Logitech Delivers Better-Than-Expected Q3 FY 2014 Results, Raises Full-Year Outlook

Turnaround on Track with Retail Sales Up 4% and Significant Profit Improvement

Logitech International (LOGN.SW)(LOGI) today announced financial results for the third quarter of Fiscal Year 2014, with better-than-expected total sales of $628 million, up 2 percent compared to the third quarter of the prior year. Q3 GAAP operating income was $53 million, with GAAP earnings per share (EPS) of $0.30 compared to a loss a year ago. Q3 non-GAAP operating income was $67 million, with non-GAAP EPS of $0.35, up 84 percent year over year. Cash flow from operations for Q3 was $94 million.

Retail sales for Q3 were up 4 percent year over year. Combined, Logitech’s retail growth categories delivered 62 percent growth compared to the prior year.

Tablet Accessories sales grew 95%
Audio – Wearables and Wireless sales grew 79%
PC Gaming sales grew 25%

“We’re pleased by our solid Q3 performance, with both sales and profit growth,” said Bracken P. Darrell, Logitech president and chief executive officer. “We’re encouraged by the robust sales in our growth categories, as well as the success of our ongoing initiatives to improve profitability, which includes the earlier-than-expected return to profitability of LifeSize. We still have more work ahead, but our turnaround is on track as we continue to build a faster and more profitable Logitech.”

Outlook

Based on its Q3 performance, Logitech has raised its full-year outlook for Fiscal Year 2014. The Company now expects sales of just under $2.1 billion, compared to the previously expected $2.0 billion, and non-GAAP operating income in the range of $120 million to $125 million, compared to the previously expected $100 million.

Prepared Remarks Available Online

Logitech has made its prepared written remarks for the financial results teleconference available online on the Logitech corporate Web site at http://ir.logitech.com, in the Calendar section.

Financial Results Teleconference and Webcast

Logitech will hold a financial results teleconference to discuss the results for Q3 FY 2014 on Thurs., Jan. 23, 2014 at 8:30 a.m. Eastern Standard Time and 14:30 Central European Time. A live webcast of the call will be available on the Logitech corporate website at http://ir.logitech.com.

Logitech also will hold its Analyst and Investor Day on Thurs., March 6, 2014 in New York City.

Use of Non-GAAP Financial Information

To facilitate comparisons to Logitech’s historical results, Logitech has included non-GAAP adjusted measures, which exclude share-based compensation expense, amortization of other intangible assets, restructuring charges (credits), other restructuring-related charges, investment impairment (recovery) and other items detailed under “Supplemental Financial Information” after the tables below. Logitech believes this information will help investors to evaluate its current period performance and trends in its business.

About Logitech

Logitech is a world leader in products that connect people to the digital experiences they care about. Spanning multiple computing, communication and entertainment platforms, Logitech’s combined hardware and software enable or enhance digital navigation, music and video entertainment, gaming, social networking, audio and video communication over the Internet, video security and home-entertainment control. Founded in 1981, Logitech International is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI).

This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding: the Company’s turnaround, growth categories, sales, profit growth and profitability, as well as Fiscal Year 2014 revenue and operating income. The forward-looking statements in this release involve risks and uncertainties that could cause Logitech’s actual results and events to differ materially from those anticipated in these forward-looking statements, including, without limitation: if our product offerings, marketing activities and investment prioritization decisions do not result in the sales, profitability or profitability growth we expect, or when we expect it; the demand of our customers and our consumers for our products and our ability to accurately forecast it; if we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories; if we do not successfully execute on our growth opportunities in our new product categories and sales in emerging market geographies; if sales of PC peripherals in mature markets are less than we expect; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; if our products and marketing strategies fail to separate our products from competitors’ products; if there is a deterioration of business and economic conditions in one or more of our sales regions or operating segments, or significant fluctuations in exchange rates. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Logitech’s periodic filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013 and our Amended Annual Report on Form 10-K/A for the fiscal year ended March 31, 2013, available at www.sec.gov, under the caption Risk Factors and elsewhere. Logitech does not undertake any obligation to update any forward-looking statements to reflect new information or events or circumstances occurring after the date of this press release.

Logitech, the Logitech logo, and other Logitech marks are registered in Switzerland and other countries. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the company’s Web site at www.logitech.com.


LOGITECH INTERNATIONAL S.A.

(In thousands, except per share amounts) - Unaudited

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
CONSOLIDATED STATEMENTS OF OPERATIONS	2013			2012			2013			2012
				(revised)^(A)						(revised)^(A)

Net sales	$	627,890		$	614,500		$	1,637,786		$	1,630,797
Cost of goods sold		414,528			404,695			1,072,656			1,079,872
Gross profit		213,362			209,805			565,130			550,925
% of net sales		34.0	%		34.1	%		34.5	%		33.8	%

Operating expenses:
Marketing and selling		93,624			112,698			287,969			324,117
Research and development		34,103			40,488			107,927			117,625
General and administrative		31,560			26,382			90,103			84,842
Goodwill impairment		-			211,000			-			211,000
Restructuring charges (reversals), net		822			(358	)		8,621			28,198
Total operating expenses		160,109			390,210			494,620			765,782

Operating income (loss)		53,253			(180,405	)		70,510			(214,857	)

Interest income (expense), net		(1,022	)		114			(862	)		651
Other income (expense), net		1,082			(3,670	)		1,361			(4,338	)

Income (loss) before income taxes		53,313			(183,961	)		71,009			(218,544	)
Provision for (benefit from) income taxes		4,810			11,370			7,065			(26,616	)

Net income (loss)	$	48,503		$	(195,331	)	$	63,944		$	(191,928	)

Net income (loss) per share:
Basic	$	0.30		$	(1.24	)	$	0.40		$	(1.21	)
Diluted	$	0.30		$	(1.24	)	$	0.40		$	(1.21	)
Shares used to compute net income (loss) per share :
Basic		160,871			157,706			160,051			158,383
Diluted		163,388			157,706			161,509			158,383


LOGITECH INTERNATIONAL S.A.

(In thousands) - Unaudited

	December 31,		March 31,		December 31,
CONSOLIDATED BALANCE SHEETS	2013		2013		2012
			^(A)		(revised)^(A)
Current assets:
Cash and cash equivalents	$	379,865	$	333,824	$	321,999
Accounts receivable, net		312,947		179,565		264,589
Inventories		257,998		261,083		277,477
Other current assets		60,979		58,103		61,600
Assets held for sale		-		10,960		15,655
Total current assets		1,011,789		843,535		941,320
Non-current assets:
Property, plant and equipment, net		87,494		87,649		89,128
Goodwill		345,036		341,357		345,235
Other intangible assets		13,319		26,024		35,033
Other assets		71,322		75,098		76,719
Total assets	$	1,528,960	$	1,373,663	$	1,487,435

Current liabilities:
Accounts payable	$	328,757	$	265,995	$	339,283
Accrued and other current liabilities		234,297		192,774		217,095
Liabilities held for sale		-		3,202		3,725
Total current liabilities		563,054		461,971		560,103
Non-current liabilities:		200,797		195,882		195,687
Total liabilities		763,851		657,853		755,790

Total shareholders' equity		765,109		715,810		731,645

Total liabilities and shareholders' equity	$	1,528,960	$	1,373,663	$	1,487,435


LOGITECH INTERNATIONAL S.A.

(In thousands) - Unaudited

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS	2013			2012			2013			2012
				(revised)^(A)						(revised)^(A)
Operating activities:
Net income (loss)	$	48,503		$	(195,331	)	$	63,944		$	(191,928	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation		9,473			11,554			28,756			33,861
Amortization of other intangible assets		4,472			5,823			14,990			18,412
Share-based compensation expense		8,913			5,222			17,412			18,659
Goodwill impairment		-			211,000			-			211,000
Impairment of strategic investment		38			3,600			568			3,600
Loss on disposal of property, plant and equipment		1,422			-			3,878			-
Gain on sale of securities		-			-			-			(831	)
Excess tax benefits from share-based compensation		(572	)		(4	)		(572	)		(26	)
Deferred income taxes and other		343			13,204			(3,559	)		9,398
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net		(53,223	)		16,962			(130,265	)		(41,571	)
Inventories		36,002			32,177			14,652			352
Other assets		2,925			5,138			(2,968	)		(2,432	)
Accounts payable		23,376			(29,202	)		62,931			41,893
Accrued and other liabilities		12,027			14,958			38,118			3,961
Net cash provided by operating activities		93,699			95,101			107,885			104,348

Investing activities:
Purchases of property, plant and equipment		(9,033	)		(9,215	)		(32,096	)		(42,032	)
Purchase of strategic investment		-			-			-			(3,970	)
Acquisitions, net of cash acquired		-			-			(650	)		-
Proceeds from sales of available-for-sale securities		-			-			-			917
Proceeds from return of investment in privately held companies		261			-			261			-
Purchases of trading investments for deferred compensation plan		(1,685	)		(646	)		(7,831	)		(2,294	)
Proceeds from sales of trading investments for deferred compensation plan		1,709			671			8,311			2,309
Net cash used in investing activities		(8,748	)		(9,190	)		(32,005	)		(45,070	)

Financing activities:
Payment of cash dividends		-			-			(36,123	)		(133,462	)
Purchases of treasury shares		-			-			-			(87,812	)
Proceeds from sales of shares upon exercise of options and purchase rights		2,330			(165	)		8,465			8,843
Tax withholdings related to net share settlements of restricted stock units		(2,484	)		(1,360	)		(2,937	)		(1,995	)
Excess tax benefits from share-based compensation		572			4			572			26
Net cash provided by (used in) financing activities		418			(1,521	)		(30,023	)		(214,400	)

Effect of exchange rate changes on cash and cash equivalents		(300	)		576			184			(1,249	)
Net increase (decrease) in cash and cash equivalents		85,069			84,966			46,041			(156,371	)
Cash and cash equivalents, beginning of the period		294,796			237,033			333,824			478,370
Cash and cash equivalents, end of the period	$	379,865		$	321,999		$	379,865		$	321,999


LOGITECH INTERNATIONAL S.A.

(In thousands, except per share amounts) - Unaudited

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
SUPPLEMENTAL FINANCIAL INFORMATION^(B)	2013			2012			2013			2012
				(revised)^(A)						(revised)^(A)

Gross profit - GAAP	$	213,362		$	209,805		$	565,130		$	550,925
Share-based compensation expense		672			704			1,843			2,101
Amortization of other intangible assets		2,190			3,283			7,361			10,746
Restructuring-related charges		-			-			5,194			3,315
Gross profit - Non-GAAP	$	216,224		$	213,792		$	579,528		$	567,087

Gross margin - GAAP		34.0	%		34.1	%		34.5	%		33.8	%
Gross margin - Non-GAAP		34.4	%		34.8	%		35.4	%		34.8	%

Operating expenses - GAAP	$	160,109		$	390,210		$	494,620		$	765,782
Less: Share-based compensation expense		8,241			4,518			15,569			16,558
Less: Amortization of other intangible assets		2,282			2,540			7,629			7,666
Less: Goodwill impairment		-			211,000			-			211,000
Less: Restructuring charges (reversals), net		822			(358	)		8,621			28,198
Less: Restructuring-related charges		-			-			-			1,946
Operating expenses - Non-GAAP	$	148,764		$	172,510		$	462,801		$	500,414

% of net sales - GAAP		25.5	%		63.5	%		30.2	%		47.0	%
% of net sales - Non - GAAP		23.7	%		28.1	%		28.3	%		30.7	%

Operating expenses - GAAP	$	160,109		$	390,210		$	494,620		$	765,782
Less: Restructuring charges (reversals), net		822			(358	)		8,621			28,198
Operating expenses excluding restructuring charges - Non-GAAP	$	159,287		$	390,568		$	485,999		$	737,584

Operating income (loss) - GAAP	$	53,253		$	(180,405	)	$	70,510		$	(214,857	)
Share-based compensation expense		8,913			5,222			17,412			18,659
Amortization of other intangible assets		4,472			5,823			14,990			18,412
Goodwill Impairment		-			211,000			-			211,000
Restructuring charges (reversals), net		822			(358	)		8,621			28,198
Restructuring-related charges		-			-			5,194			5,261
Operating income (loss) - Non - GAAP	$	67,460		$	41,282		$	116,727		$	66,673

% of net sales - GAAP		8.5	%		-29.4	%		4.3	%		-13.2	%
% of net sales - Non - GAAP		10.7	%		6.7	%		7.1	%		4.1	%

Net income - GAAP	$	48,503		$	(195,331	)	$	63,944		$	(191,928	)
Share-based compensation expense		8,913			5,222			17,412			18,659
Amortization of other intangible assets		4,472			5,823			14,990			18,412
Goodwill impairment		-			211,000			-			211,000
Restructuring charges (reversals), net		822			(358	)		8,621			28,198
Restructuring-related charges		-			-			5,194			5,261
Investment impairment (recovery), net		38			3,600			147			3,600
Benefit from (provision for) income taxes		(4,803	)		25			(10,171	)		(44,891	)
Net income - Non - GAAP		57,945			29,981			100,137			48,311

Net income per share:
Diluted - GAAP	$	0.30		$	(1.24	)	$	0.40		$	(1.21	)
Diluted - Non - GAAP	$	0.35		$	0.19		$	0.62		$	0.30

Shares used to compute net income per share:
Diluted - GAAP		163,388			157,706			161,509			158,383
Diluted - Non-GAAP		163,388			158,391			161,509			159,146

Net sales by channel:
Retail	$	563,391		$	542,388		$	1,441,481		$	1,413,968
OEM		34,542			35,300			106,581			108,693
Video conferencing		29,957			36,812			89,724			108,136
Total net sales	$	627,890		$	614,500		$	1,637,786		$	1,630,797

Net retail sales by product family^(*):
Pointing devices	$	141,757		$	153,921		$	387,064		$	392,275
PC keyboards & desktops		108,339			110,671			311,525			302,299
Tablet & other accessories		77,010			39,398			150,280			89,021
Audio - PC		66,594			75,366			185,759			214,158
Audio - wearables and wireless		42,154			23,577			86,877			57,284
Video		38,154			41,776			105,741			116,835
PC gaming		56,214			45,111			137,324			118,567
Remotes		26,049			30,094			53,950			60,260
Other		7,120			22,474			22,961			63,269
Total net retail sales	$	563,391		$	542,388		$	1,441,481		$	1,413,968
__________________
*Certain products within the retail product families as presented in prior years have been reclassified to conform to the current year presentation, with no impact on previously reported total net retail sales.

Share-based Compensation Expense
Cost of goods sold	$	672		$	704		$	1,843		$	2,101
Research and development		1,906			2,430			3,840			6,018
Marketing and selling		3,057			953			5,980			5,377
General and administrative		3,278			1,135			5,749			5,163
Income tax benefit		(168	)		(1,043	)		(2,343	)		(4,090	)
Total share-based compensation expense after income taxes	$	8,745		$	4,179		$	15,069		$	14,569

(A)				In the first quarter of fiscal year 2014, the Company identified errors related to the accounting for its product warranty liability, amortization expense of certain intangible assets and other out-of-period adjustments. The errors impacted prior reporting periods, starting prior to fiscal year 2009. While these errors are not material to any previously issued annual or quarterly consolidated financial statements, management concluded that correcting the cumulative errors and related tax effects, which amounted to $19.1 million, in the first quarter of fiscal year 2014 would be material to the consolidated financial statements for the first quarter of fiscal year 2014 and to the expected results of operations for the fiscal year ending March 31, 2014. Accordingly, the Company revised its prior period annual and quarterly consolidated financial statements as reflected in this earnings release.

(B)				Non-GAAP Financial Measures

				To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use a number of financial measures, both GAAP and non-GAAP, in analyzing and assessing our overall business performance, for making operating decisions and for forecasting and planning future periods. We consider the use of non-GAAP financial measures helpful in assessing our current financial performance, ongoing operations and prospects for the future as well as understanding financial and business trends relating to our financial condition and results of operations.

				While we use non-GAAP financial measures as a tool to enhance our understanding of certain aspects of our financial performance and to provide incremental insight into the underlying factors and trends affecting both our performance and our cash-generating potential, we do not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides useful supplemental data that, while not a substitute for GAAP financial measures, can offer insight in the review of our financial and operational performance and enables investors to more fully understand trends in our current and future performance. In assessing our business during the three and nine months ended December 31, 2013, we excluded items in the following general categories, each of which are described below:

				Share-based compensation expenses. We believe that providing non-GAAP measures excluding share-based compensation expense, in addition to the GAAP measures, allows for a more transparent comparison of our financial results from period to period. We prepare and maintain our budgets and forecasts for future periods on a basis consistent with this non-GAAP financial measure. Further, companies use a variety of types of equity awards as well as a variety of methodologies, assumptions and estimates to determine share-based compensation expense. We believe that excluding share-based compensation expense enhances our ability and the ability of investors to understand the impact of non-cash share-based compensation on our operating results and to compare our results against the results of other companies.

				Amortization of other intangible assets. We incur intangible asset amortization expense, primarily in connection with our acquisitions of various businesses and technologies. The amortization of purchased intangibles varies depending on the level of acquisition activity. We exclude these various charges in budgeting, planning and forecasting future periods and we believe that providing the non-GAAP measures excluding these various non-cash charges, as well as the GAAP measures, provides additional insight when comparing our operating expenses and financial results from period to period.

				Restructuring and restructuring-related charges. These expenses are associated with re-aligning our business strategies based on current economic conditions. We have undertaken several restructurings in recent years. In connection with our restructuring initiatives, we incurred restructuring charges related to employee terminations, facility closures and early cancellation of certain contracts. Our restructuring initiatives also resulted in other costs related to restructurings not qualifying for inclusion in restructuring charges. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operating results in the current period.

				Other charges. We provided non-GAAP measures excluding the effect of certain charges and income that are not reflective of our ongoing operations.

				Each of the non-GAAP financial measures described above, and used in this press release, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and may be reflected in the Company’s financial results for the foreseeable future. We compensate for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, we evaluate the non-GAAP financial measures together with the most directly comparable GAAP financial information.

(LOGIIR)

Contact:

Logitech International
Joe Greenhalgh
Vice President, Investor Relations – USA
510-713-4430
or
Nancy Morrison
Vice President, Corporate Communications – USA
510-713-4948
or
Laura Scorza
Sr. Public Relations Manager – Europe
+41-(0) 21-863-5336

Logitech International ( LOGI )

Logitech Delivers Better-Than-Expected Q3 FY 2014 Results, Raises Full-Year Outlook