<PAGE>
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, 1999
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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<PAGE>
LOGITECH INTERNATIONAL S.A.
Form 6-K
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Information (unaudited):
Consolidated Balance Sheets at September 30, 1999 and March 31, 1999.............................. 3
Consolidated Statements of Income for the three and six months ended September 30, 1999 and 1998.. 4
Consolidated Statements of Cash Flows for the six months ended September 30, 1999 and 1998........ 5
Notes to Consolidated Financial Statements........................................................ 6
Management's Discussion and Analysis of Financial Condition and Results of Operations............... 9
Quantitative and Qualitative Disclosure About Market Risk........................................... 21
Signatures.......................................................................................... 22
</TABLE>
2
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 19,865 $ 43,251
Accounts receivable................................................ 101,714 93,501
Inventories........................................................ 63,881 70,100
Other current assets............................................... 14,624 13,907
---------- ----------
Total current assets............................................ 200,084 220,759
Investments........................................................... 15,378 13,856
Property, plant and equipment, net.................................... 43,865 40,203
Intangible assets, net................................................ 16,112 18,247
Other assets.......................................................... 902 1,424
---------- ----------
Total assets.................................................... $276,341 $294,489
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term debt...................................................... $ 9,750 $ 25,385
Accounts payable..................................................... 72,866 83,640
Accrued liabilities.................................................. 39,924 41,377
---------- ----------
Total current liabilities........................................ 122,540 150,402
Long-term debt........................................................ 3,417 3,624
Other liabilities..................................................... 765 709
---------- ----------
Total liabilities................................................ 126,722 154,735
---------- ----------
Contingencies (Note 8)
Shareholders' equity:
Registered shares, par value CHF 20 - 2,101,688 authorized,
653,312 conditionally authorized at September 30 and March 31,
1999, 2,001,688 issued and outstanding at September 30 and March
31, 1999........................................................... 28,738 28,738
Additional paid-in capital........................................... 75,352 75,717
Less registered shares in treasury, at cost, 22,064 at September 30,
1999 and 64,923 at March 31, 1999.................................. (2,258) (6,643)
Retained earnings.................................................... 60,095 54,323
Cumulative translation adjustment.................................... (12,308) (12,381
---------- ----------
Total shareholders' equity....................................... 149,619 139,754
---------- ----------
Total liabilities and shareholders' equity....................... $276,341 $294,489
========== ==========
</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, per share and ADS amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- -------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales....................................... $ 133,247 $ 95,816 254,314 $ 168,831
Cost of goods sold.............................. 89,998 60,744 175,103 107,803
------------- -------------- ------------- -------------
Gross profit.................................... 43,249 35,072 79,211 61,028
Operating expenses:
Marketing and selling.......................... 21,775 18,509 43,128 33,163
Research and development....................... 8,219 7,602 15,225 13,968
General and administrative..................... 7,433 5,490 14,015 10,102
Acquired research and development.............. -- 6,200 -- 6,200
------------- -------------- ------------- -------------
Operating income (loss)......................... 5,822 (2,729) 6,843 (2,405)
Interest income (expense), net.................. (138) 506 (342) 1,158
Loss on sale of product line.................... -- (6,288) -- (6,435)
Other income (expense), net..................... 795 119 714 (109)
------------- -------------- ------------- -------------
Income (loss) before income taxes............... 6,479 (8,392) 7,215 (7,791)
Provision (benefit) for income taxes............ 1,296 (1,259) 1,443 (1,169)
------------- -------------- ------------- -------------
Net income (loss)............................... $ 5,183 $ (7,133) $ 5,772 $ (6,622)
============= ============== ============= =============
Net income (loss) per share:
Basic.......................................... $ 2.63 $ (3.68) $ 2.95 $ (3.42)
Diluted........................................ $ 2.53 $ (3.68) $ 2.85 $ (3.42)
Net income (loss) per ADS (10 ADS : 1 share):
Basic.......................................... $ .26 $ (.37) $ .29 $ (.34)
Diluted........................................ $ .25 $ (.37) $ .29 $ (.34)
Shares used to compute net income (loss) per share:
Basic.......................................... 1,967,763 1,940,088 1,957,177 1,934,980
Diluted........................................ 2,047,517 1,940,088 2,023,324 1,934,980
</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>
Six months ended
September 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income (loss).................................................... $ 5,772 $ (6,622)
Non-cash items included in net income (loss):
Depreciation and amortization....................................... 9,375 6,675
Acquired research and development................................... -- 6,200
Write-down of investments and note receivable....................... -- 5,800
Deferred income taxes............................................... (195) (1,975)
Other............................................................... (185) 396
Changes in current assets and liabilities:
Accounts receivable................................................. (6,922) (10,383)
Inventories......................................................... 6,629 (20,627)
Other current assets................................................ 358 (1,820)
Accounts payable.................................................... (3,894) 10,724
Accrued liabilities................................................. (10,902) 11,383
----------- -----------
Net cash provided by (used in) operating activities.............. 36 (249)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment........................... (10,691) (9,612)
Acquisitions and investments in affiliated companies................. (1,025) (39,020)
----------- -----------
Net cash used in investing activities............................ (11,716) (48,632)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in debt.......................................... (15,809) 16,680
Proceeds from sale of treasury shares................................ 4,019 1,790
Purchase of treasury shares.......................................... -- (1,308)
----------- -----------
Net cash provided by (used in) financing activities.............. (11,790) 17,162
----------- -----------
Effect of exchange rate changes on cash and cash equivalents.......... 84 241
----------- -----------
Net decrease in cash and cash equivalents............................. (23,386) (31,478)
Cash and cash equivalents at beginning of period...................... 43,251 72,376
----------- -----------
Cash and cash equivalents at end of period............................ $ 19,865 $ 40,898
=========== ===========
Supplemental cash flow information:
Interest paid........................................................ $ 247 $ 176
Income taxes paid.................................................... $ 416 $ 603
</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. 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 mice, trackballs, keyboards, joysticks, gamepads, steering wheels, and
PC video cameras. The Company sells its products to both original equipment
manufacturers ("OEMs") and to a network of retail distributors and resellers.
Note 2 -- Interim Financial Data:
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1999 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.
Certain prior quarters' balances have been reclassified to conform with the
current quarter's presentation including certain sales and marketing programs,
which have been reclassified from net sales to marketing and selling expenses to
provide a better comparison with similar company's reporting practices. These
certain sales and marketing programs as a percentage of net sales represented
3.9% and 4.0% for the three and six months ended September 30, 1998.
Note 3 -- Business Acquisition:
In September 1998, the Company completed the acquisition of Connectix
Corporation's QuickCam(R) PC video camera business for approximately $26.2
million (including closing and other costs). The Connectix business 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 recorded using the
purchase method of accounting. Accordingly, the results of operations of the
acquired business from the date of acquisition have been included in the
consolidated statement of income.
In connection with the acquisition, the Company recorded approximately $19.4
million in goodwill and other intangible assets. In addition, the Company
recorded a one-time charge of $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 agreement includes an obligation for the Company to acquire the remaining
outstanding shares of Space Control, if certain conditions are met. The Company
is using 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.
Note 5 -- Comprehensive Income:
Comprehensive income is defined as the total change in shareholders' equity
during the period other than from transactions with shareholders. For the
Company, comprehensive income consists of net income and the net
6
<PAGE>
change in the accumulated foreign currency translation adjustment account. For
the three months ended September 30, 1999 and 1998, comprehensive income (loss)
was $6,570,000 and $(5,303,000). For the six months ended June 30, 1999 and
1998, comprehensive income (loss) was $5,845,000 and $(4,566,000).
Note 6 -- 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 $5.8 million
related to 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, and in November 1998 the case was converted to a Chapter 7 bankruptcy
case. The additional expenses in fiscal 1999 primarily relate to costs to
conclude certain obligations exceeding management's estimate made in 1998.
Note 7 -- Inventory
At September 30 and March 31, 1999, inventory consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, 1999 March 31, 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Raw materials.......................................... $17,144 $13,077
Work-in-process........................................ 463 1,566
Finished goods......................................... 46,274 55,457
----------- -----------
$63,881 $70,100
=========== ===========
</TABLE>
Note 8 -- 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. In January 1999, the Company was advised that the VAT
would not be applied to goods manufactured during calendar 1999 and subsequent
years. With respect to prior years, the Company is in ongoing discussions with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT for these prior periods would not be charged to the
Company. As a result, the Company has revised its estimate of VAT liability and
released an accrual of approximately $1 million into income during the quarter
ended June 30, 1999. The Company therefore believes the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position, cash flows or results of operations.
The Company is involved in a number of lawsuits relating to patent
infringement and intellectual property rights, both as a defendant and a
plaintiff. The Company believes the lawsuits are without merit and intends to
defend against them vigorously. However, there can be no assurances that the
defense of any of these actions 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.
7
<PAGE>
Note 9 -- Reclassifications
As described in Note 1, the Company has reclassified certain amounts from net
sales to marketing and selling expenses. The reclassifications increased net
sales and marketing and selling expenses by the same amount. The
reclassifications did not impact operating income or net income.
The balances of net sales and marketing and selling expense for the years
ended March 31, 1996 through 1999, after reclassification, are as follows:
<TABLE>
<CAPTION>
Sales & Marketing
Year Ended: Net Sales Expense
- ----------- ------------------ ---------------------
<S> <C> <C>
March 31, 1996......................................... $368,968 $59,655
March 31, 1997......................................... 430,007 71,014
March 31, 1998......................................... 406,109 68,813
March 31, 1999......................................... $470,741 $85,350
</TABLE>
The balances of net sales and selling and marketing expense for the quarters
ended June 30, 1998 through June 30, 1999, after reclassification, are as
follows:
<TABLE>
<CAPTION>
Sales & Marketing
Quarter Ended: Net Sales Expense
- -------------- ------------------ ---------------------
<S> <C> <C>
June 30, 1998.......................................... $ 73,015 $14,655
September 30, 1998..................................... 95,817 18,509
December 31, 1998...................................... 154,506 27,889
March 31, 1999......................................... 147,404 24,298
June 30, 1999.......................................... $121,067 $21,353
</TABLE>
Note 10 -- Subsequent Event
In November 1999, Logitech announced the formation of a new company that will
enhance video communications using the internet infrastructure. The new company
will be independently run and plans to initiate service in the first calendar
quarter of 2000. At the same time, Logitech announced the investment of $10.8
million by outside investors, including two venture capital firms, bringing
Logitech's investment in the new company to approximately 50%.
8
<PAGE>
LOGITECH INTERNATIONAL S.A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's net sales are derived from sales of interface devices for
computers. These products include mice, trackballs, keyboards, joysticks,
gamepads, steering wheels and PC video cameras.
In September 1998, the Company acquired the PC video camera business of
Connectix Corporation. Logitech's QuickCam(R) brand is a market leader in PC
video cameras for Windows and Macintosh. The PC video camera market has been
experiencing rapid growth. This acquisition was consistent with the Company's
intention to enter the PC video camera market, and its development efforts in
that area. The Connectix business has been combined with the Company's video
division.
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,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 67.5 63.4 68.9 63.9
---------- ---------- ---------- ----------
Gross profit...................................... 32.5 36.6 31.1 36.1
Operating expenses:
Marketing and selling............................ 16.3 19.3 16.9 19.6
Research and development......................... 6.2 7.9 6.0 8.3
General and administrative....................... 5.6 5.7 5.5 5.9
Acquired research and development................ -- 6.5 -- 3.7
---------- ---------- ---------- ----------
Operating income (loss)........................... 4.4 (2.8) 2.7 (1.4)
Interest income (expense), net.................... (.1) .5 (.1) .7
Loss on sale of product line...................... -- (6.6) -- (3.8)
Other income (expense), net....................... .6 .1 .2 (.1)
---------- ---------- ---------- ----------
Income (loss) before income taxes................. 4.9 (8.8) 2.8 (4.6)
Provision (benefit) for income taxes.............. 1.0 (1.4) .5 (.7)
---------- ---------- ---------- ----------
Net income (loss)................................. 3.9% (7.4)% 2.3% (3.9)%
========== ========== ========== ==========
</TABLE>
Certain prior quarters' balances have been reclassified to conform with the
current quarter's presentation including certain sales and marketing programs,
which have been reclassified from net sales to marketing and selling expenses to
provide a better comparison with similar company's reporting practices. These
certain sales and marketing programs as a percentage of net sales represented
3.9% and 4.0% for the three and six months ended September 30, 1998.
9
<PAGE>
Comparison of three months ended September 30, 1999 and 1998
Net Sales
Net sales for the three months ended September 30, 1999 increased 39% to
$133.2 million. This growth was shared across all product categories, but
primarily came from the Company's keyboard and video products, as well as
increases from the Company's cordless wheel-enhanced mice.
Retail sales grew by 63%. As has been the case for the last several quarters,
this growth was shared across all product categories. Sales of the Company's
traditional retail pointing devices, which include mice and trackballs, grew by
24%. This growth was driven by the Company's cordless mouse offerings and
trackball product line. Sales of the Company's cordless wheel-enhanced mice
increased 180% over the second quarter in fiscal 1999. Even with this growth,
mice sales represented 43% of the Company's total retail revenue for this
quarter, compared to 59% in the same quarter last year, reflecting the Company's
expanded retail product offerings. Keyboard products continue to be a source of
strong growth with sales increasing by 139% over the second quarter in fiscal
1999, the sixth consecutive quarter of sequential sales growth. The Company
introduced its video products in the third quarter of fiscal 1999, including the
integration of the QuickCam business acquired in September 1998, providing
additional sales growth this quarter.
OEM sales grew this quarter by less than 1% compared to the same quarter last
year, with unit volume increasing by 28%. The impact of the volume increase on
net sales was partially offset by price reductions due to price pressures in the
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 23% to
$43.2 million. This increase was due principally to a continuing shift in
product mix from the OEM sector to the retail sector.
Gross profit as a percentage of net sales decreased from 36.6% to 32.5%. In
the retail channel, the product mix has shifted towards lower margin retail
products such as keyboards and PC digital video cameras. This reflects
broadening of the Company's overall retail product offering and the Company's
aggressive efforts to increase market share in growing product categories. In
addition, the OEM market continues to experience price pressures which led to a
significant margin decline compared to the second quarter of fiscal 1999, but a
much smaller decrease compared to the first quarter of fiscal 2000. While the
Company continues to achieve cost reductions offsetting much of the impact of
lower prices, the price reductions for some of the Company's largest OEM
customers have outpaced the cost reduction efforts.
Operating Expenses
Excluding non-recurring charges, total operating expenses increased 18%, from
$31.6 million to $37.4 million. As a percentage of net sales, operating
expenses decreased from 33% to 28%.
The increase in sales and marketing expenses is directly related to the
Company's increased sales performance. The Company continues to make
significant investments in advertising, channel marketing, and brand awareness
through refreshed packaging and associated marketing materials. The Company has
also increased its development efforts in the gaming device area and the PC
video camera area, and is introducing a number of new products for the Christmas
season. Development efforts are also focused on new product development and
cost reductions on existing products. The increase in general and
administrative expenses primarily reflects higher costs related to intellectual
property litigation. The Company is involved in a number of such disputes, as
both defendant and plaintiff. To a lesser extent, the increase in general and
administrative costs reflects increased headcount and amortization of goodwill
and intangible assets.
10
<PAGE>
Interest Income (Expense), Net
Interest expense for the most recent quarter was $.1 million, compared to
income of $.5 million in the prior year. The decline was the result of using
excess cash and borrowings over the past twelve months to make a number of
investments, including the acquisition of the QuickCam business from Connectix,
and funding working capital needs to support higher sales volume.
Sale of Product Line
During the second quarter of fiscal 1999, the Company wrote off $5.8 million
relating to 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, and in November 1998 the case was converted to a Chapter 7 bankruptcy
case. The additional $.5 million primarily relates to costs to conclude certain
obligations exceeding management's estimate made in fiscal 1998.
Other Income (Expense), Net
Other income was $.8 million for the current quarter, compared to $.1 million
last year. This increase was primarily due to higher net foreign exchange
gains.
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 has
reviewed its projections of taxable income in various tax jurisdictions for
fiscal 2000. Based on a number of factors, including the phased expiration of a
tax holiday in China and expected changes in taxable income in certain tax
jurisdictions, the Company believes its effective tax rate for fiscal 2000 will
be 20%. As a result, the provision for income taxes for the three months ended
September 30, 1999 was $1.3 million, representing a 20% effective tax rate,
compared to a 15% effective tax rate for the three months ended September 30,
1998.
11
<PAGE>
Comparison of six months ended September 30, 1999 and 1998
Net Sales
Net sales for the six months ended September 30, 1999 increased 51% to $254.3
million. This growth was shared across all product categories, but primarily
came from the Company's keyboard and video products, as well as increases from
the Company's cordless wheel-enhanced mice.
Retail sales grew by 68%. This growth was shared across all product
categories. Sales of the Company's traditional retail pointing devices, which
include mice and trackballs, grew by 20%. This growth was driven by the
Company's cordless mouse offerings and trackball product line. Sales of
keyboard products increased by 237% over the same period last year. The Company
introduced its video products in the third quarter of fiscal 1999, including the
integration of the QuickCam business acquired in September 1998, providing
additional sales growth. Sales of the Company's cordless wheel-enhanced mice
increased 147% over the same period in fiscal 1999.
OEM sales grew by 22% compared to the same period last year, with unit growth
increasing by 52%. The impact of the volume increase on net sales was partially
offset by price reductions due to price pressures in the OEM market.
Gross Profit
Gross profit increased 30% to $79.2 million in the six months ended September
30, 1999. Gross profit as a percentage of net sales decreased from 36.1% to
31.1%. In the retail channel, the product mix has shifted towards lower margin
retail products such as keyboards and PC digital video cameras. This reflects
the Company's broadening of the overall retail product offering and the
Company's aggressive efforts to increase market share in growing product
categories. In addition, the OEM market continues to experience price pressures
which led to a significant margin decline compared to the first half of fiscal
1999. While the Company continues to achieve cost reductions offsetting much of
the impact of lower prices, the price reductions for some of the largest OEM
customers have outpaced the cost reduction efforts.
Operating Expenses
Excluding non-recurring charges, total operating expenses increased 26%, from
$57.2 million to $72.4 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, decreased from 34% to 28%.
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.
Interest Income (Expense), Net
Interest expense for the six months ended September 30, 1999 was $.3 million,
compared to interest income of $1.2 million in the same period last year. The
decline was the result of a decrease in the average balances of interest bearing
cash and cash equivalents.
During the second quarter of fiscal 1999, the Company wrote off $5.8 million
relating to the convertible note and common stock investment in Storm
Technology. 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, and in November 1998 the case was converted to a Chapter
7 bankruptcy case.
12
<PAGE>
The additional $.6 million primarily relates to costs to conclude certain
obligations exceeding management's estimate made in fiscal 1998.
Other Income (Expense), Net
Other income was $.7 million, compared to other expense of $.1 million last
year. This change was primarily due to net foreign exchange gains.
Provision for Income Taxes
The provision for income taxes for the six months ended September 30, 1999 and
1998 represented a 20% effective tax rate compared to a 15% effective tax rate
for the same period last year.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
At September 30, 1999, the Company had cash and cash equivalents of $19.9
million. The Company also had credit lines with several European and Asian
banks totaling $58 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.
The Company has financed its operations and capital requirements primarily
through cash flow from operations and bank borrowings. 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
Cash provided from operating activities was about flat for both the six months
ended September 30, 1999 and 1998.
Cash Flow from Investing Activities
The Company's investing activities used cash of $11.7 million and $48.6
million for the six months ended September 30, 1999 and September 30, 1998.
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 primarily for capital expenditures relating to the Company's
computer systems implementation project.
Cash Flow from Financing Activities
Net cash used by financing activities for the six months ended September 30,
1999 was $11.8 million. This represents a $15.8 million net paydown of short-
term debt net of $4.0 million of proceeds from the sale of treasury shares.
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.
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
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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. Fixed commitments for capital expenditures,
primarily for computer system implementation, approximated $.4 million at
September 30, 1999.
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:
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
with time-sensitive functions 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.
Program Management
To address the potential effects of the year 2000 issue, the Company has
adopted a program that addresses two areas, internal infrastructure and external
infrastructure. The Company's Y2K program involves all levels and departments,
and the project plan, status, accomplishments and risks are reported regularly
to the Board of Directors. The Company's Y2K effort is being handled
internally, and the costs have not been nor are they expected to be significant.
Internal Infrastructure
The Company's IS efforts can be divided into five phases: Inventory,
Assessment, Verification, Testing, and Remediation. The Inventory phase
consists of compiling a master list of all potentially affected hardware,
software, and intelligent devices. Once the list is completed, the Assessment
phase involves review of the list to determine critical items. The critical
list is then put through the Verification phase, where the Y2K status of each
item is determined, and vendor test procedures and results obtained if possible.
The Testing phase covers testing all items on the critical list, using vendor
test procedures if possible and an industry-standard procedure if not, for Y2K
compliance. If any Y2K-related failures are found, those items are listed for
the Remediation phase to fix or replace.
All five phases have been completed. However, in the case where suppliers
identify new requirements or recommend system upgrades, those upgrades will be
evaluated, tested for compliance, and implemented on an as-needed basis.
As of the end of August 1999, the Company completed its migration to an
Enterprise Resource Planning (ERP) system. The new system has been certified by
the supplier as being Y2K compliant. In addition to supplier certification, the
Company has, as with all critical business systems, performed in-house testing
on the ERP system with no problems reported.
Due to recent recommendations from the suppliers of two ancillary ERP
applications, revision upgrades are being implemented with in-house verification
testing scheduled for late November 1999. As both of these ancillary
applications presently process year 2000 dates within the Company environment
without issue, the upgrades are not expected to introduce any problems.
Effective from December 1, 1999 through January 15, 2000, the Company will not
install any new software or change any Y2K ready software used in its
operations, unless it is to remedy specific Y2K issues newly identified by
suppliers or for other compelling business reasons.
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External Infrastructure
The Company has developed and implemented an extensive supplier verification
program, addressing both material and service suppliers. All significant
component suppliers have been surveyed and the top suppliers, representing all
commodities used in manufacture, have been visited on site to generate assurance
of their Y2K readiness. All site visits have been completed and all top
suppliers will continue to be monitored throughout the remainder of the year.
All significant component suppliers and operational business partners have also
attended conferences held at the Company's facilities to further develop and
mutually discuss awareness of potential Y2K issues.
Service suppliers have been identified and mission critical companies have
been surveyed worldwide. In addition, direct contact has been made with many of
the top companies to further determine their Y2K efforts. If any concerns are
discovered, the Company will work closely with the supplier and pursue
resolution, including seeking alternatives, as necessary.
The Company's global operations rely heavily on the infrastructure within the
countries in which it does business, particularly in China where the Company's
manufacturing facilities are located. Like other companies operating in foreign
countries, lack of readiness by power, water and communication agencies or
providers of general infrastructure could pose significant impediments to the
Company's ability to carry on its normal operations.
Products
The Company's complete current product line is fully Y2K compliant. Although
none of the Company's products contain any integral date-handling, all current
products have been tested for compliance and Y2K-related testing has been
incorporated into the quality assurance procedure for all newly-released
products. The Company maintains a comprehensive list of its compliant products
on its Y2K web page.
Conclusion
Despite the Company's efforts to address the Y2K impact on its systems and
operations, the Company may not have fully identified such impact or whether it
can be resolved without disruption of its business without incurring significant
expense. In addition, even if the systems and operations 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.
Euro
On January 1, 1999, certain member countries of the European Union established
a new common currency, the euro. Also on January 1, 1999, the participating
countries fixed the rate of exchange between their existing legacy currencies
and the euro. The new euro currency will eventually replace the legacy
currencies currently in use in each of the participating countries. Euro bills
and coins will not be issued until January 1, 2002.
Companies operating within the participating countries may, at their
discretion, choose to operate in either legacy currencies or the euro until
January 1, 2002. The Company expects its affected subsidiaries to continue to
operate in their respective legacy currencies for at least one year. The
Company can, however, accommodate transactions for customers and suppliers
operating in either legacy currency or euros.
The Company believes that the creation of the euro will not significantly
change its market risk with respect to foreign exchange. Having a common
European currency may result in certain changes to competitive practices,
product pricing and marketing strategies. Although we are unable to quantify
these effects, if any, management at this time does not believe the creation of
the euro will have a material effect on the Company.
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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.
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.
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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.
Proprietary Rights
The Company's future success depends in part on its proprietary technology,
technical know-how and other intellectual property. The Company relies on a
combination of patent, trade secret, copyright, trademark and other intellectual
property laws, and confidentiality procedures and contractual provisions such as
nondisclosure agreements and licenses, to protect its intellectual property.
The Company holds various United States patents, together with corresponding
patents from other countries relating to certain of the same inventions. The
Company also has various United States patent applications pending, together
with corresponding applications from other countries relating to certain of the
same inventions. Despite these patents and patent applications, there can be no
assurance that any patent owned by the Company will not be invalidated, deemed
unenforceable, circumvented or challenged, that the rights granted thereunder
will provide competitive advantages to the Company, or that any of the Company's
pending or future patent applications will be issued with claims of the scope
sought by the Company. In addition, there can be no assurance that other
intellectual property laws, or the Company's confidentiality procedures and
contractual provisions, will adequately protect the Company's intellectual
property. There can also be no assurance that the Company's competitors will
not independently develop similar technology, duplicate the Company's products,
or design around the Company's patents or other intellectual property rights.
In addition, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Any of these events could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Legal
Proceedings."
The Company also relies on certain technologies that it obtains from others.
The Company may find it necessary or desirable in the future to obtain licenses
or other rights relating to one or more of its products or to current or future
technologies. There is no assurance that such licenses or other rights will be
available on commercially reasonable terms, or at all.
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.
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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 economic or 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 differences in interpretation and
enforcement to 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
deterioration in relations between China and Taiwan, may have a material adverse
effect on the Company's Suzhou manufacturing operations.
Risks Associated with International Operations
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.
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 has experienced significant price pressures in the
OEM market from PC manufacturers aggressively targeting low cost PCs, and
changes in product mix in the retail market toward lower margin products. As a
result, the Company believes that gross margins will continue to fluctuate.
Intense Competition; Pricing Pressure
The Company's business is characterized by intense competition, a trend of
declining average selling prices in OEM and performance enhancements of
competing products in retail. 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.
The Company competes primarily with 3Com, Alps, Creative Technology, Intel,
Interact Multimedia, Kensington/Advanced Gravis, Kodak, KYE/Mouse Systems,
Microsoft, Mitsumi, Philips and Primax.
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 pointing and gaming devices. Microsoft is also a leading
producer of operating systems and applications with which the Company's pointing
and gaming devices are designed to operate. As a result of its position,
Microsoft may be able to make improvements in the functionality of its pointing
and gaming devices to correspond with ongoing modifications and enhancements to
its operating systems and software applications in advance of the
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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. In addition, Microsoft has
broadened its keyboard product offering, which could cause a slowdown in the
Company's growth in this category. 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.
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 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 other senior
management 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 whom 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.
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 carryforwards,
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. The Company regularly assesses the realizability of deferred tax assets
based on a number of factors, including the Company's past earnings history and
expected future taxable income over a two-year period. As a result of this
process, a valuation
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allowance is recorded for deferred tax assets when management believes it is
more likely than not that the Company will not realize such 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 in the past
three fiscal years reflect a variety of factors that may not be present in
fiscal 2000. As a result, the Company's effective income tax rate is likely to
increase in future periods.
Outcome of Legal Proceedings
There has been substantial litigation in the technology industry regarding
rights to intellectual property. The Company is involved from time to time in
disputes with respect to its intellectual property rights and the intellectual
property rights of others. Through its U.S. and China subsidiaries, the Company
is currently involved in several pending lawsuits with respect to patent and, to
a lesser extent, trade secret infringement claims by third parties. The Company
believes that all of these pending lawsuits are without merit and intends to
defend against them vigorously. There can be no assurance, however, that the
defense of any of these actions will be successful, or that any judgment in or
settlement of any of these lawsuits would not have a material adverse impact on
the Company's business, financial condition and result of operations.
Pending and future litigation involving the Company, whether as plaintiff or
defendant, regardless of outcome, may result in significant diversion of effort
by the Company's technical and management personnel, 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. In
addition, 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.
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, 1999. The Company cautions that the foregoing list of risk
factors is not exhaustive.
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LOGITECH INTERNATIONAL S.A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
As a global concern, the Company faces exposure to adverse movements in
foreign currency exchange rates and interest rates. These exposures may change
over time as business practices evolve and could have a material adverse impact
on the Company's financial results.
Foreign Currency Exchange Rates
Currently, the Company's primary exposures relate to non-dollar denominated
sales in Europe and Asia and non-dollar denominated operating expenses and
inventory costs in Europe and Asia, as well as net assets located in these
geographies. For the quarter ended September 30, 1999, 41% of the Company's
sales were denominated in non-U.S. currencies and 21% of the Company's net
assets were recorded in non-U.S. currencies. For the quarter ended September
30, 1998, 41% of the Company's sales were denominated in non-U.S. currencies and
32% of the Company's net assets were recorded in non-U.S. currencies.
The Company primarily uses the local currencies of its foreign subsidiaries as
the functional currency. Accordingly, unrealized foreign currency gains or
losses resulting from the translation of net assets denominated in foreign
currencies to the U.S. dollar are accumulated in the cumulative translation
adjustment component of shareholders' equity. At the present time, the Company
does not hedge any currency exposures. The Company estimates that if the U.S.
dollar had appreciated by an additional 10% as compared to the functional
currencies used by foreign subsidiaries, net income for the quarters ended
September 30, 1999 and 1998 would have been adversely impacted by approximately
$1.5 million and $1.6 million.
Interest Rates
Changes in interest rates could impact the Company's anticipated interest
income on its cash equivalents and interest expense on debt. The Company
prepared sensitivity analyses of its interest rate exposures to assess the
impact of hypothetical changes in interest rates. Based on the results of these
analyses, a 10% adverse change in interest rates from the fiscal 1999 and 2000
quarter end rates would not have a material adverse effect on the Company's
results of operations, cash flows or financial condition for the next year.
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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
By: /s/ Kristen M. Onken
--------------------------------------
Kristen M. Onken
Chief Finance Officer,
Chief Accounting Officer,
and U.S. Representative
November 15, 1999
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