Logitech 2014 Annual Report Download - page 281

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Peripherals
The Company performed its annual impairment analysis of the goodwill for its peripherals reporting unit as
of December 31, 2013 by performing a qualitative assessment and concluded that it was not more likely than not
that the fair value of its peripherals reporting units was less than its carrying amount. In assessing the qualitative
factors, the Company considered the impact of these key factors: change in industry and competitive environment,
growth in market capitalization of $2.2 billion as of December 31, 2013 from $1.2 billion as of December 31, 2012,
and forecasted budgeted-to- actual revenue performance for fiscal year 2014. The peripherals reporting unit had an
improvement in operating income from $35 million for the nine months ended December 31, 2012 to $117 million
for nine months ended December 31, 2013.
Video Conferencing
In the quarter ended September 30, 2013, the Company implemented a restructuring plan (“this Plan”)
associated with its video conferencing reporting unit to simplify its organization, better align costs with its current
business and free up resources to pursue growth opportunities. This Plan resulted in the reduction of personnel,
lease exit costs and the write-off of discontinued video conferencing products. In addition, actual performance
was significantly less than projected results for the periods since the prior annual goodwill impairment assessment
performed at December 31, 2012, due to the combination of a changing industry landscape caused by a shift to less
expensive cloud-based video conferencing solutions, an evolving Lifesize product line and challenges in execution.
These factors resulted in the Company concluding that it was more likely than not that the fair value of its video
conferencing reporting unit was less than its carrying amount. Therefore, the Company performed an interim Step
1 assessment of its video conferencing reporting unit at September 30, 2013.
Step 1 assessment performed during the quarter ended September 30, 2013 involved measuring the
recoverability of goodwill by comparing the video conferencing reporting unit’s carrying amount, including
goodwill, to the fair value of the reporting unit. The fair value was estimated using both an income approach
employing a discounted cash flow model and a market approach. The market approach model was based on applying
certain revenue multiples of comparable companies to the respective revenue and earnings metrics of the reporting
unit. Step 1 assessment resulted in the Company determining that the video conferencing reporting unit passed
Step 1 test because the estimated fair value exceeded its carrying value by approximately 23%, thus not requiring
a Step 2 assessment of this reporting unit.
At December 31, 2013, the Company completed its annual impairment analysis for the goodwill of the video
conferencing reporting unit by performing Step 1 assessment as the qualitative factors that lead to the interim
assessment had not significantly improved.
Key assumptions used in this Step 1 income approach analysis included the appropriate discount rates,
compound annual growth rate (“CAGR”) during the forecast period, and long-term growth rates for purposes of
determining a terminal value at the end of the discrete forecast period. Sensitivity assessment of key assumptions
for the video conferencing reporting unit Step 1 test is presented below:
• CAGR assumption was 7.0% through fiscal year 2021, with a forecast decline in the remainder of fiscal
year 2014, and higher growth rates from fiscal years 2015 through 2019, reducing to a growth rate of 4% in
fiscal year 2021. The forecasted growth contrasts with the recent performance of the video conferencing
reporting unit, when the Company experienced a decline in revenue (see Note 14 for further details). A
hypothetical decrease to 1.4% in the CAGR rate, holding all other assumptions constant, would decrease
the fair value of the video conferencing reporting unit below its carrying value and hence would result in
the reporting unit failing Step 1 of the goodwill impairment test.
Note 10 — Goodwill and Other Intangible Assets (Continued)
ANNUAl REPORT
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