<PAGE>
File Number: 0-29174
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 DECEMBER 31, 1997
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)
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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 THE 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 THE REGISTRANT IN
CONNECTION WITH RULE 12g3-2(b).
NOT APPLICABLE
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<PAGE>
LOGITECH INTERNATIONAL S.A.
FORM 6-K
TABLE OF CONTENTS
Page
----
Financial Information (unaudited):
Consolidated Balance Sheets at December 31, 1997
and March 31, 1997............................................. 3
Consolidated Statements of Income for the three and nine months
ended December 31, 1997 and 1996............................... 4
Consolidated Statements of Cash Flows for the nine months
ended December 31, 1997 and 1996............................... 5
Notes to Consolidated Financial Statements....................... 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 8
Signatures......................................................... 18
2
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
-------- --------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 50,532 $ 38,504
Accounts receivable.................................... 83,690 71,634
Inventories............................................ 40,412 63,377
Other current assets................................... 15,627 9,253
-------- --------
Total current assets.............................. 190,261 182,768
Property, plant and equipment, net...................... 28,824 32,135
Other assets............................................ 5,964 1,520
-------- --------
Total assets...................................... $225,049 $216,423
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................ $ 7,696 $ 17,849
Current maturities of long-term debt................... - 162
Accounts payable....................................... 40,953 44,406
Accrued liabilities.................................... 40,881 38,690
-------- --------
Total current liabilities......................... 89,530 101,107
Long-term debt, net of current maturities............... 3,227 3,188
Other liabilities....................................... 578 437
-------- --------
Total liabilities................................. 93,335 104,732
======== ========
Shareholders' equity:
Registered shares, par value CHF 20 - 2,101,688
authorized, 353,312 conditionally authorized,
2,001,688 issued and outstanding at December 31,
1997 and March 31, 1997............................... 28,738 28,738
Additional paid-in capital............................. 75,110 73,430
Less registered shares in treasury, at cost,
90,571 at December 31, 1997 and 182,839 at
March 31, 1997........................................ (8,275) (16,813)
Retained earnings...................................... 46,617 31,730
Cumulative translation adjustment...................... (10,476) (5,394)
-------- --------
Total shareholders' equity........................ 131,714 111,691
-------- --------
Total liabilities and shareholders' equity........ $255,049 $216,423
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $ 114,826 $ 128,757 $ 304,143 $ 305,367
Cost of goods sold....................... 79,685 90,689 215,210 214,727
---------- ---------- ----------- ----------
Gross profit............................. 35,141 38,068 88,933 90,640
Operating expenses:
Marketing and selling................ 15,449 15,509 40,036 40,309
Research and development............. 6,803 6,755 20,913 18,749
General and administrative........... 4,711 5,388 14,432 15,093
---------- ---------- ----------- ----------
Operating income......................... 8,178 10,416 13,552 16,489
Interest income (expense), net........... 325 (69) 743 (572)
Gain on sale of product line............. 285 - 285 -
Other income, net........................ 1,065 272 2,068 1,615
---------- ---------- ----------- ----------
Income before income taxes............... 9,853 10,619 16,648 17,532
Provision for income taxes............... 740 122 1,760 1,172
---------- ---------- ----------- ----------
Net income............................... $ 9,113 $ 10,497 $ 14,888 $ 16,360
========== ========== =========== ==========
Net income per share:
Basic............................... $ 4.78 $ 6.50 $ 7.88 $ 10.06
Diluted............................. $ 4.58 $ 6.25 $ 7.52 $ 9.73
Weighted average registered shares and
equivalents:
Basic............................... 1,905,239 1,604,769 1,876,541 1,626,689
Diluted............................. 1,988,055 1,679,789 1,972,223 1,681,681
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income........................................ $ 14,888 $ 16,360
Non-cash items included in net income:
Depreciation and amortization..................... 10,774 8,524
Loss on disposal of property, plant and equipment. (360) 319
Write-down of investments......................... 42 1,335
Gain on sale of product line.................. (285) -
Stock compensation expense........................ 255 2,271
Deferred income taxes............................. 3,518 (3,037)
Changes in current assets and liabilities:
Accounts receivable............................... (13,585) (32,601)
Inventories....................................... 12,245 (7,377)
Other current assets.............................. (5,792) (461)
Accounts payable.................................. (4,974) 23,653
Accrued liabilities............................... 1,774 14,662
-------- --------
Net cash provided by operating activities......... 18,470 23,648
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment........ (10,017) (10,919)
Cash proceeds from sale of product line........ 5,000 -
Other investing activities........................ 42 105
-------- --------
Net cash used in investing activities............. (4,975) (10,814)
-------- --------
Cash flows from financing activities:
Decrease in short-term debt....................... (10,315) (11,054)
Borrowings of long-term debt...................... - 2,146
Repayment of long-term debt....................... - (3,400)
Purchase of treasury shares....................... - (13,210)
Proceeds from sale of treasury shares............. 9,962 5,101
Dividends paid................................... - (1,571)
-------- --------
Net cash used in financing activities............. (353) (21,988)
-------- --------
Effect of exchange rate changes on cash and cash
equivalents........................................ (1,114) (336)
-------- --------
Net increase (decrease) in cash
and cash equivalents............................... 12,028 (9,490)
Cash and cash equivalents at beginning of period.... 38,504 28,564
-------- --------
Cash and cash equivalents at end of period.......... $ 50,532 $ 19,074
======== ========
Supplemental cash flow information:
Interest paid..................................... $ 480 $ 1,486
Income taxes paid................................. $ 1,760 $ 2,934
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Logitech International S.A. (the "Company") designs, manufactures and markets
Senseware peripherals, products that serve as primary physical interfaces
between users and their personal computers and other multimedia devices.
Senseware peripherals include: professional pointing devices such as 2D, 3D,
and cordless mice; trackballs and touchpads; control devices for entertainment
such as joysticks, gamepads, and 3D game controllers; and imaging devices such
as digital 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 1997 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 for 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 -- 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 4 -- SALE OF PRODUCT LINE.:
On December 18, 1997, the Company sold its scanner product line to Storm
Technology, Inc. ("Storm") for $5 million in cash, a $4 million note, and a 10%
common stock ownership in Storm. In addition, the Company entered into an
agreement with Storm under which it will market and sell Storm products in
Europe in 1998, and may earn additional cash, notes and Storm common stock based
on its sales of Storm products in Europe during that period. Such amounts, if
any, will be recognized as earned. The Company will continue to sell Logitech
scanner inventory outside of Europe through February 15, 1998.
The gain on the sale of the scanner product line of $285,000 in the
accompanying financial statements reflects sale proceeds, less the cost of
inventory and capital assets sold, costs to conclude certain contractual
obligations, and other exit costs. The note receivable from Storm is non-
interest bearing and is due March 27, 1998. If not paid at that time, the note
will be extended one year, will bear interest at 10%, and will be convertible
at the Company's option into Storm common stock using the Storm closing price at
March 27, 1998. The Company's common stock ownership in Storm, however, may
not exceed 20% without Storm shareholder approval and is subject to certain
resale restrictions.
NOTE 5 -- NET INCOME PER SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), effective for the fiscal quarter ending
December 31, 1997. All previously reported amounts were restated to conform to
SFAS 128.
6
<PAGE>
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 is computed using weighted average registered shares and, if dilutive,
weighted average registered share equivalents. Registered share equivalents
include registered shares issuable upon the exercise of stock options (using the
treasury stock method).
Pursuant to Securities and Exchange Commission ("SEC") guidelines, the
Company's net income per share calculation for all periods through December 31,
1996 included additional dilution from certain registered share equivalents
issued prior to the Company's U.S. public offering. In February 1998, the SEC
issued Staff Accounting Bulletin No. 98 (SAB 98) under which these shares are
now included in basic and diluted net income per share pursuant to the
requirements of SFAS 128. As a result of applying the provisions of SAB 98,
diluted net income per share for the three and nine months ended December 31,
1996 increased to $6.25 per share and $9.73 per share, respectively, from net
income per share previously reported during these periods of $5.97 per share
and $9.29 per share, respectively.
NOTE 6 -- 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.
7
<PAGE>
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 two product lines,
control devices and imaging solutions, and to a lesser extent from the sale of
other products. Control devices include mice, trackballs, six degrees of
freedom ("6DOF") controllers, touchpads, joysticks, gamepads, 3D game
controllers and remote controls. Net sales of control devices account for a
substantial majority of the Company's total net sales. Imaging solutions
include color digital 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 reasons.
On December 18, 1997, the Company sold its scanner product line to Storm
Technology, Inc. ("Storm") for $5 million in cash, a $4 million note, and a 10%
common stock ownership in Storm. In addition, the Company entered into an
agreement with Storm under which it will market and sell Storm products in
Europe in 1998, and may earn additional cash, notes and Storm common stock based
on its sales of Storm products in Europe during that period. Such amounts, if
any, will be recognized as earned. The Company will continue to sell Logitech
scanner inventory outside of Europe through February 15, 1998.
The Company decided to dispose of its scanner product line because 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 the flatbed form factor, where Logitech was a new entrant, rather
than in 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 digital video cameras.
The following tables set forth net sales for each of the Company's product
lines and net sales for each product line as a percentage of total net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
------------------------------ -----------------------------
1997 1996 1997 1996
------------- ----------- ----------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
Control devices.............. $ 98,899 $ 99,293 $267,410 $241,799
Imaging solutions............ 15,446 26,007 34,464 58,852
Other........................ 481 3,457 2,269 4,716
-------- -------- -------- --------
Total net sales................. $114,826 $128,757 $304,143 $305,367
======== ======== ======== ========
Net sales:
Control devices.............. 86% 77% 88% 79%
Imaging solutions............ 13% 20% 11% 19%
Other........................ 1% 3% 1% 2%
-------- -------- -------- --------
Total net sales................. 100% 100% 100% 100%
======== ======== ======== ========
</TABLE>
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.
8
<PAGE>
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 69.4% 70.4% 70.8% 70.3%
------ ------ ------ ------
Gross profit............................. 30.6% 29.6% 29.2% 29.7%
Operating expenses:
Marketing and selling................. 13.5% 12.1% 13.2% 13.2%
Research and development.............. 5.9% 5.2% 6.9% 6.1%
General and administrative............ 4.1% 4.2% 4.7% 5.0%
------ ------ ------ ------
Operating income......................... 7.1% 8.1% 4.4% 5.4%
Interest income (expense), net........... .3% (.1)% .3% (.2)%
Gain on sale of product line............. .2% - .1% -
Other income, net........................ .9% .2% .7% .5%
------ ------ ------ ------
Income before income taxes............... 8.5% 8.2% 5.5% 5.7%
Provision for income taxes............... .6% .1% .6% .4%
------ ------ ------ ------
Net income............................... 7.9% 8.1% 4.9% 5.3%
====== ====== ====== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net Sales
Net sales for the three months ended December 31, 1997 decreased 11%. This
decline was due to a 37% reduction in scanner revenue compared to the prior
year. Scanner revenues were negatively impacted by extremely aggressive price
competition combined with consumer preference for the flatbed form factor, in
which Logitech did not have a branded product. As previously indicated, the
Company sold the scanner product line at the end of the quarter.
Sales of control devices were flat. Sales into the retail channel experienced
moderate growth. This growth was offset by a decline in sales into the OEM
market. The primary reason for this decline was the push towards personal
computers priced below $1,000. This trend resulted in higher unit volumes but
reduced revenues due to price pressures and a shift in the product mix towards
less expensive products.
Other sales decreased due to sales of partner products last year that were
subsequently phased out in the current year.
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 decreased 8% to $35.1
million.
Gross profit as a percent of net sales improved slightly, from 29.6% to 30.6%.
This increase resulted from continuing success in achieving cost reductions in a
number of areas, most notably in the Company's high volume manufacturing
operation in Suzhou, China.
9
<PAGE>
Marketing and Selling
Marketing and selling expense consists of personnel and related overhead
costs, corporate and product marketing, promotions, advertising, trade shows,
customer and technical support and facilities costs. This expense was
relatively flat compared to the prior year, declining by less than 1%. Despite
the slight decrease, which was caused primarily by a decline in sales expense,
the Company continued to invest in a new visual marketing strategy that includes
a refreshed logo, new packaging, an updated web site and other associated
marketing materials. The Company's strategy in this area is to continue to
build brand awareness, thereby strengthening one of its key corporate assets.
Research and Development
Research and development expense consists of personnel and related overhead
costs, contractors and outside consultants, supplies and materials, equipment
depreciation and facilities costs. Research and development expense was flat at
$6.8 million, or 5.9% of net sales. The Company increased spending in the
control device area by 18%, reflecting its ongoing commitment to invest in
developing future generations of products in this core business. The offset to
this increase was a reduction of 26% in scanner related spending.
General and Administrative
General and administrative expense consists of personnel and related overhead
and facilities costs for the finance, information systems, executive, human
resources and legal functions. General and administrative expense decreased by
13% to $4.7 million. As a percentage of net sales, general and administrative
costs declined slightly to 4.1% from 4.2%, reflecting the Company's continued
efforts to control these expenses.
Interest Income (Expense)
Interest income for the most recent quarter was $0.3 million, compared to
expense of $0.1 million in the prior year. The improvement was the result of a
reduction in bank borrowings and an increase in interest bearing cash and cash
equivalents made possible by the proceeds from the Company's U.S. initial public
offering and cash flow from operations.
Other Income (Expense)
Other income increased to $1.1 million from $0.3 million in the prior year.
This increase was primarily due to higher currency exchange gains arising
principally from the impact of the strengthening dollar, as well as the
writedown of an investment to net realizable value in the prior year.
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 Company currently
estimates that its effective tax rate for fiscal 1998 will be approximately 11%.
The effective rate of 7.5% for the three months ended December 31, 1997 includes
the cumulative effect of reducing the estimated fiscal 1998 rate from 15% which
was used during the first and second quarters of the year.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net Sales
Net sales for the nine months ended December 31, 1997 were flat. Reflected in
these results are continued strong sales of control devices, which grew by 11%.
Control device sales into the OEM market increased substantially during the
period, reflecting growth in the PC market and increased demand for the
Company's products from the majority of the leading PC makers. The offset to
the growth in control devices was a significant reduction in scanner sales,
which dropped by over 41%.
10
<PAGE>
Gross Profit
Gross profit decreased 2% to $88.9 million, or 29.2% of net sales. Gross
profit as a percent of net sales declined slightly compared to the prior year.
This decrease primarily resulted from a significant reduction in scanner gross
margins. Despite these factors, the Company was able to maintain overall gross
profit at the current level due to continuing success in achieving cost
reductions in a number of areas, most notably in its high volume manufacturing
operation in Suzhou, China.
Marketing and Selling
Marketing and selling expense was relatively flat compared to the prior year,
declining by less than 1%. Despite the slight decrease, which was caused
primarily by a reduction in selling expense, the Company has invested in a new
visual marketing strategy that includes a refreshed logo, new packaging, an
updated web site and other associated marketing materials. The Company's
strategy in this area is to continue to build brand awareness, thereby
strengthening one of its key corporate assets.
Research and Development
Research and development expense increased 12% to $20.9 million, or 6.8% of
net sales. This includes a 25% increase in the control device area, offset by a
slight decline in the scanner area. This reflects the Company's ongoing
commitment to invest in developing future generations of products in this core
business.
General and Administrative
General and administrative expense was down by 4.4% to $14.4 million,
reflecting the Company's commitment to control overhead costs.
Interest Income (Expense)
Interest income was $0.7 million, compared to expense of $0.6 million in the
prior year. The improvement was the result of a reduction in bank borrowings
and an increase in interest bearing cash and cash equivalents made possible by
cash flow from operations and the proceeds from the Company's U.S. initial
public offering.
Other Income (Expense)
Other income increased to $2.1 million from $1.6 million in the prior year.
This increase was primarily due to the writedown of an investment to net
realizable value in the prior year, offset partially by lower foreign currency
exchange gains this year.
Provision for Income Taxes
The provision for income taxes for the nine months ended December 31, 1997 was
up by $0.6 million to $1.8 million. The effective tax rate was 10.6% compared
to 6.7% last year. The Company currently estimates that its effective tax rate
for fiscal 1998 will be approximately 11%.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of $50.5
million. The Company also had credit lines with several European and Asian
banks totaling $48.2 million as of that date. As is common for business in
European countries, the Company's 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. As of December 31, 1997, there was
$38.2 million available under these facilities.
The Company's operating activities generated cash of $18.5 million for the
nine months ended December 31, 1997, primarily from net income adjusted for
depreciation, partially offset by an increase in the Company's working capital
requirements. Operating activities generated cash of $23.6 million for the nine
months ended
11
<PAGE>
December 31, 1996, primarily from net income adjusted for depreciation,
partially offset by an increase in the Company's working capital requirements
The Company's investing activities used cash of $5 million for the nine months
ended December 31, 1997, consisting of $10 million in capital expenditures, net
of $5 million received from the sale of the scanner product line. For the nine
months ended December 31, 1996, the Company invested $10.8 million, principally
for capital expenditures.
Net cash used in financing activities for the nine months ended December 31,
1997 was $.4 million. This amount includes 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. 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 nine months ended December 31,
1997. The Company had additional proceeds of $5.5 million from the sale of
treasury shares. In addition, the Company had net borrowings of $2.5 million
under its credit lines for capital improvements in China and to meet other
short-term working capital needs.
The net cash of $22 million used in financing activities for the nine months
ended December 31, 1996 represents principally the pay down of short-term debt
and the purchase of treasury shares and, to a lesser extent, the payment of
dividends. Although the Company paid dividends of $1.6 million in 1996, the
Board of Directors subsequently announced its intention not to recommend any
payment of cash dividends in the future in order to retain future earnings for
use in the operation and expansion of the Company's business.
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.
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 digital 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, and
vii) 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 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 and 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
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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 product design, manufacturing, distribution
and selling cycles are long, relative to the product life cycle, and the
available information on sell-through by the channel is incomplete and not
necessarily indicative of the current status of inventory levels in the channel.
As a result, the Company might need to write off inventory in excess of
reserves.
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.
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 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.
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, notwithstanding 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.
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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 continued
price pressures 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 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. 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, Connectix, Creative Labs, Intel, 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
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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 88% of the Company's net sales for the nine months ended
December 31, 1997 were derived from the sale of mice, trackballs, entertainment
and other control devices. This percentage is expected to increase
significantly in the fourth quarter, and remain so for the foreseeable future
with the sale of the scanner product line in December 1997. The Company is
currently developing its video camera business. 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.
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. Certain of the Company's senior management
and other key personnel have recently joined the
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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 oganizations 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 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.
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Outcome of Legal Proceedings
Logitech Inc., the Company's U.S. subsidiary, is a defendant in certain
lawsuits alleging the plaintiff suffers 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.
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.
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, 1997. 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.
/s/ Guerrino De Luca
By: _____________________________
Guerrino De Luca
President and Chief Executive Officer
/s/ Barry Zwarenstein
By: _____________________________
Barry Zwarenstein
Chief Finance Officer,
Chief Accounting Officer,
and U.S. Representative
February 13, 1998
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