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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
Commission File Number: 0-29174
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LOGITECH INTERNATIONAL S.A.
(Exact name of Registrant as specified in its charter)
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Not Applicable
(Translation of Registrant's name into English)
Canton of Vaud, Switzerland
(Jurisdiction of incorporation or organization)
Logitech International S.A.
Apples, Switzerland
c/o Logitech Inc.
6505 Kaiser Drive
Fremont, California 94555
(510) 795-8500
(Address and telephone number of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
American Depositary Shares, each representing one tenth of Nasdaq National Market
one registered share at par value CHF 10 per share
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
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The number of outstanding shares of each of the issuer's classes of capital or
common stock as of March 31, 2001 was 4,425,386 registered shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes No
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18
TABLE OF CONTENTS
Part I Page
------ ----
Item 1. Identity Of Directors, Senior Management And Advisers........................ 4
Item 2. Offer Statistics And Expected Timetable...................................... 4
Item 3. Key Information.............................................................. 5
Item 4. Information On The Company................................................... 10
Item 5. Operating And Financial Review And Prospects................................. 21
Item 6. Directors, Senior Management And Employees................................... 27
Item 7. Major Shareholders And Related Party Transactions............................ 32
Item 8. Financial Information........................................................ 33
Item 9. The Offer And Listing........................................................ 34
Item 10. Additional Information....................................................... 36
Item 11. Quantitative And Qualitative Disclosure About Market Risk.................... 38
Item 12. Description Of Securities Other Than Equity Securities....................... 38
Part II
Item 13. Defaults, Dividend Arrearages And Delinquencies.............................. 39
Item 14. Material Modifications To The Rights Of Security Holders And Use Of Proceeds. 39
Item 15. [Reserved]................................................................... 39
Item 16. [Reserved]................................................................... 39
Part III
Item 17. Financial Statements......................................................... 39
Item 18. Financial Statements......................................................... 39
Item 19. Exhibits..................................................................... 39
Signatures............................................................................... 41
Consolidated Financial Statements........................................................ F-2
In this document, unless otherwise indicated, references to the "Company" or
"Logitech" are to Logitech International S.A., its consolidated subsidiaries and
predecessor entities. Unless otherwise specified, all references to U.S.
dollars, dollars or $ are to United States dollars, the legal currency of the
United States of America. All references to the Swiss franc or CHF are to the
Swiss franc, the legal currency of Switzerland.
(C) 2001 Logitech. All rights reserved. Logitech, the Logitech logo, and the
Logitech products referred to herein are either the trademarks or the registered
trademarks of Logitech. All other trademarks are property of their respective
owners.
2
FORWARD-LOOKING INFORMATION
This Annual Report on Form 20-F contains forward-looking statements based on
beliefs of our management. Any statements contained in this Annual Report on
Form 20-F that are not historical facts are forward-looking statements as
defined in the U.S. Private Securities Litigation Reform Act of 1995. These
include, without limitation, statements related to:
. the targeted range of our gross margin;
. the sufficiency of our cash and cash equivalents, cash from operations,
and available borrowings under the bank lines of credit to fund capital
expenditures and working capital needs for the foreseeable future;
. the business strategy for new areas of growth;
. our ability to introduce additional essential interface devices that
people touch and use every day;
. our belief that the need for intuitive PC interfaces will continue, and
with it the opportunity for Logitech products; and
. the adequacy of our leased and owned facilities to meet our needs in the
foreseeable future.
We have based these forward-looking statements on our current expectations and
projections about future events, including:
. general economic and business conditions;
. attracting and retaining personnel;
. competition in the computer peripheral industry;
. implementing our business strategy;
. developing and introducing new services and products;
. obtaining and expanding market acceptance of our services and products;
and
. meeting changing customer requirements and emerging industry standards.
The words "anticipate," "believe," "estimate," "expect," "forecast," "intend,"
"may," "plan," "project," "predict," "should" and "will" and similar expressions
are intended to identify such forward-looking statements. Such statements
reflect our current views and assumptions. All forward-looking statements are
subject to various risks and uncertainties that could cause actual results to
differ materially from expectations. The factors that could affect our future
financial results are discussed more fully under "Item 3. Key Information --
Risk Factors," as well as elsewhere in this Annual Report on Form 20-F and in
our other filings with the U.S. Securities and Exchange Commission ("SEC").
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the dates of their filings. We undertake no
obligation to publicly update or revise any forward-looking statements.
Recent Developments
On May 15, 2001, we announced that we offered and sold CHF 170 million
(approximately U.S. $100 million) in convertible bonds. The terms of the
convertible offering have been fixed at a coupon rate of 1% per annum and an
initial conversion price of CHF 624. The redemption price at maturity in the
event of non-conversion has been set at 105%. The convertible bonds will be
issued by Logitech (Jersey) Ltd., a wholly-owned subsidiary, and unconditionally
and irrevocably guaranteed by Logitech International S.A. The proceeds will be
used primarily to refinance the short term debt incurred in connection with the
acquisition of Labtec Inc. See "Item 4- Information on the Company - Important
Events and Recent Acquisitions" and "Item 5 - Operating And Financial Review And
Prospects". The bonds will be convertible into our registered shares, and have
a five-year maturity. Closing of the sale of the bonds is subject to market and
other conditions and is scheduled to occur in early June 2001.
3
Part I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
4
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The financial data for the years ended March 31, 2001, 2000, 1999, 1998 and
1997, and the financial condition as of those years then ended have been derived
from our audited consolidated financial statements This financial data should be
read with the consolidated financial statements for the fiscal years ended March
31, 2001, 2000 and 1999, included elsewhere in this Form 20-F. The selected
consolidated financial data for the fiscal years ended March 31, 1997 and 1998
are derived from the Company's audited consolidated financial statements which
are not included in this Form 20-F. This table should be read in conjunction
with Item 5 "Operating And Financial Review And Prospects" and the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 20-F.
Year ended March 31,
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2001 2000 1999 1998 1997
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(In thousands, except share and per share amounts)
Consolidated statement of operations data:
Net sales........................................... $ 761,356 $ 615,664 $ 470,741 $ 406,109 $ 430,007
Gross profit........................................ 259,066 206,695 162,723 132,843 139,151
Operating expenses:
Marketing and selling.............................. 130,947 102,957 85,350 68,813 71,014
Research and development........................... 36,686 31,666 31,378 27,774 26,481
General and administrative......................... 33,484 31,102 23,625 19,944 20,380
Purchased in-process research and development (1).. 3,275 -- 6,200 -- --
------------ --------- ---------- ----------- ----------
Total operating expenses............................ 204,392 165,725 146,553 116,531 117,875
------------ --------- ---------- ----------- ----------
Operating income.................................... 54,674 40,970 16,170 16,312 21,276
Loss on sale of product line (2).................... -- -- (7,272) (3,174) --
Net income.......................................... $ 45,068 $ 30,044 $ 7,137 $ 15,456 $ 21,060
Net income per share (4):
Basic.............................................. $10.67 $ 7.55 $1.85 $4.09 $ 6.50
Diluted............................................ $9.60 $ 6.87 $1.79 $3.91 $ 6.18
Shares used to compute net income per share (4):
Basic.............................................. 4,222,624 3,976,990 3,867,220 3,776,464 3,240,652
Diluted............................................ 4,694,017 4,375,994 3,982,674 3,954,114 3,407,392
Cash dividend per share (3) (4)..................... $ -- $ -- $ -- $ -- $ 0.48115
March 31,
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2001 2000 1999 1998 1997
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(In thousands)
Consolidated balance sheet data:
Cash and cash equivalents........................... $ 44,142 $ 49,426 $ 43,251 $ 72,376 $ 38,504
Total assets........................................ 505,116 334,077 294,489 208,479 216,423
Long-term debt, net of current maturities........... 26,908 2,934 3,624 3,031 3,188
Shareholders' equity................................ 256,054 179,969 139,754 132,734 111,691
1) In connection with the acquisition of Labtec in fiscal 2001 and Connectix
Corporation's PC video camera business in 1999, the Company recorded one-
time charges of $3.3 million and $6.2 million for purchased in-process
research and development.
2) In fiscal 1998, the Company sold its scanner product line to Storm
Technology Inc. and recorded a $3.2 million loss on the sale. In 1999, the
Company wrote off $5.8 million related to a convertible note and common
stock investment in Storm made in connection with the sale. The additional
expenses in 1999 primarily relate to costs to conclude certain obligations
exceeding management's estimate made in 1998.
3) Dividends of CHF .692 per share were declared in Swiss francs and translated
into U.S. dollars.
4) Logitech completed a two-for-one stock split in July 2000. All references to
share and per share data for all periods presented have been adjusted to
give effect to the stock split.
5
Exchange Rates
Fluctuations in the exchange rate between the Swiss franc and the U.S. dollar
will affect the U.S. dollar equivalent of the Swiss franc price of the
registered shares on the Swiss Exchange and, as a result, will likely affect the
market price of the ADSs in the United States, and vice versa.
The following table sets forth certain historical information with respect to
the Noon Buying Rate for dollars expressed in Swiss francs per dollar. The "Noon
Buying Rate" is the rate in New York City for cable transfers in selected
currencies as certified for customs purposes by the Federal Reserve Bank of New
York.
Average(1) High Low Period End
---------- ---- --- ----------
Fiscal 1997............................................ CHF 1.296 CHF 1.489 CHF 1.192 CHF 1.438
Fiscal 1998............................................ 1.460 1.535 1.385 1.522
Fiscal 1999............................................ 1.437 1.515 1.374 1.478
Fiscal 2000............................................ 1.560 1.663 1.478 1.663
Fiscal 2001............................................ 1.697 1.830 1.590 1.736
(1) Represents the average of the Noon Buying Rates on the last business day of
each month during the relevant period.
High Low
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Monthly Highs and Lows (over the most recent six month period):
November 2000................................................... CHF 1.817 CHF 1.745
December 2000................................................... 1.762 1.611
January 2001.................................................... 1.672 1.590
February 2001................................................... 1.699 1.624
March 2001...................................................... 1.744 1.639
April 2001...................................................... 1.757 1.684
The Noon Buying Rate for dollars expressed in Swiss francs per dollar was
1.726 as of May 1, 2001.
B. Capitalization
Not required.
C. Reasons for the Offer and Use of Proceeds
Not required.
D. Risk Factors
Our quarterly operating results are difficult to predict. This means that our
results could fall below investors' expectations, which could cause the price of
Logitech ADSs and registered shares to decline significantly.
Our operating results in the past have varied significantly from quarter to
quarter and these fluctuations are expected to continue in the future. Future
quarterly operating results may vary significantly due to a number of factors,
including:
. the volume and timing of orders received during the quarter;
. the maturation of product lines;
. the timing of new product introductions by us and our competitors and their
acceptance by the market;
. the impact of competition on our average selling prices and operating
expenses;
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. our inventory levels or inventory levels in the distribution channels;
. changes in laws or regulations;
. fluctuations in exchange rates;
. changes in product or distribution channel mix;
. price protection charges;
. product returns from customers;
. deferrals of customer orders in anticipation of new products or otherwise;
. changes in technologies and their acceptance by the market;
. the performance of our suppliers and third-party product manufacturers; and
. the rate of economic growth in our principal geographic markets.
Many of these factors are beyond our control. In addition, due to the short
product life cycles inherent in our markets, our failure to introduce new,
competitive products consistently and in a timely manner would adversely affect
results of operations for one or more product cycles.
In addition, the volume and timing of orders received during a quarter are
difficult to forecast. Customers generally order on an as-needed basis.
Accordingly, we have operated with a relatively small backlog, and net sales in
any quarter depend primarily on orders booked and shipped in that quarter. In
spite of the difficulty in forecasting sales in advance of a quarter and the
relatively small backlog at any given time, we generally must plan production,
order components and enter into development, sales and marketing, and other
operating commitments well before each quarter begins. This is particularly
acute because substantially all of our products are manufactured in Asia, and we
rely on suppliers who are located in many other parts of the world.
Consequently, any shortfall in net sales in a given quarter may negatively
impact our results of operations due to an inability to adjust expenses during
such quarter. Excess inventory may negatively impact cash flows and result in
charges associated with inventory write-offs. The foregoing means that our
operating results could fall below investors' expectations, which could cause
the price of Logitech ADSs and registered shares to decline significantly.
Our success depends on the continued viability and financial stability of our
distributors, resellers and OEM customers, as well as continued demand by these
customers for our products.
We sell our products through a domestic and international network of
distributors, resellers and OEM customers, and our success depends on the
continued viability and financial stability of these customers, as well as
continued demand by these customers for our products. The OEM, distribution and
reseller industries have been historically characterized by rapid change,
including periods of widespread financial difficulties and consolidations, and
the emergence of alternative distribution channels. Our distributor and reseller
customers generally offer products of several different companies, including
products competitive with our products. Accordingly, there is a risk that these
distributors and resellers may give higher priority, including greater retail
shelf space, to products of other suppliers, which would reduce demand for, and
sales of, our products.
In addition, due to our sales to large OEMs, distributors and high volume
resellers, we maintain individually significant receivable balances with large
customers. As of March 31, 2001, two customers represented 10.5% of total
accounts receivable. If any of our major customers were to default in the
payment of its receivable owed to us, our operating results could be materially
adversely affected.
Product returns and effects of price protection that exceed our accruals may
significantly impact our financial results.
As a manufacturer of consumer products, we are exposed to the risk of product
returns, either through the exercise by customers of contractual return rights
or as a result of our assistance in balancing inventories of retailers and
distributors. In addition, we offer price protection to our distributors and
retailers. A portion of our net sales has in the past resulted and may in the
future result in increased inventory at our distributors and resellers, which
has led and could lead to reduced orders by these customers in future periods.
As a result, historical net sales may not be indicative of future net sales.
Overstocking by our distributors and retailers has in the past led and may in
the future lead to higher than normal returns. The short product life cycles of
certain of our products and the difficulty in predicting future sales increase
the risk that new product introductions, price reductions or other factors
affecting the computer industry would result in significant product returns. In
addition, we continuously introduce product
7
upgrades, enhancements and improved packaging, and thus may experience higher
rates of return on our older products.
We recognize revenue upon transfer of title and risk of loss, which is
generally when products are shipped. Because we are exposed to the risk of
product returns and price protection, we provide allowances for these risks upon
recognition of revenue. Amounts provided for returns and price protection are
estimated based upon historical and anticipated experience and our assessment of
inventory in the channels. We review and adjust the amounts provided
periodically, based upon changes in historical and anticipated experience and
channel inventory. Although we believe that we have provided adequate amounts
for projected returns, from time to time we have experienced return levels in
excess of amounts provided and our amounts provided may not be sufficient for
actual returns in future periods. In addition, our accruals for price protection
may not be sufficient in future periods, and any future price changes may have a
significant adverse effect on our results of operations.
To continue to be successful, we will need to effectively respond to future
changes in technology and customer demands.
The market for our products is characterized by rapidly changing technology
and frequent new product introductions. Our success will depend to a substantial
degree on our ability to develop and introduce in a timely manner new products
and enhancements that meet changing customer requirements and emerging industry
standards. The development of new, technologically advanced products and
enhancements is a complex and uncertain process requiring high levels of
innovation as well as the anticipation of technology and market trends. We may
not be able to identify, develop, manufacture, market, sell, or support new
products and enhancements successfully, new products or enhancements may not
achieve market acceptance, or we may not be able to respond effectively to
technology changes, emerging industry standards or product announcements by
competitors. In addition, some of our competitors may have patents or
intellectual property rights which prevent us from being able to respond
effectively to new or emerging technologies and changes in customer
requirements. New product announcements by us could cause our customers to defer
purchases of existing products or cause distributors to request price protection
credits or stock rotations. Any of these events could materially harm our
business, financial condition and results of operations.
A significant amount of our manufacturing operations are located in China,
which exposes us to risks associated with doing significant business in that
country.
A significant amount of our manufacturing operations are located in China.
These operations could be severely impacted by economic or political instability
in China, including instability which may occur in connection with a change in
leadership in China, by evolving interpretation and enforcement of legal
standards, by strains on Chinese transportation, communications, trade and other
infrastructures related to the rapid industrialization of an agrarian economy,
by conflicts, embargoes, increased tensions or escalation of hostilities between
China and Taiwan, and by other trade customs and practices that are dissimilar
to those in the United States. Interpretation and enforcement of China's laws
and regulations continue to evolve and we expect differences in interpretation
and enforcement to continue in the foreseeable future. In addition, our Chinese
employees in our Suzhou, China facilities are subject to a number of government
regulations regarding employment practices and customs that are fundamentally
different in many respects from those in the United States and Europe. The
Suzhou facilities are managed by several of our key Taiwanese expatriate
employees. The loss of these employees, either voluntarily or because of a
deterioration in relations between China and Taiwan, may diminish the
productivity and effectiveness of our Suzhou manufacturing operations.
The effect of business, legal and political risks associated with foreign
countries and markets may negatively affect us.
We transact a substantial portion of our business outside the United States.
There are risks inherent in doing business in international markets, including:
. tariffs, customs, duties and other trade barriers;
. difficulties in staffing and managing foreign operations;
. environmental and other related regulations;
. political instability, expropriation, nationalization and other political
risks;
. foreign exchange controls; and
. delays from customs brokers or government agencies.
8
Any of these risks could adversely impact the success of our international
operations and, in turn, have a material adverse effect on our business,
financial condition and results of operations.
Our effective tax rates may increase in the future, which would adversely
affect our operating results.
We operate in multiple jurisdictions and our profits are taxed pursuant to the
tax laws of these jurisdictions. If our effective tax rate increases in a future
period, our operating results in general will be adversely impacted, and
specifically our net income and earnings per ADS and per registered share, will
decrease. Our effective tax rate may be affected by changes in or
interpretations of tax laws in any given jurisdiction, utilization of net
operating losses and tax credit carry forwards, changes in geographical
allocation of income and expense, and changes in our management's assessment of
matters such as the realizability of deferred tax assets. In the past, we have
experienced substantial fluctuation in our effective income tax rate. Our
effective income tax rates in a given fiscal year reflect a variety of factors
that may not be present in the succeeding fiscal year or years. As a result, our
effective income tax rate may increase in future periods.
We may be unable to protect our proprietary rights. Unauthorized use of our
technology may result in development of products which compete with our
products.
Our future success depends in part on our proprietary technology, technical
know-how and other intellectual property. We rely on a combination of patent,
trade secret, copyright, trademark and other intellectual property laws, and
confidentiality procedures and contractual provisions such as nondisclosure
agreements and licenses, to protect our intellectual property.
We hold various United States patents, together with corresponding patents
from other countries, relating to some of the same inventions. We also have
various United States patent applications pending, together with corresponding
applications from other countries relating to some of the same inventions.
Despite these patents and patent applications, it is possible that any patent
owned by us will be invalidated, deemed unenforceable, circumvented or
challenged, that the rights granted thereunder will not provide competitive
advantages to us, or that any of our pending or future patent applications will
not be issued with claims of the scope sought by us. In addition, other
intellectual property laws, or our confidentiality procedures and contractual
provisions, may not adequately protect our intellectual property. Also, our
competitors may independently develop similar technology, duplicate our
products, or design around our patents or other intellectual property rights. In
addition, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Any of these events
could significantly damage our business, financial condition and results of
operations.
We also rely on certain technologies that we license or acquire from others.
We may find it necessary or desirable in the future to obtain licenses or other
rights relating to one or more of our products or to current or future
technologies. These licenses or other rights may not be available on
commercially reasonable terms, or at all.
Pending lawsuits could adversely impact us.
There has been substantial litigation in the technology industry regarding
rights to intellectual property, and we are subject to the risk of claims
against us for alleged infringement of the intellectual property rights of
others. Through our U.S. and China subsidiaries, we are currently involved in
several pending lawsuits with respect to patent infringement claims by third
parties. We believe that all of these pending lawsuits are without merit and
intend to defend against them vigorously. However, the defense of any of these
actions may not be successful. Any judgment in or settlement of any of these
lawsuits may have a material adverse impact on our business, financial condition
and results of operations.
Pending and future litigation involving us, whether as plaintiff or defendant,
regardless of outcome, may result in significant diversion of effort by our
technical and management personnel, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements, any
of which could have a material adverse effect on our business, financial
condition and results of operations. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all. In
addition, our efforts to protect our intellectual property through litigation
may not prevent duplication of our technology or products.
We depend on original design manufacturers and independent assembly
contractors which may not have adequate capacity to fulfill our needs and which
may not meet our quality and delivery objectives.
We rely on original design manufacturers to supply a portion of our keyboard
and gamepad product lines, and a portion of our mice and entertainment products
are sourced from independent contractors. Our reliance on original design
manufacturers and independent assembly contractors involves significant risks,
including reduced control over quality and delivery schedules, the potential
lack of adequate capacity and discontinuance or phase-out of the
9
contractors' assembly processes. These manufacturers and contractors may also
choose to discontinue building our products for a variety of reasons. Since the
majority of these manufacturers and contractors are located in Asia, we are
subject to risks generally associated with foreign suppliers, including
political and economic uncertainty, currency exchange fluctuations, trade
restrictions and changes in tariff rates. Consequently, we may experience delay
in the timeliness, quality and adequacy in product deliveries, any of which may
have an adverse impact on our results of operations.
Certain key components used in the manufacture of our products, as well as
certain products, are currently purchased from single or limited sources that
specialize in such components or products. At present, single-sourced
components include certain of our ASICs, sensors, certain other integrated
circuits and components, and balls used in certain of our trackballs. We
generally do not have long-term agreements with our single or limited sources of
supply. Lead times for materials and components ordered by us or our contract
manufacturers can vary significantly and depend on factors such as the specific
supplier, contract terms and demand for a component at a given time. From time
to time we have experienced supply shortages and fluctuation in component
prices. Shortages or interruptions in the supply of components or subcontracted
products, or our inability to procure these components or products from
alternate sources at acceptable prices in a timely manner, could delay shipment
of our products or increase our production costs, which could decrease our
revenue or gross margin. Delays could also have a material adverse effect upon
our business, financial condition and results of operations.
We may not be successful in integrating the business and operations of the
Labtec acquisition.
We acquired the business, products and technologies of Labtec with a view to
combine them with our existing business and customer base to achieve synergistic
benefits. The Labtec acquisition offers us the platform to enter new markets in
personal audio and telephony products and it strengthens our existing offering
in the computer speaker product line. To realize the benefits of this
acquisition we must successfully integrate the products offering, research and
development efforts, sourcing and supply chain as well as sales and marketing
activities. The difficulties of such integration may be complicated by our
separate organizational structures, operation models, geographical locations and
corporate cultures. The success of the acquisition may also depend on factors
not entirely within our control, such as market acceptance of the combined
product line. The inability to successfully integrate our acquisition of Labtec
may harm our business and impair investor confidence in our company.
We may be required to recognize additional non-cash charges against earnings
if our management were to determine in the future that the remaining balance of
goodwill arising from the Labtec acquisition was impaired.
Although we expect to amortize goodwill from the Labtec transaction over 20
years, if our management were to determine in the future that the remaining
balance of goodwill was impaired, we would be required to recognize non-cash
charges that would reduce our earnings.
We depend on a few key personnel to manage and operate us.
Our success depends to a significant degree on the continued contributions of
our senior management and other key design, development, manufacturing,
marketing and sales personnel. The loss of any of these personnel could harm
our business. Assimilation and retention of personnel may be made more difficult
by the fact that our management and other key personnel are dispersed throughout
various locations worldwide, thus requiring the coordination of organizations
separated by geography and time zone and the integration of personnel with
disparate business backgrounds, cultures and languages. In addition, we believe
that our future success will depend on its ability to attract and retain highly
skilled managerial, engineering, operations, marketing and sales personnel, for
whom competition is intense. We may not be successful in attracting and
retaining these personnel, and the failure to attract and retain key personnel
could harm our business.
ITEM 4. INFORMATION ON THE COMPANY
A. History and development of the Company
Logitech was incorporated under the laws of Switzerland in 1981, and in 1988
listed its shares in an initial public offering in Switzerland. In March 1997,
the Company sold 400,000 registered shares from treasury in a U.S. initial
public offering in the form of 4,000,000 American Depository Shares ("ADS"), and
listed the ADSs on the Nasdaq National Market System. Logitech maintains its
headquarters through its U.S. subsidiary located at 6505 Kaiser Drive, Fremont,
California. Logitech's telephone number at that address is (510) 795-8500. The
Company also maintains regional headquarters through local subsidiaries in
Romanel-sur-Morges, Switzerland and Hsinchu,
10
Taiwan. In addition, Logitech has manufacturing operations in China, with
distribution facilities in the United States, Europe and Asia, and sales offices
in major cities in America, Europe and Asia Pacific.
Important Events and Recent Acquisitions
In March 2001, Logitech acquired Labtec Inc., a publicly traded Vancouver,
Washington-based provider of PC speakers, headsets and microphones, personal
audio products for MP3 players and other portable audio devices, 3D input
devices, and other peripherals and accessories for computing, communications and
entertainment. Under the terms of the merger agreement, Logitech purchased
substantially all outstanding shares of Labtec for $73 million in cash and
stock, plus $3.3 million of transaction costs. Labtec stockholders who tendered
their shares in the offer received $11.00 in cash and 0.2644 of a Logitech ADS
for each share of Labtec common stock. Consideration for the purchase was
obtained through: (i) short-term borrowings of $35 million under a term loan
credit facility, (ii) the issuance of 1,142,998 Logitech ADSs based upon an
exchange ratio of .2644 Logitech ADSs for each share of Labtec common stock, and
(iii) the use of $12.5 million in working capital funds. The ADSs issued in the
acquisition were valued using the 5-day weighted average market value of
Logitech ADSs encompassing March 20, 2001, the date the number of shares to be
issued was determined.
Principal Capital Expenditures and Divestitures
The Company's capital expenditures for property, plant and equipment for the
fiscal years ended March 31, 2001, 2000 and 1999 were $16.8 million, $17.9
million and $24.8 million. Principal areas of investment during all three years
relate to normal expenditures for tooling costs, machinery and equipment and
computer equipment and software.
Principal equity investments
We have equity investments in several companies that provide technology
product and software development and sales. As of March 31, 2001, our
investments totaled $16.6 million. During the years ended March 31, 2001, 2000
and 1999, we made investments of $5.6 million, $4.2 million, and 13.9 million.
B. Business Overview
Logitech is a leader in the design, manufacture and marketing of human
interface devices for personal computers. Today, the computing environment that
Logitech serves is centered on the desktop. But as the interface to the digital
world moves beyond the desktop and beyond the PC - to the living room, to the
kitchen, to wherever and whenever people want to access digital information, the
need for an intuitive interface will remain. The Company's product family
includes Internet video cameras, mice and trackballs, keyboards, audio and
telephony products, and interactive gaming controllers.
Logitech offers PC users a variety of means to access the world of digital
information. The Company's products provide user-centric solutions intended to
be easy to install and easy to use, and that are combined with integrated
software for seamless compatibility and added functionality. These products
allow users to personalize and enrich their computing environment, and to easily
operate in a variety of applications.
Industry Background
Increasingly affordable prices and wider availability of business, consumer
and education applications have created a very large installed base of personal
computers. The market penetration of PCs and other information access devices,
while 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 consumers wanting to take full
advantage of this increased processing power, new applications and new
technologies in an intuitive, productive and convenient manner.
Today's PCs have evolved from productivity tools for word processing into
affordable multimedia appliances capable of creating and manipulating vast
amounts of graphics, sound and video; however, the human interface devices sold
with most new units are quite limited in the functionality they provide. This
is true especially since the need to strike a low price point dictates basic, no
frills peripherals, for example a basic mouse and alphanumeric keyboard.
Logitech believes the expanded PC capabilities present a significant opportunity
to companies that provide innovative human interface tools for the computer,
since basic mice and alphanumeric keyboards cannot effectively harness this new
power and fully enable many of the newest applications.
11
Therefore, on one hand, PC manufacturers continue to require large volumes of
basic interface devices. On the other hand, the after-market (that is, the
market for peripheral add-ons sold separately from the basic PC), grows as
consumers demand more function-rich interface tools.
Logitech also believes that trends established in the consumer electronics
market, such as brand identity, affordability, ease of installation and use, as
well as visual appeal, are rapidly becoming important aspects of PC and human
interface device purchase decisions.
The Logitech Solution
Logitech's interface devices are often the most frequent point of physical
interaction between people and their PCs. As such, they are a significant
factor in determining the man-machine interface and increasing its richness. The
Company's products are designed to reflect the way people want to work, learn,
communicate and play, allowing them to personalize and enrich their computing
environment as they perform these activities using their PC.
Over the past 20 years, Logitech has established itself as a leading designer,
manufacturer and marketer of computer control devices (mice and trackballs).
Building on this leadership position, the Company has capitalized on the growth
in personal computing by significantly expanding its product line to include a
wide range of products, from radio-based cordless mice and keyboards to game
controllers, Internet video cameras, multimedia speaker systems and PC voice
access products. The Company's products bring together the tools that business
people, home users, and computer gamers need to make their time at the computer
and their time on the Internet more productive, comfortable, and enjoyable. In
addition, they feature award-winning industrial design and are engineered to
work together.
Through integrated hardware and software functionality, Logitech products are
also optimized for the Internet: Internet video cameras with "one button" video
mail access; keyboards and mice with "one click" access to specific web sites
and value-added web services, multimedia speakers equipped with software for
digital music download and data management are examples of the Company's
commitment to ensuring a user-friendly and effective Internet experience.
Logitech's OEM products are a frequent choice among PC manufacturers, who need
high quality, affordable, and functional human interface devices in high volumes
to equip the PCs they offer to the marketplace. In addition, the Company's
retail products increasingly target and appeal directly to consumers and
businesses as they purchase add-on devices for their PCs. Purchasers look for
the add-ons to either replace the basic peripherals that originally came with
their PCs with devices that offer increased comfort, flexibility and
functionality; or as they decide to enable new applications requiring dedicated
human interface devices (for example, steering wheels and joysticks for PC-based
games).
Logitech's products have long been at the forefront of technological
innovation, with a long list of "firsts" to its name and a patent portfolio of
more than 75 patents. In pointing devices, the Company pioneered optical
sensing technology with the opto-mechanical mouse in 1982. The Company was also
among the first to market a digital still camera in 1991. In addition,
recognizing the limitations of many connectivity methods, the Company has
continually embraced new connectivity technologies and standards, particularly
those that contribute to increased ease of use, such as the Universal Serial
Bus. In fact, as one of the first companies in the industry to recognize the
importance of the USB interface in enabling true "plug and play" connectivity,
Logitech demonstrated the first working USB prototype at Fall Comdex in 1995.
In addition, the Company pioneered digital radio-based cordless mice and
keyboards that free the desktop from cable clutter while maintaining the
reliability of a corded connection.
The Company believes the following to be among its key competitive strengths:
. Substantial Technical Expertise. The Company has accumulated significant
expertise in the key engineering disciplines that underlie its products. For
instance, Logitech's engineers have continuously enhanced motion-encoding
technology for control devices over several distinct generations. Many of
these technologies have applications across multiple product offerings,
allowing the Company to leverage its accumulated technology investment.
Logitech believes its future lies not only in its strong internal technical
resources, but also from partnering with other industry leaders with
complementary technologies that promise to make the interface more productive,
natural and enjoyable. Examples of this include devices that provide enhanced
realism by incorporating feedback or 3D functionality.
. Product Definition and Industrial Design Excellence. Logitech understands the
balance between features and complexity, functionality and style, and price
and performance. The Company believes that its ability to produce world-class,
user-centric, industrial designs through the integration of in-house and
external design
12
resources sets it apart from competitors. Through the years, Logitech has
repeatedly received many awards worldwide for product design and innovation,
including the Hanover Seal of Quality for design, German Design Innovations
Red Dot, Chicago Athenaeum Museum of Architecture and Design, the Premio SMAU
show in Italy and others.
. Retail Brand and Distribution. The Company believes the Logitech brand name
and industrial designs are recognized worldwide as symbols of product quality,
innovation and price performance. The Company enjoys a strong and growing
brand presence in more than 60,000 retail outlets located in over 100
countries. During the fiscal year ended March 31, 2001, the Company sold over
30 million Logitech branded products. The Company strongly believes that in
the consumer market, brand identity and brand awareness are important
components of the purchase decision, and that as competition in the PC market
intensifies, the ability to secure shelf space will increasingly become a
competitive advantage. Logitech's brand has enabled the Company to build an
extensive retail distribution network and obtain this critical shelf space.
Today, the strength of this brand is apparent in the OEM channel as well,
where systems manufacturers and integrators are choosing to bundle Logitech-
branded products with their offerings.
. Strength on the Desktop. Logitech has expanded its product portfolio to
encompass a broad range of interface devices that people use every day as they
work and play at their desktops. The Company's interface devices bring
together on the desktop a broad variety of products that individuals--business
people, home users, gamers and others--need to make their time on the Internet
and time at the computer more productive, comfortable and enjoyable. As a
result, the Company is positioned to offer "one-stop shopping" for accessories
that have been designed to work seamlessly together.
Logitech aggressively pursues several important aspects of today's desktop,
including the freedom and flexibility of cordless solutions, easy Internet-
based visual communication and innovative solutions such as iTouch and
WebWheel--a combination of hardware, software and a special web site that
enhances Logitech's newest mice and keyboards by providing seamless Internet
access and navigation.
. Volume Manufacturing Capability Resulting from Strong OEM Relationships. The
Company believes its established manufacturing capabilities are a significant
competitive advantage. For more than ten years, the Company has been building
a significant manufacturing presence in Asia where its ISO 9000-certified
manufacturing facilities are currently producing over 60 million units per
year. As a result, Logitech has been able to maintain strong quality process
controls and has realized significant cost efficiencies. Manufacturing
expertise extends beyond production to include logistical support, just-in-
time supply and process engineering.
Behind this world-class manufacturing capability and expertise are Logitech's
long-established relationships with large OEM customers. The Company
currently sells to the majority of the world's largest PC manufacturers, as
well as to most of the next layer of systems manufacturers and integrators.
Because Logitech's engineering and design staff works collaboratively with OEM
customers on the specifications for future products, the Company believes its
OEM relationships provide it with valuable insight into the future of the
computer marketplace and technological trends.
. Global Resources. Logitech is a global company capable of drawing upon the
strengths of its various cultures and locations. With manufacturing facilities
in Asia, engineering staffs in the U.S., Asia and Europe, as well as sales and
marketing offices in major cities worldwide, the Company has access to leading
technology, markets, personnel and ideas from around the world. The Company
believes that by fostering a strong international culture, it will be able to
capitalize on the emergence of a worldwide PC marketplace by meeting the needs
of customers in many countries.
Business Strategy
Logitech's objective is to strengthen its leadership in the growing market for
human interface devices, linking people to the digital world wherever and
whenever they need to access digital information to communicate, learn and play.
The Company has historically served the installed base of PCs by offering
innovative human interface devices to address the needs of the desktop. At the
same time, the Company has extended its market reach through the introduction of
additional products and services which provide information interface to areas
such as the Internet. The pervasiveness of web surfing, digital imaging, online
gaming, and internet telephony are driving market growth.
Logitech believes it can continue to capitalize on this shift by creating
retail products that enable people to get the most from these activities. We
believe that Logitech is well positioned to take full advantage of the many
opportunities in this growing marketplace.
13
In order to attain this objective, Logitech intends to pursue new areas for
growth while continuing to protect and build on the Company's current strengths
in the pointing device area. The new strategic directions follow a three-
pronged strategy:
. Broaden the desktop presence
. Become a leader in media-rich Internet-enabled communication
. Expand into alternate computing platforms
Broaden the desktop presence
Logitech has successfully broadened its penetration of its existing desktop
presence by introducing new and more efficient pointing devices into the
customer base. In addition, Logitech has expanded beyond its traditional role as
a provider of pointing devices for the desktop into a leading brand for cameras,
keyboards, PC audio products and game controllers. It has the ability to
introduce on the desktop an even greater number of essential interface devices
that people touch and use every day.
Become a leader in media-rich Internet-enabled communication
Logitech continues to increase Internet functionality throughout all of its
products as it enhances web-based service offerings and explores additional new
business models. The introduction of web-aware iTouch software to Logitech mice
and keyboards, and the creation of the SpotLife personal broadcasting initiative
are important steps in this direction. Additionally, the recent purchase of
Labtec brings a broad range of Internet communication tools to the Logitech
product family, including voice-over-IP and voice chat.
Expand into alternate computing platforms
Today, the computing environment that Logitech serves is centered on the PC
platform. But as the interface to the digital world moves beyond the desktop
and beyond the PC - to the living room, to the kitchen, to wherever and whenever
people want to access digital information, the need for an intuitive interface
will remain, and with it the opportunity to deploy Logitech products and design
expertise across these additional environments.
Products
The Company operates in a single industry segment encompassing the design,
development, manufacture, marketing and support of computer interface devices.
All the Company's products share certain characteristics such as common
customers, common sales channels and common Company infrastructure requirements.
Logitech's interface devices include input and pointing devices such as corded
and cordless mice, trackballs, and keyboards; interactive gaming devices for
entertainment such as joysticks, gamepads and steering wheels; multimedia
speakers and Internet video cameras. The Company's product families are
summarized below.
. Mice. Logitech offers many varieties of mice, sold through both OEM and retail
channels. Cordless MouseMan Optical, like all cordless pointing devices from
Logitech, uses digital radio technology to transmit data to the host computer,
without line-of-sight requirements that characterize cordless peripherals
based on infrared technology. Optical technology replaces the ball with a
tracking system that works through light, using a light beam to illuminate
surfaces on which the mouse is travelling. All premium retail models are
bundled with MouseWare(R) software, enabling users to program mouse buttons
for specific tasks (for example, double-click) and scroll through long
documents and web pages. In addition, the Company's newest mice include
WebWheel(TM) software for easy Internet access and navigation. The Company
also sells both corded and cordless mice that are designed specifically for
OEM customers.
. Trackballs. Logitech produces several trackballs for the retail channel. All
corded and cordless models use the Company's patented Marble(R) optical
sensing technology, which enables reliable, accurate operation without the
need to regularly clean the device to prevent build-up of dust or grease. In
addition to desktop models, Logitech also offers TrackMan(R) Live!(TM)--a
cordless, radio controlled handheld trackball unit designed for computer-based
presentations.
. Keyboards. Logitech offers a variety of corded and cordless keyboards, from
the top of the line Cordless Freedom(TM) Pro, a package that combines a
cordless keyboard and mouse, to the basic Deluxe Access 104, an affordable,
attractive replacement unit. All premium keyboards offer Logitech's innovative
iTouch(TM) feature. iTouch features one touch access to various hot sites and
key functions, such as listening to music on the web and downloading MP3
files, in addition to quick access to favorite web sites and e-mail and search
functions.
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. Internet Video Cameras. Logitech's QuickCam(R) family of PC video cameras
features easy installation, and powerful software for enhanced visual
communication on the Internet. QuickCam Traveler, the Company's premium model,
is a dual-purpose camera that can be used to take pictures detached from the
PC or used for video communication with someone over the Internet attached to
the PC. Our QuickCam Pro line integrates a built-in microphone to enhance
video conferencing experience.
. Joysticks. Logitech's joysticks, designed for air combat, adventure, flight
simulator, racing and other games, are consistent industry award winners. Each
has a distinctive industrial design with a sculpted grip to fit the user's
hand. The WingMan Strike Force 3D is designed with a twist handle for precise
rudder control and has two hat switches and nine programmable buttons for
maximum control. It is developed with force feedback technology, a combination
of Logitech engineering and certain features licensed from Immersion
Corporation.
. Gamepads. Logitech gamepads are designed with features similar to those used
with dedicated game platforms, and are for use with a wide variety of titles.
The Company has added motion-sensing technology, which turns body motion into
on-screen action, to its latest generation of gamepads. All gamepads are
designed to be comfortable for extended play periods.
. Steering Wheels. The Company's steering wheels offer smooth, precise steering
with a textured rubber wheel that provides a high degree of comfort and
control. The WingMan(R) Formula(TM) Force GP racing system features a steel
cable drive transmission based on TouchSense force feedback technology. In
fiscal 2001, the Company introduced the GT Force wheel for use on the "Gran
Turismo 3 A-Spec" racing game for PlayStation 2.
The acquisition of Labtec brings to the Company a broad range of computer
peripheral products primarily in the audio and telephony category, and it
augments the Company's strength in the 3D controller for graphical interface
segment, used primarily in engineering and industrial design applications.
. PC and Game Console Speakers. Labtec's line of PC and game console speakers is
oriented toward three different user groups: Educainment for the users of
basic multimedia software such as educational or basic music software, Audio
Enthusiasts desiring crisp audio sound for music, and Gamers desiring a strong
bass component in their systems. Labtec offers a variety of models across a
wide price range targeted at users in each of these groups. The positioning of
Labtec products covers both entry-level and upgrade speaker segments,
encompassing most addressable industry volume. Labtec seeks to provide the
best performing product based on sound quality, industrial design, and product
features at each retail price point.
. Headsets and Microphones. Labtec offers a complete PC voice access line of
headsets and accessories, microphones, and telephony. This line is designed to
complement several emerging applications, including basic PC telephony (voice
mail, call forwarding, etc.), voice-over-IP communications (Internet long
distance), speech recognition and voice command software, gaming (multi-player
interaction), and Internet-based audio (including MP3).
The PC Voice Access line breaks into three product classes: (i) headsets with
boom microphones that allow comfortable hands-free use of voice-over-IP and
speech recognition applications; (ii) PC microphones that allow for effective
voice input for voice command and speech recognition software and Internet
formats; and (iii) telephony products that have dual functionality between the
PC and the telephone.
. Personal Audio. This product line consists of an innovative group of
headphones and earphones with quality audio technology and lightweight,
stylish designs. The line has been segmented to specifically appeal to popular
customer profiles, specifically value-oriented, fashion-oriented, performance-
oriented, and eAudio-oriented customers. The eAudio family of products will
further efforts to capitalize on the emerging market for Internet audio based
on MP3 and other electronic music standards.
Technology
Logitech products are sophisticated systems that combine multiple engineering
disciplines--radio frequency, optical, mechanical, electrical, software,
acoustical-and incorporate both cognitive and physiological elements in user-
centric industrial designs. These systems share common design elements,
including: sensors to detect and encode motion, images, sound or other analog
data into electrical signals; custom ASICs; microcontrollers to convert and
process signals received from the sensor; a communications subsystem to exchange
signals with an attached computer or other intelligent host; and a suite of
driver, utility and user interface software modules and web sites. The Company
believes these software modules and web support complete a seamless user-centric
solution for information input, access and control. Logitech's products
incorporate the following principal technologies:
15
. Sensing. The Company's sensors transform analog motion and images into
electronic signals. Logitech was the first to introduce optical sensing in
pointing devices. For example, all of Logitech's patented Marble(R) products
utilize an optical trackball sensor, greatly improving trackball accuracy and
durability. Similarly, Logitech's digital cameras utilize optical sensors to
detect colors, shapes and other image attributes and convert these attributes
into electronic signals. Through a variety of sophisticated sensing and
encoding techniques, Logitech has been able to improve the optical sensing
quality, lower the cost, and increase the reliability of its optical mouse
products.
. Signal Processing Algorithms. Logitech engineers employ sophisticated signal
processing algorithms across many product lines to compute spatial
displacements, enhance color image quality and compress or format data for
transmission. For example, in the Company's Internet video cameras, signal-
processing algorithms are used for color extraction, image enhancement and
data compression.
. Power Management. The Company's products utilize advanced power management
including techniques to reduce power consumption when needed. Cables connected
to separate power supplies are inconvenient in the case of products such as
corded pointing devices, and impossible in the case of cordless devices.
Consequently, the Company believes low power consumption is an essential
product attribute for the consumer marketplace. In addition, with up to 127
devices potentially drawing power from a single USB port, the Company believes
its power management expertise is particularly important for the next
generation of USB products. This year, the introduction of the Cordless
MouseMan Optical, the first cordless optical mouse, was made possible by a
special power-saving chip co-developed with Agilent Technologies.
. Cordlessness. The Company has been at the forefront in the development and
supply of low power radio frequency ("RF") technology for use over short
distances. The Company is focusing its current cordless development efforts
primarily on RF devices. Logitech believes the Bluetooth Cordless Standard
will be an enabler to a much wider acceptance of cordlessness in the
marketplace thus boosting the growth of companies active in this market
segment. Bluetooth is a new communication connectivity standard that will
enable computers, computer peripherals, and non-computer equipment to
communicate and exchange date cordlessly.
. Force Feedback. Force feedback adds a real physical sensation to computer
systems, enabling users to feel surfaces, bumps, vibrations, textures,
inertia, liquids, springs, and many other compelling physical phenomena. This
licensed technology is primarily used in joysticks and steering wheels where
game players can experience the actual physical sensation of being at the
controls of a fighter jet or at the wheel of a racing car. In August 2000, the
Company introduced the first "tactile response" feature in a mouse product,
allowing the user to add "feel" and therefore enrich the sensing experience.
As an extension of the concept of Force Feedback, "tactile response"
encompasses a combination of software, optical sensing, and a high fidelity
response engine that enables the Company's iFeel mice to provide tactile
communication in mainstream applications and on the Web.
. Software. The growth of the Internet is providing new technical challenges and
opportunities for the Company. The Company is focussing its development
efforts on the interface to the Internet, communications over the Internet,
and security on the Internet, with products and services like iTouch, video
mail and webcasting. Software technologies such as object based programming
and tight integration between the hardware device and application, enable
easier to use interactions and Internet service access.
. Sound. One of the key elements in the convergence of data and voice in
Internet communication is the ability to clearly recognize voice input and
delivering quality sound by the personal computer. As a result of the Labtec
acquisition, Logitech now offers noise canceling and amplification technology
which improves performance (i) by focusing on direct voice input, dramatically
reducing ambient background noise, and (ii) through a high output internal
amplification stage, ensuring output compatibility with virtually all
Soundblaster standard soundcards.
Research and Development
The Company believes that continued investment in product research and
development is critical to its continued success. The Company believes that its
international structure provides certain advantages and synergies to its overall
product development efforts. Logitech's product research and development
activities are conducted at four engineering centers located in Fremont,
California, Vancouver, Washington, Romanel-sur-Morges, Switzerland and Hsinchu,
Taiwan.
The location of the Company's Fremont, California facility allows the Company
access to Silicon Valley's talent pool, particularly important in the
development of Internet applications, software and video technologies. In
addition, this location in the midst of the world's leading technology market
enables the Company to compile market intelligence to define and position
products and develop key strategic alliances.
16
Logitech's Swiss engineering center provides the Company with advanced sensing
and cordless technologies. In addition, the Swiss center is a convenient point
for gaining access to leading European technologies. Logitech has been
successful in recruiting and retaining top engineering graduates from leading
Swiss universities because it is one of the few computer technology companies in
Switzerland.
Through its Taiwanese subsidiary, the Company has established access to key
Asian markets, engineering resources and high-tech manufacturing. Taiwan is a
world leader in manufacturing and engineering. In particular, Taiwan is a world
leader in the design and manufacture of semiconductors, notebook computers,
scanners, monitors and related products, and possesses a concentration of firms
that specialize in advanced plastic injection blow molding and tooling.
Moreover, the common language of Taiwan and China facilitates the transfer of
products from the Company's engineering launch site in Taiwan to its high volume
manufacturing site in China.
The Company is continually developing new products and enhancements to
existing products. Across all product lines, the Company is devoting
significant research and development resources to extending its cordless and
video capabilities.
The Company's research and development expenses for fiscal years 2001, 2000
and 1999 were $36.7 million, $31.7 million, and $31.4 million. The Company
expects to continue to devote significant resources to research and development
to sustain its competitive position.
Marketing, Sales and Distribution
The primary end-user markets for Logitech mice, trackballs and keyboards are
consumers, small office and home office ("SoHo") users, and, through its OEM
customers, corporate buyers. The primary end user market for Logitech
entertainment devices, such as joysticks, gamepads and steering wheels, is
consumers. The primary end-users for Labtec's audio products are consumers,
SoHo, and OEM customers. The Company's end user markets for its PC video cameras
are SoHo users, corporate buyers and consumers. Logitech's primary end user
markets are in North America, Europe and Asia. However, it also markets its
products in Australia, Latin America and other regions.
Logitech builds awareness of its products and brand through targeted
advertising, public relations efforts, in-store promotions and merchandising, a
world wide web site and other efforts. It also develops knowledge of its end
users through customer feedback and market research, including focus groups,
product registrations, end user questionnaires, multi-client surveys and other
techniques. In addition, manufacturers of PCs and other products also receive
customer feedback and perform end user market research, which sometimes result
in specific requests to the Company for specific products, features or
enhancements.
Logitech sells through many distribution channels, including OEMs,
distributors and regional and national retail chains. In addition, the Company
supports retail channels with distribution centers located in the United States,
Europe and Asia. These centers perform final configuration of products and
product localization with local language manuals, packaging, software diskettes
and power plugs. During fiscal 2000, Logitech added electronic commerce to its
distribution mix in the U.S. and in fiscal 2001 launched e-commerce capabilities
in several European countries.
Logitech sells to large OEM customers through a direct sales force and
supports small OEM customers through distributors. The Company counts the
majority of the world's largest PC manufacturers among its customers. In retail
channels, Logitech's direct sales force sells to distributors and resellers.
Its distributor customers typically resell products to retailers, value-added
resellers, and system integrators with which Logitech does not have a direct
relationship. These distributors in the U.S. include Ingram Micro Inc. and Tech
Data Corporation, and in Europe include Banque Magnetique, Computer 2000 and
Ingram Micro.
Logitech also sells to major retail chains, where it typically enjoys access
to significant shelf space. These chains in the U.S. include Best Buy Co.,
Inc., CompUSA, Inc., Office Depot, Inc., Staples, Inc. and Circuit City, and in
Europe include Carrefour, Dixons Stores Group PLC and Vobis. No single customer
accounts for more than 10% of the Company's net sales. Logitech also sells
through the top online etailers, which include Amazon.com, Buy.com, CDW,
Insight, Micro Warehouse and others.
The loss of one or more of the Company's OEM customers, distributors or major
resellers could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, due to its sales to
large OEMs, distributors and high volume resellers, the Company maintains
individually significant receivable balances with large customers. As of March
31, 2001, two customers represented 10.5% of total accounts receivable. The
Company seeks to control its credit risk through ongoing credit evaluation of
its customers' financial condition and by purchasing credit insurance on
European retail accounts receivable balances, but generally does not require any
collateral from its customers. If any of the Company's major customers were to
17
default in the payment of its receivables owed to the Company, the Company's
operating results could be materially adversely affected.
Through its operating subsidiaries, the Company maintains sales offices or
sales representatives in 20 countries, and throughout the United States.
Principal Markets
The Company operates in one business segment, which is the design,
development, production, marketing and support of computer interface devices.
Net sales to unaffiliated customers by geographic region were as follows:
Year ended March 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
(In thousands)
Europe.................................................................. $336,099 $259,486 $195,913
North America........................................................... 301,963 253,502 196,778
Asia Pacific............................................................ 123,294 102,676 78,050
------------ ------------ ------------
Net sales............................................................... $761,356 $615,664 $470,741
============ ============ ============
Customer Service and Technical Support
Through its operating subsidiaries, the Company maintains customer service and
technical support operations in the United States, Europe, Asia and Australia.
Customer service and technical personnel provide support services to retail
purchasers of products via telephone, facsimile and the Logitech web site. This
site is designed to expedite overall response time while minimizing the
resources required for effective customer support. In general, OEMs provide
customer service and technical support for their products, including components
purchased from suppliers such as Logitech.
The Company provides a one to five year warranty on its branded retail
products. As is typical in the PC industry, the Company frequently grants
customers limited rights of return with respect to retail purchase or unsold
inventories in exchange for new purchases, as well as price protection. There
can be no assurance that allowances will be sufficient or that any future
returns or price changes will not have a material adverse effect on operating
results. The short product life cycles of the Company's products and the
difficulty in predicting future sales increase the risk that new product
introductions, price reductions by the Company or its competitors or other
factors affecting the PC industry could result in significant product returns.
Manufacturing
The Company's manufacturing operations consist principally of final assembly
and testing. Logitech's high-volume manufacturing is located in Suzhou, China,
where labor and overhead costs are significantly lower than in North America,
Europe and Taiwan. The Suzhou facilities are designed to allow significant
production growth as well as flexibility in responding to changing demands for
the Company's products. The Company continues to focus on improving the
efficiency at the Suzhou facilities, including the implementation of total
quality management and total employee involvement programs.
New product launches, value-added manufacturing, process engineering,
commodities management, logistics, quality assurance and operations management
are centralized in Hsinchu, Taiwan. Components are manufactured to the
Company's specifications by vendors in Asia, the United States and Europe.
Logitech also utilizes subcontractors to supplement internal capacity and to
reduce volatility in production volumes. In addition, certain products,
including keyboards and some gaming devices, are manufactured by third-party
suppliers to the Company's specifications. In such cases, the Company performs
final testing and product quality assurance prior to shipment. Retail product
localization with local language manuals, packaging, software diskettes and
power plugs is performed at distribution centers in the United States, Europe
and Asia. Labtec's products are manufactured by subcontractors in China. This
activity is closely monitored by its Hong Kong office.
Competition
Our business is characterized by intense competition, a trend of declining
average selling prices in OEM and performance enhancements and new features of
competing retail products. We expect that competition will continue to be
intense and may increase from current or future competitors.
18
We compete primarily with Creative Labs, Ezonics Corporation, Guillemot
Corporation, Intel, Interact Multimedia, Kensington/Advanced Gravis, KYE/Mouse
Systems, Microsoft, Mitsumi, Philips, Primax, Saitek Industries Ltd., Xirlink
Inc., Altec Lansing, Plantronics and Telex Communications. Many of our current
and potential competitors have longer operating histories and significantly
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and larger customer bases, than us.
Our main competitor in the market for pointing devices, gaming devices and
keyboards is Microsoft. In late, 1999, Microsoft began shipping two new mouse
products that were based on an optical sensing technology. We responded to
Microsoft with optical offerings in the summer of 2000. In addition, we
continued to focus on the advantages of our cordless offerings to the end user.
Microsoft entered into the cordless mouse category in the second quarter of
fiscal 2001, and we expect Microsoft to add a cordless keyboard to their line in
the near future. We are also starting to see increased competition for cordless
desktops from less established brands, at the lower price segments.
Microsoft is also a leading producer of operating systems and applications
with which our pointing and gaming devices are designed to operate. As a result
of our position, Microsoft may be able to make improvements in the functionality
of its pointing and gaming devices to correspond with ongoing modifications and
enhancements to its operating systems and software applications before we are
able to make such improvements. This ability could provide Microsoft with
significant lead time advantages for product development. In addition, Microsoft
may be able to offer pricing advantages on bundled hardware and software
products that we are not able to offer.
Our main competitor in the market for PC video cameras is Intel. Intel has
also begun offering a family of wireless products for use with a PC, including a
mouse, a keyboard and a gamepad. These products are offered separately and in
various combinations. These products are based on a wireless systems approach
that requires the use of a base station that can connect multiple wireless
devices. It remains to be seen how consumers will respond to this Intel
offering.
Competitors in the market for audio devices vary by product line. In the PC
speaker business, competitors include Altec Lansing and Creative Labs. In the
headset, microphone, and telephony markets, competitors include Plantronics and
Telex Communications. For the personal audio market, the primary competitor is
Sony. This market is intensely competitive and market leadership changes
frequently as a result of new products, designs and pricing.
We expect to continue to experience increased competition, significant price
reductions in OEM and performance enhancements of competing products in retail.
This could result in decreased revenue, decreased gross margin, loss of market
share and lack of acceptance of our products. In the event of significant price
competition in the market for our products, we would be required to decrease
costs at least proportionately to any price decreases in order to maintain our
existing margin levels and would be at a significant disadvantage compared to
competitors with substantially greater resources, which could more readily
withstand an extended period of downward pricing pressure. We may not be able to
compete successfully in the future, and competition may significantly harm our
business, financial condition and results of operations.
Intellectual Property and Proprietary Rights
The Company relies on a combination of the protections provided by applicable
trade secret, copyright, patent and trademark laws, license and non-disclosure
agreements and technical measures to establish and protect our proprietary
rights in our products and technology.
The Company holds various United States patents, together with corresponding
patents from other countries, relating to certain of the same inventions. The
Company also has various United States patent applications pending, together
with corresponding applications from other countries relating to certain of the
same inventions. Despite these patents and patent applications, there can be no
assurance that any patent owned by the Company will not be invalidated, deemed
unenforceable, circumvented or challenged, that the rights granted thereunder
will provide competitive advantages to the Company, or that any of the Company's
pending or future patent applications will be issued with claims of the scope
sought by the Company. In addition, there can be no assurance that other
intellectual property laws, or the Company's confidentiality procedures and
contractual provisions, will adequately protect the Company's intellectual
property. There can also be no assurance that the Company's competitors will
not independently develop similar technology, duplicate the Company's products
or design around the Company's patents or other intellectual property rights.
Despite our efforts to protect our property rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Monitoring unauthorized
use of our products is difficult, and we cannot be certain that the steps we
have taken will prevent misappropriation of our technology. Any of these events
could have a material adverse effect on the Company's business, financial
condition and results of operations.
19
The Company also relies on certain technologies that it licenses or acquires
from others. The Company may find it necessary or desirable in the future to
obtain licenses or other rights relating to one or more of its products or to
current or future technologies. There is no assurance that such licenses or
other rights will be available on commercially reasonable terms, or at all.
Governmental Regulation
A significant amount of our manufacturing operations are located in China.
These operations could be severely impacted by economic or political instability
in China, including instability which may occur in connection with a change in
leadership in China, by evolving interpretation and enforcement of legal
standards, by strains on Chinese transportation, communications, trade and other
infrastructures related to the rapid industrialization of an agrarian economy,
by conflicts, embargoes, increased tensions or escalation of hostilities between
China and Taiwan, and by other trade customs and practices that are dissimilar
to those in the United States. Interpretation and enforcement of China's laws
and regulations continue to evolve and we expect differences in interpretation
and enforcement to continue in the foreseeable future. In addition, our Chinese
employees in our Suzhou, China facilities are subject to a number of government
regulations regarding employment practices and customs that are fundamentally
different in many respects from those in the United States and Europe. The
Suzhou facilities are managed by several of our key Taiwanese expatriate
employees. The loss of these employees, either voluntarily or because of a
deterioration in relations between China and Taiwan, may diminish the
productivity and effectiveness of our Suzhou manufacturing operations.
Seasonality
For a description of seasonality of our business, see Item 3.D "Key
Information - Risk Factors."
C. Organizational Structure
The following is a listing of significant subsidiaries of the Company:
Ownership
Name Incorporated in Interest
-------------------------------------- ----------------------- ------------------
Logitech Inc. U.S. 100%
Logitech Far East Ltd. Taiwan 100%*
Suzhou Logitech Electronics Ltd. China 100%
Logitech Europe S.A. Switzerland 100%
Logitech (Jersey) Ltd. Jersey 100%
Labtec Inc. U.S. 100%
*Due to local legal requirements, there are holders of nominal shares
apart from the Company.
D. Property, plants and equipment
Logitech's U.S. subsidiary has headquarters in Fremont, California in a leased
building comprising approximately 95,600 square feet. This facility is also
occupied by Logitech's Americas headquarters, including research and
development, product marketing, sales management, technical support and
administration. The Company's Fremont lease expires in March 2006.
The audio business unit is located in 17,822 square feet of office space in
Vancouver, WA. Labtec also leases an 80,000 square foot warehouse facility and
a 6,000 square foot warehouse facility in Vancouver, WA. The leases for the
headquarters and the larger warehouse facility have terms through April 2006.
The lease for the smaller warehouse facility is a month-to-month agreement.
Logitech's Europe headquarters are in Romanel-sur-Morges, Switzerland. This
Company-owned facility comprises 33,300 square feet and includes research and
development, product marketing, sales management, technical support,
administration and certain Logitech group activities including finance.
Logitech's Asia headquarters are in a Company-owned 112,000 square foot
facility in Hsinchu, Taiwan, and includes mechanical engineering, new product
launches, value-added manufacturing, process engineering, commodities
management, logistics, quality assurance, and administration. The Hsinchu
facility also serves as a distribution center for the Company. Logitech's high
volume manufacturing is located in Suzhou, China, comprised
20
of a Company-owned 253,716 square foot building and a building comprised of
approximately 91,500 square feet and is subject to a lease due to expire in July
2003.
Logitech has major distribution centers in Union City, California, Nijmegen,
the Netherlands and Hsinchu, Taiwan. The Union City facility is 86,500 square
feet and is being leased by the Company until September 2003. The distribution
center in Nijmegen is comprised of approximately 7,150 square feet and is
subject to a lease due to expire in July 2005. The Company believes that its
current facilities will be adequate for its needs for the foreseeable future.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
This annual report to shareholders contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these statements as a result of certain
factors, including those set forth below and in Item 11, "Quantitative and
Qualitative Disclosure About Market Risk".
Overview
Logitech designs, manufactures and markets human interface devices and
supporting software that serve as the primary physical interface between people
and their personal computers and the Internet. The Company's products include
corded and cordless mice, trackballs and keyboards: joysticks, gamepads, and
racing systems; Internet video cameras; and multimedia speakers.
The Company sells its products through two primary channels, original
equipment manufacturers ("OEMs") and a network of retail distributors and
resellers ("retail"). Products sold to OEMs, principally pointing devices, are
generally resold to end users bundled with new PCs. Sales to OEMs as a
percentage of total net sales can vary significantly and have ranged from 17% to
38% on a quarterly basis over the past three fiscal years.
Logitech was founded in Switzerland in 1981, and in 1988 listed its shares in
an initial public offering in Switzerland. In 1997, the Company sold shares in
a U.S. initial public offering in the form of American Depository Shares
("ADS"), and listed the ADSs on the Nasdaq National Market System. The
Company's headquarters are in Fremont, California through its U.S. subsidiary,
with regional headquarters in Romanel, Switzerland and Hsinchu, Taiwan through
local subsidiaries. In addition, Logitech has manufacturing operations in
China, with distribution facilities in the United States, Europe and Asia.
Recent Developments
On March 27, 2001, Logitech completed the acquisition of Labtec Inc., a
publicly traded Vancouver, Washington-based provider of PC speakers, headsets
and microphones, personal audio products for MP3 players and other portable
audio devices, 3D input devices, and other peripherals and accessories for
computing, communication and entertainment. Under terms of the merger agreement,
Logitech purchased substantially all outstanding shares of Labtec for $73
million in cash and stock, plus $3.3 million of transaction costs.
Consideration for the purchase was obtained through i) short term borrowings of
$35 million under a term loan credit facility,ii) the issuance of 1,142,998
Logitech ADSs, and iii) the use of $12.5 million of working capital funds.
The Company has financed the cash portion of the purchase price with $90
million of borrowings ($35 million drawn down as of March 31, 2001) under a
bridge loan facility. The bridge loan matures one year after the initial draw.
The Company intends to refinance this loan prior to maturity, either through a
debt or equity financing or a new bank facility. As a result of the increased
leverage, the Company's principal and interest obligations will increase
substantially.
The acquisition was accounted for by the purchase method of accounting.
Therefore, the assets acquired and liabilities assumed were recorded at
estimated fair values as determined by the Company's management based upon
information currently available and on current assumptions as to future
operations. Under the purchase method of accounting, Labtec's results of
operations from the March 27, 2001 acquisition date were not significant because
the acquisition occurred shortly before the end of the fiscal year. Logitech
also recorded a $3.3 million in-process research and development charge in
connection with the acquisition.
The acquisition will have a significant impact on the Company's results of
operations. The impact will include:
. Significantly increased interest expense resulting from the borrowings
under the bridge loan;
. Significantly increased expense resulting from amortization of goodwill and
other intangible assets arising from the acquisition;
21
. A possible increase in the Company's effective tax rate due to amortization
of transaction-related costs.
. A possible dilutive impact on earnings per share resulting from the shares
issued to acquire Labtec.
. Higher sales and gross profit, increased headcount, and higher operating
expenses.
Results of Operations
The following table sets forth certain consolidated financial statement
amounts as a percentage of net sales for the periods indicated:
Year ended March 31,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net sales............................................................ 100.0% 100.0% 100.0%
Cost of goods sold................................................... 66.0 66.4 65.4
------------ ------------ ------------
Gross profit......................................................... 34.0 33.6 34.6
Operating expenses:
Marketing and selling............................................... 17.2 16.7 18.1
Research and development............................................ 4.8 5.1 6.8
General and administrative.......................................... 4.4 5.1 5.0
Purchased in-process research and development....................... .4 -- 1.3
------------ ------------ ------------
Total operating expenses 26.8 26.9 31.2
------------ ------------ ------------
Operating income..................................................... 7.2 6.7 3.4
Interest income (expense), net....................................... -- (.1) .2
Loss on sale of product line......................................... -- -- (1.5)
Other income (expense), net.......................................... .3 (.5) (.3)
------------ ------------ ------------
Income before income taxes........................................... 7.5 6.1 1.8
Provision for income taxes........................................... 1.6 1.2 .3
------------ ------------ ------------
Net income........................................................... 5.9% 4.9% 1.5%
============ ============= ============
Year Ended March 31, 2001 Compared to Year Ended March 31, 2000
Net Sales
Net sales for the year ended March 31, 2001 increased 24% to $761.4 million.
This growth was shared across all product categories, but primarily came from
the Company's video and keyboard products, as well as increases from the
Company's corded and cordless mice. The Euro's continued loss in value compared
to the U.S. dollar restrained sales growth for the year. With approximately 33%
of the Company's sales denominated in the Euro, the Company estimates that the
impact of the weakening Euro, along with the impact of other exchange rate
changes, was approximately $38 million. Even with this restraining factor,
sales for the year were the largest in Logitech's history.
Retail sales grew by 30% over last year. This growth was shared across all
product categories. In the retail pointing device category, which includes mice
and trackballs, sales grew by 14% while unit volumes grew 6%. The Company
continues to see growth in both corded and cordless mice, with sales increasing
24% over last year. The introduction of a variety of corded optical mice,
including some models featuring tactile feedback, helped drive much of this
growth. Mice sales represented 37% of the Company's total retail revenue for
fiscal 2001, compared to 39% last year. Keyboard products continue to be a
source of strong growth with sales increasing by 54% over last year and unit
volume growing 57%. The majority of growth in this category continues to come
from the cordless desktop line. In the video camera business, retail sales grew
56% and unit volumes more than doubled. The Company continues to believe it is
the PC video camera market leader for both unit and dollar market share in both
the U.S. and Europe. Sales of interactive entertainment products grew 21%,
while unit volumes increased 31%. The overall market for PC gaming peripherals
continues to be very weak, affecting Logitech products as well. While sales of
joysticks and steering wheels increased over last year, almost half of the sales
growth in the gaming category was made possible by the initial sales of gaming
console steering wheels, which were shipped in
22
preparation for the upcoming launch of the "Gran Turismo 3 A-Spec" racing game
for PlayStation 2. These shipments represent the Company's initial movement
beyond the PC.
OEM sales grew this year by 8% compared to last year, while unit volume
increased by 3%. This growth was made possible by significant growth in sales
of PC video cameras, particularly in the first half of the year. Logitech's OEM
sales declined in the fourth quarter of fiscal 2001 compared to the same quarter
last year. The largest PC manufacturers continue to face difficult business
conditions and a reduction in demand for new PCs, and this impacts Logitech OEM
sales. As a result, the Company believes that revenue and unit volumes for OEM
in total will decline on a year-over-year basis at least through the first half
of fiscal 2002.
Gross Profit
Gross profit consists of net sales, less cost of goods sold, which consists of
materials, direct labor and related overhead costs, costs of manufacturing
facilities, costs of purchasing finished products from outside suppliers,
distribution costs and inventory write-offs. Gross profit increased 25% to
$259.1 million for the year ended March 31, 2001 due primarily to significantly
higher sales volume.
Gross margin (gross profit as a percentage of net sales) increased from 33.6%
to 34.0%. The increase was primarily due to operational efficiencies achieved
throughout the supply chain, combined with increased higher-margin Internet
video camera sales to OEM customers. Retail gross margin declined, reflecting a
shift in product mix and the impact of pricing actions to meet competitive price
pressures, as well as the decline in the value of the Euro compared to the U.S.
dollar. Over the next fiscal year, the Company expects gross margin to be
within the long-term targeted range of 34% to 35%.
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 27% to $130.9 million. The increase in sales and marketing
expenses is directly related to the Company's increased sales performance and
marketing initiatives aimed at strengthening the Company's retail presence. As
a percentage of sales, marketing and selling costs increased slightly from 16.7%
to 17.2%. The Company continues to make significant investments in advertising,
channel marketing, and brand awareness.
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, the enhancements of existing products and the
performance of quality assurance activities. Research and development expenses
increased 16% to $36.7 million. As a percentage of sales, research and
development costs decreased slightly from 5.1% to 4.8%. Research and
development efforts are focused on new product development and cost reductions
on existing products.
General and Administrative
General and administrative expense consist primarily of personnel and related
overhead and facilities costs for the finance, information systems, executive,
human resources, and legal functions. General and administrative expenses
increased 8% to $33.5 million for the year ended March 31, 2001. This
represents 4.4% of net sales, compared to 5.1% last year. The slight increase
in general and administrative expenses primarily reflects higher information
systems costs.
Purchased In-Process Research and Development
In connection with the acquisition of Labtec in March 2001, Logitech recorded
a one-time charge of $3.3 million for purchased in-process research and
development. The value of IPR&D was determined by estimating the expected cash
flows from the projects once commercially viable, discounting the net cash flows
back to their present value and then applying a percentage of completion to the
calculated value.
23
Interest Income (Expense), Net
Net interest expense was $.1 million for the year ended March 31, 2001
compared to $.2 for the year ended March 31, 2000. Interest expense will
increase substantially in fiscal 2002, because of short term financing of the
cash needs for the Labtec acquisition. The Company borrowed $35 million in
March 2001 and $55 million in April 2001 to finance the acquisition and repay
Labtec obligations and credit lines.
Other Income (Expense), Net
Other income was $2.6 million for the year ended March 31, 2001, compared to
other expense of $3.3 million for the same period last year. Other income this
year was primarily due to the first quarter gains recognized from the sale of a
building and the sale of shares of Immersion Corporation. The other expense last
year was primarily due to third quarter losses in investments accounted for
under the equity method, and the fourth quarter write-off of an investment,
which were partially offset by the gain on the sale of the touchpad technology.
Provision for Income Taxes
The provision for income taxes consists of income and withholding taxes and is
based on factors such as management's expectations as to payments of withholding
taxes on amounts repatriated through dividends, the jurisdictions in which
taxable income and losses are generated, changes in local tax laws and changes
in valuation allowances based upon the likelihood of realizing deferred tax
assets. The provision for income taxes for the year ended March 31, 2001 was
$12.1 million, representing a 21% effective tax rate, compared to $7.5 million,
representing a 20% effective tax rate in 2000. The effective tax rate increased
in 2001 due to the non-deductible nature of the one time purchased in-process
research and development expense. Excluding the purchased in-process research
and development expense, the effective tax rate in 2001 would have been 20%.
The Company's effective tax rate is dependent on achieving expected income
levels in a number of jurisdictions. If the Company is unable to achieve
expected income levels in those jurisdictions, the Company's effective tax rate
could change significantly.
Year Ended March 31, 2000 Compared to Year Ended March 31, 1999
Net Sales
Net sales for the year ended March 31, 2000 increased 31% to $615.7 million.
This growth was shared across all product categories, but primarily came from
the Company's keyboard and video products, as well as increases in the Company's
cordless mouse offerings.
Retail sales grew by 43%. This growth was shared across all product
categories. Retail sales of the Company's traditional pointing devices, which
include mice and trackballs, grew by 10%, while unit volumes grew 18%. This
growth was driven by a 121% increase in sales of the Company's cordless mice.
Even with this growth, mice sales represented only 39% of the Company's total
retail revenue for fiscal 2000, compared to 50% in fiscal 1999, reflecting the
Company's expanded retail product offerings. Sales of keyboard products
increased by 172% over the same period last year, while unit volumes more than
doubled. The Company added a renewed line of cordless desktops in the third
quarter. In the fast growing Internet video camera business, retail sales grew
by 130% over last year, with unit volumes almost tripling. The video camera
increases occurred despite the loss of some shelf space in stores in the third
quarter of fiscal 2000 due to product transition issues related to two improved
video products. Sales of interactive gaming products increased 15% over last
year, with unit volumes increasing 48%. Average selling prices in this category
have declined from last year, reflecting the Company's new entry level offerings
and a large sell-in of a new line of high end joysticks and racing systems last
year. The sales and volume increases occurred despite declines in the overall
U.S. PC gaming market, particularly over the last two quarters. The impact of
this decline is being felt by all competitors in this market. Logitech's volume
increases, combined with the decline in the overall market, have resulted in
increased market share in most interactive gaming product categories, and for
joysticks in particular.
OEM sales grew by 7% compared to last year, with unit volume increasing 25%.
The impact of the volume increase on net sales was partially offset by price
reductions in pointing devices due to price pressures in the OEM market. This
year's growth was driven principally by the Company's Internet video cameras
which, beginning in the fourth quarter, are being bundled by Compaq with most of
their Presario(R) models sold in the North American market.
24
Gross Profit
Gross profit for the year ended March 31, 2000 increased 27% to $206.7
million. Gross profit as a percentage of sales decreased slightly from 34.6% to
33.6%. This decrease principally reflects the impact of pricing pressures in
the Company's OEM mouse offerings. The price pressures in the OEM mouse business
led to a significant margin decline in this area compared to last year. While
the Company continues to achieve cost reductions offsetting much of the impact
of lower prices, the price reductions for some of the Company's largest
customers have outpaced the cost reduction efforts. The lower overall OEM mouse
margins were partially offset by the impact of increased sales of higher margin
Internet video cameras in the OEM channel. Retail gross profit as a percentage
of sales remained flat compared to last year.
Operating Expenses
Marketing and Selling
Marketing and selling expense for the year ended March 31, 2000 increased 21%
to $103 million. This increase is directly related to the Company's increased
sales performance and marketing initiatives aimed at strengthening the Company's
retail presence. As a percentage of sales, marketing and selling costs
decreased from 18.1% to 16.7%. The Company has increased other marketing costs
in new product areas, including retail keyboards, Internet video cameras and
cordless mice.
Research and Development
Excluding $1.4 million in development efforts relating to Spotlife Inc.,
Logitech's spin-off focused on enhancing video communications using the Internet
infrastructure, research and development expense for the year ended March 31,
2000 decreased 4% to $30.3 million. As a percentage of sales, research and
development decreased from 6.8% to 4.9%. This decrease was primarily related to
lower project development costs. The Company has shortened the time of new
product development activities and reduced the expenses required to bring
products to market. The Company continues its development efforts across the
entire spectrum of its product portfolio, with initiatives in new product
development as well as cost reductions on existing products.
General and Administrative
General and administrative expense for the year ended March 31, 2000 increased
32% to $31.1 million, or 5.1% of net sales, compared to $23.6 million, or 5.0%
of net sales in 1999. This increase was primarily due to increased headcount,
amortization of goodwill and intangible assets associated with the acquisition
of the Connectix business, and higher costs related to intellectual property
litigation.
Interest Income (Expense), Net
Net interest expense for the year ended March 31, 2000 was $.2 million
compared to net interest income of $.9 million in 1999. The decline was the
result of a decrease in the average balances of interest bearing cash and cash
equivalents, partially offset by a decrease in the average balance of short-term
debt. The Company's short-term debt peaked in the third and fourth quarters of
fiscal 1999 with the financing of working capital needs and part of the
Company's acquisition of the Connectix business. The Company has been reducing
short-term debt and increasing cash balances since then, particularly in the
last half of fiscal 2000, out of cash generated from operations.
Other Expense, Net
Other expense for 2000 was $3.3 million, compared to $1.4 million last year.
This increase was primarily due to higher losses in investments accounted for
under the equity method and a write-off of an investment accounted for under the
cost method. This was partially offset by the gain on sale of the Company's
touchpad technology and net foreign exchange gains in fiscal 2000 compared to
losses in fiscal 1999.
Provision for Income Taxes
The provision for income taxes consists of income and withholding taxes and is
based on factors such as management's expectations as to payments of withholding
taxes on amounts repatriated through dividends, the jurisdictions in which
taxable income and losses are generated, changes in local tax laws and changes
in valuation allowances based upon the likelihood of realizing deferred tax
assets. The provision for income taxes for the year
25
ended March 31, 2000 increased to $7.5 million, representing a 20% effective tax
rate, from $1.3 million, representing a 15% effective tax rate in 1999.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
At March 31, 2001, net working capital was $116.8 million, compared to $115.7
million at March 31, 2000. Cash and cash equivalents totaled $44.1 million, a
decrease of $5.3 million from March 31, 2000. The decrease in cash was primarily
due to investing activities, including $47.7 million for the acquisition of
Labtec and other investments and $16.8 million for purchases of property and
equipment, offset partially by $9.5 million from proceeds of issuing Logitech
registered shares for employee stock plans, $35.0 million of bank borrowings,
and $12.0 million net cash from operations.
The Company has financed its operations and capital requirements primarily
through cash flow from operations and, to a lesser extent, bank borrowings. The
Company's normal short-term liquidity and long-term capital resource
requirements will be provided from three sources: ongoing cash flow from
operations, cash and cash equivalents on hand and borrowings, as needed, under
the credit facilities.
The Company had credit lines with several European and Asian banks totaling
$59.2 million as of March 31, 2001. As is common for business in European
countries, these credit lines are uncommitted and unsecured. Despite the lack
of formal commitments from its banks, the Company believes that these lines of
credit will continue to be made available because of its long-standing
relationships with these banks. As of March 31, 2001 $53.5 million was
available under these facilities.
Acquisition of Labtec
In March 2001, the Company completed the acquisition of Labtec, Inc. for $73
million in cash and stock. The consummation of the offer to exchange outstanding
shares of common stock of Labtec resulted in aggregate payments of $47.6 million
in cash and issuance of 1,142,998 Logitech ADS's valued at $25.4 million. As of
March 31, 2001, the Company borrowed $35 million under a $90 million term loan
credit facility to finance the cash portion of the exchange offer. As of April
30, 2001, the Company had drawn down the remaining term loan balance of $55.0
million and has repaid $53.3 million of Labtec outstanding short and long term
debt and obligations relating to the acquisition. The Company intends to
refinance the $90 million of short-term loan prior to maturity either through a
debt or equity financing or a new bank facility.
Cash Flow from Operating Activities
The Company's operating activities provided net cash of $12.0 million for the
year ended March 31, 2001, compared to $32.9 million and $16.8 million in fiscal
2000 and 1999. The Company generated cash from a higher level of sales in fiscal
2001 compared to fiscal 2000. But this was more than offset by the use of cash
in fiscal 2001 for increased inventories and receivables, net of increased
payables. The increase in inventories is due principally to anticipated demand
for video camera products that didn't develop to the extent anticipated,
specifically for OEM customers. The Company had committed to long lead time
components for video cameras in anticipation of higher demand. The demand did
not fully develop primarily due to industry-wide weakening in demand for new
personal computers and increased price competition between computer
manufacturers.
The increase in cash generated in 2000 compared to 1999 was primarily a result
of higher earnings from operating income (excluding the non-cash charge of $6.2
million in 1999).
Cash Flow from Investing Activities
The Company's investing activities used cash of $59.1 million for the year
ended March 31, 2001, compared to $19.9 million and $64.8 million in years 2000
and 1999. Fiscal 2001 cash investing activities included $47.6 million,
excluding $5.5 million cash acquired, for the Labtec acquisition, $5 million for
an additional investment in Spotlife, and $.6 million for investments in other
affiliated companies. In addition, 2001 includes cash proceeds of $3.6 million
from the sale of a building in Europe that was no longer being used in the
Company's operations, and $1.8 million from the sale of available-for-sale
securities.
Cash used in the year ended March 31, 2000 included $4.2 million of
investments in affiliated companies, almost half of which was used to form
Spotlife Inc., Logitech's spin-off focused on enhancing video communications
using the Internet infrastructure.
26
Cash used in the year ended March 31, 1999 included $40 million, primarily for
three acquisitions--the Internet video camera business of Connectix Corporation,
49% of the outstanding shares of Space Control GmbH, and 10% of the outstanding
shares of Immersion Corporation.
The amounts invested in all three years for capital expenditures include
normal expenditures for tooling costs, machinery and equipment, capital
improvements, and other computer equipment. Fiscal years 2000 and 1999 also
include costs related to the Company's computer systems implementation project,
which was complete mid-fiscal 2000.
Cash Flow from Financing Activities
The Company's financing activities provided cash $45.2 million for the year
ended March 31, 2001. In March 2001, $35 million was borrowed from banks for
the acquisition of Labtec. Also included in fiscal 2001 are $11.0 million of
proceeds from the issuance of registered shares and sale of treasury shares to
fulfill employee stock option and stock purchase plan requirements. This was
partially offset by $1.1 million to purchase treasury shares as part of a stock
buy-back program in the first quarter.
Net cash used by financing activities for the year ended March 31, 2000 was
$5.8 million. This represents a $18.4 million net paydown of short-term debt,
partially offset by $12.9 million of proceeds from sales of treasury shares and
registered shares pursuant to employee stock purchase and stock option plans.
Net cash provided by financing activities for the year ended March 31, 1999
was 19.1 million. This represents principally an increase in short-term debt for
working capital needs and to finance part of the Company's acquisition of the
QuickCam(R) Internet video camera business unit of Connectix.
Capital Commitments
The Company believes that it will continue to make capital expenditures in the
future to support ongoing and expanded operations. Fixed commitments for long
lead time parts totaled $.3 million at March 31, 2001. Fixed commitments for
capital expenditures, primarily for manufacturing equipment, approximated $2.7
million at March 31, 2001. In addition, the Company has guaranteed up to a
maximum of $5.3 million of Spotlife's capital lease obligation. As of March 31,
2001, the outstanding balance of the lease obligation, and therefore the
Company's guarantee, was $3.2 million. The Company believes that its cash and
cash equivalents, cash from operations, and available borrowings under its bank
lines of credit will be sufficient to fund capital expenditures and working
capital needs for the foreseeable future.
Research and Development
For a discussion of our research and development activities, patents and
licenses please see Item 4.B "Business Overview".
Trend Information
For a discussion of significant trends in our financial conditions and results
of operations, please see Item 5. "Results of Operations" and "Liquidity and
Capital Resources".
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The directors and executive officers of the Company as of May 1, 2001 are as
follows:
Name Age Position
------------------------ --- -------------------------------------------------
Daniel Borel 51 Chairman of the Board
Guerrino De Luca 48 President and Chief Executive Officer, Director
Erh-Hsun Chang 52 Sr. Vice President, Operations and General
Manager, Far East
Wolfgang Hausen 58 Sr. Vice President, Control Devices
Junien Labrousse 43 Sr. Vice President, Video
Kristen Onken 51 Sr. Vice President, Finance, and Chief Financial
Officer
Marcel Stolk 34 Sr. Vice President, Worldwide Sales and Marketing
Robert Wick 38 Sr. Vice President, Audio
Pier Carlo Falotti (2) 58 Director
27
Jean-Louis Gassee (1) 57 Director
Frank Gill (1) (2) 57 Director
Kee-Lock Chua (2) 40 Director
Ron Croen (3) 47 Director-Elect
Peter Pfluger (3) 47 Director-Elect
---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Mr. Croen and Mr. Pfluger will be presented to the shareholders for
election to the Board of Directors on June 28, 2001
Daniel Borel, a founder of the Company, has been the Chairman of the Board
since May 1988. From July 1992 to February 1998, Mr. Borel also served as Chief
Executive Officer of the Company. He has held various other executive positions
with the Company and its predecessors since their founding. Mr. Borel also
serves as a director of Phonak Hearing Systems, S.A., a hearing aid device
company and Bank Julius Baer, a Swiss bank. Mr. Borel holds an MS in Computer
Science from Stanford University and a degree in Physics from the Ecole
Polytechnique Federale, Lausanne, Switzerland.
Guerrino De Luca joined the Company as President and Chief Executive Officer
in February 1998, and became a member of the Board of Directors in June 1998.
Prior to that time, Mr. De Luca served as Executive Vice President of Worldwide
Marketing for Apple Computer, Inc., a personal computer company, from February
1997 to September 1997, and as President of Claris Corporation, a personal
computing software vendor, from February 1995 to February 1997. Prior to this,
Mr. De Luca held various positions with Apple in the United States and Europe.
Mr. De Luca holds a BS in Electronic Engineering from the University of Rome,
Italy.
Erh-Hsun Chang joined the Company as Vice President, General Manager, Far
Eastern Area and Worldwide Operations in December 1995. In April 1997, Mr.
Chang was named Senior Vice President, General Manager, Far Eastern Area and
Worldwide Operations. During 1986 and 1987, Mr. Chang held various other
positions with the Company. From January 1994 to December 1995, Mr. Chang was
Vice President, Sales and Marketing, Power Supply Division, of Taiwan Liton
Electronics Ltd., and from December 1991 to January 1994, Mr. Chang was Vice
President, Manufacturing Consulting at KPMG Peat Marwick. Mr. Chang holds a BS
in Civil Engineering from Chung Yuang University, Taiwan, an MBA from the
University of Dallas, and an MS in Industrial Engineering from Texas A&M
University.
Wolfgang Hausen has been Senior Vice President and General Manager, Control
Devices Business Division of the Company since July 1997. Prior to that time,
Mr. Hausen served as President and Chief Executive Officer of Cardinal
Technologies, Inc., a PC multimedia and modem company from May 1994. From March
1989 to December 1993, Mr. Hausen was Vice President and General Manager of
Quantum Corporation, a global supplier of storage products. Mr. Hausen holds an
MSEE from the Technical University of Darmstadt, Germany and an MBA from Santa
Clara University, California.
Junien Labrousse joined the Company as Vice President, Video Division in 1997.
He was named Senior Vice President, Video Division in April, 2001. Prior to
joining Logitech, he was Vice President of Engineering from 1995 at Winnov LP, a
company engaged in the development and marketing of multimedia products. For
over 10 years he held several engineering and management positions at Philips
Electronics, NV in research and in the semiconductor business division. Mr
Labrousse holds a MSEE degree from the Ecole Superieure d'Ingenieurs de
Marseille, France and an MBA from Santa Clara University, California.
Kristen Onken joined the Company as Senior Vice President, Finance, and Chief
Financial Officer in February 1999. From February 1996 to February 1999, Ms.
Onken served as Vice President of Finance at Fujitsu PC Corporation. From 1991
to February 1996, Ms. Onken was employed by Sun Microsystems, Inc. first as
Controller of the Southwest Area; then from 1992 to 1996 she served as Director
of Finance, Sun Professional Services. Ms. Onken holds a BS degree from
Southern Illinois University and an MBA in Finance from the University of
Chicago, Illinois.
Marcel Stolk assumed the responsibility of Senior Vice President, Worldwide
Sales and Marketing in March 2001. Mr. Stolk has been with the Company for over
10 years and has held a number of positions within the sales and marketing
functions, the latest of which was General Manager, Europe. Before joining
Logitech, Mr. Stolk held various sales and marketing positions at Aashima
Technology in Holland.
28
Robert Wick joined Logitech with the acquisition of Labtec Inc. as Vice
President of the Audio division in March 2001, and became Senior Vice President
in April. Prior to joining Logitech, Mr. Wick was President of Labtec Inc.
since December 1998, and assumed the CEO position in August 1999. Prior to
Labtec, Mr. Wick spent eight years at Weiser Lock, a division of Masco
Corporation, in various management positions including Vice President of Finance
and Logistics. Mr. Wick holds a BS in Accounting from the University of Arizona
and is a former Certified Public Accountant. Mr. Wick also serves on the Board
of Directors of JTECH Communications, the nation's leading manufacturer of on-
premises paging systems for the hospitality and other service-oriented
industries.
Pier Carlo Falotti joined the board in June 1996. He currently serves as a
Management Consultant. Mr. Falotti served as Senior Vice President, Operations
Europe for Oracle Corporation, from 1996 to June 2000. From 1994 to 1996, Mr.
Falotti was the Executive VP of International Operations for AT&T, where he also
served as President and CEO for Europe, the Middle East and Africa. From 1992
to 1994, Mr. Falotti served as President and CEO of the ASK Group. From 1969 to
1992, Mr. Falotti was with Digital Equipment Corporation, serving as President
and CEO of Digital Europe, Middle East and Africa from 1983. Mr. Falotti holds
a degree in Electrical Engineering from the Institute Avogadro, Torino, Italy.
Jean-Louis Gassee has been a director of Logitech International S.A. since
June 1993. Since October 1990, Mr. Gassee has been Chief Executive Officer of
Be Inc. Before founding Be, Mr. Gassee held various executive positions with
Apple Computer, Inc. during the period December 1980 to September 1990,
including President of the Apple Products Division. He currently serves on the
boards of Be Inc., Electronics For Imaging Inc. and 3Com Corporation. Mr.
Gassee holds a science degree from the Universite de Paris.
Frank Gill has been a director since June 1999. Mr. Gill served in a variety
of positions in sales and marketing, product development and manufacturing
operations at Intel Corporation from 1975 until his retirement in June 1998,
including Executive Vice President in 1996, General Manager of the Internet and
Communications Group from 1995 and from 1990 through 1994, General Manager of
Intel's Systems Group. He currently serves on the Boards of Tektronix Inc.,
Inktomi Corporation, Niku Corporation, McAfee.com Inc. and Pixelworks Inc. Mr.
Gill holds a BS in Electrical Engineering from the University of California,
Davis.
Kee-Lock Chua has been a director since June 2000. Mr. Chua has been the
president and C.E. O. of Intraco, since October, 2000. Prior to joining
Intraco, Mr. Chua was the president of MediaRing.com. Mr. Chua was appointed as
a Director of MediaRing.com in October 1997. Prior to joining MediaRing.com,
Mr. Chua was employed by NatSteel Ltd., most recently as Executive Vice
President, responsible for the commercial group, production planning, strategic
planning and several overseas operations. Mr. Chua was also a director of
NatSteel Electronics Ltd. and NatSteel Broadway Ltd.; both of which companies
are involved in contract manufacturing and are listed in the Singapore Stock
Exchange. Prior to joining NatSteel Ltd., Mr. Chua worked for Transpac Capital,
where he served as Vice President, in charge of direct investments into
companies in the United States. Mr. Chua holds a BS degree in Mechanical
Engineering from the University of Wisconsin, and a MS degree from Stanford
University.
Ronald Croen is being presented to the shareholders for election to the Board
on June 28, 2001. Mr. Croen, a co-founder of Nuance Communications Inc., has
served as the President of Nuance since July 1994, as its Chief Executive
Officer since October 1995 and as one its directors since October 1995. From
1993 to 1994, Mr. Croen served as a consultant to SRI International. From 1989
to 1993, Mr. Croen was an independent management consultant in Paris, France.
Prior to this, Mr. Croen served in various positions at The Ultimate Corp.,
including Managing Director of European Operations and Vice President and
General Counsel. Mr. Croen holds a J.D. degree from the University of
Pennsylvania Law School and a B.A. from Tufts University.
Peter Pfluger is being presented to the shareholders meeting for election to
the Board on June 28, 2001. Since April 1, 2000, Mr. Pfluger has been Chief
Executive Officer and Head of the Group Executive Management of the Phonak
Group. He was Chief Operating Officer of Phonak, since 1997. Prior to that Mr.
Pfluger was Managing Director of Centre Suisse d'Electronique et de
Microtechnique, Neuchatel. Before that he was involved in various research
activities, most notably IBM Research Laboratory in San Jose, California. Mr.
Pfluger has a Master degree from the Swiss Federal Institute of Technology and a
PhD. in Natural Science from Basle University. Mr. Pfluger is active within the
Commission for Technology and Innovation (CTI) of the Swiss Ministry of Public
Economy.
There are no family relationships among any of our directors or executive
officers.
29
Indemnification of Officers and Directors
The Company has entered into agreements to indemnify its directors and
officers. Certain of these agreements are between the respective officer or
director and Logitech International S.A., and cover claims brought under U.S.
laws to the fullest extent permitted by Swiss law. In addition, the Company's
U.S. subsidiary, Logitech Inc., has entered into separate indemnification
agreements with the Company's executive officers and directors. The agreements
with Logitech Inc. are broader in certain respects than those entered into with
Logitech International S.A. These agreements, among other things, indemnify
directors and officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company.
The Company believes that these provisions and agreements are necessary to
attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company as to which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
B. Compensation of Executive Officers and Directors
Directors who are also employees of the Company do not receive any additional
compensation for their service on the Board of Directors. Directors are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings.
The following Summary Compensation Table sets forth the compensation accrued
for services by non-employee directors and executive officers in all capacities
to the Company for the year ended March 31, 2001. The options granted and
exercise prices in the table below are expressed as registered shares.
Annual Compensation Options Exercise Expiration Other
Name of Group ------------------- Granted Price Year Compensation(1)
---------------------- Salary Bonus ------------ ---------- ------------ -----------------
-------------------
All non employee
directors as a group $ 77,000 -- 4,000 $331.21 2010 --
(4 individuals)
$243.41
All executive officers to
as a group (7 $1,549,311 $911,265 34,000 $275.00 2010 $17,242
individuals) (2)
(1) Amounts shown represent matching contributions under the Company's 401K
plan and the Company's contributions under its foreign pension plan.
(2) Does not include Messrs. Labrousse and Wick, who were appointed Senior
Vice Presidents in April 2001. Includes Mr. Stolk's compensation for a
partial year.
C. Board Practices
The Company's Articles of Incorporation set the minimum number of directors at
three. The Company has six directors as of May 1, 2001. Directors are elected
by the shareholders at a shareholders meeting for a term of three years.
Executive officers are appointed by the Board of Directors to serve on such
terms and conditions and with such restrictions as the Board of Directors
establishes.
30
The following table sets forth certain information concerning our Board of
Directors:
Year First
Name Position Appointed Year Current Term Expires
---- -------- --------- -------------------------
Daniel Borel Chairman of the Board 1988 Annual General Meeting 2001
Guerrino De Luca President and Chief Executive
Officer, Director 1998 Annual General Meeting 2001
Pier Carlo Falotti Director 1996 Annual General Meeting 2002
Jean-Louis Gassee Director 1993 Annual General Meeting 2002
Frank Gill Director 1999 Annual General Meeting 2002
Kee-Lock Chua Director 2000 Annual General Meeting 2003
Ron Croen Director-Elect To be presented for election to the Board of
Directors in June 2001
Peter Pfluger Director-Elect To be presented for election to the Board of
Directors in June 2001
There are no agreements providing for the payment of any consideration to any
non-executive Board member upon termination of his services with the Company.
Board Committees
In fiscal 2001, the Audit Committee was composed of Pier Carlo Falotti, Kee-
Lock Chua, and Frank Gill. Each member of the audit committee meets the
independence requirements of the Nasdaq National Market listing standards. In
compliance with the Nasdaq National Market rules, the Board of Directors has
adopted a written charter for the Audit Committee. The Audit Committee is
responsible for, among other things, (i) reviewing on a continuous basis the
adequacy of the Company's internal controls; (ii) reviewing the independence,
fee arrangements, audit scope, performance of audit findings of the Company's
independent auditors, and recommending the appointment of independent auditors
to the Board of Directors; and (iii) reviewing prior to release of the audited
financial statements and Operating And Financial Review And Prospects contained
in the Company's Annual Report on 20-F.
In fiscal 2001, the Compensation Committee consisted of Jean-Louis Gasse and
Frank Gill. The Compensation Committee approves the compensation of Company
executives and makes recommendations to the Board of Directors with respect to
standards for setting compensation levels for other employees.
D. Employees
We employed the following numbers of employees as of March 31, 2001, 2000 and
1999:
Category As of March 31,
-------- ----------------------------------
2001 2000 1999
----- ----- -----
Research and development 306 240 230
Manufacturing and distribution 3,741 3,460 3,360
Marketing, sales and support 375 320 280
Administration 372 330 300
----- ----- -----
Total 4,794 4,350 4,170
===== ===== =====
Of the total number of employees, as of March 31, 2001, 463 were in North
America, 307 were in Europe and 4,024 were in Asia. The 2001 figure above
included 139 employees added by the Labtec acquisition.
None of the Company's U.S. employees is represented by a labor union or
subject to a collective bargaining agreement. Certain foreign countries, such
as China, provide by law for employee rights which include requirements similar
to collective bargaining agreements. The Company believes that its employee
relations are good.
31
E. Share Ownership
The following table presents information regarding the share ownership and
option ownership of the Company's registered shares, including shares
represented by ADSs, as of May 1, 2001 by our non-employee directors and
executive officers as a group:
Exercise
Shares Options Price per
Name Owned % of Outstanding(1) Granted(2) share Expiration Year
----------------------------------- --------- ------------------- ---------- --------- ---------------
All non-employee directors as a $37.96 to
group (4 individuals)............. 1,702 .04% 20,000 $331.21 2006 - 2010
All directors and executive
officers as a group (8 $23.45 to
individuals) (3).................. 315,076 7.10% 259,776 $275.00 2008 - 2011
(1) Percentage ownership is calculated based on 4,440,402 registered shares
outstanding as of May 1, 2001.
(2) Options for shares were granted under stock option plans to purchase
registered shares, including shares represented by ADSs. Exercise prices
per registered share are generally equal to the fair market value of
registered shares on the date of grant. Options generally vest over four
years and remain outstanding for periods not exceeding ten years.
(3) Includes 90,720 registered shares registered in the name of Sylviane Borel
(Mr. Borel's wife). Mr. Borel disclaims beneficial ownership of the
registered shares registered in the name of his wife.
Stock Compensation Plans
Under the 1989 and 1996 Employee Share Purchase Plans (the "Purchase Plans"),
eligible employees may purchase registered shares at the lower of 85% of the
fair market value at the beginning or the end of each six-month offering period.
Subject to continued participation in the Purchase Plans, purchase agreements
are automatically exercised at the end of each offering period.
Under the 1988 Stock Option Plan (the "1988 Option Plan"), options to purchase
registered shares were granted to employees and consultants at exercise prices
ranging from zero to amounts in excess of the fair market value of the
registered shares on the date of grant. The terms and conditions with respect
to options granted were determined by the Board of Directors who administered
the 1988 Option Plan. Options generally vest over four years and remain
outstanding for periods not exceeding ten years. Further grants may not be made
under this plan.
Under the 1996 Stock Option Plan, (the "1996 Option Plan") options for
registered shares may be granted to employees at exercise prices of not less
than 100% of the fair market value of the registered shares on the date of
grant. A total of 1,200,000 registered shares may be issued under the 1996
Option Plan. Options generally vest over four years and remain outstanding for
periods not exceeding ten years.
The Company also maintains a limited number of other small option agreements,
principally for directors and certain foreign executives, under which options
may be granted at exercise prices discounted from fair market value of the
registered shares on the date of grant.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's registered shares, including
shares represented by ADSs, as of May 1, 2001 by each shareholder known by the
Company to be the beneficial owner of more than five percent of the Company's
registered shares. To the knowledge of the Company, it is not directly or
indirectly owned or controlled by any corporation or by any foreign government.
The Company is unaware of any arrangement, which it anticipates will result in a
change in its control.
32
Shares
Beneficially
Name of Beneficial Owner Owned(1) Percentage(2)
------------------------ ------------ -------------
Daniel Borel(3)............................ 313,466 7.06%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially owned
by any person who has or shares voting or investment power with respect to
such shares. All information with respect to the beneficial ownership of
any principal shareholder has been furnished by such shareholder and, unless
otherwise indicated below, the persons named in the table have sole voting
and sole investment power with respect to all shares shown as beneficially
owned, subject to community property laws where applicable. Registered
shares subject to options that are currently exercisable or exercisable
within 60 days after May 1, 2001 are deemed to be issued and to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage ownership of such person but are not
treated as issued for the purpose of computing the percentage ownership of
any other person.
(2) Percentage ownership is calculated based on 4,440,402 registered shares
outstanding as of May 1, 2001.
(3) Includes 90,720 registered shares registered in the name of Sylviane Borel
(Mr. Borel's wife). Mr. Borel disclaims beneficial ownership of the
registered shares registered in the name of his wife.
B. Related Party Transactions
None.
C. Interests of Experts and Counsel
None
ITEM 8. FINANCIAL INFORMATION
Please see Item 18 "Financial Statements" and pages F-1 through F-23 of our
Consolidated Financial Statements. In additions, for more information regarding
the percentages and amounts of our revenues from customers located in the United
States and outside of the United States, please see Item 5 "Operating and
Financial Review and Prospects" and the Notes to the Consolidated Financial
Statements.
Legal Proceedings
There has been substantial litigation in the technology industry regarding
rights to intellectual property, and we are subject to the risk of claims
against us for alleged infringement of the intellectual property rights of
others. Through our U.S. and China subsidiaries, we are currently involved in
several pending lawsuits with respect to patent infringement claims by third
parties. We believe that all of these pending lawsuits are without merit and
intend to defend against them vigorously. However, the defense of any of these
actions may not be successful. Any judgment in or settlement of any of these
lawsuits may have a material adverse impact on our business, financial condition
and results of operations.
Pending and future litigation involving us, whether as plaintiff or defendant,
regardless of outcome, may result in significant diversion of effort by our
technical and management personnel, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements, any
of which could have a material adverse effect on our business, financial
condition and results of operations. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all. In
addition, our efforts to protect our intellectual property through litigation
may not prevent duplication of our technology or products.
Dividends
Under Swiss law, a corporation pays dividends upon a vote of its shareholders.
This vote typically follows the recommendation of the corporation's board of
directors. The Company has not paid dividends since fiscal 1997, and its board
of directors does not intend to recommend to shareholders any payment of cash
dividends in the future in order to retain any future earnings for use in the
operation and expansion of the Company's business.
B. Significant Changes
None.
33
ITEM 9. THE OFFER AND LISTING
On March 27, 1997, the Company consummated a public offering in the U.S. of
400,000 registered shares, represented by 4,000,000 ADSs. On April 25, 1997,
the Company sold an additional 60,000 registered shares, represented by 600,000
ADSs, pursuant to an option granted to the underwriters in the offering to cover
over-allotments. Each ADS represents one-tenth of one registered share.
In July 2000, Logitech completed a two-for-one stock split. The stock split
did not alter the ADS to share ratio. All share and ADS data for the periods
presented have been adjusted to give effect to such stock split.
Market Price Information
Registered Shares. The Company's registered shares are listed and principally
traded on the Swiss Exchange, where prices are expressed in Swiss francs. The
table below presents, for the registered shares on the Swiss Exchange (i) the
annual high and low market prices for the five most recent full financial
years, (ii) the high and low market prices for each full financial quarter for
the two most recent full financial years and any subsequent period and (iii) the
high and low market prices for each month for the most recent six months. For
each of the periods indicated, the information presented is based on (i) the
high and low closing sales prices quoted in Swiss francs for the registered
shares on the Swiss Exchange, and (ii) the U.S. dollar equivalent based on the
Noon Buying Rate on the last trading day of the periods presented. The "Noon
Buying Rate" is the rate in New York City for cable transfers in selected
currencies as certified for customs purposes by the Federal Reserve Bank of New
York.
Price per Registered Share
--------------------------
High Low High Low
----------- ----------- ------------ ------------
CHF CHF $ $
Annual Highs and Lows
Fiscal 1997..................................................... 149.50 63.00 103.96 50.18
Fiscal 1998..................................................... 144.00 102.75 99.48 67.50
Fiscal 1999..................................................... 120.00 55.75 79.21 40.59
Fiscal 2000..................................................... 625.00 94.00 375.83 60.43
Fiscal 2001..................................................... 624.00 332.00 361.42 204.91
Quarterly Highs and Lows
Fiscal 2000:
First quarter.................................................. 114.50 94.00 73.61 60.43
Second quarter................................................. 118.00 106.13 78.55 70.65
Third quarter.................................................. 242.50 114.50 152.23 71.88
Fourth quarter................................................. 625.00 225.00 375.83 135.30
Fiscal 2001:
First quarter.................................................. 600.00 424.50 367.71 260.16
Second quarter................................................. 624.00 450.00 361.42 260.64
Third quarter.................................................. 569.00 332.00 351.19 204.91
Fourth quarter................................................. 530.00 357.00 305.30 205.65
Monthly Highs and Lows:
November 2000................................................... 565.00 485.00 325.37 279.30
December 2000................................................... 507.00 332.00 312.92 204.91
January 2001.................................................... 504.00 368.00 306.85 224.05
February 2001................................................... 530.00 431.00 316.68 257.53
March 2001...................................................... 500.00 357.00 288.02 205.65
April 2001...................................................... 530.00 371.00 305.56 213.89
American Depositary Shares. The ADSs are traded on the Nasdaq National
Market. The table below presents, for ADSs on the Nasdaq National Market (i) the
annual high and low market prices for the five most recent full financial
years, (ii) the high and low market prices for each full financial quarter for
the two most recent full financial years and any subsequent period and (iii) the
high and low market prices for each month for the most recent six months.
34
High Low
Annual Highs and Lows ----------- -----------
Fiscal 1997 (March 27 to March 31)...................................... $ 8.13 $ 8.10
Fiscal 1998............................................................. 9.50 7.00
Fiscal 1999............................................................. 7.88 4.25
Fiscal 2000............................................................. 37.50 6.13
Fiscal 2001............................................................. 38.25 18.75
Quarterly Highs and Lows
Fiscal 2000:
First quarter.......................................................... $ 7.63 $ 6.13
Second quarter......................................................... $ 8.50 $ 6.88
Third quarter.......................................................... $15.38 $ 7.94
Fourth quarter......................................................... $37.50 $13.74
Fiscal 2001:
First quarter.......................................................... $36.50 $25.38
Second quarter......................................................... $38.25 $26.00
Third quarter.......................................................... $32.13 $18.75
Fourth quarter......................................................... $32.06 $20.63
Monthly Highs and Lows:
November 2000........................................................... $32.13 $26.50
December 2000........................................................... $29.50 $18.75
January 2001............................................................ $30.25 $23.50
February 2001........................................................... $32.06 $25.07
March 2001.............................................................. $29.63 $20.63
April 2001.............................................................. $29.95 $21.38
B. Plan of Distribution
Not required.
C. Markets on which our Shares Trade
Logitech Registered Shares.
The principal trading market for our registered shares is the Swiss Exchange,
on which our registered shares have been traded since 1988 under the symbol
"LOGN". As of May 1, 2001, there were 4,447,132 registered shares issued and
outstanding (less 6,730 shares held as treasury stock) held by 5,845 holders of
record.
Trading Practices and Procedures on the Swiss Exchange
The Swiss Exchange is a private organization comprised of 102 members as of
January 31, 2001. There are approximately 272 Swiss companies and 165 foreign
companies listed on the Swiss Exchange. Securities traded on the Swiss Exchange
include Swiss and foreign bonds, equities, investment funds, rights and
warrants.
The Swiss Exchange is an order-driven exchange system. Transactions on the
Swiss Exchange are transmitted electronically via a high-speed computer
processing center. Trading is divided into three separate phases: pre-opening,
opening and continuous trading. During the pre-opening phase, the system is
available for entries into the order book, inquiries and reporting off-exchange
transactions, which are subject to additional regulations. During the opening
phase, the system fixes the opening price for the particular security. During
the continuous trading phase orders are matched. The Swiss Exchange interrupts,
for limited periods, trading in a security that is subject to significant price
fluctuation.
Logitech American Depositary Shares
The Logitech ADSs, each representing one-tenth of a registered share, have
since March 27, 1997 been listed on the Nasdaq National Market under the symbol
"LOGIY". The Bank of New York serves as depositary with respect to the Logitech
ADSs traded on that market. As of May 1, 2001, according to the records of the
Bank of New York, approximately 2,851,310 ADSs were outstanding in the United
States. At that date, the number of individual ADS holders of record with the
Bank of New York was 154.
35
D. Selling Shareholder
Not required.
E. Dilution
Not required.
F. Expenses of the issue.
Not required.
ITEM 10. ADDITIONAL INFORMATION
A. Share capital
Not required.
B. Memorandum and articles of association
Set out below is certain information concerning the Company's share capital
and a brief summary of the material provisions of the Company's articles of
incorporation and the Swiss Code of Obligations, all as currently in effect.
For a further discussion, we incorporate by reference the "Description of
Logitech Shares" and the "Description of Logitech American Depositary Shares"
included in our Registration Statement on Form F-4/A filed with the United
States Securities Commission on March 13, 2001. The description is a summary,
which does not purport to be complete, and is qualified in its entirety by
reference to the articles of incorporation and Swiss law.
Purpose of the Company
Article 2 of the Company's articles of association establishes that the
principal object of the Company is the coordination of the activity of its Swiss
and foreign subsidiaries.
Directors
The Board of Directors may pass resolutions with respect to all matters which
are not reserved to the general meeting of shareholders. Members of the Board of
Directors must retire on their seventieth birthday, except if the Board of
Directors adopts a resolution to the contrary. The retirement is effective on
the date of the next general meeting of shareholders.
Disclosure of Principal Shareholders
Under the applicable provisions of the Swiss Stock Exchange Act, shareholders
(and groups of shareholders acting in concert) who own shares or other
securities representing more than 5 percent, 10 percent, 20 percent, 33 1/3
percent, 50 percent or 66 2/3 percent of the voting rights of a company
incorporated in Switzerland of which at least one class of its equity securities
is listed on the Swiss Exchange are required to notify the company and the Swiss
Exchange of such holdings, whether or not the voting rights can be exercised.
Following receipt of such notification, the company is required to inform the
public. The same disclosure obligation applies to subsequent reductions in the
holding of voting rights below the thresholds described above.
C. Material contracts
We have not entered into any material contracts other than in the ordinary
course of business and other than those disclosed in Item 4 "Information on the
Company" or elsewhere in this Form 20-F.
D. Exchange controls
As a Swiss corporation, the Company is subject to certain requirements not
generally applicable to corporations organized in United States jurisdictions.
Among other things, the issuance of capital stock by the Company generally must
be submitted for approval at a general meeting of shareholders. In addition,
the issuance of capital stock is generally subject to shareholder preemptive
rights, except to the extent that such preemptive rights have been excluded or
limited by the shareholders.
U.S. securities laws may restrict the ability of U.S. persons who hold ADSs to
participate in certain rights offerings or share or warrant dividend
alternatives which the Company may undertake in the future in the event the
Company is unable or chooses not to register such securities under the U.S.
securities laws and is unable to rely on
36
an exemption from registration under such laws. While the Company is not
currently planning any such transaction, the Company may take such actions in
the future and there can be no assurance that it will be feasible to include
U.S. persons in any such transaction. If the Company issues any such securities
in the future, such securities may be issued to the Depositary, which may sell
such securities for the benefit of the holders of the ADSs. There can be no
assurance as to the value, if any, the Depositary would receive upon the sale of
such securities.
There are no legislative or other legal provisions currently in effect in
Switzerland or arising under the Articles of Incorporation of the Company (the
"Articles") restricting the export or import of capital, including but not
limited to, the availability of cash and cash equivalents for or by the
Company's group, or that affect the remittance of dividends, interest or other
payments to nonresident holders of securities of the Company. Cash dividends
payable in Swiss francs on shares and ADSs may be officially transferred from
Switzerland and converted into any other convertible currency. There are no
limitations imposed by Swiss laws or the Company's Articles on the right of non-
Swiss residents to hold or vote the shares or ADSs.
E. Taxation
The following is a summary of certain Swiss tax matters that may be relevant
with respect to the acquisition, ownership and disposition of registered shares
or ADSs (which are evidenced by ADRs).
This summary addresses laws in Switzerland as in effect on the date hereof, as
well as the 1997 Convention (entered into force on December 1997) between the
United States of America and the Swiss Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income (the "Treaty"), both of which are
subject to change (or changes in interpretation), possibly with retroactive
effect.
For purposes of the Treaty and the Internal Revenue Code of 1986, as amended
(the "Code"), United States Holders of ADSs are treated as the owners of the
registered shares corresponding to such ADSs. Accordingly, the Swiss tax
consequences discussed below also generally apply to United States holders of
registered shares.
Swiss Taxation
Gain on Sale
Under present Swiss law, a holder of registered shares or ADSs who (i) is a
non-resident of Switzerland, (ii) during the taxable year has not engaged in a
trade or business through a permanent establishment within Switzerland and (iii)
is not subject to taxation by Switzerland for any other reason, will be exempted
from any Swiss federal, cantonal or municipal income or other tax on gains
realized during the year on the sale of registered shares or ADSs.
Stamp, Issue and Other Taxes
Switzerland generally does not impose stamp, registration or similar taxes on
the sale of registered shares or ADSs by a holder thereof unless such sale or
transfer occurs through or with a Swiss securities dealer (as defined in the
Swiss Stamp Duty Law).
Withholding Tax
Under present Swiss law, any dividends paid in respect of registered shares
will be subject to the Swiss Anticipatory Tax at the rate of 35%, and the
Company will be required to withhold tax at such rate from any dividend payments
made to a holder of registered shares. Such dividend payments may qualify for
reduction of or refund of the Swiss Anticipatory Tax by reason of the provisions
of a double tax treaty between Switzerland and the country of residence or
incorporation of a holder, and in such cases such holder will be entitled to
claim a refund of all or a portion of such tax in accordance with such treaty.
The Treaty provides for a mechanism whereby a United States resident or United
States corporations can generally seek a refund of the Swiss Anticipatory Tax
paid on dividends in respect of registered shares, to the extent such
withholding exceeds 15%. A United States corporation that holds more than 10%
of the share capital of a Swiss company can seek a refund of the Swiss
Anticipatory Tax paid on dividends to the extent such withholding tax exceeds 5%
under the double tax treaty.
F. Dividends and paying agents
Not required.
G. Statement by experts
Not required.
37
H. Documents on display
Whenever a reference is made in this Form 20-F to any contract, agreement or
other document, the reference may not be complete and you should refer to the
copy of that contract, agreement or other document filed as an exhibit to one of
our previous SEC filings. We file annual and special reports and other
information with the SEC. You may read and copy all or any portion of the
registration statement and any other document we file with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference room. Commencing with filings made this year, such material may also
be obtained at the Internet site the SEC maintains at http://www.sec.gov which
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
I. Subsidiary information
Not required.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. As a global concern, the Company faces
exposure to adverse movements in foreign currency exchange rates and interest
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on the Company's financial results.
Foreign Currency Exchange Rates
Currently, the Company's primary exposures relate to non-U.S. dollar
denominated sales in Europe and Asia and non-dollar denominated operating
expenses and inventory costs in Europe and Asia, as well as net assets located
in these geographies. The principal currencies creating foreign exchange rate
risk for the Company are the Euro, the Taiwan Dollar and Japanese Yen.
For the years ended March 31, 2001 and 2000, 47% and 45% of the Company's
sales were denominated in non-U.S. currencies. At March 31, 2001 and 2000, 31%
and 32% of the Company's net assets were recorded in non-U.S. currencies. With
the exception of its manufacturing subsidiary in Suzhou, China which uses the
U.S. dollar as its functional currency, the Company primarily uses the local
currencies of its foreign subsidiaries as the functional currency. Accordingly,
unrealized foreign currency gains or losses resulting from the translation of
net assets denominated in foreign currencies to the U.S. dollar are accumulated
in the cumulative translation adjustment component of shareholders' equity.
From time to time, certain subsidiaries enter into forward exchange contracts to
hedge inventory purchase exposures denominated in U.S. dollars. These forward
exchange contracts are denominated in the same currency as the underlying
transactions. Logitech does not use derivative financial instruments for trading
or speculative purposes. At March 31, 2001 and 2000, there were no forward
exchange contracts outstanding. The Company estimates that if the U.S. dollar
had appreciated by an additional 10% as compared to the functional currencies
used by its foreign subsidiaries, net income for the years ended March 31, 2001
and 2000 would have been adversely impacted by approximately $10.7 million and
$8.2 million.
Interest Rates
Changes in interest rates could impact the Company's anticipated interest
income on its cash equivalents and interest expense on variable rate short-term
debt. The Company prepared sensitivity analyses of its interest rate exposures
to assess the impact of hypothetical changes in interest rates. Based on the
results of these analyses, a 10% adverse change in interest rates from the
fiscal 2001 and 2000 year end rates would not have a material adverse effect on
the Company's results of operations, cash flows or financial condition for the
next year. However, given the increase in indebtedness of $90 million for the
Labtec acquisition, a 10% increase in interest rates would increase interest
expense by approximately $500,000.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not required.
38
Part II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
On July 5, 2000, a two-for-one stock split became effective resulting in one
additional ADS being issued to ADS holders for each ADS held by ADS holders of
record. Each ADS represents one-tenth of a registered share.
At the next general meeting of the Company's shareholders to be held on June
28, 2001, the Company will propose a resolution authorizing a 10 for one stock
split of its registered shares. If the resolution is adopted, the stock split
will be effected shortly after the general meeting. Each ADS will remain
unchanged. The current ratio of 10 ADSs to one registered share will change to a
new ratio of one ADS to one registered share.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
Part III
ITEM 17. FINANCIAL STATEMENTS
The Company has responded to Item 18.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-21.
ITEM 19. EXHIBITS
a. Financial Statements
Report of Independent Accountants
Consolidated balance sheets at March 31, 2001 and 2000
Consolidated statements of income for the years ended March 31, 2001, 2000
and 1999
Consolidated statements of cash flows for the years ended March 31, 2001,
2000 and 1999
Consolidated statements of changes in shareholders' equity for the years
ended March 31, 2001, 2000 and 1999
Notes to consolidated financial statements
b. Exhibits
Exhibit
-------
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Merger, dated February 7, 2001, by and among
Logitech International S.A., Logitech Inc., Thunder Acquisition
Corp., and Labtec Inc. (incorporated by reference to Exhibit 2.1 to
Logitech International S.A.`s Report on form 6-K filed on February
16, 2001)
3.1 Articles of Incorporation of Logitech International S.A.
(incorporated herein by reference to exhibit 3.1 to Logitech
International S.A.'s Report on form F-4 filed on February 23, 2001)
39
3.2 Organizational Regulations of Logitech International S.A.
(incorporated herein by reference to exhibit 3.2 to Logitech
International S.A.'s Report on form F-4 filed on February 23, 2001)
4.1 Deposit Agreement, dated as of March 27, 1997, among Logitech
International S.A., The Bank of New York as Depositary, and holders
from time to time of American Depositary Shares issued thereunder
(incorporated herein by reference to exhibit 4.1 to Logitech
International S.A.'s Report on form F-4 filed on February 23, 2001)
4.2 Amendment No. 1 to Deposit Agreement, dated July 5, 2000, among
Logitech International S.A., The Bank of New York as Depositary and
the holders from time to time of American Depositary Shares issued
thereunder (incorporated herein by reference to exhibit 4.2 to
Logitech International S.A.'s Report on form F-4 filed on February
23, 2001)
10.1 1996 Employee Share Purchase Plan (incorporated herein by reference
to exhibit included in the Registrant's registration Statement on
Form F-1 declared effective by Securities and Exchange Commission
on March 19, 1997.)
10.2 1988 Stock Option Plan, including the U.S. Sub-Plan and the Swiss
Sub-Plan (incorporated herein by reference to exhibit included in
the Registrant's registration Statement on Form F-1 declared
effective by Securities and Exchange Commission on March 19, 1997.)
10.3 1996 Stock Plan (incorporated herein by reference to exhibit 4.2 to
Logitech International S.A.'s Report on form S-8 filed on November
10, 1998)
10.8 Form of Indemnification Agreement with Logitech International S.A.
(incorporated herein by reference to exhibit included in the
Registrant's registration Statement on Form F-1 declared effective
by Securities and Exchange Commission on March 19, 1997.)
10.9 Form of Indemnification Agreement with Logitech Inc. (incorporated
herein by reference to exhibit included in the Registrant's
registration Statement on Form F-1 declared effective by Securities
and Exchange Commission on March 19, 1997.)
10.10 Credit Agreement dated March 2001, by and between Logitech
International S.A. and Credit Suisse (incorporated herein by
reference to exhibit 10.2 to Logitech International S.A.'s Report
on form F-4/A filed on March 13, 2001)
21.1 List of Subsidiaries of the Registrant (incorporated herein by
reference to Item 5 of this present document)
23.1 Consent of PricewaterhouseCoopers SA, Independent Accountants.
40
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Logitech International S.A.
By: /s/ Guerrino De Luca
---------------------------------------
Guerrino De Luca
President and Chief Executive Officer
By: /s/ Kristen M. Onken
---------------------------------------
Kristen M. Onken
Chief Finance Officer,
Chief Accounting Officer,
and U.S. Representative
41
LOGITECH INTERNATIONAL S.A.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated balance sheets at March 31, 2001 and 2000 F-3
Consolidated statements of income for the years
ended March 31, 2001, 2000 and 1999 F-4
Consolidated statements of cash flows for the years
ended March 31, 2001, 2000 and 1999 F-5
Consolidated statements of changes in shareholders' equity
for the years ended March 31, 2001, 2000 and 1999 F-6
Notes to consolidated financial statements F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Logitech International S.A.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Logitech International S.A. and its subsidiaries at March 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended March 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers SA
Lausanne, Switzerland
April 24, 2001
F-2
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
March 31,
-----------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 44,142 $ 49,426
Accounts receivable.............................................................. 144,781 123,172
Inventories...................................................................... 111,612 68,255
Other current assets............................................................. 29,558 25,354
-------- --------
Total current assets......................................................... 330,093 266,207
Investments....................................................................... 16,649 10,807
Property, plant and equipment..................................................... 38,160 42,117
Intangible assets:
Goodwill......................................................................... 92,053 3,907
Other intangible assets.......................................................... 21,870 10,100
Other assets...................................................................... 6,291 939
-------- --------
Total assets................................................................. $505,116 $334,077
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................................. $ 62,986 $ 6,990
Accounts payable................................................................. 91,267 92,430
Accrued liabilities.............................................................. 59,054 51,049
-------- --------
Total current liabilities.................................................... 213,307 150,469
Long-term debt.................................................................... 26,908 2,934
Other liabilities................................................................. 8,847 705
-------- --------
Total liabilities............................................................ 249,062 154,108
-------- --------
Commitments and contingencies
Shareholders' equity:
Registered shares, par value CHF 10 - 5,441,861 authorized, 868,139
conditionally authorized, 4,441,861 issued and outstanding at March 31, 2001;
4,362,920 authorized, 1,147,080 conditionally authorized, 4,162,920 issued and 31,396 29,752
outstanding at March 31, 2000..................................................
Additional paid-in capital...................................................... 118,740 83,686
Less registered shares in treasury, at cost, 16,475 at March 31, 2001 and
20,640 at March 31, 2000....................................................... (627) (1,056)
Retained earnings............................................................... 129,435 84,367
Accumulated other comprehensive loss............................................ (22,890) (16,780)
-------- --------
Total shareholders' equity................................................... 256,054 179,969
-------- --------
Total liabilities and shareholders' equity................................... $505,116 $334,077
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
Year ended March 31,
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
Net sales................................................................ $ 761,356 $ 615,664 $ 470,741
Cost of goods sold....................................................... 502,290 408,969 308,018
---------- ---------- ----------
Gross profit............................................................. 259,066 206,695 162,723
---------- ---------- ----------
Operating expenses:
Marketing and selling................................................... 130,947 102,957 85,350
Research and development................................................ 36,686 31,666 31,378
General and administrative.............................................. 33,484 31,102 23,625
Purchased in-process research and development........................... 3,275 -- 6,200
---------- ---------- ----------
Total operating expenses................................................. 204,392 165,725 146,553
---------- ---------- ----------
Operating income......................................................... 54,674 40,970 16,170
Interest income (expense), net........................................... (148) (163) 906
Loss on sale of product line............................................. -- -- (7,272)
Other income (expense), net.............................................. 2,628 (3,252) (1,407)
---------- ---------- ----------
Income before income taxes............................................... 57,154 37,555 8,397
Provision for income taxes............................................... 12,086 7,511 1,260
---------- ---------- ----------
Net income............................................................... $ 45,068 $ 30,044 $ 7,137
========== ========== ==========
Net income per share:
Basic................................................................... $ 10.67 $ 7.55 $ 1.85
Diluted................................................................. $ 9.60 $ 6.87 $ 1.79
Net income per ADS:
Basic................................................................... $ 1.07 $ .76 $ .19
Diluted................................................................. $ .96 $ .69 $ .18
Shares used to compute net income per share:
Basic................................................................... 4,222,624 3,976,990 3,867,220
Diluted................................................................. 4,694,017 4,375,994 3,982,674
The accompanying notes are an integral part of these financial statements.
F-4
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended March 31,
----------------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income............................................................... $ 45,068 $ 30,044 $ 7,137
Non-cash items included in net income:
Depreciation............................................................ 19,012 15,775 13,135
Amortization of goodwill................................................ 693 693 115
Amortization of other intangible assets................................. 2,335 3,547 2,528
Purchased in-process research and development........................... 3,275 -- 6,200
Write-off of investments and note receivable............................ 50 2,000 5,800
Loss (gain) on disposal of property, plant and equipment................ (1,922) 117 1,081
Gain on sale of investments............................................. (1,296) (1,525) --
Equity in net losses of affiliated companies............................ 440 4,627 254
Stock compensation expense.............................................. 437 422 283
Deferred income taxes................................................... 593 (24) (1,844)
Changes in assets and liabilities:
Accounts receivable..................................................... (6,630) (31,823) (31,886)
Inventories............................................................. (29,411) (345) (32,301)
Other current assets.................................................... (5,643) (9,816) (1,916)
Accounts payable........................................................ (18,009) 7,232 40,672
Accrued liabilities..................................................... 3,051 11,942 7,541
-------- -------- --------
Net cash provided by operating activities............................. 12,043 32,866 16,799
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment............................... (16,824) (17,872) (24,756)
Sales of investments..................................................... 1,767 2,150 --
Sales of property, plant and equipment................................... 3,637 -- --
Acquisitions and investments, net of cash acquired....................... (47,696) (4,219) (40,048)
-------- -------- --------
Net cash used in investing activities................................. (59,116) (19,941) (64,804)
-------- -------- --------
Cash flows from financing activities:
Net borrowing (repayment) of short-term debt............................. 35,000 (18,416) 19,063
Net borrowing (repayment) of long-term debt.............................. 211 (330) (172)
Purchase of treasury shares.............................................. (1,065) -- (4,018)
Proceeds from sale of treasury shares.................................... 1,553 5,413 4,192
Proceeds from issuance of registered shares.............................. 9,496 7,512 --
-------- -------- --------
Net cash provided by (used in) financing activities................... 45,195 (5,821) 19,065
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents.............. (3,406) (929) (185)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.................. (5,284) 6,175 (29,125)
Cash and cash equivalents at beginning of period.......................... 49,426 43,251 72,376
-------- -------- --------
Cash and cash equivalents at end of period................................ $ 44,142 $ 49,426 $ 43,251
======== ======== ========
Supplemental cash flow information:
Interest paid............................................................ $ 158 $ 616 $ 1,230
Income taxes paid........................................................ $ 863 $ 1,808 $ 1,423
Non-cash investing and financing activities:
Property acquired through capital lease financing........................ $ 900 -- $ 1,007
Acquisition of Labtec through issuance of registered shares.............. $ 25,436 -- --
The accompanying notes are an integral part of these financial statements.
F-5
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
Net
Registered shares Additional Treasury shares unrealized Cumulative
------------------- paid-in ------------------- Retained gain on translation
Shares Amount capital Shares Amount earnings investment adjustment Total
--------- -------- ---------- ------- ---------- -------- ---------- ------------ --------
March 31, 1998............... 4,003,376 $ 28,738 $ 75,577 145,978 $ (6,677) $ 47,186 -- $(12,090) $132,734
Net income................... -- -- -- -- -- 7,137 -- -- 7,137
Cumulative translation
adjustment.................. -- -- -- -- -- -- -- (291) (291)
--------
Total comprehensive income.. -- -- -- -- -- -- -- -- 6,846
--------
Purchase of treasury shares.. -- -- -- 67,812 (4,018) -- -- -- (4,018)
Sale of treasury shares
upon exercise of options
and purchase rights......... -- -- 140 (83,944) 4,052 -- -- -- 4,192
--------- -------- ---------- ------- --------- -------- --------- ------------ --------
March 31, 1999............... 4,003,376 $ 28,738 $ 75,717 129,846 $ (6,643) $ 54,323 -- $(12,381) $139,754
--------- -------- ---------- ------- --------- -------- --------- ------------ --------
Net income................... -- -- -- -- -- 30,044 -- -- 30,044
Cumulative translation
adjustment.................. -- -- -- -- -- -- -- (4,399) (4,399)
--------
Total comprehensive income.. -- -- -- -- -- -- -- -- 25,645
--------
Issuance of registered shares
upon exercise of options.... 159,544 1,014 6,498 -- -- -- -- -- 7,512
Tax benefit from exercise
of stock options............ -- -- 1,645 -- -- -- -- -- 1,645
Sale of treasury shares upon
exercise of options and
purchase rights............. -- -- (174) (109,206) 5,587 -- -- -- 5,413
--------- -------- ---------- -------- --------- -------- --------- ------------ --------
March 31, 2000............... 4,162,920 $ 29,752 $ 83,686 20,640 $ (1,056) $ 84,367 -- $(16,780) $179,969
--------- -------- ---------- ------- --------- -------- --------- ------------ --------
Net income................... -- -- -- -- -- 45,068 -- -- 45,068
Cumulative translation
adjustment.................. -- -- -- -- -- -- -- (7,075) (7,075)
Unrealized gain net of
income taxes................ -- -- -- -- -- -- 965 -- 965
--------
Total comprehensive income.. -- -- -- -- -- -- -- -- 38,958
--------
Issuance of registered shares
upon exercise of options.... 154,729 907 8,589 -- -- -- -- -- 9,496
Issuance of registered shares
for acquisition of Labtec... 114,300 678 24,758 -- -- -- -- -- 25,436
Issuance of registered shares
at par value................ 9,912 59 -- 9,912 (59) -- -- -- --
Tax benefit from exercise
of stock options............ -- -- 1,707 -- -- -- -- -- 1,707
Purchase of treasury shares.. -- -- -- 3,900 (1,065) -- -- -- (1,065)
Sale of treasury shares upon
exercise of options and
purchase rights............. -- -- -- (17,977) 1,553 -- -- -- 1,553
--------- -------- ---------- ------- --------- -------- --------- ------------ --------
March 31, 2001............... 4,441,861 $ 31,396 $118,740 16,475 $ (627) $129,435 $965 $(23,855) 256,054
========= ======== ========== ======= ========= ======== ========= ============ ========
The accompanying notes are an integral part of these financial statements.
F-6
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- The Company:
Logitech International S.A. designs, manufactures and markets human interface
devices and supporting software that serve as the primary physical interface
between people and their personal computers and the Internet. The Company's
products include corded and cordless mice, trackballs, and keyboards; joysticks,
gamepads and racing systems; Internet video cameras; and multimedia speakers.
The Company sells its products to both original equipment manufacturers ("OEMs")
and to a network of retail distributors and resellers.
Logitech was founded in Switzerland in 1981, and in 1988 listed its registered
shares in an initial public offering in Switzerland. In 1997, the Company sold
shares in a U.S. initial public offering in the form of American Depository
Shares ("ADSs") and listed the ADSs on the Nasdaq National Market system. The
Company's headquarters are in Fremont, California through its U.S. subsidiary,
with regional headquarters in Romanel, Switzerland and Hsinchu, Taiwan through
local subsidiaries. The Company has manufacturing operations in China, and
distribution facilities in the U.S., Europe and Asia.
Note 2 -- Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of Logitech and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated. The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP") and comply with relevant Swiss Law. On March 27, 2001 the
Company acquired Labtec, Inc. The accompanying consolidated balance sheet
includes the assets and liabilities of Labtec; Labtec's results of operations
from the date of acquisition through March 31, 2001 were not material.
Use of Estimates
In conformity with U.S. GAAP, management has used estimates and assumptions
that affect the reported amounts of assets, liabilities, net sales and expenses,
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Revenue Recognition
Revenues are recognized upon transfer of title and risk of loss, which is
generally when products are shipped. Revenues from sales to distributors and
authorized resellers are subject to terms allowing price protection and certain
rights of return. Accordingly, allowances for estimated future returns and
price protection are provided for upon revenue recognition. Such amounts are
estimated based on historical and anticipated rates of returns, distributor
inventory levels and other factors.
Advertising
Advertising costs are expensed as incurred and amounted to $53.9 million in
2001, $33.5 million in 2000 and $27.9 million in 1999.
Foreign Currency
The functional currencies of the Company's operations are primarily the U.S.
dollar, and to a lesser extent, the Euro, Swiss franc, Taiwanese dollar and
Japanese yen. The financial statements of the Company's subsidiaries whose
functional currency is other than the U.S. dollar are translated to U.S. dollars
using period-end rates of exchange for assets and liabilities and using monthly
rates for net sales and expenses. Translation gains and losses are deferred and
included in the cumulative translation adjustment component of shareholders'
equity. Gains and losses arising from transactions denominated in currencies
other than a subsidiary's functional currency are reflected in other income
(expense), net in the statements of income.
F-7
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions to limit exposure with any one financial institution.
The Company sells to large OEMs and to high volume resellers and, as a result,
maintains individually significant receivable balances with large customers. At
March 31, 2001, two customers represented 10.5% of total accounts receivable and
at March 31, 2000, three customers represented 23.6% of total accounts
receivable. The Company's OEM customers tend to be well capitalized, multi-
national companies, while retail customers may be less well capitalized. The
Company controls its accounts receivable credit risk through ongoing credit
evaluation of its customers' financial condition and by purchasing credit
insurance on European retail accounts receivable. The Company generally does
not require collateral from its customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a
first-in, first-out basis. Provisions are made for potentially obsolete, excess
or slow moving inventories.
Investments
Investments in companies in which Logitech owns between 20% and 50%, and does
not control, are accounted for by the equity method. Under the equity method,
the Company adjusts its carrying value to recognize its share of results of
operations. Investments less than 20% owned are carried at cost. The Company
also has a marketable investment that is classified as "available-for-sale". The
Company carries this investment at market value and records increases or
decreases in market value as a component of shareholders' equity.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions and improvements
are capitalized, whereas maintenance and repairs are expensed as incurred. The
Company capitalizes the cost of software developed for internal use in
connection with major projects. Cost incurred during the application
development stage are capitalized, whereas costs incurred during the feasibility
stage are expensed. Depreciation is provided using the straight-line method
over estimated useful lives of five to 25 years for plant and buildings, one to
five years for equipment and three to five years for software development.
Intangible Assets
Intangible assets principally include goodwill, acquired technology, assembled
workforce and trade names. Intangible assets are recorded at cost and amortized
on the straight-line method over periods not exceeding twenty years.
Accumulated amortization of intangible assets was $14.3 million and $6.8 million
at March 31, 2001 and 2000.
Impairment of Long-Lived Assets
The Company reviews for impairment of long-lived assets, such as investments,
property and equipment, and goodwill and other intangible assets whenever events
indicate that the carrying amount might not be recoverable. Management assesses
recoverability by comparing the projected undiscounted net cash flows associated
with those assets to their carrying values. If impaired, the asset is written
down to fair value, which is determined based on discounted cash flows or
appraised value, depending on the nature of the asset.
Income Taxes
The Company provides for income taxes using the liability method, which
requires that deferred tax assets and liabilities be recognized for the expected
future tax consequences of temporary differences arising between the bases
F-8
of assets and liabilities for financial reporting and income tax purposes. In
estimating future tax consequences, expected future events are taken into
consideration, with the exception of potential tax law or tax rate changes.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents and accounts receivable, accounts payable and accrued liabilities,
short-term debt and current maturities of long-term debt, carrying value
approximates fair value due to their short maturities. The estimated fair value
of publicly traded financial equity instruments is determined by using quoted
market prices. The carrying values of long-term debt do not materially differ
from their estimated fair values based upon quoted market prices for the same or
similar instruments.
Net Income Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of outstanding registered shares. Diluted earnings per share is
computed using weighted average registered shares and, if dilutive, weighted
average registered share equivalents. The registered share equivalents included
in the Company's diluted earnings per share computations are registered shares
issuable upon the exercise of stock option or stock purchase plan agreements
(using the treasury stock method).
Stock Split
In July 2000, Logitech completed a two-for-one stock split. All references to
share and per-share amounts for all periods presented have been adjusted to give
effect to the stock split.
Stock-Based Compensation Plans
The Company has adopted the pro forma disclosure-only requirements of SFAS
123, "Accounting for Stock-Based Compensation," which requires companies to
measure employee stock compensation based on the fair value method of
accounting. As permitted by SFAS 123, the Company follows the accounting
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation expense is not recognized
unless the exercise price of an option is less than the market value of the
underlying stock on the grant date.
Comprehensive Income
Comprehensive income is defined as the total change in shareholders' equity
during the period other than from transactions with shareholders. For the
Company, comprehensive income consists of net income, the net change in the
accumulated foreign currency translation adjustment account, and the net change
in unrealized gains or losses on marketable equity securities. Comprehensive
income is presented as an element of shareholder's equity.
Reclassifications
Certain amounts reported in prior years' financial statements have been
reclassified to conform with the current year presentation.
Note 3 -- Acquisition of Labtec:
On March 27, 2001, the Company acquired Labtec, Inc., a publicly-traded
Vancouver, Washington-based provider of PC speakers, headsets and microphones,
personal audio products for MP3 players and other portable audio devices, 3D
input devices, and other peripherals and accessories for computing,
communications and entertainment. Under terms of the merger agreement, Logitech
purchased substantially all outstanding shares of Labtec for $73 million in cash
and stock, plus $3.3 million of transaction costs. Consideration for the
purchase was obtained through: i) short-term borrowings of $35 million under a
term loan credit facility, ii) the issuance of 1,142,998 Logitech ADSs based
upon working capital funds. The ADSs issued in the acquisition were valued using
the 5-day weighted average market value of Logitech ADSs encompassing March 20,
2001, the date the number of shares to be issued was determined.
F-9
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition was accounted for using the purchase method of accounting.
Therefore, the assets acquired and liabilities assumed were recorded at their
estimated fair values as determined by the Company's management based upon
information currently available and on current assumptions as to future
operations. The Company obtained an independent appraisal of the fair values of
the acquired identifiable intangible assets. A summary of the purchase
consideration is as follows (in thousands):
ADSs issued to stockholders...................................... $25,436
Cash payment to stockholders..................................... 47,554
Transaction costs................................................ 3,300
-------
Total consideration............................................. $76,290
=======
A summary of the allocation of purchase consideration to the fair values of
assets acquired and liabilities assumed in the acquisition is as follows (in
thousands):
Estimated fair value of tangible assets acquired................. $ 42,877
Estimated fair values of intangible assets acquired:
Patents and core technology............................... 2,944
Existing technology....................................... 3,879
Trademark/tradename....................................... 4,151
Assembled workforce....................................... 2,977
Goodwill.................................................. 88,947
Estimated fair value of liabilities assumed...................... (69,510)
Restructuring liabilities........................................ (3,250)
Purchased in-process research and development.................... 3,275
--------
Total net assets acquired (purchase price)..................... $ 76,290
========
The tangible assets acquired represent the estimated fair values of the net
tangible assets of Labtec Inc. as of March 27, 2001.
The values of the patents, core technology, trademark and tradename were
estimated using the relief from royalty method. These assets will be amortized
on a straight-line basis over their estimated useful lives of four to five
years. The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting, hiring and
training costs. This asset will be amortized on a straight-line basis over its
estimated useful life of four years. Where development projects have reached
technological feasibility, they have been classified as existing technology, and
will be amortized on a straight-line basis over an estimated useful life of four
years.
Where the development projects have not reached technological feasibility and
have no future alternative uses, they have been classified as in-process
research and development ("IPR&D"), which was expensed upon the consummation of
the merger. The value of IPR&D was determined by estimating the expected cash
flows from the projects once commercially viable, discounting the net cash flows
back to their present value and then applying a percentage of completion to the
calculated value.
As a result of the acquisition of Labtec, the Company expects to incur
restructuring costs of $3.25 million for the incremental costs to exit and
consolidate activities at Labtec locations, and to involuntarily terminate
certain employees. These estimated restructuring liabilities are based on the
Company's current integration plan which focuses on three key areas of
integration: 1) manufacturing process and supply chain rationalization, 2)
elimination of redundant administrative overhead and support activities, and 3)
restructuring and repositioning of sales and marketing functions to eliminate
redundancies.
F-10
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited pro forma condensed combined income statement information for the
years ended March 31, 2001 and 2000, as if Labtec had been acquired as of the
beginning of fiscal year 2000, are shown below. These pro formas exclude the
$3.3 million purchased in-process research and development charge in connection
with the acquisition and costs incurred by Labtec to complete the acquisition
but include adjustments to conform Labtec's accounting policies, including areas
such as accounts receivable, inventories and related accounts, to those
accounting policies followed by Logitech.
Pro forma
Year ended March 31,
----------------------
2001 2000
--------- --------
(in thousands, except
per share data)
Net sales................................ $860,041 $704,764
Net income............................... $ 39,787 $ 24,539
Net income per share:
Basic................................... $ 9.17 $ 6.00
Diluted................................. $ 8.27 $ 5.46
Net income per ADS:
Basic................................... $ .92 $ .60
Diluted................................. $ .83 $ .54
The above pro forma information includes, for both years, the non-cash
amortization expenses attributable to goodwill and intangible assets recorded in
connection with the Labtec acquisition. These amounts totaled $7.5 million in
both years, representing diluted earnings per share of $1.56 ($.16 per ADS) in
the year ended March 31, 2001, and $1.67 ($.17 per ADS) in the year ended March
31, 2000 in the table above.
Note 4 -- Acquisition of Connectix PC Video Camera Division:
In September 1998, the Company completed the acquisition of Connectix
Corporation's QuickCam(R) PC video camera business for $26.2 million (including
closing and other costs). The Connectix business has been combined with the
Company's video division to offer a complete line of PC Internet video cameras.
The transaction was recorded using the purchase method of accounting.
Accordingly, the results of operations of the acquired business from the date of
acquisition have been included in the consolidated statement of income.
In connection with the acquisition, the Company recorded $19.4 million in
goodwill and other intangible assets. In addition, the Company recorded a one-
time charge of $6.2 million for purchased in-process research and development in
the quarter ended September 30, 1998.
Note 5 -- Equity Investments:
In November 1999, Logitech announced the formation of a new company, Spotlife
Inc., whose business is to enhance video communications using the Internet
infrastructure. Logitech has invested $7 million in Spotlife, and has agreed to
guarantee up to a maximum of $5.3 million of the company's capital lease
obligation. As of March 31, 2001, the outstanding balance of the lease
obligation, and therefore the Company's guarantee, was $3.2 million. As of
March 31, 2001, Logitech owned approximately 34.6% of Spotlife's outstanding
shares on a fully diluted basis, with outside investors having the ability to
exercise significant influence over the management of the company. Logitech
accounts for its investment in this company using the equity method.
In June 1998, the Company acquired 49% of the outstanding shares of the
LogiCad 3D Group (formerly Space Control, GmbH), the German-based provider of
Logitech's Magellan 3D Controller. The Company has an obligation to acquire the
remaining outstanding shares of LogiCad 3D, if certain conditions are met, and
an option to acquire the remaining shares if these conditions are not met. The
Company is using the equity method of accounting for this investment.
In April 1998, the Company acquired 10% of the then outstanding stock of
Immersion Corporation, a developer of force feedback technology for PC
peripherals and software applications. In November 1999, Immersion registered
shares on the U.S. Nasdaq Stock Market in an initial public offering. In fiscal
2001, the Company sold a partial interest in Immersion and recognized a gain of
$1.3 million in other income. The Company accounts for its
F-11
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
investment in Immersion as available-for-sale in accordance with FASB 115 -
Accounting for Certain Investments in Debt and Equity Securities. Accordingly,
the Company carries its investment in Immersion at market value and records
periodic increases or decreases in market value as a component of shareholders'
equity. As of March 31, 2001, Logitech owned approximately 5.7% of Immersion.
The cost of these securities was $4.5 million and the gross unrealized gain was
$1.5 million.
The Company uses the cost method of accounting for all other investments, all
of which are less than 20% owned by Logitech.
Note 6 -- Sale of Product Line:
In December 1997, the Company sold its scanner product line to Storm
Technology Inc. for $5 million in cash, a $4 million convertible note, and a 10%
common stock ownership in Storm. The Company recognized a loss on this sale in
fiscal 1998 of $3.2 million.
During the second quarter of fiscal 1999, the Company wrote off $5.8 million
related to the convertible note and common stock investment in Storm. The
write-off was prompted by changes in the personal scanner business, which in
management's opinion called into question the ability of Storm to meet its
obligations to the Company. Storm later filed for protection under the United
States Bankruptcy Code. The additional expenses in fiscal 1999 primarily relate
to costs to conclude certain obligations exceeding management's estimate made in
1998.
Note 7 -- Balance Sheet Components:
March 31,
-------------------------
2001 2000
-------- --------
(In thousands)
Accounts receivable:
Accounts receivable........................... $163,240 $130,944
Allowance for doubtful accounts............... (7,502) (3,190)
Allowance for returns and other............... (10,957) (4,582)
-------- --------
$144,781 $123,172
======== ========
Inventories:
Raw materials................................. $ 26,002 $ 16,762
Work-in-process............................... 225 517
Finished goods................................ 85,385 50,976
-------- --------
$111,612 $ 68,255
======== ========
Property, plant and equipment:
Land.......................................... $ 1,851 $ 1,980
Plant and buildings........................... 18,256 25,297
Equipment..................................... 63,996 48,175
Computer equipment and software............... 48,870 43,042
-------- --------
132,973 118,494
Less accumulated depreciation................. (94,813) (76,377)
-------- --------
$ 38,160 $ 42,117
======== ========
Note 8 -- Financing Arrangements:
Short-term Credit Facilities
On March 8, 2001, in connection with the acquisition and merger of Labtec,
Inc., Logitech entered into a short term $90 million bank credit facility (the
"bridge loan") for the purpose of financing the cash consideration paid to
Labtec shareholders, repaying indebtedness and obligations of Labtec, and paying
costs and expenses in connection
F-12
with the acquisition. Amounts drawn down at March 31, 2001 were $35 million. In
April 2001, the Company borrowed an additional $55 million. The bridge loan will
mature in March 2002, provides for interest at varying LIBOR rates plus .925% -
1.8% (5.98% at March 31, 2001), and is secured by Logitech's investment in its
U.S. subsidiary. It is management's intention to refinance the bridge note prior
to maturity, either through a debt or equity financing or a new bank facility.
The Company had several uncommitted, unsecured bank lines of credit
aggregating $59.2 million at March 31, 2001. Borrowings outstanding were $5.7
million and $6.6 million at March 31, 2001 and March 31, 2000. The borrowings
under these agreements were denominated in Japanese Yen at a weighted average
annual interest rate of 1.6% at March 31, 2001 and 2000, and were due on demand.
In addition, Labtec had a short-term revolving bank debt of $19 million, all off
which was repaid in full on April 5, 2001.
Long-term Debt
March 31
-----------------------
2001 2000
-------- --------
(In thousands)
Renewable Swiss mortgage loan due April 2004, bearing interest at 4.0%,
collateralized by properties with net book values aggregating $1.9 million at
March 31, 2001.................................................................... $ 2,671 $2,774
Capital lease obligation, with repayments of $565,000 and $151,000 in fiscal 2001
and 2002.......................................................................... 716 504
Labtec long-term debt assumed by Logitech.......................................... 26,822 --
------- ------
Total long-term debt............................................................... 30,209 3,278
Less current maturities, including $2,736,000 Labtec current maturities............ 3,301 344
------- ------
Long-term portion.................................................................. $26,908 $2,934
======= ======
Labtec long-term debt assumed by Logitech was repaid in full on April 5, 2001.
Proceeds from the bridge loan were used to repay the Labtec debt. This debt
consisted of a bank note payable, a subordinated note payable, and notes payable
to former Labtec shareholders.
Note 9 -- Shareholders' Equity:
In June 2000, the Company's shareholders approved a two-for-one stock split
which took effect on July 5, 2000 and was distributed to stockholders of record
as of July 4, 2000. In fiscal 2000, authorization for 200,000 registered shares
previously authorized by the Company's shareholders expired unused, and in June
2000, the Company's shareholders approved an increase of 1 million authorized
registered shares for use in acquisitions, mergers and other transactions.
In June 1998, the shareholders approved an increase of 600,000 conditional
registered shares, par value CHF 10, the issuance of which is conditional upon
the exercise of stock options granted under the Company's stock option plans and
the issuance of shares under the Company's employee share purchase plans.
Pursuant to Swiss corporate law, Logitech International S.A. may only pay
dividends in Swiss francs. The payment of dividends is limited to certain
amounts of unappropriated retained earnings (approximately $63 million at March
31, 2001) and is subject to shareholder approval.
Under Swiss corporate law, a minimum of 5% of the Company's annual net income
must be retained in a legal reserve until this reserve equals 20% of the
Company's issued and outstanding aggregate par value share capital. Certain
other countries in which the Company operates apply similar laws. These legal
reserves represent an appropriation of retained earnings that are not available
for distribution and approximated $5 million at March 31, 2001.
F-13
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 -- Employee Benefit Plans:
Stock Compensation Plans
Employee Share Purchase Plans
Under the 1989 and 1996 Employee Share Purchase Plans (the "Purchase Plans"),
eligible employees may purchase registered shares at the lower of 85% of the
fair market value at the beginning or the end of each six-month offering period.
Subject to continued participation in the Purchase Plans, purchase agreements
are automatically exercised at the end of each offering period.
Stock Option Plans
Under the 1988 Stock Option Plan (the "1988 Option Plan"), options to purchase
registered shares were granted to employees and consultants at exercise prices
ranging from zero to amounts in excess of the fair market value of the
registered shares on the date of grant. The terms and conditions with respect
to options granted were determined by the Board of Directors who administered
the 1988 Option Plan. Options generally vest over four years and remain
outstanding for periods not exceeding ten years. Further grants may not be made
under this plan.
Under the 1996 Stock Option Plan, (the "1996 Option Plan") options for
registered shares may be granted to employees at exercise prices of not less
than 100% of the fair market value of the registered shares on the date of
grant. A total of 1,200,000 registered shares may be issued under the 1996
Option Plan. Options generally vest over four years and remain outstanding for
periods not exceeding ten years.
The Company also maintains a limited number of other small option agreements,
principally for directors and certain foreign executives, under which options
may be granted at exercise prices discounted from fair market value of the
registered shares on the date of grant.
Compensation expense is recognized over the vesting period when the exercise
price of an option is less than the fair market value of the underlying stock on
the date of grant. Compensation expense of $437,000, $422,000 and $283,000 was
recorded for the years ended March 31, 2001, 2000 and 1999. Such amounts are
accrued as a liability when the expense is recognized and subsequently credited
to additional paid-in capital upon exercise of the related stock option.
Compensation expense arising from stock options outstanding at March 31, 2001 to
be recognized in future periods was $500,000.
A summary of activity under the stock option plans is as follows:
Year ended March 31,
------------------------------------------------------------------------------------
2001 2000 1999
-------------------------- -------------------------- --------------------------
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- -------- --------- -------- -------- --------
Outstanding, beginning of year......... 770,554 $ 58 856,002 $47 623,910 $61
Granted................................ 211,218 $288 234,060 $85 963,304 $52
Exercised.............................. (154,729) $ 51 (229,550) $44 (49,348) $42
Cancelled or expired................... (42,377) $133 (89,958) $58 (681,864) $70
-------- -------- --------
Outstanding, end of year............... 784,666 $116 770,554 $58 856,002 $47
======== ======== ========
Exercisable, end of year............... 245,077 $ 53 186,984 $48 153,498 $44
F-14
The following table summarizes information regarding stock options outstanding
at March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Exercise Contractual Exercise
Prices Number Price Life (years) Number Price
-------- -------- ------------ -------- --------
$ 0 - $ 64 382,523 $ 39 7.32 181,875 $ 44
$ 65 - $ 77 174,841 $ 70 8.13 54,188 $ 68
$ 78 - $275 117,264 $230 9.10 7,480 $119
$ 276 - $331 74,058 $311 9.30 442 $296
$ 332 - $340 35,980 $338 9.26 1,092 $338
------- -------
$ 0 - $340 784,666 $116 8.04 245,077 $ 53
======= =======
Pro Forma Stock Compensation Disclosure
The Company applies the provisions of APB 25 and related interpretations in
accounting for compensation expense under the purchase plans and the stock
option plans. If compensation expense under these plans had been determined
pursuant to SFAS 123, the Company's net income and net income per share would
have been as follows:
Year ended March 31,
---------------------------------------
2001 2000 1999
------- ------- -------
(In thousands, except per share amounts)
Pro forma net income............................................. $31,353 $23,584 $ 911
Pro forma basic net income per share............................. $ 7.42 $ 5.93 $ .24
Pro forma diluted net income per share........................... $ 6.67 $ 5.39 $ .23
The fair value of the grants under the purchase plans and stock option plans
was estimated using the Black-Scholes valuation model with the following
assumptions and values:
Year ended March 31,
-----------------------------------------------------------------------------------
Purchase Plans Stock Option Plans
-------------------------------------- --------------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Dividend yield........................ 0 0 0 0 0 0
Expected life......................... 6 months 6 months 6 months 2.7 years 2.5 years 3.0 years
Expected volatility................... 70% 50% 48% 66% 55% 47%
Risk-free interest rate............... 4.25% 6.5% 4.875% 4.25% 6.5% 4.875%
Weighted average fair value of grant.. $90.00 $19.00 $21.00 $138.00 $31.50 $20.00
The above pro forma amounts include compensation expense based on the fair
value of options vesting during the years ended March 31, 2001, 2000 and 1999.
As provided by SFAS 123, these calculations exclude the effects of options
granted prior to April 1, 1996 when SFAS 123 became effective. Accordingly,
these amounts are not representative of the effects of computing stock option
compensation expense using the fair value method for future periods.
In 2001 and 1999, the Company granted 540 and 86,220 options with exercise
prices less than the fair market value of the underlying stock at the date of
grant. The weighted average exercise price of the 2001 option grants was zero,
and the weighted average fair value was $335.22. The weighted average exercise
price of the 1999 option grants was $44.50, and the weighted average fair value
was $63.
F-15
Pension Plans
Defined Contribution Plans
Certain of the Company's subsidiaries have defined contribution employee
benefit plans covering all or a portion of their employees. Contributions to
these plans are discretionary for certain plans and are based on specified or
statutory requirements for others. The charges to expense for these plans for
the years ended March 31, 2001, 2000 and 1999, were $1,275,000, $1,214,000,
$1,170,000.
Defined Benefit Plan
One of the Company's subsidiaries sponsors a noncontributory defined benefit
pension plan covering substantially all of its employees. Retirement benefits
are provided based on employees' years of service and earnings. The Company's
practice is to fund amounts sufficient to meet the requirements set forth in the
applicable employee benefit and tax regulations.
Net pension cost for the years ended March 31, 2001, 2000 and 1999 were
$193,000, $340,000 and $339,000. The plan's net pension liability at March 31,
2001 and 2000 was $375,000 and $625,000.
Note 11 -- Income Taxes:
The Company is incorporated in Switzerland but operates in various countries
with differing tax laws and rates. Further, a substantial portion of the
Company's income before taxes and the provision for income taxes are generated
primarily outside of Switzerland. Consequently, the weighted average expected
tax rate may vary from period to period to reflect the generation of taxable
income in different tax jurisdictions.
The provision for income taxes consists of the following:
Year ended March 31,
------------------------------------
2001 2000 1999
------- ------ -------
(In thousands)
Current:
Swiss................................................................. $ 852 $ 986 $ 268
Foreign............................................................... 10,641 6,549 2,836
Deferred:
Swiss................................................................. -- -- 59
Foreign............................................................... 593 (24) (1,903)
------- ------ -------
Total................................................................ $12,086 $7,511 $ 1,260
======= ====== =======
Deferred income tax assets and liabilities consist of the following:
March 31,
-------------------------
2001 2000
-------- --------
(In thousands)
Net operating loss carryforwards....................................... $ 10,613 $ 2,485
Research and development and other tax credit carryforwards............ 6,307 5,794
Accruals............................................................... 20,556 13,606
Other.................................................................. 1,014 1,073
-------- --------
Gross deferred tax assets.............................................. 38,490 22,958
-------- --------
Depreciation and amortization.......................................... (1,204) (831)
Unrealized gain on available-for-sale securities....................... (520) --
Deferred tax liabilities related to intangible assets.................. (4,889) --
-------- --------
Deferred tax liabilities............................................... (6,613) (831)
-------- --------
Valuation allowance.................................................... (24,346) (15,190)
-------- --------
Net deferred tax assets................................................ $ 7,531 $ 6,937
======== ========
F-16
Management regularly assesses the realizability of deferred tax assets
recorded in the Company's subsidiaries based upon the weight of available
evidence, including such factors as the recent earnings history and expected
future taxable income. The methodology used by management to determine the
amount of deferred tax assets that are more likely than not to be realized is
based upon the Company's recent earnings and estimated future taxable income in
applicable tax jurisdictions for approximately the next two years. Management
believes that it is more likely than not that the Company will not realize a
portion of its deferred tax assets and, accordingly, a valuation allowance of
$24.3 million has been established for such amounts at March 31, 2001. In the
event future taxable income is below management's estimates or is generated in
tax jurisdictions different than projected, the Company could be required to
increase the valuation allowance for deferred tax assets. This would result in
an increase in the Company's effective tax rate.
At March 31, 2001, the Company's foreign net operating loss and tax credit
carryforwards for income tax purposes were approximately $30.7 million and $6.3
million, respectively. If not utilized, these carryforwards will expire through
2020.
Deferred tax assets of approximately $5.9 million at March 31, 2001 pertain to
certain tax credits and net operating loss carryforwards resulting from the
exercise of employee stock options. When recognized, through the reversal of the
valuation allowance placed on the deferred tax assets, the tax benefit of these
credits and losses will be accounted for as a credit to shareholders' equity
rather than as a reduction of the income tax provision.
The difference between the provision for income taxes and the expected tax
provision at the weighted average tax rate is reconciled below. The expected
tax provision at the weighted average rate is generally calculated using pre-tax
accounting income or loss in each country multiplied by that country's
applicable statutory tax rates.
Year ended March 31,
-------------------------------------
2001 2000 1999
------- ------- -------
(In thousands)
Expected tax provision (benefit) at weighted average rate............... $12,665 $ 8,638 $(1,082)
Non-deductible purchased in-process R&D................................. 655 -- --
Increase (decrease) in valuation allowance.............................. (1,380) (1,986) 2,895
Other................................................................... 146 859 (553)
------- ------- -------
Total provision for income taxes........................................ $12,086 $ 7,511 $ 1,260
======= ======= =======
Note 12 -- 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, 2001 are as follows (in thousands):
Year ending March 31,
2002................................................................... $ 4,614
2003................................................................... 4,334
2004................................................................... 3,725
2005................................................................... 3,344
2006................................................................... 3,369
2007 and thereafter.................................................... 400
-------
$19,786
=======
Rent expense was $3.2 million, $1.9 million and $2.6 million during the years
ended March 31, 2001, 2000 and 1999.
Fixed commitments for long lead time parts totalled $.3 million at March 31,
2001. Fixed commitments for capital and other expenditures, primarily for
manufacturing equipment, approximated $2.7 million.
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 ongoing discussions with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT for these prior periods would not be charged to the
Company. As a result, the
F-17
Company revised its estimate of VAT liability and released an accrual of
approximately $1.7 million into income in fiscal 2000 and $.6 million in fiscal
2001. The Company believes the ultimate resolution of this matter will not have
a material adverse effect on the Company's financial position, cash flows or
results of operations.
The Company is involved in a number of lawsuits relating to patent
infringement and intellectual property rights. The Company believes the
lawsuits are without merit and intends to defend against them vigorously.
However, there can be no assurances that the defense of any of these actions
will be successful, or that any judgment in any of these lawsuits would not have
a material adverse impact on the Company's business, financial condition and
result of operations.
Note 13 -- Interest and Other Income:
Year ended March 31,
------------------------------------
2001 2000 1999
------- ------- -------
(In thousands)
Interest income........................................................ $ 1,175 $ 796 $ 2,203
Interest expense....................................................... (1,323) (959) (1,297)
------- ------- -------
Interest income (expense), net......................................... $ (148) $ (163) $ 906
======= ======= =======
Gain on sale of building............................................... $ 1,922 -- --
Foreign currency exchange gains (losses), net.......................... 20 $ 899 $(1,366)
Gain on sale of investments............................................ 1,296 1,525 --
Equity in net income (losses) of affiliated companies.................. (670) (3,584) 249
Write-off of investment................................................ (50) (2,000) --
Other, net............................................................. 110 (92) (290)
------- ------- -------
Other income (expense), net............................................ $ 2,628 $(3,252) $(1,407)
======= ======= =======
Other, net includes rental income of $251,000 and $206,000 for the years ended
March 31, 2000 and 1999, while the related rental expense amounted to $101,000
and $106,000.
Note 14 -- Geographic Information:
The Company operates in one business segment, which is the design,
development, production, marketing and support of computer interface devices.
Geographic net sales information in the table below are based on the location of
the selling entity. Long-lived assets, primarily fixed assets, unamortized
intangibles, and investments are reported below based on the location of the
asset.
Net sales to unaffiliated customers by geographic region were as follows:
Year ended March 31,
------------------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Europe.................................................................. $336,099 $259,486 $195,913
North America........................................................... 301,963 253,502 196,778
Asia Pacific............................................................ 123,294 102,676 78,050
-------- -------- --------
Net sales............................................................... $761,356 $615,664 $470,741
======== ======== ========
Long-lived assets by geographic region were as follows:
March 31,
----------------------
2001 2000
-------- -------
(In thousands)
Europe.................................................................. $ 37,701 $35,345
North America........................................................... 117,834 8,258
Asia Pacific............................................................ 19,488 24,267
-------- -------
Total long-lived assets................................................. $175,023 $67,870
======== =======
F-18
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Substantially all of the Company's manufacturing operations are located in
Suzhou, China. These operations could be severely impacted by economic or
political instability in China, including instability which may occur in
connection with a change in the current leadership in China, by evolving
interpretation and enforcement of legal standards, by strains on the Chinese
transportation, communications, trade and other infrastructures related to the
rapid industrialization of an agrarian economy, by conflicts, embargoes,
increased tensions or escalation of hostilities between China and Taiwan, and by
other events.
Note 15 -- Other Disclosures Required by Relevant Swiss Law:
Balance Sheet Items
March 31,
----------------------
2001 2000
-------- --------
(In thousands)
Prepayments and accrued income.......................................... $ 5,524 $ 6,205
Non-current assets...................................................... $175,023 $ 67,869
Pension liabilities, current............................................ $ 218 $ 80
Fire insurance value of property, plant, and equipment.................. $162,166 $108,833
Statement of Income Items
Total personnel expenses amounted to $64.1 million, $60.3 million and $53.9
million in 2001, 2000 and 1999.
F-19
LOGITECH INTERNATIONAL S.A.
QUARTERLY SUMMARY
(Unaudited)
Three months ended,
----------------------------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2001 2000 2000 2000 2000 1999 1999 1999
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(In millions, except share and per share amounts)
Net sales.......................... $ 197.4 $ 232.0 $ 190.6 $ 141.4 $ 176.0 $ 185.4 $ 133.2 $ 121.1
Gross profit....................... 67.3 80.3 64.2 47.3 60.2 67.3 43.2 36.0
Operating expenses:
Marketing and selling............. 29.5 36.9 34.8 26.4 28.5 31.3 21.8 21.4
Research and development.......... 13.2 9.5 8.8 8.5 8.8 7.6 8.2 7.0
General and administrative........ 8.2 8.4 8.6 8.3 9.2 7.9 7.4 6.6
Purchased in-process R&D (1)...... 3.3 -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total............................. $ 54.2 54.8 52.2 43.2 46.5 46.8 37.4 35.0
Operating income................... 13.1 25.5 12.0 4.1 13.7 20.5 5.8 1.0
Net income......................... $ 10.8 $ 19.9 $ 9.4 $ 5.0 $ 9.3 $ 14.9 $ 5.2 $ 6
Shares used to compute net income
per share (2):
Basic............................. 4,284,775 4,242,544 4,208,662 4,153,071 4,096,878 3,983,060 3,935,526 3,893,412
Diluted........................... 4,709,513 4,698,403 4,714,177 4,680,840 4,641,740 4,340,528 4,095,034 4,001,732
Net income per share (2):
Basic............................. $ 2.52 $ 4.69 $ 2.23 $ 1.20 $ 2.29 $ 3.74 $ 1.32 $ .15
Diluted........................... $ 2.30 $ 4.24 $ 1.99 $ 1.06 $ 2.02 $ 3.43 $ 1.27 $ .15
Net income per ADS (2):
Basic............................. $ .25 $ .47 $ .22 $ .12 $ .23 $ .37 $ .13 $ .02
Diluted........................... $ .23 $ .42 $ .20 $ .11 $ .20 $ .34 $ .13 $ .01
(1) In connection with the acquisition of Labtec Inc., the Company recorded a
one-time charge of approximately $3.3 million for purchased in-process
research and development.
(2) Logitech completed a two-for-one stock split in July 2000. All references
to share and per share data for all periods presented have been adjusted to
give effect to the stock split.
F-20
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth certain quarterly financial information as a
percentage of net sales:
Three months ended,
------------------------------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2001 2000 2000 2000 2000 1999 1999 1999
---------- ---------- ---------- --------- ---------- ---------- ----------- ----------
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................... 34.1 34.6 33.7 33.4 34.2 36.3 32.4 29.7
Operating expenses:
Marketing and selling......... 16.6 15.9 18.3 18.7 16.2 16.9 16.4 17.7
Research and development...... 5.0 4.1 4.6 6.0 5.0 4.1 6.2 5.8
General and administrative.... 4.2 3.6 4.5 5.8 5.2 4.3 5.5 5.4
Purchased in-process R&D...... 1.7 -- -- -- -- -- -- --
---------- ---------- ---------- --------- ---------- ---------- ----------- ----------
Total........................ 27.5 23.6 27.4 30.5 26.4 25.3 28.1 28.9
Operating income............... 6.6 11.0 6.3 2.9 7.8 11.0 4.3 .8
Net income..................... 5.5% 8.6% 4.9% 3.5% 5.3% 8.0% 3.9% .5%
F-21