Logitech Delivers Best-Ever Q2 Sales and Profit

Logitech International (Nasdaq:LOGI) (SWX:LOGN) today announced record Q2 sales and profit, posting its thirty-second consecutive quarter of double-digit revenue growth. Sales for the second quarter of Fiscal Year 2007, ended September 30, 2006, were $502 million, up 19 percent from $422 million for the same quarter one year ago. For Q2, GAAP operating income was $52 million, an increase of 36 percent over Q2 last year, and includes $5.2 million in costs for stock-based compensation. GAAP net income, including $4.1 million in costs for stock-based compensation (net of related tax benefit), was $49 million ($0.26 per share), up 36 percent year over year. GAAP gross margin was 34.5 percent. Non-GAAP operating income, which excludes stock-based compensation, was $57 million, up 50 percent from last year’s operating income of $38.2 million. Non-GAAP net income for Q2 was $53 million ($0.28 per share), up 47 percent compared with net income of $36.2 million ($0.18 per share) in the prior year. Non-GAAP gross margin was 34.6 percent, compared to 31.4 percent for the same quarter last year and 30.9 percent in Q1 FY 2007 – a year-over-year and sequential improvement of more than 300 basis points. (See Note 1.) Logitech’s retail sales for the quarter increased by 21 percent, growing by 23 percent in the Americas, 22 percent in EMEA, and 17 percent in Asia Pacific. Retail sales were driven by continued strong growth in video and audio products (up 43 percent and 21 percent respectively), and the sustained performance in cordless products (up 22 percent), primarily due to the market enthusiasm for the breakthrough MX™ Revolution and VX™ Revolution mice. The Company’s OEM sales grew by 3 percent. "We are delighted by these outstanding results,” said Guerrino De Luca, Logitech president and chief executive officer. "One of the highlights of Q2 was delivering on our projected substantial year-over-year and sequential improvement in gross margin. Our ability to achieve one of the best gross-margin quarters in our history was driven by the introduction of stellar products, many of which – retail mice and keyboards in particular – deliver higher margins than the products they replaced. With strong demand from our channel partners for our new premium peripherals for the PC, a lineup of new video and audio devices for Internet communications, and a set of must-haves for digital music, Logitech is entering the holiday season with our strongest portfolio ever and a high degree of confidence.” Outlook Logitech increased its targets for the current fiscal year, ending March 31, 2007. The Company now expects sales to grow 17 percent (previously 15 percent), year over year, and non-GAAP operating income to increase by 20-25 percent (previously 15 percent) compared with last year. Gross margin is expected to be above the mid-point of the Company’s long-term range of 32-34 percent; the Company had expected gross margin to be at the low end of the range. Non-GAAP operating income excludes the costs of stock-based compensation. The Company continues to expect the net costs of stock-based compensation for FY 2007, reflected in net income, to be between $16 and $19 million. Acquisition of Slim Devices In a separate announcement, Logitech today disclosed the acquisition of Slim Devices, for a cash payment of $20 million, plus a possible performance-based payment tied to certain revenue targets. Slim Devices is a privately held, Mountain View, Calif. company that specializes in network-based audio systems for digital music. The impact of the acquisition on FY 2007 is expected to be immaterial. According to De Luca, "The acquisition of Slim Devices builds on our foundation of innovation in digital music to address an emerging market, with solutions for people who want to listen to and control their digital music and Internet radio, anywhere in the home. While this acquisition is not expected to have a material impact on the results for this fiscal year, we believe the long-term potential to be very promising.” Effective Date of Logitech ADR-for-Share Exchange Logitech also announced that it expects its previously announced ADR-for-share exchange to be effective on Monday, October 23, 2006. The last day of trading of Logitech ADRs will be Friday, October 20, 2006, and the first day of trading of Logitech shares on the Nasdaq Global Select Market is expected to be Monday, October 23, 2006. Logitech ADRs held in brokerage or bank accounts will be automatically exchanged for Logitech shares on, or soon after, the effective date, without any action by beneficial owners. Earnings Teleconference Logitech will hold an earnings teleconference on Oct. 19, 2006 at 14:00 Central European Time/8:00 a.m. Eastern Daylight Time/5:00 a.m. Pacific Daylight Time to discuss these results as well as guidance for Fiscal Year 2007. A live webcast and replay of the teleconference, including presentation slides, will be available on the Logitech corporate Web site at http://ir.logitech.com. Please visit the Web site at least 10 minutes early to register for the teleconference webcast. About Logitech Founded in 1981, Logitech designs, manufactures and markets personal peripherals that enable people to effectively work, play, and communicate in the digital world. Logitech International is a Swiss public company traded on the SWX Swiss Exchange (LOGN) and in the U.S. on the Nasdaq Global Select Market (LOGI). Note 1. A reconciliation between non-GAAP operating income, net income, and gross margin, and GAAP operating income, net income, and gross margin is set forth in the second supplemental schedule of the attached tables along with additional information regarding the use of these non-GAAP measures. This press release contains forward-looking statements, including the statements regarding expected sales, operating income and gross margin for Fiscal Year 2007. These forward-looking statements involve risks and uncertainties that could cause Logitech’s actual performance to differ materially from that anticipated in these forward-looking statements. Factors that could cause actual results to differ materially include consumer demand for our products, particularly our newly introduced products, and our ability to accurately forecast it; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; our ability to match production to demand and to coordinate the worldwide manufacturing and distribution of our products in a timely and cost-effective manner; the sales mix among our lower- and higher-margin products; as well as those additional factors set forth in our periodic filings with the Securities and Exchange Commission, including our annual report on Form 20-F for the Fiscal Year ended March 31, 2006 and our quarterly reports on Form 6-K available at www.sec.gov. Logitech does not undertake to update any forward-looking statements. Logitech, the Logitech logo and other Logitech marks are owned by Logitech and may be registered. 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) - Unaudited     Quarter Ended September 30 CONSOLIDATED STATEMENTS OF INCOME   2006    2005    Net sales $ 502,041  $ 422,101  Cost of goods sold   329,076      289,739  Gross profit   172,965      132,362  % of net sales 34.5% 31.4%   Operating expenses: Marketing and selling 70,865  57,703  Research and development 26,118  21,491  General and administration   23,805      14,928  Total operating expenses   120,788      94,122    Operating income 52,177  38,240    Interest income, net 1,930  693  Other income, net   1,107      3,203    Income before income taxes 55,214  42,136  Provision for income taxes   6,010      5,899    Net income $ 49,204    $ 36,237      Shares used to compute net income per share: Basic 182,502  177,377  Diluted 190,276  199,669  Net income per share: Basic $ 0.27  $ 0.20  Diluted $ 0.26  $ 0.18      Note: Share and per-share data for all periods presented have been adjusted to give effect to the two-for-one stock split that took effect on July 14, 2006.   Net income for the three months ended September 30, 2006 included share-based compensation expense under SFAS 123R of $4.1 million, net of tax, or $0.02 per diluted share, related to employee stock options and employee stock purchases. Net income for the three months ended September 30, 2005 does not include the effect of share-based compensation expense, because Logitech implemented SFAS 123R effective April 1, 2006.   Please refer to the supplemental schedule that summarizes the share-based compensation expense and related tax benefit recognized in accordance with SFAS 123R for the three months ended September 30, 2006. LOGITECH INTERNATIONAL S.A.   (In thousands, except per share) - Unaudited     Six Months Ended September 30 CONSOLIDATED STATEMENTS OF INCOME   2006    2005    Net sales $ 895,323  $ 756,803  Cost of goods sold   601,446      517,069  Gross profit   293,877      239,734  % of net sales 32.8% 31.7%   Operating expenses: Marketing and selling 122,430  103,996  Research and development 51,046  42,509  General and administration   44,433      29,762  Total operating expenses   217,909      176,267    Operating income 75,968  63,467    Interest income, net 3,476  1,278  Other income, net   9,838      3,437    Income before income taxes 89,282  68,182  Provision for income taxes   9,931      9,548    Net income $ 79,351    $ 58,634      Shares used to compute net income per share: Basic 182,575  177,143  Diluted 190,466  198,912  Net income per share: Basic $ 0.43  $ 0.33  Diluted $ 0.42  $ 0.30      Note: Share and per-share data for all periods presented have been adjusted to give effect to the two-for-one stock split that took effect on July 14, 2006.   Net income for the six months ended September 30, 2006 included share-based compensation expense under SFAS 123R of $8.3 million, net of tax, or $0.04 per diluted share, related to employee stock options and employee stock purchases. Net income for the six months ended September 30, 2005 does not include the effect of share-based compensation expense, because Logitech implemented SFAS 123R effective April 1, 2006.   Please refer to the supplemental schedule that summarizes the share-based compensation expense and related tax benefit recognized in accordance with SFAS 123R for the six months ended September 30, 2006. LOGITECH INTERNATIONAL S.A.   (In thousands) - Unaudited     CONSOLIDATED BALANCE SHEETS   September 30, 2006   March 31, 2006   September 30, 2005             Current assets Cash and cash equivalents $ 149,831  $ 245,014  $ 254,697  Short term investments 95,000  -  -  Accounts receivable 397,198  289,849  297,418  Inventories 258,417  196,864  266,899  Other current assets   56,599    34,479    55,695  Total current assets 957,045  766,206  874,709  Investments 11,968  36,414  16,703  Property, plant and equipment 84,962  74,810  62,895  Intangible assets Goodwill 136,523  135,396  135,298  Other intangible assets 9,270  11,175  13,495  Other assets   26,507    33,063    11,822  Total assets $ 1,226,275  $ 1,057,064  $ 1,114,922    Current liabilities Short-term debt $ 12,322  $ 14,071  $ 109,991  Accounts payable 278,870  181,290  243,051  Accrued liabilities   181,207    162,922    156,633  Total current liabilities 472,399  358,283  509,675  Long-term debt -  4  25  Other liabilities   12,389    13,601    10,445  Total liabilities 484,788  371,888  520,145    Shareholders' equity 741,487  685,176  594,777        Total liabilities and shareholders' equity $ 1,226,275  $ 1,057,064  $ 1,114,922  LOGITECH INTERNATIONAL S.A.   (In thousands) - Unaudited   Quarter Ended Six Months Ended September 30 September 30 SUPPLEMENTAL FINANCIAL INFORMATION 2006    2005    2006    2005    Depreciation $ 8,765  $ 8,730  $ 16,266  $ 15,755  Amortization of other acquisition-related intangibles 952  1,161  1,905  2,321  Operating income 52,177  38,240  75,968  63,467  Operating income before depreciation and amortization 61,894  48,131  94,139  81,543  Capital expenditures 12,309  13,320  26,058  24,086      Net sales by channel: Retail $ 446,932  $ 368,757  $ 788,048  $ 653,069  OEM   55,109    53,344    107,275    103,734  Total net sales $ 502,041  $ 422,101  $ 895,323  $ 756,803      Net sales by product family: Retail - Cordless $ 134,241  $ 110,065  $ 223,225  $ 185,370  Retail - Corded 83,693  74,036  151,796  146,305  Retail - Video 87,607  61,353  163,265  109,837  Retail - Audio 89,935  74,601  157,253  129,397  Retail - Gaming 30,077  30,995  49,167  51,584  Retail - Other 21,379  17,707  43,342  30,576  OEM   55,109    53,344    107,275    103,734  Total net sales $ 502,041  $ 422,101  $ 895,323  $ 756,803  LOGITECH INTERNATIONAL S.A.   (In thousands, except per share) - Unaudited     SUPPLEMENTAL FINANCIAL INFORMATION Quarter Ended Six Months Ended September 30 September 30 Reconciliation of GAAP to non-GAAP Financial Measures   2006    2006    GAAP gross margin 34.5% 32.8% Adjustments: Effect of stock-based compensation   0.1%   0.2%   Non-GAAP gross margin   34.6%   33.0%     GAAP operating income $ 52,177  $ 75,968  Adjustments: Effect of stock-based compensation   5,226    10,352    Non-GAAP operating income $ 57,403  $ 86,320      GAAP net income $ 49,204  $ 79,351  Adjustments: Effect of stock-based compensation   4,113    8,321    Non-GAAP net income $ 53,317  $ 87,672        Quarter Ended Six Months Ended Stock-based Compensation Expense for Employee Stock Options and Employee Stock Purchases September 30 September 30   2006    2006    Cost of goods sold $ 731  $ 1,449  Marketing and selling 1,910  3,761  Research and development 819  1,606  General and administration 1,766  3,536  Income tax benefit   (1,113)   (2,031)   Total stock-based compensation expense after income taxes $ 4,113  $ 8,321    Stock-based compensation expense for employee stock options and employee stock purchases, net of tax, per share $ 0.02  $ 0.04      We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules. The adjustments between the GAAP and non-GAAP financial measures presented above consist of share-based compensation expense for employee stock options and employee stock purchases, and the related income tax effect, as recognized in accordance with SFAS 123R. Because we implemented SFAS 123R effective April 1, 2006, our financial results for the three and six months ended September 30, 2005 do not include the effect of share-based compensation expense and are presented in the accompanying earnings release only on a GAAP basis. Our management uses these non-GAAP measures in its financial and operational decision-making. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding GAAP measures, facilitate the comparison by our investors of results for periods subsequent to our adoption of SFAS 123R, with corresponding prior periods for which SFAS 123R was not effective. (LOGI - IR)