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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2020
 
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


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 January 6, 2021, there were 168,921,326 shares of the Registrant’s share capital outstanding.


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TABLE OF CONTENTS
 
    Page
     
Part I FINANCIAL INFORMATION  
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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 third quarter of fiscal year 2021 ended on December 25, 2020. The same quarter in the prior fiscal year ended on December 27, 2019. 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
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Net sales $ 1,667,302  $ 902,687  $ 3,716,354  $ 2,266,603 
Cost of goods sold 914,851  564,283  2,082,088  1,410,605 
Amortization of intangible assets 3,441  3,951  9,800  10,493 
Gross profit 749,010  334,453  1,624,466  845,505 
Operating expenses:        
Marketing and selling 204,485  134,950  496,520  392,138 
Research and development 53,910  43,292  157,014  127,499 
General and administrative 37,606  22,344  98,341  68,551 
Amortization of intangible assets and acquisition-related costs 4,946  5,084  13,886  12,898 
Change in fair value of contingent consideration for business acquisition —  —  5,716  — 
Restructuring charges (credits), net —  (45) (54) 69 
Total operating expenses 300,947  205,625  771,423  601,155 
Operating income 448,063  128,828  853,043  244,350 
Interest income 311  2,063  1,444  7,006 
Other income, net 6,483  1,101  9,661  2,852 
Income before income taxes 454,857  131,992  864,148  254,208 
Provision for income taxes 72,334  14,467  142,638  18,405 
Net income $ 382,523  $ 117,525  $ 721,510  $ 235,803 
Net income per share:    
Basic $ 2.26  $ 0.70  $ 4.28  $ 1.41 
Diluted $ 2.22  $ 0.69  $ 4.21  $ 1.39 
Weighted average shares used to compute net income per share:    
Basic 169,050  167,063  168,448  166,678 
Diluted 172,587  169,685  171,378  169,173 
 
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
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Net income $ 382,523  $ 117,525  $ 721,510  $ 235,803 
Other comprehensive income (loss):    
Currency translation gain (loss), net of taxes 19,500  1,736  23,944  (2,639)
Reclassification of currency translation loss included in other income, net —  —  (1,738) — 
Defined benefit plans:    
Net loss and prior service costs, net of taxes (863) (231) (319) (274)
Amortization included in other income, net 178  53  523  160 
Hedging gain (loss):    
Deferred hedging gain (loss), net of taxes (6,326) (1,381) (9,752) 56 
Reclassification of hedging loss included in cost of goods sold 3,446  (739) 5,085  (1,097)
Total other comprehensive income (loss) 15,935  (562) 17,743  (3,794)
Total comprehensive income $ 398,458  $ 116,963  $ 739,253  $ 232,009 
 
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)
December 31, 2020 March 31, 2020
Assets
Current assets:    
Cash and cash equivalents $ 1,388,743  $ 715,566 
Accounts receivable, net 894,937  394,743 
Inventories 476,802  229,249 
Other current assets 117,741  74,920 
Total current assets 2,878,223  1,414,478 
Non-current assets:    
Property, plant and equipment, net 96,683  76,119 
Goodwill 400,993  400,917 
Other intangible assets, net 103,314  126,941 
Other assets
333,733  345,019 
Total assets $ 3,812,946  $ 2,363,474 
Liabilities and Shareholders’ Equity    
Current liabilities:    
Accounts payable $ 811,786  $ 259,120 
Accrued and other current liabilities 704,573  455,024 
Total current liabilities 1,516,359  714,144 
Non-current liabilities:    
Income taxes payable 60,799  40,788 
Other non-current liabilities
134,021  119,274 
Total liabilities 1,711,179  874,206 
Commitments and contingencies (Note 10)
Shareholders’ equity:    
Registered shares, CHF 0.25 par value:
30,148  30,148 
Issued shares — 173,106 at December 31 and March 31, 2020
Additional shares that may be issued out of conditional capitals — 50,000 at December 31 and March 31, 2020
Additional shares that may be issued out of authorized capital — 17,311 at December 31 and 34,621 at March 31, 2020
Additional paid-in capital 108,140  75,097 
Shares in treasury, at cost — 4,243 at December 31, 2020 and 6,210 at March 31, 2020
(198,435) (185,896)
Retained earnings 2,264,831  1,690,579 
Accumulated other comprehensive loss (102,917) (120,660)
Total shareholders’ equity 2,101,767  1,489,268 
Total liabilities and shareholders’ equity $ 3,812,946  $ 2,363,474 
 


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

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Table of Contents
LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
December 31,
  2020 2019
Cash flows from operating activities:    
Net income $ 721,510  $ 235,803 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 36,010  32,154 
Amortization of intangible assets 23,627  21,958 
Loss on investments 4,692  772 
Share-based compensation expense 64,714  40,301 
Deferred income taxes 37,683  480 
Change in fair value of contingent consideration for business acquisition 5,716  — 
Other (1,670) (1,012)
Changes in assets and liabilities, net of acquisitions:    
Accounts receivable, net (476,804) (147,292)
Inventories (239,378) (15,170)
Other assets (53,281) 2,866 
Accounts payable 541,024  155,190 
Accrued and other liabilities 264,576  (1,896)
Net cash provided by operating activities 928,419  324,154 
Cash flows from investing activities:    
Purchases of property, plant and equipment (46,163) (28,667)
Investment in privately held companies (3,525) (310)
Acquisitions, net of cash acquired (360) (91,569)
Proceeds from the sale of property, plant and equipment —  1,037 
Proceeds from return of strategic investments 2,934  — 
Purchases of trading investments (10,672) (3,071)
Proceeds from sales of trading investments 11,332  3,139 
Net cash used in investing activities (46,454) (119,441)
Cash flows from financing activities:    
Payment of cash dividends (146,705) (124,180)
Purchases of registered shares (72,725) (15,127)
Proceeds from exercises of stock options and purchase rights 29,709  11,540 
Tax withholdings related to net share settlements of restricted stock units (29,475) (23,096)
Net cash used in financing activities (219,196) (150,863)
Effect of exchange rate changes on cash and cash equivalents 10,408  (2,320)
Net increase in cash and cash equivalents 673,177  51,530 
Cash and cash equivalents, beginning of the period 715,566  604,516 
Cash and cash equivalents, end of the period $ 1,388,743  $ 656,046 
Supplementary Cash Flow Disclosures:
Non-cash investing and financing activities:    
Property, plant and equipment purchased during the period and included in period end liability accounts $ 14,663  $ 4,871 
Non-cash contingent consideration for acquisition $ 28,463  $ — 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
LOGITECH INTERNATIONAL S.A.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(unaudited)
Three Months Ended December 31, 2019

Additional Paid-in Capital Accumulated Other Comprehensive Loss Total Shareholders’ Equity
  Registered Shares Treasury Shares Retained Earnings
  Shares Amount Shares Amount
September 30, 2019 173,106  $ 30,148  $ 50,913  6,203  $ (163,728) $ 1,359,134  $ (108,930) $ 1,167,537 
Total comprehensive income —  —  —  —  —  117,525  (562) 116,963 
Sales of shares upon exercise of stock options and purchase rights —  —  (1,551) (213) 3,191  —  —  1,640 
Issuance of shares upon vesting of restricted stock units —  —  (3,535) (89) 1,347  —  —  (2,188)
Share-based compensation —  —  13,841  —  —  —  —  13,841 
December 31, 2019 173,106  $ 30,148  $ 59,668  5,901  $ (159,190) $ 1,476,659  $ (109,492) $ 1,297,793 


Nine Months Ended December 31, 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 —  —  —  —  —  235,803  (3,794) 232,009 
Purchases of registered shares —  —  —  389  (15,127) —  —  (15,127)
Sales of shares upon exercise of stock options and purchase rights —  —  2,607  (604) 8,933  —  —  11,540 
Issuance of shares upon vesting of restricted stock units —  —  (39,902) (1,128) 16,806  —  —  (23,096)
Share-based compensation —  —  40,308  —  —  —  —  40,308 
Cash dividends ($0.74 per share)
—  —  —  —  —  (124,180) —  (124,180)
December 31, 2019 173,106  $ 30,148  $ 59,668  5,901  $ (159,190) $ 1,476,659  $ (109,492) $ 1,297,793 





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Table of Contents
Three Months Ended December 31, 2020

      Additional Paid-in Capital       Accumulated Other Comprehensive Loss Total Shareholders’ Equity
  Registered Shares Treasury Shares Retained Earnings
  Shares Amount Shares Amount
September 30, 2020 173,106  $ 30,148  $ 78,617  4,357  $ (166,258) $ 1,882,308  $ (118,852) $ 1,705,963 
Total comprehensive income —  —  —  —  —  382,523  15,935  398,458 
Purchases of registered shares —  —  —  603  (50,271) —  —  (50,271)
Sales of shares upon exercise of stock options and purchase rights —  —  (2,733) (250) 6,376  —  —  3,643 
Issuance of shares upon vesting of restricted stock units —  —  (5,833) (77) 2,102  —  —  (3,731)
Issuance of shares for contingent consideration —  —  18,847  (390) 9,616  —  —  28,463 
Share-based compensation —  —  19,242  —  —  —  —  19,242 
December 31, 2020 173,106  $ 30,148  $ 108,140  4,243  $ (198,435) $ 2,264,831  $ (102,917) $ 2,101,767 
 


Nine Months Ended December 31, 2020

      Additional Paid-in Capital       Accumulated Other Comprehensive Loss Total Shareholders’ Equity
  Registered Shares Treasury Shares Retained Earnings
  Shares Amount Shares Amount
March 31, 2020 173,106  $ 30,148  $ 75,097  6,210  $ (185,896) $ 1,690,579  $ (120,660) $ 1,489,268 
Total comprehensive income —  —  —  —  —  721,510  17,743  739,253 
Cumulative effect of adoption of new accounting standard (Note 1) —  —  —  —  —  (553) —  (553)
Purchases of registered shares —  —  —  915  (72,725) —  —  (72,725)
Sales of shares upon exercise of stock options and purchase rights —  —  (1,368) (1,461) 31,077  —  —  29,709 
Issuance of shares upon vesting of restricted stock units —  —  (48,968) (1,031) 19,493  —  —  (29,475)
Issuance of shares for contingent consideration —  —  18,847  (390) 9,616  —  —  28,463 
Share-based compensation —  —  64,532  —  —  —  —  64,532 
Cash dividends ($0.87 per share)
—  —  —  —  —  (146,705) —  (146,705)
December 31, 2020 173,106  $ 30,148  $ 108,140  4,243  $ (198,435) $ 2,264,831  $ (102,917) $ 2,101,767 


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

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Table of Contents
LOGITECH INTERNATIONAL S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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

The Company
 
Logitech International S.A, together with its consolidated subsidiaries, (Logitech or the Company) designs, manufactures and markets products that have an everyday place in people's lives, connecting them to the digital experiences they care about. Almost 40 years ago, Logitech created products to improve experiences around the personal PC platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating any digital content such as computing, gaming, video and music, whether it is on a computer, mobile device or in the cloud. 
The Company sells its products to a broad network of domestic and international customers, including direct sales to retailers and e-tailers and indirect sales through distributors.
Logitech was founded in Switzerland in 1981 and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Apples, Switzerland and headquarters in Lausanne, Switzerland, which conducts its business through subsidiaries in the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific. Shares of Logitech International S.A. are listed on both the SIX Swiss Exchange under the trading symbol LOGN and the Nasdaq Global Select Market under the trading symbol LOGI.

Basis of Presentation
 
The condensed consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (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, 2020, included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on May 27, 2020. 

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 nine months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021, or any future periods.

Changes in Significant Accounting Policies

Other than the recent accounting pronouncements adopted and discussed below under Recent Accounting Pronouncements Adopted, there have been no material changes in the Company’s significant accounting policies during the nine months ended December 31, 2020 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

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Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Significant estimates and assumptions made by management involve fair value of goodwill and intangible assets acquired from business acquisitions, valuation of right-of-use assets, valuation of investment in privately held companies classified under Level 3 of the fair value hierarchy, pensions obligations, warranty liabilities, accruals for customer incentives, cooperative marketing, and pricing programs (Customer Programs) and related breakage when appropriate, accrued sales return liability, inventory valuation, share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ materially from these estimates.
 
Risks and Uncertainties
We are subject to risks and uncertainties as a result of the novel coronavirus (COVID-19). Capital markets and economies worldwide have been negatively impacted by COVID-19 and it is still unclear how lasting and deep the economic impacts will be. During the three and nine months ended December 31, 2020, the COVID-19 pandemic had mixed effects on the Company’s results of operations, and it may continue to have mixed or adverse effects. While there was high demand for and consumption of certain of our products that led to increased sales and operating income during the three and nine months ended December 31, 2020, at the same time the Company experienced disruptions and higher costs in our manufacturing, supply chain and logistics operations and outsourced services. The ongoing and full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition, including the sustainability of its effect on trends positive to the Company, is uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the availability of vaccines and their global deployment, the development of effective treatments, the imposition of effective public safety and other protective measures and the public's response to such measures, the impact of COVID-19 on the global economy and demand for the Company's products and services. Should the COVID-19 pandemic or global economic slowdown not improve or worsen, or if the Company's attempt to mitigate its impact on its operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.
Recent Accounting Pronouncements Adopted

In 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 was further updated and clarified by the FASB through issuance of additional related ASUs, 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. The Company adopted this standard effective April 1, 2020, using a modified retrospective approach. Upon adoption, the Company updated its credit loss models to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost, including accounts receivable. The cumulative effect adjustment from adoption was not material to the Company's condensed consolidated financial statements.  

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 eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others retrospectively depending on requirement. The Company adopted this standard effective April 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's condensed consolidated financial statements.

11
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 requires that the Company remove various disclosures that no longer are considered cost-beneficial, namely amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. Further, ASU 2018-14 requires disclosure or clarification of the reasons for significant gains or losses related to changes in the benefit obligation for the period. The Company adopted this standard effective April 1, 2020 using a retrospective approach and the updated disclosures will be included in the Company's Form 10-K for the fiscal year ending March 31, 2021. The adoption of ASU 2018-14 did not have an impact on the Company's condensed consolidated financial statements.

Recent Accounting Pronouncements To Be Adopted

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (ASU 2019-12), which eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently assessing the impact of ASU 2019-12 on its consolidated financial statements and plans to adopt the standard effective April 1, 2021.

Note 2 — Net Income Per Share
 
The following table summarizes the computations of basic and diluted net income per share for the three and nine months ended December 31, 2020 and December 31, 2019 (in thousands, except per share amounts):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Net income $ 382,523  $ 117,525  $ 721,510  $ 235,803 
Shares used in net income per share computation:        
Weighted average shares outstanding - basic 169,050  167,063  168,448  166,678 
Effect of potentially dilutive equivalent shares 3,537  2,622  2,930  2,495 
Weighted average shares outstanding - diluted 172,587  169,685  171,378  169,173 
Net income per share:        
Basic $ 2.26  $ 0.70  $ 4.28  $ 1.41 
Diluted $ 2.22  $ 0.69  $ 4.21  $ 1.39 
 
Share equivalents attributable to outstanding stock options, restricted stock units ("RSUs") and employee share purchase plan ("ESPP") rights totaling 0.3 million and 1.8 million for the three months ended December 31, 2020 and 2019, respectively, and 0.4 million and 1.8 million for the nine months ended December 31, 2020 and 2019, respectively, were excluded from the calculation of diluted net income per share because the combined exercise price and average unamortized grant date fair value upon exercise of these options and ESPP rights or vesting of RSUs were greater than the average market price of the Company's shares during the periods presented herein, and therefore their inclusion would have been anti-dilutive. A small number of performance-based awards were not included in the calculation because all necessary conditions had not been satisfied by the end of the respective period, and those shares were not issuable if the end of the reporting period were the end of the performance contingency period.
 
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Note 3 — Employee Benefit Plans
 
Employee Share Purchase Plans and Stock Incentive Plans
 
As of December 31, 2020, 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 and nine months ended December 31, 2020 and 2019 (in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Cost of goods sold $ 1,747  $ 1,210  $ 4,919  $ 3,552 
Marketing and selling 8,390  6,216  27,559  20,016 
Research and development 3,482  2,242  10,348  6,644 
General and administrative 6,195  4,163  21,888  10,089 
Total share-based compensation expense 19,814  13,831  64,714  40,301 
Income tax benefit (3,471) (3,135) (15,540) (12,658)
Total share-based compensation expense, net of income tax benefit $ 16,343  $ 10,696  $ 49,174  $ 27,643 

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 December 31, 2020 and 2019, the balance of capitalized share-based compensation included in inventory was $1.0 million and $0.9 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 $2.9 million and $2.3 million for the three months ended December 31, 2020 and 2019, respectively, and $8.3 million and $7.1 million for the nine months ended December 31, 2020 and 2019, 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 canton of Vaud enacted the Federal Act on Tax Reform and AHV Financing ("TRAF"), a major reform to better align the Swiss tax system with international tax standards, on March 10, 2020 that took effect as of January 1, 2020. The longstanding tax ruling from the canton of Vaud was applicable through December 31, 2019.

The income tax provision for the three months ended December 31, 2020 was $72.3 million based on an effective income tax rate of 15.9% of pre-tax income, compared to an income tax provision of $14.5 million based on an effective income tax rate of 11.0% of pre-tax income for the three months ended December 31, 2019. The income tax provision for the nine months ended December 31, 2020 was $142.6 million based on an effective income tax rate of 16.5% of pre-tax income, compared to an income tax provision of $18.4 million based on an effective income tax rate of 7.2% of pre-tax income for the nine months ended December 31, 2019.
13

The change in the effective income tax rate for the three and nine months ended December 31, 2020, compared to the same periods ended December 31, 2019 was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates. The Swiss income tax provision in the three and nine months ended December 31, 2020 represents the income tax provision at the full statutory income tax rate of 13.63%. In the same periods ended December 31, 2019 when TRAF was yet to be enacted at the federal and cantonal levels, the transition income tax provision reflects the application of the longstanding tax ruling through December 31, 2019. Furthermore, there was a discrete tax benefit of $1.7 million from adjusting deferred tax assets and liabilities in Switzerland in the nine months ended December 31, 2019. There were discrete tax benefits of $7.2 million and $2.9 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 nine-month period ended December 31, 2020, compared with $6.0 million and $2.7 million, respectively, in the nine-month period ended December 31, 2019.

As of December 31, 2020 and March 31, 2020, the total amount of unrecognized tax benefits due to uncertain tax positions was $158.8 million and $140.8 million, respectively, all of which would affect the effective income tax rate if recognized.

As of December 31, 2020 and March 31, 2020, the Company had $60.8 million and $40.8 million, respectively, in non-current income taxes payable including interest and penalties, related to the Company's income tax liability for uncertain tax positions.
 
The Company recognizes interest and penalties related to unrecognized tax positions in the income tax provision. As of December 31, 2020 and March 31, 2020, the Company had $4.7 million and $4.5 million, respectively, of accrued interest and penalties related to uncertain tax positions in non-current income taxes payable.
 
Although the Company has adequately provided for uncertain tax positions, the provisions related to these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2021, the Company continues to review its tax positions and provide for or reverse unrecognized tax benefits as they arise. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to other currencies. Excluding these factors, uncertain tax positions may decrease by as much as $4.4 million from the lapse of the statutes of limitations in various jurisdictions during the next twelve months.

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Note 5 — Balance Sheet Components
 
The following table presents the components of certain balance sheet asset amounts as of December 31 and March 31, 2020 (in thousands): 
December 31, 2020 March 31, 2020
Accounts receivable, net:    
Accounts receivable $ 1,196,050  $ 597,939 
Allowance for doubtful accounts (1,328) (1,894)
Allowance for sales returns (14,665) (6,599)
Allowance for cooperative marketing arrangements (53,387) (38,794)
Allowance for customer incentive programs (91,863) (55,741)
Allowance for pricing programs (139,870) (100,168)
  $ 894,937  $ 394,743 
Inventories:    
Raw materials $ 94,748  $ 56,052 
Finished goods 382,054  173,197 
  $ 476,802  $ 229,249 
Other current assets:    
Value-added tax receivables $ 60,746  $ 33,616 
Prepaid expenses and other assets 56,995  41,304 
  $ 117,741  $ 74,920 
Property, plant and equipment, net:    
Property, plant and equipment at cost $ 392,478  $ 346,506 
Accumulated depreciation and amortization (295,795) (270,387)
$ 96,683  $ 76,119 
Other assets:    
Deferred tax assets $ 219,145  $ 240,528 
Right-of-use assets 31,532  25,557 
Trading investments for deferred compensation plan 24,056  20,085 
Investments in privately held companies 44,634  45,949 
Other assets 14,366  12,900 
  $ 333,733  $ 345,019 
15

The following table presents the components of certain balance sheet liability amounts as of December 31 and March 31, 2020 (in thousands): 
December 31, 2020 March 31, 2020
Accrued and other current liabilities:    
Accrued personnel expenses $ 138,735  $ 104,423 
Accrued sales return liability 33,540  30,267 
Accrued customer marketing, pricing and incentive programs 163,335  130,220 
Operating lease liability 12,620  10,945 
Accrued freight and duty 43,477  13,284 
Warranty accrual 32,128  25,905 
Income taxes payable 81,547  8,823 
Contingent consideration 537  23,284 
Other current liabilities 198,654  107,873 
  $ 704,573  $ 455,024 
Other non-current liabilities:    
Warranty accrual $ 15,464  $ 14,134 
Obligation for deferred compensation plan 24,056  20,085 
Employee benefit plan obligations 66,420  61,303 
Operating lease liability 22,537  19,536 
Deferred tax liability 1,931  1,931 
Other non-current liabilities 3,613  2,285 
  $ 134,021  $ 119,274 


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): 
  December 31, 2020 March 31, 2020
  Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets:        
Cash equivalents $ 465,838  $ —  $ —  $ 564,952  $ —  $ — 
             
Trading investments for deferred compensation plan included in other assets:        
Cash $ 75  $ —  $ —  $ 846  $ —  $ — 
Common stock 1,544  —  —  —  —  — 
Money market funds 7,147  —  —  7,147  —  — 
Mutual funds 15,290  —  —  12,092  —  — 
Total of trading investments for deferred compensation plan $ 24,056  $ —  $ —  $ 20,085  $ —  $ — 
Currency exchange derivative assets
included in other current assets 		$ —  $ —  $ —  $ —  $ 129  $ — 
Liabilities:
Contingent consideration for business acquisition included in accrued and other current liabilities $ —  $ —  $ —  $ —  $ —  $ 23,284 
Currency exchange derivative liabilities
included in accrued and other current liabilities 		$ —  $ 4,523  $ —  $ —  $ 719  $ — 
The following table summarizes the change in the fair value of the Company's contingent consideration balance during the nine months ended December 31, 2020 (in thousands):
Nine Months Ended
December 31, 2020
Beginning of the period $ 23,284 
Change in fair value of contingent consideration 5,716 
Settlement of contingent consideration (28,463)
End of the period (1) $ 537 
(1) As of June 30, 2020, the earn-out period was completed in connection with our acquisition of Streamlabs (defined below). The earn-out payment of $29.0 million is based on the actual net sales of Streamlabs services during the earn-out period and is no longer subject to fair value measurement and was accordingly transferred out of Level 3. During the third quarter of 2021, the fair value of $28.5 million of the contingent consideration was transferred from other current liabilities to equity upon settlement of the contingent consideration through the issuance of shares out of treasury stock. The remaining amount of $0.5 million is held back in escrow for claims made against the escrow and for the payment of taxes.

Investment Securities
 
The marketable securities for the Company's deferred compensation plan were recorded at a fair value of $24.1 million and $20.1 million, as of December 31, 2020 and March 31, 2020, 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 and nine months ended December 31, 2020 and 2019 were not material and are included in other income, net in the Company's condensed consolidated statements of operations.

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Contingent Consideration for Business Acquisition

On October 31, 2019 (the "Streamlabs Acquisition Date"), the Company acquired all of the equity interests of General Workings, Inc. ("Streamlabs"). In connection with the acquisition of Streamlabs, the Company agreed to pay a total earn out payment of $29.0 million, payable in stock, only upon the achievement of certain net revenues for the period beginning on January 1, 2020 and ending on June 30, 2020.

The fair value of the earn-out as of the Streamlabs Acquisition Date was $0.04 million, and increased to $23.3 million as of March 31, 2020, which was determined by using a Black-Scholes-Merton valuation model to calculate the probability of the earn-out threshold being met and times the value of the earn-out payment, and discounted at the risk-free rate. The fair value was increased by $5.7 million to $29.0 million as of June 30, 2020, based on actual sales. The fair value of the contingent consideration no longer needs to be remeasured after June 30, 2020, as the earn-out period has been completed.

During the third quarter of fiscal 2021, Logitech issued 390,397 shares out of treasury shares to former security holders of Streamlabs, in satisfaction of payment of the contingent consideration that was earned during the earn-out period of January 1, 2020 through June 30, 2020. The issuances of such shares were deemed to be exempt from registration under the Securities Act of 1933 (the "Securities Act"), in reliance on Regulation D of the Securities Act as transactions by an issuer not involving a public offering.


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 $39.9 million and $42.1 million as of December 31, 2020 and March 31, 2020, respectively. Unrealized gains (losses) related to equity investments for the three and nine months ended December 31, 2020 and 2019 were not material and are included in other income, net in the Company's condensed consolidated statements of operations. There was no impairment of these assets during the three and nine months ended December 31, 2020 or 2019.

Other 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 was immaterial as of December 31, 2020 and March 31, 2020. There was no impairment of these assets during the three and nine months ended December 31, 2020 or 2019.

Non-Financial Assets. Goodwill, intangible assets, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur (or tested at least annually for goodwill) such that a non-financial instrument is required to be evaluated for impairment and an impairment is recorded to reduce the non-financial instrument's carrying value to the fair value as a result of such triggering events, the non-financial assets and liabilities are measured at fair value for the period such triggering events occur. There was no impairment of these assets during the three and nine months ended December 31, 2020 or 2019.
 
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 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 December 31, 2020 and March 31, 2020.

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The fair value of the Company’s derivative instruments was not material as of December 31, 2020 or March 31, 2020. 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 and nine months ended December 31, 2020 and 2019 (in thousands):
Three Months Ended
December 31,
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
  2020 2019 2020 2019
Cash flow hedges $ (6,326) $ (1,381) $ 3,446  $ (739)

Nine Months Ended
December 31,
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
  2020 2019 2020 2019
Cash flow hedges $ (9,752) $ 56  $ 5,085  $ (1,097)

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 $166.1 million as of December 31, 2020 and $48.0 million as of March 31, 2020. The Company had $4.9 million of net losses related to its cash flow hedges included in accumulated other comprehensive loss as of December 31, 2020, 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, net in the condensed consolidated statements of operations based on the changes in fair value. The notional amounts of these contracts outstanding as of December 31, 2020 and March 31, 2020 were $157.2 million and $64.7 million, respectively. Open forward and swap contracts outstanding as of December 31, 2020 and March 31, 2020 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.

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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. The Company conducted its annual impairment analysis of goodwill as of December 31, 2020 by performing a qualitative assessment and concluded that it was more likely than not that the fair value of its reporting unit exceeds its carrying amount. In assessing the qualitative factors, the Company considered the impact of change in industry and competitive environment, growth in the Company's market capitalization and budgeted-to-actual revenue performance for the last twelve months.

The following table summarizes the activities in the Company’s goodwill balance during the nine months ended December 31, 2020 (in thousands):

As of March 31, 2020 $ 400,917 
Currency translation 76 
As of December 31, 2020 $ 400,993 
The Company's acquired intangible assets subject to amortization were as follows (in thousands):
  December 31, 2020 March 31, 2020
  Gross Carrying Amount Accumulated
Amortization 		Net Carrying Amount Gross Carrying Amount Accumulated
Amortization 		Net Carrying Amount
Trademark and trade names $ 45,570  $ (23,615) $ 21,955  $ 45,570  $ (19,061) $ 26,509 
Developed technology 118,807  (86,922) 31,885  118,807  (77,126) 41,681 
Customer contracts/relationships 90,610  (41,136) 49,474  90,610  (31,859) 58,751 
Total $ 254,987  $ (151,673) $ 103,314  $ 254,987  $ (128,046) $ 126,941 

Note 9 — Financing Arrangements
 
The Company had several uncommitted, unsecured bank lines of credit aggregating $82.6 million as of December 31, 2020. There are no financial covenants under these lines of credit with which the Company must comply. As of December 31, 2020, the Company had outstanding bank guarantees of $37.8 million under these lines of credit. There was no borrowing outstanding under these lines of credit as of December 31, 2020 or March 31, 2020.

Note 10 — Commitments and Contingencies
 
Product Warranties
 
Changes in the Company’s warranty liability for the three and nine months ended December 31, 2020 and 2019 were as follows (in thousands): 
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Beginning of the period $ 41,782  $ 37,222  $ 40,039  $ 34,229 
Provision 13,692  9,608  28,575  26,652 
Settlements (8,371) (6,840) (22,073) (20,544)
Currency translation 489  187  1,051  (160)
End of the period $ 47,592  $ 40,177  $ 47,592  $ 40,177 

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
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indemnities varies, but in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. As of December 31, 2020, 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.

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 authorized the Company to use up to $250.0 million to purchase up to 17.3 million shares of Logitech shares. This share buyback program expired in April 2020. The Company did not repurchase any of its registered shares during April 2020.

In May 2020, the Company's Board of Directors approved the 2020 share buyback program, which authorized the Company to use up to $250.0 million to purchase up to 17.3 million of Logitech 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 December 31, 2020, $177.6 million is still available for repurchase under the 2020 buyback program.

Dividends

During the three and nine months ended December 31, 2020, the Company declared and paid cash dividends of CHF 0.79 (USD equivalent of $0.87) per share, totaling $146.7 million on the Company's outstanding shares. During the three and nine months ended December 31, 2019, the Company declared and paid cash dividends of CHF 0.73 (USD equivalent of $0.74) per share, totaling $124.2 million on the Company's outstanding shares.

Any future dividends will be subject to approval of the Company's shareholders.

Additional Authorized and Conditional Shares

The Company has reserved conditional capital of 25,000,000 shares for potential issuance on the exercise of rights granted under the Company's employee equity incentive plans and additional conditional capital for financing purposes, representing the issuance of up to 25,000,000 shares to cover any conversion rights under a future convertible bond issuance. At the 2018 Annual General Meeting, the shareholders of the Company authorized the Board of Directors to issue up to an additional 34,621,324 shares of the Company until September 5, 2020, which authority expired on that date. At the 2020 Annual General Meeting, the shareholders of the Company authorized the Board of Directors to issue up to an additional 17,310,662 shares of the Company until September 9, 2022.
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Accumulated Other Comprehensive Income (Loss)
 
The accumulated other comprehensive income (loss) was as follows (in thousands):
  Accumulated Other Comprehensive Income (Loss)
Cumulative
Translation
Adjustment 		Defined
Benefit
Plan 		Deferred Hedging Losses Total
March 31, 2020 $ (100,418) $ (20,016) $ (226) $ (120,660)
Other comprehensive income (loss) 22,206  204  (4,667) 17,743 
December 31, 2020 $ (78,212) $ (19,812) $ (4,893) $ (102,917)
 
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.

Sales by product categories and sales channels, excluding intercompany transactions, for the three and nine months ended December 31, 2020 and 2019 were as follows (in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Pointing Devices $ 213,638  $ 154,540  $ 503,228  $ 409,293 
Keyboards & Combos 218,269  156,333  565,246  424,061 
PC Webcams 131,700  32,165  295,020  89,041 
Tablet & Other Accessories 138,052  31,256  267,186  103,442 
Gaming (1)
436,426  245,736  916,040  541,265 
Video Collaboration 292,500  91,964  659,278  254,941 
Mobile Speakers 72,566  92,969  145,156  200,617 
Audio & Wearables 152,952  81,934  338,592  208,576 
Smart Home 10,593  15,790  25,976  35,088 
Other (2)
606  —  632  279 
Total sales $ 1,667,302  $ 902,687  $ 3,716,354  $ 2,266,603 

(1) Gaming includes streaming services revenue generated by Streamlabs.
(2) Other 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 and nine months ended December 31, 2020 and 2019 were as follows (in thousands):
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Three Months Ended
December 31, 		Nine Months Ended
December 31,
2020 2019 2020 2019
Americas $ 704,718  $ 380,493  $ 1,603,221  $ 970,775 
EMEA 547,044  308,907  1,147,393  719,994 
Asia Pacific 415,540  213,287  965,740  575,834 
Total sales $ 1,667,302  $ 902,687  $ 3,716,354  $ 2,266,603 
 
Sales are attributed to countries on the basis of the customers’ locations.

The United States and Germany each represented 10% or more 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 and nine months ended December 31, 2020, respectively, and represented 4% of the Company's total consolidated sales for the three and nine months ended December 31, 2019, respectively.

Two customers of the Company each represented 10% or more of the total consolidated sales for each of the periods presented herein.
Property, plant and equipment, net by geographic region were as follows (in thousands):
December 31, 2020 March 31, 2020
Americas $ 21,859  $ 26,636 
EMEA 6,998  5,052 
Asia Pacific 67,826  44,431 
Total property, plant and equipment, net $ 96,683  $ 76,119 
 
Property, plant and equipment, net in the United States and China were $21.6 million and $59.6 million, respectively, as of December 31, 2020, and $26.5 million and $36.6 million, respectively, as of March 31, 2020. No other countries represented 10% or more of the Company’s total consolidated property, plant and equipment, net as of December 31, 2020 or March 31, 2020. Property, plant and equipment, net in Switzerland, the Company’s home domicile, were $4.6 million and $2.3 million as of December 31, 2020 and March 31, 2020, respectively.
 
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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 and by geographic region, our new product introductions, our expectations regarding the potential growth opportunities for our products in mature and emerging markets and the enterprise market, our expectations regarding the impact of COVID-19 on our business and results of operations, 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, video collaboration, audio, pointing devices, wearables, remotes, microphones, streaming and other accessories and computer devices and related software and services, the interoperability of our products with 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 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, 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 below and 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. Almost 40 years ago, Logitech created products to improve experiences around the personal computer (PC) platform, and today it is a multi-brand, multi-category company designing products that enable better experiences when consuming, sharing and creating digital content such as computing, gaming, video and music, whether it is on a computer, mobile device or in the cloud. Logitech's brands include Logitech, Logitech G, ASTRO Gaming, Streamlabs, Ultimate Ears, Jaybird, and Blue Microphones. Our Company's website is www.logitech.com.
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Our products participate in five large market opportunities: Creativity & Productivity, Gaming, Video Collaboration, Music and Smart Home. 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.
Impacts of COVID-19 to Our Business
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, which continues to spread throughout the world. The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus and, in certain markets in which we operate, government authorities have from time to time issued orders that require the closure of or restrictions on non-essential businesses and people to be quarantined or to shelter-at-home. The COVID-19 pandemic has significantly curtailed global economic activity, caused significant volatility and disruption in global financial and commercial markets, and is likely to continue to lead to recessionary pressures for an indeterminate amount of time. We are conducting our business with substantial modifications, such as employee remote work in non-manufacturing facilities and travel limitations, among other changes. We are continuing to actively monitor the situation and may take further actions that could alter our business operations as may be required by federal, state or local authorities in the countries in which we operate, or that we determine are in the best interest of our employees, customers, partners, suppliers or shareholders. It is not clear what the potential effects of COVID-19 or any such modifications or alterations may have on our business, results of operations, financial operations, financial condition and stock price.
During February 2020, following the initial outbreak of COVID-19 in China, we experienced disruptions to our manufacturing, supply chain and logistics services, resulting in temporary inventory declines and an increase in logistics costs. We continued to see disruptions to our supply chain and logistics services, inventory constraints and increased logistics costs during the remainder of the fourth quarter of fiscal year 2020 and the first, second, and third quarters of fiscal year 2021 as we attempted to address the effects of COVID-19, including health-related issues, changing regulations, and increased demand for and depleted inventories of some of our products. At the same time, due to the ongoing shelter-at-home requirements or recommendations in many countries, there has been acceleration of the work-from-home, study-from-home, gaming, video collaboration and streaming trends and high demand and consumption of certain of our products that have led to increased sales and operating income. While it is not yet clear how long the positive demand dynamics will continue, we expect the increased logistics costs and other adverse effects on our gross margins from COVID-19 to continue through the remainder of fiscal year 2021. It is difficult to predict the progression, the duration and all of the effects of COVID-19, when business restrictions and shelter-at-home guidelines may be eased or lifted, and how consumer demand, inventory and logistical effects and costs may evolve over time, or the impact on our future sales and results of operations. Some of this impact will undoubtedly occur over multiple financial periods and may have a lag effect between periods, such as what we are able to manufacture in one period affecting sales, channel inventory or logistics costs in subsequent periods. The full extent of the impact of COVID-19 on our business and our operational and financial performance is currently uncertain and will depend on many factors outside our control. For additional information, see "Liquidity and Capital resources" below and "Item IA: Risk Factors", including under the caption "The full effect of the COVID-19 pandemic is uncertain and cannot be predicted, and it could adversely affect the Company's business, results of operations and financial condition."
Summary of Financial Results

Our total sales for the three and nine months ended December 31, 2020 increased 85% and 64%, respectively, compared to the three and nine months ended December 31, 2019, due to stronger sales across all regions and several of our product categories from increased remote work and distance learning trends, accelerated adoption of video communications, and greater gaming viewership, creation, and participation from home, as a result of COVID-19. The results of operations for Streamlabs have been included in our consolidated statement of operations from the acquisition date.

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Our sales for the three months ended December 31, 2020 increased 85%, 77%, and 95% in the Americas, EMEA and Asia Pacific, respectively, compared to the same period of the prior fiscal year. Our sales for the nine months ended December 31, 2020 increased 65%, 59%, and 68% in the Americas, EMEA and Asia Pacific, respectively, compared to the same period of the prior fiscal year.

Our gross margin for the three months ended December 31, 2020 increased by 780 basis points to 44.9% from 37.1% for the three months ended December 31, 2019. Our gross margin for the nine months ended December 31, 2020 increased by 640 basis points to 43.7% from 37.3% for the nine months ended December 31, 2019. Our gross margin for both periods benefited from higher sales volume, continued restrained promotional spending, favorable product mix, and favorable exchange rates, which more than offset higher logistics operations costs.

Operating expenses for the three months ended December 31, 2020 were $300.9 million, or 18.0% of sales, compared to $205.6 million, or 22.8% of sales in the same period of the prior fiscal year.

Operating expenses for the nine months ended December 31, 2020 were $771.4 million, or 20.8% of sales, compared to $601.2 million, or 26.5% of sales in the same period of the prior fiscal year.

Net income for the three and nine months ended December 31, 2020 was $382.5 million and $721.5 million, respectively, compared to $117.5 million and $235.8 million for the three and nine months ended December 31, 2019, respectively.
 
Trends in Our Business
 
Our products participate in five large multi-category market opportunities, including Creativity & Productivity, Gaming, Video Collaboration, Music and Smart Home. We see opportunities to deliver growth with products in all these markets. The following discussion represents key trends specific to our market opportunities.
Trends Specific to Our Five Market Opportunities
Creativity & Productivity:  New PC shipments have continued to be strong recently due to work-from-home and learn-from-home trends. We believe that innovative PC peripherals, such as our mice and keyboards, can renew the PC usage experience and help improve the productivity and engagement of remote work, distance learning, and telemedicine, thus providing growth opportunities. Increasing adoption of various cloud-based applications has led to multiple unique consumer use cases, which we are addressing with our innovative product portfolio and a deep understanding of our customer base. The increasing popularity of streaming and broadcasting, as well as the rising work-from-home trend, provides additional growth opportunities for our webcam products as well as other products in our portfolio. 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 other iPad models. Hybrid and distance learning environments have also created demand and growth opportunities for our education tablet keyboards and accessories.
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 and social, particularly as other recreational activities have been curtailed or restricted during shelter-at-home mandates. The new console refresh cycle during the holiday season of 2020 could drive subsequent growth opportunities over the coming years for our ASTRO family of headsets and controllers. We believe Logitech is well positioned to benefit from the overall gaming market growth. Our acquisition of Streamlabs provides a solid platform to deliver recurring services and subscriptions to gamers.
Video Collaboration: The near and long-term structural growth opportunities in the video collaboration market (VC) have never been more relevant than in today’s environment, as commercial and consumer adoption of video has seen explosive growth since the start of the COVID-19 pandemic. Video meetings continue to be on the rise, and companies increasingly want lower-cost, cloud-based solutions that can provide their employees with the ability to work from anywhere. We are continuing our efforts to create and sell innovative products to accommodate the increasing demand from home offices and small-size meeting rooms, such as huddle rooms, to medium and large-sized meeting rooms. We are also experiencing significant demand for our enterprise-grade VC webcams and headsets. We will continue to invest in select business-specific products (both hardware and software), targeted product marketing and sales channel development.
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Music: The mobile speaker market has remained soft, and has further weakened as physical retail stores have been recently closed and the retail footprint has decreased significantly due to the COVID-19 pandemic. The integration of personal voice assistants has become increasingly competitive in the speaker categories, and 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 the past two years. In fiscal year 2020, the wireless headphone industry continued to flourish with strong revenue growth but has slowed in recent months. The largest growth is in true wireless headphones while traditional wireless headphones have declined significantly. Continued growth in the wireless headphone market is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones. Blue Microphones has experienced strong demand as musicians, performers and streamers increasingly look to entertain and engage with their fans on various online platforms like YouTube, Twitch, and Facebook.
Smart Home: Our remote Harmony business declined substantially in fiscal year 2020, offset by growth in our Circle 2 family of security cameras. This trend continued during the nine months of fiscal year 2021. In general, our Harmony and Circle 2 products are under pressure as the way people consume content is changing and as retail stores have been closed or subject to restrictions. The smart home market opportunity is broad and we will continue to explore other innovative experiences to drive growth in 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. Due to the spike in the number of cases from the COVID-19 pandemic, and the ongoing shelter-at-home requirements, the third fiscal quarter experienced an even higher demand and consumption of most of our products. Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses. Product introductions can also impact our sales to 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. Furthermore, cash flow is correspondingly lower in the first half of the fiscal year as we typically build inventories in advance for the third quarter and we pay an annual dividend following our Annual General Meeting, which is typically in September.
Swiss Federal Tax Reform
As described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, the canton of Vaud in Switzerland enacted TRAF on March 10, 2020 that took effect as of January 1, 2020. Our cash tax payments have increased in Switzerland beginning in fiscal year 2020 as a result of our transition out of our longstanding tax ruling from the canton of Vaud.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

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We believe that the assumptions, judgments and estimates involved in the accounting for accruals for customer incentives, cooperative marketing, and pricing programs (Customer Programs) and related breakage when appropriate, accrued sales return liability, inventory valuation and uncertain tax positions have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.
There have been no material changes in our critical accounting policies and estimates during the nine months ended December 31, 2020 compared with the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

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 three months ended December 31, 2020, approximately 54% of our sales were denominated in currencies other than the U.S. Dollar.
Results of Operations
Net Sales
Our sales in the three and nine months ended December 31, 2020 increased 85% and 64%, respectively, compared to the same period of the prior fiscal year, driven by sales increases in all regions and several of our product categories from increased work-from-home and study-from-home trends, as a result of various shelter-at-home mandates. Strong sales growth in Video Collaboration, Gaming, PC Webcams, Tablet and Other Accessories, Keyboards & Combos, Audio & Wearables, and Pointing Devices was partially offset by a decline in sales of Mobile Speakers and Smart Home. If currency exchange rates had been constant in the three and nine months ended December 31, 2020 and 2019, our constant dollar sales growth rate would have been 80% and 63%, respectively.

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Sales by Region
 
The following table presents the change in sales by region for the three and nine months ended December 31, 2020, compared with the three and nine months ended December 31, 2019:
Sales Growth Rate Constant Dollar
Sales Growth Rate
Three Months Ended
December 31, 2020 		Nine Months Ended
December 31, 2020 		Three Months Ended
December 31, 2020 		Nine Months Ended
December 31, 2020
Americas 85  % 65  % 87  % 67  %
EMEA 77  % 59  % 67  % 55  %
Asia Pacific 95  % 68  % 89  % 66  %

Americas:
 
The increase in sales in our Americas region for both the three and nine month periods was primarily driven by growth in sales across a majority of our product categories, partially offset by a decline in sales of Mobile Speakers and Smart Home.
 
EMEA:
 
The increase in sales in our EMEA region for both the three and nine month periods was primarily driven by growth in sales across a majority of our product categories, partially offset by a decline in sales of Mobile Speakers and Smart Home.

Asia Pacific:
 
The increase in sales in our Asia Pacific region for both the three and nine month periods was driven by growth in sales across a majority of our product categories, partially offset by a decline in sales of Mobile Speakers and Smart Home.


Sales by Product Categories
 
Sales by product categories for the three and nine months ended December 31, 2020 and 2019 were as follows (Dollars in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 Change 2020 2019 Change
Pointing Devices $ 213,638  $ 154,540  38  % $ 503,228  $ 409,293  23  %
Keyboards & Combos 218,269  156,333  40  565,246  424,061  33 
PC Webcams 131,700  32,165  309  295,020  89,041  231 
Tablet & Other Accessories 138,052  31,256  342  267,186  103,442  158 
Gaming (1)
436,426  245,736  78  916,040  541,265  69 
Video Collaboration 292,500  91,964  218  659,278  254,941  159 
Mobile Speakers 72,566  92,969  (22) 145,156  200,617  (28)
Audio & Wearables 152,952  81,934  87  338,592  208,576  62 
Smart Home 10,593  15,790  (33) 25,976  35,088  (26)
Other (2)
606  —  —  632  279  127 
Total sales $ 1,667,302  $ 902,687  85  % $ 3,716,354  $ 2,266,603  64  %

(1) Gaming includes streaming services revenue generated by Streamlabs.
(2) Other includes products that we currently intend to phase out, or have already phased out, because they are no longer strategic to our business.
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Creativity & Productivity Market:

Pointing Devices
 
Our Pointing Devices category comprises PC- and Mac-related mice including trackballs, touchpads and presenters.
 
Sales of Pointing Devices increased 38% and 23% in the three and nine months ended December 31, 2020, respectively, compared to the same period of the prior fiscal year. The increases in both periods were primarily driven by the increase in sales of cordless and trackball mice, partially offset by a decline in sales of our presentation tools, as most conferences, events, and other large-scale presentations remained prohibited.

Keyboards & Combos
 
Our Keyboards & Combos category comprises PC keyboards, living room keyboards and keyboard/mice combo products.
 
Sales of Keyboards & Combos increased 40% and 33% in the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increases in both periods were driven by an increase in sales of our cordless keyboards and wireless keyboards/mice combos, partially offset by a decline in sales of our living room keyboards. The increase in the nine-month period was further partially offset by a decline in sales of our corded keyboards/mice combos.

PC Webcams
 
Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.
 
PC Webcams sales increased 309% and 231% in the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increases for both periods were across all product sub-categories, primarily driven by an increase in sales of our HD Pro Webcam C920, 1080P PRO Stream Webcam, Webcam C60, and Logitech Streamcam, mostly due to more remote work adoption and learning-from-home.

Tablet & Other Accessories
 
Our Tablet & Other Accessories category primarily comprises keyboards for tablets.
 
Sales of Tablet & Other Accessories products increased 342% and 158% in the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increase for both periods was primarily driven by an increase in the sales of our Rugged Folio keyboard cases for a newer generation of iPads and Slim Folio keyboard for iPad 7th generation, both introduced in the third quarter of fiscal year 2020, and our Powered Wireless Charging 3-in-1 Dock, introduced in the fourth quarter of fiscal year 2020. We have seen strong demand for Tablet keyboards, partly due to schools embracing various technology devices to better educate students in learning-from-home environments.

Gaming market:
 
Our Gaming category comprises gaming mice, keyboards, headsets, gamepads, steering wheels, simulation controllers, console gaming headsets, and Streamlabs services.
 
Gaming sales increased 78% and 69% for the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increase for both periods was primarily driven by increases in the sales of nearly all our product sub-categories, including Streamlabs services, our business acquisition in the third quarter of fiscal year 2020. The increases for both periods was partially offset by a decline in the sales of our console gaming controllers.

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Video Collaboration market:

Our Video Collaboration category primarily includes Logitech’s ConferenceCams, which combine affordable enterprise-quality audio and high definition (HD) 1080p video to bring video conferencing to businesses of any size.

Sales of Video Collaboration products increased 218% and 159% in the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increases for both periods were primarily driven by the sales of our Rally Ultra-HD conference camera system, BRIO 4K Pro Webcam, Webcam C390e, and Webcam C925E as video communications become more critical for a more location-flexible workforce.

Music market:
 
Mobile Speakers
 
Our Mobile Speakers category is made up entirely of Bluetooth wireless speakers.

Sales of Mobile Speakers decreased 22% and 28% for the three and nine months ended December 31, 2020, compared to the same periods of the prior fiscal year. The decreases for both periods were primarily driven by a decrease in the sales of our BOOM 3, BOOM 2, UE MEGABOOM, and UE WONDERBOOM mobile speakers, in part due to limited outdoor activities and social gatherings. The decreases were partially offset by sales of our WONDERBOOM 2 speakers, and the introduction of our HYPERBOOM speaker in the fourth quarter of fiscal year 2020.

Audio & Wearables
 
Our Audio & Wearables category comprises PC speakers, PC headsets, in-ear headphones, premium wireless audio wearables and studio-quality microphones for professionals and consumers.

Audio & Wearables sales increased 87% and 62% for the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The increases for both periods were primarily driven by increases in the sales of both our corded and cordless headsets and Blue Microphones products, partially offset by a decline in the sales of our Jaybird products.

Smart Home market:
 
Our Smart Home category mainly comprises our Harmony line of advanced home entertainment controllers and home security cameras.
 
Smart Home sales decreased 33% and 26% during the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. The decrease for both periods was primarily due to an overall decline in sales of our Harmony remotes and our home video products.

Gross Profit
 
Gross profit for the three and nine months ended December 31, 2020 and 2019 was as follows (Dollars in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 Change 2020 2019 Change
Net sales $ 1,667,302  $ 902,687  85  % $ 3,716,354  $ 2,266,603  64  %
Gross profit $ 749,010  $ 334,453  124  $ 1,624,466  $ 845,505  92 
Gross margin 44.9  % 37.1  % 43.7  % 37.3  %  
 
Gross profit consists of sales less cost of goods sold (which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, royalties, costs of purchasing components from outside suppliers,
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distribution costs, warranty costs, customer support, shipping and handling costs, outside processing costs and write-down of inventories), amortization of intangible assets.

Gross margin increased by 780 and 640 basis points for the three and nine months ended December 31, 2020, respectively, compared to the same periods of the prior fiscal year. Gross margin benefited from higher sales volume, continued restrained promotional spending, favorable product mix, and favorable exchange rates, which more than offset the higher logistics operations costs.

Operating Expenses

Operating expenses for the three and nine months ended December 31, 2020 and 2019 were as follows (Dollars in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Marketing and selling $ 204,485  $ 134,950  $ 496,520  $ 392,138 
% of sales 12.3  % 14.9  % 13.4  % 17.3  %
Research and development 53,910  43,292  157,014  127,499 
% of sales 3.2  % 4.8  % 4.2  % 5.6  %
General and administrative 37,606  22,344  98,341  68,551 
% of sales 2.3  % 2.5  % 2.6  % 3.0  %
Amortization of intangible assets and acquisition-related costs 4,946  5,084  13,886  12,898 
% of sales 0.3  % 0.6  % 0.4  % 0.6  %
Change in fair value of contingent consideration for business acquisition —  —  5,716  — 
% of sales —  % —  % 0.2  % —  %
Restructuring charges (credits), net —  (45) (54) 69 
% of sales —  %
(1)
—  % —  %
(1)
—  %
Total operating expenses $ 300,947  $ 205,625  $ 771,423  $ 601,155 
% of sales 18.0  % 22.8  % 20.8  % 26.5  %

(1) Absolute value for % of sales is less than 0.1%.

Marketing and Selling
 
Marketing and selling expenses consist of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, technical support for customer experiences and facilities costs.

During the three and nine months ended December 31, 2020, marketing and selling expenses increased $69.5 million, and $104.4 million, respectively, compared to the same periods of the prior fiscal year. The increases were primarily driven by higher advertising expenses, personnel-related costs due to increased headcount, increased performance-based variable compensation linked to stronger performance, and increased shared-based compensation.

Research and Development 

Research and development expenses consist of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.

During the three and nine months ended December 31, 2020, research and development expenses increased $10.6 million and $29.5 million, respectively, compared to the same periods of the prior fiscal year. The increases were primarily driven by higher personnel-related costs due to increased headcount, increased performance-based variable expense linked to stronger performance, and higher investment in new product development.
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General and Administrative
 
General and administrative expenses consist primarily of personnel and related overhead, information technology, and facilities costs for the infrastructure functions such as finance, information systems, executives, human resources, and legal.

During the three and nine months ended December 31, 2020, general and administrative expenses increased $15.3 million and $29.8 million, respectively, compared to the same periods of the prior fiscal year. The increases were primarily driven by higher personnel-related costs due to increased headcount, increased performance-based variable compensation linked to stronger performance, and increased shared-based compensation.

Amortization of Intangible Assets and Acquisition-Related Costs

Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trade names. Acquisition-related costs include legal expense, due diligence costs, and other professional costs incurred for business acquisitions.

During the three months ended December 31, 2020, amortization of intangible assets and acquisition-related costs decreased $0.1 million compared to the same period of the prior fiscal year, primarily driven by intangibles assets that were fully amortized. For the nine months ended December 31, 2020, amortization of intangible assets and acquisition-related costs increased $1.0 million, compared to the same period of the prior fiscal year, primarily driven by amortization of the intangible assets acquired through the Streamlabs acquisition in the third quarter of fiscal year 2020.

Change in Fair Value of Contingent Consideration for Business Acquisition

The change in fair value of contingent consideration was $5.7 million for the nine months ended December 31, 2020, primarily due to growth in Streamlabs' net sales and the achievement of the net sales targets during the six-month earn-out period ended June 30, 2020.

Other Income, Net
 
Other income, net for the three and nine months ended December 31, 2020 and 2019 was as follows (Dollars in thousands):
Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Investment income related to a deferred compensation plan $ 1,049  $ 1,045  $ 4,384  $ 1,836 
Currency exchange gain, net 7,344  203  9,070  702 
Loss on investments (2,173) (709) (4,692) (772)
Other 263  562  899  1,086 
Total $ 6,483  $ 1,101  $ 9,661  $ 2,852 

Investment income represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

Currency exchange gain, net relates to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and to gains or losses recognized on currency exchange forward contracts. We do not speculate in currency positions, but we are alert to opportunities to maximize currency exchange gains and minimize currency exchange losses.

Loss on investments represents the unrealized loss from the fair value change on the available-for-sale securities and equity-method investments during the periods presented.

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Provision for Income Taxes
 
The provision for income taxes and effective tax rates for the three and nine months ended December 31, 2020 and 2019 were as follows (Dollars in thousands):
  Three Months Ended
December 31, 		Nine Months Ended
December 31,
  2020 2019 2020 2019
Provision for income taxes $ 72,334  $ 14,467  $ 142,638  $ 18,405 
Effective income tax rate 15.9  % 11.0  % 16.5  % 7.2  %

The change in the effective income tax rate for the three and nine months ended December 31, 2020, compared to the same periods ended December 31, 2019 was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate. The Swiss income tax provision in the three and nine months ended December 31, 2020 represents the income tax provision at the full statutory income tax rate of 13.63%. In the same periods ended December 31, 2019 when TRAF was yet to be enacted at the federal and cantonal levels, the transition income tax provision reflects the application of the longstanding tax ruling through December 31, 2019. Furthermore, there was a discrete tax benefit of $1.7 million from adjusting deferred tax assets and liabilities in Switzerland in the nine months ended December 31, 2019. There were discrete tax benefits of $7.2 million and $2.9 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 nine-month period ended December 31, 2020, compared with $6.0 million and $2.7 million, respectively, in the nine-month period ended December 31, 2019.

As of December 31, 2020 and March 31, 2020, the total amount of unrecognized tax benefits due to uncertain tax positions was $158.8 million and $140.8 million, respectively, all of which would affect the effective income tax rate if recognized.

Liquidity and Capital Resources
 
Cash Balances, Available Borrowings, and Capital Resources
 
As of December 31, 2020, we had cash and cash equivalents of $1,388.7 million, compared to $715.6 million as of March 31, 2020. As of December 31, 2020, 71% of the cash and cash equivalents were held in Switzerland, 13% were held in Germany, and 9% were held in Hong Kong and China. We do not expect to incur any material adverse tax impact except for what has already been recognized, or be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.
 
The increase in cash and cash equivalents for the nine months ended December 31, 2020, was primarily due to an increase in net cash provided by operating activities and proceeds from exercises of stock options and purchase rights, partially offset by payment of cash dividends, purchases of property, plant and equipment, tax withholdings related to settlements of restricted stock units, and shares repurchased under our share buyback program.
As of December 31, 2020, our working capital was $1,361.9 million, compared to $700.3 million as of March 31, 2020. The increase was primarily driven by higher cash and cash equivalents, higher accounts receivable, net, higher inventories and higher other current assets, partially offset by higher accounts payable and accrued and other current liabilities. Our working capital increased by $681.5 million compared to $680.4 million as of December 31, 2019, which was primarily driven by higher cash and cash equivalents, higher accounts receivable, net, higher inventories and higher other current assets, partially offset by higher accounts payable and accrued and other current liabilities.

We had several uncommitted, unsecured bank lines of credit aggregating $82.6 million as of December 31, 2020. There are no financial covenants under these lines of credit with which we must comply. As of December 31, 2020, we had outstanding bank guarantees of $37.8 million under these lines of credit.
 
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The following table summarizes our condensed consolidated statements of cash flows (Dollars in thousands):
Nine Months Ended
December 31,
  2020 2019
Net cash provided by operating activities $ 928,419  $ 324,154 
Net cash used in investing activities (46,454) (119,441)
Net cash used in financing activities (219,196) (150,863)
Effect of exchange rate changes on cash and cash equivalents 10,408  (2,320)
Net increase in cash and cash equivalents $ 673,177  $ 51,530 

The following table presents selected financial information and statistics as of and for the three months ended December 31, 2020 and 2019 (Dollars in thousands): 
As of December 31,
  2020 2019
Accounts receivable, net $ 894,937  $ 531,309 
Accounts payable $ 811,786  $ 439,035 
Inventories $ 476,802  $ 307,494 

Three Months Ended
December 31,
  2020 2019
Days sales in accounts receivable (“DSO”) (Days) (1)
48  53 
Days accounts payable outstanding (“DPO”) (Days) (2)
80  70 
Inventory turnover (“ITO”) (x)(3)
7.7  7.4 

(1) DSO is determined using ending accounts receivable, net as of the most recent quarter end and sales for the most recent quarter.
(2) DPO is determined using ending accounts payable as of the most recent quarter end and cost of goods sold for the most recent quarter. 
(3) ITO is determined using ending inventories and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).

DSO for the three months ended December 31, 2020 decreased by 5 days to 48 days, compared to 53 days for the same period of the prior fiscal year, primarily due to timing of sales, customer payments and sales linearity.

DPO for the three months ended December 31, 2020 increased by 10 days, compared to 70 days for the same period of the prior fiscal year, primarily due to the timing of purchases and related payments and an increase in cost of goods sold due to higher sales growth.

ITO for the three months ended December 31, 2020 increased by 0.3, compared to 7.4 for the same period of the prior fiscal year, primarily due to higher sales growth as a result of higher demand for certain of our products
due to the COVID-19 impact.

If we are not successful in launching and phasing in our new products, or market competition increases, or we are not able to sell the new products at the prices planned, it could have a material impact on our sales, gross profit margin, operating results including operating cash flow, and inventory turnover in the future.

During the nine months ended December 31, 2020, we generated $928.4 million of cash from operating activities. Our main sources of operating cash flows were from net income, after adding back non-cash expenses of depreciation, amortization and share-based compensation expense, from change in fair value of contingent considerations, and from changes in operating assets and liabilities. The increase in accounts receivable, net was primarily driven by growth and timing of sales. The increase in inventories was primarily driven by an increase in inventory purchases in anticipation of continued high demand for certain of our products during the nine months
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ended December 31, 2020. The increase in accounts payable was primarily driven by the timing of purchases and related payments. The increase in accrued liabilities was primarily driven by an increase in customer marketing, pricing, and incentive programs, freight and duty due to higher logistic costs, and income taxes payable due to stronger performance.

Net cash used in investing activities was $46.5 million, primarily due to $46.2 million of purchases of property, plant and equipment.

Net cash used in financing activities was $219.2 million, primarily due to the $146.7 million payment of a cash dividend, $72.7 million used for repurchases of our registered shares, and $29.5 million for tax withholdings related to net share settlements of restricted stock units, partially offset by $29.7 million in proceeds received from exercises of stock options and purchase rights.

During the nine months ended December 31, 2020, there was a $10.4 million gain from currency exchange rate effect on cash and cash equivalents, compared to a loss of $2.3 million during the same period of the prior fiscal year. The gain from currency translation exchange effect during the nine months ended December 31, 2020 was primarily due to the strengthening of the Australian Dollar, Euro, Chinese Renmingbi, and Swiss Franc against the U.S. Dollar by 24%, 11%, and 8%, respectively, during the period. The loss from effect of currency exchange rate changes during the nine months ended December 31, 2019 was primarily due to the weakening of the Euro, Chinese Renminbi and Brazilian Real against the U.S. Dollar by 1%, 4%, and 4%, respectively.

Cash Outlook
Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from operations and, to a much lesser extent, capital markets and borrowings. Our future working capital requirements and capital expenditures may increase to support investments in product innovations and growth opportunities or to acquire or invest in complementary businesses, products, services, and technologies. The future impact of COVID-19 cannot be predicted with certainty and may increase our costs of capital and otherwise adversely affect our business, results of operations, financial conditions and liquidity.
In fiscal year 2021, we paid an annual cash dividend of CHF 134.0 million (U.S. Dollar amount of $146.7 million) out of fiscal year 2020 retained earnings. In fiscal year 2020, we paid an annual cash dividend of CHF 121.8 million (U.S. Dollar amount of $124.2 million) out of fiscal year 2019 retained earnings. Any future dividends will be subject to the approval of our shareholders.
In May 2020, our Board of Directors approved a new share buyback program, which authorizes us to invest up to $250.0 million to purchase our own shares, following the expiration date of the 2017 share buyback program. Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our share buyback program provides us with the opportunity to make opportunistic repurchases during periods of favorable market conditions and 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. Opportunistic purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. As of December 31, 2020, $177.6 million is still available for repurchase under the 2020 share buyback program.
If we do not generate sufficient operating cash flows to support our operations and future planned cash requirements, our operations could be harmed and our access to credit could be restricted or eliminated. However, we believe that the trend of our historical cash flow generation, our projections of future operations and our available cash balances will provide sufficient liquidity to fund our operations for at least the next 12 months.
 
Operating Leases Obligation
 
We lease facilities under operating leases, certain of which require us to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at our option and usually include escalation clauses linked to inflation. The remaining terms of our non-cancelable operating leases expire in various years through 2031.
 
Purchase Commitments
 
As of December 31, 2020, we had non-cancelable purchase commitments of $853.1 million for inventory purchases made in the normal course of business from original design manufacturers, contract manufacturers and
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other suppliers, as well as due to strong sales growth in the nine months ended December 31, 2020, the majority of which are expected to be fulfilled within the next 12 months. The increase of inventory purchase commitment from March 31, 2020 is to replenish the inventory due to business growth. We recorded a liability for firm, non-cancelable, and unhedged inventory purchase commitments in excess of anticipated demand or net realizable value consistent with our valuation of excess and obsolete inventory. As of December 31, 2020, the liability for these purchase commitments was $5.6 million and is recorded in accrued and other current liabilities.

We have firm purchase commitments of $32.8 million for capital expenditures, primarily related to commitments for equipment and tooling for new and existing products. We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations. Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us to reschedule or adjust our requirements based on business needs prior to delivery of goods or performance of services.

Other Contractual Obligations and Commitments
 
For further detail about our contractual obligations and commitments, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2020.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Indemnifications
 
We indemnify certain 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 December 31, 2020, no amounts have been accrued for indemnification provisions. We do 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 our indemnification arrangements.
 
We also indemnify our current and former directors and certain current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and the facts and circumstances involved in any situation that might arise are variable.

Legal Proceedings
 
From time to time we are involved in claims and legal proceedings that arise in the ordinary course of our business. We are currently subject to several such claims and a small number of legal proceedings. We believe that these matters lack merit and we intend to vigorously defend against them. Based on currently available information, we do not believe that resolution of pending matters will have a material adverse effect on our financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that our defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on our business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain necessary licenses or other rights, or litigation arising out of intellectual property claims, could adversely affect our business. 
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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market Risk
 
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. As a company with global operations, we face exposure to adverse movements in currency exchange rates and interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.
 
Currency Exchange Rates
 
We report our results in U.S. Dollars. Changes in currency exchange rates compared to the U.S. Dollar can have a material impact on our results when the financial statements of our non-U.S. subsidiaries are translated into U.S. Dollars. The functional currency of our operations is primarily the U.S. Dollar. Certain operations use the Swiss Franc or the local currency of the country as their functional currencies. Accordingly, unrealized currency gains or losses resulting from the translation of net assets or liabilities denominated in other currencies to the U.S. Dollar are accumulated in the cumulative translation adjustment component of other comprehensive income (loss) in shareholders' equity.

We are exposed to currency exchange rate risk as we transact business in multiple currencies, including exposure related to anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. Dollar. We transact business in over 30 currencies worldwide, of which the most significant to operations are the Euro, Chinese Renminbi, Australian Dollar, Taiwanese Dollar, British Pound, Brazilian Real, Canadian Dollar, Japanese Yen and Mexican Peso. For the three months ended December 31, 2020, approximately 54% of our sales were in non-U.S. denominated currencies, with 26% of our sales denominated in Euro. The mix of our costs of goods sold and operating expenses by currency are significantly different from the mix of our sales, with a larger portion denominated in U.S. Dollar and less denominated in Euro and other currencies. A strengthening U.S. Dollar has a more unfavorable impact on our sales compared to the favorable impact on our cost of goods sold and operating expenses, resulting in an adverse impact on our operating results. 

We enter into currency forward and swap contracts to reduce the short-term effects of currency fluctuations on certain receivables or payables denominated in currencies other than the functional currencies of our subsidiaries. These forward contracts generally mature within one month. The gains or losses on these contracts are recognized in earnings based on the changes in fair value.

If an adverse 10% foreign currency exchange rate change was applied to total monetary assets and liabilities denominated in currencies other than the functional currencies at the balance sheet dates, it would have resulted in an adverse effect on income before income taxes of approximately $36.2 million and $11.8 million as of December 31, 2020 and March 31, 2020, respectively. The adverse effect as of December 31, 2020 and March 31, 2020 is after consideration of the offsetting effect of approximately $12.8 million and $5.2 million, respectively, from open foreign exchange contracts in place as of such dates.
We enter 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.
If the U.S. dollar weakened by 10% as of December 31, 2020 and March 31, 2020, the amount recorded in accumulated other comprehensive income (AOCI) related to our foreign exchange contracts before tax effect would have been approximately $16.6 million and $4.8 million lower respectively, as of such dates. The change in the fair value recorded in AOCI would be expected to offset a corresponding foreign currency change in cost of goods sold when the hedged inventory purchases are sold. 

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Table of Contents
ITEM 4.   CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Logitech's management, with the participation of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the CEO and the CFO have concluded that, as of such date, our disclosure controls and procedures are effective at the reasonable assurance level.
 
Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. To the extent that components of the Company’s internal control over financial reporting are included within its Disclosure Controls, they are included in the scope of the Company’s annual controls evaluation.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and the CFO, does not expect that the Company’s Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or dete