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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended December 31, 2012

 

Or

 

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

 

For the Transition Period from          to         

 

Commission File Number: 0-29174

 

LOGITECH INTERNATIONAL S.A.

(Exact name of registrant as specified in its charter)

 

Canton of Vaud, Switzerland (State or other jurisdiction of incorporation or organization)

None (I.R.S. Employer Identification No.)

 

Logitech International S.A.

Apples, Switzerland

c/o Logitech Inc.

7600 Gateway Boulevard

Newark, California 94560

(Address of principal executive offices and zip code)

 

(510) 795-8500

(Registrant’s telephone number, including area code)

 

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  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x   No o

 

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

 

Large accelerated filer  x		Accelerated filer  o
Non-accelerated filer  o		Smaller reporting company  o
(Do not check if a smaller reporting company)

 

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

 

As of February 1, 2013, there were 158,003,097 shares of the Registrant’s share capital outstanding.

 

 

Table of Contents

 

TABLE O F CONTENTS

 

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	60
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 6.	Exhibit Index	75
Signatures		76
Exhibits

 

In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. dollar, dollar or $ are to the United States dollar, the legal currency of the United States of America. All references to CHF are to the Swiss franc, the legal currency of Switzerland.

 

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

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

		Page
	Financial Statement Description
·	Unaudited Consolidated Statements of Operations for the three and nine months ended December 31, 2012 and 2011	4
·	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 31, 2012 and 2011	5
·	Unaudited Consolidated Balance Sheets as of December 31, 2012 and March 31, 2012	6
·	Unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011	7
·	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended December 31, 2012 and 2011	8
·	Notes to Unaudited Consolidated Financial Statements	9

 

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LOGITECH INTERNATIONAL S.A.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

		Three months ended						Nine months ended
		December 31,						December 31,
		2012			2011			2012			2011
Net sales		$	614,500		$	714,596		$	1,630,797		$	1,784,241
Cost of goods sold		404,402			455,922			1,080,452			1,201,539
Gross profit		210,098			258,674			550,345			582,702
Operating expenses:
Marketing and selling		112,698			116,313			324,117			323,552
Research and development		40,393			41,911			117,340			121,383
General and administrative		26,382			30,673			84,842			89,527
Goodwill impairment		211,000			—			211,000			—
Restructuring charges (credits), net		(358		)	—			28,198			—
Total operating expenses		390,115			188,897			765,497			534,462
Operating income (loss)		(180,017		)	69,777			(215,152		)	48,240
Interest income, net		114			917			651			2,208
Other income (expense), net		(3,670		)	6,713			(4,338		)	10,141
Income (loss) before income taxes		(183,573		)	77,407			(218,839		)	60,589
Provision for (benefit from) income taxes		11,370			22,074			(26,616		)	17,417
Net income (loss)		$	(194,943	)	$	55,333		$	(192,223	)	$	43,172
Net income (loss) per share:
Basic		$	(1.24	)	$	0.32		$	(1.21	)	$	0.24
Diluted		$	(1.24	)	$	0.32		$	(1.21	)	$	0.24
Shares used to compute net income (loss) per share:
Basic		157,706			173,003			158,383			176,414
Diluted		157,706			173,656			158,383			177,201

 

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

 

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LOGITECH INTERNATIONAL S.A.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

		Three Months Ended December 31,						Nine Months Ended December 31,
		2012			2011			2012			2011
Net income (loss)		$	(194,943	)	$	55,333		$	(192,223	)	$	43,172
Other comprehensive income (loss):
Foreign currency translation		(321		)	(5,854		)	(1,617		)	(10,677		)
Defined benefit pension plan adjustments during the period:
Foreign currency exchange rate changes		(389		)	535			7,531			420
Amortization included in net income (loss):
Transition obligation for the period		1			1			3			3
Prior service cost for the period		39			37			115			114
Net actuarial loss for the period		271			210			950			669
Pension liability adjustments, net of tax		(78		)	783			8,599			1,206
Deferred hedging gain (loss)		1,359			(3,083		)	(2,902		)	8,834
Less: reclassification adjustment for gain (loss) included in net income (loss)		1,137			(1,672		)	(440		)	2,345
Net deferred hedging gain (loss)		222			(1,411		)	(2,462		)	6,489
Unrealized losses on investment recognized in earnings		—			(68		)	—			(68		)
Reversal of unrealized gains previously recognized in accumulated other comprehensive income (loss)		—			—			(343		)	—
Net change in accumulated other comprehensive income (loss)		(177		)	(6,550		)	4,177			(3,050		)
Total comprehensive income (loss)		$	(195,120	)	$	48,783		$	(188,046	)	$	40,122

 

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

 

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LOGITECH INTERNATIONAL S.A.

UNADUITED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

		December 31, 2012			March 31, 2012
ASSETS
Current assets:
Cash and cash equivalents		$	321,999		$	478,370
Accounts receivable, net		264,589			223,104
Inventories		277,477			297,072
Other current assets		59,808			65,990
Assets held for sale		17,697			—
Total current assets		941,570			1,064,536
Non-current assets:
Property, plant and equipment, net		89,128			94,884
Goodwill		345,313			560,523
Other intangible assets, net		35,033			53,518
Other assets		78,021			83,033
Total assets		$	1,489,065		$	1,856,494
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	339,283		$	301,111
Accrued liabilities		204,528			186,680
Liabilities held for sale		2,020			—
Total current liabilities		545,831			487,791
Non-current liabilities		186,663			218,462
Total liabilities		732,494			706,253
Commitments and contingencies
Shareholders’ equity:
Shares, par value CHF 0.25 - 173,106 issued and authorized and 50,000 conditionally authorized at December 31, 2012 and 191,606 issued and authorized at March 31, 2012 and 50,000 conditionally authorized at March 31, 2012		30,148			33,370
Additional paid-in capital		—			—
Less: shares in treasury, at cost, 15,113 at December 31, 2012 and 27,173 at March 31, 2012		(200,514		)	(343,829		)
Retained earnings		1,018,689			1,556,629
Accumulated other comprehensive loss		(91,752		)	(95,929		)
Total shareholders’ equity		756,571			1,150,241
Total liabilities and shareholders’ equity		$	1,489,065		$	1,856,494

 

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

 

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LOGITECH INTERNATIONAL S.A.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		Nine months ended December 31,
		2012			2011
Cash flows from operating activities:
Net income (loss)		$	(192,223	)	$	43,172
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		33,861			35,201
Amortization of other intangible assets		17,914			20,209
Goodwill impairment		211,000			—
Investment impairment in privately-held company		3,600			—
Inventory valuation adjustment		—			34,074
Share-based compensation expense		18,659			23,380
Gain on disposal of property and plant		—			(4,904		)
Gain on sale of available-for-sale securities		(831		)	(6,118		)
Excess tax benefits from share-based compensation		(26		)	(33		)
Deferred income taxes and other		9,398			(998		)
Changes in assets and liabilities, net of acquisition:
Accounts receivable		(41,310		)	(63,092		)
Inventories		1,444			(35,720		)
Other assets		(2,201		)	(11,853		)
Accounts payable		39,673			81,973
Accrued liabilities		5,238			38,877
Net cash provided by operating activities		104,196			154,168
Cash flows from investing activities:
Purchases of property, plant and equipment		(39,737		)	(31,417		)
Acquisition, net of cash acquired		—			(18,814		)
Investment in privately-held company		(3,970		)	—
Proceeds from sale of property and plant		—			4,904
Proceeds from sale of available-for-sale securities		917			6,550
Purchases of trading investments for deferred compensation plan		(2,294		)	(5,577		)
Proceeds from sales of trading investments for deferred compensation plan		2,309			5,520
Net cash used in investing activities		(42,775		)	(38,834		)
Cash flows from financing activities:
Payment of cash dividends		(133,462		)	—
Purchases of treasury shares		(89,955		)	(73,134		)
Proceeds from sale of shares upon exercise of options and purchase rights		8,843			9,852
Tax withholdings related to net share settlements of restricted stock units		(1,995		)	(890		)
Excess tax benefits from share-based compensation		26			33
Net cash used in financing activities		(216,543		)	(64,139		)
Effect of exchange rate changes on cash and cash equivalents		(1,249		)	(5,793		)
Net increase (decrease) in cash and cash equivalents		(156,371		)	45,402
Cash and cash equivalents at beginning of period		478,370			477,931
Cash and cash equivalents at end of period		$	321,999		$	523,333

 

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

 

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LOGITECH INTERNATIONAL S.A.

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)

 

																		Accumulated
							Additional											other
		Registered shares					paid-in			Treasury shares					Retained			comprehensive
		Shares		Amount			capital			Shares		Amount			earnings			loss			Total
March 31, 2011		191,606		$	33,370		$	—		12,433		$	(264,019	)	$	1,514,168		$	(78,518	)	$	1,205,001
Total comprehensive income		—		—			—			—		—			43,172			(3,050		)	40,122
Purchase of treasury shares		—		—			—			7,609		(73,134		)	—			—			(73,134		)
Tax benefit from exercise of stock options		—		—			468			—		—			—			—			468
Shares issued for director services		—		—			(643		)	(33	)	844			—			—			201
Sale of shares upon exercise of options and purchase rights		—		—			(13,818		)	(1,240	)	34,373			(10,679		)	—			9,876
Issuance of shares upon vesting of restricted stock units		—		—			(7,963		)	(276	)	7,073			—			—			(890		)
Share-based compensation expense		—		—			22,862			—		—			—			—			22,862
December 31, 2011		191,606		$	33,370		$	906		18,493		$	(294,863	)	$	1,546,661		$	(81,568	)	$	1,204,506
March 31, 2012		191,606		$	33,370		$	—		27,173		$	(343,829	)	$	1,556,629		$	(95,929	)	$	1,150,241
Total comprehensive loss		—		—			—			—		—			(192,223		)	4,177			(188,046		)
Purchase of treasury shares		—		—			—			8,600		(89,955		)	—			—			(89,955		)
Tax benefit from exercise of stock options		—		—			(2,984		)	—		—			—			—			(2,984		)
Deferred tax asset adjustment related to share -based compensation expense		—		—			(4,272		)	—		—			—			—			(4,272		)
Deferred tax asset adjustment related to share-based compensation expense from prior years		—		—			6,320			—		—			(6,320		)	—			—
Sale of shares upon exercise of options and purchase rights		—		—			3,508			(1,377	)	41,646			(36,300		)	—			8,854
Issuance of shares upon vesting of restricted stock units		—		—			(20,709		)	(783	)	18,767			—			—			(1,942		)
Share-based compensation expense		—		—			18,137			—		—			—			—			18,137
Cash dividends															(133,462		)				(133,462		)
Cancellation of treasury shares		(18,500	)	(3,222		)				(18,500	)	172,857			(169,635		)				—
December 31, 2012		173,106		$	30,148		$	—		15,113		$	(200,514	)	$	1,018,689		$	(91,752	)	$	756,571

 

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

 

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LOGITECH INTERNATIONAL S.A.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Basis of Presentation

 

The consolidated financial statements include the accounts of Logitech International S.A. and its subsidiaries (“Logitech” or “the Company”). All intercompany balances and transactions have been eliminated. The consolidated financial statements are presented in accordance with U.S. GAAP (accounting principles generally accepted in the United States of America) for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. They should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2012 included in its Annual Report on Form 10-K.

 

In the quarter ended June 30, 2012, the Company recorded a reduction in deferred tax assets and a decrease to retained earnings of $6.3 million, related to vested unexercised non-qualified stock options for former employees who terminated in fiscal year 2012 and prior.  The Company reviewed this accounting error utilizing SEC Staff Accounting Bulletin No. 99, Materiality , and SEC Staff Accounting Bulletin No. 108, Effects of Prior Year Misstatements on Current Year Financial Statements , and determined the impact of the error to be immaterial to any period presented.

 

Certain prior period financial statement amounts have been reclassified to conform to the current period presentation with no impact on previously reported net income (loss).

 

In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Operating results for the three and nine months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the year ending March 31, 2013, or any future periods.

 

Fiscal Year

 

The Company’s fiscal year ends on March 31. Interim quarters are thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods as ending on the month end.

 

Changes in Significant Accounting Policies

 

There have been no significant changes to the nature of the critical accounting policies, and no significant changes in the critical accounting estimates that were disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012, except for Valuation of Long-Lived Assets described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities. 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 from those estimates.

 

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Note 2 — Net Income (Loss) per Share

 

The computations of basic and diluted net income (loss) per share were as follows (in thousands, except per share amounts):

 

		Three months ended						Nine months ended
		December 31,						December 31,
		2012			2011			2012			2011
Net income (loss)		$	(194,943	)	$	55,333		$	(192,223	)	$	43,172
Weighted average shares - basic		157,706			173,003			158,383			176,414
Effect of potentially dilutive share equivalents		—			653			—			787
Weighted average shares - diluted		157,706			173,656			158,383			177,201
Net income (loss) per share - basic		$	(1.24	)	$	0.32		$	(1.21	)	$	0.24
Net income (loss) per share - diluted		$	(1.24	)	$	0.32		$	(1.21	)	$	0.24

 

Employee stock options, restricted stock units and similar share-based compensation awards granted by the Company are treated as potential shares in computing diluted net income per share. Diluted shares outstanding include the dilutive effect of in-the-money share-based awards which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising share-based awards, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax impact that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.

 

Share equivalents attributable to outstanding stock options and RSUs (restricted stock units) of 15,951,244 for the three months ended December 31, 2011, and 17,505,162 for the nine months ended December 31, 2011, respectively, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive.

 

Note 3 — Employee Benefit Plans

 

Employee Share Purchase Plans and Stock Incentive Plans

 

As of December 31, 2012, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)), the 2006 Plan (2006 Stock Incentive Plan) and the 2012 Plan (2012 Stock Inducement Equity Plan). The 2012 Plan was approved by the Board of Directors in April 2012. On April 13, 2012, the Company filed Registration Statements to register 5.0 million additional shares to be issued pursuant to the 2006 ESPP, and 1.8 million shares under the 2012 Plan. On September 5, 2012, at the fiscal year 2012 Annual General Meeting of Shareholders, Logitech shareholders approved amendments to and restatement of the 2006 Stock Incentive Plan, which included the increase of 7.3 million additional shares to be issued under this plan and to prohibit the repricing of options or stock appreciation rights. On October 25, 2012, the Company filed a registration statement to register the 7.3 million additional shares under the 2006 Stock Incentive Plan. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.

 

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The following table summarizes share-based compensation expense and related tax benefit recognized for the three and nine months ended December 31, 2012 and 2011 (in thousands):

 

		Three months ended						Nine months ended
		December 31,						December 31,
		2012			2011			2012			2011
Cost of goods sold		$	704		$	948		$	2,101		$	3,058
Share-based compensation expense included in gross profit		704			948			2,101			3,058
Operating expenses:
Marketing and selling		953			2,380			5,377			9,345
Research and development		2,430			1,802			6,018			5,364
General and administrative		1,135			1,797			5,163			5,613
Share-based compensation expense included in operating expenses		4,518			5,979			16,558			20,322
Total share-based compensation expense		5,222			6,927			18,659			23,380
Income tax provision (benefit)		(1,043		)	70			(4,090		)	(4,595		)
Share-based compensation expense, net of income tax		$	4,179		$	6,997		$	14,569		$	18,785

 

Share-based compensation expense for the three and nine months ended December 31, 2012 includes a reduction of $0 and $2.2 million in expense applicable to employees terminated as a result of the restructuring plan announced in April 2012. As of December 31, 2012 and 2011, $0.2 million and $0.5 million of share-based compensation cost were capitalized in inventory.

 

Defined Contribution Plans

 

Certain of the Company’s subsidiaries have defined contribution employee benefit plans covering all or a portion of their employees. Contributions to these plans are discretionary for certain plans and are based on specified or statutory requirements for others. The charges to expense for these plans for the three months ended December 31, 2012 and 2011 were $2.0 million and $2.5 million and for the nine months ended December 31, 2012 and 2011 were $6.6 million and $8.1 million.

 

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.

 

During the quarter ended September 30, 2012, the Company’s Swiss defined benefit pension plan was subject to re-measurement due to the number of plan participants affected by the April 2012 restructuring described in Note 13. The re-measurement resulted in the realization of $2.2 million in previously unrecognized losses which resided within accumulated other comprehensive loss and which the Company entirely recognized during the three months ended September 30, 2012.

 

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The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and nine months ended December 31, 2012 and 2011 were as follows (in thousands):

 

		Three months ended						Nine months ended
		December 31,						December 31,
		2012			2011			2012			2011
Service cost		$	1,770		$	1,520		$	5,371		$	4,752
Interest cost		440			531			1,351			1,668
Expected return on plan assets		(378		)	(277		)	(996		)	(930		)
Amortization of net transition obligation		1			1			3			3
Amortization of net prior service cost		39			37			115			114
Recognized net actuarial loss		271			210			950			669
Settlement cost		—			—			2,254			—
Net periodic benefit cost		$	2,143		$	2,022		$	9,048		$	6,276

 

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 income taxes are generated outside of Switzerland.

 

In determining the annual effective tax rate, both the restructuring described in Note 13 and the goodwill impairment described in Note 7 were treated as discrete events as they were significantly unusual and infrequent in nature.  As such, related charges and costs were excluded from ordinary income in determining the annual effective tax rate.  The tax benefit associated with the restructuring is approximately $0.2 million.   There was no tax benefit associated with goodwill impairment as the goodwill is not tax-deductible.

 

The income tax provision for the three months ended December 31, 2012 was $11.4 million based on an effective income tax rate of 6.2% of pre-tax loss.  For the three months ended December 31, 2011, the income tax provision was $22.1 million based on an effective income tax rate of 28.5% of pre-tax income. The income tax benefit for the nine months ended December 31, 2012 was $26.6 million based on an effective income tax rate of 12.2% of pre-tax loss. For the nine months ended December 31, 2011, the income tax provision was $17.4 million based on an effective income tax rate of 28.7% of pre-tax income. The change in the effective income tax rate for the three and nine months ended December 31, 2012 compared with the same periods in fiscal year 2012 is primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates, and a discrete tax benefit of $32.1 million and $3.5 million during the fiscal quarter ended September 30, 2012 and December 31, 2012, respectively, related to the reversal of uncertain tax positions resulting from the closure of federal income tax examinations in the United States.

 

The American Taxpayer Relief Act of 2012, which was enacted on January 2, 2013, extends the Federal research tax credit retroactively for two years from January 1, 2012 through December 31, 2013.  An estimated tax benefit of approximately $2.5 million from the extension of the Federal research tax credit will be reflected in the income tax provision in the quarter ending March 31, 2013.

 

As of December 31 and March 31, 2012, the total amount of unrecognized tax benefits and related accrued interest and penalties due to uncertain tax positions was $102.5 million and $143.3 million, of which $89.2 million and $125.4 million would affect the effective income tax rate if recognized.  The decline in unrecognized tax benefits associated with uncertain tax positions in the amount of $40.8 million is primarily due to $42.8 million from the settlement of income tax examinations in the United States.

 

The Company continues to recognize interest and penalties related to unrecognized tax positions in income tax expense. As of December 31 and March 31, 2012, the Company had approximately $6.8 million and $7.5 million, respectively, of accrued interest and penalties related to uncertain tax positions.

 

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The Company files Swiss and foreign tax returns. For all these tax returns, the Company is generally not subject to tax examinations for years prior to 2000.  In the fiscal quarter ended September 30, 2012, the Company effectively settled the examinations of fiscal years 2006 and 2007 with the IRS (U.S. Internal Revenue Service).  The Company reversed $33.8 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $1.7 million tax provision from the proposed revised assessments as a result of the closure, resulting in a net tax benefit of $32.1 million.  There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

 

In addition, the IRS completed its field examination of the Company’s U.S. subsidiary for fiscal years 2008 and 2009 during the fiscal quarter ended September 30, 2012.  The Company received Notices of Proposed Adjustments related to various domestic and international tax issues on August 15, 2012 and subsequently, received final letters dated October 17, 2012 which effectively settled the examinations.  As a result of the closure of income tax examinations for fiscal years 2008 and 2009, the Company reversed $9.0 million of unrecognized tax benefits associated with uncertain tax positions and recorded a $5.5 million tax provision from the assessments, resulting in a net tax benefit of $3.5 million.  There was no cash tax liability from the settlement due to utilization of net operating loss carryforwards.

 

The Company is also under examination and has received assessment notices in other tax jurisdictions. At this time, the Company is not able to estimate the potential impact that these examinations may have on income tax expense. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on the Company’s consolidated operating results.

 

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved.  It is not possible at this time to reasonably estimate the decrease of the unrecognized tax benefits within 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, 2012 (in thousands):

 

		December 31, 2012			March 31, 2012
Accounts receivable, net:
Accounts receivable		$	450,376		$	376,917
Allowance for doubtful accounts		(2,368		)	(2,472		)
Allowance for returns		(23,509		)	(24,599		)
Allowances for cooperative marketing arrangements		(32,129		)	(24,109		)
Allowances for customer incentive programs		(55,488		)	(42,262		)
Allowances for pricing programs		(72,293		)	(60,371		)
		$	264,589		$	223,104
Inventories:
Raw materials		$	33,408		$	38,613
Work-in-process		4			73
Finished goods		244,065			258,386
		$	277,477		$	297,072
Other current assets:
Tax and value-added tax refund receivables		$	18,292		$	19,360
Deferred taxes		22,647			25,587
Prepaid expenses and other		18,869			21,043
		$	59,808		$	65,990
Property, plant and equipment, net:
Plant, buildings and improvements		$	68,749		$	48,555
Equipment		162,671			148,059
Computer equipment		43,989			40,353
Computer software		79,445			75,758
		354,854			312,725
Less: accumulated depreciation		(276,946		)	(249,657		)
		77,908			63,068
Construction-in-progress		8,343			28,968
Land		2,877			2,848
		$	89,128		$	94,884
Other assets:
Deferred taxes		$	55,925		$	61,358
Trading securities		15,135			14,301
Deposits and other		6,961			7,374
		$	78,021		$	83,033

 

In the three months ended June 30, 2011, an inventory valuation adjustment of $34.1 million was charged to cost of goods sold, as the result of management’s decision in early July 2011 to reduce the retail price of Logitech Revue.  The reduction in construction-in-progress balance from March 31, 2012 to December 31, 2012 was from leasehold improvement costs related to the new Americas headquarters which were placed into service during this period.

 

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