UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

Or

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

For the Transition Period from                to                

Commission File Number: 0-29174

LOGITECH INTERNATIONAL S.A.

(Exact name of registrant as specified in its charter)

Canton of Vaud,	Switzerland	None
(State or other jurisdiction   of incorporation or organization)		(I.R.S. Employer Identification No.)

Logitech International S.A.

EPFL - Quartier de l'Innovation

Daniel Borel Innovation Center

1015 Lausanne, Switzerland

c/o Logitech Inc.

7700 Gateway Boulevard

Newark, California 94560

(Address of principal executive offices and zip code)

510 795-8500

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ý  No  o

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

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

Large Accelerated Filer	ý	Smaller reporting company	☐
Accelerated filer	☐	Emerging Growth Company	☐
Non-accelerated filer	☐

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

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

As of July 10, 2019, there were 166,464,628 shares of the Registrant’s share capital outstanding.

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TABLE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months ended June 30, 2019 and 2018	5
	Condensed Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019	6
	Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2019 and 2018	7
	Condensed Consolidated Statements of Changes in Shareholder's Equity for the Three Months ended June 30, 2019 and 2018	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibit Index	55
Signatures

Exhibits

In this document, unless otherwise indicated, references to the “Company”, “Logitech”, "we," "our," and "us" are to Logitech International S.A. and its consolidated subsidiaries. Unless otherwise specified, all references to U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America. All references to CHF are to the Swiss Franc, the legal currency of Switzerland.

Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.

The Company’s fiscal year ends on March 31. Interim quarters are generally thirteen-week periods, each ending on a Friday of each quarter. The first quarter of fiscal year 2020 ended on June 28, 2019. The same quarter in the prior fiscal year ended on June 29, 2018. For purposes of presentation, the Company has indicated its quarterly periods end on the last day of the calendar quarter.

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

Our Internet website and the information contained, incorporated or referenced therein do not constitute a part of and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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PART I — FINANCIAL INFORMATION 

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED) 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,
	2019		2018
Net sales	$	644,225	$	608,480
Cost of goods sold	401,978		382,171
Amortization of intangible assets and purchase accounting effect on inventory	3,271		2,372
Gross profit	238,976		223,937
Operating expenses:
Marketing and selling	123,033		114,584
Research and development	42,243		38,987
General and administrative	22,159		25,473
Amortization of intangible assets and acquisition-related costs	3,596		2,521
Restructuring charges, net	478		9,921
Total operating expenses	191,509		191,486
Operating income	47,467		32,451
Interest income	2,553		2,369
Other income (expense), net	1,861		(1,571		)
Income before income taxes	51,881		33,249
Provision for (benefit from) income taxes	6,536		(5,217		)
Net income	$	45,345	$	38,466
Net income per share:
Basic	$	0.27	$	0.23
Diluted	$	0.27	$	0.23
Weighted average shares used to compute net income per share:
Basic	166,302		165,317
Diluted	168,797		168,756

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Three Months Ended June 30,
	2019			2018
Net income	$	45,345		$	38,466
Other comprehensive income (loss):
Currency translation loss, net of taxes	(278		)	(4,963		)
Defined benefit plans:
Net loss and prior service costs, net of taxes	(311		)	(94		)
Amortization included in other income (expense), net	53			(70		)
Hedging gain (loss):
Deferred hedging gain (loss), net of taxes	(943		)	187
Reclassification of hedging loss (gain) included in cost of goods sold	(226		)	2,851
Total other comprehensive income (loss)	(1,705		)	(2,089		)
Total comprehensive income	$	43,640		$	36,377

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

	June 30, 2019			March 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	596,956		$	604,516
Accounts receivable, net	418,816			383,309
Inventories	297,007			293,495
Other current assets	68,927			69,116
Total current assets	1,381,706			1,350,436
Non-current assets:
Property, plant and equipment, net	76,713			78,552
Goodwill	343,702			343,684
Other intangible assets, net	112,132			118,999
Other assets	173,448			132,453
Total assets	$	2,087,701		$	2,024,124
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	338,748		$	283,922
Accrued and other current liabilities	394,675			433,897
Total current liabilities	733,423			717,819
Non-current liabilities:
Income taxes payable	36,133			36,384
Other non-current liabilities	120,111			93,582
Total liabilities	889,667			847,785
Commitments and contingencies (Note 10)
Shareholders’ equity:
Registered shares, CHF 0.25 par value:	30,148			30,148
Issued shares — 173,106 at June 30 and March 31, 2019
Additional shares that may be issued out of conditional capitals — 50,000 at June 30 and March 31, 2019
Additional shares that may be issued out of authorized capital — 34,621 at June 30 and March 31, 2019
Additional paid-in capital	35,048			56,655
Shares in treasury, at cost — 6,642 at June 30, 2019 and 7,244 at March 31, 2019	(170,140		)	(169,802		)
Retained earnings	1,410,381			1,365,036
Accumulated other comprehensive loss	(107,403		)	(105,698		)
Total shareholders’ equity	1,198,034			1,176,339
Total liabilities and shareholders’ equity	$	2,087,701		$	2,024,124

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Three Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	45,345		$	38,466
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	10,802			10,699
Amortization of intangible assets	6,867			4,893
Loss (gain) on investments	(211		)	13
Share-based compensation expense	12,218			13,259
Deferred income taxes	(3,381		)	(9,659		)
Other	(4		)	124
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(34,264		)	(68,557		)
Inventories	(2,681		)	(18,200		)
Other assets	(5,387		)	(4,225		)
Accounts payable	55,592			51,188
Accrued and other liabilities	(48,380		)	(5,719		)
Net cash provided by operating activities	36,516			12,282
Cash flows from investing activities:
Purchases of property, plant and equipment	(9,340		)	(8,744		)
Investment in privately held companies	(170		)	(225		)
Acquisitions, net of cash acquired	—			(243		)
Purchases of trading investments	(1,155		)	(2,500		)
Proceeds from sales of trading investments	1,196			2,867
Net cash used in investing activities	(9,469		)	(8,845		)
Cash flows from financing activities:
Purchases of registered shares	(15,127		)	(9,982		)
Proceeds from exercises of stock options and purchase rights	393			1,104
Tax withholdings related to net share settlements of restricted stock units	(19,370		)	(25,081		)
Net cash used in financing activities	(34,104		)	(33,959		)
Effect of exchange rate changes on cash and cash equivalents	(503		)	(7,309		)
Net decrease in cash and cash equivalents	(7,560		)	(37,831		)
Cash and cash equivalents, beginning of the period	604,516			641,947
Cash and cash equivalents, end of the period	$	596,956		$	604,116
Supplementary Cash Flow Disclosures:
Non-cash investing activities:
Property, plant and equipment purchased during the period and included in period end liability accounts	$	3,580		$	4,831

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

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LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

				Additional Paid-in Capital											Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Registered Shares						Treasury Shares					Retained Earnings
	Shares	Amount					Shares		Amount
March 31, 2018	173,106	$	30,148	$	47,234		8,527		$	(165,686	)	$	1,232,316		$	(93,455	)	$	1,050,557
Cumulative effect of adoption of new accounting standard	—	—		—			—		—			(10,882		)	—			(10,882		)
Total comprehensive income	—	—		—			—		—			38,466			(2,089		)	36,377
Purchases of registered shares	—	—		—			255		(9,982		)	—			—			(9,982		)
Sales of shares upon exercise of stock options and purchase rights	—	—		439			(49	)	665			—			—			1,104
Issuance of shares upon vesting of restricted stock units	—	—		(41,747		)	(1,200	)	16,666			—			—			(25,081		)
Share-based compensation	—	—		13,167			—		—			—			—			13,167
June 30, 2018	173,106	$	30,148	$	19,093		7,533		$	(158,337	)	$	1,259,900		$	(95,544	)	$	1,055,260

				Additional Paid-in Capital										Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Registered Shares						Treasury Shares					Retained Earnings
	Shares	Amount					Shares		Amount
March 31, 2019	173,106	$	30,148	$	56,655		7,244		$	(169,802	)	$	1,365,036	$	(105,698	)	$	1,176,339
Total comprehensive income	—	—		—			—		—			45,345		(1,705		)	43,640
Purchases of registered shares	—	—		—			389		(15,127		)	—		—			(15,127		)
Sales of shares upon exercise of stock options and purchase rights	—	—		8			(25	)	385			—		—			393
Issuance of shares upon vesting of restricted stock units	—	—		(33,774		)	(966	)	14,404			—		—			(19,370		)
Share-based compensation	—	—		12,159			—		—			—		—			12,159
June 30, 2019	173,106	$	30,148	$	35,048		6,642		$	(170,140	)	$	1,410,381	$	(107,403	)	$	1,198,034

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

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LOGITECH INTERNATIONAL S.A.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

The Company

Logitech International S.A, together with its consolidated subsidiaries, ("Logitech" or the "Company") designs, manufactures and markets products that help connect people to digital and cloud experiences. More than 35 years ago, Logitech created products to improve experiences around the personal PC platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating any digital content such as music, gaming, video and computing, whether it is on a computer, mobile device or in the cloud. 

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

Logitech was founded in Switzerland in 1981 and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Apples, Switzerland and headquarters in Lausanne, Switzerland, which conducts its business through subsidiaries in the Americas, Europe, Middle East and Africa ("EMEA") and Asia Pacific. Shares of Logitech International S.A. are listed on both the SIX Swiss Exchange under the trading symbol LOGN and the Nasdaq Global Select Market under the trading symbol LOGI.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and therefore do not include all the information required by GAAP for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2019, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 17, 2019. 

In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary and in all material aspects, for a fair statement of the results of operations, comprehensive income, financial position, cash flows and changes in shareholders' equity for the periods presented. Operating results for the three months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2020, or any future periods.

Changes in Significant Accounting Policies

Other than the recent accounting pronouncements adopted and discussed below under Recent Accounting Pronouncements Adopted and Summary of Significant Accounting Policies, there have been no changes in the Company’s significant accounting policies during the three months ended June 30, 2019 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Significant estimates and assumptions made by management involve the fair value of goodwill, intangible assets acquired from business acquisitions, valuation of operating right-of-use assets, warranty liabilities, accruals for customer incentives, cooperative marketing, and pricing programs (Customer Programs) and related breakage when appropriate, accrued sales return liability, allowance for doubtful accounts, inventory valuation, share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets.

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Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ materially from these estimates.

Recent Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" (ASU 2016-02 or Topic 842), which requires a lessee to recognize right-of-use (ROU) assets and lease liabilities arising from operating and financing leases with terms longer than 12 months on the consolidated balance sheets and to disclose key information about leasing arrangements.

The Company adopted the new standard effective April 1, 2019 and recorded an ROU asset and lease liability related to its operating leases. The Company used the modified retrospective approach with the effective date as the date of initial application. Accordingly, the Company applied the new lease standard prospectively to leases existing or commencing on or after April 1, 2019. Prior period balances and disclosures have not been restated. The Company elected the package of transitional practical expedients, which among other provisions, allows the Company to not reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct cost, for any existing leases on the adoption date. In addition, for operating leases, the Company elected to account for lease and non-lease components as a single lease component. The Company also made an accounting policy election to not recognize lease liabilities and ROU assets on its condensed consolidated balance sheet for leases that, at the lease commencement date, have a lease term of 12 months or less.

Adoption of the standard resulted in the recognition of $31.3 million of ROU assets and $37.4 million of lease liabilities related to the Company's leases on its condensed consolidated balance sheet on April 1, 2019. The difference of $6.1 million represented deferred rent for leases that existed as of the date of adoption, which decreased the opening balance of ROU assets. In addition, the prepaid rent balance as of the date of adoption increased the opening balance of ROU assets. The deferred rent and prepaid rent balances were derecognized as of the date of adoption and no adjustment was made to retained earnings. The adoption of the standard did not have an impact on our condensed consolidated statement of operations, comprehensive income, changes in shareholders' equity or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" (ASU 2018-15), which clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. ASU 2018-15 is effective for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company adopted this standard effective April 1, 2019 using a prospective adoption method. The adoption of ASU 2018-15 did not have a material impact on the Company's condensed consolidated financial statements.

Recent Accounting Pronouncements to be Adopted

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements" (ASU 2018-13), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company does not expect the adoption of ASU 2018-13 will have a material impact on its consolidated financial statements and plans to adopt the standard effective April 1, 2020.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefits Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans" (ASU 2018-14), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures. ASU 2018-14 is effective for annual periods in fiscal years ending after December 15, 2020. Retrospective adoption is required and early

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adoption is permitted. The Company does not expect the adoption of ASU 2018-14 will have a material impact on its consolidated financial statements and plans to early adopt the standard effective April 1, 2020.

Note 2 — Net Income Per Share

The following table summarizes the computations of basic and diluted net income per share for the three months ended June 30, 2019 and June 30, 2018 (in thousands, except per share amounts):

	Three Months Ended June 30,
	2019		2018
Net income	$	45,345	$	38,466
Shares used in net income per share computation:
Weighted average shares outstanding - basic	166,302		165,317
Effect of potentially dilutive equivalent shares	2,495		3,439
Weighted average shares outstanding - diluted	168,797		168,756
Net income per share:
Basic	$	0.27	$	0.23
Diluted	$	0.27	$	0.23

Share equivalents attributable to outstanding stock options, restricted stock units ("RSUs") and employee share purchase rights (ESPP) totaling 2.0 million and 1.5 million for the three months ended June 30, 2019 and 2018, respectively, were excluded from the calculation of diluted net income per share because the combined exercise price and average unamortized grant date fair value upon exercise of these options and ESPP or vesting of RSUs were greater than the average market price of the Company's shares during the periods presented herein, and therefore their inclusion would have been anti-dilutive. Performance-based awards were not included because all necessary conditions have not been satisfied by the end of the respective period, and those shares were not issuable if the end of the reporting period was the end of the contingency period.

Note 3 — Employee Benefit Plans

Employee Share Purchase Plans and Stock Incentive Plans

As of June 30, 2019, the Company offers the 2006 Employee Share Purchase Plan, as amended and restated (Non-U.S.) (2006 ESPP), the 1996 Employee Share Purchase Plan (U.S.), as amended and restated (1996 ESPP), the 2006 Stock Incentive Plan, as amended and restated (2006 Plan), and the 2012 Stock Inducement Equity Plan (2012 Plan).

The following table summarizes the share-based compensation expense and total income tax benefit recognized for share-based awards for the three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,
	2019			2018
Cost of goods sold	$	1,158		$	1,130
Marketing and selling	6,849			5,786
Research and development	2,154			1,549
General and administrative	2,057			4,794
Total share-based compensation expense	12,218			13,259
Income tax benefit	(6,800		)	(9,529		)
Total share-based compensation expense, net of income tax benefit	$	5,418		$	3,730

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

As of June 30, 2019 and 2018, the balance of capitalized share-based compensation included in inventory was $0.9 million and $0.6 million, respectively.

Defined Benefit Plans

Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The costs recorded of $2.4 million and $2.3 million for the three months ended June 30, 2019 and 2018, respectively, were primarily related to service costs.

Note 4 — Income Taxes

The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for (benefit from) income taxes are generated outside of Switzerland.

The income tax provision for the three months ended June 30, 2019 was $6.5 million based on an effective income tax rate of 12.6% of pre-tax income, compared to an income tax benefit of $5.2 million based on an effective income tax rate of (15.7)% of pre-tax income for the three months ended June 30, 2018.

On May 19, 2019, the Swiss electorate approved the Federal Act on Tax Reform and AHV Financing ("TRAF"), a major reform to better align the Swiss tax system with international tax standards. The tax reform is expected to take effect on January 1, 2020. As of June 30, 2019, TRAF has not been enacted as the federal and cantonal legislative procedures are in process.

The change in the effective income tax rate for the three months ended June 30, 2019, compared to the same period ended June 30, 2018, was primarily due to the mix of income and losses in the various tax jurisdictions which the Company operates and the transitional income tax impact in Switzerland. The Company has benefited from a longstanding tax ruling from the canton of Vaud through March 31, 2019. The transitional income tax impact represents income tax provision at the current full statutory income tax rate of 13.62%, without taking account of the federal and cantonal tax reform yet to be enacted. In the three months ended June 30, 2019, there was a discrete tax provision of $2.3 million to record net deferred tax liability in Switzerland. Furthermore, there were discrete tax benefits of $5.8 million and $1.2 million from the recognition of excess tax benefits in the United States and reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the three-month period ended June 30, 2019, compared with $8.3 million and $0.9 million, respectively, in the three-month period ended June 30, 2018.

As of June 30, 2019 and March 31, 2019, the total amount of unrecognized tax benefits due to uncertain tax positions was $77.3 million and $76.5 million, respectively, all of which would affect the effective income tax rate if recognized.

As of June 30, 2019 and March 31, 2019, the Company had $36.1 million and $36.4 million, respectively, in non-current income taxes payable including interest and penalties, related to the Company's income tax liability for uncertain tax positions.

The Company recognizes interest and penalties related to unrecognized tax positions in income tax provision. As of June 30, 2019 and March 31, 2019, the Company had $2.6 million and $2.5 million, respectively, of accrued interest and penalties related to uncertain tax positions.

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2020, the Company continues to review its tax positions and provide for or reverse unrecognized tax benefits as they arise. During the next twelve months, it is reasonably possible that the amount of unrecognized tax

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benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to other currencies. Excluding these factors, uncertain tax positions may decrease by as much as $3.7 million from the lapse of the statutes of limitations in various jurisdictions during the next twelve months.

Note 5 — Balance Sheet Components

The following table presents the components of certain balance sheet asset amounts as of June 30 and March 31, 2019 (in thousands): 

	June 30, 2019			March 31, 2019
Accounts receivable, net:
Accounts receivable	$	602,656		$	573,348
Allowance for doubtful accounts	(1,029		)	(84		)
Allowance for sales returns	(5,505		)	(6,486		)
Allowance for cooperative marketing arrangements	(34,480		)	(35,080		)
Allowance for customer incentive programs	(58,021		)	(60,036		)
Allowance for pricing programs	(84,805		)	(88,353		)
	$	418,816		$	383,309
Inventories:
Raw materials	$	41,380		$	40,970
Finished goods	255,627			252,525
	$	297,007		$	293,495
Other current assets:
Value-added tax receivables	$	34,989		$	34,321
Prepaid expenses and other assets	33,938			34,795
	$	68,927		$	69,116
Property, plant and equipment, net:
Property, plant and equipment at cost	$	362,099		$	359,345
Accumulated depreciation and amortization	(285,386		)	(280,793		)
	$	76,713		$	78,552
Other assets:
Deferred tax assets	$	96,183		$	90,808
Right-of-use assets (1)	31,994			—
Trading investments for deferred compensation plan	23,420			20,363
Investments in privately held companies	16,371			16,022
Other assets	5,480			5,260
	$	173,448		$	132,453

(1) Increase of balances was due to the adoption of Topic 842. Refer to Note 1 to the condensed consolidated financial statements for more information.

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The following table presents the components of certain balance sheet liability amounts as of June 30 and March 31, 2019 (in thousands): 

	June 30, 2019		March 31, 2019
Accrued and other current liabilities:
Accrued personnel expenses	$	67,869	$	103,166
Accrued sales return liability	33,735		37,749
Accrued customer marketing, pricing and incentive programs	139,625		143,888
Lease liability (1)	12,358		—
Warranty accrual	22,461		21,524
Income taxes payable	7,445		6,207
Other current liabilities	111,182		121,363
	$	394,675	$	433,897
Other non-current liabilities:
Warranty accrual	$	13,353	$	12,705
Obligation for deferred compensation plan	23,420		20,363
Employee benefit plan obligation	51,978		51,448
Lease liability (1)	25,816		—
Deferred tax liability	4,351		2,050
Other non-current liabilities	1,193		7,016
	$	120,111	$	93,582

(1) Increase of balances was due to the adoption of Topic 842. Refer to Note 1 to the condensed consolidated financial statements for more information.

Note 6 — Fair Value Measurements

Fair Value Measurements

The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted market prices included in Level 1, such as: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands): 

	June 30, 2019						March 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	497,035	$	—	$	—	$	496,434	$	—	$	—
Trading investments for deferred compensation plan included in other assets:
Money market funds	$	5,315	$	—	$	—	$	4,080	$	—	$	—
Mutual funds	18,105		—		—		16,283		—		—
Total of trading investments for deferred compensation plan	$	23,420	$	—	$	—	$	20,363	$	—	$	—
Currency exchange derivative assets included in other current assets	$	—	$	176	$	—	$	—	$	455	$	—
Liabilities:
Currency exchange derivative liabilities included in accrued and other current liabilities	$	—	$	1,177	$	—	$	—	$	36	$	—

Investment Securities

The marketable securities for the Company's deferred compensation plan were recorded at a fair value of $23.4 million and $20.4 million, as of June 30, 2019 and March 31, 2019, respectively, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Unrealized gains (losses) related to trading securities for the three months ended June 30, 2019 and 2018 were not material and are included in other income (expense), net in the Company's condensed consolidated statements of operations.

Equity Method Investments

The Company has certain non-marketable investments included in other assets that are accounted for under the equity method of accounting, with a carrying value of $7.0 million and $6.6 million as of June 30, 2019 and March 31, 2019, respectively.

Assets Measured at Fair Value on a Nonrecurring Basis

Financial Assets.  The Company has certain investments without readily determinable fair values due to the absence of quoted market prices, the inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management's judgment. When certain events or circumstances indicate that impairment may exist, the Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. The carrying value is also adjusted for observable price changes with a same or similar security from the same issuer. The amount of these investments included in other assets as of June 30, 2019 and March 31, 2019 was $9.5 million. There was no impairment of these assets during the three months ended June 30, 2019 or 2018.

Non-Financial Assets. The Company’s non-financial assets, such as intangible assets and acquisition-related property, plant and equipment, are recorded at fair value only upon initial recognition or if an impairment is recognized. There was no impairment of these assets during the three months ended June 30, 2019 or 2018.

Note 7 — Derivative Financial Instruments

Under certain agreements with the respective counterparties to the Company’s derivative contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same type with a single net

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amount payable by one party to the other. However, the Company presents its derivative assets and derivative liabilities on a gross basis on the condensed consolidated balance sheets as of June 30, 2019 and March 31, 2019.

The fair value of the Company’s derivative instruments was not material as of June 30, 2019 or March 31, 2019. The amount of gain (loss) recognized on derivatives not designated as hedging instruments was not material in all periods presented herein. The following table presents the amounts of gains (losses) on the Company’s derivative instruments designated as hedging instruments and their locations on its condensed consolidated statements of operations and condensed consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,
	Amount of Gain (Loss) Deferred as a Component of Accumulated Other Comprehensive Loss					Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss to Costs of Goods Sold
	2019			2018		2019			2018
Cash flow hedges	$	(943	)	$	187	$	(226	)	$	2,851

Cash Flow Hedges

The Company enters into cash flow hedge contracts to protect against exchange rate exposure of forecasted inventory purchases. These hedging contracts mature within four months. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. Cash flows from such hedges are classified as operating activities in the condensed consolidated statements of cash flows. Hedging relationships are discontinued when hedging contract is no longer eligible for hedge accounting, or is sold, terminated or exercised, or when Company removes hedge designation for the contract. Gains and losses in the fair value of the effective portion of the discontinued hedges continue to be reported in accumulated other comprehensive loss until the hedged inventory purchases are sold, unless it is probable that the forecasted inventory purchases will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. In all periods presented herein, there have been no forecasted inventory purchases that were probable to not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. The notional amounts of foreign currency exchange forward contracts outstanding related to forecasted inventory purchases were $68.2 million as of June 30, 2019 and $41.4 million as of March 31, 2019. The Company had $0.8 million of net losses related to its cash flow hedges included in accumulated other comprehensive loss as of June 30, 2019 which will be reclassified into earnings within the next 12 months.

Other Derivatives

The Company also enters into foreign currency exchange forward and swap contracts to reduce the short-term effects of currency exchange rate fluctuations on certain receivables or payables denominated in currencies other than the functional currencies of its subsidiaries. These contracts generally mature within one month. The primary risk managed by using forward and swap contracts is the currency exchange rate risk. The gains or losses on these contracts are recognized in other income (expense), net in the condensed consolidated statements of operations based on the changes in fair value. The notional amounts of these contracts outstanding as of June 30, 2019 and March 31, 2019 were $53.2 million and $50.4 million, respectively. Open forward and swap contracts outstanding as of June 30, 2019 and March 31, 2019 consisted of contracts in Mexican Pesos, Japanese Yen, Canadian Dollars, Taiwan New Dollars and Australian Dollars to be settled at future dates at pre-determined exchange rates.

The fair value of all foreign currency exchange forward and swap contracts is determined based on observable market transactions of spot currency rates and forward rates. Cash flows from these contracts are classified as operating activities in the condensed consolidated statements of cash flows.

Note 8 — Goodwill and Other Intangible Assets

The Company conducts its impairment analysis of goodwill annually at December 31 and as necessary, if changes in facts and circumstances indicate that it is more likely than not that the fair value of the Company’s reporting unit may be less than its carrying amount. There have been no events or circumstances during the three months ended June 30, 2019 that have required the Company to perform an interim assessment of goodwill.

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The following table summarizes the activities in the Company’s goodwill balance during the three months ended June 30, 2019 (in thousands):

As of March 31, 2019	$	343,684
Currency translation	18
As of June 30, 2019	$	343,702

The Company's acquired intangible assets subject to amortization were as follows (in thousands):

	June 30, 2019							March 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademark and trade names	$	36,370	$	(14,889	)	$	21,481	$	36,370	$	(13,659	)	$	22,711
Developed technology	95,207		(65,612		)	29,595		95,207		(62,341		)	32,866
Customer contracts/relationships	84,610		(23,554		)	61,056		84,610		(21,188		)	63,422
Total	$	216,187	$	(104,055	)	$	112,132	$	216,187	$	(97,188	)	$	118,999

Note 9 — Financing Arrangements

The Company had several uncommitted, unsecured bank lines of credit aggregating $79.3 million as of June 30, 2019. There are no financial covenants under these lines of credit with which the Company must comply. As of June 30, 2019, the Company had outstanding bank guarantees of $15.7 million under these lines of credit. There was no borrowing outstanding under these lines of credit as of June 30, 2019 or March 31, 2019.

Note 10 — Commitments and Contingencies

Product Warranties

Changes in the Company’s warranty liability for the three months ended June 30, 2019 and 2018 were as follows (in thousands): 

	Three Months Ended June 30,
	2019			2018
Beginning of the period	$	34,229		$	27,573
Provision	8,535			7,364
Settlements	(6,977		)	(6,552		)
Currency translation	27			468
End of the period	$	35,814		$	28,853

Indemnifications

The Company indemnifies certain of its suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. As of June 30, 2019, no amounts have been accrued for these indemnification provisions. The Company does not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under its indemnification arrangements.

The Company also indemnifies its current and former directors and certain of its current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not limited, the obligations are conditional in nature and the facts and circumstances involved in any situation that might arise are variable.

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Legal Proceedings

From time to time the Company is involved in claims and legal proceedings that arise in the ordinary course of its business. The Company is currently subject to several such claims and a small number of legal proceedings. The Company believes that these matters lack merit and intends to vigorously defend against them. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company’s defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company’s business, financial condition, cash flows or results of operations in a particular period. Any claims or proceedings against the Company, 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 a necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect the Company’s business.

Note 11 — Shareholders’ Equity

Share Repurchase Program

In March 2017, the Company's Board of Directors approved the 2017 share buyback program, which authorizes the Company to use up to $250.0 million to purchase up to 17.3 million shares of its own shares. The Company's share buyback program is expected to remain in effect for a period of three years. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. As of June 30, 2019, $172.4 million is still available for repurchase under the 2017 buyback program.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) was as follows (in thousands):

	Accumulated Other Comprehensive Income (Loss)
	Cumulative Translation Adjustment (1)			Defined Benefit Plan (1)			Deferred Hedging Losses (1)			Total
March 31, 2019	$	(92,148	)	$	(13,932	)	$	382		$	(105,698	)
Other comprehensive income (loss)	(278		)	(258		)	(1,169		)	(1,705		)
June 30, 2019	$	(92,426	)	$	(14,190	)	$	(787	)	$	(107,403	)

(1)        Tax effect was not significant as of June 30 or March 31, 2019.

Note 12 — Segment Information

The Company has determined that it operates in a single operating segment that encompasses the design, manufacturing and marketing of peripherals for PCs, tablets and other digital platforms. Operating performance measures are provided directly to the Company's CEO, who is considered to be the Company’s Chief Operating Decision Maker. The CEO periodically reviews information such as sales and adjusted operating income (loss) to make business decisions. These operating performance measures do not include restructuring charges (credits), net, share-based compensation expense, amortization of intangible assets, charges from the purchase accounting effect on inventory, acquisition-related costs or change in fair value of contingent consideration from business acquisition.

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Sales by product categories and sales channels, excluding intercompany transactions, for the three months ended June 30, 2019 and 2018 were as follows (in thousands):

	Three Months Ended June 30,
	2019		2018
Pointing Devices	$	121,983	$	127,790
Keyboards & Combos	128,679		128,222
PC Webcams	28,128		29,674
Tablet & Other Accessories	38,339		32,436
Video Collaboration	73,424		58,792
Mobile Speakers	50,416		34,327
Audio & Wearables	58,624		52,154
Gaming	134,515		136,026
Smart Home	9,864		9,011
Other (1)	253		48
Total sales	$	644,225	$	608,480

(1) Other category includes products that the Company currently intends to phase out, or has already phased out, because they are no longer strategic to the Company's business.

Sales by geographic region (based on the customers’ locations) for the three months ended June 30, 2019 and 2018 were as follows (in thousands):

	Three Months Ended June 30,
	2019		2018
Americas	$	293,445	$	276,928
EMEA	179,106		160,632
Asia Pacific	171,674		170,920
Total sales	$	644,225	$	608,480

Sales are attributed to countries on the basis of the customers’ locations.

The United States, Germany, and China each represented more than 10% of the total consolidated sales for each of the periods presented herein. No other countries represented 10% or more of the Company’s total consolidated sales for the periods presented herein.

Switzerland, the Company’s home domicile, represented 3% of the Company's total consolidated sales for the three months ended June 30, 2019 and represented 2% of the Company's total consolidated sales for the three months ended June 30, 2018.

Two customers of the Company each represented more than 10% of the total consolidated gross sales for each of the periods presented herein.

Property, plant and equipment, net by geographic region were as follows (in thousands):

	June 30, 2019		March 31, 2019
Americas	$	27,746	$	29,813
EMEA	4,803		4,537
Asia Pacific	44,164		44,202
Total property, plant and equipment, net	$	76,713	$	78,552

Property, plant and equipment, net in the United States and China were $27.7 million and $36.5 million, respectively, as of June 30, 2019, and $29.8 million and $36.4 million, respectively, as of March 31, 2019. No other countries represented 10% or more of the Company’s total consolidated property, plant and equipment, net as of

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June 30, 2019 or March 31, 2019. Property, plant and equipment, net in Switzerland, the Company’s home domicile, were $2.0 million and $1.7 million as of June 30, 2019 and March 31, 2019, respectively.

Note 13 — Restructuring

During the first quarter of fiscal year 2019, the Company implemented a restructuring plan to streamline and realign the Company's overall organizational structure and reallocate resources to support long-term growth opportunities. In July 2018, the Company's Board of Directors approved additional costs under this restructuring plan, totaling pre-tax charges of approximately $10.0 million to $15.0 million, of which $11.8 million has been recognized cumulatively as of June 30, 2019. The total charges consisted of cash severance and other personnel costs and are presented as restructuring charges, net in the condensed consolidated statements of operations, and the accrual balances are presented in accrued and other current liabilities in the condensed consolidated balance sheets. As of June 30, 2019, the Company has substantially completed this restructuring plan.

The following table summarizes restructuring related activities during the three months ended June 30, 2019 (in thousands):

	Termination Benefits
Accrual balance at March 31, 2019	$	4,389
Charges	478
Cash payments	(1,956		)
Accrual balance at June 30, 2019	$	2,911

Note 14 — Leases

The Company is a lessee in several noncancellable operating leases, primarily real estate facilities for office space and for transportation and office equipment. The Company accounts for leases in accordance with Topic 842 (see Note 1) and determines if an arrangement is a lease or contains a lease at contract inception. ROU assets are included in other assets, short-term lease liabilities are included in accrued and other current liabilities, and long-term lease liabilities are included in other non-current liabilities on the Company's unaudited condensed consolidated balance sheet. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For the Company's operating leases, the Company accounts for the lease and non-lease components as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at lease commencement date. Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, its incremental borrowing rate. As the rate implicit in the lease is not readily determinable for the Company's operating leases, the Company generally uses an incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow in a collateralized basis, it uses its understanding of what its collateralized credit rating would be as an input to deriving an appropriate incremental borrowing rate. The operating lease right-of-use asset includes any lease payments made and excludes lease incentives.

The Company's lease arrangements comprise of operating leases with various expiration dates through December 31, 2030. The lease term for all of the Company’s leases includes the noncancellable period of the lease. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of the duration of the lease arrangement.

The Company's leases do not contain any material residual value guarantees.

For the three months ended June 30, 2019, the total operating lease costs were $3.3 million, which included short-term lease costs and sublease income. Total variable lease costs were immaterial during the three months ended June 30, 2019. The total operating and variable lease costs were included in cost of goods sold, marketing

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and selling, research and development, and general and administrative in the Company's unaudited condensed consolidated statement of operations.

As of June 30, 2019, the weighted-average remaining lease term was 4 years, and the weighted-average discount rate was 2.9%.

For the three months ended June 30, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $3.1 million and right-of-use assets obtained in exchange for new operating lease liabilities was $3.4 million.

Future lease payments included in the measurement of lease liabilities as of June 30, 2019 for the following five fiscal years and thereafter are as follows (in thousands):

	Operating Lease
Remaining 2020	$	10,294
2021	11,003
2022	9,065
2023	5,486
2024	1,236
Thereafter	3,655
Total lease payments	40,739
Less interest	(2,565		)
Present value of lease liabilities	$	38,174

Future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840 under our non-cancelable operating leases as of March 31, 2019 were as follows (in thousands):

Years Ending March 31,	Operating Lease
2020	$	11,849
2021	10,002
2022	7,882
2023	5,111
2024	1,130
Thereafter	3,646
Total lease payments	$	39,620

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the interim unaudited condensed consolidated financial statements and related notes.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, among other things, statements regarding our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position, our business strategy, the impact of investment prioritization decisions, product offerings, sales and marketing initiatives, strategic investments, addressing execution challenges, trends in consumer demand affecting our products and markets, trends in the composition of our customer base, our current or future revenue and revenue mix by product, among our lower- and higher-margin products, our new product introductions and by geographic region, our expectations regarding the potential growth opportunities for our products in mature and emerging markets and the enterprise market, our expectations regarding economic conditions in international markets, including China, Russia and Ukraine, our expectations regarding trends in global economic conditions and consumer demand for PCs and mobile devices, tablets, gaming, audio, pointing devices, wearables, remotes and other accessories and computer devices and the interoperability of our products with such third party platforms, our expectations regarding the convergence of markets for computing devices and consumer electronics, our expectations regarding the growth of cloud-based services, our expected reduction in size of our product portfolio and dependence on new products, our competitive position and the effect of pricing, product, marketing and other initiatives by us and our competitors, the potential that our new products will overlap with our current products, our expectations regarding competition from well-established consumer electronics companies in existing and new markets, potential tariffs, their effects and our ability to mitigate their effects, our expectations regarding the recoverability of our goodwill, goodwill impairment charge estimates and the potential for future impairment charges, the impact of our current and proposed product divestitures, changes in our planned divestitures, restructuring of our organizational structure and the timing thereof, our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology, internal controls, personnel and management teams, significant fluctuations in currency exchange rates and commodity prices, the impact of new product introductions and product innovation on future performance or anticipated costs and expenses and the timing thereof, resolution of our North American distribution center issues, cash flows, the sufficiency of our cash and cash equivalents, cash generated and available borrowings (including the availability of our uncommitted lines of credit) to fund future cash requirements, our expectations regarding future sales compared to actual sales, our expectations regarding share repurchases, dividend payments and share cancellations, our expectations regarding our future working capital requirements and our anticipated capital expenditures needed to support our product development and expanded operations, our expectations regarding our future tax benefits, tax settlements, the adequacy of our provisions for uncertain tax positions, our expectations regarding our potential indemnification obligations, and the outcome of pending or future legal proceedings and tax audits, our expectations regarding the impact of new accounting pronouncements on our operating results, and our ability to achieve and sustain renewed growth, profitability and future success. Forward-looking statements also include, among others, those statements including the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,”, "seek", “should,” “will,” and similar language. These forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from that anticipated in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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.

Overview of Our Company

Logitech is a world leader in designing, manufacturing and marketing products that help connect people to digital and cloud experiences. More than 35 years ago, Logitech created products to improve experiences around the personal PC platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating any digital content such as music, gaming, video and computing, whether it is on a computer, mobile device or in the cloud. Logitech's brands include Logitech, Logitech G, ASTRO Gaming, Ultimate Ears, Jaybird and Blue Microphones. Our Company's website is www.logitech.com.

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Our products participate in five large markets that all have growth opportunities: Gaming, Video Collaboration, Smart Home, Music, and Creativity & Productivity. We sell our products to a broad network of domestic and international customers, including direct sales to retailers and e-tailers, and indirect sales through distributors. Our worldwide channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, computer and telecommunications stores, value-added resellers and online merchants.

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.

Summary of Financial Results

Our total sales for the three months ended June 30, 2019 increased 6%, compared to the three months ended June 30, 2018, supported by stronger sales in the Americas and EMEA. Blue Microphones contributed 2 points to the sales growth during the period.

Our sales for the three months ended June 30, 2019 increased 6% and 12% in the Americas and EMEA, respectively, compared to the same period of the prior fiscal year. Our sales for the three months ended June 30, 2019 in Asia Pacific were flat compared to the same period of the prior fiscal year.

Our gross margin for the three months ended June 30, 2019 increased 30 basis points to 37.1% from 36.8% for the three months ended June 30, 2018. Our gross margin benefited from product cost savings, tariff mitigation efforts and product mix, partially offset by an increase in China tariffs and unfavorable currency exchange.

Operating expenses for the three months ended June 30, 2019 remained flat compared to the same period of the prior fiscal year. Operating expenses were 29.7% of sales for the three months ended June 30, 2019, compared to 31.5% of sales in the same period of the prior fiscal year.

Net income for the three months ended June 30, 2019 was $45.3 million, compared to $38.5 million for the three months ended June 30, 2018.

Trends in Our Business

Our strategy focuses on five large multi-category markets, including Gaming, Video Collaboration, Music, Smart Home and Creativity & Productivity. We see opportunities to deliver growth in all these markets.

We believe our future growth will be determined by our ability to rapidly create innovative products across multiple digital platforms, including gaming, digital music devices, video and computing. The following discussion represents key trends specific to our market opportunities.

Trends Specific to Our Five Market Opportunities

Creativity & Productivity:  Although new PC shipments continue to be weak, the installed base of PC users remains large. We believe that innovative PC peripherals, such as our mice and keyboards, can renew the PC usage experience, thus providing growth opportunities. Increasing adoption of various cloud-based applications has led to multiple new consumer use cases, which we are addressing with our innovative product portfolio. The increasing popularity of streaming and broadcasting provides additional growth opportunities for our Webcam products. Smaller mobile computing devices, such as tablets, 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 a combo backlit keyboard case for the iPad Pro and keyboard folios for the iPad and iPad mini. In fiscal year 2019, we saw a recovery of the iPad tablet market, and our Tablet & Other Accessories category has benefited from the recovery along with our innovative products.

Gaming: The PC gaming and console gaming platforms continue to show strong structural growth opportunities as online gaming, multi-platform experiences, and esports gain greater popularity and gaming content becomes increasingly more demanding. We believe Logitech is well positioned to benefit from the gaming market growth. With ASTRO Gaming, we are also strengthening our portfolio in adjacent categories, such as the console controller market.

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Video Collaboration:  The near and long-term structural growth opportunities in the video collaboration market are significant and, as a result, that market is continuing to attract more competition. Video meetings are on the rise, and companies increasingly want lower-cost, cloud-based solutions. We are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms. We will continue to invest in select business-specific products, targeted product marketing and sales channel development.

Music: The music market grew during fiscal year 2019, driven by growing consumption of music through mobile devices such as smartphones and tablets. The integration of personal voice assistants has become increasingly competitive in the speaker categories, but the market for third-party, voice-enabled speakers has not yet gained traction. Moreover, the market for mobile speakers appears to be maturing, which led to a decline in Ultimate Ears sales in fiscal year 2019. In fiscal year 2019, the headphone industry continued to flourish with strong revenue growth. The largest growth was seen in wireless headphones where the market tripled year-over-year and where there was a substantial increase to average selling prices. Continued growth in the headphone market is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones. With Blue Microphones, we are strengthening our portfolio in adjacent categories, such as the microphones market.

Smart Home: Our remote business declined substantially in fiscal year 2019 as the attachment to the voice assistants of Harmony Hub-based remote controls was not a sustainable trend. In general, the space is under pressure as the way people consume content is changing. We will continue to explore other innovative experiences for the Smart Home category.

Business Seasonality, Product Introductions and Acquisitions

We have historically experienced higher sales in our third fiscal quarter ending December 31, compared to other fiscal quarters in our fiscal year, primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises. Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses. Product introductions can also impact our sales to our distribution channels as these channels are filled with new product inventory following a product introduction, and often channel inventory of an earlier model product declines as the next related major product launch approaches. Sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances. However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of our future pattern of product introductions, future sales or financial performance.

Swiss Federal Tax Reform

On May 19, 2019, the Swiss electorate approved TRAF, a major reform to better align the Swiss tax system with international tax standards. The tax reform is expected to take effect on January 1, 2020. As of June 30, 2019, TRAF has not been enacted as the federal and cantonal legislative procedures are in process. We have benefited from a longstanding tax ruling from the canton of Vaud through March 31, 2019. We continue to monitor the enactment process and our transitional measures to comply with federal and cantonal tax reform provisions. We anticipate an increase in our cash tax payments in Switzerland beginning in fiscal year 2020.

Critical Accounting Estimates

 The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, estimates and assumptions that affect the fair value of goodwill, intangible assets acquired from business acquisitions, valuation of operating right-of-use assets, warranty liabilities, accruals for customer incentives, cooperative marketing, and pricing programs and related breakage when appropriate, accrued sales return liability, allowance for doubtful accounts, inventory valuation, share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets.

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.

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Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.

Other than the recent accounting pronouncement adoptions and Summary of Significant Accounting Policies discussed in Note 1 to the condensed consolidated financial statements, there have been no substantial changes in our significant accounting policies during the three months ended June 30, 2019, compared with the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

Adoption of New Accounting Pronouncements

Refer to Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted and to be adopted.

Impact of Constant Currency

We refer to our sales growth rates excluding the impact of currency exchange rate fluctuations as "constant dollar" sales growth rates. 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.

Given our global sales presence and the reporting of our financial results in U.S. Dollars, our financial results could be affected by shifts in currency exchange rates. See “Results of Operations” for information on the effect of currency exchange rate results on our sales. If the U.S. Dollar appreciates or depreciates in comparison to other currencies in future periods, this will affect our results of operations in future periods as well.

References to Sales

References to “sales” mean net sales, except as otherwise specified, and the sales growth discussion and sales growth rate percentages are based on U.S. Dollars, except as otherwise specified.

Sales Denominated in Other Currencies

Although our financial results are reported in U.S. Dollars, a portion of our sales was generated in currencies other than the U.S. Dollar, such as the Euro, Chinese Renminbi, Japanese Yen, Canadian Dollar, Taiwan New Dollar, British Pound and Australian Dollar. During the