EX-99.1 2 exhibit991q2fy18.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1

Editorial Contacts:
Ben Lu, Vice President, Investor Relations - USA (510) 713-5568
Krista Todd, Vice President, Communications - USA (510) 713-5834
Ben Starkie, Corporate Communications - Europe +41 (0) 79-292-3499


Logitech Delivers Strong Q2 Sales and Profit Growth

NEWARK, Calif. - October 23, 2017 and LAUSANNE, Switzerland, October 24, 2017 - Logitech International (SIX: LOGN) (Nasdaq: LOGI) today announced financial results for the second quarter of Fiscal Year 2018.
•
Q2 sales were $634 million, up 12 percent in US dollars and 11 percent in constant currency, compared to Q2 of the prior year.
•
Q2 GAAP operating income grew 12 percent to $60 million, compared to $53 million in the same quarter a year ago. Q2 GAAP earnings per share (EPS) grew 21 percent to $0.34, compared to $0.28 in the same quarter a year ago.
•
Q2 non-GAAP operating income grew 12 percent to $72 million, compared to $65 million in the same quarter a year ago. Q2 non-GAAP EPS grew 14 percent to $0.40, compared to $0.35 in the same quarter a year ago.
“We delivered another strong quarter of growth,” said Bracken Darrell, Logitech president and chief executive officer. “Gaming and Video Collaboration categories showed particular strength and momentum. And we have a diverse and strong portfolio overall. We’re entering the second half of the year with a wide range of exciting products ahead of the holiday season.”  
Outlook
Logitech’s outlook for Fiscal Year 2018 is 10 to 12 percent sales growth in constant currency and $260 to $270 million in non-GAAP operating income.




Prepared Remarks Available Online
Logitech has made its prepared written remarks for the financial results teleconference available online on the Logitech corporate website at http://ir.logitech.com.
Financial Results Teleconference and Webcast
Logitech will hold a financial results teleconference to discuss the results for Q2 FY 2018 on
Tuesday, October 24, 2017 at 8:30 a.m. Eastern Daylight Time and 2:30 p.m. Central European Summer Time. A live webcast of the call will be available on the Logitech corporate website at http://ir.logitech.com.
Use of Non-GAAP Financial Information and Constant Currency
To facilitate comparisons to Logitech’s historical results, Logitech has included non-GAAP adjusted measures, which exclude share-based compensation expense, amortization of intangible assets, purchase accounting effect on inventory, acquisition-related costs, change in fair value of contingent consideration for business acquisition, restructuring charges (credits), gain (loss) on investments in privately held companies, investigation and related expenses, non-GAAP income tax adjustment, and other items detailed under “Supplemental Financial Information” after the tables below. Logitech also presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates. Percentage sales growth in constant currency 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. Logitech believes this information, used together with the GAAP financial information, will help investors to evaluate its current period performance and trends in its business. With respect to the Company’s outlook for non-GAAP operating income, most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to the GAAP amounts has been provided for Fiscal Year 2018.
About Logitech
Logitech designs products that have an everyday place in people's lives, connecting them to the digital experiences they care about. More than 35 years ago, Logitech started connecting people through




computers, and now it’s a multi-brand company designing products that bring people together through music, gaming, video and computing. Brands of Logitech include Logitech, Ultimate Ears, Jaybird, Logitech G and ASTRO Gaming. Founded in 1981, and headquartered in Lausanne, Switzerland, Logitech International is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI). Find Logitech at www.logitech.com, the company blog or @Logitech.
# # #

This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding: our preliminary financial results for the three and six months ended September 30, 2017 and potential adjustments to the preliminary financial results (see the Note following the financial statements and supplemental information), innovation, product portfolio and new products, outlook for Fiscal Year 2018 operating income and sales growth, and the timing of filing our periodic reports with the Securities and Exchange Commission (the “SEC”)  and the SIX Swiss Exchange. The forward-looking statements in this release involve risks and uncertainties that could cause Logitech’s actual results and events to differ materially from those anticipated in these forward-looking statements, including, without limitation: if our product offerings, marketing activities and investment prioritization decisions do not result in the sales, profitability or profitability growth we expect, or when we expect it; if we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories; if we do not successfully execute on our growth opportunities or our growth opportunities are more limited than we expect; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; if our products and marketing strategies fail to separate our products from competitors’ products; if we are not able to maintain and enhance our brands; if we do not successfully execute on strategic acquisitions and investments; if we do not fully realize our goals to lower our costs and improve our operating leverage; if there is a deterioration of business and economic conditions in one or more of our sales regions or product categories, or significant fluctuations in exchange rates. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Logitech’s periodic filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2017 and our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, available at www.sec.gov, under the caption Risk Factors and elsewhere. Logitech does not undertake any obligation to update any forward-looking statements to reflect new information or events or circumstances occurring after the date of this press release.
Note that unless noted otherwise, comparisons are year over year.
2017 Logitech, Logicool, Logi and other Logitech marks are owned by Logitech and may be registered. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the company’s website at www.logitech.com.

(LOGIIR)









LOGITECH INTERNATIONAL S.A.
 
 
 
 
 
 
 
 
PRELIMINARY RESULTS *
(In thousands, except per share amounts) - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A)
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Net sales
 
$
634,212

 
$
564,304

 
$
1,164,158

 
$
1,044,168

Cost of goods sold
 
403,469

 
356,268

 
738,243

 
665,893

Amortization of intangible assets and purchase accounting effect on inventory
 
2,011

 
1,163

 
3,515

 
2,776

Gross profit
 
228,732

 
206,873

 
422,400

 
375,499

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Marketing and selling
 
107,386

 
93,792

 
209,764

 
177,664

Research and development
 
36,647

 
32,632

 
71,746

 
64,583

General and administrative
 
25,205

 
25,290

 
50,559

 
50,945

Amortization of intangible assets and acquisition-related costs
 
2,491

 
1,748

 
3,881

 
3,041

Change in fair value of contingent consideration for business acquisition
 
(2,930
)
 
—

 
(4,908
)
 
—

Total operating expenses
 
168,799

 
153,462

 
331,042

 
296,233

 
 
 
 
 
 
 
 
 
Operating income
 
59,933

 
53,411

 
91,358

 
79,266

Interest income (expense), net
 
1,048

 
(90
)
 
2,223

 
61

Other income (expense), net
 
459

 
(683
)
 
(570
)
 
(1,691
)
Income before income taxes
 
61,440

 
52,638

 
93,011

 
77,636

Provision for (benefit from) income taxes
 
4,087

 
5,593

 
(1,349
)
 
8,650

Net income
 
$
57,353

 
$
47,045

 
$
94,360

 
$
68,986

 
 
 
 
 
 
 
 
 
Net income per share:
 
 

 
 

 
 

 
 

Basic
 
$
0.35

 
$
0.29

 
$
0.58

 
$
0.43

Diluted
 
$
0.34

 
$
0.28

 
$
0.56

 
$
0.42

 
 
 
 
 
 
 
 
 
Weighted average shares used to compute net income per share:
 
 

 
 

 
 

 
 

Basic
 
164,120

 
162,222

 
163,765

 
162,176

Diluted
 
169,078

 
165,549

 
168,710

 
164,926


 


 


 


 


Cash dividend per share
 
$
0.63

 
$
0.57

 
$
0.63

 
$
0.57






LOGITECH INTERNATIONAL S.A.
 
 
 
 
PRELIMINARY RESULTS *
(In thousands) - unaudited
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
March 31,
CONDENSED CONSOLIDATED BALANCE SHEETS  (A)
 
2017
 
2017
 
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
398,848

 
$
547,533

Short-term investments
 
6,789

 
—

Accounts receivable, net
 
279,581

 
185,179

Inventories
 
329,675

 
253,401

Other current assets
 
47,721

 
41,732

Total current assets
 
1,062,614

 
1,027,845

Non-current assets:
 
 

 
 

Property, plant and equipment, net
 
87,355

 
85,408

Goodwill
 
271,154

 
249,741

Other intangible assets, net
 
93,846

 
47,564

Other assets
 
138,144

 
88,119

Total assets
 
$
1,653,113

 
$
1,498,677

 
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
386,963

 
$
274,805

Accrued and other current liabilities
 
229,176

 
232,273

Total current liabilities
 
616,139

 
507,078

Non-current liabilities:
 
 

 
 

Income taxes payable
 
33,241

 
51,797

Other non-current liabilities
 
80,903

 
83,691

Total liabilities
 
730,283

 
642,566

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Registered shares, CHF 0.25 par value:
 
30,148

 
30,148

Issued and authorized shares —173,106 at September 30 and March 31, 2017
 
 
 
 
Conditionally authorized shares — 50,000 at September 30 and March 31, 2017
 
 
 
 
Additional paid-in capital
 
29,940

 
26,596

Shares in treasury, at cost — 8,745 at September 30, 2017 and 10,727 at March 31, 2017
 
(156,589
)
 
(174,037
)
Retained earnings
 
1,118,134

 
1,074,110

Accumulated other comprehensive loss
 
(98,803
)
 
(100,706
)
Total shareholders’ equity
 
922,830

 
856,111

Total liabilities and shareholders’ equity
 
$
1,653,113

 
$
1,498,677






LOGITECH INTERNATIONAL S.A.
 
 
 
 
 
 
 
 
PRELIMINARY RESULTS *
(In thousands) - unaudited
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (A)
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 

 
 

 
 
 
 
Net income
 
$
57,353

 
$
47,045

 
$
94,360

 
$
68,986

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Depreciation
 
10,220

 
10,511

 
19,368

 
23,616

Amortization of intangible assets
 
3,645

 
2,159

 
6,238

 
3,867

Gain on investments in privately held companies
 
(695
)
 
(171
)
 
(436
)
 
(172
)
Loss on disposal of property, plant and equipment
 
15

 
—

 
12

 
—

Share-based compensation expense
 
10,978

 
8,450

 
21,683

 
16,967

Deferred income taxes
 
(2,054
)
 
663

 
(11,933
)
 
(385
)
Change in fair value of contingent consideration for business acquisition
 
(2,930
)
 
—

 
(4,908
)
 
—

Changes in assets and liabilities, net of acquisitions:
 
 
 
 
 
 
 
 
Accounts receivable, net
 
(57,762
)
 
(48,340
)
 
(93,464
)
 
(97,001
)
Inventories
 
(36,938
)
 
(18,310
)
 
(57,327
)
 
(28,317
)
Other assets
 
(5,402
)
 
(3,567
)
 
(8,490
)
 
(4,738
)
Accounts payable
 
71,489

 
40,907

 
110,136

 
83,676

Accrued and other liabilities
 
20,464

 
35,522

 
(7,739
)
 
25,387

Net cash provided by operating activities
 
68,383

 
74,869

 
67,500

 
91,886

Cash flows from investing activities:
 
 

 
 

 
 
 
 
Purchases of property, plant and equipment
 
(7,153
)
 
(6,623
)
 
(17,188
)
 
(14,758
)
Investment in privately held companies
 
(160
)
 
(160
)
 
(520
)
 
(480
)
Acquisitions, net of cash acquired
 
(85,000
)
 
(13,000
)
 
(85,000
)
 
(66,987
)
Proceeds from return of investment in privately held companies
 
237

 
—

 
237

 
—

Changes in restricted cash
 
—

 
—

 
—

 
715

Purchases of short-term investments
 
(6,789
)
 
—

 
(6,789
)
 
—

Purchases of trading investments
 
(390
)
 
(1,042
)
 
(999
)
 
(5,271
)
Proceeds from sales of trading investments
 
410

 
1,065

 
1,057

 
5,296

Net cash used in investing activities
 
(98,845
)
 
(19,760
)
 
(109,202
)
 
(81,485
)
Cash flows from financing activities:
 
 

 
 

 
 
 
 
Payment of cash dividends
 
(104,248
)
 
(93,093
)
 
(104,248
)
 
(93,093
)
Purchases of registered shares
 
(10,058
)
 
(18,472
)
 
(10,682
)
 
(42,894
)
Proceeds from exercises of stock options and purchase rights
 
17,431

 
13,885

 
30,000

 
14,484

Tax withholdings related to net share settlements of restricted stock units
 
(2,023
)
 
(1,862
)
 
(23,706
)
 
(11,047
)
Net cash used in financing activities
 
(98,898
)
 
(99,542
)
 
(108,636
)
 
(132,550
)
Effect of exchange rate changes on cash and cash equivalents
 
551

 
(477
)
 
1,653

 
(1,845
)
Net decrease in cash and cash equivalents
 
(128,809
)
 
(44,910
)
 
(148,685
)
 
(123,994
)
Cash and cash equivalents, beginning of the period
 
527,657

 
440,111

 
547,533

 
519,195

Cash and cash equivalents, end of the period
 
$
398,848

 
$
395,201

 
$
398,848

 
$
395,201






LOGITECH INTERNATIONAL S.A.
 
 
 
 
 
 
 
 
 
 
 
 
PRELIMINARY RESULTS *
 
 
 
 
(In thousands) - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET SALES
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales by product category:
 
 
 
 
 
 
 
 
 
 
 
 
Pointing Devices
 
$
124,235

 
$
123,300

 
1
 %
 
$
246,309

 
$
240,083

 
3
 %
Keyboards & Combos
 
119,431

 
116,516

 
3

 
235,544

 
234,535

 
—

PC Webcams
 
27,510

 
24,307

 
13

 
53,135

 
49,569

 
7

Tablet & Other Accessories
 
30,817

 
20,614

 
49

 
54,035

 
34,499

 
57

Video Collaboration
 
46,131

 
28,581

 
61

 
81,748

 
52,491

 
56

Mobile Speakers
 
90,550

 
97,172

 
(7
)
 
153,468

 
154,468

 
(1
)
Audio-PC & Wearables
 
63,215

 
62,254

 
2

 
113,417

 
118,833

 
(5
)
Gaming
 
113,754

 
79,193

 
44

 
191,462

 
135,693

 
41

Smart Home
 
18,370

 
11,807

 
56

 
34,836

 
22,974

 
52

Other (1)
 
199

 
560

 
(64
)
 
204

 
1,023

 
(80
)
Total net sales
 
$
634,212

 
$
564,304

 
12

 
$
1,164,158

 
$
1,044,168

 
11

(1) Other category includes products that we currently intend to transition out of, or have already transitioned out of, because they are no longer strategic to our business.






LOGITECH INTERNATIONAL S.A.
 
 
 
 
 
 
 
 
PRELIMINARY RESULTS *
(In thousands, except per share amounts) - Unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP TO NON-GAAP RECONCILIATION (A)(B)
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Gross profit - GAAP
 
$
228,732

 
$
206,873

 
$
422,400

 
$
375,499

Share-based compensation expense
 
1,091

 
638

 
1,802

 
1,313

Amortization of intangible assets and purchase accounting effect on inventory
 
2,011

 
1,163

 
3,515

 
2,776

Gross profit - Non-GAAP
 
$
231,834

 
$
208,674

 
$
427,717

 
$
379,588

 
 
 
 
 
 
 
 
 
Gross margin - GAAP
 
36.1
%
 
36.7
%
 
36.3
%
 
36.0
%
Gross margin - Non-GAAP
 
36.6
%
 
37.0
%
 
36.7
%
 
36.4
%
 
 
 
 
 
 
 
 
 
Operating expenses - GAAP
 
$
168,799

 
$
153,462

 
$
331,042

 
$
296,233

Less: Share-based compensation expense
 
9,887

 
7,812

 
19,881

 
15,654

Less: Amortization of intangible assets and acquisition-related costs
 
2,491

 
1,748

 
3,881

 
3,041

Less: Change in fair value of contingent consideration for business acquisition
 
(2,930
)
 
—

 
(4,908
)
 
—

Less: Restructuring credits, net
 
(61
)
 
74

 
(116
)
 
(11
)
Less: Investigation and related expenses
 
—

 
—

 
—

 
612

Operating expenses - Non-GAAP
 
$
159,412

 
$
143,828

 
$
312,304

 
$
276,937

 
 
 
 
 
 
 
 
 
% of net sales - GAAP
 
26.6
%
 
27.2
%
 
28.4
%
 
28.4
%
% of net sales - Non - GAAP
 
25.1
%
 
25.5
%
 
26.8
%
 
26.5
%
 
 
 
 
 
 
 
 
 
Operating income - GAAP
 
$
59,933

 
$
53,411

 
$
91,358

 
$
79,266

Share-based compensation expense
 
10,978

 
8,450

 
21,683

 
16,967

Amortization of intangible assets
 
3,645

 
2,159

 
6,238

 
3,867

Purchase accounting effect on inventory
 
114

 
—

 
114

 
703

Acquisition-related costs
 
741

 
752

 
1,042

 
1,247

Change in fair value of contingent consideration for business acquisition
 
(2,930
)
 
—

 
(4,908
)
 
—

Restructuring credits, net
 
(61
)
 
74

 
(116
)
 
(11
)
Investigation and related expenses
 
—

 
—

 
—

 
612

Operating income - Non - GAAP
 
$
72,420

 
$
64,846

 
$
115,411

 
$
102,651

 
 
 
 
 
 
 
 
 
% of net sales - GAAP
 
9.4
%
 
9.5
%
 
7.8
%
 
7.6
%
% of net sales - Non - GAAP
 
11.4
%
 
11.5
%
 
9.9
%
 
9.8
%
 
 
 
 
 
 
 
 
 
Net income - GAAP
 
$
57,353

 
$
47,045

 
$
94,360

 
$
68,986

Share-based compensation expense
 
10,978

 
8,450

 
21,683

 
16,967

Amortization of intangible assets
 
3,645

 
2,159

 
6,238

 
3,867

Purchase accounting effect on inventory
 
114

 
—

 
114

 
703

Acquisition-related costs
 
741

 
752

 
1,042

 
1,247

Change in fair value of contingent consideration for business acquisition
 
(2,930
)
 
—

 
(4,908
)
 
—

Restructuring credits, net
 
(61
)
 
74

 
(116
)
 
(11
)
Investigation and related expenses
 
—

 
—

 
—

 
612

Gain on investments in privately held companies
 
(695
)
 
(171
)
 
(436
)
 
(172
)
Non-GAAP income tax adjustment
 
(1,890
)
 
(379
)
 
(10,982
)
 
(1,054
)
Net income - Non - GAAP
 
$
67,255

 
$
57,930

 
$
106,995

 
$
91,145

 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
Diluted - GAAP
 
$
0.34

 
$
0.28

 
$
0.56

 
$
0.42

Diluted - Non - GAAP
 
$
0.40

 
$
0.35

 
$
0.63

 
$
0.55

 
 
 
 
 
 
 
 
 
Shares used to compute net income per share:
 
 
 
 
 
 
 
 
Diluted - GAAP and Non - GAAP
 
169,078

 
165,549

 
168,710

 
164,926





LOGITECH INTERNATIONAL S.A.
 
 
 
 
 
 
 
 
PRELIMINARY RESULTS *
(In thousands) - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SHARE-BASED COMPENSATION EXPENSE
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Share-based Compensation Expense
 
 
 
 
 
 
 
 
Cost of goods sold
 
$
1,091

 
$
638

 
$
1,802

 
$
1,313

Marketing and selling
 
4,343

 
3,244

 
8,724

 
6,681

Research and development
 
1,633

 
917

 
3,176

 
1,831

General and administrative
 
3,911

 
3,651

 
7,981

 
7,142

Total share-based compensation expense
 
10,978

 
8,450

 
21,683

 
16,967

Income tax benefit
 
(3,677
)
 
(1,886
)
 
(14,959
)
 
(3,701
)
Total share-based compensation expense, net of income tax
 
$
7,301

 
$
6,564

 
$
6,724

 
$
13,266


* Note: These preliminary results for the three and six months ended September 30, 2017 are subject to adjustments, including potential adjustments, which we currently estimate not to be material, as we continue to verify information provided by a new third-party North American logistics service provider and distribution center added during the latter half of the second quarter of Fiscal Year 2018 and subsequent events (as required pursuant to applicable accounting rules) that may occur through the date of filing our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 with the SEC (the “10-Q”). Upon completion of our additional work to verify such information, the completed financial information for the three and six months ended September 30, 2017 will need to be reviewed by our independent registered public accounting firm prior to filing the 10-Q with the SEC and our semi-annual report with the SIX Swiss Exchange. We are working to complete and file all periodic reports within the applicable filing deadlines of the SEC and the SIX Swiss Exchange.

(A) Preliminary valuation from the business acquisition

The preliminary fair value of assets acquired and liabilities assumed from the business acquisition during the current period is included in the tables. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by us at the time of the acquisition. As additional information becomes available, such as finalization of purchase price adjustment and the finalization of the estimated fair value of the assets acquired and liabilities assumed, we may revise our preliminary or interim estimated fair value of the assets acquired and liabilities assumed during the remainder of the measurement periods (which will not exceed 12 months from the acquisition dates). Any such revisions or changes may be material, and may have a material impact over our financial condition and results of operations.

(B) Non-GAAP Financial Measures

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use a number of financial measures, both GAAP and non-GAAP, in analyzing and assessing our overall business performance, for making operating decisions and for forecasting and planning future periods. We consider the use of non-GAAP financial measures helpful in assessing our current financial performance, ongoing operations and prospects for the future as well as understanding financial and business trends relating to our financial condition and results of operations.

While we use non-GAAP financial measures as a tool to enhance our understanding of certain aspects of our financial performance and to provide incremental insight into the underlying factors and trends affecting both our performance and our cash-generating potential, we do not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides useful supplemental data that, while not a substitute for GAAP financial measures, can offer insight in the review of our financial and operational performance and enables investors to more fully understand trends in our current and future performance. In assessing our business during the quarter ended September 30, 2017, we excluded items in the following general categories, each of which are described below:

Share-based compensation expenses. We believe that providing non-GAAP measures excluding share-based compensation expense, in addition to the GAAP measures, allows for a more transparent comparison of our financial results from period to period. We prepare and maintain our budgets and forecasts for future periods on a basis




consistent with this non-GAAP financial measure. Further, companies use a variety of types of equity awards as well as a variety of methodologies, assumptions and estimates to determine share-based compensation expense. We believe that excluding share-based compensation expense enhances our ability and the ability of investors to understand the impact of non-cash share-based compensation on our operating results and to compare our results against the results of other companies.

Amortization of intangible assets. We incur intangible asset amortization expense, primarily in connection with our acquisitions of various businesses and technologies. The amortization of purchased intangibles varies depending on the level of acquisition activity. We exclude these various charges in budgeting, planning and forecasting future periods and we believe that providing the non-GAAP measures excluding these various non-cash charges, as well as the GAAP measures, provides additional insight when comparing our gross profit, operating expenses, and financial results from period to period.

Purchase accounting effect on inventory. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment excludes the expected profit margin component that is recorded under business combination accounting principles associated with our business acquisitions. We believe the adjustment is useful to investors because such charges are not reflective of our ongoing operations. 

Acquisition-related costs and change in fair value of contingent consideration for business acquisition. We incurred expenses and credits in connection with our acquisitions which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related costs include all incremental expenses incurred to effect a business combination. Fair value of contingent consideration is associated with our estimates of the value of earn-outs in connection with certain acquisitions. We believe that providing the non-GAAP measures excluding these costs and credits, as well as the GAAP measures, assists our investors because such costs are not reflective of our ongoing operating results.

Restructuring charges (credits). These expenses are associated with re-aligning our business strategies based on current economic conditions. We have undertaken several restructuring plans in recent years. In connection with our restructuring initiatives, we incurred restructuring charges related to employee terminations, facility closures and early cancellation of certain contracts. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges (credits) are not reflective of our ongoing operating results in the current period.

Gain (loss) on investments in privately held companies. We recognized gain (loss) related our investments in various privately-held companies, which varies depending on the operational and financial performance of the privately-held companies in which we invested. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.

Investigation and related expenses.  These expenses are forensic accounting, audit, consulting and legal fees related to the Audit Committee’s investigation and the formal investigation by and settlement with the Securities and Exchange Commission (SEC), together with accruals based on settlement with the SEC. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.

Non-GAAP income tax adjustment. Non-GAAP income tax adjustment primarily measures the income tax effect of non-GAAP adjustments excluded above and other events; the determination of which is based upon the nature of the underlying items, the mix of income and losses in jurisdictions and the relevant tax rates in which we operate. 

Each of the non-GAAP financial measures described above, and used in this press release, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and may be reflected in the Company’s financial results for the foreseeable future. We compensate for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, we evaluate the non-GAAP financial measures together with the most directly comparable GAAP financial information.

Additional Supplemental Financial Information - Constant Currency

In addition, Logitech presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates.  Percentage sales growth in constant currency 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.