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Item 7. Management’s Discussion and Analysis

2021-05-12 compared with 2020-05-27 · 181 added, 284 removed, 292 unchanged (61% of the section changed)

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The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these statements as a result of certain factors, including those set forth above in Item 1A, Risk Factors, and below in Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

Our actual results could differ materially from those anticipated in these statements as a result of certain factors, including those set forth above in Item 1A "Risk Factors," and below in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

Overview of Our Company

Logitech is a world leader in designing, manufacturing and marketing products that help connect people to digital and cloud experiences.

More than 35 years ago, Logitech created products to improve experiences around the personal computer (PC) platform, and today it is a multi-brand, multi-category company designing products that enable better experiences 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.

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 people to pursue their passions and connect to the world.

Logitech’s products align with several large secular trends including work and learn from anywhere, video everywhere, the increasing popularity of gaming as a spectator and participant sport, and the democratization of content creation.

Logitech's brands include Logitech, Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, Ultimate Ears, and Jaybird.

Our Company's website is www.logitech.com.

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Our worldwide channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, computer and telecommunications stores, value-added resellers and online merchants.

We sell our services directly to end customers in majority.

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.

On February 17, 2021, we acquired all equity interests of Mevo Inc.

(Mevo) for a total upfront cash consideration of $33.2 million, which included a working capital adjustment, plus additional contingent consideration of up to $17.0 million payable in cash only upon the achievement of certain net revenues for the period beginning on December 26, 2020 and ending on December 31, 2021 (the Mevo Acquisition).

The Mevo Acquisition is complementary to the Company's PC Webcams portfolio and will better enable us to offer end-to-end solutions for streaming and content creation.

On October 31, 2019, the Company acquired all equity interests in General Workings, Inc.

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The Streamlabs Acquisition is complementary to the Company's Gaming portfolio.

On August 21, 2018, we acquired all equity interests in Blue Microphones Holding Corporation (Blue Microphones) for a total consideration of $134.8 million in cash, which included a working capital adjustment and repayment of debt on behalf of Blue Microphones (the Blue Microphones Acquisition).

Blue Microphones is a leading audio manufacturer that designs and produces microphones, headphones, recording tools, and accessories for audio professionals, musicians and consumers.

The Blue Microphones Acquisition supplements our product portfolio.

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 issued orders that require the closure of 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 lead to recessionary conditions for an indeterminate amount of time.

We are conducting our business with substantial modifications, such as employee work locations and virtualization among other changes.

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 curtailed global economic activity, caused volatility and disruption in global financial and commercial markets, and is likely to continue to cause uncertainty 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 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.

Logitech International S.A.

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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 expect the increased logistics costs and adverse effects on our gross margins from COVID-19 to continue at least during the first half of fiscal year 2021.

However, due to the ongoing shelter-at-home requirements or recommendations in many countries, there was high demand and consumption of our products.

It is difficult to predict the progression, the duration and all of the effects of COVID-19, when business closure 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.

In fiscal year 2021, we experienced disruptions to our supply chain and logistics services, inventory constraints, and increased logistics costs, as we attempted to address the effects of COVID-19.

At the same time, due to the shelter-at-home requirements or other restrictions in many countries, there has been acceleration of work-from-anywhere, study-from-anywhere, 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 to continue through fiscal year 2022.

In addition, if the positive demand does not continue during fiscal year 2022, it may lead to higher promotions, or excess inventories, or both, which will have an adverse impact on our results of operations.

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 on a global basis, 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.

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 the Company's business, results of operations and financial condition could be adversely affected by the COVID-19 pandemic.

For additional information, see " Liquidity and Capital Resources " below and Item 1A " Risk Factors, " including under the caption " The full effect of the COVID-19 pandemic is still 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 fiscal year 2020 increased 7% in comparison to fiscal year 2019 .

The growth was broad-based across our regions and across most of our product categories.

The results of operations for Streamlabs have been included in our consolidated statements of operations from the acquisition date.

Our total sales for fiscal year 2021 increased 76% in comparison to fiscal year 2020, due to stronger sales across all regions and most of our product categories from increased remote work and learning trends, accelerated adoption of video communications, and greater gaming viewership, creation, and participation from home, as a result of COVID-19.

Our consolidated statements of operations for fiscal year 2021 include the results of operations for current year acquisitions from their respective dates of acquisition.

Sales for fiscal year 2021 increased 72%, 84% and 75% in the Americas, EMEA and Asia Pacific, respectively, in comparison to fiscal year 2020.

Gross margin increased by 680 basis points to 44.5% during fiscal year 2021, compared to fiscal year 2020.

The increase in gross margin was primarily driven by favorable product mix and benefits from cost savings and operational efficiencies, partially offset by unfavorable currency exchange rates, an increase in U.S.-China tariffs and COVID-19 related costs primarily due to disruptions and higher costs in our manufacturing, supply chain and logistics operations and outsourced services.

Our gross margin benefited from higher sales volume, restrained promotional spending, and favorable product mix, which more than offset higher logistics costs to meet strong demand.

Operating expenses for fiscal year 2021 were $1,187.6 million, or 22.6% of sales, compared to $845.9 million, or 28.4% of sales, for fiscal year 2020.

The increase in operating expenses was primarily driven by $39.0 million higher personnel-related costs due to additional headcount from business acquisitions as well as from S&M and R&D departments to support business growth, $13.9 million higher third-party costs primarily in S&M and R&D to support our long-term growth opportunities, $3.3 million higher amortization of intangible assets from the business acquisitions, and a $23.2 million change in fair value of contingent consideration from the Streamlabs Acquisition, partially offset by a decrease of $11.2 million in restructuring charges as we substantially completed our restructuring plan in the first quarter of fiscal year 2020.

Income tax benefit for fiscal year 2020 was impacted by $153.2 million from the measurement of deferred tax assets and liabilities, net of assessment of uncertain tax positions in Switzerland as a result of the enactment of TRAF in the canton of Vaud in Switzerland during the fourth quarter of fiscal year 2020.

Net income for fiscal year 2020 was $449.7 million , compared to $257.6 million for fiscal year 2019 .

The increase in operating expenses was primarily driven by $185.6 million higher personnel-related costs due to additional headcount across departments to support business growth and from business acquisitions, $135.1 million higher third-party costs to support our long-term growth opportunities and branding development, and a $30 million contribution into a charitable donor advised fund to support our social giving strategies.

These increases were partially offset by a $17.5 million decrease in the change in fair value of contingent consideration due to the Streamlabs earn-out recorded in fiscal year 2020 and settled in fiscal year 2021.

Included in the income tax provision of $200.9 million in fiscal year 2021 was $152.6 million of tax expense from Switzerland that reflects the post enactment of TRAF in the canton of Vaud.

TRAF was enacted in the fourth quarter of fiscal year 2020 and took effect as of January 1, 2020.

The income tax benefit of $125.4 million in fiscal year 2020 was impacted by a tax benefit of $153.2 million related to the measurement of deferred tax assets and liabilities, net of assessment of uncertain tax positions in Switzerland as a result of the enactment of TRAF.

Net income for fiscal year 2021 wa s $947.3 million, compared to $449.7 million for fiscal year 2020.

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.

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Creativity & Productivity:

New PC shipments remain lackluster but the installed base of PC users remains large.

We believe that innovative PC peripherals, such as our mice and keyboards, can renew the PC usage experience, thus providing growth opportunities.

Increasing adoption of various cloud-based applications has led to multiple 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

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, and learning, thus providing growth opportunities.

Hybrid work culture will also greatly expand the number of new workspaces to which we can attach our PC peripherals.

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

Logitech International S.A.

| Fiscal 2021 Form 10-K | 42

combo backlit keyboard case for the iPad Pro and keyboard folios for other iPad models.

In fiscal year 2020, we achieved our third consecutive year of growth in our Tablet & Other Accessories category.

In fiscal year 2020, the gaming headset market has declined due to challenging comparisons against the launch of the game Fortnite in fiscal year 2019, which boosted gaming product market demand in fiscal year 2019.

The new console refresh cycle during the holiday season of 2020 is expected to drive subsequent growth opportunities for our ASTRO family of headsets and controllers.

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 with trackpad for the iPad.

Hybrid and remote learning environments have also created demand and growth opportunities in the education market for tablet keyboards and accessories.

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.

We believe gaming will increasingly become one of the largest participant and spectator sports in the world.

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.

With ASTRO Gaming, we also strengthened our portfolio in adjacent categories, such as the console controller market.

Our recent acquisition of Streamlabs provides a solid platform to deliver recurring services and subscriptions to gamers.

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 have never been more relevant than in today’s environment, as commercial and consumer adoption of video has seen explosive growth in recent months.

Video meetings are 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 medium and large-sized meeting rooms to small-sized rooms such as huddle rooms.

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.

The mobile speaker market has remained weak, although the consumption of music continues to grow.

The integration of personal voice assistants has become increasingly competitive in the speaker categories, but the market for third-party, voice-enabled speakers has not yet gained traction.

Moreover, the market for mobile speakers appears to be maturing, which led to a decline in Ultimate Ears sales in the past two years.

In fiscal year 2020, the wireless headphone industry continued to flourish with strong revenue growth.

The largest growth was in true wireless headphones where the market tripled year-over-year while traditional wireless headphones have declined significantly.

Consumers are optimizing their audio experiences on their tablets and smartphones with a variety of music peripherals including wireless mobile speakers and in-ear and other headphones.

However, the mobile speaker market has matured and the integration of personal voice assistants has increased competition in the speaker category.

In addition, the retail footprint in fiscal year 2021 decreased significantly due to the COVID-19 pandemic.

These factors have led to a decline in our Mobile Speakers category sales in the past three years.

In the wireless headphone industry, the largest growth in recent years has been 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.

With Blue Microphones, we strengthened our portfolio in adjacent categories, such as the microphones market.

Our remote business declined substantially in fiscal year 2020, offset by growth in our Circle 2 family of security cameras.

In general, the space is under pressure as the way people consume content is changing.

We will continue to explore other innovative experiences for the Smart Home category.

Business Seasonality, Product Introductions and Business Acquisitions

In addition, 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.

Our Harmony universal remote and Circle security family of products declined substantially in fiscal year 2021.

In general, our Harmony and Circle 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 and Product Introductions

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 fluctuation in the number of cases from the COVID-19 pandemic across the world and related local restrictions, and shelter-at-home requirements, as applicable, we experienced an even higher demand and consumption of most of our products in the third fiscal quarter of 2021.

Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses.

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Furthermore, cash flow is correspondingly lower 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.

Logitech International S.A.

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Swiss Federal Tax Reform

As we described above, the canton of Vaud in Switzerland enacted TRAF on March 10, 2020 which 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.

As we described above, 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 with fiscal year 2020 tax filing as a result of our transition out of our longstanding tax ruling from the canton of Vaud.

Critical Accounting Estimates

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GAAP requires us to make judgments, estimates, and assumptions that affect reported amounts of assets, liabilities, sales and expenses, and the disclosure of contingent assets and liabilities.

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We consider an accounting estimate critical if it:

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Significant management judgments and estimates must be used to determine the cost of these programs in any accounting period.

Certain Customer Programs require management to estimate the percentage of those programs that will not be claimed or will not be earned by customers based on historical experience and on the specific terms and conditions of particular programs.

The percentage of these customer programs that will not be claimed or earned is commonly referred to as "breakage".

Customer Programs require management to estimate the percentage of those programs that will not be claimed in the current period or will not be earned by customers, which is commonly referred to as "breakage." Breakage is estimated based on historical claim experience, the period in which the claims are expected to be submitted, specific terms and conditions with customers, and other factors.

If we receive a separately identifiable benefit from a customer and can reasonably estimate the fair value of that benefit, the cost of the Customer Programs is recognized in operating expenses.

Cooperative Marketing Arrangements.

We enter into customer marketing programs with many of our customers, and with certain indirect partners, allowing customers to receive a credit equal to a set percentage of their purchases of our products, or a fixed dollar credit for various marketing programs.

The objective of these arrangements is to encourage advertising and promotional events by our customers to increase sales of our products.

Customer Incentive Programs.

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Consumer rebates are offered from time to time at our discretion for the primary benefit of end-users.

Cooperative marketing arrangements and customer incentive programs are considered variable consideration, which we estimate and record as a reduction to revenue at the time of sale based on negotiated terms, historical experiences, forecasted incentives, the anticipated volume of future purchases, and inventory levels in the channel.

Pricing Programs.

We have agreements with certain customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction.

At our discretion, we also offer special pricing discounts to certain customers.

Special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners.

Our decision to make price reductions is influenced by product life cycle stage, market acceptance of products, the competitive environment, new product introductions and other factors.

Accruals for estimated expected future pricing actions are recognized at the time of sale based on analysis of historical pricing actions by customer and by product, inventories owned by and located at distributors and retailers, current customer demand, current operating conditions, and other relevant customer and product information, such as stage of product life-cycle.

Customer incentive programs are considered variable consideration, which we estimate and record as a reduction to revenue at the time of sale based on negotiated terms, historical experiences, forecasted incentives, the anticipated volume of future purchases, and inventory levels in the channel.

Product Returns.

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Return rates can fluctuate over time but are sufficiently predictable to allow us to estimate expected future product returns.

Logitech International S.A.

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We apply a breakage rate to reduce our accruals of Customer Programs based on the estimated percentage of these customer programs that will not be claimed or earned.

The breakage rate is applied at the time of sale.

Significant management judgments and estimates are used to determine the breakage of the programs in any accounting period.

Assessing the period in which claims are expected to be submitted and the relevance of the historical claim experience require significant management judgment to estimate the breakage of Customer Programs in any accounting period.

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We regularly evaluate the adequacy of our accruals for Customer Programs and product returns.

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If there is an abrupt and substantial decline in demand for Logitech's products or an unanticipated change in technological or customer requirements, we may be required to record additional write-downs that could adversely affect gross margins in the period when the write-downs are recorded.

Share-Based Compensation Expense

The grant date fair value for stock options and stock purchase rights is estimated using the Black-Scholes-Merton option-pricing valuation model.

The grant date fair value of restricted stock units (RSUs) that vest upon meeting certain market conditions is estimated using the Monte-Carlo simulation method.

The grant date fair value of time-based RSUs and RSUs with performance conditions is calculated based on the closing market price on the date of grant, adjusted by estimated dividends yield prior to vesting.

Our estimates of share-based compensation expense require a number of complex and subjective assumptions including our stock price volatility, the probability of achievement of the set performance conditions, dividend yield, related tax effects, and the selection of an appropriate fair value model.

We estimate expected share price volatility based on historical volatility using daily prices over the term of options, RSUs or purchase offerings, as we consider historical share price volatility as most representative of future volatility.

The dividend yield assumption is based on our history and expectations of future dividend payouts.

The assumptions used in calculating the fair value of share-based compensation expense and related tax effects represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgments.

As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our share-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations.

We also extend the assessment to non-cancelable purchase orders if the inventories are considered excess and record the liability that is reasonably possible to be incurred in accrued and other liabilities.

Accounting for Income Taxes

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These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.

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We assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering all available evidence such as historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax strategies.

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Such adjustments may have a material impact on our income tax provision and our results of operations.

Goodwill Impairment Analysis

We conduct a goodwill impairment analysis annually at December 31 or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business.

Refer to Note 11 to the consolidated financial statements included in this Annual Report on Form 10-K for the disclosures.

Significant judgments are involved in determining if an indicator of impairment has occurred.

Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, a trend of negative or declining cash flows, a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods, or other relevant entity-specific events such as changes in management, key personnel, strategy or customers, contemplation of bankruptcy, or litigation.

The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

In reviewing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount.

For the year ended March 31, 2020 , we elected to perform a qualitative assessment and determined that impairment was not more likely than not and no further analysis was required.

We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the quantitative impairment test.

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment.

We currently have only one reporting unit.

Product Warranty Accrual

We estimate the cost of product warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected costs, and knowledge of specific product failures that are outside of our typical experience.

Each fiscal quarter, we reevaluate estimates to assess the adequacy of recorded warranty liabilities.

When we experience changes in warranty claim activity or costs associated with fulfilling those claims, the warranty liability is adjusted accordingly.

If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liabilities would be required and could materially affect our results of operations.

Business Acquisitions

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Examples of critical estimates in valuing certain intangible assets and goodwill we have acquired and liabilities we have assumed include but are not limited to:

assumptions regarding royalty rate range and forecasted revenue growth rate;

assumptions regarding the estimated useful life of the acquired intangibles;

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• assumptions regarding royalty rate range and forecasted revenue growth rate;

• assumptions regarding the estimated useful life of the acquired intangibles;

• discount rates;

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The economic useful life of the trademarks and trade names from the business acquisitions was determined based on the expected life of the trade names and the cash flows anticipated over the forecasted periods.

For additional information about our Critical Accounting Estimates, see Note 2—Summary of Significant Accounting Policies in our Notes to our consolidated financial statements below.

Adoption of New Accounting Pronouncements

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Results of Operations

During fiscal year 2020 , sales increased 7% in comparison to fiscal year 2019 .

If currency exchange rates had been constant in 2020 and 2019 , our constant currency sales growth rate would have been 9% .

We grew across most of our product categories, with double-digit growth in our Video Collaboration product category and strong growth in Keyboards & Combos, PC Webcams, and Gaming.

Sales declined for Mobile Speakers and Smart Home product categories.

In this section, we discuss the results of our operations for the year ended March 31, 2021 compared to the year ended March 31, 2020.

For a discussion of the year ended March 31, 2020 compared to the year ended March 31, 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on May 27, 2020.

During fiscal year 2021, sales increased 76% in comparison to fiscal year 2020.

If currency exchange rates had been constant in 2021 and 2020, our constant currency sales growth rate would have been 74%.

We grew across most of our product categories, with double digits growth in our Gaming, Video Collaboration and Tablet & Other Accessories product categories and strong growth in Keyboards and Combos.

Sales declined for Mobile Speakers and Smart Home product categories.

Blue Microphones contributed approximately 2 percentage points to the net sales growth.

The adoption of Topic 606 increased our sales for fiscal year 2019 by $3.7 million.

The increase in sales was across all regions, and benefited most of our product categories due to increased work-from-home and learning-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.

The decline in sales of Mobile Speakers was primarily due to limited outdoor activities and social gatherings.

Logitech International S.A.

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Sales Denominated in Other Currencies

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Dollar, such as the Euro, Chinese Yuan, Japanese Yen, Canadian Dollar, Taiwan Dollar, British Pound and Australian Dollar.

For each of the fiscal years 2020 , 2019 and 2018 , 50% of our sales were denominated in currencies other than the U.S.

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For each of the fiscal years 2021, and 2020, 52% and 50% of our sales were denominated in currencies other than the U.S.

Sales by Region

The following table presents the change in sales by region for fiscal year 2020 compared with fiscal year 2019 , and fiscal year 2019 compared with fiscal year 2018 :

Sales Growth Rate

Sales Growth Rate in Constant Currency

Sales Growth Rate

Sales Growth Rate in Constant Currency

The increase in sales in fiscal year 2020 of 8% compared with fiscal year 2019 was driven by growth in Video Collaboration, Keyboards and Combos, Tablet & Other Accessories, Audio PC & Wearables, Gaming, Pointing Devices, and PC Webcams, partially offset by sales declines in Mobile Speakers and Smart Home.

The increase in sales in fiscal year 2019 of 6% compared with fiscal year 2018 was driven by growth in Gaming, Video Collaboration, Audio PC & Wearables, Keyboards and Combos, Tablet & Other Accessories and PC Webcams, partially offset by sales declines in Mobile Speakers, Smart Home and Pointing Devices.

The increase in sales in fiscal year 2020 of 9% compared with fiscal year 2019 was driven by several of our product categories, with strength in Video Collaboration, Gaming, Mobile Speakers, and PC Webcams, partially offset by sales declines in Smart Home and Audio PC & Wearables.

The increase in sales in fiscal year 2019 of 5% compared with fiscal year 2018 was driven by several of our product categories, with strength in Video Collaboration, Gaming, Pointing Devices and Tablet & Other Accessories, partially offset by sales declines in Mobile Speakers and Smart Home.

The increase in sales in fiscal year 2020 of 2% compared with fiscal year 2019 was primarily driven by sales increases in Video Collaboration, Gaming, Keyboards and Combos and PC Webcams, partially offset by sales declines in Mobile Speakers, Audio PC & Wearables and Tablet and Other Accessories.

The increase in sales in fiscal year 2019 of 17% compared with fiscal year 2018 was primarily driven by sales increases in Video Collaboration, Keyboard & Combos and Pointing Devices, offset by sales declines in Mobile Speakers.

Logitech International S.A.

| Fiscal 2020 Form 10-K | 49

The following table presents the change in sales by region for fiscal year 2021 compared with fiscal year 2020:

Sales Growth Rate Sales Growth Rate in Constant Currency

Americas 72 % 73 %

Asia Pacific 75 72

The increase in sales globally in fiscal year 2021 compared with fiscal year 2020 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 fiscal years 2021 and 2020 were as follows (Dollars in thousands):

Years Ended March 31,

Years Ended March 31, Change

2021 2020 2021 vs.

Pointing Devices $ 680,907 $ 544,519 25 %

Keyboards & Combos 784,488 571,720 37

PC Webcams 439,865 129,193 240

Tablet & Other Accessories 384,301 135,309 184

1,239,005 690,174 80

Video Collaboration 1,044,935 365,616 186

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Audio & Wearables 468,776 273,752 71

Other category includes products which we currently intend to phase out, or have already phased out,

because they are no longer strategic to our business.

Smart Home 34,394 43,404 (21)

Total Sales $ 5,252,279 $ 2,975,851 76 %

(1) Gaming includes streaming services revenue generated by Streamlabs.

(2) Other category includes products which we currently intend to phase out, or have already phased out, because they are no longer strategic to our business.

Sales by Product Categories:

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Pointing Devices

Our Pointing Devices category comprises PC- and Mac-related mice including trackballs touchpads and presenters.

During fiscal year 2020 , Pointing Devices sales increased 1% , compared to fiscal year 2019 .

The increase was primarily driven by the increases in sales of cordless mice, partially offset by a decline in sales of our corded mice and presentation tools.

Our Pointing Devices category comprises PC- and Mac-related mice including trackballs touchpads and presentation tools.

During fiscal year 2021, Pointing Devices sales increased 25%, compared to fiscal year 2020.

The increase was primarily driven by the increases in sales of cordless mice and presentation tools.

The increase in cordless mice was led by strong contribution from MX family of premium cordless mice, including the Vertical Wireless Mouse introduced in the second quarter of fiscal year 2019 as well as continued performance for MX Master 2S Wireless Mouse and B220 Silent Mouse.

Keyboards & Combos

Our Keyboards & Combos category comprises PC keyboards, living room keyboards and keyboard/mice combo products.

During fiscal year 2020 , Keyboards & Combos sales increased 7% , compared to fiscal year 2019 .

The increase was primarily driven by an increase in sales of our cordless and corded keyboards and wireless keyboard/mice combos, partially offset by a decline in sales of our living room keyboard products.

During fiscal year 2019 , Keyboards & Combos sales increased 8% , compared to fiscal year 2018 .

The increase was primarily driven by an increase in sales of wireless keyboard/mice combos, mainly from increased sales of our MK 540, MK270 and MK110 wireless combo, and an increase in sales of wireless PC keyboards.

Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.

During fiscal year 2020 , PC Webcams sales increased 7% , compared to fiscal year 2019 .

The increase was primarily driven by an increase in sales of our Webcam C260, Logitech StreamCam launched in AMR and EMEA in the fourth quarter of fiscal year 2020 , and C270i iPTV CAM, partially offset by a decline in sales of our Webcam C170.

The increase was primarily driven by higher sales of cordless and trackball mice, as a result of remote working and learning trends, partially offset by a decline in sales of our presentation tools, as most conferences, events, and other large-scale presentations remained prohibited.

Logitech International S.A.

| Fiscal 2021 Form 10-K | 47

Keyboards & Combos

Our Keyboards & Combos category comprises PC keyboards, keyboard/mice combo products, and living room keyboards.

During fiscal year 2021, Keyboards & Combos sales increased 37%, compared to fiscal year 2020.

The increase was primarily driven by an increase in sales of our cordless and corded PC keyboards and wireless keyboard/mice combos, partially offset by a decline in sales of our living room keyboard products.

Our PC Webcams category comprises PC-based webcams targeted primarily at consumers, including streaming cameras.

During fiscal year 2021, PC Webcams sales increased 240%, compared to fiscal year 2020.

The increase was primarily driven by the increases in sales of our HD Pro Webcam C920 and 1080 Pro Stream Webcam.

The increase was seen across all product sub-categories, primarily driven by an increase in sales of our HD Pro Webcam C920, 1080P PRO Stream Webcam, Webcam C260, and Logitech Streamcam, mostly due to more remote working from home and learning-from-home.

Tablet & Other Accessories

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During fiscal year 2021, Tablet & Other Accessories sales increased 184%, compared to fiscal year 2020.

The increase was primarily driven by the introduction of our Slim Folio Pro for the 11" and 12.9" iPad Pro introduced in the first quarter of fiscal year 2020 and sales of our Rugged Combo and Slim Folio for a newer generation of iPads introduced in the third quarter of fiscal year 2020 , partially offset by a decline in sales of our Slim Folio for the 2017/2018 iPad and Slim Combos Keyboard cases for 10.5" iPad.

During fiscal year 2019 , Tablet & Other Accessories sales increased 19% , compared to fiscal year 2018 .

The increase was primarily driven by the introduction of our Slim Folio keyboard cases, education-based Rugged Combo 2, Slim Combo keyboard cases, Crayon (a digital pencil) and POWERED (a wireless charging dock for iPhone) during fiscal year 2019 .

The increase was primarily driven by the sales of our Rugged Folio and Slim Folio Keyboards for the 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:

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During fiscal year 2021, Gaming sales increased 80%, compared to fiscal year 2020.

The increase was primarily driven by an increase in sales of our gaming mice, gaming keyboards, console gaming controllers, and gaming steering wheels, and sales from Streamlabs services as a result of our business combination (see Note 3 to the consolidated financial statements).

The growth was partially offset by a decline in sales of our gaming headsets and console gaming headsets.

During fiscal year 2019 , Gaming sales increased 32% , compared to fiscal year 2018 .

The increase was primarily driven by an increase in sales of our core PC gaming products, and ASTRO console gaming headsets, which benefited from the growing gaming market, growth in eSports, expansions in new channels and regions, and expansion in product portfolios.

The increase for fiscal year 2019 was also driven by the fact that the acquisition of ASTRO closed on August 11, 2017, in the middle of our fiscal year 2018 second quarter, resulting in a partial comparative period impact.

The growth was partially offset by a slight decline in our simulation products.

The increase was primarily driven by strong performance in PC gaming, Simulation, and Console Gaming headsets.

The sales in Streamlabs services, our business acquisition in the third quarter of fiscal year 2020, doubled as the streaming industry saw an increase in the amount of hours viewed and streamed.

The increase was partially offset by a decline in the sales of our console gaming controllers.

Video Collaboration market:

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During fiscal year 2021, Video Collaboration sales increased 186%, compared to fiscal year 2020.

The increase was primarily due to increases in sales of our Rally Ultra-HD PTZ Conference Camera, our Tap Touch Controller introduced in the first quarter of fiscal year 2020 and our MeetUp video conference camera, partially offset by a decrease in sales of older generation products.

During fiscal year 2019 , Video Collaboration sales increased 42% , compared to fiscal year 2018 .

The increase was primarily due to an increase in sales for our MeetUp and PTZ Pro 2 video conference cameras, our BRIO Pro Webcam, our C925E Webcam, and the introductions of our Rally and Rally Ultra-HD PTZ Conference Camera in the third quarter of fiscal year 2019 .

The increase was primarily due to increases in sales of our Rally Ultra-HD Conference Camera, our MeetUp video conference camera, BRIO 4K Pro Webcam, Webcam C930E, and Webcam C925E as video communications become more critical for a more location-flexible workforce.

Music market:

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During fiscal year 2021, Mobile Speakers sales decreased 21%, compared to fiscal year 2020.

The decrease was primarily due to a decline in sales of our WONDERBOOM, BOOM 2, and MEGABLAST, partially offset by sales from the introduction of our WONDERBOOM 2 in the first quarter of fiscal year 2020 and an increase in sales of our BOOM 3.

The decrease was primarily due to a decline in sales of our MEGABOOM, BOOM 3, BOOM 2, and WONDERBOOM, and MEGABLAST mobile speakers in part due to limited outdoor activities and social gatherings.

The decrease was partially offset by sales of our WONDERBOOM 2 speakers and the introduction of our HYPERBOOM speaker in the fourth quarter of fiscal year 2020.

Logitech International S.A.

| Fiscal 2021 Form 10-K | 48

During fiscal year 2019 , Mobile Speakers sales decreased 27% , compared to fiscal year 2018 .

The decrease was primarily driven by declines in sales of our existing Ultimate Ears speakers.

The decrease was partially offset by sales from the introductions of our Ultimate Ears MEGABOOM 3 and BOOM 3 mobile speakers in the second quarter of fiscal year 2019 .

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.

During fiscal year 2020 , Audio & Wearables sales decreased 1% , compared to fiscal year 2019 .

The decrease was primarily driven by declines in sales of our PC Speakers and Jaybird traditional wireless products, partially offset by the growth in sales of our Blue Microphones products, as a result of our business combination in the second quarter of fiscal year 2019 , and Jaybird True wireless products.

During fiscal year 2021, Audio & Wearables sales increased 71%, compared to fiscal year 2020.

The increase was primarily driven by an increase in sales of our corded headsets and sales from Blue Microphones products as a result of our business combination (see Note 3 to the consolidated financial statements), partially offset by a decrease in sales of our PC speakers and Jaybird wireless in-ear headphones.

The increase was primarily driven by increases in sales of our corded and cordless headsets and Blue Microphones products, partially offset by decline in sales of our Jaybird and UE Custom products.

Smart Home market:

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During fiscal year 2021, Smart Home sales decreased 21%, compared to fiscal year 2020.

The decrease was primarily driven by an overall decline in sales in our Harmony remote products, partially offset by an increase in sales of our home security products.

During fiscal year 2019 , Smart Home sales decreased 45% , compared to fiscal year 2018 .

The decrease was primarily due to a decline in sales of our Harmony remotes and home security cameras.

The decrease was primarily driven by an overall decline in sales in our Harmony remote products, partially offset by an increase in sales of our Circle View camera.

Gross profit for fiscal years 2021 and 2020 was as follows (Dollars in thousands):

Years Ended March 31,

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, distribution costs, warranty costs, customer support costs, shipping and handling costs, outside processing costs and write-down of inventories), amortization of intangible assets and purchase accounting effect on inventory.

Gross margin increased by 50 basis points to 37.7% during fiscal year 2020 , compared to fiscal year 2019 .

Net sales $ 5,252,279 $ 2,975,851

Gross profit $ 2,335,735 $ 1,122,381

Gross margin 44.5 % 37.7 %

Gross margin increased by 680 basis points to 44.5% during fiscal year 2021, compared to fiscal year 2020.

The increase in gross margin was primarily driven by favorable product mix and cost reductions.

In addition, extra costs incurred due to the transition of the distribution center in North America in the third quarter of fiscal year 2018 negatively affected the gross margin in fiscal year 2018.

The increase in gross margin was primarily driven by higher sales volume, restrained promotional spending, favorable product mix, which more than offset the higher logistics operations costs to meet strong demand.

Logitech International S.A.

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Marketing and selling $ 770,284 $ 533,324

% of sales 14.7 % 17.9 %

Research and development 226,023 177,593

% of sales 4.3 % 6.0 %

General and administrative 166,577 94,015

% of sales 3.2 % 3.2 %

Amortization of intangible assets and acquisition-related costs 19,064 17,563

% of sales 0.4 % 0.6 %

Change in fair value of contingent consideration for business acquisition 5,716 23,247

% of sales 0.1 % 0.8 %

Restructuring charges (credits), net (54) 144

% of sales — % — %

Total operating expenses $ 1,187,610 $ 845,886

The increase in total operating expenses during fiscal year 2020 , compared to fiscal year 2019 , was due to increases in marketing and selling expenses, research and development expenses, fair value of contingent consideration recorded, and amortization of intangible assets from the business acquisitions, offset by decreases in restructuring charges and general and administrative expenses.

The increase in total operating expenses during fiscal year 2019 , compared to fiscal year 2018 , was due to increases in marketing and selling expenses, research and development expenses, restructuring charges, amortization of intangible assets from the business acquisitions, and a credit from the change in fair value of contingent consideration recorded in fiscal year 2018 for a business acquisition completed in fiscal year 2017.

% of sales 22.6 % 28.4 %

The increase in total operating expenses during fiscal year 2021, compared to fiscal year 2020, was mainly due to increases in marketing and selling expenses, research and development expenses, and general and administrative expenses, partially offset by decreases in change in fair value of contingent consideration for business acquisition.

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 fiscal year 2020 , marketing and selling expenses increased $45.1 million , compared to fiscal year 2019 .

The increase was primarily driven by an increase of $36.6 million in personnel-related costs due to increased headcount, partially resulting from the Blue Microphones and Streamlabs acquisitions and increased performance-based variable compensation and an increase of $7.2 million in third-party costs.

During fiscal year 2019 , marketing and selling expenses increased $52.8 million, compared to fiscal year 2018 .

The increase was primarily driven by an increase of $25.4 million in third-party costs including advertising and marketing expenses to support our new products and an increase of $23.9 million in personnel-related costs due to increased headcount, partly due to the Blue Microphones Acquisition and increased performance-based variable compensation.

During fiscal year 2021, marketing and selling expenses increase d $237.0 million , compared to fiscal year 2020.

The higher expenses were primarily related to increases of $120.8 million in third-party costs and $114.2 million in personnel-related costs.

The increase in third-party costs is primarily due to increased marketing and advertising spend to support our investment in brand awareness and consideration.

The higher personnel spend was driven by increased headcount to support business growth and go-to-market expansion, as well as increased performance-based variable compensation linked to stronger performance, and increased share-based compensation.

Research and Development

1 unchanged sentence

During fiscal year 2021, research and development expenses increased $48.4 million, compared to fiscal year 2020.

The increases were primarily driven by an increase of $11.1 million in personnel-related costs due to

Logitech International S.A.

| Fiscal 2020 Form 10-K | 53

increased headcount, partially resulting from the Blue Microphones and Streamlabs acquisitions and an increase of $5.3 million in third-party costs.

During fiscal year 2019 , research and development expenses increased $17.5 million , compared to fiscal year 2018 .

The increase was primarily due to an increase of $9.6 million in personnel-related costs for the development of new products and increased headcount, partially resulting from the Blue Microphones Acquisition, and an increase of $5.8 million in third-party costs.

The increases were primarily driven by $30.3 million of additional personnel-related costs due to increased headcount to support our investment in innovation and increased performance-based variable compensation linked to stronger performance.

Higher third-party costs of $14.3 million also contributed to the growth in research and development expense and were mainly comprised of costs for contractors to support the increased research and development initiatives.

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 fiscal year 2020 , general and administrative expenses decreased $4.7 million , compared to fiscal year 2019 .

The decrease was primarily driven by a decrease of $8.8 million in personnel-related costs, partially offset by an increase of $2.4 million in infrastructure costs.

Logitech International S.A.

| Fiscal 2021 Form 10-K | 50

During fiscal year 2021, general and administrative expenses increased $72.6 million, compared to fiscal year 2020.

The increase was primarily due to an increase of $2.8 million in personnel-related costs and an increase of $1.4 million in third-party costs including consulting costs, partially offset by a decrease of $1.9 million in infrastructure costs.

The higher spend was primarily driven by an increase of $41.3 million in personnel-related costs due to increased headcount to support business growth, increased performance-based variable compensation linked to stronger performance, and increased share-based compensation.

An additional $30.0 million of the increase in general and administrative expenses was related to our contribution into a charitable donor advised fund to support our social giving strategies.

Amortization of Intangibles and Acquisition-Related Costs

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Acquisition-related costs 575 1,490

Total $ 19,064 $ 17,563

Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trademarks and trade names.

Acquisition-related costs include legal expense, due diligence costs, and other professional costs incurred for business acquisitions.

The increase in amortization of intangible assets and acquisition-related costs from fiscal year 2019 to 2020 was primarily driven by the intangible assets acquired through the Blue Microphones acquisition in the second quarter of fiscal year 2019 and the Streamlabs Acquisition in the third quarter of fiscal year 2020 .

The increase in amortization of intangible assets from fiscal year 2018 to 2019 was primarily due to the Blue Microphones Acquisition in fiscal year 2019 and the ASTRO Acquisition in fiscal year 2018.

The increase in amortization of intangible assets and acquisition-related costs from fiscal year 2020 to 2021 was primarily driven by the intangible assets acquired through the Mevo acquisition in the fourth quarter of fiscal year 2021 and a full year of intangibles amortization expense for the Streamlabs Acquisition which occurred 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 resulted from the growth in Streamlabs’ net sales since our acquisition and revised projected net sales in the remaining earn-out period.

The change in fair value of contingent consideration for business acquisition during fiscal year 2018 was primarily due to lower-than-expected sales of Jaybird products, and revised projected sales of Jaybird products during the remaining Jaybird Acquisition earn-out period, primarily driven by supply constraints, an evolving product portfolio and changes in the competitive target market.

In October 2017, Logitech and the sellers of Jaybird entered into an agreement fully, irrevocably and unconditionally releasing Logitech from the earn-out rights and payments in exchange for $5.0 million in cash.

Logitech International S.A.

| Fiscal 2020 Form 10-K | 54

Restructuring Charges (Credits)

The following table summarizes restructuring-related activities during fiscal years 2020 , 2019 and 2018 from continuing operations (in thousands):

Restructuring - Continuing Operations

Accrual balance at March 31, 2017

Cash payments

Accrual balance at March 31, 2018

Cash payments

Accrual balance at March 31, 2019

Cash payments

Accrual balance at March 31, 2020

During the first quarter of fiscal year 2019, we implemented a restructuring plan to streamline and realign our overall organizational structure and reallocate resources to support long-term growth opportunities.

In July 2018, the Board of Directors approved additional costs under this restructuring plan, totaling pre-tax charges of approximately $10.0 million to $15.0 million, of which 11.4 million has been recognized cumulatively as of March 31, 2020 .

The total charges consisted of cash severance and other personnel costs and are presented as restructuring charges (credits), net in the Consolidated Statements of Operations.

As of June 30, 2019, the Company had substantially completed this restructuring plan.

The restructuring-related activities for the year ended March 31, 2018 include activities from our restructuring plan implemented in fiscal year 2016.

The change in fair value of contingent consideration was $5.7 million for the fiscal year 2021, 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.

Interest Income

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We invest in highly liquid instruments with an original maturity of three months or less at the date of purchase, which are classified as cash equivalents.

The increases in interest income for fiscal years 2020 and 2019 compared to the prior periods were both due to higher yield earned on those investments.

The decrease in interest income for fiscal year 2021 was primarily driven by the decline in interest rates and reduction of cash held in interest bearing accounts.

Logitech International S.A.

5 unchanged sentences

Currency exchange loss, net (2,688) (909)

Gain on investment, net

Gain (Loss) on investments, net (5,910) 39,011

Other 893 941

Total $ (1,789) $ 38,212

Investment income (loss) related to the deferred compensation plan for fiscal years 2021 and 2020 represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

1 unchanged sentence

We do not speculate in currency positions, but we are alert to opportunities to maximize currency exchange gains and minimize currency exchange losses.

Gain on investments, net, represents the realized gain on sales of investment, and unrealized gain (loss) from the fair value change on the available-for-sale securities and equity-method investments during the periods presented.

On March 2, 2020, we sold our $5.5 million investment in a privately held company for a total proceeds of $45.3 million consisting of (i) $3.0 million in cash, of which $0.8 million is held in escrow, (ii) a 6% subordinated note with a principal amount of $8.4 million due in 5 years together with the interest, at a fair value of $7.4 million , and (iii) 33.9 million Series A preferred units and 33.9 million Series B common units in Marlin-SL Topco, LP ("Marlin"), representing an ownership interest of approximately 11.8% , with a face value of $33.9 million and fair value of $35.0 million , respectively.

As a result, we recognized a gain of $39.8 million in the fourth quarter of fiscal year 2020.

The components of net periodic benefit cost other than the service cost component for the years ended March 31, 2020 and 2019 are included in the line “Other” above as a result of adopting ASU 2017-07 effective April 1, 2018.

The impact to the comparative period was immaterial and therefore the prior period statements of operations were not revised.

Gain (Loss) on investments, net, represents the realized gain (loss) on sales of investment, investment impairment, and unrealized gain (loss) from the fair value change on the available-for-sale securities and equity-method investments during the periods presented.

The loss in fiscal year 2021 is mostly due to our portion of loss from our investments which are accounted for as an equity method investment.

The increase in fiscal year 2020 was due to the sale of our $5.5 million investment in a privately held company for a gain of $39.8 million.

Provision for (Benefit from) Income Taxes

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Effective income tax rate 17.5 % (38.7) %

The change in the effective income tax rate between fiscal years 2020 and 2019 was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate and the income tax accounting impact from the enactment of TRAF in the canton of Vaud in Switzerland on March 10, 2020 to take effect as of January 1, 2020.

The change in the effective income tax rate between fiscal years 2021 and 2020 was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate and the income tax accounting impact from the enactment of TRAF in the canton of Vaud in Switzerland on March 10, 2020 that took effect as of January 1, 2020.

We have benefited from a longstanding tax ruling from the canton of Vaud through December 31, 2019.

We reached an agreement with the Vaud Tax Administration that would allow for a tax step-up of goodwill to be amortized over ten years beginning on January 1, 2020 as a transition measure.

We recorded an income tax benefit of $151.7 million , net of unrecognized tax benefits to account for the book and tax basis difference of the step-up upon enactment.

We reached an agreement with the Vaud Tax Administration in fiscal year 2020 that would allow for a tax step-up of goodwill to be amortized over ten years beginning on January 1, 2020 as a transition measure.

The Swiss income tax provision in fiscal year 2021 represents the income tax provision at the full statutory income tax rate of 13.60%.

In fiscal year 2020, we recorded an income tax benefit of $151.7 million, net of unrecognized tax benefits to account for the book and tax basis difference of the step-up upon enactment.

The deferred income tax benefit from other temporary differences resulting from the Swiss tax reform, net of three-month amortization of the tax step-up amounted to $1.5 million.

The aggregate deferred income tax impact in fiscal year 2020 as a result of the enactment of TRAF was $153.2 million.

In addition, we recognized excess tax benefits from share-based payments, net of shortfalls of $8.7 million and $6.4 million in the United States in fiscal years 2021 and 2020, respectively, and recognized income tax benefit from the reversal of uncertain tax positions from the expiration of statutes of limitations in the amount of $4.7 million and $4.0 million in fiscal years 2021 and 2020, respectively.

As of March 31, 2021 and 2020, the total amount of unrecognized tax benefits due to uncertain tax positions was $160.3 million and $140.8 million, respectively, all of which would affect the effective income tax rate if recognized.

Logitech International S.A.

| Fiscal 2021 Form 10-K | 52

In addition, we recognized excess tax benefits from share-based payments, net of shortfalls of $6.4 million and $10.1 million in the United States and recognized income tax benefit from the reversal of uncertain tax positions from the expiration of statutes of limitations in the amount of $4.0 million and $2.9 million in fiscal years 2020 and 2019, respectively.

The change in the effective income tax rate between fiscal years 2019 and 2018 was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate and provisional income tax accounting impact from the enactment of H.R.1, also known as the "Tax Cuts and Jobs Act" (the Tax Act) in the United States on December 22, 2017.

The Tax Act reduced the corporate income tax rate in the United States from 35% to 21%.

We recorded a provisional income tax charge of $21.7 million, net of valuation allowance against tax credits, in fiscal year 2018 to remeasure the deferred tax effects at 21%.

Furthermore, we recognized $10.1 million and $13.4 million of excess tax benefits from share-based payments, net of shortfalls, in fiscal years 2019 and 2018, respectively.

In the same periods, there were tax benefits of $2.9 million and $8.3 million, respectively, from the reversal of uncertain tax positions from the expiration of statutes of limitations.

As of March 31, 2020 and 2019 , the total amounts of unrecognized tax benefits due to uncertain tax positions were $140.8 million and $76.5 million, respectively, all of which would affect the effective income tax rates if recognized.

As of March 31, 2020 and 2019 , we had $40.8 million and $36.4 million, respectively, in non-current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions.

We recognized $2.0 million, $0.6 million and $0.6 million in interest and penalties related to unrecognized tax positions in income tax expense during fiscal years 2020 , 2019 and 2018 , respectively.

As of March 31, 2021 and 2020, we had $59.2 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.

We recognized $1.1 million and $2.0 million, in interest and penalties related to unrecognized tax positions in income tax expense during fiscal years 2021 and 2020, respectively.

As of March 31, 2021 and 2020, we had $4.9 million and $4.5 million, respectively, of accrued interest and penalties related to uncertain tax positions.

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As of March 31, 2021, we had cash and cash equivalents of $1,750.3 million , compared with $715.6 million as of March 31, 2020.

Our cash and cash equivalents consist of bank demand deposits and short-term time deposits, of which 75% is held in Switzerland and 11% is held in China (including Hong Kong).

Our cash and cash equivalents consist of bank demand deposits and short-term time deposits, of which 69% is held in Switzerland, 10% is held in Germany, and 8% is held in China (including Hong Kong).

We do not expect to incur any material adverse tax impact, except for what has been recognized, or be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.

As of March 31, 2021, our working capital was $1,477.5 million, compared with working capital of $700.3 million as of March 31, 2020.

The increase in working capital over fiscal year 2019 was primarily due to higher balances of cash and cash equivalents, higher accounts receivable, net, and lower balance of accounts payable, partially offset by lower inventories and higher accrued and other liabilities.

The increase in working capital over fiscal year 2020 was primarily due to higher balances of cash and cash equivalents, higher accounts receivable (net), higher inventories, and higher other current assets, partially offset by higher accounts payable and higher accrued and other liabilities.

We had several uncommitted, unsecured bank lines of credit aggregating to $143.2 million as of March 31, 2021.

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As of March 31, 2021, we had outstanding bank guarantees of $91.3 million under these lines of credit.

Logitech International S.A.

| Fiscal 2020 Form 10-K | 57

The following table presents selected financial information and statistics as of March 31, 2021 and 2020 (Dollars in thousands):

1 unchanged sentence

Accounts payable $ 823,233 $ 259,120

Inventories $ 661,116 $ 229,249

Days sales in accounts receivable (DSO)(Days) (1)

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(3) ITO is determined using ending inventories and the annualized cost of goods sold (based on cost of goods sold for the most recent quarter).

DSO as of March 31, 2020 decreased by 5 days to 50 days, as compared to 55 days as of March 31, 2019, primarily due to timing of customer payments and sales linearity.

DSO as of March 31, 2019 increased by 22 days to 55 days, as compared to 33 days as of March 31, 2018.

The adoption of Topic 606 negatively impacted our DSO for the year ended March 31, 2019 by 18 days, mainly as a result of changes in the balance sheet presentation of certain reserve balances previously shown net within accounts receivable which are now presented as accrued and other current liabilities.

The adoption of Topic 606 did not have an impact over the total cash flows from operating, investing or financing activities.

Timing of sales also increased DSO by four days as of March 31, 2019 relative to the corresponding prior year period.

DPO as of March 31, 2020 decreased 11 days, compared to March 31, 2019, primarily due to less inventory replenishment during the fourth quarter of fiscal year 2020 due to COVID-19 impact and an increase in cost of goods sold due to higher sales growth.

DPO as of March 31, 2019 decreased five days, compared to March 31, 2018, primarily due to the timing of purchases.

ITO as of March 31, 2020 was higher compared to March 31, 2019, primarily due to higher sales growth and lower replenishment in the fourth quarter of fiscal year 2020 due to COVID-19 impact.

ITO as of March 31, 2019 was lower compared to March 31, 2018, due to higher inventory related to new product introductions and inventory from the Blue Microphones Acquisition.

DSO as of March 31, 2021 decreased by 14 days to 36 day s, as compared to 50 days as of March 31, 2020, primarily due to timing of customer payments and sales linearity .

DPO as of March 31, 2021 increased 36 days, compared to March 31, 2020, primarily due to timing of purchases and related payments and an increase in cost of goods sold due to higher sales growth during fiscal year 2021.

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ITO as of March 31, 2021 was lower compared to March 31, 2020, primarily due to higher inventory levels to build inventory in anticipation of future sales growth.

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

During fiscal year 2021, we generated $ 1,458.6 million in cash from operating activities.

Our main sources of operating cash flows were from net income, after deducting the gain on sale of investment in a privately held company, adding back non-cash expenses of depreciation, amortization, share-based compensation expense, change in fair value of contingent considerations, and from changes in operating assets and liabilities.

Our main sources of operating cash flows were from net income, after adding back non-cash expenses of depreciation, amortization, share-based compensation expense, 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 decrease in accounts payable was primarily driven by the timing of purchases and inventory supply constraint in the fourth quarter of fiscal year 2020.

The decrease in inventories was primarily driven by sales growth and less inventory purchases during the fourth quarter of fiscal year 2020 .

The increase in accrued and other liabilities was primarily due to higher accrued personnel expenses.

The increase in inventories was primarily driven by an increase in inventory purchases, in anticipation of continued high demand for certain of our products.

The increase in accounts payable was primarily driven by the timing of purchases and related payments .

The increase in accrued and other liabilities was primarily due to higher income tax payable due to stronger performance, an increase in customer, marketing, pricing, and incentive programs, freight and duty due to higher logistic costs, and higher accrued personnel expenses.

Net cash used in investing activities was $120.0 million, primarily due to $43.5 million of the purchase price (net of cash acquired) for business acquisitions and $76.2 million of purchases of property, plant, and equipment.

Net cash used in financing activities was $176.7 million , primarily due to $124.2 million of cash dividends paid during the year, $50.4 million of repurchases of our registered shares and $24.3 million of tax withholdings related

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to net share settlements of restricted stock units, partially offset by $22.2 million in proceeds received from the sale of shares upon exercise of stock options and purchase rights.

Our expenditures for property, plant and equipment during fiscal year 2020 were primarily for tooling and equipment, and computer hardware and software.

Our expenditures for property, plant and equipment during fiscal years 2019 and 2018 were primarily for tooling and equipment, computer hardware and software and leasehold improvements.

Our expenditures for property, plant and equipment increased during fiscal year 2020 , compared to fiscal year 2019 , primarily due to higher computer and software and leasehold improvements.

Our expenditures for property, plant and equipment decreased during fiscal year 2019, compared to fiscal year 2018, primarily due to a lower amount of tooling purchases.

Our payments for acquisitions, net of cash acquired, during fiscal year 2020 were primarily for the Streamlabs Acquisition.

Our payments for acquisitions, net of cash acquired, during fiscal year 2019 were primarily for the Blue Microphones Acquisition (refer to "Note 3 - Business Acquisitions" to the consolidated financial statements).

Our payments for acquisitions, net of cash acquired, during fiscal year 2018, were primarily for the ASTRO Acquisition.

Net cash used in financing activities was $299.9 million, primarily due to $146.7 million of cash dividends paid during the year, $165.0 million of repurchases of our registered shares and $32.1 million of tax withholdings related to net share settlements of restricted stock units, partially offset by $43.8 million in proceeds received from the sale of shares upon exercise of stock options and purchase rights.

Our expenditures for property, plant and equipment during fiscal year 2021 and 2020 were primarily for tooling and equipment and computer hardware and software.

Our expenditures for property, plant and equipment increased during fiscal year 2021, compared to fiscal year 2020, primarily due to higher tooling and equipment.

Our pa yments for acquisitions, net of cash acquired, during fiscal year 2021 were primarily for the Mevo Acquisition.

Our payments for acquisitions, net of cash acquired, during fiscal year 2020 were primarily for the Streamlabs Acquisition (refer to "Note 3—Business Acquisitions" to the consolidated financial statements).

The purchases and sales of trading investments during fiscal years 2021 and 2020 represent mutual fund activity directed by participants in a deferred compensation plan offered by one of our subsidiaries.

The mutual funds are held by a Rabbi Trust.

During fiscal year 2020 , there was a $7.1 million loss from effect of currency exchange rate changes on cash and cash equivalents, compared to a loss of $10.1 million from effect of currency exchange rate changes during fiscal year 2019 , and a $4.7 million gain of currency translation exchange rate effect during fiscal year 2018 .

The loss from effect of currency rate changes during fiscal year 2020 were primarily due to the weakening of the Euro, Brazilian real and Australian dollar versus the U.S.

During fiscal year 2021, there was a $4.0 million loss from currency exchange rate effect on cash and cash equivalents, compared to a loss of $7.1 million from currency exchange rate effect during fiscal year 2020.

The loss from the effect of currency rate changes during fiscal year 2021 were primarily due to the weakening of the Japanese yen, Brazilian real, partially offset by the strengthening of the Chinese yuan and Australian dollar versus the U.S.

Dollar by 2%, 10%, 8% and 25%, respectively.

The loss from the effect of currency exchange rate changes during fiscal year 2019 were primarily due to the weakening of Euro and Chinese Renminbi versus the U.S.

The loss from the effect of currency exchange rate changes during fiscal year 2020 were primarily due to the weakening of Euro, Brazilian real and Australian dollar versus the U.S.

Dollar by 3%, 25%, and 14%, respectively.

2 unchanged sentences

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 May 2020, the Board of Directors recommended that we pay cash dividends for fiscal year 2020 of CHF 134.0 million ( $138.7 million based on the exchange rate on March 31, 2020).

In April 2021, the Board of Directors recommended that we pay cash dividends for fiscal year 2021 of CHF 147.0 million ($155.8 million based on the exchange rate on March 31, 2021).

In fiscal year 2021, we paid a cash dividend of CHF 134.0 million (U.S.

4 unchanged sentences

Dollar amount of $114.0 million) out of fiscal year 2018 retained earnings.

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.

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In May 2020, our Board of Directors approved a new share repurchase program, which authorizes us to invest up to $250.0 million to purchase our own shares, following the expiration date of the 2017 share repurchase 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.

10b5-1 trading plans) from time to time, our share repurchase program provides us with the opportunity to make opportunistic repurchases during periods of favorable market conditions and is expected to remain in effect until July 2023.

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.

In March 2017, our Board of Directors approved the 2017 share buyback program, which authorized us to invest up to $250.0 million to purchase our own shares.

As of March 31, 2020 , the remaining amount that may be repurchased under the program is $137.4 million .

This program expired at the end of April 2020, and there was no share buyback subsequent to March 31, 2020.

For over ten years, we have generated positive cash flows from our operating activities, including cash from operations of $425.0 million , $305.2 million and $346.3 million during fiscal years 2020 , 2019 , and 2018 , respectively.

In April 2021, our Board of Directors approved an increase of $750.0 million of the 2020 share repurchase program, to an aggregate amount of $1.0 billion.

This increase is subject to approval by the Swiss Takeover Board.

For over ten years, we have generated positive cash flows from our operating activities, including cash from operations of $1,458.6 million, and $425.0 million during fiscal years 2021 and 2020, respectively.

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 facilities could be restricted or eliminated.

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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.

Our other contractual obligations and commitments that require cash are described in the following sections.

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of March 31, 2020 (in thousands):

Payments Due by Period

March 31, 2020

Inventory purchase commitments

Capital purchase commitments

Expected contribution to employee benefit plans

Operating leases obligations

* Expected contribution to employee benefit plans:

Commitments under the retirement plans relate to expected contributions to be made to our defined benefit plans for the next year only.

We fund our pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxing authorities.

Expected contributions and payments to our defined benefit pension plans and non-retirement post-employment benefit plans beyond one year are excluded from the contractual obligations table because they are dependent on numerous factors that may result in a wide range of outcomes and thus are impractical to estimate.

For more information on our defined benefit pension plans and non-retirement post-employment benefit plans, see Note 5 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Purchase Commitments

1 unchanged sentence

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 March 31, 2020 , the liability for these purchase commitments was $9.6 million and is recorded in accrued and other current liabilities and is not included in the preceding table.

We have firm purchase commitments of $15.1 million for capital expenditures, primarily related to commitments for tooling, computer hardware and leasehold improvements.

As of March 31, 2021, the liability for these purchase commitments was $11.8 million and is recorded in accrued and other current liabilities.

We have firm purchase commitments of $24.9 million for capital expenditures, primarily related to commitments for tooling, equipment, and computer hardware.

We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations.

10 unchanged sentences

Indemnifications

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We indemnify certain of our suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions.

5 unchanged sentences

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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis