 |
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Assets held for sale |
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— |
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10,960 |
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Total current assets |
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897,166 |
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843,535 |
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Non-current assets: |
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Property, plant and equipment, net |
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85,778 |
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87,649 |
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Goodwill |
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344,303 |
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341,357 |
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Other intangible assets |
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22,919 |
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26,024 |
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Other assets |
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72,340 |
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75,098 |
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Total assets |
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$ |
1,422,506 |
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$ |
1,373,663 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
296,269 |
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$ |
265,995 |
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Accrued and other current liabilities |
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205,809 |
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192,774 |
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Liabilities held for sale |
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— |
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3,202 |
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Total current liabilities |
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502,078 |
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461,971 |
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Non-current liabilities |
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200,303 |
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195,882 |
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Total liabilities |
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702,381 |
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657,853 |
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Commitments and contingencies (Note 11) |
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Shareholders’ equity: |
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Shares, par value CHF 0.25 - 173,106 issued and authorized and 50,000 conditionally authorized at June 30, 2013 and March 31, 2013 |
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30,148 |
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30,148 |
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Additional paid-in capital |
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2,578 |
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— |
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Less: shares in treasury, at cost, 13,789 at June 30, 2013 and 13,855 at March 31, 2013 |
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(176,729 |
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(177,847 |
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Retained earnings |
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957,545 |
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956,502 |
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Accumulated other comprehensive loss |
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(93,417 |
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(92,993 |
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Total shareholders’ equity |
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720,125 |
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715,810 |
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Total liabilities and shareholders’ equity |
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$ |
1,422,506 |
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$ |
1,373,663 |
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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)
(Unaudited)
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Three Months ended June 30, |
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2013 |
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2012 |
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As Revised |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
1,043 |
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$ |
(51,146 |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation |
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10,139 |
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11,152 |
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Amortization of other intangible assets |
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5,264 |
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6,398 |
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Investment impairment |
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370 |
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— |
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Share-based compensation expense |
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4,390 |
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6,171 |
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Loss on disposal of property,plant and equipment |
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2,311 |
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— |
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Gain on sales of available-for-sale securities |
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— |
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(831 |
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Excess tax benefits from share-based compensation |
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— |
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(5 |
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Deferred income taxes and other |
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(3,416 |
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(1,055 |
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Changes in assets and liabilities, net of acquisitions: |
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Accounts receivable |
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(38,899 |
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6,316 |
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Inventories |
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(28,052 |
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10,353 |
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Other assets |
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(1,770 |
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(198 |
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Accounts payable |
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33,580 |
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(35,188 |
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Accrued and other current liabilities |
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13,733 |
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41,129 |
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Net cash used in operating activities |
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(1,307 |
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(6,904 |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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(13,208 |
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(21,916 |
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Acquisitions, net of cash acquired |
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(650 |
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— |
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Proceeds from sales of available-for-sale securities |
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— |
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917 |
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Purchases of trading investments for deferred compensation plan |
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(4,406 |
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(1,397 |
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Proceeds from sales of trading investments for deferred compensation plan |
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4,748 |
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1,385 |
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Net cash used in investing activities |
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(13,516 |
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(21,011 |
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Cash flows from financing activities: |
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Purchases of treasury shares |
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— |
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(87,812 |
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Proceeds from sales of shares upon exercise of options and purchase rights |
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12 |
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404 |
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Tax withholdings related to net share settlements of restricted stock units |
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(215 |
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(170 |
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Excess tax benefits from share-based compensation |
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— |
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5 |
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Net cash used in financing activities |
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(203 |
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(87,573 |
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Effect of exchange rate changes on cash and cash equivalents |
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59 |
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(2,145 |
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Net decrease in cash and cash equivalents |
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(14,967 |
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(117,633 |
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Cash and cash equivalents at beginning of period |
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333,824 |
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478,370 |
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Cash and cash equivalents at end of period |
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$ |
318,857 |
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$ |
360,737 |
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Non-cash investing activities: |
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Net increase in accrued purchases of property, plant and equipment |
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$ |
1,422 |
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$ |
3,535 |
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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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As Revised |
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As Revised |
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As Revised |
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As Revised |
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March 31, 2012 |
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191,606 |
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$ |
33,370 |
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$ |
— |
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27,173 |
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$ |
(343,829 |
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$ |
1,528,620 |
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$ |
(95,929 |
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$ |
1,122,232 |
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Total comprehensive 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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(51,146 |
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(4,187 |
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(55,333 |
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Purchase of treasury shares |
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— |
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— |
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— |
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8,600 |
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(87,812 |
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— |
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— |
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(87,812 |
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Tax benefit from exercise of stock options |
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— |
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— |
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(500 |
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— |
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— |
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— |
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— |
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(500 |
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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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(2,289 |
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(86 |
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2,697 |
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— |
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— |
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408 |
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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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(1,423 |
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(40 |
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1,253 |
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— |
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— |
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(170 |
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Share-based compensation expense |
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— |
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— |
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5,938 |
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— |
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— |
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— |
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— |
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5,938 |
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June 30, 2012 |
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191,606 |
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$ |
33,370 |
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$ |
1,726 |
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35,647 |
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$ |
(427,691 |
) |
$ |
1,477,474 |
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$ |
(100,116 |
) |
$ |
984,763 |
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March 31, 2013 |
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173,106 |
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$ |
30,148 |
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$ |
— |
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13,855 |
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$ |
(177,847 |
) |
$ |
956,502 |
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$ |
(92,993 |
) |
$ |
715,810 |
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Total comprehensive 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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1,043 |
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(424 |
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619 |
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Deferred tax asset adjustment related to share-based compensation expense |
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— |
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— |
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(501 |
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— |
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— |
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— |
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— |
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(501 |
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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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(78 |
) |
(5 |
) |
90 |
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— |
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— |
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12 |
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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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(1,245 |
) |
(61 |
) |
1,028 |
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— |
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— |
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(217 |
) | ||||||
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Share-based compensation expense |
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— |
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— |
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4,402 |
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— |
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— |
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— |
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4,402 |
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June 30, 2013 |
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173,106 |
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$ |
30,148 |
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$ |
2,578 |
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13,789 |
|
$ |
(176,729 |
) |
$ |
957,545 |
|
$ |
(93,417 |
) |
$ |
720,125 |
|
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 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.
Logitech has two operating segments, peripherals and video conferencing. Logitech’s peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs (personal computers), tablets and other digital platforms. Logitech’s video conferencing segment 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.
Logitech sells its peripheral products to a network of distributors, retailers and OEMs (original equipment manufacturers). Logitech sells its video conferencing products and services to distributors, value-added resellers, OEMs, and, occasionally, direct enterprise customers. The large majority of its sales have historically been derived from 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 — Revision of Previously-Issued Financial Statements
In the first quarter of fiscal year 2014, the Company identified errors related to the accounting for its product warranty liability and amortization expense of certain intangible assets. The errors impacted prior reporting periods, starting prior to fiscal year 2009. While these errors were not material to any previously issued annual or quarterly consolidated financial statements, management concluded that correcting the cumulative errors and related tax effects, which amounted to $19.1 million, in the first quarter of fiscal year 2014 would be material to the consolidated financial statements for the three months ended June 30, 2013 and to the expected results of operations for the fiscal year ending March 31, 2014.
The Company evaluated the cumulative impact of the errors on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality. The Company also evaluated the impact of correcting the errors through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to revise its previously issued financial statements to reflect the impact of the correction of these errors when it files subsequent reports on Form 10-Q and Form 10-K. Accordingly, the Company has revised its consolidated financial statements for the quarter ended June 30, 2012, as presented herein, to correct these errors. In addition, as a result of the decision to revise its previously issued consolidated financial statements to correct for the errors described above, the Company is also correcting other immaterial errors that were previously uncorrected. The Company is concurrently filing a Form 10-K/A to revise its financial statements for the years ended March 31, 2011, 2012 and 2013 to correct prior period errors.
The revised financial statements correct the following errors:
(1) - Warranty accrual — The Company determined that its prior warranty model did not accurately accrue for costs of product warranties given to end customers, including an on-going review of the assumptions to determine the completeness and accuracy of the warranty accrual at each reporting period. The inherent flaws in the prior model involved use of generic assumptions, incomplete warranty cost data and inter-regional methodological differences. This error impacted prior reporting periods, starting prior to fiscal year 2009, and impacted deferred tax asset classification between current and non-current assets.
(2) - Amortization of intangibles — The Company determined that $4.2 million in intangible assets originating from a November 2009 acquisition were never amortized. The impact of this adjustment was $2.0 million in amortization expense not properly recorded during the periods from the quarter ended December 31, 2009 through the end of fiscal year 2013.
(3) - Other adjustments — The Company also corrected a number of other immaterial errors, including the cumulative translation adjustment related to the purchase of treasury shares, and an adjustment affecting the amount of property, plant and equipment purchased during the first quarter of fiscal year 2013.
Consolidated Statement of Operations.
The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statement of operations for the three months ended June 30, 2012:
|
|
|
Three Months ended June 30, 2012 |
| |||||||
|
|
|
As Reported |
|
Adjustments |
|
As Revised |
| |||
|
|
|
(Unaudited) |
| |||||||
|
|
|
|
|
|
|
|
| |||
|
Net sales |
|
$ |
468,604 |
|
$ |
— |
|
$ |
468,604 |
|
|
|
|
|
|
|
|
|
| |||
|
Cost of goods sold |
|
324,352 |
|
(1,165) |
(1) |
323,258 |
| |||
|
|
|
|
|
71 |
(2) |
|
| |||
|
|
|
|
|
|
|
|
| |||
|
Gross profit |
|
144,252 |
|
1,094 |
|
145,346 |
| |||
|
Operating expenses: |
|
|
|
|
|
|
| |||
|
Marketing and selling |
|
100,897 |
|
— |
|
100,897 |
| |||
|
Research and development |
|
38,928 |
|
95 |
(2) |
39,023 |
| |||
|
General and administrative |
|
32,480 |
|
— |
|
32,480 |
| |||
|
Restructuring charges |
|
31,227 |
|
— |
|
31,227 |
| |||
|
Total operating expenses |
|
203,532 |
|
95 |
|
203,627 |
| |||
|
Operating loss |
|
(59,280 |
) |
999 |
|
(58,281 |
) | |||
|
Interest income |
|
384 |
|
— |
|
384 |
| |||
|
Other expense |
|
(159 |
) |
— |
|
(159 |
) | |||
|
Loss before income taxes |
|
(59,055 |
) |
999 |
|
(58,056 |
) | |||
|
Benefit from income taxes |
|
(6,910 |
) |
— |
|
(6,910 |
) | |||
|
Net loss |
|
$ |
(52,145 |
) |
$ |
999 |
|
$ |
(51,146 |
) |
|
|
|
|
|
|
|
|
| |||
|
Net loss per share: |
|
$ |
(0.32 |
) |
|
|
$ |
(0.32 |
) | |
|
Basic |
|
$ |
(0.32 |
) |
|
|
$ |
(0.32 |
) | |
|
Diluted |
|
|
|
|
|
|
| |||
|
Shares used to compute net loss per share: |
|
|
|
|
|
|
| |||
|
Basic |
|
160,733 |
|
|
|
160,733 |
| |||
|
Diluted |
|
160,733 |
|
|
|
160,733 |
| |||
Consolidated Statement of Comprehensive Loss
The Company’s following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statement of comprehensive loss for the three months ended June 30, 2012:
|
|
|
Three Months ended June 30, 2012 |
| |||||||
|
|
|
As Reported |
|
Adjustments |
|
As Revised |
| |||
|
|
|
(Unaudited) |
| |||||||
|
|
|
|
|
|
|
|
| |||
|
Net loss |
|
$ |
(52,145 |
) |
$ |
1,165 |
(1) |
$ |
(51,146 |
) |
|
|
|
|
|
|
(166) |
(2) |
|
| ||
|
|
|
|
|
|
|
|
| |||
|
Other comprehensive loss: |
|
|
|
|
|
|
| |||
|
Foreign currency translation loss |
|
(6,265 |
) |
(596) |
(3) |
(6,861 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Change in net loss, and prior service cost related to defined benefit pension plans: |
|
|
|
|
|
|
| |||
|
Net loss and prior service cost |
|
1,463 |
|
— |
|
1,463 |
| |||
|
Less amortization included in net loss |
|
455 |
|
— |
|
455 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net change in hedging gain: |
|
|
|
|
|
|
| |||
|
Unrealized hedging gain |
|
1,205 |
|
— |
|
1,205 |
| |||
|
Less reclassification adjustment for loss included in net income |
|
(106 |
) |
— |
|
(106 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Net change in unrealized investment loss: |
|
|
|
|
|
|
| |||
|
Reclassification adjustment for gain included in net loss |
|
(343 |
) |
— |
|
(343 |
) | |||
|
Net change in accumulated other comprehensive loss |
|
(3,591 |
) |
(596 |
) |
(4,187 |
) | |||
|
Total comprehensive loss |
|
$ |
(55,736 |
) |
$ |
403 |
|
$ |
(55,333 |
) |
Consolidated Statement of Cash Flows
The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated statement of cash flows for the three months ended June 30, 2012:
|
|
|
Three Months ended |
| |||||||
|
|
|
June 30, 2012 |
| |||||||
|
|
|
As Reported |
|
Adjustments |
|
As Revised |
| |||
|
|
|
(Unaudited) |
| |||||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
| |||
|
Net loss |
|
$ |
(52,145 |
) |
$ |
1,165 |
(1) |
$ |
(51,146 |
) |
|
|
|
|
|
|
(166 |
)(2) |
|
| ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
| |||
|
Depreciation |
|
11,152 |
|
— |
|
11,152 |
| |||
|
Amortization of other intangible assets |
|
6,232 |
|
166 |
(2) |
6,398 |
| |||
|
Share-based compensation expense |
|
6,171 |
|
— |
|
6,171 |
| |||
|
Gain on sales of available-for-sale securities |
|
(831 |
) |
— |
|
(831 |
) | |||
|
Excess tax benefits from share-based compensation |
|
(5 |
) |
— |
|
(5 |
) | |||
|
Deferred income taxes and other |
|
(1,055 |
) |
— |
|
(1,055 |
) | |||
|
Changes in assets and liabilities: |
|
|
|
|
|
|
| |||
|
Accounts receivable |
|
6,577 |
|
(261 |
)(3) |
6,316 |
| |||
|
Inventories |
|
11,445 |
|
(1,092 |
)(3) |
10,353 |
| |||
|
Other assets |
|
33 |
|
(231 |
)(3) |
(198 |
) | |||
|
Accounts payable |
|
(37,408 |
) |
2,220 |
(3) |
(35,188 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Accrued and other current liabilities |
|
42,778 |
|
(1,165 |
)(1) |
41,129 |
| |||
|
|
|
|
|
(484 |
)(3) |
|
| |||
|
Net cash used in operating activities |
|
(7,056 |
) |
152 |
|
(6,904 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Cash flows from investing activities: |
|
|
|
|
|
|
| |||
|
Purchases of property, plant and equipment |
|
(19,621 |
) |
(2,295 |
)(3) |
(21,916 |
) | |||
|
Proceeds from sales of available-for-sale securities |
|
917 |
|
— |
|
917 |
| |||
|
Purchases of trading investments for deferred compensation plan |
|
(1,397 |
) |
— |
|
(1,397 |
) | |||
|
Proceeds from sales of trading investments for deferred compensation plan |
|
1,385 |
|
— |
|
1,385 |
| |||
|
Net cash used in investing activities |
|
(18,716 |
) |
(2,295 |
) |
(21,011 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Cash flows from financing activities: |
|
|
|
|
|
|
| |||
|
Purchases of treasury shares |
|
(89,955 |
) |
2,143 |
(3) |
(87,812 |
) | |||
|
Proceeds from sales of shares upon exercise of options and purchase rights |
|
404 |
|
— |
|
404 |
| |||
|
Tax withholdings related to net share settlements of restricted stock units |
|
(170 |
) |
— |
|
(170 |
) | |||
|
Excess tax benefits from share-based compensation |
|
5 |
|
— |
|
5 |
| |||
|
Net cash used in financing activities |
|
(89,716 |
) |
2,143 |
|
(87,573 |
) | |||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(2,145 |
) |
— |
|
(2,145 |
) | |||
|
Net decrease in cash and cash equivalents |
|
(117,633 |
) |
— |
|
(117,633 |
) | |||
|
Cash and cash equivalents at beginning of period |
|
478,370 |
|
— |
|
478,370 |
| |||
|
Cash and cash equivalents at end of period |
|
$ |
360,737 |
|
$ |
— |
|
$ |
360,737 |
|
Consolidated Statement of Shareholders’ Equity
The Company’s previously-reported consolidated statement of shareholders’ equity for the three months ended June 30, 2012 was revised to reflect the net income (loss) change resulting from the accounting errors related to warranty costs and amortization expense, a $2.1 million adjustment impacting foreign currency translation losses for treasury share repurchases and a $1.5 million adjustment impacting foreign currency translation losses relating to goodwill.
Other Revisions
During fiscal year 2013, the Company also determined that property, plant and equipment (Note 7) and geographic net sales (Note 13), previously reported in its Form 10-Q for the quarter ended June 30, 2012 were not property stated. These revisions had no impact on the previously reported consolidated statement of operations or consolidated balance sheet.
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 accompanying Consolidated Statements of Operations for the three months ended June 30, 2012 and 2013, Consolidated Statements of Comprehensive Income (Loss) for the three months ended June 30, 2012 and 2013, Consolidated Balance Sheet as of June 30, 2012 and 2013, Consolidated Statements of Cash Flows for the three months ended June 30, 2012 and 2013, and Consolidated Statements of Shareholder’s Equity for the three months ended June 30, 2012 and 2013 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). 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 months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending March 31, 2014, or any future periods.
Certain prior period financial statement amounts have been reclassified to conform to the current period presentation with no impact on previously reported net income.
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 three months ended June 30, 2013 compared with the significant accounting policies described in its Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013.
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.
Note 4 — 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 June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
As Revised |
| ||
|
|
|
|
|
|
| ||
|
Net income (loss) |
|
$ |
1,043 |
|
$ |
(51,146 |
) |
|
|
|
|
|
|
| ||
|
Weighted average shares - basic |
|
159,298 |
|
160,733 |
| ||
|
Effect of potentially dilutive share equivalents |
|
983 |
|
— |
| ||
|
Weighted average shares - diluted |
|
160,281 |
|
160,733 |
| ||
|
|
|
|
|
|
| ||
|
Net income (loss) per share - basic |
|
$ |
0.01 |
|
$ |
(0.32 |
) |
|
Net income (loss) per share - diluted |
|
$ |
0.01 |
|
$ |
(0.32 |
) |
During the three months ended June 30 2013 and 2012, 19,455,154 and 18,955,767 share equivalents attributable to outstanding stock options and RSUs 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 exercise of these options and RSUs were greater than the average market price of the Company’s shares, and therefore their inclusion would have been anti-dilutive.
Note 5 — Employee Benefit Plans
Employee Share Purchase Plans and Stock Incentive Plans
As of June 30, 2013, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan). The 2012 Plan was approved by the Board of Directors in April 2012. On April 13, 2012, the Company filed Registration Statements to register 5.0 million additional shares to be issued pursuant to the 2006 ESPP, and 1.8 million shares under the 2012 Stock Inducement Equity Plan. On September 5, 2012, at the fiscal year 2012 Annual General Meeting of Shareholders, Logitech shareholders approved amendments to and restatement of the 2006 Stock Incentive Plan, which included the increase of 7.3 million additional shares to be issued under this plan and to prohibit the repricing of options or stock appreciation rights. On October 25, 2012, the Company filed a registration statement to register the 7.3 million additional shares under 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 months ended June 30, 2013 and 2012 (in thousands):
|
|
|
Three Months ended |
| ||||
|
|
|
June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Cost of goods sold |
|
$ |
577 |
|
$ |
789 |
|
|
Share-based compensation expense included in gross profit |
|
577 |
|
789 |
| ||
|
|
|
|
|
|
| ||
|
Operating expenses: |
|
|
|
|
| ||
|
Marketing and selling |
|
1,906 |
|
1,780 |
| ||
|
Research and development |
|
1,094 |
|
1,825 |
| ||
|
General and administrative |
|
813 |
|
1,777 |
| ||
|
Share-based compensation expense included in operating expenses |
|
3,813 |
|
5,382 |
| ||
|
|
|
|
|
|
| ||
|
Total share-based compensation expense |
|
4,390 |
|
6,171 |
| ||
|
Income tax benefit |
|
875 |
|
1,376 |
| ||
|
Share-based compensation expense, net of income tax |
|
$ |
3,515 |
|
$ |
4,795 |
|
As of June 30, 2013 and 2012, $0.4 million and $0.5 million of share-based compensation cost was capitalized to 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 June 30, 2013 and 2012 were $1.7 million and $2.8 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 months ended June 30, 2013 and 2012 was as follows (in thousands):
|
|
|
Three Months ended June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Service cost |
|
$ |
1,957 |
|
$ |
1,875 |
|
|
Interest cost |
|
427 |
|
494 |
| ||
|
Expected return on plan assets |
|
(500 |
) |
(93 |
) | ||
|
Amortization of net transition obligation |
|
1 |
|
1 |
| ||
|
Amortization of net prior service cost |
|
52 |
|
38 |
| ||
|
Recognized net actuarial loss |
|
253 |
|
416 |
| ||
|
Net periodic benefit cost |
|
$ |
2,190 |
|
$ |
2,731 |
|
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 before taxes and the provision for income taxes are generated outside of Switzerland.
The income tax benefit for the three months ended June 30, 2013 was $0.8 million based on an effective income tax rate of (332.8%) of pre-tax income. For the three months ended June 30, 2012, the income tax benefit was $6.9 million based on an effective income tax rate of 11.9% of pre-tax loss. The change in the effective income tax rate for the three months ended June 30, 2013 compared with the same period in fiscal year 2013 is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates, and the treatment of restructuring expenses as a discrete event in determining the annual effective tax rate in the three months ended June 30, 2012.
In fiscal year 2013, the Company incurred $43.7 million of restructuring charges and related expenses to simplify the organization and to align the organization to its strategic priorities, $31.2 million of such charges were incurred in the first quarter of fiscal year 2013 with the remaining balance primarily incurred in the fourth quarter of the fiscal year. In the three months ended June 30, 2013, the Company incurred restructuring-related termination benefits and lease exit costs in the amount of $2.3 million. In determining the estimated annual effective tax rate, the restructuring activities in the three months ended June 30, 2013 were not treated as a discrete event as the charges were not significantly unusual and infrequent in nature, unlike those that were incurred in the same period of fiscal year 2013. The tax benefit associated with the restructuring in the three months ended June 30, 2013 was not material.
As discussed in Note 2, the Company identified errors related to the accounting for its product warranty liability and amortization expense of certain intangible assets which impacted prior reporting periods through fiscal year 2009. The tax impact is included in the revised financial statements and related disclosures for the quarter ended June 30, 2012 and the consolidated balance sheet as of March 31, 2013.
As of June 30 and March 31, 2013, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $101.4 million and $102.0 million, of which $89.2 million and $90.3 million would affect the effective income tax rate if recognized. The Company classified the unrecognized tax benefits as non-current income taxes payable.
The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of June 30 and March 31, 2013, the Company had approximately $6.7 million and $6.6 million of accrued interest and penalties related to uncertain tax positions.
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 fiscal year 2001. The Company is under examination and has received assessment notices in foreign tax jurisdictions. At this time, the Company is not able 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 negative impact on its 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. It is not possible at this time to reasonably estimate changes in the unrecognized tax benefits within the next twelve months.
Note 7 — Balance Sheet Components
The following table presents the components of certain balance sheet asset amounts as of June 30 and March 31, 2013 (in thousands):
|
|
|
June 30, 2013 |
|
March 31, 2013 |
| ||
|
|
|
|
|
|
| ||
|
Accounts receivable: |
|
|
|
|
| ||
|
Accounts receivable |
|
$ |
353,029 |
|
$ |
325,870 |
|
|
Allowance for doubtful accounts |
|
(2,189 |
) |
(2,153 |
) | ||
|
Allowance for returns |
|
(19,488 |
) |
(21,883 |
) | ||
|
Allowances for cooperative marketing arrangements |
|
(21,467 |
) |
(24,160 |
) | ||
|
Allowances for customer incentive programs |
|
(37,067 |
) |
(42,857 |
) | ||
|
Allowances for pricing programs |
|
(54,219 |
) |
(55,252 |
) | ||
|
|
|
$ |
218,599 |
|
$ |
179,565 |
|
|
Inventories: |
|
|
|
|
| ||
|
Raw materials |
|
$ |
38,262 |
|
$ |
37,504 |
|
|
Work-in-process |
|
61 |
|
41 |
| ||
|
Finished goods |
|
257,689 |
|
223,538 |
| ||
|
|
|
$ |
296,012 |
|
$ |
261,083 |
|
|
Other current assets: |
|
|
|
|
| ||
|
Income tax and value-added tax refund receivables |
|
$ |
20,814 |
|
$ |
17,403 |
|
|
Deferred taxes - current |
|
29,867 |
|
25,400 |
| ||
|
Prepaid expenses and other |
|
13,017 |
|
15,300 |
| ||
|
|
|
$ |
63,698 |
|
$ |
58,103 |
|
|
Property, plant and equipment: |
|
|
|
|
| ||
|
Plant, buildings and improvements |
|
$ |
63,997 |
|
$ |
70,009 |
|
|
Equipment |
|
128,147 |
|
129,868 |
| ||
|
Computer equipment |
|
31,269 |
|
42,437 |
| ||
|
Computer software |
|
79,019 |
|
80,930 |
| ||
|
|
|
302,432 |
|
323,244 |
| ||
|
Less: accumulated depreciation |
|
(229,868 |
) |
(247,469 |
) | ||
|
|
|
72,564 |
|
75,775 |
| ||
|
Construction-in-progress |
|
10,393 |
|
9,047 |
| ||
|
Land |
|
2,821 |
|
2,827 |
| ||
|
|
|
$ |
85,778 |
|
$ |
87,649 |
|
|
Other assets: |
|
|
|
|
| ||
|
Deferred taxes |
|
$ |
50,730 |
|
$ |
53,035 |
|
|
Trading investments |
|
15,904 |
|
15,599 |
| ||
|
Other |
|
5,706 |
|
6,464 |
| ||
|
|
|
$ |
72,340 |
|
$ |
75,098 |
|
The following table presents the components of certain balance sheet liability amounts as of June 30 and March 31, 2013 (in thousands):
|
|
|
June 30, 2013 |
|
March 31, 2013 |
| ||
|
|
|
|
|
|
| ||
|
Accrued and other current liabilities: |
|
|
|
|
| ||
|
Accrued personnel expenses |
|
$ |
56,597 |
|
$ |
40,502 |
|
|
Accrued marketing expenses |
|
11,070 |
|
11,005 |
| ||
|
Indirect customer incentive programs |
|
28,504 |
|
29,464 |
| ||
|
Accrued restructuring |
|
7,200 |
|
13,458 |
| ||
|
Deferred revenue |
|
22,297 |
|
22,698 |
| ||
|
Accrued freight and duty |
|
7,039 |
|
5,882 |
| ||
|
Value-added tax payable |
|
7,435 |
|
8,544 |
| ||
|
Accrued royalties |
|
3,343 |
|
3,358 |
| ||
|
Warranty accrual |
|
13,014 |
|
11,878 |
| ||
|
Employee benefit plan obligations |
|
1,250 |
|
4,351 |
| ||
|
Income taxes payable - current |
|
5,582 |
|
2,463 |
| ||
|
Other accrued liabilities |
|
42,478 |
|
39,171 |
| ||
|
|
|
$ |
205,809 |
|
$ |
192,774 |
|
|
Non-current liabilities: |
|
|
|
|
| ||
|
Income taxes payable - non-current |
|
$ |
98,182 |
|
$ |
98,827 |
|
|
Warranty accrual |
|
9,641 |
|
8,660 |
| ||
|
Obligation for deferred compensation |
|
15,904 |
|
15,631 |
| ||
|
Employee benefit plan obligations |
|
39,550 |
|
35,963 |
| ||
|
Deferred rent |
|
24,326 |
|
24,136 |
| ||
|
Deferred taxes |
|
1,955 |
|
1,989 |
| ||
|
Other long-term liabilities |
|
10,745 |
|
10,676 |
| ||
|
|
|
$ |
200,303 |
|
$ |
195,882 |
|
The following table presents the changes in the allowance for doubtful accounts during the three months ended June 30, 2013 and 2012 (in thousands):
|
|
|
Three Months ended |
| ||||
|
|
|
June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Allowance for doubtful accounts, beginning balance |
|
$ |
(2,153 |
) |
$ |
(2,472 |
) |
|
Bad debt expense (increases) decreases |
|
(69 |
) |
86 |
| ||
|
Write-offs net of recoveries |
|
33 |
|
65 |
| ||
|
Allowance for doubtful accounts, ending balance |
|
$ |
(2,189 |
) |
$ |
(2,321 |
) |
Note 8 — 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, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):
|
|
|
June 30, 2013 |
|
March 31, 2013 |
| ||||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cash equivalents (1) |
|
$ |
133,562 |
|
$ |
— |
|
$ |
— |
|
$ |
119,073 |
|
$ |
— |
|
$ |
— |
|
|
Trading investments for deferred compensation plan: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Money market funds |
|
3,121 |
|
— |
|
— |
|
4,220 |
|
— |
|
— |
| ||||||
|
Mutual funds |
|
12,783 |
|
— |
|
— |
|
11,379 |
|
— |
|
— |
| ||||||
|
Foreign exchange derivative assets |
|
— |
|
509 |
|
— |
|
— |
|
1,197 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total assets at fair value |
|
$ |
149,466 |
|
$ |
509 |
|
$ |
— |
|
$ |
134,672 |
|
$ |
1,197 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Foreign exchange derivative liabilities |
|
$ |
— |
|
$ |
746 |
|
$ |
— |
|
$ |
— |
|
$ |
707 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total liabilities at fair value |
|
$ |
— |
|
$ |
746 |
|
$ |
— |
|
$ |
— |
|
$ |
707 |
|
$ |
— |
|
(1) Excludes cash balances of $185.3 million as of June 30, 2013 and $214.7 million as of March 31, 2013.
The following table presents the changes in the Company’s Level 3 financial assets during the three months ended June 30, 2013 and 2012 (in thousands):
|
|
|
Three Months ended June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Available-for-sale securities, beginning balance |
|
$ |
— |
|
$ |
429 |
|
|
Proceeds from sales of securities |
|
— |
|
(917 |
) | ||
|
Reversal of unrealized gains previously recognized in accumulated other comprehensive loss |
|
— |
|
831 |
| ||
|
Reversal of unrealized losses previously recognized |
|
— |
|
(343 |
) | ||
|
Available-for-sale securities, ending balance |
|
$ |
— |
|
$ |
— |
|
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 June 30, 2013 and March 31, 2013.
The marketable securities related to the deferred compensation plan are classified as non-current other 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 $15.9 million and $15.6 million as of June 30 and March 31, 2013, 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. Unrealized trading gains of $0.2 million are included in other income (expense), net for the three months ended June 30, 2013 and relate to the trading securities held at June 30, 2013.
Derivative Financial Instruments
The following table presents the fair values of the Company’s derivative instruments and their locations on its Consolidated Balance Sheets as of June 30 and March 31, 2013 (in thousands):
|
|
|
Asset Derivatives |
|
Liability Derivatives |
| ||||||||||||
|
|
|
|
|
Fair Value |
|
|
|
Fair Value |
| ||||||||
|
|
|
|
|
June 30, |
|
March 31, |
|
|
|
June 30, |
|
March 31, |
| ||||
|
|
|
Location |
|
2013 |
|
2013 |
|
Location |
|
2013 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash flow hedges |
|
Other assets |
|
$ |
14 |
|
$ |
1,165 |
|
Other liabilities |
|
$ |
545 |
|
$ |
— |
|
|
|
|
|
|
14 |
|
1,165 |
|
|
|
545 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Foreign exchange forward contracts |
|
Other assets |
|
266 |
|
— |
|
Other liabilities |
|
45 |
|
270 |
| ||||
|
Foreign exchange swap contracts |
|
Other assets |
|
229 |
|
32 |
|
Other liabilities |
|
156 |
|
437 |
| ||||
|
|
|
|
|
495 |
|
32 |
|
|
|
201 |
|
707 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
$ |
509 |
|
$ |
1,197 |
|
|
|
$ |
746 |
|
$ |
707 |
|
The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three months ended June 30, 2013 and 2012 and their locations on its Consolidated Statements of Operations (in thousands):
|
|
|
Net amount of gain/(loss) deferred as a component of |
|
Location of |
|
Amount of gain/(loss) |
|
Location of |
|
Amount of gain/(loss) |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
|
|
2013 |
|
2012 |
|
|
|
2013 |
|
2012 |
| ||||||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cash flow hedges |
|
$ |
(635 |
) |
$ |
1,099 |
|
Cost of goods sold |
|
$ |
278 |
|
$ |
106 |
|
Other income/expense |
|
$ |
30 |
|
$ |
52 |
|
|
|
|
|
|
1,099 |
|
|
|
|
|
106 |
|
|
|
|
|
52 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Foreign exchange forward contracts |
|
— |
|
— |
|
|
|
|
|
— |
|
Other income/expense |
|
647 |
|
(745 |
) | ||||||
|
Foreign exchange swap contracts |
|
— |
|
— |
|
|
|
|
|
— |
|
Other income/expense |
|
738 |
|
825 |
| ||||||
|
|
|
— |
|
— |
|
|
|
|
|
— |
|
|
|
1,385 |
|
80 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
$ |
(635 |
) |
$ |
1,099 |
|
|
|
$ |
278 |
|
$ |
106 |
|
|
|
$ |
1,415 |
|
$ |
132 |
|
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. Logitech 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 months ended June 30, 2013 and 2012. 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 were $44.7 million (€34.2 million) and $38.5 million (€30.1 million) at June 30, 2013 and March 31, 2013. 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 June 30 and March 31, 2013 relating to foreign currency receivables or payables were $26.6 million and $14.2 million. Open forward contracts as of June 30, 2013 consisted of contracts U.S. dollars to purchase Taiwanese dollars and contracts in euros to sell British pounds at future dates at pre-determined exchange rates. Open forward contracts as of March 31, 2013 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 June 30 and March 31, 2013 were $19.6 million and $19.6 million. Swap contracts outstanding at June 30, 2013 consisted of contracts in Mexican pesos, Japanese Yen and Australian dollars. Swap contracts outstanding at March 31, 2013 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
During the three months ended June 30, 2013, the Company decided not to sell its Remotes product category, previously classified as assets held for sale as of March 31, 2013. This decision required the Company to assess whether the fair value of the goodwill and other intangibles related to its Remotes category were less than the carrying value of these assets. For other intangibles, carrying value was adjusted by amortization expense not taken during the period in which this category was classified as asset held for sale. The Company concluded that the carrying value of these assets was less than their fair value. Accordingly, the Company reclassified these assets from assets held for sale back to goodwill and other intangible assets at their respective carrying values, which amounted to $2.5 million for goodwill and $1.6 million for intangibles as of June 30, 2013.
The following table summarizes the activity in the Company’s goodwill balance during the three month ended June 30, 2013 (in thousands):
|
|
|
June 30, 2013 |
| |||||||
|
|
|
Peripherals |
|
Video |
|
Total |
| |||
|
Goodwill, beginning balance |
|
$ |
216,744 |
|
$ |
124,613 |
|
$ |
341,357 |
|
|
Additions |
|
202 |
|
— |
|
202 |
| |||
|
Foreign currency movements |
|
|
|
275 |
|
275 |
| |||
|
Reclassified from assets held for sale |
|
2,469 |
|
— |
|
2,469 |
| |||
|
Goodwill, ending balance |
|
$ |
219,415 |
|
$ |
124,888 |
|
$ |
344,303 |
|
The Company’s acquired other intangible assets subject to amortization were as follows (in thousands):
|
|
|
June 30, 2013 |
|
March 31, 2013 |
| ||||||||||||||
|
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
| ||||||
|
|
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Trademark/tradename |
|
$ |
32,047 |
|
$ |
(29,396 |
) |
$ |
2,651 |
|
$ |
29,842 |
|
$ |
(26,558 |
) |
$ |
3,284 |
|
|
Technology (1) |
|
92,274 |
|
(81,318 |
) |
10,956 |
|
73,249 |
|
(61,560 |
) |
11,689 |
| ||||||
|
Customer contracts |
|
39,897 |
|
(30,585 |
) |
9,312 |
|
39,068 |
|
(28,017 |
) |
11,051 |
| ||||||
|
|
|
$ |
164,218 |
|
$ |
(141,299 |
) |
$ |
22,919 |
|
$ |
142,159 |
|
$ |
(116,135 |
) |
$ |
26,024 |
|
(1) During the three months ended June 30, 2013, the Company changed its classification of its Retail - Remote product category and digital video security product line from assets held for sale to assets held and used. The increase in gross carrying amount and accumulated amortization between March 31, 2013 and June 30, 2013 was due to this change in classification.
For the three months ended June 30, 2013 and 2012, amortization expense for other intangible assets was $5.3 million and $6.4 million. The Company expects that amortization expense for the remaining nine months of fiscal year 2014 will be $12.5 million, and annual amortization expense for fiscal years 2015, 2016 and 2017 will be $8.4 million, $1.9 million and $0.1 million, respectively.
Note 10 — Financing Arrangements
In December 2011, the Company entered into a Senior Revolving Credit Facility Agreement with a group of primarily Swiss banks that provides for a revolving multicurrency unsecured credit facility in an amount of up to $250.0 million. The Company may, upon notice to the lenders and subject to certain requirements, arrange with existing or new lenders to provide up to an aggregate of $150.0 million in additional commitments, for a total of $400.0 million of unsecured revolving credit. The credit facility may be used for working capital, general corporate purposes, and acquisitions. There were no outstanding borrowings under the credit facility at June 30, 2013.
The credit facility matures on October 31, 2016. The Company may prepay the loans under the credit facility in whole or in part at any time without premium or penalty. Borrowings under the credit facility will accrue interest at a per annum rate based on LIBOR (London Interbank Offered Rate), or EURIBOR (Euro Interbank Offered Rate) in the case of loans denominated in euros, plus a variable margin determined quarterly based on the ratio of senior debt-to-earnings before interest, taxes, depreciation and amortization for the preceding four-quarter period, plus, if applicable, an additional rate per annum intended to compensate the lenders for the cost of compliance with regulatory reserve requirements and other banking regulations. The Company also pays a quarterly commitment fee of 40% of the applicable margin on the available commitment. In connection with entering into the credit facility, the Company incurred non-recurring fees totaling $1.5 million, which are amortized on a straight-line basis over the term of the credit facility.
The facility agreement contains representations, covenants, including threshold financial covenants, and events of default customary in Swiss credit markets. Affirmative covenants include covenants regarding reporting requirements, maintenance of insurance, maintenance of properties and compliance with applicable laws and regulations, and financial covenants that require the maintenance of net senior debt, interest cover and adjusted equity ratios determined in accordance with the terms of the facility. Negative covenants limit the ability of the Company and its subsidiaries, among other things, to grant liens, make investments, incur debt, make restricted payments, enter into a merger or acquisition, or sell, transfer or dispose of assets, in each case subject to certain exceptions. As of March 31, 2013, the Company was not in compliance with the interest coverage ratio of this credit facility. This situation resulted from the significant operating loss incurred during fiscal year 2013. On June 13, 2013, the Company amended this credit facility to amend the definitions of (a) EBITDA to exclude the effect of impairment of goodwill and other intangible assets and (b) interest coverage ratio calculation to utilize EBITDA rather than EBIT. As of June 30, 2013, the Company was not in compliance with the adjusted equity ratio of this facility. Until the Company is in compliance with the covenants, this facility is not available for its use.
This credit facility stipulates that, upon an uncured event of default under the facility, the lenders may declare all or a portion of the outstanding obligations payable by the Company to be immediately due and payable, terminate their commitments and exercise other rights and remedies provided for under the facility. The events of default under the facility include, among other things, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross defaults with certain other indebtedness, bankruptcy and insolvency events and events that have a material adverse effect (as defined in the facility). Upon a change of control of the Company, lenders whose commitments aggregate more than two-thirds of the total commitments under the facility may terminate the commitments and declare all outstanding obligations to be due and payable.
The Company had several uncommitted, unsecured bank lines of credit aggregating $94.9 million at June 30, 2013. There are no financial covenants under these lines of credit with which the Company must comply. At June 30, 2013, the Company had no outstanding borrowings under these lines of credit. The Company also had credit lines related to corporate credit cards totaling $17.3 million at June 30, 2013. The outstanding borrowings under these credit lines are recorded in other current liabilities. There are no financial covenants under these credit lines.
Note 11 — Commitments and Contingencies
Operating Leases
The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at the Company’s option and usually include escalation clauses linked to inflation. Future minimum annual rentals under non-cancelable operating leases at June 30, 2013 amounted to $85.7 million.
In connection with its leased facilities, the Company has recognized a liability for asset retirement obligations representing the present value of estimated remediation costs to be incurred at lease expiration. The following table describes changes to the Company’s asset retirement obligation liability for the three months ended June 30, 2013 and 2012 (in thousands):
|
|
|
Three Months ended June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Asset retirement obligations, beginning of period |
|
$ |
1,750 |
|
$ |
1,918 |
|
|
Liabilities settled |
|
(221 |
) |
— |
| ||
|
Accretion expense |
|
2 |
|
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