Logitech 2015 Annual Report Download - page 222

LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9—Goodwill and Other Intangible Assets (Continued)
In reviewing goodwill for impairment, an entity has 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. If an entity elects to perform a qualitative assessment and determines that an impairment is more
likely than not, the entity is then required to perform the two-step quantitative impairment test; otherwise,
no further analysis is required. An entity also may elect not to perform the qualitative assessment and,
instead, proceed directly to the two-step 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 two-step 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. The Company has two reporting units, peripherals
and video conferencing.
Peripherals
The Company performed its annual impairment analysis of the goodwill for its peripherals reporting
unit at December 31, 2014 by performing a qualitative assessment and concluded that it was more likely
than not that the fair value of its peripherals reporting unit exceeded 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 $2.3 billion as of December 31, 2014 from
$2.2 billion a year ago, and budgeted-to-actual revenue performance from the prior year. The peripherals
reporting unit has seen an improvement in operating income from $64.8 million and $117.8 million for the
three and nine months ended December 31, 2013 to $76.1 million and $160.3 million for the three and nine
months ended December 31, 2014, respectively. No recent events or changes in circumstances indicate
that impairment existed as of March 31, 2015.
Video Conferencing
The Company proceeded directly to the two-step quantitative impairment test for the video
conferencing reporting unit and performed a Step 1 assessment at December 31, 2014. The Company
uses a third party valuation expert in the development of its market and income approach models. The
annual Step 1 assessment performed as of December 31, 2014 resulted in the Company determining that
the video conferencing reporting unit passed the Step 1 test because the estimated fair value of the video
conferencing reporting unit from the Step 1 assessment exceeded its carrying value by approximately
38.0%, thus not requiring a Step 2 assessment of this reporting unit. Therefore, the Company concluded
it was more likely than not that the goodwill of the video conferencing reporting unit was not impaired as
of December 31, 2014.
During the fourth quarter of the fiscal year ended March 31, 2015, the net sales of the video
conferencing reporting unit decreased to $24.9 million from $31.0 million in the fourth quarter of the fiscal
year ended March 31, 2014 and from $29.9 million in the third quarter of fiscal year ended March 31, 2015.
The sales decline was concentrated in the video conferencing infrastructure legacy business primarily
due to faster shift of customer preference towards Cloud infrastructure conferencing versus on-premise
infrastructure solutions and resource realignment, which was not anticipated during annual impairment
assessment as of December 31, 2014. This quick shift towards Cloud-based offering resulted in the change
in business strategy to de-emphasize Lifesize’s legacy offerings more quickly than planned to enable
maximum traction of the Lifesize Cloud, which would result in shrinking the legacy Lifesize business but
could grow the Cloud opportunity faster. In the last nine months, the sales of Cloud-based offerings have
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Annual Report Fiscal Year 2015