10-K 1 logitech10-k2015.htm 10-K 2015 Logitech 10-K 2015
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-K
 
 
 
ý

 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2015
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
(State or other jurisdiction of
incorporation or organization)
 
None
(I.R.S. Employer
Identification No.)
Logitech International S.A.
Apples, Switzerland
c/o Logitech Inc.
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
 
Name of each exchange on which registered
Registered Shares par value CHF 0.25 per share
 
The NASDAQ Global Select Market; SIX Swiss Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
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 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 ý  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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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 ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
The aggregate market value of the voting shares held by non-affiliates of the registrant, based upon the closing sale price of the shares on September 26, 2014, the last business day of the registrant's second fiscal quarter on the NASDAQ Global Select Market, was approximately $1,964,934,145. For purposes of this disclosure, voting shares held by persons known to the Registrant to beneficially own more than 5% of the Registrant's shares and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily a conclusive determination for other purposes.
As of May 12, 2015, there were 164,558,872 shares of the Registrant's share capital outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2015 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended March 31, 2015.



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TABLE OF CONTENTS


 
 
Page
Part I
 
 
Part II
 
 
Part III
 
 
Part IV
 
 
 
In this document, unless otherwise indicated, references to the "Company" or "Logitech" are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America. All references to CHF are to the Swiss Franc, the legal currency of Switzerland.
Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.




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FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements based on beliefs of our management as of the filing date of this Form 10-K. These forward-looking statements include, among other things, statements related to:
Our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position;
Our business strategy and investment priorities in relation to competitive offerings and evolving consumer demand trends affecting our products and markets, worldwide economic and capital market conditions, fluctuations in currency exchange rates, and current and future general regional economic conditions for fiscal year 2016 and beyond;
The scope, nature or impact of acquisition, strategic alliance and divestiture activities;
Our business and product plans and development and product innovation and their impact on future operating results and anticipated operating costs for fiscal year 2016 and beyond;
Market opportunities and our ability to take advantage of them;
Our plans for business restructuring (including, but not limited to, the exit from our OEM business and the reorganization of Lifesize), capital investments and research and development;
Our expectations regarding our share buyback and dividend programs;
The sufficiency of our cash and cash equivalents, cash generated from operations, and available borrowings under our bank lines of credit to fund capital expenditures and working capital needs; and
The effects of changes in tax, environmental and other laws and regulations in the United States and other countries in which we operate.
Forward-looking statements also include, among others, those statements including the words "anticipate", "believe", "could", "estimate", "expect", "forecast", "intend", "may", "plan", "project", "predict", "should", "will" and similar language. These statements reflect our views and assumptions as of the date of this Annual Report on Form 10-K. All forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from those anticipated in the forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this Annual Report on Form 10-K under the headings of “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Overview”, “Critical Accounting Estimates” and “Liquidity and Capital Resources”, among others. Factors that might cause or contribute to such differences include, but are not limited to, those discussed under Item 1A, Risk Factors, as well as elsewhere in this Annual Report on Form 10-K and in our other filings with the U.S. Securities and Exchange Commission, or "SEC." You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.



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PART I
ITEM 1.    BUSINESS
Company Overview
Logitech is a world leader in products that connect people to the digital experiences they care about. Spanning multiple computing, communication and entertainment platforms, we develop and market 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 and home-entertainment control.
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 Americas (including North and South America), EMEA (Europe, Middle East, Africa) and Asia Pacific (including, among other countries, China, Taiwan, Japan and Australia). 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. References in this Form 10-K to the "Company," "Logitech," "we," "our," and "us" refer to Logitech International S.A. and its consolidated subsidiaries.
In this Annual Report on Form 10-K for the fiscal year ended March 31, 2015, we have made the following changes to our preliminary results furnished to the United States Securities and Exchange Commission (“SEC”) in the Current Report on Form 8-K on April 23, 2015: (a) Goodwill impairment charge of $122.7 million related to its video conferencing reporting unit;  (b) Accrual of $3.25 million related to SEC investigation settlement discussions; (c) Balance sheet reclassification of $0.5 million related to an increase in inventory and accrual; and (d) Changes in deferred tax assets of $0.3 million related to the changes above. See Part II—"Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" of this annual report for more details.

These changes were due to the completion of our evaluation of our video conferencing reporting unit’s goodwill impairment and other subsequent events that we adjusted through the date of filing this annual report. The possibility of these adjustments were noted in the Current Report on Form 8-K and earning release on April 23, 2015. Also, subsequently on May 14, 2015, the registrant announced the goodwill impairment charge expected at that time to be between $100 million and $123 million.
Logitech has two operating segments, peripherals and video conferencing.
Peripherals
Our peripherals segment, which includes retail and Original Equipment Manufacturer (OEM) channels, encompasses the design, manufacturing and marketing of peripherals for personal computers (PCs), tablets and other digital platforms. We sell our peripherals products to a network of distributors, retailers and OEMs.
Retail Channel
Our retail peripherals product categories, which we classify as growth, profit maximization or non-strategic, are defined as follows:
Retail Strategic - Growth Categories:
Mobile Speakers:  Comprised of portable wireless Bluetooth speakers.
Gaming:  Includes Gaming mice, keyboards, headsets, gamepads and steering wheels.
Video Collaboration:  Includes primarily video products and certain headset products that can connect small and medium sized user groups.
Tablet & Other Accessories:  Includes keyboards and covers for tablets and smartphones as well as other accessories for mobile devices.
Retail Strategic - Profit Maximization Categories:
Pointing Devices:  Includes PC-related mice, touchpads and presenters.
Keyboards & Combos:  Includes keyboards and keyboards/mice combos for various platforms.
Audio-PC & Wearables:  Includes PC speakers, PC headsets and in-ear headphones.
PC Webcams:  Includes retail webcam products.

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Home Control:  Includes our Harmony remote control and home automation products.
Non-Strategic:
This category, which represented less than 1% of our sales in fiscal year 2015, comprises a variety of products which we are in the process of transitioning out of, or have already transitioned out of, because they are no longer strategic to our business. Products currently included in this category are television (TV) camera, Digital Video Security (DVS), other gaming products not included in our Growth Category and music products, including over-ear headphones, TV and home speakers, Google TV products, and some other PC Keyboards & Desktops accessories.
We sell our peripherals products to a network of retailers, including direct sales to retailers and indirect sales through distributors. Our worldwide retail network includes consumer electronics distributors, retailers, mass merchandisers, specialty electronics stores, computer and telecommunications stores, value-added resellers and online merchants. Sales of peripherals to our retail channels were 89%, 88% and 87% of our net sales for the fiscal years 2015, 2014 and 2013, respectively. The large majority of our revenues have historically been derived from sales of our retail peripherals products for use by consumers.
OEM Channel
Our OEM customers include the majority of the world's largest PC manufacturers. For the fiscal years 2015, 2014 and 2013, Sales to OEM customers were 6% of our net sales of each year, and declined 17% year over year in fiscal year 2015. While the OEM business has been an important part of our history, we see limited opportunities for profitable growth. Given our heightened focus on growing our Retail Strategic business, we plan to exit OEM.
Video Conferencing
Our video conferencing segment encompasses the design, manufacturing and marketing of Lifesize-branded video conferencing products, infrastructure and services for small and medium size enterprises, public sector, and other business markets. Video conferencing products include SaaS video service, scalable HD (high-definition) video communication endpoints, video conferencing infrastructure software and appliances to support large-scale video deployments, and services to support these products. During the past few years, the competitive landscape of the video conferencing industry has changed drastically, characterized by increased competition combined with rapid shifting from infrastructure component business to Cloud-based services. During the second quarter of fiscal year 2015, Lifesize launched its Cloud offerings and we continue to see significant momentum for this Cloud-based video communication offering. On the other hand, we experienced significant sales declines in our infrastructure component business, especially during the fourth quarter of fiscal year 2015. While the sales of our Cloud offering are growing rapidly, they are not large enough to offset the declining video conferencing infrastructure business. As a result of these changes, we made a strategic decision to de-emphasize the legacy offerings more quickly than planned to enable maximum traction of the Cloud-based offerings. The video conferencing segment maintains a dedicated marketing and sales organization, which sells Lifesize services and products worldwide. Video conferencing product development and product management organizations are separate, but coordinated with our peripherals business. We sell our video conferencing products and services to distributors, value-added resellers, OEMs, and direct enterprise customers. Sales of video conferencing products were 5%, 6%, and 7% of our net sales in the fiscal year 2015, 2014 and 2013, respectively. Our video conferencing segment also has infrastructure functions, including finance, legal, information technology and facilities that are separate, but coordinated with our peripherals business.
Industry Overview
Historically, Logitech's business has been driven by the same trends that drove the adoption of desktop and laptop PCs for consumers, businesses and institutional applications, including the growth in affordable processing power, communications bandwidth, the increased accessibility of digital content, and the growing and pervasive use of the Internet for productivity, communication and entertainment. These trends have created opportunities for new applications, new users and dramatically richer interaction between people and digital content. In both mature and emerging markets, a large installed base of business and enterprise customers purchase peripherals for their PCs.
In the last several years, the PC market has changed dramatically and there continues to be weakness in the global market for new PCs. This dynamic has negatively impacted net sales in our PC-related categories, except for Gaming and Video Collaboration products. The gaming platform continues to show strong growth as online gaming and multi-platform experiences gain greater popularity. The decline in popularity of desktop PCs, combined with the increased interest in smaller, touch-interfaced computing devices (such as smartphones and tablets) has rapidly

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changed the market for PC peripherals, while creating opportunities for new peripheral categories. Although the installed base of PC users is large in our traditional mature markets (the United States, Canada, Western and Nordic Europe, Japan and Australia), consumer demand for PCs has declined in recent years and we believe this trend will continue in future years.
At the same time, there has been growth in the popularity of smaller, mobile computing devices, such as tablets and smartphones with touch interfaces, which have created new markets and usage models for mobile peripherals and accessories. Logitech offers peripherals and accessories to enhance the use of such digital platforms. For today's consumers, listening to music is a popular entertainment activity, fueled by the growth in smartphones, tablets, music services and Internet radio. Consumers are optimizing their audio experiences on their tablets and smartphones with wireless mobile speakers that pair easily with their mobile devices. Our Mobile Speakers products target a large and growing market that reflects the increasing popularity of mobile devices for accessing digital music. Consumers are also enhancing their tablet experience with a range of keyboards and cases that enable them to create, consume and do more with their tablets conveniently and comfortably.
The use of video across multiple platforms—PCs, laptops and mobile devices such as tablets and smartphones—is a continuing trend among consumers. The video communication industry continues to make progress towards a vision in which people can conduct a video call from any of these platforms to any other platform. The market opportunity to provide innovative, affordable, and easy to use video collaboration products to the millions of small to medium sized meeting rooms lacking video is substantial, and we are well-positioned to take advantage of it.
The trend among businesses and institutions to use video conferencing is even more prevalent than consumer use of video calling, and offers a long-term growth opportunity for Logitech. For businesses and institutions, video conferencing is increasingly substituted for travel, because of high travel costs as well as the productivity gain that can be achieved by a high-quality face-to-face meeting that does not require travel away from the office. Further, with the increased availability of higher Internet bandwidth, video conferencing is becoming a key component of Unified Communications, which is the integration of enterprise-class collaboration and communications solutions such as voicemail, e-mail, chat, presentation sharing and live video meetings.
Finally, we believe that trends established in the consumer technology market, such as brand identity, affordability, ease of installation and use, customer support, and design, have become important aspects of the purchase decision when buying a consumer electronics product. These are strengths that we believe Logitech offers in both consumer and enterprise markets.
Business Strategy
Logitech's current strategic objectives are to:
focus our innovation and go-to-market teams on our retail business;
continue to optimize profitability of our PC peripherals;
build new categories that become sustainable growth engines;
develop a world-class design company; and
deliver operating leverage to improve profitability and to create the capacity to invest in growth.
Our product categories focus on the substantial worldwide installed base of PC and Mac computers by offering innovative peripherals to address needs for comfort, productivity and easy connectivity, as well as entertainment and communication. With a large installed base of users, we believe that the market for PC peripherals will continue to present opportunities for increased profitability.
As sales of PCs have declined over the past several years, sales of peripherals targeted for the PC platform have similarly diminished and affected our growth. As a result, we are focusing our investments in product categories with growth opportunities in which we can leverage our areas of expertise, competitive advantages and technology. We are currently focused on four growth categories: Mobile Speakers, Gaming, Video Collaboration and Tablet & Other Accessories. We also focus on developing and testing products for potential new growth opportunities.

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As we continue to shift the focus of our investment from PC peripherals to growth categories, our business approach is changing as well. Our product development process and responsiveness to consumers have become faster. We laid the foundation in fiscal year 2014 for building a design company that leverages technology, innovation and consumer insights. We are continuing to build on this foundation by making design a more integral part of our product development with the goals of creating fewer but more impactful products while increasing consumer satisfaction.
Our video conferencing segment focuses on high-definition (HD) video conferencing for businesses and institutions. We believe that our strategy of delivering a high quality, Cloud-based experience combined with a compelling price/performance advantage will position us well in this rapidly evolving market.
We continually review our product offerings and our strategic direction in light of our profitability targets, competitive conditions, changing consumer trends, and the evolving nature of the interface between the consumer and the digital world. We continue to evaluate and phase out non-strategic products as part of our ongoing efforts to strengthen our overall portfolio.
Our turnaround strategy, which we originally outlined in May 2013, has been a success and we are continuing to transform Logitech into a simpler, faster, growing company. As we move forward we plan to focus on our growing Retail Strategic business, exit our OEM business and reorganize our video conferencing business, Lifesize, to sharpen its focus on its Cloud-based offering. We are also focused on streamlining our overall cost structure through product, overhead and infrastructure cost reductions, including a targeted resource realignment. As a result, over the coming year we expect restructuring charges of approximately $15 million to $20 million. The savings from all these actions will be used to offset currency headwinds and invest in future growth.
Product Strategy
To take advantage of the opportunities we anticipate in the growing digital marketplace, Logitech's product strategy focuses on enabling and enhancing the multiple interfaces for input, navigation, audio and video across the many digital devices used by today's consumers and enterprises.
Digital Music
Logitech has a solid foundation of audio solutions designed to satisfy consumers' needs for music consumption sourced from a variety of platforms. These platforms include music services, Internet radio and Bluetooth-enabled mobile devices such as tablets and smartphones. Our music solutions are focused primarily on Mobile Speakers. We recently introduced UE MEGABOOM, a larger and more powerful companion for UE BOOM offering 360-degree sound, more bass and water-proof design, which has already received several design awards.
Gaming
Our strategy is to leverage our deep research and development (R&D) expertise in the area of PC peripherals to build the most advanced gaming gear on the market. One recent example of this is the G402 Hyperion Fury Gaming Mouse which combines an optical sensor featuring Logitech Delta Zero™ technology with our exclusive Fusion Engine™ hybrid sensor to enable tracking speeds in excess of 500 inches per second (IPS).
Video Collaboration
The market opportunity to provide innovative, affordable, and easy to use video collaboration products to the millions of small to medium sized meeting rooms lacking video, or even to mobile meetings, is substantial, and we are well positioned to take advantage of it. Over the past year, we have built momentum with the CC3000e all-in-one video and audio conferencing solution for small and midsize conferencing rooms.
Tablet & Other Accessories
To seize the growth opportunities in the peripherals market for mobile devices, we are focusing on innovating new features and products to provide excellent consumer experience, and on reducing product cycle time to address the evolving market demand and frequent introductions of new devices. We have developed a range of products for the tablet market, for both Apple and Android platforms. We believe there will be additional demand for complementary peripherals to enhance consumers' experiences with tablets and other mobile devices.

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PC/Mac Accessories
Logitech continues to provide new, innovative, high-performance PC and Mac computer navigation devices and audio and video products for the large installed base of PC and Mac computers and for the enterprise market.
Home Controls
Logitech's Harmony brand is well recognized as the leader in performance remote controls for home entertainment. We believe this expertise provides a strong foundation for control of the digital home.
Video Conferencing
Our Lifesize division represents our focused investment in the growth of video communications for enterprises and business organizations. Lifesize is a leader in HD communication innovation at multiple price points, offering complete and scalable solutions including hardware, software, endpoints, services and infrastructure to small and medium enterprises. During the second quarter of fiscal year 2015, Lifesize launched its Cloud offerings. We continue to see significant momentum for this Cloud-based video communication offering. In the nine months since its launch, we have acquired more than 1,100 Lifesize Cloud customers and achieved strong growth in concurrent Cloud calls and usage. Looking at this growth, we recently decided to reorganize Lifesize with the goal of de-emphasizing Lifesize’s legacy offerings to enable maximum traction with Lifesize Cloud.
Design and Technological Innovation
Logitech seeks to fulfill the increasing demand for interfaces between people and the expanding digital world across multiple platforms and user environments. The interface evolves as platforms, user models and our target markets evolve. As access to digital information has expanded, we have extended our focus beyond the PC to other entry and control points to the Internet and digital world, including mobile devices and the meeting room. All of these platforms require interfaces that are customized according to how the devices are used. We believe this expansion of access points provides additional attractive opportunities for Logitech because the relevance and importance of navigation, interaction, video and audio interfaces and applications remain substantially the same across platforms.
We recognize that continued investment in product research and development is critical to facilitate innovation of new and improved products and technologies. Four of Logitech's products were selected as 2015 Computer Electronics Show (CES) Innovation Award honorees, including:
Logitech Bluetooth® Multi-Device Keyboard K480, a wireless desktop keyboard for your computers, tablets and smartphones.
Logitech G502 Proteus Core Tunable Gaming Mouse that is customizable, combining the world’s first 12,000 dots per inch (DPI) sensor with advanced surface and weight tuning.
Logitech G402 Hyperion Fury Ultra-Fast FPS Gaming Mouse that can reliably track over 500 IPS.
Logitech G910 Orion Spark RGB Mechanical Gaming Keyboard, a keyboard that combines high speed responsiveness and improved accuracy with superior red, green and blue (RGB) illumination in a performance-driven design.
During fiscal year 2015, three of Logitech's products won the 2015 iF product design award for excellence in the audio, mobile and PC peripherals categories. This year's winners are the UE MEGABOOM, Logitech AnyAngle and the Logitech Wireless Mouse M320. During fiscal year 2015, Logitech also won Red Dot awards for the Logitech ConferenceCam Connect, Logitech Keys-To-Go, the Logitech G910 Orion Spark RGB Mechanical Gaming Keyboard, the Logitech Bluetooth® Multi-Device Keyboard K480, the Logitech Wireless Mouse M320 and UE MEGABOOM and Good Design awards for Logitech case+, the Logitech Illuminated Living-Room Keyboard K830, the Logitech X300 Mobile Wireless Stereo Speaker, the Logitech G502 Proteus Core Tunable Gaming Mouse, the Logitech G402 Hyperion Fury Ultra-Fast™ FPS Gaming Mouse, the Logitech Ultrathin Keyboard Folio for iPad® Air and iPad® mini and the Logitech Ultrathin for iPad® Air.
Our research and development expenses for fiscal years 2015, 2014 and 2013 were $131.0 million, $139.4 million and $155.0 million, respectively. We expect to continue to devote significant resources to research and development, including devices for digital platforms, video communications, wireless technologies, power management, user interfaces and device database management to sustain our competitive position.

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Logitech is committed to meeting consumer needs for peripheral devices and believes that design, innovation, value and product quality are important elements in gaining market acceptance and strengthening our market position.
Products
Our peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs, tablets and other digital platforms. We sell our peripherals products primarily to a network of distributors and retailers. The large majority of our revenues have historically been derived from sales of our peripherals products for use by consumers. Our video conferencing segment encompasses the design, manufacturing and marketing of Lifesize-branded video conferencing products, infrastructure and services for small and medium size enterprises, public sector, and other business markets. Video conferencing products include SaaS video service, scalable HD (high-definition) video communication endpoints, video conferencing infrastructure software and appliances to support large-scale video deployments, and services to support these products. During the second quarter of fiscal year 2015, Lifesize launched its Cloud-based offerings and we continue to see significant momentum for this Cloud-based video communication offering. On the other hand, we experienced significant sales declines in infrastructure component business, especially during the fourth quarter of fiscal 2015. While the sales of the Cloud offering are growing rapidly, they are not large enough to offset the declining of the video conferencing infrastructure business. As a result of these changes, we made a strategic decision to de-emphasize Lifesize’s legacy offerings more quickly than planned to enable maximum traction of the Lifesize Cloud. We sell our Lifesize products and services to distributors, value-added resellers, OEMs and, occasionally, to direct enterprise customers.
Our brand, portfolio management, product definition and engineering teams in our peripherals segment are responsible for product strategy, technological innovation and development, and for bringing our products to market. Our marketing team is responsible for supporting the Logitech brand, public relations and social media, and digital marketing. Our design team provides creative leadership, consumer insights, design direction and management from concept exploration to product and experience execution. Our retail sales and marketing activities are organized into three geographic regions: Americas (North and South America), EMEA (Europe, Middle East, Africa) and Asia Pacific (China, Japan, Australia, Taiwan, India and other countries). Our infrastructure functions, including finance, legal, information technology, and facilities, are managed globally to support the business.
Peripherals
Retail Strategic - Growth Categories
Mobile Speakers
The Mobile Speakers category comprises portable wireless Bluetooth speakers. Our top revenue-generating product during fiscal year 2015 is UE BOOM, the 360° portable wireless speakers that provide bold, immersive sound in every direction. The UE BOOM is the primary driver for success in this product category. The category also includes the UE Mini BOOM, a portable Bluetooth speaker with two channel speaker system in a compact design.
Gaming
Logitech offers a full range of dedicated gaming gear for gamers, including mice, keyboards, headsets, gamepads and steering wheels. Some of our products in this category include:
The Logitech G910 Orion Spark RGB Mechanical Gaming Keyboard, which features exclusive Romer-G switches, intelligent RGB illumination, and a wide range of options to customize colors and profiles.
The Logitech G930 Wireless Gaming Headset, which offers high-performance 7.1 channel surround sound, a lag-free 2.4 GHz wireless connection, and three customizable G keys for one-touch command over music, chat, voice morphing and other features.
The Logitech G402 Hyperion Fury Gaming Mouse, which combines an optical sensor featuring Logitech Delta Zero™ technology with our exclusive Fusion Engine™ hybrid sensor to enable tracking speeds in excess of 500 IPS.
The Logitech G502 Proteus Core Gaming Mouse, which features an advanced optical sensor and eleven programmable buttons and allows gamers to customize the weight and balance.
Video Collaboration

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The Video Collaboration category includes Logitech’s ConferenceCams, which combine enterprise-quality audio and HD 1080p video with affordability to bring video conferencing to small and medium conference rooms. Our key products in this category include:
The Logitech ConferenceCam CC3000e offers best-in-class videoconferencing with HD 1080p video and professional audio that easily turns mid-size conference rooms into video-enabled collaboration rooms.
The recently launched Logitech ConferenceCam Connect is a portable, all-in-one video conference solution with HD 1080p video, professional audio, and multi-device connectivity for small group collaboration.
Tablet & Other Accessories
The Tablet & Other Accessories category includes keyboards and covers for tablets and smartphones as well as other accessories for mobile devices. We expect to continue to enhance this category through the introduction of additional innovative and complementary products. Some of products in this category include:
The Logitech Ultrathin Keyboard Cover for iPad Air provides an aluminum screen cover for added protection on the go, and doubles as a wireless keyboard.
The Logitech Ultrathin Keyboard Folio for iPad Air and for iPad mini offers a thin-and-light typing experience, with front and back protection for the iPad.
The Logitech Protective Folio for iPad Air and for iPad mini offer protection and versatility in a thin, light and stylish design.
Retail Strategic - Profit Maximization Categories
Pointing Devices
Logitech offers a variety of pointing devices, sold through retail channels. Some of our key products in this category include:
The Logitech MX Master Wireless mouse is our flagship wireless mouse that is the new paradigm for precise, fast, comfortable computer navigation.
The Logitech Wireless Mouse M325 offers micro-precise scrolling with a feel-good, contoured design.
The Logitech Wireless Mouse M185 is a wireless mouse with nano receiver technology that is compatible with any computer.
Keyboards & Combos
Logitech offers a variety of corded and cordless keyboards, living room keyboards, and combos (keyboard-and-mouse combinations). Some of our products in this category include:
The Logitech Wireless Touch Keyboard K400 is a sleek and compact keyboard with a 10-meter wireless range, provides functionality as a living room keyboard.
The Logitech Combo MK270 offers a wireless compact mouse and keyboard with nano technology.
The Logitech Combo MK520 is a sleek full size keyboard and mouse combination with unifying receiver.
Audio—PC & Wearables
The Audio-PC & Wearables category comprises PC speakers, PC headsets, and in-ear earphones designed to enhance the audio experience. Some of our products in this category include:
The Logitech Speaker System Z623 delivers 200 watts (RMS) of power in a THX-Certified system with multiple inputs.
The Logitech Surround Sound Speakers Z506 delivers 75 watts of power with 3D stereo and multiple inputs.
The Logitech USB Headset H390 is an USB headset that offers noise cancelling microphone and in-line audio features.
PC Webcams
The PC Webcams category comprises PC-based webcams targeted primarily at consumers. Our top revenue-generating webcams during fiscal year 2015 included the Logitech HD Pro Webcam C920, which offers razor-sharp HD video and recordings with 1080p, enhanced by Carl Zeiss optics.

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Home Control
The Home Control category includes our Harmony advanced remote controls for home entertainment and control systems. Some of our products include:
The Logitech Harmony Ultimate and the Logitech Harmony Smart Control, both of which feature Logitech's Harmony Hub and Harmony Smartphone App to enable closed-cabinet control and one-touch entertainment access to hundreds of thousands of devices from a universal remote or smartphone. The Harmony Hub offers home control capability for connected home devices, such as Philips Hue lights.
The Logitech Harmony 650 remote is a universal remote featuring a color screen and one-click activity buttons.

Video Conferencing
Our Lifesize division offers HD video communication solutions including a HD SaaS video conferencing service, HD video conferencing products, audio conference telephones, hardware and software infrastructure solutions, video management software, and services to support reliable video and audio communications and help users connect to networks securely and with ease. The Lifesize product line includes:
Lifesize Cloud, a SaaS infrastructure service that supports the ways people communicate and is a solution that offers a connected experience in small to medium size meeting rooms. Lifesize Cloud enables secure, immersive communication between meeting room-based video conferencing systems, software applications on PCs and Mac computers, and mobile applications on IOS and Android smartphones and tablets. It offers an intuitive, scalable, and cost-effective solution for companies looking to deploy business class video conferencing. Lifesize Cloud is now the primary strategic focus of the Lifesize business. We plan to deemphasize the legacy offerings listed below.
The Icon Series, which introduces a new, simplified user experience designed to make video communication simple and intuitive so that anyone can use it without training. It is tightly integrated with the Lifesize UVC Platform and its applications to make it easier for users to experience the full power of their platform.
The 220 Series, which provides full HD video quality at the lowest possible bandwidth, allowing data-sharing, supporting dual HD display, full HD camera, and phone or microphone options. These offer multiple models to support customer room configuration needs and multipoint bridging requirements.
Competitive Strengths
We believe the key competitive strengths that allow Logitech to be successful in the markets are:
Our innovation capability, including understanding of product development, technology and industrial design excellence as an emerging strength, as demonstrated by a list of over 100 industry "firsts" to our name and a patent portfolio of approximately over 750 patents.
Our expertise in key engineering disciplines that underlie our products, and our continued enhancement of our products through the use of advanced technologies.
The Logitech, Ultimate Ears (UE), and Lifesize brand names and industrial designs, which are recognized worldwide as symbols of product quality, innovation, ease of use and price-performance value.
Our hybrid model of in-house manufacturing and third-party contract manufacturers, which allows us to effectively respond to rapidly changing demand and leverage economies of scale.
Our supply chain has extensive global reach, key distribution and strategic business relationships combined with extensive analytic modeling expertise, optimization tools and global processes.
Our global presence, capable of drawing on the strengths of our global resources, global distribution system and geographic revenue mix.
Our expertise in a broad array of PC, Mac and mobile device peripherals.
Our extensive retail presence across consumer electronics, mass merchandises and office infrastructures.
We believe that we have competed successfully based on these factors. We believe that Logitech's future lies with our ability to continue to capitalize on these strengths.
Marketing and Design
Logitech's Design and Marketing team strives to understand consumers so that we can innovate, create and deliver amazing design to our users at each and every touch point of the consumer experience with the Logitech brand and products.

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We believe that by creating products that people desire and love, we maximize the number of consumers who actively buy and recommend Logitech products, fueling brand preference within and across our many product categories.
We are making good progress building a strong internal Design and Marketing team, while partnering with world renowned design agencies to further our “design-led” approach to product development and launch. Our key design centers are in the United States, Switzerland, Ireland and Taiwan.
Sales and Distribution
Principal Markets
Net sales to unaffiliated customers by geographic region for fiscal years 2015, 2014 and 2013 (based on the customers' location) are as follows (in thousands):
 
 
Year Ended March 31,
 
 
2015
 
2014
 
2013
Americas
 
$
915,478

 
$
859,893

 
$
808,618

EMEA
 
710,966

 
767,017

 
799,075

Asia Pacific
 
487,503

 
501,803

 
491,584

 
 
$
2,113,947

 
$
2,128,713

 
$
2,099,277

Revenues from sales to customers in Switzerland, our home domicile, represented 2% of our total consolidated net sales in each of fiscal years 2015, 2014 and 2013. In fiscal years 2015, 2014 and 2013, the United States represented 36%, 35% and 33% of our total consolidated net sales, respectively. No other single country represented more than 10% of our total consolidated net sales for fiscal years 2015, 2014 or 2013.
Sales and Distribution
We primarily sell our peripherals products to a network of distributors and retailers. We support these channels with third-party distribution centers located in North America, Europe and Asia Pacific. Some of these distribution centers perform product localization with local language manuals, packaging and power plugs.
Logitech directly sells peripherals products to distributors and large retailers. Distributors in North America include Ingram Micro, Tech Data Corporation, D&H Distributing, and Synnex Corporation. In Europe, pan-European distributors include Ingram Micro, Tech Data, and Gem Distribution. We also sell to many regional distributors such as Actebis GmbH in Germany and Copaco Dc B.V. in the Netherlands. In Asia, major distributors include Beijing Digital China Limited in China, Daiwabo in Japan, and the pan-Asian distributor, Ingram Micro. Our distributor customers typically resell products to retailers, value-added resellers, systems integrators and other distributors with whom Logitech does not have a direct relationship.
In fiscal years 2015, 2014 and 2013, Ingram Micro Inc. and its affiliated entities together accounted for 14%, 14% and 11% of our net sales, respectively. No other customer individually accounted for more than 10% of our net sales during fiscal years 2015, 2014 and 2013. The material terms of our distribution agreements with Ingram Micro and its affiliated entities are summarized as follows:
The agreements are non-exclusive in the particular territory and contain no minimum purchase requirements.
Each agreement may be terminated for convenience at any time by either party. Most agreements provide for termination on 30 days written notice from either party, with two Ingram Micro agreements providing for termination on 90 days notice.
We generally offer an allowance for marketing activities equal to a negotiated percentage of sales and volume rebates related to purchase volumes or sales of specific products to specified retailers. These terms vary by agreement.
Most agreements allow price protection credits to be issued for on-hand or in-transit new inventory if we, in our sole discretion, lower the price of the product.
We grant limited stock rotation return rights, which vary by agreement.
Logitech's peripherals products can be purchased in most major retail chains, where we typically have access to significant shelf space. These chains in the U.S. include Best Buy, Wal-Mart, Staples, Office Depot and Target. In Europe, chains include Metro Group (Media-Saturn Group), Carrefour Group, Kesa Electricals, Fnac, and Dixons

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Stores Group PLC. In Asia Pacific, retail chains include Australia's Dick Smith Electronics Limited. Logitech products can also be purchased online either directly from Logitech.com or through e-tailers, such as Amazon.com, TigerDirect.com, Buy.com, CDW, Insight Enterprises, Inc. and others.
Logitech's OEM products are sold to large OEM customers through a direct sales force, and we support smaller OEM customers through distributors. While OEM business has been an important part of our history, given our heightened focus on our growing retail business, we plan to exit OEM.
Our video conferencing Lifesize division maintains a marketing and sales organization, separate from the Peripherals segment that sells Lifesize products and services to distributors, value-added resellers, OEMs and direct enterprise customers. The large majority of Lifesize revenues are derived from sales of products for use by small-to-medium businesses, public healthcare providers, educational institutions and government organizations.
Through our operating subsidiaries, we maintain sales offices or sales representatives in approximately 43 countries.
Backlog
We typically have a relatively small amount of orders at the end of our fiscal periods that we have received but have not shipped, which is referred to as backlog. In our experience, the amount of backlog at any particular fiscal period-end is not a meaningful indication of our future business prospects.
Customer Service and Technical Support
Our customer service organization provides user technical support, support related to product inquiry, and order support. We support these customer service functions with an outsourced operation that has support centers located in the Philippines, Mexico, and Northern Ireland.
Logitech maintains customer service and technical support capabilities in the United States, Canada, Europe, and the Asia Pacific region. Customer service and technical personnel provide support services to retail purchasers of products through telephone, e-mail, forums, chat, facsimile and the Logitech Web site. The Logitech Web site is designed to expedite overall response time while minimizing the resources required for effective customer support. In general, OEMs provide customer service and technical support for their products, including components purchased from suppliers such as Logitech. Logitech provides warranties on our branded products that range from one to three years.
In Korea, India and China, there are multiple locations where consumers may obtain service for their Logitech products. These locations are managed by a third party logistics provider. Consumers who have purchased Logitech products can visit these locations for product inspection, and return or exchange of products. Within China, there is also a mail-in center to provide these services for more remote locations in China.
Manufacturing
Logitech's manufacturing operations consist principally of final assembly and testing. Since 1994, we have had our own manufacturing operations in Suzhou, China, which currently handles approximately half of our total production of peripherals products. We continue to focus on ensuring the efficiency of the Suzhou facilities, through the implementation of quality management, automation, process improvements, and employee involvement programs. We outsource the remaining production to contract manufacturers and original design manufacturers located in Asia. Our Lifesize video conferencing products are manufactured in Malaysia under contract with a third-party manufacturer. Both our in-house and outsourced manufacturing operations are managed by our worldwide operations group. The worldwide operations group also supports the business units and marketing and sales organizations through management of distribution centers, the supply chain, and the provision of technical support, customer relations and other services.
New product launches, process engineering, commodities management, logistics, quality assurance, operations management and management of Logitech's contract manufacturers occur in Hsinchu, Taiwan, Suzhou, China, Shenzhen, China and Hong Kong, China. Certain components are manufactured to Logitech's specifications by vendors in Asia, the United States and Europe. We also use contract manufacturers to supplement internal capacity and to reduce volatility in production volumes. In addition, some products, including most keyboards, certain gaming devices, certain audio products, and video conferencing equipment are manufactured by third-party suppliers to Logitech's specifications. Retail product localization with local language manuals, packaging, and power plugs may be performed at distribution centers in North America, Europe and Asia Pacific.

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Our hybrid model of in-house manufacturing and third-party contract manufacturers allows us to effectively respond to rapidly changing demand and leverage economies of scale. Through our high-volume manufacturing operations for peripherals located in Suzhou, China, we believe we have been able to maintain strong quality process controls and have realized significant cost efficiencies. Our Suzhou operation provides for increased production capacity, manufacturing know-how, IP protection and greater flexibility in responding to product demand. Further, by outsourcing the manufacturing of certain products, we seek to reduce volatility in production volumes as well as improve time to market.
Competition
The peripherals and video conferencing industries are intensely competitive. The peripherals industry is characterized by short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail markets, and price sensitivity in the OEM market. We have experienced aggressive price competition and other promotional activities from our primary competitors and from less-established brands, including brands owned by some retail customers known as house brands. We may also encounter more competition if any of our competitors in one or more categories decide to enter other categories in which we currently operate.
We have been expanding the categories of products we sell and entering new markets, such as the markets for tablet accessories, music accessories and enterprise video collaboration. We remain alert to opportunities in new categories and markets. As we do so, we are confronting new competitors, many of which have more experience in the categories or markets and have greater marketing resources and brand name recognition than we have. In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies in our developing categories, as well as future ones we might enter. Many of these companies have greater financial, technical, sales, marketing and other resources than we have. Our ability to grow our sales as a company is considerably dependent on the growth categories.
We expect continued competitive pressure in our retail and video conferencing businesses, including in the terms and conditions that our competitors offer customers, which may be more favorable than our terms and conditions, and may require us to take actions to increase our customer incentive programs, which could impact our revenues and operating margins.
Peripherals
Retail Strategic - Growth Categories
Mobile Speakers.    Our competitors for Bluetooth wireless speakers include JBL, Hammon Kardon, Beats Electronics and Bose. Bose is our largest competitor. Apple's acquisition of Beats Electronics may now impact our access to shelf space in Apple retail stores and adversely impact our ability to succeed in this important growth category.
Gaming.    Competitors for our Gaming peripherals include Razer USA Ltd., SteelSeries, Turtle Beach and Mad Catz Interactive.
Video Collaboration.    Our competitors for Video Collaboration products include Cisco Systems, Inc., Polycom, Inc., and Avaya, Inc.
Tablet & Other Accessories.    Competitors in the tablet case market include Apple, Otter, Speck and a large number of small brands. Competitors in the tablet keyboard market are Zagg, Kensington, Belkin, Targus and other less-established brands. Although we are one of the leaders in the tablet keyboard market and continue to expand our product portfolio to other tablet products, we expect the competition will increase.
Retail Strategic - Profit Maximization Categories
Pointing Devices and Keyboards & Combos.    Microsoft Corporation is our main competitor in our PC mice, keyboard and combo product lines. We also experience competition and pricing pressure for corded and cordless mice and combos from less-established brands, including house brands, which we believe have impacted our market share in some sales geographies.
Audio-PC & Wearables.    In the PC speakers business, our competitors include Bose, Cyber Acoustics, Phillips and Creative Labs, Inc. In the PC headset business, our main competitors include Plantronics and Altec Lansing. In-ear headphones competitors include Skull Candy, Sennheiser, Sony, and others.

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PC Webcams.    Our primary competitor for PC webcams is Microsoft, with other various manufacturers taking smaller market share. The worldwide market for PC webcams has been declining, and as a result, fewer competitors have entered the market.
Home Control.    Our primary competitors for remotes include Philips, Universal Remote Control, Inc., General Electric, RCA and Sony. We expect that the technological innovations in smartphones and tablet devices, as well as subscriber service-specific remotes such as Comcast and Direct TV, will likely result in increased competition. There are also many new entrants to the Home Control, including Nest (owned by Google), Revolve (owned by Samsung), Wink, and many other startups in the space that will also result in increased competition in the space of whole Home Control.
Video Conferencing
We primarily compete in the medium and small business, education, and state and local business sectors of the enterprise video conferencing market. This market is characterized by continual performance enhancements and large, well-financed competitors. There is increased participation in the video conferencing market by companies such as Cisco Systems, Inc., Polycom, Inc. and Avaya, Inc., and as a result, competition has increased in recent years and we expect competition in the industry to further intensify. In addition, there are an increasing number of PC-based multi-person video conferencing applications, such as Microsoft's Lync and Skype, Google Hangouts for Business and new entrants delivering Cloud-based video conferencing services, such as Blue Jeans Networks and Zoom.us, which compete with our Lifesize products and services. Our video conferencing segment encompasses the design, manufacturing and marketing of Lifesize-branded video conferencing products, infrastructure and services for small and medium size enterprises, public sector, and other business markets. Video conferencing products include SaaS video service, scalable HD (high-definition) video communication endpoints, video conferencing infrastructure software and appliances to support large-scale video deployments, and services to support these products. 
Intellectual Property and Proprietary Rights
Intellectual property rights that apply to Logitech's products and services include patents, trademarks, copyrights and trade secrets.
We hold various United States patents and pending applications, together with corresponding patents and pending applications from other countries. While we believe that patent protection is important, we also believe that patents are of less competitive significance than factors such as technological expertise and innovation, ease of use, and quality design. No single patent is in itself essential to Logitech as a whole. From time to time we receive claims that we may be infringing on patents or other intellectual property rights of others. As appropriate, claims are referred to counsel, and current claims are in various stages of evaluation and negotiation. If necessary or desirable, we may seek licenses for certain intellectual property rights. Refer also to the discussion in Item 1A, Risk Factors—"We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products." and "Claims by others that we infringe their proprietary technology could adversely affect our business."
To distinguish genuine Logitech products from competing products and counterfeit products, Logitech has used, registered, or applied to register certain trademarks and trade names in the U.S. and in other countries and jurisdictions. Logitech enforces its trademark and trade name rights in the U.S. and abroad. In addition, the software for Logitech's products and services is entitled to copyright protection, and we generally require our customers to obtain a software license before providing them with that software. We also protect details about our products and services as trade secrets through employee training, license and non-disclosure agreements, technical measures and other reasonable efforts to preserve confidentiality.
Environmental Regulation
We are subject to laws and regulations in many jurisdictions regulating the materials used in our products and, increasingly, product-related energy consumption, and the recycling of our products and packaging.
Europe.    In Europe we are subject to the European Union's (EU's) RoHS (Restriction of Use of Certain Hazardous Substances in Electrical and Electronics Equipment) Directive 2011/65/EU, or RoHS 2. This directive restricts the placement into the EU market of electrical and electronic equipment containing certain hazardous materials including lead, mercury, cadmium, chromium, and halogenated flame-retardants. All Logitech products are covered by the directive and have been modified, if necessary, to be RoHS 2 compliant. Logitech has an active program to ensure compliance with the RoHS 2 directive and to ensure RoHS 2 compliant components and

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manufacturing methods in order to comply with the requirements of the directive including issuing of a declaration of conformity and making the product with the 'CE' mark.
Logitech is also subject to the EU's ErP (Energy-related Products) Directive, which aims to encourage manufacturers and importers to produce products designed to minimize overall environmental impact. Under the Directive, manufacturers must ensure that their energy-related products comply with applicable requirements, issue a declaration of conformity and mark the product with the 'CE' mark. The Directive does not have binding requirements for specific products, but does define conditions and criteria for setting, through subsequent implementing measures, requirements regarding environmentally relevant product characteristics. To date the following implementing measures within the ErP Directive are active and applicable to Logitech products:
1275/2008: Eco-design requirements for standby and off mode electric power consumption of electrical and electronic household and office equipment.
278/2009: Eco-design requirements for no-load condition power consumption and average active efficiency of external power supplies.
Logitech has assessed the applicability of implementing these measures on relevant product lines and has taken steps to ensure that our products meet the requirements. Adoption of the ErP Directive will be aligned in all EU member states, and we expect conformity will be demonstrated by Logitech in conjunction with current CE conformity marking requirements. Similar requirements exist in the four member states of the European Free Trade Association (Iceland, Norway, Liechtenstein and Switzerland). Such requirements are substantially met by compliance with the ErP Directive.
We are also subject to a number of EOL (End of Life) Stewardship directives including the EU's WEEE (Waste Electrical and Electronic Equipment) Directive, the EU Packaging Directive and the EU Battery Directive, which require producers of electrical goods, packaging and batteries to be financially responsible for costs of specified collection, recycling, treatment and disposal of covered products. Where applicable, we have provided for the estimated costs, which are not material, of managing and recycling historical and future waste equipment, packaging and batteries. Logitech has also assessed the applicability of the European REACH Directive (Regulation (EC) No. 1907/2006 for Registration, Evaluation, Authorization, and Restrictions of Chemicals). Logitech is not subject to aspects of this Directive which relate to chemical substance import and control due to our current manufacturing structure. The aspect of this Directive that relates to product content does impact Logitech and we have taken steps to ensure that all substances of very high concern (on a list of candidate substances for authorization that is published on the EU Agency-Web site) present in products above a concentration limit are eliminated in subsequent product designs or notified per the Directive requirements. Additions to this list of candidate substances are reviewed on a regular basis to give consideration to any updates to the substances of very high concern (SVHC) list performed by the relevant EU agency.
China.    In China we are subject to China's law on Management Methods on the Control of Pollution Caused by Electronic Information Products (China RoHS). This is substantially similar to the EU RoHS Directive, and as such, Logitech products are already compliant. China RoHS requires additional labelling of product that will be shipped in China and Logitech has taken steps to help ensure we comply with these requirements.
United States and Canada.    In the U.S., we are subject to, among other laws, Appliance Efficiency Regulations adopted via the U.S. Energy Independence and Security Act of 2007. The regulations set out standards for the energy consumption performance of products within the scope of the regulations, which includes some of Logitech's products. The standards apply to appliances sold or offered for sale throughout the U.S., and Logitech has redesigned or changed products to comply with these regulations. We are also subject to California's Proposition 65, which requires that clear and reasonable warnings be given to consumers who are exposed to certain chemicals deemed by the state of California to be dangerous.
Logitech is also subject to the requirement as set out by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, specifically Section 1502, which addresses the use of "Conflict Minerals" in the supply chain. We have established systems which facilitate our compliance with the sourcing and traceability obligations and the reporting requirements of this Act aligned with guidelines published by the Securities and Exchange Commission. As an EICC (Electronic Industry Citizenship Coalition) member, Logitech is participating in the industry-wide Conflict Free Sourcing Initiative and its Conflict Free Smelter Program by which these requirements will be met.
In addition, the Transparency in Supply Chain Act of 2010 (S.B. 657) is effective from Logitech's fiscal year 2012. The law requires all retailers and manufacturers of tangible products who do business in California and have annual worldwide gross receipts exceeding $100 million to disclose on their company websites their efforts to

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combat forced labor and human trafficking in their own supply chains. Logitech's disclosure is posted on our Web site, www.logitech.com.
In Canada and the United States, we are subject to laws in various Canadian provinces and U.S. states that impose fees to cover the cost of end of life responsible disposal and recycling of packaging, product and batteries. These laws require producers of electrical goods, packaging and batteries to be financially responsible for costs of specified collection, recycling, treatment and disposal of covered products. Where applicable, we have provided for the estimated costs, which are not material, of managing and recycling historical and future waste equipment, packaging and batteries.
Australia and New Zealand.    In Australia and New Zealand, we are subject to the MEPS (Minimum Energy Performance Standards) regulations. These regulations set out standards for the energy consumption performance of products within the scope of the regulations, which includes some of Logitech's products. We have taken steps to modify products to ensure they are in compliance with MEPS.
We expect further laws governing product and packaging recycling to be introduced in other jurisdictions, many or most of which could impose fees to cover recycling costs, the cumulative impact of which could be significant. If such legislation is enacted in other countries, Logitech intends to develop compliance programs as necessary. However, until that time, we are not able to estimate any possible impact.
The effects on Logitech's business of complying with other government regulations are limited to the cost of agency fees and testing, as well as the time required to obtain agency approvals. There are also stewardship costs associated with the end of life collection, recycling and recovery of Logitech products, packaging and batteries where Logitech is recognized as the steward and participates in relevant programs. The costs and schedule requirements are industry requirements and therefore do not represent an undue burden relative to Logitech's competitive position. As regulations change, we will modify our products or processes to address those changes.
Seasonality
Our retail peripherals product sales are typically seasonal. Sales are generally highest during our third fiscal quarter (October to December) primarily due to the increased demand for our products during the year-end holiday buying season. Due to the timing of our new product introductions, we believe that year-over-year comparisons are more indicative of variability in our results of operations than current quarter to prior quarter comparisons.
Our video conferencing product sales experience minor seasonality. Sales are generally strongest during our third fiscal quarter primarily due to expiring budgets in the business community. Sales are generally lower during our fourth fiscal quarter ending March 31, as annual business budgets may not be finalized in the first calendar quarter of the year.
Materials
We purchase certain products and key components used in our products from a limited number of sources. If the supply of these products or key components, such as micro-controllers, optical sensors or Lifesize hardware products, were to be delayed or constrained, or if one or more of our single-source suppliers goes out of business, we might be unable to find a new supplier on acceptable terms, or at all, and our shipments to our customers could be delayed. In addition, lead times for materials, components and products ordered by us or by our contract manufacturers can vary significantly and depend on factors such as contract terms, demand for a component, our ability to forecast product demand, and supplier capacity. From time to time, we have experienced component shortages and extended lead times on semiconductors, such as micro-controllers and optical sensors, and base metals used in our products. Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment of our products or increase our production costs.
Employees
As of March 31, 2015 we employed approximately 6,900 regular employees, of which approximately 4,000 employees are in our Suzhou manufacturing facility, and from the remaining 2,900 regular employees, approximately 700 are dedicated to research and development. None of Logitech's U.S. employees are represented by a labor union or are subject to a collective bargaining agreement. Certain other countries, such as China, provide by law for employee rights, which include requirements similar to collective bargaining agreements. We believe that our employee relations are good.

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Executive Officers of the Registrant
The following sets forth certain information regarding our executive officers as of March 31, 2015:
Name
 
Age
 
Nationality
 
Position
Guerrino De Luca
 
63
 
Italian and U.S.
 
Executive Chairman of the Board
Bracken Darrell
 
52
 
U.S.
 
President and Chief Executive Officer
Vincent Pilette
 
43
 
Belgian
 
Chief Financial Officer
Marcel Stolk
 
48
 
Dutch
 
Sr. Vice President, Consumer Computing Platforms Business Group
L. Joseph Sullivan
 
61
 
U.S.
 
Sr. Vice President, Worldwide Operations
Guerrino De Luca has served as Chairman of the Logitech Board of Directors since January 2008 and as Chief Executive Officer from April 2012 to December 2012. Mr. De Luca served as Logitech's acting president and chief executive officer from July 2011 to April 2012. Previously, Mr. De Luca served as Logitech's President and Chief Executive Officer from February 1998, when he joined the Company, to January 2008. He has been an executive member of the Board of Directors since June 1998. Prior to joining Logitech, Mr. De Luca served as Executive Vice President of Worldwide Marketing for Apple, Inc., a consumer electronics and computer company, from February 1997 to September 1997, and as President of Claris Corporation, a U.S. personal computing software vendor, from May 1994 to February 1997. Prior to joining Claris, Mr. De Luca held various positions with Apple in the United States and in Europe. Mr. De Luca holds a Laurea degree in Electronic Engineering from the University of Rome, Italy.
Bracken Darrell joined Logitech as President in April 2012 and became Chief Executive Officer in January 2013. Prior to joining Logitech, Mr. Darrell served as President of Whirlpool EMEA and Executive Vice President of Whirlpool Corporation, a home appliance manufacturer and marketing company, from January 2009 to March 2012. Previously, Mr. Darrell had been Senior Vice President, Operations of Whirlpool EMEA from May 2008 to January 2009. From 2002 to May 2008, Mr. Darrell was with P&G (The Procter & Gamble Company), a consumer brand company, most recently as the President of its Braun GmbH subsidiary. Prior to rejoining P&G in 2002, Mr. Darrell served in various executive and managerial positions with General Electric Company from 1997 to 2002, with P&G from 1991 to 1997, and with PepsiCo Inc. from 1987 to 1989. Mr. Darrell holds a BA degree from Hendrix College and an MBA from Harvard University.
Vincent Pilette joined Logitech in September 2013 as Chief Financial Officer. Prior to joining Logitech, Mr. Pilette served as Chief Financial Officer of Electronics for Imaging, Inc., a digital printing innovation and solutions company, from January 2011 through August 2013. From January 2009 through December 2010, he served as Vice President of Finance for the Enterprise Server, Storage and Networking Group at Hewlett-Packard Company ("HP"). Prior to this role, Mr. Pilette served as Vice President of Finance for the HP Software Group from December 2005 through December 2008. Mr. Pilette held various other finance positions at HP, in the U.S and Europe, Middle East and Africa, since joining HP in 1997. Mr. Pilette holds an MS in Engineering and Business from Université Catholique de Louvain in Belgium and an MBA from Kellogg School of Management at Northwestern University.
Marcel Stolk joined Logitech in March 2011 as Vice President, Sales and Marketing EMEA and Executive Managing Director EMEA, and was appointed Senior Vice President, Consumer Computing Platforms Business Group in January 2013. Previously, Mr. Stolk was the Senior Vice President, Worldwide Sales and Marketing at Logitech, from March 2001 to October 2005, and held a number of positions within the sales and marketing functions at Logitech from 1991 to 2001. Prior to rejoining Logitech in 2011, he was the Chief Executive Officer of SourceTag BV, a software company for unique tagging of Cloud-based data, from September 2010 to March 2011. Mr. Stolk has also been the founder and Chief Executive Officer of Adoria Investments BV, a private equity company, from October 2005 to July 2010, and he remains the sole owner. Before joining Logitech in 1991, Mr. Stolk held various sales and marketing positions at Aashima Technology BV, a provider of PC components and accessories, in the Netherlands. Mr. Stolk studied at Utrecht University in the Netherlands and has participated in university-level executive courses, including an executive training course at Stanford University.
L. Joseph Sullivan joined Logitech in October 2005 as Vice President, Operations Strategy, and was appointed Senior Vice President, Worldwide Operations in April 2006. Prior to joining Logitech, Mr. Sullivan was Vice President of Operational Excellence and Quality for Carrier Corporation, a subsidiary of United Technologies, from 2001 to 2005. Previously, he was with ACCO Brands, Inc. in engineering and manufacturing management roles from 1998

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to 2001. Mr. Sullivan holds a BS degree in Marketing Management and an MBA degree in Operations Management from Suffolk University in Massachusetts.
Available Information
Our Investor Relations Web site is located at http://ir.logitech.com. We post and maintain an archive of our earnings and other press releases, current reports, annual and quarterly reports, earnings release schedule, information regarding annual general meetings, further information on corporate governance, and other information regarding the Company on the Investor Relations Web site. The information we post includes filings we make with the U.S. Securities and Exchange Commission (SEC), including reports on Forms 10-K, 10-Q, 8-K, our proxy statement related to our annual shareholders' meeting and any amendments to those reports or statements filed or furnished pursuant to U.S. securities laws or Swiss laws. All such filings and information are available free of charge on the Web site, and we make them available on the Web site as soon as reasonably possible after we file or furnish them with the SEC. The contents of these Web sites are not intended to be incorporated by reference into this report or in any other report or document we file and our references to these Web sites are intended to be inactive textual references only.
In addition, Logitech publishes press releases upon occurrence of significant events within Logitech. Shareholders and members of the public may elect to receive e-mails when Logitech issues press releases upon occurrence of significant events within Logitech or other press releases by subscribing through http://ir.logitech.com/alerts.cfm.
As a Swiss company traded on the SIX Swiss Exchange, and as a company subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, we file reports on transactions in Logitech securities by members of Logitech's Board of Directors and executive officers. The reports that we file with the Securities and Exchange Commission on Forms 3, 4 and 5, along with our other SEC filings, may be accessed on our Web site or on the Securities and Exchange Commission's Web site at http://www.sec.gov, and the reports we file that are published by the SIX Swiss Exchange may be accessed at: http://www.six-exchange-regulation.com/obligations/management_transactions_en.html.
ITEM 1A.    RISK FACTORS
Our operating results are difficult to predict and fluctuations in results may cause volatility in the price of our shares.
 
Our revenues and profitability are difficult to predict due to the nature of the markets in which we compete, fluctuating user demand, the uncertainty of current and future global economic conditions, and for many other reasons, including the following:
 
Our operating results are highly dependent on the volume and timing of orders received during the quarter, which are difficult to forecast. Customers generally order on an as-needed basis and we typically do not obtain firm, long-term purchase commitments from our customers. As a result, our revenues in any quarter depend primarily on orders booked and shipped in that quarter.
 
A significant portion of our quarterly retail sales typically occurs in the last weeks of each quarter, further increasing the difficulty in predicting quarterly revenues and profitability.
 
Our sales are impacted by consumer demand and current and future global economic conditions, and can therefore fluctuate abruptly and significantly during periods of uncertain economic conditions or geographic distress, as well as from shifts in distributor inventory practices and consumer buying patterns.

We must incur a large portion of our costs in advance of sales orders, because we must plan research and production, order components, buy tooling equipment, and enter into development, sales and marketing, and other operating commitments prior to obtaining firm commitments from our customers. This makes it difficult for us to rapidly adjust our costs during the quarter in response to a revenue shortfall, which could adversely affect our operating results.

Since the beginning of fiscal year 2013, we have attempted to simplify our organization, to reduce operating costs through expense reduction and global workforce reductions, to reduce the complexity of our product portfolio, and to better align costs with our current business as we attempt to expand from PC accessories to growth

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opportunities in accessories for mobile devices and digital music. We may not achieve the cost savings or other anticipated benefits from these efforts, and such efforts may cause our operating results to fluctuate from quarter to quarter, making our results difficult to predict.

Fluctuations in currency exchange rates can impact our revenues, expenses and profitability because we report our financial statements in U.S. Dollars, whereas a significant portion of our revenues and expenses are in other currencies. We attempt to adjust product prices over time to offset the impact of currency movements. However, over short periods of time, during periods of weakness in consumer spending or given high levels of competition in many product categories, our ability to change local currency prices to offset the impact of currency fluctuations is limited.
 
Because our operating results are difficult to predict, our results may be below the expectations of financial analysts and investors, which could cause the price of our shares to decline.
 
If we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories, our business and operating results could be adversely affected.
 
The peripherals industry is characterized by short product life cycles, frequent new product introductions, rapidly changing technology, dynamic consumer demand and evolving industry standards. As a result, we must continually innovate in our new and existing product categories, introduce new products and technologies, and enhance existing products in order to remain competitive.
 
The success of our product portfolio depends on several factors, including our ability to:

Identify new features, functionality and opportunities;
 
Anticipate technology, market trends and consumer preferences;

Develop innovative, high-quality, and reliable new products and enhancements in a cost-effective and timely manner;
 
Distinguish our products from those of our competitors; and
 
Offer our products at prices and on terms that are attractive to our customers and consumers.
 
If we do not execute on these factors successfully, products that we introduce or technologies or standards that we adopt may not gain widespread commercial acceptance, and our business and operating results could suffer. In addition, if we do not continue to differentiate our products through distinctive, technologically advanced features, designs, and services that are appealing to our customers and consumers, as well as continue to build and strengthen our brand recognition and our access to distribution channels, our business could be adversely affected.
 
The development of new products and services is very difficult and requires high levels of innovation. The development process is also lengthy and costly. There are significant initial expenditures for research and development, tooling, manufacturing processes, inventory and marketing, and we may not be able to recover those investments. If we fail to accurately anticipate technological trends or our users’ needs or preferences, are unable to complete the development of products and services in a cost-effective and timely fashion or are unable to appropriately increase production to fulfill customer demand, we will be unable to successfully introduce new products and services into the market or compete with other providers. Even if we complete the development of our new products and services in a cost-effective and timely manner, they may be not competitive with products developed by others, they may not achieve acceptance in the market at anticipated levels or at all, they may not be profitable or, even if they are profitable, they may not achieve margins as high as our expectations or as high as the margins we have achieved historically.
 
As we introduce new or enhanced products, integrate new technology into new or existing products, or reduce the overall number of products offered, we face risks including, among other things, disruption in customers’ ordering patterns, excessive levels of new and existing product inventories, revenue deterioration in our existing product lines, insufficient supplies of new products to meet customers’ demand, possible product and technology defects, and a potentially different sales and support environment. Premature announcements or leaks of new products, features or technologies may exacerbate some of these risks by reducing the effectiveness of our product

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launches, reducing sales volumes of current products due to anticipated future products, making it more difficult to compete, shortening the period of differentiation based on our product innovation, straining relationships with our partners or increasing market expectations for the results of our new products before we have had an opportunity to demonstrate the market viability of the products. Our failure to manage the transition to new products or the integration of new technology into new or existing products could adversely affect our business, results of operations, operating cash flows and financial condition.
 
We believe sales of our PC peripherals will continue to decline, and that our future growth will depend on our product growth categories, and if we do not successfully execute on our growth opportunities, if our growth opportunities are more limited than we expect or if our sales of PC peripherals are less than we expect, our operating results could be adversely affected.
 
We have historically targeted peripherals for the PC platform. Consumer demand for PCs, especially in our traditional, mature markets such as North America, Western and Nordic Europe, Japan and Australia, has been declining and we expect it to continue to decline in the future. As a result, consumer demand for PC peripherals in many of our markets is slowing and in some cases declining. We expect this trend to continue. For example, we experienced weak consumer demand for many of our PC peripherals in each quarter of fiscal years 2015 and 2014, which adversely affected our financial performance.
 
From time to time, our channel partners have also reduced their inventory levels for PC peripherals as the PC market has continued to decline. In our OEM channel, the decline of desktop PCs has adversely impacted our sales of OEM mice, which have historically made up the bulk of our OEM sales. Our OEM sales accounted for 6% of total revenues in each of fiscal years 2015, 2014 and 2013. We recently announced that we plan to exit the OEM business.
 
In addition, our sales of PC peripherals might be less than we expect due to a decline in business or economic conditions in one or more of the countries or regions, a greater decline than we expect in demand for our products, our inability to successfully execute our sales and marketing plans, or for other reasons. Global economic concerns, such as the varying pace of global economic recovery, the impact of sovereign debt issues in Europe, the impact of low oil prices on Russia and conflicts with either local or global financial implications in places such as Russia and Ukraine, create unpredictability and add risk to our future outlook.
 
As a result, we are focusing more of our personnel, financial resources, and management attention on product innovations and growth opportunities, on products for gaming, on products for tablets and mobile devices, on products for the consumption of digital music, on products for video collaboration, and on other potential growth opportunities. Our investments may not result in the growth we expect, or when we expect it, for a variety of reasons including those described below.

Mobile Speakers. We are focused on products for the consumption of digital music as a future sales growth area. Competition in the mobile speaker category is intense, and we expect it to increase. If we are not able to introduce differentiated product and marketing strategies to separate ourselves from competitors, our mobile speaker efforts will not be successful, and our business and results of operations could be adversely affected.
 
Gaming.  We are building a diverse business that features a variety of gaming peripherals. The rapidly evolving and changing market and increasing competition increase the risk that we do not allocate our resources in line with the market and our business and results of operations could be adversely affected.

Video Collaboration. While we view the small and medium sized user groups' opportunity to be large and relatively unaddressed, this is a new and evolving market segment that we are developing. If the market opportunity proves to exist, we expect increasing competition from the strong competitors in the video conferencing market as well as potential new entrants. In addition, as this category develops, our video collaboration products may overlap with and reduce the sales of our existing video conferencing products.
 
Tablets & Other Mobile Devices. The increasing popularity of smaller, mobile computing devices such as tablets with touch interfaces is rapidly changing the consumer computing market. In our retail channels, tablets and other mobile devices are sold by retailers without peripherals. We believe this creates opportunities to sell products to consumers to help make their devices more productive and comfortable. However, consumer acceptance for tablet and mobile devices peripherals is still uncertain. Also, while this product category was a growth opportunity for us during fiscal years 2014 and 2013 and we still view it as a growth category, shipments of iPad devices declined

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significantly throughout fiscal year 2015. While we have introduced tablet peripherals for certain Android tablets, that segment of the market is currently much smaller than the market for iPad peripherals, more fragmented and may similarly not continue its growth trend. We also may not be as successful in competing in that segment to generate sales, margin or growth. Moreover, the increasing popularity of tablets and other mobile devices has decreased consumer demand for our PC peripherals, which has adversely affected our sales of these products. If we do not successfully innovate and market products designed for tablets and other mobile devices, if our distributor or retailer customers do not choose to carry or market such peripherals, or if general consumer demand for tablet and mobile devices peripherals for use with these devices does not increase, our business and results of operations could be adversely affected.
 
In addition to our current growth opportunities, our future growth may be reliant on our ability to identify and develop potential new growth opportunities. This process is inherently risky and will result in investments in time and resources for which we do not achieve any return or value.

Each of these growth categories is subject to rapidly changing and evolving technologies and may be replaced by new technology concepts or platforms. Some of these growth categories are also dependent on rapidly changing and evolving consumer preferences with respect to design and features that require calculated risk-taking and fast responsiveness. If we do not develop innovative and reliable peripherals and enhancements in a cost-effective and timely manner that are attractive to consumers in these markets, if we are otherwise unsuccessful entering and competing in these growth categories, if the growth categories in which we invest our limited resources do not emerge as the opportunities or do not produce the growth or profitability we expect, or when we expect it, or if we do not correctly anticipate changes and evolutions in technology and platforms, our business and results of operations could be adversely affected.
 
If we do not compete effectively, demand for our products could decline and our business and operating results could be adversely affected.
 
The peripherals and video conferencing industries are intensely competitive.
 
The peripherals industry is characterized by short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail markets, and price sensitivity in the OEM market. We experience aggressive price competition and other promotional activities from our primary competitors and from less-established brands, including brands owned by retail customers known as house brands, in both the retail and OEM markets. In addition, our competitors may offer customers terms and conditions that may be more favorable than our terms and conditions and may require us to take actions to increase our customer incentive programs, which could impact our revenues and operating margins.
 
The video conferencing industry is characterized by continual performance enhancements and large, well-financed competitors. The industry is also shifting from traditional, hardware-oriented video conferencing solutions to Cloud-based video conferencing solutions, a transition that we are in the process of making as we reorganize our Lifesize business. As a result, there is increased participation in the video conferencing market by new entrants delivering Cloud-based video conferencing services joining established companies such as Cisco Systems, Polycom and Avaya. This has caused competition to increase over the last few years and we expect competition in the industry to further intensify. In addition, there are an increasing number of PC-based multi-person video conferencing applications, such as Microsoft’s Lync and Skype, which could compete at the lower end of the video conferencing market with our Lifesize products and services or could provide other competitors with lower barriers of entry into the video conferencing market.
 
In recent years, we have expanded the categories of products we sell, and entered new markets. We remain alert to opportunities in new categories and markets. As we do so, we are confronting new competitors, many of which have more experience in the categories or markets and have greater marketing resources and brand name recognition than we have. In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies in our developing categories as well as in future categories we might enter. Many of these companies, such as Microsoft, Apple, Cisco, Sony Corporation, Polycom and others, have greater financial, technical, sales, marketing and other resources than we have.
 
Microsoft, Apple and Google are leading producers of operating systems, hardware and applications with which our mice, keyboards and other peripherals are designed to operate. In addition, Microsoft, Apple and Google each

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has significantly greater financial, technical, sales, marketing and other resources than Logitech, as well as greater name recognition and a larger customer base. As a result, Microsoft, Apple and Google each may be able to improve the functionality of their own peripherals, if any, or may choose to show preference to our competitors' peripherals, to correspond with ongoing enhancements to its operating systems, hardware and software applications before we are able to make such improvements. This ability could provide Microsoft, Apple, Google or other competitors with significant lead-time advantages. In addition, Microsoft, Apple, Google or other competitors may be able to offer pricing advantages on bundled hardware and software products that we may not be able to offer, and may be financially positioned to exert significant downward pressure on product prices and upward pressure on promotional incentives in order to gain market share.
 
Retail Strategic - Growth Categories

Mobile Speakers.  Our competitors for Bluetooth wireless speakers include Bose, JBL, Hammon Kardon, and Beats Electronics. Bose is our largest competitor. Apple's acquisition of Beats Electronics may now impact tour access to shelf space in Apple retail stores and adversely impact our ability to succeed in this important growth category.

Gaming. Competitors for our Gaming peripheral products include Razer USA Ltd., SteelSeries, Turtle Beach and Mad Catz Interactive.
 
Video Collaboration. Our competitors for Video Collaboration products include Cisco Systems, Inc.,
Polycom, Inc., and Avaya, Inc.
 
Tablet & Other Accessories. We primarily manufacture tablet keyboards and other accessories for Apple products, such as iPad and iPhone, and Android products. Competitors in the tablet keyboard market are Zagg, Kensington, Belkin, Targus and other less-established brands. Although we are the one of the market leaders in the tablet keyboard market, and as we continue to expand our product portfolio to other tablet and mobile device products, we expect the competition will increase. Other large tablet and mobile device manufacturers, such as Apple and Samsung, could start to offer tablet keyboards and other accessories along with their tablet and other mobile device products. If such manufacturers of tablets and other mobile devices compete with us in the Tablet and Other Accessories category without substantially growing the peripherals market, it could adversely affect our ability to succeed in this growth category.
 
Retail Strategic - Profit Maximization Categories
 
Pointing Devices and PC Keyboards & Combos. Microsoft Corporation is our main competitor in our mice, keyboard and desktop product lines. We also experience competition and pricing pressure for corded and cordless mice and desktops from less-established brands, including house brands, which we believe have impacted our market share in some sales geographies and which could potentially impact our market share.
 
AudioPC & Wearables.  In the PC speaker business, our competitors include Bose, Cyber Acoustics, Phillips
and Creative Labs, Inc. In the PC headset business, our main competitors include Plantronics and Altec Lansing. In earphones competitors include Skull Candy, Sennheiser, Sony, and others.
 
PC Webcams.  Our primary competitor for PC webcams is Microsoft, with various other manufacturers taking smaller market share. The worldwide market for consumer PC webcams has been declining, and as a result, fewer competitors have entered the market.
 
Home Control. Our primary competitors for remotes include Philips, Universal Remote Control, Inc., General Electric, RCA and Sony. We expect that the technological innovation in smartphone and tablet devices, as well as subscriber service specific remotes such as Comcast and Direct TV, will likely result in increased competition.
 
Video Conferencing
 
In video conferencing, we primarily compete with Cisco Systems, Polycom and Avaya as well as new Cloud-based entrants such as Blue Jeans Networks and Zoom.us. In addition, PC-based multi-person video conferencing applications, such as Microsoft’s Lync, Google Hangouts for Business and Skype, which could compete at the lower-end of the video conferencing market with our Lifesize products and services, or could provide other competitors with lower barriers of entry into the video conferencing market.

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Our business depends in part on access to third-party platforms or technologies, and if the access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change without notice to us, our business and operating results could be adversely affected.
 
Our peripherals business has historically been built largely around the PC platform, which over time became relatively open, and its inputs and operating system standardized. With the growth of mobile, tablet, gaming and other computer devices, the number of platforms has grown, and with it the complexity and increased need for us to have business and contractual relationships with the platform owners in order to produce products compatible with these platforms. Our product portfolio includes current and future products designed for use with third-party platforms or software, such as the Apple iPad, iPod and iPhone and Android phones and tablets. Our business in these categories relies on our access to the platforms of third parties, some of whom are our competitors. Platform owners that are competitors have a competitive advantage in designing products for their platforms and may produce peripherals or other products that work better, or are perceived to work better, than our products in connection with those platforms. As we expand the number of platforms and software applications with which our products are compatible, we may not be successful in launching products for those platforms or software applications, we may not be successful in establishing strong relationships with the new platform or software owners, or we may negatively impact our ability to develop and produce high-quality products on a timely basis for those platforms and software applications or we may otherwise adversely affect our relationships with existing platform or software owners.
 
Our access to third-party platforms may require paying a royalty, which lowers our product margins, or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used to interact with our product portfolio can be delayed in production or can change without prior notice to us, which can result in our having excess inventory or lower margins.
 
If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies are delayed or change without notice to us, our business and operating results could be adversely affected.

If we do not accurately forecast market demand for our products, our business and operating results could be adversely affected.
 
We use our forecasts of product demand to make decisions regarding investments of our resources and production levels of our products. Although we receive forecasts from our customers, many are not obligated to purchase the forecasted demand. Also, actual sales volumes for individual products in our retail distribution channel can be volatile due to changes in consumer preferences and other reasons. In addition, our retail products have short product life cycles, so a failure to accurately predict high demand for a product can result in lost sales that we may not recover in subsequent periods, or higher product costs if we meet demand by paying higher costs for materials, production and delivery. We could also frustrate our customers and lose shelf space. Our failure to predict low demand for a product can result in excess inventory, lower cash flows and lower margins if we are required to reduce product prices in order to reduce inventories.
 
Over the past few years, we have expanded the types of products we sell, and the geographic markets in which we sell them. The changes in our product portfolio and the expansion of our sales markets have increased the difficulty of accurately forecasting product demand.
 
We have experienced large differences between our forecasts and actual demand for our products. We expect other differences between forecasts and actual demand to arise in the future. If we do not accurately predict product demand, our business and operating results could be adversely affected.
 
Our success largely depends on our ability to hire, retain, integrate and motivate sufficient numbers of qualified personnel, including senior management. Our strategy and our ability to innovate, design and produce new products, sell products, maintain operating margins and control expenses depend on key personnel that may be difficult to replace.
 
Our success depends on our ability to attract and retain highly skilled personnel, including senior management and international personnel. From time to time, we experience turnover in some of our senior management positions.

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We compensate our employees through a combination of salary, bonuses, benefits and equity compensation. Recruiting and retaining skilled personnel, including software and hardware engineers, is highly competitive. If we fail to provide competitive compensation to our employees, it will be difficult to retain, hire and integrate qualified employees and contractors, and we may not be able to maintain and expand our business. If we do not retain our senior managers or other key employees for any reason, we risk losing institutional knowledge, experience, expertise and other benefits of continuity as well as the ability to attract and retain other key employees. In addition, we must carefully balance the size of our employee base with our current infrastructure, management resources and anticipated operating cash flows. If we are unable to manage the size of our employee base, particularly engineers, we may fail to develop and introduce new products successfully and in a cost-effective and timely manner. If our revenue growth or employee levels vary significantly, our operating cash flows and financial condition could be adversely affected. Volatility or lack of positive performance in our stock price, including declines in our stock prices in the past year, may also affect our ability to retain key employees, many of whom have been granted equity incentives. Logitech’s practice has been to provide equity incentives to its employees, but the number of shares available for equity grants is limited. We may find it difficult to provide competitive equity incentives, and our ability to hire, retain and motivate key personnel may suffer.
 
Recently and in past years, we have initiated reductions in our workforce to align our employee base with our business strategy, our anticipated revenue base or with our areas of focus. We have also experienced turnover in our workforce. These reductions and turnover have resulted in reallocations of duties, which could result in employee uncertainty and discontent. Reductions in our workforce could make it difficult to attract, motivate and retain employees, which could adversely affect our business.
 
Our gross margins can vary significantly depending on multiple factors, which can result in unanticipated fluctuations in our operating results.
 
Our gross margins can vary due to consumer demand, competition, product life cycle, new product introductions, unit volumes, commodity and supply chain costs, geographic sales mix, currency exchange rates, and the complexity and functionality of new product innovations. In particular, if we are not able to introduce new products in a timely manner at the product cost we expect, or if consumer demand for our products is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react or that are initiated by us to drive sales that lower our margins, then our overall gross margin will be less than we project.
 
In addition, our gross margins may vary significantly by product line, sales geography and customer type, as well as within product lines. When the mix of products sold shifts from higher margin product lines to lower margin product lines, to lower margin sales geographies, or to lower margin products within product lines, our overall gross margins and our profitability may be adversely affected.
 
As we expand into accessories for tablets and other mobile devices, and digital music, our products in those categories may have lower gross margins than in our traditional product categories. Consumer demand in these product categories, based on style, color and other factors, tends to be less predictable and tends to vary more across geographic markets. As a result, we may face higher up-front investments, inventory costs associated with attempting to anticipate consumer preferences, and increased inventory write-offs. If we are unable to offset these potentially lower margins by enhancing the margins in our more traditional product categories, our profitability may be adversely affected.
 
The impact of these factors on gross margins can create unanticipated fluctuations in our operating results, which may cause volatility in the price of our shares.
 

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As we continue our efforts to lower our costs and improve our operating leverage as part of our turnaround, we may or may not fully realize our goals.
 
Our turnaround strategy over the past couple years has been based in part on simplifying the organization, reducing operating costs through global workforce reductions and a reduction in the complexity of our product portfolio, with the goal of better aligning costs with our current business and with our decreasing revenues. We restructured our business in fiscal years 2015 and 2014, and we expect to restructure in fiscal year 2016 as we divest or discontinue non-strategic product categories, exit our OEM business and reorganize our Lifesize reporting unit.  In addition, we are continuing the rationalization of our G&A, infrastructure and indirect procurement to reduce operating expenses.
 
Our ability to achieve the desired and anticipated cost savings and other benefits from these simplification, cost-cutting and restructuring activities, and within our desired and expected timeframes, are subject to many estimates and assumptions, and the actual savings and timing for those savings may vary materially based on factors such as local labor regulations, negotiations with third parties, and operational requirements. These estimates and assumptions are also subject to significant economic, competitive and other uncertainties, some of which are beyond our control. There can be no assurance that we will fully realize the desired and anticipated benefits from these activities. To the extent that we are unable to improve our financial performance, further restructuring measures may be required in the future. Furthermore, we are expecting to be able to use the anticipated cost savings from these activities to fund and support our current growth opportunities and incremental investments for future growth. If the cost-savings do not materialize as anticipated, or within our expected timeframes, our ability to invest in growth may be limited and our business and operating results may be adversely affected.
 
As part of the restructuring plans, we reduced the size of our product portfolio and the assortment of similar products at similar price points within each product category over the past several fiscal years. While we are constantly replacing products and are dependent on the success of our new products, this product portfolio simplification has made us even more dependent on the success of the new products that we are introducing.
 
As we focus on growth opportunities, we are divesting or discontinuing non-strategic product categories and pursuing strategic acquisitions and investments, which, if unsuccessful, could have an adverse impact on our business.
 
During the third quarter of fiscal year 2013, the declining trends in our PC peripherals accelerated, and we made a strategic decision to divest or discontinue certain non-strategic product categories and products. We continue to review our product portfolio and update our non-strategic product categories and products. We recently announced that we plan to exit the OEM business. If we are unable to effect sales on favorable terms or if realignment is more costly or distracting than we expect or has a negative effect on our organization, employees and retention, then our business and operating results may be adversely affected. Discontinuing products with service components may also cause us to continue to incur expenses to maintain services within the product life cycle or to adversely affect our customer and consumer relationships and brand. In addition, discontinuing product categories, even categories that we consider non-strategic, reduces the size and diversification of our business and causes us to be more dependent on a smaller number of product categories.
 
As we attempt to grow our business in strategic product categories and emerging market geographies, we will consider growth through acquisition or investment. We will evaluate acquisition opportunities that could provide us with additional product or service offerings or with additional industry expertise, assets and capabilities. Acquisitions could result in difficulties integrating acquired operations, products, technology, internal controls, personnel and management teams and result in the diversion of capital and management’s attention away from other business issues and opportunities. If we fail to successfully integrate acquisitions, our business could be harmed. Moreover, our acquisitions may not be successful in achieving our desired strategic objectives, which would also cause our business to suffer. Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets and goodwill or the recording of stock-based compensation. Several of our past acquisitions have not been successful and have led to impairment charges, including a $122.7 million and $214.5 million non-cash goodwill impairment charge in fiscal years 2015 and 2013, respectively, related to our video conferencing reporting unit. In addition, from time to time we make strategic venture investments in other companies that provide products and services that are complementary to ours. If these investments are unsuccessful, this could have an adverse impact on our results of operations, operating cash flows and financial condition.
 

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We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of our relationship with these channel partners, changes in their business practices, their failure to provide timely and accurate information, changes in distribution partners, practices or models or conflicts among our channels of distribution could adversely affect our business, results of operations, operating cash flows and financial condition.
 
Our sales channel partners, the distributors and retailers who distribute and sell our products, also sell products offered by our competitors and, in the case of retailer house brands, may also be our competitors. If product competitors offer our sales channel partners more favorable terms, have more products available to meet their needs, or utilize the leverage of broader product lines sold through the channel, or if our retailer channel partners show preference for their own house brands, our sales channel partners may de-emphasize or decline to carry our products. In addition, certain of our sales channel partners could decide to de-emphasize the product categories that we offer in exchange for other product categories that they believe provide them with higher returns. If we are unable to maintain successful relationships with these sales channel partners or to maintain our distribution channels, our business will suffer.
 
As we expand into new product categories and markets in pursuit of growth, we will have to build relationships with new channel partners and adapt to new distribution and marketing models. These new partners, practices and models may require significant management attention and operational resources and may affect our accounting, including revenue recognition, gross margins, and the ability to make comparisons from period to period. Entrenched and more experienced competitors will make these transitions difficult. If we are unable to build successful distribution channels or successfully market our products in these new product categories, we may not be able to take advantage of the growth opportunities, and our business and our ability to effect a turnaround in our business could be adversely affected.
 
The impact of economic conditions, evolving consumer preferences, and purchasing patterns on our distribution partners, or competition between our sales channels, could result in sales channel disruption. For example, if sales at large retail stores are displaced as a result of bankruptcy, competition from Internet sales channels or otherwise, our product sales could be adversely affected. Any loss of a major partner or distribution channel or other channel disruption could make us more dependent on alternate channels, increase pricing and promotional pressures from other partners and distribution channels, increase our marketing costs, or adversely impact buying and inventory patterns, payment terms or other contractual terms.
 
We use retail sell-through data, which represents sales of our products by our direct retailer customers to consumers, and by our distributor customers to their customers, along with other metrics, to assess consumer demand for our products. Sell-through data is subject to limitations due to collection methods and the third-party nature of the data and thus may not be an accurate indicator of actual consumer demand for our products. In addition, the customers supplying sell-through data vary by geographic region and from period to period, but typically represent a majority of our retail sales. If we do not receive this information on a timely and accurate basis, or if we do not properly interpret this information, our results of operations and financial condition may be adversely affected.
 
Our principal manufacturing operations and third-party contract manufacturers are located in China and Southeast Asia, which exposes us to risks associated with doing business in that geographic area.
 
We produce approximately half of our peripheral products at facilities we own in China. The majority of our other production is performed by third-party contract manufacturers, including other design manufacturers, in China.
 
Our manufacturing operations in China could be adversely affected by changes in the interpretation and enforcement of legal standards, by strains on China’s available labor pool, changes in labor costs and other employment dynamics, high turnover among Chinese employees, communications, trade, and other infrastructures, by natural disasters, by conflicts or disagreements between China and Taiwan or China and the United States, by labor unrest, and by other trade customs and practices that are dissimilar to those in the United States and Europe. Interpretation and enforcement of China’s laws and regulations continue to evolve and we expect differences in interpretation and enforcement to continue in the foreseeable future.
 
Our manufacturing operations at third-party contractors could be adversely affected by contractual disagreements, by labor unrest, by natural disasters, by strains on local communications, trade, and other

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infrastructures, by competition for the available labor pool or manufacturing capacity, by increasing labor and other costs, and by other trade customs and practices that are dissimilar to those in the United States and Europe.

Further, we may be exposed to fluctuations in the value of the local currency in the countries in which manufacturing occurs. Future appreciation of these local currencies could increase our component and other raw material costs. In addition, our labor costs could continue to rise as wage rates increase and the available labor pool declines. These conditions could adversely affect our financial results.
 
We purchase key components and products from a limited number of sources, and our business and operating results could be adversely affected if supply were delayed or constrained or if there were shortages of required components.
 
We purchase certain products and key components from a limited number of sources. If the supply of these products or key components, such as micro-controllers, and optical sensors, were to be delayed or constrained, or if one or more of our single-source suppliers goes out of business as a result of adverse global economic conditions or natural disasters, we might be unable to find a new supplier on acceptable terms, or at all, and our product shipments to our customers could be delayed, which could adversely affect our business, financial condition and operating results.
 
Lead times for materials, components and products ordered by us or by our contract manufacturers can vary significantly and depend on factors such as contract terms, demand for a component, and supplier capacity. From time to time, we have experienced component shortages and extended lead times on semiconductors, such as micro-controllers and optical sensors, and base metals used in our products. Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment of our products or increase our production costs, which could adversely affect our business and operating results.
 
New conflict minerals regulations are causing us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.
 
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted disclosure requirements regarding the use of certain minerals, known as conflict minerals, which are mined from the Democratic Republic of Congo and adjoining countries, as well as procedures regarding a manufacturer’s efforts to identify and prevent the sourcing of such minerals and metals produced from those minerals. Additional reporting obligations are being considered by the European Union. The implementation of the existing U.S. requirements and any additional requirements in Europe could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of our products. The number of suppliers who provide conflict-free minerals may be limited, and the implementation of these requirements may decrease the number of suppliers capable of supplying our needs for certain metals.  In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to the due diligence process of determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. As our supply chain is complex and we use contract manufacturers for some of our products, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may adversely affect our reputation. We may also encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could, if we are unable to satisfy their requirements or pass through any increased costs associated with meeting their requirements place us at a competitive disadvantage, adversely affect our business and operating results, or both. We filed our report for the calendar year 2014 with the SEC on May 29, 2015.
 
If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales.
 
Our business requires us to coordinate the manufacture and distribution of our products over much of the world. We rely on third parties to manufacture many of our products, manage centralized distribution centers, and transport our products. If we do not successfully coordinate the timely manufacturing and distribution of our products, we may have insufficient supply of products to meet customer demand, we could lose sales, we may experience a build-up in inventory, or we may incur additional costs.
 

29


By locating our manufacturing in China and Southeast Asia, we are reliant on third parties to get our products to distributors around the world. Transportation costs, fuel costs, labor unrest, natural disasters and other adverse effects on our ability, timing and cost of delivering products can increase our inventory, decrease our margins, adversely affect our relationships with distributors and other customers and otherwise adversely affect our results of operations and financial condition.

A significant portion of our quarterly retail orders and product deliveries generally occur in the last weeks of the fiscal quarter. This places pressure on our supply chain and could adversely affect our revenues and profitability if we are unable to successfully fulfill customer orders in the quarter.

We conduct operations in a number of countries, and have invested significantly in growing our sales and marketing activities in China, and the effect of business, legal and political risks associated with international operations could adversely affect us.
 
We conduct operations in a number of countries, and have invested significantly in growing our personnel and sales and marketing activities in China and, to a lesser extent, other emerging markets. We may also increase our investments to grow sales in other emerging markets, such as Latin America and Eastern Europe. There are risks inherent in doing business in international markets, including:
 
Difficulties in staffing and managing international operations;
 
Compliance with laws and regulations, including environmental, tax and anti-corruption laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance;
 
Varying laws, regulations and other legal protections, uncertain and varying enforcement of those laws and regulations, dependence on local authorities, and the importance of local networks and relationships;
 
Exposure to political and financial instability, especially with the uncertainty associated with the ongoing sovereign debt crisis in certain Euro zone countries, which may lead to currency exchange losses and collection difficulties or other losses;
 
Lack of infrastructure or services necessary or appropriate to support our products and services;
 
Exposure to fluctuations in the value of local currencies;
 
Difficulties and increased costs in establishing sales and distribution channels in unfamiliar markets, with their own market characteristics and competition, including entrenched local competition;
 
Weak protection of our intellectual property rights;
 
Higher credit risks;
 
Changes in VAT (value-added tax) or VAT reimbursement;
 
Imposition of currency exchange controls;
 
Import or export restrictions that could affect some of our products, including those with encryption technology;
 
Delays from customs brokers or government agencies; and
 
A broad range of customs, consumer trends, and more.
 
Any of these risks could adversely affect our business, financial condition and operating results.
 
Sales growth in China is an important part of our expectations for our business. As a result, if Chinese economic, political or business conditions deteriorate, or if one or more of the risks described above materializes in China, our overall business and results of operations will be adversely affected.
 

30


Our financial performance is subject to risks associated with fluctuations in currency exchange rates.
 
A significant portion of our business is conducted in currencies other than the U.S. Dollars. Therefore, we face exposure to movements in currency exchange rates. 

Our primary exposure to movements in currency exchange rates relates to non-U.S. Dollar denominated sales and operating expenses worldwide. For fiscal year 2015, approximately 44% of our revenue was in non-U.S. denominated currencies. Weakening of currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of our non-U.S. Dollar-denominated sales and earnings. If we raise international pricing to compensate, it could potentially reduce demand for our products, adversely affecting our sales and potentially having an adverse impact on our market share. Margins on sales of our products in non-U.S. Dollar denominated countries and on sales of products that include components obtained from suppliers in non-U.S. Dollar denominated countries could be adversely affected by currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the U.S. Dollar’s strengthening, which would adversely affect the U.S. Dollar value of our non-U.S. Dollar-denominated sales and earnings. Competitive conditions in the markets in which we operate may also limit our ability to increase prices in the event of fluctuations in currency exchange rates. Conversely, strengthening of currency rates may also increase our product component costs and other expenses denominated in those currencies, adversely affecting operating results. We further note that a larger portion of our sales than of our expenses are denominated in non-U.S. denominated currencies.
 
We use derivative instruments to hedge certain exposures to fluctuations in currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in currency exchange rates over the limited time the hedges are in place and do not protect us from long term shifts in currency exchange rates.

As a result, fluctuations in currency exchange rates could adversely affect our business, operating results and financial condition. Moreover, these exposures may change over time.

As a Swiss, dual-listed company operating in many markets and jurisdictions and expanding into new growth categories, we are subject to risks associated with new, existing and potential future laws and regulations.
 
Based on our current business model and as we expand into new markets and product categories, we must comply with a wide variety of laws, standards and other requirements governing, among other things, health and safety, hazardous materials usage, product-related energy consumption, packaging, recycling and environmental matters. Our products may be required to obtain regulatory approvals and satisfy other regulatory concerns in the various jurisdictions where they are manufactured, sold or both. These requirements create procurement and design challenges, which, among other things, require us to incur additional costs identifying suppliers and contract manufacturers who can provide or obtain compliant materials, parts and end products. Failure to comply with such requirements can subject us to liability, additional costs, and reputational harm and, in severe cases, force us to recall products or prevent us from selling our products in certain jurisdictions.
 
As a Swiss company with shares listed on both the SIX Swiss Exchange and the Nasdaq Global Select Market, we are also subject to both Swiss and United States corporate governance and securities laws and regulations. In addition to the extra costs and regulatory burdens of our dual regulatory obligations, the two regulatory regimes may not always be compatible and may impose disclosure obligations or operating restrictions on our business to which our competitors and other companies are not subject.  For example, on January 1, 2014, subject to certain transitional provisions, the Swiss Federal Council Ordinance Against Excessive Compensation at Public Companies (the “Ordinance”) became effective in connection with the Minder initiative approved by Swiss voters during 2013.  The Ordinance, among other things, (a) requires a binding shareholder “say on pay” vote with respect to the compensation of members of our executive management and Board of Directors, (b) generally prohibits the making of severance, advance, transaction premiums and similar payments to members of our executive management and Board of Directors, (c) imposes other restrictive compensation practices, and (d) requires that our articles of incorporation specify various compensation-related matters. In addition, during 2013, Swiss voters considered an initiative to limit pay for a chief executive officer to a multiple of no more than twelve times the salary of the lowest-paid employee. Although voters rejected that initiative, it did receive substantial voter support. The Ordinance, potential future initiatives relating to corporate governance or executive compensation, and Swiss voter sentiment in

31


favor of such regulations may increase our non-operating costs and adversely affect our ability to attract and retain executive management and members of our Board of Directors.
 
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in the future, which could adversely affect our net income and cash flows.
 
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws, treaties, rulings, regulations or agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical allocation of income and expense, and changes in management’s assessment of matters such as the realizability of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our effective income tax rate in a given fiscal year reflects a variety of factors that may not be present in the succeeding fiscal year or years. There is no assurance that our effective income tax rate will not change in future periods.
 
We are incorporated in the Canton of Vaud in Switzerland and our effective income tax rate benefits from a longstanding ruling from the Canton of Vaud. The tax rules in Switzerland are expected to change in response to certain guidance and demands from both the European Union and the Organization for Economic Co-operation and Development and that could have an adverse effect on our tax ruling and effective income tax rate. Switzerland’s implementation of any material change in tax laws or policies or its adoption of new interpretations of existing tax laws and rulings, or changes in our tax ruling from the Canton of Vaud, could result in a higher effective income tax rate on our worldwide earnings and such change could adversely affect our net income.
 
We file Swiss and foreign tax returns. We are frequently subject to tax audits, examinations and assessments in various jurisdictions. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective income tax rate could increase. A material assessment by a governing tax authority could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income and cash flows could be adversely affected.
 
Claims by others that we infringe their proprietary technology could adversely affect our business.
 
We have been expanding the categories of products we sell, and entering new markets, such as entering the market for enterprise video conferencing and introducing products for tablets, other mobile devices and digital music. We expect to continue to enter new categories and markets. As we do so, we face an increased risk that claims alleging we infringe the patent or other intellectual property rights of others, regardless of the merit of the claims, may increase in number and significance. Infringement claims against us may also increase as the functionality of video, voice, data and conferencing products begin to overlap. This risk is heightened by the increase in lawsuits brought by holders of patents that do not have an operating business or are attempting to license broad patent portfolios and by the increasing attempts by companies in the technology industries to enjoin their competitors from selling products that they claim infringe their intellectual property rights. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we will be successful in defending ourselves against intellectual property claims. A successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing certain products or performing certain services. We might also be required to seek a license for the use of such intellectual property, which may not be available on commercially acceptable terms or at all. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation or the diversion of significant operational resources, or require us to enter into royalty or licensing agreements, any of which could materially and adversely affect our business and results of operations.

We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products.
 

32


Our future success depends in part on our proprietary technology, technical know-how and other intellectual property. We rely on a combination of patent, trade secret, copyright, trademark and other intellectual property laws, and confidentiality procedures and contractual provisions such as nondisclosure terms and licenses, to protect our intellectual property.
 
We hold various United States patents and pending applications, together with corresponding patents and pending applications from other countries. It is possible that any patent owned by us will be invalidated, deemed unenforceable, circumvented or challenged, that the patent rights granted will not provide competitive advantages to us, or that any of our pending or future patent applications will not be granted. In addition, other intellectual property laws or our confidentiality procedures and contractual provisions may not adequately protect our intellectual property. Also, others may independently develop similar technology, duplicate our products, or design around our patents or other intellectual property rights. Unauthorized parties have copied and may in the future attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Any of these events could adversely affect our business, financial condition and operating results.
 
Product quality issues could adversely affect our reputation and could impact our operating results.
 
The market for our products is characterized by rapidly changing technology and evolving industry standards. To remain competitive, we must continually introduce new products and technologies. The products that we sell could contain defects in design or manufacture. Defects could also occur in the products or components that are supplied to us. There can be no assurance we will be able to detect and remedy all defects in the hardware and software we sell. Failure to do so could result in product recalls, product redesign efforts, lost revenue, loss of reputation, and significant warranty and other expenses to remedy.
 
The collection, storage, transmission, use and distribution of user data could give rise to liabilities and additional costs of operation as a result of laws, governmental regulation and risks of security breaches.
 
In connection with certain of our products, we collect data related to our consumers. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, and especially in Europe. Government actions are typically intended to protect the privacy and security of personal information and its collection, storage, transmission, use and distribution in or from the governing jurisdiction. In addition, because various jurisdictions have different laws and regulations concerning the use, storage and transmission of such information, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seek to enter. The collection of user data heightens the risk of security breaches related to our IT systems and the systems of third-party data storage and other service and IT providers. Such laws and regulations, and the variation between jurisdictions, as well as additional security measures and risk, could subject us to costs, liabilities or negative publicity that could adversely affect our business.
 
We are upgrading our worldwide business application suite, and difficulties, distraction or disruptions may interrupt our normal operations and adversely affect our business and operating results.
 
During fiscal years 2014 and 2015, we devoted significant resources to the upgrade of our worldwide business application suite to Oracle’s version R12. We recently implemented that upgrade and will be testing the success of that implementation through fiscal year 2016 and into fiscal year 2017. As we transition to the new business application suite, we may experience difficulties with our systems, management distraction, lack of visibility into our business operations and results, and significant business disruptions. Difficulties with our systems may interrupt our normal operations, including our enterprise resource planning, forecasting, demand planning, supply planning, intercompany processes, promotion management, internal financial controls, pricing, and our ability to provide quotes, process orders, ship products, provide services and support to our customers and consumers, bill and track our customers, fulfill contractual obligations, and otherwise run and track our business. In addition, we may need to expend significant attention, time and resources to correct problems or find alternative sources for performing these functions. Any such difficulty or disruption may adversely affect our business and operating results.
 
In previous periods, we identified material weaknesses in our internal control over financial reporting and, if we are unable to satisfy regulatory requirements relating to internal controls or if our internal control over financial reporting is not effective, our business and stock price could be adversely affected.

In connection with Section 404 of the Sarbanes-Oxley Act, we have identified in the past and may, from time-to-time in the future, identify issues with our internal controls and deficiencies in our internal control over financial

33


reporting. Certain of these material weaknesses were identified during the independent investigation by our Audit Committee in fiscal year 2015 and a review of related accounting matters that resulted in late filings of our Annual Report on Form 10-K for fiscal year 2014 and our Quarterly Reports on Form 10-Q for the first and second quarters of fiscal year 2015 and a restatement of our financial results for fiscal years 2011 and 2012 and the first quarter of fiscal year 2012. This also follows the identification of material weaknesses in our internal control over financial reporting in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as amended on Form 10-K/A, and the identification in previous periods of significant deficiencies in our internal controls over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of March 31, 2013 and March 31 2014, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-An Integrated Framework (1992). While we believe that we have remediated these material weaknesses, if we find that our remediation efforts were not effective or if additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results again, we could be subject to litigation which, whether meritorious or not, could be time consuming, costly or divert significant operational resources, we could lose investor confidence in the accuracy and completeness of our financial reports, and our reputation, business, results of operations and stock price could be adversely affected.
 
In addition, in May 2013, COSO issued a new version of its internal control framework, which has been deemed by COSO to supersede the 1992 version of the framework as of December 15, 2014. We are developing our plan for transition to application of the 2013 edition of the framework to our assessment of our internal control over financial reporting. During the course of the transition to the new framework and its application to our assessment of our internal control over financial reporting, we may determine that other deficiencies exist in our internal controls that may rise to the level of material weaknesses. Such an occurrence, or a failure to effectively remedy such a deficiency, could adversely affect investor confidence in the accuracy and timeliness of our financial reports.

Goodwill impairment charges could have an adverse effect on the results of our operations. 
Goodwill associated with a number of previous acquisitions could result in impairment charges. The slowdown in the overall video conferencing industry together with the competitive environment in fiscal year 2013 resulted in a $214.5 million non-cash goodwill impairment charge in fiscal year 2013, which substantially impacted our operating results. We recorded an additional impairment charge of goodwill of $122.7 million related to our video conferencing reporting unit in fiscal year 2015, reducing the goodwill of our video conferencing reporting unit to zero, which substantially impacted our operating results again. As we attempt to effect a turnaround of our business, and divesting or discontinuing product categories or products that we previously acquired, we will need to continue to evaluate the carrying value of our goodwill. Additional impairment charges could adversely affect our results of operations.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.

34


ITEM 2.    PROPERTIES
The table below represents our principal locations, their approximate square footage and their purposes as of March 31, 2015:
Location
 
Purpose
 
Approximate
Square
Footage
 
Ownership
 
 
Americas:
 
 
 
 

 
 
 
 
Newark, California
 
Silicon valley campus, research and development, product marketing, sales management, technical support and administration
 
158,200

 
Leased
 
 
Austin, Texas
 
Lifesize operating segment
 
99,000

 
Leased
 
 
Camas, Washington
 
Ultimate Ears Group
 
44,700

 
Leased
 
 
Irvine, California
 
Ultimate Ears Group
 
13,400

 
Leased
 
 
Olive Branch, Mississippi
 
Distribution center
 
397,000

 
Contracted
 
(1)
Mexico City, Mexico
 
Distribution center
 
12,800

 
Contracted
 
(1)
Montevideo, Uruguay
 
Distribution center
 
25,800

 
Contracted
 
(1)
EMEA:
 
 
 
 

 
 
 
 
Lausanne, Switzerland
 
EPFL campus, research and development, product marketing, sales management, technical support and administration
 
67,900

 
Leased
 
 
Cork, Ireland
 
Finance, administration, research and development and design
 
18,400

 
Leased
 
 
Munich, Germany
 
Lifesize operating segment, finance, administration, sales and marketing
 
17,100

 
Leased
 
 
Nijmegen, Netherlands
 
Finance, administration and distribution center support
 
15,000

 
Leased
 
 
Oostrum, Netherlands
 
Distribution center
 
155,600

 
Contracted
 
(1)
Asia Pacific:
 
 
 
 

 
 
 
 
Suzhou, China
 
High-volume manufacturing and employee dormitory
 
689,300

 
Owned
 
 
Suzhou, China
 
High-volume manufacturing
 
14,300

 
Leased
 
 
Hsinchu, Taiwan
 
Mechanical engineering, new product launches, process engineering, commodities management, logistics, quality assurance and administration
 
116,400

 
Leased
 
 
Hong Kong, China
 
Sales and marketing, research and development, administration and distribution center support
 
18,100

 
Leased
 
 
Bangalore, India
 
Lifesize Business Division research and development
 
21,800

 
Leased
 
 
Shanghai, China
 
Sales and marketing, finance
 
21,800

 
Leased
 
 
Chennai, India
 
Digital Home Group engineering and quality assurance
 
19,200

 
Leased
 
 
Tokyo, Japan
 
Sales and marketing
 
10,100

 
Leased
 
 
Hong Kong, China
 
Distribution center
 
40,000

 
Contracted
 
(1)
Singapore, Singapore
 
Distribution center
 
60,000

 
Contracted
 
(1)
Tokyo, Japan
 
Distribution center
 
27,000

 
Contracted
 
(1)
Shenzhen, China
 
Distribution center
 
32,000

 
Contracted
 
(1)
Dayuan Township, Taiwan
 
Distribution center
 
18,100

 
Contracted
 
(1)
_______________________________________________________________________________


35


(1)
Contracted through a third-party warehouse management company.
Logitech also contracts with various distribution services throughout the world for additional warehouses in which we store inventory. We also have leased sales offices in approximately 65 locations and 39 countries, with various expiration dates from 2015 to 2020.
We believe that Logitech's manufacturing and distribution facilities are adequate for our ongoing needs and we continue to evaluate the need for facilities to meet current and anticipated future requirements.
ITEM 3.    LEGAL PROCEEDINGS
From time-to-time we are involved in claims and legal proceedings that arise in the ordinary course of our business. We are currently subject to several such claims and a small number of legal proceedings. We believe that these matters lack merit and we intend to vigorously defend against them. Based on currently available information, we do not believe that resolution of pending matters will have a material adverse effect on our financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that our defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on our business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect our business.
ITEM 4.    MINE SAFETY DISCLOSURES
None.

36


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Logitech's shares are listed and traded on both the SIX Swiss Exchange, where the share price is denominated in Swiss francs, and on the Nasdaq Global Select Market, where the share price is denominated in U.S. Dollars. The trading symbol for Logitech shares is LOGN on the SIX Swiss Exchange and LOGI on Nasdaq. As of May 12, 2015, there were 173,106,620 shares issued (including 8,547,748 shares held as treasury stock) held by 14,252 holders of record, and the closing price of our shares was CHF 14.05 ($15.11 based on exchange rates on such date) per share on the SIX Swiss Exchange and $15.11 per share as reported by the Nasdaq Stock Market.
SIX Swiss Exchange
The following table sets forth certain historical share price information for the Company's shares traded on the SIX Swiss Exchange, as reported by the SIX Swiss Exchange.
 
 
SIX Swiss Exchange
 
 
High CHF
 
Low CHF
Fiscal Year Ended March 31, 2015
 
 
 
 
First quarter
 
13.80

 
11.00

Second quarter
 
13.95

 
11.15

Third quarter
 
14.60

 
10.75

Fourth quarter
 
14.25

 
11.60

Fiscal Year Ended March 31, 2014
 
 

 
 

First quarter
 
6.80

 
5.92

Second quarter
 
8.05

 
6.14

Third quarter
 
12.25

 
7.93

Fourth quarter
 
14.70

 
12.00


37


Nasdaq Global Select Market
The following table sets forth certain historical share price information for the Company's shares traded on the Nasdaq Global Select Market.
 
 
Nasdaq Global Select Market
 
 
High
 
Low
Fiscal Year Ended March 31, 2015
 
 

 
 

First quarter
 
$
15.46

 
$
12.34

Second quarter
 
15.35

 
12.56

Third quarter
 
15.00

 
11.51

Fourth quarter
 
15.21

 
12.50

Fiscal Year Ended March 31, 2014
 
 

 
 

First quarter
 
$
7.27

 
$
6.25

Second quarter
 
8.97

 
6.47

Third quarter
 
13.60

 
8.75

Fourth quarter
 
16.86

 
13.22

Dividends
Under Swiss law, a corporation may only pay dividends upon a vote of its shareholders. This vote typically follows the recommendation of the corporation's Board of Directors. In March 2015, we announced a plan to pay $250.0 million in cumulative dividends for fiscal year 2015 through fiscal year 2017. The Board of Directors plans to request shareholder approval of the Swiss Franc equivalent of an $85 million dividend for fiscal year 2015 at our next annual general meeting. Based on exchange rates of 1.0283 and the number of shares outstanding as of March 31, 2015, this represents approximately CHF 0.51 per share, compared to dividend of CHF 0.26 per share for fiscal year 2015. On December 8, 2014, Logitech's shareholders approved a cash dividend payment of CHF 43.1 million out of retained earnings to Logitech shareholders who owned shares on December 29, 2014. Eligible shareholders were paid CHF 0.26 per share ($0.27 per share in U.S. Dollars), totaling $43.8 million in U.S. Dollars on December 30, 2014. On September 4, 2013, Logitech's shareholders approved a cash dividend payment of CHF 33.7 million out of retained earnings to Logitech shareholders who owned shares on September 16, 2013. Eligible shareholders were paid CHF 0.21 per share ($0.22 per share in U.S. Dollars), totaling $36.1 million in U.S. Dollars on September 17, 2013. On September 5, 2012, Logitech's shareholders approved a cash dividend payment of CHF 125.7 million out of retained earnings to Logitech shareholders who owned shares on September 17, 2012. Eligible shareholders were paid CHF 0.79 per share ($0.85 per share in U.S. Dollars), totaling $133.5 million in U.S. Dollars on September 18, 2012. The dividend in September 2012 qualified as a distribution of qualifying additional paid-in-capital and, as such, was not subject to Swiss Federal withholding tax.
Dividends paid and similar cash or in-kind distributions made by Logitech to a holder of Logitech shares (including dividends or liquidation proceeds and stock dividends), other than distributions of qualifying additional paid-in-capital if it is available under the current Swiss tax regime, are subject to a Swiss federal anticipatory tax at a rate of 35%. The anticipatory tax must be withheld by Logitech from the gross distribution, and paid to the Swiss Federal Tax Administration.
A Swiss resident holder and beneficial owner of Logitech shares may qualify for a full refund of the Swiss anticipatory tax withheld from such dividends. A holder and beneficial owner of Logitech shares who is a non-resident of Switzerland, but a resident of a country that maintains a double tax treaty with Switzerland, may qualify for a full or partial refund of the Swiss anticipatory tax withheld from such dividends by virtue of the provisions of the applicable treaty between Switzerland and the country of residence of the holder and beneficial owner of the Logitech shares.
In accordance with the tax convention between the United States and the Swiss Confederation ("Treaty"), a mechanism is provided whereby a U.S. resident (as determined under the Treaty), and U.S. corporations, other than U.S. corporations having a "permanent establishment" or a fixed base, as defined in the Treaty, in Switzerland, generally can obtain a refund of the Swiss anticipatory tax withheld from dividends in respect of Logitech shares, to the extent that 15% of the gross dividend is withheld as final withholding tax (i.e. 20% of the gross dividend may generally be refunded). In specific cases, U.S. companies not having a "permanent establishment" or a fixed base

38


in Switzerland owning at least 10% of Logitech registered shares may receive a refund of the Swiss anticipatory tax withheld from dividends to the extent it exceeds 5% of the gross dividend (i.e., 30% of the gross dividend may be refunded). To get the benefit of a refund, holders must beneficially own Logitech shares at the time such dividend becomes due.
Share Repurchases
The following table presents certain information related to purchases made by Logitech of its equity securities under its publicly announced share buyback program (in thousands, except per share amounts):
 
 
 
 
Weighted Average Price Per Share
 
Amount
Available for
Repurchase
During Fiscal Year Ended
 
Shares
Repurchased
 
CHF
 
USD
 
March 31, 2013
 
8,600

 
9.66

 
10.21

 
$
6,472

March 31, 2014
 

 

 

 
250,000

March 31, 2015
 
115

 

 
14.43

 
248,337

 
 
8,715

 
 

 
 

 
 


In fiscal year 2015, the following approved share buyback programs were in place:
Share Buyback Program
Shares
 
Approved Amounts
March 2014
17,311

 
$
250,000

In September 2012, the Company's shareholders approved the cancellation of the 18.5 million shares repurchased under the September 2008 amended share buyback program. These shares were legally cancelled during the quarter ended December 31, 2013.

39


Performance Graph
        The information contained in the Performance Graph shall not be deemed to be "soliciting material" or "filed" with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act.
The following graph compares the cumulative total stockholder return on our shares, the Nasdaq Composite Index, and the S&P 500 Information and Technology Index. The graph assumes that $100 was invested in our shares, the Nasdaq Composite Index and the S&P 500 Information and Technology Index on March 31, 2010, and calculates the annual return through March 31, 2015. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
________________________________________

*$100 invested on March 31, 2010 in stock or index, including reinvestment of dividends.
Copyright© 2015 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

 
 
March 31,
 
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
Logitech
 
$
100

 
$
111

 
$
48

 
$
47

 
$
102

 
$
92

Nasdaq Composite Index
 
$
100

 
$
117

 
$
133

 
$
144

 
$
188

 
$
220

S&P 500 Information and Technology Index
 
$
100

 
$
112

 
$
135

 
$
133

 
$
167

 
$
197


ITEM 6.    Selected Financial Data
This financial data should be read in conjunction with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. These historical results are not necessarily indicative of the results to be expected in the future.

40


 
 
Year ended March 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands, except for per share amounts)
Consolidated statement of operations and cash flow data
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
2,113,947

 
$
2,128,713

 
$
2,099,277

 
$
2,316,203

 
$
2,366,765

Cost of goods sold
 
1,339,750

 
1,400,844

 
1,389,643

 
1,508,670

 
1,556,120

Gross profit
 
774,197

 
727,869

 
709,634

 
807,533

 
810,645

Operating expenses:
 
 

 
 

 
 

 
 

 
 

Marketing and selling
 
378,593

 
379,747

 
431,886

 
422,116

 
420,778

Research and development
 
131,012

 
139,385

 
155,012

 
162,159

 
156,021

General and administrative
 
131,446

 
118,940

 
114,381

 
109,260

 
115,616

Impairment of goodwill and other assets(1)
 
122,734

 

 
216,688

 

 

Restructuring charges (credits), net (2)
 
(4,888
)
 
13,811

 
43,704

 

 

Total operating expenses
 
758,897

 
651,883

 
961,671

 
693,535

 
692,415

Operating income (loss)
 
15,300

 
75,986

 
(252,037
)
 
113,998

 
118,230

Interest income (expense), net
 
1,225

 
(397
)
 
907

 
2,674

 
2,316

Other income (expense), net
 
(2,752
)
 
1,993

 
(2,198
)
 
7,655

 
4,578

Income (loss) before income taxes
 
13,773

 
77,582

 
(253,328
)
 
124,327

 
125,124

Provision for (benefit from) income taxes
 
4,490

 
3,278

 
(25,810
)
 
20,090

 
19,973

Net income (loss)
 
9,283

 
74,304

 
(227,518
)
 
104,237

 
105,151

Net income (loss) per share:
 
 

 
 

 
 

 
 

 
 

Basic
 
$
0.06

 
$
0.46

 
$
(1.44
)
 
$
0.60

 
$
0.59

Diluted
 
$
0.06

 
$
0.46

 
$
(1.44
)
 
$
0.59

 
$
0.59

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

 
 

 
 

 
 

 
 

Basic
 
163,536

 
160,619

 
158,468

 
174,648

 
176,928

Diluted
 
166,174

 
162,526

 
158,468

 
175,591

 
178,790

Cash dividend per share
 
$
0.27

 
$
0.22

 
$
0.85

 
$

 
$

Net cash provided by operating activities
 
$
178,632

 
$
205,421

 
$
122,389

 
$
202,534

 
$
165,122

Net cash used in investing activities
 
$
(48,289
)
 
$
(46,803
)
 
$
(57,723
)
 
$
(57,602
)
 
$
(48,241
)
 
 
March 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Consolidated balance sheet data
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
537,038

 
$
469,412

 
$
333,824

 
$
478,370

 
$
477,931

Total assets
 
$
1,426,680

 
$
1,451,390

 
$
1,382,333

 
$
1,858,009

 
$
1,852,899

Total shareholders' equity
 
$
758,134

 
$
804,128

 
$
721,953

 
$
1,131,791

 
$
1,157,874

_______________________________________________________________________________

(1)
Impairment of goodwill and other assets during fiscal year 2015 was attributable to a goodwill impairment charge related to our video conferencing reporting unit. Impairment of goodwill and other assets during fiscal year 2013 was primarily attributable to a $214.5 million goodwill impairment charge related to our video conferencing reporting unit.
(2)
The $4.9 million in restructuring credits during fiscal year 2015 were related to restructuring plans we implemented in fiscal year 2014. The $13.8 million and $43.7 million in restructuring costs during fiscal years 2014 and 2013 were related to restructuring plans we implemented in fiscal years 2014 and 2013.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these statements as a result of certain factors, including those set forth above in Item 1A, Risk Factors, and below in Item 7A, Quantitative and Qualitative Disclosures about Market Risk.
Overview of Our Company
Logitech is a world leader in products that connect people to the digital experiences they care about. Spanning multiple computing, communication and entertainment platforms, we develop and market innovative hardware and software products that enable or enhance digital navigation, music and video entertainment, gaming, social networking, audio and video communication over the Internet and home-entertainment control. We have two reporting segments: peripherals and video conferencing.
Our peripherals segment encompasses the design, manufacturing and marketing of peripherals for PCs, tablets and other digital platforms. Within our peripherals segment, we classify our retail product categories as growth, profit maximization, and non-strategic. Our growth product categories are: Mobile Speakers, Gaming, Video Collaboration and Tablet & Other Accessories. Our profit maximization categories are: Pointing Devices, Keyboards & Combos, Audio-PC & Wearables, PC Webcams, and Home Control.
Our brand, portfolio management, product development and engineering teams in our peripherals segment are responsible for product strategy, technological innovation, product design and development and to bring our products to market.
Our global marketing organization is responsible for developing and building the Logitech brand, consumer insights, public relations, social media and digital marketing. Our regional retail sales and marketing activities are organized into three geographic areas: Americas (North and South America), EMEA (Europe, Middle East and Africa) and Asia Pacific (including, among other countries, China, Taiwan, Japan and Australia).
We sell our peripherals products to a network of retailers, including direct sales to retailers and indirect sales through distributors. Our worldwide retail network includes wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics, computers and telecommunications stores, value-added resellers and online merchants. Sales of our retail peripherals were 89%, 88% and 87% of our net sales for fiscal years 2015, 2014 and 2013, respectively. The large majority of our revenues have historically been derived from sales of our peripherals products for use by consumers. Our OEM customers include several of the world's largest PC manufacturers. Sales to OEM customers were 6% of our net sales for each of fiscal years 2015, 2014 and 2013.
Our video conferencing segment encompasses the a Cloud-based video conferencing solution, design, manufacturing and marketing of Lifesize branded video conferencing products, infrastructure and services for the enterprise, public sector and other small to medium business markets. Video conferencing products include scalable high-definition, or HD, video communication 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 video conferencing segment maintains a separate marketing and sales organization, which sells Lifesize products and services worldwide. Video conferencing product development and product management organizations are separate, but coordinated with our peripherals business, particularly our Consumer Computing Platform group. In April 2015, we announced our intent to reorganize Lifesize with the goal of de-emphasizing Lifesize’s legacy offerings more quickly to enable maximum traction with Lifesize Cloud. We plan to shrink our Lifesize business to grow the cloud opportunity faster. We sell our video conferencing products and services to distributors, value-added resellers, OEMs and, occasionally, direct enterprise customers. Net sales of video conferencing products and services were 5%, 6% and 7% of our net sales in the fiscal year 2015, 2014 and 2013, respectively. During fiscal years 2015 and 2013, we recorded goodwill impairment charges of $122.7 million and $214.5 million related to our video conferencing reporting segment, respectively.

We seek to fulfill the increasing demand for interfaces between people and the expanding digital world across multiple platforms and user environments. The interface evolves as platforms, user models and our target markets evolve. As access to digital information has expanded, we have extended our focus to mobile devices, the digital home, and the enterprise as access points to the Internet and the digital world. All of these platforms require interfaces that are customized according to how the devices are used. We believe that continued investment in product research and development is critical to creating the innovation required to strengthen our competitive

42


advantage and to drive future sales growth. We are committed to identifying and meeting current and future consumer trends with new and improved product technologies, partnering with others where our strengths are complementary, as well as leveraging the value of the Logitech and Lifesize brands from a competitive, channel partner and consumer experience perspective.
We believe that innovation, design and product quality are important to gaining market acceptance and maintaining market leadership.
We have been expanding the categories of products we sell and entering new markets, such as the markets for mobile speakers. As we do so, we are confronting new competitors, many of which have more experience in the categories or markets and have greater marketing resources and brand name recognition than we have. In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies in our new categories as well as future ones we might enter. Many of these companies have greater financial, technical, sales, marketing and other resources than we have.
From time to time, we may seek to partner with, or acquire when appropriate, companies that have products, personnel, and technologies that complement our strategic direction. We continually review our product offerings and our strategic direction in light of our profitability targets, competitive conditions, changing consumer trends and the evolving nature of the interface between the consumer and the digital world. In April 2015, we announced our intent to exit the OEM business and to reorganize the Lifesize business to sharpen its focus on its Cloud-based offering.
Summary of Financial Results
Our total net sales for fiscal year 2015 decreased 1% in comparison to fiscal year 2014 due to decreases in video conferencing sales and OEM sales, partially offset by an increase in retail sales.
Retail sales and units sold during fiscal year 2015 increased 1% and 2%, respectively, compared to fiscal year 2014. Retail sales increased 8% and 2% in AMR and Asia Pacific, respectively, partially offset by a decrease of 7% in EMEA.
OEM sales and units sold during fiscal year 2015 decreased 17% and 25%, respectively, compared to fiscal year 2014.
Sales of Lifesize video conferencing products, which were 5% of total net sales during fiscal year 2015, decreased 10% during fiscal year 2015, compared to fiscal year 2014. Lifesize is in the early stages of transitioning its product portfolio to the recently announced Lifesize Cloud, a software-as-a-service (SaaS) offering. While sales of the Cloud offering are growing rapidly, they are not yet large enough to offset the combination of the short-term portfolio transition and soft market conditions for video conferencing infrastructure.
Our gross margin for fiscal year 2015 increased to 36.6%, compared to 34.2% for fiscal year 2014. The increase in gross margin primarily reflects the combination of a significant improvement in both our Profit Maximization categories and Mobile Speakers category, driven largely by product cost reductions and economies of scale, as well as the benefit from exiting the products included in the Non-Strategic category.
Operating expenses for fiscal year 2015 were 35.9% of net sales, compared to 30.6% for fiscal year 2014. The increase in total operating expenses as a percentage of net sales was primarily due to a goodwill impairment charge of $122.7 million relating to our video conferencing reporting unit, $23.7 million in expenses related to the Audit Committee's Independent investigation (as described in our Annual Report on Form 10-K for fiscal year 2014)and related expenses, partially offset by a restructuring credit of $4.9 million during fiscal year 2015 resulting from partial lease termination of our Silicon Valley campus, which was previously vacated and under a restructuring plan during fiscal year 2014, as opposed to a restructuring charge of $13.8 million during fiscal year 2014, as well as savings from prior year's restructuring actions and the ongoing rationalization of infrastructure.
Net income for fiscal year 2015 was $9.3 million, compared to net income of $74.3 million for fiscal year 2014. The decline was primarily due to a goodwill impairment charge of $122.7 million during fiscal year 2015 partially offset by improvements in gross margin as discussed above.
Given our global sales presence and the reporting of our financial results in U.S. Dollars, our financial results for fiscal year 2015 were affected by significant shifts in currency exchange rates during fiscal year 2015. See “Results of Operations” beginning on page 50 for information on the effect of currency exchange results on our net

43


sales. If the U.S. Dollar remains at its current strong levels in comparison to other currencies, this will affect our results of operations in future periods as well.
Trends in Our Business
Our sales of PC peripherals for use by consumers in Americas and Europe have historically made up the large majority of our revenues. In the last several years, the PC market has changed dramatically and there continues to be significant weakness in the global market for new PCs. This weakness had a negative impact on our net sales in all of our PC-related categories. We believe that this weakness reflects the growing popularity of tablets and smartphones as mobile computing devices.
We believe our future growth will be determined by our ability to rapidly create innovative products across multiple digital platforms - especially accessories for mobility-related products, including tablets and smartphones, gaming and digital music devices, to offset the decline in our PC peripherals. The following discussion represents key trends specific to each of our two operating segments: peripherals and video conferencing.
Trends Specific to our Peripherals Segment
Mobile Speakers:    The mobile speaker market grew throughout fiscal year 2015 based on consumer smartphones, consumption of music through tablets, and the growth of music services and Internet radio. This market growth, together with our investments in the UE brand, our introduction of new products and our ability to gain market share during fiscal year 2015, has driven our growth in Mobile Speakers.
PC Peripherals (Pointing Devices, Keyboards & Combos, PC Webcams, Gaming and Audio PC & Wearables):    Although the installed base of PC users is large, consumer demand for new PCs has declined in recent years, and we believe it will continue to decline in future years. As a consequence, consumer demand for PC peripherals is slowing, or in some cases declining. As the quality of PC-embedded webcams improves along with the increasing popularity of tablets and smartphones with embedded webcams, we expect future sales of our PC-connected webcams will continue to be weak (or continue to decline on a year-over-year basis). The PC Gaming platform continues to show strong growth as online gaming and multi-platform experiences gain greater popularity and gaming content becomes increasingly more demanding. We believe Logitech is well positioned to benefit from the PC Gaming market growth.
Enterprise Market:    We are continuing our efforts to create and sell products and services to enterprises, including Video Collaboration products. For example, we have introduced the Logitech ConferenceCam CC3000e video collaboration product. Growing our enterprise peripherals business will continue to require investment in selected business-specific products, targeted product marketing, and sales channel development.
Tablets and Other Accessories:    Smaller mobile computing devices, such as tablets with touch interfaces, have created new markets and usage models for peripherals and accessories. We offer a number of products to enhance the use of mobile devices, including keyboard folios for the iPad and iPad mini, and keyboard covers and folios for the iPad Air. We have also introduced keyboard folios for the Samsung Galaxy tablet. While we achieved growth in sales of our tablet covers for the iPad, we have seen the market decline through fiscal year 2015 for the iPad platform, which has impacted the sales of our tablet peripherals.
OEM Business:    Sales of our OEM mice and keyboards have historically made up the bulk of our OEM sales. In recent years, there has been a dramatic shift away from desktop PCs and there continues to be weakness in the global market for PCs, which has adversely affected our sales of OEM mice and keyboards, all of which are sold with name-brand desktop PCs. We expect this trend to continue in the future, and we plan to exit the OEM business as we see limited opportunities for profitable growth.
Trends in Non-Strategic Peripherals Product Categories:    We continue to evaluate our product offerings and exit those which no longer support our strategic direction.

44


Trends Specific to our Video Conferencing Segment
The trend among businesses and institutions to use video conferencing offers a long-term growth opportunity for us. However, the overall video conferencing industry has experienced a slowdown in recent quarters. In addition, there has been an increase in the competitive environment. Lifesize is in the early stages of transitioning its product portfolio to Lifesize Cloud. While sales of this software-as-a-service offering are growing rapidly, they are not yet large enough to offset the combination of the short-term portfolio transition and soft market conditions for video conferencing infrastructure. Looking at this growth opportunity, recently in April 2015, we decided to reorganize Lifesize with the goal of de-emphasizing Lifesize’s legacy offerings more quickly to enable maximum traction with Lifesize Cloud. We plan to shrink our Lifesize business to grow the Cloud opportunity faster. This resulted in an estimated $122.7 million non-cash goodwill impairment charge in the quarter ended March 31, 2015.  We believe the growth in our video conferencing segment depends in part on our ability to increase sales of our new Cloud offering and smooth transition from our legacy infrastructure business.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP (Generally Accepted Accounting Principles in the United States of America) requires us 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.
We consider an accounting estimate critical if it: (i) requires management to make judgments and estimates about matters that are inherently uncertain; and (ii) is important to an understanding of our financial condition and operating results.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results could differ from those estimates. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.
We believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations, and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Accruals for Customer Programs
We record accruals for product returns, cooperative marketing arrangements, customer incentive programs and pricing programs. An allowance against accounts receivable is recorded for accruals and program activity related to our direct customers and indirect customers who receive payments for program activity through our direct customers. A liability is recorded for accruals and program activity related to our indirect customers who receive payments directly and do not have a right of offset against a receivable balance. The estimated cost of these programs is usually recorded as a reduction of revenue. If we receive a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit, such cost is reflected in cost of sales or in operating expenses. Significant management judgment and estimates must be used to determine the cost of these programs in any accounting period.
Returns.    We grant limited rights to return products. Return rights vary by customer, and range from just the right to return defective product to stock rotation rights limited to a percentage of sales approved by management. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product, inventories owned by and located at distributors and retailers, current customer demand, current operating conditions, and other relevant customer and product information. Upon recognition, we reduce sales and cost of sales for the estimated return. Return trends are influenced by product life cycle status, new product introductions, market acceptance of products, sales levels, product sell-through, the type of customer, seasonality, product quality issues, competitive pressures, operational policies and procedures, and other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns.
Cooperative Marketing Arrangements.    We enter into customer marketing programs with many of our distribution and retail customers, and with certain indirect partners, allowing customers to receive a credit equal to a set percentage of their purchases of our products, or a fixed dollar credit for various marketing programs. The objective of these arrangements is to encourage advertising and promotional events to increase sales of our

45


products. Accruals for these marketing arrangements are recorded at the later of time of sale or time of commitment, based on negotiated terms, historical experience and inventory levels in the channel.
Customer Incentive Programs.    Customer incentive programs include performance-based incentives and consumer rebates. We offer performance-based incentives to our distribution customers, retail customers and indirect partners based on pre-determined performance criteria. Accruals for performance-based incentives are recognized as a reduction of the sale price at the time of sale. Estimates of required accruals are determined based on negotiated terms, consideration of historical experience, anticipated volume of future purchases, and inventory levels in the channel. Consumer rebates are offered from time to time at our discretion for the primary benefit of end-users. Accruals for the estimated costs of consumer rebates and similar incentives are recorded at the later of time of sale or when the incentive is offered, based on the specific terms and conditions. Certain incentive programs, including consumer rebates, require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular programs.
Pricing Programs.    We have agreements with certain customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction. At our discretion, we also offer special pricing discounts to certain customers. Special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners. Our decision to make price reductions is influenced by product life cycle stage, market acceptance of products, the competitive environment, new product introductions and other factors. Accruals for estimated expected future pricing actions are recognized at the time of sale based on analysis of historical pricing actions by customer and by products, inventories owned by and located at distributors and retailers, current customer demand, current operating conditions, and other relevant customer and product information, such as stage of product life-cycle.
We regularly evaluate the adequacy of our accruals for product returns, cooperative marketing arrangements, customer incentive programs and pricing programs. Future market conditions and product transitions may require us to take action to increase such programs. In addition, when the variables used to estimate these costs change, or if actual costs differ significantly from the estimates, we would be required to record incremental increases or reductions to revenue or operating expenses. If, at any future time, we become unable to reasonably estimate these costs, recognition of revenue might be deferred until products are sold to users, which would adversely impact revenue in the period of transition.
Inventory Valuation
We must order components for our products and build inventory in advance of customer orders. Further, our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand.
We record inventories at the lower of cost or market value and record write-downs of inventories that are obsolete or in excess of anticipated demand or market value. A review of inventory is performed each fiscal quarter that considers factors including the marketability and product life cycle stage, product development plans, component cost trends, demand forecasts and current sales levels. Inventory on hand which is not expected to be sold or utilized is considered excess, and we recognize the write-off in cost of sales at the time of such determination. The write-off is determined by comparison of the current replacement cost with the estimated selling price less any costs of completion and disposal (net realizable value) and the net realizable value less an allowance for normal profit. At the time of loss recognition, a new cost basis per unit, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances would not result in an increase in the cost basis. If there were an abrupt and substantial decline in demand for Logitech's products or an unanticipated change in technological or customer requirements, we may be required to record additional write-downs that could adversely affect gross margins in the period when the write-downs are recorded.
Share-Based Compensation Expense
Share-based compensation expense includes compensation expense, reduced for estimated forfeitures. The grant date fair value for stock options and stock purchase rights is estimated using the Black-Scholes-Merton option-pricing valuation model. The grant date fair value of RSUs (restricted stock units) that vest upon meeting certain market conditions is estimated using the Monte-Carlo simulation method. The grant date fair value of time-based RSUs is calculated based on the closing market price on the date of grant, adjusted by estimated dividends yield prior to vesting.


46


        Our estimates of share-based compensation expense require a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects and the selection of an appropriate fair value model. We estimate expected share price volatility based on historical volatility using daily prices over the term of past options, RSUs or purchase offerings, as we consider historical share price volatility as most representative of future volatility. We estimate expected life based on historical settlement rates, which we believe are most representative of future exercise and post-vesting termination behaviors. We use historical data to estimate pre-vesting forfeitures, and we record share-based compensation expense only for those awards that are expected to vest. The dividend yield assumption is based on our history and future expectations of dividend payouts.

        The assumptions used in calculating the fair value of share-based compensation expense and related tax effects represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our share-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations.
Accounting for Income Taxes
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by the changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in our assessment of matters such as the ability to realize deferred tax assets. As a result of these considerations, we must estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.
We assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering all available evidence such as historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax strategies. When we determine that we are not able to realize all or part of our deferred tax assets, an adjustment is charged to earnings in the period when such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, the previously provided valuation allowance would be reversed.
We make certain estimates and judgments about the application of tax laws, the expected resolution of uncertain tax positions and other matters surrounding the recognition and measurement of uncertain tax benefits. In the event that uncertain tax positions are resolved for amounts different than our estimates, or the related statutes of limitations expire without the assessment of additional income taxes, we will be required to adjust the amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a material impact on our income tax provision and our results of operations.
Goodwill
We conduct a goodwill impairment analysis annually at December 31 or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods, or other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the two-step quantitative impairment test; otherwise, no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative

47


impairment test. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. We have two reporting units, peripherals and video conferencing.
Peripherals
We performed our annual impairment analysis of the goodwill for our peripherals reporting unit at December 31, 2014 by performing a qualitative assessment and concluded that it was more likely than not that the fair value of our peripherals reporting unit exceeded its carrying amount. In assessing the qualitative factors, we considered the impact of these key factors: change in industry and competitive environment, growth in market capitalization of $2.3 billion as of December 31, 2014 from $2.2 billion a year ago, and budgeted-to-actual revenue performance from the prior year. The peripherals reporting unit has seen an improvement in operating income from $64.8 million and $117.8 million for the three and nine months ended December 31, 2013 to $76.1 million and $160.3 million for the three and nine months ended December 31, 2014, respectively.
Video Conferencing
We proceeded directly to the two-step quantitative impairment test for the video conferencing reporting unit and performed a Step 1 assessment at December 31, 2014. The Step 1 test involves measuring the recoverability of goodwill at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. The fair value is estimated using an income approach employing a discounted cash flow (“DCF”) and a market-based model. The DCF model is based on projected cash flows from our approved most recent forecast (“assessment forecast”) developed in connection with the video conferencing reporting unit to perform the goodwill impairment assessment. The assessment forecast is based on a number of key assumptions, including, but not limited to, discount rate, compound annual growth rate (“CAGR”) during the forecast period, and terminal value. The terminal value is based on an exit price at the end of the assessment forecast using an earning multiple applied to the final year of the assessment forecast. The discount rate is applied to the projected cash flows to reflect the risks inherent in the timing and amount of the projected cash flows, including the terminal value, and is derived from the weighted average cost of capital of market participants in similar businesses. The market approach is based on applying certain revenue and earnings multiples of comparable companies relevant to each of its reporting units to the respective revenue and earnings metrics of our reporting units. The income approach and the market approach require the exercise of significant judgment, including assumptions about appropriate discount rates, long-term growth rates for purposes of determining a terminal value at the end of the discrete forecast period, economic expectations, timing of expected future cash flows, and expectations of returns on equity that will be achieved. Such assumptions are subject to change as a result of changing economic and competitive conditions. If the carrying amount of the reporting unit exceeds its fair value as determined by these assessments, goodwill is considered impaired and the Step 2 test is performed to measure the amount of impairment loss. The Step 2 test measures the impairment loss by allocating the reporting unit’s fair value to its assets, including unrecognized intangibles which are not carried on the books, and liabilities other than goodwill, and comparing the resulting implied fair value of goodwill with its carrying amount. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would be recognized.
We use a third party valuation expert in the development of our market and income approach models. The annual Step 1 assessment performed as of December 31, 2014 resulted in us determining that the video conferencing reporting unit passed the Step 1 test because the estimated fair value of video conferencing reporting unit from the Step 1 assessment exceeded its carrying value by approximately 38.0%, thus not requiring a Step 2 assessment of this reporting unit. Therefore, we concluded it was more likely than not that the goodwill of the video conferencing reporting unit was not impaired as of December 31, 2014.
During the fourth quarter of the fiscal year ended March 31, 2015, the net sales of the video conferencing reporting unit decreased to $24.9 million from $31.0 million in the fourth quarter of the fiscal year ended March 31, 2014 and from $29.9 million in the third quarter of fiscal year ended March 31, 2015. The sales decline was concentrated in the video conferencing infrastructure legacy business primarily due to faster shift of customer preference towards Cloud infrastructure conferencing versus on-premise infrastructure solutions and resource realignment, which was not anticipated during annual impairment assessment as of December 31, 2014. This quick shift towards Cloud-based offering resulted in the change in business strategy to de-emphasize Lifesize’s legacy offerings more quickly than planned to enable maximum traction of the Lifesize Cloud, which would result in shrinking the legacy Lifesize business but could grow the Cloud opportunity faster. In the last nine months, the sales

48


of Cloud-based offerings have grown rapidly; however, they are not yet large enough to offset the combination of the short-term portfolio transition. As a result of the lower-than-expected performance in the legacy infrastructure sales, we made a strategic decision to sharpen our focus on our new Cloud-based offering. We plan to realign our costs and operations to this new strategy as part of a restructuring plan announced during April 2015 and are exploring various other options for our Lifesize business. The significant change in business strategy has adversely affected the near-term projections and we expect that it will shrink the Lifesize revenue for the next several years, including lowering the overall growth, pushing out the break-even point and increasing the operating loss as well as increasing uncertainty in the near term. In light of the aforementioned, we concluded it was appropriate to perform the Step 1 goodwill impairment assessment.
As of March 31, 2015, taking into consideration the video conferencing reporting unit’s updated business outlook for fiscal year 2016 based on the factors discussed above and the risk of execution of its refocused strategy, we updated the future cash flow assumptions for the video conferencing reporting unit and calculated updated estimates of fair value using the income approach. In particular, we lowered our December 31, 2014 goodwill impairment test projections of future revenue and operating income (loss) growth and adjusted other factors (such as working capital and capital expenditure). After updating the assumptions and projections, we then calculated a present value of the cash flow to arrive at an estimate of fair value under the income approach as of March 31, 2015. Key assumptions included in the income approach were significant reduction in the revenue assumption for fiscal year 2016 through fiscal year 2021 compared with the revenue assumption used in our annual goodwill impairment assessment as of December 31, 2014, CAGR at 7.2%, discount rate at 14.0%, and terminal growth rate at 4.0%. Consistent with the annual impairment test on December 31, 2014, we also updated the estimates of fair value determined under the market approach. Based on the income approach and market approach, the estimated fair value of the video conferencing reporting unit under the Step 1 assessment was lower than the carrying amount of the net asset including goodwill.
The video conferencing reporting unit failed the Step 1 test as prescribed under ASC 350, thus requiring a Step 2 assessment of this reporting unit to determine the goodwill impairment. In determining the impairment amount, the fair value of the video conferencing reporting unit was allocated to its assets and liabilities, including any unrecognized intangible assets not on the balance sheet, based on their respective fair values. Assumptions used in measuring the value of these assets and liabilities included the discount rates, working capital, and technology obsolescence rates used in valuing the intangible assets, and pricing of comparable transactions in the market in valuing the tangible assets. Based on this allocation, the implied value of intangible assets and tangible net assets fully absorbed the fair value of the business, leaving no implied fair value left to be allocated to the goodwill. The video conferencing reporting unit's carrying value of goodwill exceeded the implied fair value of goodwill, resulting in a goodwill impairment charge of $122.7 million, which is recorded in the Consolidated Statement of Operations.
The current assessment represents the fair value of the video conferencing business as of March 31, 2015. If we dispose all or any equity interest of the video conferencing reporting unit in the future, it may result in a gain. The gain will be recognized as a difference between the carrying amount of the video conferencing reporting unit and the proceeds, if any, received from such a disposal.
During fiscal year 2013, our video conferencing reporting unit failed the Step 1 test because the estimated fair value was less than its carrying value, thus requiring Step 2 assessment of this reporting unit. This impairment primarily resulted from a decrease in the expected CAGR during the assessment forecast period based on greater evidence of the overall enterprise video conferencing industry experiencing a slowdown, combined with lower demand related to new product launches, increased competition during fiscal year 2013, and other market data. These factors had an adverse effect on our video conferencing operating results and future outlook. During fiscal year 2013, we recorded goodwill impairment and other charges of $214.5 million related to our video conferencing reporting unit.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others. If we are required to take further substantial impairment charges in future periods, our operating results would be materially and adversely affected in such period.

49


Product Warranty Accrual
We estimate the cost of product warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected costs, and knowledge of specific product failures that are outside of our typical experience. Each quarter, we reevaluate estimates to assess the adequacy of recorded warranty liabilities considering the size of the installed base of products subject to warranty protection and adjust the amounts as necessary. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect our results of operations.
Results of Operations
Non-GAAP Measures
We refer to our net sales excluding the impact of currency exchange rate fluctuations as "constant dollar" sales. Constant dollar sales is a non-GAAP financial measure, which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. GAAP. Our management uses these non-GAAP measures in its financial and operational decision-making, and believes these non-GAAP measures, when considered in conjunction with the corresponding GAAP measures, facilitate a better understanding of changes in net sales. Percentage of constant dollar sales growth is calculated by translating prior period sales in each local currency at the current period’s average exchange rate for that currency and comparing that to current period sales.
Net Sales
Net sales by channel for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
Change
 
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Retail
 
$
1,887,446

 
$
1,866,279

 
$
1,821,051

 
1
 %
 
2
 %
OEM
 
117,462

 
141,749

 
141,186

 
(17
)
 

Video conferencing
 
109,039

 
120,685

 
137,040

 
(10
)
 
(12
)
Total net sales   
 
$
2,113,947

 
$
2,128,713

 
$
2,099,277

 
(1
)
 
1

Retail:
During fiscal year 2015, retail sales increased 1% and units sold increased 2%, respectively, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar retail sales would have increased 4%. The increase in retail sales is primarily due to triple-digit growth in Mobile Speakers and Video Collaboration, and double-digit growth in Gaming, partially offset by declines in Audio-PC & Wearables, Tablet & Other Accessories, PC webcams and our Non-Strategic categories, compared to fiscal year 2014. Our retail average selling price decreased by 1% during fiscal year 2015 compared to fiscal year 2014.
During fiscal year 2014, retail sales increased 2% and units sold decreased 3%, compared to fiscal year 2013. Retail sales increased in Americas and Asia Pacific and decreased in EMEA during fiscal year 2014, compared to fiscal year 2013. The increase in retail sales is primarily due to triple-digit growth in Mobile Speakers, double-digit growth in Tablets & Other Accessories and Gaming, offset in part by a decline in Audio-PC & Wearables, Video, and our Non-Strategic categories, compared to fiscal year 2013.
OEM:
During fiscal year 2015, OEM sales and units sold decreased 17% and 25%, respectively, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar OEM net sales would have decreased 17%. The decline was primarily due to the continued weakness in global PCs market and loss of volume shares from certain PC manufactures. Given our heightened focus on our growing Retail Strategic business, we plan to exit the OEM business.
During fiscal year 2014, OEM sales and units sold remained flat, compared to fiscal year 2013.

50


Video conferencing:
During fiscal year 2015, video conferencing net sales decreased 10%, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar video conferencing net sales would have decreased 10%. Lifesize is in the process of transitioning its product portfolio to the recently announced Lifesize Cloud, a software-as-a-service (SaaS) offering that provides an affordable, simple and scalable video conferencing solution with little to no need for IT involvement. While sales of the Cloud offering are growing rapidly, they are not yet large enough to offset the combination of the short-term portfolio transition and soft market conditions for video conferencing infrastructure. To align our refocus on Lifesize Cloud offering and transition from Lifesize legacy business, we announced a restructuring plan subsequently in April 2015.
During fiscal year 2014, video conferencing net sales decreased 12%, compared to fiscal year 2013. The decrease primarily resulted from the combination of a changing industry landscape caused by a shift to less expensive, Cloud-based video conferencing solutions, an evolving Lifesize product line and challenges in execution.
Sales Denominated in Other Currencies
Although our financial results are reported in U.S. Dollars, a portion of our sales were generated in currencies other than the U.S. Dollar, such as the Euro, Chinese Renminbi, Japanese Yen, Canadian Dollar, Taiwan Dollar, British Pound and Australian Dollar. During fiscal years 2015, 2014 and 2013, 44%, 45% and 45% of our net sales were denominated in currencies other than the U.S. Dollar, respectively.
Retail Sales by Region
The following table presents the change in retail sales by region for the fiscal year 2015 compared with fiscal year 2014 and fiscal year 2014 compared with fiscal year 2013:
 
 
2015 vs. 2014
 
2014 vs. 2013
Americas
 
8
 %
 
9
 %
EMEA
 
(7
)
 
(4
)
Asia Pacific
 
2

 
2

Americas
During fiscal year 2015, retail sales in Americas increased 8%, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar retail sales would have increased 9% in the Americas. We achieved sales increases in all strategic categories except Audio-PC & Wearables, PC webcams, and Tablets & Other Accessories. This increase was led by triple digit growth in Mobile Speakers mainly from UE BOOM and our recently launched UE MEGABOOM, and triple digit growth in Video Collaboration mainly from our ConferenceCam CC3000e and Webcam C930e.
During fiscal year 2014, retail sales in Americas increased 9%, compared to fiscal year 2013. Retail sales increased in Mobile Speakers, Gaming, Tablet & Other Accessories, Keyboards & Combos and Pointing Devices, partially offset by decreases in Non-Strategic, Audio-PC & Wearables, Home Control, and PC Webcams. The increase in Tablet & Other Accessories was led by sales of our Ultrathin Keyboard Cover for the iPad and from our recently introduced Keyboard Folio suite of products designed for the iPad, iPad mini and iPad Air. The increase in Mobile Speakers was primarily from the UE BOOM. The increase in Gaming was due to the recent launch of our new gaming products. The increase in Keyboards & Combos was driven by low-end, mid-range and high-end products. Retail sales improved in the United States and Canada during fiscal year 2014, compared to fiscal year 2013.
EMEA
During fiscal year 2015, retail sales in EMEA decreased 7%, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar retail sales would have decreased 3% in the EMEA region. Retail sales decreased across all strategic categories except Gaming, Mobile Speakers, Video Collaboration, Home Control and Keyboards and Combos product categories. The decline in sales was heavily impacted by market weakness in Russia and Ukraine. We achieved a triple digit growth in Video Collaboration, and a double digit growth in both Mobile Speakers and Gaming during fiscal year 2015 compared to fiscal year 2014.

51


During fiscal year 2014, retail sales in EMEA decreased 4%, compared to fiscal year 2013. Retail sales decreased in Pointing Devices, PC Webcams, Audio-PC & Wearables, and Non-Strategic, partially offset by increases in Mobile Speakers, Gaming, Tablet & Other Accessories and Home Control. We experienced a significant decrease in Germany due to sales challenges which we overcame in the second half of fiscal year 2014. The decrease in Germany was partially offset by an increase in the United Kingdom.
Asia Pacific
During fiscal year 2015, retail sales in Asia Pacific increased 2%, compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar retail sales would have increased 4% in the Asia Pacific region. We achieved triple digit growths in both Mobile Speakers and Video Collaboration, partially offset by the decline in Tablets & Other Accessories, Audio - PC Wearables, and Non-Strategic.
During fiscal year 2014, retail sales in Asia Pacific increased 2%, compared to fiscal year 2013. Retail sales increased in Mobile Speakers, Gaming, Tablet & Other Accessories and Remotes, partially offset by decreases in Non-Strategic, Audio- PC & Wearables, Video, and Pointing Devices and PC keyboards & Desktops. In addition, retail sell-through in Asia Pacific increased 2% during fiscal year 2014, compared to fiscal year 2013.
Net Sales by Product Categories and Sales Channels
Net sales by product categories and sales channels for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
Change
 
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Peripherals:
 
 
 
 

 
 

 
 

 
 

Mobile Speakers
 
$
178,038

 
$
87,414

 
$
33,408

 
104
 %
 
162
 %
Gaming
 
211,911

 
186,926

 
144,512

 
13

 
29

Video Collaboration
 
62,215

 
29,058

 
18,700

 
114

 
55

Tablet & Other Accessories
 
140,994

 
172,484

 
119,856

 
(18
)
 
44

Growth
 
593,158

 
475,882

 
316,476

 
25

 
50

Pointing Devices
 
487,210

 
506,884

 
521,083

 
(4
)
 
(3
)
Keyboards & Combos
 
426,117

 
415,314

 
399,144

 
3

 
4

Audio-PC & Wearables
 
213,496

 
250,037

 
289,313

 
(15
)
 
(14
)
PC Webcams
 
96,680

 
113,791

 
137,292

 
(15
)
 
(17
)
Home Control
 
68,060

 
67,371

 
71,641

 
1

 
(6
)
Profit Maximization
 
1,291,563

 
1,353,397

 
1,418,473

 
(5
)
 
(5
)
Retail Strategic Sales (1)
 
1,884,721

 
1,829,279

 
1,734,949

 
3

 
5

Non-Strategic
 
2,725

 
37,000

 
86,102

 
(93
)
 
(57
)
OEM
 
117,462

 
141,749

 
141,186

 
(17
)
 

 
 
2,004,908

 
2,008,028

 
1,962,237

 

 
2

Video Conferencing
 
109,039

 
120,685

 
137,040

 
(10
)
 
(12
)
 
 
$
2,113,947

 
$
2,128,713

 
$
2,099,277

 
(1
)
 
1

__________________________________________
(1) Certain products within the retail product families presented in prior years have been reclassified to conform to the current year presentation. There's no impact over total net retail sales.
Retail Strategic Sales
During fiscal year 2015, retail strategic sales increased 3% compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar retail strategic sales would have increased 6%.
During fiscal year 2014, retail strategic sales increased 5% compared to fiscal year 2013.

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Retail Strategic - Growth Categories:
Mobile Speakers
Our retail Mobile Speakers category products are portable Bluetooth wireless speakers.
During fiscal year 2015, retail sales of Mobile Speakers increased 104% and units sold increased 99%, compared to fiscal year 2014. The sales increased significantly across our all three regions, with a triple digit growth in both Americas and Asia Pacific regions, are primarily due to strong demand for the UE BOOM, which is our top revenue generating wireless speaker and experienced a triple digit growth in fiscal year 2015, compared to fiscal year 2014. The successful launch of UE MEGABOOM during the fourth quarter of fiscal year 2015 contributed 6% of total Mobile Speakers sales for fiscal year 2015.
During fiscal year 2014, retail sales of Mobile Speakers increased 162% and units sold increased 88%, compared to fiscal year 2013. The 162% increase in our wireless speakers for smartphones and tablets was driven by a strong demand primarily for the UE BOOM. Our top revenue-generating wireless speaker products during fiscal year 2014 included the UE BOOM and the UE Mini BOOM.
Gaming
Our retail Gaming category comprises gaming mice, keyboards, headsets, gamepads and steering wheels.
During fiscal year 2015, retail sales of Gaming increased 13% and units sold increased 21%, compared to fiscal year 2014. This growth was primarily from gaming headsets and gaming mice due to the launch of our new gaming products, including mice, keyboards and headsets. New products made up 12% of total Gaming revenue for fiscal year 2015. Our top revenue-generating Gaming products included the Logitech G502 Proteus Core, the Logitech G27 Racing Wheel, the Logitech G930 Wireless Gaming Headset, and the G430 Cordless Mice.
During fiscal year 2014, retail sales of Gaming increased 29% and units sold increased 24%, compared to fiscal year 2013. This growth was primarily due to the recent launch of our new gaming products, including mice, keyboards and headsets. New products made up 23% of total Gaming revenue for fiscal year 2014. Our top revenue-generating Gaming products included the Logitech G27 Racing Wheel, the Logitech G930 Wireless Gaming Headset, the G500s Laser Gaming Mouse, the G700s Rechargeable Gaming Mouse, and the G710+ Mechanical Gaming Keyboard.
Video Collaboration
Our retail Video Collaboration category primarily includes video products and certain headset products that can connect small and medium sized user groups.
During fiscal year 2015, retail sales of Video Collaboration increased 114% and units sold increased 49%, compared to fiscal year 2014. The sales increased significantly across all products in this category was primarily driven by the success of the Logitech ConferenceCam CC3000e and Logitech ConferenceCam C930e.
During fiscal year 2014, retail sales of Video Collaboration increased 55% and units sold increased 33%, compared to fiscal year 2013. The significant increase in sales across all products in this category was primarily driven by the success of the Logitech Webcam C930e.
Tablet & Other Accessories
Our retail Tablet & Other Accessories category comprises keyboards and covers for tablets and smartphones as well as other accessories for mobile devices.
During fiscal year 2015, retail sales of Tablet & Other Accessories decreased 18% and units sold decreased 5%, compared to fiscal year 2014. The reduction in sales, primarily from tablet keyboards, reflects the combination of a declining demand for iPad tablet platform and increased competition, partially offset by sales growth with our tablet covers for the iPad.
During fiscal year 2014, retail sales of Tablet & Other Accessories increased 44% and units sold increased 87%, compared to fiscal year 2013. The increase was driven by demand for the Logitech Ultrathin Keyboard Cover for the iPad, as well as strong sales from recently introduced products such as the Logitech Ultrathin Keyboard Cover for the iPad Mini and from the Logitech Keyboard Folio suite of products designed for the iPad, iPad mini, and iPad Air. The faster growth in unit shipments reflected the broadening of our portfolio to address a larger portion of the tablet accessory market, including tablet cases.

53


Retail Strategic - Profit Maximization Categories:
Pointing Devices
Our retail Pointing Devices category comprises PC and Mac-related mice, touchpads and presenters.
During fiscal year 2015, retail sales of Pointing Devices decreased 4% and units sold increased 2%, compared to fiscal year 2014. The decrease in retail sales was primarily due to the continued weakness in the global PC market. The decrease was primarily from our high-end product offerings, which decreased 12%, followed by our low-end product offerings which decreased 5%, partially offset by our mid-range product offerings which increased 1%. Retail sales of corded mice decreased 4% and units sold remained flat. Retail sales of cordless mice decreased 5% and units sold increased 2%.
During fiscal year 2014, retail sales of Pointing Devices decreased 3% and units sold decreased 1%, compared to fiscal year 2013. The decrease in retail sales was primarily due to the continued weakness in the global PC market. The decrease was primarily from our high-end product offerings, which decreased 14%, followed by our mid-range product offerings, which decreased 6%, and our low-end product offerings increased by 1%. Retail sales of corded mice decreased 9% and units sold decreased 10%. Retail sales of cordless mice decreased 1% and units sold increased 4%.
Keyboards & Combos
Our retail Keyboards & Combos category comprises PC keyboards and keyboard/mice combo products.
During fiscal year 2015, retail sales of Keyboards & Combos increased 3% and units sold increased 7%, compared to fiscal year 2014. The sales increase was primarily due to sales increase in our corded and cordless combos. Retail sales of corded and cordless combos increased 19% and 6%, respectively, and units sold increased 25% and 10%, respectively. Our best selling products in this category were the Logitech Wireless Combo MK270 and Wireless Combo MK520, which feature powerful and reliable wireless connections and plug-and-play simplicity. Retail sales of corded and cordless keyboards decreased 9% and 7%, respectively, and units sold decreased 4% and 3%, respectively.
During fiscal year 2014, retail sales of Keyboards & Combos increased 4% and units sold decreased 1%, compared to fiscal year 2013. The sales increase was primarily due to sales increase in our corded and cordless combo. Our best selling product in this category was the Wireless Touch Keyboard K400, which features an integrated touchpad and has been popular for use in the living room. Retail sales of corded and cordless keyboards decreased 17% and 5%, respectively, and units sold decreased 21% and 6%, respectively. Retail sales of corded and cordless combos increased 3% and 7%, respectively, and units sold decreased 1% and increased 10%, respectively.
Audio-PC & Wearables
Our retail Audio-PC & Wearables category comprises PC speakers, PC headsets and in-ear headphones.
During fiscal year 2015, retail sales of Audio-PC decreased 15% and units sold decreased 10%, compared to fiscal year 2014. The decrease was primarily due to decreases in PC speaker retail sales, reflecting a category that appears to be in structural decline as music consumption continues to migrate to mobile platforms, which benefits our mobile speaker product category. Retail sales of our headset products decreased 4% and units decreased 6%. Retail sales of our Wearables products declined 35%.
During fiscal year 2014, retail sales of Audio-PC decreased 14% and units sold decreased 17%, compared to fiscal year 2013. The decrease was primarily due to decreases in PC speaker retail sales of 10% and units sold of 11%. These decreases reflect both a weakness in the overall market for new PCs and a market shift toward mobile audio devices. Retail sales of our Wearables products declined 39%, as we phased out the headphone category.
PC Webcams
Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.
During fiscal year 2015, retail sales of PC Webcams decreased 15% and units sold decreased 18%, compared to fiscal year 2014. The weak sales reflect the ongoing structural decline of the consumer webcam market, which continues to contract.

54


During fiscal year 2014, retail sales of PC Webcams decreased 17% and units sold decreased 28%, compared to fiscal year 2013. The decrease was due to weakness in our consumer webcam product line, which continued to be negatively impacted by the combination of market trends, including the popularity of embedded webcams in mobile devices, and the overall weakness of the PC market.
Home Control
Our retail Home Control category comprises our Harmony remotes and recently-launched, new Harmony Home Control.
During fiscal year 2015, retail sales of Remotes increased 1% and units sold increased 22%, compared to fiscal year 2014. The increase in Home Control was primarily concentrated in our mid-range and low-end products, partially offset by decreases in our high-end products. New products contributed to 17% of total retail sales of Home Control for fiscal year 2015.
During fiscal year 2014, retail sales of Home Control decreased 6% and units sold decreased 23%, compared to fiscal year 2013. The decrease in Home Control was primarily concentrated in our high-end and low-end products, partially offset by increases in our mid-range product lines.
Non-Strategic
This category comprises a variety of products that we currently intend to transition out of, or have already transitioned out of, because they are no longer strategic to our business. Products currently included in this category include TV camera, Digital Video Security, TV and home speakers, Google TV products, Keyboard/Desktop accessories, and music docks.
During fiscal year 2015, retail sales of this category decreased 93%, compared to fiscal year 2014. During fiscal year 2014, retail sales of this category decreased 57%, compared to fiscal year 2013.
OEM
During fiscal year 2015, OEM sales and units sold decreased 17% and 25%, respectively, compared to fiscal year 2014. This decrease was primarily due to weak mice sales which was expected as we elected not to participate in lower margin opportunities with several customers. We plan to exit the OEM business as we see limited opportunities for profitable growth.
During fiscal year 2014, OEM sales and units sold remained flat compared to fiscal year 2013.
Video Conferencing
During fiscal year 2015, video conferencing sales decreased 10% compared to fiscal year 2014. If currency exchange rates had been constant in 2015 and 2014, our constant dollar video conferencing net sales would have decreased 10%. Lifesize is in the process of transitioning its product portfolio to the recently announced Lifesize Cloud, a software-as-a-service (SaaS) offering that provides an affordable, simple and scalable video conferencing solution with little to no need for IT involvement. While sales of the Cloud offering are growing rapidly, they are not yet large enough to offset the combination of the short-term portfolio transition and soft market conditions for video conferencing infrastructure. We recently decided to reorganize Lifesize with the goal of de-emphasizing Lifesize’s legacy offerings more quickly to enable maximum traction with Lifesize Cloud. We plan to shrink our Lifesize business to grow the Cloud opportunity faster.
During fiscal year 2014, video conferencing sales decreased 12% compared to fiscal year 2013. The decrease was primarily due to a combination of a changing industry landscape caused by a shift to less expensive, Cloud-based video conferencing solutions, an evolving Lifesize product line and challenges in execution experienced in all geographic regions.

55


Gross Profit
Gross profit for fiscal years 2015, 2014 and 2013 was as follows (in thousands):
 
 
Years Ended March 31,
 
Change
 
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Net sales
 
$
2,113,947

 
$
2,128,713

 
$
2,099,277

 
(1
)%
 
1
%
Cost of goods sold
 
1,339,750

 
1,400,844

 
1,389,643

 
(4
)
 
1

Gross profit
 
$
774,197

 
$
727,869

 
$
709,634

 
6

 
3

Gross margin
 
36.6
%
 
34.2
%
 
33.8
%
 


 


Gross profit consists of net sales, less cost of goods sold, which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, costs of purchasing components from outside suppliers, distribution costs, shipping and handling cost, outside processing costs, write-down of inventories and amortization of intangible assets.
The increase in gross margin during fiscal year 2015, compared to fiscal year 2014, primarily resulted from a 0.5% improvement attributable to cost reduction initiatives across the Pointing Devices, Keyboards & Combos and Mobile Speakers product categories, a 0.5% improvement attributable to exiting non-strategic product categories, a 0.7% improvement attributable to the combination of a $5.8 million reduction in amortization of other intangible assets and a $5.2 million prior year discontinued products write off, and a 0.5% improvement attributable to lower inventory reserves in fiscal year 2015 that was partially offset by a higher percentage of air shipments in fiscal 2015.
The increase in gross margin during fiscal year 2014, compared to fiscal year 2013, was primarily due to cost improvements across all PC-related categories, actions we took since fiscal year 2013 to streamline our product portfolio, inventory reserves of several discontinued Music category products and the discontinuation of projects in 2013 due to restructuring.
Operating Expenses
Operating expenses for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
Change
 
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
Marketing and selling
 
$
378,593

 
$
379,747

 
$
431,886

 
 %
 
(12
)%
% of net sales
 
17.9
 %
 
17.8
%
 
20.6
%
 
 

 
 

Research and development
 
131,012

 
139,385

 
155,012

 
(6
)
 
(10
)
% of net sales
 
6.2
 %
 
6.5
%
 
7.4
%
 
 

 
 

General and administrative
 
131,446

 
118,940

 
114,381

 
11

 
4

% of net sales
 
6.2
 %
 
5.6
%
 
5.4
%
 
 

 
 

Impairment of goodwill and other assets
 
122,734

 

 
216,688

 
NM

 
(100
)
% of net sales
 
5.8
 %
 
%
 
10.3
%
 
 

 
 

Restructuring charges (Credits), net
 
(4,888
)
 
13,811

 
43,704

 
(135
)
 
(68
)
% of net sales
 
(0.2
)%
 
0.6
%
 
2.1
%
 
 

 
 

Total operating expenses
 
$
758,897

 
$
651,883

 
$
961,671

 
16

 
(32
)
% of net sales
 
35.9
 %
 
30.6
%
 
45.8
%
 
 

 
 

__________________________________________
NM—Not Meaningful.
The increase in total operating expenses during fiscal year 2015, compared to fiscal year 2014, was primarily due to a goodwill impairment charge of $122.7 million relating to our video conferencing reporting unit and $23.7 million in expense related to the Audit Committee's Independent investigation during fiscal 2015, partially offset by a restructuring credit of $4.9 million during fiscal year 2015 resulting from partial lease termination of our Silicon Valley campus, which was previously vacated and under a restructuring plan during fiscal year 2014, as opposed to a restructuring charge of $13.8 million during fiscal year 2014.

56


The decrease in total operating expenses during fiscal year 2014, compared to fiscal year 2013, was primarily due to the $216.7 million impairment of goodwill and other assets recorded in fiscal year 2013, combined with the restructuring plans initiated in fiscal year 2013, which reduced personnel-related expenses in fiscal year 2014 as well as resulted in a $30.0 million decrease in restructuring expenses in fiscal 2013.
Marketing and Selling
Marketing and selling expense consists of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, customer and technical support and facilities costs.
During fiscal year 2015, marketing and selling expense remained flat compared to fiscal year 2014.
During fiscal year 2014, marketing and selling expense decreased 12%, compared to fiscal year 2013. The decrease was primarily due to $15 million lower personnel-related expenses from the workforce reduction in video conferencing reporting unit as a result of the restructuring plan initiated during fiscal 2014 and $24 million lower advertising and marketing costs related to the launch of new Music category in fiscal year 2013.
Research and Development
Research and development expense consists of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.
During fiscal year 2015, research and development expense decreased 6%, compared to fiscal year 2014. The decrease was primarily due to $2.8 million lower personnel-related expenses from the workforce reduction in the video conferencing reporting unit as a result of the restructuring plan initiated during fiscal year 2014, $1.3 million decrease in stock-based compensation expense due to fewer grants during fiscal year 2015, and $1.6 million savings from depreciation and amortization expense.
During fiscal year 2014, research and development expense decreased 10%, compared to fiscal year 2013. The decrease was primarily due to $6 million lower personnel-related expenses from the workforce reduction in video conferencing reporting unit as a result of the plan initiated during fiscal 2014 and $9 million lower design and development cost related to the launch of the new Music category in fiscal 2013.
General and Administrative
General and administrative expense consists primarily of personnel and related overhead and facilities costs for the finance, information systems, executives, human resources and legal functions.
During fiscal year 2015, general and administrative expense increased 11% compared to fiscal year 2014. The increase was primarily due to $23.7 million in expense related to the Audit Committee Independent investigation and related expenses, partially offset by infrastructure cost savings such as $6.5 million decrease in information technology costs, including third party vendor cost, and $6.1 million decrease in facility expense as a result of the consolidation of properties.
During fiscal year 2014, general and administrative expense increased 4%, compared to fiscal year 2013. The increase was primarily due to an $8 million increase in personnel-related expenses due to higher variable compensation costs related to our improved performance and share-based compensation expense, partially offset by a $4 million decrease in facility related expenses due to our restructuring plans initiated in fiscal year 2013.
Impairment of Goodwill and Other Assets
We recorded an impairment charge of goodwill of $122.7 million related to our video conferencing reporting unit in fiscal year 2015, and therefore the goodwill of video conferencing reporting unit is reduced to zero as of March 31, 2015. There was no impairment of goodwill and other assets for fiscal year 2014. We recorded an impairment charge of goodwill and other assets of $216.7 million primarily related to the video conferencing reporting unit in fiscal year 2013.

57


Restructuring Charges
The following table summarizes restructuring-related activities during the years ended March 31, 2015, 2014 and 2013 (in thousands):
 
 
Restructuring
 
 
Termination
Benefits
 
Lease Exit
Costs
 
Total
Accrual balance at March 31, 2013
 
$
13,383

 
$
75

 
$
13,458

Charges
 
6,463

 
7,348

 
13,811

Adjustment for deferred rent
 

 
1,450

 
1,450

Cash payments
 
(19,534
)
 
(1,454
)
 
(20,988
)
Currency exchange impact
 
(170
)
 

 
(170
)
Accrual balance at March 31, 2014
 
142

 
7,419

 
7,561

Credits
 
(86
)
 
(4,802
)
 
(4,888
)
Cash payments
 
(56
)
 
(1,578
)
 
(1,634
)
Accrual balance at March 31, 2015
 
$

 
$
1,039

 
$
1,039

During the second quarter of fiscal year 2014, we implemented a restructuring plan solely affecting our video conferencing operating segment to align our organization to our strategic priorities of increasing focus on a tighter range of products, and improving profitability. Restructuring charges under this plan primarily consist of severance and other one-time termination benefits. During fiscal year 2014, restructuring charges under this plan included $5.0 million in termination benefits and $0.6 million in lease exit costs. We substantially completed this restructuring plan by March 31, 2014.
During the fourth quarter of fiscal year 2013, we implemented a restructuring plan to align our organization to our strategic priorities of increasing focus on mobility products, improving profitability in PC-related products and enhancing global operational efficiencies. As part of this restructuring plan, we reduced our worldwide non-direct labor workforce. Restructuring charges under this plan primarily consisted of severance and other one-time termination benefits. During fiscal year 2015, we recorded $4.9 million restructuring credits as a result of partial termination of our lease agreement for the Silicon Valley campus, which was partially vacated during fiscal year 2014. During fiscal year 2014, restructuring charges under this plan included $1.5 million in termination benefits and $6.7 million in lease exit costs, $5.4 million of which pertains to the consolidation of our Silicon Valley campus from two buildings down to one during the quarter ended March 31, 2014. We substantially completed this restructuring plan by the fourth quarter of fiscal year 2014.
Interest Income (Expense), Net
Interest income and expense for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
 
2015
 
2014
 
2013
Interest income
 
$
1,225

 
$
1,831

 
$
2,215

Interest expense
 

 
(2,228
)
 
(1,308
)
 
 
$
1,225

 
$
(397
)
 
$
907

Interest expense decreased during fiscal year 2015, compared to fiscal year 2014. The decrease was primarily due to the termination of our $250 million Senior Revolving Credit Facility during fiscal year 2014. There were no new borrowings since then.
Interest expense increased during fiscal year 2014, compared to fiscal year 2013. The increase was primarily due to the write-off of $1.0 million capitalized deferred loan fees related to our $250.0 million Senior Revolving Credit Facility which we chose to terminate during fiscal year 2014.

58


Other Income (Expense), Net
Other income and expense for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
 
2015
 
2014
 
2013
Investment income related to deferred compensation plan
 
$
1,055

 
$
1,487

 
$
933

Gain on sale of securities
 

 

 
831

Impairment of investments
 
(2,298
)
 
(624
)
 
(3,600
)
Currency exchange gain (loss), net
 
(1,280
)
 
62

 
104

Other
 
(229
)
 
1,068

 
(466
)
 
 
$
(2,752
)
 
$
1,993

 
$
(2,198
)
Investment income for fiscal years 2015, 2014 and 2013 represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.
The $2.3 million, $0.6 million and $3.6 million investment impairment charges in fiscal years 2015, 2014 and 2013, respectively, primarily resulted from the write-down of investments in privately-held companies.
During fiscal year 2013, we sold two available-for-sale securities with a total carrying value of $0.4 million and a total par value of $15.2 million for $0.9 million. This sale resulted in a $0.8 million gain recognized in other income (expense), net, $0.3 million of which resulted from the recognition of a temporary increase in fair value previously recorded in accumulated other comprehensive loss. Following the sales in fiscal year 2013, we have not held any available for sale securities.
Currency exchange gains or losses relate to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and to gains or losses recognized on foreign exchange forward contracts. We do not speculate in currency positions, but we are alert to opportunities to maximize foreign exchange gains and minimize foreign exchange losses.
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes and the effective income tax rate for fiscal years 2015, 2014 and 2013 were as follows (in thousands):
 
 
Years Ended March 31,
 
 
2015
 
2014
 
2013
Provision for (benefit from) income taxes
 
$
4,490

 
$
3,278

 
$
(25,810
)
Effective income tax rate
 
32.6
%
 
4.2
%
 
10.2
%
The change in the effective income tax rate between fiscal year 2015 and 2014 was primarily due to the non-tax deductible goodwill impairment charge of $122.7 million during fiscal year 2015, the mix of income and losses in the various tax jurisdictions in which we operate and a tax benefit of $16.4 million during fiscal year 2015, related to the reversal of uncertain tax positions resulting from the expiration of the statutes of limitations and the closure of tax examination in the state of California of the United States. The effective income tax rate excluding the goodwill impairment charge in fiscal year 2015 is 3.3%. In fiscal year 2014, there was a tax benefit of $14.3 million related to the reversal of uncertain tax positions resulting from the expiration of the statutes of limitations.
The change in the effective income tax rate between fiscal year 2014 and 2013 was primarily due to the mix of income and losses in the various tax jurisdictions and a tax benefit of $14.3 million during fiscal year 2014, related to the reversal of uncertain tax positions resulting from the expiration of the statutes of limitations. In fiscal year 2013, there was a tax benefit of $35.6 million related to the reversal of uncertain tax positions resulting from the closure of federal income tax examinations in the United States.
On December 19, 2014, the enactment of the Tax Increase Prevention Act of 2014 in the United States extended the federal research and development tax credit through December 31, 2014 which had previously expired on December 31, 2013. The provision for income taxes for fiscal year ended March 31, 2015 reflected a $0.9 million tax benefit as a result of the extension of the tax credit.

59


As of March 31, 2015 and March 31, 2014, the total amount of unrecognized tax benefits due to uncertain tax positions was $79.0 million and $91.0 million, respectively, of which $79.0 million and $86.1 million would affect the effective income tax rate if recognized, respectively.
As of March 31, 2015, we had $72.1 million in non-current income taxes payable and $0.1 million in current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions. As of March 31, 2014, we had $93.1 million in non-current income taxes payable and $0.3 million in current income taxes payable. Pursuant to ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which became effective in the first quarter of fiscal year 2015, we reclassified $10.3 million of unrecognized tax benefits previously presented as non-current income taxes payable to a reduction in non-current deferred tax assets primarily for tax credit carryforwards.
We continue to recognize interest and penalties related to unrecognized tax positions in income tax expense. We recognized $0.8 million, $1.1 million and $1.0 million in interest and penalties in income tax expense during fiscal years 2015, 2014 and 2013, respectively. As of March 31, 2015, 2014 and 2013, we had approximately $4.9 million, $5.6 million and $6.6 million of accrued interest and penalties related to uncertain tax positions.
We file Swiss and foreign tax returns. We received final tax assessments in Switzerland through fiscal year 2012. For other foreign jurisdictions such as the United States, we are generally not subject to tax examinations for years prior to fiscal year 2011. We are under examination and have received assessment notices in foreign tax jurisdictions. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on our results of operations.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
At March 31, 2015, we had cash and cash equivalents of $537.0 million, compared with $469.4 million at March 31, 2014. Our cash and cash equivalents consist of bank demand deposits and short-term time deposits of which 81% is held by our Swiss-based entities and 11% is held by our subsidiaries in Hong Kong and China. We do not expect to incur any material adverse tax impact or be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.
At March 31, 2015, our working capital was $557.1 million compared with working capital of $478.2 million at March 31, 2014. The increase in working capital over the prior year was primarily due to higher cash and inventory balances, partially offset by higher accounts payable balances at March 31, 2015.
During fiscal year 2015, we generated $178.6 million cash from operating activities. Our main sources of operating cash flows were from net income after adding back non-cash expenses of depreciation, amortization, impairment of goodwill and share-based compensation expense, and from an increase in accounts payable, partially offset by increases in inventories and accounts receivable and a decrease in accrued and other liabilities. Net cash used in investing activities was $48.3 million, primarily for purchase of property, plant, and equipment of $45.3 million and investments in privately held companies of $2.6 million. Net cash used in financing activities was $48.9 million, primarily for the $43.8 million cash dividend payment, $9.2 million tax withholdings related to net share settlements of restricted stock units, partially offset by $4.1 million in proceeds received from the sale of shares upon exercise of options and purchase rights.
We had several uncommitted, unsecured bank lines of credit aggregating to $38.1 million as of March 31, 2015. There are no financial covenants under these lines of credit which we must comply with. As of March 31, 2015, we had outstanding bank guarantees of $5.1 million under these lines of credit. There are no financial covenants under these credit lines.

60


The following table summarizes our Consolidated Statements of Cash Flows (in thousands):
 
 
Years Ended March 31,
 
 
2015
 
2014
 
2013
Net cash provided by operating activities
 
$
178,632

 
$
205,421

 
$
122,389

Net cash used in investing activities
 
(48,289
)
 
(46,803
)
 
(57,723
)
Net cash used in financing activities
 
(48,854
)
 
(22,681
)
 
(207,641
)
Effect of exchange rate changes on cash and cash equivalents
 
(13,863
)
 
(349
)
 
(1,571
)
Net increase (decrease) in cash and cash equivalents
 
$
67,626

 
$
135,588

 
$
(144,546
)
Cash Flow from Operating Activities
The following table presents selected financial information and statistics for fiscal years 2015, 2014 and 2013 (dollars in thousands):
 
 
March 31,
 
 
2015
 
2014
 
2013
Accounts receivable, net
 
$
179,823

 
$
182,029

 
$
178,959

Inventories
 
270,730

 
222,402

 
262,644

Working capital
 
557,113

 
478,213

 
385,073

Days sales in accounts receivable ("DSO")(Days)(1)
 
35

 
34

 
34

Inventory turnover ("ITO")(x)(2)
 
4.6

 
5.9

 
4.7

______________________________