Table of Contents

 

 

 

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 December 31, 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)

 

Canton of Vaud, Switzerland

 

None

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

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 January 24, 2014, there were 161,587,245 shares of the Registrant’s share capital outstanding.

 

 

 



Table of Contents

 

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

53

Part II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

55

Item 1A.

Risk Factors

55

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibit Index

66

Signatures

 

67

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.

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 

 

Financial Statement Description

 

Page

 

 

 

 

·

Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2013 and 2012 (revised)

 

4

 

 

 

 

·

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 31, 2013 and 2012 (revised)

 

5

 

 

 

 

·

Condensed Consolidated Balance Sheets as of December 31, 2013 and March 31, 2013

 

6

 

 

 

 

·

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2013 and 2012 (revised)

 

7

 

 

 

 

·

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended December 31, 2013 and 2012 (revised)

 

8

 

 

 

 

·

Notes to Condensed Consolidated Financial Statements (revised)

 

9

 

3



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

(revised)

 

 

 

(revised)

 

Net sales

 

$

627,890

 

$

614,500

 

$

1,637,786

 

$

1,630,797

 

Cost of goods sold

 

414,528

 

404,695

 

1,072,656

 

1,079,872

 

Gross profit

 

213,362

 

209,805

 

565,130

 

550,925

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Marketing and selling

 

93,624

 

112,698

 

287,969

 

324,117

 

Research and development

 

34,103

 

40,488

 

107,927

 

117,625

 

General and administrative

 

31,560

 

26,382

 

90,103

 

84,842

 

Goodwill impairment

 

 

211,000

 

 

211,000

 

Restructuring charges (reversals), net

 

822

 

(358

)

8,621

 

28,198

 

Total operating expenses

 

160,109

 

390,210

 

494,620

 

765,782

 

Operating income (loss)

 

53,253

 

(180,405

)

70,510

 

(214,857

)

Interest income (expense), net

 

(1,022

)

114

 

(862

)

651

 

Other income (expense), net

 

1,082

 

(3,670

)

1,361

 

(4,338

)

Income (loss) before income taxes

 

53,313

 

(183,961

)

71,009

 

(218,544

)

Provision for (benefit from) income taxes

 

4,810

 

11,370

 

7,065

 

(26,616

)

Net income (loss)

 

$

48,503

 

$

(195,331

)

$

63,944

 

$

(191,928

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

$

(1.24

)

$

0.40

 

$

(1.21

)

Diluted

 

$

0.30

 

$

(1.24

)

$

0.40

 

$

(1.21

)

 

 

 

 

 

 

 

 

 

 

Shares used to compute net income (loss) per share :

 

 

 

 

 

 

 

 

 

Basic

 

160,871

 

157,706

 

160,051

 

158,383

 

Diluted

 

163,388

 

157,706

 

161,509

 

158,383

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

 

$

 

$

0.22

 

$

0.85

 

 

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

 

4



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

(revised)

 

 

 

(revised)

 

Net income (loss)

 

$

48,503

 

$

(195,331

)

$

63,944

 

$

(191,928

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

682

 

583

 

3,511

 

(3,837

)

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

Net gain (loss) and prior service costs

 

(384

)

(389

)

(1,384

)

7,531

 

Less amortization included in operating expenses

 

318

 

311

 

933

 

1,067

 

Hedging gain (loss):

 

 

 

 

 

 

 

 

 

Unrealized hedging loss

 

(1,198

)

(915

)

(3,484

)

(2,022

)

Reclass of hedging loss (gain) included in cost of goods sold

 

1,342

 

1,137

 

1,526

 

(440

)

Reclassification adjustment for gain included in other income (expense), net

 

 

 

 

(343

)

Other comprehensive income:

 

760

 

727

 

1,102

 

1,956

 

Total comprehensive income (loss)

 

$

49,263

 

$

(194,604

)

$

65,046

 

$

(189,972

)

 

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

 

5



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

 

 

 

December 31,

 

March 31,

 

 

 

2013

 

2013

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

379,865

 

$

333,824

 

Accounts receivable, net

 

312,947

 

179,565

 

Inventories

 

257,998

 

261,083

 

Other current assets

 

60,979

 

58,103

 

Assets held for sale

 

 

10,960

 

Total current assets

 

1,011,789

 

843,535

 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net

 

87,494

 

87,649

 

Goodwill

 

345,036

 

341,357

 

Other intangible assets

 

13,319

 

26,024

 

Other assets

 

71,322

 

75,098

 

Total assets

 

$

1,528,960

 

$

1,373,663

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

328,757

 

$

265,995

 

Accrued and other current liabilities

 

234,297

 

192,774

 

Liabilities held for sale

 

 

3,202

 

Total current liabilities

 

563,054

 

461,971

 

Non-current liabilities:

 

200,797

 

195,882

 

Total liabilities

 

763,851

 

657,853

 

 

 

 

 

 

 

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 December 31, 2013 and March 31, 2013

 

 

 

 

 

Conditionally authorized shares — 50,000 at December 31, 2013 and March 31, 2013

 

 

 

 

 

Additional paid-in capital

 

 

 

Less shares in treasury, at cost — 11,711 at December 31, 2013 and 13,855 at March 31, 2013

 

(143,525

)

(177,847

)

Retained earnings

 

970,377

 

956,502

 

Accumulated other comprehensive loss

 

(91,891

)

(92,993

)

Total shareholders’ equity

 

765,109

 

715,810

 

Total liabilities and shareholders’ equity

 

$

1,528,960

 

$

1,373,663

 

 

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

 

6



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

(revised)

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

63,944

 

$

(191,928

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

Depreciation

 

28,756

 

33,861

 

Amortization of other intangible assets

 

14,990

 

18,412

 

Share-based compensation expense

 

17,412

 

18,659

 

Goodwill impairment

 

 

211,000

 

Impairment of strategic investments

 

568

 

3,600

 

Loss on disposal of property, plant and equipment

 

3,878

 

 

Gain on sale of securities

 

 

(831

)

Excess tax benefits from share-based compensation

 

(572

)

(26

)

Deferred income taxes and other

 

(3,559

)

9,398

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable, net

 

(130,265

)

(41,571

)

Inventories

 

14,652

 

352

 

Other assets

 

(2,968

)

(2,432

)

Accounts payable

 

62,931

 

41,893

 

Accrued and other liabilities

 

38,118

 

3,961

 

Net cash provided by operating activities

 

107,885

 

104,348

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(32,096

)

(42,032

)

Purchase of strategic investments

 

 

(3,970

)

Acquisitions, net of cash acquired

 

(650

)

 

Proceeds from sales of available-for-sale securities

 

 

917

 

Proceeds from return of investment in privately held companies

 

261

 

 

Purchases of trading investments for deferred compensation plan

 

(7,831

)

(2,294

)

Proceeds from sales of trading investments for deferred compensation plan

 

8,311

 

2,309

 

Net cash used in investing activities

 

(32,005

)

(45,070

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Payment of cash dividends

 

(36,123

)

(133,462

)

Purchases of treasury shares

 

 

(87,812

)

Proceeds from sales of shares upon exercise of options and purchase rights

 

8,465

 

8,843

 

Tax withholdings related to net share settlements of restricted stock units

 

(2,937

)

(1,995

)

Excess tax benefits from share-based compensation

 

572

 

26

 

Net cash used in financing activities

 

(30,023

)

(214,400

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

184

 

(1,249

)

Net increase (decrease) in cash and cash equivalents

 

46,041

 

(156,371

)

Cash and cash equivalents, beginning of the period

 

333,824

 

478,370

 

Cash and cash equivalents, end of the period

 

$

379,865

 

$

321,999

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Property, plant and equipment purchased during the period and included in period end accounts payable

 

$

4,134

 

$

1,535

 

 

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

 

7



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

CONDENSED 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

 

Loss

 

Equity

 

 

 

 

 

 

 

 

 

 

 

(revised)

 

(revised)

 

(revised)

 

 

 

March 31, 2012

 

191,606

 

$

33,370

 

$

 

27,173

 

$

(343,829

)

$

1,528,620

 

$

(95,929

)

$

1,122,232

 

Total comprehensive loss

 

 

 

 

 

 

(191,928

)

1,956

 

(189,972

)

Purchase of treasury shares

 

 

 

 

8,600

 

(87,812

)

 

 

(87,812

)

Tax benefit from exercise of stock options

 

 

 

3,336

 

 

 

 

 

3,336

 

Tax effects from share-based awards

 

 

 

(4,272

)

 

 

 

 

(4,272

)

Sales of shares upon exercise of options and purchase rights

 

 

 

3,508

 

(1,377

)

41,646

 

(39,754

)

 

5,400

 

Issuance of shares upon vesting of restricted stock units

 

 

 

(20,709

)

(783

)

18,767

 

 

 

(1,942

)

Share-based compensation expense

 

 

 

18,137

 

 

 

 

 

18,137

 

Cash dividends

 

 

 

 

 

 

(133,462

)

 

(133,462

)

Cancellation of treasury shares

 

(18,500

)

(3,222

)

 

(18,500

)

172,857

 

(169,635

)

 

 

December 31, 2012

 

173,106

 

$

30,148

 

$

 

15,113

 

$

(198,371

)

$

993,841

 

$

(93,973

)

$

731,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

173,106

 

$

30,148

 

$

 

13,855

 

$

(177,847

)

$

956,502

 

$

(92,993

)

$

715,810

 

Total comprehensive income

 

 

 

 

 

 

63,944

 

1,102

 

65,046

 

Tax effects from share-based awards

 

 

 

(2,715

)

 

 

 

 

(2,715

)

Sales of shares upon exercise of options and purchase rights

 

 

 

2,038

 

(1,327

)

20,358

 

(13,946

)

 

8,450

 

Issuance of shares upon vesting of restricted stock units

 

 

 

(16,886

)

(817

)

13,964

 

 

 

(2,922

)

Share-based compensation expense

 

 

 

17,563

 

 

 

 

 

17,563

 

Cash dividends

 

 

 

 

 

 

(36,123

)

 

(36,123

)

December 31, 2013

 

173,106

 

$

30,148

 

$

 

11,711

 

$

(143,525

)

$

970,377

 

$

(91,891

)

$

765,109

 

 

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

 

8



Table of Contents

 

LOGITECH INTERNATIONAL S.A.

NOTES TO CONDENSED 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 with integrated monitors, video bridges and other infrastructure software and hardware to support large-scale video deployments, and services to support these products.

 

The Company sells its peripheral 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 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, 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

 

In the quarter ended June 30, 2013, 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, net of tax, which amounted to $19.1 million, in the quarter ended June 30, 2013 would be material to that period’s condensed consolidated financial statements 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 Accounting Standards Codification (“ASC”) 250-10, Accounting Changes and Error Corrections, relating to Securities Exchange Commission (“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 under the guidance in ASC 250-10 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and concluded 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. In addition, as a result of the decision to revise its previously issued condensed consolidated financial statements for the three and nine months ended December 31, 2012, the Company also corrected other immaterial errors that were previously uncorrected. Accordingly, the Company filed a Form 10-K/A to revise its consolidated financial statements for the three fiscal years ended March 31, 2013 on August 7, 2013. As a result, the Company has also revised the condensed consolidated financial statements for the three and nine months ended December 31, 2012 from what were previously reported.

 

The revised financial statements corrected the following errors, which are included in the tables below, with associated footnotes:

 

(1)         Warranty accrual — The Company determined that its prior warranty model did not accurately estimate warranty costs and liabilities 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 quarter ended June 30, 2012.

 

9



Table of Contents

 

Condensed Consolidated Statements of Operations

 

The following table presents the impact of the accounting errors on the Company’s previously reported Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2012 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31, 2012

 

December 31, 2012

 

 

 

As Reported

 

Adjustments

 

As Revised

 

As Reported

 

Adjustments

 

As Revised

 

Net sales

 

$

614,500

 

$

 

$

614,500

 

$

1,630,797

 

$

 

$

1,630,797

 

Cost of goods sold

 

404,402

 

222

(1)

404,695

 

1,080,452

 

(793

)(1)

1,079,872

 

 

 

 

 

71

(2)

 

 

 

 

213

(2)

 

 

Gross profit

 

210,098

 

(293

)

209,805

 

550,345

 

580

 

550,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing and selling

 

112,698

 

 

112,698

 

324,117

 

 

324,117

 

Research and development

 

40,393

 

95

(2)

40,488

 

117,340

 

285

(2)

117,625

 

General and administrative

 

26,382

 

 

26,382

 

84,842

 

 

84,842

 

Goodwill impairment

 

211,000

 

 

211,000

 

211,000

 

 

211,000

 

Restructuring charges (reversals), net

 

(358

)

 

(358

)

28,198

 

 

28,198

 

Total operating expenses

 

390,115

 

95

 

390,210

 

765,497

 

285

 

765,782

 

Operating income (loss)

 

(180,017

)

(388

)

(180,405

)

(215,152

)

295

 

(214,857

)

Interest income, net

 

114

 

 

114

 

651

 

 

651

 

Other expense, net

 

(3,670

)

 

(3,670

)

(4,338

)

 

(4,338

)

Loss before income taxes

 

(183,573

)

(388

)

(183,961

)

(218,839

)

295

 

(218,544

)

Provision for (benefit from) income taxes

 

11,370

 

 

11,370

 

(26,616

)

 

(26,616

)

Net loss

 

$

(194,943

)

$

(388

)

$

(195,331

)

$

(192,223

)

$

295

 

$

(191,928

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(1.24

)

 

 

$

(1.24

)

$

(1.21

)

 

 

$

(1.21

)

Shares used to compute net loss per share

 

157,706

 

 

 

157,706

 

158,383

 

 

 

158,383

 

 

Condensed Consolidated Statements of Comprehensive Income

 

The Company’s following table presents the impact of the accounting errors on the Company’s previously reported Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2012 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31, 2012

 

December 31, 2012

 

 

 

As Reported

 

Adjustments

 

As Revised

 

As Reported

 

Adjustments

 

As Revised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(194,943

)

$

(222

)(1)

$

(195,331

)

$

(192,223

)

$

793

(1)

$

(191,928

)

 

 

 

 

(166

)(2)

 

 

 

 

(498

)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

(321

)

904

(3)

583

 

(1,616

)

(2,221

)(3)

(3,837

)

Defined benefit pension plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) and prior service costs

 

(389

)

 

(389

)

7,531

 

 

7,531

 

Less amortization included in operating expenses

 

311

 

 

311

 

1,067

 

 

1,067

 

Hedging gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized hedging loss

 

(915

)

 

(915

)

(2,022

)

 

(2,022

)

Reclass of hedging loss (gain) included in cost of goods sold

 

1,137

 

 

1,137

 

(440

)

 

(440

)

Reclassification adjustment for gain included in other income (expense), net

 

 

 

 

(343

)

 

(343

)

Other comprehensive income (loss):

 

(177

)

904

 

727

 

4,177

 

(2,221

)

1,956

 

Total comprehensive loss

 

$

(195,120

)

$

682

 

$

(194,604

)

$

(188,046

)

$

(1,428

)

$

(189,972

)

 

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Table of Contents

 

Condensed Consolidated Statements of Cash Flows

 

The following table presents the impact of the accounting errors on the Company’s previously reported Condensed Consolidated Statement of Cash Flows for the nine months ended December 31, 2012 (in thousands):

 

 

 

Nine Months Ended

 

 

 

December 31, 2012

 

 

 

As Reported

 

Adjustments

 

As Revised

 

Operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(192,223

)

$

793

(1)

$

(191,928

)

 

 

 

 

(498

)(2)

 

 

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

 

 

 

 

 

 

 

Depreciation

 

33,861

 

 

33,861

 

Amortization of other intangible assets

 

17,914

 

498

(2)

18,412

 

Share-based compensation expense

 

18,659

 

 

18,659

 

Goodwill impairment

 

211,000

 

 

211,000

 

Impairment of strategic investment

 

3,600

 

 

3,600

 

Gain on sale of securities

 

(831

)

 

(831

)

Excess tax benefits from share-based compensation

 

(26

)

 

(26

)

Deferred income taxes and other

 

9,398

 

 

9,398

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net

 

(41,310

)

(261

)(3)

(41,571

)

Inventories

 

1,444

 

(1,092

)(3)

352

 

Other assets

 

(2,201

)

(231

)(3)

(2,432

)

Accounts payable

 

39,673

 

2,220

(3)

41,893

 

Accrued and other liabilities

 

5,238

 

(793

)(1)

3,961

 

 

 

 

 

(484

)(3)

 

 

Net cash provided by operating activities

 

104,196

 

152

 

104,348

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(39,737

)

(2,295

)(3)

(42,032

)

Purchase of strategic investment

 

(3,970

)

 

(3,970

)

Proceeds from sales of available-for-sale securities

 

917

 

 

917

 

Purchases of trading investments for deferred compensation plan

 

(2,294

)

 

(2,294

)

Proceeds from sales of trading investments for deferred compensation plan

 

2,309

 

 

2,309

 

Net cash used in investing activities

 

(42,775

)

(2,295

)

(45,070

)

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Payment of cash dividends

 

(133,462

)

 

(133,462

)

Purchases of treasury shares

 

(89,955

)

2,143

(3)

(87,812

)

Proceeds from sales of shares upon exercise of options and purchase rights

 

8,843

 

 

8,843

 

Tax withholdings related to net share settlements of restricted stock units

 

(1,995

)

 

(1,995

)

Excess tax benefits from share-based compensation

 

26

 

 

26

 

Net cash used in financing activities

 

(216,543

)

2,143

 

(214,400

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,249

)

 

(1,249

)

Net decrease in cash and cash equivalents

 

(156,371

)

 

(156,371

)

Cash and cash equivalents, beginning of the year

 

478,370

 

 

478,370

 

Cash and cash equivalents, end of the period

 

$

321,999

 

$

 

$

321,999

 

 

Other Revisions

 

During fiscal year 2013, the Company also determined that geographic net sales (Note 13), previously reported in its Form 10-Q for the three and nine months ended December 31, 2012, were not properly stated. These revisions had no impact on the previously reported Condensed Consolidated Statements of Operations.

 

Note 3 — Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated interim financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and therefore do

 

11



Table of Contents

 

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, 2013, included in its Annual Report on Form 10-K/A filed with the SEC on August 7, 2013. In the opinion of management, these condensed 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 nine months ended December 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal 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 Years

 

The Company’s fiscal years end 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 calendar month end.

 

Changes in Significant Accounting Policies

 

There have been no substantial changes in the Company’s significant accounting policies during the three and nine months ended December 31, 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 filed with the SEC on August 7, 2013.

 

Use of Estimates

 

The preparation of financial statements in conformity with 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 July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

 

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Table of Contents

 

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

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

(revised)

 

 

 

(revised)

 

Net income (loss)

 

$

48,503

 

$

(195,331

)

$

63,944

 

$

(191,928

)

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

160,871

 

157,706

 

160,051

 

158,383

 

Effect of potentially dilutive equivalent shares

 

2,517

 

 

1,458

 

 

Weighted average shares outstanding - diluted

 

163,388

 

157,706

 

161,509

 

158,383

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

$

(1.24

)

$

0.40

 

$

(1.21

)

Diluted

 

$

0.30

 

$

(1.24

)

$

0.40

 

$

(1.21

)

 

 

 

 

 

 

 

 

 

 

Anti-dilutive equivalent shares excluded

 

11,080

 

15,951

 

15,874

 

17,505

 

 

Note 5 — Employee Benefit Plans

 

Employee Share Purchase Plans and Stock Incentive Plans

 

As of September 30, 2013, the Company offers the 2006 Employee Share Purchase Plan-Non-U.S. (“2006 ESPP”), the 1996 Employee Share Purchase Plan-U.S. (“1996 ESPP”), the 2006 Stock Incentive Plan (“2006 Plan”) and the 2012 Stock Inducement Equity Plan (“2012 Plan”). On September 4, 2013, at the 2013 Annual General Meeting of Shareholders, the Company’s shareholders approved amendments to, and restatement of, the 1996 ESPP and the 2006 ESPP, which included the increase of 8.0 million additional shares to be issued under these ESPP plans. Shares issued as a result of purchases or exercises under these plans are generally issued from shares held in treasury.

 

The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and nine months ended December 31, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Cost of goods sold

 

$

672

 

$

704

 

$

1,843

 

$

2,101

 

Research and development

 

1,906

 

2,430

 

3,840

 

6,018

 

Marketing and selling

 

3,057

 

953

 

5,980

 

5,377

 

General and administrative

 

3,278

 

1,135

 

5,749

 

5,163

 

Total share-based compensation expense

 

8,913

 

5,222

 

17,412

 

18,659

 

Income tax benefit

 

(168

)

(1,043

)

(2,343

)

(4,090

)

Total share-based compensation expense, net of income tax

 

$

8,745

 

$

4,179

 

$

15,069

 

$

14,569

 

 

As of December 31 and March 31, 2013, $0.5 million and $0.4 million of share-based compensation expense were capitalized in inventory.

 

13



Table of Contents

 

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 were statutory requirements for others. The charges to expense for these plans for the three and nine months ended December 31, 2013 were $1.4 million and $4.7 million, respectively, compared to $2.0 million and $6.6 million for the three and nine months ended December 31, 2012.

 

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.

 

During the nine months ended December 31, 2012, the Company’s Swiss defined benefit pension plan was subject to re-measurement due to the number of plan participants affected by the April 2012 restructuring described in Note 14. The re-measurement resulted in the realization of $2.2 million in previously unrecognized losses residing within accumulated other comprehensive loss that the Company recognized during the nine months ended December 31, 2012.

 

The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and nine months ended December 31, 2013 and 2012 were as follows (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Service costs

 

$

2,024

 

$

1,770

 

$

5,953

 

$

5,371

 

Interest costs

 

442

 

440

 

1,299

 

1,352

 

Expected return on plan assets

 

(405

)

(378

)

(1,395

)

(996

)

Amortization of net transition obligation

 

1

 

1

 

3

 

3

 

Amortization of net period service costs

 

53

 

39

 

157

 

115

 

Recognized net actuarial loss

 

263

 

271

 

772

 

949

 

Settlement costs

 

 

 

 

2,254

 

 

 

$

2,378

 

$

2,143

 

$

6,789

 

$

9,048

 

 

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 provision for the three months ended December 31, 2013 was $4.8 million based on an effective income tax rate of 9.0% of pre-tax income, compared to $11.4 million based on an effective income tax rate of 6.2% of pre-tax loss for the three months ended December 31, 2012. For the nine months ended December 31, 2013, the income tax provision was $7.1 million based on an effective income tax rate of 9.9% of pre-tax income, compared to an income tax benefit of $26.6 million based on an effective income tax rate of 12.2% of pre-tax loss for the nine months ended December 31, 2012. The change in the effective income tax rate for the three and nine months ended December 31, 2013, compared to the three and nine months ended December 31, 2012, was 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 and goodwill impairment as discrete events in determining the annual effective tax rate in fiscal year 2013. In addition, there was a discrete tax benefit of $35.6 million during the nine months ended December 31, 2012, related to the reversal of uncertain tax positions resulting from the closure of federal income tax examinations in the United States. In the three months ended December 31, 2013, there was a discrete tax benefit of $10.0 million from the reversal of uncertain tax positions resulting from expiration of the statutes of limitations.

 

During the three and nine months ended December 31, 2013, the Company incurred restructuring-related termination benefits and lease exit costs in the amount of $0.8 million and $8.6 million, respectively. In determining the Company’s estimated effective annual tax rate for fiscal year 2014, the restructuring activities were not treated as a discrete event as the charges were not significantly unusual and infrequent in nature, unlike the $43.7 million incurred in fiscal year 2013, of which $28.2 million was incurred through December 31, 2012. The tax benefit associated with the restructuring during the nine months ended December 31, 2013 was not material.

 

14



Table of Contents

 

The Company recorded a non-cash goodwill impairment charge of $214.5 million related to the video conferencing reporting unit in fiscal year 2013, of which $211.0 million was recorded in December 2012. The impairment was treated as a discrete event in fiscal year 2013 in determining the effective annual tax rate as it was significantly unusual and infrequent in nature. There was no tax benefit associated with goodwill impairment as the goodwill is not tax-deductible.

 

The U.S. federal research tax credit, which was extended retroactively by the American Taxpayer Relief Act of 2012 for two years from January 1, 2012, has expired as of December 31, 2013. The income tax expense for the nine months ended December 31, 2013 reflected a $0.8 million tax benefit for research tax credits.

 

As of December 31 and March 31, 2013, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $100.4 million and $102.0 million, respectively, of which $88.6 million and $90.3 million would affect the effective income tax rate if recognized, respectively. 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 December 31 and March 31, 2013, the Company had $5.6 million and $6.6 million of accrued interest and penalties related to uncertain tax positions, respectively.

 

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 the Company’s results of operations.

 

Although the Company believes it 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.

 

15



Table of Contents

 

Note 7 — Balance Sheet Components

 

The following table presents the components of certain balance sheet asset amounts as of December 31 and March 31, 2013 (in thousands):

 

 

 

December 31,

 

March 31,

 

 

 

2013

 

2013

 

Accounts receivable:

 

 

 

 

 

Accounts receivable

 

$

503,270

 

$

325,870

 

Allowance for doubtful accounts

 

(1,018

)

(2,153

)

Allowance for returns

 

(19,415

)

(21,883

)

Allowance for cooperative marketing arrangements

 

(30,847

)

(24,160

)

Allowance for customer incentive programs

 

(61,553

)

(42,857

)

Allowance for pricing programs

 

(77,490

)

(55,252

)

 

 

$

312,947

 

$

179,565

 

 

 

 

 

 

 

Inventories:

 

 

 

 

 

Raw materials

 

$

29,541

 

$

37,504

 

Work-in-process

 

98

 

41

 

Finished goods

 

228,359

 

223,538

 

 

 

$

257,998

 

$

261,083

 

 

 

 

 

 

 

Other current assets:

 

 

 

 

 

Income tax and value-added tax receivables

 

$

19,358

 

$

17,403

 

Deferred tax asset

 

28,109

 

25,400

 

Prepaid expenses and other assets

 

13,512

 

15,300

 

 

 

$

60,979

 

$

58,103

 

 

 

 

 

 

 

Property, plant and equipment, net:

 

 

 

 

 

Plant, buildings and improvements

 

$

69,072

 

$

70,009

 

Equipment

 

134,106

 

129,868

 

Computer equipment

 

32,901

 

42,437

 

Software

 

80,677

 

80,930

 

 

 

316,756

 

323,244

 

Less accumulated depreciation and amortization

 

(243,458

)

(247,469

)

 

 

73,298

 

75,775

 

Construction-in-process

 

11,377

 

9,047

 

Land

 

2,819

 

2,827

 

 

 

$

87,494

 

$

87,649

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Deferred tax asset

 

$

50,075

 

$

53,035

 

Trading investments

 

16,439

 

15,599

 

Other assets

 

4,808

 

6,464

 

 

 

$

71,322

 

$

75,098

 

 

16



Table of Contents

 

The following table presents the components of certain balance sheet liability amounts as of December 31 and March 31, 2013 (in thousands):

 

 

 

December 31,

 

March 31,

 

 

 

2013

 

2013

 

Accrued and other current liabilities:

 

 

 

 

 

Accrued personal expenses

 

$

62,221

 

$

40,502

 

Accrued marketing expenses

 

12,859

 

11,005

 

Indirect customer incentive programs

 

40,775

 

29,464

 

Accrued restructuring

 

3,265

 

13,458

 

Deferred revenue

 

22,078

 

22,698

 

Accrued freight and duty

 

9,912

 

5,882

 

Value-added taxes payable

 

7,870

 

8,544

 

Accrued royalties

 

4,597

 

3,358

 

Warranty accrual

 

12,971

 

11,878

 

Employee benefit plan obligation

 

1,762

 

4,351

 

Income taxes payable

 

9,165

 

2,463

 

Other liabilities

 

46,822

 

39,171

 

 

 

$

234,297

 

$

192,774

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Income taxes payable

 

$

97,236

 

$

98,827

 

Warranty accrual

 

9,689

 

8,660

 

Obligation for deferred compensation

 

16,440

 

15,631

 

Employee benefit plan obligation

 

41,133

 

35,963

 

Deferred rent

 

23,316

 

24,136

 

Deferred tax liability

 

1,769

 

1,989

 

Other liabilities

 

11,214

 

10,676

 

 

 

$

200,797

 

$

195,882

 

 

The following table presents the changes in the allowance for doubtful accounts during the three and nine months ended December 31, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Beginning of the period

 

$

1,071

 

$

2,239

 

$

2,153

 

$

2,472

 

Expense (reversal), net

 

280

 

141

 

(79

)

(48

)

Write-offs, net of recoveries

 

(333

)

(12

)

(1,056

)

(56

)

End of the period

 

$

1,018

 

$

2,368

 

$

1,018

 

$

2,368

 

 

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.

 

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Table of Contents

 

The Company did not have level 3 assets and liabilities as of December 31 and March 31, 2013. The following table presents the Company’s financial assets and liabilities, that were accounted for at fair value, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):

 

 

 

December 31, 2013

 

March 31, 2013

 

 

 

Level 1

 

Level 2

 

Level 1

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

$

156,932

 

$

 

$

119,073

 

$

 

 

 

 

 

 

 

 

 

 

 

Trading investments for deferred compensation plan:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,257

 

$

 

$

4,220

 

$

 

Mutual funds

 

13,182

 

 

11,379

 

 

 

 

$

16,439

 

$

 

$

15,599

 

$

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative assets

 

$

 

$

719

 

$

 

$

1,197

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative liabilities

 

$

 

$

(1,099

)

$

 

$

(707

)

 

The following table presents the changes in the Company’s Level 3 available-for-sale securities during the three and nine months ended December 31, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Beginning of the period

 

$

 

$

 

$

 

$

429

 

Sale of securities

 

 

 

 

(917

)

Gain on sale of securities

 

 

 

 

831

 

Reversal of unrealized gain

 

 

 

 

(343

)

End of the period

 

$

 

$

 

$

 

$

 

 

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. The marketable securities are classified as non-current other assets since the final sale of the investments or realization of proceeds by the plan participants are not expected within the Company’s normal operating cycle of one year. The Company has designated these marketable securities as trading investments because the 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 no intent to actively buy and sell securities with the objective to generate profits on short-term difference in market prices.

 

The marketable securities are recorded at a fair value of $16.4 million and $15.6 million as of December 31 and March 31, 2013, based on quoted market prices. Earnings related to realized and unrealized gains and losses on trading investments are included in other income (expense), net. Unrealized trading gains and losses was a gain of $0.4 million and $0.2 million for the three and nine months ended December 31, 2013, respectively, compared to unrealized trading loss of $0.1 million and trading gain of $0.1 million for the three and nine months ended December 31, 2012.

 

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Table of Contents

 

Derivative Financial Instruments

 

The following table presents the fair values of the Company’s derivative asset and liability instruments included in other assets and other liabilities, respectively, as of December 31 and March 31, 2013 (in thousands):

 

 

 

Derivatives

 

 

 

Asset

 

Liability

 

 

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2013

 

2013

 

2013

 

Designed as hedging instruments:

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

$

5

 

$

1,165

 

$

894

 

$

 

 

 

 

 

 

 

 

 

 

 

Not designed as hedging instruments:

 

 

 

 

 

 

 

 

 

Foreign exchange forward contract

 

 

 

184

 

270

 

Foreign exchange swap contract

 

714

 

32

 

21

 

437

 

 

 

714

 

32

 

205

 

707

 

 

 

$

719

 

$

1,197

 

$

1,099

 

$

707

 

 

The following table presents the amounts of gains and losses on the Company’s derivative instruments for the three and nine months ended December 31, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended December 31,

<