LOGITECH INTERNATIONAL SA
SIX Swiss Exchange: LOGN Meeting Date: 12/18/2014
Delays, SEC investigations, restatements, and last minute auditor changes–these are the types of issues that turn a usually quiet annual meeting into a lively debate. Logitech International’s 2014 annual meeting is likely to pose a challenge to the company’s board of directors following a tumultuous year.
The first indication of something amiss was Logitech’s May announcement that it would be forced to delay the filing of its Form 10-K to allow the audit committee to investigate previously-released financial statements. It was also revealed that the SEC was running a parallel investigation into the revision of Logitech’s financial statements concerning warranty accruals and amortization of intangible assets presented in Logitech’s 2013 financial statements, as well as transactions with a then undisclosed distributor from financial years 2007 through 2009.
Logitech eventually filed its Form 10-K on November 13, which showed a restatement of the financial statements for fiscal years 2010/2011 and 2011/2012. The adjustments primarily revolved around issues with inventory reserves for the company’s now-discontinued Revue product, resulting in a reduction of 20% in the reported net income per share for fiscal year 2011 and consequently, an increase of 42% for fiscal year 2011/2012.
The most worrying result of the internal review, however, was the revelation that certain former finance employees signed a May 30, 2013 management representation letter to PwC, the company’s independent auditor, without disclosing historical items that should have been recorded in an earlier period, including the misstatements related to Revue. According to PwC’s report on the financial statements, mistakes such as these appear to be a result of failings in Logitech’s internal control systems. Although the company has affirmed that the issues have been identified and steps have been taken to improve internal controls, the material weaknesses apparently existed up until as recently as November 6, 2014.
Finally, to add to its audit-related woes, in November 2014 Logitech announced that it would once again be required to delay filings (in this case its quarterly financials) because PwC had informed the company that it did not consider itself independent for the second quarter of the 2014/2015 fiscal year. According to this statement, the Company’s registered public accounting firm in the US highlighted that it could no longer be considered independent based on services provided during fiscal year 2014/2015. To date, little explanation for such an unusual occurrence has been provided by Logitech, with the annual meeting materials merely noting the appointment of KPMG in place of PwC and failing to explain the audit committee’s failure to foresee the potential conflict of interest faced by PwC.
In the context of restatements, weak internal controls, and poorly explained auditor replacements, shareholders may reasonably question how Logitech’s audit committee has been protecting shareholder value. With several of Logitech’s audit committee members up for re-election, this is likely to be a highly debated election.