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File Number: 0-29174
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
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 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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LOGITECH INTERNATIONAL S.A.
Form 6-K
Table of Contents
<TABLE>
Page
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<S> <C>
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets at June 30, 2000 and March 31, 2000.......................... 3
Consolidated Statements of Income for the three months ended June 30, 2000 and 1999...... 4
Consolidated Statements of Cash Flows for the three months ended June 30, 2000 and 1999.. 5
Notes to Consolidated Financial Statements............................................... 6
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
Quantitative and Qualitative Disclosure About Market Risk.................................. 16
Signatures................................................................................. 17
Exhibit 4.1 Amendment No. 1 to Deposit Agreement by and among the company, the Bank of
New York, as Depositary and owners and beneficial owners of American Depositary
Receipts ................................................................................ A-1
</TABLE>
2
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
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ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 44,369 $ 49,426
Accounts receivable.............................................................. 107,151 123,172
Inventories...................................................................... 101,763 68,255
Other current assets............................................................. 23,916 25,354
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Total current assets......................................................... 277,199 266,207
Investments....................................................................... 41,052 10,807
Property, plant and equipment..................................................... 40,871 42,117
Intangible assets................................................................. 13,002 14,007
Other assets...................................................................... 887 939
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Total assets................................................................. $373,011 $334,077
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................................. $ 7,028 $ 6,990
Accounts payable................................................................. 95,283 92,430
Accrued liabilities.............................................................. 51,435 51,049
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Total current liabilities.................................................... 153,746 150,469
Long-term debt.................................................................... 2,917 2,934
Other liabilities................................................................. 510 705
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Total liabilities............................................................ 157,173 154,108
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Contingencies (Note 7)
Shareholders' equity:
Registered shares, par value CHF 10 - 5,208,942 authorized, 1,101,058
conditionally authorized, 4,208,942 issued and outstanding at June 30, 2000;
4,362,920 authorized, 1,147,080 conditionally authorized, 4,162,920 issued and 30,020 29,752
outstanding at March 31, 2000..................................................
Additional paid-in capital...................................................... 85,550 83,686
Less registered shares in treasury, at cost, 24,532 at June 30, 2000 and 20,640
at March 31, 2000.............................................................. (2,120) (1,056)
Retained earnings............................................................... 89,352 84,367
Cumulative translation adjustment............................................... (17,218) (16,780)
Unrealized gain on securities................................................... 30,254 --
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Total shareholders' equity................................................... 215,838 179,969
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Total liabilities and shareholders' equity................................... $373,011 $334,077
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
2000 1999
------------ --------------
(unaudited)
<S> <C> <C>
Net sales............................................................. $ 141,416 $ 121,068
Cost of goods sold.................................................... 94,125 85,105
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Gross profit.......................................................... 47,291 35,963
Operating expenses:
Marketing and selling................................................ 26,449 21,353
Research and development............................................. 8,509 7,006
General and administrative........................................... 8,265 6,583
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Operating income...................................................... 4,068 1,021
Interest income (expense), net........................................ 196 (204)
Other income (expense), net........................................... 1,967 (82)
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Income before income taxes............................................ 6,231 735
Provision for income taxes............................................ 1,246 147
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Net income............................................................ $ 4,985 $ 588
============ ==============
Net income per share:
Basic................................................................ $ 1.20 $ .15
Diluted.............................................................. $ 1.06 $ .15
Net income per ADS (10 ADS : 1 share):
Basic................................................................ $ .12 $ .02
Diluted.............................................................. $ .11 $ .01
Shares used to compute net income per share:
Basic................................................................ 4,153,071 3,893,412
Diluted.............................................................. 4,680,840 4,001,732
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
<S> <C> <C>
2000 1999
Three months ended June 30,
----------------------------
2000 1999
------------ --------------
(unaudited)
Cash flows from operating activities:
Net income........................................................... $ 4,985 $ 588
Non-cash items included in net income:
Depreciation and amortization....................................... 4,367 4,609
Equity in net earnings (losses) of affiliated companies............. 388 (330)
Gain on sale of investment.......................................... (442) --
Loss (gain) on disposal of property, plant and equipment............ (1,922) 58
Deferred income taxes............................................... 63 (704)
Other............................................................... 225 57
Changes in current assets and liabilities:
Accounts receivable................................................. 15,554 8,697
Inventories......................................................... (33,462) 11,258
Other current assets................................................ 1,545 (2,668)
Accounts payable.................................................... 3,198 (28,423)
Accrued liabilities................................................. 40 (1,123)
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Net cash used in operating activities............................ (5,461) (7,981)
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Cash flows from investing activities:
Purchases of property, plant and equipment........................... (3,853) (6,901)
Proceeds from sales of property, plant and equipment................. 3,637 --
Proceeds from sale of investment..................................... 526 --
Acquisitions and investments in affiliated companies................. (476) (1,121)
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Net cash used in investing activities............................ (166) (8,022)
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Cash flows from financing activities:
Net repayment of short-term debt..................................... -- (4,954)
Repayment of long-term debt.......................................... (54) (77)
Purchase of treasury shares.......................................... (1,064) --
Proceeds from issuance of registered shares.......................... 2,131 1,899
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Net cash provided by (used in) financing activities.............. 1,013 (3,132)
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Effect of exchange rate changes on cash and cash equivalents.......... (443) (226)
------------ --------------
Net decrease in cash and cash equivalents............................. (5,057) (19,361)
Cash and cash equivalents at beginning of period...................... 49,426 43,251
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Cash and cash equivalents at end of period............................ $ 44,369 $ 23,890
=========== =============
Supplemental cash flow information:
Interest paid........................................................ $ 58 $ 223
Income taxes paid.................................................... $ 874 $ 235
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- The Company:
Logitech International S.A. designs, manufactures and markets human interface
devices and supporting software which often serve as the primary physical
interface between users and their personal computers and the internet. The
Company's products include corded and cordless mice, optical trackballs,
keyboards, joysticks, gamepads, racing systems, internet video cameras and
multimedia speakers. 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 2000 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 amounts reported in prior quarters'
financial statements have been reclassified to conform with the current
quarter's presentation.
Note 3 -- Stock Split:
In June 2000, the Company's shareholders approved a two-for-one stock split
which was effected on July 5, 2000 and distributed to stockholders of record as
of July 4, 2000. All references to share and per-share data for all periods
presented have been adjusted to give effect to this two-for-one stock split. In
June 2000, the Company's shareholders also approved an increase of 1 million
authorized registered shares for use in acquisitions, mergers and other
transactions.
Note 4 -- Equity Investments:
In November 1999, Logitech announced the formation of a new company, Spotlife
Inc., that will enhance video communications using the internet infrastructure.
At the same time, Logitech announced the investment of $10.8 million in Spotlife
by other investors, including two venture capital firms. Spotlife is
independently managed and launched its internet service in May 2000. Logitech
has invested $2 million in Spotlife, and has agreed to guarantee up to a maximum
of $5.3 million of the new company's capital lease obligation. As of June 30,
2000, the outstanding balance of the lease obligation, and therefore the
Company's guarantee, was $4.4 million. As of June 30, 2000, Logitech owns
approximately 44% of Spotlife's outstanding shares on a fully diluted basis,
with outside investors having the ability to exercise significant influence over
the management of the new company. Logitech accounts for its investment in this
company using the equity method. In July 2000, Spotlife Inc. closed on its
third round of financing totaling $25 million.
In June 1998, the Company acquired 49% of the outstanding shares of the
LogiCad 3D Group (formerly Space Control GmbH), the German-based provider of
Logitech's Magellan 3D Controller, and has an obligation for the Company to
acquire the remaining outstanding shares 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 then outstanding stock of
Immersion Corporation, a developer of force feedback technology for PC
peripherals and software applications. In November 1999, Immersion registered
shares on the U.S. NASDAQ Stock Market in an initial public offering. In June
2000, the Company sold a partial interest in Immersion and recognized a gain of
$.4 million in other income. Subsequent to this sale the Company changed its
method of accounting for its investment in Immersion from the cost method to
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the available for sale method in accordance with FASB 115 - Accounting for
Certain Investments in Debt and Equity Securities. Accordingly, the Company
carries its investment in Immersion at market value and records periodic
increases or decreases in market value as a component of shareholders' equity.
As of June 30, 2000, Logitech owns 7.2% of Immersion. The cost of these
securities was $4.9 million and the gross unrealized gain was $30.3 million.
However, as of July 31, 2000, the gross unrealized gain decreased to $19.0
million.
The Company uses the cost method of accounting for all other investments.
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, the net change in the
accumulated foreign currency translation adjustment account, and the net change
in the unrealized gain or loss on securities. For the three months ended June
30, 2000 and 1999, comprehensive income (loss) was $34.8 and ($.7) million.
Note 6 Inventory
At June 30 and March 31, 2000, inventory consisted of the following:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
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(in thousands)
<S> <C> <C>
Raw materials................................................ $ 31,440 $16,762
Work-in-process.............................................. 635 517
Finished goods............................................... 69,688 50,976
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$101,763 $68,255
============= ==============
</TABLE>
Note 7 -- 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. The Company 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. 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
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LOGITECH INTERNATIONAL S.A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Logitech International S.A. designs, manufactures and markets human interface
devices and supporting software which often serve as the primary physical
interface between users and their personal computers and the internet. The
Company's products include corded and cordless mice, optical trackballs,
keyboards, joysticks, gamepads, racing systems, internet video cameras, and
multimedia speakers. The Company sells its products to both original equipment
manufacturers ("OEMs") and to a network of retail distributors and resellers.
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 June 30,
---------------------------
2000 1999
<S> <C> <C>
Net sales............................................................. 100.0% 100.0%
Cost of goods sold.................................................... 66.6 70.3
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Gross profit.......................................................... 33.4 29.7
Operating expenses:
Marketing and selling................................................ 18.7 17.7
Research and development............................................. 6.0 5.8
General and administrative........................................... 5.8 5.4
------- -------
Operating income...................................................... 2.9 .8
Interest income (expense), net........................................ .1 (.2)
Other income (expense), net .......................................... 1.4 (.1)
------- -------
Income before income taxes............................................ 4.4 .6
Provision for income taxes............................................ .9 .1
------- -------
Net income............................................................ 3.5% .5%
======= =======
</TABLE>
Comparison of three months ended June 30, 2000 and 1999
Net Sales
Net sales for the three months ended June 30, 2000 increased 17% to $141.4
million compared to the same period last year. This growth primarily came from
the Company's keyboard and video products.
Retail sales for the first quarter of fiscal 2001 grew by 21% over the same
period in fiscal 2000. As has been the case for the last several quarters, this
growth primarily came from keyboard and video products. Retail sales of the
Company's traditional pointing devices, which include mice and trackballs,
decreased slightly. The decrease was primarily a result of product transitions
and the Company not having an optical offering in our mouse line. However, the
Company has introduced new corded and cordless optical mice and cordless
trackball products in the second quarter of fiscal 2001. Mice sales represented
36% of the Company's total retail revenue for this quarter, compared to 43% 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 74% over the first quarter in fiscal 2000. Sales growth this
quarter primarily came from the renewed line of cordless desktops. In the video
camera business, retail sales grew by 50% compared to the prior year, with unit
volume doubling. Sales of interactive entertainment products were flat from the
same quarter last
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year. This market is displaying increased seasonality, with year over year
market declines in unit volumes during the summer season.
OEM sales increased this quarter by 10% compared to the same quarter last
year, with unit volume increasing slightly. This quarters' growth was driven
principally by the Company's internet video cameras which, beginning in the
forth quarter of fiscal 2000, are being bundled by Compaq with most of their
Presario(R) models sold in the North American 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 32% from $36
million to $47.3 million. This increase was due principally to significant cost
reductions impacting retail and OEM product offerings, increased internet video
camera sales in OEM and the shift in revenue mix by sales channel.
Gross profit as a percentage of net sales increased from 29.7% to 33.4%
primarily due to increased OEM margins from video products. Retail gross profit
as a percentage of sales remained flat compared to the same quarter last year.
Overall, the Company does not believe the current quarter's high gross margin is
sustainable. Over the next few quarters, the Company expects the gross margin
to be within the long-term targeted range of 30% to 33%.
Operating Expenses
Total operating expenses increased 24%, from $34.9 million to $43.2 million.
As a percentage of net sales, operating expenses increased from 29% to 31%.
The increase in marketing and selling expenses is directly related to the
Company's increased sales performance and marketing initiatives aimed at
strengthening the Company's retail presence. Development efforts are focused on
new product development and cost reductions on existing products. The increase
in general and administrative expenses is primarily due to higher payroll costs.
Interest Income (Expense)
Interest income for the most recent quarter was $.2 million, compared to
expense of $.2 million in the prior year. The decline in expense was primarily
the result of using cash generated from operations to reduce short term debt.
Other Income (Expense)
Other income was $2 million for the current quarter, compared to expense of
$.1 million last year, and primarily due to gains recognized from the sale of a
building and the sale of shares of Immersion.
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 2001.
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 2001 will be
approximately 20%. As a result, the provision for income taxes for the three
months ended June 30, 2000 and 1999 was $1 million and $.1 million, representing
a 20% effective tax rate.
9
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Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
At June 30, 2000, cash and cash equivalents totaled $44.4 million. The
Company also had credit lines with several European and Asian banks totaling
$55.8 million. As is common for businesses 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.
As of June 30, 2000, $49.1 million was available under these facilities.
The Company has financed its operations and capital requirements primarily
through cash flow from operations, bank borrowings and the sale of equity
securities. The Company anticipates that its capital resource requirements will
be provided from three sources: ongoing cash flow from operations, cash and cash
equivalents on hand and as needed, borrowings, under the credit facilities.
Cash Flow from Operating Activities
The Company's operating activities used cash of $5.5 million and $8 million
for the three months ended June 30, 2000 and 1999. The Company's first fiscal
quarter typically has higher working capital requirements, with inventories of
raw materials and finished products needed in anticipation of higher sales at
the end of the second quarter and in the third quarter. Inventory increased 74%
from $58.5 million at June 30, 1999 to $101.7 million at June 30, 2000. In the
quarter ended June 30, 2000, the Company was building inventory due to
transitions related to a number of new products and to the Company's
expectation of strong sales in the second and third quarters. The increased
inventory is intended to ensure that the new products are available for
shipping early to retailers so they are on the shelves in advance of the
Christmas buying season. The higher use of cash last year is due not only to
increased working capital requirements needed to support anticipated higher
sales volumes, but also to a significant reduction of payables.
Cash Flow from Investing Activities
The Company's investing activities used cash of $.2 million and $8 million for
the three months ended June 30, 2000 and June 30, 1999. Included in fiscal 2001
is cash proceeds of $3.6 million for the sale of a building in Europe that was
no longer being used in the Company's operations. Capital expenditures totaled
$3.9 million in fiscal 2001, compared to $6.9 million in fiscal 2000. The
decrease in fiscal 2001 capital expenditures related primarily to the completion
of the Company's computer systems implementation project, in the second quarter
of fiscal 2000.
Cash Flow from Financing Activities
Net cash provided by financing activities for the three months ended June 30,
2000 was $1 million. This represents $2.1 million of proceeds from the issuance
of registered shares to fulfill employee stock option and stock purchase plans,
net of $1.1 million used to purchase treasury shares.
Net cash used in financing activities for the three months ended June 30, 1999
was $3.1 million. This represents a $5 million net paydown of short-term debt,
net of $1.9 million of proceeds from the sale of treasury shares.
Capital Commitments
The Company believes that it will continue to make capital expenditures in the
future to support ongoing and expanded operations and that such expenditures may
be substantial. The Company believes that its cash and cash equivalents, cash
generated 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 long lead time parts totaled
$34.6 million at June 30, 2000. Fixed commitment for capital and other
expenditures, primarily for manufacturing equipment, approximated $3 million at
June 30, 2000. In addition, the Company has agreed to guarantee up to a maximum
of $5.3 million of Spotlife's capital lease obligation. As of June 30, 2000, the
outstanding balance of the lease obligation, and therefore the Company's
guarantee, was $4.4 million.
10
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Certain Factors Affecting Operating Results
This quarterly report on Form 6-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 relating to, among other things, i) price
competition, ii) an emerging environment in the PC video camera market, iii)
gross margins, iv) the Company's brand strategy, v) the Company's research and
development strategy, vi) effective tax rate, vii) capital commitments, viii)
bank credit line availability, ix) cash liquidity availability, and x) the
outcome of contingencies. Predictions of future events involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements due to, among others, the
following risk factors:
Potential Fluctuations in Future Operating Results
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; seasonality; 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 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,
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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.
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 of retailers and distributors. 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
which could lead to reduced orders by these customers in future periods. 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. In addition, the
Company continuously introduces product upgrades, enhancements and improved
packaging, and thus may experience higher rates of return on its older products.
The Company recognizes revenue upon product shipment, less amounts for
estimated returns and price protection. Amounts provided for returns and price
protection are estimated based upon historical and anticipated experience and
the Company's assessment of inventory in the channels. Although the Company
believes that it has provided adequate amounts for projected returns, from time
to time it has experienced return levels in excess of amounts provided, and no
assurance can be given that such amounts 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.
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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.
Risks Associated with International Operations
Substantially all of the Company's manufacturing operations are located in
Suzhou, China and other locations in the Far East. 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 a
deterioration in relations between China and Taiwan, may have a material adverse
effect on the Company's Suzhou manufacturing 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.
Competition
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, functionality, innovation,
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 Creative Technology, Ezonics Corporation,
Guillemot Corporation, Intel, Interact Multimedia, Kensington/Advanced Gravis,
KYE/Mouse Systems, Labtec Inc., Microsoft, Mitsumi, Philips, Primax, Saitek
Industries Ltd., and Xirlink Inc.
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
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customer bases, than the Company. In this regard, the Company's chief
competitors are Microsoft in the market for pointing devices, gaming devices,
and keyboards and Intel in the market for video cameras. However, the Company
believes that Intel will soon introduce products in the corded and cordless
mice, keyboard and gamepad segments.
In the December 1999 quarter, Microsoft began shipping two new mouse products
that are based on a technology that replaces the mouse ball with an optical
sensor. Logitech has responded to Microsoft with optical offerings in the
second quarter of fiscal 2001. In addition, the Company will continue to focus
on the advantages of its cordless offerings to the end user. 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 Company. This ability could 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, significant price
reductions in OEM and performance enhancements of competing products in retail.
This 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, sensors,
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, including its Chief Executive
Officer, Guerrino De Luca, and other key design, development, manufacturing,
marketing, finance 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. 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, and competition for whom
is intense. There can be no assurance that the Company will be successful in
attracting and retaining such personnel,
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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 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 2001. As a result, the Company's effective income tax
rate may change in future periods.
Outcome of Legal Proceedings
There has been substantial litigation in the technology industry regarding
rights to intellectual property, and the Company is subject to the risk of
claims against it for alleged infringement of the intellectual property rights
of others. Through its U.S. and China subsidiaries, the Company is currently
involved in several pending lawsuits with respect to patent 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 results 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, 2000. 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 June 30, 2000, 47% of the Company's sales
were denominated in non-U.S. currencies and 25% of the Company's net assets were
recorded in non-U.S. currencies. For the quarter ended June 30, 1999, 42% of
the Company's sales were denominated in non-U.S. currencies and 27% 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 June
30, 2000 and 1999 would have been adversely impacted by approximately $2.8
million and $2.1 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 2001 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
August 14, 2000
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