LOGITECH INTERNATIONAL S.A. [LOGI] Filings

10-Q 1 logi-20220930.htm 10-Q logi-20220930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

☐ 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 of incorporation or organization)		(I.R.S. Employer Identification No.)

Logitech International S.A.

EPFL - Quartier de l'Innovation

Daniel Borel Innovation Center

1015 Lausanne, Switzerland

c/o Logitech Inc.

7700 Gateway Boulevard

Newark, California 94560

(Address of principal executive offices and zip code)

510 795-8500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Registered Shares	LOGN	SIX Swiss Exchange
Registered Shares	LOGI	Nasdaq Global Select Market

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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Smaller reporting company

☐

Accelerated filer

☐

Emerging Growth Company

☐

Non-accelerated filer

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of October 13, 2022, there were 161,657,246 shares of the Registrant’s share capital outstanding.

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		Page

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Balance Sheets as of September 30, 2022 and March 31, 2022	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended September 30, 2022 and 2021	7
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibit Index	60
Signatures

In this document, unless otherwise indicated, references to the “Company,” “Logitech,” "we," "our," and "us" are to Logitech International S.A. and its consolidated subsidiaries. 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.

Our fiscal year ends on March 31. Interim quarters are generally thirteen-week periods, each ending on a Friday of each quarter. The second quarter of fiscal year 2023 ended on September 30, 2022. The same quarter in the prior fiscal year ended on October 1, 2021. For purposes of presentation, we have indicated our quarterly periods end on the last day of the calendar quarter.

The term “sales” means net sales, except as otherwise specified.

We make available, free of charge on our website, access to our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we file or furnish them electronically with the Securities and Exchange Commission ("SEC").

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We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website at https://ir.logitech.com. Additionally, we provide notifications of news or announcements regarding our operations and financial performance, including SEC filings, investor events, and press and earnings releases as part of our investor relations website. We intend to use our investor relations website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Our corporate governance information also is available on our investor relations website.

All references to our websites are intended to be inactive textual references only, and the content of such websites do not constitute a part of and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net sales	$	1,148,951	$	1,306,267	$	2,308,816	$	2,618,325
Cost of goods sold	707,026		760,268		1,404,246		1,499,334
Amortization of intangible assets	3,145		3,836		6,187		7,902
Gross profit	438,780		542,163		898,383		1,111,089

Operating expenses:
Marketing and selling	202,091		256,627		431,469		508,941
Research and development	69,009		68,661		144,526		137,907
General and administrative	26,589		33,271		62,449		73,813
Amortization of intangible assets and acquisition-related costs	2,873		5,107		6,242		10,324

Change in fair value of contingent consideration for business acquisition	—		(925)		—		(2,399)
Restructuring charges, net	10,817		11		10,817		11
Total operating expenses	311,379		362,752		655,503		728,597

Operating income	127,401		179,411		242,880		382,492
Interest income	3,459		201		4,908		517
Other income (expense), net	(25,397)		(6,703)		(19,773)		1,732
Income before income taxes	105,463		172,909		228,015		384,741
Provision for income taxes	23,372		33,453		45,088		58,444
Net income	$	82,091	$	139,456	$	182,927	$	326,297

Net income per share:
Basic	$	0.50	$	0.83	$	1.12	$	1.94
Diluted	$	0.50	$	0.81	$	1.11	$	1.90

Weighted average shares used to compute net income per share:
Basic	163,186		168,389		163,937		168,380
Diluted	164,328		171,343		165,371		171,682

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net income	$	82,091	$	139,456	$	182,927	$	326,297
Other comprehensive income (loss):
Currency translation gain (loss):
Currency translation loss, net of taxes	(18,063)		(4,731)		(39,283)		(3,927)
Reclassification of cumulative translation adjustments included in other income (expense), net	—		5		—		1,051
Defined benefit plans:
Net gain (loss) and prior service costs, net of taxes	28		95		112		(405)
Reclassification of amortization included in other income (expense), net	(113)		212		(226)		423
Hedging gain (loss):
Deferred hedging gain, net of taxes	4,935		2,132		11,564		2,662
Reclassification of hedging gain included in cost of goods sold	(4,947)		(1,314)		(7,038)		(1,908)
Total other comprehensive loss	(18,160)		(3,601)		(34,871)		(2,104)
Total comprehensive income	$	63,931	$	135,855	$	148,056	$	324,193

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)


	September 30, 2022		March 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	868,501	$	1,328,716
Accounts receivable, net	772,731		675,604
Inventories	879,979		933,124
Other current assets	136,924		135,478
Total current assets	2,658,135		3,072,922
Non-current assets:
Property, plant and equipment, net	113,327		109,807
Goodwill	449,892		448,175
Other intangible assets, net	73,495		83,779
Other assets	350,050		320,722
Total assets	$	3,644,899	$	4,035,405
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	546,563	$	636,306
Accrued and other current liabilities	663,621		784,848
Total current liabilities	1,210,184		1,421,154
Non-current liabilities:
Income taxes payable	97,450		83,380
Other non-current liabilities	168,704		132,133
Total liabilities	1,476,338		1,636,667
Commitments and contingencies (Note 10)
Shareholders’ equity:
Registered shares, CHF 0.25 par value:	30,148		30,148
Issued shares — 173,106 at September 30, 2022 and March 31, 2022
Additional shares that may be issued out of conditional capitals — 50,000 at September 30, 2022 and March 31, 2022
Additional shares that may be issued out of authorized capital — 17,311 at September 30, 2022 and March 31, 2022
Additional paid-in capital	106,130		129,925
Shares in treasury, at cost — 10,943 at September 30, 2022 and 7,855 at March 31, 2022	(824,650)		(632,893)
Retained earnings	2,995,927		2,975,681
Accumulated other comprehensive loss	(138,994)		(104,123)
Total shareholders’ equity	2,168,561		2,398,738
Total liabilities and shareholders’ equity	$	3,644,899	$	4,035,405

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Six Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	182,927	$	326,297
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	37,288		43,474
Amortization of intangible assets	12,244		17,468

Loss on investments	11,577		961

Share-based compensation expense	35,935		47,673
Deferred income taxes	3,040		6,808
Change in fair value of contingent consideration for business acquisition	—		(2,399)
Other	118		1,059
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(121,909)		(113,008)
Inventories	21,790		(167,588)
Other assets	4,757		(48,440)
Accounts payable	(78,354)		(155,482)
Accrued and other liabilities	(72,157)		(134,671)
Net cash provided by (used in) operating activities	37,256		(177,848)
Cash flows from investing activities:
Purchases of property, plant and equipment	(45,384)		(47,232)
Investment in privately held companies	(2,275)		(901)
Acquisitions, net of cash acquired	(5,839)		(15,586)



Purchases of deferred compensation investments	(2,499)		(2,466)
Proceeds from sales of deferred compensation investments	2,436		2,977
Net cash used in investing activities	(53,561)		(63,208)
Cash flows from financing activities:
Payment of cash dividends	(158,680)		(159,410)
Payment of contingent consideration for business acquisition	(5,954)		—
Purchases of registered shares	(237,561)		(174,380)
Proceeds from exercises of stock options and purchase rights	12,850		16,636
Tax withholdings related to net share settlements of restricted stock units	(26,742)		(54,751)
Net cash used in financing activities	(416,087)		(371,905)
Effect of exchange rate changes on cash and cash equivalents	(27,823)		(70)
Net decrease in cash and cash equivalents	(460,215)		(613,031)
Cash and cash equivalents, beginning of the period	1,328,716		1,750,327
Cash and cash equivalents, end of the period	$	868,501	$	1,137,296
Supplementary Cash Flow Disclosures:
Non-cash investing and financing activities:
Property, plant and equipment purchased during the period and included in period end liability accounts	$	9,436	$	10,369
Non-cash contingent consideration for acquisition	$	1,151	$	9,973

Right-of-use assets obtained in exchange for operating lease liabilities	$	47,408	$	—
Supplemental cash flow information:
Income taxes paid, net	$	44,864	$	166,127

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

Three Months Ended September 30, 2022


				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
June 30, 2022	173,106	$	30,148	$	98,800	9,051	$	(722,273)	$	3,076,517	$	(120,834)	$	2,362,358
Total comprehensive income	—	—		—		—	—		82,091		(18,160)		63,931
Purchases of registered shares	—	—		—		2,241	(116,942)		—		—		(116,942)
Sales of shares upon exercise of stock options and purchase rights	—	—		1,652		(268)	11,198		—		—		12,850
Issuance of shares upon vesting of restricted stock units	—	—		(5,965)		(81)	3,367		—		—		(2,598)

Share-based compensation	—	—		11,643		—	—		—		—		11,643
Cash dividends ($1.00 per share)	—	—		—		—	—		(162,681)		—		(162,681)
September 30, 2022	173,106	$	30,148	$	106,130	10,943	$	(824,650)	$	2,995,927	$	(138,994)	$	2,168,561


Six Months Ended September 30, 2022

				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
March 31, 2022	173,106	$	30,148	$	129,925	7,855	$	(632,893)	$	2,975,681	$	(104,123)	$	2,398,738
Total comprehensive income	—	—		—		—	—		182,927		(34,871)		148,056
Purchases of registered shares	—	—		—		4,221	(237,561)		—		—		(237,561)
Sales of shares upon exercise of stock options and purchase rights	—	—		1,652		(268)	11,198		—		—		12,850
Issuance of shares upon vesting of restricted stock units	—	—		(61,348)		(865)	34,606		—		—		(26,742)

Share-based compensation	—	—		35,901		—	—		—		—		35,901
Cash dividends ($1.00 per share)	—	—		—		—	—		(162,681)		—		(162,681)
September 30, 2022	173,106	$	30,148	$	106,130	10,943	$	(824,650)	$	2,995,927	$	(138,994)	$	2,168,561

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Three Months Ended September 30, 2021


				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
June 30, 2021	173,106	$	30,148	$	74,948	4,407	$	(302,606)	$	2,677,419	$	(107,418)	$	2,372,491
Total comprehensive income	—	—		—		—	—		139,456		(3,601)		135,855
Purchases of registered shares	—	—		—		1,151	(119,508)		—		—		(119,508)
Sales of shares upon exercise of stock options and purchase rights	—	—		8,168		(155)	5,718		—		—		13,886
Issuance of shares upon vesting of restricted stock units	—	—		(7,391)		(72)	3,051		—		—		(4,340)

Share-based compensation	—	—		23,709		—	—		—		—		23,709
Cash dividends ($0.95 per share)	—	—		—		—	—		(159,410)		—		(159,410)
September 30, 2021	173,106	$	30,148	$	99,434	5,331	$	(413,345)	$	2,657,465	$	(111,019)	$	2,262,683



Six Months Ended September 30, 2021

				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
March 31, 2021	173,106	$	30,148	$	129,519	4,799	$	(279,541)	$	2,490,578	$	(108,915)	$	2,261,789
Total comprehensive income	—	—		—		—	—		326,297		(2,104)		324,193
Purchases of registered shares	—	—		—		1,656	(174,380)		—		—		(174,380)
Sales of shares upon exercise of stock options and purchase rights	—	—		8,389		(226)	8,247		—		—		16,636
Issuance of shares upon vesting of restricted stock units	—	—		(87,080)		(898)	32,329		—		—		(54,751)

Share-based compensation	—	—		48,606		—	—		—		—		48,606
Cash dividends ($0.95 per share)	—	—		—		—	—		(159,410)		—		(159,410)
September 30, 2021	173,106	$	30,148	$	99,434	5,331	$	(413,345)	$	2,657,465	$	(111,019)	$	2,262,683

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

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LOGITECH INTERNATIONAL S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — The Company and Summary of Significant Accounting Policies and Estimates

The Company

Logitech International S.A, together with its consolidated subsidiaries ("Logitech" or the "Company"), designs, manufactures and markets products that help connect people to digital and cloud experiences. Over forty years ago, Logitech created products to improve experiences around the personal computer ("PC") platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating any digital content such as computing, gaming, video, and music, whether it is on a computer, mobile device or in the cloud.

The Company sells its products to a broad network of domestic and international customers, including direct sales to retailers, e-tailers and enterprise customers, and indirect sales through distributors.

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 Hautemorges, Switzerland, and headquarters in Lausanne, Switzerland, which conducts its business through subsidiaries in the Americas, Europe, Middle East and Africa ("EMEA") and Asia Pacific. Shares of Logitech International S.A. are listed on both the SIX Swiss Exchange under the trading symbol LOGN and the Nasdaq Global Select Market under the trading symbol LOGI.

Basis of Presentation

The condensed consolidated 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 ("U.S. GAAP") for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2022, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on May 18, 2022.

In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary and in all material aspects, for a fair statement of the results of operations, comprehensive income, financial position, cash flows and changes in shareholders' equity for the periods presented. Operating results for the three and six months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2023, or any future periods.

Changes in Significant Accounting Policies

Other than the recent accounting pronouncements adopted and discussed below under Recent Accounting Pronouncements Adopted, there have been no material changes in the Company’s significant accounting policies during the six months ended September 30, 2022 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Significant estimates and assumptions made by management involve the fair value of goodwill and intangible assets acquired from business acquisitions, contingent consideration for a business acquisition and periodic reassessment of its fair value, valuation of investment in privately held companies classified under Level 3 fair value hierarchy, pension obligations, accruals for customer incentives, cooperative marketing, and pricing programs and related breakage when appropriate, inventory valuation, share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets. Although these

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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 materially from those estimates.

Risks and Uncertainties

Impacts of Macroeconomic and Geopolitical Conditions and Other Factors on the Company's Business

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. The COVID-19 pandemic has resulted in industry-wide global supply chain challenges, including manufacturing, transportation and logistics. The Company purchases certain products and key components from a limited number of sources, and depends on the supply chain, including freight, to receive components, transport finished goods and deliver the Company's products across the world.

More recently, the Company has also been impacted by adverse macroeconomic and geopolitical conditions. These conditions include but are not limited to inflation, foreign currency fluctuations, slow down of economic activity around the globe, in part due to rising interest rates, and lower consumer spending. In addition, the war in Ukraine has further increased existing global supply chain, logistics, and inflationary challenges. Such global or regional economic and political conditions adversely affect demand for the Company's products. These conditions also have an impact on the Company's suppliers, contract manufacturers, logistics providers, and distributors, causing increases in cost of materials and higher shipping and transportation rates, and as a result impacting the pricing of the Company's products. Price increases may not successfully offset cost increases or may cause the Company to lose market share and in turn adversely impact the Company's results of operations.

While global supply chain challenges improved during the second quarter of fiscal 2023, including logistics costs, shipping lead times, and component availability, if macroeconomic and geopolitical conditions and COVID-19 related factors do not improve or worsen, the Company's results of operations may be adversely impacted.

Recent Accounting Pronouncements Adopted

In October 2021, the Financial Accounting Standard Board issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" (ASU 2021-08). The update requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company early adopted the standard effective April 1, 2022 and applies the standard prospectively to business combinations that occurred on or after April 1, 2022. The adoption of ASU 2021-08 did not have a material impact on the Company's condensed consolidated financial statements.

Note 2 — Net Income Per Share

The following table summarizes the computations of basic and diluted net income per share for the three and six months ended September 30, 2022 and 2021 (in thousands, except per share amounts):


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net income	$	82,091	$	139,456	$	182,927	$	326,297

Shares used in net income per share computation:
Weighted average shares outstanding - basic	163,186		168,389		163,937		168,380
Effect of potentially dilutive equivalent shares	1,142		2,954		1,434		3,302
Weighted average shares outstanding - diluted	164,328		171,343		165,371		171,682

Net income per share:
Basic	$	0.50	$	0.83	$	1.12	$	1.94
Diluted	$	0.50	$	0.81	$	1.11	$	1.90

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Share equivalents attributable to outstanding stock options, restricted stock units ("RSUs") and employee share purchase plans ("ESPP") totaling 1.7 million and 0.5 million for the three months ended September 30, 2022 and 2021, respectively, and 2.6 million and 0.5 million for the six months ended September 30, 2022 and 2021, respectively, were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive. A small number of performance-based awards were not included in the calculation because all necessary conditions had not been satisfied by the end of the respective period, and those shares were not issuable if the end of the reporting period were the end of the performance contingency period.

Note 3 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of September 30, 2022, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.), as amended and restated ("2006 ESPP"), the 1996 Employee Share Purchase Plan (U.S.), as amended and restated ("1996 ESPP"), and the 2006 Stock Incentive Plan ("2006 Plan") as amended and restated. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury stock.

The following table summarizes the share-based compensation expense and total income tax benefit recognized for share-based awards for the three and six months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Cost of goods sold	$	1,443	$	2,102	$	2,904	$	3,471
Marketing and selling	7,429		9,758		17,226		18,288
Research and development	3,280		4,724		8,812		9,785
General and administrative	93		7,438		6,993		16,129

Total share-based compensation expense	12,245		24,022		35,935		47,673
Income tax expense (benefit)	102		(3,285)		(4,220)		(19,879)
Total share-based compensation expense, net of income tax expense (benefit)	$	12,347	$	20,737	$	31,715	$	27,794

The income tax benefit in the respective periods primarily consisted of tax benefits related to the share-based compensation expense for the period and direct tax benefit realized, including net excess tax benefits recognized from share-based awards vested or exercised during the period.

Share-based compensation costs capitalized as part of inventory were $1.3 million for each of the three months ended September 30, 2022 and 2021, and $3.1 million and $3.0 million for the six months ended September 30, 2022 and 2021, respectively.

Defined Benefit Plans

Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The costs of $2.8 million and $3.3 million recorded for the three months ended September 30, 2022 and 2021, respectively, and $5.6 million and $6.6 million for the six months ended September 30, 2022 and 2021, respectively, were primarily related to service costs.

Note 4 — 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 (benefit from) income taxes are generated outside of Switzerland.

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The income tax provision for the three and six months ended September 30, 2022 was $23.4 million and $45.1 million, based on an effective income tax rate of 22.2% and 19.8% of pre-tax income, respectively. The income tax provision for the same periods ended September 30, 2021 was $33.5 million and $58.4 million, based on an effective income tax rate of 19.3% and 15.2% of pre-tax income, respectively.

The change in the effective income tax rate for the three and six months ended September 30, 2022 was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates. There was a discrete tax provision of $0.2 million and a discrete tax benefit of $1.2 million from the recognition of shortfalls and excess tax benefits, respectively, in the United States in the three and six months ended September 30, 2022. In addition, there were discrete tax benefits of $0.3 million and $1.5 million from the reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the three and six month period ended September 30, 2022. The change in the effective income tax rate for the three and six months ended September 30, 2021 was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates. There were discrete tax benefits of $0.6 million and $14.3 million from the recognition of excess tax benefits in the United States in the three and six months ended September 30, 2021, respectively. Furthermore, there were discrete tax benefits of $0.5 million and $1.5 million from the reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the three and six month period ended September 30, 2021.

As of September 30, 2022 and March 31, 2022, the total amount of unrecognized tax benefits due to uncertain tax positions was $174.9 million and $176.0 million, respectively, all of which would affect the effective income tax rate if recognized.

As of September 30, 2022 and March 31, 2022, the Company had $97.5 million and $83.4 million, respectively, in non-current income taxes payable including interest and penalties, related to the Company's income tax liability for uncertain tax positions.

The Company recognizes interest and penalties related to unrecognized tax positions in the income tax provision. As of September 30, 2022 and March 31, 2022, the Company had $4.9 million and $3.6 million, respectively, of accrued interest and penalties related to uncertain tax positions in non-current income taxes payable.

Although the Company has adequately provided for uncertain tax positions, the provisions related to these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2023, the Company continues to review its tax positions and provide for or reverse unrecognized tax benefits as they arise. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to other currencies. Excluding these factors, uncertain tax positions may decrease by as much as $4.2 million from the lapse of the statutes of limitations in various jurisdictions during the next twelve months.

On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) ("IRA") was signed into law in the United States. The IRA establishes a new corporate alternative minimum tax based on financial statement income adjusted for certain items. The new minimum tax is effective for tax years beginning after December 31, 2022. The Company does not expect the IRA will have a material impact to the Company's financial statements when it becomes effective.

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Note 5 — Balance Sheet Components

The following table presents the components of certain balance sheet asset amounts (in thousands):


	September 30, 2022		March 31, 2022
Accounts receivable, net:
Accounts receivable	$	1,014,934	$	964,766
Allowance for doubtful accounts	—		(2,212)
Allowance for sales returns	(10,499)		(12,321)
Allowance for cooperative marketing arrangements	(45,172)		(56,372)
Allowance for customer incentive programs	(74,194)		(97,460)
Allowance for pricing programs	(112,338)		(120,797)
	$	772,731	$	675,604
Inventories:
Raw materials	$	225,010	$	226,155
Finished goods	654,969		706,969
	$	879,979	$	933,124
Other current assets:
Value-added tax ("VAT") receivables	$	47,686	$	58,850
Prepaid expenses and other assets	89,238		76,628
	$	136,924	$	135,478
Property, plant and equipment, net:
Property, plant and equipment	$	488,686	$	459,413
Less: accumulated depreciation and amortization	(375,359)		(349,606)
	$	113,327	$	109,807
Other assets:
Deferred tax assets	$	195,728	$	193,629
Investments in privately held companies	33,767		43,068
Right-of-use assets	77,767		40,661
Investments for deferred compensation plan	27,969		28,431
Other assets	14,819		14,933
	$	350,050	$	320,722

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The following table presents the components of certain balance sheet liability amounts (in thousands):


	September 30, 2022		March 31, 2022
Accrued and other current liabilities:
Accrued customer marketing, pricing and incentive programs	$	221,894	$	232,393
Accrued personnel expenses	90,561		165,090
Accrued sales return liability	48,583		40,507
Warranty accrual	29,882		32,987
VAT payable	25,062		39,602
Income taxes payable	22,783		35,355

Accrued payables - non-inventory	16,147		26,722
Operating lease liabilities	11,687		13,690

Contingent consideration	5,083		8,042
Other current liabilities	191,939		190,460
	$	663,621	$	784,848
Other non-current liabilities:
Employee benefit plan obligations	$	46,872	$	50,741
Operating lease liabilities	68,250		28,207
Obligation for deferred compensation plan	27,969		28,431
Warranty accrual	12,078		13,232
Deferred tax liabilities	3,117		1,962
Contingent consideration	245		4,217
Other non-current liabilities	10,173		5,343
	$	168,704	$	132,133

The Company recorded approximately $47.0 million right-of-use assets and operating lease liabilities during the six months ended September 30, 2022, primarily related to newly commenced operating leases for office spaces in the Americas and EMEA regions.

Note 6 — Fair Value Measurements

Fair Value Measurements

The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company 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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The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):


	September 30, 2022						March 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	553,644	$	—	$	—	$	762,055	$	—	$	—

Investments for deferred compensation plan included in other assets:
Cash	$	164	$	—	$	—	$	108	$	—	$	—
Common stock	1,703		—		—		2,329		—		—
Money market funds	9,052		—		—		6,765		—		—
Mutual funds	17,050		—		—		19,229		—		—
Total of investments for deferred compensation plan	$	27,969	$	—