Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (11-06-08 03:46 AM)

The Daily Magic Formula Stock for 11/06/2008 is Logitech International SA, Apples. According to the Magic Formula Investing Web Site, the ebit yield is 14% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Company Overview

Logitech is a world leader in peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital music, home-entertainment control, video security, interactive gaming and wireless devices. For the PC, our products include mice, trackballs, keyboards, gaming controllers, multimedia speakers, headsets, webcams, and 3D control devices. For digital music devices, our products include speakers and headphones. For gaming consoles, we offer a range of controllers and other accessories. In addition, we offer wireless music solutions for the home, advanced remote controls for home entertainment systems and a PC-based video security solution for a home or small business.

We generate revenues from sales of our personal peripheral products to a worldwide network of retail distributors and resellers and to original equipment manufacturers (“OEMs”). Our sales to our retail channels comprise the large majority of our revenues. For the fiscal year ended March 31, 2008, we generated net sales of $2.4 billion, operating income of $286.7 million, net income of $231.0 million, employed approximately 9,400 employees and conducted business in over 100 countries.

Logitech was founded in Switzerland in 1981, and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Apples, Switzerland, which conducts its business through subsidiaries in North America, Europe and Asia Pacific. Shares of Logitech International S.A. trade on both the Nasdaq Global Select Market, under the trading symbol LOGI, and the SWX Swiss Exchange, under the trading symbol LOGN. References in this Form 10-K to the “Company,” “Logitech,” “we,” “our,” and “us” refer to Logitech International S.A. and its consolidated subsidiaries.

Logitech operates in a single industry segment encompassing the design, manufacturing and marketing of personal peripherals for personal computers and other digital platforms. We have six product-line business units — Control Devices, Internet Communications, Gaming, Audio, Remotes and Streaming Media Systems — which are responsible for product strategy, industrial design and development, and technological innovation. Logitech’s global marketing and sales organization helps the business units define product opportunities and bring our products to market, and is responsible for building the Logitech brand and consumer awareness of our products. Our retail sales and marketing activities are organized into three geographic regions: Americas (including North and South America), Europe-Middle East-Africa, and Asia Pacific. Our OEM sales team is organized as a worldwide organization with representatives in each of our three regions. Our OEM customers include the majority of the world’s largest PC manufacturers. A summary of our net sales and long-lived assets by geographic region can be found in Note 17 to the Consolidated Financial Statements in Item 15, which is incorporated herein by reference. A discussion of factors potentially affecting our operations is set forth in Item 1A Risk Factors, which is incorporated herein by reference.

Since 1994, we have had our own manufacturing operations in Suzhou, China, which currently handle approximately half of our total production. We outsource the remaining production to contract manufacturers and original design manufacturers (“ODMs”) located in Asia. Both our in-house and outsourced manufacturing is managed by our worldwide operations group. The worldwide operations group also supports the business units and marketing and sales organizations through management of distribution centers and of the product supply chain, and the provision of technical support, customer relations and other services.

Industry Overview

Increasingly affordable prices and wider availability of business, consumer, education, and communication applications have created a very large installed base of desktop and notebook personal computers. We believe that market penetration of PCs, Mac computers and other information access devices, already high in developed countries, is likely to increase worldwide.

In addition, continuing growth in processing power and communications bandwidth, the increased accessibility of digital content, and the pervasive access and use of the Internet, create opportunities for new applications, new users and dramatically richer interactions between users and digital information.

These developments create new demands by users who want to take full advantage of the increased processing power, new applications and new technologies in an intuitive, productive, comfortable and convenient manner.

Today’s desktop and notebook PCs and Mac computers have evolved into affordable multimedia appliances or “digital hubs” capable of creating and manipulating vast amounts of graphics, sound and video. Logitech believes the expanded capabilities of PCs and Mac computers and the large installed base present a significant opportunity for companies that provide innovative personal peripheral products for the computer, since basic input devices alone do not fully enable many of the newest applications, or are not as convenient or comfortable as products available in the after-market (that is, the market for peripheral upgrades and add-ons sold separately from the basic PC or Mac computer). We believe the after-market potential for our products grows as consumers demand more function-rich personal peripheral tools, and as the PC or Mac computer plays an increasing role in the new digital lifestyle.

In addition, we believe that trends established in the consumer technology market — such as brand identity, affordability, ease of installation and use as well as visual appeal — have become important aspects of the purchase decision when buying a desktop or notebook PC or Mac computer and personal peripherals.

We also believe that similar industry dynamics and personal peripheral device opportunities exist for non-PC platforms, such as video game consoles, digital music players and home-entertainment systems. As these additional platforms deliver new functionality, increased processing power and growing communications capabilities, we expect demand to increase for add-on, complementary devices connected to these platforms. The product expertise Logitech has developed around the PC extends to these other platforms as well and provides further opportunity for growth and leverage.

Business Strategy

Logitech’s objective is to strengthen our leadership in the growing market for personal peripherals, linking people to the digital world wherever and whenever they need to access digital information for work or play. We serve the installed base of desktop and notebook PCs and Mac computers by offering innovative personal peripherals to address needs for comfort and productivity as well as entertainment and communication. While PCs and Mac computers are being used more and more as a digital hub, other platforms such as game consoles, digital music players and home-entertainment systems are also becoming a rich resource for people to access information, communicate, listen to music and enjoy an expanding offering of interactive games.

To achieve our objective, the key elements of Logitech’s strategy consist of the following:

Product Strategy

To capitalize on the many opportunities in the growing digital marketplace, Logitech’s product strategy focuses on personal peripherals in three digital environments:


•

The Office Environment — Desktop and Notebook Computers


•

The Digital Home Environment — Digital Music Systems, Home-Entertainment Systems, Game Consoles, Video Security Systems


•

The Mobile Environment — Notebook Computers, Digital Music Players, Portable Gaming Systems

The Office Environment

Logitech has successfully broadened our desktop presence by introducing new, more innovative, high-performance PC and Mac computer navigation devices that have gained market acceptance. In addition, we have expanded beyond our traditional role as a provider of pointing devices for the desktop or notebook PC or Mac computer into a leading brand for video imaging products, keyboards, PC audio products and control devices for emerging 3D applications and platforms.

The Digital Home Environment

We see the dramatic increase of digital content available for the home as a significant source of new opportunities for Logitech. We believe that the new digital home — with a broad and evolving selection of digital entertainment and information content available from multiple sources, and the innovation in affordably priced digital-technology equipment — will over time allow us to play a significant role in the consumer experience for a much wider audience.

Our product portfolio includes a line of advanced remote controls for home entertainment, a variety of speaker and headphone products, the Squeezebox network music system that allows people to enjoy digital music in any room of the house, the diNovo Mini keyboard and the WiLife video security solution. These products represent part of our strategy to pursue new opportunities in the digital home environment, positioning Logitech at the convergence of consumer electronics and personal computing in the digital home. Logitech also offers a broad spectrum of products for gamers. We are leveraging our investments in the desktop PC to enhance gaming consoles with our expertise in force and vibration feedback, cordless connectivity, voice input and video input.

The Mobile Environment

As digital information and communication are evolving into the mobile environment, the opportunity exists for Logitech to support an even broader set of platforms. We believe that the growing number of mobile phones, notebook computers and mobile entertainment and communication platforms, such as portable digital music players and gaming devices, will bring additional demand for complementary personal peripherals. Logitech plans to support this need in mobile environments, as we do in the office and home.

Geographic Expansion

We believe that the market penetration for Logitech products is low in developing markets such as Latin America, Eastern Europe, India and China. We are committing resources to capitalize on the growth opportunities in these regions, including securing new channel partners, strengthening relationships with existing partners, expanding our sales force and investing in product and marketing initiatives.

Manufacturing

To effectively respond to rapidly changing demand and to leverage economies of scale, we intend to continue our hybrid model of in-house manufacturing and third-party contract manufacturers to supply our products. Through our high-volume manufacturing operations located in Suzhou, China, we believe we have been able to maintain strong quality process controls and have realized significant cost efficiencies. Our Suzhou operation provides for increased production capacity and greater flexibility in managing product demand. Further, by outsourcing the manufacturing of certain products, we seek to reduce volatility in production volumes as well as improve time to market.

Technological Innovation

To capitalize on market opportunities for personal peripherals, we recognize that continued investment in product research and development is critical to facilitating innovation of new and improved products and technologies. Beyond updating our existing line of personal peripherals, we intend to continue to lead the

development of new technologies and to create product innovations, such as those introduced in fiscal year 2008, which include the MX Air Mouse’s Freespace technology, the Wave comfort keyboard design, the Harmony One remote’s color touch screen and intuitive button layout, and the sleek, rechargeable design of the diNovo Mini. Logitech is committed to meeting our customers’ needs for personal peripheral devices and believes that innovation, value and product quality are important elements to gaining market acceptance and strengthening our market position.

Products

Logitech operates in a single industry segment encompassing the design, development, production, marketing and support of personal peripheral products. Most of our products share certain characteristics such as common customers, common sales channels, common company infrastructure requirements and common company resources such as our worldwide management of sales and marketing, supply chain and administration.

Pointing Devices

Mice

Logitech offers many varieties of PC mice, sold through retail, OEM, and system builder channels. Some of our major mice products include:


•

The MX 1000 Laser Cordless Mouse introduced in 2004 — This was the first laser-based optical mouse in the market.


•

The MX Revolution Cordless Laser Mouse introduced in fiscal year 2007 — This mouse includes the MicroGear Precision Scroll Wheel, Logitech SmartShift Technology, One-Touch Search and Document Quick-Flip.


•

The Logitech MX Air Rechargeable Cordless Air Mouse — The MX Air Mouse works on the desk or in the air.


•

The Logitech VX Nano Cordless Laser Mouse for Notebooks — The VX Nano features a Nano-receiver which, when plugged into a laptop, is nearly flush against the notebook.


•

The Logitech V220 Cordless Optical Mouse for Notebooks — The V220 is an ergonomically designed mouse with soft rubber grips and a convenient mini-receiver.

Our mice products also include an expanded line of gaming mice, including the customizable G9, which gives PC gamers the ability to modify the mouse for the best personal fit, feel and performance.

All of Logitech’s premium retail mice are bundled with Logitech SetPoint software, enabling users to program mouse buttons for specific tasks. We also sell both corded and cordless mice designed specifically for OEM customers.

Other Pointing Devices

Some of our other pointing devices include:


•

The Cordless Optical TrackMan trackball — This trackball features a “cruise control” scrolling feature and several programmable buttons.


•

3D input devices such as SpaceNavigator, SpaceExplorer, SpaceTraveler, and SpacePilot.

Keyboards and Desktops

Logitech offers a variety of corded and cordless keyboards and desktops (keyboard-and-mouse combinations).

Some of our major keyboards and desktops include:


•

The diNovo Edge keyboard — This is our award-winning top-of-the-line rechargeable keyboard.


•

The diNovo Mini keyboard — This is the smallest keyboard on the market today combining thumb typing, Windows Media center remote controls, and a touchpad.


•

The Cordless Desktop Wave — The Wave keyboard features a gradual wave-shaped contour that helps eliminate awkward hand and forearm positions.


•

The Cordless Desktop MX 5500 Revolution — This desktop includes the Bluetooth wireless technology and other features such as an integrated keyboard display and several buttons designed to help people take advantage of key Windows Vista features, such as Flip 3D and Search.


•

The basic Media Keyboard

All premium keyboards offer Logitech’s innovative SetPoint software, which enables one-touch access to a variety of common tasks, including music software, the Internet, and Instant Messenger software.

Notebook Essentials

In addition to our mice, webcams and speakers for notebooks, we also offer notebook stands that raise the notebook monitor to eye level for improved comfort. Our major notebook stands include the Alto Cordless Notebook Stand, the Alto Connect, and the Alto Express. We also added two new categories to our notebook essentials line: notebook cases and USB hubs. Logitech’s notebook cases include the Logitech Kinetik 15.4 Backpack and the Logitech Kinetik 15.4 Briefcase.

Voice and Video Communications

Web Cameras

Logitech’s premium webcam offerings include:


•

The QuickCam Pro 9000


•

QuickCam Pro for Notebooks

Both of these webcams feature lenses designed in an exclusive collaboration with Carl Zeiss. In addition, both webcams use a premium autofocus system and a true 2-megapixel sensor. They also leverage High Quality Video from Skype, video calling functionality offered through our exclusive collaboration with Skype.

Logitech’s major mid-range webcams include:


•

QuickCam Ultra Vision webcam — This webcam features the Logitech RightLight2 Technology to optimize video settings in low and uneven lighting situations.




•


The Logitech QuickCam Communicate Deluxe for PC users




•


The Logitech QuickCam Vision MP for Mac users

Our performance webcams include:


•

The QuickCam Ultra Vision


•

QuickCam Fusion


•

QuickCam Pro 5000

The performance webcams feature glass lenses, auto focus technology, RightSound and RightLight2 Technology, record video at up to 30 frames per second and support the 720p high-definition (HD) video format.

Logitech’s entire family of webcams work with most popular video messaging applications, including Skype, Windows Live Messenger, Yahoo! Messenger and AIM. In October 2007, Skype and Logitech announced a collaboration to deliver a new standard of video calls over the Internet. In addition, our Logitech Video Effects software has become a favorite application for users wishing to record and post video on the Internet.

PC Headsets and VoIP Handsets

We offer headsets, microphones and handsets designed for applications such as PC voice communications, Voice-over Internet Protocol (“VoIP”) applications and online gaming. Some of our major products in this category include the ClearChat Pro USB Headset, the ClearChat Comfort USB Headset, the Logitech Premium Notebook Headset, and the Logitech Cordless Internet Handset.

Video Security Systems

In November 2007, we acquired WiLife, Inc. (“WiLife”), which offers solutions for using a PC and special video cameras to provide remote security monitoring of one’s home or small business. The WiLife solution includes monitoring cameras that use the HomePlug Powerline technology to transfer video over standard electrical wiring. The cameras can record video on a scheduled basis, at all times or when they detect motion. The video is stored locally on a computer and can be played back locally on the PC. For an additional fee, the solution offers an Internet-based service and the ability to monitor the video feeds remotely from a PC and some PDAs or cell phones.

Audio

Speakers and Headphones

Logitech designs and manufactures a wide variety of multimedia speakers including the following:


•

Logitech Z-5500 Digital speakers — These are 5.1-channel multi-platform, 505-watt speakers.


•

The Logitech Z Cinéma Advanced Surround Sound System — This system features SRS TruSurround HD, a unique three-amplifier design, two-way satellite speakers and an eight-inch subwoofer.


•

The Logitech G51 Surround Sound Speaker System — The G51 is a 5.1 speaker system featuring 360-degree surround sound with dual Matrix modes.


•

The Logitech AudioHub Notebook Speaker System — This system has an Integrated USB Hub and features an adjustable one-piece, three-chamber speaker system with an integrated subwoofer.


•

Pure-Fi Anywhere speakers — The Pure-Fi Anywhere speakers include a rechargeable battery, with a battery-life indicator, an improved traveling case, and an advanced remote control with one-touch access to shuffle and repeat for the iPod.


•

FreePulse Wireless headphones — These headphones are designed for use with iPod and other MP3 players.

Streaming Media

Our Streaming Media category includes the Squeezebox Duet network music system, which includes a full-color LCD screen and a compact receiver, the Squeezebox and the Transporter network music player. During fiscal year 2008, Logitech added new music service partners to the SqueezeNetwork, an always-on hosted service that provides access to a large number of Internet radio stations, podcasts, and music services, including Sirius, MP3Tunes, Last.FM and Slacker.

CEO BACKGROUND

Guerrino De Luca became Chairman of the Logitech Board of Directors in January 2008, turning over his responsibilities as President and Chief Executive Officer to Gerald P. Quindlen. Mr. De Luca joined the Company as President and Chief Executive Officer in February 1998, and became an executive member of the Board of Directors in June 1998. Prior to joining Logitech, Mr. De Luca served as Executive Vice President of Worldwide Marketing for Apple, Inc. from February 1997 to September 1997, and as President of Claris Corporation, a U.S. personal computing software vendor, from May 1994 to February 1997. Prior to joining Claris, Mr. De Luca held various positions with Apple in the United States and in Europe. Mr. De Luca holds a BS degree in Electronic Engineering from the University of Rome, Italy.

Gerald P. Quindlen became the President and Chief Executive Officer of Logitech in January 2008. Mr. Quindlen joined Logitech as Senior Vice President, Worldwide Sales and Marketing in October 2005. From August 1987 to September 2004, Mr. Quindlen worked for Eastman Kodak Company where he was most recently Vice President of Global Sales and Operations for the Consumer and Professional Imaging Division and previously held senior sales or marketing management positions in the United States, Japan and Asia Pacific. Prior to his 17 year tenure at Eastman Kodak, he worked for Mobil Oil Corporation in engineering. Mr. Quindlen holds a BS degree in chemical engineering from Villanova University in Pennsylvania, and an MBA degree in Finance from the University of Pennsylvania’s Wharton School.

Mark J. Hawkins joined Logitech as Senior Vice President, Finance and Information Technology, and Chief Financial Officer, in April 2006. Previously he was with Dell Corporation for six years, most recently serving as Vice President of Finance for worldwide procurement and logistics and the Dell Operating Council. Prior to joining Dell, Mr. Hawkins was employed by Hewlett-Packard Company for eighteen years in finance and business-management roles in the United States and abroad. Among other assignments, he was involved in supporting the spin-off of Agilent Technologies, formed from Hewlett-Packard’s former semiconductor and instrument business. He also served on the board of directors for the HP Analytical Joint Ventures in Tokyo and Shanghai. Mr. Hawkins holds a BA degree in Operations Management from Michigan State University, and an MBA degree in Finance from the University of Colorado. He has also completed the Advanced Management Program at Harvard Business School.

David Henry joined Logitech as Senior Vice President, Control Devices Business Unit, in August 2001 and was named Senior Vice President, Customer Experience and Chief Marketing Officer in March 2007. From January 2000 to June 2001, Mr. Henry served as Vice President of Business Development and Product Management of Xigo Inc., a U.S. on-line intelligence software company. From November 1997 to January 2000, Mr. Henry held various positions with Iomega, a U.S. portable storage company. His last position with Iomega was Vice President and General Manager of Magnetic Products. Mr. Henry holds a BS degree in Mechanical Engineering from Union College of New York.

Junien Labrousse joined Logitech as Vice President of the Video Division in 1997. He was named Senior Vice President, Video Business Unit in April 2001, Senior Vice President, Entertainment and Communications in July 2005 and Executive Vice President, Products in March 2007. Prior to joining Logitech, he was Vice President of Engineering from 1995 to 1997 at Winnov LP, a U.S. company engaged in the development and marketing of multimedia products. For more than 10 years he held several engineering and management positions at Royal Philips Electronics NV, a global electronics company, in research and in the semiconductor business division. Mr. Labrousse holds an MS degree in Electrical Engineering from the Ecole Superieure d’Ingenieurs de Marseille, France and an MBA degree from Santa Clara University in California.

L. Joseph Sullivan joined Logitech in October 2005 as Vice President, Operations Strategy, and was appointed Senior Vice President, Worldwide Operations in April 2006. Prior to joining Logitech, Mr. Sullivan was Vice President of Operational Excellence and Quality for Carrier Corporation, a subsidiary of United Technologies, from 2001 to 2005. Previously, he was with ACCO Brands, Inc. in engineering and manufacturing management roles from 1998 to 2001. Mr. Sullivan holds a BS degree in Marketing Management and an MBA degree in Operations Management from Suffolk University in Massachusetts.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Logitech is a world leader in peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital music, home-entertainment control, video security, interactive gaming and wireless devices. For the PC, our products include mice, trackballs, keyboards, gaming controllers, multimedia speakers, headsets, webcams, and 3D control devices. For digital music devices, our products include speakers and headphones. For gaming consoles, we offer a range of controllers and other accessories. In addition, we offer wireless music solutions for the home, advanced remote controls for home entertainment systems and a PC-based video security solution for a home or small business.

We sell our products to a network of distributors and resellers (“retail”) and to original equipment manufacturers (“OEMs”). Our worldwide retail network includes wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecommunications stores, value-added resellers and online merchants. Our sales to our retail channels comprise the large majority of our revenues.

We have historically targeted peripherals for the PC platform, a market that is dynamically changing as a result of consumer trends toward notebooks and other mobile devices. We remain focused on strengthening our leadership in the PC peripherals market through the introduction of products that support the continued growth of the notebook market segment. We have also expanded into peripherals for other platforms, including video game consoles, mobile phones, home entertainment systems and mobile entertainment and digital music systems.

Logitech’s markets are extremely competitive and are characterized by short product life cycles, rapidly changing technology, evolving customer demands, and aggressive promotional and pricing practices. In order to remain competitive, we believe continued investment in product research and development is critical to driving innovation with new and improved products and technologies. We are committed to identifying and meeting customer needs for personal peripheral devices and believe innovation and product quality are important to gaining market acceptance and strengthening market leadership.

Over the last several years, Logitech has expanded and improved its supply chain operations, invested in product development and marketing, delivered innovative new products and pursued new market opportunities. We have significantly broadened our product offerings and the markets in which we sell. Our expansion has been primarily organic, but we have also grown as a result of a limited number of acquisitions that expanded our business into new product categories.

In fiscal year 2008, revenues increased 15% to $2.4 billion, with significant growth in most product categories, reflecting the strength and breadth of our product portfolio. Mice, keyboards and desktops, Harmony remote controls and OEM sales were key growth categories, while video declined compared with fiscal year 2007. We achieved strong gross margin improvements through our emphasis on product innovation, supply chain efficiencies and controlling and reducing our product cost structure. Net income was $231.0 million, which included an investment write-down of $79.8 million and a gain on sale of investments of $27.7 million, compared with net income of $229.8 million in fiscal year 2007.

Our strategy for fiscal year 2009 remains to position Logitech as a premium supplier in our product categories, offering affordable luxury to the consumer while continuing to compete aggressively in all market

segments, from the entry level through the high-end. Our focus will be on managing resources to create an innovative product portfolio targeted at current and future consumer trends as well as increasing the value of the Logitech brand from a competitive, channel partner and consumer experience perspective. We intend to take advantage of the significant opportunities in emerging markets, while leveraging the growth opportunities remaining in our mature markets.

In our pointing devices, keyboards and desktops product lines, we plan to continue our expansion into the notebook arena. We also see significant opportunities for our mice and keyboards in the business market. In the audio arena, we expect that our strong presence in the speaker category, combined with our proposed new products, will allow us to continue to generate growth. We also plan to leverage the opportunities provided by our streaming media product line. During fiscal year 2009, we plan to build on the momentum achieved in our video product line in the fourth quarter of fiscal year 2008 and continue our focus on in-store marketing, new products, and partnerships to generate a sustained return to growth. We also expect our video security products to gain momentum throughout the next fiscal year. With the introduction of new gaming products for popular console game titles like the Gran Turismo 5, we expect to return to growth in the gaming product line as well. In our Harmony remote control product line, we will continue to focus on improving every aspect of the user experience to increase our already high level of customer satisfaction and expand the universe of Harmony users. To support our planned growth, we intend to continue to scale our processes to handle the increased complexity of our product lines and improve the product life cycle management process. We also plan to continue managing our operating expenses in line with our gross profit growth for the year.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires the Company to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities.

We consider an accounting estimate critical if it: (i) requires management to make judgments and estimates about matters that are inherently uncertain; and (ii) is important to an understanding of Logitech’s financial condition and operating results.

We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.

We believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations, and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Accruals for Customer Programs

We record accruals for product returns, cooperative marketing arrangements, customer incentive programs and price protection. The estimated cost of these programs is accrued in the period the Company sells the product or commits to the program as a reduction of revenue or as an operating expense, if we receive a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit. Significant management judgment and estimates must be used to determine the cost of these programs in any accounting period.

Returns. The Company grants limited rights to return product. Return rights vary by customer, and range from just the right to return defective product to the right to return a limited percentage of the previous quarter’s purchases. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product, inventories owned by and located at distributors and retailers, current customer demand, current operating conditions, and other relevant customer and product information, such as stage of product life-cycle. Return trends are influenced by the timing of the sale, the type of customer, operational policies and procedures, product sell-through, product quality issues, sales levels, market acceptance of products, competitive pressures, new product introductions, product life cycle status, and other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns.

Cooperative Marketing Arrangements. The Company’s cooperative marketing arrangements include contractual customer marketing and sales incentive programs. We enter into customer marketing programs with most of our distribution and retail customers allowing customers to receive a credit equal to a set percentage of their purchases of the Company’s products for various marketing programs. The objective of these programs is to encourage advertising and promotional events to increase sales of our products. Accruals for the estimated costs of these marketing programs are recorded based on the contractual percentage of product purchased in the period we recognize revenue. The Company also offers rebates and discounts for certain types of sell-through programs. Accruals for these sales incentive programs are recorded at the time of sale based on negotiated terms, historical experience and inventory levels in the channel.

Customer Incentive Programs. Customer incentive programs include volume and consumer rebates. We offer volume rebates to our distribution and retail customers related to purchase volumes or sales of specific products by distributors to specified retailers. Reserves for volume rebates are recognized as a reduction of the sale price at the time of sale. Estimates of required reserves are determined based on negotiated terms, consideration of historical experience, anticipated volume of future purchases, and inventory levels in the channel. Consumer rebates are offered from time to time at the Company’s discretion directly to end-users. Estimated costs of consumer rebates and similar incentives are recorded at the time the incentive is offered, based on the specific terms and conditions. Certain incentive programs, including consumer rebates, require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular programs.

Price Protection. We have contractual agreements with certain of our customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction (contractual price protection). Our decision to make price reductions is influenced by channel inventory levels, product life cycle stage, market acceptance of products, the competitive environment, new product introductions and other factors. Credits are issued for units that customers have on hand or in transit at the date of the price reduction. Reserves for the estimated amounts to be reimbursed to qualifying customers are established quarterly based on planned price reductions, analyses of qualified inventories on hand with distributors and retailers and historical trends by customer and by product.

We regularly evaluate the adequacy of our accruals for product returns, cooperative marketing arrangements, customer incentive programs and price protection. Future market conditions and product transitions may require the Company to take action to increase such programs. In addition, when the variables used to estimate these costs change, or if actual costs differ significantly from the estimates, we would be required to record incremental reductions to revenue or increase operating expenses. If, at any future time, the Company becomes unable to reasonably estimate these costs, recognition of revenue might be deferred until products are sold to end-users, which would adversely impact revenue in the period of transition.

Short-term Investments

We have short-term investments that are primarily auction rate securities and are classified as available-for-sale as of March 31, 2008. Auction rate securities generally have maturity dates greater than 10 years, with interest rates that typically reset through an auction every 28 days. The Company’s short-term investments are reported at estimated fair value. The fair value of short-term investments is estimated based on quoted market prices, if available, or by estimating the values of the underlying collateral using published mortgage indices or interest rate spreads for comparably-rated collateral and applying discounted cash flow or option pricing methods to the estimated collateral value. The markets for the auction rate securities we hold as of March 31, 2008 have failed since August 2007, and due to continuing dislocations in the worldwide credit markets, are not expected to resume in the foreseeable future, if at all. As a result, the Company has valued the remaining $3.9 million in short-term investments in its portfolio as of March 31, 2008 solely by pricing the underlying collateral using published mortgage indices or interest rate spreads for comparably-rated collateral pools and applying discounted cash flow or option pricing methods to the estimated collateral value.

Allowance for Doubtful Accounts

We sell our products through a worldwide network of distributors, retailers and OEM customers. Logitech generally does not require any collateral from its customers. However, we seek to control our credit risk through ongoing credit evaluations of our customers’ financial condition.

We regularly evaluate the collectibility of our accounts receivable and maintain allowances for doubtful accounts. The allowances are based on management’s assessment of the collectibility of specific customer accounts, including their credit worthiness and financial condition, as well as the Company’s historical experience with bad debts and customer deductions, receivables aging, current economic trends and geographic or country-specific risks and the financial condition of its distribution channel.

As of March 31, 2008, two customers each represented 15% of total accounts receivable. The customers comprising the ten highest outstanding trade receivable balances accounted for approximately 53% of total accounts receivable as of March 31, 2008. A deterioration of a significant customer’s financial condition could cause actual write-offs to be materially different from the estimated allowance. If any of these customers’ receivable balances should be deemed uncollectible or if actual write-offs are higher than historical experience, we would have to make adjustments to our allowance for doubtful accounts, which could result in an increase in the Company’s operating expenses.

Inventory Valuation

The Company must order components for its products and build inventory in advance of customer orders. Further, our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand.

We record inventories at the lower of cost or market value and record write-downs of inventories which are obsolete or in excess of anticipated demand or market value. A review of inventory is performed each fiscal quarter that considers factors including the marketability and product life cycle stage, product development plans, component cost trends, demand forecasts and current sales levels. We identify inventory exposures by comparing inventory on hand, in the channel and on order to historical and forecasted sales over six month periods. Inventory on hand which is not expected to be sold or utilized based on review of forecasted sales and utilization is considered excess, and we recognize the write-off in cost of sales at the time of such determination. At the time of loss recognition, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances would not result in an increase in the cost basis. If there were an abrupt and substantial decline in demand for Logitech’s products or an unanticipated change in technological or customer requirements, we may be required to record additional write-downs which could adversely affect gross margins in the period when the write-downs are recorded.

Share-Based Compensation Expense

We adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), effective April 1, 2006, using the modified prospective

transition method. Therefore, results for periods prior to April 1, 2006 have not been restated to include share-based compensation expense calculated in accordance with SFAS 123R. Share-based compensation expense for fiscal years 2007 and 2008 includes compensation expense, reduced for estimated forfeitures, for awards granted after April 1, 2006 based on the grant-date fair value estimated using the Black-Scholes-Merton option-pricing valuation model, recognized on a straight-line basis over the service period of the award. For share-based compensation awards granted prior to but not yet vested as of April 1, 2006, share-based compensation expense for fiscal years 2007 and 2008 was based on the grant-date fair value estimated using the Black-Scholes-Merton option-pricing valuation model and reduced for estimated forfeitures recognized on a straight-line basis over the service period for each separately vesting portion of the award. See Note 12-Employee Benefit Plans in the Notes to the Consolidated Financial Statements for further discussion of share-based compensation.

Our estimates of share-based compensation expense require a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects and the selection of an appropriate fair value model. We estimate expected share price volatility based on historical volatility using daily prices over the term of past options or purchase offerings, as we consider historical share price volatility as most representative of future stock option volatility. We estimate expected life based on historical settlement rates, which we believe are most representative of future exercise and post-vesting termination behaviors. We use historical data to estimate pre-vesting option forfeitures, and we record share-based compensation expense only for those awards that are expected to vest. The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts.

The assumptions used in calculating the fair value of share-based compensation expense and related tax effects represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our share-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations.

Accounting for Income Taxes

Logitech operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. The Company’s effective tax rate may be affected by the changes in or interpretations of tax laws in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets. As a result of these considerations, we must estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.

We assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering all available evidence such as historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax strategies. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event we determine that we would not be able to realize all or part of our deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, the previously provided valuation allowance would be reversed.

We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) as of April 1, 2007, as required. The implementation of the provisions of FIN 48 requires us to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters.

Results of Operations

Year Ended March 31, 2008 Compared with Year Ended March 31, 2007

Net Sales

Logitech’s Pointing Devices product family includes the Company’s mice, trackballs and other pointing devices. Keyboards and desktops include cordless and corded keyboards and desktops. Audio includes speakers and headset products for the PC, the home, and mobile entertainment platforms and wireless music systems; video is comprised of PC webcams and WiLife video security monitoring systems; gaming includes console and PC gaming peripherals; and remotes is comprised of the Company’s advanced remote controls.

Retail sales growth in fiscal year 2008 was primarily attributable to strong contributions from pointing devices, keyboards, desktops, audio products and remotes. OEM sales were higher as a result of strong sales of gaming peripherals, keyboards and desktops. We achieved strong sales growth in spite of a highly promotional market that resulted in higher consumer rebates as compared with the prior fiscal year. Approximately 54% of the Company’s sales were denominated in currencies other than the U.S. dollar in fiscal year 2008. Net sales growth benefited from the strengthening of the Euro during fiscal year 2008; however this benefit does not consider the impact that currency fluctuations had on our pricing strategy, which may result in selling prices in one currency being raised or lowered to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions.

Retail Pointing Devices. Sales of our pointing devices increased 22% and units increased 14% during fiscal year 2008 compared with fiscal year 2007. The growth was led by sales of our cordless mice which increased 30% during the year, with units increasing 40%. Our new VX Nano Cordless Laser Mouse for notebooks, our V220 Cordless Optical Mouse for notebooks and our V320 Cordless Mouse for notebooks were the primary contributors to the sales growth during the year.

Retail Keyboards and Desktops. Sales of keyboards and desktops increased 23% and units increased 17% during fiscal year 2008 compared with the prior fiscal year, primarily due to strong contributions from our new Cordless Desktop Wave and our MX 3200 Laser Cordless Desktop in our high-end category and the Cordless Desktop EX 90 in our value segment. Our notebooks stands also continued to contribute to our growth in this category.

Retail Audio. Our retail audio sales increased 17% in dollars and 2% in units in fiscal year 2008 compared with the prior year. The growth was primarily from sales of PC speakers, which increased 38% with unit growth of 26%, driven by sales of our Z-5500 Digital speakers and our X-240 and Z-2300 speakers. Sales of our Pure-Fi Anywhere speakers in the digital music category also contributed to the sales of our audio products.

Retail Video. The Company’s video sales in dollars and units decreased 24% in fiscal year 2008 compared with fiscal year 2007, primarily due to slower than expected consumer demand in the webcam market, particularly in our EMEA region, where video sales decreased 40% as compared with the prior fiscal year . The decline in video sales in comparison with the prior year began in the fourth quarter of fiscal year 2007.

Retail Gaming. Sales of retail gaming peripherals in fiscal year 2008 decreased 2% and units decreased 17% compared with the prior fiscal year. PC gaming sales increased 3%, primarily driven by sales of our G15 Gaming Keyboard and our G25 Racing Wheel. Console gaming sales decreased 13% and units decreased 28% as compared with the prior fiscal year, due to a decline in sales related to peripherals for prior generation consoles, particularly the PlayStation 2. Sales of our cordless controllers for PlayStation 3 did not offset the decline in prior generation consoles.

Retail Remotes. Remote control sales in fiscal year 2008 increased 35% and units increased 20% as compared with fiscal year 2007. The growth was primarily attributable to sales of our new Harmony One and our Harmony 1000 remote controls.

Retail Regional Performance. The Company’s Americas and Asia Pacific regions achieved double-digit retail sales growth of 12% and 32% and unit growth of 8% and 13% compared with the prior fiscal year. Growth in the Americas region was driven by solid contributions from sales of pointing devices, remotes, keyboards and

desktops. In the Asia Pacific region, all product lines except video achieved double-digit retail sales growth. Retail sales in the EMEA region increased 8% and units increased 2%, led by sales of remotes, audio products, pointing devices, keyboards and desktops. Sales in the EMEA region have been disproportionately impacted by the decline in video sales, which decreased 40% compared with the prior fiscal year. Modest sales growth in the EMEA region has hindered the Company’s overall sales growth for each of the four quarters of fiscal year 2008. The disparity between sales growth and unit growth in all regions was primarily due to product mix and currency fluctuations. In particular, the strengthening of the Euro in fiscal year 2008 positively impacted the sales growth in the EMEA region; however this benefit does not consider the impact that currency fluctuations have on the Company’s pricing strategy, which may result in selling prices in one currency being raised or lowered to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions.

OEM. Our OEM products achieved 36% sales growth and 12% unit growth during fiscal year 2008 compared with fiscal year 2007. OEM sales of gaming peripherals increased significantly, driven by microphones for singing games for PlayStation 3, Wii and Xbox 360. The Company does not expect sales of microphones for singing games to be a primary driver of OEM sales growth in the future. Keyboards and desktops also made a strong contribution to our OEM sales growth in fiscal year 2008.

Gross Profit

Gross profit consists of net sales, less cost of goods sold which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, costs of purchasing components from outside suppliers, distribution costs and write-down of inventories.

Gross profit increased 20% in fiscal year 2008 compared with the prior fiscal year. The growth resulted from an increase in sales combined with higher margins associated with our newly launched products. Gross margin improvements were achieved primarily on cordless mice, cordless keyboards, PC speakers and console gaming peripherals. In addition, we continued to make an effort to reduce product costs and increase supply chain efficiencies during fiscal year 2008.

Operating Expenses

Marketing and Selling

Marketing and selling expense consists of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, customer and technical support and facilities costs.

Marketing and selling expenses increased 19% in fiscal year 2008 compared with fiscal year 2007 primarily due to increased personnel costs related to headcount additions during the year to support higher retail sales levels as well as increased advertising and product promotion costs such as our advertising campaign for our remotes product line launched during the fourth quarter of fiscal year 2008. The impact of exchange rate changes on translation of foreign currency marketing and selling expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Euro and Swiss franc relative to the U.S. dollar, also contributed to the increase.

Research and Development

Research and development expense consists of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.

The increase in research and development expense reflects our commitment to continued investment in research and development initiatives, particularly in the audio, video and control devices product lines. Increased personnel costs related to headcount additions in the last half of fiscal year 2007 were the largest contributor to the increases in research and development expense for fiscal year 2008. The impact of exchange rate changes on translation of foreign currency research and development expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Euro, Swiss franc and Canadian dollar relative to the U.S. dollar, also contributed to the increase.

General and Administrative

General and administrative expense consists primarily of personnel and related overhead and facilities costs for the finance, information systems, executive, human resources and legal functions.

General and administrative expense increased primarily as a result of an increase in personnel and occupancy expenses. Personnel costs increased 19% during the year due to headcount increases in the latter half of fiscal year 2007 to support new systems and internal control procedures implemented during fiscal year 2007. Depreciation expense increased significantly compared with the prior fiscal year primarily due to equipment and computer hardware purchases during fiscal year 2008. Rent expense also increased during the year due to expanded facilities. The impact of exchange rate changes on translation of foreign currency general and administrative expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Euro and Swiss franc relative to the U.S. dollar, also contributed to the increase.

Interest Income, Net

During fiscal year 2008, we recorded an unrealized loss of $79.8 million related to an other-than-temporary decline in the estimated fair value of our short-term investments. We also recorded a gain of $33.7 million related to the short-term investments that we sold as part of a confidential settlement agreement in the third quarter of fiscal year 2008. In addition, we sold all of our investments collateralized by corporate debt during the third quarter of fiscal year 2008 and recorded a realized loss of $6.0 million. See Note 4 — Short-term Investments in the Notes to Consolidated Financial Statements of this Form 10-K for further discussion. The change in foreign currency exchange gains during fiscal year 2008 resulted primarily from gains related to the sale of the Company’s Euro currency for U.S. dollars. The Company does not speculate in currency positions, but is alert to opportunities to maximize its foreign exchange gains. Other income also includes $1.0 million gain on the sale of our ioPen retail product line.

Other income for fiscal year 2007 included a gain of $9.1 million on the sale of our investment in Anoto Group AB, a publicly traded Swedish technology company from which we licensed our digital pen technology.

Provision for Income Taxes

The provision for income taxes consists of income and withholding taxes. The increase in the effective tax rate to 12.1% compared with 10.1% in fiscal year 2007 is primarily due to changes in the Company’s geographic mix of income and other-than-temporary declines in the estimated fair value of our short-term investments. The Company did not derive a tax benefit from the other-than-temporary declines in the estimated fair value of short-term investments.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three Months Ended June 30, 2008 Compared with Three Months Ended June 30, 2007

Net Sales

Logitech’s Pointing Devices product family includes the Company’s mice, trackballs and other pointing devices. Keyboards and desktops include cordless and corded keyboards and desktops. Audio includes speakers and headset products for the PC, the home, and mobile entertainment platforms and wireless music systems; video is comprised of PC webcams and WiLife video security monitoring systems; gaming includes console and PC gaming peripherals; and remotes is comprised of the Company’s advanced remote controls.

Retail sales growth for the quarter ended June 30, 2008 was primarily attributable to strong contributions from pointing devices, gaming products and remotes. OEM sales were higher as a result of increased sales of our gaming peripherals. We achieved strong sales growth in spite of a very challenging retail environment as compared with the prior fiscal year. Approximately 50% of the Company’s sales were denominated in currencies other than the U.S. dollar in the three months ended June 30, 2008. Net sales growth benefited from favorable foreign currency exchange rate fluctuations during the quarter ended June 30, 2008. If foreign currency exchange rates in the three months ended June 30, 2008 were the same as in the three months ended June 30, 2007, our total sales increase would have been 12%. However the benefit does not consider the impact that currency fluctuations had on our pricing strategy, which may result in selling prices in one currency being raised or lowered to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions.

Retail Pointing Devices. Retail sales of the Company’s pointing devices increased 34% and units increased 29% in the three months ended June 30, 2008 as compared with the same period in the prior fiscal year. Sales of cordless mice increased 59% with units increasing 58%, primarily driven by sales of our VX Nano Cordless Laser Mouse for Notebooks and our V220 Cordless Optical Mouse for Notebooks. Sales of corded mice increased 15% and units increased 17% primarily due to an increase in sales of our notebook mice.

Retail Keyboards and Desktops. Sales of keyboards and desktops increased 15% and units increased 16% during the quarter ended June 30, 2008 as compared with the same quarter last year, primarily driven by sales of our Cordless Desktop MX 5500 Revolution and our Cordless Desktop Wave. Sales of diNovo Mini, our cordless mini-keyboard optimized for controlling PC entertainment also contributed to the growth.

Retail Audio. Retail audio sales declined 11% with a 13% decline in units. The decline was primarily due to lower PC speaker sales which decreased 20% during the quarter ended June 30, 2008, as compared with the same quarter in the prior fiscal year, primarily attributable to product transitions. Sales of our iPod speakers increased 15% primarily due to a strong contribution from our PureFi Anywhere speakers. PC headset sales grew 12%, driven by our new ClearChat Pro and ClearChat Comfort USB headsets.

Retail Video. Video sales increased 21% while units remained flat during the quarter as compared with last year, primarily attributable to a very strong demand for our high-end webcams, the QuickCam Pro 9000 and the QuickCam Pro for Notebooks. Our WiLife video monitoring products also made a strong contribution to the growth during the quarter.

Retail Gaming. Retail sales of our gaming peripherals increased 37% while units decreased 17% in the three months ended June 30, 2008 as compared with the same period in the prior fiscal year. PC gaming sales increased 24% primarily due to sales of our G15 gaming keyboard and our G25 racing wheel. Console gaming sales increased 61% primarily attributable to a strong demand for our new GT Driving Force Wheel which started shipping in the quarter ended June 30, 2008.

Retail Remotes. Retail remote sales increased 74% and units increased 77% during the quarter ended June 30, 2008 as compared with the prior year, primarily driven by strong sales of our new Harmony One remote control.

Retail Regional Performance. We achieved double-digit retail growth in all regions. Sales in our Asia Pacific region increased 41% and units increased 24%, primarily driven by growth in our remotes, gaming and pointing devices product lines. Our Americas region achieved retail sales growth of 10% and unit growth of 12%, driven primarily by sales of our remotes, video products and pointing devices. Sales in the EMEA region increased 20% with units increasing 6%, led by solid contributions from sales of remotes, cordless mice and gaming peripherals. The disparity between sales growth and unit growth in the Asia Pacific and EMEA regions was primarily due to product mix and currency fluctuations.

OEM. Sales of OEM products increased 15% and units increased 12%, primarily due to the continued success of our microphones for singing games for Playstation 3 and Wii. OEM mice sales increased 5%.

Gross Profit
Gross profit consists of net sales, less cost of goods sold which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, costs of purchasing components from outside suppliers, distribution costs and write-down of inventories.

Gross profit increased 20% in the three months ended June 30, 2008 compared with the same period in the prior fiscal year. The growth was primarily driven by a combination of a favorable product mix and on-going product cost reductions.

Marketing and Selling

Marketing and selling expense consists of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, customer and technical support and facilities costs.

Marketing and selling expenses increased 19% in the three months ended June 30, 2008 as compared with the same period in the prior fiscal year primarily due to increased personnel costs related to headcount additions during the last twelve months to support higher retail sales levels as well as increased merchandising and direct marketing expenses. Personnel costs increased 20% as compared with the quarter ended June 30, 2007. The impact of exchange rate changes on translation of foreign currency marketing and selling expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Euro and Swiss franc relative to the U.S. dollar, also contributed to the increase.

Research and Development

Research and development expense consists of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.

The increase in research and development expense reflects our commitment to continued investment in research and development initiatives, particularly in the control devices, remotes and video product lines. Personnel costs increased 13% during the quarter ended June 30, 2008 as compared with the same quarter last year due to headcount additions in the last twelve months. An increase in facilities and infrastructure costs also contributed to the increase in research and development expense. The impact of exchange rate changes on translation of foreign currency research and development expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Swiss franc and Taiwanese dollar relative to the U.S. dollar, also contributed to the increase.

General and Administrative

General and administrative expense consists primarily of personnel and related overhead and facilities costs for the finance, information systems, executive, human resources and legal functions.

General and administrative expense increased 22% primarily as a result of an increase in personnel expenses, occupancy costs and consulting costs. Personnel costs increased 19% during the quarter due to salary increases and promotions during the fourth quarter of fiscal year 2008. Rent expense also increased during the quarter due to expanded facilities. An increase in hardware and software maintenance expense also contributed to the increase in general and administrative expenses. The impact of exchange rate changes on translation of foreign currency general and administrative expenses to the Company’s U.S. dollar financial statements, particularly from the stronger Euro and Swiss franc relative to the U.S. dollar, also contributed to the increase.

Interest Income, Net

The provision for income taxes consists of income and withholding taxes. Logitech operates in multiple jurisdictions and its profits are taxed pursuant to tax laws of these jurisdictions. The Company’s effective income tax rate may be affected by changes in tax laws or interpretations of tax laws in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets.

The provision for income taxes for the three months ended June 30, 2008 and 2007 included a $1.0 million tax benefit related to share-based compensation expense.

The decrease in the effective tax rate to 10.8% in the first quarter of fiscal year 2009 compared with 11.2% in the same period in the prior fiscal year is primarily due to changes in the Company’s geographic mix of income.

Liquidity and Capital Resources

Cash Balances, Available Borrowings, and Capital Resources

At June 30, 2008, net working capital was $722.3 million, compared with $723.2 million at March 31, 2008. The slight decrease in working capital from March 31, 2008 was primarily due to a decrease in accounts receivable, partially offset by an increase in inventory.

During the three months ended June 30, 2008, operating activities generated cash of $43.6 million. Our largest source of operating cash flows was cash collections from our customers. We used $10.7 million in investing activities during the quarter, primarily due to capital expenditures for manufacturing equipment, leasehold improvements, tooling costs and computer hardware and software purchases. Net cash used in financing activities was $34.0 million. We used $49.0 million during the quarter ended June 30, 2008 to repurchase shares under our share buyback program while the exercise of stock options provided $10.9 million.

At June 30, 2008, we had cash and cash equivalents of $481.0 million and short-term investments of $3.4 million. Cash and cash equivalents are carried at cost, which is equivalent to fair value. Short-term investments are carried at fair value, determined by estimating the value of the underlying collateral using published mortgage indices or interest rate spreads for comparably rated collateral and applying discounted cash flow or option pricing methods to the estimated value. The Company considers the inputs used to measure the fair value of its short-term investments as Level 3 within the fair value hierarchy. Due to continued disruptions in the U.S. credit market, we recorded a $0.6 million impairment loss related to the other-than-temporary decline in the fair value of our short-term investments. Further changes in the fair value of the Company’s short-term investments would not materially affect the Company’s liquidity or capital resources.

The Company has credit lines with several European and Asian banks totaling $131.3 million as of June 30, 2008. As is common for businesses in European and Asian countries, these credit lines are uncommitted and unsecured. Despite the lack of formal commitments from the banks, we believe that these lines of credit will continue to be made available because of our long-standing relationships with these banks. At June 30, 2008, the Company had no outstanding borrowings under these lines of credit. There are no financial covenants under these facilities.

The Company has financed its operating and capital requirements primarily through cash flow from operations and, to a lesser extent, from capital markets and bank borrowings. The Company’s normal short-term liquidity and long-term capital resource requirements are provided from three sources: cash flow generated from operations, cash and cash equivalents on hand, and borrowings, as needed, under our credit facilities.

During the three months ended June 30, 2008, we repurchased 1.6 million shares for $49.0 million under the Company’s June 2007 buyback program. The sale of shares upon exercise of options pursuant to the Company’s stock plans realized $10.9 million. In addition, cash of $4.1 million was provided by tax benefits recognized on the exercise of share-based payment awards.

During the three months ended June 30, 2007, we repaid in full our short-term debt borrowings of $11.7 million. We also repurchased 1.9 million shares for $52.0 million under our May 2006 and June 2007 buyback programs. The sale of shares upon exercise of options realized $11.1 million. In addition, cash of $4.4 million was provided by tax benefits recognized on the exercise of share-based payment awards.

Cash Outlook

We have financed our operations and capital requirements primarily through cash flow from operations and, to a lesser extent, capital markets and bank borrowings. Our working capital requirements and capital expenditures may increase to support future expansion of Logitech operations. Future acquisitions or expansion of our operations may be significant and may require the use of cash.

In June 2007, we announced the approval by the board of directors of a new share buyback program authorizing the repurchase of up to $250 million of our shares. The approved amount remaining under the June 2007 program at June 30, 2008 was $155.8 million. We plan to continue repurchasing shares under this program.

We believe that our cash and cash equivalents, cash flow generated from operations, and available borrowings under our bank lines of credit will be sufficient to fund capital expenditures and working capital needs for the foreseeable future.

Contractual Obligations and Commitments

As of June 30, 2008, the Company’s outstanding contractual obligations and commitments included: (i) equipment financed under capital leases, (ii) facilities leased under operating lease commitments, (iii) purchase commitments and obligations and (iv) long-term liabilities for income taxes payable.

We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations. At June 30, 2008, fixed purchase commitments for capital expenditures amounted to $14.4 million, and primarily related to commitments for manufacturing equipment, tooling, computer software and computer hardware. We also have commitments for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers. At June 30, 2008, fixed purchase commitments for inventory amounted to $220.3 million, which are expected to be fulfilled by March 31, 2009. We also had other commitments of $46.1 million for consulting, marketing arrangements, advertising and other services. Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us the option to reschedule and adjust our requirements based on business needs prior to the delivery of the purchases.


CONF CALL

Joe Greenhalgh

[Audio Break] Presentation slides are available online at logitech.com.

This conference call will include forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995, including forward-looking statements with respect to future operating results. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from that anticipated in the statements.

Factors that could cause actual results to differ materially include those set forth in Logitech’s Annual Report on Form 10-K dated May 30, 2008 the subsequent fillings available online on the SEC EDGAR database, and in the final paragraph of the press release reporting second quarter results issued by Logitech and available at logitech.com. The press release also contains the company financial information for this call.

Forward-looking statements made during this call represent management’s outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

I would like to remind you this call is being recorded, including the question-and-answer portion, and will be available for replay on the Logitech website. Those of you just joining us, let me repeat the presentation slides accompanying this call are also available on our website.

Joining us today are Jerry Quindlen, Logitech’s President and Chief Executive Officer and in Fremont, Mark Hawkins, Senior Vice President of Finance and Information Technology and Chief Financial Officer. I’d now like to turn the call over to Mark.

Mark Hawkins

Thank you, Joe. Let me start with an overview of our Q2 performance. We delivered double-digit sales growth in what has become an increasing challenging environment. Our sales grew 12%, reaching a record high for Q2, with a growth led by OEM in Asia. Our sales growth was restrained by 11% decline in the Americas.

Our operating income was essentially flat compared to the prior year the 6% growth in our gross profit was outpaced by the 9% in our operating expenses. We ended quarter with $459 million in net cash and we generated $40 million in cash flow from operations.

Gross margins, our gross margin was 34.3%, it was up 20 basis point sequentially, but down from 36.3% last year. The gross margin decline was primarily due to a combination of two factors; one, higher labor and material input cost and two, more OEM sales in the overall sales mix.

Let’s turn to operating and net income. The sales decline in the Americas was a major factor and our flat operating income. The September quarter is typically our most back-end loaded quarter of the year and the extent of the weakness of our sales into the channel in the Americas did become fully evident. Until the last month of the quarter, as our channel partners reacted to the softening economic conditions.

As soon as we became aware of the situation, we took the appropriate steps to moderate our spending across the company. The impact of some of these actions to moderate our spending was evident in Q2, which have the lowest growth rate and more than three years, but because it was relatively late in the quarter, we were not able to achieve complete alignment, between our operating expense growth and our gross profit growth.

The full effect of our actions to moderate spending will be evident as we moved through of the second-half of the fiscal year. If we look at net income, we delivered $72 million, which was down that by 8% compared to the prior year excluding last year’s short-term impairment loss.

The decline in net income, compared to our non-GAAP net income in the prior year was due to the combination of earning less interest income having lower other income and are slightly higher tax rate of 4.1%.

Now before commenting on the balance sheet, I want to briefly address the exchange rates. In Q2, excluding the favorable impact of exchange rate changes, our total sales retail in OEM combined grew by 9%. Notwithstanding our ability to modify prices at local currencies overtime to maintain priority with U.S. dollar.

Cash, our cash position, including short-term investments was $459 million. Our cash position improved by $92 million compared to the prior year, now when comparing to the prior year, it’s important to note that during the last 12 months, we used $56 million for the acquisition of WiLife and Ultimate Ears and $202 million for share repurchases.

Our cash flow from operations for the quarter was $48 million. This was a decrease of $61 million compared to Q2 of the last year. Primarily due to the dramatic improvement we made and our cash conversion cycle, in Q2 of the prior year. As a remainder our cash conversion cycle in Q2 of this year was 47 days, 1-day higher than the same quarter last year and 6 days lower sequentially and that’s compared to in Q2 of the prior year we deliver a 24-day sequential improvement, which was a rate of change that was clearly on sustainable given the significant improvements we made in our working capital management over the last two years.

Inventory. Our inventory was up by 23% or $16 million compared to September of the prior year. Our inventory turns were 5.4 down from 5.8 in the prior year and one of the factors causing the slower turns with the late quarter weakness in the orders New America’s. DSO. Our DSO was 63 days for the quarter, a 1-day improvement compared to the 64 days in the prior year. If return to share repurchases during Q2, we repurchased 1,051,000 million shares for $27 million. We owned approximately 6.9% of our shares outstanding and we have roughly 129 million remaining under our current repurchase program.

Now please note that the growth percentages that follow are in comparison to our Q2 fiscal 2008. Now let’s discuss net sales by product family starting with retail. Our retail sales grew by 5% with units up 8%. And we saw continued to strong double-digit in Asia was sales up by 35% last sales in EMEA grew 8% and the Americas decline by a 11%. Our retail sales pointing devices, it was a strong quarter for pointing devices with sales up by 16% and units by 21. The primary growth driver was cordless mice with sales up by 25% in units by 26.

Now we achieved double-digit growth across all major prices stands led by sales and both the low-end and the high-end of cordless mice. The low-end growth was driven by sustain strong demand for our V320 cordless optical mice well two of the key growth driver in the high-end of the VX Nano and MX 1100. The one of our newest notebook mice that be 550 Nano also made a solid contribution to our cordless mice growth. We had solid quarter in cordless mice with sales up by 14% and units by 21%, with the growth driven by notebook mice.

If I turn to you, retail sales keyboards and desktops. Our sales in the keyboards and desktops category declined by 5%, the weakness in the category was most pronounced in the Americas were sales fell by more than 20% with the biggest decline coming in desktops, nonetheless there were several bright spots in the keyboard and desktop categories as well. For example, we experienced strong growth at the high-end of the cordless desktop category driven primarily by our Cordless Desktop MX 5500 Revolution and our new cordless desktop Wave Pro.

Also it was our best quarter ever for the standalone keyboard sales, which sales up by 19% in both EMEA and Asia delivering strong growth, and we had a solid contribution from the sales of diNovo Mini, our cordless mini keyboard optimized for controlling PC entertainment.

Retail sales, audio, the sales in the audio category declined by 6%, while units were flat. The decline was in speakers where our sales fell by 14% due to weakness in both the PC and iPod speaker categories. Let me expand; our PC speaker sales were down by 15% with the decline experienced across most of the price band and particularly at the high-end of the category.

PC speakers were especially weak in the Americas. Now sales in our iPod speakers, declined by 6% with softness both in the Americas and EMEA. It was a solid quarter for our PC headsets or with sales increasing by 11%. Our wireless PC headset the ClearChat PC wireless made a major contribution to the growth and it was our best quarter yet for our Squeezebox family of media streaming products.

I might note that we are pleased with the initial demand for our Squeezebox Boom our All in One Network Music Player, which debuted in September. Our recently acquired Ultimate Ears line of in-ear monitors and earphones made their initial contribution to sales in the audio category.

If I turn to retail sales for video, our video sales were up by 9% and we experienced growth across all regions. It was another very strong quarter for our high-end webcam, the QuickCam Pro 9000. We saw accelerating momentum with the WiLife family of video security products with sales nearly doubling sequentially, as we launched the products in EMEA.

Retail sales gaming. Our gaming sales grew by 9% with growth in both PC and console. Now our PC gaming sales increased by 2% and we experienced strong double-digit growth in the gaming keyboard category led by the sales of our G15 Keyboard. Turning to our Console gaming, that was up by 40% and then majority of this growth in the category was generated by steering wheels led by GT Driving Force Wheel. If you look at retail sales for remotes, it was a solid quarter for remotes with sales up by 17% and units by 49 and we delivered very strong growth in both EMEA and Asia. Now the growth was primarily driven by a continued strong demand for Harmony One.

If I look at our OEM, it was our best quarter ever for OEM with sales up by 56% and the majority of this growth was once again in the Console gaming category, driven by our microphones for singing games and I might note, that our Console microphone sales, more than tripled compared with the prior year and the sales of embedded video modules for notebooks also contributed to our growth in OEM.

So in conclusion, it was our best Q2 ever for sales. We achieved 12% growth in a very challenging environment, with growth restrained by a decline in the Americas and we ended the quarter with a very strong balance sheet including a cash balance in excess of $450 million.

Now before I conclude my comments, I want to remind you that our next analyst and investor meeting is scheduled for November 12, in London. We hope you’ll be able to join us. Let me now turn the call over to Jerry.

Gerald Quindlen

Thank you, Mark and thanks again to all of you for joining us. On balance, I’m pleased with the company’s performance in Q2 and particularly with achieving double-digit sales growth and orders becoming increasing challenging operating environment. There were a number of highlights during the quarter. Starting with sales, it was great to see us deliver our best quarter ever in OEM. We also continued to see a very strong growth in Asia, with our fourth consecutive quarter of growth in excess of 30%.

When you add in the growth in EMEA, we more than offset the decline in the Americas. This is a compelling example of the resilience of our geographic and channel diversification.

Remotes, was our fastest growing retail category, what I was most pleased with in this category was the rapid unit growth. With units growing nearly three times as fast to sales. This is a clear indicator the demand in the category remained strong. I was also pleased to see the continued double digit growth in EMEA as well as accelerating momentum in Asia.

We delivered double-digit growth in pointing devices, with the majority of the growth driven by our sales of mice for notebooks. We continue to leverage the opportunity provided by the popularity of notebook computers, at sales of our family of notebook peripherals increased by 24% compared to the prior year.

Another highlight for the quarter was our successful launch of our large number of new products. The operational and logistical complexicity associated with the worldwide rollout of many new products across multiple categories is significant and our ability to manage this complexity with the major neighbor of our top line performance. I was also very pleased with our ability to deliver a gross margin of more than 34%. The decline in our gross margin compared to the prior year obviously restrains our gross profit growth, but that really sales more about the unusually high level it reached last year and it does about our performance this year.

Now rising input cost or having some impact on our margin, but we continue to do an effective job of managing these increasing pressures where ever possible. As it was the case in Q1 during Q2 we utilized our strong gross margin in a targeted way to stimulate demand and select product categories and markets. During the second half of the year we expect to continue to take advantage of the flexibility our strong gross margins provides us to drive sales growth through targeted promotional efforts wherever appropriate.

Let me spend a minute talking about the Americas which had a disappointing quarter. There are two primary factors that drove the decline. The first is a pronounced weakness PC Speaker category. Our PC Speaker lineup performed very poorly in the Americas during Q2 down and access of 40%. As we discussed during last quarters call we understand the issues in this product category and we are addressing them, but it will be fiscal 2010 before we fully rolled out or improved product offerings. The second factor was our customer’s response to the rapidly deteriorating economic conditions which had an impact across multiple product categories.

Now as Mark as already indicated the September quarter is our least linear and many of the orders that we expected to receive late in the quarter didn’t materialize as our customers became increasingly cautious about taking on additional inventory given the uncertain economic climate. The good news as we did experience solid growth in the sell through of our products during the whole quarter.

Let me comment on what we see going forward. The state of the economy and its impact on consumers is not something we can control what we can and will do is focus on leveraging our competitive strength while prudently adjusting our spending plans to reflect the environment we are in. In our core markets we typically enjoy the largest shelf space in most of our categories which provides us with the key competitive advantage. Our experience during previous economic downturn is that our retail partners rely on us even more to help them drive strong performance at the point of sale. They depend on and appreciate our willingness to sustain our innovation focused during challenging times and our track record for consistently driving growth.

Our mission has long bench to provide the consumer with the best product at any given price point. With more than 80% of our retail sales coming from products selling at price points below $100 during the first half of fiscal 2009. We are very well positioned to offer consumers premium products at a wide range of affordable price point even during in economic downturn.

Let me shift to our products. We launched the number of new products during Q2; I’m personally very excited about the potential for these products to drive growth in the months to come. I want to briefly address the opportunities by category. We’ve had strong success in pointing devices for the last several quarters, primarily driven by our line of Cordless Mice for Notebooks.

During Q2, we launched our latest mouse targeted for notebook users, the V550 Nano Cordless Laser Mouse for notebooks, featuring both our innovative plug-and-forget nano-receiver as well as Clip-and-Go dock. This unabrasive dock lets you conveniently clip the 550 mouse to your laptop and then take it with you. We also introduced the MX 1100 Cordless Laser Mouse an elegantly contoured full-size mouse design for maximum comfort that features adjustable DPI.

The MX 1100, it’s also included with our newest cordless desktop. The Cordless Desktop Wave Pro, the second generation of the popular Wave Pro Keyboard features improved wireless technology that delivers a three year keyboard battery life as well as 128-bit AES encryption for advanced security. We also launched the rechargeable diNovo Edge Mac Edition. The first ultra slim and stylish diNovo keyboard especially designed for the growing days of Mac users. On the standalone keyboard side, we also introduced the Logitech Illuminated Keyboard, which features optimized backlight technology and our finished design ever.

Moving now to audio, the softness that we identified in Q1 continued in Q2 and continues to be related to product gaps in PC speakers. The so called 2.0 form factor featuring two speakers, but no subwoofer is the fastest growing segment of the PC speaker market and we begun to improve our competitive positioning in this segment with the Q2 launch of our Z-5 omnidirectional stereo speakers.

We also strengthened our product line up in the iPod speaker space with two new offerings, Pure-Fi Express Plus, our high-performance Docking Station and Pure-Fi anytime, a premium alarm clock for iPod and iPhone. All of these speakers are affordably priced below $100. We continue to see accelerating growth with our Squeezebox products with our newest offerings Squeezebox Boom generating strong initial demand.

During Q2 we also acquired Ultimate Ears. The leader and professional in-ear monitors and consumer earphones for music listing. We believe Ultimate Ears is the perfect fit for Logitech in our audio business, enabling us to provide consumers with even more options for portable music listening. We are already using our worldwide distribution network and operational efficiencies to grow this business as we make this superior listening experience available to a much broader audience.

Turning to video, I see it’s sustaining our momentum. Our current product lineup, which we refreshed during the June quarter, is quite strong. Our primary opportunity in webcams remains to grow the overall category. We planned to continue doing this in a variety of ways, including utilizing marketing programs designed to raise consumer awareness of the simplicity and richness of video communication and momentum continues to build in our Digital Video Security category. We continued to deliver growth in the gaming category, primarily due to strong demand for our steering wheels, including our new Racing Wheel for Gran Turismo 5.

During Q2, we expanded our offerings for the Wii platform with the launch of our Speed Force Wireless with racing wheel. We also announced a collaboration with Activision, to develop the market premium instrument controllers for Guitar Hero World Tour. Now, while you have to wait a bit longer to hear the specifics on the retail side. During Q2, we saw the initial fruits of this relationship on the OEM side, as we shipped our first microphones to be bundled with this upcoming title.

Turning now to remotes, the Harmony One continues to be well received and are making solid progress growing the category in EMEA and Asia. We’ve remained focused on both further improving the consumer’s setup and usage experience and arising consumer awareness of our category leading offerings. We continued to use the flexibility provided by our gross margins for targeted promotional efforts aimed at driving top line growth.

Shifting to a regional perspective, we have yet to see indications that conditions in the Americas have improved, compared to what we saw at the end of Q2. Our plans currently assume that this relatively weak macroeconomic environment will continue for the remainder of our fiscal year. Our outlook anticipates that the economy will have an impact on the European consumer as well. We don’t expect the same level of softness we see in North America, but we believe it’s more or likely than not the European consumers will become more cautious in their spending in the short-term.

Given our reduced expectations for growth in the retail environment, we’ve taken steps to significantly moderate our spending through the remainder of the fiscal year. We’re planning for most of this containment to be in the sales and marketing and G&A functions.

I do want to emphasize that we had no plans to significantly limit our investment in R&D. Developing innovative new products, is at the core of our strategy and we are firmly committed to sustaining our investments in R&D to drive future growth. That brings me to our outlook for fiscal 2009. Before reaching changes in the financial industry over the last several months have left the economy an uncharted territory, how all of its will play out and how it will impact in similar buying behavior remains to be same.

Given the pervasive economic uncertainty, both in North America and Europe, we are tempering our outlook for growth for Fiscal 2009. We now target growth of 6% to 8% in sales and 3% to 5% in operating income revised from our original target of 15% growth for both. We continue to expect our gross margins to be above its long-term target range of 32% to 34%.

Let me close by highlighting the most important points I would like you to takeaway from my comments. Our lowered targets are a direct reflection of unprecedented macroeconomic conditions, but we remained focused on driving profitable growth in the current fiscal year. Our long-term business model is sound. We remained bullish on and committed to the opportunities across all of our product categories, and we are very well positioned to return to annual growth in the mid-teens when conditions improve. At this point I would like to open the call to your questions please follow the instructions of the operator.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

14141 Views