LOGITECH INTERNATIONAL S.A. [LOGI] Filings

10-Q 1 logi-20210930.htm 10-Q logi-20210930

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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, 2021

☐ 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, 2021, there were 167,474,200 shares of the Registrant’s share capital outstanding.

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		Page

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2021 and 2020	6
	Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and 2020	8
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended September 30, 2021 and 2020	9
	Notes to the Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibit Index	62
Signatures

Exhibits

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 2022 ended on October 1, 2021. The same quarter in the prior fiscal year ended on September 25, 2020. 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,
	2021		2020		2021		2020
Net sales	$	1,306,267	$	1,257,158	$	2,618,325	$	2,049,052
Cost of goods sold	760,268		684,599		1,499,334		1,167,237
Amortization of intangible assets	3,836		2,836		7,902		6,359
Gross profit	542,163		569,723		1,111,089		875,456

Operating expenses:
Marketing and selling	256,627		158,797		508,941		292,035
Research and development	68,661		53,379		137,907		103,104
General and administrative	33,271		31,664		73,813		60,735
Amortization of intangible assets and acquisition-related costs	5,107		4,331		10,324		8,940
Change in fair value of contingent consideration for business acquisition	(925)		—		(2,399)		5,716
Restructuring charges (credits), net	11		(1)		11		(54)
Total operating expenses	362,752		248,170		728,597		470,476

Operating income	179,411		321,553		382,492		404,980
Interest income	201		513		517		1,133
Other income (expense), net	(6,703)		1,149		1,732		3,178
Income before income taxes	172,909		323,215		384,741		409,291
Provision for income taxes	33,453		56,301		58,444		70,304
Net income	$	139,456	$	266,914	$	326,297	$	338,987

Net income per share:
Basic	$	0.83	$	1.58	$	1.94	$	2.02
Diluted	$	0.81	$	1.56	$	1.90	$	1.99

Weighted average shares used to compute net income per share:
Basic	168,389		168,645		168,380		168,140
Diluted	171,343		171,382		171,682		170,766

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,
	2021		2020		2021		2020
Net income	$	139,456	$	266,914	$	326,297	$	338,987
Other comprehensive income (loss):
Currency translation gain (loss), net of taxes	(4,731)		3,205		(3,927)		4,444
Reclassification of cumulative translation adjustment to other income (expense), net	5		(1,738)		1,051		(1,738)
Defined benefit plans:
Net gain (loss) and prior service costs, net of taxes	95		(434)		(405)		544
Amortization included in other income (expense), net	212		176		423		345
Hedging gain (loss):
Deferred hedging gain (loss), net of taxes	2,132		(1,059)		2,662		(3,426)
Reclassification of net hedging impact into cost of goods sold	(1,314)		1,969		(1,908)		1,639
Total other comprehensive income (loss)	(3,601)		2,119		(2,104)		1,808
Total comprehensive income	$	135,855	$	269,033	$	324,193	$	340,795

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, 2021		March 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	1,137,296	$	1,750,327
Accounts receivable, net	728,074		612,225
Inventories	827,710		661,116
Other current assets	166,731		135,650
Total current assets	2,859,811		3,159,318
Non-current assets:
Property, plant and equipment, net	111,625		114,060
Goodwill	449,357		429,604
Other intangible assets, net	103,501		115,148
Other assets	331,870		324,248
Total assets	$	3,856,164	$	4,142,378
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	660,720	$	823,233
Accrued and other current liabilities	709,878		858,617
Total current liabilities	1,370,598		1,681,850
Non-current liabilities:
Income taxes payable	67,651		59,237
Other non-current liabilities	155,232		139,502
Total liabilities	1,593,481		1,880,589
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 and March 31, 2021
Additional shares that may be issued out of conditional capitals — 50,000 at September 30 and March 31, 2021
Additional shares that may be issued out of authorized capital — 17,311 at September 30 and March 31, 2021
Additional paid-in capital	99,434		129,519
Shares in treasury, at cost — 5,331 at September 30, 2021 and 4,799 at March 31, 2021	(413,345)		(279,541)
Retained earnings	2,657,465		2,490,578
Accumulated other comprehensive loss	(111,019)		(108,915)
Total shareholders’ equity	2,262,683		2,261,789
Total liabilities and shareholders’ equity	$	3,856,164	$	4,142,378

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,
	2021		2020
Cash flows from operating activities:
Net income	$	326,297	$	338,987
Adjustments to reconcile net income to net cash provided by/ (used in) operating activities:
Depreciation	43,474		22,601
Amortization of intangible assets	17,468		15,239
Loss on investments	961		2,519
Share-based compensation expense	47,673		44,900
Deferred income taxes	6,808		20,152
Change in fair value of contingent consideration for business acquisition	(2,399)		5,716
Other	1,059		(1,877)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(113,008)		(346,838)
Inventories	(167,588)		(161,120)
Other assets	(48,440)		(31,567)
Accounts payable	(155,482)		399,176
Accrued and other liabilities	(134,671)		90,631
Net cash provided by / (used in) operating activities	(177,848)		398,519
Cash flows from investing activities:
Purchases of property, plant and equipment	(47,232)		(27,774)
Investment in privately held companies	(901)		(3,405)
Acquisition, net of cash acquired	(15,586)		—




Purchases of trading investments	(2,466)		(8,199)
Proceeds from sales of trading investments	2,977		8,839
Net cash used in investing activities	(63,208)		(30,539)
Cash flows from financing activities:
Payment of cash dividends	(159,410)		(146,705)

Purchases of registered shares	(174,380)		(22,454)
Proceeds from exercises of stock options and purchase rights	16,636		26,066
Tax withholdings related to net share settlements of restricted stock units	(54,751)		(25,744)
Net cash used in financing activities	(371,905)		(168,837)
Effect of exchange rate changes on cash and cash equivalents	(70)		2,512
Net increase / (decrease) in cash and cash equivalents	(613,031)		201,655
Cash and cash equivalents, beginning of the period	1,750,327		715,566
Cash and cash equivalents, end of the period	$	1,137,296	$	917,221
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	$	10,369	$	9,594
Non-cash contingent consideration for acquisition	$	9,973	$	—
Supplemental cash flow information:
Income taxes paid, net	$	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, 2020


				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
June 30, 2020	173,106	$	30,148	$	54,668	4,689	$	(158,463)	$	1,762,099	$	(120,971)	$	1,567,481
Total comprehensive income	—	—		—		—	—		266,914		2,119		269,033
Purchases of registered shares	—	—		—		312	(22,454)		—		—		(22,454)

Sales of shares upon exercise of stock options and purchase rights	—	—		3,255		(568)	12,819		—		—		16,074
Issuance of shares upon vesting of restricted stock units	—	—		(4,463)		(76)	1,840		—		—		(2,623)
Share-based compensation	—	—		25,157		—	—		—		—		25,157
Cash dividends ($0.87 per share)	—	—		—		—	—		(146,705)		—		(146,705)
September 30, 2020	173,106	$	30,148	$	78,617	4,357	$	(166,258)	$	1,882,308	$	(118,852)	$	1,705,963



Six Months Ended September 30, 2020

				Additional Paid-in Capital							Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Registered Shares					Treasury Shares			Retained Earnings
	Shares	Amount				Shares	Amount
March 31, 2020	173,106	$	30,148	$	75,097	6,210	$	(185,896)	$	1,690,579	$	(120,660)	$	1,489,268
Total comprehensive income	—	—		—		—	—		338,987		1,808		340,795
Cumulative effect of adoption of new accounting standard (Note 1)	—	—		—		—	—		(553)		—		(553)
Purchases of registered shares	—	—		—		312	(22,454)		—		—		(22,454)
Sales of shares upon exercise of stock options and purchase rights	—	—		1,365		(1,211)	24,701		—		—		26,066
Issuance of shares upon vesting of restricted stock units	—	—		(43,135)		(954)	17,391		—		—		(25,744)
Share-based compensation	—	—		45,290		—	—		—		—		45,290
Cash dividends ($0.87 per share)	—	—		—		—	—		(146,705)		—		(146,705)
September 30, 2020	173,106	$	30,148	$	78,617	4,357	$	(166,258)	$	1,882,308	$	(118,852)	$	1,705,963

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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, 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 have an everyday place in people's lives, connecting them to the digital experiences they care about. Forty years ago, Logitech created products to improve experiences around the personal 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 and e-tailers, 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 Apples, 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, 2021, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on May 12, 2021.

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, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022, 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, 2021 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

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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. 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 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

We are subject to risks and uncertainties as a result of the novel coronavirus ("COVID-19"). Capital markets and economies worldwide have been negatively impacted by COVID-19 and it is still unclear how lasting and deep the economic impacts will be. During the three and six months ended September 30, 2021, the COVID-19 pandemic had mixed effects on the Company’s results of operations. While the Company experienced increased sales for the three and six months ended September 30, 2021, compared to the same period of the prior fiscal year, we also experienced supply and demand volatility, as the COVID-19 pandemic and related safety measures and restrictions have evolved differently across the world. In addition, we experienced industry-wide supply chain challenges. The ongoing and full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition, including the sustainability of its effect on trends positive to the Company, is uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the vaccination rates, the development of effective treatments, the imposition of effective public safety and other protective measures and the public's response to such measures, the impact of COVID-19 on the global economy and demand for the Company's products and services. Should the COVID-19 pandemic or global economic slowdown not improve or worsen, or if the Company's attempt to mitigate its impact on its operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.

Recent Accounting Pronouncements Adopted

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (ASU 2019-12), which eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this standard effective April 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

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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, 2021 and September 30, 2020 (in thousands, except per share amounts):


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Net income	$	139,456	$	266,914	$	326,297	$	338,987

Shares used in net income per share computation:
Weighted average shares outstanding - basic	168,389		168,645		168,380		168,140
Effect of potentially dilutive equivalent shares	2,954		2,737		3,302		2,626
Weighted average shares outstanding - diluted	171,343		171,382		171,682		170,766

Net income per share:
Basic	$	0.83	$	1.58	$	1.94	$	2.02
Diluted	$	0.81	$	1.56	$	1.90	$	1.99

Share equivalents attributable to outstanding stock options, restricted stock units ("RSUs") and employee share purchase plans ("ESPP") totaling 0.5 million and 0.4 million for the three months ended September 30, 2021 and 2020, respectively, and 0.5 million and 0.4 million for the six months ended September 30, 2021 and 2020, respectively, were excluded from the calculation of diluted net income per share because the combined exercise price and average unamortized grant date fair value upon exercise of these options and ESPP rights or vesting of RSUs were greater than the average market price of the Company's shares during the periods presented herein, and therefore their inclusion 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, 2021, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.), as amended and restated, the 1996 Employee Share Purchase Plan (U.S.), as amended and restated, the 2006 Stock Incentive Plan, as amended and restated, and the 2012 Stock Inducement Equity Plan. 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, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Cost of goods sold	$	2,102	$	1,772	$	3,471	$	3,172
Marketing and selling	9,758		10,377		18,288		19,169
Research and development	4,724		3,763		9,785		6,866
General and administrative	7,438		8,873		16,129		15,693

Total share-based compensation expense	24,022		24,785		47,673		44,900
Income tax benefit	(3,285)		(3,958)		(19,879)		(12,069)
Total share-based compensation expense, net of income tax benefit	$	20,737	$	20,827	$	27,794	$	32,831

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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.

As of September 30, 2021 and 2020, the balance of capitalized share-based compensation included in inventory was $1.3 million and $1.3 million, respectively.

Defined Benefit Plans

Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The costs recorded of $3.3 million and $2.7 million for the three months ended September 30, 2021 and 2020, respectively, and $6.6 million and $5.4 million for the six months ended September 30, 2021 and 2020, 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.

The income tax provision for the three months ended September 30, 2021 was $33.5 million based on an effective income tax rate of 19.3% of pre-tax income, compared to an income tax provision of $56.3 million based on an effective income tax rate of 17.4% of pre-tax income for the three months ended September 30, 2020. The income tax provision for the six months ended September 30, 2021 was $58.4 million based on an effective income tax rate of 15.2% of pre-tax income, compared to an income tax provision of $70.3 million based on an effective income tax rate of 17.2% of pre-tax income for the six months ended September 30, 2020.

The change in the effective income tax rate for the three and six months ended September 30, 2021, compared to the same periods ended September 30, 2020 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 $0.5 million from the recognition of excess tax benefits in the United States and reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the three-month period ended September 30, 2021, compared with $0.8 million and $0.5 million, respectively, in the three-month period ended September 30, 2020. There were discrete tax benefits of $14.3 million and $1.5 million from the recognition of excess tax benefits in the United States and the reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the six-month period ended September 30, 2021, compared with $5.8 million and $1.5 million, respectively, in the six-month period ended September 30, 2020.

As of September 30, 2021 and March 31, 2021, the total amount of unrecognized tax benefits due to uncertain tax positions was $170.2 million and $160.3 million, respectively, all of which would affect the effective income tax rate if recognized.

As of September 30, 2021 and March 31, 2021, the Company had $67.7 million and $59.2 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, 2021 and March 31, 2021, the Company had $5.5 million and $4.9 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 2022, 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

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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 $4.9 million from the lapse of the statutes of limitations in various jurisdictions during the next twelve months.

Note 5 — Balance Sheet Components

The following table presents the components of certain balance sheet asset amounts as of September 30 and March 31, 2021 (in thousands):


	September 30, 2021		March 31, 2021
Accounts receivable, net:
Accounts receivable	$	1,034,726	$	867,868
Allowance for doubtful accounts	(249)		(1,161)
Allowance for sales returns	(10,857)		(14,438)
Allowance for cooperative marketing arrangements	(64,216)		(43,276)
Allowance for customer incentive programs	(94,413)		(76,200)
Allowance for pricing programs	(136,917)		(120,568)
	$	728,074	$	612,225
Inventories:
Raw materials	$	205,991	$	146,886
Finished goods	621,719		514,230
	$	827,710	$	661,116
Other current assets:
Value-added tax receivables	$	79,381	$	67,710
Prepaid expenses and other assets	87,350		67,940
	$	166,731	$	135,650
Property, plant and equipment, net:
Property, plant and equipment at cost	$	454,417	$	417,520
Accumulated depreciation and amortization	(342,792)		(303,460)
	$	111,625	$	114,060
Other assets:
Deferred tax assets	$	204,655	$	210,888
Right-of-use assets	41,234		31,169
Trading investments for deferred compensation plan	28,375		24,809
Investments in privately held companies	42,749		43,402
Other assets	14,857		13,980
	$	331,870	$	324,248

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The following table presents the components of certain balance sheet liability amounts as of September 30 and March 31, 2021 (in thousands):


	September 30, 2021		March 31, 2021
Accrued and other current liabilities:
Accrued customer marketing, pricing and incentive programs	$	208,207	$	185,394
Accrued personnel expenses	113,818		173,360
VAT payable	61,441		50,620
Accrued sales return liability	45,064		43,178
Accrued payables - non-inventory	36,736		52,392
Warranty accrual	34,646		33,228
Income taxes payable	11,954		131,408

Operating lease liability	13,754		13,101

Contingent consideration	10,570		6,967
Other current liabilities	173,688		168,969
	$	709,878	$	858,617
Other non-current liabilities:
Employee benefit plan obligations	$	73,534	$	72,321
Obligation for deferred compensation plan	28,375		24,809
Operating lease liability	29,940		21,319
Warranty accrual	14,527		15,604
Contingent consideration	3,971		—
Deferred tax liability	1,679		1,679
Other non-current liabilities	3,206		3,770
	$	155,232	$	139,502

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, 2021						March 31, 2021
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	402,219	$	—	$	—	$	669,759	$	—	$	—

Trading investments for deferred compensation plan included in other assets:
Cash	$	63	$	—	$	—	$	31	$	—	$	—
Common stock	1,850		—		—		1,569		—		—
Money market funds	7,661		—		—		6,734		—		—
Mutual funds	18,801		—		—		16,475		—		—
Total of trading investments for deferred compensation plan	$	28,375	$	—	$	—	$	24,809	$	—	$	—

Currency exchange derivative assets included in other current assets	$	—	$	2,153	$	—	$	—	$	5,452