Logitech Announces Record Sales and Operating Profit for Q2

Logitech International (Nasdaq:LOGI) (SWX:LOGN) today announced record sales and operating profit for the second quarter of Fiscal Year 2008. Sales were $595 million, up 19 percent from $502 million in the same quarter last year. Operating income was $80.4 million, up 54 percent from $52.2 million for the same quarter a year ago. Gross margin was 36.3 percent, compared to 34.5 percent in Q2 of FY 2007 – a year-over-year improvement of 180 basis points and equal to the all-time high for the Company. Cash flow from operations was $103 million, a year-over-year improvement of $80 million. Logitech expects to provide results below the operating income line, as well as to present the value of its short-term investments and shareholders equity in its balance sheet, within the next three weeks. The Company is currently reviewing the fair value of its short-term investments as of September 30, 2007. These consist of structured finance instruments, with a par value of $169 million, composed of corporate debt as well as collateralized debt obligations. Operating Results Logitech’s retail sales for Q2 grew by 16 percent year over year, increasing by 17 percent in the Americas and Asia Pacific and by 15 percent in EMEA. Retail sales were driven by strong demand for Harmony remote controls, audio products, and keyboards and desktops. Harmony remote controls increased by 47 percent, more than doubling in EMEA. Audio products increased by 38 percent, driven by the company’s best quarter ever for PC speakers. The keyboards and desktops category, which grew by 35 percent, achieved a record quarter, driven by robust sales of the new Wave comfort keyboard. OEM sales grew by 40 percent, driven by strong demand for microphones for console singing games. "Our outstanding Q2 performance demonstrated the strength across our product portfolio,” said Guerrino De Luca, Logitech president and chief executive officer. "Our line of Harmony remotes has returned to strong growth, we achieved continued robust growth in audio and keyboards, and we made progress in webcams. We also achieved significant improvement in cash flow from operations. And, we are particularly pleased that the progress we have made in realigning our operating expense growth and gross profit growth positions us to exceed our FY 2008 goal for operating income growth.” Outlook For the current fiscal year, ending March 31, 2008, the company confirmed its sales target of 15 percent growth and increased its year-over-year operating income growth goal from 15 percent to 20 percent. FY 2008 gross margin is expected to be above the high end of the Company’s long-term target range of 32-34 percent. Impairment of Short-Term Investments The Company believes there has been significant impairment in the value of its short-term investment portfolio due to the recent dislocations in the credit markets. The Company’s ownership of the specific securities in this portfolio was the result of the unauthorized actions and misrepresentations to management of its treasurer, whose employment has been terminated. The Company expects to record an impairment loss of between $55 million and $75 million, which will be reported on the Q2 FY 2008 income statement as an unrealized loss under Other Expense. Subsequent to quarter end, the Company sold, at par, fifty per cent of each of the securities in the portfolio. As a result, the Company will recover half of the loss and will report it as a gain on the Q3 FY 2008 income statement under Other Income. The sale was part of a confidential settlement agreement and the sale price is not necessarily indicative of current market prices or fair value for the securities. "It is very unfortunate that due to unauthorized actions and misrepresentations to management, Logitech has been affected by the current dislocations in the credit markets. Since uncovering the facts in early October, we’ve taken aggressive and swift action to address this isolated incident and prevent the recurrence of a similar situation,” said Mark Hawkins, Logitech chief financial officer. Executive Leadership Transition In a separate announcement today, Logitech announced a transition plan for its executive leadership. Effective January 1, 2008, Guerrino De Luca will become chairman of the board, Gerald P. Quindlen, currently the Company’s senior vice president of worldwide sales and marketing, will become Logitech’s president and chief executive officer, and Logitech co-founder Daniel Borel will step down from his role as chairman, remaining a member of the board of directors. Earnings Teleconference Logitech will hold an earnings teleconference on Oct. 18, 2007 at 14:00 Central European Time/8:00 a.m. Eastern Daylight Time/5:00 a.m. Pacific Daylight Time to discuss these results as well as targets for Fiscal Year 2008. A live webcast and replay of the teleconference, including presentation slides, will be available on the Logitech corporate Web site at http://ir.logitech.com. Please visit the Web site at least 10 minutes early to register for the teleconference webcast. About Logitech Logitech is a world leader in personal peripherals, driving innovation in PC navigation, Internet communications, digital music, home-entertainment control, gaming and wireless devices. Founded in 1981, Logitech International is a Swiss public company traded on the SWX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI). The financial results as of and for the period ended September 30, 2007 reported by Logitech in this press release do not include results below the operating income line, the value of Logitech’s short-term investments, and other line items in the balance sheet affected by the valuation of short-term investments. Although Logitech currently expects an impairment loss on its short-term investments of between $55 million and $75 million as of September 30, 2007, the actual impairment loss, once determined by Logitech, may be higher or lower than the expected range. Given the lack of a liquid market for its short-term investments, and the uncertainties inherent in developing valuations for the complex structured finance instruments in Logitech’s short-term investment portfolio, the value of the portfolio, once determined, may be higher or lower than the amount Logitech may actually realize on any future sale of the securities. The Company may report further gains or losses in future periods based on subsequent sales or changes in the fair value of the securities in the portfolio that it continues to hold. Any such gains or losses will affect Logitech’s reported results in those future periods. This press release contains forward-looking statements in addition to those discussed in the preceding paragraph, including the statements regarding expected sales and operating income growth and gross margin for Fiscal Year 2008, and the expected timing for providing full results for Q2 Fiscal Year 2008. The forward-looking statements in this release involve risks and uncertainties that could cause Logitech’s actual performance, results and timing of reported results to differ materially from that anticipated in these forward-looking statements. Factors that could cause actual results to differ materially include those discussed in the preceding paragraph and if we fail to successfully innovate in our current and emerging product categories and identify new feature or product opportunities; consumer demand for our products and our ability to accurately forecast it; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; the time to develop the actual valuation of our short-term investments as of September 30, 2007 being longer than we expect; our ability to continue to implement our plan to control operating expenses while growing sales; the sales mix among our lower- and higher-margin products and our geographic sales mix; as well as those additional factors set forth in our periodic filings with the Securities and Exchange Commission, including our annual report on Form 20-F for the Fiscal Year ended March 31, 2007 and our quarterly reports on Form 6-K available at www.sec.gov. Logitech does not undertake to update any forward-looking statements. Logitech, the Logitech logo, and other Logitech marks are registered in the United States and other countries. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the company’s Web site at www.logitech.com. LOGITECH INTERNATIONAL S.A.     (In thousands, except per share amounts) - Unaudited     Quarter Ended September 30, PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME 2007   2006   Net sales $ 595,490 $ 502,041 Cost of goods sold   379,536     329,076 Gross profit   215,954     172,965 % of net sales 36.3% 34.5%   Operating expenses: Marketing and selling 76,463 70,445 Research and development 30,939 26,118 General and administrative   28,149     24,225 Total operating expenses   135,551     120,788   Operating income 80,403 52,177   Interest income, net 3,925 1,930 Other income (expense), net (1)     1,107   Income before income taxes (1) 55,214 Provision for income taxes (1)     6,010   Net income (1)   $ 49,204     Shares used to compute net income per share: Basic 181,459 182,502 Diluted 188,293 190,276 Net income per share: Basic (1) $ 0.27 Diluted (1) $ 0.26   (1) The Company's preliminary consolidated statement of income for the quarter ended September 30, 2007 does not reflect the potential impact of an impairment loss related to short-term investments. The impairment loss is expected to range from $55 million to $75 million.Subsequent to the balance sheet date, the Company sold, at par, 50% of each of its short-term investments and as a result will recover 50% of the loss that will be recorded during the second quarter. The sale was part of a confidential settlement agreement and the sale price is not necessarily indicative of current market prices or fair value for the securities.   LOGITECH INTERNATIONAL S.A.     (In thousands, except per share amounts) - Unaudited     Six Months Ended September 30, PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME 2007   2006   Net sales $ 1,025,027 $ 895,323 Cost of goods sold   664,287     601,446 Gross profit   360,740     293,877 % of net sales 35.2% 32.8%   Operating expenses: Marketing and selling 141,250 121,643 Research and development 59,704 51,046 General and administrative   55,471     45,220 Total operating expenses   256,425     217,909   Operating income 104,315 75,968   Interest income, net 7,463 3,476 Other income (expense), net (1)     9,838   Income before income taxes (1) 89,282 Provision for income taxes (1)     9,931   Net income (1)   $ 79,351     Shares used to compute net income per share: Basic 181,630 182,575 Diluted 188,699 190,466 Net income per share: Basic (1) $ 0.43 Diluted (1)   $ 0.42     (1) The Company's preliminary consolidated statement of income for the six months ended September 30, 2007 does not reflect the potential impact of an impairment loss related to short-term investments. The impairment loss is expected to range from $55 million to $75 million.Subsequent to the balance sheet date, the Company sold, at par, 50% of each of its short-term investments and as a result will recover 50% of the loss that will be recorded during the second quarter. The sale was part of a confidential settlement agreement and the sale price is not necessarily indicative of current market prices or fair value for the securities.   LOGITECH INTERNATIONAL S.A.         (In thousands) - Unaudited     PRELIMINARY CONSOLIDATED BALANCE SHEETS   September 30,2007   March 31,2007   September 30,2006     Current assets Cash and cash equivalents $ 265,388 $ 196,197 $ 149,831 Short term investments (1) 214,625 95,000 Accounts receivable 425,052 310,377 397,198 Inventories 263,396 217,964 258,417 Other current assets   62,437   68,257   56,599 Total current assets (1) 1,007,420 957,045 Investments 14 14 11,968 Property, plant and equipment 97,414 87,054 84,962 Intangible assets Goodwill 186,577 179,991 136,523 Other intangible assets 16,484 18,920 9,270 Other assets   32,932   34,064   26,507 Total assets (1) $ 1,327,463 $ 1,226,275   Current liabilities Short-term debt $ - $ 11,856 $ 12,322 Accounts payable 340,786 218,129 278,870 Accrued liabilities   161,613   235,080   181,207 Total current liabilities 502,399 465,065 472,399 Other liabilities   99,505   17,874   12,389 Total liabilities 601,904 482,939 484,788   Shareholders' equity (1) 844,524 741,487   Total liabilities and shareholders' equity (1) $ 1,327,463 $ 1,226,275     (1) The Company's preliminary consolidated balance sheet as of September 30, 2007 does not reflect the potential impact of an impairment loss related to short-term investments. The impairment loss is expected to range from $55 million to $75 million.   Refer to the Consolidated Statements of Income for more information. LOGITECH INTERNATIONAL S.A.           (In thousands) - Unaudited   Quarter Ended Six Months Ended September 30 September 30 SUPPLEMENTAL FINANCIAL INFORMATION 2007   2006   2007   2006   Depreciation $ 11,176 $ 8,765 $ 20,002 $ 16,266 Amortization of other acquisition-related intangibles 1,219 952 2,437 1,905 Operating income 80,403 52,177 104,315 75,968 Operating income before depreciation and amortization 92,798 61,894 126,754 94,139 Capital expenditures 9,945 12,309 29,917 26,058     Net sales by channel: Retail $ 518,441 $ 446,932 $ 887,668 $ 788,048 OEM   77,049     55,109     137,359     107,275   Total net sales $ 595,490   $ 502,041   $ 1,025,027   $ 895,323       Net sales by product family: Retail - Pointing Devices $ 155,490 $ 136,796 $ 265,143 $ 232,819 Retail - Keyboards & Desktops 114,500 85,087 196,089 152,313 Retail - Video 64,469 87,726 111,744 163,652 Retail - Audio 123,628 89,723 216,694 156,628 Retail - Gaming 35,726 30,831 57,928 50,348 Retail - Remotes 24,628 16,769 40,070 32,288 OEM   77,049     55,109     137,359     107,275   Total net sales $ 595,490   $ 502,041   $ 1,025,027   $ 895,323       Quarter Ended Six Months Ended   September 30 September 30 Stock-based Compensation Expense for Employee Stock Options and Employee Stock Purchases 2007 2006 2007 2006   Cost of goods sold $ 636 $ 731 $ 1,340 $ 1,449 Marketing and selling 1,699 1,910 3,645 3,761 Research and development 741 819 1,507 1,606 General and administration 1,415 1,766 3,443 3,536 Income tax benefit   (1,662 )   (1,113 )   (2,631 )   (2,031 )   Total stock-based compensation expense after income taxes $ 2,829   $ 4,113   $ 7,304   $ 8,321     Stock-based compensation expense for employee stock options and employee stock purchases, net of tax, per share (diluted) $ 0.02 $ 0.02 $ 0.04 $ 0.04