Logitech 2003 Annual Report Download - page 170

F-21
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 — Derivative Financial Instruments – Foreign Exchange Hedging:
The Company enters into forward foreign exchange contracts (accounted for as cash flow hedges) to hedge
against exposure to changes in foreign currency exchange rates related to forecasted inventory purchases by
subsidiaries. Hedging contracts generally mature within three months. Gains and losses in the fair value of the
effective portion of the contracts are deferred as a component of accumulated other comprehensive income until the
hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. If the
underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in
the foreign currency exposure of our forecasted inventory purchases, the Company immediately recognizes the gain
or loss on the associated financial instrument in other income (expense). The Company did not record any gains or
losses due to hedge ineffectiveness during fiscal 2003 and 2002.
The notional amount of foreign exchange contracts outstanding at March 31, 2003 and 2002 were $13 million
and $7 million. The notional amount represents the future cash flows under contracts to purchase foreign currencies.
Deferred realized gains, net of deferred realized losses, totaled $.6 million at March 31, 2003 and is expected to be
classified into cost of goods sold when the related inventory is sold. Realized net losses classified to cost of goods
sold during the year ended March 31, 2003 were $1.1 million.
Note 13 — Commitments and Contingencies:
The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance
and maintenance costs. Operating leases for facilities are generally renewable at the Company's option and usually
include escalation clauses linked to inflation. Future minimum annual rentals at March 31, 2003 are as follows (in
thousands):
Year ending March 31,
2004.......................................................................................... 5,675$
2005.......................................................................................... 4,732
2006.......................................................................................... 4,109
2007.......................................................................................... 945
2008 and thereafter................................................................... 2,516
17,977$
Rent expense was $6.3 million, $5.2 million and $3.2 million during the years ended March 31, 2003, 2002 and
2001.
At March 31, 2003, the Company had approximately $71.9 million in non-cancelable purchase commitments
with suppliers for inventory. Fixed commitments for capital and other expenditures, primarily for manufacturing
equipment, approximated $9.1 million.
We have guaranteed the obligations of some of our contract manufacturers and original design manufacturers to
certain component suppliers. These guarantees have a term of one year and are automatically extended for one or
more additional years as long as a liability exists. The amount of the purchase obligations of these manufacturers
varies over time, and therefore the amounts subject to our guarantees similarly varies. At March 31, 2003, the
amount of these outstanding guaranteed purchase obligations is approximately $.9 million.
Logitech indemnifies some of its suppliers and customers for losses arising from matters such as intellectual
property rights and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but
in some instances, includes indemnification for damages and expenses, including reasonable attorneys’ fees. No
amounts have been accrued for indemnification provisions at March 31, 2003.
In December 1996, the Company was advised of the intention to begin implementing a value added tax ("VAT")
on goods manufactured in certain parts of China since July 1995, including where the Company's operations are
located, and intended for export. In January 1999, the Company was advised that the VAT would not be applied to
goods manufactured during calendar 1999 and subsequent years. With respect to prior years, the Company is in