Discontinued Operations

During the third quarter of fiscal year 2016, the Company's Board of Directors approved a plan to divest the Lifesize video conferencing business. On December 28, 2015 during the fourth quarter of fiscal year 2016, the Company, and Lifesize, Inc., a wholly owned subsidiary of the Company (Lifesize) which held the assets of the Company’s video conferencing reportable segment, entered into a stock purchase agreement (the Stock Purchase Agreement) with entities affiliated with three venture capital investment firms (the Venture Investors). Pursuant to the terms of the Stock Purchase Agreement, the Company sold 2.5 million shares of Series B Preferred Stock of Lifesize to the Venture Investors for cash proceeds of $2.5 million and retained 12.0 million non-voting shares of Series A Preferred Stock of Lifesize. The shares of Series A Preferred Stock of Lifesize retained by the Company represent 37.5% of the shares outstanding immediately after the closing of the transactions contemplated by the Stock Purchase Agreement (the Closing). Lifesize also issued 17.5 million shares of Series B Preferred Stock to the Venture Investors for cash proceeds of $17.5 million. The shares of Series B Preferred Stock held by the Venture Investors represent 62.5% of the shares outstanding immediately after the Closing. In addition, Lifesize has reserved 8.0 million shares of common stock for issuance pursuant to a stock plan to be adopted by Lifesize following the Closing, none of which are issued or outstanding at the Closing. The Company substantially completed its transition services for Lifesize during the third quarter of fiscal year 2017.

The Company has classified the historical results of its Lifesize video conferencing business as discontinued operations in its consolidated statements of operations since the divestiture of the Lifesize video conferencing business represents a strategic shift that has a major effect on the Company's operations and financial results. Evaluating whether the divestiture of the business represents a strategic shift requires the Company's judgment. Also, evaluating whether the strategic shift will have a "major effect" on the Company's operations and financial results requires assessing not only quantitative factors but also the magnitude of qualitative factors.

The retained Series A Preferred Stock gives the Company no voting rights or any other significant influence over the divested Lifesize video conferencing business, and therefore is accounted for as a cost method investment which was initially recognized at fair value of $5.6 million at the date of divestiture of Lifesize Video Conferencing business. The fair value was determined by using the option pricing methodology with reference to the price of Lifesize’s Series B Preferred Stock paid by Venture Investors. The fair value of the Company’s investment in Series A Preferred Stock is classified as Level 3 as the application of the option pricing methodology requires the use of significant unobservable inputs including asset volatility of 50%, expected term to exit of three years, and lack of marketability discount of 27%.

Discontinued operations include results of the Lifesize video conferencing business. Discontinued operations also include other costs incurred by Logitech to effect the divestiture of the Lifesize video conferencing business. These costs include transaction charges, advisory and consulting fees and restructuring cost related to the Lifesize video conferencing business.

The following table presents financial results of the video conferencing classified as discontinued operations (in thousands):



	Years Ended March 31,
	2016
Net sales	$	65,554
Cost of goods sold	24,951
Gross profit	40,603
Operating expenses:
Marketing and selling	32,260
Research and development	16,526
General and administrative	5,254
Restructuring charges, net	7,900
Operating expenses	61,940
Operating loss from discontinued operations	(21,337		)
Interest and other expense, net	(205		)
Gain on divestiture of discontinued operations	13,684
Loss from discontinued operations before income taxes	(7,858		)
Provision for income taxes	1,187
Net loss from discontinued operations	$	(9,045	)

The Company recognized a gain on its divestiture of Lifesize video conferencing business as follows (in thousands):



	Year Ended
	March 31, 2016
Proceeds received from the divestiture of discontinued operations	$	2,500
Fair value of retained cost method investment as a result of the divestiture of discontinued operations	5,591
Net liabilities of discontinued operations divested	9,981
Currency translation loss released due to the divestiture of discontinued operations (1)	(3,913		)
Transaction-related costs	(475		)
Gain on divestiture of discontinued operations (2)	$	13,684

(1) Currency translation loss recognized as a result of the substantial liquidation of a subsidiary using non-USD functional currency, which is part of discontinued operations

(2) Gain on divestiture of discontinued operation was included in loss from discontinued operations, net of income taxes, in the Company's consolidated statement of operations