UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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

1

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 October 9, 2019, there were 166,974,994 shares of the Registrant’s share capital outstanding.

2

TABLE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income for Three and Six Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Balance Sheets as of September 30, 2019 and March 31, 2019	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 2018	7
	Condensed Consolidated Statements of Changes in Shareholder's Equity for the Three and Six Months Ended September 30, 2019 and 2018	8
	Notes to the Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibit Index	56
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 second quarter of fiscal year 2020 ended on September 27, 2019. The same quarter in the prior fiscal year ended on September 28, 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.

3

PART I — FINANCIAL INFORMATION 

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED) 

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,					Six Months Ended September 30,
	2019			2018		2019		2018
Net sales	$	719,691		$	691,146	$	1,363,916	$	1,299,626
Cost of goods sold	444,344			432,063		846,322		814,234
Amortization of intangible assets and purchase accounting effect on inventory	3,271			2,966		6,542		5,338
Gross profit	272,076			256,117		511,052		480,054
Operating expenses:
Marketing and selling	134,155			121,801		257,188		236,385
Research and development	41,964			39,542		84,207		78,529
General and administrative	24,048			25,206		46,207		50,679
Amortization of intangible assets and acquisition-related costs	4,218			4,317		7,814		6,838
Restructuring charges (credits), net	(364		)	119		114		10,040
Total operating expenses	204,021			190,985		395,530		382,471
Operating income	68,055			65,132		115,522		97,583
Interest income	2,390			1,858		4,943		4,227
Other income (expense), net	(110		)	3,389		1,751		1,818
Income before income taxes	70,335			70,379		122,216		103,628
Provision for (benefit from) income taxes	(2,598		)	6,203		3,938		986
Net income	$	72,933		$	64,176	$	118,278	$	102,642
Net income per share:
Basic	$	0.44		$	0.39	$	0.71	$	0.62
Diluted	$	0.43		$	0.38	$	0.70	$	0.61
Weighted average shares used to compute net income per share:
Basic	166,662			165,630		166,484		165,474
Diluted	169,027			169,234		168,914		168,996

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

4

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Net income	$	72,933		$	64,176		$	118,278		$	102,642
Other comprehensive income (loss):
Currency translation loss, net of taxes	(4,097		)	(2,863		)	(4,375		)	(7,826		)
Defined benefit plans:
Net gain (loss) and prior service costs, net of taxes	268			192			(43		)	98
Amortization included in other income (expense), net	54			(69		)	107			(139		)
Hedging gain (loss):
Deferred hedging gain (loss), net of taxes	2,380			298			1,437			485
Reclassification of hedging loss (gain) included in cost of goods sold	(132		)	218			(358		)	3,069
Total other comprehensive loss	(1,527		)	(2,224		)	(3,232		)	(4,313		)
Total comprehensive income	$	71,406		$	61,952		$	115,046		$	98,329

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

5

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

	September 30, 2019			March 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	574,464		$	604,516
Accounts receivable, net	465,969			383,309
Inventories	338,314			293,495
Other current assets	79,630			69,116
Total current assets	1,458,377			1,350,436
Non-current assets:
Property, plant and equipment, net	75,568			78,552
Goodwill	343,686			343,684
Other intangible assets, net	105,264			118,999
Other assets	173,425			132,453
Total assets	$	2,156,320		$	2,024,124
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	411,043		$	283,922
Accrued and other current liabilities	424,963			433,897
Total current liabilities	836,006			717,819
Non-current liabilities:
Income taxes payable	36,374			36,384
Other non-current liabilities	116,403			93,582
Total liabilities	988,783			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 September 30 and March 31, 2019
Additional shares that may be issued out of conditional capital — 50,000 at September 30 and March 31, 2019
Additional shares that may be issued out of authorized capital — 34,621 at September 30 and March 31, 2019
Additional paid-in capital	50,913			56,655
Shares in treasury, at cost — 6,203 at September 30, 2019 and 7,244 at March 31, 2019	(163,728		)	(169,802		)
Retained earnings	1,359,134			1,365,036
Accumulated other comprehensive loss	(108,930		)	(105,698		)
Total shareholders’ equity	1,167,537			1,176,339
Total liabilities and shareholders’ equity	$	2,156,320		$	2,024,124

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

6

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	118,278		$	102,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,386			21,895
Amortization of intangible assets	13,735			10,341
Loss (gain) on investments	63			(382		)
Share-based compensation expense	26,470			25,308
Deferred income taxes	(8,978		)	(9,815		)
Other	(2		)	75
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net	(85,955		)	(133,475		)
Inventories	(47,773		)	(84,401		)
Other assets	(14,083		)	(11,056		)
Accounts payable	129,101			138,186
Accrued and other liabilities	(9,223		)	37,902
Net cash provided by operating activities	143,019			97,220
Cash flows from investing activities:
Purchases of property, plant and equipment	(18,092		)	(18,368		)
Investment in privately held companies	(170		)	(506		)
Acquisitions, net of cash acquired	(366		)	(133,908		)
Purchases of short-term investments	—			(1,505		)
Purchases of trading investments	(2,525		)	(3,722		)
Proceeds from sales of trading investments	2,571			4,194
Net cash used in investing activities	(18,582		)	(153,815		)
Cash flows from financing activities:
Payment of cash dividends	(124,180		)	(113,971		)
Purchases of registered shares	(15,127		)	(19,901		)
Proceeds from exercises of stock options and purchase rights	9,331			10,007
Tax withholdings related to net share settlements of restricted stock units	(20,908		)	(27,380		)
Net cash used in financing activities	(150,884		)	(151,245		)
Effect of exchange rate changes on cash and cash equivalents	(3,605		)	(9,157		)
Net decrease in cash and cash equivalents	(30,052		)	(216,997		)
Cash and cash equivalents, beginning of the period	604,516			641,947
Cash and cash equivalents, end of the period	$	574,464		$	424,950
Supplementary Cash Flow Disclosures:
Non-cash investing activities:
Property, plant and equipment purchased during the period and included in period end liability accounts	$	4,412		$	4,267

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

7

LOGITECH INTERNATIONAL S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

(unaudited)

Three Months ended September 30, 2018
				Additional Paid-in Capital											Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Registered Shares						Treasury Shares					Retained Earnings
	Shares	Amount					Shares		Amount
June 30, 2018	173,106	$	30,148	$	19,093		7,533		$	(158,337	)	$	1,259,900		$	(95,544	)	$	1,055,260
Total comprehensive income	—	—		—			—		—			64,176			(2,224		)	61,952
Purchases of registered shares	—	—		—			219		(9,919		)	—			—			(9,919		)
Sales of shares upon exercise of stock options and purchase rights	—	—		5,512			(262	)	3,391			—			—			8,903
Issuance of shares upon vesting of restricted stock units	—	—		(3,683		)	(106	)	1,384			—			—			(2,299		)
Share-based compensation	—	—		12,238			—		—			—			—			12,238
Cash dividends ($0.69 per share)	—	—		—			—		—			(113,971		)	—			(113,971		)
September 30, 2018	173,106	$	30,148	$	33,160		7,384		$	(163,481	)	$	1,210,105		$	(97,768	)	$	1,012,164
Six Months ended September 30, 2018
				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	—	—		—			—		—			102,642			(4,313		)	98,329
Purchases of registered shares	—	—		—			474		(19,901		)	—			—			(19,901		)
Sales of shares upon exercise of stock options and purchase rights	—	—		5,951			(311	)	4,056			—			—			10,007
Issuance of shares upon vesting of restricted stock units	—	—		(45,430		)	(1,306	)	18,050			—			—			(27,380		)
Share-based compensation	—	—		25,405			—		—			—			—			25,405
Cash dividends ($0.69 per share)	—	—		—			—		—			(113,971		)	—			(113,971		)
September 30, 2018	173,106	$	30,148	$	33,160		7,384		$	(163,481	)	$	1,210,105		$	(97,768	)	$	1,012,164

8

Three Months ended September 30, 2019
				Additional Paid-in Capital											Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Registered Shares						Treasury Shares					Retained Earnings
	Shares	Amount					Shares		Amount
June 30, 2019	173,106	$	30,148	$	35,048		6,642		$	(170,140	)	$	1,410,381		$	(107,403	)	$	1,198,034
Total comprehensive income	—	—		—			—		—			72,933			(1,527		)	71,406
Sales of shares upon exercise of stock options and purchase rights	—	—		4,150			(366	)	5,357			—			—			9,507
Issuance of shares upon vesting of restricted stock units	—	—		(2,593		)	(73	)	1,055			—			—			(1,538		)
Share-based compensation	—	—		14,308			—		—			—			—			14,308
Cash dividends ($0.74 per share)	—	—		—			—		—			(124,180		)	—			(124,180		)
September 30, 2019	173,106	$	30,148	$	50,913		6,203		$	(163,728	)	$	1,359,134		$	(108,930	)	$	1,167,537
Six Months ended September 30, 2019
				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	—	—		—			—		—			118,278			(3,232		)	115,046
Purchases of registered shares	—	—		—			389		(15,127		)	—			—			(15,127		)
Sales of shares upon exercise of stock options and purchase rights	—	—		4,158			(391	)	5,742			—			—			9,900
Issuance of shares upon vesting of restricted stock units	—	—		(36,367		)	(1,039	)	15,459			—			—			(20,908		)
Share-based compensation	—	—		26,467			—		—			—			—			26,467
Cash dividends ($0.74 per share)	—	—		—			—		—			(124,180		)	—			(124,180		)
September 30, 2019	173,106	$	30,148	$	50,913		6,203		$	(163,728	)	$	1,359,134		$	(108,930	)	$	1,167,537

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

9

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 and six months ended September 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 six months ended September 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,

10

share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ materially from 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 June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 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 2018-13, "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

11

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 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 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 and six months ended September 30, 2019 and September 30, 2018 (in thousands, except per share amounts):

	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net income	$	72,933	$	64,176	$	118,278	$	102,642
Shares used in net income per share computation:
Weighted average shares outstanding - basic	166,662		165,630		166,484		165,474
Effect of potentially dilutive equivalent shares	2,365		3,604		2,430		3,522
Weighted average shares outstanding - diluted	169,027		169,234		168,914		168,996
Net income per share:
Basic	$	0.44	$	0.39	$	0.71	$	0.62
Diluted	$	0.43	$	0.38	$	0.70	$	0.61

Share equivalents attributable to outstanding stock options, restricted stock units ("RSUs") and employee share purchase rights (ESPP) totaling 1.9 million and 0.8 million for the three months ended September 30, 2019 and 2018, respectively, and 2.0 million and 1.2 million for the six months ended September 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 September 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).

12

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

	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Cost of goods sold	$	1,184		$	791		$	2,342		$	1,921
Marketing and selling	6,951			4,864			13,800			10,650
Research and development	2,248			1,935			4,402			3,484
General and administrative	3,869			4,459			5,926			9,253
Total share-based compensation expense	14,252			12,049			26,470			25,308
Income tax benefit	(2,723		)	(2,650		)	(9,523		)	(12,179		)
Total share-based compensation expense, net of income tax benefit	$	11,529		$	9,399		$	16,947		$	13,129

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 September 30, 2019 and 2018, the balance of capitalized share-based compensation included in inventory was $0.9 million and $0.8 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 $2.2 million for the three months ended September 30, 2019 and 2018, respectively, and $4.8 million and $4.5 million for the six months ended September 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 benefit for the three months ended September 30, 2019 was $2.6 million based on an effective income tax rate of (3.7)% of pre-tax income, compared to an income tax provision of $6.2 million based on an effective income tax rate of 8.8% of pre-tax income for the three months ended September 30, 2018. The

income tax provision for the six months ended September 30, 2019 was $3.9 million based on an effective income

tax rate of 3.2% of pre-tax income, compared to an income tax provision of $1.0 million based on an effective income tax rate of 1.0% of pre-tax income for the six months ended September 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 legislation was subsequently published in the federal register on August 6, 2019 to take effect on January 1, 2020. As of September 30, 2019, TRAF has not been enacted in all cantons, including the canton of Vaud, as the cantonal legislative procedures are in process.

The change in the effective income tax rate for the three months ended September 30, 2019, compared to the same period ended September 30, 2018, was primarily due to 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. During the second quarter, the canton of Vaud concluded the longstanding cantonal tax ruling will only continue to apply through December 31, 2019. The transitional income tax impact, which represents income tax provision at the current full statutory income tax rate of 13.63% without taking account of the tax reform yet to be enacted, resulted

13

in a tax benefit of $5.9 million in the three-month period ended September 30, 2019. In addition, there was a discrete tax benefit of $4.0 million from adjusting deferred tax assets and liabilities in Switzerland in the three months ended September 30, 2019.

The change in the effective income tax rate for the six months ended September 30, 2019, compared to the same period ended September 30, 2018 was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates and the transitional income tax impact in Switzerland discussed above. In the six months ended September 30, 2019, there was a discrete tax benefit of $1.7 million from adjusting deferred tax assets and liabilities in Switzerland. Furthermore, there were discrete tax benefits of $6.7 million and $1.8 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 six-month period ended September 30, 2019, compared with $9.0 million and $1.4 million, respectively, in the six-month period ended September 30, 2018.

As of September 30, 2019 and March 31, 2019, the total amount of unrecognized tax benefits due to uncertain tax positions was $78.9 million and $76.5 million, respectively, all of which would affect the effective income tax rate if recognized.

As of September 30, 2019 and March 31, 2019, the Company had $36.4 million 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 September 30, 2019 and March 31, 2019, the Company had $2.8 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 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.

14

Note 5 — Balance Sheet Components

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

	September 30, 2019			March 31, 2019
Accounts receivable, net:
Accounts receivable	$	656,854		$	573,348
Allowance for doubtful accounts	(1,391		)	(84		)
Allowance for sales returns	(6,525		)	(6,486		)
Allowance for cooperative marketing arrangements	(37,109		)	(35,080		)
Allowance for customer incentive programs	(60,619		)	(60,036		)
Allowance for pricing programs	(85,241		)	(88,353		)
	$	465,969		$	383,309
Inventories:
Raw materials	$	33,154		$	40,970
Finished goods	305,160			252,525
	$	338,314		$	293,495
Other current assets:
Value-added tax receivables	$	36,146		$	34,321
Prepaid expenses and other assets	43,484			34,795
	$	79,630		$	69,116
Property, plant and equipment, net:
Property, plant and equipment at cost	$	366,540		$	359,345
Accumulated depreciation and amortization	(290,972		)	(280,793		)
	$	75,568		$	78,552
Other assets:
Deferred tax assets	$	98,019		$	90,808
Right-of-use assets (1)	30,149			—
Trading investments for deferred compensation plan	22,862			20,363
Investments in privately held companies	16,674			16,022
Other assets	5,721			5,260
	$	173,425		$	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.

15

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

	September 30, 2019		March 31, 2019
Accrued and other current liabilities:
Accrued personnel expenses	$	74,219	$	103,166
Accrued sales return liability	36,402		37,749
Accrued customer marketing, pricing and incentive programs	152,163		143,888
Lease liability (1)	11,887		—
Warranty accrual	23,531		21,524
Income taxes payable	5,602		6,207
Other current liabilities	121,159		121,363
	$	424,963	$	433,897
Other non-current liabilities:
Warranty accrual	$	13,691	$	12,705
Obligation for deferred compensation plan	22,862		20,363
Employee benefit plan obligation	51,065		51,448
Lease liability (1)	24,050		—
Deferred tax liability	2,050		2,050
Other non-current liabilities	2,685		7,016
	$	116,403	$	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.

16

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

	September 30, 2019						March 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	304,783	$	—	$	—	$	496,434	$	—	$	—
Trading investments for deferred compensation plan included in other assets:
Money market funds	$	4,563	$	—	$	—	$	4,080	$	—	$	—
Mutual funds	18,299		—		—		16,283		—