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File Number: 0-29174
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
LOGITECH INTERNATIONAL S.A.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
CANTON OF VAUD, SWITZERLAND
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
LOGITECH INTERNATIONAL S.A.
APPLES, SWITZERLAND
C/O LOGITECH INC.
6505 KAISER DRIVE
FREMONT, CALIFORNIA 94555
(510) 795-8500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT FILES OR WILL FILE ANNUAL REPORTS
UNDER COVER FORM 20-F OR FORM 40-F.
[X] FORM 20-F [_] FORM 40-F
INDICATE BY CHECK MARK WHETHER REGISTRANT BY FURNISHING THE INFORMATION
CONTAINED IN THIS FORM IS ALSO THEREBY FURNISHING THE INFORMATION TO THE
COMMISSION PURSUANT TO RULE 12g3-2(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934.
[_] YES [X] NO
IF "YES" IS MARKED, INDICATE BELOW THE FILE NUMBER ASSIGNED TO REGISTRANT IN
CONNECTION WITH RULE 12g3-2(b).
NOT APPLICABLE
================================================================================
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LOGITECH INTERNATIONAL S.A.
FORM 6-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Financial Information (unaudited):
Consolidated Balance Sheets at September 30, 1998 and March 31, 1998.................................. 3
Consolidated Statements of Income for the three and six months ended September 30, 1998 and 1997...... 4
Consolidated Statements of Cash Flows for the three and six months ended September 30, 1998 and 1997.. 5
Notes to Consolidated Financial Statements............................................................ 6
Management's Discussion and Analysis of Financial Condition and Results of Operations................... 9
Signatures.............................................................................................. 20
</TABLE>
2
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
-------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 40,898 $ 72,376
Accounts receivable.................................................. 78,625 62,998
Inventories.......................................................... 59,273 32,417
Other current assets................................................. 16,082 15,087
-------- --------
Total current assets............................................. 194,878 182,878
Investments in unconsolidated companies............................... 12,941 1,878
Property, plant and equipment, net.................................... 32,252 28,845
Intangible assets, net................................................ 19,800 388
Other assets.......................................................... 796 712
-------- --------
Total assets..................................................... $260,667 $214,701
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt...................................................... $ 22,421 $ 5,999
Accounts payable..................................................... 62,970 37,565
Accrued liabilities.................................................. 42,544 34,783
-------- --------
Total current liabilities........................................ 127,935 78,347
Long-term debt........................................................ 3,320 3,031
Other liabilities..................................................... 682 589
-------- --------
Total liabilities................................................ 131,937 81,967
-------- --------
Shareholders' equity:
Registered shares, par value CHF 20 - 2,101,688 authorized,
353,312 conditionally authorized, 2,001,688 issued and outstanding
at September 30 and March 31, 1998 ................................ 28,738 28,738
Additional paid-in capital........................................... 76,934 75,577
Less registered shares in treasury, at cost, 65,450 at September 30,
1998 and 72,989 at March 31, 1998................................... (6,317) (6,677)
Retained earnings.................................................... 39,409 47,186
Cumulative translation adjustment.................................... (10,034) (12,090)
-------- --------
Total shareholders' equity....................................... 128,730 132,734
-------- --------
Total liabilities and shareholders' equity....................... $260,667 $214,701
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales....................................... $92,213 $99,159 $162,338 $189,317
Cost of goods sold.............................. 60,744 71,161 107,803 135,524
------- ------- -------- --------
Gross profit.................................... 31,469 27,998 54,535 53,793
Operating expenses:
Marketing and selling......................... 14,905 12,527 26,670 24,588
Research and development...................... 7,602 6,844 13,968 14,110
General and administrative.................... 5,490 4,916 10,102 9,721
Acquired research and development............. 6,200 -- 6,200 --
------- ------- -------- --------
Operating income (loss)......................... (2,728) 3,711 (2,405) 5,374
Interest income, net............................ 506 206 1,158 419
Other income (expense), net..................... (6,169) 348 (6,544) 1,003
------- ------- -------- --------
Income (loss) before income taxes............... (8,392) 4,265 (7,791) 6,796
Provision (benefit) for income taxes............ (1,259) 640 (1,169) 1,021
------- ------- -------- --------
Net income (loss)............................... $(7,133) $ 3,625 $ (6,622) $ 5,775
======= ======= ======== ========
Net income (loss) per share:
Basic......................................... $ (3.68) $ 1.93 $ (3.42) $ 3.09
Diluted....................................... $ (3.68) $ 1.84 $ (3.42) $ 2.94
Net income (loss) per ADS (10 ADS : 1 share):
Basic......................................... $ (0.37) $ 0.19 $ (0.34) $ 0.31
Diluted....................................... $ (0.37) $ 0.18 $ (0.34) $ 0.29
Shares used to compute net income (loss) per share:
Basic......................................... 1,940 1,878 1,935 1,869
Diluted....................................... 1,940 1,974 1,935 1,965
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................... $ (6,622) $ 5,775
Non-cash items included in net income (loss):
Depreciation and amortization....................................... 6,675 6,536
Acquired research and development................................... 6,200 --
Write-down of investments and note receivable....................... 5,800 38
Deferred income taxes............................................... (1,975) (1,367)
Other............................................................... 396 417
Changes in current assets and liabilities:
Accounts receivable................................................. (9,896) (8,031)
Inventories......................................................... (20,627) 1,001
Other current assets................................................ (1,820) 372
Accounts payable.................................................... 10,724 (4,404)
Accrued liabilities................................................. 10,896 1,225
-------- -------
Net cash provided by (used in) operating activities.............. (249) 1,562
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment........................... (9,612) (7,274)
Acquisitions and investments in affiliated companies................. (39,020) --
-------- -------
Net cash used in investing activities............................ (48,632) (7,274)
-------- -------
Cash flows from financing activities:
Increase (decrease) in debt.......................................... 16,680 (6,743)
Proceeds from sale of treasury shares................................ 1,790 9,300
Purchase of treasury shares.......................................... (1,308) --
-------- -------
Net cash provided by (used in) financing activities.............. 17,162 (2,557)
-------- -------
Effect of exchange rate changes on cash and cash equivalents.......... 241 (304)
-------- -------
Net decrease in cash and cash equivalents............................. (31,478) (3,458)
Cash and cash equivalents at beginning of period...................... 72,376 38,504
-------- -------
Cash and cash equivalents at end of period............................ $ 40,898 $35,046
======== =======
Supplemental cash flow information:
Interest paid........................................................ $ 176 $ 346
Income taxes paid.................................................... $ 603 $ 1,020
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Logitech International S.A. (the "Company") designs, manufactures and markets
human interface devices which often serve as the primary physical interface
between users and their personal computers and other multimedia devices. The
Company's products include: input and pointing devices such as 2D, 3D, and
cordless mice, trackballs, touchpads, and keyboards; control devices for
entertainment such as joysticks, gamepads, and 3D game controllers; and imaging
devices such as PC video cameras and, until December 1997, personal color
scanners. The Company sells its products to both original equipment
manufacturers ("OEMs") and a network of retail distributors and retailers.
NOTE 2 -- INTERIM FINANCIAL DATA:
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1998 Annual Report on Form 20-F as filed with the
Securities and Exchange Commission. In the opinion of management, the
accompanying financial information includes all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows for the interim periods. The
results of operations and cash flows for the interim periods presented are not
necessarily indicative of the results of any future period.
The Company reports quarterly results on thirteen-week periods, each ending on
a Friday. For purposes of presentation, the Company has indicated its quarterly
periods as ending on the month end.
NOTE 3 -- BUSINESS ACQUISITION:
In September 1998, the Company completed the acquisition of Connectix
Corporation's QuickCam(R) PC video camera business unit for approximately $26.2
million (including closing and other costs). The Connectix business unit has
been combined with the Company's video division to offer a complete line of PC
video cameras for personal computer platforms. The transaction was accounted
for as a purchase under generally accepted accounting principles. Accordingly,
the assets and liabilities of the acquired business are included in the
consolidated balance sheet as of September 30, 1998. The results of operations
of the acquired business unit from the date of acquisition to September 30, 1998
were not significant.
In connection with the acquisition, the Company recorded approximately $19.4
million in goodwill and other intangibles, which are being amortized on a
straight-line basis over periods of two to ten years. In addition, the Company
recorded a one-time charge of approximately $6.2 million for acquired in-process
research and development in the quarter ended September 30, 1998.
NOTE 4 -- EQUITY INVESTMENTS:
In June 1998, the Company acquired 49% of the outstanding shares of Space
Control GmbH, the German-based provider of Logitech's Magellan 3D Controller.
The acquisition agreement includes an option for the Company to acquire the
remaining outstanding shares of Space Control if certain conditions are met.
The Company has used the equity method of accounting for this investment.
In April 1998, the Company acquired 10% of the outstanding stock of Immersion
Corporation, a developer of force feedback technology for PC peripherals and
software applications. The Company has used the cost method of accounting for
this investment.
6
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NOTE 5 -- SALE OF PRODUCT LINE:
In December 1997, the Company sold its scanner product line to Storm
Technology Inc. for $5 million in cash, a $4 million convertible note, and a 10%
common stock ownership in Storm. The Company recognized a loss on this sale in
fiscal 1998 of $3,174,000.
During the second quarter of fiscal 1999, the Company wrote off the
convertible note and common stock investment in Storm. The write-off was
prompted by changes in the personal scanner business, which in management's
opinion called into question the ability of Storm to meet its obligations to the
Company. In addition, in October 1998, Storm filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code.
NOTE 6 -- INITIAL PUBLIC OFFERING IN THE U.S.:
On March 27, 1997, the Company sold 200,000 registered shares from treasury in
a U.S. initial public offering in the form of 2,000,000 American Depositary
Shares ("ADS"). Total proceeds from the offering amounted to $32.0 million, or
$16 per ADS. Underwriting discounts and commissions, share issue and other
taxes and other offering expenses amounted to $5.2 million, which resulted in
net proceeds to the Company of $26.8 million. On April 25, 1997, the Company
sold an additional 30,000 registered shares from treasury under an option
granted to the underwriters to cover over-allotments. Such sale generated net
proceeds of $4.5 million.
NOTE 7 -- NET INCOME PER SHARE:
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," ("SFAS 128") for the quarter ending December 31, 1997.
All previously reported amounts were restated in accordance with SFAS 128.
Under SFAS 128, basic earnings per share is computed by dividing net income by
the weighted average number of outstanding registered shares. Diluted earnings
per share are computed using weighted average registered shares and, if
dilutive, weighted average registered share equivalents. The registered share
equivalents included in the Company's diluted earnings per share computations
are registered shares issuable upon the exercise of stock option or stock
purchase plan agreements (using the treasury stock method).
NOTE 8 -- COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". SFAS 130 establishes new
rules for the reporting and display of comprehensive income in the financial
statements. The adoption of SFAS 130 had no impact on the Company's net income
or stockholders' equity. For the three months ended September 30, 1998 and
1997, comprehensive income (loss) was ($8,963) thousand and $4,834 thousand,
respectively. For the six months ended September 30, 1998 and 1997,
comprehensive income (loss) was ($8,678) thousand and $8,100 thousand,
respectively. The difference between net income (loss) and comprehensive income
(loss) for each period was due to foreign currency translation adjustments.
NOTE 9 -- INVENTORY
At September 30 and March 31, 1998, inventory consisted of the following:
SEPTEMBER 30, 1998 MARCH 31, 1998
------------------ --------------
(IN THOUSANDS)
Raw materials.................. $13,810 $ 5,695
Work in progress............... 3,105 1,441
Finished goods................. 42,358 25,281
------- -------
$59,273 $32,417
======= =======
7
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NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
In December 1996, the Company was advised of the intention to begin
implementing a value added tax ("VAT") on goods manufactured in certain parts of
China since July 1995, including where the Company's operations are located, and
intended for export. The Company has not previously paid any such VAT on its
exported Chinese manufactured products. The Company is in discussion with
Chinese officials and has been assured that, not withstanding statements made by
tax authorities, the VAT would not be applied to the Company. The Company
therefore believes this matter will not have a material adverse effect on the
Company's results of operations. Were the VAT to be applied to the Company, the
Company could incur a significant charge to operations, as well as an increase
in its cost of goods sold. As a result, the Company would seek to mitigate the
future effect by reorganizing its operations in China. There can be no
assurance that any application of the VAT to the Company would not have a
material adverse effect on the Company's current or future results of
operations, or that the Company's efforts to mitigate any impact of the VAT
would be successful.
The Company is involved in various legal actions and claims. In the opinion
of management, the future settlements of such actions and claims will not have a
material adverse effect on the Company's financial position or results of
operations.
8
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LOGITECH INTERNATIONAL S.A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net sales are primarily derived from sales of its principal
product line, control devices and, to a lesser extent, imaging solutions and
other products. Control devices include mice, trackballs, touchpads, joysticks,
gamepads, 3D game controllers, keyboards, and remote controls. Imaging
solutions include PC video cameras and, until December 1997, color personal
scanners. Other products include partner products, as well as product lines
that are being phased out for strategic purposes.
In September 1998, the Company acquired the PC video camera business unit of
Connectix Corporation for $26.2 million (including closing and other costs).
Connectix's QuickCam(R) brand is a market leader in PC video cameras for Windows
and Macintosh. While the PC video camera market is not yet a large market, it
has been experiencing rapid growth. This acquisition is consistent with the
Company's intention to enter the PC video camera market, and its development
efforts in that area. The Connectix business unit has been combined with the
Company's video division.
In December 1997, the Company sold its scanner product line to Storm
Technology, Inc. ("Storm") for $5 million in cash, a $4 million convertible
note, and a 10% common stock ownership in Storm. The Company disposed of its
scanner product line due of fundamental changes in the scanner market. The
market has evolved from one driven by new technology and innovation, where
Logitech was a leader, to one driven by cost, with prices dropping steeply. In
addition, unit growth has been dominated by flatbed scanners, where Logitech was
a new entrant in the market, rather than by color sheetfed scanners where
Logitech was the leader. This transaction will allow Logitech to focus on its
profitable control device product line and pursue new opportunities in emerging
areas such as PC video cameras.
The following table sets forth net sales for each of the Company's product
lines in dollars and as a percentage of total net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
-------- ------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Control devices.............. $90,156 $88,481 $159,845 $168,510
Imaging solutions............ 1,903 9,379 2,289 19,019
Other........................ 154 1,299 204 1,788
------- ------- -------- --------
Total net sales............... $92,213 $99,159 $162,338 $189,317
======= ======= ======== ========
Net sales:
Control devices.............. 98% 89% 98% 89%
Imaging solutions............ 2% 10% 2% 10%
Other........................ --% 1% --% 1%
------- ------- -------- --------
Total net sales............... 100% 100% 100% 100%
======= ======= ======== ========
</TABLE>
9
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INITIAL PUBLIC OFFERING IN THE U.S.
On March 27, 1997, the Company sold 200,000 registered shares from treasury in
a U.S. initial public offering in the form of 2,000,000 American Depositary
Shares ("ADS"), with net proceeds to the Company of $26.8 million. On April
25, 1997, the Company sold an additional 30,000 shares from treasury under an
option granted to the underwriters to cover over-allotments, generating net
proceeds of $4.5 million.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial statement
amounts as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1998 1997 1998 1997
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.9% 71.8% 66.4% 71.6%
----- ----- ----- -----
Gross profit............................ 34.1% 28.2% 33.6% 28.4%
Operating expenses:
Marketing and selling.................. 16.2% 12.6% 16.4% 13.0%
Research and development............... 8.2% 6.9% 8.6% 7.5%
General and administrative............. 6.0% 5.0% 6.2% 5.1%
Acquired research and development...... 6.7% 0.0% 3.8% 0.0%
----- ----- ----- -----
Operating income (loss)................. (3.0)% 3.7% (1.5)% 2.8%
Interest income, net.................... 0.5% 0.2% 0.7% 0.2%
Other income (expense), net............. (6.6)% 0.4% 4.0% 0.6%
----- ----- ----- -----
Income (loss) before income taxes....... (9.1)% 4.3% (4.8)% 3.6%
Provision (benefit) for income taxes.... (1.4)% 0.6% (0.7)% 0.5%
----- ----- ----- -----
Net income (loss)....................... (7.7)% 3.7% (4.1)% 3.1%
===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company had a net loss of $7.1 million for the three months ended
September 30, 1998, compared to net income of $3.6 million in the same quarter
last year. Net income was impacted by two non-recurring charges, an in-process
research and development write-off of $6.2 million (before tax) which was part
of the Company's acquisition of the QuickCam(R) PC video camera business unit of
Connectix Corporation, and a $5.8 million (before tax) write-off of a note
receivable and equity investment in Storm Technology. The note and investment
were part of the proceeds of the sale of the scanner product line in December
1997. Since that time, the scanner market has suffered substantial pricing and
profitability pressures. The Company's assessment was that Storm would be
unlikely to meet its obligations to the Company. In addition, in October 1998,
Storm filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code.
Net Sales
Net sales for the three months ended September 30, 1998 decreased 7%. This
reduction was due to a $9.0 million decline in scanner revenue, a product line
that was divested in December 1997, and a $3.2 million decline in revenue due to
the Company's exit from the set-top remote controller business.
Retail sales grew by over 10%, excluding scanners. This growth was primarily
due to the Company's new keyboard and video products. Corded keyboard products,
which completed the Company's full line of keyboards, began shipping this
quarter. Certain of the Company's products from the QuickCam acquisition
also began shipping late in the quarter. These increases were partially offset
by declines in the game device category, which
10
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includes joysticks and gamepads, where the Company has lost market share. The
Company has taken steps, described later, directed at regaining lost market
share.
OEM sales declined from last year due to the Company's decision in fiscal year
1998 to depart from the set-top remote controller business, and the shrinking of
the Japanese OEM market.
Gross Profit
Gross profit consists of net sales less cost of goods sold, which consists of
materials, direct labor and related overhead costs, costs of manufacturing
facilities, costs of purchasing finished products from outside suppliers,
distribution costs and inventory write-offs. Gross profit increased 12% to
$31.5 million.
Gross profit as a percentage of net sales improved from 28.2% to 34.1%. This
increase reflects both a favorable product mix between the retail and lower
margin OEM channels and the divestiture of the low margin scanner product line.
The Company has also been able to continue to achieve product cost reductions.
Operating Expenses
Excluding non-recurring charges, total operating expenses increased 15%, from
$24.3 million to $28.0 million. This increase reflects intensified marketing
efforts in preparation for the Company's historically strong third quarter, as
well as continued investment in research and development. As a percentage of
sales, operating expenses, excluding non-recurring charges, increased from 24.5%
to 30.4%.
The Company has continued to invest in the Logitech brand with its new visual
marketing strategy, including new merchandising, an updated web site, and new
packaging materials. The Company has increased other marketing costs in new
product areas, including the retail keyboard market and PC video cameras, which
Logitech introduced in the second quarter. The Company has also increased its
development effort in the game device area, and introduced a number of new
devices for the Christmas season. Development efforts have also continued in
the second quarter for PC video cameras. Increased costs in the above areas
have been partially offset by the elimination of research and development costs
for the scanner product line sold in December 1997.
Interest Income, Net
Interest income for the most recent quarter was $.5 million, compared to $.2
million in the same quarter last year. The improvement was the result of an
increase in the average balances of interest bearing cash and cash equivalents.
Other Income (Expense), Net
Before the non-recurring charge related to the write-off of an investment and
note receivable, other expense was $.4 million for the current quarter, compared
to income of $.3 million in the same quarter last year. This reduction was
primarily due to net foreign exchange losses.
Provision for Income Taxes
The provision for income taxes consists of income and withholding taxes. The
amount recorded in each period reflects management's best estimate of the
effective tax rate for the fiscal year. Estimates are based on factors such as
management's expectations as to payments of withholding taxes on amounts
repatriated through dividends, the jurisdictions in which taxable income is
generated, changes in local tax laws and changes in valuation allowances based
upon the likelihood of recognizing deferred tax assets. The provision for
income taxes for the three months ended September 30, 1998 and 1997 represented
a 15.0% effective tax rate for both quarters.
11
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COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company had a net loss of $6.6 million for the six months ended September
30, 1998, compared to net income of $5.8 million in the same period last year.
Net income was impacted by the two non-recurring charges described earlier, an
in-process research and development write-off of $6.2 million (before tax) and a
$5.8 million (before tax) write-off of a note receivable and equity investment.
Net Sales
Net sales for the six months ended September 30, 1998 decreased 14%. This
reduction was due to a $17.8 million decline in scanner revenue, a product line
that was divested in December 1997, an $8.2 million decline in revenue due to
the Company's exit from the set-top remote controller business, and a
significant reduction in OEM mice sales.
Retail sales grew by over 8%, excluding scanners. This growth was primarily
due to the Company's new keyboard and video products, as well as increases from
the Company's new wheel enhanced mice and revitalized trackball product line.
These increases were partially offset by declines in the game device category,
which includes joysticks and gamepads, where the Company has lost market share.
OEM sales declined from last year due to three factors: a reduction in demand
for mice from several large PC manufacturers during the first quarter of this
fiscal year, the Company's decision in fiscal year 1998 to depart from the set-
top remote controller business, and the shrinking of the Japanese OEM market.
Gross Profit
Gross profit increased slightly to $54.5 million in the six months ended
September 30, 1998. Gross profit as a percentage of net sales improved from
28.7% to 33.6%. This increase reflects both a favorable product mix between the
retail and lower margin OEM channels and the divestiture of the low-margin
scanner product line. The Company has also been able to continue to achieve
product cost reductions.
Operating Expenses
Excluding non-recurring charges, total operating expenses increased 5%, from
$48.4 million to $50.7 million. This increase reflects intensified product
marketing efforts in the current year in preparation for the Company's launch of
several new products, as well as continued investment in research and
development. As a percentage of sales, operating expenses, excluding non-
recurring charges, increased from 25.6% to 31.2%.
The Company has continued to invest in the Logitech brand with its new visual
marketing strategy, including new packaging, an updated web site, and new
packaging materials. The Company has increased other marketing costs in new
product areas, including the retail keyboard market and PC video cameras. The
Company has also increased its development effort in the game device area, and
introduced a number of new devices for the Christmas season. Development
efforts have also continued for PC video cameras for the Internet. Increased
costs in the above areas have been partially offset by the elimination of
marketing and research and development costs for the scanner product line sold
in December 1997.
Interest Income, Net
Interest income for the six months ended September 30, 1998 was $1.2 million,
compared to $.4 million in the same period last year. The improvement was the
result of an increase in the average balances of interest bearing cash and cash
equivalents.
Other Income (Expense), Net
Before the non-recurring charge related to the write-off of an investment and
note receivable, other expense was $.7 million, compared to other income of $1.0
million last year. This change was primarily due to net foreign exchange
losses.
12
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Provision for Income Taxes
The provision for income taxes for the six months ended September 30, 1998 and
1997 represented a 15.0% effective tax rate for each period.
LIQUIDITY AND CAPITAL RESOURCES
Cash Balances, Available Borrowings, and Capital Resources
At September 30, 1998, the Company had cash and cash equivalents of $40.9
million. The Company also had credit lines with several European and Asian
banks totaling $68.9 million as of that date. As is common for business in
European countries, these credit lines are uncommitted and unsecured. Despite
the lack of formal commitments from its banks, the Company believes that these
lines of credit will continue to be made available because of its long-standing
relationships with these banks. In addition, the Company has a $20 million
revolving working capital line of credit with a U.S. bank, which is available to
fund working capital needs and other corporate purposes. This facility has a
two year revolving period, is unsecured, and has a formal bank commitment. As
of September 30, 1998, $50.0 million was available under these facilities.
The Company has financed its operations and capital requirements primarily
through cash flow from operations, bank borrowings and the sale of equity
securities. The Company's short and long-term liquidity and capital resource
requirements will be provided from three sources: ongoing cash flow from
operations, cash and cash equivalents on hand and borrowings, as needed, under
the credit facilities.
Cash Flow from Operating Activities
The Company's operating activities used cash of $0.2 million for the six
months ended September 30, 1998, primarily due to increased working capital
requirements. The increase in working capital requirements was primarily the
result of increased receivables and inventories, in excess of increased
payables, in anticipation of the Christmas sales season. Operating activities
generated cash of $1.6 million for the six months ended September 30, 1997,
primarily from net income adjusted for depreciation, partially offset by an
increase in the Company's working capital requirements.
Cash Flow from Investing Activities
The Company's investing activities used cash of $48.6 million and $7.3 million
for the six months ended September 30, 1998 and September 30, 1997. Cash used in
the six months ended September 30, 1998 included $39.0 million used for three
acquisitions: the PC video camera business unit of Connectix Corporation, 49%
of the outstanding shares of Space Control GmbH, and 10% of the outstanding
shares of Immersion Corporation. The remaining amounts invested in both years
were for capital expenditures.
Cash Flow from Financing Activities
Net cash provided by financing activities for the six months ended September
30, 1998 was $17.2 million. This represents principally an increase of $16.7
million in short-term debt for working capital needs and to finance part of the
Company's acquisition of the QuickCam(R) PC video camera business unit of
Connectix.
Net cash used in financing activities for the six months ended September 30,
1997 was $2.6 million. This amount reflects cash proceeds of $4.5 million
received in April 1997 from the sale of additional registered shares under an
option granted to the underwriters of the initial public offering in the U.S. to
cover over-allotments. The Company had additional proceeds of $4.8 million from
the sale of treasury shares. These cash proceeds, along with part of the $26.8
million received in March 1997 from the U.S. initial public offering, were used
to pay down short-term debt by $12.9 million in the six months ended September
30, 1997. In addition, the Company borrowed $6.2 million from its credit lines
for capital improvements in China and other short-term working capital needs.
Capital Commitments
The Company believes that it will continue to make capital expenditures in the
future to support ongoing and expanded operations and that such expenditures may
be substantial. The Company believes that its cash and cash equivalents, cash
from operations, and available borrowings under its bank lines of credit will be
sufficient to fund capital expenditures and working capital needs for the
foreseeable future.
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CERTAIN FACTORS AFFECTING OPERATING RESULTS
This quarterly report on Form 6-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 relating to, among other things, i) price
competition, ii) an emerging environment in the PC video camera market, iii) the
Company's brand strategy, iv) the Company's research and development strategy,
v) bank credit line availability, vi) cash liquidity availability, vii) the
effect of the Year 2000 issue on the Company and the Company's projected costs
and strategy addressing this issue, and viii) the outcome of contingencies.
Predictions of future events involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in the forward-
looking statements due to, among others, the following risk factors:
Potential Fluctuations in Future Operating Results; Seasonality
The Company's operating results in the past have varied significantly from
quarter to quarter and these fluctuations are expected to continue in the
future. Future quarterly operating results may vary significantly due to a
number of factors, including: the volume and timing of orders received during
the quarter; the maturation of product lines; the timing of new product
introductions by the Company and its competitors and their acceptance by the
market; the impact of competition on the Company's average selling prices and
operating expenses; the availability and pricing of components for the Company's
products; inventory levels at the Company or in the distribution channels;
changes in laws or regulations; changes in product or distribution channel mix;
price protection charges; product returns from customers; deferrals of customer
orders in anticipation of new products or otherwise; changes in technologies and
their acceptance by the market; fluctuations in exchange rates; changes in the
Company's strategy; changes in personnel; the performance of the Company's
suppliers and third-party product manufacturers; the availability of key
components; and general economic conditions. Many of these factors are beyond
the Company's control. In addition, due to the short product life cycles
inherent in the Company's markets, the Company's failure to introduce new,
competitive products consistently in a timely manner would adversely affect
results of operations for one or more product cycles.
The volume and timing of orders received during a quarter are difficult to
forecast. Customers generally order on an as-needed basis. Accordingly, the
Company has operated with a relatively small backlog, and net sales in any
quarter depend primarily on orders booked and shipped in that quarter. In spite
of the difficulty in forecasting sales in advance of a quarter and the
relatively small backlog at any given time, the Company generally must plan
production, order components, and enter into development, sales and marketing,
and other operating commitments well before each quarter begins. This is
particularly acute because substantially all of the Company's products are
manufactured in Asia, and the Company relies on suppliers who are located in
many other parts of the world. Consequently, any shortfall in net sales in a
given quarter may negatively impact the Company's results of operations due to
an inability to adjust expenses during such quarter. Excess inventory may
negatively impact cash flows and result in charges associated with inventory
write-offs.
The Company's retail sales are seasonal. Net sales are typically higher during
the Company's third fiscal quarter, due primarily to the increased demand for
the Company's products during the year-end holiday buying season, and to a
lesser extent in the fourth fiscal quarter. Net sales in the first and second
quarters can vary significantly as a result of new product introductions and
other factors.
As a result, the Company believes that quarter-to-quarter comparisons of its
results of operations should not be relied upon as indications of future
performance. In addition, due to the foregoing factors, it is possible that in
some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's ADSs and registered shares would likely be materially and
adversely affected. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by technology companies
participating in rapidly evolving markets. There can be no assurance that the
Company will be successful in addressing these concerns.
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Concentration of Operations in China and Taiwan
Substantially all of the Company's manufacturing operations are located in
Suzhou, China and Hsinchu, Taiwan. These operations could be severely impacted
by national or regional political instability in China, including instability
which may occur in connection with a change in leadership in China, by evolving
interpretation and enforcement of legal standards, by strains on Chinese
transportation, communications, trade and other infrastructures related to the
rapid industrialization of an agrarian economy, by conflicts, embargoes,
increased tensions or escalation of hostilities between China and Taiwan, and by
other trade customs and practices that are dissimilar to those in the United
States. Interpretation and enforcement of China's laws and regulations continues
to evolve and the Company expects that differences in interpretation and
enforcement will continue in the foreseeable future. In addition, the Company's
Chinese employees in Suzhou are subject to a number of government regulations
regarding employment practices and customs that are fundamentally different in
certain respects from those in the United States and Europe. The Suzhou facility
is managed by, among others, several key Taiwanese expatriate employees of the
Company. The loss of such employees, either voluntarily or because of a
deterioration in relations between China and Taiwan, may have a material adverse
effect on the Company's Suzhou manufacturing operations.
Risk of Margin Declines
The Company's gross margins are affected by a number of factors, including the
mix between retail and OEM sales, product mix, product obsolescence, price and
cost reductions. The Company believes that gross margins are likely to fluctuate
in the near-term, but over the long term are likely to decline due to
significant price pressures in the OEM market from PC manufacturers aggressively
targeting low cost PCs, changes in product mix in the retail market toward lower
margin products, and a decline in the rate of cost reductions in the Company's
manufacturing operations.
Risks Associated with International Operations; Currency Fluctuations
Logitech transacts a substantial portion of its business outside the United
States. There are certain risks inherent to doing business in international
markets, including tariffs, customs, duties and other trade barriers,
difficulties in staffing and managing foreign operations, problems in collecting
accounts receivable, longer accounts receivable payment cycles, political
instability, expropriation, nationalization and other political risks, foreign
exchange controls, technology export and import restrictions or prohibitions,
delays from customs brokers or government agencies, seasonal reductions in
business activity, subjection to multiple taxation regimes and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations and, in turn, have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company publishes its consolidated financial statements in U.S. dollars,
however, a portion of the Company's revenues and expenses are denominated in
currencies other than the U.S. dollar. The functional currencies for the
Company's operations are primarily the U.S. dollar, and to a lesser extent, the
Dutch guilder, Swiss franc, Taiwanese dollar, Chinese yuan and Japanese yen.
Certain of the Company's operations record revenues in one currency while
incurring costs in different currencies. This currency imbalance has, and may
continue to, result in foreign currency transaction gains and losses. Further,
the Company is subject to risks of currency exchange to the extent of currency
fluctuations between the U.S. dollar and other currencies in which the Company
transacts its business. Currently, the Company does not actively hedge against
exchange rate fluctuations, although it may elect to do so in the future.
Accordingly, changes in exchange rates may have a material adverse effect on the
Company's net sales, cost of goods sold, gross margin and net income.
Intense Competition; Pricing Pressure
The Company's business is characterized by intense competition, a trend of
declining average selling prices and performance enhancements of competing
products. The Company expects that competition will continue to be intense and
may increase from current or future competitors. Logitech believes that the
principal competitive factors include the price, performance, user-centric
design, ease-of-use, quality and timeliness of products, as well as the
responsiveness, capacity, technical abilities, established customer
relationships, retail shelf space, advertising and promotion programs, and
brands of manufacturers.
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In sales of control devices, the Company competes primarily with Alps,
Kensington/Advanced Gravis, KYE/Mouse Systems, Microsoft, Mitsumi, Primax and
Synaptics. In sales of imaging solutions, competitors include 3Com, Creative
Labs, Intel, Kodak, Panasonic, Philips, and Sharp.
Many of the Company's current and potential competitors have longer operating
histories and significantly greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and larger customer bases,
than the Company. In this regard, Microsoft is the Company's chief competitor in
the market for control devices. Microsoft is also a leading producer of
operating systems and applications with which the Company's control devices are
designed to operate. As a result of its position, Microsoft may be able to make
improvements in the functionality of its control devices to correspond with
ongoing modifications and enhancements to its operating systems and software
applications in advance of the Company. In certain instances, this ability may
provide Microsoft with significant lead time advantages for product development.
In addition, Microsoft may be able to offer pricing advantages on bundled
hardware and software products that the Company is not able to offer. Certain of
the Company's competitors may also have patents or intellectual property rights,
which provide them with an advantage. As a result, these competitors may be able
to respond more effectively to new or emerging technologies and changes in
customer requirements. Consequently, the Company expects to continue to
experience increased competition and significant price reductions, which could
result in decreased gross margin, loss of market share and lack of acceptance of
the Company's products. In the event of significant price competition in the
market for the Company's products, the Company would be required to decrease
costs at least proportionately to any price decreases in order to maintain its
existing margin levels and would be at a significant disadvantage compared to
competitors with substantially greater resources, which could more readily
withstand an extended period of downward pricing pressure. There can be no
assurance that the Company will be able to compete successfully in the future or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.
Rapid Technological Change
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success will
depend to a substantial degree on its ability to develop and introduce in a
timely manner new products and enhancements that meet changing customer
requirements and emerging industry standards. The development of new,
technologically advanced products and enhancements is a complex and uncertain
process requiring high levels of innovation as well as the anticipation of
technology and market trends. There can be no assurance that the Company will be
able to identify, develop, manufacture, market, sell, or support new products
and enhancements successfully, that new products or enhancements will achieve
market acceptance, or that the Company will be able to respond effectively to
technology changes, emerging industry standards or product announcements by
competitors. New product announcements by the Company could cause its customers
to defer purchases of existing products or cause distributors to request price
protection credits or stock rotations. Any of these events could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence on Control Devices; New Product Lines
Approximately 98% of the Company's net sales for the six months ended
September 30, 1998 were derived from the sale of mice, trackballs, entertainment
and other control devices. The Company is currently developing its PC video
camera business. In connection with developing this business, in September 1998,
the Company completed the acquisition of the PC video camera business unit of
Connectix Corporation for approximately $26.2 million cash (including closing
and other costs). The Connectix business unit has been combined with the
Company's video division. Net sales and gross margins of the Company's video
products are less predictable and may be less favorable than its experience with
control devices. In addition, the Company has limited experience in the design,
development, manufacture, marketing, and support of these products. These
products are based on additional technologies and manufacturing processes, and
there can be no assurance that the Company will be successful in this new
market, which is still emerging. Many of the announced competitors for one or
more of the Company's products have stronger brand names, more extensive retail
channel coverage, deeper consumer knowledge and experience, and greater
resources.
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Reliance on Suppliers
Certain key components used in the manufacture of the Company's products, as
well as certain products, are currently purchased by the Company from single or
limited sources that specialize in such components or products. At present,
single-sourced components include certain of the Company's application specific
integrated circuits ("ASICs"), certain other integrated circuits and components,
and balls used in certain of the Company's trackballs. The Company generally
does not have long-term agreements with its single or limited sources of supply.
Lead times for materials and components ordered by the Company or its contract
manufacturers can vary significantly and depend on factors such as the specific
supplier, contract terms and demand for a component at a given time. From time
to time the Company has experienced supply shortages and fluctuation in
component prices. Shortages or interruptions in the supply of components or
subcontracted products, or the inability of the Company to procure these
components or products from alternate sources at acceptable prices in a timely
manner, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Dependence on Key Personnel
The Company's success depends to a significant degree on the continued
contributions of the Company's management and other key design, development,
manufacturing, marketing and sales personnel. The loss of any of such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. In this regard, the Company's Chief
Financial Officer, Barry Zwarenstein, left the Company in November 1998; a
search for a new Chief Financial Officer is current in progress. Certain of the
Company's senior management, including Guerrino De Luca, the Company's President
and Chief Executive Officer, and other key personnel have recently joined the
Company. The Company's success will depend in part on successful assimilation of
these and other new employees. Assimilation and retention of personnel may be
made more difficult by the fact that the Company's management and other key
personnel are dispersed throughout various locations worldwide, thus requiring
the coordination of organizations separated by geography and time zone and the
integration of personnel with disparate business backgrounds, cultures and
languages. In addition, the Company believes that its future success will depend
on its ability to attract and retain highly skilled managerial, engineering,
operations, marketing and sales personnel, competition for which is intense.
There can be no assurance that the Company will be successful in attracting and
retaining such personnel, and the failure to attract and retain key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Distribution
The Company sells its products through a domestic and international network of
distributors, resellers and OEM customers, and the Company's success is
dependent on the continued viability and financial stability of its customer
base. The OEM, distribution and reseller industries have been historically
characterized by rapid change, including periods of widespread financial
difficulties and consolidations, and the emergence of alternative distribution
channels. The Company's distributor and reseller customers generally offer
products of several different companies, including products competitive with the
Company's products. Accordingly, there is a risk that these distributors and
resellers may give higher priority, including greater retail shelf space, to
products of other suppliers, and may reduce their efforts in selling the
Company's products. The loss of one or more of the Company's OEM customers,
distributors or major resellers could have a material adverse effect on the
Company's business, financial condition and results of operations.
Due to its sales to large OEMs, distributors and high volume resellers, the
Company maintains individually significant receivable balances with large
customers. The Company seeks to control its credit risk through ongoing credit
evaluation of its customers' financial condition and by purchasing credit
insurance on European retail accounts receivable balances, but generally does
not require any collateral from its customers. If any of the Company's major
customers were to default in the payment of its receivables owed to the Company,
the Company's operating results could be materially adversely affected.
Product Return Risks
Like other manufacturers of consumer products, the Company is exposed to the
risk of product returns, either through the exercise by customers of contractual
return rights or as a result of the Company's assistance in balancing
inventories. In addition the Company offers price protection to its distributors
and retailers. A portion of the Company's net sales may result in increased
inventory at its distributors and resellers. As a result, historical net sales
may not be indicative of future net sales. Overstocking by Logitech's
distributors and retailers may lead to higher
17
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than normal returns. The short product life cycles of certain of the Company's
products and the difficulty in predicting future sales increase the risk that
new product introductions, price reductions or other factors affecting the
computer industry would result in significant product returns. Although Logitech
believes that it has provided adequate allowances for projected returns, from
time to time it has experienced return levels in excess of its accruals and no
assurance can be given that such accruals will be sufficient for actual returns
in future periods. In addition, there can be no assurance that the accruals for
price protection will be sufficient, or that any future price changes will not
have a material adverse effect on the Company's results of operations.
Fluctuations in Effective Tax Rates; Potential Tax Increases
The Company operates in multiple jurisdictions and its profits are taxed
pursuant to the tax laws of such jurisdictions. The Company's effective tax rate
may be affected by changes in or interpretations of tax laws in any given
jurisdiction, utilization of net operating losses and tax credit carry forwards,
changes in transfer pricing that impact the recognition of net sales and
allocation of expenses in the Company's various subsidiaries, and changes in
management's assessment of matters such as the realizability of deferred tax
assets. In the past, the Company has experienced substantial fluctuation in its
effective income tax rate. The Company's effective income tax rates reflect a
variety of factors that may not be present in the future. As a result, the
Company's effective income tax rate may increase in future periods.
Year 2000
The "Year 2000 Issue" is the result of computer programs being written using
two digits, rather than four digits, to define the applicable year. Software
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.
The Company's Y2K project is divided into three phases: (1) inventorying Y2K
items, (2) assessing Y2K compliance of items determined to be material, and
(3) remediation and implementation. The Company has completed its inventory and
is currently assessing its systems, equipment, and processes to determine its
Y2K readiness, and has committed personnel and resources to resolve potential
Y2K issues. The Company has completed its assessment for significant systems,
and plans to complete all additional assessment of its Y2K readiness by the end
of 1998. Remediation and implementation, if any, is planned for completion by
the middle of 1999. In addition, the Company is working with key suppliers and
customers to ensure their Y2K readiness. This includes identifying and
prioritizing critical suppliers and customers, and communicating with them about
their plans and problems in addressing the Y2K issue. This is scheduled for
completion by mid-1999. The Company's Y2K effort is being handled internally,
and the costs are not expected to be significant.
The Company is currently engaged in a separate project to replace the computer
hardware and software it uses to operate, monitor and manage its business on a
day to day basis. The vendors have indicated that their products accurately
accommodate dates beyond the year 1999. The Company is testing such
capabilities as part of its implementation process. Under the current schedule,
this implementation will be complete by the middle of 1999. In the event this
schedule slips, the Company's back-up plan is to upgrade the one remaining site
to a new version of the current software that is Y2K compliant; the work to
allow this action, should it be needed, has been completed.
However, despite the Company's efforts to address the Y2K impact on its
internal systems, the Company has not fully identified such impact or whether it
can resolve it without disruption of its business without incurring significant
expense. In addition, even if the internal systems of the Company are not
materially affected by the Y2K issue, the Company could be affected through
disruption in the operation of the enterprises with which the Company interacts.
As a result, an interruption of certain normal business activities could result,
which could materially and adversely affect the Company's operations, liquidity
and financial condition.
Outcome of Legal Proceedings
Logitech Inc., the Company's U.S. subsidiary, is a defendant in certain
lawsuits alleging that the plaintiffs suffer from symptoms generally known as
repetitive stress injury, allegedly incurred while using mice sold by Logitech
Inc. Logitech Inc. has denied these claims and intends to defend the suits
vigorously. These suits are similar to those filed against other major
suppliers of PCs and add-on devices. Ultimate resolution of the various suits
against Logitech Inc. may depend on results in other suits of this nature.
Should these claims be successful, the claims could have a material adverse
impact upon the financial position and results of operations of the Company.
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In December 1997, Logitech Inc. filed suit against KYE Systems Corp., KYE
International Corp. and Mouse Systems Corp. in the United States Court, Eastern
District of Texas, Texarkana Division, seeking damages and equitable relief
based on allegations of patent infringement. In February 1998, Mouse Systems
Corporation filed suit against Logitech Inc. in the United States District Court
for the Northern District of California, seeking damages and equitable relief
also based on allegations of patent infringement. Logitech Inc. is also
involved in several other pending lawsuits with respect to patent and, to a
lesser extent, trade dress and trade secrets infringement, involving its
intellectual property rights and the intellectual property rights of others.
Logitech Inc. believes that these lawsuits are without merit and intends to
defend against them vigorously. However, there can be no assurances that its
defense will be successful, or that any judgment in any of these lawsuits
would not have a material adverse impact on the Company's business, financial
condition and result of operations.
The Company is involved from time to time in disputes with respect to its
intellectual property rights and the intellectual property rights of others.
Pending and future litigation involving the Company, whether as plaintiff or
defendant, regardless of outcome, may result in substantial costs and expenses
to the Company and significant diversion of effort by the Company's technical
and management personnel. In addition, there can be no assurance that
litigation, either instituted by or against the Company, will not be necessary
to resolve issues that may arise from time to time in the future. Furthermore,
there can be no assurance that the Company's efforts to protect its intellectual
property through litigation will prevent duplication of the Company's technology
or products. Any such litigation could have a material adverse effect upon the
Company's business, financial condition or results of operations.
There has been substantial litigation in the technology industry regarding
rights to intellectual property, and the Company is subject to the risk of
claims against it for alleged infringement of the intellectual property rights
of others. In addition, the existence of any such claim by a third party may not
become known to the Company until well after it has committed significant
resources to the development of a potentially infringing product. From time to
time, the Company has received claims that it has infringed third parties'
intellectual property rights, and there is no assurance that third parties will
not claim infringement by the Company in the future. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require the Company to enter into royalty or
licensing agreements, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that such royalty or licensing agreements, if required, will be
available on terms acceptable to the Company, or at all.
Other
For discussions identifying other factors that could cause actual results to
differ from those anticipated in the forward-looking statements, see
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Form 20-F for the year
ended March 31, 1998. The Company cautions that the foregoing list of risk
factors is not exhaustive.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
Logitech International S.A.
By: /s/ Guerrino De Luca
_________________________________________
Guerrino De Luca
President and Chief Executive Officer
November 16, 1998
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